UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
{ X } ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
----------------------------
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15747
Brown-Flournoy Equity Income Fund Limited Partnership
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-1688140
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
225 East Redwood Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (410) 727-4083
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to section 12(g) of the Act:
Class A Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of December 31, 1995, there were 26,900 Units of Class A Limited
Partnership Interests held by non-affiliates of the Registrant. Because there is
not an established public trading market for the Units, the aggregate market
value of the Units held by non-affiliates of the Registrant cannot be
calculated.
Documents Incorporated by Reference
Portions of the Prospectus of Registrant, dated August 28, 1986, as filed with
the Securities and Exchange Commission pursuant to Rule 424(b) under the
Securities Act of 1933, as amended and the Supplements thereto, are incorporated
by reference in Parts I, II, III and IV of this Annual Report on Form 10-K. The
Annual Report for 1995 is incorporated by reference.
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
INDEX
Page(s)
Part I
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
Part II.
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 4-5
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5-7
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8
Part III.
Item 10. Directors and Executive Officers of the Registrant 8-9
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners
and Management 9
Item 13. Certain Relationships and Related Transactions 9-10
Part IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 10-13
Signatures 14
-2-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
PART I
Item 1. Business
Brown-Flournoy Equity Income Fund Limited Partnership (the "Fund") is a
Delaware limited partnership formed on June 25, 1986 to develop and operate four
residential apartment communities in Georgia and South Carolina. The capital
raised from the admission of investors enabled the Fund to acquire the property
and improvements and complete the construction of the four apartment communities
by the end of 1987. See Item 2, Properties, herein.
The General Partners of the Fund are Brown Equity Income Properties, Inc.,
a Maryland corporation (the "Administrative General Partner"), and John F.
Flournoy (the "Development General Partner").
Reference is made to the Prospectus (the "Prospectus") of the Registrant,
dated August 28, 1986, filed with the Securities and Exchange Commission
pursuant to Rule 424 (b) under the Securities Act of 1933, as amended, in
connection with the Registrant's Registration Statement on Form S-11 (file No.
33-6924). Supplements to the Prospectus ("Supplements") have been filed with the
Securities and Exchange Commission upon completion of the minimum offering,
dated October 29, 1986, and subsequent closings dated December 8, 1986, January
14, 1987, and February 16, 1987. Pursuant to the Registration Statement, a
maximum of 27,000 units were registered under the Securities and Exchange Act of
1933, as amended. During 1986 and 1987, all 27,000 units were sold, and the
Registrant's net proceeds available for investment aggregated $25,110,000 (gross
proceeds of $27,000,000 less selling commissions and offering and promotion
expenses paid of $1,797,300 and volume discounts of $92,700).
Funding for the acquisition of the land and improvements and construction
of the apartment units was initially provided by capital raised by the Fund's
$27,000,000 equity offering which commenced in the latter part of 1986 and was
fully subscribed in February, 1987 with the admission of investors holding the
final Class A Limited Partnership interests (the "Units"). Each of the four
apartment communities was built within the terms of the fixed price construction
contracts and all were completed ahead of the schedule required by the
construction contracts.
The Fund secured first mortgage loans of $20.8 million on its properties on
August 30, 1989. The loan proceeds were used to return approximately 60% of
original equity to investors (approximately $16.2 million), repay certain
deferred fees and establish reserves. The Fund took on the additional expense of
monthly debt service payments resulting in a reduction of operating cash
available for future distributions. Throughout 1995, the Fund's working capital
not currently needed for improvements or other needs was invested, primarily in
certificates of deposit or money market accounts.
The Fund's residential apartment communities face competition with similar
properties in their locations. The competition is based on the properties
proximity to area employers and commercial and retail facilities. In addition,
consideration has been given to the comparability of quality, amenities, rental
rates and unit sizes. The Fund's annual report discusses the current leasing at
the properties and is incorporated by reference in Item 14. Exhibits, Financial
Statement Schedules and Reports on Form 8-K, herein.
Pursuant to the terms of a property management agreement with the Fund,
each of the Properties is managed by Flournoy Properties, Inc., the property
manager, and the agreement is now renewable on a year-to-year basis. The
property manager receives a property management fee for each Property of 5% of
gross monthly operating revenues of the Property. Under the terms of each of the
property management agreements, the property manager is responsible for
performing, or paying others to perform on its behalf, all leasing-related and
other property management services for the properties. The management and
administration of the Fund is performed by the General Partners or an affiliate
thereof.
-3-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties
The Fund owns the land and improvements as described below:
Name and Location of Property
Description of Property
Southland Station
Warner Robins, Houston County,
Georgia
A 160-unit garden apartment community consisting of twelve two-story buildings,
a swimming pool, tennis courts and a clubhouse on approximately 15 acres of
land.
Park Place
Spartanburg County,
South Carolina
A 184-unit garden apartment community consisting of thirteen two-story
buildings, a swimming pool, tennis courts and a clubhouse on approximately 14.4
acres of land.
Hidden Lake - Phase Two
Union City, Fulton County,
Georgia
A 160-unit garden apartment community consisting of thirteen two-story
buildings. The property shares two swimming pools, tennis courts, a sport court
and a clubhouse with an existing 160-unit apartment complex adjacent to the site
and is located on approximately 16.2 acres of land.
High Ridge
Athens, Clarke County,
Georgia
A 160-unit garden apartment community consisting of eleven two-and-three-story
buildings, swimming pools, tennis courts and a clubhouse on approximately 18
acres of land.
For additional information on the properties, reference is made to the
information set forth under "The Properties" at pages 36 through 47 of the
Prospectus, which is incorporated herein by reference.
Item 3. Legal Proceedings
The Fund is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders for a vote during
the last quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
An established public trading market for the Units does not exist and the
Fund does not anticipate that a public market will develop. Transfer of Units by
an investor and purchase of Units by the Fund may be accommodated under certain
terms and conditions. Reference is made to "Transfer and Repurchase of Units" at
pages 84 and 85 of the Prospectus and to the Amended and Restated Agreement of
Limited Partnership, Article VII, "Admission of Additional and Substitute
Limited Partners and Transferability of a Limited Partner's Interest" set forth
at pages 23 through 25 of Exhibit B to the Prospectus, which are incorporated
herein by reference.
-4-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters (continued)
As of December 31, 1995, there were 1,148 holders of Units of the
registrant, owning an aggregate of 27,000 units. In 1995, the Fund made four
quarterly distributions from operations totaling $551,020 and a special
distribution from settlement proceeds received in 1994 of $275,511. In 1994, the
Fund made four quarterly distributions from operations totaling $551,020, and a
special distribution of financing proceeds to Class A Limited Partners of
$800,000. In 1993, the Fund made four quarterly distributions from operations
totaling $551,020. In 1992, the Fund made four quarterly distributions from
operations of $385,818 and $165,202 from working capital reserves, aggregating
$551,020. In 1991, the Fund made four quarterly distributions from operations of
$298,989, and $252,031 from working capital reserves, aggregating $551,020.
Item 6. Selected Financial Data
Revenues and net earnings (loss) information furnished below is for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
Revenues:
<S> <C> <C> <C> <C> <C>
Rental income ...... $ 4,644,851 $ 4,451,569 $ 4,244,572 $ 4,012,849 $ 3,861,259
Interest income .... 67,677 49,805 57,850 77,481 156,220
Gain on settlement
of lawsuit ...... 299,228 -- -- -- --
Net loss ........... (116,742) (411,601) (497,282) (718,240) (993,005)
Net loss per unit .. (4.24) (14.94) (18.05) (26.07) (36.04)
Total assets ....... 16,786,004 17,842,224 19,656,345 20,591,485 22,196,870
Mortgage loans
payable ......... 20,200,950 20,326,886 20,356,533 20,356,533 20,800,000
Partners'
capital (deficit) (3,998,981) (3,055,708) (1,293,087) (244,785) 1,024,475
Cash distributions
paid per unit ... 30.00 49.63 20.00 20.00 20.00
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and accompanying notes incorporated by reference in this
report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At December 31, 1995, the Fund had a working capital position of
unrestricted cash and cash equivalents of $1,317,137 and accounts payable and
accrued expenses of $453,493. Restricted cash represents amounts retained from
tenants for security deposits and totaled $130,542 at December 31, 1995. The
working capital balance represents reserves for future contingencies that were
established from mortgage loan proceeds and are deemed sufficient to meet the
Fund's liquidity requirements even under very pessimistic operating scenarios.
Reserves may be distributed as the General Partners deem appropriate.
Cash and cash equivalents decreased $290,394 during 1995. This decrease
represents the net effect of $734,773 in cash provided by operating activities,
$88,700 disbursed for capital expenditures, $16,000 in proceeds provided by a
lawsuit settlement, $125,936 disbursed as principal payments on first mortgage
debt and distributions to investors of $826,531.
-5-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
Distributions to investors during 1995 included $551,020 of cash provided
by operating activities and a special distribution of $275,511, representing
proceeds received from the settlement of a lawsuit regarding polybutelane piping
utilized in the construction of one of the properties.
In February, 1996 the Fund made a cash distribution to its investors of
$137,755. This distribution was derived from cash provided by operating
activities during the fourth quarter of 1995.
The provisions of the mortgages for each of the Fund's four properties
require repayment by September 30, 1996 of the outstanding principal balances
totaling approximately $20 million. The Fund intends to repay these balances
with proceeds from mortgage refinancings. Currently, there are no material
commitments for capital expenditures or other uses of cash, other than ongoing
debt service and the September 30, 1996 mortgage repayments.
Results of Operations
Rental income increased 4% and 5% during 1995 and 1994, respectively. These
increases are primarily attributable to increased rental rates and reduced use
of concessions. In addition, during 1994, the properties achieved a slightly
higher overall occupancy level, as compared to the prior year.
Interest income increased during 1995, due to higher interest rates. Lower
interest rates during 1994 resulted in a decrease in interest income for that
year as compared to 1993.
During 1995, the Fund recognized $299,228 representing proceeds from the
settlement of a lawsuit regarding polybutelane piping utilized in the
construction of one of the properties.
Total expenses increased $215,523 in 1995, due primarily to higher
maintenance and repairs costs. During 1995, the Fund completed its program,
begun in 1994, of painting each of the properties. The Park Place and Southland
Station properties were painted during the year for a total cost of
approximately $110,000. Additional maintenance and repairs programs during 1995
included pool resurfacing and landscaping enhancements.
During 1994, the High Ridge and Hidden Lake properties were painted for a
total cost of approximately $100,000, contributing to the increase in
maintenance and repairs expenses for that year as compared to 1993.
Overall occupancy for the Fund's properties averaged 94% during 1995, a
slight decrease from 1994's average of 95%. While rental rates were increased at
all four properties during 1995, added competition from new construction
tempered the acceptance of these increases by the market, as evidenced by the
slightly lower occupancy levels. In spite of reduced overall occupancy levels,
the Fund achieved a $193,282 increase in rental income, as compared to the prior
year. Each property achieved some level of increase, with the High Ridge
property contributing the largest year to year improvement.
The High Ridge property, located in Athens, Georgia, achieved an average
occupancy during the year of 97%, 1% higher than 1994. However, rental income
was 6% improved over the prior year, bolstered by rental rate increases which
totaled $51 on average per unit by the end of the year. These results were
achieved in spite of the addition to competition from a newly constructed
property nearby.
Occupancy at the Hidden Lake property averaged 96% during 1995, a slight
increase from 1994's average of 95%. Monthly rents were increased an average of
$24 per unit during the year, contributing to a 3% increase in rental income as
compared to 1994.
-6-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
In-migration to the Spartanburg, South Carolina area continued to provide a
substantial source of new residents for multifamily communities in that market,
including the Fund's Park Place property. These new residents are typically
short term renters with plans to build or buy a new home. In the interim, they
are relatively price insensitive, which has allowed management at Park Place to
increase rental rates throughout the year by an average of $26. The short term
nature of these residents' stay, however, causes large fluctuations in occupancy
levels. While occupancy averaged 93% for the year, consistent with 1993, it
ranged from as low as 87% in March to as high as 97% in October. Overall, the
property achieved a 5% increase in rental income during the year.
The Southland Station property, located in Warner Robins, Georgia, achieved
an average occupancy during 1995, of 92%, a substantial decrease from 1994's
average of 97%. However, ongoing rental rate increases throughout the year
resulted in an overall increase in rental income of 3%, as compared to 1994.
Long term prospects for the property appear very strong, as the nearby Warner
Robins Air Force Base was again excluded from the round of base closures
announced in 1995. However, this news had some negative short term impact as
some tenants who had been delaying a home purchase, decided to move ahead with
their plans based on the promising long term outlook for the area. These
moveouts contributed substantially to the drop in occupancy during the year.
Construction of new apartment communities has increased in many markets of
the southeastern United States. This new competition has tempered rental rate
increases and slowed previous trends of rental income gains. Each of the Fund's
four properties experienced heightened competition during 1995 from new
construction. In some cases, 1996 will present additional challenges from new
construction. Management intends to meet these challenges in the upcoming year
through their ongoing marketing programs and commitment to high tenant service.
The properties have been very well maintained since construction, including the
painting of all four in 1994 and 1995, and are well prepared to compete in their
markets.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Financial Statement Schedule
Page(s)
Herein Annual Report
Independent Auditors' Report 11 5
Balance Sheets 6
Statements of Operations 7
Statements of Partners' Capital (Deficit) 8
Statements of Cash Flows 9
Notes to Financial Statements 10-14
Financial Statement Schedule
Schedule III - Real Estate and
Accumulated Depreciation 12
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
-7-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Fund are Brown Equity Income Properties, Inc.,
the Administrative General Partner, and John F. Flournoy, the Development
General Partner. The Fund's principal executive offices are located at 225 East
Redwood Street, Baltimore, Maryland 21202, telephone (410) 727-4083. The General
Partners have primary responsibility for overseeing the performance of those who
contract with the Fund, as well as making decisions with respect to the
financing, sale and liquidation of the Fund's assets. The General Partners are
responsible for all reports to and communications with investors and others, all
distributions and allocations to investors, the administration of the Fund's
business and all filings with the Securities and Exchange Commission and other
federal or state regulatory authorities. The Fund's Partnership Agreement
provides for the removal of a General Partner and the election of successor
additional general partners by investors holding a majority of the Units.
The directors and executive officers of the Fund are as follows:
The Development General Partner
John F. Flournoy, age 55, the Development General Partner, is the majority
shareholder and Chief Executive Officer of Flournoy Development Company, a
Georgia corporation that he organized in 1967 for the purpose of engaging in
real estate development. Flournoy Construction Company, the general contractor
for the Properties, is a wholly-owned subsidiary of Flournoy Development
Company. Mr. Flournoy is also the majority shareholder of Flournoy Properties,
Inc., the property manager of the properties.
Mr. Flournoy is a graduate of the University of North Carolina Business
School. In his various capacities as a principal of Flournoy Development Company
and Flournoy Construction Company, he participates actively in all aspects of
real estate development and construction.
The Administrative General Partner
Brown Equity Income Properties, Inc., the Administrative General Partner,
is a Maryland corporation and is wholly owned by Alex. Brown Realty, Inc. The
Administrative General Partner is responsible for administering the business of
the Fund including providing clerical services, investor communications services
and reports, and for making all reports and filings to regulatory authorities.
The Administrative General Partner is reimbursed for such services to the Fund
on a cost basis.
The following individuals are the directors and principal officers of Brown
Equity Income Properties, Inc.:
John M. Prugh, age 47, has been a Director and President of the General
Partner since 1986 and of Alex. Brown Realty, Inc. and Armata Financial Corp.
since 1984. Mr. Prugh graduated from Gettysburg College in 1970, and was
designated a Certified Property Manager by the Institute of Real Estate
Management in 1979. He has worked in property management for H. G. Smithy Co.,
in Washington, D.C., and Dreyfuss Bros., Inc. in Bethesda, Maryland. Since 1977,
Mr. Prugh has been involved in managing, administering, developing and selling
real estate investment projects sponsored by Alex. Brown Realty, Inc. and its
subsidiaries.
-8-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Item 10. Directors and Executive Officers of the Registrant (continued)
The Administrative General Partner (continued)
Peter E. Bancroft, age 43, has been a Director and Vice President of the
General Partner since 1986 and a Senior Vice President of Alex. Brown Realty,
Inc. and Armata Financial Corp. since 1983. Mr. Bancroft graduated from Amherst
College in 1974, attended the University of Edinburgh, and received a J.D.
degree from the University of Virginia School of Law in 1979. Prior to joining
Alex. Brown Realty, Inc. in 1983, Mr. Bancroft held legal positions with
Venable, Baetjer and Howard and T. Rowe Price Associates, Inc.
Terry F. Hall, age 49, has been the Secretary of the General Partner and a
Vice President and Secretary of, and Legal Counsel for Alex. Brown Realty, Inc.
since 1989. Mr. Hall graduated from the University of Nebraska- Lincoln in 1968,
and received a J.D. degree from the University of Pennsylvania Law School in
1973. Prior to joining Alex. Brown Realty, Inc. in 1986, Mr. Hall was a Partner
at the law firm of Venable, Baetjer and Howard from 1981 to 1986 and an
associate at the same firm from 1973 to 1981.
Timothy M. Gisriel, age 39, has been the Treasurer of the General Partner
and of Alex. Brown Realty, Inc. and Armata Financial Corp. since 1990. He was
the Controller of Alex. Brown Realty, Inc. and Armata Financial Corp. from 1984
through 1990. Mr. Gisriel graduated from Loyola College in 1978 and received his
Masters of Business Administration degree from the Robert G. Merrick School of
Business, University of Baltimore. Prior to joining Alex. Brown Realty, Inc. in
1984, Mr. Gisriel was an audit supervisor in the Baltimore office of Coopers &
Lybrand. He is a Maryland Certified Public Accountant.
There is no family relationship among the Development General Partner or
the officers and directors of the Administrative General Partner.
Item 11. Executive Compensation
The Development General Partner and the officers and directors of the
Administrative General Partner received no compensation from the Partnership.
The General Partners are entitled to receive a share of cash distributions
and a share of profits and losses as described in the Limited Partnership
Agreement, Article IV, "Allocation Distributions and Applicable Rules" at pages
12 through 17 of Exhibit B to the Prospectus herein incorporated by reference.
For a discussion of compensation and fees to which the General Partners are
entitled, see Item 13, Certain Relationships and Related Transactions, herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person is known to the Fund to own beneficially more than 5% of the
outstanding interests of the Fund.
The General Partners each have a 1% interest in the Fund as General
Partners, but hold no Class A Limited Partnership interest.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have engaged in and are permitted
to engage in transactions with the Fund as described in "Compensation and Fees
to the General Partners and Affiliates" and under the caption "Transactions
Between the Fund and General Partners and Affiliates" set forth in "Conflicts of
Interest" at pages 13 through 17 of the Prospectus, herein incorporated by
reference.
-9-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
Item 13. Certain Relationships and Related Transactions (continued)
For a summary of fees paid to the General Partners and their affiliates for
the three years ended December 31, 1995, see Note 5, "Related Party
Transactions", in Item 8, Financial Statements and Supplementary Data, herein.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements: See Index to Financial Statements and
Financial Statement Schedule in Item 8 on Page 7.
2. Financial Statement Schedule: See Index to Financial Statements and
Financial Statement Schedule in Item 8 on Page 7.
3. Exhibits: (3, 4) Limited Partnership Agreement on pages 1 through 32 of
Exhibit B to the Fund's Registration Statement on Form S-11 (File No. 33-6924)
included herein by reference.
(13) Annual Report for 1995.
(b) Reports on Form 8-K: None.
-10-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Brown-Flournoy Equity Income Fund
Limited Partnership:
Under date of January 16, 1996, we reported on the balance sheets of
Brown-Flournoy Equity Income Fund Limited Partnership as of December 31, 1995
and 1994, and the related statements of operations, partners' capital (deficit)
and cash flows for each of the years in the three-year period ended December 31,
1995, as contained in the 1995 Annual Report. These financial statements and our
report thereon are incorporated by reference in the Annual Report on Form 10-K
for 1995. In connection with our audits of the aforementioned financial
statements, we also have audited the related financial statement schedule as
listed in the accompanying index. This financial statement schedule is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
January 16, 1996
-11-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B C O L U M N C COLUMN D C O L U M N E
COST CAP.
SUB. TO GROSS AMOUNT AT WHICH CARRIED
INITIAL COST TO PARTNERSHIP ACQUIS. AT CLOSE OF PERIOD
FURN. FURN. FURN.
ENCUMBER- BLDG & FIX. & FIX. & BLDG & FIX. &
DESCRIPTION ANCES LAND IMPROVE. EQUIP. EQUIP. LAND IMPROVE. EQUIP. TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTHLAND STATION $4,862,550 126,553 5,120,677 413,993 43,344 126,553 5,120,677 457,337 5,704,567
WARNER ROBINS, GEORGIA
160 Unit garden apartment
community on approx. 15 acres
PARK PLACE 5,755,671 582,423 5,555,384 590,632 60,231 582,423 5,555,384 650,863 6,788,670
SPARTANBURG, SOUTH CAROLINA
184 Unit garden apartment
commumity on approx. 14.4 acres
HIDDEN LAKE II 4,521,708 180,542 4,803,053 496,575 91,339 180,542 4,803,053 587,914 5,571,509
UNION CITY, GEORGIA
160 Unit garden apartment
commumity on approx. 16.2 acres
HIGH RIDGE 5,061,021 316,432 4,938,629 450,534 55,624 316,432 4,938,629 506,158 5,761,219
ATHENS, GEORGIA
160 Unit garden apartment
commumity on approx. 18 acres
$20,200,950 1,205,950 20,417,743 1,951,734 250,538 1,205,950 20,417,743 2,202,272 23,825,965
</TABLE>
<TABLE>
<CAPTION>
(1) 1995 1994 1993
REAL ACCUM REAL ACCUM REAL ACCUM
ESTATE DEPR. ESTATE DEPR. ESTATE DEPR.
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $23,454,037 7,586,973 $23,683,165 6,567,276 23,650,208 5,546,267
ADDITIONS 88,700 1,038,167 54,100 1,019,697 32,957 1,021,009
DEDUCTIONS 283,228 (283,228)
BALANCE AT CLOSE OF PERIOD $23,825,965 $8,625,140 $23,454,037 $7,586,973 $23,683,165 $6,567,276
</TABLE>
(2) AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $23,825,965 AT
DECEMBER 31, 1995.
(3) SEE NOTE 5 OF NOTES TO THE FINANCIAL STATEMENTS FOR INFORMATION
CONCERNING TRANSACTIONS WITH AFFILIATES.
(4) SEE NOTE 6 OF NOTES TO THE FINANCIAL STATEMENTS FOR INFORMATION
REGARDING MORTGAGE LOAN AGREEMENTS, COLLATERALIZED BY THE LAND, BUILDING AND
IMPROVEMENTS.
(5) DEDUCTION IS DUE TO IMPAIRMENT TO ASSETS RESULTING FROM DEFECTIVE
MATERIALS AND SUBSEQUENT REIMBURSEMENT OF SETTLEMENT PROCEEDS.
-12-
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
LIFE ON WHICH
DEPRECIATION IN
LATEST INCOME
ACCUM DATE OF DATE STATEMENT IS
DESCRIPTION DEPR CONST. ACQUIRED COMPUTED
<S> <C> <C> <C> <C>
SOUTHLAND STATION 2,187,036 1986/1987 1986 Real Prop. - 25 yr S/L
WARNER ROBINS, GEORGIA Pers. Prop. - 10 yr S/L
160 Unit garden apartment
community on approx. 15 acres
PARK PLACE 2,384,785 1986/1987 1987 Real Prop. - 25 yr S/L
SPARTANBURG, SOUTH CAROLINA Pers. Prop. - 10 yr S/L
184 Unit garden apartment
commumity on approx. 14.4 acres
HIDDEN LAKE II 2,059,303 1986/1987 1987 Real Prop. - 25 yr S/L
UNION CITY, GEORGIA Pers. Prop. - 10 yr S/L
160 Unit garden apartment
commumity on approx. 16.2 acres
HIGH RIDGE 1,994,016 1987 1987 Real Prop. - 25 yr S/L
ATHENS, GEORGIA Pers. Prop. - 10 yr S/L
160 Unit garden apartment
commumity on approx. 18 acres
8,625,140
</TABLE>
-13-
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
DATE: 3/22/96 BY: /s/ John F. Flournoy
John F. Flournoy
Development General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following in the capacities and on the dates
indicated.
DATE: 3/25/96 BY: /s/ John M. Prugh
John M. Prugh
President and Director
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 3/25/96 BY: /s/ P. E. Bancroft
Peter E. Bancroft
Vice President and Director
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 3/25/96 BY: /s/ Terry F. Hall
Terry F. Hall
Secretary
Brown Equity Income Properties, Inc.
Administrative General Partner
DATE: 3/25/96 BY: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown Equity Income Properties, Inc.
Administrative General Partner
-14-
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
1995 ANNUAL REPORT
March 15, 1996
Dear Investor:
We are pleased to report another year of improved operating results for
the Brown-Flournoy Equity Income Fund. In spite of increased competition from
new construction in each of the markets in which the Fund operates, the Fund was
able to realize another year of increased rental income.
OPERATIONS
Overall occupancy for the Fund's properties averaged 94% during 1995, a
slight decrease from 1994's average of 95%. While rental rates were increased at
all four properties during 1995, added competition from new construction
tempered the acceptance of these increases by the market, as evident by the
slightly lower occupancy levels. In spite of reduced overall occupancy levels,
the Fund achieved a $193,282 increase in rental income, as compared to the prior
year. Each property achieved some level of increase, with the High Ridge
property contributing the largest year-to-year improvement.
During 1995, the Fund recognized income of $299,228 representing
proceeds from the settlement of a lawsuit regarding polybutylene piping utilized
in the construction of one of the properties.
Total expenses increased $215,523 in 1995, due primarily to higher
maintenance and repairs costs. During 1995, the Fund completed its program,
begun in 1994, of painting each of the properties. The Park Place and Southland
Station properties were painted during the year for a total cost of
approximately $110,000. Additional maintenance and repairs programs during 1995
included pool resurfacing and landscaping enhancements.
All four properties remain in excellent condition.
CASH DISTRIBUTIONS
During 1995, the Fund made quarterly cash distributions to Unitholders
totaling $20 per Unit and a special cash distribution during the first quarter
of $10 per unit, representing funds received during 1994 from the polybutylene
piping settlement. The quarterly distributions represented a 5.6% annualized
return on the balance of your equity investments. These distributions were
derived solely from operations, as cash flow provided by operating activities
exceeded cash distributions made during the year.
1
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
OUTLOOK
Construction of new apartment communities has increased in many markets
of the southeastern United States. This new competition has tempered rental rate
increases and slowed previous trends of rental income gains. Each of the Fund's
four properties experienced heightened competition during 1995 from new
construction. In some cases, 1996 will present additional challenges from new
construction. Management intends to meet these challenges in the upcoming year
through their ongoing marketing programs and commitment to high tenant service.
The properties have been very well maintained since construction, including the
painting of all four in 1994 and 1995, and are well prepared to compete in their
markets.
During 1996, the Fund will also have the opportunity to improve the
financing of the properties, as the prepayment restrictions on the current first
mortgages end in July and the mortgages become payable at the end of September.
The current interest rate environment presents an excellent opportunity to
reduce monthly debt service and improve cash returns to investors. We intend to
examine refinancing options, while also exploring the benefits from property
disposition opportunities.
Very truly yours,
John F. Flournoy John M. Prugh, President
Development General Partner Brown Equity Income Properties, Inc.
Administrative General Partner
2
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
A summary of 1995 operations at the Fund's four properties is set forth
below:
The High Ridge property, located in Athens, Georgia, achieved an average
occupancy during the year of 97%, generally consistent with 1994. However,
rental income increased 6% over the prior year, bolstered by rental rate
increases which totaled $51 per unit on average by the end of the year. These
results were achieved in spite of the addition to competition from a newly
constructed property nearby.
In-migration to the Spartanburg, South Carolina area continued to
provide a substantial ource of new residents for multifamily communities in that
market, including the Fund's Park Place property. These new residents are
typically short-term renters with plans to build or buy a new home. In the
interim, they are relatively price insensitive, which has allowed management at
Park Place to increase rental rates throughout the year by an average of $26.
The short-term nature of these residents' stay, however, causes large
fluctuations in occupancy levels. While occupancy averaged 93% for the entire
year, it ranged from as low as 87% in March to as high as 97% in October.
Overall, the property achieved a 5% increase in rental income during the year.
3
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
The Southland Station property, located in Warner Robins, Georgia,
achieved an average occupancy during 1995, of 92%, a substantial decrease from
1994's average of 97%. However, ongoing rental rate increases throughout the
year resulted in an overall increase in rental income of 3%, as compared to
1994. Long-term prospects for the property appear very strong, as the nearby
Warner Robins Air Force Base was again excluded from the round of base closures
announced in 1995. However, this news had some negative short-term impact as
some tenants who had been delaying a home purchase, decided to move ahead with
their plans based on the promising long-term outlook for the area. These
moveouts contributed substantially to the drop in occupancy during the year.
Occupancy at the Hidden Lake property veraged 96% during 1995,
generally consistent with 1994. Monthly rents were increased $24 per unit on
average during the year, contributing to a 3% increase in rental income as
compared to 1994.
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Brown-Flournoy Equity Income Fund Limited Partnership:
We have audited the accompanying balance sheets of Brown-Flournoy Equity Income
Fund Limited Partnership as of December 31, 1995 and 1994 and the related
statements of operations, partners' capital (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brown-Flournoy Equity Income
Fund Limited Partnership as of December 31, l995 and 1994, and the results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
January 16, 1996
5
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Balance Sheets
December 31,
1995 1994
Assets
<S> <C> <C>
Investment in real estate (Note 3) .................. $ 15,200,825 $ 15,867,064
Cash and cash equivalents (Note 4) .................. 1,447,679 1,738,073
Other assets
Accounts receivable, including $23,533 due from
affiliates as of December 31, 1994 .............. 22,624 46,958
Prepaid expenses .................................. 65,417 66,482
Loan fees, less accumulated amortization
of $469,856 and $395,668, respectively .......... 49,459 123,647
Total other assets .................................. 137,500 237,087
Total assets .......................................... $ 16,786,004 $ 17,842,224
Liabilities and Partners' Capital (Deficit)
Accounts payable and accrued expenses including
$27,523 and $26,602 due to affiliates, respectively $ 453,493 $ 447,430
Tenant security deposits ............................ 130,542 123,616
Mortgage loans payable (Note 6) ..................... 20,200,950 20,326,886
Total liabilities ................................... 20,784,985 20,897,932
Partners' Capital (Deficit) (Note 8)
General Partners .................................. (234,522) (215,657)
Limited Partners
Class A - $1,000 stated value per unit;
27,000 units outstanding ...................... (3,764,559) (2,840,151)
Class B ......................................... 100 100
Total partners' capital (deficit) ................... (3,998,981) (3,055,708)
Total liabilities and partners' capital (deficit) ..... $ 16,786,004 $ 17,842,224
See accompanying notes to financial statements
</TABLE>
6
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Statements of Operations
For the years ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
Revenues
<S> <C> <C> <C>
Rental income ............................................. $ 4,644,851 $ 4,451,569 $ 4,244,572
Interest income ........................................... 67,677 49,805 57,850
Gain on settlement of lawsuit (Note 10) ................... 299,228 -- --
5,011,756 4,501,374 4,302,422
Expenses
Compensation and related benefits ......................... 465,396 423,923 449,505
Property taxes ............................................ 345,327 343,773 346,673
Utilities ................................................. 255,151 233,250 264,687
Property management fee to related party (Note 5) ......... 232,242 222,578 212,229
Maintenance and repairs ................................... 505,152 404,083 256,291
Advertising ............................................... 75,793 64,462 56,997
Other ..................................................... 106,308 80,845 88,287
Administrative, including amounts to related party (Note 5) 85,768 92,422 75,611
Interest expense (Note 6) ................................. 1,945,006 1,953,754 1,954,227
Depreciation of property and equipment (Notes 2 & 7) ...... 1,038,167 1,019,697 1,021,009
Amortization of loan fees (Note 2) ........................ 74,188 74,188 74,188
5,128,498 4,912,975 4,799,704
Net loss (Note 7) ........................................... $ (116,742) $ (411,601) $ (497,282)
Net loss per unit of Class A Limited
Partnership Interest (Note 8) ............................. $ (4.24) $ (14.94) $ (18.05)
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Statements of Partners' Capital (Deficit)
For the years ended December 31,
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partners Total
<S> <C> <C> <C> <C>
Balance at December 31, 1992 ......................................... $ (175,439) $ (69,446) $ 100 $ (244,785)
Net loss ............................................................. (9,946) (487,336) -- (497,282)
Distributions to partners ............................................ (11,020) (540,000) -- (551,020)
Balance at December 31, 1993 ......................................... (196,405) (1,096,782) 100 (1,293,087)
Net loss ............................................................. (8,232) (403,369) -- (411,601)
Distributions to partners
Operations ........................................................ (11,020) (540,000) -- (551,020)
Financing proceeds ................................................ -- (800,000) -- (800,000)
Balance at December 31, 1994 ......................................... (215,657) (2,840,151) 100 (3,055,708)
Net loss ............................................................. (2,334) (114,408) -- (116,742)
Distributions to partners ............................................ (16,531) (810,000) -- (826,531)
Balance at December 31, 1995 ......................................... $ (234,522) $(3,764,559) $ 100 $(3,998,981)
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Statements of Cash Flows
For the years ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993
Cash flows from operating activities
<S> <C> <C> <C>
Net loss ........................................ $ (116,742) $ (411,601) $ (497,282)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation of property and equipment ...... 1,038,167 1,019,697 1,021,009
Amortization of loan fees ................... 74,188 74,188 74,188
Gain on settlement of lawsuit ............... (299,228) -- --
Changes in assets and liabilities
Decrease (increase) in accounts receivable 24,334 (18,285) (14,834)
Decrease (increase) in prepaid expenses ... 1,065 (18,372) 3,464
Increase (decrease) in accounts payable
and accrued expenses ................... 6,063 (23,668) 97,977
Increase in tenant security deposits ...... 6,926 1,815 15,185
Net cash provided by operating activities .......... 734,773 623,774 699,707
Cash flows from investing activities
Additions to investment in real estate .......... (88,700) (54,100) (32,957)
Settlement proceeds ............................. 16,000 283,228 --
Net cash (used in) provided by investing activities (72,700) 229,128 (32,957)
Cash flows from financing activities
Decrease in mortgage loans payable .............. (125,936) (29,647) --
Distributions to partners ....................... (826,531) (1,351,020) (551,020)
Net cash used in financing activities .............. (952,467) (1,380,667) (551,020)
Net (decrease) increase in cash and cash equivalents (290,394) (527,765) 115,730
Cash and cash equivalents
Beginning of period ............................. 1,738,073 2,265,838 2,150,108
End of period ................................... $ 1,447,679 $ 1,738,073 $ 2,265,838
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995
(1) Organization
Brown-Flournoy Equity Income Fund Limited Partnership (the "Fund") is a
Delaware limited partnership formed on June 25, 1986 to develop and
operate four residential apartment communities in Georgia and South
Carolina. The capital raised from the admission of investors enabled the
Fund to acquire the properties and improvements and complete
construction. The properties are:
o Southland Station, a 160 unit apartment community in Warner Robins, Ga.
o Park Place, a 184-unit apartment community in Spartanburg, S.C.
o Hidden Lake - Phase Two, a 160-unit apartment community in
Union City, Ga.
o High Ridge, a160-unit apartment community in Athens, Ga.
The General Partners are Brown-Equity Income Properties, Inc., the
Administrative General Partner, and John F. Flournoy, the Development
General Partner. The Class B Limited Partners are John F. Flournoy and
Realty Associates 1986 Limited Partnership, an affiliate of the
Administrative General Partner. The Fund will terminate on December 31,
2036, unless sooner terminated under the provisions of the Partnership
Agreement.
(2) Summary of Significant Accounting Policies
(a) Method of Accounting
The accompanying financial statements have been prepared on the
accrual basis of accounting. The Fund reports its operating results
for income tax purposes on the accrual basis. No provision for income
taxes is made because any liability for income taxes is that of the
individual partners and not that of the Fund.
(b) Cash Equivalents
The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(c) Depreciation
Depreciation of property and equipment is computed using the
straight-line method over the useful lives of the property and
equipment as follows:
Buildings 25 years
Furniture, fixtures and equipment 10 years
10
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
(d) Deferred Costs
Costs associated with marketing of the Class A limited partnership
units to the public were offset against the related partners'
capital.
Loan fees incurred to obtain the mortgage loans have been capitalized
and are being amortized on a basis that approximates the interest
method over the 7-year loan terms.
(e) Use of Estimates
Management of the Fund has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenue and
expenses to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
(3) Investment in Real Estate
Investment in real estate is stated at the lower of net realizable value
or cost, net of accumulated depreciation, and is summarized as follows at
December 31:
<TABLE>
<CAPTION>
1995 1994
-----------
<S> <C> <C>
Land ............................ $ 1,205,950 $ 1,205,950
Buildings ....................... 20,417,743 20,134,515
Furniture, fixtures and equipment 2,202,272 2,113,572
23,825,965 23,454,037
Less: Accumulated depreciation .. 8,625,140 7,586,973
$15,200,825 $15,867,064
</TABLE>
(4) Cash and Cash Equivalents
Cash and cash equivalents consist of the following, stated at cost, which
approximates market value at December 31:
<TABLE>
<CAPTION>
1995 1994
----------
<S> <C> <C>
Cash and money market ..................... $ 428,716 $ 772,440
Certificates of deposit with interest rates
ranging from 4.25% to 5.90% in 1995
and 3.05% to 4.25% in 1994 ............ 1,018,963 965,633
$1,447,679 $1,738,073
</TABLE>
11
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
(5) Related Party Transactions
The Administrative General Partner received $41,644, $41,314 and $37,767
in 1995, 1994 and 1993, respectively, for reimbursement of costs
associated with administering the Fund, including clerical services,
investor communication services, and reports and filings to regulatory
authorities.
Flournoy Properties, Inc., an affiliate of the Development General
Partner, is the managing agent for the properties and earned management
fees of $232,242, $222,578 and $212,229 representing 5% of the gross
monthly operating revenues from the properties during 1995, 1994 and
1993, respectively.
(6) Mortgage Loans Payable
The Fund's general partners secured first mortgage loans aggregating
$20.8 million on August 30, 1989 which are secured by the land, apartment
units and all other improvements to the four apartment properties. These
loans are for an original term of 7 years with an interest rate of 9.6%.
Interest only was payable monthly through September 1994, and thereafter
monthly payments were based on a 30-year amortization schedule with a
balloon payment due at the end of the 7-year term. Under the terms of the
mortgage loans, the aggregate maturities are $20,200,950 in 1996. The
Fund intends to repay these balances with proceeds from mortgage
refinancing. Interest of $1,945,936, $1,953,991 and $1,791,375 was paid
during the years ended December 31, 1995, 1994 and 1993, respectively.
(7) Losses for Federal Income Tax Purposes
The Fund's losses for federal income tax purposes in each of the last 3
years ended December 31 differs from the net losses for financial
reporting purposes due to differences in the Fund's computation of tax
depreciation and in 1995, different treatment of the additional net
settlement proceeds (Note 10). For federal income tax purposes, real
property (other than land) and personal property, are being depreciated
over 27 1/2 and 7 years, respectively, using the Modified Accelerated
Cost Recovery System, and the additional net settlement proceeds (Note
10) are being treated as a reduction to the adjusted tax basis of the
Southland Station property. The tax losses for 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Losses for financial reporting purposes .... $(116,742) $(411,601) $(497,282)
Financial reporting depreciation in
excess of tax depreciation ............... 268,686 167,515 98,092
Additional net settlement proceeds (Note 10) (299,228) -- --
Losses for income tax purposes ............. $(147,284) $(244,086) $(399,190)
</TABLE>
12
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
(8) Partners' Capital (Deficit)
The Partnership Agreement provides, among other provisions, for the
following:
(a) The Fund will consist of the General Partners, the Class A Limited
Partners and the Class B Limited Partners.
(b) Distributions to the Partners relating to operations of the
properties will be based on net cash flow, as defined in the
Partnership Agreement. Investors will receive 98% of net cash flow
and the General Partners will each receive 1%. Profit and loss from
operations will be allocated in the same proportions. Net loss per
Class A Limited Partnership interest as disclosed on the Statements
of Operations are based upon 27,000 units outstanding.
(c) Net proceeds of sale or operational stage financing of the properties
will be distributed as follows:
o To pay any deferred fees payable to the General Partners and
affiliates.
o To Class A Limited Partners until each Class A Limited Partner
has recovered his original capital contribution in full and
received a cumulative, noncompounded annual return of 7.5% of
his capital contribution to the extent that such return has not
been provided from prior distributions of net cash flow.
o Any remainder will be distributed 80% to the Class A Limited
Partners, 1% to each of the General Partners, 14% to John F.
Flournoy in his capacity as Class B Limited Partner and 4% to
Realty Associates 1986 Limited Partnership.
(d) Restrictions exist regarding transferability or disposition of
partnership interests.
(9) Distributions to Partners
Distributions of cash to partners during 1995, 1994 and 1993 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
To Class A Limited Partners from
<S> <C> <C> <C>
Operations ................ $ 540,000 $ 540,000 $ 540,000
Settlement proceeds ....... 270,000 -- --
Financing proceeds ........ -- 800,000 --
To General Partners from
Operations ................ 11,020 11,020 11,020
Settlement proceeds ....... 5,511 -- --
$ 826,531 $1,351,020 $ 551,020
</TABLE>
13
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Notes to Financial Statements (continued)
(9) Distributions to Partners (continued)
Each Class A Limited Partner received a distribution of $20 per unit from
operations in 1995, 1994 and 1993, $10 per unit from settlement proceeds
in 1995 and approximately $29.63 per unit from financing proceeds in
1994.
(10) Settlement Proceeds
During the fourth quarter of 1994, the Fund settled an outstanding
lawsuit with the manufacturer of defective polybutylene piping which was
utilized at the Southland Station property. The lawsuit sought damages
resulting from numerous plumbing leaks at the property since
construction. The settlement included the cost to re-plumb the property,
as well as additional net settlement proceeds to the Fund of $299,228. A
special distribution of these proceeds was made in the second quarter of
1995.
(11) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires the Fund to disclose
estimated fair values for certain on and off balance sheet financial
instruments. Fair value estimates, methods and assumptions are set forth
below for the Fund's financial instruments as of December 31, 1995.
The carrying value for cash and cash equivalents, accounts receivable and
accounts payable and accrued expenses approximates fair value due to the
short maturity of these instruments.
The fair value of mortgages payable was based on the discounted value of
contractual cash flows. The mortgage loans payable fair value
approximates its carrying value due to the current maturity date of the
loans and the low rate of current borrowings on similar debt.
(12) Subsequent Event (unaudited)
In February 1996 the Fund made a cash distribution totaling $137,755, of
which 98% was allocated to Class A Limited Partners. This distribution
was derived from net cash provided by operating activities for the
quarter ended December 31, 1995. Each Class A Limited Partner received a
cash distribution of $5.00 per unit.
14
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Supplementary Information (unaudited)
A comparison of the financial forecast for Southland Station ("Property I") as
provided in the prospectus with the actual results for Property I is required to
be included in the annual report by section 10.3 of the amended and restated
agreement of limited partnership. This supplementary information for the year
ended December 31, 1995, as set forth below, is based on completion of the
minimum offering and acquisition of Property I. Since the Fund completed the
maximum offering and acquired all four properties, the results shown below for
Property I are not indicative of the Fund's overall performance. Additionally,
the Tax Reform Act of 1986 has required that interest earnings be segregated
from passive loss operations for tax reporting purposes, and therefore, the net
tax earnings, as shown below, is not indicative of an individual Partner's tax
earnings from an investment in the Fund for 1995.
<TABLE>
<CAPTION>
Forecast Actual
Net cash flow
<S> <C> <C>
Revenues ................................................................ $ 1,229,487 $ 1,141,002
Expenses, exclusive of depreciation,
amortization and funded expenses ..................................... 896,769 931,489
332,718 209,513
Other deductions
Debt principal ....................................................... 42,427 30,314
Net cash flow ........................................................... $ 290,291 $ 179,199
Distribution of net cash flow
To Class A Limited Partners from
Operations ........................................................... $ 284,485 $ 175,615
Working capital reserves ............................................. -- --
To General Partners from
Operations ........................................................... 5,806 3,584
Working capital reserves ............................................. -- --
$ 290,291 $ 179,199
Per Class A Limited Partner
(based on 645.5 investors) ........................................... $ 441 $ 272
Net earnings (loss) and net tax earnings
Revenues ................................................................ $ 1,229,487 $ 1,141,002
Expenses, exclusive of depreciation,
amortization and funded expenses ..................................... 896,769 931,489
332,718 209,513
Depreciation and amortization and funded expenses ....................... 253,909 255,450
Net earnings (loss) ..................................................... 78,809 (45,937)
Net decrease in depreciation and
amortization expenses for income
tax purposes ......................................................... 20,071 72,555
Net tax earnings ........................................................ $ 98,880 $ 26,618
Per Class A Limited Partner
(based on 645.5 investors) .......................................... $ 150 $ 40
</TABLE>
15
<PAGE>
BROWN-FLOURNOY EQUITY INCOME FUND
LIMITED PARTNERSHIP
Partnership Information
Directors and Executive Officers
John F. Flournoy
Development General Partner
Brown-Equity Income Properties, Inc.
Administrative General Partner
John M. Prugh
President and Director
Peter E. Bancroft
Vice President and Director
Terry F. Hall
Secretary
Timothy M. Gisriel
Treasurer
Additional Information
Please submit name and address changes to Investor Relations at the above
address.
Form 10-K
A copy of the Fund's Annual Report on Form
10-K for 1995 as filed with the Securities and Exchange Commission is available
to partners without charge on request by writing to:
Investor Relations
Brown-Equity Income Properties, Inc.
225 East Redwood Street
Baltimore, Maryland 21202
Auditors
KPMG Peat Marwick LLP
111 South Calvert Street
Baltimore, Maryland 21202
Legal Counsel
Piper & Marbury
1100 Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
For further information or questions regarding your investment, please call
Denise Liekfet at (410) 727-4083.
16
<PAGE>
EXHIBIT B: LIMITED PARTNERSHIP AGREEMENT
BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
FORM OF
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Preliminary Statement...........................................................................................B-3
Article I---Defined Terms.......................................................................................B-3
Article II---Name; Purpose and Term.............................................................................B-9
Section 2.1 Name; Formation..........................................................................B-9
Section 2.2 Place of Registered Office................................................................B-9
Section 2.3 Purpose..................................................................................B-10
Section 2.4 Term.....................................................................................B-10
Section 2.5 Recording of Certificate.................................................................B-10
Article III---Partners; Capital................................................................................B-10
Section 3.1 General Partners.........................................................................B-10
Section 3.2 Limited Partners.........................................................................B-10
Section 3.3 Partnership Capital......................................................................B-10
Section 3.4 Liability of Partners....................................................................B-11
Article IV---Allocations, Distributions and Applicable Rules...................................................B-11
Section 4.1 Allocation of Profit or Loss and Distribution of Net Proceeds from a Sale................B-11
Section 4.2 Distribution of Net Proceeds of Operational Stage Financing..............................B-12
Section 4.3 Distribution of Net Cash Flow and Allocation of Profit and Loss from Operation.... B-12
Section 4.4 Liquidation or Dissolution...............................................................B-12
Section 4.5 General and Special Rules................................................................B-13
Article V---Rights, Powers and Duties of Partners..............................................................B-15
Section 5.1 Management and Control of the Partnership; Tax Matters Partner......................... B-15
Section 5.2 Authority of General Partners............................................................B-16
Section 5.3 Authority of Limited Partners............................................................B-17
Section 5.4 Restrictions on Authority................................................................B-18
Section 5.5 Authority of Partners and Affiliated Persons to Deal with Partnership................... B-19
Section 5.6 Duties and Obligations of the General Partners...........................................B-20
Section 5.7 Compensation of General Partners.........................................................B-20
Section 5.8 Other Businesses of Partners.............................................................B-20
Section 5.9 Liability of General Partners to Limited Partners........................................B-20
Section 5.10 Indemnification B-21
Article VI---Transferability of a General Partner's Interest...................................................B-21
Section 6.1 Removal, Voluntary Retirement or Withdrawal of a General Partner; Transfer of
Interests................................................................................B-21
Section 6.2 Election and Admission of Successor or Additional General Partners...................... B-22
Section 6.3 Event of Withdrawal of a General Partner.................................................B-22
Section 6.4 Liability of a Withdrawn General Partner.................................................B-23
B-1
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Page
Article VII---Admission of Additional and Substitute Limited Partners and Transferability of a
Limited Partner's Interest.....................................................................B-23.
Section 7.1 Admission of Additional Limited Partners Prior to the Termination Date of the
Offering...............................................................................B-23.
Section 7.2 Admission of Additional Limited Partners After the Termination Date of the
Offering...............................................................................B-23.
Section 7.3 Admission of Substitute Limited Partners...............................................B-23.
Section 7.4 Retirement or Withdrawal of a Limited Partner..........................................B-24.
Section 7.5 Transfer or Assignment of a Limited Partner Interest...................................B-24.
Section 7.6 Bankruptcy, Death, Dissolution or Incompetence of a Limited Partner................... B-25
Article VIII---Dissolution, Liquidation and Termination of the Partnership...................................B-25.
Section 8.1 Events Causing Dissolution.............................................................B-25.
Section 8.2 Liquidation............................................................................B-25.
Article IX---Payments to the General Partners and Affiliates.................................................B-26.
Section 9.1 Reimbursement of Certain Expenses of the General Partners..............................B-26
Section 9.2 Fees and Deferred Fees.................................................................B-26.
Article X---Books and Records; Bank Accounts; Reports........................................................B-27.
Section 10.1 Books and Records......................................................................B-27.
Section 10.2 Bank Accounts..........................................................................B-27.
Section 10.3 Reports................................................................................B-28.
Article XI---General Provisions..............................................................................B-29.
Section 11.1 Appointment of Administrative General Partner as Attorney-in-Fact......................B-29
Section 11.2 Waiver of Partition....................................................................B-29.
Section 11.3 Notification...........................................................................B-29.
Section 11.4 Word Meanings..........................................................................B-29.
Section 11.5 Binding Provisions....................................................................B-30.
Section 11.6 Applicable Law.........................................................................B-30.
Section 11.7 Counterparts...........................................................................B-30.
Section 11.8 Separability of Provisions.............................................................B-30.
Section 11.9 Paragraph Titles.......................................................................B-30.
Section 11.10 Entire Agreement.......................................................................B-30.
Section 11.11 Amendments.............................................................................B-30.
Signatures...................................................................................................B-31.
Schedule A...................................................................................................B-32.
</TABLE>
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BROWN-FLOURNOY EQUITY INCOME FUND LIMITED PARTNERSHIP
FORM OF
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
PRELIMINARY STATEMENT
The following is the Amended and Restated Agreement of Limited Partnership
of Brown-Flournoy Equity Income Fund Limited Partnership, by and among the
General Partners and Limited Partners (the "Agreement"). The parties hereto
elect to be governed by the provisions of the Delaware Revised Uniform Limited
Partnership Act (6 DEL.C. 17-101 et. seq.). The effective date of this Agreement
is as of August , 1986.
In consideration of the mutual promises made herein, the parties, intending
to be legally bound, hereby agree as follows:
ARTICLE I
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Article I.
"Acquisition Agreement" means that certain agreement to be entered into by
the Partnership and-Flournoy Development Company pursuant to which Flournoy
Development Company will (i) provide services to the Partnership in connection
with the planned development of the Properties, including selection of the
Sites, negotiation of purchase prices and terms, and execution of option
agreements; (ii) in some instances, acquire the Sites for the purpose of
conveyance to the Partnership and; (iii) perform work concerning zoning,
permits, water and sewer connections and related matters. In payment for such
services, Flournoy Development Company will receive an Acquisition Fee.
With respect to Property I only, if the General Contractor commences
construction prior to the time Class A Limited Partners are first admitted to
the Partnership, the property conveyed to the Partnership under the Acquisition
Agreement applicable to Property I will include (a) all construction theretofore
performed in connection with Property I and (b) all contract rights owned by
Flournoy Development Company relating to Property I, including, but not limited
to, an assignment of Flournoy Development Company's rights under the
Construction Contract with the General Contractor. In such case, (a) the
purchase price payable by the Partnership under the Acquisition Agreement
relating to Property I will be increased by an amount equal to all sums
theretofore paid by Flournoy Development Company to Flournoy Construction
Company under the Construction Contract for Property I (provided that such sums
must be approved by the Administrative General Partner as set forth in Article V
herein), and (b) the Partnership will thereafter assume the balance. of the
Construction Contract costs for Property I pursuant to its agreement to assume
all of the remaining, obligations of Flournoy Development Company, as owner,
under the Construction Contract. As a result, the purchase price of the Property
I site under the Acquisition Agreement will increase by the amount reimbursed,
to Flournoy Development Company by the Partnership, and the Construction
Contract price for Property I remaining to be paid by the Partnership will
decrease by an equal amount.
"Acquisition Fee" means the fee paid to Flournoy Development Company,
pursuant to the Acquisition Agreement, equal to 4 1/2% of the Gross Proceeds of
the Offering, payable 3% at the time Class A Limited Partners are admitted to
the Partnership, and 1 1/2% deferred for later payment as set forth in
Section.9.2.
"Act" means the Delaware Revised Uniform Limited Partnership Act (6 DEL.C.
17-101 et. seq.).
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"Additional General Partner" means any Person who is admitted as an
Additional General Partner of the Partnership, under the provisions of Article
VI, after the date of this Agreement.
"Additional Limited Partner" means a Person who is admitted to the
Partnership pursuant to Section7.1 or 7.2 and who, after his admission to the
Partnership, causes the aggregate of Capital Contributions of the Limited
Partners to increase, and is reflected as such on the books and records of the
Partnership.
"Adjusted Capital Balance " of a Class A Limited Partner means his total
Capital Contribution paid to the Partnership, less amounts actually distributed
to him from the proceeds of Operational Stage Financing or Sale (other than that
portion, if any, which is payment of an unpaid Preferred Return), as provided in
Article IV herein, at the time of reference thereto.
"Administrative General Partner" means Brown Equity Income Properties, Inc.,
a Maryland corporation, or any Person who is designated as an Administrative
General Partner in the Schedule at the time in question.
"Affiliate " or "Affiliated Person" means, when used with reference to a
specified Person (i) any Person who, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified Person, (ii) any Person who is an officer, partner, or trustee of,
or serves in a similar capacity with respect to, the specified Person, or any
Person of which the specified Person is an officer, partner or trustee, or with
respect to which the specified Person serves in a similar capacity, (iii) any
Person who, directly or indirectly, is the beneficial owner of 5% or more of any
class of equity securities of, or otherwise has a substantial beneficial
interest in, the specified Person, or any Person of which the specified Person
is directly or indirectly the owner of 5% or more of any class of equity
securities or in which the specified Person has a substantial beneficial
interest, and (iv) any Family Member of the specified Person.
"Agreement" means this Limited Partnership Agreement as originally executed
and as amended from time to time, as the context requires. Words such as
"herein," "hereinafter," "hereof," "hereto," "hereby" and "hereunder," when used
with reference to this Agreement, refer to this Agreement as a whole unless the
context otherwise requires.
"Capital Account" means the capital account to be maintained by the
Partnership for each Partner, A Partner's Capital Account is credited with his
Capital Contributions and his distributive share of Partnership Profit
(including tax-exempt income and gain (or item thereof) and adjustments under
Section 48(q)(2) of the Code). A Partner's Capital Account is debited with the
cash and the fair market value of any property distributed to him (net of
liabilities assumed by such Partner and liabilities to which such distributed
property is subject), his distributive share of Partnership Loss (and deduction
(or item thereof)), and his distributive share of Partnership expenditures
described in Section 705(a)(2)(B) of the Code (including adjustments resulting
from basis adjustments under Section 48 (q) of the Code, losses disallowed under
Sections 267(a)(1) or 767(b) of the Code, and Section 709(a) syndication
expenditures applied to reduce the Capital Accounts of the Partners to whom such
expenditures are allocable at the time such expenditures are paid or incurred).
A Partner's Capital Account shall also be adjusted pursuant to Sections 4.4 and
4.5 hereof and as required by Section 704 of the Code. Any question concerning a
Partner's Capital Account shall be resolved by the General Partners in their
reasonably exercised discretion, applying principles consistent with this
Agreement and the regulations promulgated under Section 704 of the Code in order
to assure that all allocations herein will have substantial economic effect or
will otherwise be respected for income tax purposes.
"Capital Contribution" means the total amount of cash and the fair market
value of any other assets contributed to the Partnership by the Partners (net of
liabilities assumed by the Partnership and liabilities to which any such
contributed assets are subject). Any reference in this Agreement to the Capital
Contribution of a then-Partner shall include a Capital Contribution previously
made by any prior Partner for the Interest of such then-Partner, except to the
extent that all or a portion of the Interest of any prior-Partner shall have
been terminated and the portion so terminated not transferred to a successor
Partner.
"Cash Flow Deficit Guaranty Agreement" means that certain agreement to be
entered into by the Partnership and John P. Flournoy, pursuant to which John F.
Flournoy will agree to find any Partnership operating deficits under the
following terms and conditions: (a) the Cash Flow Deficit Guaranty Agreement
will cover
B-4
<PAGE>
operating deficits until a period ending two years after the date of completion
of the last Property to be constructed; (b) the funding obligation will be
limited to $500,000, in the aggregate; and (c) any payments made by the
Development General Partner under the Cash Flow Deficit Guaranty Agreement will
be deemed a non-interest bearing loan to the Partnership, which will be
reimbursed from the first available net proceeds of operations, or from the
proceeds of any Operational Stage Financing or Sale.
"Class A Limited Partner" means any Person who is designated as a Class A
Limited Partner on the books and records of the Partnership.
"Class A Limited Partner Percentage" in respect of any Class A Limited
Partner means the percentage obtained by converting to a percentage the fraction
having the Capital Contribution of such Class A Limited Partner as its numerator
and having the Capital Contributions of all Class A Limited Partners at the time
of reference thereto as its denominator.
"Class B Limited Partner" means any Person who is designated as a Class B
Limited Partner on the books and records of the Partnership.
"Code " means the Internal Revenue Code of 1954, as amended (or any
corresponding provision of succeeding law).
"Consent of the Class A Limited Partners" means the prior written approval
of the Class A Limited Partners holding more than fifty percent (50%) of the
aggregate Class A Limited Partner Percentage in the Partnership at the time of
reference thereto, unless a different percentage of aggregate limited
partnership interests is required by law.
"Contract of Sale" means that certain agreement to be entered into by John
F. Flournoy and the Partnership, pursuant to which the Partnership will purchase
from John F. Flournoy that certain parcel of 3.369 acres of land located in
Union City, Fulton County, Georgia, for the price of $7,000 per acre, or
$23,583, which 3.369 acres of land shall be a part of the Property II Site.
"Controlling Person" of any General Partner or Affiliate thereof means any
person who (a) performs functions for a General Partner or Affiliate similar to
those of (i) a Chairman or member of the Board of Directors, (ii) executive
management, such as a President, or a Vice-President, Secretary or Treasurer,
or,(iii) senior management; or (b) holds a 5 % or more equity interest in the
General Partner or Affiliate, or has the power to direct or cause the direction
of the General Partner, or Affiliate, whether through the ownership of voting
securities, by contract or otherwise.
"Construction Contracts" means those fixed price contracts for the
construction of the Properties to be entered into by the Partnership and
Flournoy Construction Company, pursuant to which Flournoy Construction Company
shall construct the Properties.
"Construction Financing" means indebtedness that may be incurred by the
Partnership, under the terms and conditions set forth in Article V, to complete
a Property.
"Deferred Fees" means that portion of any Selling Commissions, Acquisition
Fee, or Organizational and Start-Up Fee that will be deferred for payment by the
Partnership as set forth in Section 9.2.
"Development General Partner" means John F. Flournoy, or any Person who is
designated as a Development General Partner in the Schedule at the time of
reference thereto.
"Entity" means any general partnership, limited partnership, corporation,
joint venture, trust, estate, business trust, cooperative, association or other
legal form of organization.
"Family Member" means, with respect to any individual, his spouse, brothers,
sisters, ancestors, and descendants.
B-5
<PAGE>
"Flournoy Development Company" means an Affiliate of the Development General
Partner that will perform certain services for the Partnership pursuant to the
Acquisition Agreement, as more fully described in the Prospectus.
"General Contractor" means Flournoy Construction Company, an Affiliate of
the Development General Partner, the company that will construct the Properties
pursuant to the Construction Contracts with the Partnership, or any Person
designated by the General Partners as the General Contractor.
"General Partner" means any Person designated as a General Partner in the
Schedule and any Person who becomes a Successor or Additional General Partner as
provided herein, in each such Person's capacity as a General Partner of the
Partnership.
"Gross Proceeds of the Offering" means the aggregate of the proceeds from
the sale of Units in the Offering, which amount is equal to the total of all
Capital Contributions received from the Class A Limited Partners.
"Guaranty of Timely and Lien-Free Completion" means the agreement to be
entered into by the Partnership, the Development General Partner and the General
Contractor, pursuant to which the Development General Partner and the General
Contractor will agree to jointly and severally guaranty the timely and lien-free
completion of each Property. Each such guaranty will extend to the full net
worth of both guarantors and will be secured by an irrevocable Letter of Credit
in the amount of 15% of the Construction Contract price of each Property.
"Interest" means the entire ownership interest (which may be segmented into
and/or expressed as a percentage of various rights and/or liabilities) of a
Partner in the Partnership at any particular time, including the right of such
Partner to any and all benefits to which a Partner may be entitled as provided
in this Agreement and in the Act, together with the obligations of such Partner
to comply. with all the terms and provisions of this Agreement and of the Act.
"Interim Investments" means the short-term investments made with the Net
Proceeds of the Offering.-until such Net Proceeds are disbursed for acquisition
and development of the Properties.
"Letter of Credit" means the instrument or instruments of a commercial bank,
made at the request -of the Development General Partner for the benefit of the
Partnership, to secure performance under the Guaranty of Timely and Lien-Free
Completion, pursuant to which such bank will honor drafts under the conditions
specified therein, among which are that the Administrative General Partner may,
acting alone, draw on such Letter of Credit for the benefit of the Partnership
upon the occurrence of an event of default by the Development General Partner
and/or the General Contractor under the terms of the Guaranty of Timely and
Lien-Free Completion.
"Limited Partner" means any Person who is designated as a Limited Partner on
the books and records of the Partnership at the time of reference thereto, in
each such Person's capacity as a Limited Partner of the Partnership.
"Maximum Offering Amount"-means the total amount of $27,000,000 in Gross
Proceeds of the Offering.
"Minimum Gain" means the excess of the outstanding principal balance of
Partnership nonrecourse debt which is secured by Partnership Property (excluding
any portion of such principal balance which would-not be treated as an amount
realized under Section 1001 of the Code and Treas. Reg. 1.1001-2(a) promulgated
thereunder if such debt were foreclosed upon), over the adjusted basis of such
Partnership Property. In all events, the term Minimum Gain shall have the
meaning required by any applicable proposed or final regulations promulgated
under Section 704(b) of the Code, as from time to time adopted or amended,
including, until amended, withdrawn or adopted, Prop. Treas. Reg.
1.704-1(b)(4)(iv).
"Minimum Offering Amount" means the amount of $6,455,000 in Gross Proceeds
of the Offering.
"Net Cash Flow" means all cash funds derived from operations of the
Partnership, including the yield from the Interim Investments and excess cash
reserves deemed distributable by the General Partners pursuant to Section 3.3.E
hereof, without reduction for any non-cash charges, but less cash funds used to
pay, or establish reasonable reserves for, fees, commissions, debt payments,
improvements and replacements. Net Cash Flow shall not include amounts
distributed under Sections 4.1 or 4.2 hereof.
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"Net Proceeds of the Offering" means the Gross Proceeds of the Offering less
the portion of the Selling Commissions, Acquisition Fee, Organization and Start-
Up Fee and Offering and Promotional Expenses Reimbursement Allowance paid at the
time that Class A Limited Partners are admitted to the Partnership.
"Net Proceeds of Operational Stage Financing or Sale" means the gross
proceeds to the Partnership of any Operational Stage Financing or Sale, less
payment of any unpaid Deferred Fees and any amounts deemed necessary by the
General Partners to be allocated to the establishment of reserves, the payment
of any debts and liabilities of the Partnership to creditors, the repayment to
the Development General Partner of any advances made to the Partnership pursuant
to the Cash Flow Deficit Guaranty Agreement, and the payment-of any reasonable
expenses or costs associated with the Operational Stage Financing or Sale,
including but not limited to, fees, points, or real estate brokerage commissions
paid to the General Partners or their Affiliates or any unaffiliated Persons.
"Notification" -means a writing, containing the information required by this
Agreement to be communicated to any Person, sent or delivered to such Person in
accordance with the provisions of Section 11.3 of this Agreement.
"Offering " means the offering for sale of a minimum of 6,455 and a maximum
of 27,000 Units of Class A Limited Partnership Interests in the Partnership, as
more fully described in the Prospectus.
"Offering and Promotional Expenses Reimbursement Allowance " means the
allowance paid to the Administrative General Partner of a total of 2% of the
Gross Proceeds of the Offering, payable at the time of admission of Class A
Limited Partners to the Partnership.
"Operational Stage Financing " means any loan obtained by the Partnership,
secured by one or more of the completed and operating Properties or any portion
there-of, including any refinancing of a Property previously subject to
Operational Stage Financing. The Partnership will not place Operational Stage
Financing on a Property in order to make distributions to Partners if, as a
result, the outstanding indebtedness of the Partnership would exceed 80% of the
appraised value of all Properties combined. Depending on numerous factors,
including the terms of then-available financing and prevailing economic
conditions, the General Partners may determine that less than the maximum
permitted financing is desirable.
"Organization and Start- Up Fee" means the fee payable to the Administrative
General Partner for services to the Partnership in preparing the structure of
the Partnership, consulting with various professionals regarding the
organization of the Partnership, and supervising and reviewing the preparation
of all documents, filings and other instruments related to the Partnership. The
Organization and Start-Up Fee will total 4 1/2 % of Gross Proceeds of the
Offering, payable 3% upon the admission of Class A Limited Partners to the
Partnership and 1 1/2% deferred for later payment as set forth in Section 9.2
herein.
"Partner" means any General Partner or Limited Partner.
"Partnership" means the limited partnership formed in accordance with this
Agreement by the parties hereto, as said limited partnership may from time to
time be constituted.
"Partnership Property" means all or any portion of the assets owned or to be
owned by the Partnership, including the Sites, the Properties and all-incidental
personal property.
"Person " means any individual or Entity.
"Preferred Return " means a cumulative, non-compounded annual return equal
to 7.5 % of each Class A Limited Partner's Adjusted Capital Balance. The
Preferred Return shall be determined on an annual, basis, according to the
fiscal year of the Partnership. If any portion of a Class A Limited Partner's
Preferred Return is not paid from Net Cash Flow, such unpaid portion will be
added to the Class A Limited Partner's priority distribution from the Net
Proceeds of Operational Stage Financing or Sale.
"Profit" and "Loss" means taxable income and taxable loss of the Partnership
for federal income tax purposes, determined as of the close of the Partnership's
tax year, including, where the context requires, related federal income tax
items such as capital gain or loss, tax preferences, investment interest,
depreciation cost
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<PAGE>
recovery, depreciation recapture, and cost recovery recapture. Except as
otherwise provided herein, each item of income, gain, loss, deduction,
preference or recapture entering into the computation of Profit or Loss
hereunder shall be allocated to each Partner in the same proportion as Profit
and Loss are allocated.
"the Properties" means a minimum of one and a maximum of four apartment
projects to be develop, owned and operated by the Partnership, which Properties
consist of, in order of their planned development (which order, after the
construction of Property I, may be modified by the General Partners in their
sole discretion): (a) the Southland Station apartments, containing 160 units, in
Warner Robins, Georgia ("Property I"); (b) the Hidden Lake Phase Two apartments,
containing 160 units, in Union City, Georgia ("Property II"); (c) the Park Place
apartments, containing 184 units, in Spartanburg, South Carolina ("Property
III"); and (d) the High Ridge apartments, containing 160 units, in Athens,
Georgia ("Property IV").
"Property Manager" means Flournoy Properties, Inc. or any Person who is
designated by the General Partners as Property Manager.
"Property Management Agreement" means the agreement or agreements to be
entered into by the Partnership and the Property Manager pursuant to which the
Property Manager shall manage each of the Properties for a fee of 5% of the
monthly gross operating revenues of the Properties.
"Prospectus" means the Partnership's Prospectus contained in the
Registration Statement filed on Form S-11 with the Securities and Exchange
Commission for the registration of the Units under the Securities Act of 1933,
in the final form in which ft is filed with the Securities and Exchange
Commission and as thereafter supplemented pursuant to Rule 424 under the
Securities Act of 1933. Any reference herein to "date of the Prospectus" shall
be deemed to refer to the date of the Prospectus in the form filed pursuant to
Rule 424(b) of the Securities Act of 1933.
"Purchase Money Financing" means a purchase money note or other form of
installment sale obligation received by the Partnership pursuant to a Sale.
"Sale" means any transaction entered into by the Partnership resulting in
the receipt of cash or other consideration (other than the receipt of Capital
Contributions) not in the ordinary course of its business, including, without
limitation, sales or exchanges or other dispositions of real or personal
Partnership property, condemnations, recoveries of damage awards and insurance
proceeds (other than business or rental interruption insurance proceeds), but
excepting any borrowing or mortgage financings.
"Schedule" means Schedule A annexed hereto as amended from time to time and
as so amended at the time of reference thereto.
"Selling Agent" means Alex. Brown Realty Securities, Inc., an Affiliate of
the Administrative General Partner, which will offer the Units on a best efforts
basis pursuant to a Selling Agent Agreement with the Partnership.
"Selling Agent Agreement" means that certain agreement to be entered into
by the Partnership and Alex. Brown Realty Securities, Inc. pursuant to which
Alex. Brown Realty Securities, Inc. will offer and sell the Units on a best
efforts basis.
"Selling Commissions " means the maximum total of 7 % of the Gross Proceeds
of the Offering paid the Selling Agent or reallowed other soliciting dealers for
their efforts in offering the Units. 5% of the maximum selling Commissions will
be paid at the time of admission of Class A Limited Partners into the
Partnership; the remaining 2% will be deferred for payment from as set forth in
Section 9.2 herein. The 7% maximum Selling Commissions will be reduced for
volume purchases, in which case the reduction will apply to the portion of the
Selling Commission due at the time of admission of Class A Limited Partners to
the Partnership.
"the Sites" means a minimum of one and a maximum of four tracts of land,
three of which are located in the State of Georgia and one of which is located
in the State of South Carolina, upon which the Properties are-to be developed.
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"Sponsor" means 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 (a) any Person whose only relationship with the Partnership or the
General Partner is that of an independent property manager whose only
compensation from the Partnership is in the form of fees for the performance of
property management services, or (b) wholly-independent parties such as
attorneys, accountants and broker-dealers whose only compensation from the
Partnership is for professional services rendered in connection with the
Offering or the operations of the Partnership.
"Substitute Limited Partner" means a Person who is the assignee or
transferee, in whole or in part, of a Limited Partner's Interest in the
Partnership, who is admitted to the Partnership as a Limited Partner in
accordance with Section 7.3 hereof, and who is listed as such on the books and
records of the Partnership.
"Successor General Partner" means any Person who is admitted as a Successor
General Partner to the Partnership under the provisions of Article VI after the
date of this Agreement.
"Tax-Exempt Partner(s) " means, depending upon the context, either (a) a
Partner that is a "tax-exempt entity" or that is deemed to be a tax-exempt
entity, or (b) in the case of a disqualified lease by the Partnership to a
tax-exempt entity, the General Partners. As used herein, the terms "tax-exempt
entity" and "disqualified lease" shall have the meanings given them in Section
168(j) of the Code.
"Tax Matters Partner" means the Administrative General Partner designated in
Section 5.1 as the tax matters partner, as defined in Section 6231(a)(7) of the
Code.
"Termination Date of the Offering" means the date upon which the Offering
will terminate, which, if not sooner terminated by the General Partners, will be
one year from the date of the Prospectus, unless extended for up to 60 days
thereafter by the General Partners
"Unit" means a Class A Limited Partner's Interest, which is offered pursuant
to the Offering, and which upon admission of a Class A Limited Partner to the
Partnership, represents a Capital Contribution of $1,000.
"U.S. Person" means a Person who is (i) an individual who is either a United
States citizen or a resident of the United States for federal income tax
purposes, (ii) a corporation, partnership, or other legal entity created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) a corporation that is not created or organized in or under the
laws of the United States or any political subdivision thereof but which has
made an election under either Section 897(i) or Section 897(k) of the Code to be
treated as a domestic corporation for certain purposes of federal income
taxation, or (iv) an estate or trust whose income from sources without the
United States is includable in its gross income for federal income tax purposes
regardless of its connection with a trade or business carried on in the United
States.
"Working Capital Reserves" means, initially, the portion of the Net Proceeds
of the Offering set aside as working capital reserves pursuant to Section 3.3E
and the funds thereafter set aside by the General Partners for working capital
reserves.
ARTICLE II
NAME; PURPOSE AND TERM
Section 2.1 Name; Formation
The Partners hereby form the limited partnership to be known as
"Brown-Flournoy Equity Income Fund Limited Partnership" (the "Partnership"), and
such name shall be used at all times in connection with the Partnership's
business and affairs; provided, however, that the Partnership may use trade
names in its business operations. The Partnership shall be governed by the Act.
Section 2.2 Place of Registered Office
The address of the registered office in the state of Delaware of the
Partnership is Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801; the name of the registered agent for service of process on
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the Partnership in the State of Delaware at that address is The Corporation
Trust Company. The Partnership's principal place of business is 3810 Buena Vista
Road, Columbus, Georgia 31907, or such other place(s) as the General Partners
may hereafter determine. Notification of any change in the location of the
principal office shall be given to the Limited Partners on or before the date of
any such change.
Section 2.3 Purpose
The purpose of the Partnership is to acquire, own, develop, encumber, hold
for investment, operate as a business, lease, sell, dispose of and otherwise
deal with the Partnership Property, and to do all things necessary, convenient
or incidental to the achievement of the foregoing.
Section 2.4 Term
The Partnership shall continue until December 31, 2036, unless the
Partnership is sooner dissolved in accordance with the provisions of this
Agreement.
Section 2.5 Recording of Certificate
The General Partners shall take all necessary action to maintain the
Partnership in good standing as a limited partnership under the Act, including,
without limitation, the filing of a certificate of limited partnership under the
Act and such amendments and further certificates as may be necessary under the
Act and necessary to qualify the Partnership to do business in such states as
the Partnership owns property. The General Partners shall not be required to
send a copy of the Partnership's filed certificate of limited partnership to
each Limited Partner.
ARTICLE III
PARTNERS; CAPITAL
Section 3.1 General Partners
The name, address and Capital Contribution of each General Partner is set
forth on the Schedule. Upon the dissolution and termination of the Partnership,
each General Partner shall make a Capital Contribution to the Partnership in an
amount equal to the lesser of (i) the deficit balance, if any, in his Capital
Account or ( ii) his proportionate share of the excess of 1.01% of the Capital
Contributions of the Limited Partners over the Capital Contributions previously
contributed by the General Partners.
Section 3.2 Limited Partners
The name, address and Capital Contribution of each Limited Partner in his
capacity as such shall be reflected on the books and records of the Partnership.
Section 3.3 Partnership Capital
A. Each Partner's Capital Contribution shall be paid in cash on or prior to
the date of his admission to the Partnership.
B. Except to the extent of any interest income earned on a Class A Limited
Partner's Capital Contribution while it is held in escrow, pending his admission
to the Partnership, and later distributed to such Class A Limited Partner
pursuant to Section 4.5A, no Partner shall be paid interest on any Capital
Contribution.
C. Except as otherwise provided in this Agreement, no Partner shall have
the right to withdraw, or receive any return of, his Capital Contribution.
D. Under circumstances requiring a return of any Capital Contribution, no
Partner shall have the right to receive property other than cash.
E. The Partnership shall initially set aside Working Capital Reserves for
normal repairs, replacements and contingencies in an amount equal to at least
3.0% of the Gross Proceeds of the Offering. If in any fiscal quarter,
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the General Partners determine that the Working Capital Reserves of the
Partnership are in excess of the amount deemed sufficient in connection with the
Partnership's operations, and that such Working Capital Reserves may be reduced,
the amount of such reduction may be distributed to the Partners as a portion of
the Partnership's Net Cash Flow. Upon the Sale or disposition of a Property, any
Working Capital Reserves maintained for such Property may be distributed to
Partners or applied as Working Capital Reserves for other Properties.
Section 3.4 Liability of Partners
A. Except as provided in the Act, a Limited Partner will not be personally
liable for the debts, liabilities, contracts, or other obligations of the
Partnership. Except as provided in the Act, a Limited Partner will have no
liability in excess of the capital contribution which such Limited Partner is
obligated to make to the Partnership, and his share of the Partnership's assets
and undistributed profits.
B. No Limited Partner shall be required to lend any funds to the Partnership
or, after his Capital Contribution has been fully paid, to make any further
capital contribution to the Partnership, nor shall any Limited Partner be liable
for or, have any obligation to restore, any negative Capital Account.
C. No Limited Partner shall have any- personal liability for the repayment
of the Capital Account of any General Partner or be required to repay to the
Partnership all or any portion of any negative amount of the General Partners'
Capital Accounts.
D. No General Partner shall have any personal liability for the repayment of
the Capital Contribution or the Preferred Return of any Limited Partner or be
required to repay to the Partnership all or any portion of any negative amount
of the Limited Partners' Capital Accounts.
E. No payments made by the Development General Partner under the Cash Flow
Deficit Guaranty Agreement shall constitute a Capital Contribution of the
Development General Partner or be credited to the Capital Account of the
Development General Partner. Such payments, if any, shall be treated as an
interest free loan to the Partnership, as set forth in the definition contained
in Article I herein.
ARTICLE IV
ALLOCATIONS, DISTRIBUTIONS AND APPLICABLE RULES
Section 4.1 Allocation of Profit or Loss and Distribution of Net Proceeds
from a Sale
A. Profit from any Sale (and Profit from any deemed Sale pursuant to
Sections 4.4 or 4.5) shall be allocated in the following order of priority
(1) First, if one or more Partners has a negative Capital Account, to such
Partners, in proportion to their negative Capital Accounts, until all such
Capital Accounts have zero balances.
(2) Second, if any Class A Limited Partner has an unpaid Preferred Return,
any Profit not allocated pursuant to Section 4.1A(l) shall be allocated 100% to
the Class A Limited Partners, in accordance with their respective Class A
Limited Partner Percentages, until the Capital Account of each Class A Limited
Partner is equal to his unpaid Preferred Return.
(3) Third, any Profit not allocated pursuant to Sections 4. 1A(l) or 4.
1A(2) shall be allocated 100% to the Class A Limited Partners, in accordance
with their respective Class A Limited Partner Percentages, until the Capital
Account of each Class A Limited Partner is equal to the sum of his Adjusted
Capital Balance plus his unpaid Preferred Return, if any.
(4) Fourth, any remaining Profit shall be allocated 80% to the Class A
Limited Partners, in accordance- with their Class A Limited Partner Percentages,
14% to John F. Flournoy in his capacity as a Class B Limited Partner, 4 % to the
Realty Associates 1986 Limited Partnership, a Class B Limited Partner, 1% to the
Development General Partner and 1 % to the Administrative General Partner.
B. Loss from any Sale (and Loss from any deemed Sale pursuant to Sections
4.4 and 4.5) shall be allocated in the following order of priority:
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(1) First, if one or more Partners has a positive Capital Account, to such
Partners, in proportion to their positive Capital Accounts, until all such
positive Capital Accounts have zero balances.
(2) Any remaining Loss shall be allocated as follows: 80% to the Class A
Limited Partners, in accordance with their Class A Limited Partner Percentages,
14% to John F. Flournoy in his capacity as a Class B Limited Partner, 4% to
Realty Associates 1986 Limited Partnership, a Class B Limited Partner, 1 % to
the Development General Partner and 1 % to the Administrative General Partner.
C. After the allocation of Profit and Loss pursuant to Sections 4.1A and
4.1B, Net Proceeds, if any, from a Sale, and any net proceeds upon dissolution
of the Partnership, shall be distributed, credited and applied by the
Partnership to its Partners in proportion to their positive Capital Accounts,
until all such Capital Accounts have been reduced to zero. The first Net
Proceeds of Sale distributed to the Class A Limited Partners shall be deemed, to
the extent applicable, distributions of any unpaid Preferred Return due the
Class A Limited Partners.
Section 4.2 Distribution of Net Proceeds of Operational Stage Financing
Upon the Operational Stage Financing of any Property or portion thereof, Net
Proceeds of Operational Stage Financing shall be distributed, credited and
applied in the following order of priority:
(1) First, if any Class A Limited Partner has an unpaid Preferred Return,
100 % to the Class A Limited Partners, in accordance with their Class A Limited
Partner Percentages, until each Class A Limited Partner has received an amount
equal to his unpaid Preferred Return.
(2) Second, 100% to the Class A Limited Partners, in accordance with their
Class A Limited Partner Percentages, until each Class A Limited Partner has
received an amount equal to his Adjusted Capital Balance.
(3) Third, any remaining Net Proceeds shall be distributed 80% to the Class
A Limited Partners, in accordance with their respective Class A Limited Partner
Percentages, 14% to John F. Flournoy in his capacity as a Class B Limited
Partner, 4% to Realty Associates 1986 Limited Partnership, a Class B Limited
Partner, 1 % to the Development General Partner and 1 % to the Administrative
General Partner.
Section 4.3 Distribution of Net Cash Flow and Allocation of Profit and Loss
from Operations
A. Net Cash Flow, if any, shall be distributed and applied by the
Partnership as follows: 98% to the Class A Limited Partners, in accordance with
their respective Class A Limited Partner Percentages, 1 % to the Development
General Partner and 1 % to the Administrative General Partner. To the extent
feasible, the General Partners will endeavor to distribute any Net Cash Flow on
a quarterly basis.
B. For each taxable year, Profit and Loss (other than Profit or Loss from a
Sale) of the Partnership shall be allocated 98% to the Class A Limited Partners,
in accordance with their respective Class A Limited Partner Percentages, 1 % to
the Administrative General Partner and 1 % to the Development General Partner.
Section 4.4 Liquidation or Dissolution
A. If the Partnership is liquidated or dissolved, the net proceeds from such
liquidation, as provided in Article VIII, shall be distributed first to
creditors, including Partners who are creditors, to the extent otherwise
permitted by law (whether by payment or by establishment of reserves), other
than liabilities for distributions to Partners, and any remaining net proceeds
shall be distributed in the order of priority set forth in Section 4.1A, unless
applicable law shall otherwise require, in which event the order of priority set
forth in Section 4.1A shall be modified to the extent necessary, but only to the
extent necessary, to comply with such applicable law.
B. If the General Partners elect, pursuant to Section 8.2C, to distribute
any of the Property of the Partnership to the Partners in kind, such Property
shall be applied, based upon its fair market value, in the order of priority set
forth in Section 4.4A, unless applicable law shall otherwise require, in which
event the order of priority set forth in Section 4.4A shall be modified to the
extent necessary, but only to the extent necessary, to comply with such
applicable law. In this regard, all unsold Partnership Property shall first be
valued, as
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provided in Section 4.5B, to determine the Profit or Loss that would have
resulted from a Sale of such Property, and, subject to the special rules of
Section 4.5, such Profit or Loss shall be allocated as provided in Section 4.IA
and shall be properly credited or charged to the Capital Accounts of the
Partners.
Section 4.5 General and Special Rules
A. Except as otherwise provided herein, the timing and amount of all
distributions shall be determined by the General Partners. No Partner shall have
the right to demand and receive any distribution of property other than cash.
Notwithstanding any other provision of this Agreement, the General Partners
shall have authority to make the following distributions to certain of the Class
A Limited Partners following such Class A Limited Partners' admission to the
Partnership: First, if the Partnership has realized a savings on Selling
Commissions payable by the Partnership with respect to the purchase of Units by
a Class A Limited Partner, due to the purchase by such Class A Limited Partner
of 100 or more Units (as more fully set forth in the Prospectus), the General
Partners shall make a distribution to such Class A Limited Partner equal to the
amount of such savings realized by the Partnership. Second, if any interest is
earned on a Class A Limited Partner's Capital Contribution while it is held in
escrow, pending such Class A Limited Partner's admission to the Partnership,
such interest shall be paid by the Partnership to such Class A Limited Partner.
B. Subject to all of the special rules of this Section 4.5, if any
Partnership Property is distributed to the Partners in kind, such Partnership
Property first shall be valued on the basis of the fair market value thereof to
determine the Profit or Loss that would have resulted if such Partnership
Property had been sold, and then such Profit or Loss shall be allocated as
provided in Section 4.1A, and shall be properly credited or charged to the
Capital Accounts of the Partners in accordance with Treas. Reg.
1.704-1(b)(2)(iv)(e) or any successor provision thereto. Any Partner entitled to
any interest in such assets shall receive such interest as a tenant-in-common
with all other Partners so entitled. The fair market value of such assets shall
be determined by an independent appraiser who shall be selected by the General
Partners.
C. Notwithstanding any other provision of this Agreement to the contrary,
the allocation of Loss or deduction (or item thereof) attributable to
nonrecourse debt that is secured by any Property of the Partnership shall in no
event be permitted to the Partners having negative Capital Account balances to
the extent that the sum of negative Capital Account balances of the Partner or
Partners receiving such allocations would exceed the Minimum Gain (determined at
the end of the Partnership taxable year to which the allocations relate).
Instead, such Loss (or deduction or item thereof) shall be allocated first to
the Partners having positive Capital Accounts, in proportion to such positive
Capital Accounts, until all such positive Capital Accounts have been reduced to
zero, and any additional Loss (or deduction or item thereof) shall be allocated
to the Partners in accordance with the sharing arrangements set forth in this
Article IV. The Partner or Partners having negative Capital Account balances
resulting in whole or in part from allocations of Loss (or deduction or item
thereof) attributable to nonrecourse debt that is secured by Property of the
Partnership shall, to the extent possible, be allocated Profit (income, gain or
item thereof) in an amount no less than the excess of the sum of such negative
Capital Account balances over the Minimum Gain at a time no later than the time
at which the Minimum Gain is reduced below the sum of such negative Capital
Account balances.
D. Notwithstanding any other provision of this Agreement to the contrary, in
the event that at the end of any Partnership taxable year (i) any Partner's
Capital Account is adjusted for, or (ii) such Partner is allocated, or (iii)
there is distributed to such Partner, any item described in Treas. Reg.
1.704-1(b)(2)(ii)(d)(4), (5)-or (6) in an amount not reasonably expected on the
date of execution of this Agreement and such treatment creates a deficit balance
in such Partner's Capital Account in excess of the deficit balance that is
permitted in accordance with Section 4.5C hereof (the "Excess Deficit Balance"),
then such Partner shall be allocated all items of income and gain of the
Partnership for such taxable year (as set forth below) and all subsequent
taxable years until such Excess Deficit Balance has been eliminated. In the
event that such unexpected adjustments create an Excess Deficit Balance in the
Capital Account of more than one Partner in any Partnership taxable year, all
items of income and gain (as set forth below) of the Partnership for such
taxable year and all subsequent taxable years shall be allocate among such
Partners in proportion to their Excess Deficit Balances until such Excess
Deficit Balances have been eliminated. Any remaining Profit or Loss, after
adjustment has
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been made for allocation of income or gain pursuant to this Sections 4.5D, shall
be allocated in accordance. with Sections 4.1, 4.2 and 4.3 hereof. In allocating
Partnership income or gain to Partners with Excess Deficit Balances, the General
Partners shall first allocate taxable income of the Partnership. If allocations
of taxable income are insufficient to eliminate the Partners' Excess Deficit
Balances, the General Partners shall allocate items of gross income (as defined
in Section 61 of the Code) to Partners having Excess Deficit Balances in amounts
sufficient to eliminate such deficit balances. This Section 4.5D is intended to
be-a "qualified income offset" provision within the meaning of Treas. Reg.
1.704-1(b)(2)(ii)(d), and the General Partners shall be authorized to interpret
and apply this Section 4.5D so as to satisfy the requirement of the final
regulations and any successor provision.
E. If any Partner's Interest in the Partnership is reduced (provided such
reduction does not result in a complete termination of such Partner's Interest),
such Partner's share of the Partnership's "unrealized receivables" (within the
meaning of Section 751(c) of the Code), shall not be reduced so that,
notwithstanding any other provision of this Agreement to the contrary, that
portion of the Profit otherwise allocable upon a liquidation or dissolution of
the Partnership pursuant to Section 4.1 hereof which is taxable as ordinary
income (recaptured) for federal income tax purposes as a result of the
application of Sections 704, 751, 1245 or 1250 of the Code shall, to the extent
possible without increasing the total gain to the Partnership or to any Partner,
be allocated among the Partners in proportion to the deductions (or basis
reductions treated as deductions) giving rise to such recapture. Any questions
as to the aforesaid allocation of ordinary income (recapture), to the extent
such questions cannot be resolved in the manner specified above, shall be
resolved by the General Partners in their reasonably exercised discretion.
F. All Profit and Loss of the Partnership shall be allocated with respect to
each taxable year of the Partnership as of the end of, and within seventy-five
(75) days after the end of, such taxable year, or as soon thereafter as is
practically possible.
G. Generally, all Profit and Loss (other than Profit and Loss from a Sale)
shall be allocated, and Net Cash Flow shall be distributed, as the case may be,
to the Persons shown on the records of the Partnership to have been Partners as
of the last day of the taxable year for which such allocation or distribution is
to be made, subject to the special rules set forth in this Section 4.5G. The
Partnership shall adopt the "interim closing of the books" method of allocating
Partnership Profit and Loss, in accordance with a "semi-monthly convention" with
respect to the admission of Additional Limited Partners or Substitute Limited
Partners on or before the Termination Date of the Offering. Accordingly, if on
or before the Termination Date of the Offering, Additional Limited Partners
and/or Substitute Limited Partners are admitted to the Partnership (i) prior to
the sixteenth day of a calendar month, the Partnership will close its books as
of the end of the last day of the month prior to the month of admission, and
such Additional Limited Partners and/or Substitute Limited Partners shall be
treated as entering the Partnership on the first day of the month of admission;
or (ii) on or after the sixteenth day of a calendar month, the Partnership will
close its books as of the end of the fifteenth day of the month of admission,
and such Additional Limited Partners and/or Substituted Limited Partners shall
be treated as entering the Partnership on the sixteenth day of such month. After
the Termination Date of the Offering, a Substitute Limited Partner shall not be
admitted to the Partnership until the date on which the assignment to such
Substitute Limited Partner of an Interest in the Partnership becomes effective
as provided in Section 7.3B hereof (the "Effective Date"). Accordingly, a
Substitute Limited Partner shall be deemed to be the owner of an Interest in the
Partnership from and after the Effective Date, with such Substitute Limited
Partner being entitled to Partnership distributions and allocations of Profit
and Loss only with respect to Partnership operations commencing on the Effective
Date. Profit and Loss from a Sale shall be allocated, and Net Proceeds of an
Operational Stage Financing or Sale shall be distributed, among the Persons who
are recognized as Partners on the date of closing of such Operational Stage
Financing or Sale. Any distribution of Sale proceeds attributable to deferred
payments that are paid in a taxable year after the year of Sale shall be
distributed to the Persons who are recognized as Partners as of the date of such
distribution.
H. Notwithstanding any other provision hereof, if any portion of the
Properties is "tax-exempt use property" within the meaning of Section 168(j)(3)
and (j)(9) of the Code (or any similar provision of law which may subsequently
be enacted), such portion shall be deemed allocated specially to the Tax-Exempt
Partner(s),
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and cost recovery deductions shall be allocated proportionately among the
Partners other than the Tax-Exempt Partners in such amounts so that, to the
maximum extent possible, the cost recovery deductions otherwise allocable to the
Partners other than the Tax-Exempt Partners shall not be reduced as a result of
such characterization, the intent of this Section being to provide that the
Partners other than the Tax-Exempt Partners shall be entitled to those cost
recovery deductions which would have been available if no portion of the
Property were "tax-exempt use property." If there is more than one Tax-Exempt
Partner, such allocations shall be made in proportion to their respective
Limited Partner Percentages.
I. In the event that any Class A Limited Partner fails to furnish to the
General Partners evidence, in form and substance satisfactory to the General
Partners, establishing that the General Partners have no obligation under
Section 1445 of the Code with respect to such Class A Limited Partner to
withhold and pay over an amount to the Internal Revenue Service, the General
Partners may, in their sole discretion, withhold with respect to such Class A
Limited Partner the amount they would be required to withhold pursuant to
Section 1445 of the Code if such Class A Limited Partner were not a U.S. Person,
and any amount so withheld shall be treated as a distribution under Sections
4.1, 4.2 or 4.3 of this Agreement, as the case may be, and shall reduce the
amount otherwise distributable to such Class A Limited Partner thereunder.
ARTICLE V
RIGHTS, POWERS AND DUTIES OF PARTNERS
Section 5.1 Management and Control of the Partnership; Tax Matters Partner
A. The General Partners shall have the exclusive right to manage and control
the business of the Partnership. Except as otherwise provided herein, decisions
to be made by the General Partners shall be made by the joint agreement of the
Administrative General Partner and the Development General Partner.
B. Except as otherwise provided herein, the Partnership shall be bound by
the signature of any General Partner.
C. No Limited Partner (except one who may also be a General Partner, and
then only in his capacity as General Partner) shall have the right to
participate in the control of the business of the Partnership, or have any
authority or right to act for or bind the Partnership.
D. The Administrative General Partner is hereby designated to serve as the
Partnership's Tax Matters Partner and shall have all of the powers and
responsibilities of such position as provided in Sections 6221 et seq. of the
Code. All third party costs and expenses incurred by the Administrative General
Partner in performing its duties as Tax Matters Partner shall be borne by the
Partnership, as shall all expenses incurred by the Partnership and/or the Tax
Matters Partner in connection with any tax audit or tax related administrative
or judicial proceeding. Each Partner shall be responsible for all costs incurred
by such Partner with respect to any tax audit or tax related administrative or
judicial proceeding in connection with such Partner's tax returns, and all costs
incurred by any such Partner who participates in any tax audit or tax related
administrative or judicial proceeding of or against the Partnership or any
Partner. Each Partner hereby (i) expressly authorizes the Tax Matters Partner to
enter into any settlement with the Internal Revenue Service with respect to any
tax matter, tax item, tax issue, tax audit, or judicial proceeding, which
settlement shall be binding on all Partners; (ii) waives the right to
participate in any administrative or judicial proceeding in which the tax
treatment. of any Partnership item is to be determined; and (iii) agrees to
execute such consents, waivers or other documents as the Tax Matters Partner may
determine are necessary to accomplish the provisions of this Section 5.1D. The
Tax Matters Partner shall have no liability to any Partner or the Partnership,
and shall be indemnified by the Partnership to the full extent provided by law,
for any act or omission performed or omitted by it within the scope of the
authority conferred on it by this Agreement, except for acts of negligence or
for damages arising from any misrepresentation or breach of any other agreement
with the Partnership. The liability and indemnification of the Tax Matters
Partner shall be determined in the same manner as is provided in Sections
5.9,and 5. 10 hereof
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E. Anything herein to the contrary notwithstanding, if any of the following
events of default shall occur at any time during the term hereof, then, until
such time as any such events shall have been cured, all decisions to be made by
the General Partners shall be made solely by the Administrative General Partner,
provided that such event of default shall not have been caused solely by any act
or omission of the Administrative General Partner:
(i) an event of default shall have occurred under any of the documents or
instruments evidencing or securing the Construction Financing and such default
shall not have been cured within any applicable cure period;
(ii) the Property Manager shall be in material default under any Property
Management Agreement, and such default shall not have been cured within any
applicable cure period;
(iii) the General Contractor shall be in material default under (a) the
Construction Contract for any Property or (b) any Guaranty of Timely and
Lien-Free Completion, and such default shall not have been cured within any
applicable cure period;
(iv) Flournoy Development Company shall be in material default under the
Acquisition Agreement, and such default shall not have been cured within any
applicable cure period;
(v) the Development General Partner shall be in default under any of (a)
the Cash Flow Deficit Guaranty Agreement, (b) any Guaranty of Timely and Lien-
Free Completion or (c) the Contract of Sale, and such default shall not have
been cured within any applicable cure period; or
(vi) the Development General Partner or any of its Affiliates shall be in
material default under any other agreement between or among the Development
General Partner and/or any such Affiliate and the Partnership, and such default
shall not have been cured within any applicable cure period.
Section 5.2 Authority of General Partners
A. Except to the extent otherwise provided herein, including, without
limitation, in Section 5.2C, 5.3A, 5.4A, 5.4B, 5.5A and 5.5B, the General
Partners for, and in the name of, and on behalf of, the Partnership, are hereby
authorized:
(i) to enter into any kind of activity and to perform and carry out
contracts of any kind necessary to, or in connection with, or incidental to the
accomplishment of the purposes of the Partnership, so long as said activities
and contracts may be lawfully carried on or performed by a limited partnership
under applicable laws and regulations;
(ii) to engage Persons, including the Sponsors, to provide services or
goods to the Partnership, upon such terms as the General Partners deem fair and
reasonable and in the best interest of the Partnership, provided, however, that,
as to services or goods provided by a Sponsor, (a) the compensation for-such
services or goods must be comparable and competitive with that of any other
Person who provides comparable services or goods, and, as to services under the
Construction Contracts and with regard to obtaining Operational Stage Financing,
will not exceed 90% of the competitive price that would be charged by
non-affiliated persons or entities rendering similar services in the same or
comparable geographic locations; (b) the compensation and other terms of such
contracts shall be fully disclosed to the Class A Limited Partners in the
reports of the Partnership, (c) the Sponsor must have been previously engaged in
the business of providing such services or goods, independent of the Partnership
and as an ongoing business, and (d) all such transactions shall be embodied in a
contract that describes the services or goods to be provided and the
compensation to be paid, which contract may be modified by the Consent of the
Class A Limited Partners, and which contract shall permit termination without
penalty on sixty (60) days notice;
(iii) to acquire by lease or purchase, develop, own, sell, convey,
finance, improve, assign, mortgage, lease or exchange incident to a tax-free
swap any real estate and any personal property necessary, convenient or
incidental to the accomplishment of the purposes of the Partnership;
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(iv) to develop, construct, maintain, finance, improve, own, grant
options with respect to, sell, convey, assign, mortgage or lease any Partnership
Property or any other real estate or personal property necessary, convenient or
incidental to the accomplishment of the purposes of the Partnership;
(v) to execute any and all agreements, contracts, documents,
certifications and instruments necessary or convenient in connection with the
development, construction, management, maintenance and operation of any
Partnership Property, including without limitation, necessary easements to
public or quasi-public bodies or public utilities;
(vi) to borrow money and issue evidences of indebtedness in furtherance
of any or all of the purposes of the Partnership, and to secure the same by deed
of trust, mortgage, security interest, pledge or other lien or encumbrance on
any Partnership Property or any other assets of the Partnership;
(vii) to repay in whole or in part, negotiate, refinance, recast,
increase, renew, modify or extend any secured, or other indebtedness affecting
any Partnership Property and in connection therewith to execute any extensions,
renewals or modifications of any evidences of indebtedness secured by deeds of
trust, mortgages, security interests, pledges or other encumbrances covering any
Partnership Property;
(viii) to engage a real estate agent (including a Sponsor) to sell any
Partnership Property or portions thereof upon such terms and conditions as are
deemed fair and reasonable by the General Partners and to be in the best
interest of the Partnership, and to pay reasonable compensation for such
services; provided, however, that any real estate commission paid shall not
exceed six percent (6%) of the contract price for the Sale of any Partnership
Property, and, in addition, if a Sponsor provides substantial services in such
regard, the Sponsor may receive up to one-half of such real estate commission,
not to exceed three percent (3 %), the payment of which real estate commission
to the Sponsor shall be subordinated to the payment to Class A Limited Partners
of their Adjusted Capital Balance plus the unpaid portion, if any, of their
Preferred Return.
(ix) to admit Additional Class A Limited Partners to the Partnership in
accordance with the terms described in the Prospectus and Article VII of this
Agreement.
B. Any person dealing with the Partnership or the General Partners may rely
upon a certificate signed by any General Partner, as to:
(i) the identity of any General Partner or any Limited Partner;
(ii) the existence or non-existence of any fact or facts that constitute
conditions precedent tGeneral Partners or in any other manner are germane to the
affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instrument or document of the Partnorship; (iv) any act or failure to act
by the Partnership or as to any other matter whatsoever iPartnership or
any Partner.
C. The Administrative General Partner shall have the sole authority and
power, on behalf of the Partnership, subject to Section 5.3, to review, approve,
terminate, modify, enforce, continue or otherwise deal, in good faith, with the
Property Management Agreements, the Cash Flow Deficit Guaranty Agreement, the
Guaranties of Timely and Lien-Free Completion, the Contract of Sale, the
Construction Contracts, the Acquisition Agreement or any other agreements now or
hereafter made between the Partnership and the Development General Partner or
any Affiliate thereof.
Section 5.3 Authority of Limited Partners
A. By the vote of the Class A Limited Partners holding a majority of the
Class A Limited Partner Percentages, the Class A Limited Partners, without the
consent of the General Partners, may:
(i) amend the Partnership Agreement;
(ii) dissolve or terminate the Partnership prior to the expiration of its
term;
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(iii) remove a General Partner and elect a new General Partner;
(iv) approve or disapprove of the Sale of all or substantially all of the
Partnership's Property;
(v) terminate, upon 60 days notice, any contract between the Partnership
and any General Partner or any Affiliate thereof.
B. Meetings of the Partnership may be called by the General Partners, or by,
Class A Limited Partners holding more than ten percent (10%) of the Class A
Limited Partner Percentage, for the purpose of discussing and/or voting upon any
of the matters upon which Class A Limited Partners are entitled to vote under
the terms of this Agreement. Upon the General Partners' receipt of Notification
stating the purpose of such meeting by such requisite percentage of the Class A
Limited Partners, the General Partners shall, within ten (10) days after receipt
thereof, provide Notification to the Class A Limited Partners of the time, place
and purpose of such meeting, which shall be held not less than 15 nor more than
60 days after the receipt of such request by the General Partners.
Section 5.4 Restrictions on Authority
A. With respect to the Partnership and Partnership Property, the General
Partners shall have no authority to perform any act in violation of any
applicable laws or regulations thereunder, nor shall the General Partners as
such, without the Consent of the Class A Limited Partners, have any authority:
(i) to voluntarily dissolve or terminate the Partnership prior to the
expiration of its term, exceplisted in Section 8.1 hereof;
(ii) to purchase or acquire property or undertake construction of any
properties other than the Properties specified, provided, however, that the
General Partners may alter the planned order of construction of Properties
II, III and IV if they determine, in their sole discretion, that such change
is not detrimental to the Partnership;
(iii) except as permitted in this Agreement, to do any act required to be
approved by the Class A Limited Partners under the Act;
(iv) to reinvest any Net Proceeds of Operational Stage Financing or
Sale, except in short-term securities pursuant to Section 10.2B;
(v) except with respect to the Interim Investments, to invest in or
underwrite securities of any type or kind for any purpose, or make
investments other than in the Properties and the operations related and
incidental thereto;
(vi) to do any act in contravention of this Agreement;
(vii) to do any act that would make it impossible to carry on the ordinary
business of the Partnership;
(viii) to confess a judgment against the Partnership;
(ix) to offer Class A Limited Partner Interests in the Partnership in
exchange for property;
(x) to possess the Properties or any Partnership Property related
thereto, or assign the Partnership's rights in same, for other than the
exclusive use of the Partnership;
(xi) to admit Additional Class A Limited Partners to the Partnership
after the Termination Date of the Offering (the General Partners shall not
be required to seek the Consent of the Class A Limited Partners to admit
Substitute Limited Partners into the Partnership);
(xii) to operate in such a manner as to be classified as an "investment
company" under the meaning of the Investment Company Act of 1940;
(xiii) except as provided herein and in the Prospectus, to purchase or
lease any property from or sell or lease property to the General Partners or
their Affiliates; or
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(xiv) to obtain financing other than under the circumstances and
conditions set forth herein and in the Prospectus with respect to (a) any
Construction Financing or financing commitment to complete a Property, or
(b) any Operational Stage Financing.
B. In addition, the General Partners shall have no authority to cause the
Partnership to incur Construction Financing with respect to Property 1, or to
cause the Partnership to incur Construction Financing for any of Properties II,
III or IV except on the following terms and conditions:
(i) If the Offering has raised less than 100 % but more than 50 % of the
Gross Proceeds of the Offering necessary to complete a Property, the
Partnership may obtain a Construction Financing commitment for the balance
of the funds necessary to acquire and complete such Property. As the balance
of the Net Proceeds of the Offering necessary to complete such Property are
subsequently raised from additional investors, any Construction Financing
actually drawn with respect to such Property will be retired by such
additional Net Proceeds of the Offering. If for any Property insufficient
additional funds are raised from investors to completely retire the
Construction Financing prior to the Termination Date of the Offering, such
financing will remain in place and constitute a lien against the Property.
Under no circumstances will the Partnership subject more than one Property
to Construction Financing at any given time, nor may the amount of such
Construction Financing exceed 50% of the Net Proceeds of the Offering
necessary for completion of that Property, nor will the Partnership
undertake construction under such circumstances absent a commitment for a
replacement loan at the completion of construction or unless the original
construction financing has a term, including permitted extensions, of not
less than four years.
(ii) If more gm 50% but less than 100% of the Gross Proceeds of the
Offering necessary to construct any of Properties II, III or IV are raised,
the General Partners may, in lieu of obtaining Construction Financing for
such Property, elect to terminate the Offering.
Section 5.5 Authority of Partners and Affiliated Persons to Deal with
Partnership
A. The General Partners may, for, in the name of, and on behalf of, the
Partnership, borrow money from, or enter into agreements, contracts or the like
(in addition to those set forth herein) with, any Sponsor, in an independent
capacity, as distinguished from such capacity (if any) as a Sponsor, as if such
Sponsor were an independent contractor; provided, however, that any such
agreement shall be subject to the conditions set forth in Section 5.2A(ii)
herein.
B. Neither the General Partners nor any Affiliate thereof shall have the
authority:
(i) to cause the Partnership to invest in any program, partnership or other
venture not enumerated herein;
(ii) to receive any compensation, fee or expense not otherwise permitted to
be paid to it under the terms of this Agreement or the Prospectus;
(iii) to cause the Partnership to acquire and develop any Property
without first having obtained an appraisal with respect to the value thereof
on an "as-built" basis, rendered by an independent, appraiser who is a
member of a nationally recognized society of appraisers, in which the
"as-built" appraised value equals or exceeds the purchase price of the Site,
plus the Construction Contract price for the Property, plus any Acquisition
Fee paid with respect to such Property by the Partnership;
(iv) to commingle the Partnership funds with those of any other person
or entity, or to invest any of the Net Proceeds of the Offering in junior
mortgages, junior deeds of trust or other similar obligations, except that
funds of the Partnership may be temporarily retained by agents of the
Partnership pursuant to contracts for the rendering of services to the
Partnership by such agents or held in accounts established -and maintained
for the purpose of making the Interim Investments and/or computerized
disbursements;
(v) to cause the Partnership to lend money or other assets to the General
Partners or any Affiliates thereof;
(vi) to grant to the General Partners or any Affiliates thereof an
exclusive listing for the Sale of Partnership assets, including the Properties;
or
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(vii) to receive any rebate or give-up, or, except as specifically set
forth herein, to participate in any reciprocal business an-arrangement with
any General Partner or an Affiliate thereof.
Section 5.6 Duties and Obligations of the General Partners
A . The General Partners shall take all action that may be necessary or
appropriate for the continuation of the Partnership's existence as a limited
partnership under the Act. The General Partners shall devote to the Partnership
such time as may be necessary for the proper performance of their duties
hereunder, but neither the General Partners nor any of their Affiliates shall be
expected to devote their full time to the performance of such duties. The
General Partners or their Affiliates may act as general or managing partners for
other partnerships engaged in businesses similar to that conducted by the
Partnership. Nothing herein shall limit the General Partners or their Affiliates
from engaging in any such business activities, or any other activities which may
be competitive with the Partnership, such activities shall not be wrongful or
improper, and the General Partners or their Affiliates shall not incur any
obligation, fiduciary or otherwise, to disclose or offer any interest in such
activities to any party hereto and shall not be deemed to have a conflict of
interest because of such activities.
B. The General Partners shall at all times conduct their affairs, the
affairs of all their Affiliates and the affairs of the Partnership in such a
manner that no Limited Partner (except a Limited Partner who is also a General
Partner) will have any personal liability for Partnership debts except as
otherwise set forth herein and in the Prospectus.
C. The General Partners from time to time shall prepare and file such
certificates (or amendments thereto) and other similar documents as are.
required by the Act.
D. The General Partners shall prepare or cause to be prepared, and shall
file, on or before the due date (or any extension thereof), any federal, state
or local tax returns required to be filed by the Partnership. The General
Partners shall cause the Partnership to pay any taxes payable by the Partnership
to the extent same are not payable by any other party.
E. The General Partners shall be under a fiduciary duty to conduct the
affairs of the Partnership in the best interests of the Partnership, including
the safekeeping and use of all Partnership funds and assets, whether or not in
the General Partners' possession or control, and the use thereof for the benefit
of the Partnership. The General Partners shall not enter into any contract or
agreement relieving them of their common law fiduciary duty. The General
Partners shall at all times act in good faith and exercise due diligence in all
activities relating to the conduct of the business of the Partnership. The
General Partners shall treat the Class A Limited Partners as a group and shall
not favor the interests of any particular Class A Limited Partner.
Section 5.7 Compensation of General Partners
Except as expressly provided in Article IX herein, the General Partners
shall receive no fees, salaries, reimbursement or other compensation for serving
as General Partners.
Section 5.8 Other Businesses of Partners
Neither the Partnership nor any Partner shall have any rights or
obligations, by virtue of this Agreement, in or to any independent ventures of
any nature or description, or the income or profits derived therefrom, in which
a Partner may engage, including, without limitation, the ownership, operation,
management, syndication and development of other real estate projects, even if
in competition with the Properties.
Section 5.9 Liability of General-Partners to Limited Partners
The General Partners shall not be liable, responsible, or accountable, in
liabilities, damages or otherwise, to any Limited Partner or the Partnership for
any loss, judgment, liability, expense or amount paid in settlement of any
claims sustained which arise out of any act or omission performed or omitted by
them within the scope of the authority conferred on them by this Agreement,
except for acts of negligence or misconduct or for damages arising from any
misrepresentation or breach of an agreement with the Partnership. The
partnership
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shall not incur the cost of that portion of any liability insurance which
insures a General Partner against any liability as to which a General Partner
may not be indemnified under Section 5. 10 herein.
Section 5.10 Indemnification
A. The General Partners shall be indemnified to the full extent provided by
law for any loss, judgment, liability, expense or amount paid in settlement of
any claims sustained by a General Partner which arise out of any act or omission
performed or omitted by any or all of them within the scope of the authority
conferred on them by this Agreement, if the General Partners determine, in good
faith, that such act or omission was in the best interests of the Partnership
and that such act or omission did not constitute negligence or misconduct or
breach of any other agreement with the Partnership, provided that any indemnity
under this Section shall be provided out of and to the extent of Partnership
assets only, and no Limited Partner shall have any personal liability on account
thereof.
B. Notwithstanding Section 5. 10A, the General Partners shall not be
indemnified by the Partnership for any liability, loss or damage incurred by any
or all of them in connection with (i) any claim or settlement arising under
federal or state securities laws unless (a) there has been a successful
adjudication on the merits of each count involving securities laws violations,
(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, after being advised as to the current position of the
Securities and Exchange Commission, the Massachusetts Securities Division, the
California Commissioner of Corporations, and such other state securities
administrators, as shall be required by such court, regarding indemnification
for violations of securities law; or (ii) any liability imposed by law,
including liability for negligence or misconduct.
ARTICLE VI
TRANSFERABILITY OF A GENERAL PARTNER'S INTEREST
Section 6.1 Removal, Voluntary Retirement or Withdrawal of a General
Partner; Transfer of Interests
A. A General Partner may be removed in the manner specified in Section 5.3A
herein.
B. No General Partner may voluntarily withdraw or retire from his or its
position as a General Partner of the Partnership unless another General Partner
(including any Additional or Successor General Partner admitted pursuant to
Section 6.2) remains, and unless (i) counsel for the Partnership is of the
opinion that such voluntary retirement or withdrawal from the Partnership will
not cause the Partnership: (a) to be dissolved under the Act; (b) to be
classified other than as a partnership for federal income tax purposes; or (c)
to terminate for federal income tax purposes; and (ii) the approval of the
remaining General Partner(s) and the Consent of the Class A Limited Partners to
such voluntary retirement or withdrawal is obtained.
C. A General Partner who voluntarily retires or withdraws from the
Partnership in violation of this Section 6.1 shall be and remain liable to the
Partnership and the Partners for damages resulting from the General Partner's
breach of this Agreement, and, without limitation of remedies, the Partnership
may offset such damages against the amounts otherwise distributable to the
retiring or withdrawing General Partner.
D. No General Partner shall have the right to sell, exchange, or otherwise
dispose of all or any portion of its Interest unless the proposed assignee or
transferee of all or a portion of the Interest of such General Partner is
admitted as a Successor or Additional General Partner to the Partnership
pursuant to the provisions of Section 6.2 prior to any such sale, exchange or
other disposition.
E. The voluntary retirement or withdrawal of a General Partner shall become
effective only -upon (i) receipt by the Partnership of the opinions of counsel
referred to in Section 6. 1B(i); (ii) receipt by the Partnership of the approval
and consent referred to in Section 6.1B(ii); and (iii) the amendment of the
Partnership's certificate of limited partnership to reflect such withdrawal or
retirement and its filing for recordation.
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Section 6.2 Election and Admission of Successor -or Additional General Partners
A. By the vote of the Class A Limited Partners holding a majority of the
Class A Limited Partner Percentages, a Successor General Partner may be elected
to replace a General Partner removed in the manner described in Section 5.3A
herein; provided, however, that prior to such action the Partnership shall have
received an opinion of counsel for the Partnership that such admission will not
cause the Partnership, to be classified other than as a partnership for federal
income tax purposes, or cause the Partnership to terminate for federal income
tax purposes.
B. Except as otherwise expressly provided herein, no Person shall be
admitted as a Successor or Additional General Partner unless (i) counsel for the
Partnership is of the opinion that the admission of such Successor or Additional
General Partner will not cause the Partnership to be classified other than as a
partnership for federal income tax purposes or cause the Partnership to
terminate for federal income tax purposes; (ii) the consent of the then existing
General Partner(s) is obtained; and (iii) the Consent of the Class A Limited
Partners to such admission has been obtained.
C. The admission of such Successor or Additional General Partner shall
become effective upon (i) receipt by the Partnership of the opinions referred to
in Sections 6.2A or 6.2B(i), as applicable; (ii) receipt by the Partnership of
the consents referred to in Section 6.2B(ii) and (iii), if applicable; and (iii)
the amendment of the Partnership's certificate of limited partnership to reflect
the admission of the Successor or Additional General Partner and its filing for
recordation.
Section 6.3 Event of Withdrawal of a General Partner
A. In addition to a voluntary withdrawal of a General Partner pursuant to
Section 6.1E, a General Partner shall be deemed to withdraw if the General
Partner assigns all of his Interests in the Partnership, if the General Partner
is removed pursuant to Section 5.3A, and upon the following acts or events: (i)
if a natural person, upon his death or the entry by a court of competent
jurisdiction that such General Partner is incompetent to manage his person or
his property; (ii) if a corporation, the filing of a certificate of dissolution,
or its equivalent, for the corporation or the revocation of its charter; (iii)
if a partnership, the dissolution and commencement of winding up of the General
Partner; (iv) if a trustee of a trust, the termination of the trust (but not
merely the substitution of a new trustee); and (v) if an estate, the
distribution by the fiduciary of the estate's entire interest in the
Partnership. To the maximum extent permitted by the Act, no other act or event
shall be deemed an event of withdrawal of a General Partner or serve to convert
a General Partner to a Limited Partner.
B. In the event of the withdrawal of a General Partner who is not then the
sole General Partner, the Partnership shall be continued by the remaining
General Partner or General Partners, who shall make and file such amendments to
the Partnership's certificate of limited partnership as are required by the Act
to reflect the fact that the withdrawn General Partner has ceased to be a
General Partner of the Partnership. In the event. of the withdrawal of the
Development General Partner pursuant to Section 6.3A(i) above, then, at the
election of Flournoy Properties, Inc. and with the consent of the Administrative
General Partner and the Consent of the Class A Limited Partners, notwithstanding
any other provision of this Agreement, Flournoy Properties, Inc., a Georgia
corporation, shall be admitted to the Partnership as a Successor General Partner
subject to the satisfaction of all of the requirements of Section 6.2C.
C. In the event of the withdrawal of a sole General Partner, the withdrawn
General Partner, or its successors, representatives, heirs or assigns shall
promptly give Notification of such withdrawal to all remaining Partners. In such
event, the Partnership shall be dissolved unless, within 90 days after the
withdrawal of the sole General Partner, all remaining Partners agree in writing
to continue the business of the Partnership-and to the appointment, effective as
of the date of withdrawal of the sole General Partner, of one or more Additional
General Partners.
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Section 6.4 Liability- of a Withdrawn General Partner
A. Any General Partner who withdraws from the Partnership shall be, and
remain, liable for all obligations and liabilities incurred by it as General
Partner prior to the time such withdrawal becomes effective. In-addition, a
General Partner who voluntarily withdraws in violation of this Agreement shall
be subject to the liability described in Section 6.l C.
B. Upon the withdrawal of a General Partner, such General Partner shall
immediately cease to he a General Partner, and, unless a Successor General
Partner has acquired the Interest of the withdrawing General Partner, the
withdrawn General Partner's Interest shall be converted to a limited partner
Interest of a new class. Such conversion shall not affect any rights or
liabilities of the withdrawn General Partner, except that such General Partner
shall no longer participate in the management of the Partnership.
C. The personal representatives, heirs, successors or assigns of any General
Partner who withdraws from the Partnership shall be, and remain, liable for all
obligations and liabilities incurred by the General Partner prior to, or in
connection with, its withdrawal.
ARTICLE VII
ADMISSION OF ADDITIONAL AND SUBSTITUTE LIMITED PARTNERS AND
TRANSFERABILITY OF A -LIMITED PARTNER'S INTEREST
Section 7.1 Admission of Additional Limited Partners Prior to the
Termination Date of the Offering
Prior to the Termination Date of the Offering, the Partnership is authorized
to sell and issue not less than 6,455 nor more than 27,000 Units, and to admit
as Class A Limited Partners to the Partnership the Persons who contribute cash
to the capital of the Partnership for such Units and meet such other
requirements as are set forth in the Prospectus. Such Additional Limited
Partners shall be listed in the books and records of the Partnership, and shall
be recognized by the Partnership for the purposes of Partnership distributions
and allocations as set forth in Article IV herein.
Section 7.2 Admission of Additional Limited Partners After the Termination
Date of the Offering
A. After the Termination Date of the Offering, a Person may be admitted as
an Additional Limit Partner with the General Partners' consent, the Consent of
the Class A Limited Partners, and by providing the Administrative General
Partner with a power of attorney acceptable to the Administrative General
Partner. The General Partners shall not consent to the admission of an
Additional Limited Partner if the General Partners receive an opinion of counsel
to the Partnership that such admission would cause the Partnership to be
classified other than as a partnership for federal income tax purposes, or cause
the Partnership to terminate for federal income tax purposes .
B. The admission of a Person as an Additional Limited Partner shall become
effective as of the first day of the fiscal quarter following satisfaction of
the conditions set forth in Section 7.2A. An additional Limited Partner shall be
recognized by the Partnership for the purposes of Partnership distributions and
allocations as set forth in Article IV herein.
C. The Partnership shall be reimbursed by such Additional Limited Partner
for the expense of his admission to the Partnership.
Section 7.3 Admission of Substitute Limited Partners
A. A Person may be admitted as a Substitute Limited Partner with the General
Partners' consent-, and by providing the Administrative General Partner with a
power of attorney acceptable to the Administrative General Partner. The General
Partners shall not consent to the admission of a Substitute Limited Partner if
the General Partners receive an opinion of counsel to the Partnership that such
admission would cause the Partnership to be
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classified other than as a partnership for federal income tax purposes, or cause
the Partnership to terminate for federal income tax purposes.
B. The admission of a Person as a Substitute Limited Partner shall become
effective as of the first day of the fiscal quarter following satisfaction of
the conditions set forth in Section 7.2A. A Substitute Limited Partner shall be
recognized by the Partnership for the purposes of Partnership distributions and
allocations as set forth in Article IV herein.
C. The Partnership shall be reimbursed by any Substitute Limited Partner
for the expense of his admission to the Partnership.
Section 7.4 Retirement or Withdrawal of a Limited Partner
A. No Limited Partner shall have the right to voluntarily retire or withdraw
from the Partnership unless the General Partners shall have consented to such
voluntary retirement or withdrawal by a Limited Partner. Upon the retirement or
withdrawal of a Limited Partner: (i) the Interest of such retiring or
withdrawing Limited Partner shall thereafter belong to the Partnership; (ii)
such retiring or withdrawing Limited Partner shall not be entitled to receive
distributions with respect to any periods after the time of such retirement of
withdrawal; and (iii) such retiring or withdrawing Limited Partner shall not be
entitled to receive any amount for the fair value of his Interest as of the date
of his retirement or withdrawal, other than as agreed to by the General Partners
and the withdrawing Limited Partner. The General Partners shall not consent to
the voluntary retirement or withdrawal of a Limited Partner if the General
Partners receive an opinion of counsel to the Partnership that such retirement
or withdrawal would cause the Partnership to be classified other than as a
partnership for federal income tax purposes, or cause the Partnership to
terminate for federal income tax purposes.
B. At any time after the Termination Date of the Offering, the Partnership
may, in response to the request of a Limited Partner, repurchase any or all of
the Units of such Limited Partner upon mutually agreeable terms, provided that
such. repurchase does not materially impair the capital or operation of the
Partnership. The determination to repurchase Units will be made in the sole
discretion of the General Partners. The determination of the value of the
repurchased Units will be based upon, among other factors, the current fair
market value of the Properties and the Partnership's assets, less all
Partnership debts and obligations. The Partnership will not repurchase Units
prior to the Termination Date of the Offering and is not obligated to
- -repurchase Units at any time. Units acquired by the General Partners and their
Affiliates will not be eligible for repurchase by the Partnership. Units
purchased by the Partnership during any fiscal quarter shall be deemed canceled
effective as of the first day of the fiscal quarter following the effective date
of such purchase.
Section 7.5 Transfer or Assignment of a Limited Partner Interest
A. Subject to the conditions set forth in this Section 7.5, a Limited
Partner shall have the right to transfer, sell, exchange, or otherwise dispose
of his Interest with the consent of the General Partners, delivery of
appropriate documents or instruments, all in substance and form satisfactory to
the General Partners, evidencing such Limited Partner's intention to transfer,
sell, exchange or otherwise dispose of his Interest, and by providing the
Administrative General Partner with a power of attorney acceptable to the
Administrative General Partner. The General Partners shall not consent to any
such transfer, sale, exchange or other disposition if the General Partners
receive an opinion of counsel to the Partnership that such transfer, sale,
exchange or other disposition would cause the Partnership to be classified other
dm as a partnership for federal income tax purposes, or cause the Partnership to
terminate for federal income tax purposes.
B. Any such transfer, sale, exchange or other disposition of an Interest by
a Limited Partner shall also comply with the following conditions (i) no such
actions may be taken with respect to a fraction of a Unit; (ii) a Limited
Partner must take such action with respect to all of his Units if he would
otherwise retain less than five (5) Units (or two (2) Units in the case of an
IRA); and (iii) all such actions must be made in compliance with minimum
purchase requirements, and all other requirements of applicable securities laws,
the evidence for which compliance shall be submitted by the Limited Partner to
the General Partners.
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C. The assignee of a Limited Partner's Interest shall not automatically
become or exercise any rights of a Limited Partner of the Partnership. Such
Person shall become and exercise the rights of a Limited Partner of the
Partnership only if such Person is admitted into the Partnership as a Substitute
Limited Partner in accordance with Section 7.3. The Partnership shall be under
no obligation to recognize any such transfer or assignment unless such transfer
or assignment complies with this Section 7.5.
Section 7.6 Bankruptcy, Death, Dissolution or Incompetence of a Limited Partner
In the event of the bankruptcy, dissolution, death or adjudication of
incompetence (which term shall include but not be limited to, insanity) of a
Limited Partner, his successors, assigns,-personal representatives or heirs
shall have all the rights of such Limited Partner for the purpose of settling or
managing his estate or property. The bankruptcy, dissolution, adjudication of
incompetence (which term shall include, but not be limited to, insanity), or
death of a Limited Partner shall not dissolve the Partnership.
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP
Section 8.1 Events Causing Dissolution
A. The Partnership shall dissolve and its affairs shall be wound up upon
the first to occur of the following events:
(i) the expiration of its term;
(ii) the withdrawal of a General Partner, unless the Partnership is
continued pursuant to Sections 6.3B or 6.3C;
(iii) the Sale of all or substantially all Partnership Property
(excepting (a) a disposition thereof which, in the opinion of counsel to the
Partnership, qualifies, in whole or in part, under Section 1031 or Section
1033 of the Code or (b) a Sale in which the Partnership receives Purchase
Money Financing, in which case the Partnership shall dissolve upon receipt
of the final payment thereunder);
(iv) the election by the General Partners, with the Consent of the Class A
Limited Partners, to dissolve the Partnership; or
(v) Class A Limited Partners holding a majority of the Class A Limited
Partner Percentage vote to dissolve the Partnership.
B. Dissolution of the Partnership shall be effective on the day on which the
event occurs giving rise to the dissolution. A certificate of cancellation shall
be filed under the Act upon the dissolution and the commencement of winding up
of the Partnership; provided, however, that the Partnership shall not terminate
until the assets of the Partnership have been distributed as provided in Section
8.2.
Section 8.2 Liquidation
A. As soon as practical after the dissolution of the Partnership, the
General Partners, or, in the event of the withdrawal of a sole General Partner,
any Limited Partner, shall give Notification to all the Limited Partners of such
fact and shall prepare a plan as to whether and in what manner the assets of the
Partnership shall be liquidated. With the Consent of the Class A Limited
Partners, the assets of the Partnership, subject to its liabilities (and the
establishment of reserves, if necessary, for such liabilities), shall be
transferred to a successor Entity, upon such terms and conditions as are then
agreed upon.
B. Unless the Partners agree to transfer the assets of the Partnership,
subject to its liabilities, to a successor Entity pursuant to Section 8.2A, upon
dissolution of the Partnership, the General Partners (or Limited Partners, as
the case may be) shall liquidate the assets of the Partnership, and apply and
distribute the proceeds thereof in
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accordance with Section 4.4. A Partner or an Affiliate of a Partner may purchase
such assets with the Consent of the Class A Limited Partners.
C. Notwithstanding the provisions of Section 8.2B, in the event the General
Partners shall determine that an immediate sale of all or a portion of the
Partnership assets would cause undue loss to the Partners, the General
Partner(s), in order to avoid such loss, may, after having given Notification to
all the Limited Partners, either defer liquidation of, and withhold from
distribution for a reasonable time, any assets of the Partnership, or distribute
the assets in kind to a liquidating trust to be held for the benefit of the
Partners.
ARTICLE IX
PAYMENTS TO THE GENERAL PARTNERS AND AFFILIATES
Section 9.1 Reimbursement of Certain Expenses of the General Partners
The Partnership shall reimburse the General Partners on a current basis for
all reasonable expenses incurred on behalf of the Partnership for administrative
services necessary to the prudent operation of the Partnership, provided that
the reimbursement shall be at the lower of the actual cost incurred by the
General Partners or the amount that the Partnership would be required to pay for
comparable administrative services in the same geographic location. No
reimbursement shall be permitted for services for which the General Partners are
entitled to compensation by way of separate fees. Excluded from allowable
reimbursement shall be:
(i) rent or depreciation, utilities, capital equipment and other
administrative items related thereto; and
(ii) salaries, fringe benefits, travel expenses and other administrative
items incurred by or allocated to any Controlling Person of any General
Partner or any Affiliate thereof.
Section 9.2 Fees and Deferred Fees
A. The Partnership shall make the following payments and pay the following
fees to the General Partners and/or their Affiliates:
(i) to the Selling Agent, the Selling Commissions.
(ii) to the Administrative General Partner, the Offering and Promotional
Expenses Reimbursement Allowance.
(iii) to Flournoy Development Company, the Acquisition Fee, and payments
pursuant to the Acquisition Agreement.
(iv) to the Administrative General Partner, the Organization and Start-Up
Fee.
(v) to the General Contractor, construction fees pursuant to the
Construction Contracts.
(vi) to the Property Manager, the fees under the Property Management
Agreements.
(vii) to the Development General Partner, payments pursuant to the Contract
of Sale.
(viii) to the Administrative General Partner, the Development General
Partner and/or their Affiliates, a fee for securing Operational Stage
Financing, payable at the closing of any such financing, provided that the
Development General Partner, the Administrative General Partner and/or their
Affiliates actually render such services. Any fee paid will be reasonable
and competitive with the services provided, and is not expected to exceed a
total of 1% of the principal amount of the debt incurred. If both General
Partners render services to secure Operational Stage Financing, the fee will
be divided between them commensurate with actual services rendered.
B-26
<PAGE>
(ix) to the Development General Partner, the Administrative General Partner
and/or their Affiliates, real estate brokerage commissions, payable upon the
Sale of any Property, provided that the Development General Partner, the
Administrative General Partner and/or their Affiliates actually render real
estate brokerage services in connection with such Sale. Any commissions paid to
the General Partners or their Affiliates will be limited to a maximum of 3 % of
the contract price for the Sale of the Property, and will be subordinated to the
payment to Class A Limited Partners of their Adjusted Capital Balance plus the
unpaid portion, if any, of their Preferred Return. If more than one of the
General Partners or their Affiliates is involved in rendering real estate
brokerage services to the Partnership, the commission will be divided between
them commensurate with actual services rendered.
B. Deferred Fees owed to the General Partners and their Affiliates will be
paid from the proceeds of Operational Stage Financing or Sale, in which case the
Deferred Fees will be paid before any distributions therefrom will be made to
Limited Partners. If such event has not occurred within three years of the date
Class A Limited Partners are first admitted to the Partnership, or if
insufficient proceeds are raised therefrom to pay the Deferred Fees, the General
Partners may cause the Partnership to incur other indebtedness to pay such
Deferred Fees, or cause the Partnership to pay the Deferred Fees from operating
revenues before further distributions are made to Limited Partners.
C. The total of the fees and Deferred Fees owed to the General Partners and
their Affiliates, as set forth in subsection A. (i), (ii), (iii) and (iv) above,
shall in no event exceed twenty percent (20%) of the Gross Proceeds of the
Offering.
ARTICLE X
BOOKS AND RECORDS; BANK ACCOUNTS; REPORTS
Section 10.1 Books and Records
A. Unless otherwise directed by the Administrative General Partner, the
books and records of the Partnership shall be maintained by the General Partners
at the Partnership's principal place of business. In all cases, said books and
records shall be available for examination and copying by any Limited Partner,
or his duly authorized representatives, for any purpose reasonably related to
the Limited Partner's interest as a Limited Partner, at the expense of such
Limited Partner, at any and all reasonable times. The Partnership shall keep at
its principal place of business, without limitation, the following records: true
and full information regarding the status of the business and financial
condition of the Partnership; promptly after becoming available, a copy of the
Partnership's federal, state and local income tax returns for each year; a
current list of the names and last known business, residence or mailing
addresses of each Partner; a copy of this Agreement and the certificate of
limited partnership and all amendments thereto, together with executed copies of
any powers of attorney pursuant to which this Agreement and any certificate and
all amendments thereto have been executed; true and full information-regarding
the amount of cash and a description and statement of the agreed value of any
other property or services contributed by each Partner and which each Partner
has agreed to contribute in the future, and the date on which each became a
Partner, and other information regarding the affairs of the Partnership as is
just and reasonable.
B. The Partnership shall keep its books and records in accordance with the
accounting methods followed for federal income tax purposes, which shall reflect
all Partnership transactions and shall be appropriate and adequate for the
Partnership's business. The Partnership's taxable year shall be a calendar year.
Section 10.2 Bank Accounts
A. The General Partners shall have fiduciary responsibility for the
safekeeping and use of all kinds. and assets of the Partnership, whether or not
in their immediate possession or control. The General Partners shall not employ,
or permit any other Person to employ, such funds in any manner except for the
benefit of the Partnership.
B-27
<PAGE>
B. The bank accounts of the Partnership shall be maintained in such banking
institutions as the General Partners shall determine, and withdrawals shall be
made only in the regular course of Partnership business on the signature of a
General Partner or such other signature or signatures as the General Partners
may determine. All deposits and other funds may be deposited in interest bearing
or non-interest bearing accounts guaranteed by federal authorities, invested in
short-term United States Government or municipal obligations, or deposited with
a banking institution selected by the General Partners.
Section 10.3 Reports
A. No later dm 75 days after the end of each calendar year, the General
Partners will furnish each Limited Partner with all tax information relating to
the Partnership's performance for the preceding calendar year that is required
to be set forth in the Limited Partner's federal and state income tax return.
B. Within 60 days after the end of each of the first three fiscal quarters
of each fiscal year of the Partnership, the General Partner will furnish to the
Limited Partners, as of the last business day of such quarter, a report setting
forth information with respect to the progress of the Partnership's business,
which report shall include:
(i) an unaudited balance sheet of the Partnership;
(ii) an unaudited statement of income for the quarter;
(iii) an unaudited cash flow statement for the quarter;
(iv) an unaudited statement setting forth in detail the services rendered
to and fees received from the Partnership by any Sponsor; and
(v) other pertinent information concerning the Partnership and its
activities during the quarter.
C. Within 120 days after the end of each fiscal year, the General Partners
will furnish an annual report to each Person who was a Limited Partner as of the
last business day of the fiscal year then ended. Such annual report will
include:
(i) a balance sheet as of the end of the Partnership's fiscal year,
statements of income, Partners' equity and changes in financial position, which
shall be prepared in accordance with generally accepted accounting principles
and accompanied by an auditor's report containing an opinion of an independent
certified public accountant;
(ii) the breakdown of any Fund costs reimbursed to a Sponsor,
(iii) a cash flow statement;
(iv) a report of the activities of the Partnership during the fiscal year;
and
(v) a table comparing the Financial Forecast for Property I provided in
the Prospectus, or any other forecast which may be provided by amendment
thereto, with the actual results for Property I, or any other Property which
is the subject of such forecast, for the fiscal year.
The annual report shall also set forth distributions to the Class A Limited
Partners for the period covered thereby and shall separately identify
distributions from (a) Net Cash Flow during the period, (b) Net Cash Flow during
a prior period which had been held as reserves, (c) Net Proceeds from
Operational Stage Financing or Sale, and (d) Working Capital Reserves.
D. The General Partners will prepare and timely file with appropriate
federal and state regulatory authorities all reports required to be filed with
such entities under then-applicable laws, rules and regulations. Such reports.
shall be prepared on the accounting or reporting basis required by such
regulatory authorities. Upon request, copies of such reports will be furnished
to any Limited Partner for any purpose reasonably related to the Limited
Partner's interest as a Limited Partner. In the event that any regulatory
authority promulgates rules or amendments thereto that would permit a reduction
in any of the reporting requirements to which the
B-28
<PAGE>
Partnership is subject under this Agreement at the time of the execution hereof,
the Partnership may cease to prepare and file any such reports in accordance
with such rules or amendments.
E. The General Partner will maintain, (i) for a period of at least four (4)
years, a record of the information obtained to indicate that a Limited Partner
has met the suitability standards set forth in the Prospectus; and (ii) for a
period of at least five (5) years, records of the appraisals made of the
Properties, which appraisal records shall be available for inspection and
copying by any Limited Partner for any purpose reasonably related to the Limited
Partner's interest as a Limited Partner.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Appointment of Administrative General Partner as Attorney-in-Fact
A. Each Limited Partner hereunder (including Substitute Limited Partners and
Additional Limited Partners) hereby irrevocably appoints and empowers the
Administrative General Partner his attorney-in-fact to consent to or ratify any
act listed in Subsections 5.4A(i) through (xiv) of this Agreement after the
Consent of the Class A Limited Partners thereto has been obtained, and to
execute, acknowledge, swear to and deliver all agreements and instruments and
file all documents requisite to carrying out the intentions and purposes
contemplated in this Agreement, including, without limitation, the execution and
delivery of this Agreement and all amendments hereto, the filing of all business
certificates and necessary certificates of limited partnership and amendments
thereto from time to time in accordance with all applicable laws and any
certificates of cancellation. This power of attorney shall be deemed coupled
with an interest, and shall not be affected by the subsequent disability or
incapacity of the principal.
D. The appointment by all Limited Partners of the Administrative General
Partner as attorney-in-fact shall be deemed to be a power coupled with an
interest and shall survive the assignment by any Limited Partner of the whole or
any part of his Interest in the Partnership.
C. The power of attorney granted by this Section 11. 1 shall be governed by
the laws of the State of Delaware.
Section 11.2 Waiver of Partition
The Partners hereby waive any right of partition or any right to take any
other action which otherwise might be available to them for the purpose of
severing their relationship with the Partnership or their interest in the assets
held by the Partnership from the interest of the other Partners.
Section 11.3 Notification
Any Notification, in order to be effective, shall be sent by registered or
certified mail, postage prepaid, if to a Partner, to the address of the Partner
set forth in the books and records of the Partnership, and if to the
Partnership, to the principal place of business of the Partnership set forth in
Section 2.2 (unless Notification of a change of the principal office is given),
the date of registry thereof or the date of the certification thereof being
deemed the date of receipt of Notification; provided, however, that any written
communication sent to a Partner or to the Partnership and actually received by
such Person shall constitute Notification for all purposes of this Agreement.
Section 11.4 Word Meanings
In this Agreement, the singular shall include the plural and the masculine
gender shall include the feminine and neuter and vice versa, unless the context
otherwise requires.
B-29
<PAGE>
Section 11.5 Binding Provisions
The covenants and agreements contained herein shall be binding upon, and
inure to the benefit of the heirs, personal representatives, successors and
assigns of the respective parties hereto.
Section 11.6 Applicable Law
This Agreement shall be construed and enforced in accordance with the laws
of the State of Delaware, without regard to principles of conflict of laws.
Section 11.7 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding upon the date hereof. Each Additional or
Successor General Partner shall become a signatory hereof by signing such number
of counterparts of this Agreement and such other instrument or instruments, and
in such manner as the General Partners shall determine, and by so signing, shall
be deemed to have adopted and to have agreed to be bound by all the provisions
of this Agreement; provided, however, that no -such counterpart shall be binding
until-it shall have been signed by the Administrative General Partner.
Section 11.8 Separability of Provisions
Each provision of this Agreement shall be considered separable, and if for
any reason any provision or provisions hereof are determined to be invalid or
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those portions of this Agreement which are valid.
Section 11.9 Paragraph Titles
Paragraph titles are for descriptive purposes only and shall not control or
alter the meaning of this Agreement as set forth in the text.
Section 11.10 Entire Agreement
This Agreement and the exhibits and documents referred to herein constitute
the entire understanding and agreement among the parties hereto with respect to
the subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written, except as herein contained. This Agreement may not be modified
or amended other than by an agreement in writing.
Section 11.11 Amendments
A. In addition to the amendments contemplated elsewhere in this Agreement,
this Agreement may be amended with the written consent of all of the General
Partners then entitled to act thereon and the Consent of the Class A Limited
Partners; provided, however, that any amendment to change this Section 11.11
must be approved in writing by all Partners.
B. In addition to the amendments contemplated in Section 11.11A, the General
Partners may also make such amendments to this Agreement, in their reasonably
exercised discretion, without the Consent of the Class A Limited Partners, as
are necessary:
(i) To admit Additional Limited Partners and Substitute Limited Partners
to the Partnership in accordance with the terms of this Agreement;
(ii) To -make ministerial changes to this Agreement that do not affect
the substantive rights of the Partners, such as, without limitation, a
change in the name of the Partnership, the name or address of the resident
agent or address of the Partnership's principal office.
B-30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day of August, 1986.
GENERAL PARTNERS
WITNESS:
_______________________________________ ___________________________(SEAL)
John F. Flournoy,
the Development General Partner
ATTEST: BROWN EQUITY INCOME PROPERTIES, INC.,
the Administrative General Partner
_______________________________________ By: (SEAL)
John M. Prugh, President
CLASS A LIMITED PARTNERS
ATTEST: BROWN EQUITY INCOME PROPERTIES, INC.,
Attorney-in-Fact for each of the Class A Limited
Partners now and hereafter admitted as Class A Lim-
ited Partners of the Partnership pursuant to powers of
attorney now and hereafter executed in favor-of, and
delivered to, the Administrative General Partner.
_______________________________________ By: (SEAL)
John M. Prugh, President
CLASS B LIMITED PARTNERS
WITNESS:
_______________________________________ (SEAL)
John F. Flournoy
WITNESS: REALTY ASSOCIATES 1986 LIMITED
PARTNERSHIP
_______________________________________ By: (SEAL)
Authorized Signatory
B-31
<PAGE>
SCHEDULE A
Capital
Contribution
General Partners
Administrative General Partner
Brown Equity Income Properties, Inc. $ 50.00
225 East Redwood Street, 4th floor
Baltimore, Maryland 21202
Development General Partner
John F. Flournoy $ 50.00
3810 Buena Vista Road $100.00
Columbus, Georgia 31907
Class A Limited Partners
To be admitted. _________
$000.00
Class B Limited Partners
John F. Flournoy $ 75.00
3810 Buena Vista Road
Columbus, Georgia 31907
Realty Associates 1986
Limited Partnership $ 25.00
225 East Redwood Street, 4th floor $100.00
Baltimore, Maryland 21202
B-32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 796333
<NAME> Brown Flournoy Equity Income Fund
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,447,679
<SECURITIES> 0
<RECEIVABLES> 22,624
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,535,720
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,786,004
<CURRENT-LIABILITIES> 453,493
<BONDS> 20,200,950
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,786,004
<SALES> 0
<TOTAL-REVENUES> 5,011,756
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,183,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,945,006
<INCOME-PRETAX> (116,742)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116,742)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,742)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
COMPENSATION AND FEES TO THE GENERAL
PARTNERS AND AFFILIATES
In connection with this Offering and the operation and liquidation of the
Fund, the General Partners and certain Affiliates thereof will receive the types
and amounts of compensation, fees and distributions summarized below. References
herein to deferred fees or commissions (the "Deferred Fees") refer to the
Deferred Fees that will be paid by the Fund from the proceeds of Operational
Stage Financing or Sale, or, if not paid within three years from the date that
Investors are first admitted to the Fund, from operating revenues or the
proceeds of additional indebtedness.
Entity Receiving Fee, Type of Compensation or Distribution, Method of
Compensation or Distribution Determination and Estimated Minimum and Maximum
Amounts
OFFERING AND ORGANIZATIONAL STAGE
Alex. Brown Realty Selling Commissions of a maximum of 7% of
Capital Contributions, payable 5% from
Securities, Inc., the Selling the proceeds of the Offering, and the remaining
2% deferred. Selling Commissions will
Agent* be reduced for certain volume purchases in
accordance with the schedule shown in
"Offer and Sale of Units." Selling Commissions
will be a maximum of $451,850 if the Minimum
Offering Amount is raised (payable $322,750 at
the time that Investors are admitted to the Fund
and $129,100 deferred), and a maximum total of
$1,890,000 if the Maximum Offering Amount is
raised (payable $1,350,000 at the times that
Investors are admitted to the Fund and $540,000
deferred). See "Conflicts of Interest-
Transactions Between the Fund and the General
Partners and Affiliates."
Administrative General A non-accountable Offering and Promotional
Expenses Reimbursement Allowance of
Partner 2% of Capital Contributions, payable from the
proceeds of the Offering. The allowance
will be $129,100 if the Minimum Offering Amount
is raised and a total of $540,000 if the Maximum
Offering Amount is raised. The Administrative
General Partner will be responsible for all
offering and promotional expenses in connection
with the Fund, including accounting, legal and
escrow and depository fees, printing costs,
registration and filing fees, including "Blue
Sky" fees, and advertising, marketing and
promotion costs associated with the Offering. If
such expenses exceed the allowance paid by the
Fund, the Administrative General Partner will
bear the expense; conversely, if such expenses
are less than the allowance, the Administrative
General Partner will be entitled to retain the
remaining balance. See "Fund Objectives and
Policies" and "Conflicts of
Interest-Transactions Between the Fund and the
General Partners and Affiliates."
Flournoy Development An Acquisition Fee of 4 % of Capital
Contributions, payable 3% from the proceeds of
Company** the Offering, and l % deferred. The fee will
be $290,475 if the Minimum Offering
Amount is raised (payable $193,650 at the time
that Investors are admitted to the Fund
and $96,825 deferred), and a total of $1,215,000
if the Maximum Offering Amount is
raised (payable $810,000 at the times that
Investors are admitted to the Fund and
$405,000 deferred). Flournoy Development Company
has provided or will provide services to the
Fund in connection with the acquisition and
planned development of the Properties, including
site selection, negotiation of purchase prices
and terms, undertaking of option agreements for
the acquisition of sites pending conveyance to
the Fund, work concerning zoning, permits, water
and sewer connections and related matters, and
project design and planning.
- --------------
*An Affiliate of the Administrative General Partner.
**An Affiliate of the Development General Partner.
13
<PAGE>
Entity Receiving Fee, Type of Compensation or Distribution, Method of
Determination
Compensation or Distribution and Estimated Minimum and Maximum Amounts
OFFERING AND ORGANIZATIONAL STAGE (continued)
See "Fund Objectives and Policies-The Properties" and
"Conflicts of Interest-Transactions Between the Fund
and the General Partners and Affiliates."
Administrative General Organizationa and Start-Up Fee of 4 % of Capital
Partner Contributions, payable 3% from the
proceeds of the Offering, and 1 % deferred. The
fee will be $290,475 if the Minimum Offering
Amount is raised (payable $193,650 at the time
that Investors are admitted to the Fund and
$96,825 deferred), and a total of $1,215,000 if
the Maximum Offering Amount is raised (payable
$810,000 at the times that Investors are
admitted to the Fund and $405,000 deferred). The
Administrative General Partner has provided and
will provide services to the Fund in preparing
the structure of the Fund, consulting with
various professionals regarding the organization
of the Fund, and supervising and reviewing the
preparation of all documents, filings and other
instruments related to the Fund. See "Fund
Objectives and Policies" and "Conflicts of
Interest-Transactions Between the Fund and the
General Partners and Affiliates."
Development General $23,583, or $7,000 per acre, in payment
for the sale to the Fund of approximately 3.4
Partner acres of land that will comprise
approximately 21% of the site for Property II.
The Development General Partner purchased this
land in 1983 and will sell it to the Fund at the
per acre price paid at that time. The balance of
the Property II site, or approximately 12.9
acres, will be purchased from an unaffiliated
individual for a price of $147,540, or
approximately $11,440 per acre. See "Conflicts
of Interest- Transactions Between the Fund and
the General Partners and Affiliates" and "The
Properties-Acquisition of Sites."
OPERATIONAL STAGE
Flournoy Construction Construction profit, estimated to
Company, the General be 7.8% of the amount of each Construction
Contractor** Contract, pursuant to a
guaranteed fixed price Construction Contract for
each Property. The Construction Contract prices
were determined by negotiation between the
Administrative General Partner and the General
Contractor, are based on the General
Contractor's costs of construction of prior
projects similar to the Properties, and are
believed by the General Partners to be
reasonable and competitive. The estimated
construction profit with respect to the
Properties is consistent with or less than that
charged by the General Contractor to
unaffiliated parties for similar services. See
"Management of the Fund-The General Contractor"
and "Conflicts of Interest- Transactions Between
the Fund and the General Partners and
Affiliates." It is estimated that the
construction profit will be approximately
$396,000 with respect to Property I, $376,000
with respect to Property II, $445,000 with
respect to Property III, and $387,000 with
respect to Property IV. If the costs of
construction exceed the Construction Contract
prices, the General Contractor will bear the
expense; conversely, if the costs of
construction are less than the contract prices,
the General Contractor will be entitled to
retain any savings.
- --------------
**An Affiliate of the Development General Partner.
14
<PAGE>
Entity Receiving Fee, Type of Compensation or Distribution, Method of
Determination
Compensation or Distribution and Estimated Minimum and Maximum Amounts
OPERATIONAL STAGE (continued)
Construction payments will be made by the
Administrative General Partner to the General
Contractor on a Property-by-Property,
percentage-of-completion basis pursuant to draw
requests certified by an architect retained by
the Fund and reviewed by an independent
construction monitor. See "Fund Objectives and
Policies," "The Properties-Construction
Contracts" and "Conflicts of
Interest-Transactions Between the Fund and the
General Partners and Affiliates."
Flournoy Properties, Inc., A Property Management Fee, payable monthly to
Fournoy Properties, Inc., for
the Property Manager** the management of each
Property of 5% of gross monthly operating
revenues of the Property. See "Fund Objectives
and Policies," "The Properties-Property
Management Agreements," "Management of the Fund"
and "Conflicts of Interest-Transactions Between
the Fund and the General Partners and
Affiliates."
The Selling Agent,* Respectively, payments of
deferred Selling Commissions of 2% of Capital
Flournoy Development Contributions, a deferred
Acquisition Fee of 1 % of Capital Contributions,
Company** and the and a deferred Organization
and Start-Up Fee of 1 % of Capital Contributions
Administrative General (see discussion Administrative General of such
fees, above). The Deferred Fees will be paid by
Partner the Fund no later than three years from
the date Investors are first admitted to the
Fund. See "Fund Objectives and Policies-Deferral
of Portions of Certain Fees and Commissions" and
"Conflicts of Interest-Transactions Between the
Fund and the General Partners and Affiliates."
General Partners The Development General Partner's
Interest of 1%, and the Administrative General
Partner's Interest of 1% in Net Cash Flow. See
"Allocations and Distributions" and "Conflicts
of Interest."
General Partners The Development General Partner's
Interest of 1%, and the Administrative General
Partner's Interest of 1% in the Net Proceeds of
Operational Stage Financing, payable only after
the payment to Investors of 100% of their
Adjusted Capital Balance plus any unpaid
Preferred Return. See "Allocations and
Distributions."
John F. Flournoy and Realty Interests of 14% and 4%,
Associates 1986 Limited respectively, as Class B Limited Partners,
in
Partnership,* in their the Net Proceeds of Operational Stage
capacities as Class
B Limited
Partners of
the Fund Financing, payable only after the payment to
Investors of 100% of their
Adjusted Capital Balance plus
any unpaid Preferred Return. See "Allocations
and Distributions."
General Partners and/or Fee for securing Operational
Stage Financing, payable if the General Partners
Affiliates and/or their Affiliates actually
render such services. Any fee paid will be
reasonable and competitive with fees then
charged by unaffiliated third parties for such
services and is not expected to exceed a total
of 1% of the principal amount of the debt
incurred.
- --------------
*An Affiliate of the Administrative General Partner.
**An Affiliate of the Development General Partner.
15
<PAGE>
Entity Receiving Fee, Type of Compensation or Distribution, Method of
Compensation or Distribution Determination and Estimated Minimum and Maximum
Amounts
OPERATIONAL STAGE (continued)
If both General Partners render services to
secure Operational Stage Financing, the fee will
be divided between them commensurate, with
actual services rendered. See "Fund Objectives
and Policies-Operational Stage Financing" and
"Conflicts of Interest- Transactions Between the
Fund and the General Partners and Affiliates."
General Partners Reimbursement of certain actual costs
of administering the Fund, including clerical
services, Investor communications services and
reports, and reports and filings made to
regulatory authorities, the costs of which are
estimated to be $20,000 for the Fund's 1987
fiscal year if only the Minimum Offering Amount
is achieved. See the Financial Forecast for
Property I, attached hereto as Exhibit A,
"Management of the Fund-The Administrative
General Partner and "Summary of Certain
Provisions of the Partnership Agreement."
LIQUIDATION STAGE
General Partners The Development General Partner's
Interest of 1% and the Administrative General
Partner's Interest of 1% in Net Proceeds and
Profits and Losses of Sale of any Property,
payable only after the payment and allocation to
Investors of 100% of their Adjusted Capital
Balance plus any unpaid Preferred Return. See
"Allocations and Distributions."
John F. Flournoy and Realty Interests of 14% and 4%, respectively, as Class
Associates 1986 Limited B Limited Partners, in the Net Proceeds
and
Partnership,* in their Profits and Losses of Sale of any Property,
capacities as Class B Limited payable only after the payment and allocation
Partners of theFund to Investors of 100% of
their Adjusted Capital Balance plus any unpaid
Preferred Return. See "Allocations and
Distributions."
General Partners and/or Real estate brokerage commissions, payable
if the General Partners
Affiliates and/or their Affiliates actually
render real estate brokerage services in
connection with the Sale of any Property. No
such commissions will exceed 3% of the contract
price paid for the Property, and will be payable
only after the return to Investors of 100% of
their Adjusted Capital Balance plus any unpaid
Preferred Return. See "Allocations and
Distributions." If both General Partners are
involved in rendering real estate brokerage
services to the Fund, the commission will be
divided between them commensurate with actual
services rendered. See "Fund Objectives and
Policies," "The Properties" and "Conflicts of
Interest-Transactions Between the Fund and the
General Partners and Affiliates."
- --------------
*An Affiliate of the Administrative General Partner.
16
<PAGE>
CONFLICTS OF INTEREST
Because of the businesses and activities of the General Partners and their
Affiliates, and the nature of the relationships between the General Partners and
their Affiliates and the Fund, certain interests of the Fund may conflict with
certain other interests of the General Partners and their Affiliates. The
General Partners will endeavor to make decisions for the benefit of the Fund, in
the good faith exercise of their fiduciary duties, and believe that they will
generally be able to resolve such conflicts on an equitable basis. Depending on
the relevant facts and circumstances, however, the resolution of any particular
conflict may not always be in favor of Investors. A resolution that is
unfavorable to Investors will result only if the General Partners determine, in
good faith, that such resolution is appropriate to the situation and represents
the exercise of their fiduciary duties to the Fund. This section addresses the
transactions of which the General Partners are currently aware that may result
in conflicts of interest, although no assurances can be given that other
conflicts do not now exist or that additional conflicts will not occur.
Transactions Between the Fund and the General Partners and Affiliates
The General Partners and their Affiliates will receive substantial fees and
other compensation in connection with the Offering of Units, the selection,
development, construction and management of the Properties and, potentially, the
Operational Stage Financing or Sale of the Properties. There has been no
separate representation of the interests of Investors in the determination of
such fees and other compensation. The arrangements regarding such fees and
compensation by the Fund may be viewed as other than the result of arms-length
negotiations, although the General Partners believe that all such fees and
compensation are or will be reasonable and competitive.
The General Partners, and the Class B Limited Partners who are their
Affiliates, will receive interests in the Fund in excess of their proportionate
share of all Capital Contributions. The General Partners have a right to cause
the Fund to transact business with themselves and their Affiliates; however, the
Partnership Agreement contains various provisions that generally require that
compensation that would be paid with respect to transactions with the General
Partners or their Affiliates must be no less favorable to the Fund than the
terms obtainable from non affiliated entities rendering comparable services in
the same geographical location. In particular, the Partnership Agreement
provides that, under the Construction Contracts or with regard to any fees paid
for obtaining Operational Stage Financing, services to be provided to the Fund
by the General Partners or their Affiliates will be provided at 90% or less of
the competitive price that would be charged by non-affiliated entities rendering
similar services in the same or comparable geographic locations. In addition,
under the Partnership Agreement the holders of a majority of the Units have the
right to terminate any contract between the Fund and any General Partner or
Affiliate thereof. See "Compensation and Fees to the General Partners and
Affiliates," "Fund Objectives and Policies" and "Summary of Certain Provisions
of the Partnership Agreement."
Affiliated Selling Agent
The Selling Agent is an Affiliate of the Administrative General Partner.
Because of this affiliation, Investors will not have the benefit of an
independent investigation of the Fund or its General Partners as may be the case
in offerings in which the selling agent is not an Affiliate of a General
Partner. Consistent with their fiduciary duties, the General Partners will
endeavor to provide information to and conduct the Fund's transactions with the
Selling Agent in a manner comparable to such dealings with an unaffiliated
entity. The Selling Agent now acts and may in the future act as the selling
agent for other public and private real estate offerings, and is not prohibited
from acting as a general partner, underwriter, selling agent or broker-dealer in
public or private offerings of securities in real estate partnerships or other
entities that may have objectives similar to those of the Fund and that are
sponsored by affiliated or unaffiliated persons.
17
<PAGE>
Insurance on the Properties
The General Partners will obtain or cause to be obtained appropriate
third party liability insurance coverage, both for the period of construction of
each Property and for the completed and operational Properties. Such coverage
will insure the Fund and the General Partners, among others. In addition,
property insurance will be obtained, upon the completion of each Property, in
amounts at least equal to the full value of the improvements, to insure the Fund
against fire and certain other casualty losses. Certain types of losses, however
(generally those of a catastrophic nature such as earthquakes, floods or war),
are either uninsurable or insurable only at prohibitive costs; consequently,
these types of losses may not be insured. The Fund will also be insured under
fidelity insurance policies in amounts deemed sufficient by the General
Partners. All such insurance coverage will be reviewed at least annually and
adjusted to account for changes in values or risks.
General Policies and Restrictions on Actions of the
General Partners and the Fund
The Fund will not:
(i) purchase or acquire property, other than property incidental to the
purposes of the Fund, or undertake construction of any properties other than the
Properties specified in this Prospectus;
(ii) issue Units in exchange for property;
(iii) make loans of any kind, except to the extent of receiving
purchase money obligations in connection with the Sale of any Property;
(iv) except as provided in Article V of the Partnership Agreement
relating to the Interim Investments and the investment of working capital
reserves, invest in or underwrite securities of any type or kind for any
purpose, or make investments other than in the Fund's Properties and operations
related thereto;
(v) operate in such a manner as to be classified as
an "investment company" under the Investment
Company Act of 1940;
(vi) except as set forth in this Prospectus, purchase or lease any
property from or sell or lease property to the General Partners or their
Affiliates;
(vii) receive any rebate or give-up, or, except as specifically set
forth in this Prospectus, participate in any reciprocal business arrangement
with any General Partner or Affiliate thereof; or
(viii) obtain financing other than under the circumstances and
conditions set forth in this Prospectus.
See Article V of the Partnership Agreement for a description of other
investment restrictions and policies.
THE PROPERTIES
In General
The Properties will consist of up to four apartment projects, which are
expected to be built in the order described below. The General Partners may,
however, alter the order of construction of Properties II, III and IV if, in
their judgment, circumstances arise which make it advantageous to do so, or
if-the General Contractor requests such changes and, in the judgment of the
Administrative General Partner, such change would not be detrimental to the
Fund. See "Fund Objectives and Policies-The Properties."
Property I: "South land Station," a 160-unit garden apartment complex
located in Warner Robins, Georgia. $6,455,000 of the Gross Proceeds of the
Offering, or approximately 24% of the Maximum Offering Amount, will be allocated
to the development of Property I.
Property II: "Hidden Lake-Phase Two," a 160-unit garden apartment
complex located in Union City, Georgia. $6,246,000 of the Gross Proceeds of the
Offering, or approximately 23% of the Maximum Offering Amount, will be allocated
to the development of Property II.
36
<PAGE>
Property III: "Park Place," a 184-unit garden apartment complex located
in Spartanburg, South Carolina. $7,769,000 of the Gross Proceeds of the
Offering, or approximately 29% of the Maximum Offering Amount, will be allocated
to the development of Property III.
Property IV: "High Ridge," a 160-unit garden apartment complex located
in Athens, Georgia. $6,530,000 of the Gross Proceeds of the Offering, or
approximately 24% of the Maximum Offering Amount, will be allocated to the
development of Property IV.
The following table, which was compiled from information generated by
the General Partners, compares the Properties by numbers of apartment units,
average size of unit, estimated monthly rents per unit as expressed in 1986
dollars, construction costs per unit and estimated annual operating expenses per
unit as expressed in 1986 dollars:
Comparison of Properties I, II, III and IV:
<TABLE>
<CAPTION>
Property I Property II Property III Property IV All Properties
<S> <C> <C> <C> <C> <C>
Number of apartment units.............. 160 160 184 160 664
Average unit size (sq. ft.)..............1,073 1,028 1,061 1,073 1,059
Weighted average anticipated
monthly rent per unit
(as expressed in 1986 dollars).......$ 467 $ 486 $ 445 $ 455 $ 463
Average construction cost per unit.. $33,372 $32,278 $34,952 $33,747 $33,637
Average annual anticipated
operating expenses per unit
(as expressed in 1986 dollars and
assuming full occupancy).............$ 1,494 $ 1,374 $ 1,458 $ 1,487 $ 1,440
</TABLE>
The General Partners have commissioned Cushman & Wakefield, Inc., Miami,
Florida ("Cushman & Wakefield"), an independent market study and project
analysis firm, to test the market feasibility of each Property. The information
for each Property included in the "Market Data" and "Competition" sections below
has been derived from the reports submitted to the General Partners by Cushman &
Wakefield in May 1986.
The anticipated monthly rental amounts shown below for each Property are
estimates based on information available to the General Partners. There can be
no assurance, however, that such monthly rental amounts will be realized.
Property I: South land Station, Warner Robins, Georgia
General Description
South land Station will be a 160-unit garden apartment project situated on
approximately 15 acres of land in Warner Robins, Houston County, Georgia.
Property I will consist of twelve two-story garden apartment buildings, together
with a swimming pool, two tennis courts, a clubhouse with an equipped exercise
room, an entertainment center and approximately 320 on-site parking spaces. The
buildings will be of wood frame construction with wood siding.
Flournoy Development Company, an Affiliate of the Development General
Partner, holds an option on the 65.75 acre parcel of land that contains the
Property I site. Approximately 15 acres of the total parcel will be conveyed to
the Fund for the development of Property I at the same price per acre, plus a
pro rata per acre share of the brokerage commission to be paid to an
unaffiliated third party, that will be paid by Flournoy Development Company. The
Development General Partner or his Affiliate may develop the remaining acreage
as additional residential rental units and for commercial and retail use. See
"Conflicts of Interest-Competing Properties and Interests" and "Risk
Factors-Competition and Future Development."
37
<PAGE>
Property I will contain the following types of apartment units, leasing
initially for the monthly rentals listed:
<TABLE>
<CAPTION>
Estimated
Number of Square Monthly
Type Units Footage Rental
<C> <C> <C> <C>
1 bedroom ............... 16 940 $ 375
1 bedroom with fireplace 16 940 $ 390
1 bedroom with den ...... 16 1,173 $ 500
2 bedrooms .............. 40 1,046 $ 470
2 bedrooms with fireplace 40 1,046 $ 485
3 bedrooms .............. 32 1,222 $ 510
</TABLE>
The rents shown above are on an unfurnished basis and do not include
utility costs, which will be paid directly by each tenant. The Fund will pay for
cold water, sewer and trash removal. Each unit will have washer/dryer
connections and will be furnished with a built-in electric range, dishwasher,
disposal, vent-hood, refrigerator, carpet and drapes. Apartments with dens will
feature Jennair charcoal-style grills, ice-makers and Jacuzzi whirlpool baths.
Market Data
Warner Robins, Georgia is located approximately 100 miles south of Atlanta
and 16 miles south of Macon. Property I is located about three miles from Robins
Air Force Base, which employs more than 20,000 civilian and military personnel.
The Houston County area had a population of about 83,000 persons in 1985
and is projected to have a 1990 population of approximately 92,000. Contrary to
national trends, average household size has increased since 1981. Average
household income is approximately $31,500, about $8,000 above the Georgia
average. More than half of the area's households have incomes in the range of
$20,000 to $50,000, a range that represents a strong target market for Property
I.
In addition to Robins Air Force Base, service and manufacturing industries
provide significant employment in the Warner Robins area. Total non-agricultural
employment grew by about 3.4% between 1984 and 1985. The average unemployment
rate for the area was 6.3%, just slightly below the state average. Planned plant
openings or expansions in the area are expected to add approximately 575 jobs in
1986-87.
Based on an October 1985 housing survey conducted by the U.S. Department of
Housing and Urban Development and on building permit data and the operating
results of comparable projects, it is estimated that the Houston County area can
absorb approximately 264 multi-family rental units per year. In 1985, permits
for 453 units were approved and an additional 116 units were approved in the
first quarter of 1986. It is anticipated that most of these units will be
completed and leased by the time that Property I begins leasing. A planned unit
residential development has been proposed for a thousand acre site in the area,
which, if the developer's zoning petition is approved, could allow additional
residential units to be built. The first phase of the development is planned as
single family homes, but no date has been set for the commencement of
construction.
38
<PAGE>
Competition
A recent survey indicates that the Houston County multi-family housing
market has an overall occupancy level of about 93%. The names and a brief
description of some of the existing apartment projects in the area with which
Property I may be expected to compete are listed below. Competitors have been
selected on the basis of proximity to the Property I site and/or important area
employers and commercial and retail facilities. In addition, consideration has
been given to the comparability of quality, amenities, rental rates and unit
sizes.
<TABLE>
<CAPTION>
Occupancy
Level as
Projects in the Number of Unit Monthly of April
Warner Robins Area Units Types Rental 1986
- ------------------------------ ---------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Wellston Ridge 120 1 bedroom $345-395 98%
Watson Bend 2 bedroom $425
3 bedroom $470
Northlake 114 1 bedroom $290 98%
Northlake Drive 2 bedroom $360-370
Oakdale Villas 104 1 bedroom $315 97%
Corder Road 2 bedroom $395
Shadowood 80 1 bedroom $320 96%
Engracin Drive 2 bedroom $405
Lake Vista 136 1 bedroom $350 96%
Northlake Drive 2 bedroom $425-450
3 bedroom $475
The Sandpiper 514 1 bedroom $290 94%
Leisure Lake Drive 2 bedroom $350-360
The Castaways 151 1 bedroom $250-275 60%*
Leisure Lake Drive 2 bedroom $335
- ---------------
*Recently sold.
</TABLE>
Although, as shown above, the estimated monthly rents for the majority of
Property I apartments exceed those of competitors, the General Partners believe,
based on the market data set forth above, that demand exists for higher quality
apartments with the amenity packages to be offered at Property I, and that
income levels in the Property I area should support such rent levels.
Property II: Hidden Lake-Phase Two, Union City, Georgia
General Description
Hidden Lake-Phase Two will be a 160-unit garden apartment complex situated
on approximately 16.2 acres of land in Union City, south Fulton County, Georgia.
Property II will consist of thirteen two-story garden apartment buildings, and
will share two swimming pools, two tennis courts, a sport court, a clubhouse
with an equipped exercise room and an entertainment center with Hidden
Lake-Phase One, an existing 160-unit apartment complex adjacent to the Property
II site. Hidden Lake-Phase One is owned by a partnership in which the General
Partners are the Development General Partner and an Affiliate of the
Administrative General Partner. Approximately 320 on-site parking spaces will be
constructed for Property II tenants. The buildings will be of wood frame
construction with wood siding, in the same architectural style as Phase One.
Phase One opened for rental in August 1985 and construction of all apartment
units was completed in December 1985. As of March 31, 1986, and as of August 1,
1986, Phase One was 100% leased.
39
<PAGE>
John F. Flournoy is the owner of approximately 3.4 acres of land that will
be sold to the Fund to comprise about 21% of the Property II site. The price
paid by the Fund will be $7,000 per acre, which is the same price Mr. Flournoy
paid for the acreage in December 1983. The balance of the site for Property II
will be purchased from an unaffiliated individual for approximately $11,460 per
acre. See "Acquisition of Sites," below in this section, and "Compensation and
Fees to the General Partners and Affiliates."
Property II will contain the following types of apartment units, leasing
initially for the monthly rentals listed:
<TABLE>
<CAPTION>
Estimated
Number of Square Monthly
Type Units Footage Rental
<C> <C> <C> <C>
1 bedroom ................................................................................... 24 804 $ 425
1 bedroom with fireplace .................................................................... 24 804 $ 435
1 bedroom with den .......................................................................... 16 1,173 $ 475
2 bedrooms .................................................................................. 24 1,044 $ 490
2 bedrooms with fireplace ................................................................... 24 1,044 $ 505
2 bedrooms .................................................................................. 24 1,188 $ 525
2 bedrooms with fireplace ................................................................... 24 1,188 $ 545
</TABLE>
The rents shown above are on an unfurnished basis and do not include
utility costs, which will be paid directly by each tenant. The Fund will pay for
cold water, sewer and trash removal. Each unit will have washer/dryer
connections and will be furnished with a built-in electric range, dishwasher,
disposal, vent-hood, refrigerator, carpet and drapes. Apartments with dens will
feature Jennair charcoal-style grills, ice-makers and Jacuzzi whirlpool baths.
Market Data
Union City, Georgia is located in south Fulton County, approximately 25
minutes by car south of Atlanta's central business district and 10 minutes
southwest of Atlanta's Hartsfield International Airport. South Fulton County's
economy relies heavily on the Atlanta airport, which employs approximately
33,000 people, and on two nearby Army installations. The south Fulton County
area is heavily industrial compared to the overall Atlanta region, with
approximately 44% of non-agricultural employment in industry. Commercial, retail
and light industrial employment are growing in south Fulton County, and
projections through 1990 estimate increases of about 700 jobs per year in these
categories. A major business park is being developed in the area.
Since 1980, the population of south Fulton County has grown approximately
7%, to approximately 50,000 in 1985. Average household size has decreased since
1980, and the number of households in the area has grown by about 7,000. It is
projected that about 32% of households in the area will have incomes in excess
of $38,000 by 1990, compared to about 20% of households in the overall Atlanta
region.
The building of multi-family housing in the northern areas of metropolitan
Atlanta has been slowed by permit restrictions effected because of limited water
and sewer system capacities. These restrictions have caused developers to focus
on the southern metropolitan Atlanta area, where building permits for
multi-family rental units have been increasing steadily for the past five years.
Figures for south Fulton County show absorption of approximately 350 rental
units per year. As building restrictions in the northern part of the region
force growth south, it is believed that this absorption figure could increase.
Construction of a 225-uriit rental project similar in quality to Property
II is planned to begin within the year on land near the Property II site. An
additional 148-unit development of comparable quality is also planned for the
area. General red estate trends in the neighborhood of Property II tend now
toward a mixture of commercial/light industry and residential. Modest single
family homes are scattered throughout the area, and new single family homes in
the $56,000-$68,000 range are being built in the vicinity.
40
<PAGE>
Competition
A recent survey indicates that the south Fulton County multi-family housing
market has an overall occupancy level of approximately 90-93%. The names and a
brief description of some of the existing apartment complexes in the area with
which Property II may be expected to compete are listed below. Competitors have
been selected on the basis of proximity to the Property II site and/or important
area employers and commercial and retail facilities. In addition, consideration
has been given to the comparability of quality, amenities, rental rates and unit
sizes.
<TABLE>
<CAPTION>
Occupancy
Projects in the South/ Level as
Southeast Atlanta Number of Unit Monthly of April
Metropolitan Area Units Types Rental 1986
- ------------------------------ ---------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Hidden Lake-Phase One 160 1 bedroom $425 100%
Union City 2 bedroom $490-540
3 bedroom $545-560
Summerwind at Tara 208 1 bedroom $480-495 98%
Jonesboro 2 bedroom $545-565
Embarcadero 404 1 bedroom $385-400 94%
College Park 2 bedroom $440-460
3 bedroom $550
Chase Ridge 176 1 bedroom $485 80%*
Riverdale 2 bedroom $525-545
Walden Walk 213 1 bedroom $415 70%*
Stone Mountain 2 bedroom $495-585
Hidden Pointe 235 1 bedroom $415 50%*
Stone Mountain 2 bedroom $495-585
The Crossings 200 1 bedroom $355-380 23%*
Lithonia 2 bedroom $465-490
3 bedroom $505-530
- ---------------
</TABLE>
* Recently completed projects that are still in initial rent-up periods.
Absorption for Chase Ridge, which began leasing in July 1985, has averaged 17
units per month; for Walden Walk, which began leasing in August 1985,
absorption has averaged 18.5 units per month; for Hidden Pointe, which began
leasing in February 1986, absorption has averaged 58 units per month; for The
Crossings, which began leasing in March 1986, absorption has averaged 20
units per month.
Property III: Park Place, Spartanburg, South Carolina
General Description
Park Place will be a 184-unit garden apartment complex located on
approximately 14.4 acres of land in Spartanburg County, South Carolina. Property
III will consist of thirteen two-story garden apartment buildings, together with
a swimming pool, two tennis courts, a clubhouse with an equipped exercise room
and entertainment center, and approximately 368 on-site parking spaces. The
buildings will be of wood frame construction, with hardboard siding.
41
<PAGE>
Property III will contain the following types of apartment units, leasing
initially for the monthly rentals listed:
<TABLE>
<CAPTION>
Estimated
Number of Square Monthly
Type Units Footage Rental
<C> <C> <C> <C>
1 bedroom .................................................................................. 24 804 $ 375
1 bedroom with fireplace ................................................................... 24 804 $ 390
1 bedroom with den ......................................................................... 16 1,173 $ 490
2 bedrooms ................................................................................. 24 1,044 $ 420
2 bedrooms with fireplace .................................................................. 24 1,044 $ 435
2 bedrooms ................................................................................. 24 1,188 $ 450
2 bedrooms with fireplace .................................................................. 24 1,188 $ 475
3 bedrooms ................................................................................. 12 1,284 $ 525
3 bedrooms with fireplace .................................................................. 12 1,284 $ 550
</TABLE>
The rents shown above are on an unfurnished basis and do not include
utility costs, which will be paid directly by each tenant. The Fund will pay for
cold water, sewer and trash removal. Each unit will have washer/dryer
connections and will be furnished with a built-in electric range, dishwasher,
disposal, vent-hood, refrigerator, carpet and drapes. Apartments with dens will
feature Jennair charcoal-style grills, ice-makers and Jacuzzi whirlpool baths.
Market Data
Spartanburg, South Carolina is located in Spartanburg County, approximately
25 miles north of Greenville, South Carolina and 65 miles southwest of
Charlotte, North Carolina. Historically, the Piedmont Region, as the surrounding
area is known, has been economically dependent on the textile industry. This
dependence has lessened, however, as textile employment has declined and
Spartanburg has diversified its economic base to include other types of
manufacturing and service industries and wholesale and retail trade. The City is
sponsoring development of a new 30-acre industrial park, and additional hotel
and retail development is planned.
Spartanburg County grew by about 17% between 1970 and 1980, and has had an
average annual growth rate of about 1.2% in the 1980s. It is estimated that the
area will gain more than 1,000 new households per, year through 1990, with a
projected population of approximately 218,000 by that time. During the past five
years, an estimated 86% of the county's growth has taken place in the urban
fringe of the city, where the Property III site is located. The 1984 median
income for the Spartanburg County area was approximately $22,000.
Multi-family rental unit absorption for the Spartanburg area is estimated
at about 300 units per year. As part of a large mixed-use development including
a hotel, retail space, offices and apartments, 200 rental units comparable in
quality to Property III are scheduled to be constructed sometime in 1986. 150
additional units are planned for construction, beginning in late 1986, by an
existing competitor, the Country Club Apartments.
42
<PAGE>
Competition
A recent survey indicates that the Spartanburg multi-family housing market
currently has an overall occupancy level of approximately 92-95%. The names and
brief descriptions of some of the existing apartment complexes in the area with
which Property III may be expected to compete are listed below. Competitors have
been selected on the basis of proximity to the Property III site and/or
important area employers and commercial and retail facilities. In addition,
consideration has been given to the comparability of quality, amenities, rental
rates and unit sizes.
<TABLE>
<CAPTION>
Occupancy
Level as
Projects in the Number of Unit Monthly of April
Spartanburg Area Units Types Rental 1986
- ------------------------------ ---------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Hunt Club 204 1 bedroom $360-385 Opened
Hunt Club Lane 2 bedroom $395-435 May 1986
Country Club 216 1 bedroom $335 55%*
Apartments 2 bedroom $375
County Club Road
The Bluffs 144 1 bedroom $335-345 96%
Vanderbilt Lane 2 bedroom $380-385
3 bedroom $450
Foxfire Apartments 116 1 bedroom $310-345 94%
Camelot Drive 3 bedroom $400
Key Pines 241 Efficiency $295 90%
Power Mill Road 1 bedroom $310-340
2 bedroom $320-390
3 bedroom $395-460
The Corners 176 Efficiency $285 85%
Fernwood Drive 1 bedroom $350
2 bedroom $410
The Briarcliffe 98 1 bedroom $275 81%
Blackstock Road 2 bedroom $290
3 bedroom $330
Georgetown Village 74 1 bedroom $285 78%
Reidville Road 2 bedroom $320
3 bedroom $385
- ---------------
</TABLE>
* The County Club Apartments began leasing in December 1985. Absorption has
averaged 24 units per month.
Property IV: High Ridge, Athens, Georgia
General Description
High Ridge will be a 160-unit garden apartment complex situated on
approximately 18 acres of land in Athens, Clarke County, Georgia. Property IV
will consist of eleven two- and three-story garden apartment buildings, together
with approximately 320 on-site parking spaces. Property IV will have a swimming
pool, two tennis courts, a clubhouse with an equipment room and an entertainment
center. The buildings will be of wood frame construction, with wood siding.
43
<PAGE>
Property IV will contain the following types of apartment units, leasing
initially for the monthly rentals listed:
<TABLE>
<CAPTION>
Estimated
Number of Square Monthly
Type Units Footage Rental
<S> <C> <C> <C>
1 bedroom .................................................................................. 16 940 $ 375
1 bedroom with fireplace ................................................................... 16 940 $ 390
1 bedroom with den ......................................................................... 16 1,173 $ 475
2 bedrooms ................................................................................. 40 1,046 $ 450
2 bedrooms with fireplace .................................................................. 40 1,046 $ 465
3 bedrooms ................................................................................. 32 1,222 $ 510
</TABLE>
The rents shown above are on an unfurnished basis and do not include
utility costs, which will be paid directly by each tenant. The Fund will pay for
cold water, sewer and trash removal. Each unit will have washer/dryer
connections and will be furnished with a built-in electric range, dishwasher,
disposal, vent-hood, refrigerator, carpet and drapes. Apartments with dens will
feature Jennair charcoal-style grills, ice makers and Jacuzzi whirlpool baths.
Market Data
The Property IV site is located just outside of the western city limit of
Athens, in Clarke County, Georgia. Athens, the home of the University of
Georgia, is about 65 miles northeast of Atlanta. The 18 acre site is a part of
the High Ridge subdivision, a low-density planned development that now contains
single family homes selling in the $150,000 to $250,000 range. Under a zoning
plan approved in 1985, overall density for the High Ridge subdivision is limited
to 3.9 units per acre. Other than the Property IV site, which has an allowable
density of 9 units per acre, only one other tract within the subdivision is
zoned for multi-family housing.
The Property IV site is hilly and heavily wooded. Although the setting is
secluded, the Athens central business district is within a 15 minute drive, and
new industrial and commercial growth, including the area's largest industrial
park, its only regional shopping center, and two business parks, are easily
accessible. The city's two major hospitals are within a 10 minute drive of the
site.
Although the University of Georgia is by far the area's largest employer
and has a significant economic impact on the area, the economy of the Athens
area is diversified. The manufacturing sector employs approximately 25% of the
workforce. The apparel, textiles and food processing industries also employ
significant numbers of people. Retail trade and service industries combined
account for about 30% of the area's employment. During 1984 and 1985, Clarke
County's unemployment rate has averaged 5.4%, more than 1% below the Georgia
average.
Clarke County had a non-student population of about 140,000 in 1984, and
has grown by about 2,000 persons per-year since 1980. It is expected to gain
about 1,500 persons or approximately 600 households per year through 1990.
Household income is expected to average approximately $42,800 by 1989.
Approximately 16,000 of the University's 25,000 full-time students live in
non-University housing, and a number of Athens area apartment projects are
marketed to, and occupied almost exclusively by, students. Although a recent
survey of building permit activity and occupancy figures over the past few years
indicates that approximately 200-250 multi-family rental units can be absorbed
annually in the Athens area, the survey also indicates that the non-student
population of the area may be underserved due to the lack of rental housing not
dominated by students. Property IV will be marketed as an adult and family
community based on its location (which is about 20 minutes from the University)
and its restrictions on the numbers of unrelated adults who may occupy a unit.
In 1985, permits for 624 multi-family units were issued in the Athens area,
none of which were for projects likely to be competitive with Property IV.
Although other land in the area is zoned for multi-family housing, no building
permits have been issued and no immediate plans for competitive development
appear to exist.
44
<PAGE>
Competition
A recent survey indicates that the Athens area multi-family housing market
has an overall occupancy level of approximately 90-95%. The names and brief
descriptions of some of the existing apartment complexes in the area with which
Property IV may be expected to compete are listed below. Competitors have been
selected on the basis of proximity to the Property IV site and/or important area
employers and commercial and retail facilities. In addition, consideration has
been given to the comparability of quality, amenities, rental rates, unit sizes
and non-student marketing efforts and tenant populations.
<TABLE>
<CAPTION>
Occupancy
Level as
Projects in the Number of Unit Monthly of April
Athens Area Units Types Rental 1986
- ------------------------------ ---------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Appleby Mews 90 2 bedroom $550 100%
Carr Street 2 bedroom $550
townhouse
Rivers Edge 106 2 bedroom $525 98%
Sycamore Drive 3 bedroom $625
Villas East and West 238 1 bedroom $285 95%
Woodlake Place 2 bedroom $335-345
3 bedroom $405
Le Chateau Club 212 1 bedroom $280-300 93%
Chateau Terrace 2 bedroom $300-375
3 bedroom $380-405
The Westchester 135 1 bedroom $270-290 82%*
Westchester Circle 2 bedroom $320-355
3 bedroom $380
Wingate Chase 56 2 bedroom $385-445 30%**
Prince Avenue
The Georgian 33 1 bedroom $525-550 6%***
Washington Street 2 bedroom $675-745
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</TABLE>
*January-March is lowest season. 100% occupancy for fall and winter.
**Opened October 1985. Low occupancy attributed to location and undesirable unit
floor plans.
***Downtown hotel renovation, opened in March 1986.
Property Management Agreements
Pursuant to the terms of a Property Management Agreement with the Fund,
each of the Properties will be managed by Flournoy Properties, Inc., the
Property Manager, for an initial term of five years, renewable thereafter on a
year-to-year basis. The Property Manager will receive a Property Management Fee
for each Property of 5% of gross monthly operating revenues of the Property.
Under the terms of each of the Property Management Agreements, the Property
Manager will be responsible for performing, or paying others to perform on its
behalf, all leasing-related and other property management services for the
Properties. See "Conflicts of Interest-Transactions Between the Fund and the
General Partners and Affiliates."
Cash Flow Deficit Guaranty Agreement
Under the terms of a Cash Flow Deficit Guaranty Agreement to be executed by
the Fund and the Development General Partner, the Development General Partner
will agree to fund, on a monthly basis, any operating deficits generated in the
aggregate by the Properties until a period ending two years after the date of
completion of construction of the last Property. The Development General Partner
will not be required to fund more than $500,000 in the aggregate, and all such
payments made by the Development General
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Partner will be deemed non-interest bearing loans to the Fund for which the
Development General Partner will be reimbursed from the first available cash
flow of the Fund or the proceeds of an Operational Stage Financing or Sale,
whichever shall first occur.
Acquisition of Sites
The site for each Property will be purchased by the Fund from or through
Flournoy Development Company, an Affiliate of the Development General Partner,
or, in one instance, as to a portion of the site for Property II, from John F.
Flournoy, the Development General Partner, individually. Flournoy Development
Company or Mr. Flournoy has previously acquired (and, in three instances,
exercised) four options pursuant to which the following sites will be available
for purchase, at the following prices and terms, by the Fund:
Property I: A 65.75 acre site has been purchased by Flournoy Development
Company, from a group of individuals unaffiliated with the Fund, for a price of
$503,000, plus a commission of $25,000 paid to an unaffiliated real estate
broker. Approximately 15 acres of the total 65.75 acres acquired by Flournoy
Development Company will be conveyed to the Fund, for which the Fund will pay
$120,000, which amount is a pro rata per acre share of the total purchase price
and brokerage commission paid. See "Conflicts of Interests-Competing Properties
and Interests" and "Risk Factors-Competition and Future Development."
Property II: A 12.875 acre site will be purchased from an unaffiliated
individual for a price of approximately $11,460 per acre, or $147,500, and a
3.369 acre site will be purchased from John F. Flournoy, the Development General
Partner, for a price of $7,000 per acre, or $23,583. The price of $7,000 per
acre is identical to the price Mr. Flournoy paid to an unaffiliated individual
for such property in December 1983. See "Compensation and Fees to the General
Partners and Affiliates."
Property III: A 14.357 acre site, and an adjacent 50 foot boundary strip,
has been purchased from two unaffiliated entities for a total price of $552,200.
Property IV: An 18.05 acre site has been purchased from an unaffiliated
entity for a price of $300,000.
Flournoy Development Company will sell to the Fund the Property III and IV
sites, the portion of the Property II site to be purchased from an unaffiliated
individual, and the portion of the Property I site to be conveyed to the Fund,
at the respective price per acre paid to the sellers thereof, plus a pro rata
per acre share of any brokerage commissions paid.
Flournoy Development Company will receive an Acquisition Fee of a total of
4 % of Capital Contributions for its services to the Fund in connection with the
acquisition and planning of the development of the Properties, including site
selection, negotiations of options, entering into option agreements and, in some
instances, acquisition and holding of sites pending conveyance to the Fund.
Flournoy Development Company has also directed all work concerning zoning and
annexation, permits, water and sewer connections and related matters, and has
also completed the project design and planning. See "Compensation and Fees to
the General Partners and Affiliates."
Construction Contracts
Each of the Properties will be constructed for the Fund by Flournoy
Construction Company pursuant to the terms of a guaranteed fixed price
Construction Contract to be executed for each Property. The guaranteed fixed
price under each Construction Contract will be as follows: (a) Property
I-$5,080,000; (b) Property II-$4,817,000; (c) Property III-$5,704,000; and (d)
Property IV-$4,960,000. Under the terms of each Construction Contract, each
Property must be completed by a date no more than 18 months from the
commencement of construction. See "Conflicts of Interest-Transactions Between
the Fund and the General Partners and Affiliates.
Each of the Construction Contracts will provide that: (a) (i) until the
project is 50% complete, the General Contractor is entitled to receive monthly
progress payments equal to 90% of the portion of the contract price properly
allocable to work in place, and equipment and materials suitably stored, for the
period covered by the progress payment, less the aggregate amounts previously
paid to the General Contractor, (ii) thereafter, the General Contractor is
entitled to receive monthly progress payments equal to 100% of
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<PAGE>
the portion of the contract price properly allocable to work in place, and
equipment and materials suitably stored, for the period covered by the progress
payment, less the aggregate amounts previously paid to the General Contractor
and less the 10% holdback provided under item (i) above; (b) it is a condition
to the making of each such progress payment that (i) the independent inspecting
architect retained by the Fund will have inspected construction in order to
ensure on-site conformity with plans and specifications and will have reviewed
the draw request of the General Contractor; (ii) Columbus Bank & Trust Company
shall have certified to the Fund as to the percentage of the project that has
been completed as of the end of the period for which payment is to be made,
(iii) the percentage of the total contract price then paid to the General
Contractor, after giving due effect to the progress payment then being requested
(together with the retainage, if any, applicable to such payments), shall not
exceed the percentage of completion, as certified by Columbus Bank & Trust
Company, (iv) Columbus Bank & Trust Company shall have certified to the Fund
that the remaining funds available to it for the construction of the Property,
after giving due effect to the progress payment requested by the General
Contractor, are sufficient to pay the remaining costs of completion of the
Property, and (v) the Administrative General Partner shall have approved such
payment, which approval shall not be unreasonably withheld; (c) final payment of
the contract price will be due when the work has been completed, the
Construction Contract fully performed, a final certificate for payment has been
issued by the independent inspecting architect, and the Administrative General
Partner shall have approved such payments, which approval shall not be
unreasonably withheld; (d) the General Contractor will be liable for liquidated
damages for each calendar day of delay until the work is substantially completed
equal to $15 per incomplete apartment unit per day; and (e) the Administrative
General Partner, or the Investors, by the vote of Investors holding a majority
of the Units, may, at its or their sole option, as the case may be, terminate
the Construction Contract in whole, or from time to time in part, at any time,
without penalty, by written notice thereof to the General Contractor.
Guaranties of Timely and Lien-Free Completion
Under the terms of a Guaranty of Timely and Lien-Free Completion to be
executed in connection with each Property, the General Contractor and the
Development General Partner will agree with the Fund to jointly and severally
guaranty the timely and lien-free completion of each Property. The. guaranties
will extend to the full net worth of both guarantors and will be secured by
irrevocable letters of credit in the amount of 15% of each Construction Contract
price. Upon a default by the guarantors under any of the guaranties, the
Administrative General Partner will have the right, at its sole option, to
immediately draw upon the applicable letter of credit, or to pursue any other
remedy that may be available to the Fund. See "Risk Factors-Construction and
Operation of the Properties."
MANAGEMENT OF THE FUND
The General Partners of the Fund are Brown Equity Income Properties, Inc.,
the Administrative General Partner, and John F. Flournoy, the Development
General Partner. The Fund's principal executive offices are located at 3810
Buena Vista Road, Columbus, Georgia 31907, telephone (404) 687-4301. The General
Partners have had primary responsibility for the selection and negotiation of
terms concerning the acquisition of the Properties' sites and construction of
the Properties, selecting a manager for the Interim Investments, and the
structure of the Offering and the Fund. 'The General Partners will have primary
responsibility for overseeing the performance of those who contract with the
Fund, as well as making decisions with respect to the financing, sale and
liquidation of the Fund's assets. The General Partners will be responsible for
all reports to and communications with Investors and others, all distributions
and allocations to Investors, the administration of the Fund's business and all
filings with the Securities and Exchange Commission and other federal or state
regulatory authorities. The Fund's Partnership Agreement provides for the
removal of a General Partner and the election of Successor or Additional General
Partners by Investors holding a majority of the Units.
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TRANSFER AND REPURCHASE OF UNITS
In General
The Fund does not anticipate that a public market will develop for the
Units. Transfer of Units by an Investor and purchase of Units by the Fund may,
however, be accommodated under the following terms and conditions. See Article
VII of the Partnership Agreement, attached hereto as Exhibit B, for a more
complete discussion of transfer and repurchase issues.
Transfer of Units
Record ownership of Units may be transferred with the consent of the
General Partners, after submission of transfer documents and satisfaction of all
other requirements concerning transfer set forth in Article VII of the
Partnership Agreement, which is attached hereto as Exhibit B. Such transfers
will be recognized by the Fund as of the first day of the first fiscal quarter
following such transfer. As between transferors and transferees, Fund
allocations will be recognized and distributions will be made according to the
principles set forth in "Allocations and Distributions."
Although Units are generally transferable, the Partnership Agreement
imposes certain limitations on the transfer of Units (including the discretion
of the General Partners to refuse to consent to such a transfer) and may require
the deferral of a transfer if necessary to avoid a "termination" of the Fund for
tax purposes. Therefore, the registration of any transfer of a Unit (other than
a transfer by will or intestacy upon death of the transferor) will be deferred
if it would result in 50% or more of all Units having been transferred by
assignment or otherwise within a 12-month period. Any deferred registrations of
transfer will be made (in chronological order to the extent practicable) as of
the first day of the first fiscal quarter following the end of any such 12-month
period.
An Investor desiring to sell his Units will be required to comply with the
minimum purchase and retention requirements and investor suitability standards
imposed by applicable federal or state securities laws and the minimum purchase
and retention requirements imposed by the Fund. The Fund will require that such
standards be met before the General Partners consent to any transfer of Units.
For example, any sale or transfer of Units in California or involving a
California resident will require the prior written consent of the Commissioner
of Corporations of the State of California ("Commissioner"), except as provided
in the Commissioner's rules. In addition, a transfer will not be registered if,
immediately thereafter, any transferor not transferring all of his Units, or any
transferee, would hold less than five Units (or two Units for an IRA), or any
transferor or transferee would hold a fraction of a Unit.
Alex. Brown & Sons Incorporated, an Affiliate of the Administrative General
Partner ("Alex. Brown"), intends to provide certain services to Investors
desiring to sell their Units; provided, however, that such services will not be
available until after the completion by the Fund of its last Property. Investors
may authorize Alex. Brown to offer their Units at a price set by the Investor.
Alex. Brown will attempt to notify potential buyers of the availability of such
Units and the price or prices at which they are available, and will maintain
records of inquiries received from potential buyers, if any. Alex. Brown will
not set Unit prices, and information as to the actual market value of a Unit at
any given date will not be available. To facilitate such transactions, Alex.
Brown will make available to Investors, on a regular basis, the prices at which
Units have been sold. Because this arrangement will not make a market for the
Units, no "market orders" or "stop orders" will be accepted by Alex. Brown. It
is possible that no buy orders will be received by Alex. Brown at the price
specified by an Investor in his sell order. For its services in acting as agent
in sales transactions, Alex. Brown may charge a fee of up to 6% of the purchase
price of the Units to the buyer, which fee will be subject to change without
notice. Further information about this service can be obtained from Alex. Brown.
This service may be discontinued or suspended at any time without notice, and is
likely to be suspended once the Fund begins to dispose of the Properties.
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Repurchase by the Fund
After the Termination Date of the Offering, the Fund may, in response to a
request by an Investor, elect to purchase Units from the Investor upon mutually
agreeable terms, provided that such purchase does not materially impair the
capital or operations of the Fund. The determination of the value of any Units
purchased will be based, among other factors, upon the current fair market value
of the Properties and Fund assets, less its debts and obligations. Units
acquired by the General Partners and Affiliates will not be eligible for
purchase by the Fund. Units purchased by the Fund during any fiscal quarter will
be deemed cancelled as of the first day of the fiscal quarter following the
effective date of such purchase.
THE FUND WILL NOT PURCHASE UNITS PRIOR TO THE TERMINATION DATE OF THE
OFFERING, AND IS NOT OBLIGATED TO PURCHASE UNITS AT ANY TIME. THERE IS NO
ASSURANCE THAT THE FUND WILL EVER PURCHASE ANY UNITS.
SUMMARY OF SALES MATERIALS
In addition to and apart from this Prospectus, the Fund may utilize certain
sales materials in connection with the Offering of the Units. These materials
may include fact sheets to be used internally by broker-dealers, investor sales
promotion brochures, prepared speeches for public seminars, videotape and slide
presentations for use at public seminars, invitations to attend public seminars,
letters, mailing cards, "tombstone" advertisements and a program summary to be
used by the members of the selling group. Some such sales materials may not be
available in certain jurisdictions. This Offering is made only by means of this
Prospectus, and, other than as described above, the Fund has not authorized the
use of other sales materials. Although the information contained in such sales
materials does not conflict with any of the information contained in this
Prospectus, such materials are not complete and should not be considered a part
of this Prospectus or the Registration Statement of which this Prospectus is a
part, or as incorporated in this Prospectus or said Registration Statement by
reference, or as forming the basis of the Offering of the Units.
SUMMARY OF CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT
The rights and obligations of the Partners are governed by the Partnership
Agreement, the form of which is set out in its entirety as Exhibit B to this
Prospectus. Subscribers should review the Partnership Agreement carefully before
subscribing for Units. The following statements and other statements in this
Prospectus concerning the Partnership Agreement and related matters are merely
summaries, are qualified in their entirety by reference to the Partnership
Agreement and in no way modify or amend the Partnership Agreement.
Rights and Duties of the Partners
The General Partners have the exclusive right to manage the business of the
Partnership. Decisions to be made by the General Partners will be made by the
joint agreement of the General Partners; provided, however, that, subject to the
authority of Investors, as set forth below, the Administrative General Partner
has the sole authority and power, on behalf of the Fund, to review, approve,
terminate, modify, enforce, continue or otherwise deal with the Property
Management Agreements, the Cash Flow Deficit Guaranty Agreement, the Guaranties
of Timely and Lien-Free Completion, the Construction Contracts, the Acquisition
Agreements or any other agreements between the Fund and the Development General
Partner or any of his Affiliates.
Except as limited below, the General Partners are authorized for, in the
name of, and on behalf of the Fund: (i) to enter into any kind of activity and
to perform and carry out contracts of any kind necessary, to, or in connection
with, or incidental to the accomplishment of the purposes of the Fund, so long
as such activities and contracts may be lawfully carried on or performed by a
limited partnership; (ii) to engage Persons, including the Sponsors, to provide
services or goods to the Fund, upon such terms as the General Partners deem fair
and reasonable and in the best interest of the Fund, provided, however, that, as
to certain services or goods provided by a Sponsor, (a) the compensation paid
must be comparable and competitive with that of any other Person who provides
comparable services or goods, and, as to services, will not exceed 90% of the
competitive price that would be charged by non-affiliated persons or entities
rendering similar services in the same or comparable geographic locations; (b)
the compensation and other terms of such contracts must be fully disclosed to
Investors in the reports of the Fund, (c) the Sponsor must have been previously
engaged in the business of providing such services or goods, independent of the
Fund and as an ongoing business, and (d) all such transactions must be embodied
in a contract that describes the services or goods to be provided and the
compensation to be paid, which contract may be modified by a vote of Investors
holding a majority of the Units, and which contract must permit
85
