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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
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Amendment No. 1
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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Commission file number: 0-25600
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Maryland 52-1394232
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7200 Wisconsin Avenue, 11th floor, Bethesda, Maryland 20814
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(Address of principal executive offices) (Zip Code)
(301) 654-3100
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ NO / /
The Beneficial Assignee Interests of limited partnership interest of the
Partnership (the "OTEF II BACs") are not currently being traded in any
public market. Therefore, the BACs had neither a market selling price
nor an average bid or asked price within the 60 days prior to the date of
this filing.
Index to Exhibits is found on page 9.
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OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q/A
Amendment No. 1
The Form 10-Q of Oxford Tax Exempt Fund II Limited Partnership ("OTEF
II") for the quarter ended March 31, 1997 is hereby amended with respect
to Item 2 of Part II regarding "Changes in Securities" and to include
additional exhibits under Item 6(a) of Part II. In order to avoid
confusion with respect to the incorporation by reference to exhibits that
were filed with the Form 10-Q, all of the items of the Form 10-Q which
referenced sequentially numbered pages of such exhibits are being
restated herein.
PART I
Item 1. Financial Statements
The financial statements of OTEF II are incorporated herein by
reference to sequentially numbered pages 15 through 18 of OTEF II's
Quarterly Report (Unaudited) to security holders dated March 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
A discussion of OTEF II's financial condition and results of
operations for the three-month period ended March 31, 1997 is
incorporated herein by reference to the information under the caption
"Report of Management" in sequentially numbered pages 6 through 14 of
OTEF II's Quarterly Report (Unaudited) to security holders dated March
31, 1997.
PART II
Item 2. Changes in Securities
Reformation of OTEF II Partnership Agreement
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On January 31, 1997, the United States District Court for the
District of Maryland issued a final order and judgment (the "Final
Order") and memorandum opinion which approved the terms of the settlement
(the "Settlement") of certain putative class and derivative lawsuits
consolidated under the caption In re Oxford Tax Exempt Fund Securities
---------------------------------------
Litigation. The Final Order reforms certain provisions of OTEF II's
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limited partnership agreement. The revisions have been incorporated into
a Third Amended and Restated Agreement of Limited Partnership (the
"Reformed Partnership Agreement"), which amends and restates OTEF II's
Second Amended and Restated Agreement of Limited Partnership dated as of
June 26, 1995 (together, generally, with the Reformed Partnership
Agreement, the "OTEF II Partnership Agreement"). The court ordered
revisions embodied in the Reformed Partnership Agreement are deemed
effective as of June 26, 1995.
The substance of these revisions is as follows:
1) Oxford Tax Exempt Fund II Corporation, OTEF II's managing general
partner (the "MGP"), agreed to limitations on certain fees payable to its
parent in connection with OTEF II's new business plan (the "Liquidity and
Growth Plan").
2) The MGP is authorized to reinvest cash flow of OTEF II in
acquisitions of additional tax-exempt mortgage revenue bonds ("MRBs"),
but it may not reinvest any cash flow attributable to the assets
segregated for the Status Quo BACs (defined below).
3) The MGP has the authority under certain provisions of the OTEF II
Partnership Agreement to invest in certain assets which may produce
taxable income.
4) Any contracts for services rendered to OTEF-II by the general
partners of OTEF II (the "General Partners") or their affiliates shall be
terminable by a vote of a majority in interest of the OTEF II BAC
Holders.
5) Capital improvements to a property securing OTEF II's existing MRBs,
costing in excess of $250,000 in a calendar year (adjusted for
inflation), shall not be approved for payment by OTEF II without approval
of OTEF II's independent real estate consultant (the "IREC").
6) If the MGP or its affiliates (but not OTEF II) initiates a tender
offer for more than 10% of the OTEF II BACs then outstanding, and at the
time such tender offer is initiated there is not pending any public offer
to purchase OTEF II BACs, then the MGP shall not employ the OTEF II BAC
Holder Rights Plan to prevent the closing of subsequent competing offers
to purchase OTEF II BACs that are published and outstanding prior to the
termination date of the tender by the MGP or its affiliate.
7) The percentage of vote required to take certain actions shall be as
follows:
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(a) Actions Requiring a Two-Thirds Vote:
i. approval or disapproval of the sale of all or substantially all
of the assets of OTEF II, unless OTEF II obtains a written
opinion of the IREC;
ii. any amendment to the OTEF II Partnership Agreement that modifies
or alters the voting requirements;
iii. any amendment to the OTEF II Partnership Agreement that
authorizes the payment of additional fees not already
authorized by the OTEF II Partnership Agreement to the MGP or
its affiliates, or modifies any such existing fees in a way
not already authorized by the OTEF II Partnership Agreement;
iv. the removal of any General Partner and, if such General
Partner was the sole remaining General Partner, the election
of a replacement general partner; or
v. the dissolution of OTEF II.
(b) Actions Requiring a Majority Vote:
i. OTEF II's acquisition of control of any management entity, or
of management assets of any management entity affiliated
with the MGP, unless any such acquisition is incidental to the
acquisition by OTEF II of any additional MRBs or other assets,
or is incidental to the acquisition of any entity the principal
assets of which are MRBs or other assets (and which is not
itself a management entity);
ii. the provision by OTEF II of or the engagement of OTEF II in
management services (other than those services provided by
OTEF II in the ordinary course of its business on and after
June 25, 1995) with respect to any of the MRBs or with
respect to any of the mortgaged properties, unless OTEF II
obtains an opinion of the IREC;
iii. the termination of any contract for management services
provided to OTEF II by the MGP or its affiliates; and
iv. any amendment to the OTEF II Partnership Agreement, other than
those amendments described above in item 7(a)(ii) and (iii).
8) Any OTEF II BACs or Status Quo BACs purchased or redeemed by OTEF II
shall, to the extent permissible under law, be voted in the same
proportion as all other OTEF II BACs or Status Quo BACs voting, for so
long as OTEF II holds them.
9) Any OTEF II BACs or Status Quo BACs acquired from OTEF II by any
person pursuant to any compensation plan, option plan or incentive plan
established by OTEF II ("Management BACs") shall, for so long as such
Management BACs have not been sold or transferred in an arms-length
transaction, be voted in the same proportion as all other BACs or Status
Quo BACs, except that these proportionate voting requirements do not
apply to any amendments that require only a majority vote (other than
amendments required in connection with a determination that OTEF II shall
engage in the business of providing management services to unaffiliated
parties). The MGP shall not permit OTEF II to accept any promissory note
or other debt instrument, securities, property or services in payment for
the exercise by any holder of an option to acquire Management BACs.
10) Unless otherwise authorized by a majority vote, OTEF II shall not
assume or incur debt in excess of sixty-five percent of the value of OTEF
II's assets (unless, in the sole discretion of the MGP, a higher
percentage is required on an urgent basis to avoid any adverse effect on
the business, operations or prospects of OTEF II or such higher
percentage is required for one or more periods not exceeding one year.
Issuance of Status Quo BACs
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Effective April 1, 1997, OTEF II issued a new class of BACs ("Status
Quo BACs") to the holders of OTEF II BACs who made a timely election to
convert all or a portion of their OTEF II BACs into Status Quo BACs on
the terms and conditions described in the Information Memorandum that was
distributed on December 2, 1996 to the OTEF II BAC Holders. The Status
Quo BACs were issued on a one-for-one basis for the OTEF II BACs that
were elected to be converted. The Status Quo BACs are designed to
replicate, to the extent possible, the economic interests that the
holders of the Status Quo BACs (the "Status Quo BAC Holders") would have
had in OTEF II's existing assets if the partnership agreement for Oxford
Tax Exempt Fund Limited Partnership, OTEF II's predecessor ("OTEF"), had
continued to govern and the Liquidity and Growth Plan were not
implemented. The rights and obligations of the Status Quo BAC Holders
are set forth in a supplement to the OTEF II Partnership Agreement
entitled the "Designation of the Rights and Preferences of the Holders of
Status Quo BACs."
In connection with the issuance of the Status Quo BACs, the MGP
designated as "Status Quo Assets" a pro rata portion of OTEF II's
existing assets based on the number of OTEF II BACs converted into Status
Quo BACs. The Status Quo Assets are held for the benefit of the Status
Quo BAC Holders. The remaining assets of OTEF II (the "Liquidity
Assets") are now designated for the benefit of the OTEF II BAC Holders
who did not elect the Status Quo BAC option and any other holders of OTEF
II BACs (together, the "Liquidity BAC Holders"). Any new assets that
OTEF II acquires pursuant to the Liquidity and Growth Plan ("New Assets")
also will be held for the benefit of the Liquidity BAC Holders.
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The following discussion summarizes the effect of the issuance of
the Status Quo BACs on certain rights of the Liquidity BAC Holders and
the Status Quo BAC Holders.
Rights to Allocations and Distributions
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Capital Accounts. Following the issuance of the Status Quo BACs,
the BAC Holders who retained their OTEF II BACs had the same capital
accounts as they had prior to the issuance of the Status Quo BACs. Their
capital accounts and the capital accounts of the Liquidity BAC Holders
will be increased by profits relating to the Liquidity Assets and the New
Assets ("Liquidity Profits"), but not by any profits relating to the
Status Quo Assets ("Status Quo Profits"), and will be reduced by the
amount of all distributions made to them by OTEF II (the "Liquidity Cash
Flow") and losses relating only to the Liquidity Assets and the New
Assets ("Liquidity Losses"), but not by any losses relating to the Status
Quo Assets ("Status Quo Losses").
Status Quo BAC Holders have the same capital accounts as they had
prior to the conversion of their OTEF II BACs into Status Quo BACs.
Their capital accounts will be increased by the Status Quo Profits, but
not by any Liquidity Profits, and will be reduced by the amount of all
distributions made to them by OTEF II (the "Status Quo Cash Flow") and
all Status Quo Losses, but not by any Liquidity Losses. OTEF II will
maintain two capital accounts for BAC Holders who elect to convert only a
portion of their OTEF II BACs into Status Quo BACs.
Subordinated BACs. Two Broadway Associates IV, an affiliate of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the selling agent for
the 1985 offering of OTEF BACs, directly owns 1,500 OTEF II BACs (the
"Affiliated OTEF II BACs"), which were issued in exchange for services
rendered by Merrill Lynch in connection with the 1985 offering and which
are subordinated to the other OTEF II BACs with respect to allocations
and distributions of Liquidity Residual and Liquidation Proceeds (as
defined below).
Distributions of Cash Flow. Liquidity Cash Flow and Status Quo Cash
Flow will be distributed as described below.
Liquidity Cash Flow. Liquidity Cash Flow, in any year will first be
distributed 98% to the Liquidity BAC Holders and 2% to the General
Partners until the Liquidity BAC Holders as a class (other than the
holder(s) of the Affiliated OTEF II BACs) have received, during such
year, a noncumulative 11% preferred return on the Liquidity BAC Holders
Preference Amount (as defined below) and, thereafter during such year,
90% to the Liquidity BAC Holders as a class and 10% to the General
Partners. The "Liquidity BAC Holders Preference Amount" means an amount
equal to the total capital contributions of the Liquidity BAC Holders to
OTEF or OTEF II, reduced by any distributions of residual proceeds
previously made to them by OTEF, and further reduced by all distributions
of Liquidity Residual and Liquidation Proceeds made by OTEF II to the
Liquidity BAC Holders.
Status Quo Cash Flow. All Status Quo Cash Flow in any year will
first be distributed 98% to the Status Quo BAC Holders as a class and 2%
to the General Partners until the Status Quo BAC Holders as a class have
received a noncumulative return in such year equal to 11% of the Status
Quo BAC Holders Preference Amount (defined below) and, thereafter during
such year, 90% to the Status Quo BAC Holders as a class and 10% to the
General Partners. The "Status Quo BAC Holders Preference Amount" means
an amount equal to the total capital contributions of the Status Quo BAC
Holders to OTEF, reduced by any distributions of residual proceeds
previously made to them by OTEF, and further reduced by all distributions
of Status Quo Residual and Liquidation Proceeds (defined below) made by
OTEF II to the Status Quo BAC Holders.
Distributions of Residual Proceeds and Liquidation Proceeds. All
Residual Proceeds of OTEF II (which, in general, means the cash OTEF II
receives from the sale of a mortgaged property or New Asset (a"Sale")
or the repayment of the principal and interest payable upon maturity
or remarketing of a MRB (a "Repayment"), other than a Sale or Repayment that
occurs in connection with the liquidation of OTEF II) will be designated
as "Liquidity Residual Proceeds" to the extent such Residual Proceeds
relate to the Liquidity and New Assets and as "Status Quo Residual
Proceeds" to the extent that they relate to the Status Quo Assets. The
Liquidity Residual Proceeds, but not the Status Quo Residual Proceeds,
may be reinvested in New Assets at the discretion of the MGP. The
Liquidity Residual Proceeds, to the extent they are not reinvested, and
the Status Quo Residual Proceeds, will be applied and distributed
generally as described below.
Liquidity Residual and Liquidation Proceeds. The Liquidity Residual
Proceeds shall be applied to the payment of the expenses allocable to the
OTEF II BACs or reinvested in New Assets at the discretion of the MGP,
and to the extent not so applied or reinvested, shall be available for
distribution in which case such amounts generally shall be applied and
distributed in the following amounts and order of priority:
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(a) 100% to the payment of all debts and obligations of OTEF II that are
then due and owing related to the Liquidity and New Assets (other than
loans from the General Partners and their affiliates) and to any
additions to the working capital reserve with respect to the Liquidity
and New Assets that the MGP may determine to be necessary;
(b) 100% to the Liquidity BAC Holders as a class (other than the
holder(s) of the Affiliated OTEF II BACs) until the Liquidity BAC Holders
(other than the holder(s) of the Affiliated OTEF II BACs) receive
aggregate distributions from Liquidity Residual Proceeds equal to the
Liquidity BAC Holders Preference Amount;
(c) 100% to the holder(s) of the Affiliated OTEF II BACs in an amount
equal to $1,000 times the number of Affiliated OTEF II BACs less any
prior distributions of Residual Proceeds with respect to such Affiliated
OTEF II BACs;
(d) 100% to the General Partners and their affiliates to repay loans, if
any, from them to OTEF II, with interest thereon, except to the extent
the proceeds of any such loans were used to pay amounts relating to the
Status Quo Assets or OTEF II's ownership thereof;
(e) 100% to the General Partners until the General Partners receive
aggregate distributions from Liquidity Residual Proceeds and Status Quo
Residual Proceeds equal to the General Partners Preference Amount
(generally, an amount equal to the total capital contributions of the
General Partners to OTEF II reduced by all distributions of Liquidity
Residual and Liquidation Proceeds and Status Quo Residual and Liquidation
Proceeds); and
(f) the remainder, if any, 98% to the Liquidity BAC Holders and 2% to
the General Partners, except that the 2% return to the General Partners
generally is deferred until the Liquidity BAC Holders receive an amount
(when combined with all prior distributions of Liquidity Cash Flow and
Liquidity Residual Proceeds) equal to an average annual noncompounded
return of 10% on the Liquidity BAC Holders Preference Amount. Liquidity
Liquidation Proceeds (which, in general, means all cash receipts of OTEF II
arising from the dissolution of OTEF II and liquidation of the Liquidity
and New Assets) generally will be distributed in the same order of priority
as Liquidity Residual Proceeds, except the first application of Liquidity
Liquidation Proceeds will be to establish certain reserves.
If Liquidity Residual Proceeds or Liquidity Liquidation Proceeds are
insufficient to make any payment set forth in a particular paragraph (b)
through (f) above, then Liquidity Residual Proceeds or Liquidity
Liquidation Proceeds available to make the payment will be distributed
proportionately among the parties entitled to the payment under such
paragraph.
Status Quo Residual and Liquidation Proceeds. Status Quo Residual
Proceeds shall be applied to the payment of the expenses allocable to the
Status Quo BACs, and to the extent not so applied, shall be available for
distribution in which case such amounts generally shall be applied and
distributed in the following amounts and order of priority:
(a) 100% to the payment of all debts and obligations of OTEF II that are
then due and owing related to the Status Quo Assets (other than loans
from the General Partners and their affiliates) and to any additions to
the working capital reserve with respect to the Status Quo Assets that
the MGP may determine to be necessary;
(b) 100% to the Status Quo BAC Holders as a class until the Status Quo
BAC Holders receive aggregate distributions from Status Quo Residual
Proceeds equal to the Status Quo BAC Holders Preference Amount;
(c) 100% to the General Partners and their affiliates to repay loans, if
any, from them to OTEF II, the proceeds of which were used to pay amounts
relating to the Status Quo Assets or OTEF II's ownership thereof;
(d) 100% to the General Partners until the General Partners receive
aggregate distributions from Liquidity Residual Proceeds and Status Quo
Residual Proceeds equal to the General Partners Preference Amount; and
(e) the remainder, if any, 98% to the Status Quo BAC Holders as a class
and 2% to the General Partners until the Status Quo BAC Holders as a
class have received an amount (when combined with all prior distributions
of cash flow and Residual Proceeds) equal to an average annual
noncompounded return of 11% on the Status Quo BAC Holders Preference
Amount, except that the amounts otherwise payable to the General Partners
hereunder shall be deferred until the Status Quo BAC Holders as a class
have received an amount (when combined with all prior distributions of
Status Quo Cash Flow and Residual Proceeds) equal to an average annual
noncompounded return of 10% on the Status Quo BAC Holders Preference
Amount.
Status Quo Liquidation Proceeds (which, in general, means all cash
receipts of OTEF II arising from the dissolution of OTEF II and
liquidation of the Status Quo Assets) generally will be distributed in
the same order of priority as Status Quo Residual Proceeds, except the
first application of Status Quo Liquidation Proceeds will be to establish
certain reserves.
If Status Quo Residual Proceeds or Status Quo Liquidation Proceeds
are insufficient to make any payment set forth in a particular paragraph
(b) through (e) above, then Status Quo Residual Proceeds or Status Quo
Liquidation Proceeds available to make the payment will be distributed
proportionately among the parties entitled to the payment under such
paragraph.
<PAGE> 6
Allocation of Profits and Losses. Liquidity Profits from operations
generally will be allocated between the Liquidity BAC Holders and the
General Partners as follows: first, in accordance with distributions of
Liquidity Cash Flow, until the cumulative Liquidity Profits so allocated
are equal to the cumulative Liquidity Cash Flow distributions, and
thereafter 2% to the General Partners and 98% to the Liquidity BAC Holders.
Liquidity Losses from operations generally will be allocated 2% to the
General Partners and 98% to the Liquidity BAC Holders. Liquidity Profits
and Liquidity Losses arising from a Sale or Repayment (including Liquidity
Profits which represent the receipt of interest income on a MRB) or
liquidation of OTEF II generally will be allocated in a manner so as to
cause the capital account balances of the General Partners and Liquidity
BAC Holders to equal the amounts that would be distributable to them as
described above in paragraphs (b), (c), (e) and (f) of "-- Distributions
of Residual Proceeds and Liquidation Proceeds -- Liquidity Residual
and Liquidation Proceeds."
Status Quo Profits from operations generally will be allocated
between the Status Quo BAC Holders and the General Partners as follows:
first, in accordance with distributions of Status Quo Cash Flow, until
the cumulative Status Quo Profits so allocated are equal to the
cumulative Status Quo Cash Flow distributions, and thereafter 2% to the
General Partners and 98% to the Status Quo BAC Holders. Status Quo
Losses from operations generally are allocated 2% to the General Partners
and 98% to the Status Quo BAC Holders. Status Quo Profits and Losses
arising from a Sale or Repayment of a Status Quo Asset (including Status
Quo Profits which represent the receipt of interest income on a MRB) or
liquidation of OTEF II generally will be allocated in a manner so as to
cause the Status Quo capital account balances of the General Partners and
Status Quo BAC Holders to equal the amounts that would be distributable
to them as described above in paragraphs (b), (d) and (e) of "--
Distributions of Residual and Liquidation Proceeds -- Status Quo Residual
and Liquidation Proceeds."
The above allocations of Liquidity and Status Quo Profits and Losses
will be subject to compliance with the principles of the Internal Revenue
Code of 1986 sections 704(b) (containing rules concerning the
determination of a partner's distributive share and capital account
maintenance) and 704(c) (containing rules for reflecting disparities in
the adjusted tax basis and the fair market value of property contributed
or revalued by a partnership) and the regulations promulgated thereunder.
Voting Rights After Issuance of Status Quo BACs
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Both the Status Quo BAC Holders and the Liquidity BAC Holders
generally will continue to have voting rights with respect to actions
that could materially affect their rights or interests in OTEF II, but
neither will have voting rights with respect to actions that would have
no material effect on their rights or their interests in OTEF II. The
following discussion summarizes the provisions in the OTEF II Partnership
Agreement (as it has been supplemented by the Designation of Rights and
Preferences of the Status Quo BACs) relating to the voting rights of the
BAC Holders and the procedure for calling meetings of the BAC Holders.
Actions Subject to Approval by All BAC Holders. Both the Liquidity
BAC Holders and the Status Quo BAC Holders have the right, voting as a
single class, to vote on:
(a) removal of a General Partner of OTEF II and, if such General Partner
of OTEF II was the sole remaining General Partner of OTEF II, election of
a replacement therefor;
(b) dissolution of OTEF II;
(c) amendments to the OTEF II Partnership Agreement ("All BAC Holder
Amendments") that could adversely affect the rights of both the Liquidity
BAC Holders (or their interests in the Liquidity Assets or New Assets)
and the Status Quo BAC Holders (or their interests in the Status Quo
Assets); and
(d) in the case of the Status Quo BAC Holders, any matter with respect
to which the vote of the Liquidity BAC Holders is solicited, other than
any matters relating exclusively to the Liquidity Assets or New Assets or
the Liquidity and Growth Plan, and in the case of the Liquidity BAC
Holders, any matter with respect to which the vote of the Status Quo BAC
Holders is solicited, other than any matters relating exclusively to the
Status Quo Assets.
Actions Subject to Approval by Liquidity BAC Holders. The Liquidity
BAC Holders also will have the right, without the concurrence of the
Status Quo BAC Holders or the General Partners, to vote on:
(a) the sale of all or substantially all of the Liquidity Assets and New
Assets, taken as a whole (except for any sale of any property or asset
securing a MRB or any sale approved by the IREC);
(b) amendments to the OTEF II Partnership Agreement, except for (i) All
BAC Holder Amendments (with respect to which the Liquidity BAC Holders
will vote together with the Status Quo BAC Holders, as described above)
<PAGE> 7
and (ii) amendments that could adversely affect the rights of the Status
Quo BAC Holders or their interests in the Status Quo Assets, but would
not materially affect the rights of the Liquidity BAC Holders;
(c) the acquisition of control of any management entity or of the assets
of any management entity that is an affiliate of the MGP, unless such
acquisition is incidental to the acquisition by OTEF II of New Assets, or
is incidental to the acquisition of any entity the principal assets of
which are mortgage revenue bonds or other related assets (and which is
not itself a management entity);
(d) the provision by OTEF II of, or the engagement of OTEF II in,
management services with respect to its assets (other than those services
provided by OTEF II in the ordinary course of its business on and after
June 25, 1995) unless OTEF II obtains an opinion of the IREC with respect
thereto;
(e) the termination of any contract for management services provided to
OTEF II by the MGP or its affiliates.
Actions Subject to Approval by Status Quo BAC Holders. The Status
Quo BAC Holders will have the right, without the concurrence of the
Liquidity BAC Holders or the General Partners, to vote on:
(a) the sale of all or substantially all of the Status Quo
Assets (except for any sale of any property or asset securing a MRB
or for any sale approved by the IREC); and
(b) amendments to the OTEF II Partnership Agreement, except
for (i) All BAC Holder Amendments (with respect to which the Status
Quo BAC Holders will vote together with the Liquidity BAC Holders,
as described above) and (ii) amendments that could adversely affect
the rights of the Liquidity BAC Holders or their interests in the
Liquidity Assets, but would not materially affect the rights of the
Status Quo BAC Holders.
<PAGE> 8
Votes and Meetings
On any action with respect to which a BAC Holder has voting rights,
such BAC Holder shall be entitled to cast one vote for each BAC that he
or she owns. Any action required or permitted to be taken by the
Liquidity BAC Holders or all of the BAC Holders must be effected at a
meeting and may not be effected by any written consent other than a
written consent at a meeting; provided, however, that the requirement
that such actions must be effected at a meeting may be waived with
respect to one or more of such actions if such waiver is approved (i) by
the MGP and (ii) by the affirmative vote (which vote itself may be
effected by written consent) of a majority in interest of the BAC
Holders. Actions that require the approval of only the Status Quo BAC
Holders may be effected by written consent without a meeting.
BAC Holder Protection Provisions
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The OTEF II Partnership Agreement contains certain provisions
relating to changes of control of OTEF II and OTEF II has established a
BAC Holder Rights Plan, which provides OTEF II BAC Holders with certain
economic rights upon a change in control of OTEF II. The purpose of the
OTEF II Partnership Agreement provisions and the BAC Holder Rights Plan
(together, the "BAC Holder Protection Provisions") is to provide OTEF II
and the BAC Holders with protection from unfair or abusive takeover
attempts. The BAC Holder Protection Provisions are designed to encourage
any persons who may seek to acquire control of OTEF II to consult first
with the MGP to negotiate the terms of any proposed business combination
or offer.
Fair Price and Control BAC Acquisition Provisions. Article XII (the
"Fair Price Provision") and Article XIII (the "Control BAC Acquisition
Provision") of the OTEF II Partnership Agreement are based on Maryland
statutory provisions that provide similar protections to shareholders of
Maryland corporations, which as included in the agreement have been
modified to accommodate a limited partnership. All BAC Holders,
including the Status Quo BAC Holders, will be subject to and protected by
the Fair Price Provision and Control BAC Acquisition Provision.
The Fair Price Provision provides that certain business combinations
involving an "Interested Party" (generally, any person or group that is
the beneficial owner, directly or indirectly, of 10% or more of the
outstanding BACs) must be approved by: (i) 80% in interest of all of the
BAC Holders and (ii) two-thirds in interest of the BAC Holders other than
the Interested Party. In general, these voting requirements are not
applicable if the business combination is approved by the MGP prior to
the date on which the Interested Party became an Interested Party or a
"fair price" (generally, the greater of market value or the highest price
paid by the acquiror for BACs) is paid for the remaining BACs.
The Control BAC Acquisition Provision provides, in general, that any
person or group that acquires 20% or more of the outstanding BACs is
denied voting rights with respect to the acquired BACs unless two-thirds
in interest of the BAC Holders other than the acquiror vote to restore
such voting rights.
BAC Holder Rights Plan. OTEF II and the MGP entered into a BAC
Holder Rights Agreement dated as of May 30, 1995 with Crestar Bank which
governs the terms of the BAC Holder Rights Plan. Under the BAC Holder
Rights Plan, one Right was issued for each outstanding OTEF II BAC. Each
Right entitles the holder thereof to buy one OTEF II BAC at an exercise
price of $1,000, subject to adjustment.
In the event that OTEF II issues additional OTEF II BACs, the BAC
Holder Rights Plan provides that Rights will be issued to the holders of
such OTEF II BACs on substantially the same terms described herein.
Rights were not issued with respect to the Status Quo BACs and the Rights
previously issued with respect to OTEF II BACs that were converted into
Status Quo BACs were canceled.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
For a list of Exhibits as required by Item 601 of Regulation
S-K, see Exhibit Index on page 12 of this report.
(b) Reports on Form 8-K.
None.
No other items were applicable.
<PAGE> 9
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q/A
Amendment No. 1
EXHIBIT INDEX
(Listed according to the number assigned in the Exhibit Table in Item 601
of Regulation S-K).
(4) Instruments Defining the Rights of Security Holders
(a) Third Amended and Restated Agreement of Limited
Partnership of Oxford Tax Exempt Fund II Limited Partnership,
effective June 26, 1995, which follows on sequentially numbered
pages 1 through 78 of this report.
(b) Designation of the Rights and Preferences of the Holders
of Status Quo BACs, which follows on sequentially numbered
pages 1 through 8 of this report.
(20) Reports furnished to Security Holders.
Oxford Tax Exempt Fund II Limited Partnership's Quarterly Report
(Unaudited) dated March 31, 1997, which follows on sequentially
numbered pages 5 through 27 of this report.
(27) Financial Data Schedule
<PAGE> 10
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
FORM 10-Q/A
Amendment No. 1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Oxford Tax Exempt Fund II Limited Partnership
By: Oxford Tax Exempt Fund II Corporation
Managing General Partner of the registrant
Date: 6/17/97 By: /S/ Richard R. Singleton
------- ------------------------
Richard R. Singleton
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: 6/17/97 By: /S/ Leo E. Zickler
------- ------------------
Leo E. Zickler
Chairman of the Board of Directors and
Chief Executive Officer
Date: 6/16/97 By: /S/ Francis P. Lavin
------- --------------------
Francis P. Lavin
Director and President
Date: 6/16/97 By: /S/ Robert B. Downing
------- ---------------------
Robert B. Downing
Director and Executive Vice President
<PAGE>
=======================================================================
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
(amending and restating the Second Amended
and Restated Agreement of Limited Partnership
dated as of June 26, 1995)
DATED AS OF JUNE 26, 1995
=======================================================================
<PAGE> i
TABLE OF CONTENTS
ARTICLE I DEFINED TERMS.............................................2
ARTICLE II CONTINUATION, NAME, PLACE OF BUSINESS,
PURPOSE AND TERM.........................................11
SECTION 2.1 CONTINUATION OF PARTNERSHIP..........................11
SECTION 2.2 NAME, PLACE OF BUSINESS AND NAME AND
ADDRESS OF RESIDENT AGENT............................11
SECTION 2.3 PURPOSE..............................................12
SECTION 2.4 TERM.................................................12
ARTICLE III PARTNERS AND CAPITAL.....................................12
SECTION 3.1 GENERAL PARTNERS.....................................12
SECTION 3.2 LIMITED PARTNERS.....................................13
SECTION 3.3 BAC HOLDERS..........................................13
SECTION 3.4 PARTNERSHIP CAPITAL..................................15
SECTION 3.5 LIABILITY OF PARTNERS AND BAC HOLDERS................16
ARTICLE IV DISTRIBUTIONS OF CASH; ALLOCATIONS OF
PROFITS AND LOSSES.......................................16
SECTION 4.1 DISTRIBUTIONS OF CASH FLOW...........................16
SECTION 4.2 DISTRIBUTIONS OF RESIDUAL PROCEEDS AND OF
LIQUIDATION PROCEEDS.................................17
SECTION 4.3 ALLOCATION OF PROFITS AND LOSSES FROM
OPERATIONS...........................................19
SECTION 4.4 ALLOCATION OF PROFITS AND LOSSES ARISING
FROM A SALE OR REPAYMENT OR LIQUIDATION OF
THE PARTNERSHIP......................................19
SECTION 4.5 DETERMINATION OF PROFITS, LOSSES AND
DISTRIBUTIONS........................................20
SECTION 4.6 ALLOCATIONS AND DISTRIBUTIONS AMONG
LIMITED PARTNERS AND BAC HOLDERS.....................20
SECTION 4.7 CAPITAL ACCOUNTS.....................................21
SECTION 4.8 RETURN OF CAPITAL AND RIGHTS TO
DISTRIBUTIONS........................................21
SECTION 4.9 SPECIAL ALLOCATIONS AND LIMITATIONS..................22
SECTION 4.10 MAINTENANCE OF TAX FUNGIBILITY OF
LIMITED PARTNERSHIP INTERESTS AND BACS...............23
SECTION 4.11 DISTRIBUTIONS IN KIND................................23
ARTICLE V RIGHTS, OBLIGATIONS AND POWERS...........................24
SECTION 5.1 MANAGEMENT OF THE PARTNERSHIP........................24
SECTION 5.2 AUTHORITY OF THE MANAGING GENERAL
PARTNER..............................................24
SECTION 5.3 AUTHORITY OF GENERAL PARTNERS AND THEIR
AFFILIATES TO DEAL WITH PARTNERSHIP..................28
SECTION 5.4 GENERAL RESTRICTIONS ON AUTHORITY OF
GENERAL PARTNERS.....................................32
<PAGE> ii
SECTION 5.5 ACQUISITION OF ADDITIONAL MORTGAGE
REVENUE BONDS........................................34
SECTION 5.6 DELEGATION OF AUTHORITY..............................34
SECTION 5.7 OTHER ACTIVITIES.....................................35
SECTION 5.8 LIMITATION ON LIABILITY OF GENERAL
PARTNERS; INDEMNIFICATION............................35
SECTION 5.9 TAX STATUS OF PARTNERSHIP............................36
SECTION 5.10 INDEPENDENT REAL ESTATE CONSULTANT...................36
SECTION 5.11 AFFIRMATION OF PARTNERSHIP'S PURPOSE.................38
ARTICLE VI CHANGES IN GENERAL PARTNERS..............................38
SECTION 6.1 WITHDRAWAL OF GENERAL PARTNERS.......................38
SECTION 6.2 ADMISSION OF A SUCCESSOR OR ADDITIONAL
GENERAL PARTNER......................................39
SECTION 6.3 REMOVAL OF A GENERAL PARTNER.........................40
SECTION 6.4 EFFECT OF BANKRUPTCY, WITHDRAWAL,
DISSOLUTION OR REMOVAL OF A GENERAL PARTNER..........40
SECTION 6.5 CONVERSION OF GENERAL PARTNERS TO BAC
HOLDERS..............................................42
ARTICLE VII TRANSFERABILITY OF LIMITED PARTNERS'.....................42
SECTION 7.1 ASSIGNMENTS OF THE INTEREST OF THE
INITIAL LIMITED PARTNER..............................42
SECTION 7.2 FREE TRANSFERABILITY OF BACS.........................42
SECTION 7.3 VOTING BY THE INITIAL LIMITED PARTNER ON
BEHALF OF BAC HOLDERS................................43
SECTION 7.4 RESTRICTIONS ON ASSIGNMENTS OF
PARTNERSHIP INTERESTS OF LIMITED PARTNERS
OTHER THAN THE INITIAL LIMITED PARTNER. .............44
SECTION 7.5 ASSIGNEES OF LIMITED PARTNERS OTHER THAN
THE INITIAL LIMITED PARTNER; SUBSTITUTE
LIMITED PARTNERS.....................................45
SECTION 7.6 JOINT OWNERSHIP OF INTERESTS.........................46
SECTION 7.7 CONVERSION OF AFFILIATED BAC HOLDER TO
BAC HOLDER...........................................47
ARTICLE VIII DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP...........47
SECTION 8.1 EVENTS CAUSING DISSOLUTION...........................47
SECTION 8.2 LIQUIDATION..........................................48
ARTICLE IX BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX
ELECTIONS................................................49
SECTION 9.1 BOOKS AND RECORDS....................................49
SECTION 9.2 ACCOUNTING BASIS AND FISCAL YEAR.....................50
SECTION 9.3 BANK ACCOUNTS........................................50
SECTION 9.4 REPORTS..............................................50
SECTION 9.5 SECTION 754 ELECTIONS................................51
SECTION 9.6 DESIGNATION OF TAX MATTERS PARTNER...................51
SECTION 9.7 DUTIES OF TAX MATTERS PARTNER........................51
SECTION 9.8 AUTHORITY OF TAX MATTERS PARTNER.....................52
<PAGE> iii
SECTION 9.9 EXPENSES OF TAX MATTERS PARTNER......................53
ARTICLE X MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS..........53
SECTION 10.1 MEETINGS; ACTION OF LIMITED PARTNERS.................53
SECTION 10.2 RIGHTS OF LIMITED PARTNERS AND BAC
HOLDERS..............................................54
SECTION 10.3 CONDITIONS TO EXERCISE OF VOTING RIGHTS
BY LIMITED PARTNERS AND BAC HOLDERS..................57
SECTION 10.4 NO MANAGEMENT AUTHORITY..............................57
SECTION 10.5 OTHER ACTIVITIES.....................................57
ARTICLE XI ASSIGNMENT OF PARTNERSHIP INTERESTS TO BAC
HOLDERS AND RIGHTS OF BAC HOLDERS.......................58
SECTION 11.1 ASSIGNMENT OF PARTNERSHIP INTERESTS TO
BAC HOLDERS..........................................58
SECTION 11.2 RIGHTS OF BAC HOLDERS................................59
SECTION 11.3 ADMISSION OF BAC HOLDERS AS LIMITED
PARTNERS.............................................59
SECTION 11.4 PRESERVATION OF TAX STATUS...........................60
ARTICLE XII BUSINESS COMBINATIONS...................................60
SECTION 12.1 DEFINITIONS..........................................60
SECTION 12.2 BUSINESS COMBINATIONS................................63
SECTION 12.3 EXEMPTIONS...........................................63
ARTICLE XIII VOTING RIGHTS OF CERTAIN CONTROL BACS...................66
SECTION 13.1 DEFINITIONS..........................................66
SECTION 13.2 VOTING RIGHTS........................................67
SECTION 13.3 ACQUIRING PERSON STATEMENT...........................68
SECTION 13.4 SPECIAL MEETING......................................69
SECTION 13.5 CALLS................................................69
SECTION 13.6 NOTICE OF MEETING....................................70
SECTION 13.7 REDEMPTION RIGHTS....................................70
ARTICLE XIV MISCELLANEOUS PROVISIONS................................71
SECTION 14.1 APPOINTMENT OF MANAGING GENERAL PARTNER
AS ATTORNEY-IN-FACT..................................71
SECTION 14.2 SIGNATURES; AMENDMENTS TO PARTNERSHIP
AGREEMENT............................................73
SECTION 14.3 OWNERSHIP BY LIMITED PARTNERS AND BAC
HOLDERS OF GENERAL PARTNERS OR THEIR
AFFILIATES...........................................75
SECTION 14.4 BURDEN AND BENEFIT...................................75
SECTION 14.5 APPLICABLE LAW.......................................75
SECTION 14.6 COUNTERPARTS.........................................75
SECTION 14.7 SEPARABILITY OF PROVISIONS...........................75
SECTION 14.8 CAPTIONS.............................................75
SECTION 14.9 ENTIRE AGREEMENT.....................................75
<PAGE> iv
SECTION 14.10 TENDER OFFERS........................................76
<PAGE> 1
========================================================================
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
(amending and restating the Second Amended
and Restated Agreement of Limited Partnership
dated as of June 26, 1995)
THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP of Oxford Tax Exempt Fund II Limited Partnership (the
"Partnership"), dated as of June 26, 1995 is entered into by and
among OXFORD TAX EXEMPT FUND II CORPORATION, a Maryland
corporation, and OTEF II ASSOCIATES LIMITED PARTNERSHIP, a
Maryland limited partnership, as general partners, and OTEF II
ASSIGNOR CORPORATION, as the initial limited partner, together
with any other persons who become partners in the Partnership as
provided herein.
RECITALS
WHEREAS, the parties hereto are the partners of a limited
partnership formed under the Maryland Revised Uniform Limited
Partnership Act (the "Act") and known as OXFORD TAX EXEMPT FUND
II LIMITED PARTNERSHIP pursuant to that certain Agreement of
Limited Partnership dated February 2, 1995, as amended by that
certain First Amendment dated February 16, 1995, and as amended
and restated in its entirety by that certain First Amended and
Restated Agreement of Limited Partnership dated June 1, 1995, and
as further amended and restated in its entirety by that certain
Second Amended and Restated Agreement of Limited Partnership
dated as of June 26, 1995 (as amended and restated, the "Original
Agreement") and that certain Certificate of Limited Partnership
dated February 2, 1995 and filed with the Maryland State
Department of Assessments and Taxation on February 9, 1995, as
amended by that certain Certificate of Amendment dated February
16, 1995 and filed with the Maryland State Department of
Assessments and Taxation on February 16, 1995; and
WHEREAS, the parties hereto desire to amend and restate in
its entirety the Original Agreement, and to continue the
Partnership pursuant to the Act and other relevant laws of the
State of Maryland, upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual promises made
herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree to continue
the Partnership as follows:
<PAGE> 2
ARTICLE I
DEFINED TERMS
The following terms used in this Agreement, unless the
context otherwise requires, have the meanings specified in this
Article I. The singular includes the plural and the masculine
gender includes the feminine and neuter, and vice versa, as the
context requires.
"Act" means the Maryland Revised Uniform Limited Partnership
Act, as amended from time to time, or any successor statute.
"Accountants" means Coopers & Lybrand or such other
nationally recognized firm of independent public accountants as
shall be engaged from time to time by the Managing General
Partner on behalf of the Partnership.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of
this Agreement.
"Additional Mortgage Revenue Bond" means any Mortgage
Revenue Bond (or partial interest therein) acquired by the
Partnership (other than an OTEF I Mortgage Revenue Bond or Other
Asset) using (i) Residual Proceeds, (ii) Revenues (including
Collections in respect of Mortgage Revenue Bonds), (iii)
additional limited partnership interests, BACs or other
securities or the proceeds from an issuance of any such
securities or (iv) any other consideration.
"Adjusted Capital Account Deficit" means, with respect to
any Partner or BAC Holder, the deficit balance, if any, in such
Partner's or BAC Holder's Capital Account as of the end of the
relevant fiscal period, after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which such
Partner or BAC Holder is obligated to restore pursuant to this
Agreement or is deemed to be obligated to restore pursuant to
Treasury Regulations Section 1.704-1(b)(2)(ii)(c) or pursuant to
the penultimate sentences of Treasury Regulations Sections 1.704-
2(g)(1) and 1.704-2(i)(5); and
(b) debit to such Capital Account the items described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit
is intended to comply with the provisions of Treasury Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Affiliate" means, when used with respect to a specified
Person, (i) any Person that directly or indirectly 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, and (iii) any
<PAGE> 3
Person that, directly or indirectly, is the beneficial owner of
10% or more of any class of equity securities of 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, except that for
purposes of Section 5.2(a)(x), the term Affiliate shall not
include any Person who is an employee or agent of the
Partnership.
"Affiliated BAC Holder" means the owner of the Affiliated
BACs (i.e., Two Broadway Associates IV B, a New York limited
partnership, or any Person who may acquire the Affiliated BACs
from Two Broadway Associates IV B).
"Affiliated BACs" means the BACs distributed to Two Broadway
Associates IV B, a New York limited partnership, on the BAC
Distribution Date with respect to the limited partnership
interest in OTEF I (represented by OTEF I BACs) acquired by Two
Broadway Associates IV B pursuant to Section 3.03(e) of the OTEF
I Partnership Agreement.
"Agreement" means this Second Amended and Restated Agreement
of Limited Partnership, as amended, supplemented or restated from
time to time.
"Associate General Partner" means OTEF Associates II Limited
Partnership, a Maryland limited partnership, in its capacity as
Associate General Partner.
"BAC" means a beneficial assignee interest representing an
assigned Limited Partnership Interest of the Initial Limited
Partner. BACs may be expressed as a number of Units.
"BAC Distribution Date" means the date upon which BACs are
distributed by OTEF I to the OTEF I BAC Holders and OTEF I
Limited Partners in accordance with Section 3.3(a).
"BAC Holder" means any Person who has been assigned one or
more Limited Partnership Interests by the Initial Limited Partner
pursuant to Section 11.1, which assignment is represented by a
BAC, but who has not become a Limited Partner pursuant to Section
11.3.
"BAC Issuance Date" means the date upon which BACs are
issued by the Initial Limited Partner to OTEF I in accordance
with Section 3.3(a).
"Bankruptcy" or "Bankrupt" means, as to any Person, the
filing of a petition for relief as to any such Person as debtor
or bankrupt under the Bankruptcy Code of 1978, as amended, or
like provision of law (except if such petition is contested by
such Person and has been dismissed within 90 days); insolvency of
such Person as finally determined by a court proceeding; filing
by such Person of a petition or application to accomplish the
same or for the appointment of a receiver or a trustee for such
Person or a substantial part of such Person's assets; or
commencement of any proceedings relating to such Person under any
other reorganization, arrangement, insolvency, adjustment of debt
or liquidation law of any jurisdiction, whether now in existence
or hereafter in effect, either by such Person or by another,
provided that if such proceeding is commenced by another, such
Person indicates such Person's approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is
contested by such Person and has not been finally dismissed
within 90 days.
<PAGE> 4
"Capital Account" means a capital account created and
maintained in accordance with Treasury Regulation Section 1.704-
1(b) as provided in Section 4.7.
"Capital Contributions" means the total amount of cash or
property contributed to the Partnership by all the Partners or
any class of Partners or by any one Partner, as the context may
require (or by the predecessor holders of the Partnership
Interests of such Persons) and with respect to a BAC Holder, the
Capital Contribution of the Initial Limited Partner made on
behalf of such BAC Holder.
"Cash Flow" means, with respect to any year or other
applicable period, all Revenues received by the Partnership
during such period, plus any amounts from Revenues previously
placed in the Working Capital Reserve that the Managing General
Partner releases from the Working Capital Reserve as being no
longer necessary to hold as part of the Working Capital Reserve,
less (i) operating expenses of the Partnership paid from Revenues
during the period, excluding such amounts paid from the Working
Capital Reserve, (ii) all cash payments made from Revenues during
such period to pay principal and interest on any Partnership
indebtedness and (iii) all amounts from Revenues added to the
Working Capital Reserve during such period.
"Certificate" means the Certificate of Limited Partnership
establishing the Partnership, as filed with the Maryland State
Department of Assessments and Taxation, as it may be amended from
time to time in accordance with the terms hereof and of the Act.
"Code" means the Internal Revenue Code of 1986, as amended,
and in effect from time to time, as interpreted by the applicable
regulations thereunder. Any reference herein to a specific
section or sections of the Code shall be deemed to include a
reference to any corresponding provision of future law.
"Collections" means all cash receipts of the Partnership
arising from the payment of principal and/or interest on Mortgage
Revenue Bonds, except for any principal and/or interest payable
upon maturity or remarketing of a Mortgage Revenue Bond.
"Consent" means the consent given by vote at a meeting
called and held in accordance with the provisions of Section 10.1
hereof for the act of granting such consent, as the context may
require.
"Contingent interest" for purposes of Section 2.3 means
interest which arises out of or otherwise relates to a Mortgage
Revenue Bond (other than an Other Asset), the payment of which is
conditioned on or the amount of which is contingent upon or is in
any way determined with respect to the actual or anticipated
revenues or cash flow of the related Mortgaged Property or some
other factor relating to the Mortgage Revenue Bond or the
Mortgaged Property.
"Counsel" means the Partnership's legal counsel as selected
by the General Partners.
"Depreciation" means, for each fiscal period, an amount
equal to the depreciation, amortization or other cost recovery
deduction allowable for federal income tax purposes with respect
to an asset for such period, except that if the Gross Asset Value
of an asset differs from
<PAGE> 5
its adjusted basis for federal income tax purposes at the beginning
of such period, Depreciation shall be an amount which bears the same
ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction for such
period bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization or other cost
recovery deductions for such period is zero, Depreciation shall
be determined with reference to such beginning Gross Asset Value
using any reasonable method selected by the Managing General
Partner.
"Event of Taxability" means the occurrence of any event, act
or circumstance, including the issuance of a written notice of
deficiency by the Internal Revenue Service, the enactment of
legislation, the publication of an official statement of the
Internal Revenue Service, or the issuance of a judicial decision,
which, in the opinion of bond counsel to the Partnership,
presents a not insignificant risk that interest on a Mortgage
Revenue Bond will, either currently or retroactively, be subject
to federal income taxation.
"General Partner Preference Amount" means an amount equal to
the Capital Contributions of the General Partners as set forth in
Section 3.1 (i.e., $1,000), reduced by any distribution pursuant
to Section 4.2(a)(vi) hereof.
"General Partners" means Oxford Tax Exempt Fund II
Corporation, a Maryland corporation, and OTEF II Associates
Limited Partnership, a Maryland limited partnership, in their
capacities as General Partners, or any Person or Persons who, at
the time of reference thereto, have been admitted as successors
to the Partnership Interest of any of them or as additional
General Partners, in each such Person's capacity as a General
Partner.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
(a) the initial Gross Asset Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market
value of such asset, as determined by the Managing General
Partner;
(b) the Gross Asset Values of all Partnership assets shall
be adjusted to equal their respective gross fair market values,
as determined by the Managing General Partner, as of the
following times: (i) the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (ii) the
distribution by the Partnership to a Partner of more than a de
minimis amount of the Partnership's property as consideration for
an interest in the Partnership if the Managing General Partner
shall determine in its sole discretion that such adjustment is
necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership; and (iii) the
liquidation of the Partnership within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g);
(c) the Gross Asset Value of any Partnership asset
distributed to any Partner shall be the gross fair market value
of such asset on the date of distribution, as determined by the
Managing General Partner; and
<PAGE> 6
(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or
Code Section 743(b), but only to the extent that such adjustments
are taken into account in determining Capital Accounts pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
If the Gross Asset Value of an asset has been determined or
adjusted pursuant to (a), (b) or (d) hereof, such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing
Profits and Losses.
"Gross Offering Proceeds" means any gross offering proceeds
from the sale of securities of the Partnership (including the
sale of BACs, but not including the issuance of BACs to OTEF I or
the distribution of BACs by OTEF I to the OTEF I BAC Holders and
OTEF I Limited Partners in accordance with Section 3.3(a)
hereof), before the deduction of commissions, fees, discounts and
other expenses.
"Independent Real Estate Consultant" means Marshall and
Stevens Incorporated in its capacity as such, or such other
Person as is appointed pursuant to Section 5.10(b).
"Initial Limited Partner" means OTEF II Assignor Corporation
in its capacity as Initial Limited Partner.
"Investment Date" means the date or dates upon which Net
Offering Proceeds are released to the Partnership.
"Limited Partner" means the Initial Limited Partner or any
Person admitted to the Partnership as a Substitute Limited
Partner or an Additional Limited Partner, or any BAC Holder who
elects to become a Limited Partner pursuant to Section 11.3, at
the time of reference thereto, in such Person's capacity as a
Limited Partner of the Partnership, or, as the context may
require, any former General Partner whose Partnership Interest
has been converted into a Limited Partnership Interest pursuant
to Section 6.4(b).
"Limited Partners Preference Amount" means an amount equal
to the "Adjusted Capital Contributions" of the Limited Partners
and BAC Holders as defined in the OTEF I Partnership Agreement
(determined as of the date immediately prior to the BAC
Distribution Date), increased by any Gross Offering Proceeds
contributed to the Partnership pursuant to Section 3.3(b) hereof,
and reduced by any distribution pursuant to Section 4.2(a)(ii)
hereof.
"Limited Partnership Interest" means the Partnership
Interest held by a Limited Partner, including the Partnership
Interests initially held by the Initial Limited Partner and
assigned to BAC Holders. Limited Partnership Interests may be
expressed as a number of Units.
"Liquidation Proceeds" means all cash receipts of the
Partnership (including Residual Proceeds) arising from the
dissolution of the Partnership and liquidation of the
Partnership's assets, less the amounts utilized to pay the
expenses of the liquidation (which amounts have priority over
payment of the amounts specified in Section 4.2(b)).
<PAGE> 7
"Liquidator" means the Managing General Partner or, if there
is no Managing General Partner at the time in question, such
other Person as may be appointed in accordance with applicable
law to be responsible to take all action necessary to the winding
up and distribution of assets of the Partnership following its
dissolution.
"Management Assets" means any and all assets (whether or not
subject to any related indebtedness) relating to Management
Services and includes, without limitation, assets owned by
Management Entities currently providing Management Services,
which Management Entities may be Affiliates of the General
Partners.
"Management Entity" means, in the case of Affiliates of the
Managing General Partner, any Person the principal business of
which is to engage in or to provide Management Services with
respect to real estate assets, and, in the case of Persons who
are not Affiliates of the Managing General Partner, any Person
the principal business of which is to engage in or provide
Management Services with respect to real estate assets that are
not owned or controlled by such Person or by any Affiliate of
such Person, or by any lender to, or any borrower from, such
Person or any Affiliate of such Person.
"Management Services" means property management services,
asset management services, services relating to the acquisition,
financing or disposition of assets and advisory services in
connection with the foregoing and the like.
"Managing General Partner" means Oxford Tax Exempt Fund II
Corporation, in its capacity as Managing General Partner, or any
successor to Oxford Tax Exempt Fund II Corporation's General
Partnership Interest.
"Mortgaged Property" means the land and the buildings
thereon upon which the Partnership holds a mortgage or other
similar encumbrance securing a Mortgage Loan.
"Mortgage Loan" means one of the mortgage loans that has
been assigned to the Partnership or to a trustee or other agent,
for the benefit of the holders of a Mortgage Revenue Bond to
secure the repayment of such Mortgage Revenue Bond.
"Mortgage Revenue Bond" means (i) one of the tax-exempt
mortgage revenue bonds (or any partial interest therein)
transferred to or acquired by the Partnership (including the OTEF
I Mortgage Revenue Bonds and Additional Mortgage Revenue Bonds)
and any mortgage revenue bond substituted therefor (including in
connection with any refunding or modification of any mortgage
revenue bond held by the Partnership), (ii) any mortgage revenue
bond which is secured by cash or other liquid securities pending
disbursement with respect to a Mortgage Loan and (iii) any Other
Assets.
"Net Offering Proceeds" means the total amount of funds
received by the Partnership in connection with an Offering (i.e.,
the Gross Offering Proceeds, reduced by the commissions, fees,
discounts and other expenses of the Offering).
<PAGE> 8
"Notice" means a writing, containing the information
required by this Agreement to be communicated to any Person,
personally delivered to such Person or sent by registered,
certified or regular mail, postage prepaid, or by overnight
delivery service, to such Person at the last known address of
such Person. The date of personal delivery or the date of
mailing thereof, as the case may be, shall be deemed the date of
receipt of such Notice.
"Offering" means an offering by the Partnership of BACs or
other securities representing an interest in any assets of the
Partnership.
"ORFGI" means Oxford Realty Financial Group, Inc., a
Maryland corporation.
"Other Assets" means direct or indirect interests in
residential real properties or debt or equity interests relating
thereto, including assets that could produce income that is
subject to federal income taxation.
"OTEF I" means Oxford Tax Exempt Fund Limited Partnership, a
Maryland limited partnership, which was organized on May 1, 1985.
"OTEF I BACs" means the Beneficial Assignee Certificates
representing assigned limited partnership interests in OTEF I.
"OTEF I BAC Holder" means any Person who holds as of the BAC
Distribution Date an assignment of limited partnership interests
in OTEF I, which assignment is represented by one or more OTEF I
BACs, but who has not become a limited partner of OTEF I.
"OTEF I Limited Partner" means any Person who holds a
limited partnership interest in OTEF I as of the BAC Distribution
Date.
"OTEF I Mortgage Revenue Bonds" means the fifteen (15)
mortgage revenue bonds and certain related assets held by OTEF I,
contributed by OTEF I to the Partnership in exchange for BACs in
accordance with Section 3.3(a) hereof.
"OTEF I Partnership Agreement" means the Amended and
Restated Certificate and Agreement of Limited Partnership of OTEF
I.
"Oxford Mortgage Loan" means a Mortgage Loan that secures
the repayment of an Oxford Mortgage Revenue Bond.
"Oxford Mortgage Revenue Bond" means a Mortgage Revenue Bond
secured by a Mortgage Loan on an Oxford Property.
"Oxford Property" means a Mortgaged Property owned by an
Affiliate of either of the General Partners.
"Partner" means any General Partner or any Limited Partner
and "Partners" means the General Partners and the Limited
Partners.
<PAGE> 9
"Partnership" means the limited partnership formed hereby
and under the Act and known as Oxford Tax Exempt Fund II Limited
Partnership, as said limited partnership may from time to time be
constituted, and any successor thereto.
"Partnership 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 under this Agreement, together with the
obligations of such Partner to comply with all the terms and
provisions of this Agreement. References to a majority, or
specified percentage, in interest of the Partners (or class of
Partners, as the case may be) means Partners (or Partners of such
class, as the case may be) whose combined Partnership Interests
represent over 50%, or such specified percentage, respectively,
of the Partnership Interests of all Partners (or Partners of such
class, as the case may be), it being understood that the Initial
Limited Partner shall vote its Partnership Interest on behalf of
and in accordance with the written directions of the related BAC
Holders. References to the Partnership Interest of any Partner
or class of Partners, stated as a percentage, refer to such
Partner's or class of Partners', as the context may require,
percentage Partnership Interest as specified in Sections 3.1 and
3.2.
"Person" means any individual, partnership, corporation,
joint venture, business trust, trust, limited liability
partnership or company, unincorporated organization, cooperative
association or other entity.
"Profits" and "Losses" means, for each fiscal period, an
amount equal to the Partnership's taxable income or loss for such
period, determined in accordance with Code Section 703(a) (for
this purpose, all items of income, gain, loss or deduction
required to be stated separately pursuant to Code Section
703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in
computing Profits or Losses shall be added to such taxable income
or loss;
(b) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulations Section 1.704-
1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits or Losses, shall be subtracted from such taxable income
or loss;
(c) in the event the Gross Asset Value of any Partnership
asset is adjusted as provided in the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes
of computing Profits or Losses;
(d) gain or loss resulting from any disposition of
Partnership property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of the Partnership property
disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value;
<PAGE> 10
(e) in lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal period; and
(f) any items of income, gain, deduction or loss which are
specially allocated pursuant to Section 4.9 hereof shall be
excluded from the calculation of Profits and Losses.
"Record Holder" means the BAC Holder in whose name a BAC is
registered on the books and records of the Partnership or the
Transfer Agent, as the case may be.
"Residual Proceeds" means all cash receipts of the
Partnership arising from Capital Contributions, loans to the
Partnership, Sales or Repayments, plus any amounts previously
placed in the Working Capital Reserve pursuant to Section
4.2(a)(i) that the Managing General Partner releases from the
Working Capital Reserve, reduced by all amounts utilized to pay
the expenses associated with obtaining such cash receipts and by
all amounts that the Managing General Partner designates for
reinvestment in Additional Mortgage Revenue Bonds or Other
Assets.
"Revenues" means all cash receipts of the Partnership during
any period except for Residual Proceeds and Liquidation Proceeds.
"Sale or Repayment" means the sale or other disposition of a
Mortgage Revenue Bond (or interest therein) or a Mortgaged
Property (a "Sale") or, in the absence of a Sale, the repayment
of the principal and interest, if any, payable upon maturity or
remarketing of a Mortgage Revenue Bond (a "Repayment"). For this
purpose, a Sale includes a syndication after the later of three
years following acquisition by the Partnership of the related
Mortgage Revenue Bond or construction completion, of more than
50% of the economic interest (not including tax benefits) in the
partnership owning the Mortgaged Property, but does not include a
syndication prior to the later of three years following
acquisition by the Partnership of the related Mortgage Revenue
Bond or construction completion or a syndication of less than 50%
of the economic interest (not including tax benefits) in the
partnership owning the Mortgaged Property.
"Substitute Limited Partner" means any Person admitted to
the Partnership as a Limited Partner pursuant to the provisions
of Section 7.5(d) or 11.3.
"Tax Matters Partner" means the Managing General Partner or
such other Persons as are designated pursuant to the Code.
"Transfer Agent" means any bank, trust company or other
Person appointed by the Managing General Partner to act as
transfer agent for the BACs.
"Unit" means a fractional, undivided share of the Limited
Partnership Interests and BACs of all Limited Partners and BAC
Holders. Initially, pursuant to Section 3.3(b), there shall be
considered to be 299,995 Units of Limited Partnership Interest
outstanding, with each Unit of Limited Partnership Interest
representing an approximately 0.00033% Partnership Interest in
the
<PAGE> 11
Partnership. Each BAC shall represent one BAC Holder Unit,
and one BAC Holder Unit shall be equivalent to one Unit of
Limited Partnership Interest.
"Withdrawn General Partner" means a Bankrupt, withdrawn,
dissolved or removed General Partner, as specified in Section
6.4(b).
"Working Capital Reserve" means funds from Revenues,
Residual Proceeds and Liquidation Proceeds held in a reserve at
the discretion of the Managing General Partner that are
maintained as working capital for the Partnership and available
for any contingencies relating to the ownership of the Mortgage
Revenue Bonds and the operations of the Partnership and for
making acquisition payments for Mortgage Revenue Bonds. Amounts
held in the Working Capital Reserve may at any time, in the
discretion of the Managing General Partner, be added to Cash
Flow, Residual Proceeds or Liquidation Proceeds depending upon
the characterization of such amounts when received by the
Partnership, or utilized for making acquisition payments for
Mortgage Revenue Bonds.
ARTICLE II
CONTINUATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
Section 2.1 Continuation of Partnership.
The parties hereto do hereby continue the limited
partnership pursuant to the provisions of the Act, and all other
pertinent laws of the State of Maryland, for the purposes and
upon the terms and conditions hereinafter set forth. The
Partners agree that the rights and liabilities of the Partners
shall be as provided in the Act except as otherwise herein
expressly provided. The Managing General Partner has filed or
recorded in all appropriate public offices a certificate of
limited partnership and such other notice, instrument, document
or certificate as may be required by applicable law, and that may
be necessary to enable the Partnership to conduct its business,
and to own its assets, under the Partnership name. The
Partnership Interest of each Partner shall be personal property
for all purposes.
Section 2.2 Name, Place of Business and Name and Address of
Resident Agent.
(a) The name of the Partnership is OXFORD TAX EXEMPT FUND II
LIMITED PARTNERSHIP. The Partnership's business may be conducted
under any other name or names deemed advisable by the Managing
General Partner, including the name of the Managing General
Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be
included in the Partnership's name where necessary for the
purposes of complying with the laws of any jurisdiction that so
requires. The Managing General Partner in its sole and absolute
discretion may change the name of the Partnership at any time and
from time to time and shall notify the Limited Partners and BAC
Holders of such change in the next regular communication to the
Limited Partners and BAC Holders.
<PAGE> 12
(b) The address of the principal place of business and principal
office of the Partnership, unless hereafter changed by the
Managing General Partner, shall be 7200 Wisconsin Avenue, 11th
Floor, Bethesda, Maryland 20814. Notification of any change in
the Partnership's principal place of business and principal
office shall be given by the Managing General Partner to the
Associate General Partner, Limited Partners and BAC Holders.
(c) The name and address of the resident agent is Oxford
Investment Corporation, a Maryland corporation, whose address is
7200 Wisconsin Avenue, 11th Floor, Bethesda, Maryland 20814,
Attention: Office of the General Counsel.
Section 2.3 Purpose.
The purpose and character of the business of the Partnership
is to acquire, own and otherwise deal with Mortgage Revenue Bonds
and to engage in other activities necessary, incidental or
appropriate to the foregoing in order to (i) preserve and protect
the Partnership's capital; (ii) provide cash distributions that
are exempt from federal income taxation; and (iii) provide
additional cash distributions from contingent interest payments
arising from (a) a participation in the cash flow of the
Mortgaged Properties or (b) to the extent not paid from cash
flow, a participation in the net proceeds from the repayment of
the Mortgage Revenue Bonds resulting from the sale or refinancing
of the Mortgaged Properties or from the remarketing of the
Mortgage Revenue Bonds (which contingent interest in both cases
is exempt from federal income taxation).
Section 2.4 Term.
The Partnership shall continue in full force and effect
until December 31, 2045, or until dissolution prior thereto
pursuant to the provisions hereof, and upon the filing of a
Certificate of Cancellation with the State of Maryland Department
of Assessments and Taxation in accordance with Article VIII.
ARTICLE III
PARTNERS AND CAPITAL
Section 3.1 General Partners.
The General Partners are Oxford Tax Exempt Fund II
Corporation, a Maryland corporation, and OTEF II Associates
Limited Partnership, a Maryland limited partnership. The names,
addresses, initial Capital Contributions and initial Partnership
Interests of the General Partners are as follows:
<PAGE> 13
<TABLE>
<CAPTION>
Capital Partnership
Contribution Interest
------------ -----------
Name and Address
- -------------------------------------
<S> <C> <C>
Oxford Tax Exempt Fund II Corporation
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814 $500 .002%
OTEF II Associates Limited Partnership
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814 $500 1.998%
The General Partners shall not be required to make any
additional Capital Contributions to the Partnership.
</TABLE>
Section 3.2 Limited Partners.
(a) the name, address, initial Capital Contribution and initial
Partnership Interest of the Initial Limited Partner is:
<TABLE>
<CAPTION>
Capital Partnership
Contribution Interest
------------ -----------
Name and Address
- -------------------------------------
<S> <C> <C>
OTEF II Assignor Corporation
7200 Wisconsin Avenue, 11th Floor
Bethesda, Maryland 20814 $100 98%
</TABLE>
The Initial Limited Partner shall make additional Capital
Contributions to the Partnership consisting of the OTEF I
Mortgage Revenue Bonds received in exchange for BACs in
accordance with Section 3.3(a) and Gross Offering Proceeds, if
any, received on an Investment Date in accordance with Section
3.3(b).
(b) The name, address and Capital Contribution of any Limited
Partner other than the Initial Limited Partner shall be set forth
in a schedule to this Agreement at such times as such other
Limited Partners may be admitted hereto.
Section 3.3 BAC Holders.
(a) The Managing General Partner issued 299,995 Units of Limited
Partnership Interest to the Initial Limited Partner (such Units
representing in the aggregate a ninety-eight percent (98%)
ownership interest in the Partnership), and, upon the
contribution to the Partnership by OTEF I of the OTEF I Mortgage
Revenue Bonds, the Initial Limited Partner distributed 299,995
BAC Holder Units to OTEF I (such Units
<PAGE> 14
representing in the aggregate a ninety-eight percent (98%)
ownership interest in the Partnership) representing the assignment
of such Limited Partnership Interests to OTEF I. (The date upon
which such issuance occurred is referred to herein as the "BAC
Issuance Date.") On the BAC Issuance Date, OTEF I assigned and
delivered the OTEF I Mortgage Revenue Bonds to the Partnership, which
accepted such assignment and delivery on behalf of the Initial
Limited Partner. The Partnership contributed the OTEF I Mortgage
Revenue Bonds to the capital of the Partnership, and the Initial
Limited Partner and OTEF I were credited on the books and records
of the Partnership with such Capital Contribution. It is
contemplated that OTEF I subsequently will distribute all of such
BACs to the OTEF I BAC Holders and OTEF I Limited Partners pro
rata based on their percentage ownership interest in OTEF I and
that the OTEF I BAC Holders and OTEF I Limited Partners will
thereby become BAC Holders of the Partnership. (The date on
which such distribution occurs is referred to herein as the "BAC
Distribution Date.") From the BAC Issuance Date to the BAC
Distribution Date, OTEF I shall be recognized as the sole BAC
Holder of the Partnership with all the rights attendant thereto
under this Agreement. On and as of the BAC Distribution Date,
the OTEF I BAC Holders and OTEF I Limited Partners shall
constitute all of the BAC Holders of the Partnership with all the
rights attendant thereto under this Agreement and OTEF IIs
interest as a BAC Holder of the Partnership shall cease.
(b) The Managing General Partner is hereby authorized to issue
additional limited partnership interests and BACs or other
securities for such consideration and upon such other terms and
conditions and with such voting, distribution, liquidation,
conversion, registration, redemption, and other rights and
preferences as shall be determined by the Managing General
Partner in its sole and absolute discretion, except that a
written opinion from the Independent Real Estate Consultant shall
be obtained for any such issuance of the securities proposed to
be issued which would have any rights senior to the BACs to be
issued pursuant to Section 3.3(a). The Managing General Partner
shall have the authority, subject to receipt of a written opinion
from the Independent Real Estate Consultant if required pursuant
to the preceding sentence, to amend this Agreement (including
without limitation the provisions of Articles IV, XII and XIII)
as it deems necessary or appropriate in its sole and absolute
discretion to reflect such issuance of any such additional
limited partnership interests or BACs or other securities. In
the event of an Offering of BACs (other than the BACs issued to
OTEF I in accordance with subsection (a) above), the Managing
General Partner is authorized and directed to issue such number
of Limited Partnership Interests to the Initial Limited Partner
as are equal to the number of BACs sold as of the Investment Date
for the Offering, and the Initial Limited Partner shall issue
BACs to the purchasers in such Offering representing the
assignment to them of such Limited Partnership Interests.
Payment for all orders for BACs sold in an Offering shall be
received by the Partnership. On each Investment Date, such funds
as shall be received by the Partnership shall be contributed to
the capital of the Partnership, and the Initial Limited Partner
and the BAC Holders shall be credited on the books and records of
the Partnership with such Capital Contributions. The investors
in such BACs shall be recognized as BAC Holders with all the
rights attendant thereto under this Agreement on the related
Investment Date.
<PAGE> 15
(c) The Managing General Partner is hereby authorized to do all
things necessary to accomplish the purpose of this Section 3.3,
including, but not limited to, registering any offer or sale of
additional limited partnership interests, BACs or other
securities under the Securities Act of 1933, as amended, pursuant
to the rules and regulations of the Securities and Exchange
Commission, registering such securities under the Securities
Exchange Act of 1934, as amended, qualifying such securities for
sale with state securities regulatory authorities and perfecting
exemptions upon such terms and conditions as the Managing General
Partner may deem advisable and entering into selling agreements
with respect to the sale of such securities.
(d) The General Partners or any Affiliates of a General Partner
or any employees of such Affiliates may purchase BACs from the
Partnership or from any Limited Partner or BAC Holder; provided,
however, that the total amount of BACs held by any person deemed
to be a "substantial user" of any Mortgaged Property (as defined
in Treasury Regulations Section 1.103-11(b)) or a "related
person" to a substantial user (as defined in Section 147(a) of
the Code) shall not equal or exceed 50% of the total BACs
outstanding.
(e) All interest income earned on any Gross Offering Proceeds
prior to the date that the Net Offering Proceeds are released to
the Partnership on behalf of the Initial Limited Partner pursuant
to Section 3.3(b) shall be allocated and paid solely to the
Persons who purchased securities in the Offering based on the
amount earned by their respective shares of such Gross Offering
Proceeds, and the General Partners shall not receive any portion
of such interest income.
(f) The General Partners shall not issue fractional BACs.
(g) Notwithstanding anything to the contrary contained in this
Agreement, on or after the BAC Distribution Date, the Managing
General Partner is authorized, in its sole and absolute
discretion, to issue an additional class of securities to be
offered in exchange for the outstanding BACs delivered by OTEF I
to the BAC Holders pursuant to Section 3.3(a), and to designate
the rights and entitlements of such securities, for the purpose
of causing such securities, to the extent practicable, to have
rights and entitlements similar to those of the OTEF I BACs. The
Managing General Partner is authorized, but is not required, to
obtain a written opinion from the Independent Real Estate
Consultant in connection with the issuance of any such
securities. The Managing General Partner shall have the
authority to take all actions necessary, including without
limitation, amending the Agreement, and segregating Partnership
assets and transferring such assets to a new entity, in order to
effectuate the issuance of such securities.
Section 3.4 Partnership Capital.
(a) No Partner or BAC Holder shall be paid interest on any
Capital Contribution.
<PAGE> 16
(b) The Partnership may (but shall not be required to) redeem or
repurchase any Limited Partnership Interest or BAC at the fair
market value of such Limited Partnership Interest or BAC, as
determined by the Managing General Partner in its sole and
absolute discretion. No Partner or BAC Holder shall have the
right to withdraw, or receive any return of, his Capital
Contribution, except as specifically provided in this Agreement.
Except as otherwise permitted pursuant to Section 4.11 or Section
8.2, no Capital Contributions may be returned in the form of
property other than cash, unless a written opinion of the
Independent Real Estate Consultant has been obtained.
Section 3.5 Liability of Partners and BAC Holders.
The liability of each Limited Partner and BAC Holder for the
losses, debts, liabilities and obligations of the Partnership
shall be limited to his Capital Contribution (or, in the case of
a BAC Holder, the Capital Contribution made on his behalf) and
his share of any undistributed profits of the Partnership, except
to the extent that under applicable law a Limited Partner or BAC
Holder may be liable (i) to the Partnership to the extent of
previous distributions made to him if the Partnership does not
have sufficient assets to discharge its liabilities or (ii) to
third parties to the extent a Limited Partner or BAC Holder takes
part in the control of the Partnership's business. No Limited
Partner or BAC Holder shall be required to lend any funds to the
Partnership or, after his Capital Contribution (or the Capital
Contribution made on his behalf) has been made pursuant to
Section 3.3, to make any further Capital Contribution to the
Partnership. It is the intent of the Partners that no
distribution (or any part of any distribution) made to any
Limited Partner or BAC Holder pursuant to Section 4.1 of this
Agreement shall be deemed a repayment or withdrawal of capital,
and that no Limited Partner or BAC Holder shall be obligated to
pay any such amount to or for the account of the Partnership or
any creditor of the Partnership. If any court of competent
jurisdiction holds, however, that, notwithstanding the provisions
of this Agreement, any Limited Partner or BAC Holder is obligated
to make any such payment, such obligation shall be the obligation
of such Limited Partner or BAC Holder and not of the General
Partners. To the extent that the Initial Limited Partner is
required to return any distributions or repay any amount by law
or pursuant to this Section 3.5, each BAC Holder who has received
any portion of such distributions agrees, by virtue of accepting
such distribution, to pay his proportionate share of such amount
to the Initial Limited Partner immediately upon Notice by the
Initial Limited Partner to such BAC Holder. In the event that
the Initial Limited Partner is determined to have unlimited
liability for debts of the Partnership, nothing set forth in this
Section shall be construed to require BAC Holders to assume any
portion of such liability.
ARTICLE IV
DISTRIBUTIONS OF CASH; ALLOCATIONS OF PROFITS AND LOSSES
Section 4.1 Distributions of Cash Flow.
All Cash Flow shall be paid first 98% to the Limited
Partners and BAC Holders as a class and 2% to the General
Partners (1.998% to the Associate General Partner and .002% to
the Managing General Partner) until the Limited Partners and BAC
Holders as a class (other than the Affiliated BAC Holder with
respect to the Affiliated BACs that it owns) have received a
<PAGE> 17
noncumulative return in such year equal to 11% of the Limited
Partners Preference Amount and, thereafter during such year, 90%
to the Limited Partners and BAC Holders as a class and 10% to the
General Partners (9.99% to the Associate General Partner and
0.01% to the Managing General Partner). Notwithstanding the
foregoing, during the period that OTEF I is a BAC Holder (i.e.,
from the BAC Issuance Date to the BAC Distribution Date), the
Cash Flow to which the General Partners otherwise would be
entitled pursuant to the preceding sentence shall be reduced, on
a pro rata basis (in proportion to the respective Partnership
Interests of the General Partners), by the amount of such Cash
Flow that is distributable to the general partners of OTEF I
pursuant to the provisions of the OTEF I Partnership Agreement
(the "OTEF I GP Cash Flow Amount"); provided that, if this
results in the General Partners receiving in the aggregate less
than one percent (1%) of any particular Cash Flow distribution,
the General Partners shall receive in the aggregate one percent
(1%) of such Cash Flow distribution, and future Cash Flow
distributions to the General Partners shall be reduced (subject
to the same one percent (1%) minimum distribution provisions
contained herein) until the cumulative Cash Flow distributions to
the General Partners have been reduced by the cumulative OTEF I
GP Cash Flow Amount.
Section 4.2 Distributions of Residual Proceeds and of
Liquidation Proceeds.
(a) All Residual Proceeds (other than Liquidation Proceeds)
shall be applied to the payment of expenses or utilized for
Partnership investments at the discretion of the Managing General
Partner, or shall be available for distribution to the extent not
so applied or invested, in which case such amounts shall be
applied and distributed in the following amounts and order of
priority:
(i) To the payment of all debts and obligations of the
Partnership (except for loans made by the General Partners or
their Affiliates to the Partnership) and to any additions to the
Working Capital Reserve that the Managing General Partner may
determine to be necessary;
(ii) To the Limited Partners and BAC Holders as a class (other
than the Affiliated BAC Holder with respect to the Affiliated
BACs that it owns) until the Limited Partners and BAC Holders as
a class (other than the Affiliated BAC Holder with respect to the
Affiliated BACs that it owns) have received from Residual
Proceeds an amount equal to the Limited Partners Preference
Amount;
(iii) To the Affiliated BAC Holder, an amount equal to $1,000
times the number of OTEF I BACs originally acquired by Two
Broadway Associates IV B pursuant to Section 3.03(e) of the OTEF
I Partnership Agreement, less any distributions made prior to the
BAC Distribution Date pursuant to Section 4.02(a)(iii) of the
OTEF I Partnership Agreement with respect to such OTEF I BACs and
less any prior distributions to the Affiliated BAC Holder
pursuant to this subsection 4.2(a)(iii);
(iv) To the Associate General Partner and its Affiliates (other
than the Managing General Partner) in an amount equal to the
loans, if any, from the
<PAGE> 18
Associate General Partner or, as the case
may be, its Affiliates (other than the Managing General Partner)
to the Partnership with interest thereon;
(v) To the Managing General Partner and its Affiliates (other
than the Associate General Partner) in an amount equal to the
loans, if any, from the Managing General Partner or, as the case
may be, its Affiliates (other than the Associate General
Partner), to the Partnership with interest thereon;
(vi) To the General Partners until the General Partners have
received from Residual Proceeds an amount equal to the General
Partner Preference Amount;
(vii) Thereafter, the balance 98% to the Limited Partners and
BAC Holders as a class and 2% to the General Partners (1.998% to
the Associate General Partner and 0.002% to the Managing General
Partner); provided, however, that the 2% payable to the General
Partners shall be deferred until the Limited Partners and BAC
Holders as a class (other than the Affiliated BAC Holder with
respect to the Affiliated BACs that it owns) have received an
amount (when combined with all prior distributions of cash flow
and residual proceeds by OTEF I prior to the BAC Distribution
Date and all prior distributions of Cash Flow and Residual
Proceeds) equal to an average annual noncompounded return of 10%
of the Limited Partners Preference Amount from the date of
inception of OTEF I.
(b) All Liquidation Proceeds shall be applied and distributed in
the following amounts and order of priority:
(i) To the payment of the amounts and the establishment of the
reserves provided for in Section 8.2(c);
(ii) To the Partners and BAC Holders in the amounts and order of
priority established under Sections 4.2(a)(ii) through (v); and
(iii) To each Partner or BAC Holder in an amount equal to the
positive balance in his Capital Account as of the date of the
liquidation of the Partnership, adjusted for operations and
distributions to that date, after giving effect to all
contributions, distributions (including, without limitation,
distributions received by the Partners and BAC Holders pursuant
to (ii) and (iii) above) and allocations for all periods.
(c) If there are insufficient funds to make payment in full of
all amounts due under any subsection of Section 4.2(a) or 4.2(b),
the funds then available for payment shall be distributed
proportionately among the Persons entitled to payment pursuant to
such subsection.
<PAGE> 19
Section 4.3 Allocation of Profits and Losses From Operations.
(a) Subject to the provisions of Section 4.9 hereof, Profits
attributable to any calendar month not arising from a Sale or
Repayment or liquidation of the Partnership shall be allocated
between the General Partners and the Limited Partners and BAC
Holders as a class as follows:
(i) First, to the extent that the Partners and BAC Holders have
received distributions pursuant to Section 4.1 above for such
calendar month or any prior calendar month, to each Partner and
BAC Holder in proportion to their respective "Excess
Distributions" amounts (as defined below), until the Excess
Distributions amount of each Partner and BAC Holder has been
reduced to zero. The "Excess Distributions" amount of a Partner
or BAC Holder means the excess of (x) the total distributions
pursuant to Section 4.1 above for such calendar month and all
prior calendar months to such Partner or BAC Holder, over (y) the
total Profits allocated to such Partner or BAC Holder under this
subsection 4.3(a)(i) for all prior calendar months; and
(ii) Thereafter, 98% to the Limited Partners and BAC Holders as a
class and 2% to the General Partners (1.998% to the Associate
General Partner and 0.002% to the Managing General Partner).
(b) Subject to the provisions of Section 4.9 hereof, Losses
attributable to any calendar month not arising from a Sale or
Repayment or liquidation of the Partnership shall be allocated
98% to the Limited Partners and BAC Holders as a class and 2% to
the General Partners (1.998% to the Associate General Partner and
0.002% to the Managing General Partner).
(c) Any Profits and Losses attributable to the period prior to
the BAC Issuance Date shall be allocated 99% to the General
Partners (98.9% to the Associate General Partner and .1% to the
Managing General Partner) and 1% to the Initial Limited Partner.
Section 4.4 Allocation of Profits and Losses Arising From a
Sale or Repayment or Liqidation of the Partnership.
(a) Subject to the provisions of Section 4.9 hereof, Profits
arising from a Sale or Repayment or from the liquidation of the
Partnership shall be allocated in a manner so as to cause the
positive Capital Account balance of each Partner and BAC Holder
to be equal to the amount that would be payable to such Partner
or BAC Holder if an amount equal to the sum of (i) the positive
Capital Account balances of all Partners and BAC Holders,
determined prior to any allocation under this Section 4.4(a) with
respect to such sale, repayment or liquidation, plus (ii) the
Profits to be allocated among the Partners and BAC Holders under
this Section 4.4(a) with respect to such sale, repayment or
liquidation
<PAGE> 20
were distributed among the Partners and BAC Holders
in accordance with Sections 4.2(a) (ii), (iii), (vi) and (vii).
(b) Subject to the provisions of Section 4.9 hereof, Losses
arising from a Sale or Repayment or from the liquidation of the
Partnership shall be allocated in a manner so as to cause the
positive Capital Account balance of each Partner and BAC Holder
to be equal to zero; or, if there are insufficient Losses to
accomplish this result, in a manner so as to cause the positive
Capital Account balance of each Partner and BAC Holder to be
equal to the amount that would be payable to such Partner or BAC
Holder if an amount equal to (i) the positive Capital Account
balances of all Partners and BAC Holders, determined prior to any
allocation under this Section 4.4(b) with respect to such sale,
repayment or liquidation, reduced by (ii) the Losses to be
allocated among the Partners and BAC Holders under this Section
4.4(b) with respect to such sale, repayment or liquidation were
distributed among the Partners and BAC Holders in accordance with
Sections 4.2(a) (ii), (iii), (vi) and (vii).
Section 4.5 Determination of Profits, Losses and Distributions
(a) Profits and Losses shall be determined in accordance with
the accounting methods followed by the Partnership for federal
income tax purposes and otherwise in accordance with generally
accepted accounting principles.
(b) Within 30 days after the end of each calendar month, the
Partnership shall conduct an interim closing of the books as of
the end of the last day of that calendar month. On the basis of
this closing of the books for each calendar month, the
Partnership shall determine the amount of Profits and Losses
attributable to that calendar month. The amount of cash
distributions to be made as provided in Section 4.6(c) shall be
determined on a quarterly basis, based on an interim closing of
the books as of the end of the last day of the relevant calendar
quarter.
(c) Distributions of Cash Flow under Section 4.1 and of Residual
Proceeds, if any, under Section 4.2(a) shall be made quarterly,
within 45 days after the end of each calendar quarter.
Section 4.6 Allocations and Distributions Among Limited
Partners and BAC Holders.
(a) All allocations to the Limited Partners and BAC Holders as a
class pursuant to Section 4.3 attributable to each calendar month
shall be allocated solely among the Limited Partners and BAC
Holders recognized as holders of a Limited Partnership Interest
or a BAC as of the last day of that calendar month, in proportion
to the number of Units held by each such Limited Partner and BAC
Holder.
(b) All allocations to the Limited Partners and BAC Holders as a
class pursuant to Section 4.4 shall be allocated, as the case may
be, to the Persons recognized as the holders of Limited
Partnership Interests and BACs as of the last day of the calendar
<PAGE> 21
month during which the transaction giving rise to the allocation
occurred, in proportion to the number of Units held by each such
Limited Partner and BAC Holder.
(c) All distributions to the Limited Partners and BAC Holders as
a class pursuant to Section 4.1 or 4.2 attributable to funds
received by the Partnership during a calendar quarter shall be
distributed to the Limited Partners and BAC Holders who hold a
Partnership Interest or BAC as of the last day of such calendar
quarter, in proportion to the number of Units held by each such
Limited Partner or BAC Holder.
(d) Allocations that would otherwise be made to a BAC Holder
under the provisions of this Article IV shall instead be made to
the beneficial owner of BACs held by a nominee in any case in
which the nominee has furnished the identity of such owner to the
Partnership in accordance with Section 6031(c) of the Code or any
other method acceptable to the Managing General Partner in its
sole discretion.
Section 4.7 Capital Accounts.
A Capital Account shall be established and maintained for
each Partner in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv). There shall be credited to each Partner's
Capital Account the amount of such Partner's Capital Contribution
(including the Capital Contributions of the Initial Limited
Partner on behalf of the BAC Holders) and such Partner's share of
Profits, and there shall be charged against each Partner's
Capital Account the amount of such Partner's share of Losses and
distributions. The Initial Limited Partner's Capital Account
shall be subdivided into separate Capital Accounts for each BAC
Holder (or beneficial owner of BACs held by a nominee in any case
in which the nominee has furnished the identity of such owner to
the Partnership in accordance with Section 6031(c) of the Code or
any other method acceptable to the Managing General Partner in
its sole discretion) to reflect the interest of each BAC Holder.
Any items credited or charged to the BAC Holders shall be
reflected in the Capital Account of the Initial Limited Partner
and in the subaccounts reflecting the interest of each BAC
Holder. Any person who acquires a BAC or a Limited Partnership
Interest from a Limited Partner or BAC Holder shall have a
Capital Account equal to the Capital Account of the Limited
Partner or BAC Holder from which such BAC or Limited Partnership
Interest was acquired. The Capital Account in respect of a
particular Limited Partnership Interest, BAC or other specified
interest in the Partnership shall be the amount which such
Capital Account would be if such Limited Partnership Interest,
BAC or other specified interest in the Partnership were the only
interest in the Partnership held by a Partner or BAC Holder, as
the case may be, from and after the date on which such Limited
Partnership Interest, BAC or other specified interest in the
Partnership was first issued.
Section 4.8 Return of Capital and Rights to Distributions.
Each holder of Partnership Interests and BACs shall look
solely to the assets of the Partnership for all distributions
with respect to the Partnership, his Capital Contributions and
his share of Cash Flow, Residual Proceeds and Liquidation
Proceeds, and shall have no recourse therefor, upon dissolution,
or otherwise, against any General Partner or Limited Partner. No
<PAGE> 22
Partner or BAC Holder shall have any right to demand or receive
property other than cash upon dissolution and termination of the
Partnership.
Section 4.9 Special Allocations and Limitations.
Notwithstanding the provisions of Sections 4.3 and 4.4
hereof:
(a) In the event a Partner or BAC Holder unexpectedly receives
in any taxable period any adjustments, allocations, or
distributions described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5), or (6) which cause or increase an
Adjusted Capital Account Deficit of such Partner or BAC Holder,
items of Partnership income and gain shall be specially allocated
to such Partner or BAC Holder in such taxable period (and, if
necessary, in subsequent taxable periods), in an amount and
manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Adjusted Capital Account Deficit of
such Partner or BAC Holder as quickly as possible.
(b) In no event shall Losses of the Partnership be allocated to
a Partner or BAC Holder if such allocation would result in such
Partner or BAC Holder having an Adjusted Capital Account Deficit
at the end of any taxable period. All Losses in excess of the
foregoing limitation shall be allocated to the General Partners;
or, if the allocation of Losses to the General Partners is
limited pursuant to the first sentence of this Section 4.9(b),
such Losses shall be allocated to the Limited Partners and BAC
Holders who do not have Adjusted Capital Account Deficits in
proportion to their respective Capital Account balances.
(c) The allocations set forth in (a) and (b) above (the
"Regulatory Allocations") are intended to comply with certain
requirements of Treasury Regulations promulgated under Code
Section 704. The Regulatory Allocations shall be taken into
account in allocating subsequent Profits, Losses, and items
thereof to each Partner and BAC Holder so that, to the extent
possible, and to the extent permitted by the Treasury
Regulations, the cumulative amount of the allocations of Profits,
Losses, and other items and the Regulatory Allocations to each
Partner and BAC Holder shall be equal to the cumulative amount
that would have been allocated to each Partner and BAC Holder if
the Regulatory Allocations had not been made.
(d) Subject to the provisions of Section 4.10 below, with
respect to property contributed to the Partnership by a Partner
or BAC Holder, items of income, gain, loss, deduction and credit
shall be allocated among the Partners and BAC Holders so as to
take into account the variation between the adjusted basis of
such property for federal income tax purposes and its Gross Asset
Value at the time of contribution in accordance with the
principles of Code Section 704(c). In addition, in the event
that the Gross Asset Value of any Partnership asset is adjusted
as described in the definition of Gross Asset Value set forth in
Article I hereof, subsequent allocations of income, gain,
deduction and loss with respect to such asset shall take into
account any variation between the adjusted basis of such asset
for federal income tax purposes and its Gross Asset Value in
accordance with the principles of Treasury Regulations Section
1.704-1(b)(2)(iv)(g).
<PAGE> 23
(e) In the event that the Partnership incurs any liability that
is considered nonrecourse for purposes of Treasury Regulations
Section 1.752-2, (i) the Partnership shall comply with the
provisions of Treasury Regulations Section 1.752-2 with respect
to allocations attributable to such nonrecourse liability, (ii)
the Partner Capital Account balances with respect to any
Partnership period prior to the period in which a liquidation of
the Partnership occurs shall, solely for purposes of Section 4.4
hereof, be deemed increased by the Partners' and BAC Holders'
respective shares of any Partnership minimum gain and partner
nonrecourse debt minimum gain with respect to any such
nonrecourse liability, and (iii) for purposes of allocating
Partnership nonrecourse liabilities among the General Partners
and the Limited Partners and BAC Holders as a class pursuant to
Treasury Regulation Section 1.752-3(a)(3), the interest in
Partnership profits of the General Partners and the Limited
Partners and BAC Holders as a class shall be 2% and 98%,
respectively. The Managing General Partner shall have sole
discretion to make such elections as it deems appropriate in
effectuating the provisions of Treasury Regulations Section 1.752-
2, including without limitation sole discretion to amend the
provisions of this Agreement if deemed necessary or appropriate.
(f) Notwithstanding anything to the contrary contained in this
Article IV, other than the allocations set forth in Sections
4.9(a), (b), (d) and (e) above, the General Partners, in the
aggregate, shall be allocated no less than one percent (1%) of
each item of Partnership income, gain, loss deduction, or credit
at all times during the existence of the Partnership.
Section 4.10 Maintenance of Tax Fungibility of Limited
Partnership Interests and BACs.
It is intended that the allocations described in Sections
4.9(d) and 9.5 constitute allocations for federal income tax
purposes that are consistent with Sections 704 and 754 of the
Code and the regulations issued thereunder and comply with any
limitations or restrictions therein, to the extent reasonably
possible without causing Limited Partnership Interests and BACs
(other than the Affiliated BACs) to lack uniform characteristics
for federal income tax purposes. To preserve such uniformity,
the Managing General Partner shall have sole discretion to (i)
adopt such conventions as it deems appropriate in effectuating
the provisions of Sections 704 and 754 of the Code, (ii) make
special allocations of income or deduction for federal income tax
purposes, and (iii) amend the provisions of this Agreement as
appropriate to preserve the uniformity of Limited Partnership
Interests and BACs issued or sold from time to time. If the
Managing General Partner determines, based on advice of counsel,
that no reasonable convention or other method is available to
preserve the uniformity of Limited Partnership Interests and BACs
pursuant to this Section 4.10, the Limited Partnership Interests
and BACs shall be separately identified as distinct classes, to
the extent possible, to reflect differences in tax consequences.
Section 4.11 Distributions in Kind.
The Managing General Partner may in its sole discretion
determine to distribute assets other than cash either during the
operation of the Partnership or upon dissolution and liquidation
<PAGE> 24
of the Partnership. Any distribution of assets other than cash
(i) during the operation of the Partnership shall be treated as a
distribution of Cash Flow or of Residual Proceeds, as
appropriate, as determined by the Managing General Partner in its
sole discretion, and (ii) upon dissolution and liquidation of the
Partnership shall be treated as a distribution of Liquidation
Proceeds. The Managing General Partner shall, in its sole
discretion, determine the fair market value of any such
distributed assets, and which particular assets shall be
distributed to each Partner and BAC Holder. The Capital Accounts
of the Partners and BAC Holders shall be adjusted upon any
distribution of assets other than cash in the manner determined
by the Managing General Partner to be in accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv).
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS
OF THE GENERAL PARTNERS
Section 5.1 Management of the Partnership.
(a) Subject to the provisions of the Agreement, Oxford Tax
Exempt Fund II Corporation shall be the Managing General Partner.
All decisions made for and on behalf of the Partnership by the
Managing General Partner shall be binding upon the Partnership.
Except as expressly set forth elsewhere in the Agreement, the
Managing General Partner (acting for and on behalf of the
Partnership), in extension and not in limitation of the rights
and powers given by this Section 5.1 or by the other provisions
of the Agreement, in its sole discretion, has full, complete and
exclusive right, power and authority in the management and
control of the Partnership business to do any and all things
necessary to effectuate the purposes of the Partnership,
including but not limited to the right, power and authority to do
all acts and things set forth in Section 5.2. The Managing
General Partner shall take all actions necessary or appropriate
to protect the interests of the Limited Partners and the BAC
Holders. The Managing General Partner shall devote such time as
is necessary to the affairs of the Partnership and shall receive
no compensation from the Partnership other than as expressly
provided in the Agreement. No person dealing with the Managing
General Partner shall be required to determine its authority to
make any undertaking on behalf of the Partnership or to determine
any facts or circumstances bearing upon the existence of such
authority.
(b) The Managing General Partner, at its discretion, shall
establish the Working Capital Reserve out of Revenues, Residual
Proceeds and Liquidation Proceeds. The Working Capital Reserve
may be increased or reduced by the Managing General Partner as it
deems advisable under the circumstances from time to time within
the limitations set forth in the definition of Working Capital
Reserve in Article I.
Section 5.2 Authority of the Managing General Partner.
(a) Subject to Sections 5.3, 5.4 and 5.10, but otherwise without
in any way limiting the power and authority conferred on the
Managing General Partner under
<PAGE> 25
Section 5.1, the Managing General Partner for, and in the name
and on behalf of, the Partnership is hereby authorized, without
limitation:
(i) to acquire the OTEF I Mortgage Revenue Bonds from OTEF I in
accordance with Section 3.3(a);
(ii) to acquire Mortgage Revenue Bonds other than as provided in
(a)(i) above (including Additional Mortgage Revenue Bonds and
Other Assets), at such price and upon such terms as it deems to
be in the best interests of the Partnership, the Limited Partners
and the BAC Holders, provided that any Additional Mortgage
Revenue Bonds shall be acquired in accordance with Section 5.5
herein, to hold and otherwise deal with Mortgage Revenue Bonds
and, subject to the provisions of Section 5.10, to restructure
Mortgage Revenue Bonds and, in connection with any such
restructuring, to consent to amendments of the related bond
documents, provided the Managing General Partner determines that
the terms of the restructuring are in the best interests of the
Partnership, the Limited Partners and the BAC Holders;
(iii) subject to the provisions of Section 5.10(a)(ix), to
sell or otherwise dispose of (in whole or in part) any Mortgage
Revenue Bonds (including the OTEF I Mortgage Revenue Bonds) (or
interests therein) acquired by the Partnership;
(iv) to reinvest Cash Flow, any Revenues or Residual Proceeds in
Mortgage Revenue Bonds (or interests therein), including without
limitation Additional Mortgage Revenue Bonds secured by assets
owned by an Affiliate of any General Partner, subject to the
provisions of Section 5.5, or Other Assets;
(v) to issue additional limited partnership interests, BACs or
other securities for such consideration and on such other terms
and conditions and with such voting, distribution, liquidation,
conversion, registration, redemption and other rights and
preferences as shall be deemed appropriate by the Managing
General Partner in its sole and absolute discretion; subject,
however, to the provisions of Section 5.10(a)(xi);
(vi) subject to the provisions of Section 5.10(a)(ix) and Section
10-208(f) of the Act, to merge the Partnership with another
Person (which may be an Affiliate) and to take all actions,
including negotiating and entering into an agreement of merger
and an amendment to this Agreement, that the Managing General
Partner determines are necessary or appropriate to effect such
merger;
(vii) to adopt the BAC Holder Rights Plan substantially in
the form attached hereto as Exhibit A and amend it from time to
time in accordance with the terms thereof;
<PAGE> 26
(viii) to acquire by purchase, lease, exchange or otherwise,
any real or personal property necessary for Partnership
operations;
(ix) to borrow money and issue evidences of indebtedness, and to
secure the same by a pledge, lien or encumbrance on any assets
(including any Mortgage Revenue Bonds) of the Partnership, to
incur indebtedness for working capital purposes, to fulfill any
obligations undertaken by the Partnership to obtain or maintain
an investment grade rating for a Mortgage Revenue Bond or to
prevent default under other liens against any Mortgaged Property,
or to discharge such liens entirely if it becomes necessary to
protect the Partnership's investment in a Mortgage Revenue Bond
or a Mortgaged Property; provided, however, that the Partnership
shall not assume or incur debt in excess of sixty-five percent
(65%) of the value of the Partnership's assets (unless, in the
sole discretion of the Managing General Partner, a higher
percentage is required on an urgent basis to avoid any adverse
effect on the business, operations or prospects of the
Partnership or such higher percentage is required for one or more
periods not exceeding one year);
(x) to employ agents, employees, managers, accountants,
attorneys, consultants and other Persons necessary or appropriate
to carry out the business and operations of the Partnership, and
to pay fees, expenses, salaries, wages and other compensation to
such Persons and to adopt such severance or other benefit plans
which, subject to the provisions of Section 5.10(a)(xi), may
provide for the issuance of BACs or other securities, as may be
deemed appropriate by the Managing General Partner for the
retention of key employees, consultants and advisers, whether or
not such Persons are Affiliates of the General Partners;
provided, however, that no cash compensation, fees or
reimbursements shall be paid (either pursuant to such severance
or benefit plans or otherwise) to any of such Persons who are
Affiliates of the General Partners except for the fees and
expense reimbursements set forth in Section 5.3(e); and provided
further that the Managing General Partner shall not accept on
behalf of the Partnership any promissory note or other debt
instrument, securities, property or services in payment for the
exercise by any holder of an option to acquire BACs under any
such benefit plans;
(xi) to pay, extend, renew, modify, adjust, submit to
arbitration, prosecute, defend or compromise, upon such terms as
it may determine and upon such evidence as it may deem
sufficient, any obligation, suit, liability, cause of action or
claim, including taxes, either in favor of or against the
Partnership;
(xii) to determine the appropriate accounting method or
methods to be used by the Partnership, subject to Sections 4.5(a)
and 9.2;
<PAGE> 27
(xiii) to cause the Partnership to make or revoke any of the
elections permitted or required under the Code or the regulations
issued thereunder;
(xiv) to subject a Mortgaged Property acquired upon
foreclosure or deed in lieu of foreclosure to mortgage
indebtedness in an amount not to exceed 80% of the current
appraised fair market value of the Mortgaged Property at the time
the debt is incurred;
(xv) to amend this Agreement to reflect the addition or
substitution of Partners, and to amend the Agreement as provided
in Section 14.2 or as otherwise specifically provided in this
Agreement;
(xvi) to invest all funds not immediately needed in the
operation of the business, including, but not limited to (A) any
portion of Net Offering Proceeds prior to their utilization, or
(B) the Working Capital Reserve, in debt securities or money
market funds which invest in debt securities the income of which
is exempt from federal income taxation;
(xvii) to deal with, or otherwise engage in business with, any
Person who has provided any goods or services to, lent money to,
sold property to, or purchased property from the General Partners
or any of their Affiliates or who may in the future provide goods
or services to, lend money to, sell to or purchase property from
such Persons, provided that any such transactions with Affiliates
of the General Partners are subject to the provisions of Section
5.3;
(xviii) to obtain loans from a General Partner or any Affiliate
of a General Partner provided that the requirements of Section
5.3(c) are complied with;
(xix) notwithstanding anything in this Agreement to the
contrary and subject to the Consent of the Limited Partners
(including the Initial Limited Partner acting on behalf of the
BAC Holders) in accordance with Section 10.2(a)(ii)(A) and (B),
to cause the Partnership (A) to engage in or provide Management
Services with respect to its assets, any of the Mortgaged
Properties and/or assets owned by unaffiliated Persons, and (B)
in order to engage in or provide such Management Services, to
acquire direct or indirect interests in Management Assets or
direct or indirect interests in equity or debt securities of a
Management Entity (and in connection with the acquisition of
interests in the assets of a Management Entity, to assume
liabilities of such entity) and hire employees (which employees
may be Affiliates of the General Partners); and
(xx) to engage in any kind of activity and to perform and carry
out contracts of any kind necessary to, or in connection with, or
incidental to the accomplishment of the purposes, and for the
protection and benefit, of the Partnership.
<PAGE> 28
(b) With respect to all of its obligations, powers and
responsibilities under this Agreement, the Managing General
Partner is authorized to execute and deliver, for and on behalf
of the Partnership, such notes and other evidences of
indebtedness, contracts, agreements, assignments, deeds, leases,
loan agreements, mortgages and other security instruments and
agreements as it deems proper, all on such terms and conditions
as it deems proper.
(c) After receipt of Notice from the Limited Partners and BAC
Holders that they have obtained the required Consent of the
Limited Partners (including the Initial Limited Partner acting on
behalf of the BAC Holders) to take an action specified in Section
10.2(a), the Managing General Partner shall promptly take all
actions reasonably necessary in the name of and on behalf of the
Partnership to implement such action as soon as practicable,
consistent with any terms and conditions set forth by such
Limited Partners and BAC Holders in their Notice to the Managing
General Partner.
(d) Notwithstanding anything to the contrary contained in this
Agreement, if the Managing General Partner determines that, as a
result of changes in the federal income tax laws, it is no longer
in the best interests of the BAC Holders for the Partnership to
hold tax-exempt Mortgage Revenue Bonds or to make additional
investments in tax-exempt Mortgage Revenue Bonds, the Managing
General Partner shall have the authority to invest in and hold
taxable mortgage revenue bonds and other similar types of assets,
and to reinvest Cash Flow and any Revenues or Residual Proceeds
in taxable mortgage revenue bonds and other similar types of
assets. In such event, the Managing General Partner shall have
the authority to amend the Agreement, including without
limitation Section 2.3 of the Agreement, as it deems necessary or
appropriate to reflect the change in the types of assets that may
be held or acquired by the Partnership.
Section 5.3 Authority of General Partners and Their Affiliates
To Deal With Partnership.
(a) The General Partners and their Affiliates shall not have the
right to contract or otherwise deal with the Partnership for the
sale of goods or services, except for those dealings, contracts
or provisions of services described in the Agreement.
(i) The provision of any goods and services by any General
Partner or Affiliate shall be (A) part of its ordinary and
ongoing business in which it has previously engaged independent
of the activities of the Partnership, (B) reasonable for and
necessary to the Partnership and (C) actually furnished to the
Partnership and (D) provided at the lower of the actual cost of
such goods and services or the competitive price charged for such
goods or services by independent parties for comparable goods and
services in the same geographic location. The costs of
verification of costs reimbursed to General Partners or their
Affiliates contained in the annual report may be reimbursed only
to the extent, when added to the costs of such goods or services
rendered, that the sum does not exceed the competitive rate for
such goods and services. Neither the General Partners nor any
Affiliate shall, by the making of lump sum payments to any other
<PAGE> 29
Person for disbursement by such other Person, circumvent the
provisions of this Section 5.3(a).
(ii) All services rendered by the General Partners or their
Affiliates pursuant to this Section 5.3(a) shall be rendered
pursuant to a written contract which precisely describes the
services to be rendered and all compensation to be paid and which
contains a clause allowing termination without penalty on sixty
(60) days' Notice by the vote of a majority in interest of the
Limited Partners and the BAC Holders (with the Initial Limited
Partner voting its Limited Partnership Interests according to the
direction of the BAC Holders).
(iii) Any payment made to the General Partners or any
Affiliate for such goods or services and the terms of any loans
made by the Partnership or to the Partnership pursuant to Section
5.3(c) shall be fully disclosed to all Limited Partners and BAC
Holders in the reports required under this Agreement.
(b) Other than as specifically authorized in this Agreement, the
Managing General Partner is prohibited from entering into any
agreements, contracts or arrangements on behalf of the
Partnership with any General Partner or any Affiliate of any
General Partner.
(c) Notwithstanding anything in this Agreement to the contrary,
(i) the Partnership shall not lend money to a General Partner;
(ii) the Partnership shall not lend money to any Affiliate of a
General Partner except at an interest rate and other finance
charges and fees that are no less than the greater of (A) the
prime rate established by Citibank, N.A. from time to time and in
effect at the time the Partnership makes such loan, or (B) the
interest rates and other finance charges and fees that the
Partnership has paid to obtain the funds to make the loan to the
General Partner or Affiliate; and (iii) no General Partner nor
any Affiliate of a General Partner shall make any loan to the
Partnership if such loan provides for a prepayment penalty or the
interest rates and other finance charges and fees in connection
with such loan are in excess of the greater of (A) the prime rate
established by Citibank, N.A. from time to time and in effect at
the time such General Partner or Affiliate makes such loan, or
(B) the interest rates and other finance charges and fees that
the General Partner or such Affiliate has paid to obtain the
funds to make the loan to the Partnership.
(d) The Partnership shall not acquire assets from the General
Partners or their Affiliates except as provided in this Section
5.3(d) or as specifically authorized elsewhere in this Agreement.
(i) In accordance with Section 5.2(a)(xix), the Partnership may
acquire direct or indirect interests in Management Assets (which
Management Assets may be owned or held by an Affiliate of a
General Partner) or direct or indirect interests in equity or
debt securities of a Management Entity (which
<PAGE> 30
Management Entity may be owned by an Affiliate of a General
Partner or in which a General Partner or Affiliate may have
an interest).
(ii) Pursuant to Section 5.4(e), the Partnership may purchase an
Additional Mortgage Revenue Bond or Other Asset from an Affiliate
of any General Partner, subject to receipt of an opinion from the
Independent Real Estate Consultant that the terms of any such
acquisition are fair to the Partnership. In addition,
notwithstanding anything to the contrary contained in the
Agreement, the Partnership may purchase an Additional Mortgage
Revenue Bond or Other Asset from an Affiliate of any General
Partner without obtaining an opinion from the Independent Real
Estate Consultant as long as (i) the purchase of the Additional
Mortgage Revenue Bond or Other Asset by such Affiliate was made
on an interim basis in order to facilitate the purchase by the
Partnership of the Additional Mortgage Revenue Bond or Other
Asset and (ii) the purchase price paid by the Partnership to such
Affiliate for the Additional Mortgage Revenue Bond or Other Asset
is no greater than the amount of the total costs incurred by such
Affiliate in connection with its purchase of the Additional
Mortgage Revenue Bond or Other Asset.
(e) No compensation or fees shall be paid by the Partnership to
the General Partners or their Affiliates except as described in
this Agreement.
(i) The General Partners and their Affiliates shall be entitled
to receive the following from the Partnership:
(A) reimbursement for any expenses of the Partnership actually
incurred by either of the General Partners or any of their
Affiliates (which expenses may include, but shall not be
limited to, any expenses incurred in connection with the
organization of the Partnership, the restructuring of OTEF I,
the refunding of the OTEF I Mortgage Revenue Bonds, the
acquisition of Management Assets or direct or indirect
interests in equity or debt securities of a Management Entity,
the acquisition of Additional Mortgage Revenue Bonds and Other
Assets and any Offering);
(B) compensation for providing any goods or services to the
Partnership as described in Section 5.3(a);
(C) in the event the Partnership acquires a Mortgaged Property
upon foreclosure of a Mortgage Loan (or by deed in lieu of
foreclosure), fees to the same extent that such fees were
payable to Affiliates of the General Partners or to third
parties by the mortgagor prior to foreclosure (or deed in
lieu of foreclosure);
<PAGE> 31
(D) an acquisition fee, payable on the closing of any
transaction in which the Partnership acquires an Additional
Mortgage Revenue Bond or Other Asset, for finding, analyzing
and effecting the acquisition of any such Additional Mortgage
Revenue Bond or Other Asset, equal to 1.0% of (i) the purchase
price paid by the Partnership for an Additional Mortgage
Revenue Bond or, as the case may be, Other Asset, or (ii) with
respect to an Additional Mortgage Revenue Bond or Other Asset
which is subordinated in payment to senior indebtedness, the
sum of (A) the purchase price paid by the Partnership for its
subordinated interest and (B) the principal amount of all
senior interests, if any; provided, however, that no
acquisition fee shall be paid with respect to the principal
amount of any such senior interest if the Partnership has not
purchased the senior interest and neither the Managing General
Partner or any of its Affiliates had any material involvement
in the negotiation, structuring or closing of the purchase of
the senior interest. In the case of an Additional Mortgage
Revenue Bond or Other Asset which is subordinated in payment
to senior indebtedness as of the closing of the transaction
in which the Partnership acquires its interest, the maximum
acquisition fee payable on the Partnership's senior and
subordinated interests shall be equal to 2.5% of the
purchase price paid by the Partnership for such subordinated
interests as of the date of the closing;
(E) an advisory fee, which shall be payable annually, for
providing advisory services in connection with the
Partnership's investment in Additional Mortgage Revenue Bonds
and Other Assets in an amount not to exceed 0.5% of (i) the
purchase price paid by the Partnership for an Additional
Mortgage Revenue Bond or, as the case may be, Other Asset,
or (ii) with respect to an Additional Mortgage Revenue Bond
or Other Asset which is subordinated in payment to senior
indebtedness, the sum of (A) the purchase price paid by the
Partnership for its subordinated interest and (B) the
principal amount of the senior interest, if any; provided,
that if an Affiliate of the Managing General Partner is
receiving fees for property management services pursuant to
a property management agreement entered into with the owner
of an Additional Mortgaged Property, the annual advisory
fee shall be equal to 0.5% per year of the purchase price paid
by the Partnership for the related Additional Mortgage Revenue
Bond. In the event that the Managing General Partner receives
in any year compensation or fees from an unaffiliated person
that serves as the property manager for the Additional
Mortgaged Property, the amount of the annual advisory fee
payable with respect to the related Additional Mortgage
Revenue Bond for that year shall be determined as provided
in item (ii) above and then reduced by 50% of any compensation
or fees received in that year by the Managing General Partner
from the unaffiliated property manager for services
<PAGE> 32
provided by the Managing General Partner with respect to
such Additional Mortgaged Property; and
(F) any fees that on the date hereof are payable by the owners
of the Mortgaged Properties, provided that the Partnership is
the principal beneficiary of the services for which such fees
are payable and that such fees are paid by the Partnership in
order to permit a commensurate increase in debt service
payable by the owners of the Mortgaged Properties with respect
to the related Mortgaged Revenue Bonds.
(ii) It is understood and agreed that in the event the
Partnership acquires direct or indirect interests in Management
Assets or direct or indirect interests in the equity or debt
securities of a Management Entity in exchange for interests in
the Partnership or other consideration and as a result the
Partnership provides Management Services for which the General
Partners or their Affiliates would otherwise be entitled to
compensation under this Section 5.3(e), then the General Partners
and their Affiliates shall be entitled to the compensation
described in this Section 5.3(e) only to the extent that they
continue to provide services not being provided by the
Partnership.
(f) Notwithstanding any provisions of this Section 5.3, neither
the General Partners nor any of their Affiliates shall:
(i) be given an exclusive right to sell, or exclusive employment
to sell, any Mortgaged Property for the Partnership;
(ii) receive any rebate or give-up, or participate in any
reciprocal arrangement, which would circumvent the provisions of
Sections 5.3(a); or
(iii) receive any compensation for providing insurance
brokerage services to the Partnership.
Section 5.4 General Restrictions on Authority of General
Partners.
In exercising management and control of the Partnership, the
General Partners, on behalf of the Partnership and in furtherance
of the business of the Partnership, shall have the authority to
perform all acts which the Partnership is authorized to perform.
However, the General Partners shall not have any authority to:
(a) perform any act in violation of the Agreement or any
applicable law or regulation hereunder;
(b) do any act required to be approved or ratified in writing by
all Limited Partners under the Act, unless the right to do so is
expressly otherwise given in the Agreement;
<PAGE> 33
(c) sell or otherwise dispose of all or substantially all of the
assets of the Partnership without the Consent of the Limited
Partners and the BAC Holders provided for in Section 10.2(a)(i)
(provided that such Consent shall not be required for any sale of
any property or asset securing a Mortgage Revenue Bond or for any
sale (including a sale of all or substantially all of the
Partnership assets) approved by the Independent Real Estate
Consultant in accordance with Section 5.10(a)(ix));
(d) borrow money from the Partnership; provided that any
Affiliate of the General Partners (but not the General Partners)
may borrow money from the Partnership provided the interest rate
and other finance charges and fees on such loan are no less than
the greater of (i) the prime rate established by Citibank, N.A.
from time to time and in effect at the time the Partnership makes
such loan, or (ii) the interest rates and other finance charges
and fees that the Partnership has paid to obtain the funds to
make the loan to the General Partner or Affiliate;
(e) unless a written opinion of the Independent Real Estate
Consultant as to the fairness of the transaction to the
Partnership is obtained, or except as expressly authorized by
Section 5.3(d), cause the Partnership to sell real property or
evidence of indebtedness to or lease real property or evidence of
indebtedness from or to any General Partner or any Affiliate of a
General Partner or purchase any real property or evidence of
indebtedness from any General Partner or Affiliate of a General
Partner (except to remarket a Mortgage Revenue Bond pursuant to
the terms under which such Mortgage Revenue Bond was issued or to
the extent necessary to enforce foreclosure rights under a
Mortgage Revenue Bond);
(f) elect to dissolve the Partnership without the Consent of the
Limited Partners and the BAC Holders provided for in Section
10.2(a)(iv);
(g) do any act which would make it impossible to carry on the
ordinary business of the Partnership;
(h) confess a judgment against the Partnership;
(i) possess Partnership property, or assign its rights in
specific Partnership property, for other than a Partnership
purpose;
(j) admit a Person as a General Partner, except as provided in
the Agreement;
(k) knowingly perform any act that would subject any Limited
Partner or BAC Holder to liability as a general partner in any
jurisdiction;
(l) make loans to the Partnership or Partnership borrowers,
accept loans on behalf of the Partnership or Partnership
borrowers, or accept loans on behalf of the Partnership or
Partnership borrowers from any Affiliate of the General Partners,
except as provided in Section 5.3(c)(iii);
<PAGE> 34
(m) amend the Agreement, except to the extent the right to amend
this Agreement is expressly provided for in other provisions of
the Agreement; or
(n) lease or permit any Affiliate of the General Partners to
lease more than 5% of any Mortgaged Property.
Section 5.5 Acquisition of Additional Mortgage Revenue Bonds.
The Managing General Partner shall not acquire an Additional
Mortgage Revenue Bond unless:
(a) the Partnership has received an opinion of Counsel to the
effect that all interest payments are to be fully exempt from
federal income taxation under current law, that the Additional
Mortgage Revenue Bond shall be characterized as debt for federal
income tax purposes and that the Partnership shall not be a
"substantial user" of the Mortgaged Property, as that term is
used in the Code;
(b) the Partnership has received an opinion of local counsel to
the effect that the interest rate payable on the underlying
Mortgage Loan is not usurious under applicable state law, subject
to such qualifications as Counsel may approve as not being
materially adverse to the interests of the Partners and BAC
Holders;
(c) the owner of the Mortgaged Property enters into a land use
restriction or regulatory agreement containing restrictions on
the use of the Mortgaged Property if such restrictions are
required to ensure that the interest on the Additional Mortgage
Revenue Bond is exempt from federal income taxation; and
(d) in the case of an Oxford Property: (i) the property
management fee paid with respect to such Oxford Property does not
exceed 5% per annum (4% for retirement communities) of the gross
rental revenues of the Oxford Property, (ii) the accounting fee
paid with respect to the Oxford Property does not exceed $2 per
residential unit per month, and (iii) the cash management fee
paid out of the cash flow of the Mortgaged Property does not
exceed 1.5% per annum of the average monthly project investment
portfolio.
Section 5.6 Delegation of Authority.
Subject to the provisions of this Article V, the General
Partners may delegate all or any of their powers, rights and
obligations under this Agreement and may appoint, employ,
contract or otherwise deal with any Person for the
transaction of the business of the Partnership, which Person
may, under supervision of the General Partners, perform any
acts or services for the Partnership as the General Partners
may approve.
<PAGE> 35
Section 5.7 Other Activities.
Each of the General Partners and their Affiliates may engage
in or possess interests in other business ventures of every kind
and description for his/their own account, including, without
limitation, serving as general partner of other partnerships
which own, either directly or through interests in other
partnerships, mortgage backed-bonds similar to the Mortgage
Revenue Bonds or properties similar to those which secure the
Mortgage Revenue Bonds. Neither the Partnership, any of the
Partners nor the BAC Holders shall have any rights by virtue of
this Agreement in or to such other business ventures or to the
income or profits derived therefrom.
Section 5.8 Limitation on Liability of General Partners;
Indemnification.
(a) The General Partners owe the same fiduciary duty to the BAC
Holders as the General Partners owe to the Limited Partners.
However, no General Partner and none of its officers, directors,
shareholders, partners, employees and, when performing an
obligation of the Partnership or of the General Partners to the
Partnership, agents and Affiliates shall be liable, responsible
or accountable in damages or otherwise to the Partnership or to
any of the Limited Partners or BAC Holders for any act or
omission to act or decision made by such Person in good faith on
behalf of the Partnership and in a manner reasonably believed by
it or them to be within the scope of the authority granted to the
General Partners by the Agreement and in the best interests of
the Partnership, provided that such action, omission to act or
decision is not attributable to such Person's fraud, bad faith,
gross negligence or willful misconduct.
(b) The Partnership shall indemnify and hold harmless each of
the General Partners and their Affiliates, and each of their
respective officers, directors, shareholders, members, partners
and employees (hereafter referred to as "Indemnified Person"),
from any loss, claim, damage, cost, expense or liability as and
when incurred by such Indemnified Person or by the Partnership by
reason of any action, omission to act or decision made by any
Indemnified Person in connection with the business of the
Partnership, provided that the actions, omissions to act or
decisions giving rise to the claim for indemnification hereunder
are not attributable to fraud, bad faith, gross negligence or
willful misconduct of any Indemnified Person. The losses,
claims, damages, costs, expenses or liabilities indemnified
hereunder shall include, without limitation, claims by a Limited
Partner or BAC Holder and the reasonable fees of attorneys (which
attorneys' fees may be paid as incurred) and expenses incurred in
the defense or settlement of any claims. For purposes of this
Section 5.8, the fact that an action, omission to act or decision
is taken on the advice of Counsel for the Partnership shall be
evidence of good faith, provided that all material facts were
disclosed to such Counsel. The satisfaction of any
indemnification claim under this Section 5.8(b) shall be from,
and shall be limited to, Partnership assets, and no Partner or
BAC Holder shall have any personal liability on account of such
indemnification obligation.
<PAGE> 36
(c) The Partnership shall not incur the cost of that portion of
any liability insurance which insures any Indemnified Person for
any liability as to which the Indemnified Person is prohibited
from being indemnified under this Section 5.8.
Section 5.9 Tax Status of Partnership.
The General Partners shall use their best efforts to meet
such requirements of the Code, as interpreted from time to time
by the Internal Revenue Service or any other agency of the
federal government or the courts, necessary to assure that the
Partnership shall be classified as a partnership for federal
income tax purposes.
Section 5.10 Independent Real Estate Consultant.
(a) The Managing General Partner shall not make decisions on the
following without obtaining a written opinion from the
Independent Real Estate Consultant to the effect that such
transactions are fair to the Partnership:
(i) whether to seek the appointment of a receiver, to negotiate
a workout arrangement (and the terms of such workout arrangement)
or to foreclose in the event of a default on an Oxford Mortgage
Revenue Bond;
(ii) whether to permit a prepayment of an Oxford Mortgage Loan at
a time when the Oxford Mortgage Loan documentation prohibits a
prepayment;
(iii) whether to waive the due-on-sale and nonassumability
clauses with respect to an Oxford Mortgage Loan;
(iv) whether and under what conditions to permit capital
improvements to an Oxford Property in excess of the greater of
(A) $250,000 or (B) $500 times the number of residential units in
such Mortgaged Property on an annual basis, provided however,
that such dollar amounts shall be adjusted upward each calendar
year subsequent to the date of the Agreement by the full amount
of the percentage increase (if any) in the consumer price index
for the Standard Metropolitan Area in which the Mortgaged
Property is located, as published by the Bureau of Labor
Statistics, U. S. Department of Labor (the "CPI Index");
(v) whether to allow annual payments for capital improvement out
of the cash flow of an Oxford Property in excess of the greater
of (A) $250,000 or (B) $500 times the number of residential units
above the amounts, if any, in the reserve for replacements,
provided however, that such dollar amounts shall be adjusted
upward each calendar year subsequent to the date of the Agreement
by the full amount of the percentage increase (if any) in the CPI
Index;
(vi) whether to amend, waive or modify any material term of an
Oxford Mortgage Loan;
<PAGE> 37
(vii) the disposition of hazard insurance or condemnation
proceeds in excess of $25,000 with respect to any one event
relating to an Oxford Property;
(viii) whether to require prepayment of an Oxford Mortgage
Revenue Bond upon the occurrence of an Event of Taxability;
(ix) whether to sell or otherwise dispose of all or substantially
all of the assets of the Partnership at any one time in the
circumstances provided in Section 5.4(c), except that a written
opinion of the Independent Real Estate Consultant shall not be
required if the Limited Partners (including the Initial Limited
Partner acting on behalf of the BAC Holders) Consent to such sale
or disposition in accordance with Section 10.2(a)(i); whether to
sell or otherwise dispose of (in whole or in part) any Oxford
Mortgage Revenue Bonds (including OTEF I Mortgage Revenue Bonds)
acquired by the Partnership; whether to restructure Oxford
Mortgage Revenue Bonds (other than the OTEF I Mortgage Revenue
Bonds with respect to which the Independent Real Estate
Consultant has rendered an opinion to OTEF I and the OTEF I BAC
Holders); and whether to merge the Partnership with another
Person (which may be an Affiliate);
(x) any amendment to the Partnership Agreement described in
Section 14.2(b)(iv), (vi), (vii) or (viii);
(xi) whether to issue securities pursuant to Section 3.3(b) which
would have liquidation, distribution or other rights senior to
the BACs to be issued pursuant to Section 3.3(a) or whether to
adopt a severance or other benefit plan that provides for the
issuance of BACs or other securities as described in Section
5.2(a)(x);
(xii) the exchange of all or a portion of a General Partner's
interest as General Partner in the Partnership for BACs and the
valuation of such interest pursuant to Section 6.5 of this
Agreement;
(xiii) the exchange of all or a portion of an Affiliated BAC
Holder's interest in Affiliated BACs for BACs and the valuation
of such interest pursuant to Section 7.7 of the Agreement;
(xiv) whether to return a Capital Contribution in the form of
property other than cash;
(xv) whether to cause the Partnership to engage in or provide
Management Services with respect to assets owned by unaffiliated
Persons pursuant to Section 5.2(a)(xix)(A) (except that a written
opinion of the Independent Real Estate Consultant shall not be
required if the Limited Partners
<PAGE> 38
(including the Initial Limited Partner acting on behalf of the
BAC Holders) Consent thereto in accordance with Section 10.2(a));
(xvi) the sale of real property or evidence of indebtedness
to or lease of real property or evidence of indebtedness from or
to any General Partner or any Affiliate of a General Partner or
the purchase of any real property or evidence of indebtedness
from any General Partner or Affiliate of a General Partner
(except as specifically authorized by Section 5.3(d) or upon a
remarketing of a Mortgage Revenue Bond pursuant to the terms
under which such Mortgage Revenue Bond was issued or to the
extent necessary to enforce foreclosure rights under a Mortgage
Revenue Bond); and
(xvii) any other material transaction between the Partnership
and any Affiliate of the General Partners involving a Mortgage
Loan or with respect to any foreclosed Mortgaged Property.
(b) The Independent Real Estate Consultant shall be Marshall and
Stevens Incorporated or such other nationally recognized
investment banking firm, accounting firm, mortgage banking firm,
bank, real estate financial consulting firm or advisory firm as
may be selected by the Managing General Partner in the event of a
resignation by Marshall and Stevens Incorporated as the
Independent Real Estate Consultant. The Partnership and the
Managing General Partner shall enter into a consulting agreement
with the Independent Real Estate Consultant, and the opinions of
the Independent Real Estate Consultant shall be rendered pursuant
to the terms of such consulting agreement.
Section 5.11 Affirmation of Partnership's Purpose.
Pursuant to the Act, every five years, commencing in the
year 2000, the Managing General Partner shall file by September
15 with the State of Maryland Department of Assessments and
Taxation a statement, on the appropriate form, affirming that the
Partnership is actively engaged in the business for which it was
formed as stated in Section 2.3 hereof.
ARTICLE VI
CHANGES IN GENERAL PARTNERS
Section 6.1 Withdrawal of General Partners.
(a) Except as provided in Sections 6.1(b), 6.3 and 6.4, a
General Partner shall not be entitled to withdraw from the
Partnership or to sell, transfer or assign all or any portion of
its Partnership Interest as a General Partner unless (i) the
General Partner gives at least sixty days' Notice to the other
Partners of such proposed withdrawal, sale, transfer or
assignment, (ii) the other General Partner and a majority in
interest of the Limited Partners Consent (the Initial Limited
Partner acting on behalf of the BAC Holders), and (iii) the
conditions of Section 6.1(c) are met.
<PAGE> 39
(b) Substitutions of one Person for another Person as a General
Partner may be made at any time in the following circumstances
without the consent of the Partners, provided that the conditions
of Section 6.1(c) are met and that the substitute General Partner
is admitted to the Partnership simultaneously with the withdrawal
of the withdrawing General Partner:
(i) any Affiliate of ORFGI may replace Oxford Tax Exempt Fund II
Corporation as Managing General Partner; or
(ii) any General Partner may substitute in its stead any Person
that has, by merger, consolidation or otherwise, acquired all or
substantially all of its assets or stock; or
(iii) any Affiliate of ORFGI may be substituted for OTEF II
Associates Limited Partnership as the Associate General Partner
in the event of its Bankruptcy or dissolution.
(c) Before a General Partner may withdraw from the Partnership
pursuant to Section 6.1(a) or (b), Counsel for the Partnership
shall have rendered an opinion that the withdrawal of the General
Partner is in conformity with the Act, that any offer and sale of
the Partnership Interest of such General Partner shall not
violate any federal or state securities or blue sky law and that
the withdrawal of the General Partner shall not cause a
termination or dissolution of the Partnership for federal income
tax purposes which would be materially adverse to the financial
interests of the Limited Partners and BAC Holders and shall not
jeopardize the classification of the Partnership as a partnership
for federal income tax purposes.
Section 6.2 Admission of a Successor or Additional General
Partner.
(a) A Person shall be admitted as a General Partner of the
Partnership only if the following terms and conditions are
satisfied:
(i) such Person shall have accepted and agreed to be bound by
the terms and provisions of the Agreement by executing a
counterpart hereof, and such other documents or instruments as
may be required or appropriate in order to affect the admission
of such Person as a General Partner shall have been filed for
recording, and all other actions required by law in connection
with such admission shall have been performed; and
(ii) if such Person is a corporation, it shall have provided the
Partnership with evidence satisfactory to Counsel for the
Partnership of its authority to become a General Partner and to
be bound by the terms and provisions of the Agreement.
<PAGE> 40
(b) The General Partners may at any time designate additional
Persons to be General Partners, whose Partnership Interests shall
be such as agreed upon by the General Partners and such
additional General Partners, provided that the Partnership
Interests of the Limited Partners (including the interests of the
BAC Holders) shall not be adversely affected thereby. Such
additional Persons shall become additional General Partners
without the Consent of the Limited Partners or BAC Holders,
provided that the conditions provided in Section 6.2(a) are met.
Section 6.3 Removal of a General Partner.
As provided in Section 10.2(a)(iii), the Limited Partners
(including the Initial Limited Partner acting on behalf of the
BAC Holders) may remove any General Partner and, unless the
removed General Partner was the sole General Partner, elect a
replacement therefor which replacement General Partner shall be
admitted to the Partnership upon meeting the conditions set forth
in Section 6.2, without the consent or other action by the
General Partner to be removed or by any other General Partner.
The provisions of Section 6.4 shall apply to any such removal of
a General Partner.
Section 6.4 Effect of Bankruptcy, Withdrawal, Dissolution or
Removal of a General Partner.
(a) In the event of the Bankruptcy of a General Partner or the
withdrawal, dissolution or removal of a General Partner, the
business of the Partnership shall be continued with Partnership
property by the other General Partner(s) (and the other General
Partner(s), by execution of this Agreement, expressly so agree to
continue the business of the Partnership); provided, however,
that if the Bankrupt, withdrawn, dissolved or removed General
Partner is then the sole General Partner, the provisions of
Section 8.1 shall be applicable.
(b) Upon the Bankruptcy, withdrawal, dissolution or removal of a
General Partner, such General Partner (the "Withdrawn General
Partner") shall immediately cease to be a General Partner;
provided that, if at the time of such event the aggregate of the
Partnership Interests of the remaining General Partner(s) is less
than 1%, there shall be assigned and transferred, on a pro rata
basis (in proportion to the respective Partnership Interests of
the remaining General Partner(s)), to the remaining General
Partner(s), such portion of the Partnership Interest of the
Withdrawn General Partner as shall be necessary to increase the
aggregate of the Partnership Interests of the remaining General
Partner(s) to 1%, and the Withdrawn General Partner shall cease
to be a General Partner upon receipt of a cash purchase price for
the transferred interest equal to the fair market value of such
transferred interest (as determined pursuant to subparagraph (e)
below). To the extent that the Partnership Interest of the
Withdrawn General Partner is not so assigned and transferred,
such General Partner's Partnership Interest shall thereafter be
held as a special limited partner interest with no rights to
participate in the management of the affairs of the Partnership
or to vote on any matter requiring the consent of the Partners
and BAC Holders. The holder of such special limited partner
interest shall not share in
<PAGE> 41
any rights given to the class comprised of the Limited Partners
and BAC Holders, including the right to share in Profits or Losses,
and the right to receive cash and/or other distributions from the
Partnership. Instead, such holder shall retain the share of the
capital, Profits or Losses, and the right to share distributions
or cash and property which are allocated to such interest as if
the same were held as a General Partner Partnership Interest.
Nothing in this Section 6.4 shall affect any rights, including the
rights to the payment of any fees under the Agreement, of the
Withdrawn General Partner, which matured or were earned prior to
the Bankruptcy, withdrawal, dissolution or removal of such General
Partner. Such Withdrawn General Partner shall remain liable for
all obligations and liabilities incurred by it as a General Partner
before such Bankruptcy or before such withdrawal, dissolution or
removal shall have become effective, but shall be free from any
obligations or liability as a General Partner incurred on account
of the activities of the Partnership from and after the time of
such Bankruptcy or the date such withdrawal, dissolution or
removal shall have become effective.
(c) If, at the time of the Bankruptcy, withdrawal, dissolution
or removal of a General Partner, the Bankrupt, withdrawn,
dissolved or removed General Partner was not the sole General
Partner of the Partnership, the remaining General Partner or
General Partners shall immediately (i) give Notice to the Limited
Partners of such Bankruptcy, withdrawal, dissolution or removal
and (ii) prepare such amendments of the Agreement and execute and
file for recording such amendments or documents or other
instruments necessary to reflect the assignment, transfer,
termination, removal or conversion (as the case may be) of the
Partnership Interest of the Bankrupt, withdrawn, dissolved or
removed General Partner.
(d) If at any time an individual shall become a General Partner,
Sections 6.4 and Section 8.1(a) shall also be applicable in the
case of the death or adjudication of incompetency of such
individual General Partner.
(e) The fair market value of the Withdrawn General Partner's
interest that is transferred to the remaining General Partner(s)
pursuant to the provisions of subparagraph (a) above shall be
determined by the mutual agreement of the Withdrawn General
Partner and the remaining General Partner(s). If the parties are
unable to agree upon a fair market value for the transferred
interest within thirty (30) days after the Bankruptcy,
withdrawal, dissolution or removal of the Withdrawn General
Partner, the parties shall select a mutually agreeable appraiser
who shall determine the fair market value of the interest. In
the event the parties are unable to agree upon an appraiser
within thirty (30) days after the end of the thirty-day period
specified in the preceding sentence, the Withdrawn General
Partner and the remaining General Partner(s) shall each select an
appraiser, and the fair market value of the transferred interest
shall be the average of the fair market values determined by the
two appraisers. If either party fails to select an appraiser and
obtain an appraisal from such appraiser within ninety (90) days
after the end of the thirty-day period specified in the preceding
sentence, the fair market value of the transferred interest shall
be the fair market value determined by the other party's
appraiser. The parties shall share equally the cost of any
appraiser jointly selected or shall pay the costs of the
<PAGE> 42
appraiser they each select. Any appraiser selected shall be an
MAI appraiser with at least five years of experience and shall
use standard MAI practices.
Section 6.5 Conversion of General Partners to BAC Holders.
Any General Partner may at any time exchange all or any
portion of its interest as General Partner in the Partnership for
BACs, subject to the Partnership receiving a written opinion from
the Independent Real Estate Consultant that the exchange of the
interest and the valuation of such interest is fair to the
Partnership and receipt of an opinion of Counsel that such
exchange will not have any tax consequences that are materially
adverse to the interests of the Partnership and the BAC Holders.
ARTICLE VII
TRANSFERABILITY OF LIMITED PARTNERS'
PARTNERSHIP INTERESTS
Section 7.1 Assignments of the Interest of the Initial Limited
Partner.
(a) Pursuant to Section 11.1(a), the Initial Limited Partner
shall assign a number of its Units of Limited Partnership
Interest to be issued to OTEF I which is equivalent to the number
of BAC Holder Units to be issued to OTEF I pursuant to Section
3.3(a) and, in the event of an Offering, shall assign a number of
its Units of Limited Partnership Interest to each Person
purchasing BACs pursuant to Section 3.3(b) which is equivalent to
the number of BAC Holder Units so purchased pursuant to Section
3.3(b). The Partnership shall recognize as a BAC Holder each
Person to whom the Initial Limited Partner assigns Units of
Limited Partnership Interest as of such dates as provided in
Section 3.3.
(b) The Initial Limited Partner shall remain as Initial Limited
Partner on the books and records of the Partnership
notwithstanding the assignment of all of its Limited Partnership
Interests until such time as the Initial Limited Partner
transfers its position as the Initial Limited Partner to another
Person with the consent of the General Partners.
(c) All Persons becoming BAC Holders shall be bound by the terms
and conditions of, and shall be entitled to all rights of,
Limited Partners under this Agreement.
(d) Other than pursuant to this Section and Section 11.1(a), the
Initial Limited Partner may not transfer or assign a Partnership
Interest without the prior written consent of the General
Partners.
Section 7.2 Free Transferability of BACs.
(a) Except as otherwise provided in Sections 7.2(b) and 7.2(c)
below, BACs may be transferred only on the books of the
Partnership. BACs shall be freely transferable, subject to
Section 7.4(c) and subject to applicable federal and state
securities
<PAGE> 43
laws and regulations, and the General Partners may
prohibit any transfer which does not so comply or which the
Managing General Partner, in its sole discretion, determines is
not in the best interests of the Partnership. The Partnership
shall recognize the transferee of a BAC as the BAC Holder on the
Partnership's books and records as of (i) the close of business
on the purchase date in the event evidence of the transfer is
provided to the Partnership within two business days of the
purchase date or (ii) in all other events, the date the
Partnership receives evidence of the transfer. In order to
record a trade on its books, the Partnership may require such
evidence of transfer or assignment and authority of the
transferor or assignor (including signature guarantees), and
evidence of the transferee's suitability under state securities
laws, as the Managing General Partner may determine.
(b) The Managing General Partner may appoint a Transfer Agent as
registrar for the purpose of registering BACs and transfers of
BACs. The Managing General Partner shall have the authority to
charge a reasonable transfer fee for transfers of BACs. The
amount of any such fee shall be determined by the Managing
General Partner from time to time.
(c) The Partnership shall be entitled to treat the Record Holder
as owner of any BACs and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such
BACs on the part of any other Person, whether or not the
Partnership or Transfer Agent shall have actual or other notice
thereof, except as otherwise provided by law or any applicable
rule, regulation, guideline or requirement of any national
securities exchange on which the BACs are listed for trading.
Without limiting the foregoing, when a Person (such as a broker,
dealer, bank, trust company or clearing corporation, or an agent
of any of the foregoing) is acting as a nominee, agent or in some
other representative capacity of another Person in acquiring
and/or holding BACs, as between the Partnership on the one hand
and such other Persons on the other hand, such representative
Person (a) shall be the BAC Holder of record and beneficially,
(b) must become a BAC Holder in accordance with the terms,
conditions and provisions hereof, and (c) shall be bound by this
Agreement and shall have the obligations of a BAC Holder
hereunder and as provided for herein.
Section 7.3 Voting by the Initial Limited Partner on Behalf of
BAC Holders.
The Initial Limited Partner hereby agrees that with respect
to any matter on which a vote of the Limited Partners is taken or
any other action of the Limited Partners is required or
permitted, it shall vote a Limited Partnership Interest or take
such action (other than solely administrative actions as to which
the Initial Limited Partner has no discretion) only for the sole
benefit of, and in accordance with the written instructions of,
the BAC Holder to which such Limited Partnership Interest is
assigned. The Initial Limited Partner shall provide Notice to
the BAC Holders containing information regarding any matters to
be voted upon or as to which any other action is requested or
proposed sufficiently in advance of the date of the vote action
for which instructions are requested to permit such BAC Holders
to provide written instructions and shall otherwise establish
reasonable procedures for any such request for instructions.
<PAGE> 44
Section 7.4 Restrictions on Assignments of Partnership
Interests of Limited Partners Other Than the Initial
Limited Partner.
(a) A Limited Partner other than the Initial Limited Partner may
assign his Partnership Interests by a duly executed written
instrument of assignment, the terms of which meet the
requirements of Section 7.5(b) and the conditions imposed by
Section 7.5(d) and in all other respects are not in contravention
of any of the provisions of the Agreement. Any attempted sale,
assignment, pledge, transfer or exchange in contravention of the
provisions of Sections 7.4(b) and 7.4(c) shall be void and
ineffectual and shall not be recognized by the Partnership.
Within 30 days of any assignment of a beneficial interest in
Partnership Interests which occurs without a transfer of record
ownership of such Partnership Interests pursuant to Section
7.5(d), the assignor shall give Notice of such assignment to the
Managing General Partner, which Notice shall contain an
instrument of assignment which meets the requirements set forth
in Section 7.5(b). Notwithstanding anything to the contrary
contained in this Section 7.4, the provisions of this Section 7.4
shall not apply to the transfer and assignment of Partnership
Interests by the Initial Limited Partner to OTEF I and the BAC
Holders in accordance with Section 11.1(a).
(b) Notwithstanding the provisions of Section 7.4(a), no Limited
Partner other than the Initial Limited Partner may sell, assign,
pledge, transfer or exchange any Partnership Interests:
(i) if in the judgment of the Managing General Partner, acting
in reliance on an opinion from counsel for the assignor or
assignee, acceptable to the Managing General Partner, or on
advice from Counsel to the Partnership, as the Managing General
Partner may deem necessary in the circumstances, such assignment,
pledge, transfer or exchange would be in violation of any
applicable federal or state securities laws (including any
investor suitability standards); and
(ii) unless the transfer fee of $150 (or such other amount as the
Managing General Partner may require from time to time) has been
paid by the Limited Partner to the Managing General Partner.
(c) Notwithstanding the provisions of Section 7.4(a), if any
sale, assignment, pledge, transfer or exchange of a Partnership
Interest by a Limited Partner, other than the Initial Limited
Partner, or of a BAC may result, when considered with all other
sales, assignments, transfers and exchanges of Partnership
Interests and BACs within the previous 12 months, in the
Partnership being considered to have been terminated within the
meaning of Section 708 of the Code, which termination would, in
the judgment of the Managing General Partner, following receipt
of advice from Counsel, have tax consequences that are materially
adverse to the interests of the Limited Partners or BAC Holders,
then in such event the sale, assignment, pledge, transfer or
exchange may be deferred by the Managing General Partner. The
seller, assignor, pledgor, transferor or exchanger shall be
notified of such deferral, and any transaction deferred pursuant
to this
<PAGE> 45
provision shall be effected (in chronological order to
the extent practicable) as of the first day of the next
succeeding period as of which such transaction can be effected
without either premature termination of the Partnership for tax
purposes or any adverse effects from such premature termination,
as the case may be. In the event transactions are suspended for
the foregoing reasons, the Managing General Partner shall give
written notice of such suspension as soon as practical to all
Limited Partners and BAC Holders.
Section 7.5 Assignees of Limited Partners Other Than the
Initial Limited Partner; Substitute Limited Partners.
(a) If a Limited Partner (other than the Initial Limited
Partner) dies, his executor, administrator or trustee, or, if he
is adjudicated incompetent, his committee, guardian or
conservator, or, if he becomes Bankrupt, the trustee or receiver
of his estate, shall have all the rights of a Limited Partner for
the purpose of settling or managing his estate and such power as
the deceased or incompetent Limited Partner possessed to assign
all or any part of his Partnership Interests and to join with the
assignee thereof in satisfying conditions precedent to such
assignee becoming a Substitute Limited Partner. The death,
dissolution, adjudication of incompetency or Bankruptcy of a
Limited Partner shall not dissolve the Partnership.
(b) The Partnership need not recognize for any purpose any
assignment of all or any portion of the Partnership Interests of
a Limited Partner (other than the Initial Limited Partner) unless
he shall have submitted to the Partnership for recording on the
Partnership's books a duly executed and acknowledged counterpart
of the instrument making such assignment on the form provided by
the Managing General Partner, and such instrument evidences the
written acceptance by the assignee of all of the terms and
provisions of the Agreement, represents that such assignment was
made in accordance with all applicable laws and regulations
(including investor suitability requirements), and in all other
respects is satisfactory in form and substance to the Managing
General Partner. Except as provided in Section 4.6, assignees of
Partnership Interests shall be recognized by the Partnership as
of the first day of the month following the month during which
the Partnership receives the instrument of assignment and other
documentation described in this Section 7.5(b) and the transfer
fee referred to in Section 7.4(b)(ii).
(c) Any Limited Partner who shall assign all his Partnership
Interests shall remain a Limited Partner of the Partnership,
unless and until a Substitute Limited Partner is admitted to the
Partnership in his stead. The rights of an assignee (other than
an assignee of the Initial Limited Partner) of all of the
assignor's Partnership Interests who does not become a Substitute
Limited Partner shall be limited to receipt of his share of Cash
Flow, Residual Proceeds, Liquidation Proceeds and Profits and
Losses as determined under Article IV.
(d) An assignee of Partnership Interests (other than an assignee
of the Initial Limited Partner) may become a Substitute Limited
Partner only if the following conditions as well as the
<PAGE> 46
conditions set forth in Sections 7.4(b) and 7.4(c) are met prior
to the end of any calendar quarter:
(i) the assignee delivers to the Partnership an assignment
instrument setting forth the intent of the assignor that the
assignee succeed to the assignor's Partnership Interest as a
Substitute Limited Partner in his place and which, in all other
respects, meets the requirements of Section 7.5(b);
(ii) the assignee has fulfilled the requirements of Sections
14.2(a) and 14.2(c);
(iii) the assignee has paid the transfer fee referred to in
Section 7.4(b)(ii) and has reimbursed the Partnership for its
reasonable legal fees and recording costs incurred in connection
with his substitution as a Limited Partner; and
(iv) the Managing General Partner has consented to such
substitution, which consent may be granted or withheld by the
Managing General Partner in its sole discretion.
The transaction shall be effective within 20 days
immediately following the end of the calendar quarter during
which all of the foregoing requirements have been met.
(e) An assignee of Partnership Interests (other than an assignee
of the Initial Limited Partner) who does not become a Substitute
Limited Partner and who desires to make a further assignment of
his Partnership Interests shall be subject to all the provisions
of Article VII to the same extent and in the same manner as a
Limited Partner (other that the Initial Limited Partner) desiring
to make an assignment of Partnership Interests.
(f) Notwithstanding anything to the contrary contained in this
Section 7.5, the provisions of this Section 7.5 shall not apply
to the transfer and assignment of Partnership Interests by the
Initial Limited Partner to OTEF I and the BAC Holders in
accordance with Section 11.1(a).
Section 7.6 Joint Ownership of Interests.
(a) Subject to the other provisions of the Agreement,
Partnership Interests or BACs may be acquired by two or more
individuals, who shall, at the time they acquire such Partnership
Interests or BACs, indicate to the Partnership whether the
Partnership Interests or BACs are being held by them as joint
tenants with the right of survivorship, as tenants-in-common or
as community property. In the absence of any such designation,
they shall be presumed to hold such Partnership Interests or BACs
as tenants-in-common. Upon the death of one owner of Partnership
Interests or BACs held as joint tenants, the Partnership Interest
or BACs shall become owned solely by the survivor as a Limited
Partner or BAC Holder and not as an assignee. The Partnership
need not recognize the
<PAGE> 47
death of one of the owners of Partnership Interests or BACs held
by two or more individuals until it shall have received Notice of
such death. Any Consent of the Limited Partners or BAC Holders
shall require the action or vote of all owners of any such jointly
hold Partnership Interests or BACs.
(b) Upon Notice to the Managing General Partner from all owners
of any jointly held Partnership Interests or BACs and the
submission of such documentation as may be required, the Managing
General Partner shall (unless otherwise instructed by the owners)
cause the Partnership Interests or BACs to be divided into two or
more equal Partnership Interests or BACs, which shall thereafter
be owned separately by each of the former owners; provided,
however, that no fractional BACs shall be issued.
Section 7.7 Conversion of Affiliated BAC Holder to BAC Holder.
In the event that a General Partner or an Affiliate of a
General Partner acquires all or any portion of the Affiliated
BACs, such Affiliated BAC Holder shall have the right at any time
to exchange all or any portion of its interest in the Affiliated
BACs for BACs, provided that (i) the value of any BACs issued to
such Affiliated BAC Holder shall be not more than the value of
the Affiliated BACs offered in exchange for the BACs, as
determined by a written opinion of the Independent Real Estate
Consultant, and (ii) the Partnership shall receive an opinion of
Counsel that such exchange will not have any tax consequences
that are materially adverse to the interests of the Partnership
and the BAC Holders.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
Section 8.1 Events Causing Dissolution.
(a) The Partnership shall dissolve upon the happening of any of
the following events:
(i) the Bankruptcy, dissolution, withdrawal or removal of a
General Partner (other than the substitution of a General Partner
pursuant to Section 6.1), unless the remaining General Partner(s)
elect to continue the business of the Partnership; or, if such
General Partner is at the time the sole General Partner, unless,
within 90 days after the Bankruptcy, dissolution, withdrawal or
removal of such General Partner, all the Limited Partners agree
in writing to continue the business of the Partnership and to the
appointment (effective as of the date of Bankruptcy, dissolution,
withdrawal or removal) of one or more additional General Partners
meeting the requirements of Section 6.2;
(ii) the passage of 90 days after the Sale or Repayment of all
the Mortgage Revenue Bonds owned by the Partnership;
<PAGE> 48
(iii) the vote by the Limited Partners (including the Initial
Limited Partner voting on behalf of the BAC Holders) to dissolve
the Partnership pursuant to Section 10.2(a)(iv);
(iv) the expiration of the term of the Partnership specified in
Section 2.4; or
(v) any other event causing the dissolution of the Partnership
under the laws of the State of Maryland.
(b) Dissolution of the Partnership shall be effective on the day
on which the event occurs giving rise to the dissolution, but the
Partnership shall not terminate until a Certificate of
Cancellation has been filed with the State of Maryland Department
of Assessments and Taxation and the assets of the Partnership
shall have been distributed as provided in Section 8.2.
Notwithstanding the dissolution of the Partnership, prior to the
termination of the Partnership the business of the Partnership
and the affairs of the Partners and BAC Holders shall continue to
be governed by the Agreement.
Section 8.2 Liquidation.
(a) Upon dissolution of the Partnership, the Liquidator may
elect to either (i) liquidate the assets of the Partnership and
apply and distribute the proceeds thereof as contemplated by this
Section 8.2, or (ii) make an in-kind distribution of part or all
of the assets of the Partnership pursuant to the provisions of
this Section 8.2. In addition, the Liquidator shall cause the
cancellation of the Partnership's Certificate in accordance with
the Act and shall take all other appropriate action with respect
to the Partnership's dissolution as may be required under the
laws of all other jurisdictions where the Partnership may have
been doing business.
(b) If the Liquidator shall determine that a sale of part or all
of the Partnership's assets is appropriate, but that an immediate
sale would cause undue loss to the Partners, the Liquidator may,
after having given Notice to all the Partners, and, to the extent
not then prohibited by any applicable law, defer for a reasonable
time the liquidation of any assets of the Partnership except
those necessary to satisfy the Partnership's debts and
obligations.
(c) After payment of the expenses of effecting the liquidation
of the Partnership and the debts and liabilities owing to
creditors of the Partnership (except the repayment of any loans
to the Partnership from the General Partners or their
Affiliates), the Liquidator shall set aside as a reserve such
amount as it deems reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Partnership. Said
reserve may be paid over by the Liquidator to a bank, to be held
in escrow for the purpose of paying any such contingent or
unforeseen liabilities or obligations, and, at the expiration of
such period as the Liquidator may deem advisable, the amount in
such reserve shall be
<PAGE> 49
distributed to the Partners and BAC Holders in the manner set forth
in Section 4.2(b). Such reserve may be invested by the holder
thereof as directed by the Liquidator.
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING,
REPORTS, TAX ELECTIONS
Section 9.1 Books and Records.
(a) The books and records of the Partnership shall be maintained
at the principal office of the Partnership.
(b) Subject to any reasonable standards that may be established
from time to time by the Managing General Partner, one or more
Partners or BAC Holders who own in the aggregate at least a five
percent (5%) Partnership Interest or their duly authorized
representative shall be entitled to copy or to have copies made
of the following records, provided that a request is made to the
Managing General Partner in writing, such copies are being
requested for any proper purpose, and the reasonable costs of
fulfilling such request, including copying expenses, shall be
paid by the Partner or BAC Holder making such request:
(i) true and full information regarding the state of the
business and financial condition of the Partnership;
(ii) a copy of the Agreement and Certificate and all amendments
thereto; and
(iii) other information regarding the affairs of the
Partnership as is just and reasonable for any purpose reasonably
related to the Partner or BAC Holder's interest in the
Partnership.
(c) Subject to any reasonable standards that may be established
from time to time by the Managing General Partner, one or more
Partners or BAC Holders who own in the aggregate at least a five
percent (5%) Partnership Interest or their duly authorized
representative shall be entitled to copy or have copies made of
the following records, provided that a request is made to the
Managing General Partner in writing, such copies are being
requested for any proper purpose, and the reasonable costs of
fulfilling such request, including copying expenses, shall be
paid by the Partner or BAC Holder making such request:
(i) a current list of the full name and last known home or
business address of each Partner and BAC Holder; and
(ii) promptly after becoming available, a copy of the
Partnership's federal, state and local income tax returns for
each year.
<PAGE> 50
Section 9.2 Accounting Basis and Fiscal Year.
The books of the Partnership initially shall be kept on the
accrual method. The books and records of the Partnership shall
be maintained in accordance with either generally accepted
accounting principles or the income tax accounting method used by
the Partnership, as the Managing General Partner may determine.
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Bank Accounts.
The bank accounts of the Partnership shall be maintained in
such banking institutions as the Managing General Partner shall
determine. All deposits and other funds not immediately needed
in the operation of the business may be invested as provided in
Section 5.2(a)(xvi). The funds of the Partnership shall not be
commingled with the funds of any other Person.
Section 9.4 Reports.
(a) Within 60 days after the end of each of the first three
quarters of each calendar year, the Managing General Partner
shall send to each Person who was a Limited Partner or a BAC
Holder at any time during such quarter (i) a balance sheet for
such quarter (which need not be audited), (ii) a profit and loss
statement for such quarter (which need not be audited), (iii) a
cash flow statement for such quarter to the extent it differs
from the profit and loss statement (which need not be audited)
and (iv) a brief report of the activities of the Partnership
during such quarter, including information as to the occurrence
of any Sale or Repayment and the tax consequences of such event
to the Limited Partners and BAC Holders.
(b) Within 90 days following the end of each calendar year, the
Managing General Partner shall send to each Person who was a
Limited Partner or BAC Holder at any time during the year then
ended such tax information as shall be necessary for the
preparation by such Limited Partner and BAC Holder of his federal
income tax return.
(c) Within 150 days after the end of each calendar year, the
Managing General Partner shall send to each Person who was a
Limited Partner or BAC Holder at any time during the fiscal year
then ended (i) a balance sheet of the Partnership as of the end
of such year and statements of income, changes in Partners' and
BAC Holders' capital and changes in financial position of the
Partnership for such year, all of which shall be prepared in
accordance with generally accepted accounting principles and
accompanied by a report of the Accountants containing an opinion
of the Accountants; (ii) a statement of cash flow for such year
(which need not be audited); (iii) a statement (which need not be
audited) showing cash distributions to the Limited Partners and
the BAC Holders at any time during such year for such year, which
statement shall identify cash distributions from (A) Cash Flow
arising out of Partnership operations during the year, (B) Cash
Flow arising out of Partnership operations during prior years,
(C) Residual Proceeds and (D) Working Capital Reserve; (iv) a
report of the activities of the Partnership during such year; and
(v) a complete statement (which need not be audited) of the fees,
compensation,
<PAGE> 51
cash distributions and expense reimbursements paid by the
Partnership to the General Partners and their Affiliates
during the year. The annual report of the Partnership shall
include a breakdown of the amounts actually reimbursed to the
General Partners or their Affiliates.
(d) The Managing General Partner shall file or cause to be filed
with the Securities and Exchange Commission all reports that the
Partnership is required to file under the Securities Act of 1934.
Section 9.5 Section 754 Elections.
Subject to the provisions of Section 4.10 hereof, in the
event of a transfer of all or any part of the Partnership
Interest of a Limited Partner or BAC Holder, the Managing General
Partner shall have the authority to elect to adjust the basis of
the Partnership property pursuant to Section 754 of the Code (or
any corresponding provision of succeeding law).
Section 9.6 Designation of Tax Matters Partner.
The Managing General Partner is hereby authorized to
designate itself as Tax Matters Partner of the Partnership, as
provided in regulations pursuant to Section 6231 of the Code.
Each Partner, by the execution of this Agreement, and each BAC
Holder, by acceptance of his BACs, consents to such designation
of the Tax Matters Partner and agrees to execute, certify,
acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be necessary or
appropriate to evidence such consent.
Section 9.7 Duties of Tax Matters Partner.
(a) To the extent and in the manner provided by applicable law
and regulations, the Tax Matters Partner shall furnish the name,
address, Partnership Interest and taxpayer identification number
of each Partner, including any Substitute Limited Partner, to the
Secretary of the Treasury or his delegate (the "Secretary").
(b) To the extent and in the manner provided by applicable law
and regulations, the Tax Matters Partner shall keep each Partner
and BAC Holder informed of the administrative and judicial
proceedings for the adjustment at the Partnership level of any
item required to be taken into account by a Partner or BAC Holder
for income tax purposes (such administrative proceeding referred
to hereinafter as a "tax audit" and such judicial proceeding
referred to hereinafter as "judicial review").
(c) If the Tax Matters Partner, on behalf of the Partnership,
receives a notice with respect to a tax audit from the Secretary,
the Tax Matters Partner shall, within 30 days of receiving such
notice, send a copy of such notice to all Partners who owned
Partnership Interests and all BAC Holders who owned BACs during
the taxable year to which the notice relates.
<PAGE> 52
(d) The Tax Matters Partner shall cooperate with and monitor the
Internal Revenue Service in any audit that the Internal Revenue
Service may conduct of the books and records of the Partnership
and information or other returns filed by the Partnership for
federal income tax purposes.
Section 9.8 Authority of Tax Matters Partner.
The Tax Matters Partner is hereby authorized, but not
required:
(a) to prepare and file protests or other appropriate responses
to any tax audit;
(b) to enter into any settlement with the Internal Revenue
Service or the Secretary with respect to any tax audit or
judicial review, in which agreement the Tax Matters Partner may
expressly state that such agreement shall bind the other Partners
and the BAC Holders, except that such settlement agreement shall
not bind any Partner or BAC Holder who (within the time
prescribed pursuant to the Code and regulations thereunder) files
a statement with the Secretary providing that the Tax Matters
Partner shall not have the authority to enter into a settlement
agreement on behalf of such Partner or BAC Holder;
(c) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be
taken into account by a Partner or BAC Holder for tax purposes (a
"final adjustment") is mailed to the Tax Matters Partner, to seek
judicial review of such final adjustment, including the filing of
a petition for readjustment with the Tax Court, the District
Court of the United States for the district in which the
Partnership's principal place of business is located, or the
United States Claims Court;
(d) to intervene in any action brought by any other Partner or
BAC Holder for judicial review of a final adjustment;
(e) to file a request for an administrative adjustment with the
Secretary at any time and, if any part of such request is not
allowed by the Secretary, to file a petition for judicial review
with respect to such request;
(f) to enter into an agreement with the Internal Revenue Service
to extend the period for assessing any tax which is attributable
to any item required to be taken into account by a Partner or BAC
Holder for tax purposes, or an item affected by such item; and
(g) to take any other action on behalf of the Partners, BAC
Holders or the Partnership in connection with any administrative
or judicial tax proceeding to the extent permitted by applicable
law or regulations.
<PAGE> 53
Section 9.9 Expenses of Tax Matters Partner.
The Partnership shall indemnify and reimburse the Tax
Matters Partner for all expenses, including legal and accounting
fees, claims, liabilities, losses and damages as and when
incurred in connection with any administrative or judicial
proceeding with respect to the tax liability of the Partners or
the BAC Holders. The payment of all such expenses shall be made
before any distributions are made from Cash Flow or the Working
Capital Reserve. Neither the General Partners, nor any Affiliate
of the General Partners, nor any other Person shall have any
obligation to provide funds for such purpose. The taking of any
action and the incurring of any expense by the Tax Matters
Partner in connection with any such proceeding, except to the
extent required by law, is a matter within the sole discretion of
the Tax Matters Partner and the provisions on limitations of
liability of General Partners and indemnification set forth in
Section 5.8 of this Agreement shall be fully applicable to the
Tax Matters Partner in its capacity as such.
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
Section 10.1 Meetings; Action of Limited Partners.
(a) Any action required or permitted to be taken by the Limited
Partners (including the Initial Limited Partner acting on behalf
of the BAC Holders) must be effected at a meeting called in
accordance with subsection (b) below and may not be effected by
any written consent other than a written Consent at such a
meeting; provided, however, that the requirement that such
actions must be effected at a meeting may be waived with respect
to one or more of such actions if such waiver is approved (i) by
the Managing General Partner and (ii) by the affirmative vote
(which vote itself may be effected by written Consent) of a
majority in interest (or such greater percentage as is then
required under the Act) of the Limited Partners (including the
Initial Limited Partner acting on behalf of the BAC Holders).
(b) Meetings of the Limited Partners and the BAC Holders for any
purpose may be called by the Managing General Partner at any time
and shall be called by the Managing General Partner within 30
days after receipt of a written request for such a meeting signed
by 20% or more in interest of the Limited Partners (including the
Initial Limited Partner acting on behalf of the BAC Holders).
Any such request shall state the purpose of the proposed meeting
and the matters proposed to be acted upon at such meeting and no
matter may be acted upon at the meeting other than as set forth
in such request or as otherwise permitted by the Managing General
Partner. Meetings shall be held at the principal office of the
Partnership or at such other place as may be designated by the
Managing General Partner.
(c) Notice of any meeting to be held pursuant to Section 10.1(b)
shall be given not less than 15 days nor more than 60 days after
receipt of a written request for such a meeting to each Limited
Partner and BAC Holder at his record address, or at such other
address which he may have furnished in writing to the Managing
General Partner.
<PAGE> 54
Such Notice shall state the place, date and hour of the meeting
and shall indicate that the Notice is being issued at the discretion
of, or by, 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 an 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 Limited Partners
(including the Initial Limited Partner voting on behalf of the
BAC Holders) shall constitute a quorum at all meetings of the
Limited Partners and BAC Holders; provided, however, that if
there be no such quorum, holders of a majority in interest of the
Limited Partners (including the Initial Limited Partner voting on
behalf of the BAC Holders) 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 Limited Partners and BAC
Holders need be given (i) to any Limited Partner or BAC Holder
who attends in person or is represented by proxy, except for a
Limited Partner or BAC Holder attending 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 (ii) to any Limited Partner or
BAC Holder entitled to such Notice who, in writing, executed and
filed with the records of the meeting, either before or after the
time thereof, waives such Notice.
(d) For the purpose of determining the Limited Partners and BAC
Holders entitled to vote on, or to vote at, any meeting of the
Limited Partners and BAC Holders, or any adjournment thereof, the
Managing General Partner may fix, in advance, a date as the
record date of any such determination of Limited Partners and BAC
Holders. Such date shall not be more than 75 days nor less than
30 days before any such meeting or submission of a matter to the
Limited Partners or BAC Holders for a vote.
(e) At each meeting of Limited Partners and BAC Holders, the
Limited Partners and BAC Holders present or represented by proxy
shall elect such officers and adopt such rules for the conduct of
such meeting as they shall deem appropriate.
Section 10.2 Rights of Limited Partners and BAC Holders.
(a) Subject to Section 10.3, the Limited Partners (including the
Initial Limited Partner acting on behalf of the BAC Holders) may
take the following actions with the approval of a majority in
interest or two thirds in interest (or such greater percentage as
is then required under the Act), as set forth below:
(i) the approval of two-thirds in interest of the Limited
Partners is required for:
(A) the sale or other disposition of all or substantially all of
the assets of the Partnership (except for any sale of any
property or asset securing a Mortgage Revenue Bond) at any one
time in the circumstances provided in Section 5.4(c), unless the
Partnership obtains a written opinion
<PAGE> 55
of the Independent Real Estate Consultant with respect to
such sale or other disposition in accordance with Section
5.10(a)(ix), in which case no such approval shall be required;
(B) the following amendments to the Agreement: (A) amendments to
this Section 10.2 and (B) amendments that authorize the payment
of additional fees to the Managing General Partner, its
Affiliates or their respective successors and assigns that are
not authorized by the Agreement, or amendments that modify in a
manner not otherwise permitted by the Agreement any of the
provisions regarding fees payable by the Partnership to the
Managing General Partner or its Affiliates;
(C) removal of any General Partner (in which case they shall
provide the removed General Partner with Notice thereof, which
Notice shall set forth the date upon which such removal is to
become effective) and, if such General Partner was the sole
remaining General Partner, the election of a replacement
therefor;
(D) dissolution of the Partnership; and
(E) any other matters that are required to be submitted to a
vote of the OTEF II BAC Holders pursuant to this Agreement, for
which the required vote is not otherwise specified (other than
amendments to this Agreement not specified in item (B) above,
which amendments shall require the approval of a majority in
interest of the Limited Partners pursuant to item (ii)(D) of
this Section 10.2(a)).
(ii) the approval of a majority in interest of the Limited
Partners is required for:
(A) the acquisition of control of any Management Entity, or of
Management Assets of any Management Entity that is an Affiliate
of the Managing General Partner, unless any such acquisition is
incidental to the acquisition by the Partnership of any
Additional Mortgage Revenue Bonds or Other Assets, or is
incidental to the acquisition of any entity the principal assets
of which are Mortgage Revenue Bonds or Other Assets (and which
is not itself a Management Entity);
(B) the provision by the Partnership of or the engagement of the
Partnership in Management Services (other than those services
provided by the Partnership in the ordinary course of its
business on and after June 25, 1995) with respect to any of the
Mortgage Revenue Bonds or with respect to any of the Mortgaged
Properties, unless the Partnership
<PAGE> 56
obtains an opinion of the Independent Real Estate Consultant
in accordance with Section 5.10(a)(xv);
(C) the termination of any contract for Management Services
provided to the Partnership by the Managing General Partner or
its Affiliates; and
(D) amendments to this Agreement other than the amendments
described in subsection (i)(B) of this Section 10.2(a), which
amendments shall require the approval of two-thirds in interest
of the Limited Partners.
(iii) Notwithstanding (i) and (ii) above, in no event may the
Agreement be amended: (A) in any manner that allows the Limited
Partners or BAC Holders to take part in the control of the
Partnership's business; (B) without the Consent of each Partner
or BAC Holder affected thereby, to enlarge the obligations of any
Partner or BAC Holder under the Agreement, modify the order of
distributions of Cash Flow, Residual Proceeds or Liquidation
Proceeds or allocations of Profits and Losses, or modify the
method of determining distributions of Cash Flow, Residual
Proceeds or Liquidation Proceeds and allocations of Profits and
Losses, except that, the General Partners may so amend the
Agreement without the Consent of the Limited Partners or BAC
Holders to reflect an issuance of additional limited partnership
interests, BACs or other securities as provided in Section
14.2(b)(v); or (C) without the consent of all BAC Holders, to
modify Section 2.3 of the Agreement.
(b) A Limited Partner or a BAC Holder, through the Initial
Limited Partner, shall be entitled to vote at a meeting, in
person, by written proxy or by a signed writing directing the
manner in which he desires that his vote be cast, which writing
must be received by the Managing General Partner prior to such
meeting. Every proxy must be signed by the Limited Partner or
BAC Holder or his attorney-in-fact. No proxy shall be valid
after the expiration of 12 months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the Limited Partner or BAC Holder executing
it. Only the votes of Limited Partners and BAC Holders of record
on the Notice date, whether at a meeting or otherwise, shall be
counted. The laws of the State of Maryland pertaining to the
validity and use of corporate proxies shall govern the validity
and use of proxies given by the Limited Partners and BAC Holders.
(c) Each Limited Partner, including each Additional Limited
Partner, each Substitute Limited Partner and each BAC Holder who
is admitted as a Partner pursuant to Section 11.3, by the
execution of this Agreement, agrees that
(i) Any BACs purchased or redeemed by the Partnership shall, to
the extent permissible under law and to the extent the
Partnership holds the right to vote such BACs, be voted in the
same proportion as all other BACs for so long as the Partnership
holds such BACs; and
<PAGE> 57
(ii) Any BACs acquired by any Person pursuant to any
compensation, option or incentive plan established by the
Partnership shall be voted, until such time, if any, that such
BACs are sold or transferred to an unaffiliated Person in an arms-
length transaction, in the same proportion as all other BACs on
any matter that requires the Consent of greater than a majority
in interest of the Limited Partners (including the Initial
Limited Partner acting on behalf of the BAC Holders) and any
matter described in Section 10.2(a)(v).
Section 10.3 Conditions to Exercise of Voting Rights by Limited
Partners and BAC Holders.
The voting rights of the Limited Partners and BAC Holders
set forth in Sections 10.2(a) and (b) may be exercised unless (A)
the Partnership has received an opinion of Counsel, which Counsel
is satisfactory to two-thirds in interest of the Limited Partners
(including the Initial Limited Partner acting on behalf of the
BAC Holders), that it is more likely than not that (i) the
exercise of such voting rights is not authorized under the
provisions of this Agreement and under the provisions of the Act;
(ii) the exercise of such voting rights will impair the limited
liability of the Limited Partners and BAC Holders under the Act
or other laws of the State of Maryland or (iii) the exercise of
such voting rights will adversely affect the Partnership's
classification as a partnership for federal income tax purposes
or (B) a court having jurisdiction over the matter enters a
judgment, not subject to further appeal, or the Internal Revenue
Service issues a ruling, to such effect. For purposes of this
Section 10.3, Counsel shall be deemed satisfactory to the Limited
Partners and BAC Holders if proposed by the Managing General
Partner and not disapproved in writing within 30 days by two-
thirds in interest of the Limited Partners (including the Initial
Limited Partner acting on behalf of the BAC Holders).
Section 10.4 No Management Authority.
No Limited Partner or BAC Holder shall take part in the
management or control of the business of the Partnership or
transact any business in the name of the Partnership. No Limited
Partner or BAC Holder shall have the power or authority to bind
the Partnership or to sign any agreement or document in the name
of the Partnership. No Limited Partner or BAC Holder shall have
any power or authority with respect to the Partnership except
insofar as the Consent of the Limited Partners and the BAC
Holders shall be expressly required under the provisions of this
Agreement.
Section 10.5 Other Activities.
The Limited Partners and the BAC Holders may engage in or
possess interests in other business ventures of every kind and
description for their own accounts, including without limitation
serving as general or limited partners of other partnerships
which own, either directly or through interests in other
partnerships, mortgage-backed bonds similar to the Mortgage
Revenue Bonds. Neither the Partnership nor any of the Partners
or BAC Holders shall have any rights by virtue of this Agreement
in or to such business ventures or to the income or profits
derived therefrom.
<PAGE> 58
ARTICLE XI
ASSIGNMENT OF PARTNERSHIP INTERESTS TO
BAC HOLDERS AND RIGHTS OF BAC HOLDERS
Section 11.1 Assignment of Partnership Interests to BAC
Holders.
(a) The Initial Limited Partner, by the execution of this
Agreement, (i) acknowledges its prior irrevocable assignment to
OTEF I of all of the Initial Limited Partner's rights and
interest in and to the number of Units of Limited Partnership
Interest held by the Initial Limited Partner equal to the number
of BAC Holder Units issued to OTEF I in accordance with Section
3.3(a) hereof as of the time the OTEF I Mortgage Revenue Bonds
were assigned and transferred to the Partnership, and (ii)
irrevocably assigns to each purchaser of BACs all of the Initial
Limited Partner's rights and interest in and to the number of
Units of Limited Partnership Interest held by the Initial Limited
Partner which is equal to the number of BAC Holder Units
purchased by each such purchaser in accordance with Section
3.3(b) hereof as of the related Investment Date. The rights and
interest so transferred and assigned shall include, without
limitation, the following:
(i) all rights to receive distributions of Cash Flow pursuant to
Section 4.1;
(ii) all rights to receive Residual Proceeds pursuant to Section
4.2;
(iii) all rights in respect of allocations of Profits and
Losses pursuant to Section 4.3;
(iv) all rights in respect of allocations of Profits and Losses
pursuant to Section 4.4;
(v) all rights to receive any proceeds of liquidation of the
Partnership pursuant to Sections 4.2 and 8.2;
(vi) all rights to inspect books and records and to receive
reports pursuant to Article IX; and
(vii) all rights which Limited Partners have, or may have in
the future, under the Act, except as otherwise provided herein.
(b) The General Partners, by the execution of this Agreement,
irrevocably consent to and acknowledge that (i) the foregoing
assignment pursuant to Section 11.1(a) by the Initial Limited
Partner to the BAC Holders of the Initial Limited Partner's
rights and interest in the Limited Partnership Interests is
effective, and (ii) the BAC Holders are
<PAGE> 59
intended to be third-party beneficiaries of all rights and
privileges of the Initial Limited Partner in respect of the Limited
Partnership Interests. The General Partners covenant and agree that,
in accordance with the foregoing transfer and assignment, all the
Initial Limited Partner's rights and privileges in respect of Limited
Partnership Interests may be exercised by the BAC Holders, including,
without limitation, those listed in Section 11.1(a).
(c) The Initial Limited Partner may be reimbursed by the
Partnership for any costs incurred by it in connection with the
assignment of its Limited Partnership Interests to the extent
such costs are not paid by the owners of the Mortgaged
Properties; provided, however, that such reimbursement shall be
subject to the limitations set forth in Section 5.3 with respect
to reimbursements to the General Partner.
Section 11.2 Rights of BAC Holders.
(a) Limited Partners and BAC Holders shall share pari passu on
the basis of one Unit of Limited Partnership Interest for one BAC
Holder Unit, and shall be considered as a single class with
respect to all rights to receive distributions of Cash Flow,
Residual Proceeds, Liquidation Proceeds, allocations of Profits
and Losses, and other determinations of allocations and
distributions pursuant to this Agreement.
(b) Limited Partners (including the Initial Limited Partner
voting the Interests of the BAC Holders at their direction) shall
vote on all matters in respect of which they are entitled to vote
(either in person or by proxy), as a single class with each BAC
entitled to one vote through the Initial Limited Partner.
(c) A BAC Holder may bring a derivative action on behalf of the
Partnership to the same extent as a Limited Partner has such
right under Maryland law.
Section 11.3 Admission of BAC Holders as Limited Partners.
Any BAC Holder who desires to be admitted to the Partnership
as a Limited Partner may do so by delivering to the Partnership,
prior to December 31 of any year, an executed subscription
agreement and admission application (which are available upon
request from the General Partners), obtaining the written consent
of the General Partners (which consent shall not be unreasonably
withheld), fulfilling the requirements of Section 14.2(a), and
paying a fee of $150 per transaction (or such other amount as the
Managing General Partner may require from time to time), plus
legal fees and recording costs relating to the admission. The
admission of a BAC Holder or a Limited Partner shall be effective
within 20 days immediately following the end of the calendar
quarter during which all of the foregoing requirements have been
met. This Agreement shall be amended as necessary to recognize
the admission of such persons an Limited Partners of the
Partnership and the proportionate reduction in the Limited
Partnership Interest of the Initial Limited Partner. BAC Holders
who are admitted as Limited Partners shall receive one Limited
Partnership Interest for each BAC they held and shall not have
the right thereafter to exchange their Limited Partnership
Interests for BACs. BACs held by BAC Holders which have been
admitted as Limited Partners shall be canceled and shall not be
reissued.
<PAGE> 60
Section 11.4 Preservation of Tax Status.
With the Consent of each BAC Holder so affected, the General
Partners may at any time cause such BAC Holder to become a
Limited Partner, and may take such other action with respect to
the manner in which BACs or Partnership Interests are being or
may be transferred or traded, as they may deem necessary or
appropriate, in order to preserve the status of the Partnership
as a partnership rather than an association taxable as a
corporation for federal income tax purposes or to insure that BAC
Holders shall be treated as limited partners for federal income
tax purposes.
ARTICLE XII
BUSINESS COMBINATIONS
Section 12.1 Definitions.
For purposes of this Agreement, the following definitions
shall apply:
"Associate," when used to indicate a relationship with any
Person, means:
(i) Any entity (other than the Partnership or a Subsidiary of
the Partnership) of which such Person is an officer, director,
member, or partner or is, directly or indirectly, the beneficial
owner of 10% or more of any class of equity securities;
(ii) Any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves
as trustee or in a similar fiduciary capacity; and
(iii) Any relative or spouse of such Person, or any relative
of such spouse, who has the same home as such Person or who is a
director or officer of one of the General Partners or any of
their Affiliates.
"Beneficial owner," when used with respect to any BAC
Holder, means a Person:
(i) That, individually or with any of its Affiliates
or Associates, beneficially owns BACs, directly or
indirectly; or
(ii) That, individually or with any of its Affiliates
or Associates, has (A) the right to acquire BACs (whether
such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise; or (B)
the right to vote BACs pursuant to any agreement,
arrangement or understanding; or
(iii)That has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of BACs
with any person that beneficially owns,
<PAGE> 61
or whose Affiliates or Associates beneficially own, directly
or indirectly, such shares of BACs.
"Business Combination," means:
(i) Unless the merger, consolidation or exchange of
interests does not alter the contract rights of the BACs as
expressly set forth in this Agreement or change or convert
in whole or in part the outstanding BACs of the Partnership,
any merger, consolidation or exchange of interests of the
Partnership or any Subsidiary with (A) any Interested Party
or (B) any other entity (whether or not itself an Interested
Party) which is, or after the merger, consolidation or
exchange of interests would be, an Affiliate of an
Interested Party that was an Interested Party prior to the
transaction;
(ii) Any sale, lease, transfer or other disposition,
other than in the ordinary course of business, in one
transaction or a series of transactions in any 12-month
period, to any Interested Party or any Affiliate of any
Interested Party (other than the Partnership or any of its
Subsidiaries) of any assets of the Partnership or any
Subsidiary having, measured at the time the transaction or
transactions are approved by the Managing General Partner,
an aggregate book value as of the end of the Partnership's
most recently ended fiscal quarter of 10% or more of the
total market value of the outstanding BACs or of its net
worth as of the end of its most recently ended fiscal
quarter;
(iii)The issuance or transfer by the Partnership
or any Subsidiary, in one transaction or a series of
transactions, of any BACs of the Partnership or any
Subsidiary which have an aggregate market value of 5% or
more of the total market value of the outstanding BACs of
the Partnership to any Interested Party or any Affiliate of
any Interested Party (other than the Partnership or any of
its Subsidiaries) except pursuant to the exercise of
warrants or rights to purchase securities offered pro rata
to all BAC Holders or any other method affording
substantially proportionate treatment to the BAC Holders and
pursuant to severance or other benefit plans adopted by the
Managing General Partner under Section 5.2(a)(x);
(iv) The adoption of any plan or proposal for the
liquidation or dissolution of the Partnership in which
anything other than cash will be received by an Interested
Party or any Affiliate of any Interested Party;
(v) Any reclassification of securities or
recapitalization of the Partnership, or any merger,
consolidation or exchange of interests of the Partnership
with any of its Subsidiaries which has the effect, directly
or indirectly, in one transaction or a series of
transactions, of increasing by 5% or more of the total
number of outstanding BACs, the proportionate amount of the
outstanding BACs of the Partnership or the outstanding
number of any class of equity securities of any Subsidiary
which is directly or indirectly owned by any Interested
Party or any Affiliate of any Interested Party; or
(vi) The receipt by any Interested Party or any
Affiliate of any Interested Party (other than the
Partnership or any of its Subsidiaries) of the benefit,
directly or indirectly
<PAGE> 62
(except proportionately as a BAC Holder), of any loan,
advance, guarantee, pledge or other financial assistance
or any tax credit or other tax advantage provided by the
Partnership or any of its Subsidiaries.
"Fair Value" means:
(i) In the case of BACs, the highest closing sale
price during the 30-day period immediately preceding the
date in question of a BAC on the composite tape for New York
Stock Exchange-listed stocks, or, if the BACs are not quoted
on the composite tape, on the New York Stock Exchange, or,
if the BACs are not listed on such Exchange, on the
principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the BACs are
listed, or, if the BACs are not listed on any such exchange,
the highest closing bid quotation with respect to a BAC
during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc.
automated quotations system or any system then in use, or,
if no such quotations are available, the Fair Value on the
date in question of a BAC as determined by the Managing
General Partner in good faith; and
(ii) In the case of property other than cash or stock,
the fair market value of such property on the date in
question as determined by the Managing General Partner in
good faith.
"Interested Party," means any Person (other than the
Partnership or any Subsidiary) that:
(i) Is the beneficial owner, directly or indirectly,
of 10% or more of the outstanding BACs of the Partnership;
or
(ii) Is an Affiliate or Associate of the Partnership
and at any time within the two year period immediately prior
to the date in question was the beneficial owner, directly
or indirectly, of 10% or more of the voting power of the
then outstanding BACs of the Partnership.
(iii)For the purpose of determining whether a
Person is an Interested Party, the number of BACs deemed to
be outstanding shall include BACs deemed beneficially owned
by the Person but may not include any other BACs which may
be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
"Subsidiary" means:
(i) a corporation in which the Partnership owns at
least a majority of the voting securities;
(ii) a partnership in which the Partnership owns at
least a majority in interest of the limited partnership
interests or of which a General Partner or an Affiliate of a
General Partner is a general partner;
<PAGE> 63
(iii)a joint venture of which the Partnership, a
General Partner or an Affiliate of a General Partner is a
joint venturer; or
(iv) a limited liability company in which the
Partnership owns at least a majority in interest of the
membership interests or of which a General Partner or an
Affiliate of a General Partner is a manager.
Section 12.2 Business Combinations
(a) Unless an exemption under Section 12.3 applies, the
Partnership may not engage in any Business Combination with any
Interested Party or any Affiliate of the Interested Party for a
period of five years following the most recent date on which the
Interested Party became an Interested Party.
(b) Unless an exemption under Section 12.3 applies, in addition
to any vote otherwise required by law or this Agreement, a
Business Combination that is not prohibited by subsection (a) of
this Section 12.2 shall be recommended by the Managing General
Partner and approved by the affirmative vote of at least:
(i) 80% in interest of the Limited Partners (including the
Initial Limited Partner voting on behalf of the BAC Holders),
voting together as a single voting group; and
(ii) Two-thirds in interest of the Limited Partners (including
the Initial Limited Partner voting on behalf of the BAC Holders,
but excluding any votes cast by the Initial Limited Partner on
behalf of the Interested Party who will, or whose Affiliate will,
be a party to the Business Combination or by an Affiliate or
Associate of the Interested Party), voting together as a single
voting group.
Section 12.3 Exemptions.
(a) For purposes of this Section 12.3:
"Announcement Date" means the first general public
announcement of the proposal or intention to make a proposal of
the Business Combination or its first communication generally to
the BAC Holders, whichever is earlier;
"Determination Date" means the most recent date on which the
Interested Party became an Interested Party; and
"Valuation Date" means:
(i) For a Business Combination voted upon by the Limited
Partners, the latter of the day prior to the date of the vote or
the day 20 days prior to the consummation of the Business
Combination; and
<PAGE> 64
(ii) For a Business Combination not voted upon by the Limited
Partners, the date of the consummation of the Business
Combination.
(b) The vote required by Section 12.2 does not apply to a
Business Combination if (1) the Business Combination shall have
been approved by the Managing General Partner prior to the
Determination Date or (2) each of the conditions in items (i)
through (iii) below is met:
(i) The aggregate amount of the cash and the Fair Value as of
the Valuation Date of consideration other than cash to be
received per BAC in such Business Combination is at least equal
to the highest of the following:
(A) The highest per BAC price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by the Interested Party for any BACs of the same class or
series acquired by it within the five-year period immediately
prior to the Announcement Date of the proposal of the Business
Combination, plus an amount equal to interest compounded
annually from the earliest date on which the highest per BAC
acquisition price was paid through the Valuation Date at the
rate for one-year United States Treasury obligations from time
to time in effect, less the aggregate amount of any cash
distributions paid and the Fair Value of any distributions
paid in other than cash, per BAC from the earliest date
through the Valuation Date, up to the amount of the
interest; or
(B) The highest per BAC price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by the Interested Party for any BACs of the same class or
series acquired by it on, or within the 5-year period
immediately before, the Determination Date, plus an amount
equal to interest compounded annually from the earliest date
on which the highest per BAC acquisition price was paid
through the Valuation Date at the rate for one-year United
States Treasury obligations from time to time in effect, less
the aggregate amount of any cash distributions paid and the
Fair Value of any distributions paid in other than cash, per
BAC from the earliest date through the Valuation Date, up to
the amount of the interest; or
(C) The highest preferential amount per BAC to which the holders
of BACs of such class or series are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the Partnership (for purposes of this Section 12.3(b)(1)(C),
the Limited Partners Preference Amount shall be considered a
preferential amount to which BAC Holders are entitled upon any
liquidation, dissolution or winding up of the Partnership); or
<PAGE> 65
(D) The Fair Value per BAC of the same class or series on the
Announcement Date, plus an amount equal to interest compounded
annually from that date through the Valuation Date at the rate
for one-year United States Treasury obligations from time to
time in effect, less than the aggregate amount of any cash
distributions paid and the Fair Value of any distributions paid
in other than cash, per BAC from that date through the Valuation
Date, up to the amount of interest; or
(E) The Fair Value per BAC of the same class or series on the
Determination Date, plus an amount equal to interest compounded
annually from that date through the Valuation Date at the rate
for one-year United States Treasury obligations from time to
time in effect, less the aggregate amount of any cash
distributions paid and the Fair Value of any distributions
paid in other than cash, per BAC from that date through the
Valuation Date, up to the amount of the interest; or
(F) The price per BAC equal to the Fair Value per BAC of the
same class or series on the Announcement Date or on the
Determination Date, whichever is higher, multiplied by the
fraction of:
(1) The highest per BAC price (including any
brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested
Party for any BACs of the same class or series
acquired by it within the five-year period
immediately prior to the Announcement Date, over
(2) The Fair Value per BAC of the same class
or series on the first day in such five-year
period on which the Interested Party acquired any
BACs.
(ii) The consideration to be received by the BAC Holders is to be
in cash or in the same form as the Interested Party has
previously paid for BACs. If the Interested Party has paid for
BACs with varying forms of consideration, the form of
consideration for such BACs shall be either cash or the form used
to acquire the largest number of BACs previously acquired by it.
(iii) After the Determination Date and prior to the
consummation of such Business Combination, the Interested Party
did not become the beneficial owner of any additional BACs except
as part of the transaction which resulted in such Interested
Party becoming an Interested Party or by virtue of proportionate
BAC splits or distributions.
(c) The provisions of Section 12.2 do not apply to any Business
Combination of the Partnership with an Interested Party that
became an Interested Party inadvertently, if the Interested
Party:
<PAGE> 66
(i) As soon as practicable (but not more than 10 days after the
Interested Party knew or should have known it had become an
Interested Party) divests itself of a sufficient amount of BACs
so that it no longer is the beneficial owner, directly or
indirectly, of 10% or more of the outstanding BACs of the
Partnership; and
(ii) Would not at any time with the five-year period preceding
the Announcement Date with respect to the Business Combination
have been an Interested Party except by inadvertence.
ARTICLE XIII
VOTING RIGHTS OF CERTAIN CONTROL BACS
SECTION 13.1 Definitions.
For purposes of this Article XIII, the following definitions
shall apply:
"Acquiring Person" means a person who makes or proposes to
make a Control BAC Acquisition.
"Associate," when used to indicate a relationship with any
Person, means:
(a) An "Associate" as defined in Section 12.1; or
(b) A Person that:
(1) Directly or indirectly controls, or is
controlled by, or is under common control with, the
Person specified; or
(2) Is acting or intends to act jointly or in
concert with the Person specified.
"Control BACs" means BACs that, except for this Article
XIII, would, if aggregated with all other BACs (including BACs
the acquisition of which is excluded from the definition "Control
BAC Acquisition" below) owned by a Person or in respect of which
that Person is entitled to exercise or direct the exercise of
voting power, except solely by virtue of a revocable proxy,
entitle that Person, directly or indirectly, to exercise or
direct the exercise of the voting power of BACs within any of the
following ranges of voting power:
(i) One-fifth or more, but less than one-third of all voting
power;
(ii) One-third or more, but less than a majority of all voting
power; or
(iii) A majority or more of all voting power.
<PAGE> 67
Control BACs includes BACs only to the extent that the Acquiring
Person, following the acquisition of the BACs, is entitled,
directly or indirectly, to exercise or direct the exercise of
voting power within any level of voting power set forth in this
section for which approval has not been obtained previously under
Section 13.2.
"Control BAC Acquisition" means the acquisition, directly or
indirectly, by any Person, of ownership of, or the power to
direct the exercise of voting power with respect to, issued and
outstanding Control BACs. Control BAC Acquisition does not
include the acquisition of BACs:
(iv) By OTEF I pursuant to Section 3.3(a);
(v) Under the laws of descent and distribution;
(vi) Under the satisfaction of a pledge or other security
interest created in good faith and not for the purpose of
circumventing this Article XIII; or
(vii)Under a merger, consolidation or exchange of interests
if the Partnership is a party to the merger, consolidation or
exchange or interests.
Unless the acquisition entitles any Person, directly or
indirectly, to exercise or direct the exercise of voting power in
excess of the range of voting power previously authorized or
attained under an acquisition that is exempt under items (i),
(ii) or (iii) of this definition, "Control BAC Acquisition" does
not include the acquisition of BACs in good faith and not for the
purpose of circumventing this Article XIII by or from any Person
whose voting rights have previously been authorized by the
Limited Partners in compliance with this Article XIII or any
Person whose previous acquisition of BACs of the Partnership
would have constituted a Control BAC Acquisition but for the
exclusions in items (i) through (iii) of this definition.
"Fair Value of the Control BACs" means the Fair Value as
defined in Section 12.1.
"Interested BACs" means BACs in respect of which an
Acquiring Person is entitled to exercise or direct the exercise
of the voting power of BACs.
Section 13.2 Voting Rights.
(a) Control BACs acquired in a Control BAC Acquisition have no
voting rights except to the extent approved by the Limited
Partners (including the Initial Limited Partner voting on behalf
of the BAC Holders) at a meeting held under Section 13.4 by the
affirmative vote of two-thirds in interest of the Limited
Partners (including the Initial Limited Partner voting on behalf
of the BAC Holders, but excluding any votes cast by the Initial
Limited Partner with respect to Interested BACs).
(b) For the purposes of Section 13.1:
<PAGE> 68
(i) BACs acquired within 90 days or BACs acquired under a plan
to make a Control BAC Acquisition are considered to have been
acquired in the same acquisition; and
(ii) A Person may not be deemed to be entitled to exercise or
direct the exercise of voting power with respect to BACs held for
the benefit of others if the Person:
(A) Is acting in the ordinary course of business, in good faith
and not for the purpose of circumventing the provisions of this
section; and
(B) Is not entitled to exercise or to direct the exercise of the
voting power of the BACs unless the Person first seeks to obtain
the instruction of another Person.
Section 13.3 Acquiring Person Statement.
Any Person who proposes to make or who has made a Control
BAC Acquisition may deliver an Acquiring Person statement to the
Partnership at the Partnership's principal office. The Acquiring
Person statement shall set forth all of the following:
(a) The identity of the Acquiring Person and each other member
of any group of which the Person is a part for purposes of
determining control BACs;
(b) A statement that the Acquiring Person statement is given
under this Article XIII;
(c) The number of BACs owned (directly or indirectly) by the
Acquiring Person and each other member of any group;
(d) The applicable range of voting power as set forth in the
definition of "Control BACs;" and
(e) If the Control BAC Acquisition has not occurred:
(i) A description in reasonable detail of the terms of the
proposed Control BAC Acquisition; and
(ii) Representations of the Acquiring Person, together with a
statement in reasonable detail of the facts on which they are
based, that:
(1) The proposed Control BAC Acquisition, if
consummated, will not be contrary to law; and
<PAGE> 69
(2) The Acquiring Person has the financial
capacity, through financing to be provided by the
Acquiring Person and any additional specified
sources of financing required under Section 13.5,
to make the proposed Control BAC Acquisition.
Section 13.4 Special Meeting.
(a) Except as provided in Section 13.5, if the Acquiring Person
requests, at the time of delivery of an Acquiring Person
statement, and gives a written undertaking to pay the
Partnership's expenses of a special meeting, except the expenses
of opposing approval of the voting rights, within 10 days after
the day on which the Partnership receives both the request and
undertaking, the Managing General Partner shall call a special
meeting of the Limited Partners and the BAC Holders for the
purpose of considering the voting rights to be accorded the BACs
acquired or to be acquired in the Control BAC Acquisition.
(i) The Managing General Partner may require the Acquiring
Person to give a bond, with sufficient surety, to reasonably
assure the Partnership that this undertaking will be satisfied.
(ii) Unless the Acquiring Person agrees in writing to another
date, the special meeting of BAC Holders shall be held within 50
days after the day on which the Partnership has received both the
request and the undertaking.
(iii) If the Acquiring Person makes a request in writing at
the time of delivery of the Acquiring Person statement, the
special meeting may not be held sooner than 30 days after the day
on which the Partnership receives the Acquiring Person statement.
(iv) If no request is made under subsection (a) of this Section
13.4, the issue of the voting rights to be accorded the BACs
acquired in the Control BAC Acquisition may, at the option of the
Partnership, be presented for consideration at any meeting of the
Limited Partners and the BAC Holders. If no request is made
under subsection (a) of this Section 13.4 and the Partnership
proposes to present the issue of the voting rights to be accorded
the BACs acquired in a Control BAC Acquisition for consideration
at any meeting of the Limited Partners and the BAC Holders, the
Partnership shall provide the Acquiring Person with written
Notice of the proposal not less than 20 days before the date on
which Notice of the meeting is given.
Section 13.5 Calls.
(a) A call of a special meeting of BAC Holders is not required
to be made under Section 13.4 unless, at the time of delivery of
an Acquiring Person statement under Section 13.3, the Acquiring
Person has:
<PAGE> 70
(i) Entered into a definitive financing agreement or agreements
with one or more responsible financial institutions or other
entities that have the necessary financial capacity, providing
for any amount of financing of the Control BAC Acquisition not to
be provided by the Acquiring Person; and
(ii) Delivered a copy of the agreements to the Partnership.
Section 13.6 Notice of Meeting.
(a) If a special meeting of the Limited Partners and the BAC
Holders is requested, notice of the special meeting shall be
given as promptly as reasonably practicable by the Partnership to
all Limited Partners and BAC Holders of record as of the record
date set for the meeting, whether or not the Limited Partners and
the BAC Holders are entitled to vote at the meeting.
(b) Notice of the special or annual meeting at which the voting
rights are to be considered shall include or be accompanied by
the following:
(i) A copy of the Acquiring Person statement delivered to the
Partnership under Section 13.3; and
(ii) A statement by the Managing General Partner setting forth
its position or recommendation, or stating that it is taking no
position or making no recommendation, with respect to the issue
of voting rights to be accorded the Control BACs.
Section 13.7 Redemption Rights.
(a) If an Acquiring Person statement has been delivered on or
before the 10th day after the Control BAC Acquisition, the
Partnership may, at its option, redeem any or all Control BACs,
except Control BACs for which voting rights have been previously
approved under Section 13.2, at any time during a 60-day period
commencing on the day of a meeting at which voting rights are
considered under Section 13.4 and are not approved.
(b) In addition to the redemption rights authorized under
subsection (a) of this Section 13.7, if an Acquiring Person
statement has not been delivered on or before the 10th day after
the Control BAC Acquisition, the Partnership may, at its option,
redeem any or all Control BACs, except Control BACs for which
voting rights have been previously approved under Section 13.2,
at any time during a period commencing on the 11th day after the
Control BAC Acquisition and ending 60 days after the Acquiring
Person's last acquisition of Control BACs.
<PAGE> 71
(c) Any redemption of Control BACs under this section shall be
at the Fair Value of the Control BACs. For purposes of this
section, Fair Value of the Control BACs shall be determined:
(i) As of the date of the last acquisition of Control BACs by
the Acquiring Person in a Control BAC Acquisition or, if a
meeting is held under Section 13.4, as of the date of the
meeting; and
(ii) Without regard to the absence of voting rights for the
Control BACs.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
Section 14.1 Appointment of Managing General Partner as
Attorney-in-Fact.
(a) Each Limited Partner, including each Additional Limited
Partner, each Substitute Limited Partner and each BAC Holder who
is admitted as a Limited Partner pursuant to Section 11.3, by the
execution of this Agreement, irrevocably constitutes and
appoints, with full power of substitution, the Managing General
Partner, and its Chief Executive Officer, President, Executive
Vice Presidents, Senior Vice Presidents and Vice Presidents, any
Liquidator, any authorized officer of the Liquidator and
attorneys-in-fact of any of the foregoing Persons and each of
them acting singly, his true and lawful attorney-in-fact with
full power and authority in his name, place and stead to:
(i) execute, certify, acknowledge, deliver, swear to, file and
record at the appropriate public offices this Agreement and the
Certificate of limited partnership and all amendments and
restatements of either thereof, and such other documents,
certificates and other instruments as may be necessary or
appropriate to carry out the provisions of this Agreement,
including but not limited to:
(A) all documents, certificates and other instruments (including
counterparts of this Agreement), and any amendments thereof,
that any such Person deems necessary or appropriate to qualify
or continue the Partnership as a limited partnership under
the laws of the State of Maryland and to form, qualify or
continue the existence or qualification of the Partnership as
a limited partnership (or as a partnership in which the
Limited Partners shall have limited liability comparable to
that provided by the Act on the date thereof) in any other
jurisdiction in which the Partnership may conduct business
or in which such formation, qualification or continuation is,
in the opinion of the Managing General Partner, necessary to
protect the limited liability of the Limited Partners;
(B) any other instrument or document that may be required to be
filed by the Partnership under federal law or under the laws of
the State
<PAGE> 72
of Maryland or of any other jurisdiction in which the
Managing General Partner deems it advisable to file;
(C) all amendments to this Agreement adopted in accordance with
the terms of this Agreement and all instruments that the
Managing General Partner deems appropriate to reflect a change
or modification of the Partnership in accordance with the
terms of this Agreement; and
(D) any instrument or document, including amendments to this
Agreement, which may be required to effect the continuation of
the Partnership, the admission of any Limited Partners or
Substitute Limited Partners or any additional or successor
General Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution
and termination are in accordance with the terms of this
Agreement) or to reflect any reductions in the amount of
contributions of Partners.
(ii) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of
any such Person, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made
or given by the Partners or any class of Partners hereunder or is
consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of any such Person, to
effectuate the terms or intent of this Agreement.
(b) The foregoing appointment by each Limited Partner of the
Managing General Partner, and its Chief Executive Officer,
President, Executive Vice Presidents, Senior Vice Presidents and
Vice Presidents, any Liquidator, any authorized officer of the
Liquidator, any attorneys-in-fact of any of the foregoing
Persons, and each of them acting singly, as his attorney-in-fact,
is irrevocable and shall be deemed to be a power coupled with an
interest in recognition of the fact that each of the Limited
Partners under this Agreement shall be relying upon the power of
such Persons to act as contemplated by this Agreement in any
filing and other action by them on behalf of the Partnership, and
such power shall survive the withdrawal, Bankruptcy, death,
incompetence or dissolution of any Limited Partner hereby giving
such power and the transfer or assignment of all or any part of
the Partnership Interests of such Limited Partner; provided,
however, that in the event of a transfer by a Limited Partner of
all of his Partnership Interests, the foregoing power of attorney
of a transferor Limited Partner shall survive such transfer only
until such time as the transferee shall have been admitted to the
Partnership as a Substitute Limited Partner and all required
documents and instruments shall have been duly executed, filed
and recorded to effect such substitution.
(c) The foregoing grant of authority may be exercised by the
Managing General Partner, and each of its Chief Executive
Officer, President, Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents, any Liquidator, any authorized
<PAGE> 73
officer of the Liquidator, any attorneys-in-fact of any of the
foregoing Persons, on behalf of each Limited Partner by a
facsimile signature or by listing all of the Limited Partners
executing any instrument with a single signature as attorney-in-
fact for all of them.
Section 14.2 Signatures; Amendments to Partnership Agreement.
(a) Each Limited Partner, Substitute Limited Partner, additional
General Partner and successor General Partner shall become a
signatory hereto by signing such number of counterpart signature
pages to this Agreement or the Limited Partner Signature-Consent
to Admission and Power of Attorney Pages and such other
instrument or instruments in such manner and at such time as the
Managing General Partner shall determine. By so signing, each
Limited Partner, Substitute Limited Partner, successor General
Partner or additional General Partner, as the case may be, shall
be deemed to have adopted, and to have agreed to be bound by, all
of the provisions of this Agreement, as amended from time to
time; provided, however, that no such counterpart shall be
binding unless and until it shall have been accepted by the
Managing General Partner.
(b) In addition to any amendments to this Agreement otherwise
authorized herein, amendments may be made to this Agreement from
time to time by the General Partners, without the Consent of the
Limited Partners or the BAC Holders, (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; (ii) to cure any ambiguity or correct or supplement any
provision herein which may be inconsistent with the manifest
intent of this Agreement; (iii) to delete or add any provision of
this Agreement required to be deleted or added by the staff of
the Securities and Exchange Commission or other federal agency or
by a state securities commissioner or similar official, which
addition or deletion is deemed by such Commission, agency or
official to be for the benefit or protection of the Limited
Partners and the BAC Holders; (iv) to delete or add any provision
which the Managing General Partner believes is necessary in order
to effect an Offering or to comply with the Statement of Policy
Regarding Real Estate Programs adopted by the North American
Securities Administrators Association, Inc. in effect at the time
of the Offering, in either case subject to a written opinion by
the Independent Real Estate Consultant that such deletion or
addition is in the best interests of the Partnership; (v) to
reflect an issuance of additional limited partnership interests,
BACs or other securities pursuant to Section 3.3(b) or 3.3(g);
(vi) to delete or add any provision which the Managing General
Partner believes is necessary in connection with any merger of
the Partnership with another Person or in connection with the
acquisition by the Partnership of direct or indirect interests in
Management Assets or direct or indirect interests in the equity
or debt securities of a Management Entity or the provision by the
Partnership of or the engagement of the Partnership in Management
Services, subject to a written opinion by the Independent Real
Estate Consultant that such deletion or addition is in the best
interests of the Partnership; (vii) to delete or add any
provision required to be deleted or added in order to qualify the
BACs for listing on a national securities exchange or for
designation on an interdealer quotation system, subject to
receipt of a written opinion by the Independent Real Estate
Consultant that such deletion or addition
<PAGE> 74
is in the best interests of the Partnership; (viii) to delete
or add any provision required to be deleted or added in order
to obtain an investment grade rating on the Mortgage Revenue Bonds
(or interests therein) from a nationally recognized statistical
rating organization, subject to receipt of a written opinion by
the Independent Real Estate Consultant that such deletion or
addition is in the best interests of the Partnership; or (ix) to
reflect a change in the types of assets that may be held or
acquired by the Partnership under the conditions set forth in
Section 5.2(d); provided, however, that no amendment shall be
adopted pursuant to this Section 14.2(b) unless the adoption
thereof does not adversely affect the limited liability of the
Limited Partners or BAC Holders or the classification of the
Partnership as a partnership for federal income tax purposes.
(c) If this Agreement shall be amended as a result of adding or
substituting a Limited Partner, the amendment to this Agreement
shall be signed by the Managing General Partner and by the Person
to be substituted or added (which signature of the Person to be
substituted or added may be made by such Person's attorney-in-
fact), and, if a Limited Partner is to be substituted, either by
the assigning Limited Partner or by the Managing General Partner
pursuant to its authority under Section 14.1 to act as attorney-
in-fact on behalf of such assigning Limited Partner. If this
Agreement shall be amended to reflect the designation of an
additional General Partner, such amendment shall be signed by the
other General Partner(s) and by such additional General Partner.
If this Agreement shall be amended to reflect a conversion of a
General Partner's interest in the Partnership to BACs pursuant to
Section 6.5, or other withdrawal of a General Partner, when the
business of the Partnership is being continued, such amendment
shall be signed by the converting or withdrawing General Partner
and by the remaining or successor General Partner(s).
(d) Except for amendments to this Agreement otherwise authorized
under the provisions of this Agreement, including amendments to
effect the admission of additional and Substitute Limited
Partners and additional and successor General Partners and
amendments under this Section 14.2, amendments may be made to
this Agreement from time to time only by the General Partners
with the Consent of two-thirds in interest of the Limited
Partners (including the Initial Limited Partner acting on behalf
of the BAC Holders), subject to the limitations set forth in
Section 10.2(a)(ii). Such amendments shall be signed by the
General Partners.
(e) In making any amendments, there shall be prepared and filed
by the Managing General Partner for recording such documents and
certificates as shall be required to be prepared and recorded
under the Act and under the laws of any other jurisdiction, as
required, in which the Partnership is qualified to do business or
is registered as a foreign limited partnership.
<PAGE> 75
Section 14.3 Ownership by Limited Partners and BAC Holders of
General Partners or Their Affiliates.
No Limited Partner or BAC Holder shall at any time, either
directly or indirectly, own any stock or other interest in any
General Partner or in any Affiliate of any General Partner if
such ownership by itself or in conjunction with the stock or
other interest owned by other Limited Partners and BAC Holders
would, in the opinion of Counsel for the Partnership, jeopardize
the classification of the Partnership as a partnership for
federal income tax purposes. Each Limited Partner and BAC Holder
shall promptly supply any information requested by the Managing
General Partner in order to establish compliance by the Limited
Partner or BAC Holder with the provisions of this Section 14.3.
Section 14.4 Burden and Benefit.
The covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, the parties and their
respective heirs, executors, administrators, personal
representatives, successors and assigns, including, without
limitation, the BAC Holders.
Section 14.5 Applicable Law.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Maryland,
without giving effect to its conflict of law provisions.
Section 14.6 Counterparts.
This Agreement may be executed in several counterparts, all
of which together shall constitute one agreement binding an all
parties hereto, notwithstanding that all the parties have not
signed the same counterpart, except that no counterpart shall be
binding unless signed by the Managing General Partner.
Section 14.7 Separability of Provisions.
Each provision of this Agreement shall be considered
separable, and if for any reason any provision or provisions of
this Agreement are determined to be invalid and contrary to any
law, such invalidity shall not impair the operation of or affect
those portions of this Agreement which are valid.
Section 14.8 Captions.
Article and Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as
set forth in the text.
Section 14.9 Entire Agreement.
This Agreement sets forth all (and is intended by all
parties to be an integration of all) of the promises, agreements
and understandings among the parties hereto with respect to the
Partnership, the Partnership business and the property of the
Partnership, and there are no
<PAGE> 76
promises, agreements or understandings, oral or written, express
or implied, among them other than as set forth or incorporated herein.
Section 14.10 Tender Offers.
If the Managing General Partner or an Affiliate of the
Managing General Partner (other than the Partnership) initiates a
tender offer in which the Managing General Partner or its
Affiliate offers to purchase more than 10% of the OTEF II BACs
then outstanding, and at the time such tender offer is initiated
there is not pending any public offer to purchase OTEF II BACs by
any Person, then the Managing General Partner shall not employ
the OTEF II BAC Holder Rights Plan so as to prevent the closing
of any subsequent competing offer to purchase OTEF II BACs that
may be published and that is outstanding prior to the published
termination date of the tender offer by the Managing General
Partner or an Affiliate (regardless of any earlier termination of
the offer by the Managing General Partner or an Affiliate).
<PAGE> 77
IN WITNESS WHEREOF, the parties hereto hereunder affix their
signatures on this Agreement on the 17th day of June, 1997, which
Agreement shall be effective as of the 26th day of June 1995.
GENERAL PARTNERS:
Attest: OXFORD TAX EXEMPT FUND II CORPORATION,
a Maryland corporation
By: /S/Marc B. Abrams By: /S/Francis P. Lavin
------------------ ---------------------------
Secretary Francis P. Lavin, President
OTEF II ASSOCIATES LIMITED PARTNERSHIP,
a Maryland limited partnership
By: Oxford Bethesda II Limited
Partnership, a Maryland limited
partnership, General Partner
Attest: By: Oxford Tax Exempt Fund I Corporation,
General Partner
By: /S/Marc B. Abrams By: /S/Francis P. Lavin
----------------- ---------------------------
Secretary Francis P. Lavin, President
INITIAL LIMITED PARTNER:
OTEF II ASSIGNOR CORPORATION,
Attest: a Maryland corporation
By: /S/Marc B. Abrams By: /S/Francis P. Lavin
----------------- --------------------------
Secretary Francis P. Lavin, President
<PAGE> 78
STATE OF MARYLAND )
) ss.
COUNTY OF MONTGOMERY )
The undersigned hereby states that Francis P. Lavin,
personally known to me to be such person, appeared before me and,
being duly sworn, acknowledged (1) that he is the President of
Oxford Tax Exempt Fund II Corporation and the President of OTEF
II Assignor Corporation; (2) that he is the President of Oxford
Tax Exempt Fund I Corporation, a general partner of Oxford
Bethesda II Limited Partnership, the general partner of OTEF II
Associates Limited Partnership; and (3) that he had executed the
foregoing Third Amended and Restated Agreement of Limited
Partnership of the Oxford Tax Exempt Fund II Limited Partnership
on behalf of each of said corporations and on behalf of said
partnership; and that such act has been duly authorized by each
of said corporations and by said partnership.
Given under my hand and seal this 17th day of June, 1997.
Mary Ann Ewers
--------------
Notary Public
[SEAL]
My Commission Expires: July 7, 1998
<PAGE> 1
================================================================
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
______________________________________________________
DESIGNATION OF THE RIGHTS AND PREFERENCES
OF THE HOLDERS OF STATUS QUO BACS
______________________________________________________
In connection with the implementation of its new business
plan (the "Liquidity and Growth Plan"), Oxford Tax Exempt Fund II
Limited Partnership ("OTEF II") will issue a new class of BACs
("Status Quo BACs") to those holders of OTEF II's BACs (the "OTEF
II BACs") who made a timely election to convert their OTEF II
BACs into Status Quo BACs. The holders of the Status Quo BACs
(the "Status Quo BAC Holders") shall have the rights and
preferences as set forth below. All terms used but not defined
herein shall have the meanings given to them in the Information
Memorandum that was mailed to the OTEF II BAC Holders on December
2, 1996.
Issuance of Status Quo BACs
The Status Quo BACs will be issued as of the first day of
the first quarter following the Election Date (January 6, 1997)
or as of April 1, 1997 (the "Status Quo BAC Issuance Date"). The
Status Quo BACs will be issued only in book-entry form; no
certificates will be issued representing the Status Quo BACs.
Listing of Status Quo BACs
OTEF II will not seek to list the Status Quo BACs for public
trading.
Status Quo Assets
Oxford Tax Exempt Fund II Corporation, OTEF II's managing
general partner (the "Managing General Partner"), will designate
a pro rata portion of OTEF II's assets as of the Status Quo BAC
Issuance Date as "Status Quo Assets" based on the number of
outstanding OTEF II BACs converted into Status Quo BACs. The
Status Quo Assets will be held by OTEF II for the benefit of the
Status Quo BAC Holders. OTEF II's remaining assets (the
"Liquidity Assets") and the new assets that OTEF II acquires
pursuant to the Liquidity and Growth Plan (the "New Assets") will
be held for the benefit of the BAC Holders who elected to retain
their OTEF II BACs.
The Status Quo Assets will be held for the benefit of the
Status Quo BAC Holders only. None of the Status Quo Assets will
be leveraged or pledged as security for any debt OTEF II may
incur in connection with the Liquidity and Growth Plan and will
not be sold, except that all or a portion of the Status Quo
Assets may be sold or pledged to obtain financing for the purpose
of purchasing or redeeming the Status Quo BACs or liquidating the
Status Quo BACs on the terms described in "Optional Sale Plan"
and "Status Quo Liquidation" below. The Managing General Partner
has agreed that it will use its reasonable efforts to cause any
lender from which OTEF II borrows funds to agree that in the
event of a default with respect to such borrowing, the lender
will not seek repayment (through foreclosure or otherwise) from
Status Quo Assets.
<PAGE> 2
Upon the tender to OTEF II of any or all Status Quo BACs for
purchase, redemption or liquidation, the related Status Quo
Assets will become the general assets of OTEF II and will no
longer be subject to the restrictions regarding encumbrances such
as leveraging, pledging and sale. In the case of Status Quo BACs
that are purchased by OTEF II, OTEF II will own such Status Quo
BACs and may, at its option, convert them to BACs to be resold or
held for other future purposes.
Optional Sale Plan
The Status Quo BAC Holders will have the right to require
OTEF II to purchase or redeem the Status Quo BACs on the terms
described below (the "Optional Sale Plan"). These rights are
not transferable. Accordingly, in the event that a Status Quo
BAC Holder transfers or assigns all or any portion of his or her
Status Quo BACs to another person, the transferee will not have
the right to require OTEF II to purchase or redeem such Status
Quo BACs under the Optional Sale Plan.
On April 21, 1997 (the "Optional Sale Notice Date"), OTEF II
delivered a notice to the Status Quo BAC Holders giving them an
option to tender all or a portion of their Status Quo BACs to
OTEF II for purchase or redemption at the price of $540 per
Status Quo BAC, as adjusted (as described below). The Status Quo
BAC Holders will have until June 20, 1997 (the "Optional Sale
Election Date") to tender their Status Quo BACs to OTEF II in
accordance with the notice. OTEF II will purchase or redeem the
tendered Status Quo BACs on or before March 17, 1998, which is
270 days after the Optional Sale Election Date.
The purchase or redemption price for Status Quo BACs will be
$540 adjusted upward for inflation as measured by the percentage
increase in the Consumer Price Index for All Urban Customers --
U.S. Average, All Items, published by the Department of Labor for
the period from March 17, 1998 until the date of purchase or
redemption of any tendered Status Quo BACs. Until a tendered
Status Quo BAC is purchased or redeemed by OTEF II, it will
continue to receive its allocable share of any cash distributions
made by OTEF II with respect to the Status Quo BACs in the
ordinary course of business, including a final cash distribution
pro rated for the period commencing on the first day of the
quarter in which the tendered Status Quo BAC is purchased or
redeemed and ending on the date that the tendered Status Quo BAC
is purchased or redeemed.
Status Quo BAC Liquidation
In order to permit Status Quo BAC Holders who do not tender
their Status Quo BACs to OTEF II pursuant to the Optional Sale
Plan to liquidate their investment in OTEF II, non-tendered
Status Quo BACs will be purchased or redeemed by OTEF II as
follows:
(a) on December 31, 2006; or
(b) at the option of OTEF II, an earlier date if the Managing
General Partner believes that the purchase or redemption of the
non-tendered Status Quo BACs at such earlier time would be in the
best interests of OTEF II and the holders of the non-tendered
Status Quo BACs, and if OTEF II's independent real estate
consultant, Marshall and Stevens Incorporated (the "IREC"),
opines that the terms of the purchase or redemption are fair to
the holders of the non-tendered Status Quo BACs.
The purchase or redemption price per non-tendered Status
Quo BAC purchased or redeemed under the terms of the Status Quo
BAC liquidation will be equal to (i) the fair market value of
the Status
<PAGE> 3
Quo Assets at the time of the liquidation less the costs
of the sale which would be incurred in connection with a sale of
such assets, divided by (ii) the number of Status Quo BACs
outstanding at that time.
In the event the funds required for the purchase of the non-
tendered Status Quo BACs are not available by December 31, 2006,
OTEF II may either delay the purchase of all of the non-tendered
Status Quo BACs to a later date or purchase, on a lottery basis,
the percentage of non-tendered Status Quo BACs with a value equal
to the amount of funds available at that time for purchase and
delay the purchase of the remaining Non-tendered Status Quo BACs.
If the non-tendered Status Quo BACs are not purchased in full by
OTEF II on or before December 31, 2006, then, until the non-
tendered Status Quo BACs are purchased in full, OTEF II will
defer distributions to the general partners in OTEF II (the
"General Partners") with respect to their general partner
interest in OTEF II until such time as the non-tendered Status
Quo BACs have been purchased in full.
Allocations and Distributions
The Status Quo BAC Holders will be entitled to distributions
with respect to the Status Quo Assets to the same extent that
they were entitled to such distributions prior to implementation
of the Liquidity and Growth Plan. The incremental revenues and
expenses generated and incurred in connection with the Liquidity
and Growth Plan will be specifically identified and excluded from
the determination of the Status Quo distributions.
Capital Accounts. Immediately following the Status Quo BAC
Issuance Date, the Status Quo BAC Holders will have the same
Capital Accounts as they had prior to the conversion of their
OTEF II BACs into Status Quo BACs. Their Capital Accounts (the
"Status Quo Capital Accounts") will be increased by any Profits
relating to the Status Quo Assets ("Status Quo Profits") and will
be reduced by the amount of all distributions made to them by
OTEF II (which distributions will be made only from cash flow
attributable to the Status Quo Assets, the "Status Quo Cash
Flow") and all Losses relating to the Status Quo Assets ("Status
Quo Losses"). OTEF II will maintain two Capital Accounts for BAC
Holders who elected to convert only a portion of their OTEF II
BACs into Status Quo BACs.
Reserves. The Managing General Partner may decide in the
future to establish a working capital reserve for Revenues,
Residual Proceeds and Liquidation Proceeds attributable to the
Status Quo Assets (a "Status Quo Working Capital Reserve").
Status Quo Cash Flow. All Status Quo Cash Flow in any year
will first be distributed 98% to the Status Quo BAC Holders as a
class and 2% to the General Partners until the Status Quo BAC
Holders as a class have received a noncumulative return in such
year equal to 11% of the Status Quo BAC Holders Preference Amount
(defined below) and, thereafter during such year, 90% to the
Status Quo BAC Holders as a class and 10% to the General
Partners. The "Status Quo BAC Holders Preference Amount" means
an amount equal to the total capital contributions of the Status
Quo BAC Holders to Oxford Tax Exempt Fund Limited Partnership,
OTEF II's predecessor ("OTEF"), reduced by any distributions of
residual proceeds previously made to them by OTEF, and further
reduced by all distributions of Status Quo Residual and
Liquidation Proceeds made by OTEF II to the Status Quo BAC
Holders.
Distributions of Status Quo Residual Proceeds and
Liquidation Proceeds. All Residual Proceeds of OTEF II will be
designated as "Status Quo Residual Proceeds" to the extent that
they relate to the Status Quo Assets.
<PAGE> 4
Status Quo Residual Proceeds shall be applied to the payment
of the expenses allocable to the Status Quo BACs (see "Fees and
Expenses"), and to the extent not so applied, shall be available
for distribution in which case such amounts generally shall be
applied and distributed in the following amounts and order of
priority:
(a) 100% to the payment of all debts and obligations of OTEF II
that are then due and owing related to the Status Quo Assets
(other than loans from the General Partners and their affiliates)
and to any additions to the Status Quo Working Capital Reserve
that the Managing General Partner may determine to be necessary;
(b) 100% to the Status Quo BAC Holders as a class until the
Status Quo BAC Holders receive aggregate distributions from
Status Quo Residual Proceeds equal to the Status Quo BAC Holders
Preference Amount;
(c) 100% to the General Partners and their affiliates to repay
loans, if any, from them to OTEF II, the proceeds of which were
used to pay amounts relating to the Status Quo Assets or OTEF
II's ownership thereof;
(d) 100% to the General Partners until the General Partners
receive aggregate distributions from Liquidity Residual Proceeds
and Status Quo Residual Proceeds equal to the General Partners
Preference Amount; and
(e) 98% to the Status Quo BAC Holders as a class and 2% to the
General Partners until the Status Quo BAC Holders as a class have
received an amount (when combined with all prior distributions of
Status Quo Cash Flow and Residual Proceeds) equal to an average
annual noncompounded return of 11% on the Status Quo BAC Holders
Preference Amount, except that the amounts otherwise payable to
the General Partners hereunder shall be deferred until the Status
Quo BAC Holders as a class have received an amount (when combined
with all prior distributions of Status Quo Cash Flow and Residual
Proceeds) equal to an average annual noncompounded return of 10%
on the Status Quo BAC Holders Preference Amount.
Status Quo Liquidation Proceeds will be distributed in the
same order of priority as Status Quo Residual Proceeds, subject
to the prior creation of reserves.
If Status Quo Residual Proceeds or Status Quo Liquidation
Proceeds are insufficient to make any payment set forth in a
particular paragraph (b) though (e) above, then Status Quo
Residual Proceeds or Status Quo Liquidation Proceeds available to
make the payment will be distributed proportionately among the
parties entitled to the payment under such paragraph.
Allocation of Status Quo Profits and Losses. Status Quo
Profits from operations generally will be allocated between the
Status Quo BAC Holders and the General Partners as follows:
first, in accordance with distributions of Status Quo Cash Flow,
until the cumulative Status Quo Profits so allocated are equal to
the cumulative Status Quo Cash Flow distributions, and thereafter
2% to the General Partners and 98% to the Status Quo BAC Holders.
Status Quo Losses from operations generally are allocated 2% to
the General Partners and 98% to the Status Quo BAC Holders.
Status Quo Profits and Losses arising from a Sale or Repayment of
a Status Quo Asset (including Status Quo Profits which represent
the receipt of interest income on a Mortgage Revenue Bond) or
liquidation of OTEF II generally will be allocated in a manner so
as to cause the Status Quo Capital Account balances of the
<PAGE> 5
General Partners and Status Quo BAC Holders to equal the amounts
that would be distributable to them as described above in
paragraphs (b), (d) and (e) of "-- Distributions of Status Quo
Residual and Liquidation Proceeds."
The above allocation of Status Quo Profits and Losses will
be subject to compliance with the principles of the Internal
Revenue Code of 1986 (the "Code") sections 704(b) (containing
rules concerning the determination of a partner's distributive
share and capital account maintenance) and 704(c) (containing
rules for reflecting disparities in the adjusted tax basis and
the fair market value of property contributed or revalued by a
partnership) and the regulations promulgated thereunder.
Distributions in Kind. The Managing General Partner may
determine to distribute to the Status Quo BAC Holders assets
other than cash either during the operation of OTEF II or upon
dissolution and liquidation of OTEF II only with the consent of a
majority in interest of the Status Quo BAC Holders or upon
receipt of an opinion of the IREC to the effect that such
distribution is fair to OTEF II.
Fees and Expenses
Fees. The Status Quo BAC Holders will bear only the fees
that they would have borne if the Liquidity and Growth Plan had
not been implemented.
Expenses. The Status Quo BACs will bear all of OTEF II's
expenses that are attributable to the Status Quo Assets and their
pro rata share of OTEF II's operating expenses, excluding any
expenses relating solely to the Liquidity Assets or the New
Assets and any additional expenses OTEF II incurs in connection
with the Liquidity and Growth Plan.
Certain Restrictions on Authority of the Managing General Partner
The Managing General Partner will not (i) reinvest any
Status Quo Revenues or Status Quo Residual Proceeds in New Assets
or (ii) issue additional Status Quo BACs (other than those issued
on the Status Quo BAC Issuance Date).
Voting Rights and Meetings of Status Quo BAC Holders
Voting and Action without a Meeting. Each Status Quo BAC
Holder will be entitled to cast one vote for each Status Quo BAC
that he or she owns. Only the votes of Status Quo BAC Holders of
record on the notice date relating to such vote shall be counted.
The Status Quo BAC Holders will have the right to vote by written
consent.
Voting Rights After Issuance of Status Quo BACs. Both the
Status Quo BAC Holders and the holders of the OTEF II BACs
generally will continue after the Status Quo BAC Issuance Date to
have voting rights with respect to actions that could materially
affect their rights or interests in OTEF II, but neither will
have voting rights with respect to actions that would have no
material effect on their rights or their interests in OTEF II.
The following discussion summarizes the provisions in the OTEF II
Partnership Agreement relating to the voting rights of the BAC
Holders and the procedure for calling meetings of the BAC Holders
(as it has been supplemented hereby to reflect the rights and
preferences of the Status Quo BACs).
Actions Subject to Approval by All BAC Holders. In general,
both the holders of the OTEF II BACs and the Status Quo BAC
Holders will have the right, voting as a single class, to vote
on:
<PAGE> 6
(a) removal of a General Partner of OTEF II and, if such General
Partner of OTEF II was the sole remaining General Partner of OTEF
II, election of a replacement therefor;
(b) dissolution of OTEF II;
(c) amendments to the OTEF II Partnership Agreement ("All BAC
Holder Amendments") that could adversely affect the rights of
both the holders of the OTEF II BACs (or their interests in the
Liquidity Assets or New Assets) and the Status Quo BAC Holders
(or their interests in the Status Quo Assets); and
(d) in the case of the Status Quo BAC Holders, any matter with
respect to which the vote of the holders of the OTEF II BACs is
solicited, other than any matters relating exclusively to the
Liquidity Assets or New Assets or the Liquidity and Growth Plan,
and in the case of the holders of the OTEF II BACs, any matter
with respect to which the vote of the Status Quo BAC Holders is
solicited, other than any matters relating exclusively to the
Status Quo Assets.
Actions Subject to Approval by Liquidity BAC Holders. The
holders of the OTEF II BACs also will have the right, without the
concurrence of the Status Quo BAC Holders or the General
Partners, to vote on:
(a) the sale of all or substantially all of the Liquidity Assets
and New Assets, taken as a whole (except for any sale of any
property or asset securing a Mortgage Revenue Bond or any sale
approved by the IREC);
(b) amendments to the OTEF II Partnership Agreement, except for
(i) All BAC Holder Amendments (with respect to which the holders
of the OTEF II BACs will vote together with the Status Quo BAC
Holders, as described above) and (ii) amendments that could
adversely affect the rights of the Status Quo BAC Holders or
their interests in the Status Quo Assets, but would not
materially affect the rights of the holders of the OTEF II BACs;
(c) the acquisition of control of any entity that provides
management services (a "Management Entity") or of the assets of
any Management Entity that is an affiliate of the Managing
General Partner, unless such acquisition is incidental to the
acquisition by OTEF II of New Assets, or is incidental to the
acquisition of any entity the principal assets of which are
mortgage revenue bonds or other related assets (and which is not
itself a Management Entity);
(d) the provision by OTEF II of or the engagement of OTEF II in
management services with respect to its assets (other than those
services provided by OTEF II in the ordinary course of its
business on and after June 25, 1995), unless OTEF II obtains an
opinion of the IREC with respect thereto; and
(e) the termination of any contract for management services
provided to OTEF II by the Managing General Partner or its
affiliates.
Actions Subject to Approval by Status Quo BAC Holders. The
Status Quo BAC Holders will have the right, without the
concurrence of the holders of the OTEF II BACs or the General
Partners, to vote on:
<PAGE> 7
(a) the sale of all or substantially all of the Status Quo
Assets (except for any sale of any property or asset securing a
Mortgage Revenue Bond or for any sale approved by the IREC); and
(b) amendments to the OTEF II Partnership Agreement, except for
(i) All BAC Holder Amendments (with respect to which the Status
Quo BAC Holders will vote together with the holders of the OTEF
II BACs, as described above) and (ii) amendments that could
adversely affect the rights of the holders of the OTEF II BACs or
their interests in the Liquidity Assets or the New Assets, but
would not materially affect the rights of the Status Quo BAC
Holders.
Meetings. Meetings of either the Status Quo BAC Holders or
the holders of the OTEF II BACs or the BAC Holders as a group,
for any purpose, may be called by the Managing General Partner
and are required to be called by the Managing General Partner,
upon written request of Status Quo BAC Holders owning in the
aggregate 10% or more of the outstanding Status Quo BACs (in the
case of a meeting of Status Quo BAC Holders) or upon the written
request of BAC Holders owning in the aggregate 20% or more of
the outstanding BACs (in the case of a meeting of all of the BAC
Holders).
Transfers of Status Quo BACs
The Status Quo BACs will be transferable on the books of
OTEF II (subject to certain restrictions set forth in the OTEF II
Partnership Agreement, which restrictions also are applicable to
transfers of OTEF II BACs) beginning on the day after their
issuance.
Liability of Status Quo BAC Holders to Third Parties
Status Quo BAC Holders will be deemed to have contributed
the Status Quo Assets to OTEF II in exchange for their Status Quo
BACs. They will not be obligated to make any further capital
contributions to OTEF II. No Status Quo BAC Holder shall be
personally liable for the debts, liabilities, contracts or other
obligations of OTEF II, unless, in addition to the exercise of
his rights and powers as a Status Quo BAC Holder, including his
rights and powers conferred under the OTEF II Partnership
Agreement, he takes part in the control of the business of OTEF
II. Notwithstanding the foregoing, if a Status Quo BAC Holder
receives the return of any part of his capital contribution
without violation of the OTEF II Partnership Agreement or the
Maryland Revised Uniform Limited Partnership Act (the "Act"), he
may be liable to OTEF II for a period of one year thereafter for
the amount of the returned contribution, but only to the extent
necessary to discharge OTEF II's liabilities to creditors who
extended credit to OTEF II during the period the contribution was
held by OTEF II. In addition, if a Status Quo BAC Holder
receives the return of any part of his capital contribution in
violation of the OTEF II Partnership Agreement or the Act, he is
liable to OTEF II for a period of six years thereafter for the
amount of the capital contribution wrongfully returned.
The General Partners will be liable to third parties for all
general obligations of OTEF II to the extent not paid by OTEF II.
Each partner of OTEF II and BAC Holder may look only to the
assets of OTEF II for any distribution with respect to his
interest in OTEF II and shall have no recourse therefor against
any other BAC Holder or partner of OTEF II. The General Partners
will not be personally liable for any nonrecourse obligations of
OTEF II.
<PAGE> 8
Withdrawal of Capital
Each Status Quo BAC Holder may look solely to the Status Quo
Assets for all distributions with respect to OTEF II and will
have no recourse against any partner of OTEF II or any other
assets. A Status Quo BAC Holder will have no right to withdraw
or receive any return of his capital contribution, other than as
provided in the OTEF II Partnership Agreement.
BAC Holder Rights Plan
In accordance with the BAC Holder Rights Plan, one right (a
"Right") was issued for each outstanding OTEF II BAC to BAC
Holders of record on June 30, 1995. No Rights will be issued
with respect to the Status Quo BACs and the Rights that were
issued previously with respect to OTEF II BACs that are converted
into Status Quo BACs will be canceled.
Reports to Status Quo BAC Holders
OTEF II will deliver to the holders of the Status Quo BACs
the same reports that the holders of the OTEF II BACs are
currently entitled to receive under the OTEF II Partnership
Agreement.
<PAGE> 5
OXFORD TAX EXEMPT FUND II LIMITED PARTNERSHIP
Quarterly Report
(Unaudited)
March 31, 1997
CONTENTS
Report of Management
Balance Sheets
Statements of Income
Statement of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Instructions for Investors who wish to reregister or
transfer OTEF II BACs
<PAGE> 6
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Report of Management
- -----------------------------------------------------------------
The following report provides information about the financial
condition of Oxford Tax Exempt Fund II Limited Partnership, a
Maryland limited partnership ("Oxford Tax Exempt Fund II,"
"OTEF II," or the "Partnership"), as of March 31, 1997, and its
results of operations and cash flows for the period then ended.
This report and analysis should be read together with the
financial statements and related notes thereto and the selected
financial data appearing elsewhere in this Quarterly Report.
Recent Developments
As previously discussed, an Information Memorandum dated
December 2, 1996, was furnished to the holders of beneficial
assignee interests (the "OTEF II BAC Holders") in connection with
and as part of the settlement of certain putative class and
derivative action litigation ("OTEF II Litigation"). The
Information Memorandum described the new business plan for OTEF
II ("Liquidity and Growth Plan"), and provided BAC Holders with
the information necessary to make an informed decision regarding
whether they wished to exchange their BACs for a new class of
BACs ("Status Quo BACs" or "SQBs"). The SQBs and the Liquidity
and Growth Plan are discussed below.
Status Quo BACs. Approximately 4.3% of the OTEF II BAC
Holders made a timely election to convert their OTEF II BACs to
SQBs. Effective April 1, 1997, OTEF II issued the SQBs in
uncertificated, book-entry form. The SQBs represent interests
only in the existing mortgage revenue bonds ("Existing MRBs"), as
refunded, and not in the new assets that will be acquired by
OTEF II pursuant to the terms of the Liquidity and Growth Plan.
The SQBs are designed to replicate, to the extent possible, the
economic interest that the holders of the SQBs (the "Status Quo
BAC Holders") would have had in the Existing MRBs, as refunded,
if the partnership agreement for Oxford Tax Exempt Fund Limited
Partnership ("OTEF"), OTEF II's predecessor, had continued to
govern and the Liquidity and Growth Plan was not implemented.
OTEF II is finalizing the accounting methodology that will be
used with respect to the SQBs. More detailed information will be
included in the Quarterly Report for the second quarter.
The Status Quo BAC Holders will not share in the growth and
the other benefits expected to be achieved under the Liquidity
and Growth Plan. The SQBs will not be listed on any securities
exchange, and it is not expected that there will be an active
trading market for them. In addition, the Status Quo BAC Holders
will not be allocated any capital losses for federal income tax
purposes that may result from the disposition of the Existing
MRBs or interests therein or new assets.
Under the Optional Sale Plan described in the Information
Memorandum, the original Status Quo BAC Holders have the option
to tender all or a portion of their SQBs for purchase or
redemption by OTEF II. As of May 16, 1997, 162 Status Quo BAC
Holders with 3,115 SQBs exercised this option, however, as the
<PAGE> 7
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Report of Mangement
- -----------------------------------------------------------------
election deadline of June 20, 1997, for Status Quo BAC Holders
to exercise this right has not occurred, the Managing General
Partner is unable to determine at this time the total amount of
OTEF II's funding obligation. All properly tendered SQBs
must be purchased or redeemed by OTEF II by March 17, 1998.
Liquidity and Growth Plan. Under the Liquidity and Growth
Plan, OTEF II will apply to list the OTEF II BACs for trading on
a national securities exchange, and the proceeds from the sale of
the bonds issued to refund the Existing MRBs, or interests
therein, or any debt issued by OTEF II and secured by such assets
(together, the "Financing") and any additional funds that OTEF
II may obtain, will be invested in new assets. The Managing
General Partner believes the Liquidity and Growth Plan will allow
OTEF II to take advantage of attractive investment opportunities
and thereby increase cash distributions and value to the holders
of the OTEF II BACs ("Liquidity BAC Holders").
Listing of OTEF II BACs-Liquidity and Trading Market. The
Managing General Partner is continuing discussions with two
national securities exchanges and expects OTEF II to formally
apply for listing on one of them in the near future. In
addition, prior to listing or shortly after listing, OTEF II will
divide or "split" the outstanding OTEF II BACs into smaller
denominations to enhance trading in, and liquidity of, the
OTEF II BACs and encourage a broader range of investors. It is
expected that the division will result in the issuance of
approximately 25 new OTEF II BACs ("New BACs") for each
outstanding OTEF II BAC.
Issuance of New BACs. All OTEF II BACs currently are held in
uncertificated, book-entry form on OTEF II's books.
Nevertheless, the OTEF II position of many OTEF II BAC Holders
are reported on their brokerage account statements, and
distributions made by OTEF II are credited directly to their
brokerage accounts.
In connection with the listing of the OTEF II BACs for trading
and the issuance of the New BACs, OTEF II will issue certificates
representing ownership of the New BACs. Unless OTEF II is
instructed otherwise (as described below), those OTEF II BAC
Holders whose OTEF II BACs are currently reported on their
brokerage account statements will not receive certificates for
their New BACs. Instead, the New BACs for such holders will be
issued in a form that will: (i) enable the New BACs to continue
to be reported on their account statements; (ii) enable all
distributions payable with respect to such New BACs to continue
to be credited directly to their brokerage accounts; and (iii)
enable such OTEF II BAC Holders to hold or sell the New BACs
through their brokerage firm accounts. Such form of issuance is
referred to as "street name" issuance, and is the same form that
generally applies to traded securities held in a brokerage
account.
<PAGE> 8
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Report of Management
- -----------------------------------------------------------------
Business Plan for Growth. Under the Liquidity and Growth
Plan, OTEF II will invest the proceeds of the Financing and any
additional funds that OTEF II may obtain in new assets described
below to increase the distributions payable with respect to the
New BACs and the value to the Liquidity BAC Holders.
Refunding and Financing. As of March 31, 1997, OTEF II had
refunded 12 of the Existing MRBs, which comprise approximately
87.5% of OTEF II's portfolio, including two refundings that
closed during the first quarter of 1997 (Colonel I and
Middletown). It is expected that the refunding of the two
remaining Existing MRBs will close during 1997. Refunding an
Existing MRB means exchanging that bond for newly issued
refunding bonds ("Refunding Bonds") with approximately the same
principal amount, an extended maturity and restructured interest
rates that increase each year during the terms of the Refunding
Bonds and that are designed to require the limited partnerships
which own the properties securing the bonds (the "Operating
Partnerships") to pay substantially all of their projected cash
flow as interest on the Refunding Bonds. As a result of these
refundings, the estimated value of the bonds held by OTEF II
as shown on the Balance Sheet increased by approximately
$2,387,000 as of March 31, 1997, compared to December 31, 1996.
The Refunding Bonds are structured so as to consist of senior
bonds ("Series A Bonds") and subordinated bonds ("Series B
Bonds"). This senior/subordinated structure will permit OTEF II
to undertake the Financing, pursuant to which it will sell all or
a portion of the Series A Bonds, or interests therein, that are
designated as Liquidity Assets, or issue debt that may be secured
by such assets, new assets or both. OTEF II will retain the
related Series B Bonds for the benefit of the Liquidity BAC
Holders, and will retain both the senior Series A Bonds and the
subordinated Series B Bonds, or interests therein, that are
designated as Status Quo Assets for the benefit of the Status Quo
BAC Holders.
In addition to the proceeds from the Financing, OTEF II may
acquire new assets: (i) from the proceeds of sales or other
dispositions of the Refunding Bonds and the proceeds from
principal payments with respect to the Refunding Bonds (except
for the portion of such proceeds allocable to the SQBs); (ii)
from the proceeds of sales or other dispositions of new assets
and the proceeds from principal payments with respect to new
assets; (iii) from the proceeds of issuances of additional equity
securities, including additional limited partnership interests in
OTEF II and additional OTEF II BACs; (iv) by issuing additional
equity securities in exchange for new assets; or (v) by borrowing
funds from lenders or by issuing evidences of indebtedness.
Although the Managing General Partner is authorized under
OTEF II's partnership agreement to reinvest cash flow in new
assets, it has no current plans to do so in the foreseeable
future.
<PAGE> 9
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
Investment in New Assets. The Managing General Partner intends
to invest primarily in additional mortgage revenue bonds and
securities of other entities which primarily hold tax-exempt
mortgage revenue bonds. OTEF II also may invest in multifamily
real estate, senior living facilities or residential health care
facilities, or other direct or indirect debt or equity interests
in such real estate, some of which may give rise to taxable
income, but the Managing General Partner does not currently
expect that these types of investments will be a significant part
of its business in the foreseeable future. (All of the foregoing
are referred to collectively as "New Assets".)
OTEF II generally will acquire additional mortgage revenue
bonds and taxable bonds that are not rated by any of the
nationally recognized rating agencies (such as Moody's Investor
Services, Inc. or Standard & Poor's Ratings Group) and that are
not credit-enhanced at the time of acquisition, although OTEF II
may seek to have all or a portion of such bonds credit-enhanced
or rated at a future date. It also is expected that OTEF II may
invest in bonds, including bonds that may be secured by bonds or
mortgages that are subordinated to senior bonds or mortgages held
by third parties, on terms that will permit it, in many cases, to
participate (either through stepped interest rates or otherwise)
in the future growth and increase in value of the properties
financed by such bonds. In addition, in the case of bonds that
require restructuring, it is anticipated that OTEF II may be able
to acquire such bonds on a discounted basis, that is, where the
nominal principal amount of the bond exceeds the purchase price
and/or the estimated current liquidation value of the underlying
property.
Liquidity and Capital Resources
Current Position. OTEF II uses the interest payments it
receives from the Refunding Bonds and Existing MRBs primarily for
distributions to its General Partners, OTEF II BAC Holders and
SQB Holders, and to pay administrative expenses and fund
reserves, as well as the costs associated with the
implementation of the 1995 OTEF Restructuring Plan, including
OTEF II's costs associated with the defense of the OTEF II
Litigation and the payment by OTEF II of $2.5 million of fees and
expenses incurred by plaintiffs' counsel. As of May 16, 1997,
OTEF II has estimated that approximately $1.7 million will be
required to meet its obligations under the Optional Sale Plan.
Although OTEF II is unable to determine the total amount of its
funding obligations at this time, it believes that its funding
obligations will increase above this amount. Except as may be
required in connection with the 1995 OTEF Restructuring Plan,
OTEF II has no commitments for capital expenditures. A
distribution for the quarter ended March 31, 1997, in the amount
of $3,642,796, or $11.90 per BAC (4.76% per annum on the original
$1,000 invested per BAC) was made on May 15, 1997. This
distribution is consistent with the distributions made for the
previous eight quarters.
<PAGE> 10
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
As of March 31, 1997, OTEF II held $11,977,000 in cash and
cash equivalents, a decrease of $95,000, or less than 1%, from
$12,072,000 in cash and cash equivalents held as of December 31,
1996. The slight decrease in OTEF II's cash and cash equivalents
is due primarily to payments received from its investments in the
Existing MRBs and the Refunding Bonds, offset by administrative,
governance and litigation costs associated with the
implementation of the 1995 OTEF Restructuring Plan which were
paid during the quarter ended March 31, 1997, as well as the
payment by OTEF II of the fourth quarter 1996 distribution. The
total liabilities of OTEF II shown on the Balance Sheet
decreased to $6,465,000 as of March 31, 1997, from $6,964,000
at December 31, 1996, and does not include an amount for its
obligation under the Optional Sale Plan discussed above.
Governance and administrative expenses totaled $332,000 for
the three-month period ended March 31, 1997, as compared to
$614,000 for the three-month period ended March 31, 1996. The
decrease of $282,000 was primarily attributable to a decrease in
governance expenses relating to the 1995 OTEF Restructuring Plan
offset by an increase in expense reimbursements to the General
Partners and their affiliates. Litigation and settlement costs
due to the OTEF II Litigation totaled $98,000 for the three-month
period ended March 31, 1997.
Existing MRBs. As of March 31, 1997, OTEF II held Existing
MRBs for two of the Operating Partnerships. It is expected that
the refunding of the two remaining Existing MRBs will close
during 1997.
The term of each Existing MRB, and accordingly, each Mortgage
Loan is 24 years. The principal will not be amortized during the
term of the Existing MRB, and will be required to be repaid in a
lump-sum balloon payment at the expiration of the bond term or at
such earlier time as OTEF II may require. Beginning on the first
day of the thirteenth year and continuing through the end of the
fourteenth year, OTEF II may require payment of all principal and
deferred interest due, upon 12 months' prior notice. In the
fifteenth year (if an Existing MRB has not been repaid earlier),
OTEF II will demand payment of principal and deferred contingent
interest due. Each Mortgage Loan is nonassumable and due on sale
of the Existing Mortgaged Property.
The Existing MRBs and the underlying Mortgage Loans continue
to provide for the payment of interest at an aggregate annual
rate of up to 16%, consisting of Base Interest and additional
Contingent Interest. Base Interest is owed at the rate of 8.25%
per annum, but is payable only to the extent funds are available
from cash flow and sale or refinance proceeds. Unpaid Base
Interest is deferred, with additional interest charged on such
deferred amounts at the rate of 8.25% per annum, compounded
monthly and payable from future cash flow and sale or refinancing
proceeds.
<PAGE> 11
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
Cumulative Unpaid Base Interest and interest on interest. As
of March 31, 1997, the two remaining Operating Partnerships with
Existing MRBs had cumulative unpaid Base Interest and interest on
interest at 8.25% per annum, compounded monthly, of approximately
$27,946,000. Under the applicable method of accounting, this
unpaid Base Interest was not reflected in the financial
statements of OTEF II. All cumulative unpaid Base Interest and
interest on interest on the remaining Existing MRBs is written-
off at such time as the Existing MRBs are refunded. During the
quarter ended March 31, 1997, the Existing MRBs for Middletown
and Colonel I were refunded, and $24,066,000 of accrued interest
was written-off during the quarter ended March 31, 1997.
As previously reported, under the 1988 OTEF Restructuring Plan
and the Debt Modification Agreements, dated as of April 12, 1995,
as amended, OTEF, OTEF II, the Operating Partnerships, and Oxford
entered into certain forbearance arrangements which modify many
of the terms of the Existing MRBs described above. At such time
as the Existing MRBs are refunded, the obligations of the
Operating Partnerships will be modified substantially as
discussed below.
Refunding Bonds
Series A Bonds. The term of each Refunding Bond and,
accordingly, each Mortgage Loan is 30 years following the date of
refunding. The Series A Bonds require interest only payments
during the first three years and, thereafter, are subject to
annual sinking fund redemptions that will result in full
amortization of the Series A Bonds during the 27-year remaining
term.
Series A Bond Interest and Principal. The Series A Bonds
require pre-determined annual sinking fund redemptions based on a
27-year amortization schedule beginning in the fourth year,
calculated with an assumed rate of interest of 5.6% per year.
Series A Bond interest is set initially at closing of the
refundings and reset annually at a market rate based upon a
percentage of the then prevailing one-year U.S. Treasury Bill
rate, with a maximum rate of 5.6% per annum. The initial
interest rate on the Series A Bonds that have been issued to date
is 4.9%. Upon a remarketing, the Series A Bonds may be converted
to a different interest rate mode (fixed or floating) and the
interest rates may be modified at that time to reflect the
prevailing market interest rates for whatever rate mode and
remaining term is then applicable. All required interest payments
were made on the Refunding Bonds, including accrued interest for
March 1997 that was paid in April 1997.
Series B Bonds. The term of each Series B Bond and,
accordingly, each Mortgage Loan is 30 years following the date of
refunding.
<PAGE> 12
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
Series B Bond Interest and Principal. The Series B Bonds
accrue interest equal to the product of the Combined Rate (as
defined below) multiplied by the total combined principal balance
of the Series A Bonds and the Series B Bonds for each Operating
Partnership, less the interest payable on the related Series A
Bonds; the resulting amount of interest divided by the principal
balance of the Series B Bonds equals the interest accrual rate on
the Series B Bonds. Interest-only is payable on the Series B
Bonds to the extent of available cash flow of the Operating
Partnership, with the entire principal balance due at maturity.
Combined Rate. The Combined Rate represents that portion of
each Property's projected Cash Flow Before Debt Service ("CFBDS")
for each year (projected at the time of the refunding of each
Existing MRB) that may be applied to interest on the combined
Series A Bonds and Series B Bonds.
Other Sources. In connection with the closing of each
Refunding Bond, the applicable Operating Partnership will enter
into certain agreements which provide as follows: (i) for so long
as the Series A Bonds remain outstanding, each Operating
Partnership will apply its net operating income before payment of
interest and principal on its Series B Bonds to make loans to the
Operating Partnerships for the payment of interest and principal,
and related fees and expenses, reserves and deposits owed by such
Operating Partnerships on their respective Series A Bonds to the
extent the other Operating Partnerships are unable to make such
payments on their respective Series A Bonds, and (ii) for so long
as OTEF II owns the majority of the Series B Bonds relating to an
Operating Partnership's property and the Managing General Partner
of OTEF II is an affiliate of the current Managing General
Partner, the Operating Partnerships will each deposit into an
escrow account any excess cash flow on a monthly basis after the
obligations described in subparagraph (i) above have been met and
the payments required under that Operating Partnership's Series B
Bonds have been made, which funds shall be applied at OTEF II's
discretion to, among other things, make loans to other Operating
Partnerships to enable them to make all debt service payments due
on their Series B Bonds. As of March 31, 1997, the aggregate
amount of excess cash flow held in the escrows was approximately
$172,000, and approximately $162,000 of net excess cash flow
generated from March 1997 operations will be deposited into the
applicable escrows in April 1997.
Oxford Advances. As discussed in prior reports, Oxford is
continuing to hold proceeds from the $2 million Treasury Strip
Bond that it received on August 15, 1996. At March 31, 1997,
Oxford was holding approximately $1.2 million of such proceeds,
plus approximately $168,000 in accrued interest, in an interest-
bearing account pending a determination as to which Operating
Partnerships these funds should be allocated. This allocation
will be based on the individual refunding costs and reserve
requirements of the Operating Partnerships. The decrease totaling
$800,000 represents an allocation of funds based on the
individual refunding costs of certain Operating Partnerships'
bonds during the first quarter of 1997.
<PAGE> 13
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
Results of Operations
The Partnership's Operations
The Partnerships' Three-Month Operations. Distributions to
Partners amounted to $3,642,796, or $11.90 per BAC (4.76% per
annum on the original $1,000 invested per BAC) to BAC Holders of
Record as of March 31, 1997. This distribution is consistent
with the distribution made for the previous eight quarters. For
financial statement purposes, Net Income and Net Income per BAC
were $4,266,000 and $13.94, respectively, for the three-month
period ended March 31, 1997, as compared to $4,073,000 and
$13.31, respectively, for the three-month period ended March 31,
1996.
As we announced in the Information Memorandum, the Managing
General Partner currently anticipates that the amount of the
quarterly distribution payable to the Liquidity BAC Holders and
the Status Quo BAC Holders will be increased by approximately 4%
later in 1997 following implementation of the Liquidity and
Growth Plan. Of course, future distributions (and any increases
in the distributions per BAC) are always subject to the ability
of the Operating Partnerships to make their scheduled debt
service payments, which, in turn, depends on the results of
future operations of their properties and on the aggregate
amount in the excess cash flow escrows.
The Operating Partnerships' Operations
The operating performance of each of the Operating
Partnerships depends primarily on occupancy and rental rates, the
amount of rent actually collected and expenditures for property
improvements and operating expenses for their respective
Properties. The occupancy and rental rates, in turn, depend on a
number of factors, including the location of a Property in its
particular community, local economic conditions and changes in
neighborhood characteristics, demand for similar housing, and
competition from existing and future housing complexes in the
vicinity of each Property.
The Operating Partnerships reported an aggregate net operating
income before property improvements of approximately $5,576,000
for the three-month period ended March 31, 1997, representing an
increase of approximately $352,000, or 6.7%, over the aggregate
net operating income before property improvements reported for
the same period in 1996. In addition, for the three-month period
ended March 31, 1997, overall property improvement expenditures
were approximately $467,000, representing an increase of
approximately $59,000, or 14.3%, as compared to the same period
in 1996.
Senior Living Properties. The Operating Partnerships that own
the four Senior Living Communities reported an aggregate net
operating income before property improvements of approximately
$1,579,000 for the three-month period ended March 31, 1997,
representing an increase of approximately $159,000, or 11.2%,
<PAGE> 14
- -----------------------------------------------------------------
Report of Management
- -----------------------------------------------------------------
over the aggregate net operating income before property
improvements reported for the same period in 1996. The weighted
average occupancy rate for these four properties at March 31,
1997 was 92%, as compared to 89% at March 31, 1996. The weighted
average monthly rent collected for March 1997 for the four Senior
Living Communities increased by approximately 3% to $1,772, as
compared to $1,723 for the same period in 1996. In addition, for
the three-month period ended March 31, 1997, overall property
improvement expenditures for the four Senior Living Communities
were approximately $161,000, representing an increase of
approximately $48,000, or 42.6%, as compared to the same period
in 1996.
Apartment Properties. The Operating Partnerships that own the
10 garden apartments reported an aggregate net operating income
before property improvements of approximately $3,997,000 for the
three-month period ended March 31, 1997, representing an increase
of approximately $194,000, or 5.1%, over the aggregate net
operating income before property improvements reported for the
same period in 1996. The weighted average occupancy rate for the
10 garden apartment communities was approximately 93% at
March 31, 1997, as compared to 94% at March 31, 1996. The
weighted average monthly rent collected for March 1997 for the 10
garden apartments increased by approximately 4% to $751, as
compared to $720 for the same period in 1996. In addition, for
the three-month period ended March 31, 1997, overall property
improvement expenditures for the 10 garden apartments were
approximately $306,000 representing a decrease of approximately
$10,000, or 3.5%, as compared to the same period in 1996.
Summary
With the restructuring program nearly completed, OTEF II is
poised to take advantage of attractive investment opportunities.
The refunding of the Existing MRBs held by OTEF II is expected to
give OTEF II access to the capital markets. The Liquidity BAC
Holders should benefit from the increase in value of the OTEF II
BACs that is expected to occur as OTEF II acquires new assets.
In addition, the Liquidity BAC Holders should benefit from more
efficient market pricing of the OTEF II BACs that is expected to
occur as a result of listing the OTEF II BACs on a national
securities exchange.
<PAGE> 15
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -------------------------------------------------------------------
Balance Sheets (in thousands)
- -------------------------------------------------------------------
<CAPTION>
March 31, 1997
(Unaudited) December 31, 1996
- -------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Bonds $217,916 $215,529
Cash and cash equivalents 11,977 12,072
Bond interest receivable 1,323 1,099
Other, primarily interest
receivable 28 33
- -------------------------------------------------------------------
Total Assets $231,244 $228,733
===================================================================
Liabilities and Partners' Capital
Liabilities
Accounts payable and accrued
expenses $ 2,822 $ 3,321
Distributions payable 3,643 3,643
- -------------------------------------------------------------------
Total Liabilities 6,465 6,964
- -------------------------------------------------------------------
Partners' Capital
General Partners (2,381) (2,393)
Limited Partners' Interests
(Beneficial Assignee
Interests-299,995 interests
issued and outstanding) 162,276 161,665
Unrealized Gain on Investments 64,884 62,497
- -------------------------------------------------------------------
Total Partners' Capital 224,779 221,769
- -------------------------------------------------------------------
Total Liabilities and
Partners' Capital $231,244 $228,733
===================================================================
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE> 16
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -------------------------------------------------------------------
Statements of Income (in thousands, except per BAC amounts)
(Unaudited)
- -------------------------------------------------------------------
<CAPTION>
For the three months
ended March 31,
--------------------
1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
Revenues
Interest on Bonds $4,605 $4,602
Other, primarily interest on short-term
investments 91 85
- -------------------------------------------------------------------
4,696 4,687
Expenses
Governance and administrative expenses 332 614
Litigation and settlement costs 98 0
- -------------------------------------------------------------------
Net income $4,266 $4,073
===================================================================
Net income allocated to General Partners $ 85 $ 81
===================================================================
Net income allocated to BAC Holders $4,181 $3,992
===================================================================
Net income per BAC $13.94 $13.31
===================================================================
Distribution per BAC $11.90 $11.90
===================================================================
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE> 17
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- -----------------------------------------------------------------------------
Statement of Partners' Capital (in thousands)
- -----------------------------------------------------------------------------
<CAPTION>
Limited
Partners'
Interests
----------
Beneficial Unrealized
General Assignee Gain on
Partners Interests Investments Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $(2,393) $161,665 $62,497 $221,769
- -----------------------------------------------------------------------------
Net Income 85 4,181 0 4,266
Distributions payable to Partners,
including $11.90 per BAC (73) (3,570) 0 (3,643)
Unrealized Gain on Investments 0 0 2,387 2,387
- -----------------------------------------------------------------------------
Balance, March 31, 1997 (Unaudited) $(2,381) $162,276 $64,884 $224,779
=============================================================================
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE> 18
Oxford Tax Exempt Fund II Limited Partnership
<TABLE>
- --------------------------------------------------------------------
Statements of Cash Flows (in thousands)
(Unaudited)
- --------------------------------------------------------------------
<CAPTION>
For the three months
ended March 31,
--------------------
1997 1996
- --------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 4,266 $ 4,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in assets and liabilities:
Bond interest receivable (224) 0
Other, primarily interest receivable 5 3
Due from affiliates 0 308
Accounts payable and accrued expenses (499) 26
- --------------------------------------------------------------------
Net cash provided by operating activities 3,548 4,410
- --------------------------------------------------------------------
Net cash provided by investing activities 0 0
- --------------------------------------------------------------------
Financing activities
Distributions paid to Partners and BAC Holders (3,643) (3,643)
- --------------------------------------------------------------------
Net cash used by financing activities (3,643) (3,643)
- --------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (95) 767
Cash and cash equivalents, beginning of period 12,072 9,698
- --------------------------------------------------------------------
Cash and cash equivalents, end of period $11,977 $10,465
====================================================================
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE> 19
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Note 1. Financial Statements
The financial statements reflect all adjustments which, in the
opinion of the Managing General Partner of Oxford Tax Exempt
Fund II Limited Partnership ("Oxford Tax Exempt Fund II,"
"OTEF II," or the "Partnership"), are necessary to present fairly
OTEF II's financial position as of March 31, 1997 and
December 31, 1996, the Statements of Income for the three-month
periods ended March 31, 1997 and 1996, the Statement of Partners'
Capital as of March 31, 1997, and the Statements of Cash Flows
for the three-month periods ended March 31, 1997 and 1996, and
the notes thereto, in accordance with generally accepted
accounting principles. These statements should be read in
conjunction with the audited financial statements and notes
included in the Partnership's Annual Report for the year ended
December 31, 1996.
In February 1997, the Financial Accounting Standards Board
issued a Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," which will change the reporting of earnings
per share effective in the fourth quarter of 1997. Basic
earnings per share, a measure required by the new standard, will
not include stock options as common stock equivalents. The new
standard also requires a company to report diluted earnings per
share.
Note 2. Business
The Partnership was formed under the laws of the State of
Maryland on February 9, 1995, in connection with a plan (the
"1995 OTEF Restructuring Plan") to restructure Oxford Tax Exempt
Fund Limited Partnership, a Maryland limited partnership ("OTEF,"
"Predecessor," or "OTEF II's predecessor"). Oxford Tax Exempt
Fund II Corporation, a Maryland corporation, is the Managing
General Partner of OTEF II (the "Managing General Partner").
OTEF II Associates Limited Partnership, a Maryland limited
partnership, is the associate general partner of OTEF II
(together with the Managing General Partner, the "General
Partners").
Business Plan for Growth. Under the Liquidity and Growth
Plan, OTEF II will invest the proceeds of the Financing and any
additional funds that OTEF II may obtain in new assets described
below to increase the distributions payable with respect to the
New BACs and the value to the Liquidity BAC Holders.
Refunding and Financing. As of March 31, 1997, OTEF II had
refunded 12 of the Existing MRBs, which comprise approximately
87.5% of OTEF II's portfolio, including two refundings that
closed during the first quarter of 1997 (Colonel I and
Middletown). It is expected that the refunding of the two
remaining Existing MRBs will close during 1997. Refunding an
Existing MRB means exchanging that bond for newly issued
refunding bonds ("Refunding Bonds") with approximately the same
principal amount, an extended maturity and restructured interest
<PAGE> 20
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
rates that increase each year during the terms of the Refunding
Bonds and that are designed to require the limited partnerships
which own the properties securing the bonds (the "Operating
Partnerships") to pay substantially all of their projected cash
flow as interest on the Refunding Bonds. As a result of these
refundings, the estimated value of the bonds held by OTEF II
as shown on the Balance Sheet increased by approximately
$2,387,000 as of March 31, 1997, compared to December 31, 1996.
The Refunding Bonds are structured so as to consist of senior
bonds ("Series A Bonds") and subordinated bonds ("Series B
Bonds"). This senior/subordinated structure will permit OTEF II
to undertake the Financing, pursuant to which it will sell all or
a portion of the Series A Bonds, or interests therein, that are
designated as Liquidity Assets, or issue debt that may be secured
by such assets, new assets or both. OTEF II will retain the
related Series B Bonds for the benefit of the Liquidity BAC
Holders, and will retain both the senior Series A Bonds and the
subordinated Series B Bonds, or interests therein, that are
designated as Status Quo Assets for the benefit of the Status Quo
BAC Holders.
In addition to the proceeds from the Financing, OTEF II may
acquire new assets: (i) from the proceeds of sales or other
dispositions of the Refunding Bonds and the proceeds from
principal payments with respect to the Refunding Bonds (except
for the portion of such proceeds allocable to the SQBs); (ii)
from the proceeds of sales or other dispositions of new assets
and the proceeds from principal payments with respect to new
assets; (iii) from the proceeds of issuances of additional equity
securities, including additional limited partnership interests in
OTEF II and additional OTEF II BACs; (iv) by issuing additional
equity securities in exchange for new assets; or (v) by borrowing
funds from lenders or by issuing evidences of indebtedness.
Although the Managing General Partner is authorized under
OTEF II's partnership agreement to reinvest cash flow in new
assets, it has no current plans to do so in the foreseeable
future.
Investment in New Assets. The Managing General Partner intends
to invest primarily in additional mortgage revenue bonds and
securities of other entities which primarily hold tax-exempt
mortgage revenue bonds. OTEF II also may invest in multifamily
real estate, senior living facilities or residential health care
facilities, or other direct or indirect debt or equity interests
in such real estate, some of which may give rise to taxable
income, but the Managing General Partner does not currently
expect that these types of investments will be a significant part
of its business in the foreseeable future. (All of the foregoing
are referred to collectively as "New Assets".)
OTEF II generally will acquire additional mortgage revenue
bonds and taxable bonds that are not rated by any of the
nationally recognized rating agencies (such as Moody's Investor
<PAGE> 21
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Services, Inc. or Standard & Poor's Ratings Group) and that are
not credit-enhanced at the time of acquisition, although OTEF II
may seek to have all or a portion of such bonds credit-enhanced
or rated at a future date. It also is expected that OTEF II may
invest in bonds, including bonds that may be secured by bonds or
mortgages that are subordinated to senior bonds or mortgages held
by third parties, on terms that will permit it, in many cases, to
participate (either through stepped interest rates or otherwise)
in the future growth and increase in value of the properties
financed by such bonds. In addition, in the case of bonds that
require restructuring, it is anticipated that OTEF II may be able
to acquire such bonds on a discounted basis, that is, where the
nominal principal amount of the bond exceeds the purchase price
and/or the estimated current liquidation value of the underlying
property.
Note 3. Significant Accounting Policies
Method of Accounting. OTEF II's financial statements are
prepared in accordance with generally accepted accounting
principles.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Income Taxes. No provision has been made for federal, state,
or local income taxes in the financial statements of OTEF II
since the Partners and OTEF II (collectively, "OTEF II BAC
Holders") are required to report on their individual tax returns
their allocable share of taxable income, gains, losses,
deductions, and credits of OTEF II.
Valuation of Bonds. The OTEF II Managing General Partner
estimated at March 31, 1997 that the fair value of the 12 Series
A and B Bonds and the two Existing MRBs was approximately
$217,916,000 and, accordingly, OTEF II recorded a credit to
Partners' Capital in an amount equal to approximately $64,884,000
of unrealized gain on investments. The current fair value of the
Series A and B Bonds and the Existing MRBs was determined by the
Managing General Partner using the same cash flow methodology
applied by a major investment banking firm in connection with
structuring advice rendered to OTEF II and its predecessor with
respect to the 1995 OTEF Restructuring Plan. The Series A Bonds
are valued at par based on comparable municipal bond securities,
and all other bonds (the Existing MRBs and the Series B Bonds)
are valued based on a discounted cash flow analysis. For this
purpose the applicable cash flows are based on certain
assumptions concerning the Properties and the markets in which
they are located, including the timing and realization of such
cash flows.
<PAGE> 22
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
Net Income and Distributions per Beneficial Assignee Interest
(BAC). Net income and distributions per BAC are based upon the
weighted average number of BACs outstanding during the applicable
year.
Statements of cash flows. The statements of cash flows are
intended to reflect only cash receipts and cash payment activity.
The statements do not reflect investing and financing activity
that affect recognized assets or liabilities that do not result
in cash receipts or cash payments. This non-cash activity
consists of distributions payable to Partners and OTEF II BAC
Holders of $3,642,796 at March 31, 1997 and 1996.
Cash and cash equivalents. Cash and cash equivalents consist
of all demand deposits and tax-exempt money market funds stated
at cost, which approximates market value, with original
maturities of three months or less.
Governance and administrative expenses totaled $332,000 for
the three-month period ended March 31, 1997, as compared to
$614,000 for the three-month period ended March 31, 1996. The
decrease of $282,000 was primarily attributable to a decrease in
governance expenses relating to the 1995 OTEF Restructuring Plan
offset by an increase in expense reimbursements to the General
Partners and their affiliates. Litigation and settlement costs
due to the OTEF II Litigation totaled $98,000 for the three-month
period ended March 31, 1997.
Note 4. Related Party Transactions
Interests in OTEF II and the Operating Partnerships. The
General Partners own interests in OTEF II that entitle them to
receive a share of OTEF II's cash flow and possibly of sale,
refinancing and liquidation proceeds. Distributions to the
General Partners totaled $73,000 for March 31, 1997 and 1996.
Affiliates of the Managing General Partner that are general
and limited partners of the Operating Partnerships have an
interest in the Operating Partnerships that entitles them to
receive a share of any cash flow and sale, refinancing and
liquidation proceeds of the Operating Partnerships. Since
inception, the Operating Partnerships have not been able to make
any distributions of cash flow to their respective partners. In
addition, in connection with the 1995 OTEF Restructuring Plan and
after the Existing MRBs are refunded, all cash flow attributable
to these interests will be pledged for the benefit of OTEF II.
Compensation and Fees. For the three-month periods ended
March 31, 1997 and 1996, the Operating Partnerships paid total
property and asset management fees of $577,000 and $564,000,
respectively. Of the $577,000 of property and asset management
fees, $428,000 was paid to NHP, Inc. and certain affiliates
(collectively, "NHP"), as compared to $421,000 for the same
period in 1996. The remaining fees totaling $149,000 was paid to
Oxford Realty Financial Group, Inc. ("ORFG"), as compared to
<PAGE> 23
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
$143,000 for the same period in 1996. During the three-month
periods ended March 31, 1997 and 1996, the Operating Partnerships
also paid ORFG, in the aggregate, $174,000 of fees pursuant to
the OTEF Restructuring Plan Administration/Asset Management Fee
Agreement, which amount is equal to 0.25% per annum of the
principal amount of the bonds collateralized by the properties
owned by the Operating Partnerships ("Existing Mortgaged
Properties").
Fees Payable to ORFG. As discussed above, ORFG provides
various management services, relating to the Existing Mortgaged
Properties and OTEF II's investment therein. It will provide
additional services in connection with OTEF II's investment in
New Assets, as described above. The fees payable to ORFG for the
services it is providing currently (the "Existing Fees") are
operating expenses of the Operating Partnerships that are payable
prior to the payment of interest on the Existing MRBs. OTEF II
did not pay any fees in connection with OTEF II's investment in
New Assets to ORFG during the quarter ended March 31, 1997;
however, with the implementation of the Liquidity and Growth Plan
in 1997, OTEF II anticipates that it will pay ORFG new fees (the
"New Asset Fees") in the near future. The paragraphs below
describe the New Asset Fees:
Acquisition Fee. ORFG will be entitled to an acquisition fee
for finding, analyzing and acquiring New Assets. The acquisition
fee, which is payable on the closing of any transaction in which
OTEF II acquires a New Asset, is equal to 1.0% of (i) the
purchase price paid by OTEF II for the New Asset, or (ii) with
respect to a New Asset which is subordinated in payment to senior
indebtedness, the sum of (A) the purchase price paid by OTEF II
for its subordinated interest and (B) the principal amount of the
senior interest, if any; provided, however, that no acquisition
fee shall be paid with respect to the principal amount of any
such senior interest if OTEF II has not purchased the senior
interest and neither the Managing General Partner nor any of its
affiliates had any material involvement in the negotiation,
structuring or closing of the purchase of the senior interest.
In the case of a New Asset which is subordinated in payment to
senior indebtedness as of the closing of the transaction in which
OTEF II acquires its interest, the maximum acquisition fee
payable shall be equal to 2.5% of the purchase price paid by
OTEF II for such interest as of the date of closing.
Advisory Fee. OTEF II also will pay ORFG an advisory fee for
managing OTEF II's New Assets after their acquisition. The
advisory fee, which is payable annually, is equal to 0.5% of (i)
the purchase price paid by OTEF II for a New Asset, or (ii) with
respect to a New Asset which is subordinated in payment to senior
indebtedness, the sum of (A) the purchase price paid by OTEF II
for its subordinated interest and (B) the principal amount of the
senior interest; provided, however, that if an affiliate of the
Managing General Partner is receiving fees for property
management services pursuant to a property management agreement
<PAGE> 24
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
entered into with the owner of an Additional Mortgaged Property,
the advisory fee will be equal to 0.5% of the purchase price paid
by OTEF II for the related New Asset. In addition, if the
Managing General Partner receives in any year compensation or
fees from an unaffiliated person that serves as the property
manager for the Additional Mortgaged Property, the amount of the
advisory fee payable with respect to the related New Asset shall
be reduced by 50% of any such compensation or fees received by
the Managing General Partner.
Expense Reimbursements. The Operating Partnerships and
OTEF II also reimburse ORFG for certain expenses it incurs in
providing services with respect to the Existing Mortgaged
Properties and the administration of OTEF II's affairs. Total
reimbursements to the General Partners and their affiliates for
the three-month periods ended March 31, 1997 and 1996, were
$86,000 and $22,900, respectively. Such reimbursable amount is
determined based on the actual time the officers and employees
devote to OTEF II based upon their respective salaries.
Incentive Option Plan. OTEF II intends to adopt an incentive
option plan (the "Incentive Option Plan") in order for the
Managing General Partner to attract and retain key employees and
advisers. The Incentive Option Plan will authorize the granting
to the directors, officers and employees of the Managing General
Partner and certain affiliates of options to purchase
approximately 26,000 OTEF II BACs (prior to any division of the
OTEF II BACs in connection with listing the OTEF II BACs on a
national securities exchange), which will represent approximately
8.3% of the outstanding OTEF II BACs (assuming approximately
13,000 OTEF II BACs are converted into SQBs.)
The Managing General Partner anticipates that options to
purchase all or substantially all of the OTEF II BACs offered
pursuant to the Incentive Option Plan will be granted prior to
the effective date of listing of the OTEF II BACs for trading.
The exercise price per BAC shall be the average of the closing
price of an OTEF II BAC, as reported on the appropriate exchange
on which the OTEF II BACs are listed or designated for the first
twenty days of trading or, with respect to any BAC option
exercised between the option grant date and the determination of
the average trading price, it shall be the fair market value as
determined by the Board of Directors of the Managing General
Partner on the basis of available prices.
Note 5. Subsequent Events
Effective April 1, 1997, OTEF II issued in book-entry form
SQBs to BAC Holders who made a timely election to convert their
OTEF II BACs to SQBs, representing approximately 4.3% of the
outstanding BACs. SQB Holders have until June 20, 1997, to
exercise their option to require OTEF II to purchase or redeem
their SQBs pursuant to the Optional Sale Plan, described in the
Information Memorandum dated December 2, 1996, that was furnished
to BAC Holders. As of May 16, 1997, 3,115 SQBs have been
tendered by 162 Status Quo BAC Holders.
<PAGE> 25
- -----------------------------------------------------------------
Notes to Financial Statements
- -----------------------------------------------------------------
On May 15, 1997, OTEF II made a quarterly cash distribution of
$3,642,796, or $11.90 per BAC (4.76% per annum on the original
$1,000 invested per BAC) to BAC Holders of Record as of March 31,
1997. This distribution is consistent with the distribution made
for the previous eight quarters.
<PAGE> 26
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Instructions for Investors who wish to reregister or transfer
OTEF II BACs
- -----------------------------------------------------------------
Please follow the instructions below to expedite the
reregistration or transfer of ownership of any OTEF II Beneficial
Assignee Interests ("OTEF II BACs") that you may own. Note that
no transfers or sales can be effected without the consent of the
Managing General Partner and the completion of the proper
documents.
To cover the costs associated with processing transfers, MMS
Escrow & Transfer Agency, Inc. ("MMS"), the transfer agent for
OTEF II, charges $25 for each transfer of OTEF II BACs between
related parties and $50 per seller for each transfer for
consideration (sale). The only exception is a transfer to a
surviving joint holder of BACs when the other joint holder
dies, in which case no fee is charged. MMS charges $150 for
the conversion of a BAC into a limited partner interest.
To transfer ownership of OTEF II BACs held in a Merrill Lynch
account, please have your Merrill Lynch financial consultant
contact Merrill Lynch Partnership Operations in New Jersey at
(201) 557-1619 to request the necessary transfer documents.
Merrill Lynch Partnership Operations will only accept calls
from your financial consultant. YOU MUST HAVE THE PROPER
TRANSFER DOCUMENTS FROM MERRILL LYNCH TO EFFECT A TRANSFER.
You must have your financial consultant contact Partnership
Operations, as OTEF II Investor Services does not send out
transfer papers for BACs held in a Merrill Lynch account.
Investors who no longer hold OTEF II BACs in a Merrill Lynch
account should contact Investor Services at (248) 614-4550 or
P.O. Box 7090, Troy, Michigan 48007-7090, to obtain transfer
documents. YOU MUST OBTAIN THE PROPER TRANSFER DOCUMENTS FROM
INVESTOR SERVICES TO EFFECT A TRANSFER OF BACs WHICH YOU HOLD
PERSONALLY.
MMS does not issue paper certificates to investors who take
their OTEF II BACs out of their Merrill Lynch accounts. Paper
confirmations are issued instead. (Please note that
previously-issued OTEF paper certificates are no longer valid.
Investors who hold OTEF certificates may retain or discard
them, as they choose. It is no longer necessary to return
certificates to MMS when transferring ownership interests.)
If an individual who holds his or her OTEF II BACs directly
wishes to redeposit the BACs into a Merrill Lynch account, he
or she should send written instructions to Investor Services
after the Merrill Lynch account has been opened. OTEF II
Investor Services will then instruct Merrill Lynch to deposit
the BACs into the account.
<PAGE> 27
- -----------------------------------------------------------------
Instructions for Investors who wish to reregister or transfer
OTEF II BACS
- -----------------------------------------------------------------
Please remember to notify Investor Services in writing at the
address below or by calling (248) 614-4550 in the event you
change your mailing address or your financial consultant. We
can then continue to provide you and your representative with
timely information about your investment in OTEF II.
The Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed with the Securities and Exchange
Commission, is available to BAC Holders and may be obtained by
writing:
Investor Services
Oxford Tax Exempt Fund II Limited Partnership
P.O. Box 7090
Troy, Michigan 48007-7090
(248) 614-4550
Exhibit 27--Financial Data Schedule--Article 5
This schedule contains summary financial information extracted
from the Balance Sheet at March 31, 1997 (Unaudited) and the
Statements of Income for the year ended March 31, 1997 (Unaudited)
and is qualified in its entirety by reference to such financial
statements.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-31-1997
[CASH] 11,977
[SECURITIES] 217,916
[RECEIVABLES] 1,351
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 231,244
[CURRENT-LIABILITIES] 6,465
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 224,779
[TOTAL-LIABILITY-AND-EQUITY] 231,244
[SALES] 0
[TOTAL-REVENUES] 4,696
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 430
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 4,266
[EPS-PRIMARY] 13.94
[EPS-DILUTED] 13.94
</TABLE>
