<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File No. 0-17808
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2940131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
399 Boylston Street, 13th FL.
Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 578-1200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(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 ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
No voting stock is held by nonaffiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Item 1. Business.
--------
New England Pension Properties V; A Real Estate Limited Partnership (the
"Partnership") was organized under the Uniform Limited Partnership Act of the
Commonwealth of Massachusetts on October 23, 1986, to invest primarily in
to-be-developed, newly-constructed and existing income-producing real
properties.
The Partnership was initially capitalized with contributions of $2,000 in
the aggregate from Fifth Copley Corp. (the "Managing General Partner") and ECOP
Associates Limited Partnership (the "Associate General Partner") (collectively,
the "General Partners") and $10,000 from Copley Real Estate Advisors, Inc. (the
"Initial Limited Partner"). The Partnership filed a Registration Statement on
Form S-11 (the "Registration Statement") with the Securities and Exchange
Commission on November 12, 1986, with respect to a public offering of 60,000
units of limited partnership interest at a purchase price of $1,000 per unit
(the "Units") with an option to sell up to an additional 60,000 Units (an
aggregate of $120,000,000). The Registration Statement was declared effective on
January 9, 1987.
The first sale of Units occurred on July 23, 1987, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated and the last group of subscription agreements was accepted
by the Partnership on December 31, 1987. As of January 31, 1988, a total of
83,291 Units had been sold, a total of 12,900 investors had been admitted as
limited partners (the "Limited Partners") and a total of $82,761,530 had been
contributed to the capital of the Partnership. The remaining 36,709 Units were
de-registered on March 17, 1988.
The Partnership makes available 2% of Cash Flow, as defined in the
Partnership's Amended and Restated Agreement of Limited Partnership dated July
23, 1987, for the purpose of repurchasing Units. See Note 1 of the Financial
Statements in Item 8 hereof.
As of December 31, 1995, the Partnership had invested, or had committed to
invest in nine real property investments; Two of these investments were sold in
1994. Sales proceeds were distributed in the amount of $48 per Unit in 1994 and
$28 per Unit in 1995, after the Partnership made its final strategic decisions
on projects yet to be developed. The Partnership has no current plan to
renovate, improve or further develop any of its real property other than as
described in E. below. In the opinion of the Managing General Partner, the
properties are adequately covered by insurance.
The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.
A. Land in Germantown, Maryland ("Waters Landing II").
--------------------------------------------------
On May 26, 1987, the Partnership acquired a 60% interest in a joint venture
with Waters Landing Two - Oxford Limited Partnership ("Oxford"). As of December
31, 1995, the Partnership had contributed $1,392,126 to the capital of the joint
venture out of a maximum obligation of $4,682,400. The joint venture agreement
entitles the Partnership to receive a monthly preferred return on its invested
capital at the rate of 10.5% per annum. Prior to December 1, 1994, such monthly
preferred return was permitted to accrue to the extent that the joint venture
did not have sufficient cash to pay it. The joint venture agreement also
entitles the Partnership to receive 60% of all remaining cash flow from
operations and 60% of net sale and refinancing proceeds following the return of
the Partnership's equity. The Partnership also committed to make a loan of up to
$3,121,600 to Oxford for investment in the venture of which $928,084 had been
funded as of December 31, 1995. Interest only on the loan is payable monthly at
the rate of 10.5% per annum. The loan will be due upon the sale of the joint
venture's assets or the sale of Oxford's interest in the joint venture. Oxford
must apply any cash flow received from operations of the joint venture to
interest payments on the loan and must apply proceeds of financings or sales
received from the joint venture to payments of the interest on and principal of
the loan. The loan is secured by Oxford's interest in the joint venture.
The joint venture owns approximately 8.5 acres of land in Germantown,
Maryland and originally intended to construct a 144-unit apartment complex.
Development had been postponed due to the excess supply of apartment units in
the Germantown area. During 1995, the joint venture undertook a
<PAGE>
number of feasibility studies of alternative development proposals for the site
and determined development would not yield a sufficient return to justify the
investment risk. Accordingly, the Partnership intends to sell the land parcel
when market conditions improve.
B. Warehouse Building in Fontana, California ("Dahlia").
----------------------------------------------------
On September 21, 1987, the Partnership acquired a 60% interest in a joint
venture formed with an affiliate of Investment Building Group. As of December
31, 1995, the Partnership had contributed $7,081,593 to the capital of the joint
venture out of a maximum obligation of $7,250,000. The joint venture agreement
entitles the Partnership to receive a monthly preferred return on its invested
capital at the rate of 10% per annum. The joint venture agreement also entitles
the Partnership to receive 60% of the remaining cash flow and 60% of sale and
refinancing proceeds following the return of the Partnership's equity. On
September 1, 1995, the joint venture was converted into a California limited
partnership with the Partnership as the general partner and the affiliate of
Investment Building Group as the limited partner.
The limited partnership owns approximately 12.9 acres of land in Fontana,
California and has completed construction thereon of a one-story warehouse
building containing approximately 278,220 square feet of space. As of December
31, 1995, the building was 100% leased.
C. Office/Warehouse Buildings in Phoenix, Arizona (" University Business
---------------------------------------------------------------------
Park").
------
On September 30, 1987, the Partnership acquired a 60% interest in a joint
venture formed with an affiliate of The Hewson Company. As of December 31, 1995,
the Partnership had contributed $7,976,784 to the capital of the joint venture
out of a maximum obligation of $9,450,000. The joint venture agreement entitles
the Partnership to receive a monthly preferred return on its invested capital at
the rate of 10% per annum. The joint venture agreement also entitles the
Partnership to receive 60% of the remaining cash flow and 60% of sale and
refinancing proceeds following return of the Partnership's equity. Effective
January 1, 1996, the joint venture was dissolved and ownership of the joint
venture assets was assigned to the Partnership.
The Partnership owns approximately 8.5 acres of land in Phoenix, Arizona
and has completed construction thereon of five warehouse buildings containing
approximately 109,930 square feet of space. As of December 31, 1995, the
buildings were 98% leased.
D. Office/Research and Development Buildings in Columbia, Maryland
---------------------------------------------------------------
("Columbia Gateway Corporate Park").
-----------------------------------
On December 21, 1987, the Partnership acquired a 33% interest in a joint
venture formed with New England Life Pension Properties IV; A Real Estate
Limited Partnership, an affiliate of the Partnership (the "Affiliate"), which
had a 17% interest, and M.O.R. Gateway 51 Associates Limited Partnership.
As of April 20, 1989, the joint venture agreement was amended and restated
to reflect a decrease in the Partnership's interest in the joint venture to
15.25% and an increase in the Affiliate's interest in the joint venture to
34.75%. In addition, the amended and restated joint venture agreement increased
the Affiliate's maximum obligation to contribute capital to the joint venture
and reallocated the capital contributed to the joint venture by the Partnership
and the Affiliate. As of December 31, 1995, the Partnership had contributed
$6,181,690 to the capital of the joint venture out of a maximum obligation of
$6,402,000.
The joint venture agreement entitles the Partnership and the Affiliate to
receive a preferred return on their respective invested capital at the rate of
10.5% per annum. Such preferred return will be payable currently until the
Partnership and the Affiliate have received an aggregate of $8,865,000;
thereafter, if sufficient cash flow is not available therefor, the preferred
return will accrue and bear interest at the rate of 10.5% per annum, compounded
monthly. The joint venture agreement also entitles the Partnership to receive
15.25% of cash flow following payment of the preferred return and 15.25% of the
net proceeds of sales and refinancings following return of the Partnership's and
the Affiliate's equity.
<PAGE>
The joint venture owns approximately 20.85 acres of land in the Columbia
Gateway Corporate Park in Columbia, Maryland. The intended development plan for
this land was for a two stage development of seven office and research and
development buildings. The first phase of this development was completed in 1992
and included the construction of four, one-story office and research and
development buildings containing 142,545 square feet. The second phase of this
development commenced in the spring of 1994 in which two buildings totaling
46,000 square feet were constructed and leased to a single tenant for a lease
term of ten years. As of December 31, 1995 the project was 92% occupied.
E. Industrial Building in Brea, California ("Puente Street").
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On April 28, 1988, the Partnership acquired a 60% interest in a joint
venture formed with an affiliate of The Muller Company. In April, 1990, the
Partnership increased its commitment to the joint venture by $625,000 to
$13,725,000 of which $13,475,000 had been contributed as of June 1, 1991. The
joint venture agreement entitled the Partnership to receive a monthly preferred
return on its invested capital at the rate of 10.5% per annum. The joint venture
agreement also entitled the Partnership to receive 60% of the remaining cash
flow and 60% of sale and refinancing proceeds following the return of the
Partnership's equity. As of June 1, 1991, because of the developer partner's
inability to fund its share of capital contributions, the Partnership assumed
100% ownership of the joint venture's assets.
The Partnership owns approximately 16.75 acres of land in Brea, California
and has completed renovation of an existing building thereon containing 181,200
square feet. Construction of an approximately 37,320 square foot addition was
completed during the first quarter of 1989. Construction of a parking lot and
storage area on the remaining vacant land was completed during 1990.
The building, including the addition, was 100% leased to Mark Industries;
however, the tenant declared bankruptcy on July 15, 1991. The tenant's business
was subsequently purchased by another company which leased the building on a
month-to-month basis. The tenant moved out of the space and stopped paying rent
as of October 31, 1992. The Partnership filed a claim against Mark Industries
for $160,000 in unpaid post-petition rent, $1,420,000 in unpaid future rental
obligations and $60,000 in legal expenses. In early 1994 the Partnership
received $160,000 in payment of the post-petition rent. On September 14, 1994
the Trustee for Mark Industries filed a claim against the Partnership contending
that $106,000 in rental payments made by the tenant prior to filing bankruptcy
was a preferential transfer. In early 1995 all parties agreed to a stipulated
settlement to include: 1) the dismissal of the preferential transfer claim; 2)
the payment by the Trustee to the Partnership of $23,000 in full settlement of
its administrative claim for attorney's fees relating to the tenant's post
petition lease obligations; and 3) the payment by the Trustee to the Partnership
of $20,000 in full settlement of its claim against the tenant for future rental
obligations. As of December 31, 1995, the building was 100% leased to two
tenants. The first tenant assumed occupancy of 152,576 square feet in December
1993 and has a lease whose term expires in February 2004. The remaining space
was leased in April 1994 for a term of five years.
On December 8, 1995 the Partnership was named as a defendant in a complaint
filed in the Superior Court of the State of California for the County of Orange
by an existing tenant, Bridgeport Management Services, Inc. alleging breach of
lease. On January 17, 1996 the Partnership filed an answer denying the
allegations presented by the plaintiff. The Partnership believes this suit is
without merit.
The Partnership continues to evaluate the alternatives of developing
additional space on the 2.8 acres of land currently improved with a parking lot,
or selling the land.
F. Shopping Center in Salinas, California ("Santa Rita Plaza").
-----------------------------------------------------------
On February 1, 1989, the Partnership acquired a 60% interest in a joint
venture formed with Rodde McNellis/Salinas. On July 20, 1990, the Partnership
committed to increase its maximum obligation from $9,500,000 to $11,350,000, of
which $6,500,000 is characterized as Senior Capital and $4,850,000 is
characterized as Junior Capital. As of December 31, 1995, the Partnership had
contributed $10,950,840 to the capital of the joint venture. The joint venture
agreement entitles the Partnership to receive a monthly preferred return on its
Senior Capital at the rate of 10.5% per annum during months 1-24 of the joint
venture's operations and a monthly preferred return to reduce its outstanding
Senior Capital, together with a return at the rate of 10.5% per annum, based on
a 27-year amortization schedule,
<PAGE>
during months 25-120 of the joint venture's operations. The entire outstanding
Senior Capital is due and payable ten years after the date of the Partnership's
first investment of Senior Capital. The joint venture agreement also entitles
the Partnership to receive a priority return payment on its Junior Capital at
the rate of 10.5% per annum. Such junior priority return payment will accrue and
bear interest at the rate of 10.5% per annum, if sufficient cash is not
available therefor. At such time as the aggregate of accrued junior priority
return payments total $1,000,000, all junior priority return payments and the
return on the accrued junior priority return payments will thereafter be paid
currently; provided, however, that the $1,000,000 threshold will be increased by
each dollar of Junior Capital which the Partnership elects not to contribute to
fund its return. The Junior Capital will be due and payable after the fifteenth
year of the joint venture's operations. On August 1, 1995 the joint venture was
converted into a California limited partnership with the Partnership as the
general partner with a 63% ownership interest and an affiliate of Rodde/McNellis
Salinas as the limited partner with a 37% interest. The joint venture agreement
also entitles the Partnership to receive 63% of cash flow remaining after
payment of the preferred return and 63% of sale and refinancing proceeds
following the return of the Partnership's equity.
The limited partnership has a leasehold interest in approximately 10.56
acres of land in Salinas, California (the "Land") and has completed construction
thereon of five one-story retail buildings containing a total of approximately
125,247 square feet. The ground lease has a term of 75 years with two options to
extend, for ten years each. Under the ground lease, fixed rent of $390,000 per
annum is payable. A percentage rent equal to 11.55% of rents in excess of
$1,400,000 received by the ground lessee from subtenants, excluding expense
reimbursements, is also payable. As of December 31, 1995, the buildings were 91%
leased.
On August 1, 1995 the Partnership made a $1,750,000 loan to Nielsen
Properties, Ltd., which is the ground lessor, for a term of 15 years. The loan
earns interest at 8.75% and the Partnership can require full payment of the note
on or after August 1, 2000. The note is secured by a deed of trust on the Land.
In conjunction with this loan, Nielsen Properties, Inc. repaid the limited
partnership $1,299,052, representing full payment of two outstanding notes
receivable.
G. Office/Retail/Industrial Buildings in Las Vegas, Nevada ("Palms
---------------------------------------------------------------
Business Center III and IV").
----------------------------
On March 7, 1988, the Partnership acquired a 60% interest in a joint
venture formed with an affiliate of B.H. Miller Companies. As of January 1,
1995, the Partnership had contributed $11,589,888 to the capital of the joint
venture out of a maximum obligation of $11,700,000. The joint venture agreement
entitled the Partnership to receive a monthly preferred return at the rate of
11% per annum on the daily balance of its invested capital during each month, of
which 9.5% per annum was to be paid currently and up to 1.5% per annum will be
deferred if sufficient cash was not available therefor. All invested capital,
monthly payments of preferred return and deferred monthly payments of preferred
return were due and payable at the end of the tenth year of the joint venture's
operations. The joint venture agreement also entitled the Partnership to receive
60% of net cash flow and 60% of sale and refinancing proceeds following the
return of the Partnership's equity capital. Effective January 1, 1995, the joint
venture partner's ownership interest was transferred and assigned to the
Partnership.
The Partnership owns approximately 11.75 acres of land in Las Vegas, Nevada
and has completed construction thereon of twelve single-story office/industrial
buildings and one single-story retail building containing a total of
approximately 173,574 square feet. As of December 31, 1995, the buildings were
95% leased. In October 1994, the Clark County of Public Works paid the
Partnership $18,600 to acquire a necessary strip of land to widen the road that
fronts a portion of the property, in conjunction with planned road improvements
in the area.
<PAGE>
Item 2. Properties
The following table sets forth the annual realty taxes for the
Partnership's properties and information regarding tenants who occupy 10% or
more of gross leasable area (GLA) in the Partnership's properties.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Number
of Annual
Estimated Tenants Square Contract
1996 with Feet Rent
Annual 10% or of Per Line of
Realty More Name(s) of Each Square Lease Renewal Business of
Property Taxes of GLA Tenant(s) Tenant Foot Expiration Options Principal Tenants
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office/R&D Bldgs in $213,284 4 Wiltel 23,760 $8.74 3/1997 One for Telecommunications
Columbia, MD 5 Years
Columbia National 45,951 $8.95 6/2004 Two for Home Mortgages
5 Years
EVI, Inc. 31,316 $9.00 6/2005 One for Environmental/Testing
5 Years
Coram 25,932 $8.87 1/1997 One for Medical Services
5 Years
Land in Germantown, MD $ 18,000 N/A N/A N/A N/A N/A N/A N/A
Warehouse Bldg in
Fontana, CA $ 85,121 3 M.W. Kasch 172,972 $3.21 5/2003 None Distribution
Aromatics Industries 84,660 $2.64 5/1998 None Distribution
Building Materials
Distributor 20,888 $3.56 12/1996 None Distribution
Office/Warehouse Buildings
in Phoenix, AZ $142,745 1 EMCON Southwest 11,303 $7.44 11/2000 None Telecommunications
Industrial Bldg in
Brea, CA $ 96,234 2 20th Century Plastics 152,576 $3.03 3/2004 None Plastics
Manuf./Assembler
Bridgeport Management 65,944 $3.36 4/1999 None Rec. Vehicle
Storage/Svc
Shopping Ctr in
Salinas, CA $149,103 2 Food Maxx 51,008 $7.32 8/2010 Three for Supermarket
5 Years
Ross Dress for Less 17,068 $11.04 1/2001 Three for Apparel Retailer
5 Years
Office/Retail/Industrial
Bldgs in Las Vegas, NV $ 85,916 2 Hospitality Trade Mart 20,531 $6.60 12/2000 N/A Convention Planners
Blublocker Corp. 19,133 $6.11 11/2000 N/A Distribution & Storage
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenue, and net effective rent for the
Partnership's properties:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Property Gross Leasable Occupancy Rental Net Effective
Area Revenue Rent
Recognized ($/sf/yr)*
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office/ R&D Buildings in Columbia, MD
1991 107,310 57% $499,862 $ 9.13
1992 142,545 71% $1,225,076 $10.84
1993 142,545 73% $1,334,767 $13.01
1994 188,649 92% $1,496,175 $ 9.61
1995 188,649 92% $1,870,329 $10.78
Land in Germantown, MD
1991 N/A N/A N/A N/A
1992 N/A N/A N/A N/A
1993 N/A N/A N/A N/A
1994 N/A N/A N/A N/A
1995 N/A N/A N/A N/A
Warehouse Building in Fontana, CA
1991 278,220 100% $667,540 $ 2.44
1992 278,220 22% $400,496 $ 6.66
1993 278,220 89% $1,026,506 $ 4.59
1994 278,220 100% $990,796 $ 3.77
1995 278,220 100% $1,001,121 $ 3.60
Office/Warehouse Buildings in Phoenix, AZ
1991 109,930 88% $616,796 $ 6.78
1992 109,930 82% $586,336 $ 6.56
1993 109,930 80% $797,135 $ 8.90
1994 109,930 89% $799,675 $ 8.61
1995 109,930 98% $897,490 $ 8.40
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</TABLE>
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Industrial Building in Brea, CA
1991 218,520 100% $736,034 $ 3.39
1992 218,520 0% $790,986 $ 0.00
1993 218,520 70% $161,378 $ 4.25
1994 218,520 100% $882,870 $ 4.75
1995 218,520 100% $949,389 $ 4.34
Shopping Center in Salinas, CA
1991 125,247 94% $1,789,475 $15.29
1992 125,247 89% $1,748,287 $15.47
1993 125,247 92% $1,759,243 $10.72
1994 125,247 90% $1,874,676 $16.45
1995 125,247 91% $1,657,425 $14.31
Office/Retail/Industrial Buildings in Las Vegas, NV
1991 N/A N/A N/A N/A
1992 173,469 76% $654,064 $ 5.89
1993 173,469 98% $1,199,317 $ 7.13
1994 173,574 92% $1,453,205 $ 8.81
1995 173,574 95% $1,395,445 $ 8.35
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</TABLE>
Note: N/A for commercial properties indicates property was not constructed as of
this date.
* Net Effective Rent calculation is based on average occupancy during the
respective years.
<PAGE>
Following is a schedule of lease expirations for each of the next ten years
for the Partnership's properties based on the annual contract rent in effect at
December 31, 1995:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TENANT AGING REPORT
- -----------------------------------------------------------------------------------
Property # of Lease Total Total Percentage of
Expirations Square Feet Annual Contract Gross Annual
Rent Rental*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office/ R&D Buildings in Columbia, MD
1996 1 6,909 $56,447 3%
1997 3 53,008 $466,595 30%
1998 1 8,781 $93,079 6%
1999 2 32,570 $270,248 17%
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 1 45,951 $411,261 26%
2005 1 31,316 $281,844 18%
Land in Germantown, MD
1996 N/A N/A N/A N/A
1997 N/A N/A N/A N/A
1998 N/A N/A N/A N/A
1999 N/A N/A N/A N/A
2000 N/A N/A N/A N/A
2001 N/A N/A N/A N/A
2002 N/A N/A N/A N/A
2003 N/A N/A N/A N/A
2004 N/A N/A N/A N/A
2005 N/A N/A N/A N/A
Warehouse Building in Fontana, CA
1996 1 20,880 $74,400 9%
1997 0 0 $0 0%
1998 1 84,660 $223,200 26%
1999 0 0 $0 0%
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 1 172,972 $554,724 65%
2004 0 0 $0 0%
2005 0 0 $0 0%
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office/Warehouse Buildings in Phoenix, AZ
1996 7 21,344 $140,089 17%
1997 2 8,415 $52,864 7%
1998 7 28,339 $227,445 28%
1999 2 15,745 $135,363 17%
2000 3 34,274 $250,490 31%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
Industrial Building in Brea, CA
1996 0 0 $0 0%
1997 0 0 $0 0%
1998 1 65,944 $221,572 32%
1999 0 0 $0 0%
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 1 152,576 $461,960 68%
2005 0 0 $0 0%
Shopping Center in Salinas, CA (1)
1996 4 5,668 $87,500 6%
1997 2 3,590 $52,482 4%
1998 5 11,258 $161,727 12%
1999 1 1,140 $21,135 2%
2000 6 17,313 $336,296 25%
2001 2 19,648 $220,785 16%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
Office/Retail/Industrial Buildings in Las Vegas, NV
1996 3 18,113 $122,673 9%
1997 2 16,043 $89,081 7%
1998 5 36,867 $431,382 33%
1999 1 13,513 $97,932 8%
2000 5 59,806 $402,039 31%
2001 2 20,301 $155,713 12%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
- --------------------------------------------------------------------------------
</TABLE>
* Does not include expenses paid by tenants.
Note: N/A denotes that the disclosure is not applicable based on the nature of
the property.
(1) Remaining leases expire beyond 2005.
<PAGE>
The following table sets forth for each of the Partnership's properties
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect
to each property or component thereof for purposes of depreciation:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Rate of Life Accumulated
Entity / Property Tax Basis Depreciation Method in years Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Office/Research and Development Buildings,
Columbia, MD
- ------------------------------------------
Land Improvements $ 94,022 10.00% 150% DB 15 $ 28,050
Land Improvements 3,092,260 2.56% SL 39 30,296
Building & Improvements 7,829,962 3.18% SL 31.5 1,282,640
----------- ----------
Total Depreciable Assets 11,016,244 1,340,986
Office/Warehouse Buildings, Phoenix, AZ
- ------------------------------------------
Building & Improvements 4,325,469 3.18% SL 31.5 731,753
Building & Improvements 81,423 2.56% SL 39 627
----------- ----------
Total Depreciable Assets 4,406,892 732,380
Warehouse Building, Fontana, CA
- ------------------------------------------
Building & Improvements 5,135,156 2.50% SL 40 717,576
----------- ----------
Total Depreciable Assets 5,135,156 717,576
Industrial Building, Brea, CA
- ------------------------------------------
Building & Improvements 7,976,123 3.18% SL 31.5 1,808,668
Building Improvements 771,373 2.56% SL 39 38,109
----------- ----------
Total Depreciable Assets 8,747,496 1,846,777
Office/Industrial and Commercial
Buildings, Las Vegas, NV
- ------------------------------------------
Building & Improvements 8,637,020 3.18% SL 31.5 1,349,431
Tenant Improvements 301,416 2.56% SL 39 24,086
----------- ----------
Total Depreciable Assets 8,938,436 1,373,517
Land, Germantown, MD
- ------------------------------------------
No Depreciable Property 0 0.00% 0
----------- ----------
Total Depreciable Assets 0 0
Shopping Center, Salinas, CA
- ------------------------------------------
Building & Improvements 8,989,174 3.18% SL 31.5 1,167,433
----------- ----------
Total Depreciable Assets 8,989,174 1,167,433
Total Depreciable Assets $47,233,398 $7,178,669
=========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SL= Straight Line
DB= Declining Balance
<PAGE>
Following is information regarding the competitive market conditions for
each of the Partnership's properties. This information has been gathered from
sources deemed reliable. However, the Partnership has not independently verified
the information and, as such, cannot guarantee its accuracy or completeness.
Industrial Buildings in Brea, California
- ----------------------------------------
This property is located within the Orange County industrial market,
consisting of 230 million square feet. Brea is a desirable industrial location
due to its close proximity to Los Angeles County and the central portion of
Orange County. The property more specifically is located within the North Orange
County industrial submarket, which has an inventory of 101 million square feet,
or 44% of the total Orange County market. As of September 30, 1995 the North
Orange County vacancy rate was 8%, down slightly from the 11% vacancy rate
reported one year ago and 13% two years ago. While a small amount of speculative
construction occurred in 1995, most of the construction related to build-to-suit
contracts. As a result of the low vacancy and minimal speculative construction,
overall industrial rental rates have stabilized. Rental rates on quality
buildings have begun to increase.
Shopping Center in Salinas, California
- --------------------------------------
This property is located in Salinas, a strong retail community known as the
commercial center for much of Monterey County. There are nearly 3.6 million
square feet of major shopping centers in Salinas, and for the approximately 2
million square feet that directly competes with this property, overall vacancy
was 2% as of December 31, 1995, the same as one year ago. Occupancy and market
rents are stable, although an additional 1 million square feet currently under
construction in the Salinas area may negatively impact achievable rents at the
property until the newly completed space is leased.
Office/Research and Development Buildings in Columbia, Maryland
- ---------------------------------------------------------------
The Howard County R&D market contains approximately 3.2 million square feet
and exhibited a vacancy rate of 10% as of December 31, 1995. The 10% vacancy
rate is a strong improvement from the 1990-to-1993 period when the vacancy rate
hovered in the 22% to 24% range.
Office/Warehouse Buildings in Phoenix, Arizona
- ----------------------------------------------
This property is located in the metropolitan Phoenix market which has an
inventory of approximately 142 million square feet of industrial space, of which
6% was vacant as of year end 1995, compared to the 7% and 12% vacancy rates as
of December 31, 1994 and 1993, respectively. The office market, consisting of 39
million square feet, was 11% vacant at year end 1995 compared to 1993 and 1994
vacancies of 20% and 13%, respectively. Rental rates in the Phoenix area
continue to increase.
Warehouse Building in Fontana, California
- -----------------------------------------
This property is located within the greater Los Angeles industrial market,
consisting of 950 million square feet. More specifically, the property is
located within the Inland Empire industrial market, which consists of 113
million square feet, or 12% of the total Los Angeles industrial market. As of
September 30, 1995, the Inland Empire industrial vacancy rate was approximately
8% as compared to the 11% vacancy level reported a year earlier. Similar to
other areas of southern California, a small amount of speculative construction
occurred in 1995, although most of the construction related to build-to-suit
contracts. Low vacancy and minimal speculative construction have resulted in the
stabilization of rental rates. Rental rates on quality buildings have begun to
increase.
Office/Industrial/Retail Buildings in Las Vegas, Nevada
- -------------------------------------------------------
The healthy business climate of Las Vegas, fueled by the gaming and service
industries, is responsible for a strong industrial market, which exhibits a low
vacancy rate of approximately 2% on a base inventory of 38 million square feet.
Rental rates have increased over the past year and most free rent concessions
have been eliminated. Given the low vacancy level, new construction in all
product types and sizes is underway.
<PAGE>
Item 3. Legal Proceedings.
-----------------
The Partnership is not a party to, nor are any of its properties subject
to, any material pending legal proceedings. A tenant of one of the Partnership's
properties has sued the Partnership for breach of the lease. See Item 1.E.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is sporadic
and occurs solely through private transactions.
As of December 31, 1995, there were 13,127 holders of Units.
The Partnership's Amended and Restated Agreement of Limited Partnership
dated July 23, 1987, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
Partners in specified proportions and priorities. There are no restrictions on
the Partnership's present or future ability to make distributions of
Distributable Cash. Cash distributions paid in 1995 or distributed after year
end with respect to 1995 to the Limited Partners as a group totaled $6,389,408,
including $2,313,164 of returned capital from the proceeds of two property
sales. Cash distributions paid in 1994 or distributed after year end with
respect to 1994 to the Limited Partners as a group totaled $7,229,361, including
$3,968,640 of returned capital from the proceeds of property sales.
Cash distributions exceeded net income in 1995 and, therefore, resulted in
a reduction of partners' capital. However, operating cash distributions were
less than net cash provided by operating activities. Reference is made to the
Partnership's Statement of Changes in Partners' Capital (Deficit) and Statement
of Cash Flows in Item 8 hereof.
<PAGE>
Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
For Year For Year For Year For Year For Year
Ended or Ended or Ended or Ended or Ended
as of as of as of as of or as of
12/31/95(1) 12/31/94(2) 12/31/93(3) 12/31/92 12/31/91
----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,522,086 $ 6,096,743 $ 3,190,972 $ 2,903,022 $ 3,694,781
Net Income $ 2,248,715 $ 3,375,406 $ 50,380 $ 1,523,145 $ 1,463,293
Net Income
per Weighted
Average
Limited
Partnership
Unit $ 26.96 $ 40.42 $ .60 $ 18.21 $ 17.43
Total Assets $60,535,231 $64,530,075 $69,345,524 $71,637,001 $72,837,931
Total Cash
Distributions
per Limited
Partnership
Unit outstanding
for the entire
period, including
amounts distributed
after year end with
respect to the
previous year $ 77.36 $ 87.44 $ 32.50 $ 28.75 $ 40.00
<FN>
(1) During 1995, the Partnership recorded a valuation provision on one property
totaling $600,000 ($7.19 per Weighted Average Limited Partnership Unit).
Cash distributions include a return of capital of $28 per Unit.
(2) During 1994, the Partnership recorded a valuation provision on one property
totaling $1,400,000 ($16.76 per Weighted Average Limited Partnership Unit).
Net income also includes a gain of $1,790,470 recognized on the sale of two
investments. Cash distributions include a return of capital of $48 per
Unit.
(3) During 1993, the Partnership recorded a valuation provision on two
properties totaling $2,000,000 ($23.93 per Weighted Average Limited
Partnership Unit).
</FN>
</TABLE>
<PAGE>
Item 7
- ------
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Liquidity and Capital Resources
The Partnership completed its offering of units of limited partnership
interest in December 1988. A total of 83,291 units were sold. The Partnership
received proceeds of $74,895,253, net of selling commissions and other offering
costs, which have been used for investment in real estate, for the payment of
related acquisition costs and for working capital reserves. The Partnership made
the real estate investments described in Item 1 herein. Two investments have
been sold; one in June 1994 and the other in August 1994.
As a result of the sales, capital of $6,281,804 has been returned to the
limited partners through December 31, 1995. On September 15, 1994, the
Partnership made a capital distribution of $48 per limited partnership unit,
which reduced the adjusted capital contribution to $952 from $1,000 per unit. A
capital distribution in July 1995 of $28 per limited partnership unit further
reduced the adjusted capital contribution to $924. A portion of the sales
proceeds was used to pay previously accrued, but deferred, management fees to
the advisor ($183,426 in 1995 and $1,259,988 in 1994).
At December 31, 1995, the Partnership had $11,655,405 in cash, cash
equivalents and short-term investments, of which $1,011,274 was used for cash
distributions to partners on January 25, 1996; the remainder will be used to
complete the funding of real estate investments or be retained as working
capital reserves. The source of future liquidity or cash distributions to
partners will be cash generated by the Partnership's real estate and short-term
investments. Quarterly distributions of cash from operations relating to 1995
and 1994 were made at the annualized rate of 5.25% and 4%, respectively, on the
weighted average adjusted capital contribution during the period. The
distribution rate was increased due to the stabilization of property operations
and the attainment of appropriate cash reserve levels.
The Partnership maintains a fund for the purpose of repurchasing limited
partnership units pursuant to the terms and conditions set forth in the
Partnership Agreement. Two percent of cash flow, as defined, is designated for
this fund which had a balance of $32,572 and $4,447 at December 31, 1995 and
1994, respectively. Through December 31, 1995, the Partnership had repurchased
and retired 755 limited partnership units for an aggregate cost of $729,132.
The carrying value of real estate investments in the financial statements
at December 31, 1995 is at depreciated cost, or if the investment's carrying
value is determined not to be recoverable through expected undiscounted future
cash flows, the carrying value is reduced to estimated fair market value. The
fair market value of such investments is further reduced by the estimated cost
of sale for properties held for sale. Carrying value may be greater or less than
current appraised value. At December 31, 1995, the appraised value of certain
investments exceeded the related carrying values by an aggregate of
approximately $4,900,000, and the remaining investments had carrying values
which exceeded their appraised values by a total of approximately $2,400,000.
The current appraised value of real estate investments has been estimated by the
Managing General Partner and is generally based on a combination of traditional
appraisal approaches performed by the Partnership's advisor and independent
appraisers. Because of the subjectivity inherent in the valuation process, the
estimated
<PAGE>
current appraised value may differ significantly from that which could be
realized if the real estate were actually offered for sale in the marketplace.
Results of Operations
- ---------------------
Form of Real Estate Investments
Effective January 1, 1995, Palms Business Center joint venture was
restructured and the venture partner's ownership interest was assigned to the
Partnership. Effective August 1, 1995 and September 1, 1995, respectively, the
Santa Rita Plaza and Dahlia joint venture investments were restructured to grant
the Partnership control over management decisions. Accordingly, these
investments have been accounted for as wholly-owned properties since those
dates. The Puente Street investment is also a wholly-owned property. The other
three investments in the portfolio are structured as joint ventures with real
estate development/management firms. The C.S. Graham and Lakewood Apartments
investments, which were sold in 1994, were also joint ventures.
Operating Factors
Occupancy at University Business Park was at 98% at December 31, 1995, an
increase from 89% at December 31, 1994 and 80% a year earlier. Rental rates are
increasing and occupancy levels have remained high as the Phoenix market appears
to have stabilized.
Overall occupancy at the Columbia Gateway Corporate Park remained at 92% at
December 31, 1995, unchanged from the preceding year end. Construction of a
46,000 square foot build-to-suit facility was completed during the third quarter
of 1994 and the tenant assumed occupancy on September 1, 1994. Occupancy was 73%
at December 31, 1993.
Occupancy at Puente Street has been 100% since the first quarter of 1994.
Prior to that date, occupancy was at 70%. Notwithstanding the improvement in
leasing, the carrying value of this investment was reduced in 1993 and 1994 to
estimated net realizable value, due to depressed market conditions.
During 1995, the joint venture undertook a number of feasibility studies of
alternative development plans for the Waters Landing II site. Based on the
results, it was determined that it is not in the best interest of the limited
partners to develop this site. Accordingly, the carrying value was reduced to
estimated fair market value less cost of sale.
Occupancy increased from 92% to 95% at the Palms Business Center III and IV
during 1995. Occupancy was 98% at December 31, 1993. The majority of the tenants
are renewing leases upon their expirations, and as a result of demand, rents are
increasing.
Occupancy at the Dahlia property remained at 100% during 1995. It was 89%
at December 31, 1993. The market conditions for industrial space in this area of
California are improving.
Santa Rita Plaza was 91% leased at December 31, 1995, which approximated
the occupancy over the past three years. While occupancy at the Plaza has been
high, performance has been affected by tenant delinquencies and turnover due to
business failures.
<PAGE>
Investment Results
Interest on short-term investments and cash equivalents increased
significantly in 1994 as compared to 1993, and again in 1995, due to both an
increase in interest rates and a higher average investment balance resulting
from the temporary investment of proceeds from the C.S. Graham and Lakewood
sales.
Significant Transactions
The Managing General Partner determined during the second quarter of 1995
not to develop the Waters Landing II site. Accordingly, the carrying value of
this investment was reduced to its estimated fair market value less cost of sale
with a $600,000 charge to operations. As a result of depressed market
conditions, the Managing General Partner has determined that the carrying value
of the Puente Street investment should be reduced to estimated net realizable
value through a charge to operations of $1,500,000 in 1993 and further reduced
in 1994 by $1,400,000. During 1993, the Managing General Partner also reduced
the carrying value of Columbia Gateway Corporate Park to its estimated net
realizable value which resulted in an investment valuation allowance of
$500,000.
The gains recognized by the Partnership in 1994 on the sale of the C.S.
Graham and Lakewood properties were $409,982 and $1,380,488, respectively. An
additional $6,209 was received in 1995 in final settlement of the Lakewood sale.
1995 Compared to 1994
Exclusive of the investment valuation allowances, the gain on sales of
property by joint ventures and the operating results from C.S. Graham and
Lakewood Apartments recognized in 1994 ($273,429), total real estate operations
were $2,828,940 in 1995 and $2,733,686 in 1994. Operating income increased at
Puente Street ($303,000) and Columbia Gateway Park ($127,000). The improvement
at Puente Street results from the lease-up of the property during the first
quarter of 1994. The improvement at Columbia Gateway Park is due to improvements
in rental income. These increases were partially offset by a decline in net
operating income at Santa Rita Plaza ($275,000) due to tenant delinquencies and
turnover due to business failures. Net operating income also decreased at Palms
Business Center III and IV and at University Business Park due to costs
associated with tenant turnover in advance of lease expirations.
Exclusive of operating distributions from Lakewood Apartments and C.S.
Graham ($358,198) during 1994, cash flow from operations increased from
$2,128,608 to $4,738,007. Cash flow from operations in 1994 included two
significant transactions. The Partnership paid $1,259,988 of the previously
accrued, but deferred management fee to the advisor. In addition, the
Partnership granted rental concessions and paid a lease commission related to
the new tenant at Puente Street, which totalled $410,000. The balance of the
increase in cash flow from operations primarily stems from the assumption of
joint venture cash balances in connection with the three ownership
restructurings and from decreases in working capital items.
<PAGE>
1994 Compared to 1993
Operating income from Puente Street increased significantly between 1994
and 1993, with the lease-up of the property.
Exclusive of the operating results from C.S. Graham, Lakewood and Puente
Street, joint venture earnings were $2,499,676 in 1994 and $2,126,010 in 1993.
This $373,666 or 18% increase resulted from improved operating results at all of
the joint venture projects. Columbia Gateway Corporate Park improved by
approximately $123,000, due to an increase in rental revenue of $50,000 and a
decrease in expenses of $73,000. Dahlia improved by approximately $62,000, due
to a decrease in property operating expenses of $103,000 which was partially
offset by a decrease in rental revenue of $42,000 (although rental revenue in
1993 included $300,000 from a settlement of past due rents from a former
tenant). Palms Business Center III and IV, Santa Rita Plaza and University
Business Park also improved by approximately $57,000, $68,000 and $62,000,
respectively.
Exclusive of operating cash flow from Lakewood and C.S. Graham of $358,198
in 1994 and $331,453 in 1993, operating cash flow increased by $713,946 or 50%
between the respective years. In addition to the effect of improved operating
results, cash flow increased during 1994 as a result of the timing of cash
distributions to the Partnership from certain joint ventures which had been
retaining additional working capital reserves. This reduction in working capital
reserves was most notable at Palms Business Center III and IV ($950,000), Dahlia
($630,000) and Columbia Gateway Corporate Park ($150,000). These increases were
partially offset by the payment of deferred, but previously accrued, management
fees to the advisor ($1,259,988). Operating cash flow at Puente Street declined
due primarily to the payment of lease commissions. Also, cash flow at University
Business Park declined by approximately $175,000 due to timing of distributions.
Portfolio Expenses
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the Managing General Partner. General and administrative expenses
consist primarily of real estate appraisal, printing, legal, accounting and
investor servicing fees.
1995 Compared to 1994
The Partnership management fee increased due to an increase in
distributable cash flow from operations. General and administrative expenses
increased $57,459 or 21%, primarily due to an increase in legal costs associated
with the various joint venture restructurings.
1994 Compared to 1993
The Partnership management fee increased due to an increase in
distributable cash flow. General and administrative expenses increased $30,453
or 13%, primarily due to professional and servicing fees.
<PAGE>
Inflation
- ---------
By their nature, real estate investments tend not to be adversely affected
by inflation. Inflation may result in appreciation in the value of the
Partnership's real estate investments over time if rental rates and replacement
costs increase. Declines in real property values during the period of
Partnership operations, due to market and economic conditions, have overshadowed
the positive effect inflation may have on the value of the Partnership's
investments.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
See the Financial Statements of the Partnership included as a part of this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
(a) and (b) Identification of Directors and Executive Officers.
--------------------------------------------------
The following table sets forth the names of the directors and executive
officers of the Managing General Partner and the age and position held by each
of them as of December 31, 1995.
<TABLE>
<CAPTION>
Name Position(s) with the Managing General Partner Age
- ---- --------------------------------------------- ---
<S> <C> <C>
Joseph W. O'Connor President, Chief Executive Officer and Director 49
Daniel J. Coughlin Managing Director and Director 43
Peter P. Twining Managing Director, General Counsel and Director 49
Wesley M. Gardiner, Jr. Vice President 37
Daniel C. Mackowiak Principal Financial and Accounting Officer 44
</TABLE>
Mr. O'Connor and Mr. Coughlin have served in an executive capacity since
the organization of the Managing General Partner on October 23, 1986. Mr.
Gardiner and Mr. Twining have served in their capacities since June 1994, and
Mr. Mackowiak has served in his capacity as of January 1, 1996. All of these
individuals will continue to serve in such capacities until their successors are
elected and qualified.
(c) Identification of Certain Significant Employees.
-----------------------------------------------
None.
(d) Family Relationships.
--------------------
None.
(e) Business Experience.
-------------------
The Managing General Partner was incorporated in Massachusetts on
October 23, 1986. The background and experience of the executive officers and
directors of the Managing General Partner are as follows:
Joseph W. O'Connor has been President, Chief Executive Officer and a
Director of Copley Real Estate Advisors, Inc. ("Copley") since January, 1982. He
was a Principal of Copley from 1985 to 1987 and has been a Managing Director of
Copley since January 1, 1988. He has been active in real estate for 27 years.
From June, 1967, until December, 1981, he was employed by New England Mutual
Life Insurance Company ("The New England"), most recently as a Vice President in
which position he was responsible for The New England's real estate portfolio.
He received a B.A. from Holy Cross College and an M.B.A. from Harvard Business
School.
Daniel J. Coughlin was a Principal of Copley from 1985 to 1987 and has been
a Managing Director of Copley since January 1, 1988 and a Director of Copley
since July 1994. Mr. Coughlin has been active in financial management and
control for 21 years. From June, 1974 to December, 1981, he was a Real Estate
Administration Officer in the Investment Real Estate Department at The New
England. Since January, 1982, he has been in charge of the asset management
division of Copley. Mr. Coughlin is a Certified Property Manager and a licensed
real estate broker. He received a B.A. from Stonehill College and an M.B.A. from
Boston University.
Peter P. Twining is a Managing Director and General Counsel of Copley. As
such, he is responsible for general legal oversight and policy with respect to
Copley and its investment portfolios. Before being promoted to
<PAGE>
this position in January 1994, he was a Vice President/Principal and senior
lawyer responsible for assisting in the oversight and management of Copley's
legal operations. Before joining Copley in 1987, he was a senior member of the
Law Department at The New England and was associated with the Boston law firm,
Ropes and Gray. Mr. Twining is a graduate of Harvard College and received his
J.D. in 1979 from Northeastern University.
Wesley M. Gardiner, Jr. joined Copley in 1990 and has been a Vice President
at Copley since January, 1994. From 1982 to 1990, he was employed by Metric
Realty, a nationally-known real estate investment advisor and syndication firm,
as a portfolio manager responsible for several public and private limited
partnerships. His career at Copley has included asset management responsibility
for the company's Georgia and Texas holdings. Presently, as a Vice President and
Team Leader, Mr. Gardiner has overall responsibility for all the partnerships
advised by Copley whose securities are registered under the Securities and
Exchange Act of 1934. He received a B.A. in Economics from the University of
California at San Diego.
Daniel C. Mackowiak has been a Vice President of Copley since January 1989
and has been a Vice President and the Principal Financial and Accounting Officer
of the Managing General Partner since January 1996. Mr. Mackowiak previously
held the offices of Chief Accounting Officer of Copley from January 1989 through
April 1994 and Vice President and Principal Financial and Accounting Officer of
the Managing General Partner between January 1989 and May 1994. From 1975 until
joining Copley, he was employed by the public accounting firm of Price
Waterhouse, most recently as a Senior Audit Manager. He is a certified public
accountant and has been active in the field of accounting his entire business
career. He received a B.S. from Nichols College and an M.B.A. from Cornell
University.
Mr. O'Connor is a director of Copley Properties, Inc., a Delaware
corporation organized as a real estate investment trust which is listed for
trading on the American Stock Exchange. None of the other directors of the
Managing General Partner is a director of a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934. All of
the directors and officers of the Managing General Partner also serve as
directors and officers of one or more corporations which serve as general
partners of publicly-traded real estate limited partnerships which are
affiliated with the Managing General Partner.
(f) Involvement in Certain Legal Proceedings.
----------------------------------------
None.
Item 11. Executive Compensation.
----------------------
Under the Partnership Agreement, the General Partners and their affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Note 1, Note 2 and Note 6 of Notes to Financial Statements.
The following table sets forth the amounts of the fees and cash distributions
and reimbursements for out-of-pocket expenses which the Partnership paid to or
accrued for the account of the General Partners and their affiliates for the
year ended December 31, 1995. Cash distributions to General Partners include
amounts distributed after year end with respect to 1995.
<TABLE>
<CAPTION>
Amount of
Compensation
and
Receiving Entity Type of Compensation Reimbursement
- ---------------- -------------------- -------------
<S> <C> <C>
General Partners Share of Distributable Cash $ 41,174
Copley Real Estate Advisors, Inc. Management Fees and 427,298
Reimbursement of Expenses
New England Securities Corporation Servicing Fees plus out-of- 16,774
pocket reimbursements
---------
TOTAL $ 485,246
=========
</TABLE>
For the year ended December 31, 1995 the Partnership allocated $31,706
taxable income to the General Partners.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners.
-----------------------------------------------
No person or group is known by the Partnership to be the beneficial owner
of more than 5% of the outstanding Units at December 31, 1995. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain opinions
of counsel or judicial decisions.
Except as expressly provided in the Partnership Agreement, the right to
manage the business of the Partnership is vested exclusively in the Managing
General Partner.
(b) Security Ownership of Management.
--------------------------------
The General Partners of the Partnership owned no Units at December 31,
1995.
(c) Changes in Control.
------------------
There exists no arrangement known to the Partnership the operation of which
may at a subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The Partnership has no relationships or transactions to report other than
as reported in Item 11, above.
PART IV
-------
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.
-------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedule are filed as part of
this Annual Report.
(2) Financial Statement Schedule - The Financial Statement Schedule
listed on the accompanying Index to Financial Statements and Schedule are filed
as part of this Annual Report.
(3) Exhibits--The Exhibits listed in the accompanying Exhibit Index
are filed as a part of this Annual Report and incorporated in this Annual Report
as set forth in said Index.
(b) Reports on Form 8-K. During the last quarter of the year ending
December 31, 1995, the Partnership filed no Current Reports on Form 8-K.
<PAGE>
New England
Pension Properties V;
A Real Estate Limited Partnership
Financial Statements
* * * * * * * *
December 31, 1995
<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
---------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants ................................................................
Financial Statements:
Balance Sheet - December 31, 1995 and 1994 ............................................
Statement of Operations - Years ended December 31, 1995, 1994
and 1993 ..........................................................................
Statement of Changes in Partners' Capital (Deficit) - Years ended
December 31, 1995, 1994 and 1993 ..................................................
Statement of Cash Flows - Years ended December 31, 1995, 1994
and 1993 ..........................................................................
Notes to Financial Statements .........................................................
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1995 .................................................................
</TABLE>
<PAGE>
Report of Independent Accountants
---------------------------------
To the Partners
New England Pension Properties V;
A Real Estate Limited Partnership
In our opinion, based upon our audits and the reports of other auditors, the
financial statements listed in the accompanying index present fairly, in all
material respects, the financial position of New England Pension Properties V; A
Real Estate Limited Partnership (the "Partnership") at December 31, 1995 and
1994, and the results of its operation and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Fifth Copley Corp., the Managing General Partner of the
Partnership; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of the
Partnership's investments in Santa Rita Plaza, Palms Business Center III and IV,
and Dahlia for the years ended December 31, 1995, 1994 and 1993. Operating
income for these investments aggregated $1,594,233 for the year ended December
31, 1995, and equity in joint venture income aggregated $2,200,515 and
$2,014,952 for the years ended December 31, 1994 and 1993. We also did not audit
the financial statements of the Partnership's investment in Puente Street for
the year ended December 31, 1995. Operating income for this investment totalled
$784,895 for the year ended December 31, 1995. We also did not audit the
financial statements of the Partnership's Columbia Gateway Corporate Park joint
venture investee for the year ended December 31, 1995, which results of
operations are recorded using the equity method of accounting in the
Partnership's financial statements. Equity in joint venture income for this
venture was $371,986 for the year ended December 31, 1995. We also did not audit
the financial statements of the Partnership's Lakewood joint venture investee
for the year ended December 31, 1993, which results of operations are recorded
using the equity method of accounting in the Partnership's financial statements.
Equity in joint venture income for this venture was $274,968 for the year ended
December 31, 1993. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for operating income and equity in joint
venture income for Santa Rita Plaza, Palms Business Center III and IV, and
Dahlia for the years ended December 31, 1995, 1994 and 1993, for Puente Street
for the year ended December 31, 1995, and for Lakewood for the year ended
December 31, 1993, is based solely on the reports of the other auditors. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by the Managing
General Partner, and evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors for the years ended
December 31, 1995, 1994 and 1993 provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Boston, Massachusetts
March 11, 1996
<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
Assets
Real estate investments:
Property, net $ 37,058,053 $ 9,861,784
Joint ventures 11,821,773 40,779,263
---------------- ----------------
48,879,826 50,641,047
Cash and cash equivalents 3,790,598 8,975,244
Short-term investments 7,864,807 4,913,784
--------------- ----------------
$ 60,535,231 $ 64,530,075
=============== ================
Liabilities and Partners' Capital
Accounts payable $ 120,505 $ 116,660
Accrued management fees 50,008 39,295
Deferred management and disposition fees 368,161 347,978
--------------- ----------------
Total liabilities 538,674 503,933
--------------- ----------------
Commitments to fund real estate investments
Partners' capital (deficit):
Limited partners ($924 and $952 per unit,
respectively; 160,000 units authorized, 82,536
and 82,613 issued and outstanding, respectively) 60,073,461 64,086,525
General partners (76,904) (60,383)
--------------- ---------------
Total partners' capital 59,996,557 64,026,142
--------------- ----------------
$ 60,535,231 $ 64,530,075
=============== ================
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Investment Activity
Property rentals $ 3,400,015 $ 937,006 $ 161,378
Interest income on loan to ground lessor 63,455 -- --
Property operating expenses (839,565) (315,857) (332,190)
Ground rent expense (162,500) -- --
Depreciation and amortization (937,015) (410,119) (300,625)
-------------- -------------- --------------
1,524,390 211,030 (471,437)
Joint venture earnings 1,304,550 2,796,085 2,626,535
Investment valuation allowances (600,000) (1,400,000) (2,000,000)
-------------- -------------- --------------
Total real estate operations 2,228,940 1,607,115 155,098
Gain on sales of property by joint ventures 6,209 1,790,470 --
-------------- -------------- --------------
Total real estate activity 2,235,149 3,397,585 155,098
Interest on cash equivalents
and short-term investments 747,857 573,182 403,059
-------------- -------------- --------------
Total investment activity 2,983,006 3,970,767 558,157
-------------- -------------- --------------
Portfolio Expenses
Management fee 407,217 325,746 268,615
General and administrative 327,074 269,615 239,162
-------------- -------------- --------------
734,291 595,361 507,777
-------------- -------------- --------------
Net Income $ 2,248,715 $ 3,375,406 $ 50,380
============== ============== ==============
Net income per weighted average limited
partnership unit $ 26.96 $ 40.42 $ .60
============== ============== ==============
Cash distributions per limited partnership
unit outstanding for the entire year $ 74.75 $ 87.92 $ 28.75
============== ============== ==============
Weighted average number of limited
partnership units outstanding during
the year 82,582 82,675 82,735
============== ============== ==============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ---------------------------- -----------------------------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $(60,383) $ 64,086,525 $(60,791) $ 68,092,152 $(37,266) $ 70,476,074
Repurchase of limited
partnership units -- (64,360) -- (77,384) -- (54,944)
Cash distributions (39,008) (6,174,932) (33,346) (7,269,895) (24,029) (2,378,854)
Net income 22,487 2,226,228 33,754 3,341,652 504 49,876
-------- ------------ -------- ------------ -------- ------------
Balance at end of year $(76,904) $ 60,073,461 $(60,383) $ 64,086,525 $(60,791) $ 68,092,152
======== ============ ======== ============ ======== ============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,248,715 $ 3,375,406 $ 50,380
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 937,015 410,119 300,625
Gain on sales of property by joint ventures (6,209) (1,790,470) --
Investment valuation allowances 600,000 1,400,000 2,000,000
Increase in deferred lease commissions (85,768) (649,813) (395,376)
Equity in joint venture earnings (1,304,550) (2,796,085) (2,626,535)
Cash distributions from joint
ventures 1,850,619 3,930,364 1,933,568
Decrease (increase) in investment
income receivable 16,323 44,546 (66,835)
Decrease (increase) in property
working capital 447,121 (359,316) 434,318
Payment of deferred management fee (183,426) (1,259,988) --
Increase in operating liabilities 218,167 182,043 115,970
----------- ------------ -----------
Net cash provided by operating
activities 4,738,007 2,486,806 1,746,115
----------- ------------ -----------
Cash flows from investing activities:
Return of capital from joint venture 1,305,765 -- 195,000
Net proceeds from sale of investments 6,209 7,749,728 --
Deferred disposition fees -- 267,715 --
Investment in joint ventures (138,242) (790,209) (318,206)
Investments in property (100,739) (292,614) (484,578)
Loan to ground lessor (1,750,000) -- --
Decrease (increase) in short-term
investments, net (2,967,346) 3,691,279 (1,888,745)
----------- ------------ -----------
Net cash provided by (used in)
investing activities (3,644,353) 10,625,899 (2,496,529)
----------- ------------ -----------
Cash flows from financing activities:
Distributions to partners (6,213,940) (7,303,241) (2,402,883)
Repurchase of limited partnership units (64,360) (77,384) (54,944)
----------- ------------ -----------
Net cash used in financing activities (6,278,300) (7,380,625) (2,457,827)
----------- ------------ -----------
Net increase (decrease) in cash and cash
equivalents (5,184,646) 5,732,080 (3,208,241)
Cash and cash equivalents:
Beginning of year 8,975,244 3,243,164 6,451,405
----------- ------------ -----------
End of year $ 3,790,598 $ 8,975,244 $ 3,243,164
=========== ============ ===========
</TABLE>
<PAGE>
Non-cash transactions:
Three of the Partnership's joint venture investments were converted to
wholly-owned properties in 1995. The carrying value of these investments at
their respective conversion dates totalled $27,938,099.
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and Business
- ----------------------------------
General
New England Pension Properties V; A Real Estate Limited Partnership (the
"Partnership") is a Massachusetts limited partnership organized for the purpose
of investing primarily in to-be-developed, newly constructed and existing
income-producing real properties. It primarily serves as an investment for
qualified pension and profit sharing plans and other entities intended to be
exempt from federal income tax. The Partnership commenced operations in May
1987, and acquired the seven real estate investments it currently owns prior to
the end of 1989. It intends to dispose of its investments within twelve years of
their acquisition, and then liquidate.
The Managing General Partner of the Partnership is Fifth Copley Corp., a
wholly-owned subsidiary of Copley Real Estate Advisors, Inc. ("Copley"). The
associate general partner is ECOP Associates Limited Partnership, a
Massachusetts limited partnership, the general partners of which are managing
directors of Copley and/or officers of the Managing General Partner. Subject to
the Managing General Partner's overall authority, the business of the
Partnership is managed by Copley pursuant to an advisory contract. Copley is an
indirect wholly-owned subsidiary of New England Investment Companies, L.P.
("NEIC"), a publicly traded limited partnership. New England Mutual Life
Insurance Company ("The New England"), the parent of NEIC's predecessor, is
NEIC'S principal unitholder. In August 1995, The New England announced an
agreement to merge (the "Merger") with Metropolitan Life Insurance Company
("Metropolitan Life"), with Metropolitan Life to be the surviving entity. This
merger, which is subject to various policyholder and regulatory approvals, is
expected to take place in the first half of 1996. Metropolitan Life is the
second largest life insurance company in the United States in terms of total
assets, having assets of over $130 billion (and adjusted capital of over $8
billion) as of June 30, 1995 .
The Partnership maintains a repurchase fund for the purpose of repurchasing
limited partnership units. Two percent of cash flow, as defined, is designated
for this fund which had a balance of $32,572 and $4,447 at December 31, 1995 and
1994, respectively. Through December 31, 1995 and 1994, the Partnership had
repurchased and retired 755 units and 678 units, respectively.
Management
Copley, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash flow from operations, as defined, before deducting such fees.
Payment of 50% of management fees is deferred until cash distributions to
limited partners exceed a specified rate or until payable from sales proceeds.
Copley is also reimbursed for expenses incurred in connection with administering
the Partnership ($20,081 in 1995, $15,322 in 1994, and $8,696 in 1993).
Acquisition fees were based on 2% of gross proceeds from the offering.
Disposition fees are generally 3% of the selling price of property, but are
subject to the prior receipt by the limited partners of their capital
contributions plus a stipulated return thereon. Deferred disposition fees were
$267,715 at December 31, 1995 and 1994.
<PAGE>
New England Securities Corporation, a direct subsidiary of The New England,
is engaged by the Partnership to act as its unit holder servicing agent. Fees
and out-of pocket expenses for such services totaled $16,774, $26,717, and
$19,122 in 1995, 1994 and 1993, respectively.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing General Partner to make
estimates affecting the reported amounts of assets and liabilities, and of
revenues and expenses. In the Partnership's business, certain estimates require
an assessment of factors not within management's control, such as the ability of
tenants to perform under long-term leases and the ability of the properties to
sustain their occupancies in changing markets. Actual results, therefore, could
differ from those estimates.
Real Estate Joint Ventures
Investments in joint ventures, including loans made to venture partners,
which are in substance real estate investments, are stated at cost plus (minus)
equity in undistributed joint venture income (losses). Allocations of joint
venture income (losses) were made to the Partnership's venture partners as long
as they had substantial economic equity in the project. Economic equity is
measured by the excess of the appraised value of the property over the
Partnership's total cash investment plus accrued preferential returns and
interest thereon. Currently, the Partnership records an amount equal to 100% of
the operating results of each joint venture, after the elimination of all
inter-entity transactions, except for the one venture jointly owned by an
affiliate of the Partnership which has substantial economic equity in the
project.
Property
Property includes land and buildings and improvements, which are stated at
cost, less accumulated depreciation, and other operating net assets
(liabilities). The initial carrying value of a property previously owned by a
joint venture equals the Partnership's carrying value of the predecessor
investment on the conversion date.
Tenant leases at the properties provide for rental increases over the
respective lease terms. Rental revenue is being recognized on a straight-line
basis over the lease terms.
Capitalized Costs
Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs are also capitalized and amortized over the related
lease terms.
Acquisition fees have been capitalized as part of the cost of real estate
investments. Amounts not related to land are amortized using the straight-line
method over the estimated useful lives of the underlying property.
<PAGE>
Realizability of Real Estate Investments
The Partnership considers a real estate investment to be impaired when it
determines the carrying value of the investment is not recoverable through
undiscounted cash flows generated from the operations and disposition of
property. Effective January 1, 1995, with its adoption of Statement of Financial
Accounting Standards No. 121 (SFAS 121) entitled, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the
Partnership measures the impairment loss based on the excess of the investment's
carrying value over its estimated fair market value. For investments being held
for sale, the impairment loss is measured based on the excess of the
investment's carrying value over its estimated fair market value less estimated
costs of sale. Property held for sale is not depreciated during the holding
period. The Waters Landing II investment was reduced to its estimated fair
market value less the cost of sale during 1995. (See Note 3.) Prior to the
adoption of SFAS 121, the impairment loss was measured based on the excess of
the investment's carrying value over its net realizable value.
During 1993, the Managing General Partner determined that the carrying
value of the Puente Street and Columbia Gateway Corporate Park investments
should be reduced to their respective estimated net realizable values. During
1994, the Managing General Partner further reduced the carrying value of the
Puente Street investment. (See Notes 3 and 4.)
The carrying value of an investment may be more or less than its current
appraised value. At December 31, 1995 and 1994, the appraised values of certain
investments exceeded their related carrying values by an aggregate of $4,900,000
and $2,200,000, respectively, and the appraised values of the remaining
investments were less than their related carrying values by an aggregate of
$2,400,000 and $2,900,000, respectively.
The current appraised value of real estate investments has been estimated
by the Managing General Partner, and is generally based on a combination of
traditional appraisal approaches performed by the advisor and independent
appraisers. Because of the subjectivity inherent in the valuation process, the
estimated current appraised value may differ significantly from that which could
be realized if the real estate were actually offered for sale in the
marketplace.
Cash Equivalents and Short-Term Investments
Cash equivalents are stated at cost, plus accrued interest. The Partnership
considers all highly liquid debt instruments purchased with a maturity of ninety
days or less to be cash equivalents; otherwise, they are classified as
short-term investments.
The Partnership has the positive intent and ability to hold all short-term
investments to maturity; therefore, short-term investments are carried at cost
plus accrued interest which approximates market value. At December 31, 1995 and
1994, all investments were in commercial paper with less than seven months and
four months, respectively, remaining to maturity.
Deferred Disposition Fees
Disposition fees due to Copley related to sales of investments are included
in the determination of gains or losses resulting from such transactions.
According to the terms of the advisory contract, payment of such fees has been
deferred until the limited partners first receive their capital contributions,
plus a stipulated return thereon.
<PAGE>
Income Taxes
A partnership is not liable for income taxes and, therefore, no provision
for income taxes is made in the financial statements of the Partnership. A
proportionate share of the Partnership's income is reportable on each partner's
tax return.
Per Unit Computations
Net income per unit is computed based on the weighted average number of
units of limited partnership interest outstanding during the year. The actual
per unit amount will vary by partner depending on the date of admission to, or
withdrawal from, the Partnership.
Note 3 - Real Estate Joint Ventures
- -----------------------------------
The Partnership had invested in eight real estate joint ventures, each
organized as general partnership with a real estate development/management firm.
Two joint venture projects were sold in 1994, and three ventures were converted
to wholly-owned investments in 1995. Joint venture investments are in either of
two forms. In one form, the Partnership makes an equity contribution which is
subject to preferential cash distributions at a specified rate and to priority
distributions with respect to sale or refinancing transactions. In the second
form of joint venture, the Partnership makes an equity contribution to the
venture, subject to preferential returns, and also makes a loan to its venture
partner which, in turn, contributes the proceeds to the venture. The loans bear
interest at a specified rate, mature in full in ten years, and are secured by
the venture partner's interest in the venture. These loans have been accounted
for as a real estate investment due to the attendant risks of ownership. The
joint venture agreements provide for the funding of cash flow deficits in
proportion to ownership interests and for the dilution of ownership share in the
event a venture partner does not contribute proportionately.
The Partnership's venture partners are responsible for day-to-day
development and operating activities, although overall authority and
responsibility for the business is shared by the venturers. The respective real
estate development/management firms or their affiliates also provide various
services to the joint ventures for a fee.
<PAGE>
The following is a summary of cash invested in joint ventures, net of
returns of capital and excluding acquisition fees:
<TABLE>
<CAPTION>
December 31,
Investment/ Rate of Ownership ----------------------------
Location Return/Interest Interest 1995 1994
- -------------- ----------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Waters Landing II 10.5% 60% (E) $ 1,338,998 $ 1,328,053
Germantown, MD 10.5% (L) $ 892,665 $ 885,369
Dahlia
Fontana, CA 10.0% 60% $ -- $ 7,081,593
University Business Park
Phoenix, AZ 10.0% 60% $ 7,858,213 $ 7,738,212
Columbia Gateway
Corporate Park
Columbia, MD 10.5% 15.25% $ 5,517,497 $ 5,517,497
Palms Business Center III
and IV
Las Vegas, NV 11.0% 60% $ -- $ 10,979,963
Santa Rita Plaza
Salinas, CA 10.5% 63% $ -- $ 10,753,645
(E) Equity (L) Loan
</TABLE>
Waters Landing II
On May 26, 1987, the Partnership entered into a joint venture with an
affiliate of Oxford Development Corporation. The Partnership committed to make a
maximum equity contribution of $4,682,400 and a loan to the venture partner of
$3,121,600. The venture acquired land to develop an apartment complex.
During the second quarter of 1995, the Managing General Partner determined
that it was not in the best interest of the limited partners to develop the
Waters Landing II site. Accordingly, the carrying value of this investment has
been reduced to its estimated net fair market value with the recognition of an
investment valuation allowance of $600,000.
Dahlia
On September 21, 1987, the Partnership entered into a joint venture
agreement with an affiliate of Investment Building Group to construct and
operate an industrial facility. The Partnership committed to make a maximum
equity contribution of $7,250,000, of which $7,081,593 was funded as of December
31, 1995.
Effective September 1, 1995, this investment was converted to a
wholly-owned property for financial reporting purposes, pursuant to an amendment
to the joint venture agreement granting the Partnership control over management
decisions. (See Note 4.)
<PAGE>
University Business Park
On September 30, 1987, the Partnership entered into a joint venture
agreement with an affiliate of The Hewson Company to construct and operate five
multi-tenant industrial buildings. The Partnership committed to make a maximum
equity contribution of $9,450,000. Subsequent to December 31, 1995, and
effective January 1, 1996, the joint venture was dissolved and the venture
partner's ownership interest was assigned to the Partnership. The minimum future
rental payments to the venture under non-cancelable operating leases are:
$653,000 in 1996; $596,000 in 1997; $508,000 in 1998; $434,000 in 1999; and
$203,000 in 2000.
Columbia Gateway Corporate Park
On December 21, 1987, the Partnership entered into a joint venture
agreement with an affiliate of the Partnership and an affiliate of Manekin
Corporation to construct and operate seven research and development /office
buildings, of which six have been constructed to date. The Partnership committed
to make a $6,402,000 equity contribution to the joint venture. The Partnership
and its affiliate collectively have a 50% ownership interest in the joint
venture. The minimum future rental payments to the venture under non-cancelable
operating leases are: $1,316,589 in 1996; $1,176,845 in 1997; $1,116,297 in
1998; $1,038,834 in 1999; $411,261 in 2000, and $1,507,959 thereafter.
At December 31, 1993, the Managing General Partner had determined that the
carrying value of this investment would not be recovered through estimated
undiscounted future cash flows. Accordingly, the carrying value was reduced by
$500,000 to estimated net realizable value.
Palms Business Center III and IV
On March 7, 1988, the Partnership entered into a joint venture with an
affiliate of B.H. Miller Companies to construct and operate thirteen commercial
buildings.
Effective January 1, 1995, the venture partner's ownership interest was
assigned to the Partnership. (See Note 4.)
Santa Rita Plaza
On February 1, 1989, the Partnership entered into a joint venture with an
affiliate of Rodde McNellis to acquire a ground leasehold interest and construct
and operate a shopping center. The Partnership committed to make a maximum
equity contribution of $11,350,000, of which $10,950,840 was funded as of
December 31, 1995. Capital contributions of $6,500,000, and accrued preferential
return related thereto, began amortizing over a 27-year period in February 1991,
with a balloon payment due on February 1, 1999. The remaining $4,850,000
contribution together with any accrued preferential return balance is payable in
full in 2004.
Effective August 1, 1995 this investment was converted to a wholly-owned
property for financial reporting purposes, pursuant to an admendment to the
joint venture agreement granting the Partnership control over management
decisions and increasing its ownership interest from 60% to 63%. (See Note 4.)
<PAGE>
Sale of C.S. Graham and Lakewood
On June 30, 1987, the Partnership entered into a joint venture agreement
with an affiliate of Connell Scott and Associates to own and operate a warehouse
facility. The Partnership contributed a total of $3,185,246 to the venture. On
June 17, 1994, the joint venture sold its property. The total sales price was
$3,925,000. After closing costs, the Partnership received proceeds of $3,720,076
and recognized a gain of $409,982 ($4.91 per weighted average limited
partnership unit). A disposition fee of $117,750 was accrued but not paid to the
advisor.
On August 12, 1988, the Partnership entered into a joint venture with an
affiliate of the Partnership and with an affiliate of Evans Withycombe Company
to construct and operate an apartment complex. The Partnership's total equity
contribution was $ 3,167,615. On August 17, 1994, the joint venture sold its
property to a real estate investment trust sponsored by Evans Withycombe. After
closing costs, the payment of preferential returns to the Partnership, and the
allocation to the venture partner, the Partnership received its share of the
proceeds of $4,297,367 and recognized a gain of $1,380,488 ($16.53 per weighted
average limited partnership unit). A disposition fee of $149,965 was accrued but
not paid to the advisor. An additional $6,209 was received in 1995 in final
settlement of the Lakewood sale.
On September 15, 1994, the Partnership made a capital distribution of
$3,968,640 ($48 per limited partnership unit) from the proceeds of the C.S.
Graham and Lakewood sales. A second capital distribution of $2,313,164 ($28 per
limited partnership unit) was made in July, 1995. A portion of the proceeds was
used to pay previously accrued, but deferred, management fees due to the advisor
($183,426 in 1995 and $1,259,988 in 1994).
Summarized Financial Information
The following summarized financial information is presented in the
aggregate for the joint ventures:
Assets and Liabilities
----------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Assets
Real property, at cost less accumulated
depreciation of $4,019,677 and $6,358,984,
respectively $22,312,780 $45,272,536
Other 484,715 3,525,687
----------- -----------
22,797,495 48,798,223
Liabilities 187,308 440,384
----------- -----------
Net assets $22,610,187 $48,357,839
=========== ===========
</TABLE>
<PAGE>
Result of Operations
--------------------
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Rental income $4,437,415 $8,058,767 $8,468,935
Other income 146,660 222,180 277,313
---------- ---------- ----------
4,584,075 8,280,947 8,746,248
---------- ---------- ----------
Expenses
Operating expenses 1,402,041 2,837,050 3,060,918
Depreciation and amortization 1,032,349 1,727,610 2,212,820
---------- ---------- ----------
2,434,390 4,564,660 5,273,738
---------- ---------- ----------
Net Income $2,149,685 $3,716,287 $3,472,510
========== ========== ==========
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to two joint ventures) its affiliates on behalf of
their various financing arrangements with the joint ventures.
The C.S. Graham and Lakewood investments were sold on June 17, 1994 and
August 17, 1994, respectively. The above amounts include their results of
operations through the respective sale dates. The Palms Business Center, Santa
Rita Plaza and Dahlia investments were converted to wholly-owned properties
effective January 1, 1995, August 1, 1995, and September 1, 1995, respectively.
The above amounts include their results of operations through their respective
conversion dates.
Note 4 - Property
Palms Business Center III and IV
Effective January 1, 1995, the Palms Business Center joint venture was
restructured and the venture partner's ownership interest was assigned to the
Partnership. Since that date, the investment is being accounted for as a
wholly-owned property. The carrying value at conversion ($10,308,265) was
allocated to land, building and improvements and other net operating assets.
The buildings and improvements of Palms Business Center are being
depreciated over 25 years, beginning January 1, 1995. The minimum future rental
payments venture under non-cancelable operating leases are: $1,230,644 in 1996;
$1,180,926 in 1997; $787,018 in 1998; $604,737 in 1999; $536,145 in 2000; and
$24,810 thereafter.
Santa Rita Plaza
Effective August 1, 1995, the Santa Rita Plaza joint venture was
restructured into a limited partnership, whereby the Partnership was granted
control over management decisions. Accordingly, as of such date, the investment
is being accounted for as a wholly-owned property. The carrying value of the
joint venture investment at conversion ($10,216,659) was allocated to building
and improvements, mortgage loan receivable from the ground lessor and other net
operating assets. On this same date, the Partnership made a fifteen-year loan in
the amount of
<PAGE>
$1,750,000 to the ground lessor, who used a portion of the proceeds to repay a
loan from the Santa Rita venture which, in turn, paid approximately $1,300,000
to the Partnership as a partial return of its capital investment in the venture.
The Partnership can require full payment of the loan after August 1, 2000. The
ground lease requires an annual base payment of $390,000 per year through 2063,
plus 11.55% of rents, as defined.
The buildings and improvements of Santa Rita Plaza are being depreciated
over 25 years beginning August 1, 1995. The loan to ground lessor bears interest
at 8.75%, with payments to be made monthly based on a 15 year amortization
schedule, and is secured by the ground lessor's interest in the Santa Rita Plaza
land. The minimum future rental payments from tenants under non-cancelable
operating leases are: $1,239,214 in 1996; $1,178,683 in 1997; $1,069,823 in
1998; $951,248 in 1999; $846,850 in 2000; and $3,991,114 thereafter.
Dahlia
Effective September 1, 1995, the Dahlia joint venture was restructured into
a limited partnership, whereby the Partnership was granted control over
management decisions. Accordingly, as of this date, the investment is being
accounted for as a wholly-owned property. The carrying value at conversion
($7,413,175) was allocated to land, building and improvements, and other net
operating assets. During 1993, the joint venture agreed to a settlement with a
former tenant for past due rent. This settlement is secured by an attachment on
36 acres of land in Scottsdale, Arizona. The land is currently being marketed
for sale pursuant to the settlement agreement.
The buildings and improvements of Dahlia are being depreciated over 25
years beginning September 1, 1995. The minimum future rental payments due under
non-cancelable operating leases are: $852,324 in 1996; $777,924 in 1997;
$678,685 in 1998; $607,805 in 1999; $612,680 in 2000; and $1,610,370 thereafter.
Puente Street
On April 28, 1988, the Partnership entered into a joint venture with an
affiliate of The Muller Company. Effective June 1, 1991, in accordance with the
joint venture agreement, the Partnership assumed total ownership of this
property due to the venture partner's inability to fund its proportionate share
of operating deficits. The property includes an industrial building, together
with a parking lot and storage area in Brea, California.
The Managing General Partner determined that the carrying value of this
investment exceeded its estimated net realizable value because of the effect of
depressed market conditions on rental rates. Accordingly, the carrying value was
reduced to its estimated net realizable value by $1,500,000 in 1993. Due to a
further deterioration in market conditions, the carrying value was further
reduced during the fourth quarter of 1994 by $1,400,000.
The building and improvements at Puente Street are being depreciated over
30 years beginning June 1, 1991. The minimum future rentals under non-cancelable
operating leases are: $717,487 in 1996; $799,044 in 1997; $816,300 in 1998;
$707,683 in 1999; $644,220 in 2000; and $2,295,111 thereafter.
<PAGE>
The following is a summary of the Partnership's investment in property
(four in 1995 and one in 1994):
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1995 1994
------------ -----------
<S> <C> <C>
Land $ 7,548,949 $ 3,985,498
Buildings and improvements 30,323,985 8,910,665
Accumulated depreciation (1,596,044) (874,768)
Investment valuation allowance (2,900,000) (2,900,000)
Loan to ground lessor 1,726,003 --
Lease commissions and
other assets, net 1,576,781 839,815
Accounts receivable 900,017 60,380
Accounts payable (521,638) (159,806)
------------ -----------
$ 37,058,053 $ 9,861,784
============ ===========
</TABLE>
Note 5 - Income Taxes
- ---------------------
The Partnership's income for federal income tax purposes differs from that
reported in the accompanying statement of operations as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Net income per financial statements $ 2,248,715 $ 3,375,406 $ 50,380
Timing differences:
Joint venture earnings 1,532,140 329,584 644,139
Property rentals (1,844,941) (433,648) 572
Expenses 31,747 (1,107,117) 151,982
Depreciation and amortization 602,925 21 47,455
Investment valuation allowances 600,000 1,400,000 2,000,000
Gain on sale -- 483,030 --
----------- ----------- ----------
Taxable income $ 3,170,586 $ 4,047,276 $2,894,528
=========== =========== ==========
</TABLE>
Note 6 - Partners' Capital
- --------------------------
Allocation of net income from operations and distributions of distributable
cash from operations, as defined, are in the ratio of 99% to the limited
partners and 1% to the general partners. Cash distributions are made quarterly.
Net sale proceeds and financing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partners. The adjusted capital contribution per
limited partnership unit was reduced from $1,000 to $952 in 1994, and further
reduced to $924 in 1995, as a result of the return of capital from the sale of
two
<PAGE>
investments. No capital distributions have been made to the general partners.
Income from a sale is allocated in proportion to the distribution of related
proceeds, provided that the general partners are allocated at least 1%. Income
or losses from a sale, if there are no residual proceeds after the repayment of
the related debt, will be allocated 99% to the limited partners and 1% to the
general partners.
Note 7 - Subsequent Event
- -------------------------
Distributions of cash from operations relating to the quarter ended
December 31, 1995 were made on January 25, 1996 in the aggregate amount of
$1,011,274 ($12.13 per limited partnership unit).
<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
Initial Cost to
the Partnership
-----------------------------------------------------------------------------
Lease Comm.
Buildings & & Other Other Net
Description Land Improvements Capital Costs Assets (Liabilities)
- ----------------------------------------- ----------- ------------ ------------- --------------------
<S> <C> <C> <C> <C>
Brea, CA.
- Puente Street (See Note A) $3,985,498 $ 8,542,701 $1,273,000 ($619)
Las Vegas, NV.
- Palms Business Center III and IV
(See Note A) 2,195,482 7,783,981 115,493 213,309
Fontana, CA.
- Dahlia (See Note A) 1,367,969 5,471,878 227,625 345,703
Salinas, CA.
- Santa Rita Plaza (See Note A) 0 8,056,722 196,574 1,963,363
-----------------------------------------------------------------------------
Total Wholly-Owned Property $7,548,949 $29,855,282 $1,812,692 $2,521,756
=============================================================================
60% interest in
Waters Landing II
joint venture. Owners of -----------------------------------------------------------------------------
land in Germantown, MD.
60% interest in
University Business Park
joint venture.
Develop and operate warehouse/ -----------------------------------------------------------------------------
office bldgs. in Phoenix, AZ.
15.25% Interest in Columbia
Gateway Corporate Park
Partnership. Develop and operate -----------------------------------------------------------------------------
office/R & D bldgs. in Columbia, MD.
-----------------------------------------------------------------------------
Total Joint Ventures
=============================================================================
<CAPTION>
Costs Subsequent
to Acquisition
---------------------------------------------------------------------------------------
Write off of
Buildings Write off of Lease Comm. Change in
and Tenant & Other Write down Other Net
Description Improvements Improvements Capital Costs of Property Assets (Liabilities)
- ----------------------------------------- ------------ ------------ ------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Brea, CA.
- Puente Street (See Note A) $776,766 ($409,228) ($1,273,000) ($2,900,000) $997,369
Las Vegas, NV.
- Palms Business Center III and IV
(See Note A) 48,665 0 0 0 (143,572)
Fontana, CA.
- Dahlia (See Note A) 0 0 0 0 (37,013)
Salinas, CA.
- Santa Rita Plaza (See Note A) 52,500 0 0 0 152,100
---------------------------------------------------------------------------------------
Total Wholly-Owned Property $877,931 ($409,228) ($1,273,000) ($2,900,000) $968,884
=======================================================================================
60% interest in
Waters Landing II
joint venture. Owners of --------------------------------- See Note B -----------------------------------------
land in Germantown, MD.
60% interest in
University Business Park
joint venture.
Develop and operate warehouse/ --------------------------------- See Note B -----------------------------------------
office bldgs. in Phoenix, AZ.
15.25% Interest in Columbia
Gateway Corporate Park
Partnership. Develop and operate --------------------------------- See Note B -----------------------------------------
office/R & D bldgs. in Columbia, MD.
---------------------------------------------------------------------------------------
Total Joint Ventures
=======================================================================================
<CAPTION>
Balance at end of year
---------------------------------------------------------------------------------------
Accumulated
Buildings & Other Depreciation
Description Land Improvements Net Assets Total and Amortization
- ----------------------------------------- ------------ ------------ ------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Brea, CA.
- Puente Street (See Note A) $3,985,498 $6,010,239 $996,750 $10,992,487 ($1,267,937)
Las Vegas, NV.
- Palms Business Center III and IV
(See Note A) 2,195,482 7,832,646 185,230 10,213,358 (395,448)
Fontana, CA.
- Dahlia (See Note A) 1,367,969 5,471,878 536,315 7,376,162 (42,908)
Salinas, CA.
- Santa Rita Plaza (See Note A) 0 8,109,222 2,312,037 10,421,259 (238,920)
---------------------------------------------------------------------------------------
Total Wholly-Owned Property $7,548,949 $27,423,985 $4,030,332 $39,003,266 ($1,945,213)
=======================================================================================
60% interest in
Waters Landing II
joint venture. Owners of ----------------------------------------------- $1,491,742 N/A
land in Germantown, MD.
60% interest in
University Business Park
joint venture.
Develop and operate warehouse/ ----------------------------------------------- $5,630,581 N/A
office bldgs. in Phoenix, AZ.
15.25% Interest in Columbia
Gateway Corporate Park
Partnership. Develop and operate ----------------------------------------------- $4,699,450 N/A
office/R & D bldgs. in Columbia, MD.
--------------------------------------------------------------
Total Joint Ventures $11,821,773
==============================================================
<CAPTION>
Date of Date Depreciable
Description Construction Acquired Life
- ----------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Brea, CA.
- Puente Street (See Note A) 1989 6/1/91 30 Years
Las Vegas, NV.
- Palms Business Center III and IV
(See Note A) Lease-up 3/7/88 25 Years
Fontana, CA.
- Dahlia (See Note A) 1990 9/21/87 25 Years
Salinas, CA.
- Santa Rita Plaza (See Note A) 1990 2/1/89 25 years
Total Wholly-Owned Property
60% interest in
Waters Landing II
joint venture. Owners of To be 5/26/87 Land
land in Germantown, MD. Constructed
60% interest in
University Business Park
joint venture.
Develop and operate warehouse/ 1991 9/30/87 30 Years
office bldgs. in Phoenix, AZ.
15.25% Interest in Columbia
Gateway Corporate Park
Partnership. Develop and operate Phase I - 1990 12/21/87 50 Years
office/R & D bldgs. in Columbia, MD. Phase II - Under Construction
Total Joint Ventures
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
-----------------------------------------
NOTE A TO SCHEDULE III
<CAPTION>
-----------------------------------------------------------------------------------------------------
Balance Conversion to Additions to
as of Wholly-Owned Lease Additions to Write Down
Description 12/31/94 Property Commissions Property of Property
- ---------------------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brea, CA.
- Puente Street $10,881,546 $0 ($4,933) ($426) $0
Las Vegas, NV.
- Palms Business Center III
and IV 0 10,308,265 90,701 48,665 0
Fontana, CA.
- Dahlia 0 7,413,175 0 0 0
Salinas, CA.
- Santa Rita Plaza 0 10,216,659 0 52,500 0
-----------------------------------------------------------------------------------------------------
Total Wholly-Owned Property $10,881,546 $27,938,099 $85,768 $100,739 $0
=====================================================================================================
<CAPTION>
-----------------------------------------------------------------------------------------------------
12/31/94 1995 12/31/95
Change in Balance Accumulated Depreciation Accumulated
Property Working as of Depreciation and and Amortization Depreciation and
Description Capital 12/31/95 Amortization Expense Amortization
- ---------------------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Brea, CA.
- Puente Street $116,300 $10,992,487 $1,019,762 ($248,175) $1,267,937
Las Vegas, NV.
- Palms Business Center III
and IV (234,273) 10,213,358 0 (395,448) $395,448
Fontana, CA.
- Dahlia (37,013) 7,376,162 0 (42,908) $42,908
Salinas, CA.
- Santa Rita Plaza 152,100 10,421,259 0 (238,920) $238,920
-----------------------------------------------------------------------------------------------------
Total Wholly-Owned Property ($2,886) $39,003,266 $1,019,762 ($925,451) $1,945,213
=====================================================================================================
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
------------------------------------------
NOTE B TO SCHEDULE III
<CAPTION>
BALANCE CASH EQUITY IN 1995 AMORTIZATION
PERCENT OF AS OF INVESTMENTS IN INCOME/ OF DEFERRED
DESCRIPTION OWNERSHIP 12/31/94 JOINT VENTURES (LOSS) ACQUISITION FEES
- ------------------------------------ ----------------- ------------ --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Waters Landing II 60% $2,073,501 $18,241 $0 $0
Dahlia (3) 60% 7,542,262 0 517,485 (1,572)
University Business Park 60% 5,802,686 120,001 89,582 (4,888)
Columbia Gateway Corporate Park 15.25% 4,695,528 0 371,986 (2,064)
Palms Business Center III and IV (1) 100% 10,308,265 0 0 0
Santa Rita Plaza (2) 63% 10,357,021 0 325,497 (3,040)
----------- -------- ---------- --------
$40,779,263 $138,242 $1,304,550 ($11,564)
=========== ======== ========== ========
<CAPTION>
CASH
DISTRIBUTED CONVERSION TO BALANCE
FROM WRITE-DOWN WHOLLY-OWNED AS OF
DESCRIPTION JOINT VENTURE OF PROPERTY PROPERTY 12/31/95
- ------------------------------------ ----------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Waters Landing II $0 ($600,000) $0 $1,491,742
Dahlia (3) (645,000) 0 (7,413,175) 0
University Business Park (376,800) 0 0 5,630,581
Columbia Gateway Corporate Park (366,000) 0 0 4,699,450
Palms Business Center III and IV (1) 0 0 (10,308,265) 0
Santa Rita Plaza (2) (462,819) 0 (10,216,659) 0
---------- --------- ------------ -----------
$(1,850,619) ($600,000) ($27,938,099) $11,821,773
=========== ========= ============ ===========
(1) Effective January 1, 1995 converted to wholly-owned property.
(2) Effective August 1, 1995 the Joint Venture was restructured into a Limited Partnership.
(3) Effective September 1, 1995 the Joint Venture was restructured into a Limited Partnership.
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
Date: March 11, 1996 By: /s/ Joseph W. O'Connor
--- ----------------------
Joseph W. O'Connor
President of the
Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
---------- ----- ----
President, Principal
Executive Officer and
Director of the
/s/ Joseph W. O'Connor Managing General Partner March 11, 1996
- ---------------------- ---
Joseph W. O'Connor
Principal Financial and
Accounting Officer of the
/s/ Daniel C. Mackowiak Managing General Partner March 11, 1996
- ----------------------- ---
Daniel C. Machowiak
Director of the
/s/ Daniel J. Coughlin Managing General Partner March 11, 1996
- ---------------------- ---
Daniel J. Coughlin
Director of the
/s/ Peter P. Twining Managing General Partner March 11, 1996
- -------------------- ---
Peter P. Twining
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Exhibit Number
- ------ ------- ------
10A. Joint Venture Agreement of Waters Landing *
Partners Two, dated as of May 26, 1987 between
the Partnership and Waters Landing Two-Oxford
Limited Partnership, a Maryland limited partnership
("Oxford").
10B. Promissory Note dated May 26, 1987 from Oxford *
to the Partnership in the original principal
amount of $3,121,600.
10C. Joint Venture Interest Pledge and Security *
Agreement, dated as of May 26, 1987, between
the Partnership and Oxford.
10D. Joint Venture Agreement of Graham Road Joint *
Venture, dated as of June 30, 1987, between the
Partnership and Connell-Scott Ventures V.
10E. General Partnership Agreement of IBG Dahlia *
Associates, dated as of September 21, 1987,
between the Partnership and 20 Dahlia Partnership.
10F. General Partnership Agreement of Hewson University *
Associates, dated as of September 30, 1987, between
Hewson Properties, Inc. and the Partnership.
10G. General Partnership Agreement of Gateway 51 *
Partnership, dated as of December 21, 1987,
among M.O.R. Gateway 51 Associates Limited
Partnership, the Partnership and New England
Life Pension Properties IV; A Real Estate
Limited Partnership.
10H. Ground Lease dated January 23, 1988 between *
Nielson Properties, LTD., a California
limited partnership ("Landlord"), and Rodde
McNellis/Salinas, a California general partnership
("Tenant").
10I. Leasehold Indenture dated February 12, 1988 by *
Rodde McNellis/Salinas, Borrower, to Santa
Clara Land Title Company, Trustee, for New
England Pension Properties V, A Real Estate
Limited Partnership ("NEPP V"), Beneficiary.
- ----------
* Previously filed and incorporated herein by reference.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Exhibit Number
- ------ ------- ------
10J. Promissory Note dated February 12, 1988 in *
the principal amount of $1,800,000 by Rodde
McNellis/Salinas to NEPP V.
10K. Pledge of Note and Security Agreement dated as *
of February 12, 1988 by and between Rodde
McNellis/Salinas and NEPP V.
10L. R/M Salinas Predevelopment Agreement dated *
February 12, 1988 by and between NEPP V and
Rodde McNellis/Salinas.
10M. Joint Venture Agreement of Rancho Road *
Associates II dated as of March 7, 1988 by
and between NEPP V and Commerce Centre
Partners.
10N. Pledge and Security Agreement dated as of *
March 7, 1988 by and between Commerce Centre
Partners and NEPP V.
10O. General Partnership Agreement of Muller Brea *
Associates dated as of April 29, 1988 between
Tar Partners and the Registrant.
10P. Lakewood Associates General Partnership *
Agreement dated August, 1988 between EW
Lakewood Limited Partnership, Copley Pension
Properties VI; A Real Estate Limited Partnership
and Registrant.
10Q. First Amendment to Rancho Road Associates II Joint *
Venture Agreement dated as of May 31, 1988 by and
between the Registrant and Commerce Centre Partners.
10R. First Amendment to Pledge and Security Agreement *
dated as of May 31, 1988 by and between the
Registrant and Commerce Centre Partners.
10S. Joint Venture Agreement of R/M Salinas Venture dated *
as of February 1, 1989 by and between New England
Pension Properties V; A Real Estate Limited
Partnership and Rodde McNellis/Salinas.
- ----------
* Previously filed and incorporated herein by reference.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Exhibit Number
- ------ ------- ------
10T. First Amendment to Joint Venture Agreement of R/M *
Salinas Venture dated as of February 1, 1989
by and between New England Pension Properties V;
A Real Estate Limited Partnership and Rodde
McNellis/Salinas.
10U. Amended and Restated General Partnership Agreement *
of Gateway 51 Partnership dated as of April 20,
1989 between M.O.R. Gateway 51 Associates
Limited Partnership, New England Life Pension
Properties IV; a Real Estate Limited Partnership
and New England Pension Properties V; a Real
Estate Limited Partnership.
10V. Second Amendment to Pledge and Security *
Agreement dated as of June 20, 1990 by and
between Commerce Centre Partners, a
California general partnership and
Registrant.
10W. Second Amendment to Rancho Road Associates *
II Joint Venture Agreement dated as of June 20,
1990 by and between Registrant and Commerce
Centre Partners.
10X. Second Amendment to Joint Venture Agreement of *
R/M Salinas Venture dated as of July 20, 1990 by
and between the Registrant and Rodde McNellis/
Salinas.
10Y. Agreement for Dissolution, Distribution and *
Winding-up of Muller Brea Associates dated
May 31, 1991 by and between TAR Partners, a
California partnership, and the Registrant.
10Z. Property Management Agreement effective as of *
May 31, 1991 by and between TAR Partners, a
California general partnership, and the Registrant.
10AA. Asset Contribution Agreement by and among Evans
Withycombe Residential, Inc., a Maryland Corporation, *
and Evans Withycombe Residential, L.P., a Delaware
limited partnership, as Purchasers and Lakewood
Associates, an Arizona limited Partnership composed of
Registrant, Copley Pension Properties VI and EW
Lakewood L.P., as Sellers dated June 9, 1994.
10BB. Purchase and Sale Agreement between Graham Road *
Joint Venture and Prentiss Properties Atlanta Industrial
Properties, L.P., dated June 17, 1994.
10CC. $1,750,000 note secured by Deed of Trust between
the Partnership, as Lender, and Nielsen Properties, Ltd,
as Borrower dated August 1, 1995.
<PAGE>
10DD. Third Amendment to Agreement of Lease dated August 1, 1995
by and between Nielsen Properties, Ltd., a California
limited partnership, R/M Salinas Venture, a California
general partnership, and R/M Salinas, L.P., a California
limited partnership.
10EE. R/M Salinas L.P. Limited Partnership Agreement dated
August 1, 1995 between Rodde McNellis/Salinas,
a California general partnership and Registrant.
10FF. Limited Partnership Agreement of IBG Dahlia Associates
dated September 1, 1995 between Registrant and
20 Dahlia Partnership, a California limited partnership.
- ----------
* Previously filed and incorporated herein by reference.
<PAGE>
$1,750,000 note secured by Deed of Trust between the Partnership, as Lender,
and Nielsen Properties, Ltd, as Borrower dated August 1, 1995.
<PAGE>
NOTE SECURED BY DEED OF TRUST
$1,750,000
Salinas, California
August 1, 1995
The undersigned, Nielsen Properties Ltd. ("Nielsen"), hereby promises to
pay to New England Pension Properties V; A Real Estate Limited Partnership, a
Massachusetts limited partnership ("NEPP"), or order at 399 Boylston Street,
Boston, Massachusetts 02116, the sum of One Million, Seven Hundred Fifty
Thousand Dollars ($1,750,000) (the "Principal Sum"), with interest on the unpaid
principal amount outstanding from time to time, at the rate of eight and
three-quarters percent (8.75%) per annum.
Principal and interest shall be payable on the first day of each month,
commencing September 1, 1995, in one hundred eighty (180) equal installments of
$17,490.35 (i.e., a 15-year fully amortizing term) (the "Monthly Installments").
All principal and interest due hereunder shall be due and payable in full on
August 1, 2010 (the "Maturity Date"). Notwithstanding the foregoing, the holder
of this Note may at any time, on or after August 1, 2000, give notice to Nielsen
of acceleration of this Note (the "Lender Call"), in which event all principal
and accrued interest shall be due and payable on the date specified by the
holder in such notice, provided that such date for payment shall be not less
than 365 days following the date on which the notice is given.
This Note may not be assigned or otherwise transferred by Nielsen or
assumed by any party without the prior written consent of the holder of this
Note, which consent may be withheld in such holder's sole discretion without any
requirement of such holder to be reasonable. Any purported transfer in violation
of this provision shall constitute a default hereunder and shall cause the whole
sum of principal and interest hereunder to become immediately due at the option
of the holder of this Note.
This Note is prepayable in whole only and not in part. Nielsen acknowledges
that prepayment of this Note shall result in the holder's incurring additional
costs and expenses and that it is extremely difficult and impractical to
ascertain the extent of such costs and expenses. Therefore, if Nielsen elects to
pay this Note prior to August 1, 2000, then on the date of payment, Nielsen will
pay the holder (in addition to all other sums then owing to the holder) an
amount (the "Prepayment Premium") equal to the greater of (I) one percent (1%)
of the outstanding principal balance of this Note or (II) (a) the present value,
computed as of
<PAGE>
the date of prepayment, at the yield on the 10% United States Treasury Bond
maturing May 5, 2010 as most recently reported in The Wall Street Journal (or if
-----------------------
the same is not then published, another similar journal selected by Lender) as
of the date of repayment, of
1. the Monthly Installments from the date of prepayment to, but not
-------
including, the Maturity Date (computed on a monthly basis);
---------
plus
----
2. the amount of interest and principal due on the Maturity Date pursuant
to the terms of this Note (assuming all Monthly Installments due prior
to the Maturity Date were made when due (computed on a monthly basis)
LESS
- ----
(b) the amount prepaid
PLUS
- ----
(c) the amount, as reasonably estimated by the holder, of the holder's
out-of-pocket reasonable costs and expenses in reinvesting the amount
prepaid (i.e., the sums determined under (a) and (b) above),
including, without limitation, transaction and processing fees and
costs, legal fees and brokerage expenses and the holder's expenses
incurred in terminating any servicing agreement related to the loan.
Notwithstanding the foregoing, Nielsen shall not be required to pay the
Prepayment Premium if Nielsen pays this Note prior to the Maturity Date pursuant
to a Lender's Call.
If any payment is not made within ten (10) days of the date due, Nielsen
agrees to pay a late charge equal to five percent (5%) of the delinquent
payment(s).
Nielsen hereby expressly agrees that, so long as NEPP is the holder of this
Note, R/M Salinas, L.P., a California limited partnership ("R/M") shall offset
against the rent due Nielsen under that certain lease dated January 23, 1988, by
and between Nielsen, as Landlord, and R/M as successor in interest to R/M
Salinas Venture, as Tenant, for that certain land underlying that certain
shopping center known as the Santa Rita Plaza, 1934 N. Main Street, Salinas,
California (the "Ground Lease") the loan payments due NEPP hereunder as and when
such payments would be otherwise payable hereunder in lieu of requiring Nielsen
to make such loan payments to NEPP.
-2-
<PAGE>
Should default be made in payment of principal or interest when due, the
whole sum of principal and interest shall become immediately due at the option
of the holder of this Note. Principal and interest shall be payable in lawful
money of the Unites States. If action be instituted on this Note, the
undersigned promises to pay such sum as the court may fix as attorneys' fees.
This Note is secured by a Deed of Trust of even date encumbering certain
real property owned by Nielsen. The holder agrees that neither Nielsen nor the
partners of Nielsen shall have any personal liability for the repayment of the
indebtedness evidenced hereby and that the holder shall look solely to the
assets subject to said Deed of Trust for the repayment of such indebtedness;
provided, however, that nothing herein shall be deemed to constitute a waiver or
impairment of such indebtedness.
Nielsen and any endorsers or guarantors hereof and all others who may
become liable for all or any part of this obligation, severally waive
presentment for payment, demand and protest and notice of protest, and of
dishonor and nonpayment of this Note, and expressly consent to any extension of
the time of payment hereof or of any installment hereof, to the release of any
party liable for this obligation, and any such extension or release may be made
without notice to any of said parties and without in any way affecting or
discharging this liability.
Nielsen acknowledges that this loan was arranged by R/M Management Company,
a licensed California real estate broker, within the meaning of California
Constitution, Article XV, and that said loan is, therefore, exempt from any
interest rate limitation imposed by California law.
NIELSEN PROPERTIES, LTD.,
a California Limited Partnership
By:___________________________
General Partner
-3-
<PAGE>
Third Amendment to Agreement of Lease dated August 1, 1995
by and between Nielsen Properties, Ltd., a
California limited partnership, R/M Salinas Venture,
a California general partnership, and R/M Salinas, L.P.,
a California limited partnership.
<PAGE>
THIRD AMENDMENT
TO
AGREEMENT OF LEASE
This Third Amendment to Agreement of Lease ("Third Amendment") is made this
1st day of August, 1995, by and between NIELSEN PROPERTIES, LTD., a California
limited partnership ("Landlord"), R/M SALINAS VENTURE, a California general
partnership, and R/M SALINAS, L.P., a California limited partnership.
RECITAL
A. On January 23, 1988, Landlord and Tenant's predecessor in interest,
Rodde McNellis/Salinas, entered into a certain Agreement of Lease ("Ground
Lease") concerning the premises described on Exhibit "A" attached hereto and by
this reference incorporated herein ("Demised Land"). All capitalized terms not
otherwise defined herein have the meanings ascribed to them in the Ground Lease,
as amended.
B. On November 21, 1989, Landlord and R/M Salinas Venture amended the
Ground Lease pursuant to a First Amendment to Agreement of Lease which provided
for, among other things, an increase in the size of the Demised Land and a
decrease in the Percentage Rent payable to Landlord.
C. On February 11, 1991, Landlord and R/M Salinas Venture further amended
the Ground Lease pursuant to a Second Amendment to Agreement of Lease which
provided for, among other things, the Second Loan, an option in favor of Tenant
to acquire a fifty percent interest in the Demised Land (the "Option"), a
further reduction of Percentage Rent and a postponement of the date on which
Percentage Rent would first become payable.
NOW, THEREFORE, the parties agree as follows:
1. Recitals. The foregoing recitals are true and correct.
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2. Assignment of Lease. R/M Salinas Venture hereby assigns to R/M
-------------------
Salinas, L.P., and R/M Salinas, L.P. hereby assumes, all of the right,
title and interest of R/M Salinas Venture in and to the Ground Lease,
as amended. Landlord hereby consents to such assignment.
<PAGE>
3. Offset of Rent. Notwithstanding any provision to the contrary under
--------------
the Ground Lease, as amended, Landlord hereby expressly agrees that,
so long as New England Pension Properties V; A Real Estate Limited
Partnership is the holder of that certain promissory note in the
original principal amount of $1,750,000, dated as of the date hereof
and secured by Landlord's interest in the Demised Land (the "Note"),
Tenant shall deduct from the rent due under the Ground Lease, as
amended, the loan payments due under the Note, as and when such
payments would be due and payable under the Note, and any amounts so
deducted shall be deemed to have been timely paid to the Landlord.
4. Percentage Rent. The parties agree that the "Initial Gross Rent Level"
---------------
(as described in Section 3.01(b)(ii) of the Ground Lease) is the sum
of $1,400,000. The parties further agree that Percentage Rent, if any,
shall commence to accrue as of January 1, 1996, in an amount equal to
eleven and fifty-five hundredths percent (11.55%) of annual Gross
Rents in excess of said $1,400,000 for the remaining term of the
Lease.
5. Option. The parties acknowledge that the Option has expired and is of
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no further force or effect.
6. Modifications. Except as herein amended, the Ground Lease remains
-------------
unmodified and in full force and effect.
WHEREFORE, the parties have executed this Third Amendment to Lease as of
the date first above written.
LANDLORD: TENANT
NIELSEN PROPERTIES, LTD. R/M SALINAS, L.P., a California
a California limited limited partnership
partnership
By: NEW ENGLAND PENSION
by: PROPERTIES V; A REAL ESTATE
------------------------------- LIMITED PARTNERSHIP, General
Barbara Daggett, Partner
general partner
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<PAGE>
By: FIFTH COPLEY CORP., a
Massachusetts Corporation
General Partner
By:
--------------------------------
By:
--------------------------------
Donald S. Nielsen,
general partner
By:
--------------------------------
Richard S. Nielsen,
limited partner
R/M SALINAS VENTURE,
a California general
partnership
RODDE MCNELLIS SALINAS,
a California general
partnership,
General Partner
By:
----------------------------------
John E. McNellis,
general partner
By:
----------------------------------
Robert K. Rodde,
general partner
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<PAGE>
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP,
Massachusetts limited partnership,
General Partner
By: FIFTH COPLEY CORP., a
Massachusetts corporation,
General Partner
By:
----------------------------------
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<PAGE>
R/M Salinas L.P. Limited Partnership Agreement dated August 1, 1995
between Rodde McNellis/Salinas, a California
general partnership and Registrant.
<PAGE>
R/M SALINAS L.P.
LIMITED PARTNERSHIP AGREEMENT
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
R/M SALINAS L.P.
TABLE OF CONTENTS
Page
----
ARTICLE 1 - THE PARTNERSHIP
Section 1.1 Reconstitution ......................... 2
Section 1.2 Name ................................... 2
Section 1.3 Principal Executive Office ............. 3
Section 1.4 Purposes ............................... 3
Section 1.5 Purposes Limited ....................... 4
Section 1.6 No Payments of Individual
Obligations ............................ 5
Section 1.7 Statutory Compliance ................... 5
Section 1.8 Title to Property ...................... 5
Section 1.9 Duration ............................... 5
ARTICLE 2 - THE PARTNERS
Section 2.1 Identification ......................... 5
Section 2.2 [Intentionally Omitted.] ............... 5
Section 2.3 Competition ............................ 5
Section 2.4 Limits on Developer's Activities ....... 6
Section 2.5 Other Conflicts ........................ 6
Section 2.6 Reimbursement and Fees ................. 6
Section 2.7 Indemnification of NEPP by the
Partnership ............................ 7
Section 2.8 Indemnification by NEPP ................ 7
Section 2.9 Limitation on Liability of Partners .... 8
Section 2.10 Payments to Developer and Affiliates ... 9
Section 2.11 Liability of Limited Partner ........... 9
<PAGE>
ARTICLE 3 - CAPITAL
Section 3.1 Capital Accounts and Adjusted Capital
Accounts ............................... 9
Section 3.2 Capital Contributions .................. 11
Section 3.3 No Further Capital Contributions ....... 12
Section 3.4 Capital Contributions - General ........ 12
Section 3.5 Interests .............................. 12
ARTICLE 4 - LOANS
ARTICLE 5 - CASH DISTRIBUTIONS
Section 5.1 Definitions ............................ 13
Section 5.2 Senior Payments and Junior Payments .... 16
Section 5.3 Operating Cash Flow .................... 18
Section 5.4 Extraordinary Cash Flow ................ 20
Section 5.5 Distributions in Liquidation ........... 21
Section 5.6 Guaranteed Senior Invested
Capital Payment Distribution ........... 21
Section 5.7 In-Kind Distribution ................... 22
ARTICLE 6 - OPERATING DEFICITS
Section 6.1 Operating Deficits ..................... 22
Section 6.2 Default Contributions .................. 23
Section 6.3 Adjustment of Interests ................ 24
Section 6.4 Effect of Adjustment on Cash and
Tax Allocations ........................ 24
Section 6.5 No Increase of Percentage Interest ..... 25
ARTICLE 7 - TAX ALLOCATIONS
Section 7.1 Definition of Net Profit and Net Loss .. 25
Section 7.2 Allocation of Net Profit, Gross Income
and Net Loss ........................... 26
Section 7.3 Tax Allocations; Code Section 704(c) ... 30
Section 7.4 Allocations Upon Transfer or
Change of Interests .................... 31
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<PAGE>
ARTICLE 8 - ACCOUNTING AND RECORDS
Section 8.1 Books and Records ...................... 31
Section 8.2 Reports ................................ 32
Section 8.3 Tax Returns ............................ 32
Section 8.4 Depreciation ........................... 33
Section 8.5 Special Basis Adjustment ............... 33
Section 8.6 Tax Matters Partner .................... 33
Section 8.7 Fiscal Year ............................ 33
Section 8.8 Bank Accounts .......................... 33
ARTICLE 9 - MANAGEMENT AND OPERATIONS
Section 9.1 Management ............................. 34
Section 9.2 Standard of Care ....................... 36
Section 9.3 Insurance .............................. 37
ARTICLE 10 - REPRESENTATIONS AND WARRANTIES
Section 10.1 Developer .............................. 37
Section 10.2 NEPP ................................... 39
Section 10.3 Brokers ................................ 40
ARTICLE 11 - TRANSFER OF INTERESTS
Section 11.1 Restrictions on Transfer ............... 40
Section 11.2 Right of First Refusal ................. 41
Section 11.3 Permitted Transfers .................... 42
Section 11.4 General Transfer Provisions ............ 43
Section 11.5 Tax Allocations and Cash
Distributions .......................... 43
Section 11.6 Compliance ............................. 44
Section 11.7 Waiver of Partition .................... 44
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<PAGE>
ARTICLE 12 - BUY/SELL
Section 12.1 Buy/Sell Events ........................ 44
Section 12.2 Rights Arising from a Buy/Sell
Event .................................. 45
Section 12.3 Determination of Fair Market
Value .................................. 45
Section 12.4 Appraisal Fees ......................... 46
Section 12.5 Determination of Purchase Price ........ 46
Section 12.6 Electing Partner's Option .............. 47
Section 12.7 Closing of Purchase and Sale ........... 47
Section 12.8 Payment ................................ 47
Section 12.9 Liabilities ............................ 47
Section 12.10 Failure to Exercise Option ............. 48
ARTICLE 13 - EXIT RIGHTS
ARTICLE 14 - TERMINATION OF THE PARTNERSHIP
Section 14.1 Events of Dissolution .................. 48
Section 14.2 Effect of Dissolution .................. 49
Section 14.3 Sale of Assets by Liquidating Trustee .. 49
ARTICLE 15 - MISCELLANEOUS
Section 15.1 Notices ................................ 50
Section 15.2 Successors and Assigns ................. 51
Section 15.3 No Oral Modifications; Amendments ...... 51
Section 15.4 Captions ............................... 51
Section 15.5 Terms .................................. 51
Section 15.6 Invalidity ............................. 51
Section 15.7 Counterparts ........................... 51
Section 15.8 Further Assurances ..................... 51
Section 15.9 Complete Agreement ..................... 51
Section 15.10 Attorneys' Fees ........................ 52
Section 15.11 Governing Law .......................... 52
Section 15.12 No Third Party Beneficiary ............. 52
Section 15.13 Exhibits and Glossary .................. 52
Section 15.14 Estoppels .............................. 52
Section 15.15 References to this Agreement ........... 52
Section 15.16 Reliance on Authority of Person
Signing Agreement ...................... 52
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<PAGE>
Section 15.17 Consents and Approvals ................. 53
Section 15.18 Construction of Agreement .............. 53
EXHIBITS
A Legal Description of Land
B Property Management Agreement
A Glossary of Defined Terms used in this Agreement is attached.
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<PAGE>
R/M SALINAS L.P.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT ("Partnership Agreement" or
"Agreement") of R/M Salinas L.P., a California limited partnership (the
"Partnership"), is dated as of August 1, 1995, between Rodde McNellis/Salinas, a
California general partnership ("Developer" or the "Limited Partner"), and New
England Pension Properties V; A Real Estate Limited Partnership, a Massachusetts
limited partnership ("NEPP" or the "General Partner"). Developer and NEPP are
sometimes hereinafter referred to collectively as the "Partners" and
individually as a "Partner."
WHEREAS, R/M Salinas Venture (the "Original Partnership") was formed
pursuant to that certain R/M Salinas Venture Joint Venture Agreement entered
into by and between Developer and NEPP dated February 1, 1989, as amended by
that First Amendment to Joint Venture Agreement of R/M Salinas Venture dated
June 5, 1989, as amended by that Second Amendment to Joint Venture Agreement of
R/M Salinas Venture dated July 20, 1990 (as so amended, the "Original
Agreement");
WHEREAS, the Partners have agreed to convert the Original Partnership
into a California limited partnership as of the date of filing, with the
California Secretary of State, of a Certificate of Limited Partnership (Form
LP-1) for the Partnership; and
WHEREAS, the parties hereto now desire to amend and completely restate
the Original Agreement in its entirety on the terms and conditions hereinafter
set forth to provide for (i) the revised ownership Interests of the Partners;
(ii) the conversion of the Original Partnership from a California general
partnership into a California limited partnership; and (iii) such other changes
to the Original Agreement as the Partners deem appropriate.
NOW, THEREFORE, in consideration of the foregoing, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual agreements set forth in this
Agreement and intending to be legally bound, the parties hereby agree to
continue the Partnership as a California limited partnership in accordance with
the California
<PAGE>
Revised Limited Partnership Act (the "Act") and do hereby agree as follows:
ARTICLE I
THE PARTNERSHIP
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Section 1.1 Reconstitution. The Partners hereby reconstitute the
--------------
Original Partnership as a California limited partnership in accordance with the
provisions of the Act. The Partners hereby make and execute this Agreement,
effective as of the date first above written, so as to set forth the rights,
duties, obligations and limitations on the liabilities of the Partners,
including, without limitation, the rights of the Partners with respect to the
assets and profits of the Partnership, which the Partners shall be entitled to
receive by reason of being a general or limited partner of the Partnership. In
furtherance of the foregoing provisions of this Section 1.1, the Partners hereby
acknowledge that (i) the interest of Developer as a general partner in the
Original Partnership is hereby converted into an interest as a limited partner
in the Partnership, and (ii) Developer is hereby entitled to exercise all of the
rights, powers, and privileges, which may hereafter exist with respect to a
limited partner of the Partnership. Each of the Partners hereby consents to the
conversion described above in this Section 1.1 and acknowledges that the
Partnership shall not dissolve or terminate as a result of such conversion; on
the contrary, the business of the Partnership shall continue without any
interruption and without any break in continuity.
Concurrently with the execution of this agreement, the General Partner
shall execute one (1) or more copies of a Certificate of Limited Partnership for
the Partnership pursuant to the provisions of Section 15621 of the California
Corporations Code, which shall be duly filed in the Office of the California
Secretary of State and certified copies of which may, in the sole discretion of
the General Partner, be recorded in any county.
Section 1.2 Name. The name of the Partnership is hereby changed to "R/M
----
Salinas L.P." or if that name is not available, any other name the General
Partner may select that is in compliance with the Act. In furtherance of the
foregoing name change, the Partners hereby authorize the General Partner to
execute and deliver (with acknowledgment, verification, and/or affidavit, if
required) any and all documents required to
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<PAGE>
effectuate such name change including, without limitation, a Cancellation of
Statement of Partnership and Statement of Abandonment of Use of Fictitious
Business Name for the Original Partnership.
Section 1.3 Principal Executive Office. The principal executive office
--------------------------
of the Partnership shall be located at 601 California Street, Suite 601, San
Francisco, California 94108 or at such other place within or without the State
of California as may be selected by NEPP. The Partnership shall at all times
maintain an office in California for purposes of Section 15614 of the Act.
Section 1.4 Purposes. The sole purposes of the Partnership shall be to
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acquire, own and hold for production of income, improve, develop, operate,
manage, lease, sell, dispose and otherwise deal with the Project. In furtherance
of these purposes, but subject to all other provisions of this Agreement, the
Partnership is hereby authorized:
- to acquire by purchase, lease or otherwise, any real or
personal property, including the Land (and to enter into
options and agreements so to acquire such real or personal
property), which may be necessary, convenient or incidental
to the accomplishment of the purposes of the Partnership;
- to construct, operate, maintain, finance, improve, own,
sell, convey, assign, mortgage or lease any real estate and
any personal property necessary, convenient or incidental to
the accomplishment of the purposes of the Partnership;
- 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 mortgage, pledge or
other lien on the Project and/or any other assets of the
Partnership;
- to borrow money on the general credit of the Partnership for
use in the Partnership business and to execute documents in
connection therewith;
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<PAGE>
- to enter into, perform and carry out contracts of any kind,
including contracts with an Affiliate of a Partner,
necessary to, in connection with or incidental to, the
accomplishment of the purposes of the Partnership;
- 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 partnership
under applicable laws;
- to enter into, on behalf of the Partnership, easements,
rights of way, utility or other agreements necessary for the
development of the Project or any portion thereof or to
permit access over, through, and across the Project or any
portion thereof (to serve adjoining properties, for
vehicular and pedestrian access, utility installations
maintenance and other purposes);
- to prepay in whole or in part, refinance, recast, increase,
modify, or extend any mortgage affecting the Project or
other indebtedness of the Partnership and, in connection
therewith, to execute any extensions, renewals or
modifications of such other mortgages and indebtedness; and
- to take or cause to be taken all actions and to perform or
cause to be performed all functions necessary or appropriate
to promote the business of the Partnership and to realize
and carry out its purposes.
Section 1.5 Purposes Limited. The Partnership shall be a partnership
----------------
only for the purposes specified in Section 1.4. Except as otherwise provided in
this Agreement, the Partnership shall not engage in any other activity or
business and no Partner shall have any authority to hold itself out as a general
agent of another Partner in any other business or activity.
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<PAGE>
Section 1.6 No Payments of Individual Obligations. The Partners shall
-------------------------------------
use the Partnership's credit and assets solely for the benefit of the
Partnership. No asset of the Partnership shall be transferred or encumbered for
or in payment of any individual obligation of a Partner.
Section 1.7 Statutory Compliance. The Partnership shall exist under and
--------------------
be governed by, and this Agreement shall be construed in accordance with, the
applicable laws of the State of California. The Partners shall make all filings
and disclosures required by, and shall otherwise comply with, all such laws.
The Partners shall execute and file in the appropriate records a
certificate of limited partnership, and such documents and instruments as may be
necessary or appropriate with respect to the continuation of, and conduct of
business by, the Partnership as a California limited partnership.
Section 1.8 Title to Property. All real and personal property owned by
-----------------
the Partnership shall be owned by the Partnership as an entity and, insofar as
permitted by applicable law, no Partner shall have any ownership interest in
such property in its individual name or right and each Partner's interest in the
Partnership shall be personal property for all purposes.
Section 1.9 Duration. The term of the Partnership commenced on February
--------
1, 1989 and the Partnership shall dissolve on February 1, 2049 unless sooner
dissolved or terminated pursuant to statute or any provision of this Agreement.
ARTICLE 2
THE PARTNERS
------------
Section 2.1 Identification. Developer and NEPP shall be the Partners of
--------------
the Partnership. No other person may become a Partner except pursuant to a
transfer specifically permitted under and effected in compliance with this
Agreement.
Section 2.2 [Intentionally omitted.]
Section 2.3 Competition. Developer agrees that none of its Affiliates
-----------
(either individually, collectively or with others) shall, without the prior
written consent of NEPP, conduct any real estate development business (as a
developer, investor or lender)
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<PAGE>
which competes with the Project or any portion thereof in any location which is
five or fewer miles from the Project during the term of this Agreement.
Section 2.4 Limits on Developer's Activities. Developer, which shall
--------------------------------
not include the general partners of Developer, shall not engage, invest or
otherwise participate in any activity, investment or undertaking other than this
Partnership.
Section 2.5 Other Conflicts. NEPP, Affiliates of NEPP and Affiliates of
---------------
Developer (but not Developer itself) may conduct any business or activity
whatsoever (including the acquisition, development, leasing and operation and/or
sale of real property) without any accountability to the Partnership or to any
Partner even if such business or activity competes with the business of the
Partnership. Each Partner understands that NEPP, Affiliates of NEPP and
Affiliates of Developer may be interested, directly or indirectly, in various
other businesses and undertakings not including the Partnership.
Further, each Partner understands and acknowledges that the conduct of
the business of the Partnership may involve business dealings with such other
businesses or undertakings of NEPP, Affiliates of Developer and Affiliates of
NEPP. The creation of the Partnership and the assumption by each of the Partners
of its duties hereunder shall be without prejudice to the respective rights of
NEPP, Affiliates of Developer and Affiliates of NEPP to maintain such other
interests and activities and to receive and enjoy profits or compensation
therefrom, and each Partner waives any rights it might otherwise have to share
or participate in such other interests or activities of NEPP, Affiliates of
Developer and Affiliates of NEPP. However, each Partner shall give notice to the
other Partner of its interest, or of the interest of any of its Affiliates, in
any other business which it proposes to enter into with the Partnership, and
such business or undertaking with the Partnership must be approved by the
non-interested Partner. Notwithstanding anything to the contrary, Developer
shall not engage in or have any business dealings with any other Person or
Entity, except as required for its administrative operation.
Section 2.6 Reimbursement and Fees. NEPP shall be entitled to
----------------------
reimbursement for its reasonable out-of-pocket expenses paid to third parties
(other than Affiliates) incurred in connection with the performance of its
obligations hereunder. If NEPP or an Affiliate of NEPP shall at any time provide
property management services to the Partnership, NEPP or such Affiliate shall be
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<PAGE>
entitled to property management fees and leasing commissions at rates
competitive with those which would be paid to an unaffiliated property manager
providing comparable services to a project of the type and size of the Project,
in the geographic area in which the Project is located; provided, however, that
in no event shall fees paid for property management services exceed 5.0% of
gross revenues from the Project.
Section 2.7 Indemnification of NEPP by the Partnership. NEPP shall
------------------------------------------
perform its duties under this Agreement with ordinary prudence and in a manner
characteristic of businesspersons in similar circumstances. However, NEPP shall
have no liability whatsoever to the Partnership or to any other Partner for loss
caused by any act or by the failure to do any act if the loss suffered arises
out of a mistake in judgment of NEPP, or if NEPP, in good faith, had determined
that the action or lack of action giving rise to the loss was in the best
interests of the Partnership or if the action or lack of action giving rise to
the loss was based on the advice of counsel; provided, however, that such
-------- -------
exculpation from liability shall not apply to any liability for loss caused by
any act or by the failure to do any act which arises out of the gross
negligence, willful neglect or willful misconduct of NEPP.
The Partnership, its receiver or liquidating trustee, shall indemnify,
hold harmless and pay all judgments and claims against NEPP arising from any
actions or decisions performed or made by it in connection with the business of
the Partnership, provided such actions or decisions are within the scope of the
--------
purposes of the Partnership and NEPP complied with the immediately preceding
paragraph. This indemnification shall include, without limitation, payment of
attorneys' and accountants' fees incurred in connection with the defense of any
claim or proceeding based on any such action or decision, which attorneys' and
accountants' fees shall be paid as incurred; and liabilities under Federal and
state securities laws, to the extent permitted by law.
Section 2.8 Indemnification by NEPP. Subject to Section 2.7, NEPP shall
-----------------------
indemnify and hold harmless Developer from and against all claims, demands,
actions and rights of action which shall or may arise by virtue of anything done
or omitted to be done by NEPP (directly or through or by agents, employees or
other representatives) outside the scope of, or in breach of the terms of this
Agreement, including without limitation Section 9.1.
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<PAGE>
If the Developer desires to make a claim against NEPP under this
Section, it shall notify NEPP of the claim, demand, action or right of action
which is the basis of such claim, and shall give NEPP a reasonable opportunity
to participate in the defense thereof. Failure to give such notice shall not
affect NEPP's obligations hereunder, except to the extent of any actual
prejudice resulting therefrom. Any cash distributions of NEPP under Article 5
shall be charged for any amounts NEPP is required to pay pursuant to this
Section 2.8.
Section 2.9 Limitation on Liability of Partners. Except as hereinafter
-----------------------------------
provided, no Partner shall have personal liability for the payment of any sums
owing by such Partner to the Partnership or any other Partner under the terms of
this Agreement, or for the performance of any other covenant or agreement of
such Partner contained herein; rather, the Partnership and each other Partner
shall look solely to the Interest of such Partner or to such other specific
remedies as may be provided for herein, for satisfaction of each and every of
such payments and obligations, and shall never seek, obtain or enforce any
deficiency judgment or other judgment or mandatory order of any nature the
effect of which would be to compel such Partner to pay any sum of money to any
party in respect of any obligation arising under the terms of this Agreement and
owed to the Partnership or any other Partner (including, without limitation, any
subrogation right or remedy obtained by payment by a Partner of all or any
portion of any indebtedness of the Partnership).
Except as otherwise provided in this Section 2.9, each Partner hereby
waives and relinquishes any right to have any recourse or pursue any remedy
whatsoever, other than the foregoing specified remedy, against the following:
- the Partnership, the Partners (or any partner, general or
limited, present or future subscriber to the capital stock,
stockholder, officer or director of any of the Partners); or
- any corporation, partnership (or any partner thereof), individual
or entity to which any interest in the Project shall have been
transferred.
The foregoing provisions shall not limit the right of any Partner to
name the Partnership or the other Partners a party defendant in any action or
suit in the exercise of the sole remedy permitted hereunder, so long as no
judgment obtained by such Partner shall be enforced other than as provided
above.
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<PAGE>
Notwithstanding the foregoing, each Partner shall be personally liable
to the other for any of their respective representations set forth in Sections
10.1 and 10.2 proving to be false or misleading when made.
Section 2.10 Payments to Developer and Affiliates. The Partnership has
------------------------------------
entered into a Property Management Agreement with respect to the Project
pursuant to which the Developer or an Affiliate of the Developer (the "Property
Manager") shall provide management services for the Project. The form of such
Property Management Agreement is attached hereto as Exhibit B.
---------
Section 2.11 Liability of Limited Partner. Notwithstanding the
----------------------------
foregoing, with respect to third parties the Developer shall be entitled to all
of the protections afforded limited partners by the Act.
ARTICLE 3
CAPITAL
-------
Section 3.1 Capital Accounts and Adjusted Capital Accounts.
----------------------------------------------
(a) A separate capital account ("Capital Account") shall be maintained
for each Partner and adjusted in accordance with Treasury Regulations under
Section 704(b) of the Code. To the extent consistent with such Regulations, the
adjustments to such accounts shall include the following:
(i) There shall be credited to each Partner's Capital Account the
amount of any cash (which shall not include imputed or actual interest on
any deferred contributions) actually contributed by such Partner to the
capital of the Partnership (or deemed contributed pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(c)), the fair market value of any
property contributed by such Partner to the capital of the Partnership (net
of any liabilities secured by such property that the Partnership is
considered to assume or to take subject to under Code Section 752) and such
Partner's share of the [Gross Income and] Net Profits (and all items
thereof) of the Partnership. There shall be charged against each Partner's
Capital Account the amount of all cash distributions to such Partner by the
Partnership (or deemed distributed pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(c)), the fair market value of any property distributed to
such Partner by the
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<PAGE>
Partnership (net of any liability secured by such property that the Partner
is considered to assume or take subject to under Code Section 752) and such
Partner's share of the Net Losses (and all items thereof) of the
Partnership.
(ii) If the Partnership at any time distributes any of its assets
in-kind to any Partner, the Capital Account of each Partner shall be
adjusted to account for that Partner's allocable share (as determined under
Article 7 below) of the Net Profit or Net Loss that would have been
realized by the Partnership had it sold the assets that were distributed at
their respective fair market values immediately prior to their
distribution.
(iii) Any adjustments to the tax basis (or Book Value) of Partnership
property under Code Sections 732, 734 or 743, will be reflected as
adjustments to the Capital Accounts of the Partners, only in the manner and
to the extent provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m).
(b) An adjusted capital account ("Adjusted Capital Account") shall also
be maintained for each Partner, which shall be equal to such Partner's Capital
Account balance increased by (i) the Partner's Share of Partnership Minimum Gain
and (ii) the Partner's Share of Partner Nonrecourse Debt Minimum Gain.
(c) For purposes of Section 7.2(i) and (j) only, below, a Partner's
Adjusted Capital Account shall be reduced by the net adjustments, allocations
and distributions described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6) which, as of the end of the Partnership's
taxable year are reasonably expected to be made to such Partner, and shall be
increased by the sum of (i) any amount which the Partner is required to restore
to the Partnership upon liquidation of his or its interest in the Partnership
(or which is so treated pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(c)) pursuant to the terms of this Agreement or under state law
and (ii) that portion of any indebtedness of the Partnership (other than Partner
Nonrecourse Debt) with respect to which the Partner bears the Economic Risk of
Loss that such indebtedness would not be repaid out of the Partnership's assets
if all of the Partnership's assets were sold at their respective Book Values as
of the end of the Fiscal Year or other period and the proceeds from the sales
together with any amounts described in clause (i) above were used to pay the
Partnership's liabilities.
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<PAGE>
(d) As of January 1, 1995, the respective Capital Account balances of
the Partners were as follows:
NEPP $8,381,563
Developer $ 0
----------
Section 3.2 Capital Contributions.
---------------------
(a) Upon its admission to the Original Partnership, NEPP agreed to
contribute to the Partnership capital in the amount of $9,500,000, all of which
was contributed by NEPP. $6,500,000 of such amount constitutes "Senior Capital,"
$3,000,000 of such amount constitutes "Junior Capital." NEPP subsequently agreed
to contribute up to an additional $1,850,000 of Junior Capital to the capital of
the Partnership, of which $1,450,840 has been contributed as of the date hereof.
NEPP shall contribute the balance of the Junior Capital to the capital of the
Partnership at such times as NEPP shall determine in its sole discretion.
(b) Upon formation of the Original Partnership, Developer contributed
or caused to be contributed to the Partnership its interest in the Project, and
assigned or caused to be assigned to the Partnership the following:
- all rights of Developer and its Affiliates in any plans,
specifications, working drawings, designs, models and other
similar architectural or engineering materials prepared for the
Project (or any portion thereof);
- all rights or benefits of Developer and its Affiliates in and to
all prior discussions with governmental bodies, entities and
agencies with respect to the Project (or any portion thereof);
- all agreements for utility services for the Project (or any
portion thereof);
- all right, title and interest of Developer or its Affiliate in
and to (i) that certain promissory note from Nielsen Properties
Ltd., ("Nielsen") in favor of Developer in the original principal
amount of $250,000, (ii) that certain deed of trust from Nielsen
to Developer encumbering the Property, and (iii) that certain
Ground Lease by and between Nielsen as Landlord and Developer as
Tenant, relating to the Property, all
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<PAGE>
dated January 23, 1988 (collectively, the "Nielsen Documents");
- at the option of NEPP, any additional notes, indebtedness, rights
and agreements from Nielsen to Developer;
- all right, title and interest of Developer and its Affiliates to
continue the negotiations, discussions and business arrangements
with respect to the Project (or any portion thereof);
- all representations, warranties, guarantees, covenants, etc.,
relating to the Project (or any portion thereof) to which
Developer is presently or may become entitled; and
- all other rights, licenses and permits related to the Project (or
any portion thereof).
The agreed-upon net fair market value of the interests contributed by Developer
is zero.
Section 3.3 No Further Capital Contributions. The Partners shall not be
--------------------------------
required to contribute additional capital or loan any funds to the Partnership,
except as expressly provided in this Article 3, Article 5 and Article 6.
Section 3.4 Capital Contributions - General. Except as specifically
-------------------------------
provided herein, no interest shall be paid on any capital contribution to the
Partnership by any Partner. Except as specifically provided herein, no Partner
may contribute capital to, or withdraw capital from, the Partnership. To the
extent any cash which any Partner is entitled to receive pursuant to Article 5
or any other provision of this Agreement would constitute a return of capital,
each of the Partners consents to the withdrawal of such capital. Under
circumstances requiring a return of any capital, no Partner shall have the right
to receive property other than cash.
Section 3.5 Interests. The respective Interests of the Partners shall
---------
be:
NEPP 63%
Developer 37%
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<PAGE>
The provisions of this Section shall not give a Partner an interest in
any amount credited to the Capital Account of any other Partner.
ARTICLE 4
LOANS
-----
[Intentionally omitted.]
ARTICLE 5
CASH DISTRIBUTIONS
------------------
5.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the meanings set forth below:
"Senior Invested Capital" means an amount equal to the aggregate amount
-----------------------
of Senior Capital which NEPP has contributed to the capital of the Partnership
pursuant to Section 3.2 hereof decreased (but not below zero) by the aggregate
amount of proceeds distributed to NEPP pursuant to clause FIRST of Section 5.3
and clause FIRST of Section 5.4 (to the extent such distributions are in respect
of payment of Senior Capital) and clause SECOND of Section 5.4 (other than
distributions in respect of the Guaranteed Senior Invested Capital Payment
Distribution).
"Junior Invested Capital" means an amount equal to the aggregate amount
-----------------------
of Junior Capital which NEPP has contributed to the capital of the Partnership
pursuant to Section 3.2 hereof, increased by (i) any additional capital
contributions of NEPP (other than Deficit Contributions made pursuant to Section
6.1 and Default Contributions made pursuant to Section 6.2) and (ii) by the
amount of any payments under the Ground Lease which the Partnership sets off
against payments owed NEPP under the Nielsen Note, and decreased (but not below
zero) by the amount of proceeds distributed to NEPP pursuant to clause FOURTH of
Section 5.4.
"Project Expenses" means all expenditures, expenses and charges
----------------
relating to the ownership, operation, construction, development, maintenance,
and upkeep of the Project, or any portion thereof, and the operations of the
Partnership (excluding Senior Payments and Junior Payments) including, without
limitation, the following:
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<PAGE>
- all taxes, assessments, ground rents and other similar
governmental and quasi-governmental charges levied or imposed on
the Project or any portion thereof;
- insurance premiums;
- maintenance and security expenses;
- marketing, advertising and other promotional expenses;
- utility costs;
- legal, accounting and other professional fees and expenses;
- architects, engineers and surveyors' fees;
- cost of roads and utilities built and installed on the Land, or
any portion thereof;
- other costs associated with the zoning, subdivision and
improvement of the Land, or any portion thereof, into building
lots, whether incurred on or off the site;
- development and management fees;
- payments of principal, interest and other amounts due or accrued
under any loans; and
- any and all other costs and expenses specified in an Annual
Business Plan.
Depreciation (cost recovery) and amortization or any other non-cash
items taken into account in determining Net Profits or Losses shall
not be Project Expenses.
"Operating Revenues" means as to any particular Fiscal Year or portion
------------------
thereof, the total cash receipts of the Partnership other than (i) Extraordinary
----- ----
Cash Flow and liquidation proceeds subject to Section 5.5, (ii) any properly
unapplied advance rentals of the Partnership in connection with the leasing of
the Project (which shall be Operating Revenues when applied), and (iii) any
unforfeited security deposits of Project tenants.
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<PAGE>
"Operating Cash Flow" means as to any particular Fiscal Year or portion
-------------------
thereof, Operating Revenues less the sum of the following:
----
- Project Expenses paid and accrued during such period; and
- a provision for a reasonable working capital reserve and a
reserve for future Project Expenses in an amount reasonably
determined by NEPP (the "Working Capital Fund"), and a reasonable
reserve for replacement of Partnership assets subject to
depreciation ("Reserve for Replacements") in an amount determined
by NEPP in its reasonable discretion which Reserve for
Replacements shall be released when no longer necessary as
determined by NEPP in its reasonable discretion.
"Capital Transaction" means the sale, exchange, condemnation (or
-------------------
similar eminent domain taking or disposition in lieu thereof), destruction by
casualty, refinancing or disposition of the Project or any portion thereof.
"Extraordinary Cash Flow" means the cash proceeds (including any
-----------------------
applicable insurance proceeds) realized by the Partnership as a result of a
Capital Transaction plus cash interest payments received on such proceeds, net
----
of any expenses, costs or liabilities incurred by the Partnership in effecting
or obtaining any such Capital Transaction or the proceeds thereof (including,
without limitation, attorneys' and accountants' fees, court costs, brokerage
fees, commissions, recording fees, transfer taxes, and the like), which shall be
paid out of such proceeds to the extent available, and decreased by the sum of
---------
the following:
- the amount of such proceeds used, set aside or committed by the
Partnership for restoration and repair of the Project;
- the amount of such proceeds used for the payment of indebtedness
of the Partnership then due and payable, including, without
limitation, indebtedness of the Partnership to the Partners and
their Affiliates; and
- provision for the Working Capital Fund and the Reserve for
Replacements, to the extent not funded from Operating Revenues,
in an amount determined by NEPP in its reasonable discretion.
-15-
<PAGE>
Section 5.2 Senior Payments and Junior Payments.
-----------------------------------
(a) Senior Payments.
---------------
(i) Each month for 24 months, beginning on the first day of the
first month following the date of the first investment of
Senior Capital by NEPP, the Partnership shall make a
guaranteed senior return payment ("Guaranteed Senior Return
Payment") to NEPP at the rate of 10.5% per annum on the
daily balances of the Senior Invested Capital.
(ii) Each month for 95 months beginning on the first day of the
25th month following the date of the first investment of
Senior Capital by NEPP, the Partnership shall make in equal
installments a guaranteed Senior Invested Capital reduction
payment ("Guaranteed Senior Invested Capital Reduction
Payment") to NEPP in an amount sufficient to completely
repay the Senior Invested Capital, together with a return at
the rate of 10.5% per annum, over a 27-year term; provided,
however, the remaining Senior Invested Capital shall be paid
in full on the first day of the 120th month following the
date of the first investment of Senior Capital by NEPP.
(iii) Guaranteed Senior Return Payments, Guaranteed Senior
Invested Capital Reduction Payments and repayment of the
Senior Invested Capital shall be made from current or
accumulated Operating Cash Flow, Extraordinary Cash Flow,
and distributions in liquidation as provided in Sections
5.3, 5.4 and 5.5, respectively, and to the extent that any
such payments cannot be made from such sources when due,
they shall be funded out of the proceeds of Deficit
Contributions and Default Contributions as provided in
Article 6. All payments made pursuant to this Section 5.2(a)
are sometimes referred to as "Senior Payments."
(iv) The Guaranteed Senior Return Payments and that portion of
the Guaranteed Senior Invested Capital Reduction Payments
representing the return on the Senior Invested Capital are
sometimes hereinafter collectively referred to as the
"Guaranteed
-16-
<PAGE>
Senior Payments". It is intended that the Guaranteed Senior
Payments described in this Section 5.2(a) shall constitute
guaranteed payments within the meaning of Code Section
707(c), that they shall be deducted as an expense of the
Partnership (unless the Partners agree that such expense
should be amortized) and shall not directly reduce the
Capital Account of NEPP.
(b) Junior Payments.
---------------
(i) The Partnership shall make a monthly junior priority return
payment ("Junior Priority Return Payment") to NEPP at the
rate of 10.5% per annum, compounded monthly on the daily
balance of the Junior Invested Capital of NEPP. Junior
Priority Return Payments shall be made monthly in arrears
commencing on the first day of the first month following the
initial investment of Junior Capital, and ending on the date
on which the Junior Invested Capital of NEPP shall have been
reduced to zero. Junior Priority Return Payments shall be
made from Operating Cash Flow, Extraordinary Cash Flow and
distributions in liquidation as provided in Sections 5.3,
5.4 and 5.5, respectively, and to the extent that any such
payments cannot be made from such sources when due, they
shall be deferred and bear an additional return at the rate
of 10.5% per annum, compounded monthly and shall be paid out
of the first available Operating Cash Flow or Extraordinary
Cash Flow pursuant to clause SECOND of Section 5.3 or clause
THIRD of Section 5.4, respectively. The total amount of
unpaid Junior Priority Return Payments so deferred together
with the additional return thereon described in the
preceding sentence is referred to as the "Accrued Junior
Priority Return."
(ii) Once the Accrued Junior Priority Return reaches $1,000,000,
the sum of all Junior Priority Return Payments and the
return on the Accrued Junior Priority Return shall be paid
currently and shall not be deferred further. Any payments
required to be paid under this Section 5.2(b)(ii) shall,
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<PAGE>
if necessary, be funded from the unfunded portion of NEPP's
Junior Capital; provided, however, that NEPP may elect not
to contribute Junior Capital to pay the Junior Priority
Return Payments and pay the return on the Accrued Junior
Priority Return, in which event the $1,000,000 limit set
forth in the preceding sentence shall be increased, and
NEPP's obligation to fund Junior Capital shall be decreased,
by the amount which NEPP so elects not to fund.
(iii) All Junior Priority Return Payments and Accrued Junior
Priority Return together with any outstanding Junior
Invested Capital shall be paid no later than February 1,
2004. All payments made pursuant to this Section 5.2(b) are
sometimes hereinafter collectively referred to as "Junior
Payments."
(iv) Junior Payments shall not be considered guaranteed payments
within the meaning of Code Section 707(c).
Section 5.3 Operating Cash Flow. Operating Cash Flow shall be
-------------------
determined for each Fiscal Year, or fraction thereof, and shall be distributed
by the Partnership in the following order of priority:
FIRST: to NEPP in payment of its Senior Payments then payable;
-----
SECOND: to NEPP in payment of its Junior Payments then payable;
------
THIRD: to each Partner in payment of any current and accrued Default
----- Preferred Returns;
FOURTH: to each Partner as a return of its Default Contributions;
------
FIFTH: to each Partner in payment of any current and accrued Deficit
----- Preferred Returns; and
SIXTH: to the Partners in accordance with their Interests.
-----
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<PAGE>
Distributions made pursuant to the third through fifth priorities shall
be made proportionately to the amount due and owing to each Partner pursuant to
each such priority if there is insufficient Operating Cash Flow to pay all sums
due under such priority.
Distributions of Operating Cash Flow shall be made monthly on a cash
basis within 30 days after the last day of each month. Following the end of each
Fiscal Year, and at any time or from time to time during any Fiscal Year if
requested by either Partner (and after determination of the actual amount of
Operating Cash Flow for such Fiscal Year, or the portion thereof which then
shall have elapsed, as applicable), the above provisional distributions of
Operating Cash Flow to the Partners with respect to such Fiscal Year or portion
thereof shall be recomputed on the basis of the actual amount of Operating Cash
Flow, on a cash basis. If the above provisional distributions with respect to
such Fiscal Year or portion thereof are greater than the distributions thus
recomputed for such Fiscal Year or portion thereof, then the Partners shall
recontribute to the Partnership in reverse order of the priorities set forth
above the amounts received by the Partners for such Fiscal Year or portion
thereof until all distributions of Operating Cash Flow for such Fiscal Year or
portion thereof shall be in conformance with this Section 5.3.
Furthermore, if an Operating Deficit is projected to exist for all or a
portion of the then Fiscal Year, and distributions of Operating Cash Flow
theretofore have been made with respect to such Fiscal Year, then the Partners
shall recontribute to the Partnership such distributions in reverse order of the
priorities set forth in this Section 5.3, until there has been recontributed to
the Partnership that aggregate amount which is equal to the lesser of the total
of such distributions previously made with respect to such Fiscal Year, or the
amount of such projected Operating Deficit for such Fiscal Year. Any amounts so
recontributed shall be characterized in the same manner as they were originally
distributed so that, following such recontribution, subsequent distributions to
the Partners pursuant to any clause of this Section shall be made in the same
manner as if the original distributions were never made (except that, any
distributions in respect of the Accrued Junior Priority Return made to NEPP
which are entitled to earn interest, shall not earn such interest during the
period from the date of distribution of such amount to NEPP through the date of
its recontribution by NEPP pursuant to this sentence). For example, to the
extent NEPP is required to recontribute distributions made pursuant to clause
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<PAGE>
FIRST of this Section, the amount of NEPP's Senior Payments represented by such
distributions shall be deemed not to have been made for purpose of calculating
the Senior Payments payable to NEPP.
Any amounts previously set aside in the Working Capital Fund or the
Reserve for Replacements, to the extent funded from Operating Revenues, shall be
additions to Operating Cash Flow when and to the extent NEPP no longer regards
such reserves as reasonably necessary to the efficient conduct of the affairs of
the Partnership.
Section 5.4 Extraordinary Cash Flow. Extraordinary Cash Flow shall be
-----------------------
distributed by the Partnership in the following order of priority:
FIRST: to NEPP in payment of its Senior Payments then payable;
-----
SECOND: to NEPP as a return of its Senior Invested Capital, along
------ with the applicable Guaranteed Senior Invested Capital
Payment Distribution payable pursuant to Section 5.6;
THIRD: to NEPP in payment of its Junior Payments then payable;
-----
FOURTH: to NEPP as a return of its Junior Invested Capital;
------
FIFTH: to each Partner in payment on any current and accrued Default
----- Preferred Returns;
SIXTH: to each Partner as a return of its Default Contributions;
-----
SEVENTH: to each Partner in payment of any current and accrued Deficit
------- Preferred Returns;
EIGHTH: to each Partner as a return of its Deficit Contributions; and
------
NINTH: to the Partners in accordance with their Interests.
-----
Distributions made pursuant to the first through ninth priorities shall
be made proportionately to the amount due and owing to each Partner pursuant to
each such priority if there is
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<PAGE>
insufficient Extraordinary Cash Flow to pay all sums due under such priority.
Section 5.5 Distributions in Liquidation. Notwithstanding the
----------------------------
provisions of Sections 5.3 and 5.4, distributions in connection with the
liquidation and winding up of the Partnership (including distributions of
Operating Cash Flow and Extraordinary Cash Flow) pursuant to and in accordance
with Article 13 shall be made in the following order of priority, after payment
of the reasonable expenses incurred in dissolution and termination and of any
additional expenses of the type deductible in computing Operating Cash Flow or
Extraordinary Cash Flow:
FIRST: in accordance with the first through fourth priorities of
----- Section 5.4, but not in excess of an amount that would reduce
NEPP's Capital Account to less than zero.
SECOND: to the Partners in proportion to the positive balance in each
------ such Partner's Capital Account (after Capital Accounts have been
adjusted for the allocation of Net Profit and Net Loss, and items
thereof, for the Fiscal Year in which such liquidation occurs).
Section 5.6 Guaranteed Senior Invested Capital Payment Distribution. If
-------------------------------------------------------
any portion of the unpaid Senior Invested Capital (except the Senior Invested
Capital portion of the Guaranteed Senior Invested Capital Reduction Payments) is
paid prior to the 120th month following the date of the first investment of
Senior Capital by NEPP (the "Repayment Date"), for any reason, the Partnership
shall distribute to NEPP an amount (the "Guaranteed Senior Invested Capital
Payment Distribution") equal to:
1. the present value, computed on a monthly basis as of the date of
payment of such Senior Invested Capital, at the rate then charged by New England
Mutual Life Insurance Company or other similar lenders on loans having a term
similar to the period from the date of payment of such Senior Invested Capital
to the Repayment Date, of:
a. the sum of an amount equal to the Senior Payments from the date
of payment of such Senior Invested Capital to, but not including,
the Repayment Date, times a factor equal to the amount of Senior
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<PAGE>
Invested Capital so paid, divided by the amount of Senior
Invested Capital then outstanding (the "Payment Factor");
plus
----
b. the amount of Senior Payments due on the Repayment Date pursuant
to Section 5.2(a) (assuming all Senior Payments due prior to the
Repayment Date were made when due), times the Payment Factor;
less
----
2. the amount of Senior Invested Capital so paid.
If the foregoing is determined to be unenforceable in whole or in part, NEPP
may, at its option, pursue any other legal or equitable right or remedy now or
hereafter available to NEPP.
Section 5.7 In-Kind Distribution. Assets of the Partnership (other than
--------------------
cash) shall not be distributed in kind to the Partners without the prior
approval of both Partners. If any assets of the Partnership are distributed to
the Partners in kind, such assets shall be valued on the basis of the fair
market value thereof on the date of distribution, and 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 selected by NEPP and Developer.
ARTICLE 6
OPERATING DEFICITS
------------------
Section 6.1 Operating Deficits. If, at any time, Project Expenses (plus
------------------
the amount of any Senior Payments and Junior Payments then due) exceed Operating
Revenues, Extraordinary Cash Flow and other funds available to the Partnership,
including the uncontributed balance of Junior Capital (an "Operating Deficit"),
then funds shall be withdrawn from the Working Capital Fund as required and if
available. If Operating Deficits cannot be so funded, or if it reasonably
appears that the Partnership will be unable to meet in a timely manner any of
its obligations as they mature, then NEPP shall notify Developer, which notice
shall explain the need for such funds, and shall include a reasonably
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<PAGE>
detailed breakdown of the expenses that caused the need and a statement of the
amount needed and the bank account into which the needed funds are to be
deposited.
Within 10 business days after such notice is given, each Partner shall
contribute to the Partnership its proportionate share (as to each Partner, a
"Deficit Contribution") of the amount needed. The Partners' proportionate shares
shall be determined by reference to their respective Interests at the end of the
month in which the contribution is to be made.
All Deficit Contributions shall be deposited into an escrow account
with such bank as is selected by NEPP, with the funds in such escrow account to
be disbursed to the Partnership only after all Partners have deposited their
respective Deficit Contributions into such escrow account.
Each Partner shall be entitled to a "Deficit Preferred Return" equal to
a cumulative return, calculated at the Deficit Equity Rate and compounded
monthly, on the daily balance of its Deficit Contributions.
Section 6.2 Default Contributions. If a Partner fails to make its
---------------------
Deficit Contribution within the time specified in Section 6.1 (such Partner
hereafter being called a "Non-Contributing Partner") and the other Partner has
deposited the amount of its required Deficit Contribution in escrow (a
"Contributing Partner"), the Contributing Partner shall have the right to
release its Deficit Contribution from escrow and contribute it, together with
the amount of the Deficit Contribution which the Non-Contributing Partner failed
to make, to the Partnership, in which case the Interests of the Partners shall
be adjusted as provided in Section 6.3. The amount so contributed by the
Contributing Partner (a "Default Contribution") shall not be considered a
Deficit Contribution. Each Partner shall be entitled to a "Default Preferred
Return" equal to a cumulative return, calculated at 10.5% per annum and
compounded monthly, on the daily balance of its Default Contributions.
If the Contributing Partner does not elect to have its Deficit
Contribution removed from escrow and contributed to the Partnership within 15
days after the deadline for making Deficit Contributions, the Contributing
Partner shall withdraw its Deficit Contribution from escrow (with respect to
that particular notice and call for such a contribution).
-23-
<PAGE>
Section 6.3 Adjustment of Interests. If the Contributing Partner shall
-----------------------
have made a Default Contribution in accordance with Section 6.2, the Interest of
each Partner shall thereupon be recalculated as of the effective date of the
contribution, with the Interest of the Non-Contributing Partner being decreased
and the Interest of the Contributing Partner being increased by an amount
(stated as a percentage) equal to the amount of the Deficit Contribution the
Non-Contributing Partner failed to make divided by $2,500,000 (the "Adjustment
Percentage").
For example, if (i) there were an Operating Deficit of $625,000,
requiring a Deficit Contribution by NEPP of $393,750 (63% pro rata share) and by
Developer of $231,250 (37% pro rata share), (ii) NEPP made its Deficit
Contribution and Developer failed so to do, and (iii) NEPP withdrew its Deficit
Contribution from escrow and made a Default Contribution of $625,000, the
Adjustment Percentage would be 9.25%, i.e.,
$ 231,250
------------- = 9.25%
$2,500,000
Thus, if immediately before such contribution the Interest of NEPP were 63% and
the Interest of Developer were 37%, then the Interest of Developer as the
Non-Contributing Partner immediately after giving effect to the above would be
27.75% and that of NEPP as the Contributing Partner would be 72.25%.
Section 6.4 Effect of Adjustment on Cash and Tax Allocations. If the
------------------------------------------------
Interest of a Partner is adjusted during a Fiscal Year pursuant to Section 6.3,
the Partnership's books shall be closed as of the date immediately preceding the
effective date of the contribution described in such section. For the period
ended on such date, Operating Cash Flow and Net Profits and Losses shall be
distributed and allocated pursuant to the provisions of Sections 5.3 and
7.2(b)(i), respectively, according to the Interests in effect prior to such
date, and Operating Cash Flow and Net Profits and Losses for the balance of such
Fiscal Year shall be distributed and allocated pursuant to the provisions of
Sections 5.3 and 7.2(b)(i), respectively, according to the Interests of such
Partners, as so adjusted. Extraordinary Cash Flow and Net Profits or Losses
arising from a Capital Transaction shall be distributed and allocated pursuant
to the provisions of Sections 5.4 and 7.2(b)(ii), respectively, according to the
Interests of the Partners in effect as of the date of the Capital Transaction in
question.
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<PAGE>
Section 6.5 No Increase of Percentage Interest. Except as otherwise
----------------------------------
provided in this Article 6, no amounts contributed or loaned by any Partner to
the Partnership shall increase such Partner's Interest.
ARTICLE 7
TAX ALLOCATIONS
---------------
Section 7.1 Definition of Net Profit and Net Loss. (a) "Net Profit" and
-------------------------------------
"Net Loss" shall mean, for each Fiscal Year or other period, an amount equal to
the Partnership's taxable income or loss for such Fiscal Year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) any income of the Partnership that is exempt from federal income
tax or not otherwise taken into account in computing Net Profit or Net Loss
pursuant to this Section 7.1 shall be added to such taxable income or loss;
(ii) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under
Code Section 704(b) and not otherwise taken into account in computing Net
Profit or Net Loss pursuant to this Section 7.1, shall be subtracted from
such taxable income or loss;
(iii) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Book Value of
such property rather than its adjusted tax basis;
(iv) in lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing taxable income or loss,
there shall be taken into account depreciation on the assets' respective
Book Values for such Fiscal Year or other period determined in accordance
with Treasury Regulations under Code Section 704(b); and
(v) the amount of any Gross Income allocated to the Partners pursuant
to Section 7.2(a) and Sections 7.2(e), (f)
-25-
<PAGE>
and (i), below, and pursuant to Section 7.2(k), below, to the extent such
allocation of Gross Income under Section 7.2(k) is a reversal of an
allocation pursuant to Section 7.2(j), below, shall not be included as
income or revenue.
(b) Definition of Net Profits or Net Losses From Capital Transactions.
-----------------------------------------------------------------
"Net Profits or Net Losses from Capital Transactions" shall mean for each Fiscal
Year or other period, the Net Profit or Net Loss for such Fiscal Year or other
period calculated solely by reference to gains and losses from Capital
Transactions.
(c) Definition of Net Profits or Net Losses From Operations. "Net
-------------------------------------------------------
Profits or Net Losses from Operations" shall mean for each Fiscal Year or other
period, the Net Profit or Net Loss for such Fiscal Year or other period
calculated without regard to Net Profits and Net Losses from Capital
Transactions.
(d) Definition of Gross Income. "Gross Income" shall mean, for each
--------------------------
Fiscal Year or other period, an amount equal to the Partnership's gross income
as determined for federal income tax purposes for such Fiscal Year or period but
computed with the adjustments specified in Section 7.1(a)(i) and (iii), above.
(e) Definition of Gross Income from Operations. "Gross Income from
------------------------------------------
Operations" shall mean for each Fiscal Year or other period, the Gross Income
for such year calculated without regard to Gross Income attributable to Capital
Transactions.
Section 7.2 Allocation of Net Profit, Gross Income and Net Loss. The
---------------------------------------------------
Partners hereby agree that, effective as of August 1, 1995, the Net Profit,
Gross Income and Net Loss of the Partnership shall be allocated among them in
accordance with this Section 7.2.
(a) Gross Income from Operations. Except as otherwise provided in this
----------------------------
Article 7, Gross Income from Operations, if any, of the Partnership (and each
item thereof) for each Fiscal Year or other period, in an amount equal to the
total amount distributed to Developer pursuant to Section 5.3 with respect to
such Fiscal Year or other period, shall be allocated to Developer if and to the
extent that such distribution creates or increases a deficit in the Developer's
Capital Account.
(b) Net Profits From Operations and Capital Transactions. Except as
----------------------------------------------------
otherwise provided in this Article 7, Net Profit, if any, of the Partnership
(and each item thereof) for each Fiscal
-26-
<PAGE>
Year or other period shall be allocated among the Partners as follows:
(i) All Net Profit from Operations of the Partnership shall be
allocated to NEPP.
(ii) Net Profit from Capital Transactions shall:
(x) first be allocated to the Partners in proportion to the
negative balances, if any, in their Adjusted Capital Accounts (after
adjusting such Adjusted Capital Accounts for allocations of any Gross
Income, Net Loss or Net Profit from Operations of the Partnership for
the Fiscal Year or other period) until such negative balances are
increased to zero, and
(y) thereafter, be allocated to the Partners in such proportions
and in such amounts as would result in the Adjusted Capital Account
balance of each Partner equaling, as nearly as possible, such
Partner's share of the then Partnership Capital determined by
calculating the amount the Partner would receive if an amount equal to
the Partnership Capital were distributed to the Partners in accordance
with the provisions of Section 5.4 hereof, other than clause FIRST
thereof.
(c) Net Losses From Operations and Capital Transactions. Except as
---------------------------------------------------
otherwise provided in this Article 7, Net Loss, if any, of the Partnership (and
each item thereof) for each Fiscal Year or other period shall be allocated as
follows:
(i) All Net Loss from Operations of the Partnership shall be allocated
to NEPP.
(ii) Net Loss from Capital Transactions shall:
(x) first be allocated to those Partners with positive
balances in their Adjusted Capital Accounts in amounts equal to
their respective Adjusted Capital Account balances; provided,
however, that if the amount of Net Loss to be allocated is less
than the sum of the Adjusted Capital Account balances of all
Partners having positive Adjusted Capital Account balances, then
the Net Loss shall be allocated to the Partners in such
proportions and in such amounts as would
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result in the Adjusted Capital Account balance of each Partner
equaling, as nearly as possible, such Partner's share of the then
Partnership Capital determined by calculating the amount the
Partner would receive if an amount equal to the Partnership
Capital were distributed to the Partners in accordance with the
provisions of Section 5.4 hereof, other than clause FIRST
thereof; and
(y) thereafter, one hundred percent (100%) to NEPP.
(d) Liquidation. Subject to the provisions of Sections 7.2(e) through
-----------
(j), Net Profit and Net Loss incurred in the Fiscal Year in which the
Partnership is liquidated shall be allocated in accordance with the provisions
of Sections 7.2(b)(ii) and 7.2(c)(ii) without regard to whether such Net Profit
and Net Loss arises from a Capital Transaction, and Sections 7.2(a), 7.2(b)(i)
and 7.2(c)(i) shall not apply.
(e) Minimum Gain Chargeback. Notwithstanding any other provision of
-----------------------
this Agreement to the contrary, if in any Fiscal Year or other period there is a
net decrease in the amount of Partnership Minimum Gain, then each Partner shall
first be allocated items of Gross Income for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of the net decrease
in Partnership Minimum Gain determined as set forth in the definition of
Partnership Minimum Gain; provided, however, that no such allocation of Gross
Income to a Partner shall occur in the following circumstances:
(i) If the net decrease in Partnership Minimum Gain is caused by
a modification of a Nonrecourse Liability and the Partner bears the
Economic Risk of Loss with respect to such modified liability;
(ii) If the net decrease in Partnership Minimum Gain is
attributable to a repayment of a Nonrecourse Liability with amounts
contributed to the capital of the Partnership by the Partner; and
(iii) If the allocation of Gross Income would cause a "distortion
in the economic arrangement among the Partners" and the Partnership
receives a waiver of the requirement that Gross Income be so allocated
from the Commissioner of the
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Internal Revenue Service pursuant to Treasury Regulation Section
1.704-2(f)(4).
(f) Minimum Gain Chargeback for Partner Nonrecourse Debt.
----------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary other than
Section 7.2(e), above, if in any year there is a net decrease in the amount of
Partner Nonrecourse Debt Minimum Gain, then each Partner shall first be
allocated items of Gross Income for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's net decrease in Partner Nonrecourse
Debt Minimum Gain with respect to liabilities for which the Partner bears the
Economic Risk of Loss; provided, however, that no such allocation of Gross
Income to a Partner shall occur in the following circumstances:
(i) If the net decrease in Partner Nonrecourse Debt Minimum Gain
is caused by a modification of a Partner Nonrecourse Debt and the
Partner bears the Economic Risk of Loss with respect to such modified
liability;
(ii) If the net decrease in Partner Nonrecourse Debt Minimum Gain
is attributable to a repayment of a Partner Nonrecourse Debt with
amounts contributed to the capital of the Partnership by the Partner;
(iii) In any circumstance described in clause (iii) of Section
7.2(e) hereof; and
(iv) If the net decrease in Partner Nonrecourse Debt Minimum Gain
is caused by a modification of a Partner Nonrecourse Debt that causes
it to become a Nonrecourse Liability.
(g) Nonrecourse Deductions. All Nonrecourse Deductions of the
----------------------
Partnership for any Fiscal Year or other period shall be allocated among the
Partners in the same manner and proportions as are Net Losses from Operations of
the Partnership.
(h) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
------------------------------
shall be allocated to the Partner who bears the Economic Risk of Loss with
respect to the Partner Nonrecourse Debt.
(i) Qualified Income Offset. Notwithstanding any of the provisions
-----------------------
above (except Sections 7.2(e) and (f) which shall be applied first), if in any
Fiscal Year or other period a Partner
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receives an adjustment, allocation or distribution described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), Gross Income (and items
thereof) shall first be allocated to Partners with negative Adjusted Capital
Account balances (adjusted in accordance with Section 3.1(c) hereof), in
proportion to such negative balances, until such balances are increased to zero.
(j) Limit on Loss Allocations. Notwithstanding the provisions of
-------------------------
Section 7.2(c), Net Loss (or items thereof) shall not be allocated to a Partner
if such allocation would cause or increase a negative balance in such Partner's
Adjusted Capital Account (adjusted in accordance with Section 3.1(c) hereof) and
shall be reallocated to the other Partner or Partners, subject to the
limitations of this Section 7.2(j).
(k) Reversal of Mandatory Allocations. In the event that any Net Profit
---------------------------------
or Net Loss, or items thereof, of the Partnership are allocated pursuant to
Sections 7.2(i) or (j), subsequent Net Profit or Net Loss (or items thereof)
will first be allocated (subject to Sections 7.2(e) through (j)) to the Partners
in a manner which will result in each Partner having a Capital Account balance
equal to that which would have resulted had the original allocation of Net
Profit or Loss or items thereof pursuant to Sections 7.2(i) and (j) not
occurred.
(l) Priority. For purposes of the allocations pursuant to this Article
--------
7 and except as otherwise provided, Sections 7.2(a) (Gross Income from
Operations) shall apply first, then Sections 7.2(b)(i) and 7.2(c)(i) (Net Profit
or Loss from Operations), and thereafter Sections 7.2(b)(ii) and 7.2(c)(ii) (Net
Profit or Loss from Capital Transactions). The allocation of Net Profit and Net
Loss from Capital Transactions shall be made before adjusting Capital Account
balances to reflect the distribution of proceeds from such Capital Transactions.
(m) Compliance with Code. The foregoing provisions of this Agreement
--------------------
relating to the allocation of Net Profit and Net Loss are intended to comply
with Treasury Regulations under Section 704(b) of the Code and shall be
interpreted and applied in a manner consistent with such regulations.
Section 7.3 Tax Allocations; Code Section 704(c). In accordance with
------------------------------------
Code Sections 704(b) and 704(c) and the Treasury Regulations thereunder,
depreciation, amortization, gain and loss, as determined for tax purposes, with
respect to any property whose Book Value differs from its adjusted basis for
federal income tax
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<PAGE>
purposes shall, for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its Book Value.
Any elections or other decisions relating to such allocations shall be
made by the Partners in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 7.3 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Net Profit, Net Loss, other items, or distributions pursuant to any provision
of this Agreement.
Section 7.4 Allocations Upon Transfer or Change of Interests. Upon a
------------------------------------------------
transfer of all or a portion of a Partner's Interest, Gross Income, Net Profits
and Net Losses shall be allocated among the Partners in accordance with the
provisions of Section 11.5.
ARTICLE 8
ACCOUNTING AND RECORDS
----------------------
Section 8.1 Books and Records. NEPP shall keep or cause to be kept, at
-----------------
Partnership expense, at the Partnership's principal office, separate books of
account for the Partnership which shall show a true and accurate record of all
costs and expenses incurred, all charges made, all credits made and received and
all income derived in connection with the operation of the Partnership business
in accordance with generally accepted accounting principles consistently applied
and sufficient to obtain an unqualified opinion from the Accountants as to the
Partnership's financial position and results of operations. The Partnership
shall use the accrual method of accounting in preparation of its annual reports
and for tax purposes and shall keep its books accordingly. The expenses
chargeable to the Partnership shall include only those which are reasonable and
necessary for the ordinary and efficient operation of the Partnership business
and the performance of the obligations of the Partnership under any leases or
other agreements relating to the Project or the business of the Partnership.
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Each Partner shall, at its sole expense, have the right, at any time
without notice to the other, to examine, copy and audit the Partnership's books
and records during normal business hours.
All books, records (including bills and invoices), reports and returns
of the Partnership required by this Article 8 shall be maintained in a manner
and form consistent with NEPP's methods and procedures of reporting investment
transactions.
Section 8.2 Reports. With respect to each Fiscal Year of the
-------
Partnership, NEPP shall cause a general accounting to be made by the Accountants
at the expense of the Partnership. The accounting shall be performed in
accordance with generally accepted auditing standards, and shall cover all of
the assets, properties, liabilities and net worth of the Partnership as well as
its dealings, transactions and operations during such Fiscal Year, together with
all other matters customarily included in such accountings.
Within 90 days after the end of each Fiscal Year, NEPP shall cause to
be furnished to Developer financial statements for the Partnership, prepared on
an accrual basis and otherwise in accordance with generally accepted accounting
principles consistently applied, which shall contain a balance sheet as of the
end of the Fiscal Year, statements of profit and loss, and Operating Cash Flow,
changes in the Capital Accounts and a statement of changes in financial position
for the Fiscal Year then ended. Such financial statements shall disclose and/or
footnote, in sufficient detail, all items of taxable income, gain, loss, or
accounts which vary from the reporting of such items for financial accounting
purposes. Any exceptions to the financial statements rendered must be made by a
Partner within one year from its receipt and, if no exception is made within
that time, the statements shall be considered to be correct.
Within 30 days after the receipt of any periodic report from a property
manager for the Project, NEPP shall furnish a copy of such report to the
Developer. Within 30 days of NEPP's approval of any Annual Management Plan, NEPP
shall furnish a copy of such Plan to the Developer. Notwithstanding the
foregoing, so long as the property manager is the Property Manager, NEPP shall
not be required to furnish the Developer with any such reports or Plans.
Section 8.3 Tax Returns. At Partnership expense, NEPP shall cause the
-----------
Accountants to prepare all income and other tax returns of the Partnership (on
an accrual basis) and cause the same to be
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filed in a timely manner. NEPP shall furnish to Developer a copy of each such
return before it has been filed, together with any schedules or other
information which each Partner may require in connection with such Partners' own
tax affairs. Each of the Partners shall, in its respective income tax return and
other statements filed with the Internal Revenue Service or other taxing
authority, report taxable income in accordance with the provisions of this
Agreement.
Section 8.4 Depreciation. The Partnership shall, to the extent
------------
permitted by the Code, utilize the Accelerated Cost Recovery System (as defined
in the Code) on a straight-line basis.
Section 8.5 Special Basis Adjustment. In connection with any assignment
------------------------
or transfer of an Interest permitted by the terms of this Agreement, NEPP shall
cause the Partnership, at the written request of the transferor, the transferee
or the successor to such Interest, on behalf of the Partnership and at the time
and in the manner provided in Treasury Regulation Section 1.754-1(b) (or any
like statute or regulation then in effect), to make an election to adjust the
basis of the Partnership's property in the manner provided in Sections 734(b)
and 743(b) of the Code (or any like statute or regulation then in effect), and
such transferee shall pay all costs incurred by the Partnership in connection
therewith, including, without limitation, reasonable attorneys' and accountants'
fees.
Section 8.6 Tax Matters Partner. NEPP shall be the party designated to
-------------------
receive all notices from the Internal Revenue Service ("IRS") which pertain to
the tax affairs of the Partnership and NEPP shall be entitled to require that
any IRS examinations or audits shall take place at the offices of NEPP. NEPP
shall be the "Tax Matters Partner" of the Partnership pursuant to the Code,
provided that, in such capacity, NEPP shall have no authority to enter into any
settlement of any Partnership tax matter if such settlement would have a
material adverse effect on Developer, unless Developer shall have previously
approved such settlement, which approval may not be unreasonably withheld.
Section 8.7 Fiscal Year. The Fiscal Year of the Partnership shall be
-----------
the calendar year, unless otherwise determined by NEPP. As used in this
Agreement, a fiscal year shall include any partial fiscal year at the beginning
and end of the Partnership term.
Section 8.8 Bank Accounts. NEPP shall have fiduciary responsibility for
-------------
the safekeeping and use of all funds and assets
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<PAGE>
of the Partnership, whether or not in its immediate possession or control. The
funds of the Partnership shall not be commingled with the funds of any other
person and NEPP shall not employ, or permit any other person to employ, such
funds in any manner except for the benefit of the Partnership.
The bank accounts of the Partnership shall be maintained in such
banking institutions as are determined by NEPP and withdrawals shall be made
only in the regular course of Partnership business and as otherwise authorized
in this Agreement on such signature or signatures as NEPP may determine.
ARTICLE 9
MANAGEMENT AND OPERATIONS
-------------------------
Section 9.1 Management. NEPP acting alone, and without the consent or
----------
approval of Developer, shall have the sole authority to manage the business and
operations of the Partnership. Without limiting in any way the foregoing, NEPP
acting alone, shall have the sole authority to make all decisions respecting the
conduct of the Partnership and its business, without the consent or approval of
Developer, including without limitation, the following:
- acquiring, by purchase, lease, or otherwise, any real property in
addition to the Land, or constructing any new capital
improvements on the Land or replacing an existing capital
improvement following completion of construction thereof;
- giving or granting any options, rights of first refusal, deeds of
trust, mortgages, pledges, ground leases, security interests or
otherwise encumbering the Project or any portion thereof;
- consummating leases in the Project or any portion thereof, on
such terms as NEPP may approve;
- obtaining, increasing, modifying, consolidating or extending any
loan, line of credit or other obligation, whether secured or
unsecured, affecting the Project or the Partnership or making
draws under any such loan, line of credit or other obligation;
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<PAGE>
- consenting to any rezoning or subdivision of the Land or any
other material change in the legal status thereof;
- selling, conveying or refinancing the Project or any portion
thereof;
- causing or permitting the Partnership to extend credit to or to
make any loans or become a surety, guarantor, endorser or
accommodation endorser for any person, firm or corporation or
entering into any contracts with respect to the operation or
management of the business of the Partnership or the Project (or
any portion thereof);
- initiating, defending, adjusting, settling or compromising any
claim, action, suit or judgment by or against the Partnership;
- releasing, compromising, assigning or transferring any claims,
rights or benefits of the Partnership;
- confessing a judgment against the Partnership or submitting a
Partnership claim to arbitration;
- distributing any cash or property of the Partnership, or
establishing any reserve, other than as provided in this
Agreement;
- filing on behalf of the Partnership any Federal or state income
tax or information returns, or changing the elections or choices
of methods of reporting income or loss for Federal or state
income tax purposes provided for in Article 8;
- spending money or entering into any contract or agreement (or
series thereof) of any nature whatsoever with respect to the
Partnership or the Project (or any portion thereof);
- assigning the rights of the Partnership in any of its property;
- selecting attorneys or Accountants for the Partnership;
- advertising or marketing the Project;
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<PAGE>
- granting easements or other property rights by documents that are
frequently recorded, except easements for utilities serving the
Project exclusively;
- giving any approval under any management, construction or other
contract to which the Partnership is a party;
- approving or changing or amending the plans or specifications or
budget for any building or structure being constructed by the
Partnership; or
- entering into any amendment, modification, revision, supplement
or rescission with respect to any of the foregoing.
NEPP shall devote itself to the business of the Partnership to the
extent it reasonably determines necessary for the efficient carrying on thereof,
without compensation therefor except as specifically provided in this Agreement;
provided, however, that all of the Partners agree and acknowledge that (a) NEPP
shall not be required, nor is it expected, to devote itself to the business of
the Partnership on a full-time basis, and (b) the Project shall be managed and
maintained by the Property Manager pursuant to the Management Agreement (or by
another person who may serve as property manager, in the event the Property
Management Agreement is terminated), and NEPP may rely on the Property Manager
(or such other property manager) to manage and maintain the Project in a prudent
and reasonable manner and shall have no liability to the Partnership or the
Partners with respect to any matter delegated to the Property Manager (or such
other property manager) which is of the type customarily performed by property
managers. NEPP shall be permitted to delegate to a third party such other of its
duties and obligations under this Agreement as it may determine in its
reasonable discretion.
With respect to all of its obligations, powers, and responsibilities
under this Agreement, NEPP is authorized, in the name and on behalf of the
Partnership, to execute, deliver, and perform the terms, covenants and
obligations of, such notes and other evidences of indebtedness, contracts,
agreements, assignments, deeds, leases, loan agreements, mortgages, and other
security instruments and agreements as it deems proper, all on such terms and
conditions as it deems proper.
Section 9.2 Standard of Care. NEPP shall use reasonable good faith
----------------
efforts to perform its duties under this Agreement,
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<PAGE>
including, without limitation, employing necessary personnel, on and off-site,
in connection with the business of the Partnership, and shall at all times act
in a fiduciary manner towards the Partnership and Developer.
Section 9.3 Insurance. NEPP shall procure and maintain, or cause to be
---------
procured and maintained, at the expense of the Partnership, insurance sufficient
to enable the Partnership to comply with applicable laws, regulations and
requirements, including without limitation, obligations imposed on the Project
by the any documents relating to any loans, and any and all other agreements and
instruments by which the Project is bound, such additional insurance as may be
customary for projects of a similar type in the geographic area in which the
Project is located, and such additional insurance as NEPP reasonably determines
to be appropriate for the Project.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 10.1 Developer. As of the date hereof each of the statements in
---------
this Section 10.1 shall be a true, accurate and full disclosure of all facts
relevant to the matters contained therein, and such warranties and
representations shall survive the execution of this Agreement. As of the date
hereof, Developer hereby represents and warrants that:
- Developer is a duly organized and validly existing California
general partnership and has the requisite power and authority to
enter into and carry out the terms of this Agreement.
- All partnership action required to be taken by Developer to
consummate this Agreement has been taken by Developer (and its
partners) and no further approval of any board, court, or other
body is necessary in order to permit Developer to consummate this
Agreement.
- To the best of its knowledge, neither the execution and delivery
of this Agreement, nor the performance of or the compliance with,
this Agreement has resulted (or will result) in any violation of,
or will be in conflict with, or invalidate, cancel, or make
inoperative, or interfere with, or constitute a default under, or
result
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<PAGE>
in the creation of any lien, encumbrance or any other charge upon
the Project pursuant to any charter, bylaw, partnership
agreement, trust agreement, mortgage, deed of trust, indenture,
contract, agreement, permit, judgment, decree, or order to which
Developer is a party or by which the Project (or any portion
thereof) is bound, and there is no default and no event or
omission has occurred which, but for the passing of time or the
giving of notice, or both, would constitute a default on the part
of Developer under this Agreement.
- To the best of its knowledge, there is no action, proceeding or
investigation, pending or threatened (nor any basis therefor)
which questions, directly or indirectly, the validity or
enforceability of this Agreement as to Developer or which would
materially and adversely affect the Project.
- To the best of its knowledge, the Project complies in all
material respects with all applicable laws, rules, ordinances,
regulations and orders of governmental authorities having
jurisdiction. Without limiting the generality of the foregoing,
to the best of Developer's knowledge, which is based solely on a
report dated May, 1995, prepared by E2C, Inc., no release of oil
or petroleum or chemical liquids or solids, liquid or gaseous
products or hazardous waste has occurred on the Land.
- Developer has received no notice of any lien having arisen
against the Project or existing under Federal or state tax or
other laws, other than liens for current real property taxes and
assessments.
- Except as previously disclosed in writing to NEPP, at the date
hereof, there are no outstanding contracts made by Developer nor
has there been any other labor or materials supplied at
Developer's request for any improvements heretofore commenced or
constructed on the Land (or any portion thereof) which have not
been fully paid for, except as previously disclosed in writing to
NEPP.
- To the best of Developer's knowledge, no representation, warranty
or covenant of Developer in this Agreement (except for the first
two representations of this
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<PAGE>
Section 10.1, which shall not be limited to Developer's best
knowledge, but shall be absolute), or in any document or
certificate furnished or to be furnished to NEPP pursuant hereto
contains or will contain any untrue statement of material fact or
omits or will omit to state any material fact necessary to make
the statements or facts contained therein not misleading. All
such representations, warranties or statements of Developer are
based, to the best of Developer's knowledge, upon current,
accurate and complete information as of the time of their making,
and there have been, to the best of Developer's knowledge, no
changes in such information subsequent thereto.
Section 10.2 NEPP. As of the date hereof each of the statements in this
----
Section 10.2 shall be a true, accurate and full disclosure of all facts relevant
to the matter contained therein, and such warranties and representations shall
survive the execution of this Agreement. As of the date hereof, NEPP hereby
represents and warrants that:
- NEPP is a duly organized limited partnership validly existing
under the laws of the Commonwealth of Massachusetts and has the
requisite power and authority to enter into and carry out the
terms of this Agreement;
- All partnership action required to be taken by NEPP to consummate
this Agreement has been taken and that no further approval of any
board, court, or other body is necessary in order to permit NEPP
to consummate this Agreement.
- To the best of its knowledge, neither the execution and delivery
of this Agreement nor the performance of nor the compliance with
this Agreement, has resulted (or will result in) any violation
of, or will be in conflict with, or invalidate, cancel, or make
inoperative, or interfere with, or constitute a default under, or
result in the creation of any lien, encumbrance or any other
charge upon the Project pursuant to any charter, bylaw, venture
agreement, partnership agreement, trust agreement, mortgage, deed
of trust, indenture, contract, agreement, permit, judgment,
decree, or order, to which NEPP is a party and there is no
default and no event or omission has occurred which, but for the
passing of time
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<PAGE>
or the giving of notice, or both, would constitute a default on
the part of NEPP under this Agreement.
- To the best of NEPP's knowledge, there is no action, proceeding
or investigation, pending or threatened (nor any basis therefor),
which questions, directly or indirectly, the validity or
enforceability of this Agreement as to NEPP.
- To the best of NEPP's knowledge, no representation, warranty or
covenant of NEPP in this Agreement (except for the first two
representations of this Section 10.2, which shall not be limited
to NEPP's knowledge, but shall be absolute), or in any document
or certificate furnished or to be furnished to Developer pursuant
hereto contains or will contain any untrue statement of material
fact or omits or will omit to state any material fact necessary
to make the statements or facts contained therein not misleading.
All such representations, warranties or statements of NEPP are
based, to the best of NEPP's knowledge, upon current, accurate
and complete information as of the time of their making, and
there have been, to the best of NEPP's knowledge, no changes in
such information subsequent thereto.
Section 10.3 Brokers. Each party represents to the other that they have
-------
not retained or been approached by any broker, finder, agent or the like in
connection with this transaction or the negotiations thereof. Each party shall
indemnify and hold the other party hereto harmless from and against all loss,
liabilities, claims, damages and expenses, including court costs and reasonable
attorneys' fees, arising out of any claim for brokerage or other commissions
relative to this Agreement or the transactions contemplated hereby insofar as
any such claim arises by reason of services alleged to have been rendered to or
at the insistence of such indemnifying party.
ARTICLE 11
TRANSFER OF INTERESTS
---------------------
Section 11.1 Restrictions on Transfer. Except as expressly provided for
------------------------
in this Agreement, no Partner may, without the consent of the other Partner,
sell, convey, transfer, assign,
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<PAGE>
mortgage, pledge, hypothecate or otherwise encumber in any way ("transfer") all
or any portion of its Partnership Interest or any interest it may have in any
property of the Partnership, or withdraw or retire from the Partnership. Any
such attempted transfer, withdrawal or retirement not permitted hereunder shall
be null and void. A transfer of an interest in Developer shall be deemed a
transfer for the purpose of this Section 11.1, but any transfer of any interest
in NEPP and any transfer of any interest in any of the partners of NEPP shall
not be deemed to be a transfer prohibited hereby.
Section 11.2 Right of First Refusal. If a Partner consents to a
----------------------
proposed transfer or the prohibitions contained in Section 11.1 are determined
by a court of competent jurisdiction to be unenforceable, then a Partner (the
"Selling Partner") desiring to transfer its Interest shall nevertheless notify
("Offering Notice") the other of its intention to do so. The Offering Notice
shall specify the nature of the transfer, the consideration to be received
therefor, the identity of the proposed purchaser (or lender, as the case may
be), and the terms upon which it intends to undertake such transfer. The
non-Selling Partner shall have the right to elect to purchase from the Selling
Partner all (but not less than all) of the Interest referred to in the Offering
Notice at the same price and on the same terms as specified in the Offering
Notice for a period of 30 days after the giving of the Offering Notice (or make
the loan, if the same involves an encumbrance, hypothecation or mortgage, upon
the same terms on which said loan was to be made therefor) by delivering in
writing to the Selling Partner an offer to purchase that portion of the Interest
of the Selling Partner (or to make the loan) covered by the Offering Notice.
Within 45 days thereafter, the purchase by the non-Selling Partner of said
Interest shall be consummated on the terms and conditions set forth in the
Offering Notice of the Selling Partner (or if the same involves a mortgage,
encumbrance or other hypothecation, the loan shall be consummated upon the terms
and conditions of the loan set forth in the Offering Notice).
If within the 30-day period during which the non-Selling Partner has
the right to elect to purchase the Selling Partner's Interest (or to elect to
make the loan specified therein), it does not make such election, then the
Selling Partner, within 120 days after the expiration of said 30-day period, or
within the time scheduled for closing by the purchasing person, firm or
corporation, whichever is later, may undertake and complete the transfer to any
Person the identity of which was disclosed in the
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<PAGE>
Offering Notice. The transfer shall not be undertaken at a lower price or upon
more favorable terms than specified in the Offering Notice. If the Selling
Partner does not then consummate the original proposed transfer within 150 days
after the date of the Offering Notice, or within the time scheduled for closing
by the purchasing person, firm or corporation, whichever is later, then all
restrictions of this Section 11.2 shall apply as though no Offering Notice had
been given.
Section 11.3 Permitted Transfers. NEPP or its successors, without the
-------------------
consent of Developer or being subject to Section 11.2, may:
- transfer all of its Interest to its successors by merger or
consolidation or to any Affiliate of NEPP or to any Entity
managed or advised by Copley Real Estate Advisors, Inc.;
- transfer to any Person any portion of its allocable interest in
the items of loss, deduction and credit of the Partnership (on
the condition that NEPP never shall have less than 1% interest in
such items); and
- assign its rights to all cash distributions and other issues,
profits, proceeds and avails payable to it under this Agreement
in connection with any loans or financing arrangements obtained
by it from time to time.
Developer or its successors, without the approval of NEPP or being
subject to Section 11.2, may transfer all of its Interest to any Person which at
all times shall be at least 51% owned and shall be controlled by Robert K. Rodde
and/or John E. McNellis, such that if a partnership, Robert K. Rodde and/or John
E. McNellis shall be a general partner owning at least 51% general partnership
interest in such Person, if a corporation, Robert K. Rodde and/or John E.
McNellis shall have all authority and right to manage and control the affairs of
such Person and shall own at least 51% of the authorized, issued and outstanding
capital stock of such Person or if a trust, Robert K. Rodde and/or John E.
McNellis shall be the only voting trustee(s). For purposes of this paragraph,
"Robert K. Rodde" and "John E. McNellis" shall include their respective estates.
Any such permitted transferee shall receive and hold such Partnership
Interest or portion thereof subject to the terms of this Agreement and the
obligations of the transferor Partner, and
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<PAGE>
there shall be no further transfer of such Partnership Interest or portion
thereof except to a trust, person or entity to whom such permitted transferee
could have transferred his Partnership Interest in accordance with this Section
11.3 had such permitted transferee originally been named as a Partner or as a
partner in Developer, or otherwise in accordance with the other terms of this
Agreement.
Section 11.4 General Transfer Provisions. All transfers shall be by
---------------------------
instrument in form and substance satisfactory to counsel for the Partnership and
shall contain an expression by the assignee of its intention to accept the
assignment and to accept and adopt all of the terms and provisions of this
Agreement, as the same may have been amended, and shall provide for the payment
by the assignor of all reasonable expenses incurred by the Partnership in
connection with such assignment, including, without limitation, the necessary
amendments to this Agreement to reflect such transfer. The transferor shall
execute and acknowledge all such instruments, in form and substance reasonably
satisfactory to the Partnership's counsel, as may be necessary or desirable to
effectuate such transfer.
In no event shall the Partnership dissolve or terminate upon the
admission of any Partner to the Partnership or upon any permitted assignment of
an Interest in the Partnership by any Partner. Each Partner hereby waives its
right to dissolve, liquidate or terminate the Partnership in such event.
Upon completion of a transfer in compliance with this Agreement, the
transferor shall be released from all future obligations arising under this
Agreement after the date of such transfer provided the assignee of such
--------
transferor assumes all such obligations of the transferor. However, the
transferor shall remain liable for its obligations under this Agreement
occurring on or prior to the date of such transfer.
Section 11.5 Tax Allocations and Cash Distributions. If an Interest is
--------------------------------------
transferred, the Net Profit or Loss allocable, and cash distributable, to the
holder of such Interest for the then Fiscal Year shall be allocated and
distributed based on a method consistent with Section 706(d) of the Code.
However, if such parties agree that such Net Profit or Loss and cash are to be
allocated and distributed based upon an interim closing of the Partnership
books, and such parties agree to pay all expenses incurred by the Partnership in
connection therewith and so notify the non-transferring Partner, then all such
Net Profit or Loss and
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<PAGE>
cash shall be allocated and distributed between the transferor and transferee
based upon an interim closing of the Partnership's books and records. In no
event, however, shall Extraordinary Cash Flow or Net Profit or Loss arising from
a Capital Transaction be distributed and allocated to any Partner other than the
Partners owning Interests as of the date of the Capital Transaction in question.
Section 11.6 Compliance. Notwithstanding anything to the contrary in
----------
this Agreement, at law or in equity, no Partner shall transfer or otherwise deal
with any Interest in a way that would cause a default under any material
agreement to which the Partnership is a party or by which it is bound.
Section 11.7 Waiver of Partition. Neither Partner shall, either
-------------------
directly or indirectly, take any action to require partition or appraisement of
the Partnership or of any of its assets or properties or cause the sale of any
Partnership property, and notwithstanding any provisions of applicable law to
the contrary, each Partner (and its legal representatives, successors or
assigns) hereby irrevocably waives any and all right to maintain any action for
partition or to compel any sale with respect to its Interest, or with respect to
any assets or properties of the Partnership, except as expressly provided in
this Agreement.
ARTICLE 12
BUY/SELL
--------
Section 12.1 Buy/Sell Events. For purposes of this Article 12, each of
---------------
the following shall constitute a "Buy/Sell Event":
- if within 10 days after notice from a Partner specifying a
material default or defaults of another Partner in its covenants,
agreements or obligations contained herein, including, without
limitation, a transfer other than as permitted by Article 11, the
notified Partner has not commenced diligently to correct the
default or defaults so specified or has not thereafter pursued
such correction to completion but in any event within 90 days of
said notice;
-44-
<PAGE>
- if an Event of Bankruptcy with respect to a Partner occurs which
is not discharged or stayed within a period of 90 days of its
occurrence; or
- the Incapacity of NEPP; or
- NEPP becomes the owner of 80% or more of the Interests.
Section 12.2 Rights Arising from a Buy/Sell Event. When a Buy/Sell
------------------------------------
Event occurs with respect to a Partner (the "Defaulting Partner"), the other
Partner (the "Electing Partner") shall have the right, but not the obligation,
to implement the Buy/Sell procedures set forth in this Article 12, by giving
written notice within 180 days of the Buy/Sell Event ("Election Notice") thereof
to the Defaulting Partner. The failure of a Partner to so elect by Election
Notice shall preclude election by such Partner thereafter with respect to such
Buy/Sell Event, providing the Defaulting Partner has given the other Partner
written notice of the Buy/Sell Event within 10 days after the occurrence of such
Buy/Sell Event.
Section 12.3 Determination of Fair Market Value. Upon the giving of an
----------------------------------
Election Notice, the "Fair Market Value" of the assets of the Partnership shall
be determined as set forth in this Section 12.3.
The Partners shall attempt in good faith to agree upon the Fair Market
Value of the assets of the Partnership. If within 30 days after the Election
Notice is given, the Partners fail so to agree, the Electing Partner and the
Defaulting Partner shall each select one appraiser, each of whom shall be a
member of the American Institute of Real Estate Appraisers, within 15 days after
the expiration of such thirty-day period and each shall notify the other of the
appraiser selected by it. If a Partner fails to select an appraiser, the
appraiser selected shall act alone.
The appraiser or appraisers shall value the assets of the Partnership
within 60 days of their selection. If one appraiser acts, the Fair Market Value
shall be the amount determined by such appraiser. If two appraisers act, the
Fair Market Value shall be the average of the amounts so determined, so long as
neither appraisal exceeds the other by 5% or more of the higher of the two
appraisals. If, however, the appraisals do vary by 5% or more, then the two
appraisers shall appoint a third appraiser within 30 days. If they fail to do
so, then either Partner may request the American Arbitration Association or any
successor organization
-45-
<PAGE>
thereto to appoint a third appraiser. If a third appraiser has not been
appointed by the American Arbitration Association within 60 days of a Partners'
request for it to do so, then either Partner may apply to any court having
jurisdiction to appoint the third appraiser.
The third appraiser, whether appointed by the original appraisers, the
American Arbitration Association or a court, shall value the assets of the
Partnership within 30 days after its selection or appointment.
If the third appraisal exceeds the first two appraisals, the Fair
Market Value shall be the higher of the first two appraisals; if the third
appraisal is less than the first two appraisals, the Fair Market Value shall be
the lower of the first two appraisals. In all other cases, the Fair Market Value
shall be equal to the third appraisal.
This provision for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, and the
determination of Fair Market Value hereunder shall be final and binding upon the
parties.
When determining the Fair Market Value, the appraiser(s) shall (i)
estimate the fairest price estimated in terms of money which the Partnership
could obtain if its assets were exposed for sale in the open market allowing a
reasonable time to find a purchaser who buys with knowledge of the uses which
such assets in their then condition are adapted and for which such assets are
capable of being used at the time the Buy/Sell Event occurred and (ii) deduct
from such price the reasonable estimated costs of consummating such a sale,
including without limitation brokerage commissions. The appraiser(s) shall also
take into consideration whether or not any debt to which the assets of the
Partnership are subject is prepayable or callable.
Section 12.4 Appraisal Fees. Each Partner shall pay the fees and
--------------
expenses of the appraiser selected by it. The fees and expenses of the third
appraiser shall be paid one-half by each Partner. If only one appraiser is used,
the fees and expenses of such appraiser shall be paid one-half by each Partner.
Section 12.5 Determination of Purchase Price. Within 15 days after the
-------------------------------
determination of the Fair Market Value of the assets of the Partnership, the
Accountants shall determine all liabilities of the Partnership and the amount of
cash which would
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<PAGE>
be distributed to each Partner pursuant to the provisions of each of clauses
FIRST through FIFTH of Section 5.3 if the assets of the Partnership had been
sold for the Fair Market Value as of the date of the Buy/Sell Event and shall
give each Partner written notice ("Accountant's Notice") thereof. The
determination by the Accountant of such amounts shall be conclusive. For
purposes of this Agreement, the amount so determined by the Accountant to be
distributable to a Partner pursuant to clause FIFTH of Section 5.3 of this
Agreement shall be referred to as the "Distributable Cash".
Section 12.6 Electing Partner's Option. For a period of 30 days after
-------------------------
the Electing Partner receives the Accountant's Notice, the Electing Partner
shall have the option to purchase, for cash, the Interest of the Defaulting
Partner for 90% of the Distributable Cash and 100% of the aggregate amount, if
any, which would be distributable to the Defaulting Partner under clauses FIRST
through FOURTH of Section 5.3 if the assets of the Partnership had been sold for
the Fair Market Value as of the date of the Buy/Sell Event (the "Purchase
Price"), by notice to the Defaulting Partner. If this option is not so
exercised, then it shall terminate and be of no further force or effect.
Section 12.7 Closing of Purchase and Sale. The closing of a purchase
----------------------------
pursuant to this Article 12 shall be held at the principal office of the
Partnership 30 days after the Electing Partner exercises its option under
Section 12.6. The Defaulting Partner (the seller) shall transfer to the Electing
Partner (the buyer or its designee) the entire Interest of the Defaulting
Partner in the Partnership free and clear of all liens, security interests and
competing claims, and shall deliver to the Electing Partner or its designee such
instruments of transfer, releases and such evidence of due authorization,
execution and delivery and of the absence of any liens, security interests or
competing claims as the Electing Partner shall reasonably request.
Section 12.8 Payment. At the closing, the Electing Partner or its
-------
designee shall pay the Purchase Price by delivery at the closing of a certified
or bank cashier's check payable to the order of the Defaulting Partner in the
amount of the Purchase Price determined pursuant to Section 12.6.
Section 12.9 Liabilities. The purchase of the Interest of a Defaulting
-----------
Partner pursuant to this Article 12 shall release the Defaulting Partner (and
the purchasing Partner shall indemnify and hold harmless the Defaulting Partner)
from all liabilities and
-47-
<PAGE>
claimed liabilities of the Partnership except for liabilities not taken into
account in the determination of Purchase Price and tort liabilities not taken
into account in the determination of Purchase Price to the extent such tort
liabilities are not covered by insurance for events occurring prior to the
Defaulting Partner's withdrawal from the Partnership.
Section 12.10 Failure to Exercise Option. If an Electing Partner fails
--------------------------
to exercise the option herein granted to it, then the Electing Partner, within
30 days after such option expires and terminates, may dissolve the Partnership
by notifying the Defaulting Partner.
ARTICLE 13
EXIT RIGHTS
-----------
[Intentionally omitted.]
ARTICLE 14
TERMINATION OF THE PARTNERSHIP
------------------------------
Section 14.1 Events of Dissolution. The Partnership shall dissolve upon
---------------------
the first to occur of the following events:
- the expiration of the term of the Partnership as provided in
Section 1.9;
- upon an election by an Electing Partner pursuant to Section
12.10;
- the sale or other disposition (including, without limitation,
taking by eminent domain) of all or substantially all of the
assets of the Partnership unless such sale or other disposition
involves any deferred payment of the consideration for such sale
or disposition, in which case the Partnership shall not dissolve
until the last day of the calendar year during which the
Partnership shall receive the balance of such deferred payment;
- the occurrence of an Event of Bankruptcy of the Partnership,
which is not discharged or stayed within 90 days of occurrence;
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<PAGE>
- the issuance of a decree of dissolution by a court of competent
jurisdiction; or
- upon notice by NEPP to Developer on or after January 1, 1997 of
its intent to dissolve the Partnership.
Section 14.2 Effect of Dissolution. Upon dissolution of the Partnership
---------------------
pursuant to Section 14.1, the Partnership shall not terminate but shall continue
solely for the purposes of liquidating all of the assets owned by the
Partnership (until all such assets have been sold or liquidated) and collecting
the proceeds from such sales and all receivables of the Partnership unless the
same have been written off as uncollectible. Upon dissolution, the Partnership
shall engage in no further business thereafter other than that necessary to
cause the Project to be operated on an interim basis and for the Partnership to
collect its receivables, liquidate its assets and pay or discharge its
liabilities.
Section 14.3 Sale of Assets by Liquidating Trustee. Upon dissolution of
-------------------------------------
the Partnership, NEPP shall, as "Liquidating Trustee", proceed diligently to
wind up the affairs of the Partnership and distribute its assets. NEPP shall be
permitted to appoint another person to serve as Liquidating Trustee, or another
person to succeed any subsequently selected successor, whenever the person
originally selected or any such subsequently selected successor, as the case may
be, fails for any reason to carry out such purpose. The Liquidating Trustee may
be an individual, corporation or general or limited partnership.
The Liquidating Trustee shall promptly after dissolution obtain an
appraisal of the assets of the Partnership by a member of the American Institute
of Real Estate Appraisers selected by the Liquidating Trustee. All of the assets
of the Partnership, if any, other than cash, shall be offered (either as an
entirety or on an asset-by-asset basis) promptly for sale, upon such terms as
the Liquidating Trustee shall determine using the above appraisal as a guide.
The decision to accept or reject an offer to purchase assets of the Partnership
shall be made solely by the Liquidating Trustee.
In winding up the affairs of the Partnership, the Liquidating Trustee
shall pay the liabilities of the Partnership in such order of priority as
provided by law. If at the time of dissolution the completion of all buildings
then under construction on the Land has not occurred, the Liquidating Trustee,
in winding up the
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<PAGE>
affairs of the Partnership, shall have the authority, but not the obligation, to
complete the construction of the buildings.
All distributions of cash in winding up the affairs of the Partnership
shall be made in accordance with the provisions of Section 5.5.
ARTICLE 15
MISCELLANEOUS
-------------
Section 15.1 Notices. All notices required or permitted by this
-------
Agreement shall be in writing and may be delivered in person to either party or
may be sent by registered or certified mail, with postage prepaid, return
receipt requested, or may be transmitted by telegraph, telecopy, overnight
courier, personal delivery or other commercially reasonable means, and addressed
in the case of NEPP to:
c/o Copley Advisors, Inc.
399 Boylston Street
Boston, Massachusetts 02116
Attention: General Counsel
Re: R/M Salinas L.P.
and in the case of Developer to:
Rodde McNellis/Salinas
c/o Rodde McNellis
601 California Street
Suite 601
San Francisco, California 94108
Attention: Robert K. Rodde
or to such other address as shall from time to time be supplied in writing by
any party to the other. Notice sent by registered or certified mail, postage
prepaid, with return receipt requested, addressed as above provided, shall be
deemed given four days after deposit of same in the United States mail. If any
notice is telegraphed the same shall be deemed served or delivered 48 hours
after the transmission thereof. Any notice or other document sent or delivered
in any other manner shall be effective only if and when received.
-50-
<PAGE>
Section 15.2 Successors and Assigns. Subject to the restrictions on
----------------------
transfer set forth herein, this Agreement shall bind and inure to the benefit of
the parties hereto and their respective legal representative, successors and
assigns.
Section 15.3 No Oral Modifications; Amendments. No oral amendment of
---------------------------------
this Agreement shall be binding on the Partners. Any modification or amendment
of this Agreement must be in writing signed by all of the Partners.
Section 15.4 Captions. Any article, section or paragraph titles or
--------
captions contained in this Agreement and the table of contents are for
convenience of reference only and shall not be deemed a part of this Agreement.
Section 15.5 Terms. Common nouns and pronouns shall be deemed to refer
-----
to the masculine, feminine, neuter, singular and plural, as the identity of the
Person or Entity may in the context require. Any references to the Code, the Act
or other statutes or laws shall include all amendments, modifications or
replacements of the specific sections and provisions concerned.
Section 15.6 Invalidity. If any provision of this Agreement shall be
----------
held invalid, it shall not affect in any respect whatsoever the validity of the
remainder of this Agreement.
Section 15.7 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument, binding on the
Partners, and the signature of any party to any counterpart shall be deemed a
signature to, and may be appended to, any other counterpart.
Section 15.8 Further Assurances. The parties hereto agree that they
------------------
will cooperate with each other and will execute and deliver, or cause to be
delivered, all such other instruments, and will take all such other actions, as
either party hereto may reasonably request from time to time in order to
effectuate the provisions and purposes hereof.
Section 15.9 Complete Agreement. This Agreement constitutes the
------------------
complete and exclusive statement of the agreement between the Partners. It
supersedes all prior written and oral statements and no representation,
statement, condition or warranty not contained in this Agreement shall be
binding on the Partners or have any force or effect whatsoever.
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<PAGE>
Section 15.10 Attorneys' Fees. If any proceeding is brought by one
---------------
Partner against the other to enforce, or for breach of, any of the provisions in
this Agreement, the prevailing Partner shall be entitled in such proceeding to
recover reasonable attorneys' fees together with the costs of such proceeding
therein incurred, including attorneys' fees and costs in enforcing any judgment.
Section 15.11 Governing Law. This Agreement shall be construed and
-------------
enforced in accordance with the laws of the State of California.
Section 15.12 No Third Party Beneficiary. Any agreement to pay any
--------------------------
amount and any assumption of liability herein contained, express or implied,
shall be only for the benefit of the Partners and their respective heirs,
successors and assigns, and such agreements and assumption shall not inure to
the benefit of the obligees of any indebtedness or any other party, whomsoever,
it being the intention of the Partners that no one shall be deemed to be a third
party beneficiary of this Agreement.
Section 15.13 Exhibits and Glossary. Each of the Exhibits and the
---------------------
Glossary attached hereto are hereby incorporated herein and made a part hereof
for all purposes, and references herein thereto shall be deemed to include this
reference and incorporation.
Section 15.14 Estoppels. Each Partner shall, upon not less than 15
---------
days' written notice from the other Partner, execute and deliver to the other
Partner a statement certifying that this Agreement is unmodified and in full
force and effect (or, if modified, the nature of the modification) and whether
or not there are, to such Partner's knowledge, any uncured defaults on the part
of the other Partner, specifying such defaults if any are claimed. Any such
statement may be relied upon by third parties.
Section 15.15 References to this Agreement. Numbered or lettered
----------------------------
articles, sections and subsections herein contained refer to articles, sections
and subsections of this Agreement unless otherwise expressly stated. The words
"herein," "hereof," "hereunder," "hereby," "this Agreement" and other similar
references shall be construed to mean and include this Partnership Agreement and
all amendments thereof and supplements thereto unless the context shall clearly
indicate or require otherwise.
Section 15.16 Reliance on Authority of Person Signing Agreement. If a
-------------------------------------------------
Partner is a trust (with or without disclosed
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<PAGE>
beneficiaries), general partnership, limited partnership, joint venture,
corporation, or any entity other than a natural person, the Partnership and the
Partners shall:
- not be required to determine the authority of the person signing
this Agreement to make any commitment or undertaking on behalf of
such entity or to determine any fact or circumstance bearing upon
the existence of the authority of such entity or to determine any
fact or circumstance bearing upon the existence of the authority
of such person;
- not be required to see to the application or distribution of
proceeds paid or credited to persons signing this Agreement on
behalf of such entity;
- be entitled to rely on the authority of the person signing this
Agreement with respect to the voting of the Interest of such
entity and with respect to the giving of consent on behalf of
such entity in connection with any matter for which consent is
permitted or required under this Agreement; and
- be entitled to rely upon the authority of any general partner,
joint venturer, co- or successor trustee, or president or vice
president, as the case may be, of any such entity the same as if
such person were the person originally signing this Agreement on
behalf of such entity.
Section 15.17 Consents and Approvals. Whenever the consent or approval
----------------------
of a Partner is required by this Agreement, such Partner shall have the right to
give or withhold such consent or approval in its sole discretion, unless
otherwise specified.
Section 15.18 Construction of Agreement. The terms and provisions of
-------------------------
this Agreement shall be interpreted and construed without regard to, and the
parties hereby expressly waive and disclaim, any rule of law to the effect that
ambiguous or conflicting terms or provisions contained in this Agreement shall
be interpreted or construed against the party which prepared this Agreement.
-53-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
By: FIFTH COPLEY CORP.,
a Massachusetts corporation,
its managing general partner
By:
---------------------------------
DEVELOPER:
RODDE MCNELLIS/SALINAS, a California
general partnership
By:
---------------------------------
John E. McNellis, general partner
By:
---------------------------------
Robert K. Rodde, general partner
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
-------------------------
Certain real property situate, lying and being in Lot 14 of the Rancho
Santa Rita in the County of Monterey, State of California, being a part of that
certain 9.807 acre tract of land designated as Parcel "A" and of that certain 15
acre tract of land designated as Parcel "B" in that certain deed from Dominie B.
Mazza, et ux to John Nielsen, et ux, dated November 21, 1929 and recorded in
Volume 217 of Official Records at Page 391, Monterey County Records, said part
being particularly described as follows, to-wit:
Beginning at a steel bar standing in the southerly boundary of said 15 acre
tract of land at the intersection thereof with the casterly line of California
State Highway U.S. 101 as widened to 100 feet by deed dated March 11, 1931 from
John Nielsen, et ux to State of California and recorded in Volume 294 of
Official Records at Page 354, Monterey County Records, and running thence from
said place of beginning along said highway line,
(1) N. 8(degrees) 37' 20" W., 746.76 feet; thence tangentially
(2) curving to the right on a circular arc of 4950 feet radius through an angle
of 0(degrees) 29' 34" for a distance of 42.57 feet to a 6" X 6" concrete
monument; thence leave said highway line and running along the northerly
boundary of said 9.807 acre tract of land.
(3) S. 89(degrees) 56' 40" R., 677.91 feet to a 1 1/2 diameter iron pipe;
thence leave last mentioned boundary and running
(4) S. 10(degrees) 27' 20" W., 931.3 feet to a 1 1/2" diameter iron pipe
standing in the southerly boundary of said 15 acre tract of land; thence
along last mentioned boundary
(5) N. 70(degrees) 48' W., 413.77 feet to the place of beginning.
Course all true.
A.P. NO. 253-161-17
A-1
<PAGE>
EXHIBIT B
[Property Management Agreement]
B-1
<PAGE>
GLOSSARY OF DEFINED TERMS
R/M SALINAS L.P.
LIMITED PARTNERSHIP AGREEMENT
Capitalized terms used in this Limited Partnership Agreement of R/M
Salinas L.P. shall have the meanings ascribed to them below:
Accountants means Kenneth Leventhal & Company or such firm of
-----------
independent, certified public accountants as may be selected by NEPP.
Accountant's Notice shall have the meaning set forth in Section 12.5.
-------------------
Accrued Junior Priority Return shall have the meaning set forth in
------------------------------
Section 5.2(b).
Act means the California Revised Limited Partnership Act, as set forth
---
in Title 2, Chapter 3 of the California Corporations Code, as amended.
Adjusted Capital Account shall have the meaning set forth in Section
------------------------
3.1(b).
Adjustment Percentage shall have the meaning set forth in Section 6.3.
---------------------
Affiliate means a Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with the person in question and any officer, director, trustee, employee,
stockholder (10% or more) or partner of any Person referred to in the preceding
clause. For purposes of this definition, the term "control" means the ownership
of 10% or more of the beneficial interest or the voting power of the appropriate
Entity. Notwithstanding the foregoing, a person shall not be considered an
affiliate of NEPP or Developer solely by reason of the fact that such person is
engaged in one or more real estate projects with NEPP or Developer on a joint
venture basis.
Agreement shall have the meaning set forth in the Preamble.
---------
C-1
<PAGE>
Book Value means, with respect to any asset, the asset's adjusted basis
----------
for federal income tax purposes, except as follows:
(i) the initial Book Value of any asset contributed (or deemed
contributed) to the Partnership shall be such asset's gross fair
market value at the time of such contribution;
(ii) the Book Value of all Partnership assets shall be adjusted to
equal their respective gross fair market values at the times specified
in Treasury Regulation Section 1.704-1(b)(2)(iv)(f) if the Partnership
so elects;
(iii) if the adjusted basis of any asset acquired by the Partnership
is determined by reference to the adjusted basis of any other asset of
the Partnership, the Book Value of the acquired asset shall be
determined by reference to the Book Value of the other asset rather
than its adjusted basis; and
(iv) if the Book Value of an asset has been determined pursuant to
clause (i), (ii) or (iii), such Book Value shall thereafter be
adjusted in the same manner as would the asset's adjusted basis for
federal income tax purposes except that depreciation deductions shall
be computed in accordance with Section 7.1(a)(iv).
Buy/Sell Event shall have the meaning set forth in Section 12.1.
--------------
Capital Account shall have the meaning set forth in Section 3.1(a).
---------------
Capital Transaction shall have the meaning set forth in Section 5.1.
-------------------
Code means the Internal Revenue Code of 1986, as amended from time to
----
time, and all published rules, rulings and regulations thereunder at the time of
reference thereto.
Contributing Partner shall have the meaning set forth in Section 6.2.
--------------------
Default Contribution shall have the meaning as set forth in Section
--------------------
6.2.
Default Preferred Return shall have the meaning as set forth in Section
------------------------
6.2.
C-2
<PAGE>
Defaulting Partner shall have the meaning set forth in Section 12.2.
------------------
Deficit Contribution shall have the meaning set forth in Section 6.1.
--------------------
Deficit Equity Rate means the annaul rate of interest announced from
-------------------
time to time by Wells Fargo Bank, N.A. as its "prime" or "base" rate to
commercial borrowers with the highest credit rating, for short-term, unsecured
loans.
Deficit Preferred Return shall have the meaning set forth in Section
------------------------
6.1.
Developer or the Limited Partner shall have the meaning set forth in
--------- ---------------
the Recital.
Distributable Cash shall have the meaning set forth in Section 12.5.
------------------
Economic Risk of Loss means the risk as determined under Treasury
---------------------
Regulation Section 1.752-2 that a partner or person related to a partner will
suffer an economic loss as a result of the failure of the Partnership to repay a
liability.
Electing Partner shall have the meaning set forth in Section 12.2.
----------------
Election Notice shall have the meaning set forth in Section 12.2.
---------------
Entity means any general partnership, limited partnership, corporation,
------
joint venture, trust, business trust, cooperative or association.
Event of Bankruptcy means, as to the Partnership or a Partner, (1)
-------------------
filing a voluntary petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the Federal Bankruptcy Code (as now or in the
future amended) or an admission seeking the relief therein provided; (2) making
a general assignment for the benefit of its creditors; (3) consenting to the
appointment of a receiver for all or a substantial part of its property; (4) in
the case of the filing of an involuntary petition in bankruptcy, an entry of an
order for relief; (5) the entry of a court order appointing a receiver or
trustee for all or a substantial part of its property without its
C-3
<PAGE>
consent; or (6) the assumption of custody or sequestration by a court of
competent jurisdiction of all or substantially all of its property.
Extraordinary Cash Flow shall have the meaning set forth in Section
-----------------------
5.1.
Fair Market Value shall have the meaning set forth in Section 12.3.
-----------------
Fiscal Year shall have the meaning set forth in Section 8.7.
-----------
Guaranteed Senior Invested Capital Payment Distribution shall have the
-------------------------------------------------------
meaning set forth in Section 5.6.
Guaranteed Senior Invested Capital Reduction Payment shall have the
----------------------------------------------------
meaning set forth in Section 5.2(a).
Guaranteed Senior Payments shall have the meaning set forth in Section
--------------------------
5.2(a).
Guaranteed Senior Return Payment shall have the meaning set forth in
--------------------------------
Section 5.2(a).
Gross Income shall have the meaning set forth in Section 7.1.
------------
Ground Lease means that ground lease between Nielsen as landlord and
------------
the Partnership, as successor in interest to the Original Partnership, as
tenant, dated January 23, 1988 and relating to the Property.
Improvements means the buildings and other improvements constructed on
------------
the Land by the Partnership.
Incapacity means for a Partner or an Entity which is the general
----------
partner of a Partner, the dissolution, liquidation or termination (but not
including a termination under Section 708(b)(1)(B) or Section 708(b)(2)(A) of
the Code) of such Partner or Entity.
Indemnitor shall have the meaning set forth in Section 2.8.
----------
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
C-4
<PAGE>
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.
IRS means the Internal Revenue Service.
---
Junior Capital shall have the meaning set forth in Section 3.2.
--------------
Junior Invested Capital shall have the meaning set forth in Section
-----------------------
5.1.
Junior Payments shall have the meaning set forth in Section 5.2(b).
---------------
Junior Priority Return Payment shall have the meaning set forth in
------------------------------
Section 5.2(b).
Land means the approximately 10.4-acre parcel of land located in the
----
City of Salinas, County of Monterey, California, as more particularly described
in Exhibit A to this Agreement.
---------
Liquidating Trustee shall have the meaning set forth in Section 14.3.
-------------------
NEPP or the General Partner shall have the meaning set forth in the
---- ---------------
Recital.
Net Profit and Net Loss shall have the meanings set forth in Section
---------- --------
7.1.
Nielsen shall have the meaning set forth in Section 3.2.
-------
Nielsen Documents shall have the meaning set forth in Section 3.2.
-----------------
Nielsen Note means that promissory note from Nielsen to NEPP dated
------------
August 1, 1995 in the original principal amount of $1,750,000.
Non-Contributing Partner shall have the meaning set forth in Section
------------------------
6.2.
Nonrecourse Deductions for a Fiscal Year (or other period) means
----------------------
deductions funded by Nonrecourse Liabilities (as determined under Treasury
Regulation Section 1.704-2(c)) for such year and
C-5
<PAGE>
are generally equal to the excess, if any, of (i) the net increase in
Partnership Minimum Gain during such year over (ii) the sum of (A) the aggregate
distributions of proceeds from Nonrecourse Liabilities attributable to increases
in Partnership Minimum Gain during such year and (B) increases in Partnership
Minimum Gain during such year attributable to conversions of liabilities into
Nonrecourse Liabilities.
Nonrecourse Liability means any liability of a partnership (or portion
---------------------
thereof) to the extent that no partner bears the Economic Risk of Loss
associated with the liability.
Offering Notice shall have the meaning set forth in Section 11.2.
---------------
Operating Cash Flow shall have the meaning set forth in Section 5.1.
-------------------
Operating Deficit shall have the meaning set forth in Section 6.1.
-----------------
Operating Revenues shall have the meaning set forth in Section 5.1.
------------------
Original Agreement shall have the meaning set forth in the Recital.
------------------
Original Partnership shall have the meaning set forth in the Recital.
--------------------
Partner means NEPP and Developer, and such successors, assigns or
-------
additional partners as may be admitted to the Partnership, from time to time,
pursuant to the terms of this Agreement.
Partner Nonrecourse Debt means any partnership liability to the extent
------------------------
that the liability is nonrecourse for purposes of Treasury Regulation Section
1.1001-2 and a partner bears the Economic Risk of Loss associated with the
liability.
Partner Nonrecourse Debt Minimum Gain means the amount that would
-------------------------------------
result if Partnership Minimum Gain were computed with respect to Partner
Nonrecourse Debt rather than Nonrecourse Liabilities.
C-6
<PAGE>
Partner Nonrecourse Deductions means deductions funded from Partner
------------------------------
Nonrecourse Debt (as determined under Treasury Regulation Section 1.704-2(i)(2))
computed for a Fiscal Year (or other period) in a manner similar to that used in
computing Nonrecourse Deductions but with reference to Partner Nonrecourse Debt
Minimum Gain rather than Partnership Minimum Gain.
Partner's Share of Partner Nonrecourse Debt Minimum Gain means an
--------------------------------------------------------
amount of Partner Nonrecourse Debt Minimum Gain computed for each Partner in a
manner similar to that used in computing a Partner's Share of Partnership
Minimum Gain but with reference to Partner Nonrecourse Debt with respect to
which the Partner bears the Economic Risk of Loss rather than to Nonrecourse
Liabilities.
Partner's Share of Partnership Minimum Gain means an amount of
-------------------------------------------
Partnership Minimum Gain computed for each Partner under Treasury Regulation
Section 1.704-2(g) and generally equal to the excess of (i) the sum of (A) the
aggregate amount of Nonrecourse Deductions previously allocated to the Partner,
(B) the aggregate amount of proceeds of Nonrecourse Liabilities attributable to
increases in Partnership Minimum Gain previously distributed to the Partner and
(C) increases in Partnership Minimum Gain during such Fiscal Year attributable
to conversions of liabilities into Nonrecourse Liabilities over (ii) the
Partner's aggregate proportionate share of previous decreases in Partnership
Minimum Gain. A Partner's proportionate share of the decrease in Partnership
Minimum Gain for a Fiscal Year shall be based upon the ratio that such Partner's
Share of Minimum gain for the preceding year bore to the aggregate amount of
Partnership Minimum Gain for such preceding Fiscal Year.
Partnership means the limited partnership governed by this Agreement as
-----------
said limited partnership may from time to time be constituted and amended.
Partnership Agreement shall have the meaning set forth in the Recital.
---------------------
Partnership Capital means an amount equal to the sum of all of the
-------------------
Partners' Capital Account balances determined immediately prior to the
allocation to the Partners pursuant to Sections 7.2(b)(ii)(y) or 7.2(c)(ii)(x)
of any Net Profit or Net Loss from a Capital Transaction increased by the
aggregate amount of Net Profit to be allocated to the Partners pursuant to
Section 7.2(b)(ii)(y) as a result of such Capital Transaction or decreased by
the aggregate amount of Net Loss to be allocated to the
C-7
<PAGE>
Partners pursuant to Section 7.2(c)(ii)(x) as a result of such Capital
Transaction.
Partnership Minimum Gain means the amount determined by computing with
------------------------
respect to each Nonrecourse Liability of the Partnership, the amount of Gross
Income, if any, that would be realized by the Partnership if it disposed of the
property securing such liability in full satisfaction thereof, and by then
aggregating the amounts so computed. For purposes of determining the amount of
such Gross Income with respect to a liability, the Book Value of the asset
securing the liability shall be allocated among all the liabilities that the
asset secures in the manner set forth in Treasury Regulation Section
1.704-2(d)(2).
Payment Factor shall have the meaning set forth in Section 5.6.
--------------
Person means any individual or Entity, and the heirs, executors,
------
administrators, legal representatives, successors and assigns of such Person
where the context so admits; and, unless the context otherwise requires, the
singular shall include the plural, and the masculine gender shall include the
feminine and the neuter and vice versa.
Project means the Land, together with the streets, sewers, curbs,
-------
gutters, utility service connections, and other land development infrastructure
and improvements constructed or to be constructed on or related to the Land
(including related off-site improvements).
Project Expenses shall have the meaning set forth in Section 5.1.
----------------
Property Manager shall have the meaning set forth in Section 2.10.
----------------
Purchase Price shall have the meaning set forth in Section 12.6.
--------------
Reserve for Replacements shall have the meaning set forth in Section
------------------------
5.1.
Selling Partner shall have the meaning set forth in Section 11.2.
---------------
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<PAGE>
Senior Capital shall have the meaning set forth in Section 3.2.
--------------
Senior Invested Capital shall have the meaning set forth in Section
-----------------------
5.1.
Senior Payments shall have the meaning set forth in Section 5.2.
---------------
Tax Matters Partner shall have the meaning set forth in Section 8.6.
-------------------
Transfer shall have the meaning set forth in Section 11.1.
--------
Working Capital Fund shall have the meaning set forth in Section 5.1.
--------------------
C-9
<PAGE>
Limited Partnership Agreement of IBG Dahlia Associates
dated September 1, 1995 between Registrant and
20 Dahlia Partnership, a California limited partnership.
<PAGE>
IBG DAHLIA ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
OF
IBG DAHLIA ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
TABLE OF CONTENTS
-----------------
Page
ARTICLE 1 - THE PARTNERSHIP
Section 1.1 Reconstitution.......................... 2
Section 1.2 Name.................................... 2
Section 1.3 Principal Executive Office.............. 2
Section 1.4 Purposes................................ 3
Section 1.5 Purposes Limited........................ 4
Section 1.6 No Payments of Individual
Obligations............................. 4
Section 1.7 Statutory Compliance.................... 4
Section 1.8 Title to Property....................... 4
Section 1.9 Duration................................ 4
ARTICLE 2 - THE PARTNERS
Section 2.1 Identification.......................... 5
Section 2.2 Liability Several....................... 5
Section 2.3 Noncompetition.......................... 5
Section 2.4 Limits on Developer's Activities........ 5
Section 2.5 Other Conflicts......................... 5
Section 2.6 Reimbursement and Fees.................. 6
Section 2.7 Indemnification of Partners by the
Partnership............................. 6
Section 2.8 Indemnification by Partners............. 6
Section 2.9 Limitation on Liability of Partners..... 7
Section 2.10 Payments to Developer and Affiliates.... 8
ARTICLE 3 - CAPITAL
Section 3.1 Capital Accounts and Adjusted Capital
Accounts................................ 8
Section 3.2 Capital Contributions................... 9
Section 3.3 No Further Capital Contributions........ 10
Section 3.4 Capital Contributions - General......... 10
Section 3.5 Interests............................... 11
<PAGE>
ARTICLE 4 - LOANS
Section 4.1 Loans................................... 11
Section 4.2 Payment of Third Party Loans............ 11
ARTICLE 5 - CASH DISTRIBUTIONS
Section 5.1 Definitions............................. 11
Section 5.1.1 Guaranteed Payments..................... 14
Section 5.2 Operating Cash Flow..................... 15
Section 5.3 Extraordinary Cash Flow ................ 16
Section 5.4 Distributions in Liquidation............ 17
Section 5.5 In-Kind Distribution.................... 17
ARTICLE 6 - OPERATING DEFICITS
Section 6.1 Operating Deficits ..................... 17
ARTICLE 7 - TAX ALLOCATIONS
Section 7.1 Definition of Net Profit and Net Loss... 17
Section 7.2 Allocation of Net Profit, Gross Income
and Net Loss............................ 19
Section 7.3 Tax Allocations; Code Section 704(c).... 22
Section 7.4 Allocations Upon Transfer or
Change of Interests..................... 23
ARTICLE 8 - ACCOUNTING AND RECORDS
Section 8.1 Books and Records....................... 23
Section 8.2 Reports................................. 24
Section 8.3 Tax Returns............................. 24
Section 8.4 Depreciation............................ 24
Section 8.5 Special Basis Adjustment................ 24
Section 8.6 Tax Matters Partner..................... 25
Section 8.7 Fiscal Year............................. 25
Section 8.8 Bank Accounts........................... 25
ARTICLE 9 - MANAGEMENT AND OPERATIONS
Section 9.1 Management.............................. 25
Section 9.2 Standard of Care........................ 28
Section 9.3 Insurance............................... 28
-ii-
<PAGE>
ARTICLE 10 - REPRESENTATIONS AND WARRANTIES
Section 10.1 Developer............................... 28
Section 10.2 NEPP V.................................. 29
Section 10.3 Brokers................................. 31
ARTICLE 11 - TRANSFER OF INTERESTS
Section 11.1 Restrictions on Transfer of
Developer's Interest.................... 31
Section 11.2 No Restriction of Transfer
of NEPP V Interest...................... 31
Section 11.3 Permitted Transfers..................... 32
Section 11.4 General Transfer Provisions............. 33
Section 11.5 Tax Allocations and Cash
Distributions........................... 33
Section 11.6 Compliance.............................. 34
Section 11.7 Waiver of Partition..................... 34
ARTICLE 12 - OPTION TO PURCHASE DEVELOPER'S INTERST
Section 12.1 NEPP V'S Right to Acquire
Developer's Interest.................... 33
Section 12.2 Purchase Price.......................... 33
Section 12.3 Closing of Purchase and Sale............ 35
Section 12.4 Payment................................. 35
Section 12.5 Liabilities............................. 35
ARTICLE 13 - TERMINATION OF THE PARTNERSHIP
Section 13.1 Events of Dissolution................... 35
Section 13.2 Effects of Dissolution.................. 36
Section 13.3 Sale of Assets by Liquidating
Trustees................................ 36
ARTICLE 14 - MISCELLANEOUS
Section 14.1 Notices................................. 37
Section 14.2 Successors and Assigns.................. 37
Section 14.3 No Oral Modifications; Amendments....... 37
Section 14.4 Captions................................ 37
Section 14.5 Terms................................... 38
Section 14.6 Invalidity.............................. 38
Section 14.7 Counterparts............................ 38
Section 14.8 Further Assurances...................... 38
Section 14.9 Complete Agreement...................... 38
Section 14.10 Attorneys' Fees......................... 38
Section 14.11 Governing Law........................... 38
-iii-
<PAGE>
Section 14.12 No Third Party Beneficiary.............. 38
Section 14.13 Exhibits and Glossary................... 39
Section 14.14 Estoppels............................... 39
Section 14.15 References to this Agreement............ 39
Section 14.16 Reliance on Authority of Person
Signing Agreement....................... 39
Section 14.17 Consents and Approvals.................. 39
EXHIBITS
A Legal Description of Land
A Glossary of Defined Terms used in this Agreement is attached.
-iv-
<PAGE>
IBG DAHLIA ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT ("Partnership Agreement"
or "Agreement") of IBG Dahlia Associates, a California Limited
Partnership (the "Partnership"), is dated as of September 1, 1995,
between 20 Dahlia Partnership, a California Limited Partnership
("Developer" or the "Limited Partner"), and New England Pension
Properties V; a Real Estate Limited Partnership, a Massachusetts
limited partnership ("NEPP V" or the "General Partner").
Developer and NEPP V are sometimes hereinafter referred to
collectively as the "Partners" and individually as a "Partner."
Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the glossary attached
hereto.
WHEREAS, IBG Dahlia Associates (the "Original Partnership"),
was formed pursuant to that certain IBG Dahlia Associates General
Partnership Agreement entered into by and between NEPP V and
Developer dated as of August 28, 1987 (the "Original Agreement");
and
WHEREAS, the Partners have agreed to convert the Partnership
into a California limited partnership as of the date of filing,
with the California Secretary of State, of a Certificate of
Limited Partnership (Form LP-1) for the Partnership;
WHEREAS, the parties hereto now desire to amend and
completely restate the Original Agreement in its entirety on the
terms and conditions hereinafter set forth to provide for (i) the
conversion of the Original Partnership from a California general
partnership into a California limited partnership; and (ii) such
other changes to the Original Agreement as the Partners deem
appropriate.
NOW, THEREFORE, in consideration of the foregoing, and for
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in consideration of the mutual
agreements set forth in this Agreement and intending to be legally
bound, the parties hereby agree to continue the Partnership as a
California limited partnership in accordance with the California
Revised Limited Partnership Act (the "Act") and do hereby agree as
follows:
<PAGE>
ARTICLE I
THE PARTNERSHIP
---------------
Section 1.1 Reconstitution. The Partners hereby
--------------
reconstitute the Original Partnership as a California limited
partnership in accordance with the provisions of the Act. The
Partners hereby make and execute this Agreement so as to set forth
the rights, duties, obligations and limitations on the liabilities
of the Partners, including, without limitation, the rights of the
Partners with respect to the assets and profits of the
Partnership, which the Partners shall be entitled to receive by
reason of being a general or limited partner of the Partnership.
In furtherance of the foregoing provisions of this Section 1.1,
the Partners hereby acknowledge that (i) the interest of Developer
as a general partner in the Original Partnership is hereby
converted into an interest as a limited partner in the
Partnership, and (ii) Developer is hereby entitled to exercise all
of the rights, powers, and privileges, and is hereby obligated to
perform all of the duties and obligations, which may hereafter
exist with respect to a limited partner of the Partnership. Each
of the Partners hereby consents to the conversion described above
in this Section 1.1 and acknowledges that the Partnership shall
not dissolve or terminate as a result of such conversion; on the
contrary, the business of the Partnership shall continue without
any interruption and without any break in continuity.
Concurrently with the execution of this agreement, the
General Partner shall execute one (1) or more copies of a
Certificate of Limited Partnership for the Partnership pursuant to
the provisions of Section 15621 of the California Corporations
Code, which shall be duly filed in the Office of the California
Secretary of State and certified copies of which may, in the sole
discretion of the General Partner, be recorded in any county.
Section 1.2 Name. The name of the Partnership is hereby
----
changed to "IBG Dahlia Associates, a California Limited
Partnership," or if that name is not available, any other name the
General Partner may select that is in compliance with the Act. In
furtherance of the foregoing name change, the Partners hereby
authorize the General Partner to execute and deliver (with
acknowledgment, verification, and/or affidavit, if required) any
and all documents required to effectuate such name change
including, without limitation, a Cancellation of Statement of
Partnership and Statement of Abandonment of Use of Fictitious
Business Name for the Original Partnership.
Section 1.3 Principal Executive Office. The principal
--------------------------
executive office of the Partnership shall be located in care of
Investment Building Group, 500 North State College Boulevard,
-2-
<PAGE>
Suite 525, Orange, California 92668, or at such other place
within or without the State of California as may be selected by
NEPP V. The Partnership shall at all times maintain an office in
California for purposes of Section 15614 of the Act.
Section 1.4 Purposes. The sole purposes of the Partnership
--------
shall be to acquire, own and hold for production of income,
improve, develop, operate, manage, lease, sell, dispose and
otherwise deal with the Project. In furtherance of these
purposes, but subject to all other provisions of this Agreement,
the Partnership is hereby authorized:
- to acquire by purchase, lease or otherwise, any real or
personal property, including the Land (and to enter into
options and agreements so to acquire such real or
personal property), which may be necessary, convenient
or incidental to the accomplishment of the purposes of
the Partnership;
- to construct, operate, maintain, finance, improve, own,
sell, convey, assign, mortgage or lease any real estate
and any personal property necessary, convenient or
incidental to the accomplishment of the purposes of the
Partnership;
- 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 mortgage, pledge
or other lien on the Project and/or any other assets of
the Partnership;
- to borrow money on the general credit of the Partnership
for use in the Partnership business and to execute
documents in connection therewith;
- to enter into, perform and carry out contracts of any
kind, including contracts with an Affiliate of a
Partner, necessary to, in connection with or incidental
to, the accomplishment of the purposes of the
Partnership;
- 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 partnership under applicable laws;
- to enter into, on behalf of the Partnership, easements,
rights of way, utility or other agreements necessary for
the development of the Project or any portion thereof or
-3-
<PAGE>
to permit access over, through, and across the Project
or any portion thereof (to serve adjoining properties,
for vehicular and pedestrian access, utility
installations maintenance and other purposes);
- to prepay in whole or in part, refinance, recast,
increase, modify, or extend any mortgage affecting the
Project or other indebtedness of the Partnership and, in
connection therewith, to execute any extensions,
renewals or modifications of such other mortgages and
indebtedness; and
- to take or cause to be taken all actions and to perform
or cause to be performed all functions necessary or
appropriate to promote the business of the Partnership
and to realize and carry out its purposes.
Section 1.5 Purposes Limited. The Partnership shall be a
----------------
partnership only for the purposes specified in Section 1.4.
Except as otherwise provided in this Agreement, the Partnership
shall not engage in any other activity or business and no Partner
shall have any authority to hold itself out as a general agent of
another Partner in any other business or activity.
Section 1.6 No Payments of Individual Obligations. The
-------------------------------------
Partners shall use the Partnership's credit and assets solely for
the benefit of the Partnership. No asset of the Partnership shall
be transferred or encumbered for or in payment of any individual
obligation of a Partner.
Section 1.7 Statutory Compliance. The Partnership shall
--------------------
exist under and be governed by, and this Agreement shall be
construed in accordance with, the applicable laws of the State of
California. The Partners shall make all filings and disclosures
required by, and shall otherwise comply with, all such laws.
The Partners shall execute and file in the appropriate
records a certificate of limited partnership, and such documents
and instruments as may be necessary or appropriate with respect to
the continuation of, and conduct of business by, the Partnership
as a California limited partnership.
Section 1.8 Title to Property. All real and personal
-----------------
property owned by the Partnership shall be owned by the
Partnership as an entity and, insofar as permitted by applicable
law, no Partner shall have any ownership interest in such property
in its individual name or right and each Partner's interest in the
Partnership shall be personal property for all purposes.
Section 1.9 Duration. The term of the Partnership commenced
--------
on August 28, 1987 and the Partnership shall dissolve on
-4-
<PAGE>
December 31, 2035 unless sooner dissolved or terminated pursuant
to statute or any provision of this Agreement.
ARTICLE 2
THE PARTNERS
------------
Section 2.1 Identification. Developer and NEPP V shall be
--------------
the Partners of the Partnership. No other person may become a Partner
except pursuant to a transfer specifically permitted under and effected
in compliance with this Agreement.
Section 2.2 Liability Several. The obligations of the
-----------------
Partners under this Agreement to one another shall be in every
case several and shall not be, or be construed to be, either joint
or joint and several.
Section 2.3 Noncompetition. Intentionally Omitted.
--------------
Section 2.4 Limits on Developer's Activities. Developer
--------------------------------
shall not engage, invest or otherwise participate in any activity,
investment or undertaking other than this Partnership.
Section 2.5 Other Conflicts. NEPP V, Affiliates of NEPP V
---------------
and Affiliates of Developer (but not Developer itself) may conduct
any business or activity whatsoever (including the acquisition,
development, leasing and operation and/or sale of real property)
without any accountability to the Partnership or to any Partner
even if such business or activity competes with the business of
the Partnership. Each Partner understands that NEPP V, Affiliates
of NEPP V and Affiliates of Developer may be interested, directly
or indirectly, in various other businesses and undertakings not
including the Partnership.
Further, each Partner understands and acknowledges that the
conduct of the business of the Partnership may involve business
dealings with such other businesses or undertakings of NEPP V,
Affiliates of Developer and Affiliates of NEPP V. The creation of
the Partnership and the assumption by each of the Partners of its
duties hereunder shall be without prejudice to the respective
rights of NEPP V, Affiliates of Developer and Affiliates of NEPP V
to maintain such other interests and activities and to receive and
enjoy profits or compensation therefrom, and each Partner waives
any rights it might otherwise have to share or participate in such
other interests or activities of NEPP V, Affiliates of Developer
and Affiliates of NEPP V. Notwithstanding anything to the
contrary, Developer shall not engage in or have any business
dealings with any other Person or Entity, except as required for
its administrative operation.
-5-
<PAGE>
Section 2.6 Reimbursement and Fees. NEPP V shall and any
----------------------
Affiliate thereof shall be entitled to reimbursement for their
reasonable out-of-pocket expenses paid to third parties incurred
in connection with the performance of its obligations hereunder.
If NEPP V or an Affiliate of NEPP V shall at any time provide
property management services to the Partnership, NEPP V or such
Affiliate shall be entitled to property management fees and
leasing commissions at rates competitive with those which would be
paid to an unaffiliated property manager providing comparable
services to a project of the type and size of the Project, in the
geographic area in which the Project is located.
Section 2.7 Indemnification of Partners by the Partnership.
----------------------------------------------
The Partners shall perform their duties under this Agreement with
ordinary prudence and in a manner characteristic of businessmen in
similar circumstances. However, neither shall have any liability
whatsoever to the Partnership or to any other Partner for loss
caused by any act or by the failure to do any act if the loss
suffered arises out of a mistake in judgment of the Partner, or if
the Partner, in good faith, had determined that the action or lack
of action giving rise to the loss was in the best interests of the
Partnership or if the action or lack of action giving rise to the
loss was based on the advice of counsel; provided, however, that
-------- -------
such exculpation from liability shall not apply to any liability
for loss caused by any act or by the failure to do any act which
arises out of the gross negligence, willful neglect or willful
misconduct of any Partner.
The Partnership, its receiver or liquidating trustee, shall
indemnify, hold harmless and pay all judgments and claims against
any of the Partners arising from any actions or decisions
performed or made by them in connection with the business of the
Partnership, provided such actions or decisions are within the
--------
scope of the purposes of the Partnership and the Partner seeking
indemnification complied with the immediately preceding paragraph.
This indemnification shall include, without limitation, payment of
attorneys' and accountants' fees incurred in connection with the
defense of any claim or proceeding based on any such action or
decision, which attorneys' and accountants' fees shall be paid as
incurred; and liabilities under Federal and state securities laws,
to the extent permitted by law.
Section 2.8 Indemnification by Partners. Subject to Section
---------------------------
2.7, each Partner (an "Indemnitor") shall indemnify and hold
harmless the other Partner from and against all claims, demands,
actions and rights of action which shall or may arise by virtue of
anything done or omitted to be done by the Indemnitor (directly or
through or by agents, employees or other representatives) outside
the scope of, or in breach of the terms of this Agreement.
-6-
<PAGE>
A Partner who desires to make a claim against an Indemnitor
under this Section shall notify the Indemnitor of the claim,
demand, action or right of action which is the basis of such
claim, and shall give the Indemnitor a reasonable opportunity to
participate in the defense thereof. Failure to give such notice
shall not affect the Indemnitor's obligations hereunder, except to
the extent of any actual prejudice resulting therefrom. Any cash
distributions of the Indemnitor under Article 5 shall be charged
for any amounts the Indemnitor is required to pay pursuant to this
Section 2.8.
Section 2.9 Limitation on Liability of Partners. Except as
-----------------------------------
hereinafter provided, no Partner shall have personal liability for
the payment of any sums owing by such Partner to the Partnership or
any other Partner under the terms of this Agreement, or for the
performance of any other covenant or agreement of such Partner
contained herein; rather, the Partnership and each other Partner
shall look solely to the Interest of such Partner or to such other
specific remedies as may be provided for herein, for satisfaction of
each and every of such payments and obligations, and shall never
seek, obtain or enforce any deficiency judgment or other judgment or
mandatory order of any nature the effect of which would be to compel
such Partner to pay any sum of money to any party in respect of any
obligation arising under the terms of this Agreement and owed to the
Partnership or any other Partner (including, without limitation, any
subrogation right or remedy obtained by payment by a Partner of all
or any portion of a Third Party Loan or other indebtedness of the
Partnership).
Except as otherwise provided in this Section 2.9, each Partner
hereby waives and relinquishes any right to have any recourse or
pursue any remedy whatsoever, other than the foregoing specified
remedy, against the following:
- the Partnership, the Partners (or any partner, general or
limited, present or future subscriber to the capital
stock, stockholder, officer or director of any of the
Partners); or
- any corporation, partnership (or any partner thereof),
individual or entity to which any interest in the Project
shall have been transferred.
The foregoing provisions shall not limit the right of any
Partner to name the Partnership or the other Partners a party
defendant in any action or suit in the exercise of the sole remedy
permitted hereunder, so long as no judgment obtained by such Partner
shall be enforced other than as provided above.
Section 2.10 Payments to Developer and Affiliates. The
------------------------------------
Partnership has entered into a Property Management Agreement dated
-7-
<PAGE>
as of September 1, 1995, with respect to the Project pursuant to
which the Developer or an Affiliate of the Developer (the "Property
Manager") shall provide management services for the Project.
ARTICLE 3
CAPITAL
-------
Section 3.1 Capital Accounts and Adjusted Capital Accounts.
----------------------------------------------
(a) A separate capital account ("Capital Account") shall be
maintained for each Partner and adjusted in accordance with Treasury
Regulations under Section 704(b) of the Code. To the extent
consistent with such Regulations, the adjustments to such accounts
shall include the following:
(i) There shall be credited to each Partner's Capital
Account the amount of any cash (which shall not include imputed
or actual interest on any deferred contributions) actually
contributed by such Partner to the capital of the Partnership
(or deemed contributed pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(c)), the fair market value of any
property contributed by such Partner to the capital of the
Partnership (net of any liabilities secured by such property
that the Partnership is considered to assume or to take subject
to under Code Section 752) and such Partner's share of the
Gross Income and Net Profits (and all items thereof) of the
Partnership. There shall be charged against each Partner's
Capital Account the amount of all cash distributions to such
Partner by the Partnership (or deemed distributed pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(c)), the fair
market value of any property distributed to such Partner by the
Partnership (net of any liability secured by such property that
the Partner is considered to assume or take subject to under
Code Section 752) and such Partner's share of the Net Losses
(and all items thereof) of the Partnership.
(ii) If the Partnership at any time distributes any of its
assets in-kind to any Partner, the Capital Account of each
Partner shall be adjusted to account for that Partner's
allocable share (as determined under Article 7 below) of the
Net Profit or Net Loss that would have been realized by the
Partnership had it sold the assets that were distributed at
their respective fair market values immediately prior to their
distribution.
(iii) Any adjustments to the tax basis (or Book Value) of
Partnership property under Code Sections 732, 734 or 743, will
be reflected as adjustments to the Capital Accounts of the
-8-
<PAGE>
Partners, only in the manner and to the extent provided in
Treasury Regulation Section 1.704-1(b)(2)(iv)(m).
(b) An adjusted capital account ("Adjusted Capital Account")
shall also be maintained for each Partner, which shall be equal to
such Partner's Capital Account balance increased by (i) the
Partner's Share of Partnership Minimum Gain and (ii) the Partner's
Share of Partner Nonrecourse Debt Minimum Gain.
(c) For purposes of Section 7.2(i) and (j) only, below, a
Partner's Adjusted Capital Account shall be reduced by the net
adjustments, allocations and distributions described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) which, as of
the end of the Partnership's taxable year are reasonably expected to
be made to such Partner, and shall be increased by the sum of (i)
any amount which the Partner is required to restore to the
Partnership upon liquidation of his or its interest in the
Partnership (or which is so treated pursuant to Treasury Regulation
Section 1.704-1(b)(2)(ii)(c)) pursuant to the terms of this
Agreement or under state law and (ii) that portion of any
indebtedness of the Partnership (other than Partner Nonrecourse
Debt) with respect to which the Partner bears the Economic Risk of
Loss that such indebtedness would not be repaid out of the
Partnership's assets if all of the Partnership's assets were sold at
their respective Book Values as of the end of the Fiscal Year or
other period and the proceeds from the sales together with any
amounts described in clause (i) above were used to pay the
Partnership's liabilities.
(d) As of December 31, 1994, the respective tax Capital
Account balances of the Partners were as follows:
NEPP V $4,432,382.57
Developer -0-
Section 3.2 Capital Contributions.
---------------------
(a) Upon formation of the Partnership, NEPP V agreed to
contribute to the Partnership capital in the amount of $7,250,000,
of which $1,321,000 was contributed by NEPP V upon such formation,
and of which an additional $5,760,592.62 has been contributed to
the Partnership through the date hereof (so that NEPP V's total
capital contributions to the Partnership through the date hereof
equal $7,081,592.62). Such capital is hereinafter referred to as
NEPP V's "Senior Capital". NEPP V may, but shall have no
obligation to, make any further contribution to the capital of the
Partnership, but, if it reasonably determines that the Partnership
requires, for any reason, additional capital, and it elects to
contribute such capital, the aggregate amount of any such
contribution or contributions shall hereinafter be referred to as
NEPP V's "Junior Capital".
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<PAGE>
(b) Upon formation of the Partnership, Developer contributed
or caused to be contributed to the Partnership its interest in the
Project, and assigned or caused to be assigned to the Partnership
the following, if any:
- all rights of Developer and its Affiliates in any plans,
specifications, working drawings, designs, models and
other similar architectural or engineering materials
prepared for the Project (or any portion thereof);
- all rights or benefits of Developer and its Affiliates
in and to all prior discussions with governmental
bodies, entities and agencies with respect to the
Project (or any portion thereof);
- all agreements providing utility services to the Project
(or any portion thereof);
- all leases for space in the Project;
- all right, title and interest of Developer and its
Affiliates to continue the negotiations, discussions and
business arrangements in connection with the foregoing;
and
- all other rights, licenses and permits related to the
Project (or any portion thereof).
The agreed-upon net fair market value of the interests contributed
by Developer is $10.00.
Section 3.3 No Further Capital Contributions. The Partners
--------------------------------
shall not be required to contribute additional capital or loan any
funds to the Partnership, except as expressly provided in this
Article 3 and Article 5. Specifically, but not by way of
limitation, the Partners shall not be required upon the
liquidation and winding up of the Partnership, to contribute to
the capital of the Partnership the amount of the negative balance,
if any, in their respective Capital Accounts.
Section 3.4 Capital Contributions - General. Except as
-------------------------------
specifically provided herein, no interest shall be paid on any
capital contribution to the Partnership by any Partner. Except as
specifically provided herein, no Partner may contribute capital
to, or withdraw capital from, the Partnership. To the extent any
cash which any Partner is entitled to receive pursuant to
Article 5 or any other provision of this Agreement would
constitute a return of capital, each of the Partners consents to
the withdrawal of such capital. Under circumstances requiring a
return of any capital, no Partner shall have the right to receive
property other than cash.
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<PAGE>
Section 3.5 Interests. The respective Interests of the
---------
Partners in the Partnership shall be as follows:
NEPP V 60%
Developer 40%
The provisions of this Section shall not give a Partner an
interest in any amount credited to the Capital Account of any
other Partner.
ARTICLE 4
OTHER LOANS
-----------
Section 4.1 Loans. The Partnership is not currently
-----
obligated for loans to third parties ("Third Party Loans"),
Section 4.2 Payment of Third Party Loans. As set forth in
----------------------------
the definition of Project Expenses, payments of principal and
interest on all Third Party Loans, if any, shall be expenses of
the Partnership.
ARTICLE 5
CASH DISTRIBUTIONS
------------------
5.1 Definitions. As used in this Agreement, the following
-----------
terms shall have the meanings set forth below:
"Junior Invested Capital" means an amount equal to the
-----------------------
aggregate amount of Junior Capital which NEPP V has contributed to
the capital of the Partnership pursuant to Section 3.2 hereof
decreased by the aggregate amount of proceeds distributed to NEPP
V pursuant to clause SECOND of each of Sections 5.2 and 5.3.
"Senior Invested Capital" means an amount equal to the
-----------------------
aggregate amount of Senior Capital which NEPP V has contributed to
the capital of the Partnership pursuant to Section 3.2 hereof
decreased by the aggregate amount of proceeds distributed to NEPP
V pursuant to clause FOURTH of each of Sections 5.2 and 5.3. As
of the date hereof, the amount of NEPP V's Senior Invested Capital
is $7,081,592.62.
"Project Expenses" means all expenditures, expenses and
----------------
charges relating to the ownership, operation, construction,
development, maintenance, management and upkeep of the Project
(other than Monthly Guaranteed Payments and Accrued Monthly
Guaranteed Payments), or any portion thereof, and the operations
of the Partnership including, without limitation, the following:
-11-
<PAGE>
- all taxes, assessments, ground rents and other similar
governmental and quasi-governmental charges levied or
imposed on the Project or any portion thereof;
- insurance premiums;
- maintenance and security expenses;
- marketing, advertising and other promotional expenses;
- utility costs;
- legal, accounting and other professional fees and
expenses;
- architects, engineers and surveyors' fees;
- cost of roads and utilities built and installed on the
Land, or any portion thereof;
- other costs associated with the zoning, subdivision and
improvement of the Land, or any portion thereof, into
building lots, whether incurred on or off the site;
- development and management fees;
- payments of principal, interest and other amounts due or
accrued under any Third Party Loans (if any); and
- any and all other costs and expenses specified in this
Agreement as Project Expenses.
Depreciation (cost recovery) and amortization or any other
non-cash items taken into account in determining Net Profits
or Losses shall not be Project Expenses.
"Operating Revenues" means as to any particular Fiscal Year
------------------
or portion thereof, the total cash receipts of the Partnership
other than (i) Extraordinary Cash Flow, (ii) any properly
----------
unapplied advance rentals of the Partnership in connection with
the leasing of the Project (which shall be Operating Revenues when
applied), (iii) the proceeds of any Third Party Loans and (iv) any
unforfeited security deposits of Project tenants.
"Operating Cash Flow" means as to any particular Fiscal Year
-------------------
or portion thereof, Operating Revenues less the sum of the
following: ----
- Project Expenses paid from Operating Revenues during
such period; and
-12-
<PAGE>
- a provision for a reasonable working capital reserve and a
reserve for future Project Expenses in an amount
determined by NEPP V in its reasonable discretion (the
"Working Capital Fund"), and a reasonable reserve for
replacement of Partnership assets subject to depreciation
("Reserve for Replacements") in an amount determined by
NEPP V in its reasonable discretion.
"Capital Transaction" means the sale, exchange, condemnation
-------------------
(or similar eminent domain taking or disposition in lieu thereof),
destruction by casualty, refinancing or disposition of the Project
or any portion thereof.
"Extraordinary Cash Flow" means the cash proceeds (including
-----------------------
any applicable insurance proceeds) realized by the Partnership as
a result of a Capital Transaction plus cash interest payments
----
received on such proceeds, decreased by the sum of the following:
---------
- payments to creditors of debts then due and payable,
including the amount of any obligations to pay Project
Expenses that have not been paid from Operating
Revenues;
- the amount of such proceeds used, set aside or committed
by the Partnership for restoration and repair of the
Project;
- provision for the Working Capital Fund and the Reserve
for Replacements, to the extent not funded from
Operating Revenues, in an amount determined by NEPP V in
its reasonable discretion; and
- any expenses, costs or liabilities incurred by the
Partnership in effecting or obtaining any such Capital
Transaction or the proceeds thereof (including, without
limitation, attorneys' and accountants' fees, court
costs, brokerage fees, commissions, recording fees,
transfer taxes, and the like), all of which expenses,
costs and liabilities shall be paid from the gross
amount of such cash proceeds to the extent thereof.
Section 5.1.1 Guaranteed Payments. The Partnership shall
-------------------
make a monthly guaranteed payment to NEPP V ("Senior Monthly
Guaranteed Payment") at the rate of 10% per annum on the Senior
Invested Capital standing from time to time in NEPP V's Capital
Account for each month during the year. All such payments shall
be made monthly in arrears commencing on the first day of the
first full calendar month following the date on which NEPP V
contributed Senior Capital, and ending on the date on which the
Senior Invested Capital of NEPP V shall have been reduced to zero.
Senior Monthly Guaranteed Payments shall be made from Operating
-13-
<PAGE>
Cash Flow, Extraordinary Cash Flow and distributions in
liquidation as provided in Sections 5.2, 5.3 and 5.4. To the
extent that any such payments cannot be made when due from
Operating Cash Flow, Extraordinary Cash Flow and distributions
upon liquidation, such payments may accrue, and such accruals
shall bear interest at the rate of 10% per annum, compounded
monthly. The amount of such unpaid Senior Monthly Guaranteed
Payments and the interest accruing thereon until paid in full are
hereinafter referred to collectively as "Accrued Senior Monthly
Guaranteed Payments." Accrued Senior Monthly Guaranteed Payments
shall be payable out of Operating Cash Flow and Extraordinary Cash
Flow as provided in Section 5.2 and 5.3 and distributions in
liquidation as provided in Section 5.4.
As of March 31, 1995, NEPP V's Accrued Senior Monthly
Guaranteed Payments equalled $2,289,254.68.
The Partnership shall make a monthly guaranteed payment to
NEPP V ("Junior Monthly Guaranteed Payment") at the rate of 10%
per annum on the Junior Invested Capital standing from time to
time in NEPP V's Capital Account for each month during the year.
All such payments shall be made monthly in arrears commencing on
the first day of the first full calendar month following the date
on which NEPP V has contributed Junior Capital, and ending on the
date on which the Junior Invested Capital of NEPP V shall have
been reduced to zero. Junior Monthly Guaranteed Payments shall be
made from Operating Cash Flow, Extraordinary Cash Flow and
distributions in liquidation as provided in Sections 5.2, 5.3 and
5.4. To the extent that any such payments cannot be made when due
from Operating Cash Flow, Extraordinary Cash Flow and
distributions upon liquidation, such payments may accrue, and such
accruals shall bear interest at the rate of 10% per annum,
compounded monthly. The amount of such unpaid Junior Monthly
Guaranteed Payments and the interest accruing thereon until paid
in full are hereinafter referred to collectively as "Accrued
Junior Monthly Guaranteed Payments." Accrued Junior Monthly
Guaranteed Payments shall be payable out of Operating Cash Flow
and Extraordinary Cash Flow as provided in Section 5.2 and 5.3 and
distributions in liquidation as provided in Section 5.4.
Junior Monthly Guaranteed Payments and Senior Monthly
Guaranteed Payments are sometimes referred to collectively as
"Monthly Guaranteed Payments." Accrued Junior Monthly Guaranteed
Payments and Accrued Senior Monthly Guaranteed Payments are
sometimes referred to collectively as "Accrued Monthly Guaranteed
Payments."
It is intended that the Monthly Guaranteed Payments and
Accrued Monthly Guaranteed Payments described in this Section
5.1.1 shall constitute guaranteed payments within the meaning of
Section 707(c) of the Code, that they shall be deducted as an
-14-
<PAGE>
expense of the Partnership (unless NEPP V determines that such
expense should be amortized) and that their payment shall not
directly reduce the Capital Account of NEPP V.
Section 5.2 Operating Cash Flow. Operating Cash Flow shall
-------------------
be determined for each Fiscal Year, or fraction thereof, and shall
be distributed in the following order of priority:
FIRST: to NEPP V in payment of its Junior Monthly
----- Guaranteed Payments, and any Accrued Junior Monthly
Guaranteed Payments;
SECOND: to NEPP V until its Junior Invested Capital has
------ been reduced to zero;
THIRD: to NEPP V in payment of its Senior Monthly
----- Guaranteed Payments, and any Accrued Senior Monthly
Guaranteed Payments;
FOURTH: to NEPP V until its Senior Invested Capital has
------ been reduced to zero; and
FIFTH: to the Partners in accordance with their respective
----- Interests.
Distributions of Operating Cash Flow shall be made provi-
sionally at such reasonable intervals during the Fiscal Year as
shall be determined by NEPP V, and in any event shall be made on a
monthly basis within 30 days after the last day of each month.
Following the end of each Fiscal Year, and at any time or from
time to time during any Fiscal Year if requested by either Partner
(and after determination of the actual amount of Operating Cash
Flow for such Fiscal Year, or the portion thereof which then shall
have elapsed, as applicable), the above provisional distributions
of Operating Cash Flow to the Partners with respect to such Fiscal
Year or portion thereof shall be recomputed on the basis of the
actual amount of Operating Cash Flow. If the above provisional
distributions with respect to such Fiscal Year or portion thereof
are greater than the distributions thus recomputed for such Fiscal
Year or portion thereof, then the Partners shall recontribute to
the Partnership in reverse order of the priorities set forth above
the amounts received by the Partners for such Fiscal Year or
portion thereof until all distributions of Operating Cash Flow for
such Fiscal Year or portion thereof shall be in conformance with
this Section 5.2.
Furthermore, if it is projected that the Partnership will not
have sufficient cash (from any source) to pay its obligations as
they become due, for all or a portion of the then Fiscal Year, and
distributions of Operating Cash Flow theretofore have been made
with respect to such Fiscal Year, then the Partners shall
-15-
<PAGE>
recontribute to the Partnership such distributions in reverse
order of the priorities set forth in this Section 5.2, until there
has been recontributed to the Partnership that aggregate amount
which is equal to the lesser of the total of such distributions
previously made with respect to such Fiscal Year, or the amount of
such projected cash shortfall for such Fiscal Year. Any amounts
so recontributed shall be characterized in the same manner as they
were originally distributed so that, following such
recontribution, subsequent distributions to the Partners pursuant
to any clause of this Section shall be made in the same manner as
if the original distributions were never made (except that, any
Accrued Monthly Guaranteed Payment distributed to NEPP V which is
entitled to earn interest, shall not earn such interest during the
period from the date of distribution of such amount to NEPP V
through the date of its recontribution by NEPP V pursuant to this
sentence). For example, to the extent NEPP V is required to
recontribute distributions made pursuant to clause SECOND of this
Section, the amount of such distributions shall be deemed not to
have been made for purpose of calculating NEPP V's Junior Invested
Capital.
Any amounts previously set aside in the Working Capital Fund
or the Reserve for Replacements, to the extent funded from
Operating Revenues, shall be additions to Operating Cash Flow when
and to the extent NEPP V no longer regards such reserves as
reasonably necessary to the efficient conduct of the affairs of
the Partnership.
Section 5.3 Extraordinary Cash Flow. Except as provided in
-----------------------
Section 5.4 below, Extraordinary Cash Flow shall be distributed by
the Partnership in the following order of priority:
FIRST: to NEPP V in payment of its Junior Monthly
----- Guaranteed Payments, and any Accrued Junior Monthly
Guaranteed Payments;
SECOND: to NEPP V until its Junior Invested Capital has
------ been reduced to zero;
THIRD: to NEPP V in payment of its Senior Monthly
----- Guaranteed Payments, and any Accrued Senior Monthly
Guaranteed Payments;
FOURTH: to NEPP V until its Senior Invested Capital has
------ been reduced to zero; and
FIFTH: to the Partners in accordance with their respective
----- Interests.
Section 5.4 Distributions in Liquidation. Distributions in
----------------------------
connection with the liquidation and winding up of the Partnership
-16-
<PAGE>
(including distributions of Operating Cash Flow and Extraordinary
Cash Flow) shall be made (after payment of the reasonable expenses
incurred in dissolution and termination and payment to creditors
of the Partnership, but excluding secured creditors whose
obligations will be assumed or otherwise transferred on the
liquidation of the Partnership property or assets) to the Partners
in proportion to the positive balances of their Capital Accounts
after Capital Accounts have been adjusted for the allocation of
Net Profit and Net Loss (and items thereof) for the Fiscal Year
during which such liquidation occurs.
Section 5.5 In-Kind Distribution. Assets of the Partnership
--------------------
(other than cash) may be distributed in kind to the Partners. If
any assets of the Partnership are distributed to the Partners in
kind, such assets shall be valued on the basis of the fair market
value thereof on the date of distribution, and any Partner
entitled to any interest in such assets shall receive such
interest as a tenant-in-common with all other Partners so
entitled.
ARTICLE 6
OPERATING DEFICITS
------------------
Section 6.1 Operating Deficits. If, at any time, Project
------------------
Expenses exceed Operating Revenues, Extraordinary Cash Flow and
other funds available to the Partnership (an "Operating Deficit"),
then funds shall be withdrawn from the Working Capital Fund as
required and if available. If Operating Deficits cannot be so
funded, or if it reasonably appears that the Partnership will be
unable to meet in a timely manner any of its obligations as they
mature, NEPP V may, but shall not be required to, contribute
Junior Capital to the Partnership in order to enable the
Partnership to meet its obligations.
ARTICLE 7
TAX ALLOCATIONS
---------------
Section 7.1 Definition of Net Profit and Net Loss. (a) "Net
-------------------------------------
Profit" and "Net Loss" shall mean, for each Fiscal Year or other
period, an amount equal to the Partnership's taxable income or
loss for such Fiscal Year or period, determined in accordance with
Code Section 703(a) (for this purpose, all items of income, gain,
loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments:
-17-
<PAGE>
(i) any income of the Partnership that is exempt from
federal income tax or not otherwise taken into account in
computing Net Profit or Net Loss pursuant to this Section 7.1
shall be added to such taxable income or loss;
(ii) any expenditures of the Partnership described in
Code Section 705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures under Code Section 704(b) and not
otherwise taken into account in computing Net Profit or Net
Loss pursuant to this Section 7.1, shall be subtracted from
such taxable income or loss;
(iii) gain or loss resulting from any disposition of
Partnership property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed
by reference to the Book Value of such property rather than
its adjusted tax basis;
(iv) in lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in comput-
ing taxable income or loss, there shall be taken into account
depreciation on the assets' respective Book Values for such
Fiscal Year or other period determined in accordance with
Treasury Regulations under Code Section 704(b); and
(v) the amount of any Gross Income allocated to the
Partners pursuant to Section 7.2(a) and Sections 7.2(e), (f)
and (i), below, shall not be included as income or revenue.
(b) Definition of Net Profits or Net Losses From Capital
----------------------------------------------------
Transactions. "Net Profits or Net Losses from Capital Transac-
------------
tions" shall mean for each Fiscal Year or other period, the Net
Profit or Net Loss for such Fiscal Year or other period calculated
solely by reference to gains and losses from Capital Transactions.
(c) Definition of Net Profits or Net Losses From Operations.
-------------------------------------------------------
"Net Profits or Net Losses from Operations" shall mean for each
Fiscal Year or other period, the Net Profit or Net Loss for such
Fiscal Year or other period calculated without regard to Net
Profits and Net Losses from Capital Transactions.
(d) Definition of Gross Income. "Gross Income" shall mean,
--------------------------
for each Fiscal Year or other period, an amount equal to the
Partnership's gross income as determined for federal income tax
purposes for such Fiscal Year or period but computed with the
adjustments specified in Section 7.1(a)(i) and (iii), above.
(e) Definition of Gross Income from Operations. "Gross
------------------------------------------
Income from Operations" shall mean for each Fiscal Year or other
period, the Gross Income for such year calculated without regard
to Gross Income attributable to Capital Transactions.
-18-
<PAGE>
Section 7.2 Allocation of Net Profit, Gross Income and Net
----------------------------------------------
Loss. The Partners hereby agree that the Net Profit, Gross Income
----
and Net Loss of the Partnership shall be allocated among them in
accordance with this Section 7.2.
(a) Gross Income from Operations. Except as otherwise
----------------------------
provided in this Article 7, Gross Income from Operations, if any,
of the Partnership (and each item thereof) for each Fiscal Year or
other period, in an amount equal to the total amount distributed
to Developer pursuant to Section 5.2 with respect to such Fiscal
Year or other period, shall be allocated to Developer.
(b) Net Profits From Operations and Capital Transactions.
----------------------------------------------------
Except as otherwise provided in this Article 7, Net Profit, if
any, of the Partnership (and each item thereof) for each Fiscal
Year or other period shall be allocated among the Partners as fol-
lows:
(i) All Net Profit from Operations of the Partnership
shall be allocated to NEPP V.
(ii) Net Profit from Capital Transactions shall:
(x) first be allocated to the Partners in propor-
tion to the negative balances, if any, in their Adjusted
Capital Accounts (after adjusting such Adjusted Capital
Accounts for allocations of any Gross Income, Net Loss
or Net Profit from Operations of the Partnership for the
Fiscal Year or other period) until such negative
balances are increased to zero, and
(y) thereafter, be allocated to the Partners in
such proportions and in such amounts as would result in
the Adjusted Capital Account balance of each Partner
equaling, as nearly as possible, such Partner's share of
the then Partnership Capital determined by calculating
the amount the Partner would receive if an amount equal
to the Partnership Capital were distributed to the
Partners in accordance with the provisions of Section
5.3 hereof, other than clauses FIRST and THIRD thereof.
(c) Net Losses From Operations and Capital
--------------------------------------
Transactions. Except as otherwise provided in this Article 7, Net
------------
Loss, if any, of the Partnership (and each item thereof) for each
Fiscal Year or other period shall be allocated as follows:
(i) All Net Loss from Operations of the Partnership
shall be allocated to NEPP V.
(ii) Net Loss from Capital Transactions shall:
-19-
<PAGE>
(x) first be allocated to those Partners with
positive balances in their Adjusted Capital
Accounts in amounts equal to their respective
Adjusted Capital Account balances; provided,
however, that if the amount of Net Loss to be
allocated is less than the sum of the Adjusted
Capital Account balances of all Partners having
positive Adjusted Capital Account balances, then
the Net Loss shall be allocated to the Partners in
such proportions and in such amounts as would
result in the Adjusted Capital Account balance of
each Partner equaling, as nearly as possible, such
Partner's share of the then Partnership Capital
determined by calculating the amount the Partner
would receive if an amount equal to the Partnership
Capital were distributed to the Partners in accord-
ance with the provisions of Section 5.3 hereof,
other than clauses FIRST and THIRD thereof; and
(y) thereafter, one hundred percent (100%) to
NEPP V.
(d) Liquidation. Subject to the provisions of Sections
-----------
7.2(e) through (j), Net Profit and Net Loss incurred in the Fiscal
Year in which the Partnership is liquidated shall be allocated in
accordance with the provisions of Sections 7.2(b)(ii) and
7.2(c)(ii) without regard to whether such Net Profit and Net Loss
arises from a Capital Transaction, and Sections 7.2(a), 7.2(b)(i)
and 7.2(c)(i) shall not apply.
(e) Minimum Gain Chargeback. Notwithstanding any other
-----------------------
provision of this Agreement to the contrary, if in any Fiscal Year
or other period there is a net decrease in the amount of
Partnership Minimum Gain, then each Partner shall first be
allocated items of Gross Income for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of
the net decrease in Partnership Minimum Gain determined as set
forth in the definition of Partnership Minimum Gain; provided,
however, that no such allocation of Gross Income to a Partner
shall occur in the following circumstances:
(i) If the net decrease in Partnership Minimum
Gain is caused by a modification of a Nonrecourse Liability
and the Partner bears the Economic Risk of Loss with respect
to such modified liability;
(ii) If the net decrease in Partnership Minimum
Gain is attributable to a repayment of a Nonrecourse
Liability with amounts contributed to the capital of the
Partnership by the Partner; and
-20-
<PAGE>
(iii) If the allocation of Gross Income would cause
a "distortion in the economic arrangement among the Partners"
and the Partnership receives a waiver of the requirement that
Gross Income be so allocated from the Commissioner of the
Internal Revenue Service pursuant to Treasury Regulation
Section 1.704-2(f)(4).
(f) Minimum Gain Chargeback for Partner Nonrecourse
-----------------------------------------------
Debt. Notwithstanding any other provision of this Agreement to
----
the contrary other than Section 7.2(e), above, if in any year
there is a net decrease in the amount of Partner Nonrecourse Debt
Minimum Gain, then each Partner shall first be allocated items of
Gross Income for such year (and, if necessary, subsequent years)
in an amount equal to such Partner's net decrease in Partner
Nonrecourse Debt Minimum Gain with respect to liabilities for
which the Partner bears the Economic Risk of Loss; provided,
however, that no such allocation of Gross Income to a Partner
shall occur in the following circumstances:
(i) If the net decrease in Partner Nonrecourse
Debt Minimum Gain is caused by a modification of a Partner
Nonrecourse Debt and the Partner bears the Economic Risk of
Loss with respect to such modified liability;
(ii) If the net decrease in Partner Nonrecourse
Debt Minimum Gain is attributable to a repayment of a Partner
Nonrecourse Debt with amounts contributed to the capital of
the Partnership by the Partner;
(iii) In any circumstance described in clause (iii)
of Section 7.2(e) hereof; and
(iv) If the net decrease in Partner Nonrecourse
Debt Minimum Gain is caused by a modification of a Partner
Nonrecourse Debt that causes it to become a Nonrecourse
Liability.
(g) Nonrecourse Deductions. All Nonrecourse Deductions of
----------------------
the Partnership for any Fiscal Year or other period shall be
allocated among the Partners in the same manner and proportions as
are Net Losses from Operations of the Partnership.
(h) Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions shall be allocated to the Partner who bears the
Economic Risk of Loss with respect to the Partner Nonrecourse
Debt.
(i) Qualified Income Offset. Notwithstanding any of the
-----------------------
provisions above (except Sections 7.2(e) and (f) which shall be
applied first), if in any Fiscal Year or other period a Partner
receives an adjustment, allocation or distribution described in
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Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6),
Gross Income (and items thereof) shall first be allocated to
Partners with negative Adjusted Capital Account balances (adjusted
in accordance with Section 3.1(c) hereof), in proportion to such
negative balances, until such balances are increased to zero.
(j) Limit on Loss Allocations. Notwithstanding the provi-
-------------------------
sions of Section 7.2(c), Net Loss (or items thereof) shall not be
allocated to a Partner if such allocation would cause or increase
a negative balance in such Partner's Adjusted Capital Account
(adjusted in accordance with Section 3.1(c) hereof) and shall be
reallocated to the other Partner or Partners, subject to the
limitations of this Section 7.2(j).
(k) Reversal of Mandatory Allocations. In the event that
---------------------------------
any Net Profit or Net Loss, or items thereof, of the Partnership
are allocated pursuant to Sections 7.2(i) or (j), subsequent Net
Profit or Net Loss (or items thereof) will first be allocated
(subject to Sections 7.2(e) through (j)) to the Partners in a
manner which will result in each Partner having a Capital Account
balance equal to that which would have resulted had the original
allocation of Net Profit or Loss or items thereof pursuant to Sec-
tions 7.2(i) and (j) not occurred.
(l) Priority. For purposes of the allocations pursuant to
--------
this Article 7 and except as otherwise provided, Sections
7.2(a) (Gross Income from Operations) shall apply first, then
Sections 7.2(b)(i) and 7.2(c)(i) (Net Profit or Loss from
Operations), and thereafter Sections 7.2(b)(ii) and 7.2(c)(ii)
(Net Profit or Loss from Capital Transactions). The allocation of
Net Profit and Net Loss from Capital Transactions shall be made
before adjusting Capital Account balances to reflect the
distribution of proceeds from such Capital Transactions.
(m) Compliance with Code. The foregoing provisions of this
--------------------
Agreement relating to the allocation of Net Profit and Net Loss
are intended to comply with Treasury Regulations under Section
704(b) of the Code and shall be interpreted and applied in a man-
ner consistent with such regulations.
Section 7.3 Tax Allocations; Code Section 704(c). In
------------------------------------
accordance with Code Sections 704(b) and 704(c) and the Treasury
Regulations thereunder, depreciation, amortization, gain and loss,
as determined for tax purposes, with respect to any property whose
Book Value differs from its adjusted basis for federal income tax
purposes shall, for tax purposes, be allocated among the Partners
so as to take account of any variation between the adjusted basis
of such property to the Partnership for federal income tax
purposes and its Book Value.
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Any elections or other decisions relating to such allocations
shall be made by the Partners in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations
pursuant to this Section 7.3 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be
taken into account in computing, any Partner's Capital Account or
share of Net Profit, Net Loss, other items, or distributions
pursuant to any provision of this Agreement.
Section 7.4 Allocations Upon Transfer or Change of
--------------------------------------
Interests. Upon a transfer of all or a portion of a Partner's
---------
Interest, Gross Income, Net Profits and Net Losses shall be
allocated among the Partners in accordance with the provisions of
Section 11.5.
ARTICLE 8
ACCOUNTING AND RECORDS
----------------------
Section 8.1 Books and Records. NEPP V shall keep or cause
-----------------
to be kept, at Partnership expense, at the Partnership's principal
office, separate books of account for the Partnership which shall
show a true and accurate record of all costs and expenses
incurred, all charges made, all credits made and received and all
income derived in connection with the operation of the Partnership
business in accordance with generally accepted accounting
principles consistently applied and sufficient to obtain an
unqualified opinion from the Accountants as to the Partnership's
financial position and results of operations. The Partnership
shall use the accrual method of accounting in preparation of its
annual reports and for tax purposes and shall keep its books
accordingly. The expenses chargeable to the Partnership shall
include only those which are reasonable and necessary for the
ordinary and efficient operation of the Partnership business and
the performance of the obligations of the Partnership under any
leases or other agreements relating to the Project or the business
of the Partnership.
Each Partner shall, at its sole expense, have the right, at
any time without notice to the other, to examine, copy and audit
the Partnership's books and records during normal business hours.
All books, records (including bills and invoices), reports
and returns of the Partnership required by this Article 8 shall be
maintained in a manner and form consistent with NEPP V's methods
and procedures of reporting investment transactions.
Section 8.2 Reports. With respect to each Fiscal Year of
-------
the Partnership, NEPP V shall cause a general accounting to be
made by the Accountants at the expense of the Partnership. The
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accounting shall be performed in accordance with generally
accepted auditing standards, and shall cover all of the assets,
properties, liabilities and net worth of the Partnership as well
as its dealings, transactions and operations during such Fiscal
Year, together with all other matters customarily included in such
accountings.
Within 90 days after the end of each Fiscal Year, NEPP V
shall cause to be furnished to Developer financial statements for
the Partnership, prepared on an accrual basis and otherwise in
accordance with generally accepted accounting principles
consistently applied, which shall contain a balance sheet as of
the end of the Fiscal Year, statements of profit and loss, and
Operating Cash Flow, changes in the Capital Accounts and a
statement of changes in financial position for the Fiscal Year
then ended. Such financial statements shall disclose and/or
footnote, in sufficient detail, all items of taxable income, gain,
loss, or accounts which vary from the reporting of such items for
financial accounting purposes. Any exceptions to the financial
statements rendered must be made by a Partner within one year from
its receipt and, if no exception is made within that time, the
statements shall be considered to be correct.
Section 8.3 Tax Returns. At Partnership expense, NEPP V
-----------
shall cause the Accountants to prepare all income and other tax
returns of the Partnership (on an accrual basis) and cause the
same to be filed in a timely manner. NEPP V shall furnish to
Developer a copy of each such return before it has been filed,
together with any schedules or other information which each
Partner may require in connection with such Partners' own tax
affairs. Each of the Partners shall, in its respective income tax
return and other statements filed with the Internal Revenue
Service or other taxing authority, report taxable income in
accordance with the provisions of this Agreement.
Section 8.4 Depreciation. The Partnership shall, to the
------------
extent permitted by the Code, utilize the Accelerated Cost
Recovery System (as defined in the Code) on a straight-line basis.
Section 8.5 Special Basis Adjustment. In connection with
------------------------
any assignment or transfer of an Interest permitted by the terms
of this Agreement, NEPP V shall cause the Partnership, at the
written request of the transferor, the transferee or the successor
to such Interest, on behalf of the Partnership and at the time and
in the manner provided in Treasury Regulation Section 1.754-1(b)
(or any like statute or regulation then in effect), to make an
election to adjust the basis of the Partnership's property in the
manner provided in Sections 734(b) and 743(b) of the Code (or any
like statute or regulation then in effect), and such transferee
shall pay all costs incurred by the Partnership in connection
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therewith, including, without limitation, reasonable attorneys'
and accountants' fees.
Section 8.6 Tax Matters Partner. NEPP V shall be the party
-------------------
designated to receive all notices from the Internal Revenue
Service ("IRS") which pertain to the tax affairs of the
Partnership and NEPP V shall be entitled to require that any IRS
examinations or audits shall take place at the offices of NEPP V.
NEPP V shall be the "Tax Matters Partner" of the Partnership
pursuant to the Code.
Section 8.7 Fiscal Year. The Fiscal Year of the Partnership
-----------
shall be the calendar year, unless otherwise determined by NEPP V.
As used in this Agreement, a fiscal year shall include any partial
fiscal year at the beginning and end of the Partnership term.
Section 8.8 Bank Accounts. NEPP V shall have fiduciary
-------------
responsibility for the safekeeping and use of all funds and assets
of the Partnership, whether or not in its immediate possession or
control. The funds of the Partnership shall not be commingled
with the funds of any other person and NEPP V shall not employ, or
permit any other person to employ, such funds in any manner except
for the benefit of the Partnership.
The bank accounts of the Partnership shall be maintained in
such banking institutions as are determined by NEPP V and
withdrawals shall be made only in the regular course of
Partnership business and as otherwise authorized in this Agreement
on such signature or signatures as NEPP V may determine.
ARTICLE 9
MANAGEMENT AND OPERATIONS
-------------------------
Section 9.1 Management. NEPP V acting alone, and without
----------
the consent or approval of Developer, shall have the sole
authority to manage the business and operations of the
Partnership. Without limiting in any way the foregoing, NEPP V
acting alone, shall have the sole authority to make all decisions
respecting the conduct of the Partnership and its business,
without the consent or approval of Developer, including without
limitation, the following:
- acquiring, by purchase, lease, or otherwise, any real
property in addition to the Land, or constructing any
new capital improvements on the Land or replacing an
existing capital improvement following completion of
construction thereof;
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- giving or granting any options, rights of first refusal,
deeds of trust, mortgages, pledges, ground leases,
security interests or otherwise encumbering the Project
or any portion thereof;
- consummating leases in the Project or any portion
thereof, on such terms as NEPP V may approve;
- obtaining, increasing, modifying, consolidating or
extending any loan, line of credit or other obligation,
whether secured or unsecured, affecting the Project or
the Partnership or making draws under any such loan,
line of credit or other obligation;
- consenting to any rezoning or subdivision of the Land or
any other material change in the legal status thereof;
- selling, conveying or refinancing the Project or any
portion thereof;
- causing or permitting the Partnership to extend credit
to or to make any loans or become a surety, guarantor,
endorser or accommodation endorser for any person, firm
or corporation or entering into any contracts with
respect to the operation or management of the business
of the Partnership or the Project (or any portion
thereof);
- initiating, defending, adjusting, settling or
compromising any claim, action, suit or judgment by or
against the Partnership;
- releasing, compromising, assigning or transferring any
claims, rights or benefits of the Partnership;
- confessing a judgment against the Partnership or
submitting a Partnership claim to arbitration;
- distributing any cash or property of the Partnership, or
establishing any reserve, other than as provided in this
Agreement;
- filing on behalf of the Partnership any Federal or state
income tax or information returns, or changing the elec-
tions or choices of methods of reporting income or loss
for Federal or state income tax purposes provided for in
Article 8;
- spending money or entering into any contract or
agreement (or series thereof) of any nature whatsoever
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with respect to the Partnership or the Project (or any
portion thereof);
- assigning the rights of the Partnership in any of its
property;
- selecting attorneys or Accountants, or property
managers, for the Partnership and/or the Project;
- advertising or marketing the Project;
- granting easements or other property rights by documents
that are frequently recorded, except easements for
utilities serving the Project exclusively;
- giving any approval or exercising any right (including
rights to terminate or amend) under any management,
construction or other contract to which the Partnership
or the Project is a party;
- approving or changing or amending the plans or
specifications or budget for any building or structure
being constructed by the Partnership; or
- entering into any amendment, modification, revision,
supplement or rescission with respect to any of the
foregoing.
NEPP V shall devote itself to the business of the Partnership
to the extent it reasonably determines necessary for the efficient
carrying on thereof, without compensation therefor except as
specifically provided in this Agreement; provided, however, that
all of the Partners agree and acknowledge that (a) NEPP V shall
not be required, nor is it expected, to devote itself to the
business of the Partnership on a full-time basis, (b) the Project
shall be managed and maintained by the Property Manager pursuant
to the Management Agreement (or by another person who may serve as
property manager, in the event the Property Management Agreement
is terminated), and NEPP V may rely on the Property Manager (or
such other property manager) to manage and maintain the Project in
a prudent and reasonable manner and shall have no liability to the
Partnership or the Partners with respect to any matter delegated
to the Property Manager (or such other property manager) and (c)
NEPP V shall be permitted to delegate to a third party such other
of its duties and obligations under this Agreement as it may
determine in its sole discretion.
With respect to all of its obligations, powers, and
responsibilities under this Agreement, NEPP V is authorized, in
the name and on behalf of the Partnership, to execute, deliver,
and perform the terms, covenants and obligations of, such notes
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and other evidences of indebtedness, contracts, agreements,
assignments, deeds, leases, loan agreements, mortgages, and other
security instruments and agreements as it deems proper, all on
such terms and conditions as it deems proper.
Without limiting the foregoing, Developer hereby waives any
and all rights it may have under the Act to vote on, approve or
consent to any matter or to participate in the management,
business or operations of the Partnership, including without
limitation any rights it may have under Section 15636 of the Act.
Section 9.2 Standard of Care. NEPP V shall use reasonable
efforts to perform its duties under this Agreement, including,
without limitation, employing necessary personnel, on and off-
site, in connection with the business of the Partnership, and
shall at all times act in a fiduciary manner towards the
Partnership and Developer.
Section 9.3 Insurance. NEPP V shall procure and maintain,
or cause to be procured and maintained, at the expense of the
Partnership, insurance sufficient to enable the Partnership to
comply with applicable laws, regulations and requirements,
including without limitation, obligations imposed on the Project
by the any documents relating to Third Party Loans, and any and
all other agreements and instruments by which the Project is
bound, such additional insurance as may be customary for projects
of a similar type in the geographic area in which the Project is
located, and such additional insurance as NEPP V reasonably
determines to be appropriate for the Project.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 10.1 Developer. As of the date hereof each of the
---------
statements in this Section 10.1 shall be a true, accurate and full
disclosure of all facts relevant to the matters contained therein,
and such warranties and representations shall survive the execu-
tion of this Agreement. As of the date hereof, Developer hereby
represents and warrants that:
- Developer is a duly organized and validly existing
California limited partnership and has the requisite
power and authority to enter into and carry out the
terms of this Agreement.
- All partnership action required to be taken by Developer
to consummate this Agreement has been taken by Developer
(and its partners) and no further approval of any board,
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<PAGE>
court, or other body is necessary in order to permit
Developer to consummate this Agreement.
- To the best of its knowledge, neither the execution and
delivery of this Agreement, nor the performance of or
the compliance with, this Agreement has resulted (or
will result) in any violation of, or will be in conflict
with, or invalidate, cancel, or make inoperative, or
interfere with, or constitute a default under, or result
in the creation of any lien, encumbrance or any other
charge upon the Project pursuant to any charter, bylaw,
partnership agreement, trust agreement, mortgage, deed
of trust, indenture, contract, agreement, permit,
judgment, decree, or order to which Developer is a party
or by which the Project (or any portion thereof) is
bound, and there is no default and no event or omission
has occurred which, but for the passing of time or the
giving of notice, or both, would constitute a default on
the part of Developer under this Agreement.
- To the best of its knowledge, there is no action,
proceeding or investigation, pending or threatened (nor
any basis therefor) which questions, directly or
indirectly, the validity or enforceability of this
Agreement as to Developer or which would materially and
adversely affect the Project.
- To the best of Developer's knowledge, no representation,
warranty or covenant of Developer in this Agreement
(except for the first two representations of this
Section 10.1, which shall not be limited to Developer's
best knowledge, but shall be absolute), or in any
document or certificate furnished or to be furnished to
NEPP V pursuant hereto contains or will contain any
untrue statement of material fact or omits or will omit
to state any material fact necessary to make the
statements or facts contained therein not misleading.
All such representations, warranties or statements of
Developer are based, to the best of Developer's
knowledge, upon current, accurate and complete
information as of the time of their making, and there
have been, to the best of Developer's knowledge, no
changes in such information subsequent thereto.
Section 10.2 NEPP V. As of the date hereof each of the
------
statements in this Section 10.2 shall be a true, accurate and full
disclosure of all facts relevant to the matter contained therein,
and such warranties and representations shall survive the execu-
tion of this Agreement. As of the date hereof, NEPP V hereby
represents and warrants that:
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- NEPP V is a duly organized limited partnership validly
existing under the laws of the Commonwealth of
Massachusetts and has the requisite power and authority
to enter into and carry out the terms of this Agreement;
- All partnership action required to be taken by NEPP V to
consummate this Agreement has been taken and that no
further approval of any board, court, or other body is
necessary in order to permit NEPP V to consummate this
Agreement.
- To the best of its knowledge, neither the execution and
delivery of this Agreement nor the performance of nor
the compliance with this Agreement, has resulted (or
will result in) any violation of, or will be in conflict
with, or invalidate, cancel, or make inoperative, or
interfere with, or constitute a default under, or result
in the creation of any lien, encumbrance or any other
charge upon the Project pursuant to any charter, bylaw,
partnership agreement, trust agreement, mortgage, deed
of trust, indenture, contract, agreement, permit,
judgment, decree, or order, to which NEPP V is a party
and there is no default and no event or omission has
occurred which, but for the passing of time or the
giving of notice, or both, would constitute a default on
the part of NEPP V under this Agreement.
- To the best of NEPP V's knowledge, there is no action,
proceeding or investigation, pending or threatened (nor
any basis therefor), which questions, directly or
indirectly, the validity or enforceability of this
Agreement as to NEPP V.
- To the best of NEPP V's knowledge, no representation,
warranty or covenant of NEPP V in this Agreement (except
for the first two representations of this Section 10.2,
which shall not be limited to NEPP V's knowledge, but
shall be absolute), or in any document or certificate
furnished or to be furnished to Developer pursuant
hereto contains or will contain any untrue statement of
material fact or omits or will omit to state any
material fact necessary to make the statements or facts
contained therein not misleading. All such
representations, warranties or statements of NEPP V are
based, to the best of NEPP V's knowledge, upon current,
accurate and complete information as of the time of
their making, and there have been, to the best of NEPP
V's knowledge, no changes in such information subsequent
thereto.
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<PAGE>
Section 10.3 Brokers. Each party represents to the other
-------
that, except for fees paid upon formation of the Partnership to
Charterhouse Investment Company, they have not retained or been
approached by any broker, finder, agent or the like in connection
with this transaction or the negotiations thereof. Each party
shall indemnify and hold the other party hereto harmless from and
against all loss, liabilities, claims, damages and expenses,
including court costs and reasonable attorneys' fees, arising out
of any claim for brokerage or other commissions relative to this
Agreement or the transactions contemplated hereby insofar as any
such claim arises by reason of services alleged to have been
rendered to or at the insistence of such indemnifying party.
ARTICLE 11
TRANSFER OF INTERESTS
---------------------
Section 11.1 Restrictions on Transfer of Developer's
---------------------------------------
Interest. Except as expressly provided for in this Agreement,
--------
Developer may not, without the prior written consent of NEPP V,
sell, convey, transfer, assign, mortgage, pledge, hypothecate or
otherwise encumber in any way ("transfer") all or any portion of
its Partnership Interest or any interest it may have in any
property of the Partnership, or withdraw or retire from the
Partnership. Any such attempted transfer, withdrawal or
retirement not permitted hereunder shall be null and void. A
transfer of an interest in Developer shall be deemed a transfer
for the purpose of this Section 11.1.
Section 11.2 No Restriction on Transfer of NEPP V Interest.
---------------------------------------------
NEPP V may, without the consent or approval of Developer, sell,
convey, transfer, assign, mortgage, pledge, hypothecate or
otherwise encumber in any way ("transfer") all or any portion of
its Partnership Interest or any interest it may have in any
property of the Partnership, or withdraw or retire from the
Partnership. Any such transferee may be admitted to the
Partnership in substitution for NEPP V with respect to the
interest (or portion thereof) so transferred, and Developer hereby
consents to such substitution.
Section 11.3 Permitted Transfers. Developer or its
-------------------
successors, without the consent of NEPP V, may make the following
transfers:
- a transfer of stock in Investment Building Group ("IBG")
to any party so long as Jack M. Langson and/or a trust
of which he is the sole trustee retains voting control
of and at least 51% of the stock of IBG; and
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- transfers by Jack M. Langson of all or any portion of
his limited partnership interest in Developer to any
trust of which he is the sole trustee.
Any such permitted transferee shall receive and hold such
Partnership Interest or portion thereof subject to the terms of
this Agreement and the obligations of the Developer, and there
shall be no further transfer of such Partnership Interest or
portion thereof except to a trust, person or entity to whom such
permitted transferee could have transferred his Partnership
Interest in accordance with this Section 11.3 had such permitted
transferee originally been named as a Partner or as a partner in
Developer, or otherwise in accordance with the other terms of this
Agreement.
Section 11.4 General Transfer Provisions. All transfers
---------------------------
shall be by instrument in form and substance satisfactory to
counsel for the Partnership and shall contain an expression by the
assignee of its intention to accept the assignment and to accept
and adopt all of the terms and provisions of this Agreement, as
the same may have been amended, and shall provide for the payment
by the assignor of all reasonable expenses incurred by the
Partnership in connection with such assignment, including, without
limitation, the necessary amendments to this Agreement to reflect
such transfer. The transferor shall execute and acknowledge all
such instruments, in form and substance reasonably satisfactory to
the Partnership's counsel, as may be necessary or desirable to
effectuate such transfer.
In no event shall the Partnership dissolve or terminate upon
the admission of any Partner to the Partnership or upon any
permitted assignment of an Interest in the Partnership by any
Partner. Each Partner hereby waives its right to dissolve,
liquidate or terminate the Partnership in such event.
Upon completion of a transfer in compliance with this
Agreement, the transferor shall be released from all future
obligations arising under this Agreement after the date of such
transfer provided the assignee of such transferor assumes all such
--------
obligations of the transferor. However, the transferor shall
remain liable for its obligations under this Agreement occurring
on or prior to the date of such transfer.
Section 11.5 Tax Allocations and Cash Distributions. If an
--------------------------------------
Interest is transferred, the Net Profit or Loss allocable, and
cash distributable, to the holder of such Interest for the then
Fiscal Year shall be allocated and distributed based on a method
consistent with Section 706(d) of the Code. However, if such
parties agree that such Net Profit or Loss and cash are to be
allocated and distributed based upon an interim closing of the
Partnership books, and such parties agree to pay all expenses
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incurred by the Partnership in connection therewith and so notify
the non-transferring Partner, then all such Net Profit or Loss and
cash shall be allocated and distributed between the transferor and
transferee based upon an interim closing of the Partnership's
books and records. In no event, however, shall Extraordinary Cash
Flow or Net Profit or Loss arising from a Capital Transaction be
distributed and allocated to any Partner other than the Partners
owning Interests as of the date of the Capital Transaction in
question.
Section 11.6 Compliance. Notwithstanding anything to the
----------
contrary in this Agreement, at law or in equity, no Partner shall
transfer or otherwise deal with any Interest in a way that would
cause a default under any material agreement to which the
Partnership is a party or by which it is bound.
Section 11.7 Waiver of Partition. Neither Partner shall,
-------------------
either directly or indirectly, take any action to require
partition or appraisement of the Partnership or of any of its
assets or properties or cause the sale of any Partnership
property, and notwithstanding any provisions of applicable law to
the contrary, each Partner (and its legal representatives,
successors or assigns) hereby irrevocably waives any and all right
to maintain any action for partition or to compel any sale with
respect to its Interest, or with respect to any assets or
properties of the Partnership, except as expressly provided in
this Agreement.
ARTICLE 12
OPTION TO PURCHASE DEVELOPER'S INTEREST
---------------------------------------
Section 12.1 NEPP V's Right to Acquire Developer's
-------------------------------------
Interest. At any time, NEPP V may, by providing written notice to
--------
Developer, elect to purchase (or cause its designee to purchase)
Developer's entire Interest in the Partnership. The purchase
price for the interest shall be determined in accordance with
Section 12.2 below.
Section 12.2 Purchase Price. The purchase price of
--------------
Developer's Interest shall be an amount mutually acceptable to
Developer and NEPP V; provided that, if they are unable to agree,
the purchase price shall equal 100% of the aggregate amount which
would be distributable to Developer under Section 5.3 if the
assets of the Partnership were sold for their "Fair Value" and the
proceeds of such sale were distributed under Section 5.3. Such
Fair Value shall be determined in the manner specified in the
following paragraph, and the amount distributable to Developer
upon a sale of the Project for its Fair Value shall be determined
as provided below. Within 15 days after the determination of the
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Fair Value of the assets of the Partnership, the Accountants shall
determine the amount of cash which would be distributed to each
Partner pursuant to the provisions of each of clauses FIRST
through FIFTH of Section 5.3 if the assets of the Partnership had
been sold for the Fair Value as of the date of the determination
and shall give each Partner written notice ("Accountant's Notice")
thereof. The determination by the Accountant of such amounts
shall be conclusive.
The "Fair Value" of the assets of the Partnership shall be
determined by one or more real estate appraisers (as provided
herein), who shall be members of the American Institute of Real
Estate Appraisers. NEPP V and Developer shall each select one
appraiser within 15 days after the giving of written notice
pursuant to Section 12.1, and each shall notify the other of the
appraiser selected by it. If a Partner fails to select an
appraiser, the appraiser selected shall act alone. Each Partner
shall, after selection of all appraiser(s), be required to provide
to the appraiser(s) a proposal as to the Fair Value of the
Partnership's assets (the "Proposed Fair Value"). The
appraiser(s) so selected shall be required to select as the
Partnership's Fair Value one of the two Proposed Fair Values. If
they fail to do so, then either Partner may request the American
Arbitration Association or any successor organization thereto to
appoint a third appraiser. If a third appraiser has not been
appointed by the American Arbitration Association within 60 days
of a Partners' request for it to do so, then either Partner may
apply to any court having jurisdiction to appoint the third
appraiser. The third appraiser, whether appointed by the original
appraisers, the American Arbitration Association or a court, shall
select, from among the two Proposed Fair Values, the Fair Value
within 30 days after its selection or appointment. The
appraiser(s) shall select the Proposed Fair Value which they
believe, as between the two Proposed Fair Values, to be the
fairest price estimated in terms of money which the Partnership
could obtain if its assets were exposed for sale in the open
market allowing a reasonable time to find a purchaser who buys
with knowledge of the uses which such assets in their then
condition are adapted and for which such assets are capable of
being used at the time of the appraisal. The appraiser(s) shall
also take into consideration whether or not any debt to which the
assets of the Partnership are subject is prepayable or callable.
This provision for determination of the Fair Value shall be
specifically enforceable to the extent such remedy is available
under applicable law, and the determination of Fair Value
hereunder shall be final and binding upon the parties.
In connection with a determination of the Fair Value pursuant
to this Section 12.2: if one appraiser is used, each of the
Partners shall bear 50% of the fees and expenses of the appraiser;
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<PAGE>
if two appraisers are used, each of the Partners shall bear the
fees and expenses of the appraiser selected by such Partner; if
three appraisers are used, each of the Partners shall bear the
fees and expenses of the appraiser selected by such Partner and
50% of the fees and expenses of the third appraiser.
Section 12.3 Closing of Purchase and Sale. The closing of a
----------------------------
purchase pursuant to this Article 12 shall be held at the
principal office of the Partnership within 30 days after purchase
price of the Developer's interest has been determined. Developer
shall transfer to NEPP V its entire Interest in the Partnership
free and clear of all liens, security interests and competing
claims, and shall deliver to NEPP V or its designee such
instruments of transfer and such evidence of due authorization,
execution and delivery and of the absence of any liens, security
interests or competing claims as NEPP V shall reasonably request.
Section 12.4 Payment. At the closing, NEPP V or its
-------
designee shall pay the purchase price by delivery at the closing
of a certified or bank cashier's check payable to the order of
Developer in the amount of the purchase price determined pursuant
to Section 12.2.
Section 12.5 Liabilities. The purchase of the Interest of
-----------
Developer pursuant to this Article 12 shall release the Developer
(and NEPP V shall indemnify and hold harmless Developer) from all
liabilities and claimed liabilities of the Partnership except for
liabilities not taken into account in the determination of the
purchase price and tort liabilities not taken into account in the
determination of Purchase Price to the extent such tort
liabilities are not covered by insurance for events occurring
prior to Developer's withdrawal from the Partnership.
ARTICLE 13
TERMINATION OF THE PARTNERSHIP
------------------------------
Section 13.1 Events of Dissolution. The Partnership shall
---------------------
dissolve upon the first to occur of the following events:
- the expiration of the term of the Partnership as
provided in Section 1.9;
- the sale or other disposition (including, without limi-
tation, taking by eminent domain) of all or substan-
tially all of the assets of the Partnership unless such
sale or other disposition involves any deferred payment
of the consideration for such sale or disposition, in
which case the Partnership shall not dissolve until the
-35-
<PAGE>
last day of the calendar year during which the Partner-
ship shall receive the balance of such deferred payment;
- the occurrence of an Event of Bankruptcy of the
Partnership, which is not discharged or stayed within 90
days of occurrence;
- at the election of NEPP V, at any time; or
- the issuance of a decree of dissolution by a court of
competent jurisdiction.
Section 13.2 Effect of Dissolution. Upon dissolution of the
---------------------
Partnership pursuant to Section 13.1, the Partnership shall not
terminate but shall continue solely for the purposes of liqui-
dating all of the assets owned by the Partnership (until all such
assets have been sold or liquidated) and collecting the proceeds
from such sales and all receivables of the Partnership unless the
same have been written off as uncollectible. Upon dissolution,
the Partnership shall engage in no further business thereafter
other than that necessary to cause the Project to be operated on
an interim basis and for the Partnership to collect its
receivables, liquidate its assets and pay or discharge its
liabilities.
Section 13.3 Sale of Assets by Liquidating Trustee. Upon
-------------------------------------
dissolution of the Partnership, NEPP V shall, as "Liquidating
Trustee", proceed diligently to wind up the affairs of the Part-
nership and distribute its assets. NEPP V shall be permitted to
appoint another person to serve as Liquidating Trustee, or another
person to succeed any subsequently selected successor, whenever
the person originally selected or any such subsequently selected
successor, as the case may be, fails for any reason to carry out
such purpose. The Liquidating Trustee may be an individual,
corporation or general or limited partnership.
The decision to accept or reject an offer to purchase assets
of the Partnership shall be made solely by the Liquidating
Trustee.
In winding up the affairs of the Partnership, the Liquidating
Trustee shall pay the liabilities of the Partnership in such order
of priority as provided by law. If at the time of dissolution the
completion of all buildings then under construction on the Land
has not occurred, the Liquidating Trustee, in winding up the
affairs of the Partnership, shall have the authority, but not the
obligation, to complete the construction of the buildings.
All distributions of cash in winding up the affairs of the
Partnership shall be made in accordance with the provisions of
Section 5.4.
-36-
<PAGE>
ARTICLE 14
MISCELLANEOUS
-------------
Section 14.1 Notices. All notices required or permitted by
-------
this Agreement shall be in writing and may be delivered in person
to either party or may be sent by registered or certified mail,
with postage prepaid, return receipt requested, or may be
transmitted by telegraph, telecopy, overnight courier, personal
delivery or other commercially reasonable means, and addressed in
the case of NEPP V to:
c/o Copley Real Estate Advisors, Inc.
399 Boylston Street
Boston, Massachusetts 02116
Attention: General Counsel
Re: IBG Dahlia Associates
and in the case of Developer to:
c/o Investment Building Group
500 North State College Boulevard
Suite 525
Orange, California 92668
Attention: Jack M. Langson
RE: IBG Dahlia Associates
or to such other address as shall from time to time be supplied in
writing by any party to the other. Notice sent by registered or
certified mail, postage prepaid, with return receipt requested,
addressed as above provided, shall be deemed given four days after
deposit of same in the United States mail. If any notice is
telegraphed the same shall be deemed served or delivered 48 hours
after the transmission thereof. Any notice or other document sent
or delivered in any other manner shall be effective only if and
when received.
Section 14.2 Successors and Assigns. Subject to the
----------------------
restrictions on transfer set forth herein, this Agreement shall
bind and inure to the benefit of the parties hereto and their
respective legal representative, successors and assigns.
Section 14.3 No Oral Modifications; Amendments. No oral
---------------------------------
amendment of this Agreement shall be binding on the Partners. Any
modification or amendment of this Agreement must be in writing
signed by all of the Partners.
Section 14.4 Captions. Any article, section or paragraph
--------
titles or captions contained in this Agreement and the table of
contents are for convenience of reference only and shall not be
deemed a part of this Agreement.
-37-
<PAGE>
Section 14.5 Terms. Common nouns and pronouns shall be
-----
deemed to refer to the masculine, feminine, neuter, singular and
plural, as the identity of the Person or Entity may in the context
require. Any references to the Code, the Act or other statutes or
laws shall include all amendments, modifications or replacements
of the specific sections and provisions concerned.
Section 14.6 Invalidity. If any provision of this Agreement
----------
shall be held invalid, it shall not affect in any respect
whatsoever the validity of the remainder of this Agreement.
Section 14.7 Counterparts. This Agreement may be executed
------------
in counterparts, each of which shall be deemed an original and all
of which, when taken together, shall constitute one and the same
instrument, binding on the Partners, and the signature of any
party to any counterpart shall be deemed a signature to, and may
be appended to, any other counterpart.
Section 14.8 Further Assurances. The parties hereto agree
------------------
that they will cooperate with each other and will execute and
deliver, or cause to be delivered, all such other instruments, and
will take all such other actions, as either party hereto may
reasonably request from time to time in order to effectuate the
provisions and purposes hereof.
Section 14.9 Complete Agreement. This Agreement constitutes
------------------
the complete and exclusive statement of the agreement between the
Partners. It supersedes all prior written and oral statements and
no representation, statement, condition or warranty not contained
in this Agreement shall be binding on the Partners or have any
force or effect whatsoever.
Section 14.10 Attorneys' Fees. If any proceeding is brought
---------------
by one Partner against the other to enforce, or for breach of, any
of the provisions in this Agreement, the prevailing Partner shall
be entitled in such proceeding to recover reasonable attorneys'
fees together with the costs of such proceeding therein incurred.
Section 14.11 Governing Law. This Agreement shall be
-------------
construed and enforced in accordance with the laws of the State of
California.
Section 14.12 No Third Party Beneficiary. Any agreement to
--------------------------
pay any amount and any assumption of liability herein contained,
express or implied, shall be only for the benefit of the Partners
and their respective heirs, successors and assigns, and such
agreements and assumption shall not inure to the benefit of the
obligees of any indebtedness or any other party, whomsoever, it
being the intention of the Partners that no one shall be deemed to
be a third party beneficiary of this Agreement.
-38-
<PAGE>
Section 14.13 Exhibits and Glossary. Each of the Exhibits
---------------------
and the Glossary attached hereto are hereby incorporated herein
and made a part hereof for all purposes, and references herein
thereto shall be deemed to include this reference and
incorporation.
Section 14.14 Estoppels. Each Partner shall, upon not less
---------
than 15 days' written notice from the other Partner, execute and
deliver to the other Partner a statement certifying that this
Agreement is unmodified and in full force and effect (or, if
modified, the nature of the modification) and whether or not there
are, to such Partner's knowledge, any uncured defaults on the part
of the other Partner, specifying such defaults if any are claimed.
Any such statement may be relied upon by third parties.
Section 14.15 References to this Agreement. Numbered or
----------------------------
lettered articles, sections and subsections herein contained refer
to articles, sections and subsections of this Agreement unless
otherwise expressly stated. The words "herein," "hereof,"
"hereunder," "hereby," "this Agreement" and other similar
references shall be construed to mean and include this Partnership
Agreement and all amendments thereof and supplements thereto
unless the context shall clearly indicate or require otherwise.
Section 14.16 Reliance on Authority of Person Signing
---------------------------------------
Agreement. If a Partner is a trust (with or without disclosed
---------
beneficiaries), general partnership, limited partnership, joint
venture, corporation, or any entity other than a natural person,
the Partnership and the Partners shall:
- not be required to determine the authority of the person
signing this Agreement to make any commitment or under-
taking on behalf of such entity or to determine any fact
or circumstance bearing upon the existence of the
authority of such entity or to determine any fact or
circumstance bearing upon the existence of the authority
of such person;
- not be required to see to the application or distribu-
tion of proceeds paid or credited to persons signing
this Agreement on behalf of such entity;
- be entitled to rely on the authority of the person
signing this Agreement with respect to the voting of the
Interest of such entity and with respect to the giving
of consent on behalf of such entity in connection with
any matter for which consent is permitted or required
under this Agreement; and
- be entitled to rely upon the authority of any general
partner, joint venturer, co- or successor trustee, or
-39-
<PAGE>
president or vice president, as the case may be, of any
such entity the same as if such person were the person
originally signing this Agreement on behalf of such
entity.
Section 14.17 Consents and Approvals. Whenever the consent
----------------------
or approval of a Partner is required by this Agreement, such
Partner shall have the right to give or withhold such consent or
approval in its sole discretion, unless otherwise specified.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
NEW ENGLAND PENSION PROPERTIES V; A
REAL ESTATE LIMITED PARTNERSHIP
By: FIFTH COPLEY CORP., a
Massachusetts corporation, its
Managing General Partner
By:__________________________
Authorized Officer
DEVELOPER:
20 DAHLIA PARTNERSHIP, a California
Limited Partnership
By Investment Building Group, its
General Partner
By__________________________
Authorized Officer
-40-
<PAGE>
IBG DAHLIA ASSOCIATES
EXHIBIT A
LEGAL DESCRIPTION OF LAND
-------------------------
Lot 8, Tract No. 8554, County of San Bernardino, State of
California, as per map recorded in Book 123 of Maps, Pages 13 to
17, inclusive, in the office of the County Recorder of said
County.
<PAGE>
GLOSSARY OF DEFINED TERMS
IBG DAHLIA ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
Capitalized terms used in this Limited Partnership Agreement
of IBG Dahlia Associates, a California Limited Partnership, shall
have the meanings ascribed to them below:
Accountants means Price Waterhouse, or such other firm of
-----------
nationally-recognized independent certified public accountants as
may be selected by NEPP V.
Accountant's Notice shall have the meaning set forth in
-------------------
Section 12.2.
Accrued Junior Monthly Guaranteed Payment shall have the
-----------------------------------------
meaning set forth in Section 5.1.1.
Accrued Monthly Guaranteed Payment shall have the meaning set
----------------------------------
forth in Section 5.1.1.
Accrued Senior Monthly Guaranteed Payment shall have the
-----------------------------------------
meaning set forth in Section 5.1.1.
Act means the California Revised Limited Partnership Act, as
---
set forth in Title 2, Chapter 3 of the California Corporations
code, as amended.
Adjusted Capital Account shall have the meaning set forth in
------------------------
Section 3.1(b).
Affiliate means a Person that directly or indirectly, through
---------
one or more intermediaries, controls, is controlled by, or is
under common control with the person in question and any officer,
director, trustee, employee, stockholder (10% or more) or partner
of any Person referred to in the preceding clause. For purposes
of this definition, the term "control" means the ownership of 10%
or more of the beneficial interest or the voting power of the
appropriate Entity. Notwithstanding the foregoing, a person shall
not be considered an affiliate of NEPP V or Developer solely by
reason of the fact that such person is engaged in one or more real
estate projects with NEPP V or Developer on a joint venture basis.
Book Value means, with respect to any asset, the asset's
----------
adjusted basis for federal income tax purposes, except as follows:
(i) the initial Book Value of any asset contributed (or
deemed contributed) to the Partnership shall be such asset's
gross fair market value at the time of such contribution;<PAGE>
<PAGE>
(ii) the Book Value of all Partnership assets shall be
adjusted to equal their respective gross fair market values
at the times specified in Treasury Regulation Section 1.704-
1(b)(2)(iv)(f) if the Partnership so elects;
(iii) if the adjusted basis of any asset acquired by the
Partnership is determined by reference to the adjusted basis
of any other asset of the Partnership, the Book Value of the
acquired asset shall be determined by reference to the Book
Value of the other asset rather than its adjusted basis; and
(iv) if the Book Value of an asset has been determined
pursuant to clause (i), (ii) or (iii), such Book Value shall
thereafter be adjusted in the same manner as would the
asset's adjusted basis for federal income tax purposes except
that depreciation deductions shall be computed in accordance
with Section 7.1(a)(iv).
Capital Account shall have the meaning set forth in Section
---------------
3.1(a).
Capital Transaction shall have the meaning set forth in
-------------------
Section 5.1.
Code means the Internal Revenue Code of 1986, as amended from
time to time, and all published rules, rulings and regulations
thereunder at the time of reference thereto.
Developer or the Limited Partner shall have the meaning set
--------- ---------------
forth in the Recital.
Economic Risk of Loss means the risk as determined under
---------------------
Treasury Regulation Section 1.752-2 that a partner or person
related to a partner will suffer an economic loss as a result of
the failure of the Partnership to repay a liability.
Entity means any general partnership, limited partnership,
------
corporation, joint venture, trust, business trust, cooperative or
association.
Event of Bankruptcy means, as to the Partnership or a
-------------------
Partner, (1) filing a voluntary petition in bankruptcy or for
reorganization or for the adoption of an arrangement under the
Federal Bankruptcy Code (as now or in the future amended) or an
admission seeking the relief therein provided; (2) making a
general assignment for the benefit of its creditors; (3)
consenting to the appointment of a receiver for all or a substan-
tial part of its property; (4) in the case of the filing of an
involuntary petition in bankruptcy, an entry of an order for
relief; (5) the entry of a court order appointing a receiver or
trustee for all or a substantial part of its property without its
consent; or (6) the assumption of custody or sequestration by a
court of competent jurisdiction of all or substantially all of its
property.
-2-
<PAGE>
Extraordinary Cash Flow shall have the meaning set forth in
-----------------------
Section 5.1.
Fair Value shall have the meaning set forth in Section 12.2.
----------
Fiscal Year shall have the meaning set forth in Section 8.7.
-----------
Gross Income shall have the meaning set forth in Section 7.1.
------------
Improvements means the buildings and other improvements
------------
constructed on the Land by the Partnership.
Incapacity means for a Partner or an Entity which is the
----------
general partner of a Partner, the dissolution, liquidation or ter-
mination (but not including a termination under Section
708(b)(1)(B) or Section 708(b)(2)(A) of the Code) of such Partner
or Entity.
Indemnitor shall have the meaning set forth in Section 2.8.
----------
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.
IRS means the Internal Revenue Service.
---
Junior Capital shall have the meaning set forth in
--------------
Section 3.2.
Junior Invested Capital shall have the meaning set forth in
-----------------------
Section 5.1.
Junior Monthly Guaranteed Payment shall have the meaning set
---------------------------------
forth in Section 5.1.1.
Land means the approximately 12.87-acre parcel of land
----
located in Fontana, County of San Bernardino, California, as more
particularly described in Exhibit A to this Agreement.
---------
Liquidating Trustee shall have the meaning set forth in
-------------------
Section 14.3.
Monthly Guaranteed Payment shall have the meaning set forth
--------------------------
in Section 5.1.
NEPP V or the General Partner shall have the meaning set
------ ---------------
forth in the Recital.
-3-
<PAGE>
Net Profit and Net Loss shall have the meanings set forth in
---------- --------
Section 7.1.
Nonrecourse Deductions for a Fiscal Year (or other period)
----------------------
means deductions funded by Nonrecourse Liabilities (as determined
under Treasury Regulation Section 1.704-2(c)) for such year and
are generally equal to the excess, if any, of (i) the net increase
in Partnership Minimum Gain during such year over (ii) the sum of
(A) the aggregate distributions of proceeds from Nonrecourse
Liabilities attributable to increases in Partnership Minimum Gain
during such year and (B) increases in Partnership Minimum Gain
during such year attributable to conversions of liabilities into
Nonrecourse Liabilities.
Nonrecourse Liability means any liability of a partnership
---------------------
(or portion thereof) to the extent that no partner bears the
Economic Risk of Loss associated with the liability.
Operating Cash Flow shall have the meaning set forth in
-------------------
Section 5.1.
Operating Deficit shall have the meaning set forth in Section
-----------------
6.1.
Operating Revenues shall have the meaning set forth in
------------------
Section 5.1.
Original Agreement shall have the meaning set forth in
------------------
Recital.
Original Partnership shall have the meaning set forth in the
--------------------
Recital.
Partner means NEPP V and Developer, and such successors,
-------
assigns or additional partners as may be admitted to the
Partnership, from time to time, pursuant to the terms of this
Agreement.
Partner Nonrecourse Debt means any partnership liability to
------------------------
the extent that the liability is nonrecourse for purposes of
Treasury Regulation Section 1.1001-2 and a partner bears the
Economic Risk of Loss associated with the liability.
Partner Nonrecourse Debt Minimum Gain means the amount that
-------------------------------------
would result if Partnership Minimum Gain were computed with
respect to Partner Nonrecourse Debt rather than Nonrecourse
Liabilities.
Partner Nonrecourse Deductions means deductions funded from
------------------------------
Partner Nonrecourse Debt (as determined under Treasury Regulation
Section 1.704-2(i)(2)) computed for a Fiscal Year (or other
period) in a manner similar to that used in computing Nonrecourse
Deductions but with reference to Partner Nonrecourse Debt Minimum
Gain rather than Partnership Minimum Gain.
-4-
<PAGE>
Partner's Share of Partner Nonrecourse Debt Minimum Gain
--------------------------------------------------------
means an amount of Partner Nonrecourse Debt Minimum Gain computed
for each Partner in a manner similar to that used in computing a
Partner's Share of Partnership Minimum Gain but with reference to
Partner Nonrecourse Debt with respect to which the Partner bears
the Economic Risk of Loss rather than to Nonrecourse Liabilities.
Partner's Share of Partnership Minimum Gain means an amount
-------------------------------------------
of Partnership Minimum Gain computed for each Partner under
Treasury Regulation Section 1.704-2(g) and generally equal to the
excess of (i) the sum of (A) the aggregate amount of Nonrecourse
Deductions previously allocated to the Partner, (B) the aggregate
amount of proceeds of Nonrecourse Liabilities attributable to
increases in Partnership Minimum Gain previously distributed to
the Partner and (C) increases in Partnership Minimum Gain during
such Fiscal Year attributable to conversions of liabilities into
Nonrecourse Liabilities over (ii) the Partner's aggregate
proportionate share of previous decreases in Partnership Minimum
Gain. A Partner's proportionate share of the decrease in
Partnership Minimum Gain for a Fiscal Year shall be based upon the
ratio that such Partner's Share of Minimum gain for the preceding
year bore to the aggregate amount of Partnership Minimum Gain for
such preceding Fiscal Year.
Partnership means the limited partnership governed by this
-----------
Agreement as said limited partnership may from time to time be
constituted and amended.
Partnership Agreement shall have the meaning set forth in the
---------------------
Recital.
Partnership Capital means an amount equal to the sum of all
-------------------
of the Partners' Capital Account balances determined immediately
prior to the allocation to the Partners pursuant to Sections
7.2(b)(ii)(y) or 7.2(c)(ii)(x) of any Net Profit or Net Loss from
a Capital Transaction increased by the aggregate amount of Net
Profit to be allocated to the Partners pursuant to Section
7.2(b)(ii)(y) as a result of such Capital Transaction or decreased
by the aggregate amount of Net Loss to be allocated to the
Partners pursuant to Section 7.2(c)(ii)(x) as a result of such
Capital Transaction.
Partnership Minimum Gain means the amount determined by
------------------------
computing with respect to each Nonrecourse Liability of the
Partnership, the amount of Gross Income, if any, that would be
realized by the Partnership if it disposed of the property
securing such liability in full satisfaction thereof, and by then
aggregating the amounts so computed. For purposes of determining
the amount of such Gross Income with respect to a liability, the
Book Value of the asset securing the liability shall be allocated
among all the liabilities that the asset secures in the manner set
forth in Treasury Regulation Section 1.704-2(d)(2).
-5-
<PAGE>
Person means any individual or Entity, and the heirs,
------
executors, administrators, legal representatives, successors and
assigns of such Person where the context so admits; and, unless
the context otherwise requires, the singular shall include the
plural, and the masculine gender shall include the feminine and
the neuter and vice versa.
Project means the Land, together with the streets, sewers,
-------
curbs, gutters, utility service connections, and other land
development infrastructure and improvements constructed or to be
constructed on or related to the Land (including related off-site
improvements) pursuant to an Annual Business Plan.
Project Expenses shall have the meaning set forth in Section
----------------
5.1.
Property Manager shall have the meaning set forth in Section
----------------
2.10.
Proposed Fair Value shall have the meaning set forth in
-------------------
Section 12.2.
Purchase Price shall have the meaning set forth in Section
--------------
13.2.
Reserve for Replacements shall have the meaning set forth in
------------------------
Section 5.1.
Selling Partner shall have the meaning set forth in Section
---------------
11.2.
Senior Capital shall have the meaning set forth in
--------------
Section 3.2.
Senior Invested Capital shall have the meaning set forth in
-----------------------
Section 5.1.
Senior Monthly Guaranteed Payment shall have the meaning set
---------------------------------
forth in Section 5.1.1.
Tax Matters Partner shall have the meaning set forth in
-------------------
Section 8.6.
Third Party Loans shall have the meaning set forth in Section
-----------------
4.1.
Transfer shall have the meaning set forth in Section 11.1.
--------
Working Capital Fund shall have the meaning set forth in
--------------------
Section 5.1.
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,790,598
<SECURITIES> 7,864,807
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,655,405
<PP&E> 48,879,826
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,535,231
<CURRENT-LIABILITIES> 170,513
<BONDS> 368,161
0
0
<COMMON> 0
<OTHER-SE> 59,996,557
<TOTAL-LIABILITY-AND-EQUITY> 60,535,231
<SALES> 4,704,565
<TOTAL-REVENUES> 5,522,086
<CGS> 1,002,065
<TOTAL-COSTS> 1,002,065
<OTHER-EXPENSES> 1,671,306
<LOSS-PROVISION> 600,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,248,715
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,248,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,248,715
<EPS-PRIMARY> 26.96
<EPS-DILUTED> 26.96
</TABLE>
