SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
__________________
DAVIDSON GROWTH PLUS, L.P.
(Name of Subject Company)
DAVIDSON GROWTH PLUS, L.P.
(Name of Person Filing Statement)
Limited Partnership Units
(Title of Class of Securities)
N/A
(CUSIP Number of Class of Securities)
_________________________
CARROLL D. VINSON
President
Davidson Diversified Properties, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29602
(864) 239-1029
(Name, Address, and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of the Person(s) filing Statement)
Copy to:
ARNOLD S. JACOBS, ESQ.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
(212) 969-3000
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject partnership is Davidson Growth Plus,
L.P., a Delaware limited partnership (the "Partnership"), and the address of its
principal executive offices is One Insignia Financial Plaza, Greenville, South
Carolina 29602. The title of the class of equity securities to which this
statement relates is the Partnership's Limited Partnership Units ("Units").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to an offer by DGP Acquisition, L.L.C., a
Delaware limited liability company (the "Purchaser"), disclosed in a Tender
Offer Statement on Schedule 14D-1 dated December 8, 1995 (the "Schedule 14D-1"),
to purchase up to 40% of the outstanding Units at a purchase price of $240.00
per Unit, net to the seller in cash, without interest, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated December 8,
1995 (the "Offer to Purchase") and the related Assignment of Partnership
Interest (which collectively constitute the "Offer" and are contained within the
Schedule 14D-1).
The address of the Purchaser's principal executive offices is
One Insignia Financial Plaza, Greenville, South Carolina 29602.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Partnership, which
is the person filing this statement, are set forth in Item 1 above.
(b)
The Purchaser; Affiliation With the Managing General Partner.
According to the Schedule 14D-1, the Purchaser is a newly-formed entity
indirectly controlled by Insignia Financial Group, Inc. ("Insignia") and Carl C.
Icahn ("Mr. Icahn"). IB Holding, Inc. ("Holding"), which is a wholly-owned
subsidiary of Insignia, owns a 50% interest in the Purchaser, and Riverdale
Investors Corp., Inc. ("Riverdale"), which is an entity directly 100% owned by
Mr. Icahn, owns the other 50% interest in the Purchaser. Neither Mr. Icahn nor
Riverdale is affiliated with Insignia or the Managing General Partner other than
through their affiliation with the Purchaser.
Since December 1991, an affiliate of Insignia has been the
indirect parent company of Davidson Diversified Properties, Inc., the managing
general partner of the Partnership (the "Managing General Partner"). Insignia
Management Group, L.P. ("IMG"), which is an affiliate of Insignia and the
Purchaser, provides property management services to the Partnership, and
Insignia (directly or through affiliates) performs asset management and
partnership administration services for the Partnership. By reason of these
relationships, the Managing General Partner has conflicts of interest in
considering the Offer. James T. Gunn, the individual general partner (the
"Individual General Partner," and together with the Managing General Partner,
the "General Partners") of the Partnership, takes no active role in the
management of the Partnership as required by the Partnership's Partnership
Agreement, as amended (the "Partnership Agreement"), which provides that the
conduct of the Partnership's business shall be controlled solely by the Managing
General Partner. The
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Partnership Agreement is filed as Exhibit (c)(1) to, and incorporated by
reference in, this Schedule 14D-9. Prior to the announcement of the Offer, the
Managing General Partner advised the Purchaser (which is an affiliate of the
Managing General Partner) that the Partnership intended to indicate in its
Statement on Schedule 14D-9 to be filed with the Securities and Exchange
Commission (the "Commission") and mailed to Limited Partners that it would
remain neutral and make no recommendation as to whether Limited Partners should
tender their Units pursuant to the Offer.
The Purchaser's Reasons for the Offer. The Purchaser is an
affiliate of the Managing General Partner. The Purchaser's stated purpose in
making the Offer is to acquire a substantial equity interest in the Partnership
primarily for investment purposes and with a view to making a profit. Although
the number of Units being sought in the Offer will not give the Purchaser
(which is an affiliate of the Managing General Partner) absolute control over
the Partnership, if the Purchaser is successful in acquiring all or a
substantial portion of the Units it is tendering for, it will be in a position
to exercise significant influence over the outcome of any vote by Limited
Partners.
Riverdale's Recent Affiliation with Insignia. According to the
Schedule 14D-1, on December 7, 1995, Holding and Riverdale executed the
operating agreement of the Purchaser (the "Operating Agreement"), which
provides in substance that (i) immediately following the purchase of Units
pursuant to the Offer, the Purchaser would take all actions reasonably required
to seek its admission to the Partnership as a substitute Limited Partnership as
to all of the Units pursuant to the Offer; (ii) the Units purchased pursuant to
the Offer would be voted as directed by Holding and Riverdale in proportion to
their respective interests in the Purchaser, except that Holding would control
certain aspects of the voting, including votes on any proposal (a) made by the
Managing General Partner of the Partnership, (b) to remove the Managing General
Partner, (c) that would in any way adversely alter the rights, authority or
obligations of the General Partner or (d) to reduce any compensation payable to
the Managing General Partner or any other affiliate of Insignia; and (iii)
except as contemplated by the foregoing provisions and subject to certain
limited exceptions, (a) neither Holding nor Riverdale or their respective
affiliates and other related persons shall commence a tender offer for Units or
purchase, buy, acquire or otherwise become the beneficial owner of Units, and
(b) so long as an affiliate of Insignia is the Managing General Partner,
Riverdale will not (1) make, or in any way participate in, directly or
indirectly, any "solicitation" of "proxies" (as such terms are defined or used
in Regulation 14A under the Securities Exchange Act of 1934) or become a
"participant" in any "election contest" (as such terms are defined or used in
Rule 14a-11 of the Securities Exchange Act of 1934) with respect to the
Partnership, (2) initiate, propose or otherwise solicit Limited Partners for
the approval of one or more proposals with respect to the Partnership, or (3)
instigate or encourage any Limited Partner or other third party to do any of
the foregoing. The Operating Agreement also provides that under certain
limited circumstances Insignia could be required to cause its affiliate to sell
to Riverdale or its designee either the managing general partner interest in
the Partnership currently held by the Managing General Partner or the stock of
the entity that owns such interest, in either case for a formula price based
primarily on the amount of property management fees paid by the Partnership to
Insignia and its affiliates during the year preceding the date of such
transfer.
Distributions. The Partnership has been making semi-annual
cash distributions to Limited Partners on a regular basis since 1987. In
February, June and August 1995, the Partnership made cash distributions to
Limited Partners aggregating $47.47 per Unit. The
3
February and August 1995 distributions were made from operating cash flow, and
the June 1995 distribution was made from the Partnership's cash reserves. The
Managing General Partner presently expects the Partnership will continue to
make further distributions. According to the Schedule 14D-1, the potential for
future distributions was considered by the Purchaser (which is an affiliate of
the Managing General Partner) when establishing the Purchase Price. According
to the Schedule 14D-1, limited Partners who tender their Units in response to
the Offer will retain all of the distributions made in February, June and
August 1995, and will be entitled to receive any subsequent distributions made
by the Partnership prior to the date on which the Purchaser purchases tendered
Units pursuant to the Offer. However, tendering Limited Partners will not be
entitled to receive any distributions in respect of tendered Units purchased by
the Purchaser pursuant to the Offer made after the date on which the Purchaser
accepts those Units for payment.
Neither the Purchaser (which is an affiliate of the Managing
General Partner) nor the Managing General Partner owns any Units.
Possible Future Transactions. The Managing General Partner
advised the Purchaser that the possible future transactions the Managing
General Partner expects to consider on behalf of the Partnership include (i)
payment of extraordinary distributions; (ii) refinancing, reducing or
increasing existing indebtedness of the Partnership; (iii) sales of assets,
individually or as part of a complete liquidation; and (iv) mergers or other
consolidation transactions involving the Partnership. Any such merger or
consolidation transaction could involve other limited partnerships in which the
Managing General Partner or its affiliates serve as general partners, or a
combination of the Partnership with one or more existing, publicly traded
entities (including, possibly, affiliates of the Purchaser (which is an
affiliate of the Managing General Partner)), in any of which Limited Partners
might receive cash, common stock or other securities or consideration. There
is no assurance, however, as to when or whether any of the transactions
referred to above might occur. If any such transaction is effected by the
Partnership and financial benefits accrue to the Limited Partners of the
Partnership, the Purchaser (which is an affiliate of the Managing General
Partner) will participate in those benefits to the extent of its ownership of
Units. A merger or other consolidation transaction and certain kinds of other
extraordinary transactions would require a vote of the Limited Partners in the
Partnership, and by acquiring a substantial number of Units the Purchaser
(which is an affiliate of the Managing General Partner) will enhance its
ability to influence the outcome of any such vote.
General Policy Regarding Sales of Partnership Properties. In
general, the Managing General Partner regularly evaluates the Partnership's
ownership positions by considering various factors, such as the Partnership's
financial position, governmental influences, and real estate and capital market
conditions. The Managing General Partner monitors each property's specific
locale and sub-market conditions evaluating current trends, competition, new
construction and economic changes. The Managing General Partner oversees each
asset's operating performance and continuously evaluates the physical
improvement requirements. In addition, the financing structure for each asset,
tax implications and the investment climate are all considered. Any of these
factors, and possibly others, could potentially contribute to any decision of
the Managing General Partner to sell, refinance, upgrade with capital
improvements or hold a particular Partnership property. There are no plans to
sell or refinance any property at the present time.
4
Conflicts of Interest With Respect to the Offer. The Managing
General Partner has conflicts of interest with respect to the Offer, including
conflicts resulting from its affiliation with the Purchaser. The Managing
General Partner also would have a conflict of interest (i) as a result of the
fact that a sale or liquidation of the Partnership's assets would result in a
decrease or elimination of the fees paid to the Managing General Partner and/or
its affiliates and (ii) as a consequence of the Purchaser's ownership of Units,
because the Purchaser (which is an affiliate of the Managing General Partner)
may have incentives to seek to maximize the value of its ownership of Units,
which in turn may result in a conflict for the Managing General Partner in
attempting to reconcile the interests of the Purchaser (which is an affiliate
of the Managing General Partner) with the interests of the other Limited
Partners. In addition, the Purchaser (which is an affiliate of the Managing
General Partner) is making the Offer with a view to making a profit.
Accordingly, there is a conflict between the desire of the Purchaser (which is
an affiliate of the Managing General Partner) to purchase Units at a low price
and the desire of the Limited Partners to sell their Units at a high price.
Voting by the Purchaser. The Partnership Agreement provides
that in order for an assignee of Units to be admitted to the Partnership as a
substitute Limited Partner, (i) the assignment must have been effected in
accordance with the provisions of the Partnership Agreement; (ii) the
instrument of assignment must set forth the intention of the assignor that the
assignee succeed to the assignor's interest as a substituted Limited Partner in
his place; (iii) the assignor and assignee must have executed and acknowledged
such other documents as the Managing General Partner deemed necessary or
desirable to effect such substitution; and (iv) a transfer fee not greater than
$150 must have been paid to the Partnership to cover all reasonable expenses
incurred in connection with such substitution. According to the Schedule 14D-
1, the Purchaser (which is an affiliate of the Managing General Partner) will
seek to be admitted to the Partnership as a substitute Limited Partner upon
consummation of the Offer and, if admitted, will have the right to vote each
Unit purchased pursuant to the Offer. Even if the Purchaser (which is an
affiliate of the Managing General Partner) is not admitted to the Partnership
as a substitute Limited Partner, however, the Purchaser believes, according to
the Schedule 14D-1, that it nonetheless will have the right to vote each Unit
purchased in the Offer pursuant to the irrevocable appointment by tendering
Limited Partners of the Purchaser (which is an affiliate of the Managing
General Partner), its officers and designees as proxies with respect to the
Units tendered by such Limited Partners and accepted for payment by the
Purchaser. As a result, if the Purchaser (which is an affiliate of the
Managing General Partner) is successful in acquiring a significant number of
Units pursuant to the Offer, the Purchaser will have the right to vote those
Units and thereby significantly influence all voting decisions with respect to
the Partnership, including decisions concerning liquidation, amendments to the
Partnership Agreement, and removal and replacement of the General Partners.
This means that (i) non-tendering Limited Partners could be prevented from
taking action they desire but that the Purchaser (which is an affiliate of the
Managing General Partner) opposes and (ii) the Purchaser (which is an affiliate
of the Managing General Partner) may be able to take action desired by the
Purchaser but opposed by the non-tendering Limited Partners.
Financing Arrangements. According to the Schedule 14D-1, the
Purchaser (which is an affiliate of the Managing General Partner) expects to
pay for the Units it purchases pursuant to the Offer with funds obtained from
capital contributions to be made by Holding and Riverdale. Holding expects to
obtain its share of those funds from capital contributions or loans from
Insignia, which will obtain such funds from its working capital; Riverdale
expects
5
to obtain its share of those funds from its working capital or from a loan from
Highcrest Investors Corporation ("Highcrest"), which is also indirectly 100%
owned by Mr. Icahn and is an affiliate of Riverdale, or an affiliate of
Highcrest, which will obtain such funds from its liquid assets and/or the
liquid assets of its wholly-owned, direct or indirect subsidiaries. Highcrest
has irrevocably committed to make or cause its affiliates to make such loan. It
is possible, however, that in connection with its future financing activities,
Holding and Riverdale may cause or request the Purchaser (which is an affiliate
of the Managing General Partner) to pledge the Units as collateral for loans,
or otherwise agree to terms which provide Holding, Riverdale and the Purchaser
with incentives to generate substantial near-term cash flow from the
Purchaser's investment in the Units. This could be the case, for example, if a
loan has a "bullet" maturity after a relatively short time or bears a high or
increasing interest rate. In such a situation, the Managing General Partner
may experience a conflict of interest in seeking to reconcile the best
interests of the Partnership with the potential need of its affiliates for cash
flow from the Partnership's activities.
Transactions with Affiliates. Under the Partnership Agreement,
the Managing General Partner holds an interest in the Partnership and is
entitled to participate in certain cash distributions made by the Partnership
to its Partners. The Managing General Partner has received a cash distribution
each year since 1987 in respect of its general partner interest and has
received $41,654, $6,777, and $217,264, respectively, for the three years ended
December 31, 1995, 1994, and 1993 in respect of such general partner interest.
Pursuant to an agreement (the "Insignia/MAE Agreement") between Insignia and
Metropolitan Asset Enhancement, L.P. ("MAE") (which is the direct parent of the
Managing General Partner), MAE has agreed, among other things, to cause
Insignia or its affiliate to be retained as a manager of all properties
controlled by MAE. The Insignia/MAE Agreement is filed as Exhibit (c)(2) to,
and incorporated by reference in, this Schedule 14D-9. For purposes of the
Insignia/MAE Agreement, MAE controls the Partnership's properties. Pursuant to
this arrangement, the Partnership has paid IMG, an affiliate of the Managing
General Partner, property management fees for property management services and
for reimbursement of certain expenses in each of the three years ended December
31, 1994. Property management fees paid to IMG amounted to $229,833, $235,904
and $269,272, respectively, for the three years ended December 31, 1994, 1993
and 1992, and the Partnership paid IMG property management fees equal to
$180,785 during the nine months ended September 30, 1995. Insignia and its
affiliates do not receive any fees from the Partnership on a current basis for
the asset management or partnership administration services they provide,
although Insignia and its affiliates are reimbursed by the Partnership for the
expenses they incur in connection with providing those services pursuant to the
Partnership Agreement. The Managing General Partner is entitled to receive a
deferred management fee of 2% of Adjusted Cash from Operations (as defined in
the Partnership Agreement) once the Partnership either has distributed to
Limited Partners an amount equal to a 10% return on capital or has generated
Cash from Sales or Refinancings (as defined in the Partnership Agreement). As
reflected in the Partnership's Form 10-QSB for the nine months ended September
30, 1995, the accrued deferred management fee totalled $161,043 as of September
30, 1995, none of which has been distributed to the Managing General Partner.
Pursuant to these provisions and in addition to the property management fees
referred to above, the Partnership paid the Managing General Partner and its
affiliates (including the reimbursements to Insignia and its affiliates in
connection with asset management and partnership administration services) an
aggregate of $141,735, $172,659 and $174,687, respectively, for the three years
ended December 31, 1994, 1993 and 1992, and $109,982 during the nine months
ended September 30, 1995. During 1992 and
6
1993, an affiliate of the Purchaser (which is an affiliate of the Managing
General Partner) assisted an unaffiliated third party engaged by the
Partnership in connection with a refinancing of the Partnership's properties,
and received $41,800 in 1992 and $106,250 in 1993 from the third party for
providing such assistance. In addition, at various times during the past three
fiscal years an affiliate of the Purchaser (which is an affiliate of the
Managing General Partner) has held a promissory note or preferred stock issued
by an unaffiliated company that provides insurance brokerage services to the
Partnership. The financial benefits derived by Insignia or its affiliates from
these arrangements and attributable to the Partnership are included in the
amounts described above as reimbursements to affiliates of the Managing General
Partner during the Partnership's fiscal years ended December 31, 1993 and 1992,
but not for 1994. According to the Schedule 14D-1, Insignia believes that the
aggregate financial benefit derived by Insignia and its affiliates from the
arrangements described in the two preceding sentences during the three years
ended December 31, 1994 and since that date was immaterial.
The Insignia/MAE Agreement. In addition to the matters
described in the preceding paragraph, in the Insignia/MAE Agreement, MAE also
has agreed with Insignia that it will not, and will not permit any of its
subsidiaries or controlled affiliates (including the Partnership) to, dispose
of any asset which represents a direct or indirect interest in a property
unless Insignia receives proceeds or fees upon the disposition of such asset
equal to or greater than 150% of Insignia's then-current annualized revenues
with respect to such asset. This restriction is not applicable if MAE makes
certain "make-up" payments to Insignia in connection with the disposition or if
MAE is required by contract or fiduciary duty to sell such asset. This
agreement may create a conflict with respect to the Managing General Partner's
determination to sell assets or complete other Partnership transactions, or
affect the terms of any such transactions.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
As a result of the existing and potential conflicts of interest
described in Item 3 above, neither the Partnership nor the Managing General
Partner expresses any opinion and each is remaining neutral and making no
recommendation as to whether Unit holders should tender their Units in response
to the Offer.
ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
Neither the Partnership nor any person acting on its behalf has
employed, retained, or compensated or intends to employ, retain, or compensate
any person or class of persons to make solicitations or recommendations to Unit
holders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Neither the Partnership nor the Managing General
Partner has effected any transactions in the Units during the past 60 days.
The Managing General Partner is not aware of any transactions in the Units
during the past 60 days by any of its executive officers, directors,
affiliates, or subsidiaries or the Individual General Partner.
7
(b) Neither the Managing General Partner nor, to the
knowledge of the Managing General Partner, any of its executive officers,
directors, affiliates, or subsidiaries nor the Individual General Partner
intends to tender Units owned by them in the Offer.
Item 7. Certain Negotiations and Transactions by the Subject Company
(a) None.
(b) None.
Item 8. Additional Information to be Furnished
None.
Item 9. Material to be Filed as Exhibits
(a)(1) Form of cover letter to Unit holders from the
Partnership dated December 15, 1995.
(b) None.
(c)(1) Limited Partnership Agreement of the
Partnership (f/k/a Freeman Growth Plus, L.P.), entered into as of May 22, 1986,
and amended as of August 7, 1986, by and among the Partnership, the Managing
General Partner, the Individual General Partner, and the Original Limited
Partner.
(c)(2) Insignia/MAE Agreement, dated August 13, 1993,
between Insignia and Metropolitan Asset Enhancement, L.P.
8
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: December 15, 1995
DAVIDSON GROWTH PLUS, L.P.
By: Its corporate general partner,
Davidson Diversified Properties, Inc., a
Tennessee corporation
By: /s/ Carroll D. Vinson
-------------------------------
Name: Carroll D. Vinson
Title: President
9
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
(a)(1) Form of cover letter to Unit holders from the
Partnership dated December 15, 1995.
(c)(1) Limited Partnership Agreement of the
Partnership (f/k/a Freeman Growth Plus,
L.P.), entered into as of May 22, 1986, and
amended as of August 7, 1986, by and among
the Partnership, the Managing General
Partner, the Individual General Partner, and
the Original Limited Partner.
(c)(2) Insignia/MAE Agreement, dated August 13, 1993,
between Insignia and Metropolitan Asset
Enhancement, L.P.
Exhibit (a)(1)
DAVIDSON GROWTH PLUS, L.P.
One Insignia Financial Plaza
P.O. Box 2347
Greenville, SC 29602
(864)239-1029
December 15, 1995
Dear Limited Partner:
As you are by now aware, DGP Acquisition, L.L.C., a Delaware
limited liability company (the "Purchaser"), has made an offer (the "Offer") to
purchase limited partnership units ("Units") of Davidson Growth Plus, L.P. (the
"Partnership"). Enclosed is a copy of the Partnership's Statement on Schedule
14D-9 which was filed with the Securities and Exchange Commission and sets
forth the Partnership's response to the Offer.
The Partnership's general partner responsible for management of
the Partnership's business is Davidson Diversified Properties, Inc. (the
"Managing General Partner"), a Tennessee corporation and an affiliate of the
Purchaser. Due to the affiliation between the Managing General Partner and the
Purchaser, the Managing General Partner is subject to certain existing and
potential conflicts of interest with respect to the Offer.
AS A RESULT OF THE EXISTING AND POTENTIAL CONFLICTS OF
INTEREST, NEITHER THE PARTNERSHIP NOR THE MANAGING GENERAL PARTNER EXPRESSES
ANY OPINION AND EACH IS REMAINING NEUTRAL AND MAKING NO RECOMMENDATION AS TO
WHETHER UNIT HOLDERS SHOULD TENDER THEIR UNITS IN RESPONSE TO THE OFFER.
Limited partners are advised to carefully read the enclosed
Schedule 14D-9.
Davidson Growth Plus, L.P.
<PAGE>
FREEMAN GROWTH PLUS, L.P.
LIMITED PARTNERSHIP AGREEMENT
This LIMITED PARTNERSHIP AGREEMENT ("Partnership Agreement") entered into
as of the 22nd day of May, 1986 and amended as of the 7th day of August,
1986, by and among Freeman Diversified Properties, Inc., a Tennessee
corporation ("Managing General Partner"), as a General Partner, James T. Gunn
("Individual General Partner"), as a General Partner, and Susan L. Freeman as
the original Limited Partner, all of whom do hereby form a limited
partnership pursuant to the Delaware Revised Uniform United Partnership Act,
upon the following terms and conditions:
1. NAME AND PLACE OF BUSINESS
The name of the Partnership is Freeman Growth Plus, L.P.; its registered
office in Delaware is Wilmington Trust Center, 1100 North Market Street,
Suite 780, Wilmington, Delaware 19801 and its registered agent for service of
process at that address is Freeman Properties, Inc. The Partnership's
principal place of business is 2517 Lebanon Road, Nashville, Tennessee 37214,
or such other place or places as the Managing General Partner may hereafter
determine.
2. DEFINITIONS AND GLOSSARY OF TERMS
The following terms used in this Partnership Agreement shall (unless
otherwise expressly provided herein or unless the context otherwise requires)
have the following respective meanings:
"Acquisition Expenses" shall mean expenses including but not limited to
legal fees and expenses, travel and communications expenses, costs of
appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, title insurance and miscellaneous expenses
related to selection and acquisition of properties, whether or not acquired.
"Acquisition Fees" shall mean the total of all fees and commissions paid
by any person to any person, including any Sponsor, in connection with the
purchase or development of any Property by the Partnership, whether
designated as real estate commission, selection fee, nonrecurring management
fee, nonrecurring start-up fee, development fee (which is defined as a fee
for the packaging of a Property, including negotiating and approving plans
and undertaking to assist in obtaining zoning and necessary variances and
necessary financing for the specific Property, either initially or at a later
date), or any fee of a similar nature, however designated, but not any loan
fee ("points"). Acquisition Fees shall not include Acquisition Expenses.
"Adjusted Cash From Operations" shall mean the excess of cash revenues
from the operation of Property plus amounts released from cash reserves
pursuant to Paragraph 3.2 during any period over cash disbursements during
such period, without deduction for depreciation and amortization of
intangibles such as organization, underwriting and debt placement costs, but
after a reasonable allowance for cash reserves for repairs, replacements,
contingencies and anticipated obligations (including debt service), as
determined by the Managing General Partner.
"Adjusted Invested Capital" of a Limited Partner shall be the Original
Invested Capital paid for or attributable to his Units reduced by the total
of cash distributed to him and prior holders of his Units from Cash From
Sales or Refinancings and from the property reserve account (to the extent
such cash came from Net Proceeds).
"Affiliate" shall mean: (i) any officer, director, or general partner of a
General Partner; (ii) any person, corporation, partnership, trust or other
entity controlling, controlled by or under common control with a General
Partner or any person described in (i) above; and (iii) any officer,
director, or general partner of any person described in (ii) above. For
purposes of this definition the term "control" shall also mean the control or
ownership of 10% or more of the outstanding voting securities of the entity
referred to.
A-2
<PAGE>
"Assignee of Record" shall mean a person who has acquired a beneficial
interest in five or more Units (two or more Units for an Individual
Retirement Account or Keogh plan), whose ownership of such Units has been
recorded on the books of the Partnership and which ownership is the subject
of a written instrument of assignment, the effective date of which assignment
has passed in accordance with the provisions of Paragraph 12.2. An Assignee
of Record shall have none of the rights of a Limited Partner, except the
right to receive certain allocations of Net Income, Net Loss and
Distributions in accordance with the terms of this Partnership Agreement.
"Cash From Sales or Refinancings" shall mean (a) the net cash received by
the Partnership from the Sale or Disposition of any Property after retirement
of applicable mortgage debt and all expenses related to the transaction,
together with the principal amount of, and interest received on, any notes
taken back by the Partnership upon the sale of a Property or (b) the net
proceeds of a refinancing of a Property, provided that the Managing General
Partner may first use any such proceeds to repay a mortgage on another
Property or to increase the amount of working capital reserves. Cash From
Sales or Refinancings may be reduced by the amount of any accrued but unpaid
Partnership Management Fee.
"Certificate of Limited Partnership" shall mean the original certificate
of limited partnership filed by the Partnership in the Office of the
Secretary of State of Delaware, as thereafter amended.
"Closing Date" shall mean such date designated by the Managing General
Partner, but not later than twelve months from the date of the Prospectus,
unless extended by the Managing General Partner, with the approvals, if
required, of the Securities and Exchange Commission and all appropriate
regulatory authorities, including the securities commissions of all states in
which the Units will be offered after such extension, to a later date.
"Initial Closing Date" shall mean the date on which subscribers for Units
offered pursuant to the Prospectus are first admitted to the Partnership as
Limited Partners. "Additional Closing Date" shall mean any date other than
the Initial Closing Date on which the subscribers for Units offered pursuant
to the Prospectus are admitted to the Partnership as Limited Partners. "Final
Closing Date" shall mean the last date on which subscribers for Units offered
pursuant to the Prospectus are admitted to the Partnership as Limited
Partners.
"Code" shall mean the Internal Revenue Code of 1954, as amended, or
corresponding provisions of subsequent revenue laws.
"Distributable Cash From Operations" shall refer to Adjusted Cash From
Operations less the Partnership Management Fee and less any payments made to
the Repurchase Account pursuant to Paragraph 22.
"Distributions" shall refer to any cash or other property distributed to
Partners arising from their interests in the Partnership, but shall not
include any payments to the General Partners under the provisions of
Paragraph 9 or Paragraph 10.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Financing" shall mean the indebtedness encumbering Properties, the
principal amount of which is scheduled to be paid over a period of not less
than 48 months, and not more than 50 percent of the principal amount of which
is scheduled to be paid during the first 24 months. Nothing in this
definition shall be construed as prohibiting a bona fide pre-payment provision
in the financing agreement.
"Front-End Fees" shall refer to fees and expenses paid by any person for
any services rendered in connection with and during the Partnership's
organization and acquisition stages including Organization and Offering
Expenses, Acquisition Fees, Acquisition Expenses, the Refinancing Fee and any
other similar fees or expenses.
"General Partners" shall refer to Freeman Diversified Properties, Inc., a
Tennessee corporation, and James T. Gunn, a Tennessee resident, or to any
other person, corporation or other entity who becomes a General Partner.
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"Gross Proceeds" shall mean the aggregate total of the Original Invested
Capital of the original and all of the additional Limited Partners.
"Gross Revenues" shall mean all rent and other revenues from the operation
of real property owned by the Partnership, other than from security deposits
paid by lessees thereof, together with any interest earned on funds held by
the Partnership. The term "Gross Revenues" shall not include revenues from
Sales or Dispositions of Partnership Properties.
"Individual General Partner" shall refer to James T. Gunn or to any other
person who succeeds him in such capacity.
"Investment in Properties" shall refer to the amount of Gross Proceeds
actually paid or allocated to the purchase, development, construction or
improvement of Properties acquired by the Partnership (including working
capital reserves allocable thereto in an amount of up to five percent of the
Gross Proceeds, and other cash payments such as interest and taxes, but
excluding Front-End Fees).
"Limited Partners" shall refer to the original Limited Partner, and to any
other persons who are admitted to the Partnership as additional or
substituted Limited Partners, and includes the General Partners with respect
to any additional Units purchased by any of the General Partners. Reference
to a "Limited Partner" shall refer to any one of them.
"Majority Vote" shall mean the vote of Limited Partners who own more than
50% of the Total Outstanding Units.
"Managing General Partner" shall refer to Freeman Diversified Properties,
Inc., or to any other person, corporation or other entity which succeeds it
in such capacity.
"Net Income" or "Net Loss" shall mean the taxable income or losses of the
Partnership, as determined for federal income tax purposes.
"Net Proceeds" shall mean the total Gross Proceeds less Organization and
Offering Expenses paid by the Partnership.
"Nonaccountable Expense Allowance" shall refer to the nonaccountable
expense allowance payable by the Partnership to the Managing General Partner
in an amount which, when added to all other Organization and Offering
Expenses (other than underwriting commissions), equals 3.5% of the Gross
Proceeds.
"Organization and Offering Expenses" shall refer to those expenses
incurred in connection with the formation of the Partnership and with
preparing the Partnership for registration and subsequently offering and
distributing Units to the public, including underwriting commissions and
expenses, legal, accounting and escrow holder fees and expenses, printing
costs, filing and qualification fees, postage, telegrams, the Nonaccountable
Expense Allowance and all advertising expenses in connection with the
distribution of such Units.
"Original Invested Capital" shall mean $1,000 per Unit, which amount shall
be attributed to each Unit in the hands of a subsequent holder.
"Partners" shall refer collectively to the General Partners and to the
Limited Partners, and reference to a "Partner" shall be to any one of the
Partners.
"Partnership" shall refer to the limited partnership created under this
Partnership Agreement.
"Partnership Management Fee" shall refer to the annual fee equal to a
percentage of Adjusted Cash From Operations described in Paragraph 9.6, the
payment of which is limited as provided for therein.
"Properties" shall refer to all real properties or any interest therein
acquired directly or indirectly by the Partnership. Reference to "Property"
shall be to any one of them.
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"Property Management Fee" shall refer to the fee for property management
services, which may be paid to Affiliates of the Managing General Partner
monthly from Gross Revenues, as described in and limited by Paragraph 9.5.
"Prospectus" shall mean the final prospectus relating to the registration
of Units as filed with the Securities and Exchange Commission pursuant to
Rule 424(b) under the Securities Act of 1933, as such prospectus may
subsequently be supplemented or amended.
"Qualified Plans" shall mean qualified pension, profit-sharing and other
employee retirement benefit plans and trusts, H.R.10 ("Keogh") plans, bank
commingled trust funds for such plans and trusts, and individual retirement
accounts ("IRAs").
"Repurchase Account" shall mean an account funded with five percent of
Adjusted Cash From Operations, which is used to repurchase Units, as
described in Paragraph 22.
"Sale or Disposition" shall mean any Partnership transaction (other than
the receipt of subscriptions for Units) not in the ordinary course of its
business, including, without limitation, sales (including foreclosure sales),
exchanges or other dispositions of real or personal property, condemnations,
recovery of damage awards and insurance proceeds (other than business or
rental interruption insurance proceeds). The disposition of a Partnership
Property prior to three years from the date of the Prospectus by transfer
back to the seller or an affiliate thereof, whether in the form of a
rescission, exchange or resale or pursuant to an option or other similar
arrangement entered into at or prior to the time of taking title to the
Property shall not, if the proceeds from such transfer back are reinvested in
other Property, constitute a Sale or Disposition and shall not result in Cash
From Sales or Refinancings.
"Sponsor" shall mean any person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or who will manage or
participate in the management of the Partnership and any Affiliate of such
person, but does not include (i) any person whose only relationship with the
Partnership or the General Partners is that of an independent property
manager whose only compensation from the Partnership is as such, and (ii)
wholly independent third parties such as attorneys, accountants and
underwriters whose only compensation from the Partnership is for professional
services rendered in connection with the offering of Units or the operations
of the Partnership.
"Subordinated Incentive Fee" shall mean the fee payable to the Managing
General Partner under the provisions of Paragraph 9.9.
"Subordinated Real Estate Commission" shall mean the real estate
commission payable to any Affiliate of the Managing General Partner as a
consequence of the sale of Partnership Property, payment of which is
subordinated to the rights of the Limited Partners to receive certain
Distributions, all as described in Paragraph 9.8.
"Substantially All of the Assets" shall mean, unless the context otherwise
dictates, Properties, the original purchase price of which represents 75% of
the original purchase price of those Partnership Properties which are owned
as of the end of the most recently completed fiscal quarter.
"Terminating Sale" shall mean the earlier to occur of (i) the Sale or
Disposition of the Partnership's last three Properties commencing with the
first such sale or (ii) the Sale or Disposition of a Partnership Property
which causes the aggregate acquisition cost of all Partnership Properties
which have been sold or disposed of to exceed 75% of the aggregate original
acquisition cost of all Partnership Properties.
"Total Outstanding Units" shall mean as of a particular date all Units
issued by the Partnership and currently outstanding.
"Unit" shall mean a unit of limited partnership interest representing
Original Invested Capital. A Unit shall entitle the holder thereof to an
interest in the Net Income, Net Loss, and Distributions of the Partnership as
specified in Paragraph 11.
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3. BUSINESS AND RESERVES
3.1 Primary Purpose. The nature of the business to be conducted or
promoted by the Partnership is to invest in, hold and manage existing
residential and commercial real estate and to sell and collect the
receivables derived from such Properties.
3.2 Working Capital Reserves. The Partnership shall initially endeavor to
maintain a cash reserve for major repairs, replacements, capital
improvements, contingencies and accruals required by mortgagees, insurance,
real estate taxes and related items in an amount equal to at least three
percent in the aggregate of the Gross Proceeds which amounts shall comprise
the initial property reserve account. Any cash reserve used as aforesaid need
not be restored. The Managing General Partner may determine that reserves of
the Partnership are in excess of the amount deemed sufficient in connection
with the Partnership's operations and such reserves may be reduced, and the
amount of such reduction for a particular quarter would either (i) be
allocated and distributed in the same manner as Distributable Cash From
Operations, to the extent such reserves are attributable to cash generated
from Partnership operations, or (ii) be distributed as a return of Original
Invested Capital to the Limited Partners, to the extent such reserves are
attributable to Net Proceeds. All applications and distributions of such
reserves shall be deemed attributable to Net Proceeds until such time as such
applications and distributions aggregate an amount equal to three percent of
the Gross Proceeds, or such greater amount of Net Proceeds as is deposited in
such cash reserve.
4. TERM
The Partnership commenced on the 22nd day of May, 1986, and shall continue
until the 31st day of December, 2011, unless previously terminated in
accordance with the provisions of this Partnership Agreement.
5. GENERAL PARTNERS
5.1 Capital Contributions of General Partners. Freeman Diversified
Properties, Inc., as the Managing General Partner, has contributed $967 in
cash to the Partnership, and James T. Gunn, as the Individual General
Partner, has contributed $33 in cash to the Partnership. At all times during
the existence of the Partnership, each General Partner shall have a present
and continuing interest in Net Income, Net Loss and Distributions according
to the provisions of Paragraph 11.
5.2 Capital Accounts. A separate capital account shall be maintained for
each General Partner pursuant to Paragraph 11.3.
6. ORIGINAL AND ADDITIONAL LIMITED PARTNERS
6.1 Original Limited Partner. The original Limited Partner has contributed
the sum of $5,000 to the capital of the Partnership and has received five
Units for such contribution.
6.2 Authorization of Units. The Partnership intends to sell and issue not
less than 1,250 Units, in addition to the five Units previously sold to the
original Limited Partner, nor more than 50,000 Units, and to admit as
additional Limited Partners the persons who contribute cash to the capital of
the Partnership for such Units.
6.3 Subscription Payments. All subscription payments shall be received by
the Partnership in trust, and shall be deposited in an escrow account in any
of the branches of the First American National Bank of Nashville, Nashville,
Tennessee or in any other banking institutions designated by the Managing
General Partner in accordance with Rule 15c2-4 under the Securities Exchange
Act of 1934, as escrow holder for the subscription payments. Upon receipt of
a minimum of $1,250,000 in subscription payments from at least 100
subscribers for Units (exclusive of the $5,000 Original Invested Capital of
the original Limited Partner), the Partnership will admit such subscribers
into the Partnership not later than 15 days after the release from escrow of
the subscribers' funds and any interest earned thereon to the Partnership.
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Within 45 days following the Initial Closing Date, the Partnership shall pay
each such subscriber his pro rata share of any interest earned on such
subscriptions (subject to back-up withholding, if applicable). In the event
such interest is insufficient to provide subscribers who are admitted to the
Partnership on the Initial Closing Date with interest equal to 8%, then the
Managing General Partner will supplement the interest to be distributed to
such subscribers by the amount necessary to produce such return commencing on
the fifth day after the subscription is received by the escrow agent and
terminating on the Initial Closing Date. If the $1,250,000 minimum amount is
not obtained from at least 100 investors within six months from the date of
the Prospectus, all subscription payments will be promptly refunded to the
subscribers together with each subscriber's pro rata share of any interest
actually earned on such subscriptions (subject to back-up withholding, if
applicable). If the $1,250,000 minimum is received from at least 100
investors, interest will be payable to subscribers commencing five days after
each subscriber's subscription payment is received by the escrow agent to the
Initial Closing Date. The Managing General Partner may in its sole discretion
postpone the Initial Closing Date until the earlier of December 15, 1986 or
the receipt and acceptance of subscriptions for 3,000 Units.
6.4 Admission of Limited Partners. Subject to the provisions of Paragraph
6.3, each person who acquires any such additional Units shall become a
Limited Partner in the Partnership at such time as he has: (i) contributed
the sum of $1,000 in cash for each Unit purchased; (ii) executed and filed
with the Partnership a written instrument which sets forth an intention to
become a Limited Partner and requests admission to the Partnership in that
capacity, together with such other instruments as the Managing General
Partner may deem necessary or desirable to effect such admission, including
the written acceptance and adoption by such person of the provisions of this
Partnership Agreement, and the execution, acknowledgment and delivery to the
Managing General Partner of a special power of attorney, the form, style and
content of which are more fully described herein; and (iii) the Managing
General Partner accepts such person as a Limited Partner in the Partnership.
After the initial closing, closings shall be held at least on a monthly
basis. All subscriptions will be accepted or rejected within 30 days of
receipt and, if rejected, funds must be returned to the subscriber within ten
business days following rejection.
6.5 Amendments. After the Initial Closing Date, the Managing General
Partner shall in timely fashion (but not later than 30 days following the
date of acceptance of the additional Limited Partners' subscriptions) amend
this Partnership Agreement and, if required by law, any separate Certificate
of Limited Partnership filed for record to reflect the admission of a person
as an additional Limited Partner.
6.6 Capital Accounts. A separate capital account shall be maintained for
each Limited Partner pursuant to Paragraph 11.3.
7. LIABILITY OF LIMITED PARTNERS
7.1 General Limitation on Liability. No Limited Partner shall be bound by,
or be personally liable for, the expenses, liabilities or obligations of the
Partnership in excess of his Original Invested Capital, and no Limited
Partner shall be required to lend funds to the Partnership, or to make any
further capital contribution after his Original Invested Capital, or to repay
to the Partnership, any partner or any creditor of the Partnership all or any
portion of any negative amount of such Limited Partner's capital account.
7.2 Certain Liabilities of Limited Partners. In accordance with Delaware
law, a limited partner of a partnership may, under certain circumstances, be
required to return to the partnership for the benefit of partnership
creditors, amounts previously distributed to him as a return of capital. If
any court of competent jurisdiction holds that, notwithstanding the
provisions of this Partnership Agreement, any Limited Partner is obligated to
make any such payment, such obligation shall be the obligation of such
Limited Partner and not of the General Partners.
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8. STATUS OF UNITS
Each Unit shall be fully paid and nonassessable, and all Units shall have
equal rights.
9. COMPENSATION TO GENERAL PARTNERS AND THEIR AFFILIATES
9.1 General Policy. The General Partners and their Affiliates will receive
compensation from the Partnership only as specified by the Prospectus and
Partnership Agreement. No services (other than as provided in the Prospectus
or this Partnership Agreement) may be performed by the General Partners or
their Affiliates for the Partnership which are payable by the Partnership
except in extraordinary circumstances. Any such other services must meet the
following criteria: (i) the compensation, price or fee therefor must be
comparable and competitive with the compensation, price or fee of any other
person who is rendering comparable services or selling or leasing comparable
goods which could reasonably be made available to the Partnership and shall
be on competitive terms; (ii) the fees and other terms of the contract shall
be fully disclosed to Limited Partners; (iii) the General Partners or their
Affiliates must be previously engaged in the business of rendering such
services or selling or leasing such goods, independently of the Partnership
and as an ordinary and ongoing business; and (iv) all services for which the
General Partners or their Affiliates are to receive compensation shall be
embodied in a written contract which (a) precisely describes the services to
be rendered and all compensation to be paid, (b) may only be modified by a
Majority Vote of the Limited Partners and (c) contains a clause allowing
termination without penalty on 60 days' notice.
9.2 Underwriting Commissions. Freeman Investments, Inc., an Affiliate of
the Managing General Partner, shall be entitled to receive from the
Partnership, as agent for the investors, underwriting commissions of 7.5% of
the Gross Proceeds (subject to rebate, in whole or in part, to investors
qualifying for volume discounts) from which it will pay to participating
broker-dealers commissions at varying rates.
9.3 Nonaccountable Expense Allowance. The Managing General Partner shall
be entitled to receive a Nonaccountable Expense Allowance in an amount which,
when added to all other Organization and Offering Expenses (other than
underwriting commissions), equals 3.5% of the Gross Proceeds. In no event
shall the total of the Nonaccountable Expense Allowance and all other
Organization and Offering Expenses (excluding underwriting commissions)
exceed 3.5% of the Gross Proceeds.
9.4 Acquisition Fees. The Managing General Partner or its Affiliates shall
receive an Acquisition Fee from the Partnership equal to 3.5% of the Gross
Proceeds, which fee may be paid by the Partnership or by the sellers of the
Partnership Properties acquired. Acquisition Fees payable by the Partnership
to the Managing General Partner or its Affiliates shall be due and payable on
each Closing Date. To the extent that any unutilized Net Proceeds are
returned to Limited Partners pursuant to Paragraph 11.7, the Managing General
Partner or its Affiliates will return a proportionate share of such
Acquisition Fees to the Partnership. In no event shall the aggregate
Acquisition Fees paid by the Partnership exceed 3.5% of Gross Proceeds.
9.5 Property Management Fee. An Affiliate of the Managing General Partner
shall be entitled to a Property Management Fee for services in providing
continuing professional property management or supervision of professional
property managers of the Partnership Properties. Such fees (including all
rent-up, leasing, and re-leasing fees and bonuses, and leasing-related
services paid to any person) shall be paid monthly and shall be equal to 5%
of the annual Gross Revenues from such property, in the case of residential
property, 6% of the Gross Revenues where the Affiliate performs leasing,
re-leasing and leasing-related services in the case of industrial and
commercial property, or 3% of the Gross Revenues where the Affiliate does not
perform such services. In the case of industrial and commercial property
which is net leased on a long-term basis (i.e., ten or more years), the
maximum fee shall be 1% of the Gross Revenues (except for a one-time initial
leasing fee of 3% of the Gross Revenues on each such lease payable over the
first five full years of the original term of the lease). In addition, an
Affiliate of the Managing General Partner shall be entitled to a separate
competitive fee, which will not exceed 6% of the aggregate rental payments
due under the applicable leases for services in the initial rent-up or
lease-up
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of any Property which is newly constructed if such fee was not included in
the purchase price of the Property and if such services were actually
rendered. Notwithstanding the foregoing, the fees payable hereunder shall not
exceed the competitive rate charged by others rendering similar services in
the same geographical area. The Property Management Fee shall be paid on a
monthly basis as compensation for the services of an Affiliate of the
Managing General Partner in overall management of the Partnership Properties,
including, but not limited to: (i) supervision of the maintenance, repair,
remodeling and refurbishing of all Partnership Properties; (ii) preparation
of rental schedules and recommendations with respect to changes thereto;
(iii) employment of on-site property managers together with the establishment
of procedures and preparation of operational manuals regarding the management
of Partnership Properties; (iv) preparation of rental surveys; (v) analysis
of historical performance and variation analyses and preparation and review
of projected performance and variation analyses; (vi) analysis of leases,
management agreements and maintenance agreements; (vii) analysis of
replacement reserves and working capital and recommendations with respect to
changes thereto; (viii) analysis of regional economic surveys; (ix)
preparation and monitoring of budgets and cash flow projections for each
project over the term of the Partnership; (x) monitoring of working capital
levels; (xi) periodic physical inspections and market surveys; (xii)
determination and implementation of capital improvements; (xiii) continuing
review to recommend to the Managing General Partner when Properties should be
sold and acceptable terms of sale; and (xiv) assistance in any necessary
litigation. Property Management Fees payable to Affiliates and non-Affiliates
of the General Partners shall in no event exceed the applicable percentage of
the monthly Gross Revenues of the partnership's properties as set forth
above. To the extent that any portion of the Property Management Fee is paid
to any non-Affiliate of the General Partners or any fee is paid for Property
bookkeeping services, the Property Management Fee which otherwise would have
been paid to Affiliates of the Managing General Partner shall be reduced by
the amount so paid to non-Affiliates, so that the aggregate annual Property
Management Fees shall not exceed the limitation set forth above.
9.6 Subordinated Partnership Management Fee. As compensation for services
rendered in managing the affairs of the Partnership, the Managing General
Partner shall be entitled to receive a Partnership Management Fee which shall
be equal to 2% of Adjusted Cash From Operations. However, payment of this fee
shall be deferred each year until the Partnership has distributed to Limited
Partners Distributable Cash From Operations for such year which is equal to
10% of their Adjusted Invested Capital, computed annually, on a noncumulative
basis, or until the Partnership generates Cash From Sales or Refinancings at
which time all previously deferred amounts of the Partnership Management Fee
will be paid to the Managing General Partner in full.
9.7 Refinancing Fee. As compensation for services rendered in arranging
for the refinancing of any Properties, the Partnership may pay to the
Managing General Partner or its Affiliates a fee not to exceed 1/2 % of the
proceeds from such refinancing, less all currently outstanding indebtedness,
but only if the terms of such refinancing are, in the aggregate, more
favorable to the Partnership than the terms of the original financing. In no
event will the Refinancing Fee exceed 90% of the amount which the Partnership
would be required to pay to independent parties for comparable services.
9.8 Subordinated Real Estate Commission. The Partnership may pay real
estate brokerage fees which are reasonable, customary and competitive, taking
into consideration the size, type and location of the Property ("Competitive
Commission"), which shall not in the aggregate exceed 6% of the gross sales
price of the Property; however, as to any Affiliate of the General Partners
such fees shall be paid only if such Affiliate provides a substantial amount
of services in the sales effort, in which case such fees shall not exceed the
lesser of (i) a percentage of the gross sales price of a Property equal to
one-half of the Competitive Commission, or (ii) up to 3% of the gross sales
price of a Property. Such real estate brokerage fee shall be payable upon the
completion of the sale of each Property; provided, however, the payment
thereof to any Affiliate of the General Partners shall be made only after the
Partnership has distributed to Limited Partners an aggregate amount in cash
which is equal to the Distributions to the Limited Partners required by
Paragraph 11.6.1 and has paid the Subordinated Incentive Fee to Affiliates of
the Managing General Partner. Except as set forth in the first sentence of
this Paragraph, there is neither
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limitation nor subordination as to any real estate commission paid only to
non-Affiliates of the General Partners.
9.9 Subordinated Incentive Fee. As compensation for the services rendered
in evaluating and selecting Properties for the Partnership, making decisions
as to the nature and terms of the acquisition and disposition of such
Properties, selecting, retaining and supervising consultants, contractors,
architects, engineers, lenders, borrowers, and others, the Managing General
Partner shall be entitled to receive the Subordinated Incentive Fee. The
Subordinated Incentive Fee shall be an amount equal to 12% of Cash From Sales
or Refinancings remaining after the Partnership has made the priority
Distributions to the Limited Partners required by Paragraph 11.6.1 and shall
be paid when Cash From Sales or Refinancings is distributed.
9.10 Mortgage Servicing Fee. As compensation for servicing any mortgages
which the Partnership takes back upon the sale of a Property, an Affiliate of
the Managing General Partner shall be entitled to receive a Mortgage
Servicing Fee which shall be at a rate not in excess of the lesser of the
cost of such services or 90% of the rates prevailing for comparable services
by unaffiliated third parties in the same geographical location, and in no
event exceeding one fourth of one percent per annum of the amount advanced by
the Partnership and outstanding from time to time, payable as and when
payments are due under the loan.
9.11 Fees on Removal. Should a General Partner be removed as a General
Partner of the Partnership according to the provisions of Paragraph 17, any
portion of the Acquisition Fee, Property Management Fee, Partnership
Management Fee, Subordinated Real Estate Commission, Subordinated Incentive
Fee, Mortgage Servicing Fee, or any other fee, commission or interest which
is then accrued, but not yet paid, shall be paid by the Partnership to such
General Partner or its Affiliate, as the case may be, at the same time and
manner as such fee, commission or interest would have been paid if such
General Partner had not been removed; provided, however, that the payment of
any such fees, commissions, interest and the General Partners' interest in
Cash From Sales or Refinancings shall be subject to the controlling
provisions of Paragraph 17.3.
10. PARTNERSHIP EXPENSES
10.1 Reimbursement of Expenses. All Partnership expenses shall be billed
directly to and paid by the Partnership except that the General Partners and
their Affiliates may be reimbursed for any of the following Partnership
expenses which they pay directly:
10.1.1 Organization and Offering Expenses, subject to the provisions
of Paragraph 10.2.3;
10.1.2 the actual cost to the General Partners or their Affiliates of
goods and materials used for or by the Partnership and obtained from
unaffiliated parties; and
10.1.3 administrative services necessary to the prudent operation of
the Partnership, provided that reimbursement for administrative services
will be at the lesser of the actual cost of such services or 90% of the
amount which the Partnership would be required to pay to independent
parties for comparable services.
10.2 Limitations on Reimbursement. The General Partners and their
Affiliates will not be reimbursed by the Partnership for the following
expenses:
10.2.1 services for which the General Partners or their Affiliates are
entitled to compensation in the form of a separate fee pursuant to
Paragraph 9 hereof;
10.2.2 rent or depreciation, utilities or other administrative items;
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10.2.3 Organization and Offering Expenses (other than underwriting
commissions) in excess of 3.5% of the Gross Proceeds, payment of any such
excess to be the obligation of the Managing General Partner, which hereby
agrees to pay the same; or
10.2.4 salaries, fringe benefits, travel expenses or other
administrative items incurred by or allocated to any controlling person of
the General Partners or Affiliates. For purposes of this subparagraph,
"controlling person" shall mean any person, regardless of title, who
performs executive or senior management functions for the Managing General
Partner, directors of the Managing General Partner, or those holding 5% or
more equity interest in the General Partners or Affiliates, or persons
having the power to direct or cause the direction of the General Partners
or Affiliates through ownership of voting securities, by contract or
otherwise. It is not intended that every person who carries a title such
as vice president, senior vice president, secretary or treasurer be
considered a "controlling person."
10.3 Partnership Obligations. The Partnership shall pay all expenses of
the Partnership, which expenses shall be billed directly to the Partnership,
to the extent deemed advisable by the General Partners in the exercise of
their fiduciary duty to the Partnership, and which may include, but are not
limited to:
10.3.1 all costs of personnel employed by the Partnership and involved
in the business of the Partnership, including persons who may also be
employees of the Managing General Partner;
10.3.2 all costs of borrowed money, taxes and assessments on
Partnership Properties and other taxes applicable to the Partnership;
10.3.3 legal, auditing, accounting, brokerage and other fees;
10.3.4 printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration and
recording of documents evidencing ownership of an interest in the
Partnership or in connection with the business of the Partnership;
10.3.5 fees and expenses paid to independent contractors, appraisers,
mortgage bankers, brokers and servicers, leasing agents, consultants,
managers, real estate brokers, insurance brokers and other agents;
10.3.6 expenses in connection with the acquisition, disposition,
replacement, alteration, repair, remodeling, refurbishment, leasing,
initial financing, refinancing and operation of Properties (including the
costs and expenses of foreclosures, insurance premiums, real estate
brokerage and leasing commissions and of maintenance of such Properties),
including Acquisition Expenses;
10.3.7 the cost of insurance as required in connection with the
business of the Partnership;
10.3.8 expenses of organizing, revising, amending, converting,
modifying or terminating the Partnership;
10.3.9 the costs of preparation and dissemination of the informational
material and documentation relating to potential Sales or Dispositions of
Partnership Property;
10.3.10 the costs incurred in connection with any litigation in which
the Partnership is involved, as well as in the examination, investigation
or other proceedings conducted by any regulatory agency of the
Partnership, including legal and accounting fees incurred in connection
therewith;
10.3.11 computer services, including the cost of any computer
equipment or services used for or by the Partnership and establishment and
maintenance of investment records and processing of accounting records
related to the Partnership;
10.3.12 the cost of any accounting, statistical or bookkeeping
equipment necessary for the maintenance of the books and records of the
Partnership; and
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10.3.13 supervision and expenses of professionals retained by the
Partnership in connection with any of the foregoing, including, without
limitation, attorneys, accountants and appraisers.
To the extent that the General Partners and their Affiliates pay any
expenses of the Partnership directly, the General Partners and their
Affiliates may be reimbursed by the Partnership for such expenses.
11. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS
11.1 Apportionment.
11.1.1(a) Apportionment of Net Income, Net Loss and Distributions During
the Offering Period. During the period beginning on the Initial Closing Date
and ending on the last day of the fiscal quarter in which the Final Closing
Date occurs, that portion of Net Income, Net Loss and Distributions of the
Partnership allocated to Limited Partners as a group with respect to any
month shall be apportioned among the Limited Partners in the ratio in which
the number of Units owned by each of them on the first day of such calendar
month bears to the total number of Units owned by all of them as of that
date, without regard to capital accounts or to the number of days during such
calendar month in which a person was a Limited Partner. Limited Partners
acquiring Units from the Partnership who are recognized as the owners of such
Units on or before the fifteenth day of each month shall be treated as the
owners of such Units as of the first day of such month; Limited Partners
acquiring Units from the Partnership who are recognized as the owners of such
Units after the fifteenth day of each month shall be treated as the owners of
such Units on the first day of the following month. Partnership Net Income,
Net Loss, and Distributions allocated to Limited Partners may, at the
discretion of the Managing General Partner, be apportioned among the Limited
Partners on a semi-monthly basis (in which case Limited Partners acquiring
Units who are recognized as the owners of such Units after the fifteenth day
of each month shall be treated as the owners of such Units on the sixteenth
day of such month).
(b) Apportionment of Net Income, Net Loss and Distributions after the
Offering Period. After the fiscal quarter in which the Final Closing Date
occurs, that portion of Net Income, Net Loss and Distributions of the
Partnership allocated to Limited Partners shall be apportioned among the
Limited Partners in the ratio in which the number of Units owned by each of
them on the first day of each fiscal quarter bears to the total number of
Units owned by all of them as of that date, without regard to capital
accounts or the number of days during such quarter in which a person was a
Limited Partner.
(c) Apportionment to Assignees. In the case of a proposed assignment of
Units, the assignment shall be effective, and the assignee shall be deemed to
be the owner of such Units, from and after the "effective date" of the
assignment of such Units (as defined in Paragraph 12.2), with the assignee
being entitled to allocations of Net Income, Net Loss and Distributions only
with respect to the period commencing with the effective date of the
assignment.
(d) Apportionment of General Partners' Interests. That portion of Net
Income and Net Loss allocated to the General Partners shall be apportioned
between the General Partners in such proportion as the General Partners may
agree.
11.1.2 Allocations Causing Negative Capital Accounts. Notwithstanding
Paragraph 11.1.1, if the capital accounts of all Limited Partners are not
equal and if any allocation of Net Loss to a Limited Partner would reduce
such Limited Partner's capital account balance below zero or would increase
the negative balance in such Limited Partner's capital account at a time when
another Limited Partner has a positive capital account balance, to the extent
such allocation would cause the sum of the negative capital account balances
of all Partners having negative capital accounts (determined after taking
into account all prior Distributions and all prior allocations of Net Income,
Net Loss, and the basis of property qualifying for any tax credit) to exceed
the Partnership's "minimum gain" (as hereinafter defined), as determined at
the close of the period in respect of which the Net Loss is to be allocated,
such excess shall instead be allocated pro rata to Limited Partners having
positive capital account balances in proportion to their respective positive
capital account balances until such capital account balances are reduced to
zero; provided, however, that in no event shall there be a reallocation of
any item of income, gain, loss or deduction allocated among the Partners
pursuant to this Agreement for prior years. The term "minimum
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gain" shall have the meaning ascribed to such term under Treasury
Regulations as proposed, reproposed or adopted (as the case may be) under
Code Section 704 (currently, the excess of the outstanding principal mortgage
balance over the adjusted basis of a Property securing such mortgage).
Notwithstanding any other provision of this Article 11, if any allocation
of Net Loss would cause the negative capital account balances of all Partners
having negative capital accounts (determined after taking into account all
Distributions and all tax allocations theretofore made) to exceed the
Partnership's minimum gain determined at the close of the period in respect
of which such Net Loss is to be allocated, then to the extent that any such
allocation would cause the capital account balance of any Limited Partner to
be negative (or would increase the negative balance of a Limited Partner's
capital account) at a time when no other Limited Partner has a positive
capital account balance, such Net Loss shall instead be allocated to the
General Partners.
For purposes of determining a Limited Partner's capital account balance
under this Paragraph, Distributions made prior to or contemporaneous with any
allocation to a Limited Partner shall be reflected in such Partner's capital
account prior to making such allocation to such Partner.
For purposes of this Paragraph, a Partner's capital account shall be
reduced for:
(x) allocations of Net Loss (or items thereof) which, as of the end of
each Partnership year, are reasonably expected to be allocated to such
Partner pursuant to Code Section 704(e)(2). Code Section 706(d) and Treas.
Reg. Section 1.751-1(b)(2)(ii), and
(y) Distributions that, as of the end of such year, reasonably are
expected to be made to such Partner to the extent they exceed offsetting
increases to such Partner's capital account that reasonably are expected to
occur during (or prior to) the Partnership's taxable years in which such
Distributions reasonably are expected to be made.
For purposes of determining the amount of expected Distributions and
expected capital account increases described in (y) above: (A) the rule set
forth in Treas. Reg. Section 1.704-1(b)(2)(iii)(c) concerning the presumed
value of Partnership property shall apply, and (B) gross income or Net Income
allocated to a Partner pursuant to Paragraph 11.4.3 hereof shall be taken
into account. For purposes of this Paragraph and of Paragraph 11.4.3, a
Partner's capital account shall be increased to the extent that such Partner
is obligated to fund deficits in such Partner's capital account upon
liquidation of the Partnership (or is treated as obligated to so restore such
deficits pursuant to Treas. Reg. Section 1.704-1(b)(2)(ii)(c)).
11.2 Allocations of Certain Items.
11.2.1 Allocation of Net Income and Net Loss and Tax-Exempt Items. Except
as otherwise provided in Paragraphs 11.1.2 and 11.2.3, Net Income, Net Loss,
all items of income exempt from federal income tax and any expenditures of
the Partnership which are neither deductible nor properly chargeable to its
capital account under Code Section 705(a)(2)(B) or which are treated as such
expenditures under Treas. Reg. Section 1.704-1(b)(2)(iv)(i) shall be
allocated 3% to the General Partners and 97% to the Limited Partners.
11.2.2 Allocation of Book Items. In cases where Partnership Property is,
under Treas. Reg. Section 1.704- 1(b)(2)(iv), properly reflected in the
capital accounts of the Partners at a fair market value that differs from the
adjusted basis of such property (such difference is hereinafter referred to
as the "Book Disparity"), then depreciation, amortization and gain or loss as
computed for book purposes with respect to such property ("Book
Depreciation," "Book Amortization," "Book Gain" and "Book Loss,"
respectively) will be greater or less than the depreciation, amortization or
gain or loss as computed for tax purposes. The Managing General Partner shall
adopt, pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv)(g), a reasonable
method of computing Book Depreciation and Book Amortization. Such Book
Depreciation and Book Amortization shall be allocated among the Partners and
reflected in Partners' capital accounts under Paragraph 11.3(c) hereof, in a
manner so as to eliminate, to the extent possible, the Book Disparity.
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11.2.3 Mandatory Allocations. Any allocation of Net Income and Net Loss
(or item thereof) for tax purposes which is required to be allocated among
the Partners to take into account the disparity between the fair market value
of a Partnership asset and its adjusted basis (e.g., allocations under Code
Section 704(c) for contributed property) shall be allocated among the
Partners in accordance with the requirements of the Code and the regulations
promulgated thereunder.
11.3 Capital Accounts. (a) A separate capital account shall be maintained
for each Partner. Each Partner's capital account shall be increased by (1)
the amount of money contributed by such Partner to the capital of the
Partnership, which shall be deemed $925 per Unit; (2) such Partner's share of
Partnership gross income or Net Income and any income or gain that is exempt
from federal income taxation; and (3) such Partner's share of the increase in
the basis of the Partnership's property, if any, arising out of the recapture
of the investment tax credit. Each Partner's capital account shall be
decreased by (i) the amount of money distributed to such Partner by the
Partnership; (ii) such Partner's share of Net Loss for tax purposes; (iii)
such Partner's share of the decrease in basis of the Partnership's property
under Code Section 48(q) arising from the allowance of the investment tax
credit; and (iv) such Partner's share of expenditures of the Partnership
which are neither deductible nor properly chargeable to capital accounts
under Code Section 705(a)(2)(B) or are treated as such expenditures under
Treas. Reg. Section 1.704- 1(b)(2)(iv)(i).
(b) A Partner who has more than one interest in the Partnership shall have
a single capital account that reflects all such interests, regardless of the
class of interests owned by such Partner (e.g., general or limited) and
regardless of the time or manner in which such interests were acquired.
(c) In the event that property (other than cash) is contributed (or deemed
contributed pursuant to the provisions of Code Section 708 or pursuant to
Paragraph 11.4.1 hereof) by a Partner to the Partnership, the computation of
capital accounts, as set forth in this Paragraph, shall be adjusted as
follows:
(i) the contributing Partner's capital account shall be increased by
the fair value of the property contributed to the Partnership by such
Partner (net of liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under Code Section
752); and
(ii) as required by Treas. Reg. Sections 1.704-1(b)(2)(iv)(g)
and 1.704-1(b)(4)(i), if any Partner's capital account reflects a fair
market value of property which differs from such property's adjusted basis
(either because property was contributed by such Partner or because a
capital contribution of cash was made by another Partner), each Partner's
capital account shall be adjusted to take account of the amount of Book
Gain, Book Loss (other than Book Loss attributable to expenditures of the
Partnership described in Paragraph 11.3(a)(iv)), Book Depreciation and
Book Amortization allocated to such Partner pursuant to Paragraph 11.2.2
hereof and shall not take into account the Net Income and Net Loss for tax
purposes allocated to such Partner pursuant to this Article 11.
(d) In the event that property is distributed (or deemed distributed
pursuant to the provisions of Code Section 708 or pursuant to Paragraph
11.4.1 hereof) by the Partnership to a Partner, the following special rules
shall apply:
(i) the capital accounts of the Partners first shall be adjusted (as
provided in Treas. Reg. Section 1.704-1(b)(2)(iv)(e)) to reflect the
manner in which the unrealized income, gain, loss and deduction inherent
in such property (that has not already been reflected in the Partners'
capital account) would be allocated to the Partners if there were a
taxable disposition of such property for its fair market value on the date
of distribution; and
(ii) the capital account of the Partner who is receiving the
distribution of property from the Partnership shall be charged with the
fair market value of the property at the time of distribution (net of
liabilities secured by such property that such Partner is considered to
assume or take subject to under Code Section 752).
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(e) The foregoing provisions are intended to satisfy the capital account
maintenance requirements of Treas. Reg. Section 1.704-1(b)(2)(iv) and such
provisions shall be modified to the extent required by such Regulation or any
successor provision thereto.
11.4 Capital Account Adjustments and Income Characterization.
11.4.1 Capital Account Adjustments. In the event that the Partnership
acquires any Properties prior to any date as of which subscribers are
admitted to the Partnership as Limited Partners, an adjustment to the capital
account balances of all Partners theretofore admitted to the Partnership
shall be made on the Final Closing Date, as permitted by Treas. Reg. Section
1.704-1(b)(2)(iv)(f), as follows: to the extent that an investor's capital
account per Unit (determined prior to reduction for the Partner's share of
expenditures of the Partnership which are neither deductible nor properly
chargeable to capital account or which are treated as such expenditures under
Treas. Reg. Section 1.704-1(b)(2)(iv)(i)) (net of any liabilities secured by
any such Property) attributable to a Unit differs from $925 (a "Contribution
Variation") as of the Final Closing Date, such difference shall be considered
a Book Disparity (within the meaning of Paragraph 11.2.2). The capital
account balances of the Partners admitted to the Partnership prior to the
Final Closing Date shall be increased or decreased in the amount of the
Contribution Variation so that the capital account balances of such
previously admitted Partners will equal $925 per Unit at the Final Closing
Date (determined after reduction for the Partner's share of expenditures of
the Partnership which are neither deductible nor properly chargeable to
capital account or which are treated as such expenditures under Treas. Reg.
Section 1.704-1(b)(2)(iv)(i)). The capital account adjustment provided by
this Paragraph 11.4.1 is intended to reflect the value per Unit of
Partnership Property, upon the contribution of money to the Partnership.
11.4.2 Income Characterization. The portion of the Net Income from a Sale
or Disposition of a Property allocated pursuant to Paragraph 11.2.1 which is
treated as ordinary income attributable to the recapture of depreciation
shall to the extent possible be allocated among the Partners in the
proportion which (i) the amount of depreciation previously allocated to each
Partner relating to the Property which is the subject of the Sale or
Disposition bears to (ii) the total of such depreciation allocated to all
Partners. This Paragraph 11.4.2 shall not alter the amount of allocations
among the Partners pursuant to Paragraph 11.2.1, but merely the character of
gain so allocated. For purposes of determining the amount of depreciation
previously allocated to a Limited Partner, the depreciation previously
allocated to any prior owner of such Limited Partner's Units shall be deemed
to have been allocated to such Limited Partner.
11.4.3 Capital Account Deficiency and Qualified Income Offset. This
Paragraph 11.4.3 shall apply only if at the close of any Partnership taxable
year (a) the aggregate negative capital account balances of all Partners
having negative capital account balances (whether caused by distributions or
by allocations of depreciation, Net Loss, Book Depreciation, Book
Amortization, Book Loss or items thereof) ("Negative Balances") exceed (b)
minimum gain, if any, as defined in Paragraph 11.1.2 (the excess of clause
(a) over clause (b) hereinafter is referred to as "Capital Account
Deficiency"). Notwithstanding the provisions of Paragraph 11.2.1 hereof, an
amount of Net Income arising from a Sale or Disposition of a Partnership
Property equal to the Capital Account Deficiency shall first be allocated to
each Partner having a Negative Balance in the proportion in which such
Partner's Negative Balance bears to the aggregate Negative Balances of all
Partners ("Negative Balance Ratio"). In the event that the foregoing
allocation would be insufficient to eliminate the Capital Account Deficiency,
an amount of gross income (as defined in Section 61 of the Code) of the
Partnership necessary to eliminate the Capital Account Deficiency shall be
allocated to each Partner with a Negative Balance in proportion to the
Partner's Negative Balance Ratio. Any allocation under this Paragraph 11.4.3
shall, to the extent possible, be made at a time no later than the time at
which the Capital Account Deficiency arises: provided, however, that in no
event shall there be a reallocation of any item of income, gain, loss, or
deduction allocated among the Partners for prior years pursuant to this
Agreement.
11.5 Distribution of Distributable Cash From Operations. Distributable
Cash From Operations, if any, shall be apportioned monthly during the
offering period and quarterly thereafter and distributed
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semi-annually, commencing, if available, 45 to 60 days after the end of the
first semi-annual period ending on or after June 30, 1987. All such
Distributions shall be apportioned 97% to the Limited Partners and 3% to the
General Partners. The General Partners, in their sole discretion, may for any
period elect to defer the distribution to them of all or any portion of their
respective shares of Distributable Cash From Operations, and any amounts so
deferred shall be distributed to the Limited Partners as Distributable Cash
From Operations. In the event the General Partners make an election pursuant
to this Paragraph, the General Partners thereafter shall be entitled to
receive, at their election, an amount equal to any deferred distributions of
Distributable Cash From Operations or Cash From Sales or Refinancings prior
to any Distribution to the Limited Partners.
11.6 Distributions of Cash From Sales or Refinancings. Cash From Sales or
Refinancings, subject to the provisions of Paragraph 11.9, shall, except as
provided in the last sentence of Paragraph 11.5, be distributed at such time
as the Managing General Partner shall determine, in its sole discretion, in
the following order of priority:
11.6.1 first, 97% to the Limited Partners and 3% to the General Partners
until the Limited Partners have received an amount which when added to all
prior Distributions of Cash From Sales or Refinancings shall equal their
Original Invested Capital plus an amount which, when added to all prior
Distributions from any source to the Limited Partners (excluding
Distributions which are deducted in the calculation of Adjusted Invested
Capital), will equal 10% per annum cumulative noncompounded on their Adjusted
Invested Capital, commencing on the Closing Date occurring at least six
months after the date of the Prospectus;
11.6.2 second, after payment to the Managing General Partner of the
Subordinated Incentive Fee under Paragraph 9.9 and after payment to an
Affiliate of the General Partner of the Subordinated Real Estate Commission
under Paragraph 9.8, 97% of the remaining Cash From Sales or Refinancings to
the Limited Partners and 3% to the General Partners.
11.7 Unutilized Net Proceeds. In the event that any portion of the Net
Proceeds are not invested or committed for investment within two years from
the date of the Prospectus (except for any amounts utilized to pay
Partnership operating expenses, including amounts set aside for reserves as
set forth in Paragraph 3.2 of this Partnership Agreement), such portion of
the Net Proceeds shall be distributed to the Limited Partners by the
Partnership as a return of capital, except as otherwise provided by law. For
the purposes of this Paragraph, funds will be deemed to have been committed
to investment and will not be returned to the Limited Partners to the extent
written agreements in principle or letters of understanding were at any time
executed, regardless of whether any such investment may or may not be
consummated, and to the extent any funds have been reserved to make
contingent payments in connection with any Property, regardless of whether
any such payments may or may not be made.
11.8 Restrictions. All Distributions are subject to the payment of
Partnership expenses, and to the maintenance of reasonable reserves for
alterations, repairs, improvements, maintenance and replacement of furniture
and fixtures, as deemed necessary by the Managing General Partner or the
Affiliate charged with managing the Property. Furthermore, the Partnership
may be restricted from making Distributions under the terms of notes,
mortgages or other types of debt obligations which it may issue or assume in
conjunction with borrowed funds and Distributions may also be restricted or
suspended in circumstances when the Managing General Partner determines, in
its absolute discretion, that such action is in the best interests of the
Partnership.
11.9 Distributions on Liquidation. In connection with the liquidation of
the Partnership, Cash From Sales or Refinancings shall be allocated among,
and distributed to, the Partners in proportion to, and to the extent of,
their positive capital account balances after the Net Income from any
Terminating Sale has been allocated in accordance with Paragraph 11.2.1
hereof. To the extent, if any, that a Partner is entitled to receive a
Distribution based upon a positive capital account balance, such Distribution
shall be credited against the amount of Distributions which he otherwise
would have been entitled to receive had Distributions been made pursuant to
the provisions of Paragraph 11.6 hereof.
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11.10 Distributions For Taxes. During the first two years after the Final
Closing Date, the Managing General Partner shall also distribute after the
completion of each calendar year such amounts of Cash From Sales or
Refinancings (when considered with prior distributions of Distributable Cash
From Operations) sufficient to allow a Limited Partner in a 25% federal
income tax bracket to pay the income taxes due with respect to Net Income
derived by him from the Sale or Disposition giving rise to such Cash From
Sales or Refinancings.
11.11 General Partners' Interest. In no event shall the General Partners
be allocated less than an aggregate of 1% of Net Income or Net Loss for tax
purposes. For this purpose, Units held by a General Partner as a Limited
Partner shall not be taken into account.
12. ASSIGNMENT OF PARTNERSHIP UNITS
12.1 Right to Assign Units. Limited Partners shall have the right to
assign five or more Units (provided, however, unless prohibited by any
applicable state securities laws, two Units may be acquired or retained by an
Individual Retirement Account or Keogh plan, and further provided, a Limited
Partner, other than an Individual Retirement Account or Keogh plan, must
assign all of his Units if he would otherwise retain less than five Units) by
a written instrument of assignment, duly executed by the assignor of such
Units, the terms of which are not in contravention of any of the provisions
of this Partnership Agreement. A Limited Partner shall within 30 days after
assignment notify the Managing General Partner of any assignment of a
beneficial interest in any Units which occurs without a transfer of record
ownership.
12.2 Effectiveness of Assignment. In the event of a transfer of Units, the
Partnership and the Managing General Partner shall be entitled to treat the
assignor of such Units as the absolute owner thereof in all respects, and
shall incur no liability for allocations of Net Income, Net Loss or
Distributions or for transmittal of reports and notices required to be given
to Limited Partners hereunder which are made in good faith to such assignor,
until such time as the written instrument of assignment has been received by
the Partnership and recorded on its books and the effective date of the
assignment has passed. The effective date of such assignment on which the
assignee shall be deemed an Assignee of Record shall be the first day of the
first full fiscal quarter following the later of (i) the date set forth on
the written instrument of assignment or (ii) the date on which the
Partnership has actual notice of the assignment of Units. Net Income, Net
Loss and Distributions will be allocated to the assignee commencing with the
effective date of the assignment.
12.3 Limitation on Number of Units Assigned. Except as provided in this
Paragraph 12.3, no assignment of any Units by a Limited Partner may be made
if the Units sought to be assigned, when added to the total of all other
Units assigned within the period of twelve consecutive months prior to the
proposed date of assignment would result in the sale or exchange of 50% or
more of the Units within a twelve-month period; however, such assignment may
be made if at the expense of the Limited Partner desiring to assign his Units
in the Partnership, the Partnership shall obtain an opinion of counsel for
the Partnership that the proposed assignment will not cause a termination of
the Partnership under the Code.
12.4 Compliance with Applicable Rules. No assignment, sale, transfer,
exchange or other disposition of any Units in the Partnership may be made
except in compliance with the then applicable rules of any other applicable
governmental authority including the registration and suitability
requirements of the applicable state securities laws.
12.5 Ineffectual Assignments. Any assignment, sale, exchange or other
transfer in contravention of any of the provisions of this Paragraph 12 shall
be void and ineffectual, and shall not bind or be recognized by the
Partnership.
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13. SUBSTITUTED LIMITED PARTNERS
13.1 Conditions for Substitution. No assignee shall have the right to
become a substituted Limited Partner in place of his assignor unless all of
the following conditions are first satisfied:
13.1.1 the provisions of Paragraph 12 of this Partnership Agreement
are complied with;
13.1.2 the instrument of assignment sets forth the intention of the
assignor that the assignee succeed to the assignor's interest as a
substituted Limited Partner in his place;
13.1.3 the assignor and assignee shall have executed and acknowledged
such other instruments as the Managing General Partner may deem necessary
or desirable to effect such substitution, including the written acceptance
and adoption by the assignee of the provisions of this Partnership
Agreement, as the same may be amended, and his execution, acknowledgment
and delivery to the Managing General Partner of a special power of
attorney, the form and content of which are described herein; and
13.1.4 a transfer fee not to exceed $150 shall have been paid to the
Partnership to cover all reasonable expenses connected with such
substitution.
13.2 Consent to Admission of Limited Partners. By executing or adopting
this Partnership Agreement, each Limited Partner hereby consents to the
admission of additional or substituted Limited Partners by the Managing
General Partner and to any assignee of his Units becoming a substituted
Limited Partner.
13.3 Amendments to Reflect Admission. The Managing General Partner shall
cause the Partnership Agreement and, if required by law, any separate
Certificate of Limited Partnership to be amended to reflect the admission
and/or substitution of Limited Partners at least once in each fiscal quarter
(but not later than 30 days after the effective date of any such admission
and/or substitution as defined in Paragraph 12.2).
13.4 Special Exercise of the Rights of a Limited Partner. If a Limited
Partner dies, his executor, administrator or trustee, or if he is adjudicated
incompetent, his committee, guardian or conservator, or if he is adjudicated
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 decedent, incompetent or bankrupt possessed to assign all or any
part of his Units and to join with the assignee thereof in satisfying
conditions precedent to such assignee becoming a substituted Limited Partner.
The death, dissolution or bankruptcy of a Limited Partner shall not dissolve
the Partnership.
14. BOOKS, RECORDS, ACCOUNTINGS AND REPORTS
14.1 Location of Records. The Partnership's books and records, the
Partnership Agreement and any separate Certificates of Limited Partnership
and all amendments thereto or restatements thereof, and copies of each
Property appraisal shall be maintained at the principal office of the
Partnership or such other place as the Managing General Partner may determine
and shall be open to inspection, examination and copying by Limited Partners
or their duly authorized representatives at all reasonable times. A
reasonable charge for photocopying may be charged by the Partnership. Upon
written request any Limited Partner or his duly authorized representative
will be provided with a copy of this Partnership Agreement and/or any
amendment hereto or restatement hereof, containing the most recent listing of
Partners' names, addresses and capital contributions. Each Property appraisal
will be maintained for at least five years following the date of acquisition
of the Property.
14.2 Financial Statements. The Managing General Partner shall have
prepared at least annually, at Partnership expense, audited financial
statements (balance sheet, statement of income or loss, partners' equity, and
changes in financial position) prepared in accordance with generally accepted
accounting principles and accompanied by a report thereon containing an
opinion of an independent certified public accounting firm. Copies of such
statements and report shall be distributed to each Limited Partner within 120
days after the close of each taxable year of the Partnership.
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14.3 Annual Report. The Managing General Partner shall have prepared at
least annually, at Partnership expense: (i) a statement of cash flow; (ii)
Partnership information necessary in the preparation of the Limited Partners'
federal income tax returns; (iii) a report of the business of the
Partnership; (iv) a statement as to the compensation received by the General
Partners and their Affiliates during the year from the Partnership, which
statement shall set forth the services rendered or to be rendered by the
Managing General Partner and the amount of fees received, and a report
identifying Distributions from: (a) Distributable Cash From Operations of
that year, (b) Cash From Sales or Refinancings and (c) other sources,
together with a breakdown of all costs reimbursed to the General Partners and
Affiliates from the Partnership. Within the scope of the annual audit of the
Managing General Partner's financial statement, the independent certified
public accountants must verify the allocation of such costs to the
Partnership. The method of verification shall be in accordance with generally
accepted auditing standards and shall accordingly include such tests of the
accounting records and such other auditing procedures which the Managing
General Partner's independent certified public accountants consider
appropriate in the circumstances. Copies of such report shall be distributed
to each Limited Partner within 120 days after the close of each taxable year
of tne Partnership; provided, however, all Partnership information necessary
in the preparation of the Limited Partners' federal income tax returns shall
be distributed to each Limited Partner not later than 75 days subsequent to
December 31 of each year. In the event the Partnership shall fail to
distribute such reports for any year on or before March 31 of the succeeding
taxable year, then the General Partners shall pay to the Partnership a
penalty fee equal to the product of (i) the number of days between such March
31 and the day such reports are distributed, times (ii) Five Thousandths of
One Percent (.005%), times (iii) the aggregate capital contributions of all
Limited Partners.
14.4 Quarterly Report. The Managing General Partner shall prepare, at
Partnership expense, commencing with the first fiscal quarter in which the
initial Closing Date occurs. a quarterly report covering each of the first
three quarterly fiscal year periods of Partnership operations in each fiscal
year, containing unaudited financial statements (balance sheet and statement
of income or loss for such quarterly period), a statement as to the
compensation received by the General Partners and their Affiliates during
such quarter from the Partnership (which statement shall set forth the
services rendered or to be rendered by the General Partners and their
Affiliates and the amount of fees received) and a statement of other
pertinent information regarding the Partnership and its activities during the
quarterly period covered by the report. The Partnership will furnish to each
Limited Partner a copy of the information specified by the Securities and
Exchange Commission Form 10-Q, within 60 days of the closing of each
quarterly fiscal period, by dissemination of such Form 10-Q, or any other
report containing substantially the same information as required by Form
10-Q.
14.5 ERISA Reports. The General Partners shall (to enable Limited Partners
subject to annual reporting requirements under ERISA to file such annual
reports as they relate to an investment in the Partnership), within 120 days
after the end of each taxable year, furnish each Limited Partner with an
annual statement of Unit value. Such annual statement shall report the value
of each Unit based upon the Managing General Partner's estimate of the amount
a holder thereof would receive if Partnership Properties were sold as of the
close of the Partnership's fiscal year and if the proceeds therefrom (without
reduction for selling expenses), together with any other funds of the
Partnership, were distributed in a liquidation of the Partnership pursuant to
this Partnership Agreement. Absent significant increases or decreases in the
value of Partnership assets, the General Partners anticipate reporting the
net asset value of each Unit at $1,000 for the first three annual reports to
Limited Partners following the termination of the offering.
14.6 Report on Acquisitions. The Managing General Partner shall have
prepared, at Partnership expense, no later than the end of each fiscal
quarter in which Partnership Properties are acquired, a report which shall
describe therein: (i) the location and a description of all materially
important Properties acquired or presently intended to be acquired by the
Partnership during the quarter; (ii) the estimated down payment; (iii) the
proposed method of financing, including any balloon payments; and (iv) such
other relevant information with respect to the acquisition of such Properties
as the Managing General Partner deems appropriate. Copies of such report
shall be distributed to each Limited Partner within 45 days after the end of
such quarter.
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14.7 Information Returns. The Managing General Partner, at Partnership
expense, shall cause an information return for the Partnership to be prepared
and timely filed with the appropriate authorities.
14.8 Miscellaneous Reports. The Managing General Partner, at Partnership
expense, shall cause to be prepared and timely filed, with appropriate
federal and state regulatory and administrative bodies, all reports required
to be filed with such entities under then current applicable laws, rules and
regulations. Such reports shall be prepared on the accounting or reporting
basis required by such regulatory bodies. Any Limited Partner shall be
provided with a copy of any such report, upon request in writing, without
expense to him.
14.9 Records on Suitability. The Managing General Partner, at Partnership
expense, shall maintain for the life of the Partnership a record of the
information obtained to indicate that a Limited Partner meets the suitability
standards set forth in the Prospectus, unless such recordkeeping obligation
has been delegated to the Underwriter and participating broker-dealers.
15. RIGHTS, AUTHORITY, POWERS, RESPONSIBILITIES AND DUTIES OF THE MANAGING
GENERAL PARTNER
15.1 Services of Managing General Partner. The Managing General Partner
shall only be responsible for the following services to the Partnership:
15.1.1 supervising the organization of the Partnership and the offering
and sale of Units;
15.1.2 arranging for (i) the identification of Properties suitable for
investment by the Partnership; (ii) a review of the significant factors in
deciding whether or not to invest in a particular Property; and (iii) if a
decision is made to make a particular investment, the making of such
investment; and
15.1.3 supervising Partnership management, which includes (i) establishing
policies for the operation of the Partnership; (ii) causing the Partnership's
agents or employees to arrange for the provision of services necessary to the
operation of the Partnership (including property management and investor,
accounting and legal services, and services relating to Distributions by the
Partnership); (iii) when necessary or appropriate, approving actions to be
taken by the Partnership; (iv) providing advice, consultation, analysis and
supervision with respect to the functions of the Partnership as an owner of
Partnership Properties (including, without limitation, decisions regarding
adjustments to rental schedules, the Sale or Disposition of Partnership
Properties and compliance with federal, state and local regulatory
requirements and procedures); (v) executing documents on behalf of the
Partnership; (vi) having a fiduciary responsibility for the safekeeping and
use of all funds and assets of the Partnership, whether or not in the General
Partners' immediate possession or control; and (vii) making all decisions as
to accounting matters.
15.2 Powers of Managing General Partner. The conduct of the Partnership's
business shall be controlled solely by the Managing General Partner in
accordance with this Partnership Agreement. Provided that the Managing
General Partner has not been removed as a General Partner of the Partnership,
adjudicated a bankrupt, insolvent, dissolved or ceased to exist, the
Individual General Partner shall not participate in or exercise control over
the affairs of the Partnership. The Managing General Partner shall have all
authority, rights and powers conferred by law and those required or
appropriate to the management of the Partnership business which, by way of
illustration but not by way of limitation, shall, subject only to the
provisions of Paragraph 15.4 following, include the right, authority and
power:
15.2.1 to acquire, improve, hold and dispose of real property, interests
therein or appurtenances thereto, as well as personal or mixed property
connected therewith, including the purchase, lease, improvement, maintenance,
exchange, trade or sale of such properties and, in connection with any sale
of a Property, to take back notes in payment of the purchase price and to
sell such notes on such terms as the Managing General Partner determines, in
its sole discretion, are in the best interest of the Partnership;
15.2.2 to borrow money and, if security is required therefor, to mortgage
or subject any Partnership investment to any other security device, to obtain
replacements of any mortgage or other security device
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and to prepay, in whole or in part, refinance, increase, modify, consolidate
or extend any mortgage or other security device, all of the foregoing at such
terms and in such amounts as the Managing General Partner, in its sole
discretion, deems to be in the best interests of the Partnership;
15.2.3 to place record title to or the right to use Partnership assets in
the name or names of a nominee or nominees, trustee or trustees for any
purpose convenient or beneficial to the Partnership; provided, however, that
no Properties or other assets shall be placed in the name of a nominee
unless, with respect to each specific transaction, the Partnership previously
or contemporaneously receives an opinion of independent tax counsel that the
Partnership will be treated as the owner of such Properties or other assets,
for federal income tax purposes, notwithstanding the fact that record title
is held in the name of such nominee;
15.2.4 to acquire and enter into any contract of insurance which the
Managing General Partner deems necessary or appropriate for the protection of
the Partnership and the General Partners, for the conservation of Partnership
assets, or for any purpose convenient or beneficial to the Partnership;
15.2.5 to employ persons in the operation and management of the business
of the Partnership including, but not limited to, supervisory managing
agents, building management agents, insurance brokers, real estate brokers
and loan brokers, on such terms and for such compensation as the Managing
General Partner shall determine, subject, however, to the limitations with
respect thereto as set forth in Paragraph 9 and provided that agreements with
the Managing General Partner or its Affiliates for the services set forth in
Paragraph 9 shall contain the terms and limitations as to fees and expenses
as set forth in Paragraph 9 and provided further that any of such agreements
shall be terminated immediately upon dissolution of the Partnership under
Paragraph 19.1;
15.2.6 to prepare or cause to be prepared reports, statements and other
relevant information for distribution to Limited Partners, including annual
and semi-annual or quarterly interim reports;
15.2.7 to open accounts and deposit and maintain funds in the name of the
Partnership in banks or savings and loan associations;
15.2.8 to cause the Partnership to make or revoke any of the elections
permitted by the Code;
15.2.9 to select as its accounting year for financial reporting and tax
purposes a fiscal year ending October 31 or any other fiscal year;
15.2.10 to determine the appropriate accounting method or methods to be
used by the Partnership in maintaining its books and records, provided that
for tax purposes, the Partnership shall use initially the accrual method of
accounting;
15.2.11 to offer and sell Units in the Partnership to the public directly
or through any registered member of the National Association of Securities
Dealers, Inc., whether an Affiliate or non-Affiliate, and to employ
personnel, agents and dealers for such purpose;
15.2.12 to require in all Partnership obligations that the General
Partners shall not have any personal liability thereon but that the person or
entity contracting with the Partnership is to look solely to the Partnership
and its assets for satisfaction and in the event that any such obligations
have personal liability, the General Partners may require their satisfaction
prior to entering into contracts without such personal liability; provided,
however, that the inclusion of the aforesaid provisions shall not materially
affect the cost of the service or material being supplied and all Partnership
obligations are satisfied in accordance with prudent business practices as to
time and manner of payment;
15.2.13 during the period ending two years after the Final Closing Date,
to reinvest all Cash From Sales or Refinancings;
15.2.14 to purchase Property in its own name or in the name of a nominee,
a trust or otherwise (and assume loans in connection therewith) and
temporarily hold title thereto for the purpose of facilitating the
acquisition of such Property or the borrowing of money or obtaining of
financing for the Partnership, or any other purpose related to the business
of the Partnership; provided that such Property is purchased by the
Partnership for a purchase price no greater than the cost of such Property to
the Managing General
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Partner, except for compensation in accordance with Paragraph 9 of this
Partnership Agreement; and further provided that there is no difference in
interest rates of the loans secured by the Property at the time acquired by
the nominee and the time acquired by the Partnership, nor any other benefit
arising out of such transaction to the Managing General Partner apart from
the compensation otherwise permitted by this Partnership Agreement and the
Partnership shall receive, at the Partnership's expense, an opinion of
independent tax counsel as required by the proviso to Paragraph 15.2.3;
15.2.15 to allow the Partnership to borrow money from Tennessee
Properties, Ltd. and/or Freeman Mortgage Corporation, at any time and from
time to time including, but not limited to, prior to the Final Closing Date,
and in connection therewith to pay interest to Tennessee Properties, Ltd.
and/or Freeman Mortgage Corporation at a rate equal to that which Tennessee
Properties, Ltd. and/or Freeman Mortgage Corporation is paying on any funds
borrowed for such purposes or, if no funds have been borrowed, then at a rate
equal to one percent above the average of the prime, base or index rate then
being charged by the three largest banks in Nashville, Tennessee, provided
that such borrowing does not constitute Financing;
15.2.16 to allow the Partnership to sell Properties to Tennessee
Properties, Ltd. and/or Freeman Mortgage Corporation in order to provide
sufficient funds to the Partnership to repay loans, in the event that the
proceeds of the sale of Units are not sufficient to permit the Partnership to
repay any loans obtained in order to purchase Properties (In such event,
Properties will be sold in the reverse order in which they were acquired by
the Partnership with the most recently acquired Property being sold first.
The sales price will be an amount equal to the Partnership's purchase price
for the Property plus the amount of all Acquisition Fees and Acquisition
Expenses paid by the Partnership in connection with the acquisition of the
Property, the carrying costs, including principal and interest, incurred by
the Partnership during the period the Partnership owned such Property and the
cost of all capital improvements made to the Property at the expense of the
Partnership. All or a portion of the price will be paid by Tennessee
Properties, Ltd. and/or Freeman Mortgage Corporation taking title subject to
any existing mortgage loans on the Properties.);
15.2.17 subject to the provisions of Paragraphs 15.4.32 and 15.4.33, to
invest in any program, partnership or other venture, at such price, rental or
amount, for cash, securities (in compliance with appropriate securities
regulations) other than the Partnership's limited partnership interests or
other property, and upon such terms as the Managing General Partner deems, in
its sole discretion, to be in the best interests of the Partnership;
15.2.18 to allow the Partnership to lease computer equipment, to be used
in the operation of Properties, from the General Partners or their
Affiliates, provided that such equipment is leased to the Partnership at a
price no greater than cost or that which would be charged by unaffiliated
third parties for comparable equipment;
15.2.19 to assure any person dealing with the Partnership or the General
Partners that he may rely upon a certificate signed by the Managing General
Partner as authority with respect to: (i) the identity of any General Partner
or Limited Partner hereof; (ii) the existence or nonexistence of any fact or
facts which constitute a condition precedent to acts by a General Partner or
which are in any other manner germane to the affairs of the Partnership;
(iii) the persons who are authorized to execute and deliver any instrument or
document of the Partnership; or (iv) any act or failure to act by the
Partnership or as to any other matter whatsoever involving the Partnership or
any Partner; and
15.2.20 to execute, acknowledge and deliver any and all instruments to
effectuate the foregoing, and to take all such action in connection therewith
as the Managing General Partner shall deem necessary or appropriate.
15.3 Amendments Without Consent. In addition to any amendments otherwise
authorized herein, this Agreement may be amended from time to time by the
General Partners, without seeking any further approval from the Limited
Partners:
15.3.1 to add to the representations, duties or obligations of the
Managing General Partner or its Affiliates or surrender any right or power
granted to the Managing General Partner or its Affiliates herein, for the
benefit of the Limited Partners;
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15.3.2 to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with law or with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Agreement which will not be inconsistent with law or with the
provisions of this Agreement or will not violate any provisions of state
securities laws applicable to the Partnership as in effect at the time the
amendment is adopted, or judicial or administrative interpretations thereof;
15.3.3 to delete or add any provision of this Agreement required to be so
deleted or added by the staff of the Securities and Exchange Commission or of
a state securities commission, which addition or deletion is deemed by such
commission to be for the benefit or protection of the Limited Partners;
15.3.4 to reflect the addition or substitution of Limited Partners or the
reduction of capital accounts upon the return of capital to Partners;
15.3.5 to change the name of the Partnership to any lawful name which it
may select; and
15.3.6 upon notice to all Limited Partners, (a) to amend the provisions of
Article 11 and any other applicable provision of this Agreement: (i) so as to
revise the date upon which each Partner's distributive share of Net Income,
Net Loss and Distributions of Distributable Cash From Operations is
determined and the period of time over which such distributive share relates,
provided that in the opinion of the accountants or counsel to the
Partnership, such amended provisions are permissible under applicable federal
and/or state income tax legislation, rules or regulations enacted or
promulgated thereunder, or administrative pronouncements or interpretations
thereof; and (ii) to the minimum extent necessary to take account of any
amendment to Section 704 of the Code or the regulations thereunder or any
judicial or administrative interpretation thereof; and/or (b) in the event
that either (i) the assets of the Partnership would constitute "plan assets"
for purposes of ERISA or (ii) the transactions contemplated hereunder would
constitute "prohibited transactions" under ERISA or the Code and an exemption
for such transactions is not obtainable, or not sought by the Managing
General Partner, from the United States Department of Labor, to (x)
restructure the Partnership's activities to the extent necessary to comply
with any exemption in any final plan asset regulation adopted by the
Department of Labor or to comply with any requirement the Department of Labor
might impose as a condition to granting a prohibited transaction exemption,
including, but not limited to, discontinuing sales to tax-exempt investors
after a given date and/or restructuring the property management activities of
the Partnership, and/or (y) terminate the offering of Units or to compel a
dissolution and termination of the Partnership; and (iii) to ensure that the
provisions of this Agreement will comply with any applicable federal or state
legislation enacted after the date of this Agreement. The Managing General
Partner is empowered to amend such provisions to the minimum extent necessary
in accordance with the advice of accountants and/or counsel to comply with
any applicable federal or state legislation, rules, regulations,
administrative pronouncements or interpretations and/or judicial
interpretations thereof after the date of this Agreement. Such amendments
made by the Managing General Partner in reliance upon the advice of competent
accountants or counsel described above shall be deemed to be made pursuant to
the fiduciary obligation of the Managing General Partner to the Partnership
and Limited Partners, and no such amendment shall give rise to any claim or
cause of action by any Limited Partner.
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15.4 Limitations. Neither the General Partners nor any Affiliate shall
have the authority to:
15.4.1 enter into contracts with the Partnership which would bind the
Partnership after the removal, adjudication of bankruptcy or insolvency of a
General Partner, or continue the business with Partnership assets after the
occurrence of such event;
15.4.2 grant to them or any Affiliate an exclusive listing for the sale of
Partnership assets, including Partnership Properties;
15.4.3 without obtaining the consent of the Limited Partners pursuant to
Paragrapth 16.2.5, sell Substantially All of the Assets of the Partnership in
a single sale, or in multiple sales in the same twelve-month period, except
in the orderly liquidation and winding up of the business of the Partnership
upon its termination and dissolution and except in the ordinary course of the
business of the Partnership;
15.4.4 without obtaining the consent of the Limited Partners pursuant to
Paragraph 16.2.6, pledge or encumber Substantially All of the Assets of the
Partnership at one time, other than in connection with the acquisition or
improvement of assets, initial financing of a Partnership Property or the
refinancing of previous obligations;
15.4.5 alter the nature of the business of the Partnership as set forth in
Paragraph 3;
15.4.6 receive a rebate or give-up or participate in any reciprocal
business arrangements which would enable it or an Affiliate to do so;
15.4.7 except as provided in Paragraphs 15.2.14 and 15.2.16, cause the
Partnership to acquire Property from or sell or lease any Property to any
entity in which a General Partner or any Affiliate has an interest, provided,
however, that an Affiliate may lease commercial space in a Property owned by
the Partnership if the lease rentals are at the competitive rate charged for
similar space in the Property to unaffiliated parties and the aggregate space
leased to the Affiliate is 10% or less of the total rentable area in the
Property and provided that any rent in excess of the rent paid under any such
lease which is received by an Affiliate of the Managing General Partner in
connection with a sublease of the premises covered by such lease shall be
paid to the Partnership;
15.4.8 except as provided in Paragraph 15.2.14, sell or lease Property to
the Partnership;
15.4.9 purchase Partnership Property for the Partnership without first
having obtained an appraisal with respect to the value thereof, rendered by
an independent appraiser who is a member of a nationally recognized society
of appraisers, which appraisal provides that the purchase price of such
Property plus any Acquisition Fees paid with respect to such Property by any
person equals or is less than the appraised value;
15.4.10 cause the Partnership to exchange Units for real property;
15.4.11 cause the Partnership to incur mortgage financing which, with
level payments, would amortize such financing over a period in excess of 30
years. All such financing, including all-inclusive and wraparound loans and
interest-only loans, shall provide that no balloon payments may become due
sooner than the earlier of: (a) ten years from the date the Partnership
acquires the Property, or (b) two years beyond the anticipated holding period
of the Property, provided in such case that a balloon payment shall not
become due sooner than seven years from the date the Partnership acquires the
Property. The foregoing restrictions set forth in this Paragraph shall not
apply to financing representing, in the aggregate, 25% or less of the total
purchase price of the Properties acquired;
15.4.12 provide Financing to the Partnership except for the purchase of
Partnership Property by use of a wraparound note and mortgage
("all-inclusive" note and deed of trust) in which case: (i) no General
Partner or any Affiliate thereof shall receive interest in excess of that
payable to the lender on such underlying encumbrances; (ii) all payments on
the underlying obligation shall be made by the Partnership or, in the
alternative, payments by the Partnership on the wraparound note are made to a
third party collecting agent which in turn disburses such payment, first to
the holder of such underlying obligation, and thereafter to the holder of the
wraparound note; and (iii) the Partnership will receive credit on its
all-inclusive note for payments made directly on the underlying obligations;
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15.4.13 do any act in contravention of this Partnership Agreement or
which would make it impossible to carry on the ordinary business of the
Partnership;
15.4.14 confess a judgment against the Partnership in connection with any
threatened or pending legal action;
15.4.15 possess any Partnership Property or assign the rights of the
Partnership in specific Partnership Property for other than a Partnership
purpose;
15.4.16 perform any act (other than an act required by this Agreement or
any act taken in good faith reliance upon counsel's opinion) which would, at
the time such act occurred, subject any Limited Partner to liability as a
general partner in any jurisdiction;
15.4.17 reinvest in Property any Adjusted Cash From Operations or, after
two years from the Final Closing Date, any Cash From Sales or Refinancings,
provided, however, that this Paragraph shall not prohibit the Partnership
from utilizing Cash From Sales or Refinancings for the purpose of paying or
prepaying any indebtedness of the Partnership (including, without limitation,
indebtedness with respect to any Partnership Properties);
15.4.18 invest any of the Gross Proceeds in Properties which are
non-income producing;
15.4.19 receive any insurance brokerage fee or write any insurance policy
covering any of the Partnership Properties;
15.4.20 employ, or permit to employ, the funds or assets of the
Partnership in any manner except for the exclusive benefit of the
Partnership;
15.4.21 incur any nonrecourse indebtedness wherein the lender will have or
acquire, at any time as a result of making the loan, any direct or indirect
interest in the profit, capital or property of the Partnership other than as
a secured creditor;
15.4.22 incur aggregate borrowings in excess of 80% of the aggregate value
of all Properties as of the date of refinancing (the aggregate value of all
Properties which have been refinanced shall be as determined by the
respective lender as to each refinanced Property; and the aggregate value of
all Properties which have not been refinanced shall be the aggregate purchase
price of such Properties);
15.4.23 commingle the Partnership funds with those of any other person or
entity except that: (i) the use of a zero balance or clearing account shall
not constitute a commingling of Partnership funds; (ii) funds of the
Partnership and funds of other partnerships sponsored by the Managing General
Partner or its Affiliates may be held in an account or accounts established
and maintained for the purpose of making computerized disbursements and/or
short-term investments; and (iii) the Managing General Partner may establish
a master fiduciary account pursuant to which separate subtrust accounts are
established for the benefit of other limited partnerships affiliated with the
Managing General Partner or its Affiliates, provided, however, that
Partnership funds shall be protected from the claims of such other affiliated
limited partnerships and/or creditors;
15.4.24 except as provided in Paragraph 9, receive any commission or fee
for the placement of mortgage loans or trust deed loans on any Property or
otherwise act as a finance broker on behalf of the Partnership;
15.4.25 directly or indirectly pay or award any finder's fees, commissions
or other compensation to any person engaged by a potential investor for
investment advice as an inducement to such advisor to advise the purchaser
regarding the purchase of Units; provided, however, that the General Partners
shall not be prohibited from paying the normal sales commissions payable to a
broker-dealer registered with the NASD;
15.4.26 operate the Partnership in such a manner as to have the
Partnership classified as an "investment company" for purposes of the
Investment Company Act of 1940;
15.4.27 invest any of the Gross Proceeds in mortgages, junior trust deeds
or other similar obligations;
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15.4.28 use any of the Gross Proceeds to prepay interest on Partnership
mortgages, deeds of trust or other similar obligations; however, the Managing
General Partner may cause the Partnership to pay "points" to prospective
lenders as a condition to obtaining financing and may cause the Partnership
to pay any prepayment penalties incurred by the sellers of Properties
acquired by the Partnership;
15.4.29 cause the Partnership to enter into any agreements with a General
Partner or its Affiliates which shall not be subject to termination without
penalty by either party upon not more than 60 days' written notice;
15.4.30 cause the Partnership to lend money to the General Partners or
their Affiliates;
15.4.31 except as specifically provided in this Partnership Agreement,
cause the Partnership to invest in or underwrite the securities of other
issuers for any purposes;
15.4.32 cause the Partnership to invest in any program, partnership or
other venture unless:
(i) it is a general partnership or a joint venture;
(ii) such general partnership or joint venture owns and operates a
particular Property and the Partnership alone or with any Affiliate
acquires the controlling interest in such entity;
(iii) the Partnership, as a result of the form of such ownership of a
Property, is not charged, directly or indirectly, more than once for the
same service;
(iv) the agreement of partnership or joint venture does not authorize
the Partnership to do anything as a partner or joint venturer with respect
to the Property which the Partnership or a General Partner could not do
directly because of the policies set forth in this Partnership Agreement;
(v) the General Partners and the Affiliates of a General Partner are
prohibited from receiving any compensation, fees or expenses which are not
permitted to be paid under the terms of this Partnership Agreement; and
(vi) the joint venture agreement provides the same distributive share in
each item of income, gain, loss, deduction, credit, and basis in the joint
venture to the Partnership and such share will remain the same during the
entire period that the Partnership is engaged in the joint venture; or
15.4.33 cause the Partnership to invest in joint venture arrangements with
an Affiliate of the Managing General Partner (including, without limitation,
a public or private limited partnership sponsored by the General Partners or
their Affiliates) unless the following additional conditions are met:
(i) such Affiliate has investment objectives and policies comparable to
those of the Partnership;
(ii) there are no duplicative property management or other fees;
(iii) the compensation of the Managing General Partner and sponsor of
such Affiliate from the joint venture is comparable;
(iv) the Partnership has a right of first refusal to buy the Affiliate's
interest in the joint venture if such Affiliate wishes to sell property
held in the joint venture; and
(v) the investment of the Partnership and the Affiliate in the joint
venture is on substantially the same terns and conditions.
15.5 No Personal Liability. The General Partners shall have no personal
liability for the repayment of the Original Invested Capital of any Limited
Partner or to repay to the Partnership any portion or all of any negative
balance in their capital accounts.
15.6 Notice of Limitation of Liability. Each of the General Partners shall
at all times conduct its or his affairs and the affairs of the Partnership
and all of its Affiliates in such a manner that neither the Partnership nor
any Partner nor any Affiliate of any Partner will have any personal liability
under any mortgage on any of the Partnership Properties, unless, in the
opinion of the Managing General Partner, it would be in the best interest of
the Limited Partners for the General Partners to be personally liable on
recourse liability. The Managing General Partner shall use its best efforts,
in the conduct of the
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Partnership's business, to put all suppliers and other persons with whom the
Partnership does business on notice that the Limited Partners are not liable
for Partnership obligations and all agreements to which the Partnership is a
party shall include a statement to the effect that the Partnership is a
limited partnership organized under the Delaware Revised Uniform Limited
Partnership Act; however, the Managing General Partner shall not be liable to
the Limited Partners for any failure to give such notice to such suppliers or
other persons.
15.7 Notice of Withdrawal of General Partner. Following the receipt by the
Managing General Partner of written notice of the proposed retirement or
withdrawal of any General Partner, the Managing General Partner shall
promptly send written notice of such retirement or withdrawal to the Limited
Partners.
15.8 Commitment to Investment in Properties. In accordance with the
provisions of the Statement of Policy Regarding Real Estate Programs adopted
by the North American Securities Administrators Association, Inc. on October
2, 1985, effective January 1, 1986, the Managing General Partner shall commit
to Investment in Properties a percentage of Gross Proceeds at least equal to
5.5% plus the greater of (i) 80% of Gross Proceeds reduced by .1625% for each
1% of indebtedness encumbering the Partnership's Properties or (ii) 67% of
the Gross Proceeds.
15.9 Accounting Matters. The Managing General Partner shall make all
decisions as to accounting matters in accordance with the accounting methods
adopted by the Partnership in accordance with generally accepted accounting
principles and procedures applied on a consistent basis. The Managing General
Partner may rely on the Partnership's independent certified public
accountants to determine whether such decisions are in accordance with
generally accepted accounting principles.
15.10 Tax Matters Partner. Freeman Diversified Properties, Inc. is hereby
designated as the "Tax Matters Partner" in accordance with Section 6231(a)(7)
of the Code and, in connection therewith and in addition to all other powers
given thereunder, shall have all other powers needed to fully perform
hereunder including, without limitation, the power to retain all attorneys
and accountants of its choice and the right to manage administrative tax
proceedings conducted at the Partnership level by the Internal Revenue
Service with respect to Partnership matters. Any Partner has the right to
participate in such administrative proceedings relating to the determination
of Partnership items at the Partnership level. Expenses of such
administrative proceedings undertaken by the Tax Matters Partner will be paid
for out of Partnership assets. Each Limited Partner who elects to participate
in such proceedings will be responsible for any expenses incurred by such
Limited Partner in connection with such participation. Further, the cost of
any adjustments to a Limited Partner and the cost of any resulting audits or
adjustments of a Limited Partner's tax return will be borne solely by the
affected Limited Partner. The Partnership hereby indemnifies Freeman
Diversified Properties, Inc. from and against any damages or losses
(including attorneys' fees) arising out of or incurred in connection with any
action taken or omitted to be taken by it in good faith in carrying out its
responsibilities as Tax Matters Partner, provided that (i) a majority of the
General Partners must determine that such course of conduct was in the best
interests of the Partnership and did not constitute negligence or misconduct
and (ii) indemnification shall be recoverable only from the assets of the
Partnership and not from the assets of the Limited Partners.
15.11 Designated Organizer and Designated Person. The Managing General
Partner shall be the "designated organizer" of the Partnership and the
"designated person" for maintaining lists of investors in the Partnership,
and shall take such actions as shall be required to timely register the
Partnership and to maintain lists of investors in the Partnership.
15.12 Comparison With General Partnership. Except as otherwise provided in
this Partnership Agreement, the Managing General Partner shall have all the
rights and powers and shall be subject to all the restrictions of a partner
in a partnership without limited partners.
16. RIGHTS AND POWERS OF THE LIMITED PARTNERS
16.1 Control. Limited Partners shall not take part in or interfere in any
manner with the control of the Partnership and shall have no right or
authority to act for or bind the Partnership.
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16.2 Voting Rights. Limited Partners shall have the right, by Majority
Vote, to vote only upon the following matters affecting the basic structure
of the Partnership:
16.2.1 removal of a General Partner;
16.2.2 the election of a successor General Partner and continuation of the
business of the Partnership, pursuant to Paragraph 19.1.1 of this Partnership
Agreement;
16.2.3 termination and dissolution of the Partnership except that nothing
herein shall require the General Partners to solicit a Majority Vote in favor
of a termination and dissolution unless Limited Partners have exercised their
right under Paragraph 16.3 to call for such vote;
16.2.4 amendment of the Partnership Agreement, provided such amendment is
not for any of the purposes set forth in Paragraph 15.3 hereof;
16.2.5 the sale of all or Substantially All of the Assets of the
Partnership in a single sale, or in multiple sales in the same twelve-month
period, except in the orderly liquidation and winding up of the business of
the Partnership upon its termination and dissolution and except in the
ordinary course of the business of the Partnership;
16.2.6 the pledge or encumbrance of all or Substantially All of the Assets
of the Partnership at one time, other than in connection with the acquisition
or improvement of assets, initial financing of a Partnership Property or the
refinancing of previous obligations;
16.2.7. the extension of the term of the Partnership;
16.2.8 the assignment of a General Partner's interest in the Partnership,
subject to the provisions of Paragraph 17.5;
16.2.9 material changes in the five primary investment objectives of the
Partnership as described in the Prospectus under the caption "Partnership
Objectives and Policies--Investment Objectives";
16.2.10 a material modification of a contract entered into with an
Affiliate pursuant to Paragraph 9.1 of the Partnership Agreement; and
16.2.11 the reformulation of the structure of the Partnership to enable
it, if possible, to be treated as a Real Estate Investment trust or other
form of pass-through entity.
16.3 Call of Meeting. The Managing General Partner may at any time call a
meeting of the Limited Partners or for a vote, without a meeting, of the
Limited Partners on matters on which they are entitled to vote, and shall
call for such meeting or vote following receipt of written request therefor
of Limited Partners holding 10% or more of the Total Outstanding Units as of
the date of receipt of such written request ("notice date"). Within 10 days
of such notice date, the Managing General Partner shall notify all Limited
Partners of record as of the notice date that a meeting, if called, will be
held at the Partnership's principal place of business at a time requested by
the Limited Partners calling the meeting, or, if no such time has been
requested, the time specified by the Managing General Partner, or, if no such
meeting has been called, the date upon which the votes without a meeting will
be counted; provided, however, that such period for the giving of notice may
be extended if such extension is necessary for clearance by the Securities
and Exchange Commission of the solicitation materials to be forwarded to the
Limited Partners in connection with such meeting. The General Partners will
use their best efforts to obtain such clearance. Written notice of any
meeting or any vote without a meeting shall be given by the Managing General
Partner either personally or by first class mail but not less than 15 nor
more than 60 days before the date of such meeting or vote and shall include a
detailed statement of the action proposed (including a verbatim statement of
the wording of any resolution proposed for adoption by the Limited Partners
and any proposed amendment to this Partnership Agreement). All expenses of
the voting and such notification shall be borne by the Partnership.
16.4 Manner of Voting. A Limited Partner who is entitled to vote shall be
entitled to cast one vote or portion thereof for each Unit or portion thereof
which he owns: (i) 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
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<PAGE>
must be received by the Managing General Partner prior to such meeting, or
(ii) without a meeting, 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 the date upon which the votes of Limited Partners of
record on the notice date, whether at a meeting or otherwise, shall be
counted. No General Partner shall be entitled to vote unless he or it owns
Units. The laws of the State of Delaware pertaining to the validity and use
of corporate proxies shall govern the validity and use of proxies given by
Limited Partners. At each meeting of Limited Partners, the Managing General
Partner shall appoint such officers and adopt such rules for the conduct of
such meeting as the Managing General Partner shall deem appropriate. The
holders of a majority of the Total Outstanding Units, represented in person
or by proxy, shall constitute a quorum at a meeting of the Limited Partners.
In connection with each meeting or vote without a meeting of the Limited
Partners, the Partnership shall provide for proxies or written consents which
specify a choice between approval and disapproval of each matter to be acted
upon at the meeting or by vote without a meeting. For purposes of obtaining a
written vote under this Partnership Agreement, the Managing General Partner
may require a written response within a specified time, but not less than 30
days, nor more than 45 days after the date of the notice.
16.5 Limitations. No Limited Partner shall have the right or power to: (i)
withdraw or reduce his contribution to the capital of the Partnership except
as a result of the dissolution of the Partnership or as otherwise provided by
law; (ii) bring an action for partition against the partnership; (iii) cause
the termination and dissolution of the Partnership by court decree or
otherwise, except as set forth in this Partnership Agreement or as provided
by law; (iv) demand or receive property other than cash in return for his
contribution; or (v) contract away the fiduciary duty owed to him by the
Sponsor under the common law. No Limited Partner shall have priority over any
other Limited Partner either as to the return of contributions of capital or
as to Net Income, Net Loss or Distributions. Other than upon the termination
and dissolution of the Partnership as provided by this Partnership Agreement,
and except as otherwise provided by this Partnership Agreement, there has
been no time agreed upon when the contribution of each Limited Partner may be
returned.
17. WITHDRAWAL, REMOVAL, BANKRUPTCY OR DISSOLUTION OF A GENERAL
PARTNER AND TRANSFER OF A GENERAL PARTNER'S INTEREST
17.1 Removal. Any General Partner may be removed as a General Partner of
the partnership upon a Majority Vote. Written notice of the removal of a
General Partner shall be served upon him either by certified or by registered
mail, return receipt requested, or by personal service. Such notice shall set
forth the date upon which the removal is to become effective.
17.2 Sale of Interest. Upon the withdrawal, removal, adjudication of
bankruptcy of a General Partner, dissolution of a corporate General Partner
or the insolvency or death of an individual General Partner ("Terminated
Partner"), the interest of such Terminated Partner in the Net Income, Net
Loss and Distributions from the Partnership shall be purchased by the
Partnership for a purchase price determined according to the provisions of
Paragraph 17.3.
17.3 Sale Price. The Terminated Partner shall receive from the Partnership
the fair market value of its interest in the Partnership, determined by
agreement between the Terminated Partner and the Partnership, or if they
cannot agree, by arbitration in accordance with the then current rules of the
American Arbitration Association. The expense of arbitration shall be borne
equally by the Terminated Partner and the Partnership. For purposes of this
Paragraph, the fair market value of the interest of the Terminated Partner
shall be deemed to be the amount the Terminated Partner would receive upon
dissolution and termination of the Partnership under Paragraph 19.2 assuming
such dissolution or termination occurred on the date of the dissolving event
specified in Paragraph 17.2 and assuming the assets of the Partnership were
sold for their then fair market value without compulsion of the Partnership
to sell such assets. In the case of voluntary withdrawal, payment shall be
made by a non-interest bearing unsecured promissory note with principal
payable, if at all, from Distributions which the Terminated Partner otherwise
would have received had the Terminated Partner not withdrawn as a General
Partner in the Partnership. In the case of involuntary withdrawal, removal,
adjudication of bankruptcy, dissolution of a corporate General Partner or
insolvency or death of an individual General Partner, payment shall be
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made by an unsecured promissory note bearing 10% simple interest per annum
on the unpaid principal amount of such promissory note with principal and all
unpaid accrued interest subject to mandatory prepayment from all Cash From
Sales or Refinancings and the remaining unpaid principal balance and accrued
interest on such promissory note due and payable five years from the date of
occurrence of an event specified in Paragraph 19.1.
17.4 Purchase Price. Should a successor General Partner be elected under
Paragraph 16.2, such successor General Partner ("Acquiring Partner") shall
purchase from the Partnership, within 60 days of its election, the interest
which the Partnership purchased from the Terminated Partner. For such
interest the Acquiring Partner shall pay the amount determined pursuant to
Paragraph 17.3 to be the fair market value of such interest. Payment shall be
made by a promissory note bearing 10% simple interest per annum on the unpaid
principal amount of the promissory note secured by assignment by the
Acquiring Partner to the Partnership of the future Distributions by the
Partnership to the Acquiring Partner, which principal amount together with
accrued interest shall be payable at the times and in the amounts equal to
75% of such Distributions until such time as the principal amount together
with accrued interest is paid in full, but shall become due and payable in
full by the Acquiring Partner at such time as the Partnership is finally
wound up and liquidated.
17.5 Managing General Partner's Interest. Until the dissolution of the
Partnership, the Managing General Partner shall not take any voluntary steps
to dissolve itself and shall not voluntarily withdraw from the Partnership.
The Managing General Partner's interest in the Partnership as a General
Partner shall not be assignable to a non-Affiliate except in connection with
any merger, consolidation or sale as provided in Paragraph 17.7 without a
Majority Vote. Any entity to which the entire interest of the Managing
General Partner in the Partnership is assigned in compliance with this
Paragraph 17.5 shall be substituted in its stead as a General Partner of the
Partnership by the remaining General Partner(s) by the filing of appropriate
amendments to this Partnership Agreement and any separate Certificate of
Limited Partnership. The foregoing notwithstanding, the Managing General
Partner may at any time assign its right to receive the Partnership
Management Fee or Subordinated Incentive Fee without the consent of any other
Partners, although any such assignment shall not relieve the Managing General
Partner of its obligation to render services for which such fees are payable.
17.6 Withdrawal of Individual General Partner. Any Individual General
Partner may withdraw from the Partnership, provided there has been 60 days'
prior written notice to the Limited Partners of such withdrawal; and
provided, further, that the Partnership first receives an opinion of counsel
to the Partnership to the effect that upon such withdrawal the Partnership
will continue to be treated as a partnership for federal income tax purposes.
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17.7 No Limitation on Merger or Reorganization. Nothing in this Agreement
shall be deemed to prevent the merger or reorganization of Freeman
Diversified Properties, Inc. into or with any other corporation, or the
transfer of all the capital stock of Freeman Diversified Properties, Inc. and
the assumption of the rights and duties of the Managing General Partner by,
in the case of a merger, reorganization or consolidation, the surviving
corporation by operation of law; provided, that, the Partnership shall have
received an opinion of counsel that immediately after such merger,
reorganization or consolidation, the Partnership shall continue to be treated
as a Partnership for federal income tax purposes.
17.8 Additional General Partners. One or more additional individual or
associate General Partners may be admitted to the Partnership, from time to
time, in the discretion of the Managing General Partner. In addition,
successor General Partners may be elected pursuant to, and as described in,
the provisions of Paragraphs 16.2.2, 17.4 and 19.1.1 of this Partnership
Agreement. In such event, the aggregate interest of the General Partners in
Partnership Net Income, Net Loss and Distributions shall be apportioned among
the General Partners in such manner as the General Partners shall agree and
will not alter the allocations between the General and Limited Partners.
18. CERTAIN TRANSACTIONS
The General Partners, any Limited Partner, any Affiliates, any
shareholder, officer, director, partner or employee thereof, or any person
owning a legal or beneficial interest therein, may engage in or possess an
interest in any other business or venture of every nature and description,
independently or with others including, but not limited to, the ownership,
financing, leasing, operation, management, brokerage and development of real
property. Except as described in the Prospectus, neither the General Partners
nor their Affiliates shall be obligated to present to the Partnership any
particular investment opportunity, regardless of whether such opportunity is
of such character that the Partnership could take it if such opportunity were
presented to the Partnership, and each General Partner and Affiliate shall
have the right to take for its own account (individually or otherwise) or to
recommend to others any such investment opportunity.
19. TERMINATION AND DISSOLUTION OF THE PARTNERSHIP
19.1 Terminating Events. The Partnership shall be terminated and dissolved
upon the earliest to occur of the following:
19.1.1 the withdrawal, removal, adjudication of bankruptcy or insolvency
of a General Partner, dissolution or other cessation to exist as a legal
entity of a corporate General Partner, or the death of an individual General
Partner unless (i) the remaining General Partner, within 60 days of the date
of such event, elects to continue the business of the Partnership, or (ii) if
there is no remaining General Partner, the Limited Partners by Majority Vote,
within 90 days of the date of such event, elect to continue the business of
the Partnership, in a reconstituted form if necessary, and elect a successor
General Partner effective as of the date of such withdrawal (expenses
incurred in reformation, or attempted reformation, of the Partnership shall
be deemed expenses of the Partnership);
19.1.2 a Majority Vote in favor of dissolution and termination of the
Partnership;
19.1.3 the expiration of the term of the Partnership;
19.1.4 the disposition of all interests in Properties and other assets of
the Partnership and the receipt of the final cash payment of the purchase
price of all such Properties and assets; or
19.1.5 the election by the General Partners, after consulting with
Partnership counsel but without the consent of any Limited Partner, in the
event that either (i) the Partnership's assets constitute "plan assets," as
such term is defined for purposes of ERISA, or (ii) any of the transactions
contemplated under this Partnership Agreement constitutes a "prohibited
transaction" under ERISA and no exemption for such transaction is obtainable
from the United States Department of Labor or the General Partners determine
not to seek such an exemption.
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<PAGE>
19.2 Liquidation and Distribution of Assets. Upon a dissolution and
termination of the Partnership for any reason, the Managing General Partner
shall take full account of the Partnership's assets and liabilities, shall
liquidate the assets as promptly as is consistent with obtaining the fair
value thereof, and shall apply and distribute the proceeds therefrom in the
following order:
19.2.1 to the payment of creditors of the Partnership, but excluding
secured creditors whose obligations will be assumed or otherwise transferred
on the liquidation of Partnership assets;
19.2.2 to the repayment of any outstanding loans made by the General
Partners to the Partnership in accordance with Paragraph 15 or any
outstanding fees; and
19.2.3 to the General Partners and Limited Partners pursuant to the
provisions of Paragraph 11 of this Partnership Agreement.
20. SPECIAL POWER OF ATTORNEY
20.1 Grant of Power of Attorney. By executing this Partnership Agreement,
each Limited Partner is hereby granting to the Managing General Partner a
special power of attorney irrevocably making, constituting and appointing the
Managing General Partner as the attorney-in-fact for such Limited Partner,
with power and authority to act in his name and on his behalf to execute,
acknowledge and swear to in the execution, acknowledgment and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
20.1.1 the Partnership Agreement, any separate Certificate of Limited
Partnership, as well as any amendments to or restatements of the foregoing
adopted in accordance with the Partnership Agreement which, under the laws of
the State of Delaware or the laws of any other state, are required to be
filed or which the Managing General Partner deems to be advisable to file;
20.1.2 any other instrument or document which may be required to be filed
by the Partnership under the laws of any state or by any governmental agency
or which the Managing General Partner deems advisable to file; and
20.1.3 any instrument or document which may be required to effect the
continuation of the Partnership for a period not in excess of the term set
forth in Paragraph 4, to reflect the admission of an additional or
substituted Partner or any reductions in amount of contributions of Partners
or the dissolution and termination of the Partnership (provided such
continuation, admission or dissolution and termination are in accordance with
the terms of this Partnership Agreement).
20.2 Character of Power of Attorney. The special power of attorney being
hereby granted by each Limited Partner:
20.2.1 is a special power of attorney coupled with an interest, is
irrevocable, shall survive the death or legal incapacity of the granting
Limited Partner, and is limited to those matters herein set forth;
20.2.2 may be exercised by the Managing General Partner acting alone for
each Limited Partner by a facsimile signature of the Managing General Partner
or by one of its officers, or by listing all of the Limited Partners
executing any instrument with a signature of the Managing General Partner or
one of its officers acting as its attorney-in-fact; and
20.2.3 shall survive an assignment by a Limited Partner of all or any
portion of his Units except that, where the assignee of the Units owned by a
Limited Partner has been approved by the Managing General Partner for
admission to the Partnership as a substituted Limited Partner, the special
power of attorney shall survive assignment for the sole purpose of enabling
the Managing General Partner to execute, acknowledge and file any instrument
or document necessary to effect such substitution.
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20.3 Consent. Each Limited Partner agrees that each special power of
attorney specified in Paragraph 20.1, with full power of substitution, is
hereby authorized and empowered to execute, acknowledge, make, swear to,
verify, deliver, record, file and/or publish, for and on behalf of such
Limited Partner, any and all instruments and documents which may be necessary
or appropriate to permit the appointment of the successor General Partner to
be lawfully made or action lawfully taken or omitted. Each Limited Partner is
fully aware that he and each other Limited Partner have executed this special
power of attorney, and that each Limited Partner will rely on the
effectiveness of such powers with a view to the orderly administration of the
Partnership's affairs.
21. INDEMNIFICATION
21.1 Agreement to Indemnify. The Partnership, its receiver or its
trustee, shall, to the maximum extent permitted by law, indemnify, save
harmless and pay all judgments and claims against the Sponsor from any
liability, loss or damage incurred by the Sponsor or by the Partnership by
reason of any act performed or omitted to be performed by the Sponsor,
including costs and reasonable attorneys' fees (which attorneys' fees may be
paid as incurred) and any amount expended in the settlement of any claim of
liability, loss or damage; provided that (i) the Sponsor must have
determined, in good faith, that the course of conduct was in the best
interests of the Partnership; (ii) such liability or loss was not the result
of negligence or misconduct by the Sponsor; and (iii) any such
indemnification shall be recoverable only from the assets of the Partnership
and not from the assets of the Limited Partners. All judgments against the
Partnership and the Sponsor, wherein the Sponsor is entitled to
indemnification, must first be satisfied from Partnership assets before such
Sponsor is responsible for these obligations. The Partnership shall not pay
for any insurance covering liability of the Sponsor for actions or omissions
for which indemnification is not permitted hereunder; provided, however, that
nothing contained herein shall preclude the Partnership from purchasing and
paying for such types of insurance, including extended coverage liability and
casualty and workers' compensation, as would be customary for any person
owning comparable assets and engaged in a similar business, or from naming
the Sponsor as an additional insured party thereunder, provided that such
addition does not add to the premiums payable by the Partnership. Nothing
contained herein shall constitute a waiver by any Limited Partner of any
right which he may have against any party under federal or state securities
laws.
21.2 Limitations. Notwithstanding the foregoing Paragraph 21.1, the
Sponsor shall not be indemnified pursuant to the foregoing Paragraph 21.1
from any liability, loss or damage incurred by it in connection with (i) any
liability imposed by law, including liability for negligence or misconduct or
(ii) any claim or settlement involving allegations that federal or state
securities law was violated by the Sponsor unless: (a) the entity seeking
indemnification is successful in defending such action on the merits of each
count involving securities laws violations and such indemnification is
specifically approved by a court of competent jurisdiction; or (b) such
claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction; or (c) a court of competent jurisdiction approves a
settlement of the claims against the entity seeking indemnification involving
securities law violations and finds that indemnification of the settlement
and related costs should be made. Any person seeking indemnification shall
apprise the court as to the current position of the Securities and Exchange
Commission, the California Commissioner of Corporations, the Massachusetts
Securities Division and other applicable state securities administrators
regarding indemnification for violations of securities law.
21.3 Advances. The Partnership may not advance any funds to the General
Partners or their Affiliates for legal expenses and other costs incurred as a
result of any legal action initiated against such person by a Limited
Partner. The Partnership may advance funds to the General Partners or their
Affiliates for legal expenses and other costs incurred as a result of a legal
action if: (i) the legal action relates to the performance of duties or
services by the General Partners or their Affiliates on behalf of the
Partnership for which they could be indemnified; (ii) the legal action is
initiated by a third party who is not a Limited Partner; and (iii) the person
receiving the advance undertakes to repay the advanced funds to the
Partnership if he is not entitled to indemnification.
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22. REPURCHASE OF UNITS
22.1 General. Commencing twenty-four months after the Final Closing Date,
any Limited Partner may present its Units to the Partnership for repurchase.
The Partnership will repurchase such Units for cash to the extent it has
funds available from the Repurchase Account, subject to the conditions
described in this Paragraph 22. The Repurchase Account will be initially
funded by 5% of Adjusted Cash From Operations of the Partnership. In the
event the Partnership's property reserve account is decreased below two
percent of the Gross Proceeds, the Managing General Partner, in its sole and
absolute discretion, may transfer funds from the Repurchase Account to the
property reserve account.
22.2 Procedures.
22.2.1 Making a Request. A Limited Partner wishing to have its Units
repurchased must mail or deliver a written request to the Partnership,
executed by such Limited Partner, its trustee or authorized agent, indicating
its desire to have such Units repurchased. Within 15 days following the
Partnership's receipt of the Limited Partner's request, the Partnership will
forward to such Limited Partner the documents necessary to effect the
repurchase, including any signature guarantee the Partnership may require.
22.2.2 Honoring of Requests. If requests for repurchases exceed the amount
available in the Repurchase Account, the Partnership will honor such requests
on a first-come, first-served basis, based on the date the Partnership
receives the completed documents necessary for the repurchase. If on a
particular day more requests are received than funds are available, all
requests received that day will be prorated, and those Limited Partners will
be deemed to have priority for subsequent Partnership repurchases over other
Limited Partners who subsequently request repurchases. In the event prorated
requests would reduce the remaining Units of any Limited Partners to a number
less than the minimum, the Managing General Partner, in its sole and absolute
discretion, may honor certain of such requests in their entirety and defer in
their entirety the repurchase of such other Units based upon such method of
random choice as the Managing General Partner, in its sole and absolute
discretion, may determine. Any Units repurchased by the Partnership will be
cancelled.
22.2.3 Effective Date. The effective date of a repurchase shall be the
last day of the first full fiscal quarter preceding the receipt by the
Partnership of the written request for such repurchase.
22.2.4 Valuation. For valuation purposes, any Units to be repurchased
shall be deemed to be repurchased on a date not earlier than the date on
which the final Distribution to which such Limited Partner is entitled is
made or the date on which the amount of any such final Distribution is
determinable.
22.3 Repurchase Price. The repurchase price will be equal to 90% of the
net asset valuations of the Units, as of the last annual valuation pursuant
to Paragraph 14.5, less any Distributions made to such Limited Partner and/or
to which such Limited Partner is entitled but has yet to receive since such
valuation date.
22.4 Suspension. The Managing General Partner may suspend the repurchase
of Units if: (i) it determines, in its sole discretion, that such repurchase
impairs the capital or the operations of the Partnership; (ii) it determines,
in its sole discretion, that an emergency makes such repurchase not
reasonably practical; or (iii) any governmental or regulatory agency with
jurisdiction over the Partnership so demands for the protection of the
Limited Partners.
22.5 Termination. The Managing General Partner may, in its sole
discretion, terminate the repurchase of Units at any time. Any funds
remaining in the Repurchase Account after such termination shall be
distributed as Distributable Cash From Operations.
23. MISCELLANEOUS
23.1 Counterparts. This Partnership Agreement may be executed in several
counterparts and all so executed shall constitute one Partnership Agreement,
binding on all of the parties hereto, notwithstanding that all of the parties
are not signatory to the original or the same counterpart.
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23.2 Binding Provisions. The terms and provisions of this Partnership
Agreement shall be binding upon and shall inure to the benefit of the
successors and assigns of the respective Partners.
23.3 Severability. In the event any sentence or paragraph of this
Partnership Agreement is declared by a court of competent jurisdiction to be
void, such sentence or paragraph shall be deemed severed from the remainder
of the Partnership Agreement and the balance of the Partnership Agreement
shall remain in effect.
23.4 Notice. All notices under this Partnership Agreement shall be in
writing and shall be given to the Limited Partner entitled thereto, by
personal service or by mail, posted to the address maintained by the
Partnership for such person or at such other address as he may specify in
writing.
23.5 Headings. Paragraph titles or captions contained in this Partnership
Agreement are inserted only as a matter of convenience and for reference.
Such titles and captions in no way define, limit, extend or describe the
scope of this Partnership Agreement nor the intent of any provision hereof.
23.6 Meanings. Whenever required by the context hereof, the singular
shall include the plural, and vice-versa; the masculine gender shall include
the feminine and neuter genders, and vice-versa; and the word "person" shall
include a corporation, partnership, firm or other form of association.
23.7 List of General and Limited Partners. The names, business, residence
or mailing addresses and capital contributions of the General and Limited
Partners are set forth on Exhibit I attached hereto, which exhibit shall be
maintained at the principal place of business of the partnership.
23.8 Governing Law. Notwithstanding the place where this Partnership
Agreement may be executed by any of the parties hereto, the parties expressly
agree that all the terms and provisions hereof shall be construed under the
internal laws, and not the laws pertaining to conflicts or choice of law, of
the State of Delaware and that the Delaware Revised Uniform Limited
Partnership Act as now adopted and as hereafter amended shall govern the
partnership aspects of this Partnership Agreement.
23.9 Other Jurisdictions. In the event the business of the Partnership is
carried on or conducted in states in addition to the State of Delaware, then
the parties agree that this Partnership shall be qualified under the laws of
each state in which business is actually conducted by the Partnership, and
they severally agree to execute such other and further documents as may be
required or requested in order that the Managing General Partner legally may
qualify this Partnership in such states. The power of attorney granted to the
Managing General Partner by each Limited Partner in Paragraph 20 shall
constitute the authority of the Managing General Partner to perform the
ministerial duty of qualifying this Partnership under the laws of any state
in which it is necessary to file documents or instruments of qualification. A
Partnership office or principal place of business in any state may be
designated from time to time by the Managing General Partner.
GENERAL PARTNERS:
MANAGING GENERAL PARTNER:
FREEMAN DIVERSIFIED PROPERTIES, INC.
By: /s/ Frank M. Garrison
----------------------------------
Frank M. Garrison, President
INDIVIDUAL GENERAL PARTNER: ORIGINAL LIMITED PARTNER:
/s/ James T. Gunn /s/ Susan L. Freeman
- ------------------------------- ----------------------------
James T. Gunn Susan L. Freeman
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<PAGE>
EXHIBIT I
FREEMAN GROWTH PLUS, L.P.
GENERAL PARTNERS
<TABLE>
<CAPTION>
CAPITAL
NAME AND ADDRESS CONTRIBUTION
- ---------------------------------------- ----------------
<S> <C>
Freeman Diversified Properties, Inc. ... $ 967
2517 Lebanon Road
Nashville, Tennessee 37214
James T. Gunn ........................... $ 33
2517 Lebanon Road
Nashville, Tennessee 37214
</TABLE>
LIMITED PARTNER
<TABLE>
<CAPTION>
CAPITAL
NAME AND ADDRESS CONTRIBUTION
- -------------------------- --------------
<S> <C>
Susan L. Freeman ........................... $ 5,000
2517 Lebanon Road
Nashville, Tennessee 37214
</TABLE>
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<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
One Insignia Financial Plaza o P.O. Box 1089
Greenville, South Carolina 29602
(803) 239-1000
August 13, 1993
Metropolitan Asset Enhancement, L.P.
One Insignia Financial Plaza
Greenville, South Carolina 29602
Gentlemen:
We are pleased to set forth the terms of the retention of Insignia
Financial Group, Inc. and its subsidiaries ("Insignia") by Metropolitan Asset
Enhancement, L.P. ("MAE"). Capitalized terms used herein but not otherwise
defined herein shall have the meanings ascribed thereto in that certain
Securities Purchase Agreement, dated as of May 27, 1992, as amended, by and
among Insignia Financial Group, Inc., Metropolitan Acquisition Partners IV,
L.P., and M-VI Limited Liability Company (then known as IFG Limited Liability
Company). The parties hereto understand and agree that this Agreement supersedes
all previous agreements between the parties hereto with respect to the subject
matter hereof including, without limitation, that certain Agreement, dated April
15, 1993, between the parties hereto (the "Prior Agreement") in its entirety,
and that the Prior Agreement shall be of no further force or effect upon the
execution and delivery of this Agreement by the parties hereto.
1. From the date hereof to the Termination Date (as hereinafter defined),
Insignia will assist MAE as its advisor and agent in connection with MAE's
acquisition, asset management, property management, and securitization
activities, and in connection therewith shall perform all services relating to
the foregoing (the "Financial Services"), which Financial Services shall
include, without limitation, preparation of audits of MAE's financial
statements, preparation of MAE's tax returns, analysis and consummation of
distributions to the partners in MAE, the rendering of advice regarding
dispositions of assets by MAE, analyses of the tax status of and tax planning
for MAE, preparation and distribution of correspondence from MAE to its
partners, and other administrative services.
2. From the date hereof to the Termination Date, Insignia shall render to
MAE full investment banking, financial advisory, recapitalization, asset
restructuring, securitization, and mortgage banking services. As sole
compensation for the provision of such services, Insignia shall receive
Incentive Management Fees and Transaction Fees. For purposes of this Agreement,
(a) "Incentive Management Fees" shall be defined as fifty percent (50%) of all
Net Proceeds (as hereinafter defined) with respect to assets acquired by MAE on
and after the date hereof and prior to the Termination Date; provided, however,
that the
<PAGE>
Metropolitan Asset Enhancement, L.P.
Page Two
August 13, 1993
Incentive Management Fee with respect to any such asset shall be 75% of all
such Net Proceeds if Insignia provided financing to MAE in accordance with
Section 3 hereof in connection with MAE's acquisition of such asset; and (b)
"Transaction Fees" shall be defined as fees payable to Insignia by MAE in
connection with specific transactions, which fees shall be negotiated on a
case-by-case basis. As used herein, "Net Proceeds," with respect to any such
asset, shall mean (i) the total aggregate proceeds actually realized by MAE from
the sale of such asset, net of (v) all principal of and accrued interest upon
any indebtedness secured in whole or in part by such asset to the extent repaid
with such proceeds, (w) all federal, state, and local taxes paid by the seller
of such asset with respect to such sale, (x) all costs and other expenses,
including, without limitation, accounting fees, legal fees and disbursements,
survey fees, title fees, and recording fees, incurred by the seller of such
asset with respect to such sale, (y) all payments made hereunder with respect to
such sale other than the Incentive Management Fee, and (z) all of such proceeds
paid to any person who is not then an Affiliate of MAE pursuant to any equity
participation arrangement, (ii) the total aggregate proceeds actually realized
by MAE from any refinancing of such asset, net of (v) all principal of and
accrued interest upon any indebtedness secured in whole or in part by such asset
to the extent repaid with such proceeds, (w) all federal, state, and local taxes
paid by the owner of such asset with respect to such refinancing, (x) all costs
and other expenses, including, without limitation, accounting fees, legal fees
and disbursements, survey fees, title fees, and recording fees, incurred by the
owner of such asset with respect to such refinancing, (y) all payments made
hereunder with respect to such refinancing other than the Incentive Management
Fee, and (z) all of such proceeds paid to any person who is not then an
Affiliate of MAE pursuant to any equity participation arrangement, and (iii) all
of the net cash flow of such asset actually received by MAE. Nothing contained
herein shall preclude Insignia from collecting asset fees or property management
fees from assets controlled by MAE if Insignia is a party to a contract between
Insignia and such asset or the owner thereof.
3. MAE and Insignia agree that, in the event either obtains an opportunity
to acquire interests in real estate or in entities which own or control real
estate, Insignia shall be granted the first right to acquire such interests. MAE
and Insignia further agree that, if Insignia elects not to acquire such
interests, but MAE does elect to acquire such interests and Insignia elects to
provide any financing to MAE for such acquisition, such financing shall be by
means of loans, bearing interest at a rate equal to the rate then paid by
Insignia on any revolving credit facility (or, if Insignia then has no such
facility, the rate Insignia estimates in good faith it would pay on such a
facility) and containing such other terms as shall be approved by a majority of
the directors of Insignia then in office who are neither (a) officers of
Insignia, or (b) partners (or officers, directors, or principal stockholders of
partners) of MAE of any of its partners (collectively, the "Independent
Directors"). Notwithstanding any provision of this Agreement to the contrary,
the parties hereto understand and agree that (i) MAE may request that Insignia
provide financing to MAE for any asset owned by MAE on the date hereof (an
"Existing Asset"), (ii) if Insignia elects to
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Metropolitan Asset Enhancement, L.P.
Page Three
August 13, 1993
provide any financing to MAE for an Existing Asset on and after the date
hereof, such financing shall be by means of loans, bearing interest at a rate
equal to the rate then paid by Insignia on any revolving credit facility (or, if
Insignia then has no such facility, the rate Insignia estimates in good faith it
would pay on such a facility) and containing such other terms as shall be
approved by a majority of the Independent Directors, and (iii) in the event that
Insignia provides any such financing to MAE for any Existing Asset on or after
the date hereof, Insignia shall receive Existing Asset Incentive Management Fees
(as hereinafter defined) with respect to such Existing Asset on and after the
date that Insignia so provides such financing. For purposes of this Agreement,
"Existing Asset Incentive Management Fees" shall be defined as fifty percent
(50%) of all Net Proceeds with respect to any such Existing Asset. Insignia
agrees that it shall be responsible for, and shall indemnify and hold harmless
MAE and its subsidiaries against any liability on account of, the bank
indebtedness incurred jointly by Insignia and a subsidiary of MAE in connection
with the acquisition of assets from Angeles Corporation and certain of the
affiliates thereof.
4. As additional consideration for the performance by Insignia of Financial
Services for MAE, MAE agrees:
(a) to cause, and to cause each of its Subsidiaries and Control Affiliates
(as hereinafter defined) to cause, Insignia to be retained (directly or by
assignment of a management agreement (a "Pre-Existing Agreement") in existence
on the date hereof or the date a property becomes a Controlled Property or a
Managed Property (each as hereinafter defined)) as manager of all Controlled
Properties and Managed Properties, until the termination of this Agreement
pursuant to Section 8 hereof, unless (i) MAE or such Subsidiary or Controlled
Affiliate does not possess the power to cause Insignia to be so retained, (ii)
assignment of a management contract is prohibited by a pre-existing condition in
such Pre-Existing Agreement, provided that MAE shall or shall cause such
Subsidiary or Controlled Affiliate to use its reasonable efforts to cause such
pre-Existing Agreement to terminate as soon as possible and thereafter to cause
Insignia to be retained in accordance with this Section 4(a), (iii) a
Pre-Existing Agreement has a non-renewable term of 30 days or less, or (iv) MAE
determines that so retaining Insignia in such instance could cause MAE or such
Subsidiary or Controlled Affiliate to violate any of its fiduciary duties;
(b) that, until the Termination Date, it will not, and will not permit any
of its Subsidiaries or Controlled Affiliates to, acquire any ownership interest
in real property (or in a person that has an ownership interest in real
property), unless in compliance with Section 4(a) hereof; and
(c) that it will not, and will not permit any of its Subsidiaries or
Controlled Affiliates to, dispose of any asset which represents a direct or
indirect interest in a Controlled Property or a Managed Property unless the sum
(the "Insignia Payment") of (i) the proceeds of such disposition that are
attributable to Insignia with respect to its limited partnership
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Metropolitan Asset Enhancement, L.P.
Page Four
August 13, 1993
interest in MAE, (ii) any brokerage or other fees paid to Insignia in
connection with such disposition, and (iii) any incentive fees or other
participations (including, without limitation, Incentive Management Fees and
Transaction Fees) payable to Insignia upon the disposition of such asset, is
equal to or greater than 150% of the Annualized Fees (as hereinafter defined)
with respect to such asset; provided, however, that (x) MAE or such Subsidiary
or Controlled Affiliate may dispose of such asset notwithstanding the foregoing
if (A) MAE or such Subsidiary or Controlled Affiliate pays to Insignia an amount
(the "Insignia Fee") equal to the excess of 150% of the Annualized Fees over the
Insignia Payment, (B) MAE or such Subsidiary or Controlled Affiliate is
required, in its good faith determination, to dispose of such asset to fulfill
any of its fiduciary duties and MAE or such Subsidiary or Controlled Affiliate
pays to Insignia the Net Proceeds realized by MAE or such Subsidiary or
Controlled Affiliate as a result of such disposition, or (C) MAE or such
Subsidiary or Controlled Affilate is required to make such disposition as a
result of any provision in any partnership or other agreement relating to such
asset, any vote of partners or stockholders, any foreclosure or similar
proceeding, or any order of a court of competent jurisdiction and MAE or such
Subsidiary or Controlled Affiliate pays to Insignia the Net Proceeds realized by
MAE or such Subsidiary or Controlled Affiliate as a result of such disposition,
and (y) MAE and its Subsidiaries and Controlled Affiliates shall not be
obligated to pay the Insignia Payment or any of the foregoing payments with
respect to the disposition of an asset if (A) neither MAE nor any of its
Subsidiaries or Controlled Affiliates controlled the determination to make such
disposition and MAE or such Subsidiary or Controlled Affiliate pays to Insignia
the Net Proceeds realized by MAE or such Subsidiary or Controlled Affiliate as a
result of such disposition, or (B) such disposition does not result in the
termination of any Recurring Fee Income (as hereinafter defined) to Insignia
with respect to the assets being disposed.
As used in this Agreement, (I) "Controlled Affiliate" of any person shall
mean any Affiliate of such person which is controlled by such person, (II)
"Affiliate," "Control," and "Controlled" shall have the meaning ascribed to such
terms in Rule 12b-2 promulgated by the Commission under the Securities Exchange
Act, (III) "Controlled Properties" shall mean all properties which on the date
hereof are, or at any time hereafter and prior to the Termination Date become,
and so long as such properties are, owned by any partnership or other entity
which is Controlled by MAE or any Subsidiary or Controlled Affiliate, (IV)
"Managed Properties" shall mean all properties which on the date hereof are, or
at any time hereafter and prior to the Termination Date become, and so long as
such properties are, managed by MAE or any Subsidiary or Controlled Affiliate;
(V) "Annualized Fees," with respect to any asset, shall mean the aggregate gross
amount of all Recurring Fee Income received by Insignia attributable to such
asset during the twelve-month period ending on the last day of the month prior
to the month in which a disposition of such asset occurs, provided that if MAE
or its subsidiary or Controlled Affiliate has held such asset for less than
twelve full calendar months, "Annualized Fees" with respect to such asset shall
mean the aggregate amount of all Recurring Fee Income received by Insignia for
the full calendar
<PAGE>
Metropolitan Asset Enhancement, L.P.
Page Five
August 13, 1993
months in the period ending on the last day of such prior month multiplied
by a fraction, the numerator of which is 12 and the denominator of which is the
number of such full calendar months; and (VI) "Recurring Fee Income," with
respect to any asset, shall mean all fees payable to Insignia for property
management, asset management, and other Financial Services, excluding only fees
payable to Insignia in connection with specific non-recurring transactions.
5. In connection with Insignia's activities on MAE's behalf, (i) Insignia
will familiarize itself with the business, operations, properties, financial
condition, and prospects of MAE, and (ii) MAE will cooperate with Insignia,
furnish Insignia with all information and data concerning MAE and other parties
as appropriate (the "Information") which Insignia deems appropriate, and provide
Insignia with access to MAE's officers, directors, employees, independent
accountants, and legal counsel. MAE acknowledges and agrees that Insignia does
not assume responsibility for the accuracy or completeness of the Information or
any other information regarding MAE or any other person other than Insignia. Any
advice rendered by Insignia pursuant to this Agreement may not be disclosed
publicly without Insignia's prior written consent, which consent shall not be
unreasonably withheld.
6. MAE shall promptly reimburse Insignia, upon request from time to time,
for all pre-approved third party out-of-pocket expenses incurred by Insignia in
connection with the matters contemplated by this Agreement.
7. MAE agrees to indemnify Insignia in accordance with the indemnification
provisions (the "Insignia Indemnification Provisions") attached to this
Agreement as Exhibit A hereto, which Insignia Indemnification Provisions are
incorporated herein and hereby made a part hereof. Insignia agrees to indemnify
MAE and its general partner in accordance with the indemnification provisions
(the "MAE Indemnification Provisions") attached to this Agreement as Exhibit B
hereto, which MAE Indemnification Provisions are incorporated herein and hereby
made a part hereof.
8. This Agreement shall terminate upon April 15, 2018 without liability or
continuing obligation except as set forth in the following sentence. This
Agreement may be terminated prior to such date by the provision by MAE to
Insignia of written notice of such termination in the event that (i) MAE
provides Insignia with written notice of any act or failure to take action by
Insignia that constitutes "material negligence or willful misconduct" (as
hereinafter defined) by Insignia in the performance of its duties hereunder,
which written notice shall set forth in reasonable detail such material
negligence or willful misconduct, and (ii) such material negligence or willful
misconduct either shall continued unremedied for a period of 15 days after
Insignia receives such notice or is not capable of being remedied within 15 days
after Insignia receives such notice, which earlier termination shall be without
continuing liability or obligation except as otherwise set forth in this Section
8. For purposes of this Section 8, "material negligence or willful misconduct"
shall mean negligence or wilful
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Metropolitan Asset Enhancement, L.P.
Page Six
August 13, 1993
misconduct that is material to the relationship between MAE and Insignia
contemplated by this Agreement, including the engagement of Insignia as manager
of all Controlled Properties and Managed Properties, taken as a whole, such that
failure to terminate this Agreement would constitute a breach by MAE of its
fiduciary duties. Neither termination of this Agreement nor completion of any
assignment contemplated hereby shall effect (a) the reimbursement of expenses
incurred by Insignia up to the date of termination or completion, as the case
may be, (b) the provisions of Sections 6 through 12, inclusive, of this
Agreement, or (c) the attached Insignia Indemnification Provisions and MAE
Indemnification Provisions which are incorporated by reference herein, all of
which shall remain operative and in full force and effect.
9. Notwithstanding any provision of this Agreement to the contrary, this
Agreement shall not be effective with respect to any assets acquired by MAE or
any of its Subsidiaries or Controlled Affiliates after the date which is the
earliest to occur of (a) the date that Andrew L. Farkas is no longer employed by
or subject to a legally binding non-competition agreement in favor of Insignia,
(b) the date that neither Andrew L. Farkas nor any of his Affiliates Controls
MAE, and (c) the date of termination of this Agreement pursuant to Section 8
(the earliest to occur of such dates being referred to herein as the
"Termination Date").
10. The validity and interpretation of this Agreement shall be governed by
the laws of the State of South Carolina applicable to agreements made and to be
fully performed therein. MAE irrevocably submits to the jurisdiction and venue
of any court of the State of South Carolina or the United States District Court
for the State of South Carolina for the purpose of any suit, action, or other
proceeding arising out of this Agreement.
11. The benefits of this Agreement shall inure to the respective successors
and assigns of the parties hereto and of the indemnified parties hereunder and
their successors and assigns and representatives, and the obligations and
liabilities assumed in this Agreement by the parties hereto shall be binding
upon their respective successors and assigns.
12. For the convenience of the parties hereto, any number of counterparts
of this Agreement may be executed by the parties hereto. Each such counterpart
shall be, and shall be deemed to be, an original instrument, but all such
counterparts taken together shall constitute one and the same Agreement. This
Agreement may not be modified or amended except in writing signed by the parties
hereto and approved by a majority of the Independent Directors.
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Metropolitan Asset Enhancement, L.P.
Page Seven
August 13, 1993
If the foregoing correctly sets forth our Agreement, please execute the
enclosed copy of this letter in the space provided and return it to us.
Very truly yours,
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ WILLIAM N. PAGE
-------------------------
Name: William N. Page
Title: President
Confirmed and agreed to as of the date first above written:
METROPOLITAN ASSET ENHANCEMENT, L.P.
By: MAE Parent, Incorporated, General Partner
By: /s/ ANDREW L. FARKAS
----------------------
Name: Andrew L. Farkas
Title: President
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Metropolitan Asset Enhancement, L.P.
Page Eight
August 13, 1993
EXHIBIT A
INSIGNIA INDEMNIFICATION PROVISIONS
Metropolitan Asset Enhancement, L.P. ("MAE") agrees to indemnify and hold
harmless Insignia Financial Group, Inc. ("Insignia") against any and all losses,
claims, damages, obligations, penalties, judgments, awards, liabilities, costs,
expenses, and disbursements (and any and all actions, suits, proceedings, and
investigations in respect thereof and any and all legal and other costs,
expenses, and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including, without limitation, preparing
or defending any such action, suits, proceedings, or investigation (whether or
not in connection with litigation in which Insignia is a party), directly or
indirectly caused by, relating to, based upon, arising out of, or in connection
with Insignia's acting for MAE or any of its Subsidiaries or Controlled
Affiliates (as defined in the Agreement hereinafter referred to), including,
without limitation, any act or omission by Insignia in connection with its
acceptance of or the performance or non-performance of its obligations under the
letter agreement, dated August 13, 1993, between Insignia and MAE, as it may be
amended, modified, or superseded at any time and from time to time (the
"Agreement"); provided, however, that such indemnity agreement shall not apply
to any portion of any such loss, claim, damage, obligation, penalty, judgment,
award, liability, cost, expense, or disbursement to the extent it is found to
have resulted from the negligence or willful misconduct of Insignia.
These Insignia Indemnification Provisions shall be in addition to any
liability which MAE may otherwise have to Insignia or the persons indemnified
below in this sentence and shall extend to the following: Insignia, its
affiliates other than MAE, and their respective directors, officers, partners,
employees, legal counsel, agents, and controlling persons (within the meanings
of the federal securities laws). All references to Insignia in these Insignia
Indemnification Provisions shall be understood to include any and all of the
foregoing.
If any action, suit, proceeding, or investigation is commenced, as to which
Insignia proposes to demand indemnification, it shall notify MAE with reasonable
promptness; provided, however, that any failure by Insignia to notify MAE shall
not relieve MAE from its obligations hereunder. Insignia shall have the right to
retain counsel of its own choice to represent it, and MAE shall pay the fees,
expenses, and disbursements of such counsel; and such counsel shall, to the
extent consistent with its professional responsibilities, cooperate with MAE and
any counsel designated by MAE. MAE shall be liable for any settlement of any
claim against Insignia made with MAE's written consent. MAE shall not, without
the prior written consent of Insignia, settle or compromise any claim, or permit
a default or consent to the entry of any judgment in respect thereof, unless
such settlement, compromise, or consent includes, as an unconditional term
thereof, the giving by the claimant to Insignia of an unconditional release from
all liability in respect of such claim.
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Metropolitan Asset Enhancement, L.P.
Page Nine
August 13, 1993
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these Insignia Indemnification Provisions is made
but is found in a judgment by a court of competent jurisdiction that such
indemnification may not be enforced in such case, even though the express
provisions hereof provide for indemnification in such case, then MAE, on the one
hand, and Insignia, on the other hand, shall contribute to the losses, claims,
damages, obligations, penalties, judgments, awards, liabilities, costs,
expenses, and disbursements to which the indemnified persons may be subject in
accordance with the relative benefits received by MAE, on the one hand, and
Insignia, on the other hand, in connection with the statements, acts, or
omissions which resulted in such losses, claims, damages, obligations,
penalties, judgments, awards, liabilities, costs, expenses, or disbursements and
the relevant equitable considerations shall also be considered. No person found
liable for a fraudulent misrepresentation shall be entitled to contribution from
any person who is not also found liable for such fraudulent misrepresentation.
Notwithstanding the foregoing, Insignia shall not be obligated to contribute any
amount hereunder that exceeds the amount of fees previously received by Insignia
pursuant to the Agreement.
Neither termination nor completion of the engagement of Insignia referred
to above shall affect these Insignia Indemnification Provisions which shall
then remain operative and in full force and effect.
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Metropolitan Asset Enhancement, L.P.
Page Ten
August 13, 1993
MAE INDEMNIFICATION PROVISIONS
Insignia Financial Group, Inc. ("Insignia") agrees to indemnify and hold
harmless Metropolitan Asset Enhancement, L.P. ("MAE") against any and all
losses, claims, damages, obligations, penalties, judgments, awards, liabilities,
costs, expenses, and disbursements (and any and all actions, suits, proceedings,
and investigations in respect thereof and any and all legal and other costs,
expenses, and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise), including, without limitation, preparing
or defending any such action, suits, proceeding, or investigation (whether or
not in connection with litigation in which MAE is a party), directly or
indirectly caused by, relating to, based upon, arising out of, or in connection
with Insignia's acting for MAE or any of its Subsidiaries or Controlled
Affiliates (as defined in the Agreement hereinafter referred to), including,
without limitation, any act or omission by Insignia, to the extent that any such
loss, claim, damage, obligation, penalty, judgment, award, liability, cost,
expense, or disbursement resulted from the negligence or willful misconduct of
Insignia in connection with its acceptance of or the performance or
non-performance of its obligations under the letter agreement, dated August 13,
1993, between Insignia Financial Group, Inc. and Metropolitan Asset Enhancement,
L.P., as it may be amended, modified, or superseded at any time and from time to
time (the "Agreement").
These MAE Indemnification Provisions shall be in addition to any liability
which Insignia may otherwise have to MAE or the persons indemnified below in
this sentence and shall extend to the following: MAE, its affiliates other than
Insignia and its Subsidiaries, their respective directors, officers, partners,
employees, legal counsel, agents, and controlling persons (within the meanings
of the federal securities laws). All references to Isignia in these MAE
Indemnification Provisions shall be understood to include any and all of the
foregoing.
If any action, suit, proceeding, or investigation is commenced, as to
which MAE proposes to demand indemnification, it shall notify Insignia with
reasonable promptness; provided, however, that any failure by MAE to notify
Insignia shall not relieve Insignia from its obligations hereunder. MAE shall
have the right to retain counsel of its own choice to represent it, and Insignia
shall pay the fees, expenses, and disbursements of such counsel; and such
counsel shall, to the extent consistent with its professional responsibilities,
cooperate with Insignia and any counsel designated by Insignia. Insignia shall
be liable for any settlement of any claim against MAE made with Insignia's
written consent. Insignia shall not, without the prior written consent of MAE,
settle or compromise any claim, or permit a default or consent to the entry of
any judgment in respect thereto, unless such settlement, compromise, or consent
includes, as an unconditional term thereof, the giving by the claimant to MAE
of an unconditional release from all liability in respect of such claim.
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Metropolitan Asset Enhancement, L.P.
Page Eleven
August 13, 1993
In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these MAE Indemnification Provisions is made but
is found in a judgment by a court of competent jurisdiction that such
indemnification may not be enforced in such case, even though the express
provisions hereof provide for indemnification in such case, then Insignia, on
the one hand, and MAE, on the other hand, shall contribute to the losses,
claims, damages, obligations, penalties, judgments, awards, liabilities,
costs, expenses, and disbursements to which the indemnified persons may be
subject in accordance with the relative benefits received by Insignia, on the
one hand, and MAE, on the other hand, in connection with the statements,
acts, or omissions which resulted in such losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses, or
disbursements and the relevant equitable considerations shall also be
considered. No person found liable for a fraudulent misrepresentation shall
be entitled to contribution from any person who is not also found liable for
such fraudulent misrepresentation.
Neither termination nor completion of the engagement of Insignia referred
to above shall affect these MAE Indemnification Provisions which shall then
remain operative and in full force and effect.
