U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-16819
National Capital Management Corporation
(Name of small business issuer in its charter)
Delaware 94-3054267
(State or other jurisdiction of (I.R.S.Employer Identification
incorporation or organization) Number)
50 California Street, San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (415) 989-2661
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 Par
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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-KSB or any
amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year $10,000,197.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant is approximately $3,074,753 as of March 23, 1995.
5,019,257
(Number of shares of common stock outstanding as of March 23, 1995)
Total number of pages in this document is: 234
The exhibit index is on page 50
PART I
Item 1 - Description of Business
Introduction
National Capital Management Corporation ("NCMC") is a holding
company which currently operates in three divisions through a
number of subsidiaries and controlled entities (collectively with
NCMC, the "Company"): (i) the Viatical Settlement Division which
purchases life insurance policies for cash, on a discounted
basis, from individuals having life threatening illnesses, (ii)
the Real Estate Division which includes the ownership and
management of real estate properties, and (iii) the Industrial
Products Division which is engaged primarily in the production
and distribution of commercial laundry equipment.
Prior to 1992 the Company's activities primarily involved the
management of real property assets and mortgage loan receivables
of National Capital Real Estate Trust, a real estate investment
trust to which the Company was a successor in 1988, and the
pursuit of acquisition opportunities. The Company expanded its
operations during 1992 by purchasing the assets of Jensen
Corporation, a Florida based manufacturer and distributor of
commercial laundry equipment and waste compactors, and
establishing an Industrial Products Division. During March 1994
the Company broadened its operations again when it formed the
Viatical Settlement Division and its 80%-owned subsidiary,
National Capital Benefits Corporation, to purchase life insurance
policies from individuals with life threatening illnesses, a
business generically referred to as viatical settlement.
The Company's predominant focus for the future will be the
continued enhancement of its asset base as well as its growth in
the specialty finance business. To the extent that financial
resources are available, the Company may continue to pursue the
acquisition and development of operating businesses regardless of
whether these businesses involve activities related to current
operations of the Company. The Company competes with entities of
substantially greater size and financial resources in finding and
consummating acquisitions of operating businesses and other
assets.
Viatical Settlement Division
On March 17, 1994, the Company formed the Viatical Settlement
Division to engage in the business of purchasing life insurance
policies which insure the lives of individuals with life
threatening illnesses. The operating entity in this division is
National Capital Benefits Corporation ("NCBC"), eighty percent of
whose common stock, and all of its preferred stock, is owned by
the Company. NCBC generally seeks to purchase policies which
insure individuals having a projected life expectancy of 24
months or less. In March 1994, the Company funded NCBC with
initial cash investments of $1,490,000, consisting of $1,450,000
of preferred stock and $40,000 of common stock, and purchased an
additional $1,000,000 of preferred stock for cash during June
1994. In addition, NCBC has obtained a revolving line of credit
up to $10 million, based on a formula of eligible policies
purchased, from an institutional lender to be used to provide
working capital and funds for the purchase of such policies. The
facility is secured by all of NCBC's assets including the
policies purchased and will bear interest at 2% over a composite
of several large bank prime rates or the rate on 90 day dealer
commercial paper, whichever is higher. NCBC had drawn
approximately $2,184,000 on this line of credit as of December
31, 1994. NCBC has agreed to insure 90% of the net death benefit
of the acquired policies through a newly formed and wholly-owned
Bermuda insurance company which has reinsured the risk with a
consortium of large international insurance companies. There was
approximately $215,000 of cash remaining in NCBC and its wholly-
owned Bermuda insurance company at December 31, 1994, $79,000 of
which is restricted for use in NCBC's operations and $136,000
which is restricted to the Bermuda insurance company pursuant to
the revolving line of credit agreement. The face value of all
policies purchased during 1994 was $3,928,554, and after
maturities of $275,000, the face value of all policies held by
NCBC was $3,653,554 at December 31, 1994. Additionally, NCBC had
approximately $7.8 million of borrowing capacity available at
December 31, 1994 pursuant to its revolving line of credit
agreement. In connection with the acquisition of certain assets
of CAPX Corporation ("CAPX") by NCBC and the issuance of 100,000
shares of Company common stock, the institutional lender
permitted the transfer to NCMC of $175,000 by NCBC during 1994.
Twenty percent of the common stock of NCBC is owned in the
aggregate by an executive officer of NCBC and a trust whose sole
trustee is another executive officer of NCBC ("the Minority
Owners"). The Company has entered into an agreement with the
Minority Owners which prohibits the transfer of the stock held by
them through July 1, 1997 and thereafter permits the Company a
right of first refusal on all other transfers through the tenth
anniversary of the agreement. In addition, during the period May
1, 1997 through June 30, 1997 either the Company or the Minority
Owners can notify the other of a conversion election in which
event the Company may at its option, either (a) issue shares of
its common stock plus, in certain instances, other consideration
in the amount of the appraised value (based on the fair market
value of NCBC after repayment of all preferred stock) for their
NCBC shares, (b) sell NCBC on or before the anniversary date of
receipt of the appraisal or (c) on or before said anniversary
date distribute the shares of NCBC held by NCMC to its
shareholders. If the Company issues to the Minority Owners
shares of its common stock, the Company has agreed to use its
best efforts to promptly effect the registration thereof if
requested by a majority of the Minority Owners.
On July 29, 1994, NCBC acquired from CAPX Corporation
substantially all of its operating assets (other than cash,
securities and purchased insurance policies), including the trade
names of its wholly-owned subsidiaries, Living Benefits Inc. and
American Life Resources, Inc. Management believes these two
subsidiaries were the two most established companies in the
viatical settlement business prior to this transaction, with an
estimated 20% market share and which had purchased policies
totaling approximately $100 million in face value from the
inception of their operations to June 1994. There was no
assumption of liabilities or obligations by NCBC. Consideration
paid consisted of $125,000 in cash, 100,000 shares of common
stock previously held as treasury stock by NCMC and a gross
revenues participation in all proceeds arising from viatical
settlement entered into by NCBC, equal to 1.75% and 1% in the
United States and other countries, respectively, over the next
four years. NCMC has agreed for a period of two years from the
date of closing to repurchase the shares from CAPX for a purchase
price of $1.75 per share and has also agreed to certain
registration rights for a three year period.
Nature of Business
The viatical settlement business makes it possible for people
facing life threatening illnesses to sell their life insurance
policies for cash at a discount from the policies' stated death
benefit. The sales proceeds give them choices that they might
not otherwise have, such as selecting quality health care,
retaining ownership of a residence, retiring indebtedness or
sharing funds with family, friends or favorite charities.
A prospective seller's medical records will be reviewed by
physicians retained by NCBC as consultants who specialize in
treatment of the individual's particular illness or disorder. A
prognosis will then be made by each physician of the life
expectancy of that person, which will be an essential element in
determining NCBC's interest in purchasing the policy and the
terms of such purchase. Other factors to be considered when
purchasing policies are the financial strength of the insurance
company writing the policy, the amount of coverage provided by
the policy, assignment restrictions contained in the policy, the
amount of any loans against the policies, prior assignments, the
beneficiary, the cost of policy premiums, issue date and type of
policy.
NCBC markets its services through advertising in newspapers and
periodicals and in brochures mailed to various organizations and
support groups. In addition, NCBC relies on word-of-mouth, media
reports, referrals from healthcare professionals, life insurance
agents and life insurers as well as appearances before
associations of financial planners, support groups, insurance
groups and actuaries. As a result of privacy and other ethical
and legal considerations, NCBC does not solicit potential
applicants in person, by telephone or by direct mail.
NCBC competes with many other companies and individuals offering
to purchase life insurance policies from qualifying policy
holders. Insurance companies offering to advance a portion of
death benefits on their own life insurance policies to policy
owners who are terminally ill or who have suffered a catastrophic
illness, such as a stroke, heart attack or coronary artery
surgery, also compete with NCBC. NCBC competes with companies
offering similar services on the basis of both service and price.
It is expected that additional competitors may enter the viatical
settlement business and provide similar services in the future.
It is also anticipated that more insurance companies will make
available partial prepayments of death benefits to policyholders
facing life-threatening illnesses.
NCBC only purchases policies from residents of states where it
believes there is no statutory and/or judicial authority
prohibiting the enforcement of assignments of policies to
assignees without an insurable interest in the insured. NCBC
believes that there is no such prohibiting authority existing
today. However, all states have statutes that regulate insurance
businesses and, although NCBC believes there is generally no
existing judicial authority on point, there can be no assurance
that some or all of these statutes will not be interpreted in the
future to include viatical settlement and to preclude NCBC, which
is not an insurance company, from operating in the states
involved. Further, several states, including New York, New
Mexico, California and Kansas, have adopted statutes specifically
applicable to the viatical settlement business and regulations
are pending in a number of other states including Florida,
Illinois, Indiana, Texas and Vermont with respect to this
business. Consequently, there can be no assurance that
additional states will not adopt similar or dissimilar statutes
regulating the industry in a manner that could have an adverse
impact on its profitability. NCBC supports appropriate state
regulation of viatical settlements because it believes that
consumer protection provisions will increase the opportunity to
expand its business.
Under the United States Internal Revenue Code of 1986, as
amended, the net proceeds to a seller from the sale of his or her
life insurance policy while he or she is alive is deemed to
constitute taxable income. Bills previously proposed and
expected to be reintroduced before Congress plan to exempt from
tax the proceeds of viatical settlements as well as the
prepayment by insurance companies of death benefits on life
insurance policies to individuals certified by a physician as
having an illness or physical condition that can reasonably be
expected to result in death in twelve months or less.
NCBC has incurred an operating loss of $1,092,000 since its
inception in 1994, has limited cash at December 31, 1994 for use
in operations and is thus solely dependent on the Company to
provide cash needed for operating expenses and its share of
acquisition costs of purchased policies that are not able to be
fully funded under its revolving line of credit facility. NCBC
had used $2,184,242 of its $10,000,000 revolving line of credit
facility at December 31, 1994. This line of credit is to provide
a portion of the funding for acquisition costs of insurance
policies. However, this line can be used to provide operating
cash to NCBC only to the extent that insurance policy proceeds in
excess of the related loan amounts have been received by the
lender. Given the scientific uncertainty of estimating the
remaining life expectancies of the insured's covered by purchased
policies, there can be no assurance that these policies will
mature in accordance with the projected schedule. As such, until
such time as significant proceeds are in fact received on matured
policies, this line will not be able to provide NCBC a
significant amount of operating cash. This potential lack of
access to cash to meet operating needs, along with the lack of a
formal commitment from the Company to support cash needs, raises
substantial doubt about NCBC's ability to continue as a going
concern. The Company has no contractual or other obligation to
continue the funding of NCBC. However, management believes that
the Company has adequate financial resources, including the
potential for the refinancing or sale of certain assets, or it
may also use other outside sources of financing, if available, to
fund the operational needs of NCBC until such time as NCBC has
obtained a break even level of operations or management of the
Company determines that it is in the Company's best interest not
continue such funding.
Real Estate Division
The Real Estate Division acquires, operates and disposes of
income producing properties through the Company and three wholly-
owned subsidiaries, NCQ Redbird, Inc. ("NCQR"), NCQ North Oak,
Inc. ("NCQN"), successor entities of NCQ Realty, Inc. ("NCQ"),
and Georgia Properties, Inc. ("GPI"). The Company and its
subsidiaries currently own two apartment properties consisting of
422 units, one shopping center, a 2.8 acre parcel of undeveloped
land and .9% general partner interests, plus a contingent
interest of up to $4.5 million, in two real estate partnerships.
The shopping center and two of the apartment properties are the
result of acquisitions made prior to 1988, while the two real
estate partnership interests are the result of acquisitions made
during 1992 from the Resolution Trust Corporation. The
undeveloped land was acquired on a nonrecourse basis in
conjunction with the acquisition of all the assets of Jensen
Corporation ("Jensen") and its parent company in 1992.
NCQ was formed in 1991 to purchase one or more properties through
limited partnerships and to serve as general partner of these
partnerships with the intent of admitting unaffiliated limited
partners interested in participating in Federal low-income
housing tax credits in exchange for a cash investment, or for
outright sale of its interests under acceptable terms. During
1993 NCQ sold all of its interests in one such partnership and
assigned all of its interests in two other partnerships to NCQR
and NCQN during 1994 which subsequently sold 99.1% interests in
each of these partnerships to an unrelated limited partner and
its affiliate (see discussions of Quivira Place Apartments,
Redbird Trails Apartments and North Oak Apartments below). GPI
was formed to acquire, through foreclosure, and renovate two
apartment properties which were previously sold by, and had been
subject to secured indebtedness of, the Company (see discussions
of Appletree Townhouses and Colony Ridge Apartments below).
The Real Estate Division employs no personnel to support the
management of its real properties. Currently, NCM Management
Ltd., a management company affiliated with the president and
chief financial officer of the Company, provides management,
accounting and related managerial services for a monthly fee.
Acquisition and disposition activities with respect to its real
estate interests are conducted primarily by the officers of the
Company.
During 1994, 1993 and 1992 the Real Estate Division generated
$3,614,000, $5,219,000 and $3,385,000, respectively, in revenues
and realized operating income, before depreciation, of $585,115,
$560,243 and $464,327 and depreciation of $895,338, $1,245,619
and $820,141 for the same periods (see Note 13 - Industry Segment
Information of the Notes to Consolidated Financial Statements).
The Real Estate Division also recognized gains of approximately
$2,142,000 and $828,000 in 1994 and 1993 resulting from the sale
of limited partner interests in Redbird Trails Associates, L.P.
and Signature Midwest, L.P. during 1994 and the sale of all its
interests in Quivira Place Associates, L.P. during 1993.
The status of each of the real estate investments owned by the
Company in 1994 and 1993 is described below.
Quivira Place Apartments. On December 30, 1993, the Company sold
all of its interests in Quivira Place Associates, L.P. ("QPA"),
owner of a 289 unit complex located in Lenexa, Kansas. The sales
proceeds included $1,515,000 in cash, a promissory note in the
amount of $938,500 and the buyer's assumption of the $3,659,476
first deed mortgage secured by the property for a total purchase
price of $6,112,976. The sales price less the carrying value of
$4,345,817 generated a total gain of $1,767,159, of which
$828,659 was recognized in 1993, with the balance of $938,500
recognized upon collection of the note on April 15, 1994.
Redbird Trails Apartments and North Oak Apartments. On June 13,
1994 and December 8, 1994, in accordance with previous agreements
dated December 30, 1993, the Company sold limited partnership
interests in Redbird Trails Associates, L.P. ("Redbird") and
Signature Midwest, L.P. ("Signature"), respectively, to two
unrelated entities. These partners, which are related to each
other, obtained a 99.1% interest in the existing equity, profits
or losses and low income housing tax credits of the properties
owned by these partnerships for an investment of approximately
$1,256,000 and $769,000 in each partnership plus a $100,000
expense reimbursement. The Company refinanced the apartment
properties owned by these two partnerships on December 8, 1994 in
connection with these transactions. Pursuant to an agreement
with the newly admitted limited partners, the Company retained
the net proceeds of $483,725 from these refinancings. The funds
from the new limited partners and the refinancings were received
by the Company during 1994 and the first quarter of 1995, net of
$440,000 due to an original limited partner for all its interests
and claims, the total of which is approximately $2,100,000. A
gain of $1,203,358 has been recognized on these transactions in
1994.
The Company retained a contingent interest in the cash flows of
these partnerships. It will receive any cash available from
property operations, to the extent it exceeds approximately
$61,000 annually, and any refinancing proceeds up to a total of
approximately $4.5 million, plus interest at 9.25% per annum on
the outstanding balance of this amount. Any proceeds of sale
will be allocated, first, 99.1% to the new partners until they
have received 135% of their investment, less any prior
distributions. Any remaining proceeds from a sale will be
allocated to the Company up to $6 million, less any distributions
from operations or refinancings pursuant to the discussion above.
These arrangements have not been reflected in the Company's
financial statements since their ultimate realization cannot
reasonably be determined. In addition, at such time as the tax
benefits have been utilized, the Company has the right to
purchase the interests of the newly admitted partners for 135% of
their contributed capital (minus prior cash payments). Should
the Company choose not to exercise such right to purchase the
partners' interests, the newly admitted administrative general
partner has the right to require the Company to sell all of the
assets and liquidate the partnerships.
The Company retained a .9% interest in each partnership through
two wholly-owned subsidiaries serving as the operating general
partners. Such operating general partners are obligated to
provide loans of up to $150,000 and $75,000 to Redbird and
Signature, respectively, to fund any operating deficits, as
defined, for a three year period commencing December 8, 1994.
Redbird Trails Apartments is an apartment complex consisting of
17 two-story buildings containing a total of 252 apartment units
constructed in 1986 in Dallas, Texas. Redbird Trails Apartments
is located on Redbird Lane, which is a four-lane, divided
thoroughfare approximately 1.5 miles from Marvin D. Love Freeway.
The surrounding area is a mix of residential and commercial
buildings. At March 19, 1995, occupancy was approximately 93%.
North Oak Apartments consists of 10 two-story buildings
constructed in 1982 in Irving, Texas and contains a total of 132
apartment units. It is located on a major two-lane street
approximately one mile from State Highway 183 and is surrounded
by single and multi-family dwellings, and several retail
properties. The Company was required to provide certain
improvements to the property which were completed as of December
31, 1993 at a cost of $421,234. At March 19, 1995, occupancy was
approximately 95%.
Appletree Townhouses. Appletree Townhouses is an apartment
complex in Atlanta, Georgia. The Property consists of 29
buildings containing a total of 210 apartments. The complex is
located on Campbellton Road, a major thoroughfare which is
approximately two miles from Interstate 285 and is near Fort
McPherson, home base of the Third Army. At March 19, 1995,
occupancy was 90%. Appletree Townhouses was substantially
rehabilitated by the Company during 1993 at a cost of
approximately $700,000.
Colony Ridge Apartments. Colony Ridge Apartments is an apartment
complex in Decatur, Georgia. Constructed in 1968, the property
consists of 23 two-story buildings containing a total of 212
apartment units. The property is located on Glenwood Avenue, a
major thoroughfare which is approximately one-half mile from
Interstate 285. At March 19, 1995, the occupancy was 83%.
Colony Ridge Apartments was substantially rehabilitated by the
Company during 1993 at a cost of approximately $700,000.
The Mart Shopping Center. The Mart Shopping Center is located on
nine acres in the high technology business area of Hillsboro,
Oregon, a suburb of Portland. The center contains approximately
109,000 square feet of rentable area, and its lighted parking lot
has space for over 500 cars.
The major tenants are Waremart, a supermarket consisting of
44,000 square feet and an additional 16,000 square foot ground
pad for parking, and Bi-Mart, a super drug store which occupies
30,000 square feet. In addition, other tenants include a
veterinary clinic, a restaurant, a fitness center, a pet store
and a book store. As of March 19, 1995, the center was
approximately 98% leased under long-term leases.
Immediately adjacent to The Mart Shopping Center is a 350,000
square foot shopping mall which was completed during 1988. The
major tenants are a supermarket and a department store. Even
though rental rates at the adjacent mall are generally higher
than those at The Mart Shopping Center, the overall increase in
retail space has resulted in increased competition in an already
weak leasing market.
Undeveloped land, 2.8 acres. On September 18, 1992, the Company
acquired all the assets of Jensen Corporation and its parent. In
connection therewith, the Company obtained this undeveloped
parcel of land which is located in Fort Lauderdale, Florida
adjacent to the Jensen facility and is zoned for
commercial/industrial use.
The table below reflects the real estate properties held by the
Company and its controlled entities at December 31, 1994 and the
loan balances related to each property (in thousands).
<TABLE>
<CAPTION>
Loan Balance
Original Original
Acquisition Date at Date December 31,
Properties Description Cost Acquired Acquired 1994
<S> <S> <C> <S> <C> <C>
The Mart Shopping $1,456 December $3,279 $1,246
Shopping Center Center 1978
Hillsboro, 109,000 Sq.
Oregon Ft.
Appletree Apartments 2,926 March 1,610 1,118
Townhouses 210 Units 1992
Atlanta,
Georgia
Colony Ridge Apartments 3,245 July 1,671 1,458
Apartments 212 Units 1992
Decatur,
Georgia
Land Undeveloped, 22 September 200 139
Ft. Lauderdale, Zoned 1992
Florida Commercial
Industrial
2.8 Acres
$7,649 $6,760 $3,961
</TABLE>
Industrial Products Division
The Industrial Products Division currently consists of the
Company's wholly-owned subsidiary Jensen Corporation ("Jensen"),
which manufactures and distributes machinery used primarily by
commercial laundries, large institutions and hotels as well as
commercial compactor products for waste disposal.
Laundry Products
Jensen manufactures laundry flatwork finishing equipment,
consisting of machinery used to feed, iron, fold and stack
towels, napkins, sheets and similar items in large volume.
Jensen's laundry products are generally large pieces of machinery
which are marketed and sold primarily to commercial laundries and
other large users of laundry products such as hospitals, nursing
homes, universities, prisons, hotels, restaurants and military
bases. Jensen's laundry equipment is designed to save labor,
space and energy or to increase productivity of existing
facilities. In addition, Jensen sells service parts to users of
existing equipment.
In 1994, 1993 and 1992 Jensen (including the former owner of
Jensen's assets for a portion of 1992) had approximately
$3,769,000, $4,732,000 and $5,284,000, respectively, of original
equipment sales and $1,837,000, $2,170,000 and $2,519,000,
respectively, in sales of replacement parts. Jensen markets its
equipment and parts and services its customers through a network
of independent domestic and foreign distributors covering the
United States, Canada and other parts of the world. In 1994,
1993 and 1992 Jensen (and the former owner of Jensen's assets for
a portion of 1992) had approximately $666,000, $1,230,000 and
$1,255,000, respectively, of foreign sales, which is included in
equipment and replacement parts sales discussed above. As of
December 31, 1994, Jensen had approximately $528,000 in backlog
of orders for its laundry equipment, which it anticipates will be
substantially completed by June 1995.
Jensen believes it is a leading manufacturer of laundry flatwork
finishing equipment in the United States. There are three other
significant suppliers marketing complete or integrated flatwork
finishing systems in the United States. Competition is based
primarily on cost, quality, availability of financing and terms
of sale as well as certainty of timely delivery. As part of
management's plan to enhance its standing in the market, in the
first quarter of 1995 Jensen began offering three new products
which are technologically advanced and competitively priced.
Jensen maintains support capability, including engineering,
customer service and inventory replacement and service parts.
Most of the components used in Jensen's laundry equipment are
obtained from third party suppliers. Jensen believes that
substantially all of its component parts are readily available
from a number of alternative suppliers at comparable prices.
However, it relies on a domestic sole-source supplier of some
high cost components which are necessary in the manufacture of
certain equipment. Such components are available from foreign
suppliers at prices which are significantly higher than the
domestic manufacturer.
Compactor Products
Jensen also manufactures and distributes waste compactor
equipment at its Fort Lauderdale facility, including nine models
of waste compactors. In 1994, 1993 and 1992, Jensen (and the
former owner of Jensen's assets for a portion of 1992) had
approximately $201,000, $230,000 and $358,000, respectively, of
revenues from the sale of waste compactors, most of which were
sold in the United States. Jensen's compactor equipment is
marketed primarily for commercial applications and is designed to
maximize the utilization of landfills and other disposal methods.
These products are directed at the residential, institutional,
commercial and hospitality markets. Sales are primarily made
through a network of regional distributors. Jensen's compactor
division has at least sixteen competitors nationally and numerous
regional competitors. As of December 31, 1994 Jensen had a
backlog for its compactor products of approximately $58,000,
which it anticipates will be substantially completed by June
1995.
Environmental Matters
The Company is subject to various laws and regulations with
respect to employee health and safety and the protection of the
environment. The Company believes it is in substantial
compliance with such laws and regulations.
Employees
The Company and its subsidiaries employ approximately 56 persons.
None of its employees are members of bargaining units. The
Company considers its relationship with its employees to be good.
Work stoppages have not materially affected the Company's
business.
Item 2 - Description of Property
The Company maintains offices in New York and San Francisco for
use by its executive officers at the premises of Resource
Holdings, Ltd. and NCM Management Ltd. The Company is not a
party to the leases, but there is an understanding that NCMC will
pay the rent for the offices in New York until 1997. In
addition, in accordance with its agreement with Resource, the
Company has deposited with Resource's landlord the amount of
$37,746 which will be returned, plus interest, to the Company on
termination of the lease (see Item 12 - Certain Relationships and
Related Transactions).
National Capital Benefits Corporation maintains an office in New
York. Such premises occupy approximately 1,800 square feet and
are leased to June 30, 1996. See Note 10 of the Notes to
Financial Statements in the Annual Report which provides
information with respect to the obligation.
Jensen maintains plant facilities and offices at 2775 N.W. 63rd
Court, Ft. Lauderdale, Florida. Such premises occupy
approximately 60,000 square feet and are leased to July 1999.
See Note 10 of the Notes to Financial Statements in the Annual
Report which provides information with respect to this
obligation.
The Company considers these properties to be suitable and
adequate for its present needs. The properties are being fully
utilized. See Item 1 "Business" for discussion of real
properties owned in connection with operations of the Real Estate
Division.
Item 3 - Legal Proceedings
Jensen Corporation ("Jensen") is a defendant in a number of
product liability lawsuits and other litigation arising out of
its operations and operations of the former owner of Jensen's
assets. Given the nature of Jensen's products, it anticipates
that it may be party to such lawsuits from time-to-time and
maintains insurance to provide for potential claims in an amount
equal to $1 million per claim with a limit of $2 million in the
aggregate. Jensen also establishes reserves deemed adequate to
cover an estimated amount which it may be required to fund with
respect to the portion of such loss that must be borne by Jensen
prior to the application of the insurance coverage, known as the
deductible, which is a maximum of $100,000 per claim under the
existing policy. In the opinion of management, the resolution of
existing claims and litigation will not have a material adverse
effect on the financial position or results of operations of the
Company.
Item 4 - Submission of Matters to a Vote of Security Holders
None
PART II
Item 5 - Market for Common Equity and Related Stockholder
Matters
a. Market Information
The Company's common stock trades on the NASDAQ National
Market System ("NMS") under the symbol NCMC.
The high and low bid prices of shares of common stock of the
Company for each quarter during the years ended December 31,
1994 and 1993, are as follows:
<TABLE>
<CAPTION>
Bid Price
For the Quarter Ended High Low
<S> <C> <C>
December 31, 1994 $1.1094 $0.8542
September 30, 1994 1.0625 0.9167
June 30, 1994 1.1667 1.0417
March 31, 1994 1.1771 0.9479
December 31, 1993 1.1250 0.8125
September 30, 1993 1.1873 0.8750
June 30, 1993 1.1875 1.0000
March 31, 1993 1.4375 1.2500
</TABLE>
By letter dated April 12, 1995, NASDAQ has informed the
Company that the Company is not in compliance with its minimum
bid requirement of essentially $1 per share, which is
necessary to continue the listing of the Company's stock on
the NMS. NASDAQ has granted the Company a temporary exemption
from the minimum bid requirement. NASDAQ has determined that
the Company must perform a reverse stock split to remain on
the NMS. If a decision is taken to split the stock, the
Company must submit a plan to NASDAQ by May 31, 1995, must
effect the split by June 10, 1995 and maintain compliance with
the minimum bid requirement for ten business days beginning
from June 10, 1995 through June 23, 1995. A reverse stock
split would be expected to increase the bid price of the
Company's stock while not, of course, adding any value to the
Company. If the reverse stock split is not carried out as
required by NASDAQ or, if it is carried out, but does not
result in a stock price which meets the NASDAQ minimum bid
requirement, the Company's stock will no longer be traded on
the NMS. The stock would then be expected to be traded in the
NASDAQ Small-Cap market or in the over the counter "pink
sheets". Since the Company's violation of the NASDAQ's
requirement has been limited to approximately 1% under its
alternate test of a minimum of $3,000,000 in public float, as
defined, on any one trading day during the last 30 days, the
Company may appeal this decision as provided for in NASDAQ's
letter, and is considering other alternatives it may have.
b. Number of Holders of Common Stock
At March 28, 1995, the approximate number of holders of record
of shares of common stock of the Company was 2,824.
c.Dividends on Common Stock
The Company has not declared any dividends on its common stock
during the three year period ended December 31, 1994.
Item 6 - Management's Discussion and Analysis of Plan of
Operations
OVERVIEW
The Company continued to concentrate on existing operations
during 1994 by finishing four significant projects which began in
1993. The Viatical Settlement Division, which was in the
planning stages during 1993, commenced operations during the
first quarter of 1994. The Real Estate Division completed the
sale of limited partner interests in Redbird Trails Associates,
L.P. and Signature Midwest, L.P. during the second quarter and
fourth quarter of 1994, respectively, and collected the note
receivable resulting from the sale of Quivira Place Associates,
L.P. in the second quarter.
In addition, the Industrial Products Division focused on reducing
its overhead and developing new product lines in the face of
declining sales resulting from increased competition.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash declined from approximately $2.9 million at
December 31, 1993 to $1 million at December 31, 1994 principally
as a result of cash used to finance operating activities, to
enter into the viatical settlement business and to finance Jensen
Corporation operations, offset by the collection of a $938,500
note receivable on April 15, 1994 resulting from the sale of
Quivira Place Associates, L.P. in 1993, the receipt of net
proceeds of $483,725 during December 1994 attributable to the
refinancing of the apartment properties owned by Redbird Trails
Associates, L.P. and Signature Midwest, L.P. and the collection
of $412,921 (net of $146,000 paid to settle the claims of a
limited partner) on June 13, 1994 pursuant to the admission of
two unaffiliated partners into Redbird Trails Associates, L.P.
Of the $1 million in cash at December 31, 1994, $.2 million has
been restricted for use by the Viatical Settlement Division
pursuant to the existing revolving line of credit agreement as
discussed below. The Company's cash position increased to $1.45
million as of March 27, 1995, of which $135,000 is restricted for
use in the Viatical Settlement Division, as a result of the
collection of the balance of the funds due from the new limited
partners of Redbird Trails Associates, L.P. and Signature
Midwest, L.P.
The Company does not have any existing general credit facilities
to fund its ongoing working capital requirements, and additional
financing may be required in connection with the acquisition of
other operating businesses or other assets. The Company may seek
additional financing through the issuance of securities on a
private or public basis, or through long or short-term
borrowings. In addition, the Company periodically reviews its
assets to determine whether disposition thereof may be
appropriate to enhance liquidity or to fund other opportunities.
Management believes that the Company's cash and equivalents are
sufficient to fund its anticipated level of operations during
1995. However, as indicated below with respect to the discussion
of National Capital Benefits Corporation, additional funds may be
required for the Company's viatical settlement business.
In recent years the Company has experienced operating losses and
the Company may be required, from time to time, to provide
additional funding to support the industrial operations of Jensen
Corporation until such time as this subsidiary is operating on a
consistently profitable basis. However, there is no assurance
that such operations will become profitable.
On March 17, 1994, the Company formed the Viatical Settlement
Division to engage in the business of purchasing life insurance
policies which insure the lives of individuals with life
threatening illnesses. The operating entity in this division is
National Capital Benefits Corporation ("NCBC"), eighty percent of
whose common stock, and all of its preferred stock, is owned by
the Company. NCBC generally seeks to purchase policies which
insure individuals having a projected life expectancy of 24
months or less. In March 1994, the Company funded NCBC with
initial cash investments of $1,490,000, consisting of $1,450,000
of preferred stock and $40,000 of common stock, and purchased an
additional $1,000,000 of preferred stock for cash during June
1994. In addition, NCBC has obtained a revolving line of credit
up to $10 million, based on a formula of eligible policies
purchased, from an institutional lender to be used to provide
working capital and funds for the purchase of such policies. The
facility is secured by all of NCBC's assets including the
policies purchased and will bear interest at 2% over a composite
of several large bank prime rates or the rate on 90 day dealer
commercial paper, whichever is higher. NCBC has agreed to insure
90% of the net death benefit of the acquired policies through a
newly formed and wholly-owned Bermuda insurance company which has
reinsured the risk with a consortium of large international
insurance companies. There was approximately $215,000 of cash
remaining in NCBC and its wholly-owned Bermuda insurance company
at December 31, 1994, $79,000 of which is restricted for use in
NCBC's operations and $136,000 which is restricted to the Bermuda
insurance company pursuant to the revolving line of credit
agreement. The face value of all policies purchased during 1994
was $3,928,554, and after maturities of $275,000, the face value
of all policies held by NCBC was $3,653,554 at December 31, 1994.
Additionally, In connection with the acquisition of certain
assets of CAPX Corporation ("CAPX") by NCBC and the issuance of
100,000 shares of Company common stock, the institutional lender
permitted the transfer to NCMC of $175,000 by NCBC during 1994.
NCBC has incurred an operating loss of $1,092,000 since its
inception in 1994, has limited cash at December 31, 1994 for use
in operations and is thus solely dependent on the Company to
provide cash needed for operating expenses and its share of
acquisition costs of purchased policies that are not able to be
fully funded under its revolving line of credit facility. NCBC
had used $2,184,242 of its $10,000,000 revolving line of credit
facility at December 31, 1994. This line of credit is to provide
a portion of the funding for acquisition costs of insurance
policies. However, this line can be used to provide operating
cash to NCBC only to the extent that insurance policy proceeds in
excess of the related loan amounts have been received by the
lender. Given the scientific uncertainty of estimating the
remaining life expectancies of the insured's covered by purchased
policies, there can be no assurance that these policies will
mature in accordance with the projected schedule. As such, until
such time as significant proceeds are in fact received on matured
policies, this line will not be able to provide NCBC a
significant amount of operating cash. This potential lack of
access to cash to meet operating needs, along with the lack of a
formal commitment from the Company to support cash needs, raises
substantial doubt about NCBC's ability to continue as a going
concern. The Company has no contractual or other obligation to
continue the funding of NCBC. However, management believes that
the Company has adequate financial resources, including the
potential for the refinancing or sale of certain assets, or it
may also use other outside sources of financing, if available, to
fund the operational needs of NCBC until such time as NCBC has
obtained a break even level of operations or management of the
Company determines that it is in the Company's best interest not
continue such funding.
On July 29, 1994, NCBC acquired from CAPX Corporation
substantially all of its operating assets (other than cash,
securities and purchased insurance policies), including the trade
names of its wholly-owned subsidiaries, Living Benefits Inc. and
American Life Resources, Inc. Management believes these two
subsidiaries were the two most established companies in the
viatical settlement business prior to this transaction, with an
estimated 20% market share and which had purchased policies
totaling approximately $100 million in face value from the
inception of their operations to June 1994. There was no
assumption of liabilities or obligations by NCBC. Consideration
paid consisted of $125,000 in cash, 100,000 shares of common
stock previously held as treasury stock by NCMC and a gross
revenues participation in all proceeds arising from viatical
settlement entered into by NCBC, equal to 1.75% and 1% in the
United States and other countries, respectively, over the next
four years. NCMC has agreed for a period of two years from the
date of closing to repurchase the shares from CAPX for a purchase
price of $1.75 per share and has also agreed to certain
registration rights for a three year period.
On June 13, 1994 and December 8, 1994, in accordance with its
previous agreement dated December 30, 1993, the Company sold
partnership interests in Redbird Trails Associates, L.P.
("Redbird") and Signature Midwest, L.P. ("Signature"),
respectively, to a new unrelated limited partner and
administrative general partner. These partners, which are
related to each other, obtained a 99.1% interest in the existing
equity, profits or losses and low income housing tax credits of
the properties owned by these partnerships for an investment of
approximately $1,256,000 and $769,000 in each partnership plus a
$100,000 expense reimbursements. The Company refinanced the
apartment properties owned by these two partnerships on December
8, 1994 in connection with these transactions. Pursuant to an
agreement with the newly admitted limited partners, the Company
retained the net proceeds of $483,725 from these refinancings.
The funds from the new limited partners and the refinancings were
received by the Company during 1994 and 1995, net of $440,000 due
to an original limited partner for all its interests and claims,
for a total of approximately $2,100,000. A gain of $1,203,358
has been recognized on these transactions in 1994.
The Company retained a contingent interest in the cash flows of
these partnerships. It will receive any cash available from
property operations, to the extent it exceeds approximately
$61,000 annually, and any refinancing proceeds up to a total of
approximately $4.5 million, plus interest at 9.25% per annum on
the outstanding balance of this amount. Any proceeds of sale
will be allocated, first, 99.1% to the new partners until they
have received 135% of their investment, less any prior
distributions. Any remaining proceeds from a sale will be
allocated to the Company up to $6 million, less any distributions
from operations or refinancings pursuant to the discussion above.
These arrangements have not been reflected in the Company's
financial statements since their ultimate realization cannot
reasonably be determined. In addition, at such time as the tax
benefits have been utilized, the Company has the right to
purchase the interests of the newly admitted partners for 135% of
their contributed capital (minus prior cash payments). Should
the Company choose not to exercise such right to purchase the
partners' interests, the newly admitted administrative general
partner has the right to require the Company to sell all of the
assets and liquidate the partnerships.
The Company retained a .9% interest in each partnership through
two wholly-owned subsidiaries serving as the operating general
partners. Such operating general partners are obligated to
provide loans of up to $150,000 and $75,000 to Redbird and
Signature, respectively, to fund any operating deficits, as
defined, for a three year period commencing December 8, 1994.
The assets, liabilities and operations of Redbird and Signature
have not been included in the condensed consolidated financial
statements of the Company subsequent to closing these
transactions on June 13, 1994 and December 8, 1994, respectively.
The Company has accounted for its investment in and the earnings
of Redbird and Signature using the equity method of accounting
since these dates.
On December 30, 1993, the Company sold all of its interests in
Quivira Place Associates, L.P., owner of a 289 unit apartment
complex located in Lenexa, Kansas. A portion of the sales
proceeds included a promissory note in the amount of $938,500
that was issued from the buyer to the Company and was recorded as
a deferred gain on the Company's balance sheet at December 31,
1993. This note was collected by the Company on April 15, 1994,
and the deferred gain was recognized as revenue in the three
month period ending June 30, 1994.
The note payable secured by The Mart Shopping Center in the
approximate amount of $1,246,000 became due on December 1, 1994.
However, the current lender has extended the loan to December 1,
1997 based on an interest rate of 10% and a 20 year amortization
period.
In February 1995 the Company initiated a plan to repurchase up to
250,000 of its own shares for treasury in the open market or
through isolated transactions to December 31, 1995. No shares
were purchased pursuant to this plan as of April 12, 1995.
RESULTS OF OPERATIONS FOR 1994 COMPARED TO 1993
Consolidated revenues and gains decreased by 9% during 1994
compared to 1993 as a result of the loss of operating revenues
associated with the sale of Quivira Place Associates, L.P.
("Quivira"), the sale of partnership interests in Redbird Trails
Associates, L.P. ("Redbird") and Signature Midwest, L.P.
("Signature") and a significant decline in industrial product
sales, offset by recognizing the deferred portion of the gain on
the sale of the Company's interests in Quivira, the gain on sale
of Redbird and Signature, the addition of the viatical settlement
division and improved real property operating revenues. Total
costs and expenses decreased during this period primarily as a
result of reduced costs and expenses associated with the decline
in industrial product sales, the sale of Quivira at the end of
1993 and the sale of partnership interests in Redbird and
Signature during June and December 1994, respectively, offset by
the costs related to the initial operations of the viatical
settlement division.
VIATICAL SETTLEMENT DIVISION
National Capital Benefits Corp. ("NCBC") commenced operations on
March 17, 1994. As of December 31, 1994 NCBC had purchased
(including those in escrow) at face $3.6 million of policies.
Two policies matured during 1994 having a combined face value of
$275,000, with related direct costs of $226,680 and gross profit
equal to $48,320. Additional gross revenues of $346,101 and
related costs of $332,485 were accrued pursuant to NCBC's policy
to accrete such revenue and costs over the period from the
purchase of the policy to the date on which a reinsurance claim
may first be filed. NCBC incurred operating expenses of
approximately $1.2 million through December 31, 1994 primarily
for wages, advertising, consulting and professional fees, lender
fees, travel and entertainment and office supplies.
Additionally, approximately $300,000 of costs were capitalized
prior to commencement of operations for organization of the
business and obtaining its credit line. NCBC expanded its
operations by acquiring from CAPX Corporation on June 29, 1994
substantially all of its operating assets (other than cash,
securities and purchased insurance policies), including the trade
names of its wholly-owned subsidiaries, Living Benefits Inc. and
American Life Resources, Inc. Management believes these
subsidiaries were the two most established companies in the
viatical settlement business prior to this transaction, with an
estimated 20% market share.
REAL ESTATE DIVISION
Rental property revenue decreased during 1994 principally as a
result of the sale of Quivira on December 30, 1993 and the sale
of partnership interests in Redbird on June 13, 1994 and
Signature on December 8, 1994, offset by an increase in revenue
from the Georgia properties of approximately $282,500. The Mart
Shopping Center continues to maintain average occupancy rates
greater than 90%. Occupancy at Appletree Townhouses has improved
substantially, from an average of approximately 83% for 1993 to
91% for 1994. Average occupancy at Colony Ridge Apartments
increased to 81% in 1994 compared to 75% for 1993. The decrease
in total operating and maintenance expenses of approximately 32%
during 1994 compared to 1993 is principally related to the sale
of Quivira and the sale of partnership interests in Redbird and
Signature, offset by increased expenses at Appletree Townhouses
and Colony Ridge Apartments. Property taxes and interest expense
decreased during the same period as a result of the sale of
Quivira and the sale of partnership interests in Redbird and
Signature. Depreciation and amortization also declined as a
result of the sale of Quivira and the sale of partnership
interests in Redbird and Signature, but was offset by an increase
in depreciation related to rehabilitation costs associated with
other properties. Real estate property operations, as a whole,
produced operating losses of approximately $310,000 for 1994
compared to $685,000 for 1993, after all operating expenses,
including depreciation and interest expense.
INDUSTRIAL PRODUCTS DIVISION
Machine sales for the year ended December 31, 1994 were
approximately $3,769,000. Machine sales during this period
declined by approximately $963,000 from 1993 essentially as a
result of increased competition and price cutting by competitors
which made certain bids economically impractical. Parts sales
were approximately $1,837,000 for the year ended December 31,
1994. Parts sales decreased by approximately $333,000 during
1994 from 1993, due, in part, to better customer training in
maintenance programs preventing product failure. Cost of sales
also was reduced as a result of the decline in sales. The
reduction in selling and administrative expenses from 1993 was
largely the result of a reduction of the labor force.
Jensen incurred a loss of $22,686 before an additional reserve
for inventory obsolescence of $257,609, for a total operating
loss of $280,295 during 1994 compared to a loss of $272,831
before an increase in the inventory reserve of $59,834 for a
total loss of $332,665 in 1993. Although Jensen accomplished
certain expense reductions and increased manufacturing
effectiveness during 1994, operating results were significantly
impacted by the inventory reserve. Jensen continues to maintain
its competitive pricing policy, but sales margins continue to
suffer as a result.
RESULTS OF OPERATIONS FOR 1993 COMPARED TO 1992
Consolidated total revenues and gains increased by 113% during
1993 compared to 1992 as a result of acquisitions of two
apartment properties in Texas, the addition of two apartment
properties in Georgia and the acquisition of Jensen Corporation
("Jensen"), all of which occurred during the first three quarters
of 1992, and the sale of all the Company's interests in Quivira
Place Associates, L.P. ("QPA") on December 30, 1993; offset,
however, by a reduction in interest income as a result of a
decrease in cash reserves utilized in connection with these
acquisitions and Company operations and lower interest rates
earned on remaining cash reserves. Total costs and expenses
increased by 81% during 1993, primarily due to these
acquisitions, offset by a 18% reduction in general and
administrative expenses for the same period, which resulted
primarily from reductions in management compensation from 1992
levels.
Real Estate Division
Rental property revenue and expenses increased as a result of the
acquisition of Redbird Trails Apartments in June 1992, North Oak
Apartments in July 1992 and the foreclosure and addition of
Appletree Townhouses in March 1992 and Colony Ridge Apartments in
July 1992. These additions provided approximately 100% of the
increases in property revenues and 95% of the increases in total
property expenses during 1993 compared to 1992. Occupancy at
Quivira Place Apartments (sold on December 30, 1993), Redbird
Trails Apartments, North Oak Apartments and The Mart Shopping
Center remained in the mid to upper 90 percentiles during 1993.
Occupancy at Appletree Townhouses has improved substantially,
from an average of approximately 49% during 1992 to 93% at
December 31, 1993. Although occupancy at Colony Ridge Apartments
continues to improve, averaging approximately 50% during 1992 and
75% during 1993, it remains below Company objectives. The
Company believes that occupancy will continue to improve at
Colony Ridge Apartments during 1994. The increase in total
operating and maintenance expenses of approximately 78% during
1993 compared to 1992 is principally related to the additions of
properties in 1992. The Company sold all of its interests in QPA
and recognized a gain of $828,659 during 1993. The Real Estate
Division produced operating income, including the sale of its
interests Quivira Place Apartments, of approximately $143,000 in
1993 compared to an operating loss of approximately $356,000 in
1992.
Industrial Products Division
Since it was acquired on September 18, 1992, Jensen's revenues
have continued to be below levels which support break-even
operations and generated a loss from operations of approximately
$333,000 during 1993. Management believes that Jensen's sales
continue to be adversely impacted by disruption in the market
caused by the bankruptcy of the former owner of Jensen's assets
in 1991 and, to a lesser extent, the continued weakness of the
economy in its principal markets. Jensen has also encountered
increased competition from European manufacturers. Jensen
conducted a policy of competitive pricing in order to maintain
its position in the market which has limited profit margins. It
has also reduced its operating capacity to its core components,
but not to a level which management believes would impede an
effective response to more favorable conditions in its market
place.
Item 7 - Financial Statements and Supplementary Data
NATIONAL CAPITAL MANAGEMENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors 21
Consolidated Balance Sheets at December 31, 1994 and 1993 22
Consolidated Statements of Operations for the years ended 23
December 31, 1994, 1993, and 1992
Consolidated Statements of Shareholders' Equity for the years 24
ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 25
Notes to Consolidated Financial Statements 26-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
National Capital Management Corporation
We have audited the accompanying consolidated balance sheets of
National Capital Management Corporation as of December 31, 1994
and 1993, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of National Capital Management Corporation at
December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
March 24, 1995
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 749,449 $ 2,872,925
Restricted cash 215,565 --
Accounts receivable, less allowance for doubtful
accounts of $25,000 and $100,485 at December 31,
1994 and 1993, respectively 2,674,606 933,127
Notes receivable -- 938,500
Inventories 1,717,361 1,810,721
Purchased insurance policies (at cost, face value
of $2,610,550) - current portion 1,942,490 --
Other current assets 227,234 312,670
Total current assets 7,526,705 6,867,943
Purchased insurance policies (at cost, face value
of $1,043,004) - long-term portion 761,369 --
Rental properties, less accumulated depreciation of
$3,128,402 and $2,872,392 at December 31, 1994 and
1993, respectively 8,757,784 15,512,469
Property and equipment, less accumulated
depreciation of $51,148 and $28,065 at December
31, 1994 and 1993, respectively 103,582 77,813
Other assets 750,887 550,672
Total assets $ 17,900,327 $ 23,008,897
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,246,543 $ 922,660
Revolving credit facility - current portion 1,569,190 --
Accrued liabilities 647,220 1,105,205
Deferred gain on sale of real property -- 938,500
Current portion of long-term debt 1,419,078 1,745,895
Total current liabilities 4,882,031 4,712,260
Revolving credit facility - long-term portion 615,052 --
Long-term payable 150,000 --
Long-term debt 2,755,155 7,766,382
Total liabilities 8,402,238 12,478,642
Common stock repurchase obligation 175,000 --
Shareholders' equity:
Preferred stock, $0.01 par value, 3,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized,5,019,257 shares issued and
outstanding 54,289 54,289
Additional paid-in capital 23,516,649 23,673,649
Accumulated deficit (13,604,224) (12,662,183)
Treasury stock (643,625) (535,500)
Total shareholders' equity 9,323,089 10,530,255
Total liabilities and shareholders' equity $ 17,900,327 $ 23,008,897
</TABLE>
See accompanying notes.
22
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Viatical settlement and accrued
revenue $ 621,101 $ -- $ --
Real estate properties 3,613,978 5,219,325 3,385,388
Industrial products sales 5,691,585 7,091,414 2,630,866
Interest 73,533 55,395 238,082
Other income -- 166,365 17,642
Total revenues 10,000,197 12,532,499 6,271,978
Costs and expenses:
Viatical settlement operations:
Cost of policies 559,165 -- --
Selling and administrative 1,044,268 -- --
Depreciation and amortization 99,338 -- --
Interest 28,099 -- --
Total viatical settlement
costs and expenses 1,730,870 -- --
Real estate property operations:
Operations and maintenance 1,916,210 2,803,479 1,576,718
Property taxes and insurance 432,916 667,726 468,393
Depreciation and amortization 895,338 1,245,619 820,141
Interest 679,737 1,187,877 875,950
Total real estate property
costs and expenses 3,924,201 5,904,701 3,741,202
Industrial products operations:
Cost of sales 4,642,611 6,039,478 2,181,218
Selling and administrative 1,053,069 1,365,110 527,060
Reserve for inventory obsolescence 257,609 -- --
Depreciation 18,591 19,491 8,574
Total industrial products
costs and expenses 5,971,880 7,424,079 2,716,852
General and corporate:
General and administrative 1,446,044 1,380,114 1,677,323
Interest expense-other 11,101 23,264 5,544
Total costs and expenses 13,084,096 14,732,158 8,140,921
Gain on sale of real properties 2,141,858 828,659 --
Net loss $ (942,041) $(1,371,000 $(1,868,943
Net loss per share $ (0.19) $ (0.27) $ (0.34)
Average number of shares outstanding 5,026,498 5,131,357 5,427,231
</TABLE>
See accompanying notes.
23
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Treasury Shareholders'
Stock Capital Deficit Stock Equity
<S> <C> <C> <C> <C> <C>
Balances at December
31, 1991 $54,289 $23,673,649 $ (9,422,240) $ -- $14,305,698
Acquisition of
treasury stock -- -- -- (535,500) (535,500)
Net loss -- -- (1,868,943) -- (1,868,943)
Balances at December
31, 1992 54,289 23,673,649 (11,291,183) (535,500) 11,901,255
Net loss -- -- (1,371,000) -- (1,371,000)
Balances at December
31, 1993 54,289 23,673,649 (12,662,183) (535,500) 10,530,255
Acquisition of
treasury stock -- -- -- (265,125) (265,125)
Issuance of
treasury stock -- (157,000) -- 157,000 --
Net loss -- -- (942,041) -- (942,041)
Balances at December
31, 1994 $54,289 $23,516,649 $(13,604,224) $(643,625) $9,323,089
</TABLE>
See accompanying notes.
24
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (942,041) $(1,371,000) $(1,868,943)
Adjustment to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,013,267 1,275,782 840,848
Gain on sale of real properties (2,141,858) (828,659) --
Changes in operating assets and
liabilities:
Increase in accounts receivable (1,760,004) (131,495) (126,612)
Decrease in inventories 93,360 100,415 53,409
Decrease (increase) in other
current assets (6,655) 81,005 (287,234)
Increase in purchased insurance
policies (2,703,859) -- --
Increase in accounts payable and
accrued liabilities 388,117 840,864 687,618
Increase in long-term payable 150,000 -- --
Net cash used in operating activities (5,909,673) (33,088) (700,914)
Cash flows from investing activities:
Additions and improvements to
real property (207,870) (1,266,517) (2,122,919)
Proceeds from sale of real property 2,100,420 1,515,000 --
Acquisition of Jensen Corporation -- -- (2,199,106)
Additions to property and equipment (48,852) (20,127) (2,816)
Repayment of note receivable 938,500 -- --
(Increase) decrease in other assets (739,207) 210,640 (728,241)
Net cash provided by (used in)
investing activities 2,042,991 438,996 (5,053,082)
Cash flow from financing activities:
Additions to restricted cash (215,565) -- --
Additions to revolving credit facility 2,184,242 -- --
Additions to long-term debt -- 1,300,000 206,753
Payments on long-term debt (135,346) (1,657,374) (685,223)
Acquisition of treasury stock (265,125) -- (535,500)
Issuance of treasury stock 175,000 -- --
Net cash provided by (used in)
financing activities 1,743,206 (357,374) (1,013,970)
(Decrease) increase in cash
and equivalents (2,123,476) 48,534 (6,767,966)
Cash and equivalents at
beginning of period 2,872,925 2,824,391 9,592,357
Cash and equivalents at end of period $ 749,449 $ 2,872,925 $ 2,824,391
</TABLE>
See accompanying notes.
25
<PAGE>
NATIONAL CAPITAL MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared assuming that National
Capital Benefits Corporation ("NCBC"), an 80% owned subsidiary of the Company,
will continue as a going concern. NCBC has incurred an operating loss of
$1,092,000 since its inception in 1994, has limited cash at December 31, 1994
for use in operations and is thus solely dependent on the Company to provide
cash needed for operating expenses and its share of acquisition costs of
purchased policies that are not able to be fully funded under its revolving
line of credit facility. NCBC has available to it a $10,000,000 revolving line
of credit facility, of which $2,184,242 has been drawn at December 31, 1994.
This line of credit is to provide a portion of the funding for acquisition
costs of insurance policies. However, this line can be used to provide
operating cash to NCBC only to the extent that insurance policy proceeds in
excess of the related loan amounts have been received by the lender. Given the
scientific uncertainty of estimating the remaining life expectancies of the
insured's covered by purchased policies, there can be no assurance that these
policies will mature in accordance with the projected schedule. As such, until
such time as significant proceeds are in fact received on matured policies,
this line will not be able to provide NCBC a significant amount of operating
cash. This potential lack of access to cash to meet operating needs, along
with the lack of a formal commitment from the Company to support cash needs,
raises substantial doubt about NCBC's ability to continue as a going concern.
The Company has no contractual or other obligation to continue the funding of
NCBC. However, management believes that the Company has adequate financial
resources, including the potential for the refinancing or sale of certain
assets, or it may also use other outside sources of financing, if available, to
fund the operational needs of NCBC until such time as NCBC has obtained a break
even level of operations or management of the Company determines that it is in
the Company's best interest not continue such funding. The financial
statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of NCBC's assets or the
amounts and classifications of liabilities that may result from the outcome of
this uncertainty.
Concentration of Credit Risk
The financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Management normally does not require collateral and has established reserves
which have historically been adequate to cover any credit losses.
Consolidation Principles
The consolidated financial statements include the accounts of the Company and
all of its majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Viatical Settlement Division
Revenue and Cost Recognition - Revenue related to expected insurance proceeds
is recognized by accreting amounts based on 90% of the face value of the
individual insurance policy acquired, over the period from the purchase of the
policy to the date on which an insurance claim may first be filed. Should the
policy mature prior to the filing of an insurance claim, the entire proceeds
will be recognized as revenue at that time, less any amounts previously
accrued.
Costs related to the purchase of insurance policies are recognized through the
amortization of such capitalized costs using the same methodology as in the
recognition of revenue. The costs of insurance premiums related to maintaining
the policies in force are charged to expense as incurred
Purchased Insurance Policies - Purchased insurance policies are stated at cost,
which includes the purchase price, direct costs related to the acquisition of
such policies and direct costs anticipated to be incurred through the date they
can first be submitted to a wholly-owned subsidiary of NCBC, NCB Insurance
Limited ("NCB"), pursuant to an abnormal mortality insurance contract. The
contract provides that NCB will pay NCBC 90% of the death benefit (face value)
of a policy purchased in accordance with established underwriting guidelines if
that policy remains in force at the end of twelve months after the expiration
of the maximum confirmed life expectancy provided by the Insured's Medial
Panelists. NCB has reinsured its risks with an outside group of insurers,
which is composed of a group of large international insurance companies, on
identical terms as the contract with NCBC. Through NCB, NCBC will have a
continuing interest in such reinsured policies to the extent that it shares in
50% of the profits and losses of a pool formed pursuant to NCB's reinsurance
contract.
Restricted Cash - Certain cash held by the Company is restricted as to use
under the terms of certain escrow agreements and the revolving credit facility.
Accordingly, this restricted cash has been classified as such in the
accompanying financial statements.
Amortization - Organization costs are amortized using the straight-line method
over five years. Closing costs relating to origination of revolving credit
facility are amortized over three years using the effective interest method.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed using the straight-line and accelerated methods over
the estimated useful lives of the assets. Equipment held under capital leases
and leasehold improvements is amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
Real Estate Division
Rental Properties - Rental properties are recorded at cost. Land improvements
and buildings and improvements are depreciated on a straight-line basis over
useful lives ranging primarily from 12 to 30 years. Appliances and equipment
are depreciated on a straight-line basis over useful lives ranging primarily
from 3 to 8 years. Recorded amounts are written down to net realizable value
when impairment is considered to be other than temporary.
Maintenance and repairs of rental properties are charged to rental expenses
when incurred. Maintenance and repairs amounted to $317,522, $571,962, and
$330,729 for 1994, 1993, and 1992, respectively. Costs of improvements and
replacements to and rehabilitation of such properties are capitalized. The
costs of properties sold or otherwise disposed of are credited to the asset
accounts, the related accumulated depreciation is removed from the accounts,
and any gains or losses are reflected in operations.
Income recognition on sales of rental properties - Income from sales of rental
properties is recognized when required down payments are received and other
recognition criteria as required by generally accepted accounting principles
are satisfied.
Industrial Products Division
Revenues - The division manufactures and sells laundry equipment and waste
compactor equipment through a network of independent distributors, principally
in the United States and Canada. Revenue is recognized when the products are
shipped. The Company performs periodic credit evaluations of its customers'
financial condition and, generally, no collateral is required.
Inventories - Inventories are valued at the lower of cost (first-in, first-out)
or market. Provisions are made in each period for the effect of obsolete and
slow-moving inventories.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed using the straight-line and accelerated methods over
the estimated useful lives of the assets.
Statement of Cash Flows
The Company considers all short-term highly liquid investments purchased with a
maturity of three months or less to be cash and equivalents for purposes of the
Consolidated Statement of Cash Flows.
Cash paid for interest was $749,199, $1,188,144 and $839,849 for 1994, 1993,
and 1992, respectively. The Company paid no material amounts for income taxes
during these years.
During 1994, the Company sold 99.1% of its investment in Redbird Trails
Associates, L.P. and Signature Midwest, L.P. whereby the Company accounts for
its investments using the equity method and, accordingly, two first mortgage
obligations of the Company in the amount of $5,202,698 were eliminated from the
Company's books.
During 1993, the Company sold one real estate property in a transaction in
which the purchaser assumed a first mortgage obligation of the Company in the
amount of $3,659,476. The Company also received a promissory note in the
amount of $938,500 and recognized a gain in the same amount in connection with
the collection of this balance during 1994.
During 1992 the Company incurred and assumed mortgage indebtedness of
$6,943,856 in connection with the acquisition of real estate properties.
Income Taxes
The Company follows the asset and liability approach for financial accounting
and reporting for deferred income taxes in accordance with Statement of
Financial Accounting Standards No. 109. Under this method, the Company
provides taxes based on enacted tax rates in effect on the dates temporary
differences between the book and tax bases of assets and liabilities reverse.
Per Share Amounts
Per share information has been computed based on the weighted average number of
common shares outstanding. Outstanding options and warrants to purchase common
shares have not been included in the computation because their effect would be
antidilutive.
Reclassifications
Certain amounts as presented in prior year financial statements have been
reclassified to conform with the current year presentation.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
For the three-year period ended December 31, 1994, the Company had agreements
with NCM Management Ltd., a company affiliated with Mr. Herbert J. Jaffe,
President and a director of the Company, to provide management services to the
Company. The Company also provided the compensation and benefits of the
president and his assistant and the cost of an office during 1992 and 1993.
Costs incurred under these agreements amounted to $324,163, $353,753 and
$375,156 for 1994, 1993 and 1992, respectively.
James J. Pinto served as Chairmen of the Board of Directors through 1994
pursuant to an employment agreement entered into in 1990, and subsequently
modified effective January 1, 1994. Mr. Pinto was compensated $257,500,
$247,500 and $237,500 for 1994, 1993 and 1992, respectively, pursuant to this
agreement. In addition, Mr. Pinto was provided with certain other employee
benefits. Pursuant to a Consulting Agreement dated as of January 1, 1992, Mr.
Shaw provided services as a consultant to the Company on a nonexclusive basis
through December 31, 1993. This agreement was amended effective January 1,
1994 whereby Mr. Shaw acted in the capacity of Chief Executive Officer through
1994. Mr. Shaw received $257,500 as Chief Executive Officer during 1994
pursuant to the amended agreement, and Resource Holdings Associates ("RHA"), an
affiliated entity of Mr. Shaw, received $247,500 and $237,500 during 1993 and
1992, respectively, pursuant to the Consulting Agreement. The cost of these
agreements was $551,550, $529,674 and $788,087 (including bonuses) for 1994,
1993 and 1992, respectively, plus $96,566, $116,138 and 102,116 during the same
years for certain office expenses and related services incurred for Company
business.
Effective April 1, 1995, Messrs. Pinto and Shaw entered into new agreements
with the Company to act in the same capacities through March 31, 1997, with
options to extend these agreements for one year if certain conditions are met.
They will receive compensation of $125,000 each plus Mandatory Incentive
Bonuses which are based on achieving certain Company operating objectives, plus
Discretionary Bonuses which may be granted at the option of the Board of
Directors. If these agreements are terminated by the Company other than for
cause, disability or death, Messrs. Pinto and Shaw shall be entitled to receive
their base compensation through the existing term.
<PAGE>
NOTE 3 - INVENTORIES
Inventories of the Industrial Products Division consist of the following:
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Raw materials $ 1,181,247 $ 1,223,892
Work-in-process 513,045 414,392
Finished goods 23,069 172,437
$ 1,717,361 $ 1,810,721
</TABLE>
NOTE 4 - PURCHASED INSURANCE POLICIES
Purchased insurance policies as of December 31, 1994 consist of the following:
<TABLE>
<S> <C>
Costs paid to viator $ 2,727,596
Reinsurance premiums 75,151
Other direct acquisition costs 233,597
Less amortized costs (332,485)
2,703,859
Less current portion 1,942,490
$ 761,369
</TABLE>
NOTE 5 - NOTE RECEIVABLE
On December 30, 1993, the Company sold all of its interests in Quivira Place
Associates, L.P. A portion of the sales proceeds included a promissory note in
the amount of $938,500 that was issued from the buyer to the Company and was
recorded as a deferred gain on the Company's balance sheet at December 31,
1993. This note was collected by the Company on April 15, 1994, and the
deferred gain was recognized as revenue.
<PAGE>
NOTE 6 - REAL ESTATE INVESTMENTS
Rental Properties
Rental properties and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Land $ 2,366,507 $ 2,907,857
Buildings and improvements 9,322,620 15,320,447
Machinery and equipment 128,006 125,463
Appliances 69,053 31,094
11,886,186 18,384,861
Less accumulated depreciation (3,128,402) (2,872,392)
$ 8,757,784 $15,512,469
</TABLE>
Quivira Place Apartments. On December 30, 1993, the Company sold all of its
interests in Quivira Place Associates, L.P. ("QPA"), owner of a 289 unit
complex located in Lenexa, Kansas. The sales proceeds included $1,515,000 in
cash, a promissory note in the amount of $938,500 and the buyer's assumption of
the $3,659,476 first deed mortgage secured by the property for a total purchase
price of $6,112,976. The sales price less the carrying value of $4,345,817
generated a total gain of $1,767,159, of which $828,659 was recognized in 1993,
with the balance of $938,500 recognized upon collection of the note on April
15, 1994 (See Note 5).
Redbird Trails Apartments and North Oak Apartments. On June 13, 1994 and
December 8, 1994, in accordance with its previous agreement dated December 30,
1993, the Company sold partnership interests in Redbird Trails Associates, L.P.
("Redbird") and Signature Midwest, L.P. ("Signature"), respectively, to a new
unrelated limited partner and administrative general partner. These partners,
which are related to each other, obtained a 99.1% interest in the existing
equity, profits or losses and low income housing tax credits of the properties
owned by these partnerships for an investment of approximately $1,256,000 and
$769,000 in each partnership plus a $100,000 expense reimbursement. The
Company refinanced the apartment properties owned by these two partnerships on
December 8, 1994 in connection with these transactions. Pursuant to an
agreement with the newly admitted limited partners, the Company retained the
net proceeds of $483,725 from these refinancings. The funds from the new
limited partners and the refinancings were received by the Company during 1994
and 1995, net of $440,000 due to an original limited partner for all its
interests and claims, for a total of approximately $2,100,000. A gain of
$1,203,358 has been recognized on these transactions in 1994. Management has
reviewed the transactions and believes it meets the criteria for gain
recognition in accordance with applicable authoritative accounting guidance.
The Company retained a contingent interest in the cash flows of these
partnerships. It will receive any cash available from property operations, to
the extent it exceeds approximately $61,000 annually, and any refinancing
proceeds up to a total of approximately $4.5 million, plus interest at 9.25%
per annum on the outstanding balance of this amount. Any proceeds of sale will
be allocated, first, 99.1% to the new partners until they have received 135% of
their investment, less any prior distributions. Any remaining proceeds from a
sale will be allocated to the Company up to $6 million, less any distributions
from operations or refinancings pursuant to the discussion above. These
arrangements have not been reflected in the Company's financial statements
since their ultimate realization cannot reasonably be determined. In addition,
at such time as the tax benefits have been utilized, the Company has the right
to purchase the interests of the newly admitted partners for 135% of their
contributed capital (minus prior cash payments). Should the Company choose not
to exercise such right to purchase the partners' interests, the newly admitted
administrative general partner has the right to require the Company to sell all
of the assets and liquidate the partnerships.
The Company retained a .9% interest in each partnership through two wholly-
owned subsidiaries serving as the operating general partners. Such operating
general partners are obligated to provide loans of up to $150,000 and $75,000
to Redbird and Signature, respectively, to fund any operating deficits, as
defined, for a three year period commencing December 8, 1994.
The assets, liabilities and operations of Redbird and Signature have not been
included in the condensed consolidated financial statements of the Company
subsequent to closing these transactions on June 13, 1994 and December 8, 1994,
respectively. The Company has accounted for its investment in and the earnings
of Redbird and Signature using the equity method of accounting since these
dates.
<PAGE>
NOTE 6 - REAL ESTATE INVESTMENTS (Continued)
Minimum Future Lease Rental Income
The Company has noncancelable operating leases with initial terms in excess of
one year with tenants for space in its commercial property. In certain
instances, the tenants are obligated to reimburse the Company for certain
rental expenses, such as maintenance costs and property taxes. Minimum rents
from these noncancelable leases included in property revenue for 1994, 1993 and
1992 were approximately $397,637, $405,983 and $387,299, respectively. Future
minimum rents from tenants under noncancelable operating leases at December 31,
1994 are as follows:
<TABLE>
<S> <C>
1995 $ 398,575
1996 402,875
1997 407,575
1998 364,475
1999 240,488
Thereafter 19,875
$ 1,833,863
</TABLE>
A substantial portion of the Company's real estate property revenue is from
residential rentals under short-term leases.
<PAGE>
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Mortgage note secured by deed of trust on
The Mart Shopping Center, interest at 10%
payable in monthly installments of principal
and interest of $11,945, due December 1,1997 $1,245,532 $1,272,292
Mortgage note secured by deed of trust on
Appletree Townhouses, interest at 9.125%
payable in monthly installments of principal
and interest of $12,907, due October 1,1995 1,118,458 1,168,761
Mortgage note secured by deed of trust on
Colony Ridge Apartments, interest at 8.75%
payable in monthly installments of principal
and interest of $18,550, due November 30,2003 1,458,272 1,549,324
Mortgage note secured by deed of trust on
Redbird Trails Apartments (sold June 13,1994) -- 3,248,387
Mortgage note secured by deed of trust on
North Oak Apartments (sold December 8,1994) -- 1,978,332
Other 351,971 295,181
4,174,233 9,512,277
Current portion of long-term debt 1,419,078 1,745,895
$ 2,755,155 $ 7,766,382
</TABLE>
At December 31, 1994, the principal portion of long-term debt is payable as
follows:
<TABLE>
<S> <C>
1995 $ 1,419,078
1996 181,650
1997 1,457,906
1998 135,639
1999 147,995
Thereafter 831,965
$ 4,174,233
</TABLE>
<PAGE>
NOTE 8 - INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". The implementation of
Statement 109 did not have a material impact on the Company's financial
statements.
At December 31, 1994, the Company had federal net operating and capital loss
carryforwards of approximately $6,600,000. The net operating losses will
expire in the various years through December 31, 2009. The Company had state
net operating loss carryforwards of various amounts in the states in which it
operates.
At December 31, 1994, the Company had federal alternative minimum credits of
approximately $13,000. The alternative minimum tax may be carried forward
indefinitely.
Federal and state laws impose limitations on the use of the net operating
losses and tax credits following certain changes in ownership. If such an
ownership change occurs, the limitation could reduce the amount of the benefits
of the net operating losses and credit that would be available to offset future
taxable income starting in the year of the ownership change.
A reconciliation of income tax computed at the federal statutory corporate tax
rate to income tax expense is:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Income taxes at federal
statutory rate (313,493) (34.0) (466,150) (34.0) (635,441) (34.0)
Increase (decrease) in
income taxes
resulting from:
State and local income
taxes, net of federal
tax benefit 20,000 2.1 -- -- (74,010) (4.0)
Amortization of
goodwill and
other intangibles 2,913 0.3 1,256 0.1 1,293 0.1
Change in valuation
allowance 303,534 32.9 464,894 33.9 -- --
Net operating loss
carryover -- -- -- -- 708,158 37.9
Other (12,954) (1.3) -- -- -- --
-- -- -- -- -- --
</TABLE>
<PAGE>
NOTE 8 - INCOME TAXES (Continued)
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's net deferred tax assets as of December 31, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Deferred tax assets:
Net operating and capital
loss carryforwards $ 2,736,000 $ 1,863,000
Note receivable -- 3,677,000
Inventories 127,000 80,000
Reserves 167,000 146,000
Partnership interest 89,000 90,000
Other, net -- 31,000
3,119,000 5,887,000
Deferred tax liabilities:
Depreciation and amortization 578,000 3,700,000
Other, net 166,000 115,000
744,000 3,815,000
Less valuation allowance (2,375,000) (2,072,000)
Net deferred tax assets $ -- $ --
</TABLE>
The change in the valuation allowance for the year ended December 31, 1994 was
an increase of $303,000.
NOTE 9 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Viatical Settlement:
CAPX investment, net $ 258,333 $ --
Deferred acquisition expense 150,000 --
Organization costs, net 108,800 --
Loan fees, net 101,935 --
Other:
Escrow account for capital
improvements -- 216,584
Real estate and insurance impounds 56,368 228,250
Deposits 53,445 94,489
Other 22,006 11,349
$ 750,887 $ 550,672
</TABLE>
<PAGE>
NOTE 10 - OPERATING LEASES
Jensen Corporation, the Company's industrial products subsidiary, leases its
manufacturing facility under an operating lease with a monthly rental of
$17,516 subject to future adjustments based on the consumer price index. The
lease expires in 1999 and provides the Company with options to extend for one
successive term of five years. The Company also has an equipment lease
expiring in 1998. Rental expense for 1994 and 1993 was approximately $229,000
and $200,000, respectively.
National Capital Benefits Corporation, the Company's viatical settlement
subsidiary, leases its office under an operating lease with a monthly rental of
$4,299. The lease expires June 30, 1996. Rental expense for 1994 was
approximately $38,000.
Future minimum lease payments under noncancellable operating leases having
initial terms in excess of a year are as follow:
<TABLE>
<CAPTION>
Operating Lease
<S> <C>
1995 $ 283,147
1996 249,166
1997 220,845
1998 212,313
1999 122,612
Thereafter --
$ 1,088,083
</TABLE>
<PAGE>
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Company's industrial products subsidiary sponsors a 401(k) Profit Sharing
Plan and Trust covering all employees 21 years of age and older with at least
one year of service and who work at least 1,000 hours during a year. The
Company has the option of matching 20% to 50% of employee contributions based
on employee's length of service. There were no Company contributions to the
plan during 1994 or 1993.
NOTE 12 - SHAREHOLDERS' EQUITY
Outstanding warrants and options to purchase shares of the Company's common
stock, together with the related grant and expiration dates as of December 31,
1994 are as follows:
<TABLE>
<CAPTION>
Expiration
Grant Date
Description Shares Price Date December 31,
<S> <C> <C> <S> <S>
Investor Warrants 1,975,000 $3.00 1988 1997
Investor Warrants 214,285 3.50 1988 1997
Management Warrants 40,000 3.00 1988 1997
Director Options 6,000 3.50 1991 1995
Director Options 3,000 3.50 1992 1995
Director Options 3,000 3.50 1993 1996
Consultant Options 25,000 3.50 1990 1996
</TABLE>
All warrants and options were exercisable at December 31, 1994. During 1994,
12,000 shares of director options expired. No other warrants or options were
exercised or expired during the three-year period ended December 31, 1994.
On April 22, 1994, the Company repurchased 212,100 shares of its common stock
for treasury shares at a cost of $265,125. On July 29, 1994, the Company
issued 100,000 shares of its common stock to CAPX Corporation in consideration
for certain assets purchased therefrom.
<PAGE>
NOTE 13 - INDUSTRY SEGMENT INFORMATION
The Company operated in four and three industry segments in 1994 and 1993,
respectively. Industry segment information is as follows:
For the Year Ended December 31, 1994:
<TABLE>
<CAPTION>
Industrial Viatical
Real Estate Products Settlement General
Division Division Division Corporate Total
<S> <C> <C> <C> <C> <C>
Revenues $3,613,978 $5,691,585 $ 621,101 $ 73,533 $ 10,000,197
Operating loss (310,223) (280,295) (1,109,769) (1,383,612) (3,083,899)
Depreciation and
amortization 895,338 18,591 99,338 -- 1,013,267
Gain on sale of
properties 2,141,858 -- -- -- 2,141,858
Capital
expenditures 207,870 11,118 37,734 -- 256,722
Identifiable
assets-
December 31,1994 $9,010,158 $2,899,593 $ 3,962,758 $ 2,027,818 $17,900,327
</TABLE>
For the Year Ended December 31, 1993:
<TABLE>
<CAPTION>
Industrial Viatical
Real Estate Products Settlement General
Division Division Division Corporate Total
<S> <C> <C> <C> <C> <C>
Revenues $ 5,219,325 $7,091,414 $ -- $ 221,760 $12,532,499
Operating loss (685,376) (332,665) -- (1,181,618) (2,199,659)
Depreciation and
amortization 1,245,619 19,491 -- 10,672 1,275,782
Gain on sale of
properties 828,659 -- -- -- 828,659
Capital
expenditures 1,265,441 20,127 -- 1,076 1,286,644
Identifiable
assets-
December 31,1993 $16,330,856 $2,755,327 $ -- $ 3,922,714 $23,008,897
</TABLE>
NOTE 14 - LITIGATION
Jensen Corporation ("Jensen") is a defendant in a number of product
liability lawsuits and other litigation arising out of its operations
and operations of the former owner of Jensen's assets. Given the
nature of Jensen's products, it anticipates that it may be party to
such lawsuits from time-to-time and maintains insurance to provide for
potential claims in an amount equal to $1 million per claim with a
limit of $2 million in the aggregate. Jensen also establishes reserves
deemed adequate to cover an estimated amount which it may be required
to fund with respect to the deductible portion of such loss that must
be borne by Jensen prior to the application of the coverage, which is a
maximum of $100,000 per claim under the existing policy. In the
opinion of management, the resolution of existing claims and litigation
will not have a material adverse impact on the financial position of
the Company.
<PAGE>
NOTE 15 - REVOLVING CREDIT FACILITY
On March 17, 1994, NCBC entered into a revolving credit facility
("Facility") with a credit limit of $10,000,000, which expires March
17, 1997. The Facility is secured by all the assets of NCBC. The
Facility bears interest at 2% over a composite of several large bank
prime rates or the rate on 90 day dealer commercial paper, whichever is
higher, (11% at December 31, 1994), and is subject to a commitment fee
of .625% on the average daily unused amount of the line.
Under the terms of the Facility, the lender will loan NCBC an amount
equal to the lesser of 95% of the cost of insurance policies purchased
(defined as the cost paid to the viator (terminally ill insured), two
years of regular insurance premiums, a one-time reinsurance premium
based on the face value of the policy and third party commissions) or
70% of the face value of the policy. Under the Facility, the insurance
policies purchased by NCBC must meet certain underwriting criteria as
established in the Facility. The lender will evaluate each policy to
be purchased by NCBC to verify compliance with the underwriting
criteria. The Facility requires that NCBC pay two years of regular
premiums and the reinsurance premium on the policy in advance. In some
cases, the insurer will only accept one year's premium payment in
advance; consequently, the Facility reduces the a availability of
advances to the extent of any such premiums which are unpaid.
When an insurance policy matures, the total proceeds are received
directly by the collateral agent of the lender and are applied as a
reduction on the financing line.
The Facility contains financial covenants and other restrictions
related to the use of borrowed cash including limitations on
executives' compensation, dividends and payments to affiliates.
<PAGE>
Item 8 - Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Not Applicable
<PAGE>
PART III
Item 9 - Directors, Executive Officers, Promoters, and Control Persons;
Compliance With Section 16(a) of the Exchange Act
At March 23, 1995, there were five directors on the Company's Board of
Directors, two of which are also executive officers of the Registrant.
The principal occupations and affiliations during the last five years
of the directors and executive officers are described in the following
table. Each director's term of office expires at the next meeting of
shareholders following his election and upon the election and
qualification of his successor. The executive officers serve at the
pleasure of the Board of Directors.
James Pinto Chairman since NCMC
Chairman of the Board 1989
Age 43
Director since 1988 Director Biscayne Holdings, Inc.
(apparel manufacturer
and distributor)
Director Anderson Group, Inc.
(dental and
electronics)
John C. Shaw Chief Executive NCMC
Director and Officer since 1994
Chief Executive
Officer Managing Director Resource Holdings, Ltd.
Age 41 since 1983 (investment firm)
Director since 1988
1989 to 1992 Co- NCMC
Chairman
Trustee Wedgestone Financial
(diversified lender and
truck parts
manufacturer)
Herbert J. Jaffe President since NCMC
Director and President 1988
Age 60
Director since 1987 1983-93 Chairman NCM Management Ltd.
(management company of
NCMC)
Leslie A. Filler Chief Financial NCMC
Chief Financial Officer
Officer since September
Age 42 1991
Chief Financial NCM Management Ltd.
Officer (management company)
since 1988
Timothy Graham 1994-1995 WinStar Communications,
Director Executive Vice Inc.
Age 44 President (communications, media,
Director since retail)
December 1994
1991-1994 NCMC
Corporate
Secretary
1989-1991 WinStar Services, Inc.
Executive (retail,
Vice President and communications)
General Counsel
Director TII Industries, Inc.,
(telecommunications and
power line equipment)
David Faulkner 1989-1995 Vice Memorex Telex Inc.
Director Chairman/CFO (computer industry)
Age 54
Director since July
1994
James H. Carey Chief Executive NCBC
Chief Executive Officer
Officer since March 1994
NCBC
Age 62 1991 to 1994 Briarcliff Financial
Managing Director Associates
1989 to 1991 The Berkshire Bank
President and
Chief Executive
Officer
1987 to 1989 JFTA Services Corp.
Chairman (financial advisory
firm)
Kenneth M. Klein President and NCBC
President and Chief Chief Operating
Operating Officer Officer since
NCBC March 1994
Age 56
1991 to 1994 Private Practice
Attorney
1988 to 1991 Amivest Corporation
Senior Vice
President
Howard Eglowstein Chief Operating Jensen Corporation
Chief Operating Officer since May
Officer- 1993
Jensen Corporation
Age 60 1989-1993 Jensen Corporation(1)
Executive Vice
President
(1) Mr. Eglowstein was the executive vice president of the former
owner of the assets of Jensen Corporation prior to and during the
former owner's bankruptcy.
<PAGE>
Item 10 - Executive Compensation
The following table sets forth information in respect to the
compensation of the Chief Executive Officer and each of the other
four most highly compensated executive officers of NCMC for
services in all capacities to the Corporation and its
subsidiaries in 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Annual Compensation
Other Annual
Year Salary Bonus Compensation
<S> <S> <C> <C> <C>
John C. Shaw 1994 257,500 -- 4,000
Chief Executive 1993 247,500 -- 9,000
Officer 1992 237,500 142,000 8,750
James Pinto 1994 257,500 -- 4,000
Chairman 1993 247,500 -- 9,000
1992 237,500 142,000 8,750
Herbert J. Jaffe 1994 100,000 10,000 4,000
President and 1993 100,000 -- 9,000
Chief Officer 1992 100,000 60,000 8,750
Operating
James H. Carey 1994 125,000 -- 8,333
Chief Executive
Officer
NCBC
Ken M. Klein 1994 125,000 -- 8,333
President and Chief
Operating Officer
NCBC
</TABLE>
The Company presently provides various non-cash benefits to its
executive officers, but it does not believe, except as noted,
that such benefits exceeds the lesser of $50,000 or 10% of the
cash compensation set forth for each of the executive officers of
the proceeding cash compensation table.
Mr. Pinto is employed as Chairman of the Company under an amended
non-exclusive agreement which was effective January 1, 1994. He
was compensated at the base annual rate of $257,500 in 1994.
From January 1, 1995 through March 31, 1995 his base annual
compensation was lowered to $195,000, whereby he received $48,750
for this three month period pursuant to this agreement.
Mr. Shaw, who served as a consultant to the Company pursuant to a
non-exclusive Consulting Agreement until December 31, 1993,
entered into an amended non-exclusive agreement to act in the
capacity of Chief Executive Officer of the Company from January
1, 1994 under the same terms as Mr. Pinto.
Effective April 1, 1995, Messrs. Pinto and Shaw entered into new
agreements with the Company to act in the same capacities through
March 31, 1997, with options to extend these agreements for one
year if certain conditions are met. They will receive
compensation of $125,000 each plus Mandatory Incentive Bonuses
which are based on certain Company operating objectives, plus
Discretionary Bonuses which may be granted at the option of the
Board of Directors. If these agreements are terminated by the
Company other than for cause, disability or death, Messrs. Pinto
and Shaw shall be entitled to receive their base compensation
through the existing term.
Pursuant to an agreement between the Company and NCM Management
Ltd., Mr. Jaffe is entitled to receive $8,333 per month plus
health benefits. See Item 12 - Certain Relationships and Related
Transactions.
The bylaws of the Company provide for indemnification by it of
its officers and directors to the fullest extent permitted by
law.
During 1994, members of the Board of Directors received quarterly
compensation of $2,000 and $250 for each meeting attended.
Beginning July 1, 1994, however, Directors who are either
employees, officers or consultants of the Company will not
compensated and will not receive meeting fees. Directors are
entitled to be reimbursed for reasonable out of pocket expenses
incurred with respect to meetings of the Board. Since 1989, the
Company has followed a policy of awarding each director, who is
not an employee, officer or consultant of the Company, Options to
purchase 3,000 shares of NCMC Common Stock at $3.50 per share,
for each year in which each such individual is elected to serve
as a director of the Company. No options were awarded in
connection with this policy during 1994.
<PAGE>
Item 11 - Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information regarding the
beneficial ownership of NCMC common stock as of March 30, 1995, by:
(i) each person known by the Company to own beneficially more than 5%
of the shares of NCMC common stock (ii) each person who is a director
or executive officer of the Company; and (iii) all directors and
executive officers of the Company as a group.
The Investor Warrants referred to below consist of warrants to
acquire an aggregate of 2,189,285 shares of NCMC common stock, at any
time prior to December 31, 1997. Of the aggregate Investor Warrants,
1,975,000 permit acquisition of shares of NCMC common stock at an
exercise price of $3.00 per share (the "$3.00 Investor Warrants") and
214,285 permit acquisition of shares of NCMC common stock at an
exercise price of $3.50 per share (the "$3.50 Investor Warrants").
The Management Warrants, referred to below, consist of warrants to
acquire an aggregate of 400,000 shares of NCMC common stock at any
time prior to December 31, 1997 for an exercise price of $3.00 per
share. The Management Warrants and the Investor Warrants are
collectively referred to as the Warrants.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
of NCMC Common Stock(1) of NCMC Common Stock(2)
Name and address of NCMC Number of Percent Number of Percent
Beneficial Owner (3) Shares of Class Shares of Class
<S> <C> <C> <C> <C>
RHEC, L.P. 1,166,044 23.2% 2,273,186(4) 29.7%
10 East 53rd Street
New York, NY 10022
The Hawley Opportunity 428,086(5) 8.5% 603,086(6) 7.9%
Fund, L.P.
c/o Hawley and Wright,Inc.
6053 S. Quebec Creekside 202
Englewood, CO 80111
Larry D. Doskocil 289,435(7) 5.8% 517,940 6.8%
500 North Main Street
South Hutchinson, KS
67504
Herbert J. Jaffe 34,536(8) 0.7% 154,536(9) 2.0%
James Pinto 310,706 6.2% 942,344(10) 12.3%
John C. Shaw 1,216,684(11) 24.2% 2,323,826(11) 30.4%
Timothy R. Graham 62,000 1.2% 91,500(13) 1.2%
Leslie A. Filler 2,500 0.05% 2,500 0.03%
James H. Carey --(14) -- --(14) --
Kenneth M. Klein --(14) -- --(14) --
All executive officers
and directors as a group
(7 persons) 1,626,426(15) 32.4% 3,514,706(16) 45.9%
</TABLE>
NOTES TO TABLE OF BENEFICIAL OWNERS AND MANAGEMENT
1. This column assumes that none of the Warrants or Options
have been exercised.
2. This column assumes that all of the Warrants and Options
have been exercised.
3. Unless otherwise indicated, each shareholder listed has
the sole power to vote and direct the disposition of the
shares of the Company beneficially owned by such
shareholder.
4. Includes 1,107,142 shares of NCMC common stock which may
be issued upon the exercise of Investor Warrants. Mr.
Shaw, a director of the Company, is a managing director of
Resource Holdings, Ltd., the general partner of RHEC, L.P.
5. Hawley and Wright, Inc. and Mr. MacDonald Hawley may be
deemed to also beneficially own these shares by virtue of
Hawley and Wright, Inc. being the general partner of the
Hawley Opportunities Fund, L.P. and Mr. MacDonald Hawley
being the president and controlling shareholder of Hawley
and Wright, Inc.
6. Includes 175,000 shares of NCMC common stock issuable upon
exercise of Investor Warrants.
7. Based on information received by the Company from Mr.
Doskocil, his aggregate ownership of NCMC securities
consisted on December 31, 1994, of indirect beneficial
ownership of 289,435 shares of Common Stock and 517,940
Investor Warrants owned by QCP, L.P., a Kansas limited
partnership which Mr. Doskocil may be deemed to control
through his ownership and control of QMC, Inc., the
corporate general partner of QCP, L.P.
8. Includes 34,136 shares owned by NCM Holdings, a general
partnership of which Mr. Jaffe is a general partner, and
400 shares owned directly by Mr. Jaffe.
9. Includes 120,000 shares of NCMC common stock issuable on
exercise of Management Warrants, 34,136 shares owned by
NCM Holdings and 400 shares owned directly by Mr. Jaffe.
10.Includes 310,706 shares owned directly by Mr. Pinto and
631,638 shares upon exercise of Investor Warrants.
11.Mr. Shaw is a managing director of Resource Holdings,
Ltd., the general partner of RHEC, L.P. Except for 50,640
shares owned directly by Mr. Shaw, the shares of NCMC
common stock shown as beneficially owned by Mr. Shaw are
the same shares shown as beneficially owned by RHEC, L.P.
12.Includes 15,000 Options.
13.Includes 62,000 shares owned directly by Mr. Graham,
25,000 Consultant Options and 4,500 Investor Options.
14.James Carey, an executive officer of National Capital
Benefits Corporation ("NCBC"), owns 5.5% of the
outstanding common shares of NCBC. The VFC Trust, for
which Kenneth Klein, an executive officer of NCBC, serves
as sole Trustee, owns 14.5% of the outstanding common
shares of NCBC. Pursuant to the terms of a stockholders'
agreement among these investors and the Company, these
shares, under certain circumstances, may be converted into
shares of the Company in 1997 at a then-appraised value.
15.Includes 1,200,180 shares of NCMC common stock owned by
NCM Holdings and RHEC, L.P.
16.Includes 1,200,180 shares of NCMC common stock owned by
NCM Holdings and RHEC, L.P., and 1,897,280 shares of NCMC
common stock issuable on exercise of all the Warrants and
the Options.
Item 12 - Certain Relationships and Related Transactions
The Company and NCM Management Ltd. ("NCM") have agreed that NCM
will provide management services through March 1995 and provide
personnel, equipment and facilities for the day to day management
and operations of the Company including supervision of its real
estate properties. As compensation for its services, NCM is
receiving a monthly payment of $8,333 plus management fees of 4% of
revenues from the properties other than Redbird Trails Apartments
and North Oak Apartments for which it receives a management fee of
6%. In addition, Mr. Jaffe is provided health insurance benefits.
Mr. Jaffe, a director and officer of the Company, is chairman and
owns approximately 33% of the outstanding capital stock of NCM and
may be deemed to have a material interest in all payments to NCM.
During 1994, NCM received an aggregate of $324,163 for management
services rendered to the Company, including therein Mr. Jaffe's
compensation.
In 1994, Resource Holdings, Ltd. ("Resource") provided office space
and related services at its principal office in New York City for
Mr. John C. Shaw and for use by officers and directors of NCMC
while in New York, including Mr. James Pinto and Mr. Jaffe.
Resource was reimbursed by the Company in an amount equal to
$75,492 for providing such office space and related services in
1994. In addition, in accordance with its agreement with Resource,
the Company has deposited with Resource's landlord the amount of
$37,746 which will be returned, plus interest, to the Company on
termination of the lease. Mr. Shaw, a director of the Company, is
a managing director and significant shareholder of Resource, and
therefore may be deemed to have an interest in payments to
Resource.
Stock Transaction Reports by Officers, Directors and 10%
Stockholders
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and holders of
more than 10% of the Company' common stock to file with the
Commission initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the
Company. To the Company's knowledge, based solely on copies of
reports furnished to the Company and information furnished by the
reporting persons, each officer, director and 10% stockholder of
the Company, with one exception, was in compliance with all
reporting requirements under Section 16(a) for the year ended
December 31, 1994. Mr. John C. Shaw, a director and officer of the
Company filed in January 1995 on Form 4 with respect to the
purchase of 40,000 shares of the Company's stock at $1.25 per share
during November 1994.
PART IV
Item 13 - Exhibits and Reports on Form 8-K
The following documents are filed as part of this report:
(a) Exhibits:
3. Articles of Incorporation and By-Laws of
National Capital Management Corporation (the "Company"
or "NCMC") (incorporated by reference from Schedule 4
to the Prospectus included in the Registration
Statement on Form S-4 of the Company (No. 33 19149)
filed on December 18, 1987 (the "Registration
Statement")).
3(ii).1 Resolution of Board of Directors amending
NCMC By-Laws dated April 12,1995.
3(ii).2Consent to Action of Directors Without a Meeting
4.1 Form of Warrant for 2,400,000 shares of NCMC
common stock (incorporated by reference from Exhibit
4.1 of the Annual Report on Form 10-K of the Company
filed on March 29, 1988).
4.2 Form of Warrant for 214,285 shares of NCMC common
stock (incorporated by reference from Exhibit 4.2 of
the Annual Report on Form 10-K of the Company filed on
March 29, 1988).
10.1 Registration Agreement dated February 25, 1988
between NCMC and certain other persons (incorporated
by reference from Exhibit 10.3 of the Annual Report on
Form 10-K of the Company filed on March 29, 1988).
10.2 Employment Agreement dated September 1, 1990
between James J. Pinto and NCMC (incorporated by
reference from Exhibit 10.4 of the Annual Report on
Form 10-K of the Company filed on April 1, 1991).
10.3 Amended and Restated Employment Agreement dated
as of June 15, 1994 between James J. Pinto and NCMC.
10.4 Agreement dated as of April 1, 1995 between James
J. Pinto and NCMC.
10.5 Consulting Agreement dated January 1, 1992
between John C. Shaw and NCMC (incorporated by
reference from Exhibit 10.5 of the Annual Report on
Form 10-K of the Company filed on April 15, 1992).
10.6 Amended and Restated Employment Agreement dated
as of June 15, 1994 between John C. Shaw and NCMC.
10.7 Agreement dated as of April 1, 1995 between John
C. Shaw and NCMC.
10.8 Redbird Trails Associates Limited Partnership
Agreement among NCQ Realty, Inc., Kelcor, Inc. and DLJ
Enterprises, Inc. (incorporated by reference from
Exhibit 10.1 of the Current Report on Form 8-K of the
Company filed on June 23, 1992).
10.9 Amended and Restated Agreement of Limited
Partnership among Redbird Trails Associates, L.P., NCQ
Realty, Inc., Kelcor, Inc., National Corporate Tax
Credit Fund and National Corporate Tax Credit, Inc.
dated as of January 1, 1993 (incorporated by reference
from Exhibit 10.12 of the Annual Report on Form 10-KSB
of the Company filed on March 31, 1994).
10.10 First Amendment to Amended and Restated
Agreement of Limited Partnership of Redbird Trails
Associates, L.P. among NCQ Realty, Inc., National
Corporate Tax Credit Fund and National Corporate Tax
Credit, Inc. dated as of January 1, 1993 (incorporated
by reference from Exhibit 10.6 of the Quarterly Report
on Form 10-QSB of the Company filed on August 15,
1994).
10.11 Second Amended and Restated Agreement of
Limited Partnership of Redbird Trails Associates, L.P.
by and among NCQ Redbird, Inc. National Corporate Tax
Credit Fund and National Corporate Tax Credit, Inc.
dated as of November 23, 1994.
10.12 Investment Agreement among Redbird Trails
Associates, L.P., NCQ Realty, Inc., Kelcor, Inc.,
National Corporate Tax Credit Fund and National
Corporate Tax Credit, Inc. dated as of January 1, 1993
(incorporated by reference from Exhibit 10.11 of the
Annual Report on Form 10-KSB of the Company filed on
March 31, 1994).
10.13 Security Agreement between NCQ Realty,
Inc. and National Corporate Tax Credit Fund dated as
of January 1, 1993 (incorporated by reference from
Exhibit 10.2 of the Quarterly Report on Form 10-QSB of
the Company filed on August 15, 1994).
10.14 Indemnity Agreement between Redbird Trails
Associates, L.P. and National Corporate Tax Credit
Fund (incorporated by reference from Exhibit 10.4 of
the Quarterly Report on Form 10-QSB of the Company
filed on August 15, 1994).
10.15 Letter agreement regarding the date
of admission of the Limited Partner among NCQ Realty,
Inc., DLJ Enterprises, Inc., National Capital
Management Corporation, National Corporate Tax Credit
Fund and National Corporate Tax Credit, Inc.
(incorporated by reference from Exhibit 10.5 of the
Quarterly Report on Form 10-QSB of the Company filed
on August 15, 1994).
10.16 Operating Deficit and Rental Achievement
Agreement among Redbird Trails Associates, L.P.,
National Capital Management Corp., National Corporate
Tax Credit Fund and National Corporate Tax Credit,
Inc. dated as of June 6, 1994 (incorporated by
reference from Exhibit 10.7 of the Quarterly Report on
Form 10-QSB of the Company filed on August 15, 1994).
10.17 Letter agreement among NCQ Realty, Inc.,
National Corporate Tax Credit Fund, National Corporate
Tax Credit, Inc. dated June 6, 1994 which amends the
Investment Agreement among Redbird Trails Associates,
L.P., NCQ Realty, Inc., Kelcor, Inc., National
Corporate Tax Credit Fund and National Corporate Tax
Credit, Inc. dated as of January 1, 1993 (incorporated
by reference from Exhibit 10.9 of the Quarterly Report
on Form 10-QSB of the Company filed on August 15,
1994).
10.18 Signature Midwest, L.P., Limited Partnership
Agreement among NCQ Realty, Inc., Kelcor, Inc. and DLJ
Enterprises, Inc. (incorporated by reference from
Exhibit 10.1 of the Current Report on Form 8-K of the
Company filed on July 23, 1992).
10.19 Amended and Restated Agreement of Limited
Partnership among Signature Midwest, L.P., NCQ Realty,
Inc., Kelcor, Inc., National Corporate Tax Credit Fund
and National Corporate Tax Credit, Inc. dated as of
January 1, 1993 (incorporated by reference from
Exhibit 10.9 of the Annual Report on Form 10-KSB of
the Company filed on March 31, 1994).
10.20 Second Amended and Restated Agreement of
Limited Partnership of Signature Midwest, L.P. by
and among NCQ North Oak, Inc. National Corporate Tax
Credit Fund and National Corporate Tax Credit, Inc.
dated as of November 23, 1994.
10.21 Investment Agreement among Signature
Midwest, L.P., NCQ Realty, Inc., Kelcor, Inc.,
National Corporate Tax Credit Fund and National
Corporate Tax Credit, Inc. dated as of January 1, 1993
(incorporated by reference from Exhibit 10.8 of the
Annual Report on Form 10-KSB of the Company filed on
March 31, 1994).
10.22 Operating Deficit and Rental Achievement
Agreement among Signature Midwest, L.P., National
Capital Management Corp., National Corporate Tax
Credit Fund and National Corporate Tax Credit, Inc.
dated as of November 23, 1994.
10.23 Security Agreement between NCQ North Oak,
Inc. and National Corporate Tax Credit Fund dated as
of November 23, 1994.
10.24 Letter agreement among Signature Midwest,
L.P., National Corporate Tax Credit Fund and National
Corporate Tax Credit, Inc. dated November 23, 1994
which amends the Investment Agreement by and among NCQ
Realty, Inc., National Corporate Tax Credit Fund and
National Corporate Tax Credit, Inc. dated as of
January 1, 1993.
10.25 Indemnity Agreement between Signature
Midwest, L.P., NCQ Realty, Inc. and National Corporate
Tax Credit Fund dated December 30, 1993.
10.26 Employment Agreement dated as of March 1,
1994 between NCMC and James H. Carey (incorporated by
reference from Exhibit 10.14 of the Annual Report on
Form 10-KSB of the Company filed on March 31, 1994).
10.27 Employment Agreement dated as of March 1,
1994 between NCMC and Kenneth M. Klein (incorporated
by reference from Exhibit 10.15 of the Annual Report
on Form 10-KSB of the Company filed on March 31,
1994).
10.28 Stockholders' Agreement by and between James
H. Carey, The VFC Trust, NCMC and National Capital
Benefits Corporation ("NCBC") (incorporated by
reference from Exhibit 10.16 of the Annual Report on
Form 10-KSB of the Company filed on March 31, 1994).
10.29 $10 million Revolving Credit Facility by and
between NCBC and Transamerica Lender Finance, a
division of Transamerica Credit Corporation.
(incorporated by reference from Exhibit 10.17 of the
Annual Report on Form 10-KSB of the Company filed on
March 31, 1994).
10.30 Collateral Assignment of Insurance Contract
and Form of Abnormal Mortality Stop Loss Policy by and
between NCBC and NCB Insurance, Ltd. (incorporated by
reference from Exhibit 10.18 of the Annual Report on
Form 10-KSB of the Company filed on March 31, 1994).
10.31 Collateral Assignment of Reinsurance
Contract and Form of Abnormal Mortality Stop Loss
Reinsurance Contract (incorporated by reference from
Exhibit 10.19 of the Annual Report on Form 10-KSB of
the Company filed on March 31, 1994).
10.32 Subordination Agreement by and between NCBC
and NCMC dated as of March 17, 1994 (incorporated by
reference from Exhibit 10.20 of the Annual Report on
Form 10-KSB of the Company filed on March 31, 1994).
10.33 Collateral Agency Agreement by and between
NCBC and Bankers Trust Company as Collateral Agent
(incorporated by reference from Exhibit 10.22 of the
Annual Report on Form 10-KSB of the Company filed on
March 31, 1994).
10.34 Withdrawal, Release and Purchase Agreement
by and among National Tax Credit Investors II,
National Tax Credit, Inc. II, Quivira Place
Associates, L.P., NCQ Realty, Inc., NCMC, DLJ
Enterprises, Inc. and David L. Johnson dated December
30, 1993 (incorporated by reference from Exhibit 10.23
of the Annual Report on Form 10-KSB of the Company
filed on March 31, 1994).
10.35 Secured Promissory Note issued by
National Tax Credit Investors II in favor of NCMC in
the amount of $938,500, dated December 30, 1993
(incorporated by reference from Exhibit 10.24 of the
Annual Report on Form 10-KSB of the Company filed on
March 31, 1994).
10.36 Asset Purchase Agreement between CAPX
Corporation, National Capital Benefits Corp. and
National Capital Management Corporation dated July 29,
1994 (incorporated by reference from Exhibit 10.10 of
the Quarterly Report on Form 10-QSB of the Company
filed on August 15, 1994).
10.37 Registration Rights Agreement by and
between National Capital Management Corporation and
CAPX Corporation dated as of July 29, 1994
(incorporated by reference from Exhibit 10.11 of the
Quarterly Report on Form 10-QSB of the Company filed
on August 15, 1994).
10.38 Services Agreement between CAPX
Corporation and National Capital Benefits Corporation
dated July 29, 1994 (incorporated by reference from
Exhibit 10.12 of the Quarterly Report on Form 10-QSB
of the Company filed on August 15, 1994).
10.39 Letter of Agreement dated April 21,
1994, to repurchase 212,100 shares of common stock of
National Capital Management Corporation ("NCMC"), by
and between Deerfield Ltd., Shoebox Investments, L.P.,
Jonathan Schwartz, Marcella Fischer and NCMC
(incorporated by reference from Exhibit 10.1 of the
Quarterly Report on Form 10-QSB of the Company filed
on May 16, 1994).
10.40 Subsidiaries of NCMC (including controlled
partnerships).
(b) None
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.
NATIONAL CAPITAL MANAGEMENT CORPORATION
By:/s/ Herbert J. Jaffe
Herbert J. Jaffe, President
By:/s/ Leslie A. Filler
Leslie A. Filler
Principal Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
By:/s/ Herbert J. Jaffe
Herbert J. Jaffe
President and Director
April 14, 1995
By:/s/ James Pinto
James Pinto, Director
April 14, 1995
By:/s/ John C. Shaw
John C. Shaw, Director
April 14, 1995
By:/s/ Timothy R. Graham
Timothy R. Graham, Director
April 14, 1995
By:/s/ David Faulkner
David Faulkner, Director
April 14, 1995
NATIONAL CAPITAL MANAGEMENT CORPORATION
RESOLUTION OF BOARD OF DIRECTORS
The following action was taken by the Board of
Directors of National Capital Management Corporation (the
"Corporation") by action of the Board of Directors without a
meeting:
RESOLVED, the bylaws of the Corporation shall be
amended as follows:
1. Article IV, Sections 2 and 3, shall be deleted and
replaced with the following:
Section 2. Chairman. The Chairman shall be the chairman
of the Board of Directors of the Corporation. He shall preside
at all meetings of the stockholders and of the Board of
Directors. The Chairman shall also have such additional
responsibility as the Board of Directors shall authorize.
Section 3A. Chief Executive Officer. The Chief Executive
Officer shall be the chief executive officer of the Corporation.
He shall have responsibility for the general management and
control of the affairs and business of the Corporation and shall
perform all duties and have all powers which are commonly
incident to the office chief executive officer. The Chief
Executive Officer shall also have such other duties and
responsibilities as are delegated to him by the Board of
Directors. The Chief Executive Officer shall have power to sign,
in the name of the Corporation, all authorized stock
certificates, contracts, documents, tax returns, instruments,
checks and bonds or other obligations of the Corporation.
Section 3B. President. The President shall be the chief
operating officer of the Corporation. He shall have the duties
and responsibilities which are commonly incident to the office of
chief operating officer of a corporation. He shall have such
other responsibilities as are delegated to him by the Board of
Directors. The President shall have power to sign, in the name of
the Corporation, all authorized stock certificates, contracts,
documents, tax returns, instruments, checks and bonds or other
obligations of the Corporation.
Dated: April 14, 1995 /s/ Leslie A. Filler
LESLIE A. FILLER
Assistant Secretary
NATIONAL CAPITAL MANAGEMENT CORPORATION
CONSENT TO ACTION OF DIRECTORS WITHOUT A MEETING
The undersigned Directors of National Capital
Management Corporation (the "Corporation") hereby consent to the
following action of the Corporation, which was taken without a
meeting, as of April 1, 1995:
1. The amendment of Article IV, Sections 2 and 3, of
the Corporation's bylaws.
2. The Employment Agreements between the Corporation
and John C. Shaw and James J. Pinto.
Dated: April 14, 1995 /s/ James J. Pinto
JAMES J. PINTO*
Dated: April 14, 1995 /s/ John C. Shaw
JOHN C. SHAW*
Dated: April 14, 1995 /s/ Herbert j. Jaffe
HERBERT J. JAFFE
Dated: April 14, 1995 /s/ Timothy R. Graham
TIMOTHY R. GRAHAM
Dated: April 14, 1995 /s/ David Faulkner
DAVID FAULKNER
*Not signing with respect to Item 2 as it relates to himself.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement
("Agreement") is made and entered into as of June 15, 1994,
by and between National Capital Management Corporation, a
Delaware corporation (hereinafter called the "Company") with
its principal offices at 50 California Street, San
Francisco, California, and James J. Pinto (hereinafter
called the "Executive").
WHEREAS, in view of the Executive's substantial
experience, knowledge and reputation, the Board of Directors
of the Company believes it to be in the best interest of the
Company to continue to employ the Executive; and
WHEREAS, the Executive desires to continue to be
employed by the Company.
WHEREAS, the Executive and the Company desire to amend
and restate their current agreement as set forth herein.
It is agreed as follows:
1. Employment
The Company hereby employs the Executive to serve as
Chairman of the Board of Directors of the Company, and the
Executive hereby accepts such employment, on the terms and
conditions contained in this Agreement. During the term of
this Agreement, the Executive shall be available to the
Company to pursue the business of the Company subject to the
supervision and direction of the Board of Directors of the
Company of which he shall be nominated to be a member during
the term hereof.
2. Term
The term of this Agreement, and the employment of
the Executive hereunder, shall be for a period commencing on
January 1, 1994 and ending on December 31, 1997.
3. Compensation
From January 1, 1994 to December 31, 1994, the
compensation of the Executive shall be paid at the annual
rate of $257,500, payable in installments consistent with
other executive payroll policies of the Company (the "Base
Annual Compensation") but not less frequently than semi-
monthly without the consent of the Executive. Commencing on
January 1, 1995 and for each of calendar years 1996 and
1997, the Base Annual Compensation shall be reduced to
$195,000. In addition to the Base Annual Compensation
payable to the Executive hereunder, the Executive shall be
entitled to be considered to receive an annual bonus in an
amount to be determined at the discretion of the Board of
Directors based on Executive's performance and the
performance of the Company during such year provided,
however, that the Board of Directors is not required to
grant to the Officer any such bonus.
4. Travel
The Executive recognizes that Company business may
require him to travel from time to time in order to fulfill
his duties and obligations hereunder and the Executive
agrees so to travel. The Company shall not require the
Executive to change his place of residency without
Executive's prior consent.
5. Expense Reimbursement
During the term of his employment hereunder, the
Company shall promptly reimburse the Executive for all
reasonable expenses incurred by the Executive pursuant to
the business of the Company. The Company agrees to reimburse
the Executive for such business expenses upon delivery of
reasonable written substantiation of such business expenses
in accordance with the Company policy for reimbursement of
expenses. During 1994 the Company shall also provide to the
Executive an automobile allowance.
6. Benefits
The Executive shall be entitled to receive, or be
reimbursed for, family medical, dental and hospitalization
insurance as has been provided by the Company to Executive.
7. Termination
(a) Cause The Company, by written notice to the
Executive, shall have the right to terminate this Agreement,
and the Executive's employment hereunder, for "Cause".
"Cause" shall mean (i) conviction of Executive for a felony
involving a high degree of moral turpitude, (ii) the
commission by Executive of acts of intentional dishonesty
constituting felonies which acts are intended to result in
gain or personal enrichment at the material expense of the
Company, or (iii) certification by a medical doctor that the
Executive is a habitual alcoholic or is a narcotic addict
and reasonable evidence that Executive is continuing in such
activities after notice.
(b) Disability If Executive shall be rendered
incapable by illness (physical or mental disability) of
complying with the terms, provisions and conditions hereof
on his part to be performed for a period in excess of 120
consecutive days during any year, then Company may, at its
option, terminate this Agreement by written notice to
Executive prior to the date Executive resumes the rendering
of services and after examination of Executive by a medical
doctor (retained by the Company with the consent of the
Executive which consent shall not be unreasonably withheld),
who certifies to the continuing existence of such
disability.
(c) Death In the event Executive dies during the term
of this Agreement, such
death shall, except as specifically provided below in
Section 7(d), terminate any and all
payment obligations to Executive under this Agreement
effective as of the date of death.
(d) Upon any termination pursuant to Section 7(a), the
Executive shall be entitled to be paid the applicable Base
Annual Compensation to the date of termination and
reimbursed for reasonable business expenses incurred by
Executive prior to the date of termination or scheduled
expiration, if earlier. Upon any termination pursuant to
Section 7(b) or (c), the Executive, or his heirs or estate
as the case may be, shall be entitled to be paid the Base
Annual Compensation for a period of twenty-four (24) months
from the date of termination or December 31, 1997, if
earlier, and for reimbursement of previously incurred
business expenses.
(e) Except as provided in Sections 7(a), (b) and (c)
hereof the Company may not terminate its obligations under
this Agreement. In the event that the Company terminates
this Agreement other than as provided in Sections 7(a) or
(b) the Executive shall be entitled to receive his Base
Annual Compensation until the end of the existing Term which
amount shall be paid without discount within thirty (30)
days after written demand by Executive. In the event that
payment is not made within such thirty (30) days the Company
shall pay interest on all overdue amounts at the rate of 18%
per annum from the date of such demand. It is agreed and
acknowledged by the Company that the Executive is entering
this Agreement in lieu of other business opportunities that
could generate greater compensation and would not be
available at a later time. Accordingly, Executive shall not
be required to mitigate or reduce damages by seeking or
undertaking other business opportunities in the event that
the Company breaches this Agreement.
8. Other Activities of the Executive
The Executive is employed and retained and will
continue to be employed and retained by other persons or
entities during his employment by the Company and the
Company acknowledges and agrees that this Agreement shall
not require Executive to render services on an exclusive
basis for the Company. The Company acknowledges and agrees
that the Executive and his affiliates are engaged in the
business of investing in, acquiring and/or managing
businesses and other ventures for the Executive's own
account, for the account of the Executive's affiliates and
associates (as such terms are defined by the rules and
regulations of the Securities and Exchange Commission) and
for the account of other unaffiliated parties, and Executive
shall be entitled to continue in these and other business
activities during the term of this Agreement. No aspect or
element of such present or further activities shall be
deemed to be engaged in for the benefit of the Company or
any of its subsidiaries nor shall they constitute a conflict
of interest, breach of a duty or a breach of this Agreement.
9. Indemnification of the Executive
The Company and its present and future subsidiaries
agree to jointly and severally indemnify and hold harmless
the Executive (the "Indemnified Party") to the fullest
extent permitted by corporate law in the state of Delaware.
In addition, the Company and its subsidiaries, jointly and
severally, agree to reimburse the Indemnified Party each
month for all costs relating to the defense of any
threatened or actual claim, proceeding, suit or
investigation (including attorney's fees and expenses)
subject to an undertaking from the Indemnified Party to
repay the Company if the Indemnified Party is finally
determined by a non appealable decision of a court of law
not to be entitled to such indemnity. At all times during
the term hereof, the Company agrees to provide director's
and officers liability insurance reasonably satisfactory to
Executive and to continue to name Executive as a named
insured thereunder for four years after Executive ceases to
be employed by the Company.
10. No Delegation
The Executive shall not delegate his obligations
pursuant to this Agreement to any other person provided
however, that he may assign others to perform
responsibilities hereunder subject to his supervision and,
subject to the approval of the Board of Directors, which
shall not be unreasonably withheld, he may also assign
payments under this Agreement provided that the Assignee is
an affiliate of the Executive.
11. Governing Law
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California
without reference to its conflict of laws, rules and
principles.
12. Entire Agreement
This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements,
understandings and arrangements, both oral and written,
between the Company and the Executive with respect to such
subject matter. This Agreement may not be modified in any
way except by a written instrument signed by both the
Company and the Executive.
13. Merger
If the Company shall at any time merge or
consolidate with any corporation or corporations, or if
substantially all of the assets or shares of stock of the
Company shall be sold or otherwise transferred, the
provisions of this Agreement which shall automatically
terminate immediately preceding such transaction shall be
binding upon and inure to the benefit of the Corporation
surviving and continuing after such merger or resulting from
such consolidation, or upon any holding company for the
company which may result from such merger, or upon the
corporation, person or entity to which such assets or shares
shall be sold or transferred, and the Company shall be
obligated to cause such resulting, surviving or transferee
corporation, person, entity or holding company to assume the
obligations of the Company under this Agreement or, if the
Company shall remain in existence, to become jointly and
severally liable with the Company for such obligations. This
Agreement shall not otherwise be assignable by the Company
or by any such resulting, surviving or transferee
corporation or holding company without the prior written
consent of Executive.
14. Notices
Any notice required or permitted to be given under
this Agreement shall be in writing and shall be deemed to
have been given when delivered by hand or when deposited in
the United States mail, be registered or certified mail,
return receipt requested, postage prepaid as follows:
If to the Company: National Capital Management Corporation
50 California Street
San Francisco, CA 94111
If to the Executive:James J. Pinto
235 Sunrise Avenue
Palm Beach, Florida 33480
or to such other address as either party hereto may from
time to time give notice of to the
other.
15. Miscellaneous
(a) The Company represents and warrants that (i)
this Agreement has been duly approved and authorized by the
Board of Directors of the Company, (ii) the officer
executing this Agreement on behalf of the Company has full
right, power, legal capacity and authority to enter into and
executive this Agreement on its behalf and this (iii)
Agreement constitutes the valid and legally binding
agreement and obligation of the Company, enforceable in
accordance with its terms.
(b) In the event of any claims or litigation arising
under this Agreement, the Executive shall be reimbursed
monthly from the Company for the costs incurred in
connection with the defense or prosecution of any such claim
or litigation, including reasonable attorneys' fees
provided, however, that such Executive shall reimburse the
Company for all such costs if it is determined by a non
appealable final decision of a court of law that the
Executive shall have acted in bad faith with the intent to
cause material damage to the Company in bringing any such
litigation.
(c) The Company agrees that if this Agreement is not
renewed at the end of its scheduled term for at least one
year on substantially the same economic terms as are in
existence on such date (or such other terms as may be
acceptable to Executive) and such failure to renew results
from the decision by the Company not to renew for any reason
other than as set forth in Sections 7(a), 7(b) or 7(c), the
Executive shall be entitled to continue to receive
compensation as severance for the period January 1, 1998
through June 30, 1998 at the same Base Annual Compensation
rate as is payable in 1997 which amount will be paid to
Executive in accordance with the provisions of Section 3.
(d) Any waiver of any breach of any of the terms of
this Agreement shall not operate as a waiver of any other
breach of such terms or conditions or any other terms or
conditions, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other
provision hereof.
(e) Except as required by law, no right to receive
payments under this Agreement shall be subject to execution,
attachment, levy, voluntary or involuntary, to effect any
such action shall be null, void and of no effect.
(f) If any provision of this Agreement shall be held
invalid or unenforceable, the remainder of this Agreement
shall nevertheless remain in full force and effect. If any
provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in
full force and effect in all other circumstances.
(g) This Agreement shall be for the benefit of and
binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors
and, where applicable, assigns.
(h) Section headings used herein are for convenience
only and do not change or modify the substantive provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
NATIONAL CAPITAL MANAGEMENT
CORPORATION
By /s/ Herbert J, Jaffe
Herbert J. Jaffe
President
By /s/ James J Pinto
James J. Pinto
AGREEMENT
This Agreement ("Agreement") is made and entered into as of
April 1, 1995, by and between National Capital Management
Corporation, a Delaware corporation (hereinafter called the
"Company") with its principal offices at 50 California Street,
San Francisco, California, and James J. Pinto (hereinafter called
the "Chairman").
WHEREAS, the Chairman and the Company desire to terminate
the current employment agreement; and
WHEREAS, in view of the Chairman's substantial experience
and knowledge, the Board of Directors of the Company believes it
to be in the best interest of the Company to employ the Chairman
to act in the capacity of Chairman of the Board of Directors of
the Company; and
WHEREAS, the Chairman desires to be employed by the Company
in such capacity,
IT IS AGREED AS FOLLOWS:
1. Employment. The Company hereby employs the Chairman
to serve as the chairman of the Board of Directors of the
Company, and the Chairman hereby accepts such employment, on the
terms and conditions contained in this Agreement. During the
term of this Agreement, the Chairman shall be available to the
Company to pursue the business of the Company subject to the
supervision and direction of the Board of Directors of the
Company, of which he shall be nominated to be a member and
chairman during the term hereof. The Chairman shall be
responsible for supervising the Company's communications with the
brokerage community, with the Company's shareholders, and with
any exchange or market where the Company is listed. The Chairman
shall also participate in the management of Jensen Corporation
with a view towards improving the operations of Jensen
Corporation. The Chairman shall have no authority to determine
the compensation paid by the Company to any person and shall have
no authority over the Company's accounting or financial records.
2. Term. The term of this Agreement shall commence on
April 1, 1995 and end on March 31, 1997. Chairman shall be
entitled to renew this Agreement for a one year term ending on
March 31, 1998 so long as (a) the Chairman gives written notice
of renewal to the Board of Directors by March 31, 1997, (b) the
Company's Consolidated Net Operating Income for the year ending
December 31, 1996 is in excess of $1,000,000, and (c) the average
price of the Company's stock during the final calendar quarter of
1996 is at least $1.75 per share.
3. Salary. The Chairman shall receive an annual salary
of $125,000, payable in installments consistent with other
Chairman payroll policies of the Company but not less frequently
than semi-monthly without the consent of the Chairman.
4. Discretionary Bonus. In addition to the annual
salary, the Chairman shall receive an annual bonus in an amount
to be determined at the discretion of the Compensation Committee
of the Company's Board of Directors. The bonus shall be based on
Chairman's performance and the performance of the Company during
the year for which the bonus is being considered. The Board of
Directors is not required to grant a bonus to the Chairman in any
year.
5. Mandatory Incentive Bonus. The Chairman shall
receive an annual Mandatory Incentive Bonus (the "MIB") from the
Company as determined by the Compensation Committee of the Board
of Directors in the following amounts and with the following
conditions:
a. The MIB shall be 7.5% of the amount by which the
Company's Consolidated Net Income Before Taxes ("CNBT") for the
prior year exceeds the Qualifying Amount. The Qualifying Amount
shall be $250,000 for the first year of this Agreement and shall
increase by $150,000 for each subsequent year. The amount payable
with respect to MIB shall decrease by $50,000 for each year of
this Agreement that Jensen Corporation is a subsidiary of the
Company and has net income before taxes of less than $100,000,
increasing by 20% per year.
b. The MIB for any year shall not exceed an amount equal
to 150% of the Salary payable pursuant to Section 3.
c. The MIB shall be payable in cash unless the
Compensation Committee elects to pay as much as 50% of the MIB in
the form of shares of the Company's stock. If any portion of the
MIB is paid in stock, the stock shall be valued at the then
current public market price of the stock.
d. In computing the MIB, CNBT shall be determined by
applying generally accepted accounting principles. However, the
Compensation Committee shall have the option of excluding from
CNBT all unusual or non-recurring items, such as gains and losses
on the sale of real estate, the sale of tax benefits, or the sale
of entities in which the Company has an interest. The
Compensation Committee shall compute CNBT by deducting the amount
of the MIB for that year, whether paid in cash or in the form of
stock.
6. Travel. The Chairman recognizes that Company business
may require him to travel from time to time in order to fulfill
his duties and obligations hereunder and the Chairman agrees so
to travel. The Company shall not require the Chairman to change
his place of residence without the Chairman's prior consent.
7. Expense Reimbursement. The Company shall promptly
reimburse the Chairman for all reasonable expenses incurred by
the Chairman pursuant to the business of the Company. Such
business expenses shall be approved by the Executive Committee of
the Board of Directors, upon delivery of reasonable written
substantiation of such business expenses in accordance with the
Company policy for reimbursement of expenses. The Company will
reimburse Executive's residence office long-distance telephone
charges only.
8. Benefits. The Chairman shall be entitled to receive,
or be reimbursed for, family medical, dental and hospitalization
insurance as are provided by the Company to other key employees
of the Company.
9. Termination.
(a) Cause. The Company, by written notice to the
Chairman, shall have the right to terminate this Agreement, and
the Chairman's employment hereunder for "Cause". "Cause" shall
mean (i) conviction of Chairman for a felony involving a high
degree of moral turpitude, (ii) the commission by Chairman of
acts of intentional dishonesty constituting felonies which are
acts intended to result in gain or personal enrichment at the
material expense of the Company, (iii) certification by a medical
doctor that the Chairman is a habitual alcoholic or is a narcotic
addict and reasonable evidence that Chairman is continuing such
activities after notice; and (iv) continued willful failure to
refuse to perform his responsibilities under Paragraph 1 hereof
after thirty (30) days notice and an opportunity to cure.
(b) Disability. If Chairman shall be rendered
incapable by illness (physical or mental disability) of complying
with the terms, provisions and conditions hereof on his part to
be performed for a period in excess of 120 consecutive days
during any year, then Company may, at its option, terminate this
Agreement by written notice to Chairman prior to the date
Chairman resumes the rendering of services and after examination
of Chairman by a medical doctor (retained by the Company with the
consent of the Chairman, which consent shall not be unreasonably
withheld), who certifies to the continuing existence of such
disability.
(c) Death. In the event Chairman dies during the
term of this Agreement, such death shall, except as specifically
provided below in Section 9(d), terminate any and all payment
obligations to Chairman under this Agreement effective as of the
date of death.
(d) Upon termination, the Chairman shall be entitled
to be paid all compensation earned to the date of termination
and be reimbursed for reasonable business expenses incurred by
Chairman prior to the date of termination.
(e) Except as provided in this Section 9, the Company
may not terminate its obligations under this Agreement. In the
event that the Company terminates this Agreement other than as
provided in this Section 9, the Chairman shall be entitled to
receive his salary until the end of the existing Term, which
amount shall be paid without discount within thirty days after
written demand by Chairman. It is agreed and acknowledged by the
Company that the Chairman is entering into this Agreement in lieu
of other business opportunities that could generate greater
compensation and would not be available at a later time.
Accordingly, Chairman shall not be required to mitigate or reduce
damages by seeking or undertaking other business opportunities in
the event that the Company breaches this Agreement.
10. Other Activities of Chairman. The Chairman is
employed and retained and will continue to be employed and
retained by other persons or entities during his employment by
the Company, and the Company acknowledges and agrees that this
Agreement shall not require Chairman to render services on an
exclusive basis for the Company. The Company acknowledges and
agrees that the Chairman and his affiliates are engaged in the
business of investing in, acquiring and/or managing businesses
and other ventures for the Chairman's own account, for the
account of the Chairman's affiliates and associates (as such
terms are defined by the rules and regulations of the Securities
and Exchange Commission) and for the account of other
unaffiliated parties, and Chairman shall be entitled to continue
in these and other business activities during the term of this
Agreement. No aspect or element of such present or further
activities shall be deemed to be engaged in for the benefit of
the Company or any of its subsidiaries nor shall they constitute
a conflict of interest, breach of a duty or a breach of this
Agreement. Any transaction or fee involving the Company and the
Chairman or any person or entity related directly or indirectly
to Chairman shall be disclosed by the Chairman to the
Compensation Committee of the Board of Directors and shall be
approved in advance of any obligation with respect to such
transaction by such Committee.
11. Indemnification of the Chairman. The Company agrees
to indemnify and hold harmless the Chairman (the "Indemnified
Party") to the fullest extent permitted by corporate law in the
State of Delaware. In addition, the Company and its
subsidiaries, jointly and severally, agree to reimburse the
Indemnified Party each month for all costs relating to the
defense of any threatened or actual claim, proceeding, suit or
investigation (including attorney's fees and expenses) subject to
an undertaking from the Indemnified Party to repay the Company if
the Indemnified Party is finally determined by a non-appealable
decision of a court of law not to be entitled to such indemnity.
At all times during the term hereof, the Company agrees to
provide director's and officer's liability insurance reasonably
satisfactory to Chairman and to continue to name Chairman as a
named insured thereunder for four years after Chairman ceases to
be employed by the Company.
12. No Delegation. The Chairman shall not delegate his
obligations pursuant to this Agreement to any other person,
provided, however, that he may assign others to perform
responsibilities hereunder subject to his supervision and subject
to the approval of the Board of Directors, which shall not be
unreasonably withheld, he may also assign payments under this
Agreement provided that the Assignee is an affiliate of the
Chairman. The Company agrees that Resource Holdings Limited (and
any controlled entity thereof) is a permitted assignee of
proceeds hereof and such assignment of proceeds hereof shall be
irrevocable.
13. Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State
of California without reference to its conflict of laws, rules
and principles.
14. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements,
understandings and arrangements, both oral and written, between
the Company and the Chairman with respect to such subject matter.
This Agreement may not be modified in any way except by a written
instrument signed by both the Company and the Chairman.
15. Merger. If the Company shall at any time merge or
consolidate with any corporation or corporations, or if
substantially all of the assets or shares of stock of the Company
shall be sold or otherwise transferred, the provisions of this
Agreement which shall automatically terminate immediately
preceding such transaction shall be binding upon and inure to the
benefit of the Corporation surviving and continuing after such
merger or resulting from such consolidation, or upon any holding
company for the company which may result from such merger, or
upon the corporation, person or entity to which such assets or
shares shall be sold or transferred, and the Company shall be
obligated to cause such resulting, surviving or transferee
corporation, person, entity or holding company to assume the
obligations of the Company under this Agreement or, if the
Company shall remain in existence, to become jointly and
severally liable with the Company for such obligations. This
Agreement shall not otherwise be assignable by the Company or by
any such resulting, surviving or transferee corporation or
holding company without the prior written consent of Chairman.
16. Notices. Any notices required or permitted to be
given under this Agreement shall be in writing and shall be
deemed to have been given when delivered by hand or when
deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, as follows:
If to the Company: National Capital Management Corporation
50 California Street
San Francisco, CA 94114
If to the Chairman:James J. Pinto
235 Sunrise Avenue, No. 3224
Palm Beach, FL. 33480
or to such other address as either party hereto may from time to
time give notice of to the other.
17. Miscellaneous.
(a) The Company represents and warrants that (i) this
Agreement has been duly approved and authorized by the Board of
Directors of the Company, (ii) the officer executing this
Agreement on behalf of the Company has full right, power, legal
capacity and authority to enter into and execute this Agreement
on its behalf, and (iii) this Agreement constitutes the valid and
legally binding agreement and obligation of the Company,
enforceable in accordance with its terms.
(b) In the event of any claims or litigation arising
under this Agreement, the Chairman shall be reimbursed monthly
from the Company for the costs incurred in connection with the
defense or prosecution of any such claim or litigation, including
reasonable attorneys' fees, provided, however, that such Chairman
shall reimburse the Company for all such payments if it is
determined by a non-appealable final decision of a court of law
that the Chairman shall have acted in bad faith in bringing any
such litigation.
(c) The Company agrees that if this Agreement is not
renewed at the end of its scheduled term for at least one year on
substantially the same economic terms as are in existence on such
date pursuant to Sections 3 and 5 (or such other terms as may be
acceptable to the Chairman), and such failure to renew results
from the decision by the Company not to renew for any reason
other than as set forth in Section 9 the Chairman shall be
entitled to continue to receive compensation as severance pay for
the period April 1, 1997 through September 30, 1997 at the same
monthly salary payable in 1997, which amount will be paid to
Chairman in accordance with the provisions of Section 3.
(d) Any waiver of any breach of any of the terms of
this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other terms or conditions, nor
shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof.
(e) Except as required by law, no right to receive
payments under this Agreement shall be subject to execution,
attachment, levy, voluntary or involuntary, to effect any such
action shall be null, void and of no effect.
(f) If any provision of this Agreement shall be held
invalid or unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect. If any provision
is held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and
effect in all other circumstances.
(g) This Agreement shall be for the benefit of and
binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and,
where applicable, assigns.
(h) Section headings used herein are for convenience
only and do not change or modify the substantive provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
COMPANY: NATIONAL CAPITAL MANAGEMENT CORPORATION
By:/s/ Herbert J. Jaffe
Herbert J. Jaffe, President
CHAIRMAN: /s/ James J. Pinto
JAMES J. PINTO
AMENDED AND RESTATED AGREEMENT
This Amended and Restated Agreement ("Agreement") is
made and entered into as of June 15, 1994, by and between
National Capital Management Corporation, a Delaware
corporation (hereinafter called the "Company") with its
principal offices at 50 California Street, San Francisco,
California, and John C. Shaw (hereinafter called the
"Executive").
WHEREAS, in view of the Executive's substantial
experience, knowledge and reputation, the Board of Directors
of the Company believes it to be in the best interest of the
Company to employ the Executive to act in the capacity of
Chief Executive Officer of the Company, and
WHEREAS, the Executive desires to be employed by the
Company in such capacity.
WHEREAS, the Executive and the Company desire to amend
and restate the current consulting agreement as set forth
herein.
It is agreed as follows:
1. Employment
The Company hereby employs the Executive to serve as
the chief executive officer of the Company, and the
Executive hereby accepts such employment, on the terms and
conditions contained in this Agreement. During the term of
this Agreement, the Executive shall be available to the
Company to pursue the business of the Company subject to the
supervision and direction of the Board of Directors of the
Company of which he shall be nominated to be a member during
the term hereof.
2. Term
The term of this Agreement, and the employment of
the Executive hereunder, shall be for a period commencing on
January 1, 1994 and ending on December 31, 1997.
3. Compensation
From January 1, 1994 to December 31, 1994, the
compensation of the Executive shall be paid at the annual
rate of $257,500, payable in installments consistent with
other executive payroll policies of the Company (the "Base
Annual Compensation") but not less frequently than semi-
monthly without the consent of the Executive. Commencing on
January 1, 1995 and for each of calendar years 1996 and
1997, the Base Annual Compensation shall be reduced to
$195,000. In addition to the Base Annual Compensation
payable to the Executive hereunder, the Executive shall be
entitled to be considered to receive an annual bonus in an
amount to be determined at the discretion of the Board of
Directors based on Executive's performance and the
performance of the Company during such year provided,
however, that the Board of Directors is not required to
grant to the Officer any such bonus.
4. Travel
The Executive recognizes that Company business may
require him to travel from time to time in order to fulfill
his duties and obligations hereunder and the Executive
agrees so to travel. The Company shall not require the
Executive to change his place of residency without
Executive's prior consent.
5. Expense Reimbursement
During the term of his employment hereunder, the
Company shall promptly reimburse the Executive for all
reasonable expenses incurred by the Executive pursuant to
the business of the Company. The Company agrees to reimburse
the Executive for such business expenses upon delivery of
reasonable written substantiation of such business expenses
in accordance with the Company policy for reimbursement of
expenses. During 1994, the Company shall also provide to the
Executive an automobile allowance.
6. Benefits
The Executive shall be entitled to receive, or be
reimbursed for, family medical, dental and hospitalization
insurance as are provided by the Company to other key
employees or executives of the Company.
7. Termination
(a) Cause The Company, by written notice to the
Executive, shall have the right to terminate this Agreement,
and the Executive's employment hereunder, for "Cause".
"Cause" shall mean (i) conviction of Executive for a felony
involving a high degree of moral turpitude, (ii) the
commission by Executive of acts of intentional dishonesty
constituting felonies which acts are intended to result in
gain or personal enrichment at the material expense of the
Company, or (iii) certification by a medical doctor that the
Executive is a habitual alcoholic or is a narcotic addict
and reasonable evidence that Executive is continuing in such
activities after notice.
(b) Disability If Executive shall be rendered
incapable by illness (physical or mental disability) of
complying with the terms, provisions and conditions hereof
on his part to be performed for a period in excess of 120
consecutive days during any year, then Company may, at its
option, terminate this Agreement by written notice to
Executive prior to the date Executive resumes the rendering
of services and after examination of Executive by a medical
doctor (retained by the Company with the consent of the
Executive which consent shall not be unreasonably withheld),
who certifies to the continuing existence of
such disability.
(c) Death In the event Executive dies during the term
of this Agreement, such death shall, except as specifically
provided below in Section 7(d), terminate any and all
payment obligations to Executive under this Agreement
effective as of the date of death.
(d) Upon any termination pursuant to Section 7(a), the
Executive shall be entitled to be paid the applicable Base
Annual Compensation to the date of termination and
reimbursed for reasonable business expenses incurred by
Executive prior to the date of termination or scheduled
expiration, if earlier. Upon any termination pursuant to
Section 7(b) or (c), the Executive, or his heirs or estate
as the case may be, shall be entitled to be paid the Base
Annual Compensation for a period of twenty-four (24) months
from the date of termination or December 31, 1997, if
earlier, and for reimbursement of previously incurred
business expenses.
(e) Except as provided in Sections 7(a), (b) and (c)
hereof, the Company may not terminate its obligations under
this Agreement. In the event that the Company terminates
this Agreement other than as provided in Sections 7(a) or
(b) the Executive shall be entitled to receive his Base
Annual Compensation until the end of the existing Term which
amount shall be paid without discount within thirty (30)
days after written demand by Executive. In the event that
payment is not made within such thirty (30) days the Company
shall pay interest on all overdue amounts at the rate of 18%
per annum from the date of such demand. It is agreed and
acknowledged by the Company that the Executive is entering
this Agreement in lieu of other business opportunities that
could generate greater compensation and would not be
available at a later time. Accordingly, Executive shall not
be required to mitigate or reduce damages by seeking or
undertaking other business opportunities in the event that
the Company breaches this Agreement.
8. Other Activities of the Executive
The Executive is employed and retained and will
continue to be employed and retained by other persons or
entities during his employment by the Company and the
Company acknowledges and agrees that this Agreement shall
not require Executive to render services on an exclusive
basis for the Company. The Company acknowledges and agrees
that the Executive and his affiliates are engaged in the
business of investing in, acquiring and/or managing
businesses and other ventures for the Executive's own
account, for the account of the Executive's affiliates and
associates (as such terms are defined by the rules and
regulations of the Securities and Exchange Commission) and
for the account of other unaffiliated parties, and Executive
shall be entitled to continue in these and other business
activities during the term of this Agreement. No aspect or
element of such present or further activities shall be
deemed to be engaged in for the benefit of the Company or
any of its subsidiaries nor shall they constitute a conflict
of interest, breach of a duty or a breach of this Agreement.
9. Indemnification of the Executive
The Company and its present and future subsidiaries
agree to jointly and severally indemnify and hold harmless
the Executive (the "Indemnified Party") to the fullest
extent permitted by corporate law in the state of Delaware.
In addition, the Company and its subsidiaries, jointly and
severally, agree to reimburse the Indemnified Party each
month for all costs relating to the defense of any
threatened or actual claim, proceeding, suit or
investigation (including attorney's fees and expenses)
subject to an undertaking from the Indemnified Party to
repay the Company if the Indemnified Party is finally
determined by a non appealable decision of a court of law
not to be entitled to such indemnity. At all times during
the term hereof, the Company agrees to provide director's
and officers liability insurance reasonably satisfactory to
Executive and to continue to name Executive as a named
insured thereunder for four years after Executive ceases to
be employed by the Company.
10. No Delegation
The Executive shall not delegate his obligations
pursuant to this Agreement to any other person provided
however, that he may assign others to perform
responsibilities hereunder subject to his supervision and,
subject to the approval of the Board of Directors, which
shall not be unreasonably withheld, he may also assign
payments under this Agreement provided that the Assignee is
an affiliate of the Executive. The Company agrees that
Resource Holdings Limited (and any controlled entity
thereof) is a permitted assignee of proceeds hereof and such
assignment of proceeds hereof shall be irrevocable.
11. Governing Law
This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California
without reference to its conflict of laws, rules and
principles.
12. Entire Agreement
This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements,
understandings and arrangements, both oral and written,
between the Company and the Executive with respect to such
subject matter. This Agreement may not be modified in any
way except by a written instrument signed by both the
Company and the Executive.
13 . Merger
If the Company shall at any time merge or
consolidate with any corporation or corporations, or if
substantially all of the assets or shares of stock of the
Company shall be sold or otherwise transferred, the
provisions of this Agreement which shall automatically
terminate immediately preceding such transaction shall be
binding upon and inure to the benefit of the Corporation
surviving and continuing after such merger or resulting from
such consolidation, or upon any holding company for the
company which may result from such merger, or upon the
corporation, person or entity to which such assets or shares
shall be sold or transferred, and the Company shall be
obligated to cause such resulting, surviving or transferee
corporation, person, entity or holding company to assume the
obligations of the Company under this Agreement or, if the
Company shall remain in existence, to become jointly and
severally liable with the Company for such obligations. This
Agreement shall not otherwise be assignable by the Company
or by any such resulting, surviving or transferee
corporation or holding company without the prior written
consent of Executive.
14. Notices
Any notice required or permitted to be given under
this Agreement shall be in writing and shall be deemed to
have been given when delivered by hand or when deposited in
the United States mail, be registered or certified mail,
return receipt requested, postage prepaid as follows:
If to the Company: National Capital Management Corporation
50 California Street
San Francisco, CA 94111
If to the Executive: John C. Shaw
c/o Resource Holdings, Ltd.
520 Madison Avenue
40th Floor
New York, New York 10022
or to such other address as either party hereto may from
time to time give notice of to the other.
15. Miscellaneous
(a) The Company represents and warrants that (i)
this Agreement has been duly approved and authorized by the
Board of Directors of the Company, (ii) the officer
executing this Agreement on behalf of the Company has full
right, power, legal capacity and authority to enter into and
executive this Agreement on its behalf and (iii) this
Agreement constitutes the valid and legally binding
agreement and obligation of the Company, enforceable in
accordance with its terms.
(b) In the event of any claims or litigation arising
under this Agreement, the Executive shall be reimbursed
monthly from the Company for the costs incurred in
connection with the defense or prosecution of any such claim
or litigation, including reasonable attorneys' fees
provided, however, that such Executive shall reimburse the
Company for all such costs if it is determined by a non
appealable final decision of a court of law that the
Executive shall have acted in bad faith with the intent to
cause material damage to the Company in bringing any such
litigation.
(c) The Company agrees that if this Agreement is not
renewed at the end of its scheduled term for at least one
year on substantially the same economic terms as are in
existence on such date (or such other terms as may be
acceptable to Executive) and such failure to renew results
from the decision by the Company not to renew for any reason
other than as set forth in Sections 7(a), 7(b) or 7(c), the
Executive shall be entitled to continue to receive
compensation as severance for the period January I, 1998
through June 30, 1998 at the same Base Annual Compensation
rate as is payable in 1997 which amount will be paid to
Executive in accordance with the provisions of Section 3.
(d) Any waiver of any breach of any of the terms of
this Agreement shall not operate as a waiver of any other
breach of such terms or conditions or any other terms or
conditions, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other
provision hereof.
(e) Except as required by law, no right to receive
payments under this Agreement shall be subject to execution,
attachment, levy, voluntary or involuntary, to effect any
such action shall be null, void and of no effect.
(f) If any provision of this Agreement shall be held
invalid or unenforceable, the remainder of this Agreement
shall nevertheless remain in full force and effect. If any
provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in
full force and effect in all other circumstances.
(g) This Agreement shall be for the benefit of and
binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors
and, where applicable, assigns.
(h) Section headings used herein are for convenience
only and do not change or modify the substantive provisions
hereof.
(i) The Consulting Agreement dated January 1, 1992 by
and between John C. Shaw and the Company is terminated
except for the Sections 9 and 1 6(h) thereof which shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
NATIONAL CAPITAL MANAGEMENT
CORPORATION
By: /s/ Herbert J. Jaffe
Herbert J. Jaffe,
President
By: /s/ John C. Shaw
John C. Shaw
AGREEMENT
This Agreement ("Agreement") is made and entered into as of
April 1, 1995, by and between National Capital Management
Corporation, a Delaware corporation (hereinafter called the
"Company") with its principal offices at 50 California Street,
San Francisco, California, and John C. Shaw (hereinafter called
the "Executive").
WHEREAS, the Executive and the Company desire to terminate
the current employment agreement; and
WHEREAS, in view of the Executive's substantial experience
and knowledge, the Board of Directors of the Company believes it
to be in the best interest of the Company to employ the Executive
to act in the capacity of Chief Executive Officer of the Company;
and
WHEREAS, the Executive desires to be employed by the Company
in such capacity,
IT IS AGREED AS FOLLOWS:
1. Employment. The Company hereby employs the Executive
to serve as the Chief Executive Officer of the Company, and the
Executive hereby accepts such employment, on the terms and
conditions contained in this Agreement. During the term of this
Agreement, the Executive shall be available to the Company to
pursue the business of the Company subject to the supervision and
direction of the Board of Directors of the Company, of which he
shall be nominated to be a member during the term hereof. The
Executive shall be responsible for supervising the management and
operation of the Company, including the development and
implementation of business plans approved by the Board of
Directors and supervision of financial accounting and
compensation matters provided, however, the compensation levels
of the senior management of the Company's senior management shall
be determined by the Compensation Committee of the Board of
Directors.
2. Term. The term of this Agreement shall commence on
April 1, 1995 and end on March 31, 1997. Executive shall be
entitled to renew this Agreement for a one year term ending on
March 31, 1998 so long as (a) the Executive gives written notice
of renewal to the Board of Directors by March 31, 1997, (b) the
Company's Consolidated Net Operating Income for the year ending
December 31, 1996 is in excess of $1,000,000, and (c) the average
price of the Company's stock during the final calendar quarter of
1996 is at least $1.75 per share.
3. Salary. The Executive shall receive an annual salary
of $125,000, payable in installments consistent with other
executive payroll policies of the Company but not less frequently
than semi-monthly without the consent of the Executive.
4. Discretionary Bonus. In addition to the annual
salary, the Executive shall receive an annual bonus in an amount
to be determined at the discretion of the Compensation Committee
of the Company's Board of Directors. The bonus shall be based on
Executive's performance and the performance of the Company during
the year for which the bonus is being considered. The Board of
Directors is not required to grant a bonus to the Executive in
any year.
5. Mandatory Incentive Bonus. The Executive shall
receive an annual Mandatory Incentive Bonus (the "MIB") from the
Company as determined by the Compensation Committee of the Board
of Directors in the following amounts and with the following
conditions:
a. The MIB shall be 7.5% of the amount by which the
Company's Consolidated Net Income Before Taxes ("CNBT") for the
prior year exceeds the Qualifying Amount. The Qualifying Amount
shall be $250,000 for the first year of this Agreement and shall
increase by $150,000 for each subsequent year. The amount payable
with respect to MIB shall decrease by $50,000 for each year of
this Agreement that Jensen Corporation is a subsidiary of the
Company and has net income before taxes of less than $100,000,
increasing by 20% per year.
b. The MIB for any year shall not exceed an amount equal
to 150% of the Salary payable pursuant to Section 3.
c. The MIB shall be payable in cash unless the
Compensation Committee elects to pay as much as 50% of the MIB in
the form of shares of the Company's stock. If any portion of the
MIB is paid in stock, the stock shall be valued at the then
current public market price of the stock.
d. In computing the MIB, CNBT shall be determined by
applying generally accepted accounting principles. However, the
Compensation Committee shall have the option of excluding from
CNBT all unusual or non-recurring items, such as gains and losses
on the sale of real estate, the sale of tax benefits, or the sale
of entities in which the Company has an interest. The
Compensation Committee shall compute CNBT by deducting the amount
of the MIB for that year, whether paid in cash or in the form of
stock.
6. Travel. The Executive recognizes that Company business
may require him to travel from time to time in order to fulfill
his duties and obligations hereunder and the Executive agrees so
to travel. The Company shall not require the Executive to change
his place of residence without Executive's prior consent.
7. Expense Reimbursement. The Company shall promptly
reimburse the Executive for all reasonable expenses incurred by
the Executive pursuant to the business of the Company. Such
business expenses shall be approved by the Executive Committee of
the Board of Directors, upon delivery of reasonable written
substantiation of such business expenses in accordance with the
Company policy for reimbursement of expenses. The Company will
not be required to reimburse any of the Executive's residence
office expenses except for long-distance telephone charges.
8. Benefits. The Chairman shall be entitled to receive,
or be reimbursed for, family medical, dental and hospitalization
insurance as are provided by the Company to other key employees
of the Company.
9. Termination.
(a) Cause. The Company, by written notice to the
Executive, shall have the right to terminate this Agreement, and
the Executive's employment hereunder for "Cause". "Cause" shall
mean (i) conviction of Executive for a felony involving a high
degree of moral turpitude, (ii) the commission by Executive of
acts of intentional dishonesty constituting felonies which are
acts intended to result in gain or personal enrichment at the
material expense of the Company, (iii) certification by a medical
doctor that the Executive is a habitual alcoholic or is a
narcotic addict and reasonable evidence that Executive is
continuing such activities after notice, and (iv) continued
willful failure to refuse to perform his responsibilities under
Paragraph 1 hereof after thirty (30) days notice and an
opportunity to cure.
(b) Disability. If Executive shall be rendered
incapable by illness (physical or mental disability) of complying
with the terms, provisions and conditions hereof on his part to
be performed for a period in excess of 120 consecutive days
during any year, then Company may, at its option, terminate this
Agreement by written notice to Executive prior to the date
Executive resumes the rendering of services and after examination
of Executive by a medical doctor (retained by the Company with
the consent of the Executive, which consent shall not be
unreasonably withheld), who certifies to the continuing existence
of such disability.
(c) Death. In the event Executive dies during the
term of this Agreement, such death shall, except as specifically
provided below in Section 9(d), terminate any and all payment
obligations to Executive under this Agreement effective as of the
date of death.
(d) Upon termination, the Executive shall be entitled
to be paid all compensation earned to the date of termination
and be reimbursed for reasonable business expenses incurred by
Executive prior to the date of termination.
(e) Except as provided in this Section 9, the Company
may not terminate its obligations under this Agreement. In the
event that the Company terminates this Agreement other than as
provided in this Section 9, the Executive shall be entitled to
receive his salary until the end of the existing Term, which
amount shall be paid without discount within thirty days after
written demand by Executive. It is agreed and acknowledged by the
Company that the Executive is entering into this Agreement in
lieu of other business opportunities that could generate greater
compensation and would not be available at a later time.
Accordingly, Executive shall not be required to mitigate or
reduce damages by seeking or undertaking other business
opportunities in the event that the Company breaches this
Agreement.
10. Other Activities of Executive. The Executive is
employed and retained and will continue to be employed and
retained by other persons or entities during his employment by
the Company, and the Company acknowledges and agrees that this
Agreement shall not require Executive to render services on an
exclusive basis for the Company. The Company acknowledges and
agrees that the Executive and his affiliates are engaged in the
business of investing in, acquiring and/or managing businesses
and other ventures for the Executive's own account, for the
account of the Executive's affiliates and associates (as such
terms are defined by the rules and regulations of the Securities
and Exchange Commission) and for the account of other
unaffiliated parties, and Executive shall be entitled to continue
in these and other business activities during the term of this
Agreement. No aspect or element of such present or further
activities shall be deemed to be engaged in for the benefit of
the Company or any of its subsidiaries nor shall they constitute
a conflict of interest, breach of a duty or a breach of this
Agreement. Any transaction or fee involving the Company and the
Executive or any person or entity related directly or indirectly
to Executive shall be disclosed by the Executive to the
Compensation Committee of the Board of Directors and shall be
approved in advance of any obligation with respect to such
transaction by such Committee.
11. Indemnification of the Executive. The Company and its
agrees to indemnify and hold harmless the Executive (the
"Indemnified Party") to the fullest extent permitted by corporate
law in the State of Delaware. In addition, the Company and its
subsidiaries, jointly and severally, agree to reimburse the
Indemnified Party each month for all costs relating to the
defense of any threatened or actual claim, proceeding, suit or
investigation (including attorney's fees and expenses) subject to
an undertaking from the Indemnified Party to repay the Company if
the Indemnified Party is finally determined by a non-appealable
decision of a court of law not to be entitled to such indemnity.
At all times during the term hereof, the Company agrees to
provide director's and officer's liability insurance reasonably
satisfactory to Executive and to continue to name Executive as a
named insured thereunder for four years after Executive ceases to
be employed by the Company.
12. No Delegation. The Executive shall not delegate his
obligations pursuant to this Agreement to any other person,
provided, however, that he may assign others to perform
responsibilities hereunder subject to his supervision and subject
to the approval of the Board of Directors, which shall not be
unreasonably withheld, he may also assign payments under this
Agreement provided that the Assignee is an affiliate of the
Executive. The Company agrees that Resource Holdings Limited
(and any controlled entity thereof) is a permitted assignee of
proceeds hereof and such assignment of proceeds hereof shall be
irrevocable.
13. Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State
of California without reference to its conflict of laws, rules
and principles.
14. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements,
understandings and arrangements, both oral and written, between
the Company and the Executive with respect to such subject
matter. This Agreement may not be modified in any way except by
a written instrument signed by both the Company and the
Executive.
15. Merger. If the Company shall at any time merge or
consolidate with any corporation or corporations, or if
substantially all of the assets or shares of stock of the Company
shall be sold or otherwise transferred, the provisions of this
Agreement which shall automatically terminate immediately
preceding such transaction shall be binding upon and inure to the
benefit of the Corporation surviving and continuing after such
merger or resulting from such consolidation, or upon any holding
company for the company which may result from such merger, or
upon the corporation, person or entity to which such assets or
shares shall be sold or transferred, and the Company shall be
obligated to cause such resulting, surviving or transferee
corporation, person, entity or holding company to assume the
obligations of the Company under this Agreement or, if the
Company shall remain in existence, to become jointly and
severally liable with the Company for such obligations. This
Agreement shall not otherwise be assignable by the Company or by
any such resulting, surviving or transferee corporation or
holding company without the prior written consent of Executive.
16. Notices. Any notices required or permitted to be
given under this Agreement shall be in writing and shall be
deemed to have been given when delivered by hand or when
deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, as follows:
If to the Company: National Capital Management Corporation
50 California Street
San Francisco, CA 94111
If to the Executive: John C. Shaw
c/o Resource Holdings, Ltd.
520 Madison Avenue, 40th Floor
New York, NY 10022
or to such other address as either party hereto may from time to
time give notice of to the other.
17. Miscellaneous.
(a) The Company represents and warrants that (i) this
Agreement has been duly approved and authorized by the Board of
Directors of the Company, (ii) the officer executing this
Agreement on behalf of the Company has full right, power, legal
capacity and authority to enter into and execute this Agreement
on its behalf, and (iii) this Agreement constitutes the valid and
legally binding agreement and obligation of the Company,
enforceable in accordance with its terms.
(b) In the event of any claims or litigation arising
under this Agreement, the Executive shall be reimbursed monthly
from the Company for the costs incurred in connection with the
defense or prosecution of any such claim or litigation, including
reasonable attorneys' fees, provided, however, that such
Executive shall reimburse the Company for all such payments if it
is determined by a non-appealable final decision of a court of
law that the Executive shall have acted in bad faith in bringing
any such litigation.
(c) The Company agrees that if this Agreement is not
renewed at the end of its scheduled term for at least one year on
substantially the same economic terms as are in existence on such
date pursuant to Sections 3 and 5 (or such other terms as may be
acceptable to the Executive), and such failure to renew results
from the decision by the Company not to renew for any reason
other than as set forth in Section 9, the Executive shall be
entitled to continue to receive compensation as severance pay for
the period April 1, 1997 through September 30, 1997 at the base
monthly salary payable in 1997, which amount will be paid to
Executive in accordance with the provisions of Section 3.
(d) Any waiver of any breach of any of the terms of
this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other terms or conditions, nor
shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof.
(e) Except as required by law, no right to receive
payments under this Agreement shall be subject to execution,
attachment, levy, voluntary or involuntary, to effect any such
action shall be null, void and of no effect.
(f) If any provision of this Agreement shall be held
invalid or unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect. If any provision
is held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and
effect in all other circumstances.
(g) This Agreement shall be for the benefit of and
binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and,
where applicable, assigns.
(h) Section headings used herein are for convenience
only and do not change or modify the substantive provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
COMPANY: NATIONAL CAPITAL MANAGEMENT CORPORATION
By: /s/ Herbert J. Jaffe
Herbert J. Jaffe, President
EXECUTIVE: /s/ John C. Shaw
JOHN C. SHAW
Exhibit B
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
REDBIRD TRAILS ASSOCIATES, L.P.
By and Among
NCQ REDBIRD, INC.,
as the Operating General Partner
and
NATIONAL CORPORATE TAX CREDIT, INC.,
as the Special Limited Partner
and
NATIONAL CORPORATE TAX CREDIT FUND,
a California limited partnership,
as the Limited Partner
Dated as of November 23, 1994
TABLE OF CONTENTS
ARTICLE TITLE PAGE
1 Defined Terms 1
2 General 14
2.1 Continuation of the Partnership 14
2.2 Principal Office 15
2.3 Principal Place of Business;
Resident Agent 15
2.4 Term 15
2.5 Purpose 15
3 Capital Contributions 16
3.1 Operating General Partner 16
3.2 Withdrawal of Withdrawing
General Partner 16
3.3 Special Limited Partner 16
3.4 Limited Partner 16
3.5 Treatment of Other Advances 16
3.6 Capital Accounts; Interest;
Withdrawal 17
3.7 Liability of Limited Partner
and Special Limited Partner 17
3.8 Housing Tax Credit Protection;
Adjustment ofInterests 17
3.9 Default in Limited Partner
Contribution 18
4 Compliance with Authority Requirements;
Partnership Borrowings 19
4.1 Authority Requirements 19
4.2 Loans 19
5 Rights, Powers and Obligations of
the Operating General Partner and
Limitations Thereon 20
5.1 Exercise of Management 20
5.2 Duties and Authority of
Operating General Partner 22
5.3 Delegation of Operating
General Partner Authority;
Tax Matters Partner 22
5.4 Lease, Conveyance or
Refinancing of Assets of
the Partnership 24
5.5 Restrictions on Authority 25
5.6 Activities of Partners 26
5.7 Dealing with Affiliates 26
5.8 Indemnification and Liability
of the Operating General Partner
and Special Limited Partner 27
5.9 Representations and Warranties 28
5.10 Additional Covenants of
Operating General Partner 29
5.11 Maintenance of Net Worth 29
5.12 Obligation to Repair and
Rebuild Apartment Complex 29
6 Certain Payments 30
6.1 [intentionally omitted] 30
6.2 Development Fee 30
6.3 Incentive Management Fee and
Resale Incentive Fee 30
7 Accounting, Reports, Books,
Bank Accounts and Fiscal Year 30
7.1 Bank Accounts 30
7.2 Books of Account; Fiscal Year 30
7.3 Reports 31
7.4 Other Reports 32
7.5 Tax Returns and Tax Treatment 32
8 Management Agent 33
8.1 Designation of Management Agent 33
8.2 Management Fee 34
8.3 Absence of Management Agent 34
8.4 Rights of Special Limited
Partner 34
9 Distributions; Allocations of Profits
and Losses; Housing Tax Credits;
Capital Accounts 35
9.1 Profits, Losses and Housing
Tax Credits 35
9.2 Distribution and Application
of Cash Flow and Sale or
Refinancing Transaction Proceeds 42
10 Transfer of Partner Interests 44
10.1 Assignment of Limited Partner
and Special Limited General
Partner Interests 44
10.2 Substituted Partners; Admission 44
10.3 Assignees 45
11 Withdrawal of Operating General Partner;
New Operating General Partner 46
11.1 Withdrawal 46
11.2 Effect of Withdrawal; Election
to Continue Business 47
11.3 Continuation of Partnership 47
11.4 Special Removal Rights 48
11.5 Additional Operating General
Partner 50
11.6 Amendment of Schedule and
Agreement 50
11.7 Survival of Liabilities 50
12 Dissolution and Termination of the
Partnership 50
12.1 Events Which Cause a Dissolution 50
12.2 Actions of Liquidating Agent Upon
Dissolution 51
12.3 Statements on Termination 51
12.4 Priority on Liquidation;
Distribution of Non-Liquid Assets 51
12.5 Orderly Liquidation 53
12.6 No Goodwill Value 53
13 Foreign Partners 53
13.1 Certification of Non-Foreign
Status 53
13.2 Withholding of Certain Amounts
Attributable to Interests of
Foreign Partners 53
14 Miscellaneous 54
14.1 Law Governing 54
14.2 Durable Power of Attorney 54
14.3 Counterparts 55
14.4 Separability of Provisions 55
14.5 Address and Notice 55
14.6 Computation of Time 56
14.7 Titles and Captions 56
14.8 Entire Agreement 56
14.9 Agreement Binding 56
14.10 Parties in Interest 56
14.11 Amendments; Other Actions 56
14.12 Survival of Representations,
Warranties and Agreements 57
14.13 Further Assurances 57
14.14 Remedies Cumulative 57
14.15 Attorneys' Fees 57
14.16 Meetings 57
14.17 Enforceability 58
14.18 Indemnification 58
REDBIRD TRAILS ASSOCIATES, L.P.
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
This SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP (the "Agreement") of Redbird Trails Associates,
L.P. (the "Partnership"), dated as of November 23, 1994, is
by and among NCQ Redbird, Inc., a California corporation, as
the Operating General Partner, National Corporate Tax
Credit, Inc., a California corporation, as the Special
Limited Partner, National Corporate Tax Credit Fund, a
California limited partnership, as the Limited Partner, and
NCQ Realty, Inc., a Delaware corporation, as the Withdrawing
General Partner.
W I T N E S S E T H:
WHEREAS, the Partnership was formed as a limited
partnership under the laws of the State of Missouri pursuant
to the Original Partnership Agreement (as defined below);
and
WHEREAS, pursuant to the Investment Agreement (as
defined below), the Special Limited Partner, the Limited
Partner, the Withdrawing General Partner and certain other
parties entered into the Amended and Restated Agreement of
Limited Partnership dated as of January 1, 1993 (the
"Amended Partnership Agreement"); and
WHEREAS, the parties hereto desire to enter into this
Second Amended and Restated Agreement of Limited Partnership
(the "Agreement") to effect the (i) admission of they
Operating General Partner to serve as the sole general
partner, (ii) the withdrawal of the withdrawing General
Partner (subject to provisions of Section 3.2 hereof), (iii)
convert the Interest of National Corporate Tax Credit, Inc.,
from that of an administrative general partner to that of a
Special Limited Partner, (iv) the continuation of the
Partnership, (v) the reallocation of Profits, Losses,
credits and distributions of Cash Flow and other proceeds of
the Partnership among the Partners, (vi) the respective
rights, obligations and interests of the Partners to each
other and to the Partnership, and (vii) certain other
matters.
NOW, THEREFORE, in consideration of the covenants and
agreements hereinafter set forth, the parties hereto agree
that the Amended Partnership Agreement is hereby amended and
restated in its entirety to read as follows:
ARTICLE 1
DEFINED TERMS
Capitalized terms used in this Agreement shall,
unless the context otherwise requires, have the meanings
specified in this Article 1. Certain additional defined
terms may be set forth elsewhere in this Agreement. Each
definition or pronoun herein shall be deemed to refer to the
singular, plural, masculine, feminine or neuter as the
context requires. Words such as "herein," "hereinafter,"
"hereof," "hereto" and "hereunder," when used with reference
to this Agreement, refer to this Agreement as a whole,
unless the context otherwise requires.
"Accountants" means such firm or firms of independent
certified public accountants as may be engaged by the
Operating General Partner with the Consent of the Special
Limited Partner from time to time, and shall initially be
Landsman, Frank & Sinclaire, 9595 Wilshire Boulevard, Suite
811, Beverly Hills, California 90212, telephone (310) 274-
9922, and facsimile (310) 858-1640
"Adjusted Capital Account Deficit" means, with
respect to any Partner, the deficit balance, if any, in such
Partner's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following
adjustments:
(i) Crediting to such Capital Account all
amounts which such Partner is obligated to restore or is
deemed to be obligated to restore pursuant to Sections 1.704-
2(g)(1) and 1.704-2(i)(5) of the Regulations: and
(ii) Debiting from such Capital Account the
items described in paragraphs (4). (5) and (6) of Section
1.704-1 (b)(2)(ii)(d) of the Regulations.
The foregoing definition of Adjusted Capital
Account Deficit is intended to comply with the provisions of
Section 1.704-1 (b)(2)(ii)(d) of the Regulations and shall
be interpreted consistently therewith.
"Affiliate" of a specified Person means (i) any
Person directly or indirectly controlling, controlled by or
under common control with the Person specified, (ii) any
Person owning or controlling 10% or more of the outstanding
voting securities or beneficial interests of the Person
specified, (iii) any officer, director, partner, trustee or
member of the immediate family of the Person specified, (iv)
if the Person specified is an officer, director, general
partner or trustee, any corporation, partnership or trust
for which that Person acts in that capacity or (v) any
Person who is an officer, director, general partner, trustee
or holder of 10% or more of the outstanding voting
securities or beneficial interests of any Person described
in clauses (i) through (iv). The term "control" (including
the term "controlled by" and "under common control with")
means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Second Amended and Restated
Agreement of Limited Partnership, as it may be amended from
time to time.
"Amended Partnership Agreement" means the Amended and
Restated Agreement of Limited Partnership dated as of
January 1, 1993.
"Apartment Complex" means, collectively, the
Improvements and the Land on which the Improvements are
located, and all related facilities (including all fixtures,
appliances and personal property required in connection with
the use, operation and maintenance thereof).
"Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes,
except as follows:
(i) The initial Asset Value of any asset
contributed by a Partner to the Partnership shall be the
gross fair market value of such asset, as determined by the
contributing Partner and the Partnership;
(ii) The Asset Values of all Partnership
assets shall be adjusted to equal their respective gross
fair market values, as determined by the Operating General
Partner, with the Consent of the Special Limited Partner, as
of the following times: (a) the acquisition of an additional
interest in the Partnership by any new or existing Partner
in exchange for more than a de minimis Capital Contribution;
(b) the distribution by the Partnership to a Partner of more
than a de minimis amount of Partnership property as
consideration for an interest in the Partnership; and (c)
the liquidation of the Partnership within the meaning of
Section 1.704-1 (b)(2)(ii)(g) of the Regulations; provided,
however, that adjustments pursuant to clauses (a) and (b)
above shall be made only if the Operating General Partner
reasonably determines, with the Consent of the Special
Limited Partner, that such adjustments are necessary or
appropriate to reflect the relative economic interests of
the Partners in the Partnership;
(iii) The Asset Value of any Partnership asset
distributed to any Partner shall be the gross fair market
value of such asset on the date of distribution; and
(iv) The Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments
to the adjusted bases of such assets pursuant to Section
734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining
Capital Accounts pursuant to Section 1.704-1 (b)(2)(iv)(m)
of the Regulations and Section 9.1D(vii) hereof; provided.
however, that Asset Values shall not be adjusted pursuant to
this subparagraph (iv) to the extent the Operating General
Partner determines, with the Consent of the Special Limited
Partner, that an adjustment pursuant to subparagraph (ii)
hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment
pursuant to this subparagraph (iv).
If the Asset Value of any asset has been
determined or adjusted pursuant to subparagraphs (i), (ii),
or (iv) hereof, such Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Profits and Losses.
"Assignment" means a valid sale, exchange, transfer
or other disposition of all or any portion of an Interest.
"Assignor means a Partner who makes an Assignment and
"Assignee" means a Person who receives an Assignment.
"Authority" means (i) any applicable housing finance
authority or other agency authorized to issue bonds or other
evidence of indebtedness to finance residential housing
development and (ii) the housing credit agency (as defined
in Section 42(h)(7)(A) of the Code) of the State having
jurisdiction over the Apartment Complex. To the extent
applicable, Authority shall also mean any governmental body
or agency having jurisdiction over the operations of the
Apartment Complex.
"Bankruptcy" or "Bankrupt" means, with respect to any
Partner, such Partner making an assignment for the benefit
of creditors, becoming a party to any liquidation or
dissolution action or proceeding with respect to such
Partner or any bankruptcy, reorganization, insolvency or
other proceeding for the relief of financially distressed
debtors with respect to such Partner, or the appointment of
a receiver, liquidator, custodian or trustee for such
Partner or a substantial part of such Partner's assets and,
if any of the same occur involuntarily, the same not being
dismissed. stayed or discharged within 60 days; or the entry
of an order for relief against such Partner under Title 11
of the United States Code. A Partner shall be deemed
Bankrupt if the Bankruptcy of such Partner shall have
occurred and be continuing.
"Break-Even Level" means, with respect to any period,
the operation of the Apartment Complex such that the actual
collected receipts on a cash basis (including government
subsidies actually received during such period) by the
Partnership of revenues from rental income from the
Apartment Complex, at the required low-income rates, is
sufficient to meet all operating obligations of the
Partnership and the distribution described in Section
9.2A(iv) hereof. All such operating obligations will be
computed on the accrual basis of accounting and include,
without limitation, payments of principal and interest due
on the Mortgage Note and any other loans encumbering the
Apartment Complex and all other indebtedness of the
Partnership (including unamortized repayment obligations of
principal and interest on any loans outstanding, whether or
not then due), real estate taxes, insurance premiums,
accounting fees, mortgage insurance premiums (if any),
management fees, reserves for repairs and replacements
(which reserves shall require the Consent of the Special
Limited Partner), reserves which have been required by any
Lender or any Authority, reserves for all taxes or payments
in lieu of taxes, capital expenditures to the extent not
covered by insurance proceeds or releases from reserves,
compliance monitoring fees charged by the Authority or any
other Governmental Agency relating to allocation of the
Housing Tax Credits and any other expenses which were
incurred during that period. Real estate taxes, insurance
premiums, accounting fees and all material costs and
expenses which are seasonal, including, but not limited to,
fuel or other utility costs, shall be annualized so as to
reflect on a monthly basis the average of expenses so
incurred. All rent concessions, rebates and other rental
incentives shall be treated as operating obligations and
spread over the term of the lease to which they apply.
Without limiting the generality of the foregoing, the
Partnership's revenues for purposes of determining Break-
Even Level shall not include Capital Contributions, the
proceeds of Partnership borrowings or loans, interest or any
other income earned on investment of Partnership funds,
casualty insurance proceeds or Sale or Refinancing
Transaction Proceeds.
"Capital Account" means, with respect to any Partner,
the Capital Account maintained for such Partner in
accordance with the following provisions:
(i) To each Partner's Capital Account there
shall be credited such Partner's Capital Contributions, such
Partner's distributive share of Profits and any items in the
nature of income or gain which are specially allocated
pursuant to Sections 9.1D, 9.1E and 9.1F hereof, and the
amount of all Partnership liabilities assumed by such
Partner or which are secured by any property distributed to
such Partner;
(ii) To each Partner's Capital Account there
shall be debited the amount of cash and the Asset Value of
any property distributed to such Partner pursuant to any
provision of this Agreement, such Partner's distributive
share of Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Sections
9.1D, 9.1E or 9.1 F hereof, and the amount of all
liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such
Partner to the Partnership;
(iii) In the event all or a portion of an
Interest in the Partnership is transferred in accordance
with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the
extent it relates to the transferred Interest; and
(iv) In determining the amount of any
liability for purposes of subparagraphs (i) and (ii) hereof,
there shall be taken into account Section 752(c) and any
other applicable provisions of the Code and Regulations.
The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Sections 1.704-
1 (b) and 1.704-2 of the Regulations, and shall be
interpreted and applied in a manner consistent with such
Regulations. In the event the Special Limited Partner shall
determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating
to liabilities which are secured by contributed or
distributed property or which are assumed by the Partnership
or Partners) are computed in order to comply with such
Regulations, the Special Limited Partner may make such
modifications, provided that it is not likely to have a
material effect on the amounts distributable to any Partner
pursuant to Sections 9.2 or 12.4 hereof upon the dissolution
of the Partnership and after providing notice thereof to the
Operating General Partner. The Special Limited Partner also
shall, to the extent permitted by Section 1.704-1
(b)(2)(iv)(q) of the Regulations, (i) make all adjustments
that are necessary or appropriate to maintain equality
between the Capital Accounts of the Partners and the amount
of Partnership capital reflected on the Partnership's
balance sheet, as computed for book purposes, and (ii) make
all appropriate modifications in the event unanticipated
events (for example, the acquisition by the Partnership of
oil or gas properties) might otherwise cause this Agreement
not to comply with Section 1. 704-1 (b) of the Regulations.
"Capital Contribution" means the total amount of cash
and the agreed fair market value of other property, if any,
contributed to the Partnership by each Partner, including in
accordance with Schedule A attached hereto. Any reference in
this Agreement to the Capital Contribution of a then Partner
shall include the contributions to the capital of the
Partnership made by any predecessor in interest of such
Partner.
"Capital Note" means the portion of the Limited
Partner Contribution evidenced by a nonrecourse promissory
note payable to the order of the Partnership and due upon
the occurrence of certain conditions precedent, as more
fully set forth in the Investment Agreement.
"Cash Expenditures" means all disbursements of cash
(excluding distributions pursuant to Section 9.2A hereof)
determined on an accrual basis during the Fiscal Year
(excluding distributions to Partners), including, without
limitation, payment of operating expenses, payment of
principal and interest of the Partnership's indebtedness
(excluding payments of principal and interest of Voluntary
Loans and Operating Loans), mortgage insurance premiums (if
any), cost of repair, replacement and restoration of the
Apartment Complex, amounts allocated to reserves by the
Operating General Partner with the Consent of the Special
Limited Partner, and the payment of the fees set forth in
Article 6 hereof. In addition, the net increase during the
year in any escrow account or reserve maintained by or for
the Partnership shall be considered a cash expenditure
during the year. Cash Expenditures payable to Partners or
Affiliates of Partners shall be paid after Cash Expenditures
payable to third parties.
"Cash Flow" means the excess of Cash Receipts over
Cash Expenditures. Cash Flow shall be determined separately
for each Fiscal Year or portion thereof.
"Cash Receipts" means all cash receipts of the
Partnership from whatever source derived other than from a
Sale or Refinancing Transaction, including, without
limitation, cash from operations, net insurance recoveries
(other than proceeds from title insurance recoveries) and
Capital Contributions. In addition, the net reduction in any
year in the amount of any escrow account or reserve
maintained by or for the Partnership shall be considered a
cash receipt of the Partnership for such year.
Notwithstanding the foregoing, Cash Receipts received within
30 days prior to the close of a Fiscal Year and intended for
use in meeting the Partnership's obligations (including the
cost of acquiring assets or paying debts or expenses) in the
subsequent Fiscal Year may, in the discretion of the Special
Limited Partner, be deemed to be received in such subsequent
Fiscal Year,
"Certificate" means the Original Certificate or any
other instrument filed in the Filing Office as the
Certificate of Limited Partnership of the Partnership in
accordance with the Uniform Act, as amended from time to
time.
"Class" means a specific class or grouping of
Partners (i.e., the General Partners or the Limited
Partner).
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute.
"Compliance Period" shall have the meaning provided
in Section 42(i)( 1 ) of the Code.
"Consent of the Special Limited Partner" means the
prior written consent or approval of the Consent Special
Limited Partner.
"Credit Period" means, with respect to Housing Tax
Credits, the period of ten taxable years beginning with the
taxable year in which the Apartment Complex is placed in
service or, at the election of the Special Limited Partner,
the succeeding taxable year, provided that the Apartment
Complex is eligible for Housing Tax Credits as of the close
of the first year of such period.
"Depreciation" means, for each Fiscal Year or other
period, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable for federal income
tax purposes with respect to an asset for such year or other
period, except that if the Asset Value of an asset differs
from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such
beginning Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction
for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal
income tax depreciation, amortization or other cost recovery
deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Asset Value
using any reasonable method selected by the Operating
General Partner, with the Consent of the Special Limited
Partner.
"Development Fee" means the fee, if any, to be paid
by the Partnership pursuant to the Operating Deficit and
Rental Achievement Agreement.
"Filing Office" means the Secretary of State or such
other office in which certificates of limited partnership
are properly filed under the Uniform Act as enacted in the
State.
"Final Determination" means (i) a decision of a court
of competent jurisdiction from which no appeal is available,
(ii) a binding agreement between the Partnership and the IRS
with respect to such issue, or (iii) a final ruling or
administrative determination by the IRS.
"Fiscal Year" means the twelve-month period which
begins on the first day of January and ends of the thirty-
first day of December of each calendar year (or ends on the
date of final dissolution for the year in which the
Partnership is wound up and dissolved).
"Foreign Partner" means a Partner who at the time of
acquisition of such Partner's Interest is a United States
citizen or a resident alien of the United States and whose
status subsequently changes to that of a non-resident alien
of the United States.
"Foreign Person" means a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign
estate, within the meaning of Sections 897 and 1445 of the
Code.
"Funding Period" means the three-year period
commencing on the date that the Permanent Loan is funded.
"General Partner" or "General Partners" means any or
all Persons designated as General Partners in Schedule A,
including, without limitation, the Operating General Partner
and any Person or Persons who, at the time of reference
thereto, have been admitted as additional or successor
General Partners.
"General Partner Priority" means the priority
distribution due to the Operating General Partner in the
amount of $3,452,400.
"Governmental Agreements" means all agreements
between the Partnership and any Authority with respect to
the Apartment Complex and relating to insuring,
supplementing, subsidizing, endorsing or otherwise affecting
the Mortgage or the Apartment Complex and all such
agreements with respect to bond financing secured by a
Mortgage, including any regulatory agreement, Authority
Insurance Obligation or Rental Assistance Contract.
"Housing Tax Credits" means any low-income housing
tax credits under Section 42 of the Code.
"HUD" means the United States Department of Housing
and Urban Development, or any successor federal agency.
"Improvements" means those certain buildings
containing 252 apartment units, and the ancillary and
appurtenant facilities being constructed by the Partnership
upon the Land.
"Interest" means the entire ownership interest of a
Partner in the Partnership at any particular time, including
the right of such Partner to any and all benefits to which a
Partner may be entitled as provided in this Agreement,
together with the obligations of such Partner to comply with
all terms and provisions of this Agreement.
"Investment Agreement" means the Investment
Agreement, dated as of January 1, 1993, among the
Partnership, the Withdrawing General Partner, the Limited
Partner, the Special Limited Partner and certain other
parties, including all Exhibits and Schedules thereto.
"Involuntary Withdrawal" means, as to any General
Partner, any Withdrawal caused by the death, adjudication of
insanity or incompetence or Bankruptcy.
"IRS" means the Internal Revenue Service.
"Land" means that certain parcel of real property
owned by the Partnership on which the Improvements are
located in Dallas, Texas, the legal description of which
appears as Exhibit A-1 to the Investment Agreement.
"Lender" means any lender under any mortgage or deed
of trust constituting the Mortgage .
"Limited Partner" means National Corporate Tax Credit
Fund, A California Limited Partnership, and its successors
and assigns.
"Limited Partner Contribution" means the gross
investment of the Limited Partner in the Partnership, a
total equal to $1,256,158, plus any supplemental amounts
paid in addition to that provided for in the Investment
Agreement less any amounts paid to the Limited Partner
pursuant to Section 3.8A hereof.
"Liquidating Agent" means that Person conducting and
supervising the liquidation of the Partnership in accordance
with the terms of Section 12.2 hereof.
"Major Default" means the happening of any one of the
events set forth under Section 1 1.4A hereof.
"Majority in Interest" means with respect to each
Class, those Partners holding more than one-half of the
Interests held by such Class.
"Management Agent" means the person approved by each
Authority and selected to provide management services to the
Apartment Complex from time to time in accordance with
Article 8 hereof.
"Management Agreement" means the agreement between
the Partnership and the Management Agent in connection with
management of the Apartment Complex entered into pursuant to
the authority granted by Article 8 hereof.
"Mortgage" means any mortgage or deed of trust
securing an indebtedness of the Partnership evidenced by a
Mortgage Note and encumbering the Apartment Complex, as such
indebtedness may be increased, decreased or refinanced in
accordance with this Agreement and the Project Documents.
Where the context permits, the term Mortgage" shall include
any mortgage, deed, deed of trust, note, regulatory
agreement, security agreement, assumption agreement or other
instrument executed in connection with a Mortgage Note which
is binding on the Partnership; and in case any Mortgage is
replaced or supplemented by any subsequent document, the
term "Mortgage" shall refer to any such subsequent document.
"Mortgage Note" means any promissory note held by a
Lender evidencing indebtedness secured by a Mortgage.
"NCMC" means National Capital Management Corporation,
a Delaware corporation.
"Nonrecourse Debt" has the meaning given to the term
"nonrecourse liability" in Section 1.704-2(b)(3) of the
Regulations.
"Nonrecourse Deductions" has the meaning set forth in
Section 1 .704-2(b)(1) of the Regulations. The amount of
Nonrecourse Deductions for each Fiscal Year shall equal the
excess, if any, of the net increase, if any, in the amount
of Partnership Minimum Gain during that Fiscal Year over the
aggregate amount of any distributions during that Fiscal
Year of proceeds of a Nonrecourse Debt that are allocable to
an increase in Partnership Minimum Gain, determined in
accordance with the provisions of Section 1.704-2(c) of the
Regulations.
"Occupancy" means occupancy under leases (i) having a
term of not less than six months (ii) under which full
rental payments have commenced at rental rates which are
consistent with the definition of "rent restricted unit"
under Section 42(9)(2) of the Code, or at such other rental
rates as may be prescribed under any applicable restrictions
contained in the Project Documents, but in no event at rates
which are less than 90% of those approved by the Special
Limited Partner in writing, (iii) to tenants actually
occupying the apartment unit and who meet the income
requirements of Section 42(9) of the Code and (iv) on such
other terms as are commercially reasonable and customary
under residential apartment leasing practices observed in
the area in which the Apartment Complex is located. An
occupancy shall not be included in the determination of
Rental Achievement unless and until each of the foregoing
criteria has been complied with. Except for the calculation
of "Occupancy" for purposes of determining whether the
Partnership has attained Rental Achievement, a vacant unit
will be included in the determination of Occupancy provided
it was previously "Occupied" under all of the conditions set
forth above and since the vacation thereof by the qualified
tenants, it has continued to be available only as a "rent
restricted unit" within the definition of Section 42(9)(2)
of the Code. With respect to Rental Achievement, "Occupancy"
will not include any unit which is not physically occupied
at the time of the determination by a tenant meeting all of
the above-stated qualifications.
"Operating Deficit" means, for any specified period
of time, the amount by which the actual collected receipts
on a cash basis (including government subsidies actually
received during such period) by the Partnership of revenues
from rental income from the Apartment Complex, at the
required low-income rates, is less than the amount necessary
to meet all operating obligations of the Partnership. Such
operating obligations will be computed on the same basis and
include those payments set forth under "Break-Even Level,"
above. Without limiting the generality of the foregoing, the
Partnership's revenues for purposes of calculating any
Operating Deficit shall not include Capital Contributions,
the proceeds of Partnership borrowings or loans, interest or
any other income earned on investment of Partnership funds,
casualty insurance proceeds, or Sale or Refinancing
Transaction Proceeds.
"Operating Deficit and Rental Achievement Agreement"
means that certain agreement between the Partnership, NCMC,
the Limited Partner and the Special Limited Partner, dated
as of June 6, 1994.
"Operating General Partner" means NCQ Redbird, Inc.,
together with its permitted respective successors and
assigns.
"Operating Loans" means loans made to the Partnership
pursuant to the Operating Deficit Agreement to fund
Operating Deficits occurring during the Funding Period,
which loans do not bear interest and are repayable only as
provided in Article 9.
"Original Agreement" means the Agreement of Limited
Partnership of the Partnership dated December 30, 1991.
"Original Certificate" means the Certificate of
Limited Partnership for the Partnership, filed with the
Filing Office on December 30, 1991.
"Original Partnership Agreement" means, collectively,
the Original Certificate and the Original Agreement.
"Partner" or "Partners" means any or all of the
General Partners and the Limited Partner.
"Partner Nonrecourse Debt" has the meaning set forth
in Section 1 .704-2(b)(4) of the Regulations.
"Partner Nonrecourse Debt Minimum Gain" has the
meaning set forth in Section 1.704- 2(i)(2) of the
Regulations and shall be determined in accordance with
Section 1.704-2(I)(3) of the Regulations.
"Partner Nonrecourse Deductions" has the meaning set
forth in Section 1 .704-2(I)(2) of the Regulations. The
amount of Partner Nonrecourse Deductions with respect to a
Partner Nonrecourse Debt for a Partnership Fiscal Year
equals the excess, if any, of the net increase, if any, in
the amount of Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt during that
Fiscal Year over the aggregate amount of any distributions
during that Fiscal Year to the Partner that bears the
economic risk of loss for such Partner
Nonrecourse Debt to the extent that such distributions are
from the proceeds of such Partner Nonrecourse Debt which are
allocable to an increase in Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt,
determined according to the provisions of Section 1.704-
2(i)(2) of the Regulations.
"Partnership" means the limited partnership governed
by this Agreement, as such Agreement may from time to time
be amended or reconstituted.
"Partnership Minimum Gain" has the meaning set forth
in Section 1.704-2(d) of the Regulations .
"Permanent Loan" shall have the meaning set forth in
the Investment Agreement.
"Person" means any individual or entity, and the
heirs, executors, administrators, legal representatives,
successors and assigns of such Person as the context may
require.
"Prime Rate" means the rate of interest publicly
announced from time to time by Bank of America National
Trust and Savings Association in Los Angeles, as its prime
rate.
"Profits" and "Losses" means, for each Fiscal Year or
other period, an amount equal to the Partnership's taxable
income or loss for such year or period, determined in
accordance with Section 703(a) of the Code (for this purpose
all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a)(1 ) of the
Code, as well as each item of income, gain, expense,
deduction and loss of the Partnership for such year or
period 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 and not otherwise taken into
account in computing Profits or Losses shall be added to
such taxable income or loss;
(ii) Any expenditures of the Partnership
described in Section 705(a)(2)(B) of the Code or treated as
Section 705(a)(2)(B) of the Code expenditures pursuant to
Section 1.704-1(b)(2)(iv)(i) of the Regulations, and not
otherwise taken into account in computing Profits or Losses,
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 Asset Value of the
property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Asset Value;
(iv) In the event of a distribution of
Partnership assets to a Partner (whether in connection with
a liquidation or otherwise), or in the event the Asset Value
of any Partnership asset is adjusted upon the acquisition of
an additional interest in the Partnership, unrealized
income, gain, loss and deduction inherent in such
distributed or adjusted assets (not previously reflected in
Capital Accounts) shall be allocated pursuant to Section 9.1
hereof as if there had been a taxable disposition of such
distributed or adjusted assets at fair market value;
(v) In lieu of the depreciation, amortization,
and other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken
into account Depreciation for such fiscal year or other
period, computed in accordance with the definition of
Depreciation herein; and
(vi) Notwithstanding any other provision of
this definition of Profits and Losses, any items that are
allocated pursuant to Sections 9.1 D or 9.1 E hereof shall
not be taken into account in computing Profits or Losses.
"Project Debt" means all of the debt secured or
contemplated to be secured by the Apartment Complex.
"Project Documents" means the Governmental
Agreements, the Management Agreement, the Mortgage, the
Mortgage Note, and any other document related to the
financing or operation of the Apartment Complex, as any such
document may be amended from time to time.
"Qualified Units" means those low-income apartment
units in the Apartment Complex which meet the requirements
of Section 42(i)(3) of the Code.
"Regulations" means the Income Tax Regulations
(whether proposed, temporary or final) promulgated under the
Code as such regulations may be amended from time to time
(including corresponding provisions of succeeding
regulations).
"Rental Achievement" means the date that all of the
following conditions have been fulfilled: (i) the Apartment
Complex shall have been placed in service on or before
December 31, 1993; (ii) the funding of the permanent loan
for the Apartment Complex shall have occurred; (iii) all
Governmental Approvals specified in the Investment Agreement
shall have been received; and (iv) (a) 90% Occupancy of the
Apartment Complex by tenants who meet the income
requirements of Section 42(9) of the Code and (b) the
Partnership has attained Break-Even Level, in each case, for
three consecutive months (which three-month period may
commence as early as three months prior to the funding of
the Permanent Loan as provided in Paragraph 2.3 of the
Investment Agreement; provided. however, that for purposes
of determining Break-Even Level, operating obligations for
said three-month period shall be deemed to include principal
and interest due on the Permanent Loan as if the Permanent
Loan had been funded) at rental rates which permit 100% of
the apartment units of the Apartment Complex to qualify for
the Housing Tax Credits. Notwithstanding anything contained
herein to the contrary, Rental Achievement shall not occur
unless the Partnership's basis in the Apartment Complex as
of December 31, 1992, shall have been greater than 10% of
the reasonably expected basis of the Apartment Complex as
provided in Section 42(h)(1 )(E) of the Code .
"Sale or Refinancing Transaction" means any of the
following items or transactions not in the ordinary course
of business: a sale, transfer, exchange or other disposition
of all or substantially all of the assets of the
Partnership, a condemnation of the Apartment Complex or any
part thereof, recoveries of damage awards and insurance
proceeds (other than business or rental interruption
insurance proceeds), the refinancing of any Mortgage Note or
other indebtedness of the Partnership and any similar item
or transaction; provided, however, that neither
distributions which are deemed returns of capital for
federal income tax purposes nor the payment of Capital
Contributions shall be included within the meaning of the
term "Sale or Refinancing Transaction."
"Sale or Refinancing Transaction Proceeds" means all
cash receipts of the Partnership arising from a Sale or
Refinancing Transaction (including principal and interest
received on a debt obligation received as consideration, in
whole or in part, on a Sale or Refinancing Transaction) less
the following: (i) the amount of cash paid or to be paid in
connection with or as an expense of such Sale or Refinancing
Transaction, and, with regard to damage recoveries or
insurance or condemnation proceeds (other than for temporary
loss of use), cash paid or to be paid for repairs,
replacements or renewals resulting from damage to or partial
condemnation of the affected property; and (ii) the amount
necessary for the payment of all debts and obligations of
the Partnership due upon the occurrence of the particular
Sale or Refinancing Transaction.
"Special Limited Partner" means National Corporate
Tax Credit, Inc., a California corporation, and its
successors and assigns.
"State" means the state in which the Apartment
Complex is located.
"Subsequent Closing" shall have the meaning set forth
in the Investment Agreement.
"Substituted Partner" means any transferee of an
Interest who is admitted to the Partnership as a successor
partner.
"Tax Matters Partner" means the Partner designated
from time to time as the Tax Matters Partner of the
Partnership pursuant to Section 5.3D hereof.
"Unavoidable Events" means strikes, acts of God,
governmental restrictions, severe or unusual shortages of
labor or materials, enemy action, riot, civil commotion,
fire, unavoidable casualty or other causes beyond the
reasonable control of a party. Lack of funds shall not be
deemed a cause beyond the control of a party.
"Uniform Act" means the Uniform Limited Partnership
Act, or its equivalent, as it may be adopted or amended from
time to time by the State, or any successor statute
governing the operation of limited partnerships.
"United States Real Property Interest" means any
direct or indirect interest in United States real property
as defined in Section 897(c) of the Code and the Regulations
promulgated thereunder.
"Voluntary Loan" means a voluntary, unsecured
interest-bearing loan by any Partner to the Partnership as
described in Section 4.2 hereof.
"Withdrawing" or "Withdrawal" (including the verb
form "Withdraw" and the adjectival form "Withdrawn") means,
as to the Operating General Partner, the occurrence of the
death, adjudication of insanity or incompetence, Bankruptcy,
dissolution or liquidation of such Partner, or the
withdrawal, removal or retirement from the Partnership of
such Partner for any reason, including any Assignment of its
Interest and those situations when a General Partner may no
longer continue as a General Partner by reason of any law or
pursuant to any term of this Agreement.
"Withdrawing General Partner" means NCQ Realty, Inc.,
who is hereby withdrawing from the Partnership.
ARTICLE 2
GENERAL
2.1 Continuation of the Partnership.
A. The Partnership shall be continued as a
limited partnership pursuant to this Agreement. The name of
the Partnership shall continue to be the name set forth at
the beginning of this Agreement or such other name selected
by the Operating General Partner, with the Consent of the
Special Limited Partner, as may be acceptable to the Filing
Office.
B. As soon after the execution of this
Agreement as is practicable, the Operating General Partner
shall file this Agreement and/or a certificate related
hereto in the Filing Office in accordance with the Uniform
Act. The Operating General Partner shall from time to time
take all such other actions as may be deemed to be necessary
or appropriate, including the preparation and filing of such
amendments to this Agreement and any other certificate,
document or instrument as may be required under the laws of
the State, to (I) effectuate and permit the continuation of
the Partnership as a limited partnership under the laws of
the State, (ii) enable the Partnership to do business in the
State, and iii) protect the limited liability of the Limited
Partner and the Special Limited Partner under the laws of
the State. The Partners shall execute such certificates,
documents and instruments and take such other action as may
be necessary to enable the Operating General Partner to
fulfill their responsibilities under this Section 2.1 B. The
power of attorney granted in Section 14.2 hereof may be
exercised by the Special Limited Partner to effect the
provisions of this Section 2.1 B. In the event the Operating
General Partner fails to comply with this Section 2.1 B, the
Special Limited Partner is authorized to do so on behalf of
the Operating General Partner.
2.2 Principal Office. The principal office of the
Partnership shall be located at 50 California Street, Suite
3300, San Francisco, California 94111. The Operating General
Partner may maintain such other offices on behalf of the
Partnership in the State as they may from time to time deem
advisable. The Partnership's books and records and other
documents, agreements and information will be made available
at its principal office in accordance with the Uniform Act.
The principal office of the Partnership may be changed by
the Operating General Partner, in which event prior written
notice thereof shall be given by the Operating General
Partner to all the other Partners.
2.3 Principal Place of Business; Resident Agent. The
principal place of business of the Partnership shall be at
the location of the Apartment Complex. John S. Waugh, 245
One at Energy Square, 4925 Greenville Avenue, Dallas, Texas
75206, has been appointed the Partnership's resident agent
for the service of process in the State.
2.4 Term. The Partnership shall continue in full
force and effect until the dissolution and termination of
the Partnership pursuant to Article 12 hereof.
2.5 Purpose.
A. The specific business and purpose of the
Partnership is investment in real property and the provision
of low income housing through the construction, renovation,
rehabilitation, operation (including conversion to
cooperative or condominium form of ownership and the sale of
apartment units, if permitted) and leasing of the Apartment
Complex and any commercial space located therein, and in
connection therewith, subject to and in accordance with the
permission of each applicable Authority and all Governmental
Agreements, to make and perform contracts and other
undertakings and to engage in any and all activities and
transactions as may be necessary or advisable in connection
therewith, including, but not limited to, the purchase,
transfer, mortgage, pledge and exercise of all other rights,
powers, privileges and other incidences of ownership with
respect to the Apartment Complex and to borrow or raise
money without limitation as to amount or manner and to carry
on any and all activities related to any of the foregoing.
B. In order to carry out its business and
purpose under Section 2.5A hereof and subject to the
limitations set forth elsewhere in this Agreement, the
Partnership is hereby authorized to:
(i) Acquire, renovate, rehabilitate,
own, maintain and operate the Apartment Complex;
(ii) Mortgage, refinance, lease,
transfer and exchange or otherwise convey and encumber, with
the Consent of the Special Limited Partner (subject to the
provisions of Paragraph 2.3 of the Investment Agreement),
the Apartment Complex (including conversion to cooperative
or condominium form of ownership and the sale of apartment
units) in furtherance of any and all of the objectives of
the business of the Partnership;
(iii) Enter into, perform and carry out
contracts of any kind necessary to, or in connection with or
incidental to, the acquisition, renovation, rehabilitation,
ownership, financing, maintenance and operation of the
Apartment Complex, including, but not by way of limitation,
any contracts with any Authority which may be desirable or
necessary to comply with the requirements of such Authority,
including any agreements relating to regulations or
restrictions contained in any mortgages as to rents, sales,
charges, capital structure, rate of return and methods of
operation;
(iv) Rent dwelling units and commercial
space, if any, therein from time to time in accordance with
applicable federal, state and local regulations, in such a
manner so as to qualify for the Housing Tax Credits, collect
the rents therefrom, pay the expenses incurred in connection
therewith, and distribute the net proceeds to the Partners,
subject to any requirements which may be imposed by any
Authority: and
C. The sole purpose of the Partnership is to
acquire, own, hold, maintain, manage, operate, improve,
sell, exchange, lease, dispose of and otherwise deal with
the property, together with such other activities as may be
necessary or advisable in connection with the ownership of
the property. Notwithstanding anything contained herein to
the contrary, the Partnership shall not engage in any
business unrelated to the Apartment Complex and shall not
own any assets other than those related to the Apartment
Complex and/or otherwise in furtherance of the purposes of
the Partnership. The Partnership shall not incur any
indebtedness other than the indebtedness related to the
Apartment Complex and/or as otherwise herein provided. The
Partnership shall maintain its own separate books, records
and accounts.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 Operating General Partner. The Operating General
Partner is hereby admitted to the Partnership as the sole
general partner hereof. The contribution of the General
Partner is set forth in Schedule A.
3.2 Withdrawal of Withdrawing General Partner. The
Withdrawing General Partner hereby withdraws from the
Partnership. The Withdrawing General Partner acknowledges
that it has no further interest in the Partnership and shall
be deemed to have withdrawn as a as of the date hereof.
Notwithstanding anything to the contrary, the withdrawal of
the Withdrawing General Partner shall not reduce, modify or
amend (i) the representations and warranties and covenants
of the Withdrawing General Partner set forth in the First
Amendment to the Amended Partnership Agreement, the
Operating Deficit and Rental Achievement Agreement or (ii)
any other provision of the Operating Deficit and Rental
Achievement Agreement (including without limitation, the
Withdrawing General Partner's right to receive any
Development Fee).
3.3 Special Limited Partner. The Capital Contribution
of the Special Limited Partner is set forth in Schedule A.
3.4 Limited Partner. The Limited Partner Contribution
is set forth on Schedule A and payment thereof shall be
subject to and as provided in the Investment Agreement.
3.5 Treatment of Other Advances. If any Partner or
Affiliate shall advance funds to the Partnership other than
the amount of its Capital Contribution, the amount of such
advance shall not be considered a contribution to the
capital of the Partnership. Unless otherwise indicated to
the contrary elsewhere in this Agreement, any such advance
shall be considered a Voluntary Loan in accordance with
Section 4.2 below.
3.6 Capital Accounts; Interest; Withdrawal. No
Partner shall have the right to demand a return of its
Capital Contribution, except as otherwise provided in this
Agreement or as specifically provided in the Investment
Agreement. No Partner shall have priority over any other
Partner, either as to return of its Capital Contribution or
as to Profits, Losses or distributions, except as otherwise
specifically provided herein and in the Investment
Agreement. Subject to the provisions of Section 3.8 and
except as otherwise specifically provided herein or in the
Operating Deficit and Rental Achievement Agreement, no
General Partner shall be personally liable for the return of
the Limited Partner Contribution, or any portion thereof, it
being expressly understood that any such return shall be
made solely from assets of the Partnership. No interest
shall be paid on any Capital Account or Capital
Contribution. No Partner shall have the right to demand or
receive property other than cash for its Interest. Each of
the Partners does hereby agree to, and does hereby, waive
any right such Partner may otherwise have to cause any asset
of the Partnership to be partitioned or to file a complaint
or institute any proceeding at law or in equity seeking to
have any such asset partitioned.
3.7 Liability of Limited Partner and Special Limited
Partner. Neither the Limited Partner nor the Special Limited
Partner shall be liable for any debts, liabilities,
contracts or obligations of the Partnership, except as
provided by law. The Limited Partner shall be liable only to
make the Limited Partner Contribution as and when due under
this Agreement and pursuant to the terms of Section 2.1 of
the Investment Agreement.
3.8 Housing Tax Credit Protection; Adjustment of
Interests.
A. Except as provided in this Section 3.8A, in
the event that the amount of the Housing Tax Credits
available to or received by the Partnership in any taxable
year prior to the termination of the Credit Period is less
than $284,814 for any reason (including, without limitation,
the rehabilitated portion of the Apartment Complex not being
placed in service during 1993, a change in law or the
failure of the Partnership to operate the Apartment Complex
so as to have 100% of the apartment units therein eligible
for the Housing Tax Credits), or if all or any part of the
Housing Tax Credits for any year are subsequently
recaptured, the Limited Partner Contribution shall be
reduced by an amount equal to $0.44105 for each $1.00 of
reduction and/or recapture of the Housing Tax Credits. Each
remaining installment of the Limited Partner Contribution
then outstanding shall be reduced, pro rata, so that the
aggregate contributions, when made, will total the new
amount of the Limited Partner Contribution. If the
outstanding balance of the Limited Partner Contribution has
been reduced to zero by reason of the aforesaid adjustments
to the Limited Partner Contribution and/or payments
previously made thereon or offsets applied thereto, then (i)
Cash Flow distributed to the Limited Partner pursuant to
Section 9.2A(iv) hereof shall be increased by $1.00 for each
$1.00 by which the Housing Tax Credits finally allowed the
Partnership (after the effect of any recapture) in any
taxable year is less than $284,814 plus the amount of
interest included as part of a recapture, and the amount
distributable to the Operating General Partner pursuant to
Section 9.2A(v) shall be decreased by the same amount, and
(ii) the Sale or Refinancing Transaction Proceeds
distributed to the Limited Partner pursuant to Section
9.2B(vii) shall be increased by $1.00 for each $1.00 (to the
extent such adjustment is not fully taken into account in
clause (i) above) by which the Housing Tax Credits finally
allowed the Partnership (after the effect of any recapture)
in any taxable year is less than $284,814 plus the amount of
interest included as part of a recapture, and the amount
distributable to the Operating General Partner pursuant to
Section 9.2B(viii) shall be decreased by the same amount.
Notwithstanding the foregoing, but subject to Paragraph 2.2
of the Investment Agreement, for 1993 the Housing Tax
Credits attributable to the Apartment Complex shall be
prorated based on the actual Occupancy for the amount of
time that the Apartment Complex is in service, and there
shall be available to the Partnership in the year 2003,
Housing Tax Credits in an amount equal to the excess of
$284,814 over the prorated amount available in 1993.
Notwithstanding anything contained above to the contrary, if
the change in the law causing the recapture or reduction of
Housing Tax Credits is such that compliance therewith is not
within the reasonable control of the Operating General
Partner and/or Management Agent, then the only adjustment
shall be the adjustment of Sale or Refinancing Transaction
Proceeds as contemplated above. For purposes of this Section
3.8A, Housing Tax Credits with respect to a taxable year
shall be determined as available to or received by the
Partnership (a) by good faith determination of the
Accountants, or (b) as a result of a Final Determination.
B. The Operating General Partner shall enter
into a security agreement similar to the form of Exhibit J
to the Investment Agreement, pursuant to which the Operating
General Partner will grant to the Limited Partner a first
priority security interest in the collateral described
therein as security for the Operating General Partner's
obligations under the Operating Deficit and Rental
Achievement Agreement. The Operating General Partner will,
at its expense, execute, acknowledge and deliver all such
further instruments and assurances and take all such further
actions as the Limited Partner shall reasonably require in
order to perfect the priority of such security interest.
C. If all or a portion of the Limited Partner
Contribution is returned to it under Section 3.8A hereof,
the Operating General Partner shall promptly file an
amendment to this Agreement and/or the Certificate in the
Filing Office reflecting such return as a reduction of the
Limited Partner Contribution.
3.9 Default in Limited Partner Contribution.
A. The failure by the Limited Partner to make
the timely payment of the entire amount of each installment
of the Limited Partner Contribution when due, unless such
failure is a result of the exercise of the remedies set
forth in Section 3.8 hereof or as otherwise provided herein
or in the Investment Agreement, shall constitute a default
on behalf of the Limited Partner. Upon a default, the
Operating General Partner shall have the right to demand
that said default be cured, and upon the expiration of 45
days following notice of demand the Operating General
Partner shall have the right to remove the Special Limited
Partner and cause a reduction in the Limited Partner's
interest in Profits and Losses and rights to receive cash
from Operations, Sales or Refinancing Proceeds and the
Housing Tax Credits (collectively, the "Limited Partner's
Interest") for the Fiscal Year in which the default occurs
and thereafter in the manner set forth in Section 3.9B
hereof.
B. In the event the Limited Partner's Interest
is reduced in accordance with Section 3.9A hereof, the
Limited Partner's Interest shall be reduced to an amount
equal to the product obtained by multiplying such Limited
Partner's Interest by 90% of a fraction the numerator of
which shall be the Limited Partner Contribution actually
made and the denominator of which shall be the aggregate
Limited Partner Contribution which the Limited Partner is
obligated to contribute to the Partnership pursuant to the
terms of the Investment Agreement, reduced by any
adjustments to the Limited Partner Contribution as provided
herein or pursuant to the terms of the Investment Agreement.
Any reduction in the Limited Partner's Interest pursuant to
this Section 3.9 shall inure to the benefit of the Operating
General Partner who may accept such Interest as either a
General or a Limited Partner.
ARTICLE 4
COMPLIANCE WITH AUTHORITY REQUIREMENTS;
PARTNERSHIP BORROWINGS
4.1 Authority Requirements. The following provisions
shall apply at all times: (I) each of the provisions of this
Agreement shall be subject to, and the Operating General
Partner covenants to act in accordance with, the Project
Documents, the Investment Agreement and all applicable
federal, state, and local laws and regulations; (ii) such
documents, laws and regulations, as amended or supplemented,
shall govern the rights and obligations of the Partners,
their heirs, executors, administrators, successors and
assigns; (iii) upon any dissolution of the Partnership or
any transfer of the Apartment Complex, no title or right to
the possession and control of the Apartment Complex and no
right to collect rent therefrom shall pass to any person who
is not, or does not become, bound by the Governmental
Agreements in a manner satisfactory to each Authority; (iv)
no amendment of this Agreement shall affect the rights of
any Authority under any of the Project Documents or the
Investment Agreement without the prior written consent of
such Authority; (v) any conveyance or transfer of title to
a'! or any portion of the Apartment Complex required or
permitted under this Agreement shall in all respects be
subject to any and all conditions, approvals and other
requirements of the rules and regulations of any Authority
applicable thereto; and (vi) the Operating General Partner
shall at no time do or cause to be done any act directly or
indirectly affecting the Apartment Complex, except with the
prior approval or pursuant to the requirements of each
Authority and each Lender, if such approval is required.
4.2 Loans. All borrowings by the Partnership shall be
subject to the terms of this Agreement, the Project
Documents. the Investment Agreement and applicable rules,
regulations and directives of any Authority. To the extent
borrowings are permitted they may be made from any source,
including any Partner or an Affiliate thereof; provided.
however, that any borrowings from the Operating General
Partner or its Affiliates shall be on arm's length terms and
shall require the Consent of the Special Limited Partner.
Except as may be otherwise specifically set forth in this
Agreement, if any Partner or Affiliate thereof shall lend
any monies to the Partnership, such loan shall be unsecured
and the amount of any such loan shall not be an increase of
such Partner's Capital Contribution nor affect in any way
such Partner's share of the Profits and Losses or
distributions of the Partnership. Any loan by a Partner or
its Affiliate, other than an Operating Loan, shall be a
Voluntary Loan, shall bear interest per annum at a rate
equal to 2% in excess of the Prime Rate and shall be
repayable as set forth in Article 9 hereof (to the extent
permitted by each Authority); provided. however, that any
Voluntary Loan shall be made solely for the benefit of the
Partnership. No Voluntary Loan by the Operating General
Partner or its Affiliates may be made to the Partnership
during the time that the Operating General Partner is
obligated to make Operating Loans to the Partnership. The
Operating General Partner shall have the option to buy any
Voluntary Loan made by any other Partner for an amount equal
to its original principal plus interest per annum at a rate
equal to 2% in excess of the Prime Rate.
ARTICLE 5
RIGHTS, POWERS AND OBLIGATIONS OF THE
OPERATING GENERAL PARTNER AND LIMITATIONS THEREON
5 .1 Exercise of Management.
A. The overall management and control of the
business, assets and affairs of the Partnership shall be
vested in the Operating General Partner and, subject to the
specific limitations and restrictions set forth in this
Article 5 and in Article 4 hereof, the Operating General
Partner, in extension of and not in limitation of the powers
given it by law, shall have full, exclusive and complete
charge of the management of the business of the Partnership
in accordance with its purpose stated in Section 2.5 hereof.
The Limited Partner shall not take part in the management or
control of the business of the Partnership or have authority
to bind the Partnership.
B. If at any time more than one Person
constitutes the Operating General Partner, then the
Operating General Partner shall act by vote of a Majority in
Interest of the Persons constituting the Operating General
Partner, except where otherwise specified herein or as
otherwise agreed by the Persons constituting the Operating
General Partner upon notice to the Special Limited Partner
and the Limited Partner.
C. Any Operating General Partner, to the
extent of its authorization, may from time to time, by an
instrument in writing, delegate all or any of its powers or
duties hereunder to another Operating General Partner. Such
writing shall fully authorize such other Operating General
Partner to act alone without requirement of any other act or
signature of the delegating Operating General Partner, to
take any action of any type and to do anything and
everything which the delegating Operating General Partner
may be authorized to take or do hereunder except insofar as
said delegation may be limited to certain acts or
activities; provided however, that any such delegation shall
not relieve the delegating Operating General Partner of its
obligations or liabilities under this Agreement.
D. Each obligation of the Operating General
Partner under this Agreement shall be the joint and several
obligation of each Operating General Partner and each such
obligation shall survive any withdrawal of an Operating
General Partner pursuant to Article 11 hereof .
5.2 Duties and Authority of Operating General Partner.
A. The Operating General Partner shall devote
to the Partnership such time as may be necessary for the
proper performance of the duties of the Operating General
Partner. The Operating General Partner shall have the
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 Operating General
Partner shall not employ, or permit another to employ, such
funds or assets in any manner except for the exclusive
benefit of the Partnership. The signature of an Operating
General Partner shall be needed on any instrument, document
or agreement to bind the Partnership, and third parties may
rely fully on any such instrument, document or agreement
signed by the Operating General Partner. The Operating
General Partner is authorized and directed to:
(i) Take all action that may be
necessary or appropriate to carry out the purposes of the
Partnership as described in this Agreement;
(ii) Make or cause to be made
inspections of the Apartment Complex and assure that the
Apartment Complex is being properly maintained and necessary
repairs are being made;
(iii) Prepare or cause to be prepared
in conformity with customary business practice all reports
required to be furnished to the Partners or required by
taxing bodies or other governmental agencies, including
operations reports of the Apartment Complex and the
financial statements and reports referred to in, and in
accordance with the provisions of, Section 7.3 hereof;
(iv) Cause the property of the
Partnership at all times to be insured in a manner similar
to other property of like kind in the same locality and in
such amounts and on such terms as will fully and adequately
protect the Partnership as determined in the good faith
judgment of the Special Limited Partner (provided that such
insurance must be in an amount at least sufficient to repair
and rebuild the Apartment Complex under the circumstances
and in the manner described in Section 5.12 hereof);
(v) Obtain and maintain in force or
cause to be obtained and maintained in force Worker's
Compensation Insurance and such other insurance as may be
required by applicable law or governmental regulation;
(vi) Obtain and maintain in force or
cause to be obtained and maintained in force adequate public
liability insurance, the amount of coverage of which shall
require the Consent of the Special Limited Partner; and
(vii) Do all other things (subject to
the restrictions contained herein) that may be necessary or
desirable in order properly and efficiently to administer
and carry on the affairs, assets and business of the
Partnership, including, but not limited to, the execution of
all conveyances, deeds, notes, mortgages and other
documents.
B. The Operating General Partner shall operate
the Apartment Complex and shall cause the Management Agent
to manage the Apartment Complex in such a manner that the
Apartment Complex will be eligible to receive all of the
allocated Housing Tax Credits with respect to 100% of the
apartment units in the Apartment Complex, as provided in
Sections 42(b)(2)(B)(i) and (ii) of the Code, respectively.
To that end, the Operating General Partner agrees, without
limitation, to make all elections necessary under Section 42
of the Code (including those requested by the Special
Limited Partner) to allow the Partnership or its Partners to
claim the Housing Tax Credits, to enter into the extended
low-income housing commitment required by Section 42(h)(6)
of the Code, to operate the Apartment Complex and cause the
Management Agent to manage the Apartment Complex so as to
comply with the requirements of Section 42 of the Code,
including Sections 42(9) and (i)(3) of the Code, and to make
all certifications required by Section 42(1) of the Code.
C. The Operating General Partner agrees that
it shall prepare or cause to be prepared an annual budget in
connection with the operations of the Apartment Complex for
the succeeding Fiscal Year of the Partnership and shall
deliver the same to the Special Limited Partner not later
than November 1 of the Fiscal Year preceding the Fiscal Year
to which such budget relates. Such budget shall not be
adopted until the Special Limited Partner shall have
approved the same in writing. If each such General Partner
does not disapprove such proposed budget within 45 days
after receipt, then such budget shall be deemed approved.
Notwithstanding anything to the contrary contained herein,
the Partnership shall not make any expenditure of funds, or
commit to make any such expenditure, other than in response
to an emergency, except as provided for in an annual budget
so approved by the Special Limited Partner.
5.3 Delegation of Operating General Partner Authority;
Tax Matters Partner.
A. Except as otherwise provided herein and
subject to Sections 5.4, 5 . 5 and 5.6 below, the Operating
General Partner is hereby fully authorized to take any
action of any type and to do anything and everything which a
general partner of a limited partnership organized under the
Uniform Act may be authorized to take or do thereunder, and
specifically, without limitation of such authority, to
execute, sign, seal and deliver in the name and on behalf of
the Partnership:
(i) Any note, mortgage or other
instrument or document in connection with the Mortgage, the
Mortgage Note or any Governmental Agreement, and all other
agreements, contracts, certificates, instruments and
documents required by any Authority and/or any Lender in
connection therewith or with the acquisition, improvement,
operation or leasing of the Apartment Complex or otherwise
required by any Authority and/or any Lender;
(ii) Any deed, lease, mortgage note,
bill of sale, contract or any other instrument purporting to
convey or encumber the real or personal property of the
Partnership;
(iii) Any rent supplement or leasing or
other contract or agreement providing for public or non-
public financial assistance, directly or indirectly, to
tenants of the Apartment Complex;
(iv) Any and all agreements, contracts,
documents, certificates and instruments whatsoever involving
the acquisition, improvement, management, maintenance,
leasing or operation of the Apartment Complex, including the
employment of such Persons as may be necessary therefor; and
(v) Any and all instruments,
agreements, contracts, certificates and documents requisite
to carrying out the intention and purpose of this Agreement,
including, without limitation, the filing of all business
certificates, this Agreement and all amendments thereto, and
documents required pursuant to the Project Documents or by
any Authority and/or any Lender in connection with any
financing.
B. Every contract, agreement, certificate,
document or other instrument executed by the Operating
General Partner shall be conclusive evidence in favor of
every Person relying thereon or claiming thereunder that, at
the time of the delivery thereof, the Partnership was in
existence secondly, that this Agreement had not been
terminated or cancelled or amended in any manner so as to
restrict such authority (except as shown in any instrument
duly filed in the Filing Office); and thirdly, that the
execution and delivery thereof was duly authorized by the
Operating General Partner. Any Person dealing with the
Partnership or the Operating General Partner may always rely
on a certificate signed by the Operating General Partner:
(i) As to the identity of the Partners;
(ii) As to the existence or nonexistence
of any fact or facts which constitute conditions precedent
to acts by any General Partner or are in any other manner
germane to the affairs of the Partnership;
(iii) As to who is authorized to execute
and deliver any instrument, contract, agreement, certificate
or document for the Partnership;
(iv) As to the authenticity of any copy
of this Agreement and amendments thereto; or
(v) As to any act or failure to act by
the Partnership or as to any other matter whatsoever
involving the Partnership or the Apartment Complex.
C. The Partners hereby consent to the exercise
by the Operating General Partner of the powers conferred on
it by this Agreement.
D. All of the Partners hereby agree that the
Operating General Partner shall be the Tax Matters Partner
pursuant to the Code and in connection with any audit of the
federal income tax returns of the Partnership; provided,
however, that the Tax Matters Partner shall not have the
authority to bind the Partnership or any of its Partners in
connection with any audit of the federal income tax returns
of the Partnership without the Consent of the Special
Limited Partner, and if the Special Limited Partner is
admitted as an administrative general partner, it shall
become the Tax Matters Partner and further provided that if
the Tax Matters Partner shall withdraw from the Partnership,
become Bankrupt or be dissolved, the remaining General
Partner shall thereafter be the Tax Matters Partner. If the
Tax Matters Partner shall determine to litigate any
administrative determination relating to federal income tax
matters, it shall litigate such matter in such court as the
Tax Matters Partner shall decide with the Consent of the
Special Limited Partner. The Partnership shall indemnify the
General Partners from and against any claim, liability and
expense (including attorneys' fees) it may incur in
connection with its duties as Tax Matters Partner.
5.4 Lease, Conveyance or Refinancing of Assets of the
Partnership.
A. Except as may be otherwise expressly
provided in Section 4.1 hereof and elsewhere in this
Agreement, the Operating General Partner, with the approval
of each Authority (if required), is hereby authorized to
sell, lease, exchange, refinance or otherwise transfer,
convey or encumber all or substantially all of the assets of
the Partnership; provided. however, that notwithstanding any
other provision of this Agreement (other than Section 5.4B
and Section 5.4C hereof) but subject to the provisions of
Paragraph 2.3 of the Investment Agreement, the terms of any
such sale, exchange, refinancing or other transfer,
conveyance or encumbrance must receive the Consent of the
Special Limited Partner and the consent of the Limited
Partner before such transaction is consummated, except that
neither the Consent of the Special Limited Partner nor the
consent of the Limited Partner shall be required for the
leasing of apartment units to tenants in the normal course
of operations, the leasing of all or substantially all of
the apartment units to a public housing authority at rents
satisfactory to such authority or leases or concessions of
facilities related to the operation of the Apartment
Complex, and except that refinancing in accordance with the
provisions of Paragraph 2.3 of the Investment Agreement
shall only require the Consent of the Special Limited
Partner which shall not be unreasonably withheld.
B. Notwithstanding any provision of this
Agreement to the contrary, the Special Limited Partner shall
have the right at any time after the end of the fourteenth
year of the Compliance Period to require, by notice to the
Operating General Partner that the Operating General Partner
submit a written request (the "Termination of the Extended
Use Notice") to the housing credit agency to find a person
to acquire the Partnership's interest in the low-income
portion of the Apartment Complex pursuant to the provisions
of the extended low-income housing commitment agreement
entered into by and between the Partnership and such housing
credit agency (the "Extended Use Agreement") and in
accordance with the provisions of Section 42(h)(6) of the
Code. If the Operating General Partner shall fail to submit
the Termination of the Extended Use Notice within seven days
of the Special Limited Partner's request therefor, then the
Special Limited Partner shall have the right at any time
thereafter to submit the Termination of the Extended Use
Notice to such housing credit agency. If within one year of
the housing credit agency's receipt of the Termination of
the Extended Use Notice, the housing credit agency presents
a "qualified contract", as said term is defined in Section
42(h)(6)(F) of the Code (hereinafter "Qualified Contract"),
for the acquisition of the Apartment Complex, then the
Operating General Partner shall cause the Partnership
promptly to sell the Apartment Complex in accordance with
the terms of said Qualified Contract.
C. Notwithstanding any provision of this
Agreement to the contrary, at any time after the later of:
(i) the end of the Compliance Period, or (ii) the expiration
of one year after the date upon which the Termination of the
Extended Use Notice was submitted to the housing credit
agency (if such Notice was delivered prior to the end of the
Compliance Period), the Special Limited Partner shall have
the right to require, by notice to the Operating General
Partner (the "Required Sale Notice"), that the Operating
General Partner promptly use its best efforts to obtain a
buyer for the Apartment Complex on the most favorable terms
then obtainable. The Operating General Partner shall submit
the terms of any proposed sale to the Special Limited
Partner and the Limited Partner for their approval as
provided in Section 5.4A hereof. If the Operating General
Partner shall fail to so obtain a buyer for the Apartment
Complex within twelve months of the Required Sale Notice or
if the Special Limited Partner and/or the Limited Partner in
its/their sole discretion shall withhold its/their consent
to any proposed sale to such buyer, then the Special Limited
Partner shall have the right at any time thereafter to
obtain a buyer for the Apartment Complex on terms acceptable
to the Special Limited Partner (but not less favorable to
the Partnership than any proposed sale previously rejected
by the Special Limited Partner). In the event that the
Special Limited Partner so obtains a buyer, it shall notify
the Operating General Partner and the Limited Partner in
writing with respect to the terms and conditions of the
proposed sale, and, provided the Limited Partner approves
the terms of such sale, the Operating General Partner shall
cause the Partnership promptly to sell the Apartment Complex
to such buyer.
D. A sale of the Apartment Complex prior to
the end of the Compliance Period may only take place if the
conditions of Section 42(j)(6) of the Code will be satisfied
upon such sale either (i) by having the purchaser of the
Apartment Complex post the required bond on behalf of the
Partnership, or (ii) with the Consent of the Special Limited
Partner, by having the Partnership post such bond.
E. Notwithstanding anything contained herein
to the contrary, the Operating General Partner shall have
the right at any time prior to the closing of any sale
pursuant to this Section 5.4 to purchase the Interests of
the Limited Partner and the Special Limited Partner for a
sum equal to 135% of the Limited Partner Contribution
(reduced by the amount of all prior distributions to the
Limited Partner under Section 9.2B(vii) hereof). Upon
consummation of such sale, the Special Limited Partner and
the Limited Partner shall have no further right, title or
interest in the Partnership.
5.5 Restrictions on Authority. Notwithstanding any
other provisions of this Agreement:
A. No General Partner shall have authority to
perform any act with respect to the Partnership and/or the
Apartment Complex in violation of any applicable law or
regulation, the Project Documents, the Investment Agreement,
or any agreement between the Partnership and any Authority
or any Lender, or to take any action which under the Uniform
Act or this Agreement requires the approval, ratification or
consent of some or all of the Partners without first
obtaining such approval, ratification or consent, as the
case may be.
B. The Operating General Partner shall have no
authority to do any of the following acts with respect to
the Partnership and/or the Apartment Complex, except with
the Consent of the Special Limited Partner (which consent
shall not be unreasonably withheld with respect to the
actions described in subparagraphs (i) and (vi) below) and
the approval, to the extent required, of any Authority and
any Lender:
(i) Acquire any real or personal
property (tangible or intangible) in addition to the
Apartment Complex the aggregate value of which shall exceed
$15,000 (other than easements or similar rights necessary or
appropriate for the operation of the Apartment Complex);
(ii) Become personally liable on or in
respect of, or guarantee, a Mortgage Note or a Mortgage or,
except as otherwise contemplated in the Operating Deficit
and Rental Achievement Agreement, or any other indebtedness
of the Partnership;
(iii) Pay any salary, fees or other
compensation to the Operating General Partner or its
Affiliates, except as authorized by Section 5.7, or Articles
6 and 8 hereof, or as otherwise specifically provided for in
this Agreement:
(iv) Sell all or any portion of the
Apartment Complex or modify or refinance the Mortgage
(except as contemplated in Paragraph 2.3 of the Investment
Agreement) or incur any indebtedness for borrowed money
except in accordance with Section 5.4 hereof;
(v) Terminate the services of the
Accountants or the Management Agent, or amend or modify any
Project Document or the Investment Agreement; or
(vi) Make any capital improvement to
the Apartment Complex the aggregate value of which shall
exceed $25,000 in any one year (other than in response to an
emergency) .
Notwithstanding anything contained in this Agreement to the
contrary, the Operating General Partner shall have the right
to refinance the Permanent Loan, or any replacement thereof,
up to a maximum outstanding principal of S5,500,000,
provided such new financing will be fully serviced at a debt
coverage of not less than 120% of the Net Cash and Net Cash
of the Partnership for the preceding year was at least
$675,000.
5.6 Activities of Partners. It is understood that
each General Partner is and will be engaged in other
activities and occupations unrelated to the Partnership, and
each General Partner shall be required to devote only so
much of its time as shall be necessary to the proper conduct
of the affairs of the Partnership. Any Partner may engage in
and have an interest in other business ventures of every
nature and description, independently or with others.
including, but not limited to, the ownership, financing,
leasing, operating, construction, rehabilitation,
renovation, improvement, management and development of real
property whether or not such real property is directly or
indirectly in competition with the Apartment Complex;
provided. however, that nothing herein shall be construed to
relieve a General Partner of any of its fiduciary
obligations with respect to the management of the Apartment
Complex. Neither the Partnership nor any other Partner shall
have any rights by virtue of this Agreement in and to such
independent ventures or the income or profits derived
therefrom, regardless of the location of such real property
and whether or not such venture was presented to such
Partner as a direct or indirect result of its connection
with the Partnership or the Apartment Complex.
5.7 Dealing with Affiliates. Subject to the
restrictions contained in this Agreement, the Operating
General Partner may, for, in the name and on behalf of, the
Partnership, enter into agreements or contracts for
performance of services for the Partnership as an
independent contractor with itself or its Affiliates and the
Operating General Partner may obligate the Partnership to
pay compensation for and on account of any such services;
provided, however, that unless the terms of such
compensation and/or services are specified in this
Agreement, such compensation and services shall require the
Consent of the Special Limited Partner, which consent shall
not be unreasonably withheld provided such compensation
shall be on terms not less favorable to the Partnership than
if such compensation and services were paid to and/or
performed by a Person who was not an Operating General
Partner or an Affiliate thereof.
5.8 Indemnification and Liability of the Operating
General Partner and the Special Limited Partner.
A. The Partnership, its receiver or its
trustee, shall indemnify and hold harmless the Special
Limited Partner, the Operating General Partner and their
Affiliates from any liability, loss or damage incurred by
them by reason of any act performed or omitted to be
performed by them on behalf of the Partnership, including
costs and reasonable attorneys' fees (which attorneys' fees
may be paid as incurred) and any amount expended in the
settlement of any claim of liability, loss or damage;
provided however, that (i) if such liability, loss or damage
arises out of any action or inaction of any Affiliate, such
action or inaction must have occurred while such party was
engaged in activities which could have been engaged in by
the Special Limited Partner or the Operating General Partner
in its capacity as such: (ii) if such liability, loss or
damage arises out of action or inaction of the Special
Limited Partner or the Operating General Partner or their
Affiliates, (a) such party(ies) must have reasonably
determined, in good faith, that such course of conduct was
in the best interests of the Partnership, (b) such
party(ies) must have been acting on behalf of or performing
services for the Partnership, and (c) such course of conduct
must not have constituted fraud, negligence,
misrepresentation, breach of this Agreement or misconduct by
such party(ies); and (iii) any such indemnification shall be
recoverable only from the assets of the Partnership and not
from the assets of any Partner. All judgments against the
Partnership, the Special Limited Partner or the Operating
General Partner or their Affiliates, wherein such party(ies)
is/are entitled to indemnification, must first be satisfied
from Partnership assets before such party(ies) is/are
responsible for these obligations; provided, however, that
notwithstanding the foregoing, in no event shall the
Partnership be required to sell the Apartment Complex, or
any part thereof or any interest therein which would result
in a loss or recapture of Housing Tax Credits before the end
of the Compliance Period to satisfy its indemnification
obligation to the Special Limited Partner or the Operating
General Partner or their Affiliates. The Partnership shall
not pay for any insurance covering liability of the Special
Limited Partner or the Operating General Partner or their
Affiliates for actions or omissions for which
indemnification is not permitted hereunder; provided.
however, that nothing contained herein shall preclude the
Partnership from purchasing and paying for such types of
insurance, including extended coverage liability and
casualty and workers' compensation, as would be customary
for any person owning comparable assets and engaged in
similar business, or from naming such party(ies) as
additional insured parties thereunder, if such addition does
not add to the premiums payable by the Partnership. Nothing
contained herein shall constitute a waiver by the Limited
Partner of any right which it may have against any party
under federal or state securities laws nor a waiver of the
fiduciary duty owed to it by the Special Limited Partner or
the Operating General Partner or their Affiliates under
common law. The provision of advances from the Partnership
to the Special Limited Partner or the Operating General
Partner or their Affiliates for legal expenses and other
costs incurred as a result of a legal action potentially
subject to indemnification is permissible if the following
three conditions are satisfied: (x) the legal action relates
to the performance of duties or services by such indemnified
party(ies) on behalf of the Partnership; (y) the legal
action is initiated by a third party who is not a Partner or
an Affiliate; and (z) such indemnified party(ies) undertake
in writing to repay to the Partnership the funds so advanced
in cases in which they would not be entitled to
indemnification hereunder. Notwithstanding anything to the
contrary contained herein, in no event shall any indemnity
under this Section 5.8A be applicable to any expenditure or
obligation of the Special Limited Partner or the Operating
General Partner or their Affiliates which is the subject of
a separate obligation to or agreement with the Partnership
or the Limited Partner by such party(ies).
B. Notwithstanding the provisions of Section
5.8A hereof, the Special Limited Partner, the Operating
General Partner and their Affiliates shall not be
indemnified or held harmless from any liability, loss or
damage incurred by them in connection with, and shall
indemnify and hold harmless the Partnership and the other
Partners from and against any liability, loss or damage
incurred by them by reason of, (i) any liability of such
party arising under or pursuant to the Investment Agreement,
the Operating Deficit and Rental Achievement Agreement or
any other Exhibit or Schedule to the Investment Agreement;
or (ii) any claim or settlement involving allegations that
federal or state securities laws associated with the offer
and sale of an Interest were violated by such party(ies)
unless: (a) the indemnitee is successful in defending such
action on the merits of each count involving securities laws
violations and such indemnification is specifically approved
by a court of competent jurisdiction; (b) such claims have
been dismissed with prejudice on the merits by a court of
competent jurisdiction and the court specifically approves
such indemnification; or (c) a court of competent
jurisdiction approves a settlement of the claims against the
entity seeking indemnification involving securities law
violations and specifically finds that indemnification of
the settlement and related costs should be made. Any person
seeking indemnification shall apprise the court as to the
current position of the Securities and Exchange Commission,
the California Commissioner of Corporations, and other
applicable state securities administrators regarding
indemnification for violations of securities law. Without
limiting the generality of the foregoing, each Partner
hereby waives, to the extent permissible under applicable
law, all claims under any federal or state securities laws.
5.9 Representations and Warranties. The Operating
General Partner hereby represents and warrants to each of
the other Partners that the following is true and accurate
as of the Closing and will be true and accurate on the date
each installment of the Limited Partner Contribution is made
to the Partnership:
A. Organization and Authorization.
(i) Due Authorization. The execution and
delivery of this Agreement by the Operating General Partner
and the performance of the transactions contemplated herein
have been duly authorized by all requisite corporate actions
and proceedings, and will not violate or result in a breach
of, or default under, any instrument or agreement to which
the Operating General Partner is a party or is bound or to
which its properties are subject, or any law, administrative
rule, regulation or decree of any court, governmental body
or administrative agency applicable to any of them or their
respective properties. The Operating General Partner is a
corporation, duly organized, validly existing and in good
standing under the laws of the state of its formation and in
the state where the Apartment Complex is located, with power
to enter into this Agreement and to consummate the
transactions contemplated hereby.
(ii) Enforceability. As of the date
hereof, this Agreement is binding upon and enforceable
against the Operating General Partner and the Partnership,
in accordance with its terms in all material respects,
subject to (a) bankruptcy, insolvency, moratorium,
reorganization and other laws relating to or affecting the
rights of creditors generally, and (b) the possible
unavailability of equitable remedies, such as specific
performance.
B. Consents Required. No consent, approval, or
authorization of, or registration or declaration with, any
federal, state or local governmental agency, authority or
body is required in connection with the execution of this
Agreement.
C. Liens, Pledges or Encumbrances. The
Interests are not subject to any lien, pledge or encumbrance
of any nature whatsoever.
D. Litigation. There is no litigation, action,
or, to the best knowledge of the Operating General Partner,
after due inquiry, any proceeding, investigation or claim
pending or threatened against or involving the Apartment
Complex, the Partnership or the Operating General Partner or
which questions the validity of this Agreement, and, to the
best of the Operating General Partner's knowledge, after due
inquiry, there is no fact or circumstance which could give
rise to any such litigation, action, proceeding,
investigation or claim. To the best of the Operating General
Partner's knowledge, no statutory or other lien for taxes
not yet due and payable, exists with respect to the
Partnership, the Apartment Complex, the Operating General
Partner, or any property of any of the foregoing. The
Operating General Partner has not received any notice of
taking, condemnation, betterment or assessment, actual or
proposed, with respect to the Apartment Complex; and the
Operating General Partner has no reason to believe after due
inquiry that any such taking, condemnation, betterment or
assessment has been proposed or is under consideration.
E. Agreements Affecting the Apartment Complex.
(i) Agreements Affecting Ownership or
operation. There is no material contract or agreement,
written or oral, affecting the ownership or operation of the
Apartment Complex other than the Management Agreement, the
Mortgage and the Governmental Agreements; and to the best of
the Operating General's Partners knowledge, no party to any
of such contract or agreement is (or, with notice or the
passage of time or both, would be) in material default
thereunder and all conditions to the effectiveness or
continuing effectiveness thereof required to be satisfied by
the date hereof have been satisfied in all material
respects. There is no contract or agreement, written or
oral, which would prohibit the prepayment of the Mortgage or
restrict the refinancing, sale or other disposition of the
Apartment Complex. Except for the Management Agent, no
Affiliate of the Operating General Partner, except as set
forth in the Partnership Agreement, is a party to any
contract or agreement with the Partnership.
(ii) Default or Acceleration of
Obligations. To the best knowledge of the Operating General
Partner, the execution and delivery of this Agreement, and
the performance of the transactions contemplated hereby,
will not permit any party to the Mortgage or any other
obligation evidenced as an exception in the Title Policy or
any Bring Down Certificate to accelerate the payment
thereof, to declare a default (or declare a default after
giving notice or the passage of time or both), to require
payment of any penalty or other charge, to alter, modify or
amend any term thereof, or to impose any other requirement,
restriction or charge of any kind on the Apartment Complex
or the Partnership or the Operating General Partner therein.
Without limiting the generality of the foregoing, no event
has occurred which with the giving of notice, the passage of
time or both would constitute a default under any of the
Project Documents.
(iii) Agreements Regarding Interests in
the Partnership. Except as contemplated hereby, neither the
Partnership, the Operating General Partner, nor the
Apartment Complex, is subject to any outstanding agreement
with any third party pursuant to which any such party has or
may acquire any interest in the Apartment Complex (other
than the Mortgage), the Operating General Partner or the
Partnership.
F. Other Matters Affecting the Apartment Complex.
(i) Title to the Apartment complex. To
the best of the Operating General Partner's knowledge, the
Partnership has and will continue to have, good record,
insurable and indefeasible fee simple title to the Apartment
Complex, free from all easements, rights-of-way, liens,
security interests, encumbrances, defects and other title
exceptions of any kind, except for the exceptions (the
"Permitted Encumbrances") attached as Schedule 6 of the
Investment Agreement. To the best of the Operating General
Partner's knowledge, except for the Apartment Complex, the
Housing Tax Credits, and the contractual rights referred to
herein, the Partnership owns no other property, tangible or
intangible, real or personal. All real estate taxes,
personal property taxes, assessments, water and sewer
charges and other municipal charges relating to the
Apartment Complex, to the extent due and owing, have been
paid in full.
(ii) Insurance. The amount of insurance
which will be maintained by the Partnership against a
casualty loss (as defined in Section 42(j)(4)(E) of the
Code) with respect to the Apartment Complex will be the
greater of (1) such amount which is sufficient to permit a
replacement of the Apartment Complex within a reasonable
period of time following any such casualty and (2) the sum
of the Mortgage and the Capital Contribution. Each of said
policies is in full force and effect, and all premiums due
and payable thereunder have been paid.
(iii) Flood Plain Insurance. The
Apartment Complex either is not located in a federal flood
plain (as such term is defined in HUD rules and/or
regulations), or if it is located in a federal flood plain,
the Operating General Partner has obtained prior to the date
hereof, flood plain insurance, at no additional expense to
the Limited Partner.
(iv) Fire Damage. The Apartment Complex
has not been damaged by fire or other casualty except for
possible minor damage which has been fully repaired and
restored prior to the date hereof.
(v) Utilities. All utility services
necessary for the operation of the Apartment Complex for its
intended purpose, including water supply, storm and sanitary
sewer facilities, gas, electric and telephone facilities,
are available at the boundaries of the Land and either reach
the Land through adjoining public streets or if they pass
through adjoining private land do so in accordance with
valid, permanent, non-terminable public or private
easements: there is no impediment or restriction with
respect to connecting any utilities to the Improvements.
(vi) Roads. The roads providing access
to the Improvements have been completed.
(vii) Contractors and Liens. All
contractors and subcontractors have been paid all amounts
due them to date. Neither the Operating General Partner nor,
to the best knowledge of the Operating General Partner, the
Partnership has made any contract or commitment, the
performance of which could give rise to a lien against the
Apartment Complex, except with a person or entity which has
given a lien waiver with respect thereto.
G. Administrative, Zoning and Environmental
Compliance.
(i) Compliance With Law. The operation
of the Apartment Complex complies with all applicable laws,
rules, restrictions, orders and regulations of all
governmental authorities in all material respects. All
governmental certificates, authorizations, permits and
licenses required to own, operate and occupy the
Improvements (the " Governmental Permits ) have been
obtained, and true, complete and current copies thereof have
been previously provided to the Limited Partner, a true,
complete and current list of which is annexed hereto as
Schedule 8 of the Investment Agreement. No material
violation of any requirement of any governmental authority
exists with respect to the Improvements and the anticipated
and actual use and operation thereof complies with
applicable planning, building, zoning, environmental and
other laws, ordinances, regulations and restrictive
covenants affecting the Land. To the best knowledge of the
Operating General Partner, after due inquiry, no notice of
violation of any statute, code, law, ordinance, regulation,
or permit has been noted or given by any governmental
authority having jurisdiction over the development of the
Apartment Complex which notice has not been heretofore
complied with in all material respects, or the defects
specified therein remedied to the satisfaction of the
governmental authority, or both.
(ii) Environmental Compliance. To the
best of the Operating General Partner's knowledge, the
Apartment Complex is not in violation of any federal, state
or local law, ordinance or regulation relating to industrial
hygiene or to the environmental conditions on, under or
about the Apartment Complex including, but not limited to,
soil and groundwater conditions. To the best of the
Operating General Partner's knowledge, no Hazardous
Substance has been used, generated, manufactured, stored or
disposed of on, under or about the Apartment Complex or
transported to or from the Apartment Complex. The term
"Hazardous Substance" means any substance defined as a
hazardous substance, hazardous material, hazardous waste,
toxic substance or toxic waste in the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), 42 U.S.C. Section 9601 et Q.;
the Hazardous Materials Transportation Act, as amended, 39
U.S.C. Section 1801 et sea.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901 et seq.; or
any similar applicable state or local law; or in any
regulation adopted or publication promulgated pursuant to
any said law. In connection with the acquisition of the
Apartment Complex, the Partnership undertook appropriate
inquiry into the previous ownership and uses of the Land and
the Apartment Complex consistent with good commercial
practice and such inquiries were believed to be reasonably
sufficient for the Partnership to successfully establish an
innocent landowner defense pursuant to Section 101(35) of
CERCLA. Further, the Operating General Partner nor any of
its affiliates has given any waiver or release of liability
pursuant to CERCLA or any of the aforementioned statutes or
any similar applicable state or local law to any person or
entity in the chain of title of the Land or the Apartment
Complex. The Operating General Partner hereby agrees to
indemnify and hold harmless the Limited Partner, the Special
Limited Partner, the Partnership and their respective
partners, directors, officers, employees and agents, from
and against any and all liability, including all foreseeable
and unforeseeable consequential damages, including, without
limitation, the cost of any required or necessary repair,
cleanup or detoxification, and the preparation of all
closure and other required plans, whether such action is
required or necessary prior to or following the Closing,
directly or indirectly arising out of the use, generation,
manufacture, storage or disposal of Hazardous Substance on,
under or about the Apartment Complex by the Operating
General Partner or its agents, contractors or employees.
Nothing herein shall impose any liability on any other
person, corporation, officer, director, shareholder, agent
or employee of the parties providing such indemnification.
(iii) Default. Neither the Operating
General Partner nor the Partnership is in default with
respect to any law, administrative rule, regulation,
judgment, decision, order, writ, injunction, decree or
demand of any court or any governmental authority, and the
consummation of the transactions contemplated herein will
not conflict with, or constitute a breach of or default
under, any of the foregoing or any agreement or instrument
applicable to the Partnership, the Operating General Partner
or the Apartment Complex.
(iv) Regulatory Scheme. The Apartment
Complex is not subject to any federal, state or local
regulatory scheme, other than as will be provided for in the
Governmental Agreements, which does not generally affect all
rental properties in the locality in which the Apartment
Complex is located.
H. Absence of Undisclosed Liabilities. Except
for liabilities and obligations of the Partnership in
connection with the Investment Agreement, the Mortgage or
arising in the ordinary course of business. none of which
individually or in the aggregate are materially adverse, and
except for liens for taxes not yet due, the Partnership does
not have, and none of its assets is subject to, any material
debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise. There is no fact
known to the Operating General Partner which might
reasonably serve as the basis, in whole or in part, for the
assertion of any material liability or obligation against
the Partnership. The Operating General Partner has not lent
or otherwise advanced any funds to the Partnership other
than its Capital Contribution and the Partnership has no
unsatisfied obligation to make any payment of any kind to
the Operating General Partner or its Affiliates outstanding
as of the date hereof.
1. Housing Tax Credits. For purposes of
Housing Tax Credits and Section 42 of the Code, the
Partnership elected under Section 42(f)(1 ) of the Code to
have the Credit Period with respect to each building in the
Apartment Complex commence with the 1993 taxable year of the
Partnership.
J. Qualified Nonrecourse and Commercial
Financing; Fees.
(i) All of the Project Debt is
nonrecourse as to the Partnership and no person has any
personal liability with respect to such Project Debt
(excluding for this purpose, however, any form of credit
enhancement provided by a financial institution which is not
a "related person" (as defined in Section 465(b)(3)(C) of
the Code) with respect to the Partnership, any of its
Partners or any of its former partners). None of the Project
Debt is convertible:
(ii) Each component of the Project Debt
(i) represents a loan from a federal, state or local
government or instrumentality thereof, or is guaranteed by a
federal state or local government, or (ii) is borrowed from
a person or entity which is actively and regularly engaged
in the business of lending money and which is not (1 ) a
"related person" as defined in Section 49(a)(1 )(D)(v) of
the Code) with respect to the Partnership or any of its
present or former Partners. (2) a person or entity from
which the Partnership acquired the Land or the Apartment
Complex, (3) a person or entity which has received or will
receive a fee with respect to the Partnership's investment
in the Apartment Complex, or (4) a "related person" (as
defined in Section 49(a)( 1 )(D)(v) of the Code) with
respect to any person or entity described in the foregoing
clause (2) or (3);
(iii) Each component of the Project
Debt which does not represent a loan from a federal, state
or local government or instrumentality thereof (or a loan
guaranteed by a federal, state or local government) is
borrowed from a "qualified person" (as defined in Section
49(a)(1)(D)(iv) of the Code) and constitutes "qualified
commercial financing" (as defined in Section 49(a)(1
)(D)(ii) of the Code) as modified by Section 42(k) of the
Code and "qualified nonrecourse financing" (as defined in
Section 465(b)(6)(B) of the Code), in each case with respect
to the Partnership, each of its Partners and each of its
former partners; and
K. Prior Activities. The Operating General
Partner has not sought the protection of or been subject to
any proceeding under any bankruptcy or insolvency or
debtor's relief provision of state or federal law. Neither
the Operating General Partner nor any Affiliate has ever
been indicted for any criminal activity, including criminal
fraud or for any similar crime, or had a complaint filed
against it alleging violation of any anti-fraud provision of
state or federal securities law or alleging violation of any
registration or reporting provision of state or federal
securities law, nor has any such person or entity ever had a
judgment rendered against it as a defendant (or admitted to
liability) in any action based upon civil fraud or
misrepresentation.
L. Untrue or Misleading Statements. The
documents delivered to the Limited Partner and/or the
Special Limited Partner or annexed to the Investment
Agreement as Exhibits or Schedules constitute true, correct
and complete copies of the instruments which they purport to
be, and, with respect to each of such documents, to the best
knowledge of the Operating General Partner, there is no
other document of the same sort or amendment or other
related agreement which has been executed by the parties
thereto. To the best knowledge of the Operating General
Partner, no fact necessary to make the information and
statements contained in this Section 5.9 not misleading in
any material respect has been omitted therefrom, and no
material fact concerning the Apartment Complex or the
Operating General Partner has been withheld from the Limited
Partner and/or the Special Limited Partner. All of the
covenants, representations and warranties contained herein
shall survive the date hereof and the Subsequent Closing.
M. Scope of Representations. The Limited
Partner's due diligence review of the Apartment Complex, the
Partnership and the Operating General Partner shall not
diminish the scope or enforceability of any of the foregoing
representations and warranties, except in the event of
actual knowledge of the Special Limited Partner or the
Limited Partner of any inaccurate representation, warranty
or statement of fact prior to the date hereof.
N. Subsequent Closing. In addition to the
conditions set forth in Paragraph 3.6 of the Investment
Agreement, the Operating General Partner shall deliver a
certificate, dated as of the Subsequent Closing Date,
certifying on behalf of itself and the Partnership, that the
representations and warranties set forth above continue to
be true, correct and in force as of such date.
5.10 Additional Covenants of Operating General
Partner. The Operating General Partner shall permit the
Special Limited Partner, the Limited Partner and their
respective representatives to have access to the Apartment
Complex at all reasonable times during normal business hours
and to examine all agreements and plans and specifications
and shall deliver copies and such reports as may reasonably
be required by the Special Limited Partner. The Operating
General Partner shall promptly provide the Special Limited
Partner and the Limited Partner with copies of all
correspondence, notices and reports sent pursuant to and
received under the Project Documents or from any Authority
with respect to the Apartment Complex, together with copies
of all other correspondence which a prudent investor would
wish to examine in connection with a similar transaction.
5.11 Maintenance of Net Worth. The Operating General
Partner represents that it has a net worth sufficient to
allow the Partnership to be treated as a partnership
pursuant to the Code, the Regulations and advance ruling
requirements. The Operating General Partner covenants that
it will maintain sufficient net worth to meet the net worth
test of Internal Revenue Service advance ruling
requirements.
5.12 Obligation to Repair and Rebuild Apartment
Complex. With the approval of any Lender and any Authority,
if such approval is required, all insurance proceeds
received by the Partnership due to fire or other casualty
affecting the Apartment Complex will be utilized to repair
and rebuild the Apartment Complex in accordance with Section
42(j)(4)(E) of the Code and to the extent required by any
Lender and any Authority and thereafter to the extent any
amount remains as a Cash Receipt.
ARTICLE 6
CERTAIN PAYMENTS
6.1 Development Fee. The Partnership shall pay NCMC
and the Withdrawing General Partner, as their interests may
appear, the Development Fee.
6.2 [Intentionally omitted]
6.3 Incentive Management Fee and Resale Incentive
Fee. Subject to Section 9.1F(ii), it is intended that (i)
the amounts distributable to the Operating General Partner
pursuant to Sections 9.2A(v) and (vi) constitute an
incentive management fee, and (ii) the amounts distributable
to the Operating General Partner pursuant to Sections
9.2B(vi), (viii) and (ix) constitute a resale incentive fee.
Such fees shall not be treated as distributions to the
Operating General Partner with respect to its Interest in
the Partnership.
ARTICLE 7
ACCOUNTING, REPORTS, BOOKS,
BANK ACCOUNTS AND FISCAL YEAR
7.1 Bank Accounts. The bank accounts of the
Partnership shall be maintained in such banking institutions
authorized to do business in the State or such other states
as permitted by each Authority and as the General Partners
shall determine. The Partnership's funds shall not be
commingled with the funds of any other Person and shall not
be used except for the business of the Partnership. All
deposits (including security deposits and other funds
required by any Authority or Lender to be placed in escrow
and other funds not needed in the operation of the
Partnership's business) shall be deposited, to the extent
permitted by each Authority or Lender, in interest-bearing
accounts or invested in obligations of or guaranteed by the
United States, any state thereof, or any agency,
municipality or other political subdivision of any of the
foregoing, commercial paper (investment grade), certificates
of deposit and time deposits in commercial banks with
capital in excess of $50,000,000 and in mutual (money
market) funds investing in any or all of the foregoing;
provided. however, that any funds required to be placed in
escrow by any Authority or Lender shall be controlled by
such Authority or Lender and the General Partners shall not
be permitted to make any withdrawal from such funds without
the express written consent of such Authority or Lender to
the extent required.
7.2 Books of Account; Fiscal Year. Complete and
accurate books of account, in which shall be entered, fully
and accurately, each and every transaction of the
Partnership, shall be kept or caused to be kept by the
Operating General Partner. The books shall be kept on an
accrual basis of accounting. All of the Partnership's books
of account, together with an executed copy of this Agreement
and copies of such other instruments as the General Partners
may execute hereunder, including amendments thereto, shall
at all times be kept at the principal office of the
Partnership and shall be available during normal business
hours for inspection and copying by any Partner or its duly
authorized representative or, at the expense of any Partner,
for audit by such Partner or its duly authorized
representative.
7 . 3 Reports.
A. The Operating General Partner shall, within
five days after the Operating General Partner has notice of
the occurrence of any of the following specified events
occurs, notify the Limited Partner of any correspondence
from the Authority relating to or referencing the Housing
Tax Credits, any change made or proposed to the allocation
of Housing Tax Credits or any notice of audit by the
Authority or other Governmental Agency, any material cost
overruns in the rehabilitation of the Apartment Complex, any
material damage to or change in the rehabilitation of the
Apartment Complex, any notice of default under the Mortgage,
breach of any Governmental Agreement or Project Document,
any non-payment of taxes, the filing of any lien against the
Apartment Complex, or non-compliance with any federal,
state, or local law, ordinance, or regulation, commencement
or termination of any lawsuit against the Partnership or any
of its property, cancellation or non-renewal of any
insurance, cancellation or non-renewal of any subsidy
agreement, any material change to the Project Documents, any
extraordinary item charges or credits or any other material
charges or credits to income of an unusual nature or any
material provisions for loss, any other circumstance which,
either in amount or time or otherwise materially affects the
business of the Partnership or the interest of the Partners
or the Housing Tax Credits, or any occurrence that would
cause any representation or warranty of the Operating
General Partner herein to become inaccurate in any material
respect.
B. Within 30 days after the end of each
calendar month, the Operating General Partner shall have
prepared and shall deliver to each of the Partners a
detailed income and expense statement and occupancy
report/updated rent roll for such month.
C. Within 45 days after the end of each of the
first three quarters of each Fiscal Year, the Operating
General Partner shall have prepared and shall deliver to the
other Partners, commencing with the first quarterly period
ending after the Closing Date, a balance sheet and
statements of income (or loss) and Cash Flow for, or as of
the end of, such quarter in such form and substance as the
Special Limited Partner shall reasonably request so as to
facilitate the Limited Partner's filings with the Securities
and Exchange Commission and any other filings required by
law, none of which need be audited unless required by law,
together with a report of other pertinent information
regarding the Partnership and its activities during such
quarter, including, but not limited to, a statement of the
amount of all fees and other compensation paid by the
Partnership during such quarter to the Operating General
Partner or any of their Affiliates. All such balance sheets,
reports and statements provided pursuant to this Section
7.3C, other than the statement of Cash Flow shall be
prepared in accordance with generally accepted accounting
principles, consistently applied, and shall accurately
reflect the information contained on the Partnership's books
and records.
D. Within 30 days after the end of each six-
month fiscal period, the Operating General Partner shall
send to the other Partners preliminary drafts of (i) the
balance sheet of the Partnership as of the end of such six-
month fiscal period and statements of income (loss),
Partners' equity and cash flow of the Partnership for such
six-month fiscal period, all of which shall be prepared in
accordance with generally accepted accounting principles,
consistently applied, and, with respect to each fiscal
period that also corresponds to the end of a Fiscal Year,
shall be accompanied by an audit report of the Accountants
containing an unqualified opinion of the Accountants, and
(ii) a statement of Cash Flow for such fiscal period (which
need not be audited), showing distributions in respect of
such fiscal period, which statement shall identify
distributions from (a) Cash Flow generated during the fiscal
period, (b) Cash Flow generated during the immediately
preceding comparable fiscal periods, (c) proceeds from the
disposition of property and investments, and (d) reserves
and other sources. The Operating General Partner shall send
final drafts of each of the aforementioned statements to the
other Partners within 60 days after the end of six-month
fiscal period.
E. If the Operating General Partner shall
fail, for any reason, to deliver to the other Partners when
due any of tax returns and schedules thereto and/or the
annual financial statements required pursuant to this
Section 7.3 and/or Section 7.5 hereof, the Operating General
Partner shall pay the Limited Partner, as liquidated damages
for such failure, an amount equal to $50.00 for each day
that elapses after the third business day following the
respective due date and notice from the Special Limited
Partner of such failure until such information or statements
have been delivered to the other Partners. Such payments
shall not be deemed to be either a Capital Contribution or a
loan from the Operating General Partner and neither the
Partnership nor any other Partner shall be under any
obligation to repay any such amount paid by the Operating
General Partner. Further, no damages shall be payable by the
Operating General Partner if the Administrative General
Partner selects the Accountants and the Operating General
Partner has delivered or made available, in a timely manner,
all information needed by the Accountants to prepare the
reports and statements.
7.4 Other Reports. The Operating General Partner
shall from time to time submit to the Partners such other
written reports and information regarding the operations of
the Partnership as may be reasonably required by the Limited
Partner to satisfy its reporting requirement to its partners
or governmental authorities. In addition, the Operating
General Partner shall provide the Special Limited Partner
and the Limited Partner with copies of all information,
reports, and filings pertaining to the Housing Tax Credits
and/or the "qualified basis" (as defined in Section 42 of
the Code) of the Apartment Complex. The Operating General
Partner shall provide to the Partners by November 30 of each
Fiscal Year an estimate of each Partner's share of Profits
and Losses for federal and state income tax purposes for
such Fiscal Year. The Limited Partner shall be entitled to
receive a list of all limited partners of the Partnership.
7.5 Tax Returns and Tax Treatment.
A. The Operating General Partner shall, for
each Fiscal Year, file on behalf of the Partnership a United
States Partnership Return of Income within the time
prescribed by law for such filing. The Operating General
Partner shall also file on behalf of the Partnership such
other tax returns and other documents from time to time as
may be required by the federal government or by any state or
any subdivision thereof. All tax returns shall be prepared
by the Accountants.
B. The Operating General Partner shall send to
the other Partners such tax information, including, without
limitation, a copy of Schedule K-1, as shall be reasonably
necessary for inclusion by the Limited Partner and the
Special Limited Partner in their federal income tax returns
and required state income tax and other tax returns. The
Operating General Partner shall send this information to the
Special Limited Partner for its review and approval within
45 days after the end of each Fiscal Year. The Special
Limited Partner shall have the right to review and approve
such information prior to the filing of the related tax
returns with the appropriate taxing authority. At such time
as the Operating General Partner has received the Consent of
the Special Limited Partner to the tax returns, the
Operating General Partner shall promptly file final tax
returns and simultaneously provide the Special Limited
Partner with evidence of filing.
C. If the Special Limited Partner disapproves
the tax return and/or Schedule K-l in a timely fashion, the
Special Limited Partner and the Operating General Partner
shall proceed in good faith to attempt to resolve any item
in dispute and the Operating General Partner shall file any
necessary requests for extensions of time to file the
return. If prior to the expiration of the last available
extension, the Special Limited Partner and the Operating
General Partner cannot agree on the resolution of such
disputed item or items, then the tax return shall be filed
as requested by the Special Limited Partner, in which event
the Special Limited Partner shall not be entitled to any
indemnification for such item(s) notwithstanding anything
contained in this Agreement to the contrary.
ARTICLE 8
MANAGEMENT AGENT
8.1 Designation of Management Agent. During the term
of the Operating Deficit and Rental Achievement Agreement,
the Operating General Partner shall have the responsibility
for managing the Apartment Complex and obtaining a
management agent (the Management Agent), the choice of
which with respect to any successor to the Management Agent
at the Closing shall require the Consent of the Special
Limited Partner, which consent shall not be unreasonably
withheld provided such successor Management Agent is an
Affiliate of the Operating General Partner. The Management
Agent at the Closing shall be NCM Management, Ltd., or some
other Affiliate of the Operating General Partner.
Notwithstanding the foregoing, but subject to the provisions
of the next succeeding sentence, the consent of the Special
Limited Partner shall not be required to a successor
Management Agent provided such successor is controlled by
the Operating General Partner or its parent corporation and
is qualified to manage the Apartment Complex and the
approval of each Authority is obtained, if required. The
Management Agreement provides that the Management Agent
shall certify annually that the Apartment Complex, and each
of its tenants, are in compliance with all regulations and
requirements required to qualify the Partnership to receive
Housing Tax Credits with respect to the Apartment Complex.
The Management Agreement also provides that after the
expiration of the Funding Period the Management Agreement
shall terminate if the Apartment Complex is not in full
compliance with any of the rules or regulations governing
the operation thereof, including, but not limited to, the
rules and regulations of the Housing Tax Credits, and such
default is not cured within the cure period provided for
under the applicable rule or regulation or if no set cure
period exists, then within 30 days after notice of such non-
compliance so long as the Operating General Partner is
diligently pursuing a cure of such breach at all times
during such 30-day period and accomplishes such cure within
such 30-day period; provided. however, that if such breach
is of the type that cannot reasonably be cured within 30
days, the Operating General Partner shall have an additional
30 days (for a total of 60 days) so long as such Operating
General Partner is diligently pursuing a cure of such breach
at all times during such additional 30-day period, neither
the Partnership, the Special Limited Partner nor the Limited
Partner is adversely affected in a material way by such
additional time to cure and the Operating General Partner
accomplishes such cure within such additional 30-day period.
Upon termination of the Management Agreement, for whatever
reason, the Special Limited Partner, in its sole discretion
shall designate the successor management agent for the
Apartment Complex.
8.2 Management Fee. The Management Agent shall
receive a management fee payable by the Partnership on an
annual basis in an amount not to exceed 6% of the gross
rental receipts from the Apartment Complex for management
services in accordance with the Management Agreement as
approved by each Authority (if such approval is required);
The term of any Management Agreement shall not exceed one
year without the Consent of the Special Limited Partner, and
no payment or penalty shall be payable by the Partnership
for failure to renew any such agreement.
8.3 Absence of Management Agent. The Operating
General Partner will have the duty to manage the Apartment
Complex during any period when there is no Management Agent
and the Partnership will pay the Operating General Partner
for such services an annual management fee equal to such
amount as each Authority shall approve from time to time or,
if no approval is required, a fee equal to the amounts set
forth in Section 8.2 hereof. If at any time prior to the
expiration of the Funding Period the present Management
Agent shall cease to act as the Management Agent, the
Operating General Partner shall be authorized, subject to
the Consent of the Special Limited Partner and the approval
of each Authority and Lender if required), to retain and to
enter into a Management Agreement with a different
Management Agent on terms at least as favorable to the
Partnership as the terms and conditions of the Management
Agreement with the present Management Agent.
8.4 Rights of Special Limited Partner. Subject to the
approval of each Authority, if required, and notwithstanding
any longer term of any Management Agreement or other
contract, the Special Limited Partner shall have the right
in the event the Operating General Partner is removed as
such General Partner pursuant to Section 11.4 hereof, to
terminate the Management Agreement and every other contract
between the Partnership and the removed Operating General
Partner and/or Affiliates of the removed Operating General
Partner by notice, effective simultaneously with such
removal. The Operating General Partner hereby represents and
warrants to the other Partners that all existing contracts
between the Partnership and the Operating General Partner,
or Affiliates of the Operating General Partner have been
amended to contain this right and the Operating General
Partner covenants not to enter any future contract with the
Partnership or cause the Partnership to enter into any
future contract with any of its Affiliates which does not
contain such right.
ARTICLE 9
DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES;
HOUSING TAX CREDITS; CAPITAL ACCOUNTS
9.1 Profits, Losses and Housing Tax Credits.
A. Profits and Losses Other Than from Sale or
Refinancing.
(i) Profits. Profits other than from
Sale or Refinancing for any taxable year shall be allocated
99% to the Limited Partner and 1% to the Operating General
Partner, except that commencing with the taxable year 2004,
and for each taxable year thereafter, such Profits shall be
allocated as follows:
(a) First, to each of the
Partners, in proportion to the excess, if any, of the
cumulative Losses previously allocated to each such Partner
solely by reason of Section 9.1 C over the cumulative
Profits previously allocated to such Partner pursuant to
this Section 9.1 A(i), Section 9.1 B(i)(a), Section 9.1
B(i)(b) and Section 9.1 B(i)(c), until such excess has been
entirely eliminated with respect to each such Partner;
(b) Second, to each of the
Partners in proportion to the excess, if any, of the
cumulative Losses previously allocated to each such Partner
pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) over the cumulative Profits previously allocated to
such Partner pursuant to this Section 9.1 A(i), Section 9.1
B(i)(a), Section 9.1 B(i)(b) and Section 9.1 B(i)(c), until
such excess has been entirely eliminated with respect to
each such Partner;
(c) Third, to each of the
Partners in proportion to the excess, if any, of the sum of
the cumulative Losses previously allocated to each such
Partner pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) plus the cumulative distributions received (and to be
received for the subject taxable year) by each such Partner
(except as provided in Section 6.3) pursuant to Sections
9.2A(iv) and (vi), over the cumulative Profits previously
allocated to such Partner pursuant to this Section 9.1A(i),
Section 9.1B(i)(a), Section 9.1B(i)(b) and Section
9.1B(i)(c), until such excess has been entirely eliminated
with respect to each such Partner; and
(d) The balance, if any, so as to
result, to the extent possible, in the excess, if any, of
all Profits allocated to the Partners pursuant to this
Section 9.1 A(i), Section 9.1 B(i)(a), Section 9.1 B(i)(b)
and Section 9.1 B(i)(c), over all Losses allocated pursuant
to Section 9.1A(ii) and Section 9.1 B(ii) and all
distributions made (and to be made for such taxable year) to
the Partners (except as provided in Section 6.3) pursuant to
Sections 9.2A(iv), (v) and (vi) being allocated 99% to the
Limited Partner and 1% to the Operating General Partner.
(ii) Losses. Losses other than from Sale
or Refinancing for any taxable year shall be allocated 99%
to the Limited Partner and 1% to the Operating General
Partner.
B. Profits and Losses From Sale or Refinancing.
(i) Profits. Profits from Sale or
Refinancing for any taxable year shall
be allocated as follows:
(a) First, to each of the
Partners, in proportion to the excess, if any, of the
cumulative Losses previously allocated to each such Partner
solely by reason of Section 9.1 C over the cumulative
Profits previously allocated pursuant to Section 9.1 A(i),
this Section 9.1 B(i)(a), Section 9.1 B(i)(b) and Section
9.1 B(i)(c), until such excess has been entirely eliminated
with respect to each such Partner;
(b) Second, to each of the
Partners, in proportion to the excess, if any, of the
cumulative Losses previously allocated to each such Partner
pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) over the cumulative Profits previously allocated to
such Partner pursuant to Section 9.1 A(i), Section 9.1
B(i)(a), this Section 9.1 B(i)(b) and Section 9.1 B(i)(c),
until such excess is entirely eliminated with respect to
each such Partner;
(c) Third, to each of the
Partners, in proportion to the excess, if any, of the sum of
the cumulative Losses previously allocated to each such
Partner pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) plus the cumulative distributions received (and to be
received for such taxable year) by each such Partner (except
as provided in Section 6.3) pursuant to Sections 9.2A(iv)
and (vi), over the cumulative Profits previously allocated
to such Partner pursuant to Section 9.1 A(i), Section 9.1
B(i)(a), Section 9.1 B(i)(b) and this Section 9.1 B(i)(c),
until such excess has been entirely eliminated with respect
to each such Partner;
(d) Fourth, 99% to the Limited
Partner, 0.9% to the Operating General Partner and 0.1% to
the Special Limited Partner until the Limited Partner has
been allocated Profits pursuant to this Section 9.1 B(i)(d)
sufficient to cause the positive balance in the Limited
Partner's Capital Account to equal 135% of the Limited
Partner Contribution reduced by any prior distributions to
the Limited Partner pursuant to Section 9.2B(vii); and
(e) Thereafter, 99% to the
Limited Partner, 0.9% to the Operating General Partner and
0.1% to the Special Limited Partner.
(ii) Losses. Losses from Sale or
Refinancing for any taxable year shall be allocated in the
following order and priority:
(a) First, an amount of Losses
from Sale or Refinancing equal to the aggregate positive
balances (if any) in the Capital Accounts of all Partners
having positive Capital Account balances shall be allocated
to the Partners having positive Capital Account balances in
proportion to their positive Capital Account balances until
all such Capital Accounts have a zero balance; and
(b) The balance, if any, 99% to
the Limited Partner, 0.9% to he Operating General Partner
and 0.1% to the Special Limited Partner.
C. Limitation on Allocation of Losses. The
aggregate Losses allocated to the Partners pursuant to
Section 9.1A(ii) or 9.1 B(ii) shall not exceed the maximum
amount of Losses that can be so allocated without causing
any Partner who is not a General Partner to have an Adjusted
Capital Account Deficit at the end of any fiscal year. In
the event some but not all of the Partners would have
Adjusted Capital Account Deficits as a consequence of an
allocation pursuant to Section 9.1 A(ii) or 9.1 B(ii), the
limitation set forth in this Section 9.1 C shall be applied
on a Partner-by-Partner basis so as to allocate the maximum
permissible Losses to each Partner who is not a General
Partner under Section 1.704-1 (b)(2)(ii)(d) of the
Regulations. All Losses in excess of the limitation set
forth in this Section 9.1C shall be allocated to the
Operating General Partner.
D. Special Allocations. The following special
allocations shall be made in the following order and
priority:
(i) Partnership Minimum Gain
Chargeback. Notwithstanding any other provision of this
Section 9.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership fiscal year or other
period, each Partner shall be specially allocated items of
Partnership income and gain for such year or other period
(and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partnership
Minimum Gain, determined in accordance with Regulations
Section 1.704-2(9)(2). Allocations pursuant to the previous
sentence shall be made in proportion to the respective
amounts required to be allocated to the various Partners
pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-
2(f)(6). This Section 9.1D(i) is intended to comply with the
minimum gain chargeback requirement in Section 1 .704-2(f)
of the Regulations and shall be interpreted consistently
therewith. To the extent permitted by such Section of the
Regulations and for purposes of this Section 9.1 D(i) only,
each Partner's Adjusted Capital Account Deficit shall be
determined prior to any other allocations pursuant to this
Section 9.1 D with respect to such fiscal year or other
period and without regard to any net decrease in Partner
Nonrecourse Debt Minimum Gain during such fiscal year or
other period.
(ii) Partner Nonrecourse Debt Minimum
Gain Chargeback. Notwithstanding any other provision of this
Section 9.1 except Section 9.1 D(i), if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any
Partnership fiscal year or other period, each Partner with a
share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(5) shall be specially
allocated items of Partnership income and gain for such year
or other period (and, if necessary, subsequent years) in an
amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective
amounts required to be allocated to the various Partners
pursuant thereto. The items to be so allocated shall be
determined in accordance with Section 1.704-2(i)(4) of the
Regulations. This Section 9.1 D(ii) is intended to comply
with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith. Solely for purposes of this Section
9.1 D(ii), each Partner's Adjusted Capital Account Deficit
shall be determined prior to any other allocations pursuant
to this Section 9.1 D with respect to such fiscal year or
other period, other than allocations pursuant to Section
9.1D(i) hereof.
(iii) Qualified Income Offset. In the
event any Partner unexpectedly receives any adjustments,
allocations, or distributions described in Regulations
Sections 1.704-1 (b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5),
or 1 .704-1(b)(2)(ii)(d)(6), items of Partnership income and
gain shall be specially allocated to each such Partner in an
amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible, provided
that an allocation pursuant to this Section 9.1D(iii) shall
be made only if and to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 9.1 have been
tentatively made as if this Section 9.1 D(iii) were not in
this Agreement.
(iv) Gross Income Allocation. In the
event any Partner has a deficit Capital Account at the end
of any Partnership fiscal year that is in excess of the sum
of (i) the amount such Partner is obligated to restore
pursuant to any provision of this Agreement, and (ii) the
amount such Partner is deemed to be obligated to restore
pursuant to Regulations Sections 1.704-2(9)(1 ) and 1 .704-
2(i)(5), each such Partner shall be specially allocated
items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation
pursuant to this Section 9.1 D(iv) shall be made only if and
to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations
provided for in this Section 9.1 have been tentatively made
as if this Section 9.1 D(iv) and Section 9.1 D(iii) were not
in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse
Deductions for any fiscal year or other period shall be
specially allocated 99% to the Limited Partner and 1% to the
Operating General Partner.
(vi) Partner Nonrecourse Deductions. Any
Partner Nonrecourse Deductions for any fiscal year or other
period shall be allocated, in accordance with Section 1 .704-
2(i)(1 ), to the Partner that bears the economic risk of
loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable.
(vii) Code Section 754 Adjustments. To
the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1
(b)(2)(iv)(m), the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss
shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the
Regulations.
(viii) Basis Increases. In the event the
adjusted tax basis of any Code Section 38 property that has
been placed in service by the Partnership is increased
pursuant to Code Section 48(q), such increase shall be
specially allocated among the Partners (as an item in the
nature of income or gain) in the same proportions as the
investment tax credit that is recaptured with respect to
such property is shared among the Partners.
(ix) Basis Reductions. Any reduction in
the adjusted tax basis (or cost) of Partnership Code Section
38 property pursuant to Code Section 48(q) shall be
specially allocated among the Partners (as an item in the
nature of expenses or losses) in the same proportions as the
basis (or cost) of such property is allocated pursuant to
Regulations Section 1.46-3(f)(2)(i).
(x) Gross Deduction Allocation.
Commencing with the taxable year 2004, and for each taxable
year thereafter, gross deductions of the Partnership shall
first be allocated to the Operating General Partner until
the Operating General Partner has been allocated a
cumulative amount of such gross deductions equal to the
amount of the Operating General Partner's positive Capital
Account balance, if any, upon the Limited Partner's
admission to the Partnership (after taking into account any
Capital Contributions made by, or distributions made to, the
Operating General Partner in connection with the Limited
Partner's admission to the Partnership), plus all Capital
Contributions made by the Operating General Partner
thereafter.
E. Curative Allocations. The n Regulatory
Allocations" consist of (x) Allocations made to a Partner
(or predecessor) under Section 9.1 D(iii) and Section 9.1
D(iv), allocations to be made to a Partner (or predecessor)
under Section 9.1 D(i) to the extent the cumulative amount
of such allocations exceeds the cumulative amount of
Nonrecourse Deductions allocated to such Partner (or
predecessor), and (y) allocations made to a Partner (or
predecessor) under Section 9.1 D(ii) to the extent the
cumulative amount of such Allocations exceeds the cumulative
amount of Partner Nonrecourse Deductions allocated to such
Partner (or predecessor). Notwithstanding any other
provisions of this Section 9.1 (other than the Regulatory
Allocations), the Regulatory Allocations shall be taken into
account in allocating other items of income, gain, loss and
deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items
and the Regulatory Allocations to each Partner shall be
equal to the net amount that would have been allocated to
each such Partner if the Regulatory Allocations had not
occurred.
F. Other Allocation Rules.
(i) For purposes of computing the
Profits, Losses or any other items allocable to any period,
Profits, Losses and any other such items shall be determined
on a daily, monthly, or other basis, as determined by the
Special Limited Partner using any permissible method under
Code Section 706 and the Regulations thereunder.
(ii) Notwithstanding anything to the
contrary that may be expressed or implied in this Agreement,
the aggregate interest of the General Partners in each item
of Partnership income, gain, loss, deduction or credit shall
be equal to at least 1% of each of those items at all times
during the existence of the Partnership. In the
determination of the interests of the General Partners in
these items, any Limited Partnership Interests owned by the
General Partners shall be taken into account.
(iii) For purposes of determining a
Partner's proportionate share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of
Regulations Section 1 .752-3(a)(3) (or the equivalent
sections of any earlier Regulations which may be determined
to be applicable), the Partners' interests in Partnership
Profits shall be allocated 1% to the Operating General
Partner and 99% to the Limited Partner.
(iv) To the extent permitted by
Sections 1 .704-2(h) and 1 .704-2(I)(6) of the Regulations,
the General Partners shall endeavor to treat distributions
of Cash Flow and Sale or Refinancing Transaction Proceeds as
having been made from proceeds of Nonrecourse Debt or
Partner Nonrecourse Debt only to the extent that such
distributions would have otherwise caused or increased an
Adjusted Capital Account Deficit for any Partner.
(v) The basis (or cost) of any
Partnership Code Section 38 property shall be allocated
among the Partners in accordance with Regulations Section 1
.46-3(f)(2)(i).
(vi) In the event Partnership Code
Section 38 property is disposed of during any taxable year,
Profits for such taxable year (and, to the extent such
Profits are insufficient, Profits for subsequent taxable
years) in an amount equal to the excess, if any, of (i) the
reduction in the adjusted tax basis (or cost) of such
property pursuant to Code Section 50(c), over (ii) any
increase in the adjusted tax basis of such property pursuant
to Code Section 50(c) caused by the disposition of such
property, shall be excluded from the Profits allocated
pursuant to Sections 9.1A and 9.1 B hereof and shall instead
be allocated among the Partners in proportion to their
respective shares of such excess, determined pursuant to
Sections 9.1 D(viii) and 9.1 D(ix) hereof. In the event more
than one item of such property is disposed of by the
Partnership, the foregoing sentence shall apply to such
items in the order in which they are disposed of by the
Partnership, so that Profits equal to the entire amount of
such excess with respect to the first such property disposed
of shall be allocated prior to any allocations with respect
to the second such property disposed of, and so forth.
G. Tax Allocations.
(i) In General. Except as otherwise
provided in this Agreement, all items of Partnership income,
gain, loss, deduction, and any other allocations not
otherwise provided for shall be allocated among the Partners
for tax purposes in the same proportions as they are
allocated Profits or Losses or items thereof pursuant to
Section 9.1 hereof for such year. Any elections or other
decisions relating to such allocations shall be made by the
Special Limited Partner in any manner that reasonably
reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 9.1 G 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 Person's Capital Account or share of Profits, Losses,
other items or distributions pursuant to any provision of
this Agreement.
(ii) Code Section 704(c). In accordance
with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect
to any property contributed to the capital of the
Partnership or owned by the Partnership upon the occurrence
of any of the events described in Treasury Regulations
Section 1.704- 1 (b)(2)(iv)(f)(5) shall, solely for tax
purposes (and not for purposes of determining Capital
Accounts or allocating Profits, Losses or items thereof), be
allocated among the Partners so as to take into account any
variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and (i) its
Asset Value at the time of the contribution or as adjusted
for the occurrence pursuant to paragraph (ii) of the
definition of Asset Value set forth herein, as the case may
be, or (ii) its fair market value at the time of the
occurrence if the Asset Value is not adjusted pursuant to
said paragraph. Notwithstanding ,he foregoing, no allocation
shall be made pursuant to clause (ii) of this Section 9.1
G(ii) if an equivalent allocation has been made pursuant to
Section 9.1 G(i) in connection with a transaction that would
otherwise result in an allocation pursuant to this Section
9.1 G(ii). The foregoing provision is intended to comply
with Section 704(c) of the Code and with Treasury
Regulations Section 1.704-1 (b). To the extent permitted by
the Code and Treasury Regulations, any variation referred to
in this Section 9.1G(ii) shall be taken into account by
allocations of gain from a Disposition and not through
allocations of depreciation.
(iii) Recapture. Gain from the
disposition of Partnership assets which is allocated to a
Partner for tax purposes shall include, to the extent
possible, ordinary income consisting directly or indirectly
of recaptured deductions (for depreciation or otherwise) to
the same extent and in the same proportion as such
deductions were previously allocated to such Partner .
(iv) Section 751 Assets. In the event
that a Partner (other than a Partner who becomes a Partner
by purchasing the Interest in the Partnership of another
Partner) is admitted (an "Admission") to the Partnership
after the date hereof or in the event that a Partner's
interest in Profits or Losses is increased (an "Increase")
after the date hereof, the Partner so admitted shall obtain
no interest, or the Partner so increased shall obtain no
greater interest than prior to the Increase, in the
Partnership's "unrealized receivables (as defined in Section
751 (c) of the Code), determined immediately prior to such
Admission or Increase. As the respective interests in such
unrealized receivables" of the Partners who were Partners
prior to such Admission or such Increase are not reduced
thereby, the Partner so admitted or so increased shall, to
the extent required, obtain a greater than proportionate
interest in the Partnership's other assets (including the
assets contributed by such Partner), determined after giving
effect to such Admission or Increase.
(v) Housing Tax Credits.
(a) Pursuant to Regulations
Section 1.704-1(b)(4)(ii), Housing Tax Credits shall be
allocated among the Partners in accordance with their
respective shares of Partnership expenditures that give rise
to such Housing Tax Credits in the taxable year to which
such Housing Tax Credits relate. Because the allocations of
Nonrecourse Deductions, Losses and Profits (and related
items of income and deductions) provide for allocations of
expenditures which give rise to Housing Tax Credits in the
ratio of 99% to the Limited Partner 1% to the Operating
General Partner, the Partners intend that Housing Tax
Credits shall be allocated 99% to the Limited Partner and 1%
to the Operating General Partner.
(b) In the event there occurs a
recapture of Housing Tax Credits previously allocated to the
Partners, then, pursuant to Section 42(j)(1 ) of the Code,
Housing Tax Credits shall be recaptured by the Partners who
originally claimed said Housing Tax Credits, in proportion
to the ratio in which such recaptured Housing Tax Credits
were claimed .
H. Order of Priority. The allocation and
distribution provisions of this Agreement will be applied in
the order in which they are listed (from first to last):
Section 9.1D (other than clauses (v) and (vi) thereof);
Section 9.1E; Section 9.1F; Section 9.1A(i); Section 9.1
B(i); Section 9.1 D(vi); Section 9.1 D(v); Section 9.1
A(ii); Section 9.1 B(ii); Section 9 . 2A; Section 9 . 2B;
and Section 12.4.
9.2 Distribution and Application of Cash Flow and
Sale or Refinancing Transaction Proceeds. Except as
otherwise provided by this Agreement or required by law
(including all applicable rules, directives and regulations
of each Authority), cash distributions shall be made to the
Partners on the following bases within 60 days after the end
of each calendar quarter:
A. Cash Flow shall be applied in the following
order of priority:
(i) To repay any Voluntary Loans
payable to the Limited Partner or the Special Limited
Partner;
(ii) To repay any Voluntary Loans
payable to the Operating General Partner;
(iii) To NCMC in an amount equal to the
unpaid balance of any Operating Loan made by it and then to
the Operating General Partner in an amount equal to the
unpaid balance of all Operating Loans made by it;
(iv) To the Limited Partner until the
Limited Partner has received on a cumulative basis an annual
distribution pursuant to this subsection (iv) equal to an
annual amount of $39,930; provided. however, for the Fiscal
Year ending December 31, 1993, such distribution shall have
been prorated based upon the number of days from the date on
which the Limited Partner pays the installment of the
Limited Partner Contribution described in Paragraph 2.1 (b)
of the Investment Agreement until the end of such Fiscal
Year, and provided further, however, that in the event a
portion of the Limited Partner Contribution described in
Paragraph 2.1 (a) is escrowed, the distributions pursuant to
this Section 9.2A(iv) shall accrue, but shall not be made
until the escrowed funds have been released;
(v) To the Operating General Partner
until the Operating General Partner has received an amount
equal to (1 ) the General Partner Priority plus (2) a 9.25%
per annum return thereon, compounded annually, reduced by
the amount of all prior distributions to the Operating
General Partner under this Section 9.2A(v) and Section
9.2B(vi); and
(vi) The balance, 50% to the Limited
Partner, 0.1% to the Special Limited Partner and 49.9% to
the Operating General Partner (in accordance with Section
6.3(I) hereof) .
B. Subject to the provisions of Sections 3.8
and 12.4 hereof and, with respect to subsection (vi), below,
the provisions of Paragraph 2.2 of the Investment Agreement,
Sale or Refinancing Transaction Proceeds shall be applied in
the following order of priority:
(i) To the payment of liabilities of
the Partnership then due and owing to Persons other than
the Partners;
(ii) To establish such reserves as the
Operating General Partner, with the Consent of the Special
Limited Partner, determines to be reasonably necessary for
any contingent or foreseeable liability or obligation of the
Partnership; provided, however, that the balance of any such
reserve remaining at such time as the Operating General
Partner, with the Consent of the Special Limited Partner,
shall determine that such reserve is no longer necessary
shall be distributed in accordance with subparagraphs (iii)
through (ix) of this Section 9.2B;
(iii) To repay any Voluntary Loans
payable to the Limited Partner or the Special Limited
Partner;
(iv) To repay any Voluntary Loans
payable to the Operating General Partner;
(v) To NCMC in an amount equal to the
unpaid balance of any Operating Loan made by it;
(vi) To the Operating General Partner
until the Operating General Partner has received an amount
equal to (1 ) the General Partner Priority plus (2) a 9.25%
per annum return thereon, compounded annually, reduced by
the amount of all prior distributions to the Operating
General Partner under Section 9.2A(v) and this Section
9.2B(vi) (in accordance with Section 6.3(ii) hereof);
provided. however, if the distribution results from a sale,
the distribution described in this Section 9.2B(vi) shall be
subordinated to the distributions required pursuant to
Section 9.2B(vii) hereof;
(vii) 99% to the Limited Partner, 0.1%
to the Special Limited Partner and 0.9% to the Operating
General Partner until the Limited Partner has received an
amount equal to 135% of the Limited Partner Contribution,
reduced by the amount of all prior distributions to the
Limited Partner under this Section 9.2B(vii);
(viii) To the Operating General Partner
until the Operating General Partner has received an amount
equal to $3,000,000 (in accordance with Section 6.3 (ii)
hereof); and
(ix) The balance, if any, 50% to the
Limited Partner, 0.1% to the Special Limited Partner and
49.9% to the Operating General Partner (in accordance with
Section 6.3(iii) hereof).
C. Except as otherwise provided in this
Section 9 . 2, each Partner shall share in distributions in
accordance with this Section 9.2 from the date on which such
Partner is admitted to the Partnership.
ARTICLE 10
TRANSFER OF PARTNER INTERESTS
10.1 Assignment of Limited Partner and Special
Limited Partner Interests. The Limited Partner and the
Special Limited Partner shall have the right at any time to
make an Assignment of their Interests without the consent or
approval of the Operating General Partner or any other
Partners. The Operating General Partner shall cooperate with
the Limited Partner and the Special Limited Partner in
facilitating such Assignment by promptly furnishing complete
and accurate financial and other relevant data regarding the
Partnership, the Apartment Complex, the Operating General
Partner and the Affiliates of the Operating General Partner
and any other matters reasonably necessary in the judgment
of the Special Limited Partner to facilitate and effect such
Assignment. The Limited Partner and the Special Limited
Partner shall notify the Operating General Partner as to any
proposed Assignment. Notwithstanding anything to the
contrary in the foregoing, the Operating General Partner
shall have the right at any time after the later of (i) end
of the Compliance Period and (ii) receipt by the Limited
Partner of aggregate distributions equal to 135% of the
Limited Partner Contribution, to require, by notice to the
Special Limited Partner and to the Limited Partner that the
Special Limited Partner and Limited Partner assign its
interests to the Operating General Partner or its assignee
and withdraw from the Partnership. In connection with such
assignment, the Limited Partner and the Special Limited
Partner shall (x) represent and warrant the each has the
full right, title and interest in its respective Interest
and that each such assignment shall be without lien, claim
or encumbrance (except as set forth herein or in the
Mortgage) and (y) agree to provide such further assurances
of title and instruments of transfer as may be reasonably
required by the Operating General Partner.
10.2 Substituted Partners; Admission.
A. Except as otherwise provided in Article 11
hereof, no additional partner shall be admitted to the
Partnership without the Consent of the Special Limited
Partner and the consent of the Operating General Partner.
B. No Assignee shall be admitted as a
Substituted Partner unless (i) the Operating General
Partner, with the Consent of the Special Limited Partner,
approves, in each's sole and absolute discretion, admission
of such Assignee, (ii) the Assignee expressly agrees to be
bound, to the same extent as the Assignor, by the provisions
of this Agreement, the Project Documents and any other
documents required in connection therewith and to assume the
obligations of the Assignor hereunder, and (iii) the
Assignee shall have agreed to pay all reasonable expenses
and legal fees relating to the Assignment and its admission
as a Substituted Partner.
C. Upon the admission of a Substituted
Partner, Schedule A shall be amended to reflect the name and
address of such Substituted Partner and to eliminate the
name and address of the Assignor, and an amendment to this
Agreement and/or the Certificate reflecting such admission
shall be filed in accordance with the Uniform Act. No
consent or approval of the Limited Partner (other than the
Assignor and the Assignee) shall be required and the Special
Limited Partner may exercise the power of attorney granted
in Section 14.2 hereof to effect the provisions of this
Article 10.
10.3 Assignees.
A. Any Person who acquires in any manner
whatsoever any Interest, irrespective of whether such
Person has accepted and adopted in writing the terms and
provisions of this Agreement, shall be deemed by the
acceptance of the benefit of the acquisition thereof to
have agreed to be subject to and bound by all the
obligations of this Agreement that any predecessor in
interest of such Person was subject to or bound by. A
person acquiring an Interest, including the personal
representatives and heirs of a deceased Partner, shall have
only such rights, and shall be subject to all the
obligations, as are set forth in this Agreement: and,
without limiting the generality of the foregoing, such
Person shall not have any right to have the value of his
Interest ascertained or receive the value of such Interest
or, in lieu thereof, profits attributable to any right in
the Partnership, except as herein set forth.
B. Any Assignee pursuant to an Assignment
satisfying the conditions of this Article 10 who does not
become a Substituted Partner in accordance with this Article
10 shall have the right to receive the same share of the
Profits and Losses and distributions of the Partnership to
which his Assignor would have been entitled. If such
Assignee desires to make an Assignment of his Interest, he
shall be subject to all the provisions of this Article 10 to
the same extent and in the same manner as any Partner
desiring to make an Assignment.
C. Any Partner who shall Assign all of his
Interest shall cease to be a Partner and shall no longer
have any rights or privileges of a Partner except that,
unless and until his Assignee is admitted to the Partnership
as a Substituted Partner in accordance with this Article 10,
such Assignor shall retain all rights and be subject to all
obligations under the Uniform Act.
D. In the event of an Assignment, the
obligation of the Assignor to make Capital Contributions or
loans hereunder shall be extinguished only by and to the
extent of Capital Contributions or loans actually made by
him or his Assignee.
E. In the event that an Assignment shall be
made, there shall be filed with the Partnership a duly
executed and acknowledged counterpart of the instrument
effecting such Assignment. Such instrument must evidence the
written acceptance of the Assignee to all the terms and
provisions of this Agreement. If such instrument is not so
filed, the Partnership need not recognize any such purported
Assignment for any purpose.
ARTICLE 11
WITHDRAWAL OF OPERATING GENERAL PARTNER:
NEW OPERATING GENERAL PARTNER
11.1 Withdrawal.
A. The Operating General Partner may not
Withdraw (other than an Involuntary Withdrawal) from the
Partnership or Assign, pledge or encumber all or any part of
its Interest without the Consent of the Special Limited
Partner, and, to the extent required, the consent of each
Authority and each Lender. The consent of the Limited
Partner shall not be required.
B. In the event of a Withdrawal (other than an
Involuntary Withdrawal) of an Operating General Partner or
the pledge or encumbrance of any part of its Interest in
violation of Section 11 . 1 A hereof or the removal of an
Operating General Partner pursuant to Section 1 1.4, the
Interest of the Withdrawing Operating General Partner shall
immediately and automatically terminate on the effective
date of such Withdrawal (or the effective date of such
Assignment, pledge, encumbrance or removal) and such
Operating General Partner shall have no further right to
participate in the management or operation of the
Partnership or to receive any future allocations of Profits
and Losses, any distributions from the Partnership or any
other funds or assets of the Partnership, nor shall it be
entitled to receive or to be paid by the Partnership any
further payments of fees (including fees which have been
earned but are unpaid) or to be repaid any outstanding
advances or loans made by it to the Partnership. From and
after the effective date of such Withdrawal, pledge or
encumbrance, the rights of such Withdrawing Operating
General Partner to receive or to be paid such allocations
distributions, funds, assets, fees or repayments shall be
reallocated to the other Operating General Partner or
Operating General Partners, or if there is no other
Operating General Partner at that time, to the Special
Limited Partner. Notwithstanding such Withdrawal, pledge,
encumbrance or removal, and loss of any right to receive
such allocations, distributions, funds, assets, fees and
repayments, such Withdrawing Operating General Partner shall
remain liable to the Partnership and the other Partners for
all obligations theretofore incurred by it under this
Agreement, or which may arise upon or following such
Withdrawal, pledge, encumbrance or removal. Notwithstanding
anything herein to the contrary, any remaining Partner shall
have all other rights and remedies against such Withdrawing
Operating General Partner as provided by law.
C. Upon the Involuntary Withdrawal of an
Operating General Partner, its Interest shall automatically
convert to an Interest of a limited partner but it shall not
be entitled to participate in the management of the
Partnership's business or to participate in any allocation
of Profits or Losses or distributions payable to the Limited
Partner or the Special Limited Partner. Subject to the
provisions of Section 11.3B hereof, such limited partner or
its successors shall be entitled to share in the Profits and
Losses and distributions at the same times and in the same
manner as such Withdrawing Operating General Partner would
have otherwise received as an Operating General Partner
reduced by an amount reasonably necessary to compensate the
remaining General Partners or any successor general partner
for assuming the obligations of an Operating General Partner
who has committed the Involuntary Withdrawal .
11.2 Effect of Withdrawal; Election to Continue
Business. Upon the occurrence of an event giving rise to a
Withdrawal of an Operating General Partner (i) any remaining
Operating General Partner, if any, or, if there be no
remaining Operating General Partner, such Withdrawing
Operating General Partner or its legal representative shall
promptly notify the Limited Partner of such Withdrawal (the
"Withdrawal Notice"), (ii) the Special Limited Partner shall
have the right to become an Operating General Partner by
appointing itself or any of its Affiliates to succeed such
Withdrawing Operating General Partner, (iii) the Special
Limited Partner shall have the right to appoint another
Person to succeed such Withdrawing Operating General Partner
and serve as Operating General Partner, and (iv) the
Partnership shall be dissolved and terminated unless the
then remaining Operating General Partner or the Special
Limited Partner or the Limited Partner, pursuant to the
provisions of Section 11.3, elects to continue the business
of the Partnership. If the Limited Partner so elects,
Withdrawal of a General Partner shall not be deemed to be
effective until the expiration of 90 days from the day on
which the Withdrawal Notice has been mailed to the Limited
Partner. A Withdrawn Operating General Partner shall remain
liable for obligations incurred by it under this Agreement
through the effective date of its Withdrawal, even if such
Withdrawal shall be an Involuntary Withdrawal and whether in
compliance with or in violation of this Agreement.
11.3 Continuation of Partnership.
A. Upon the occurrence of an event giving rise
to the Withdrawal of an Operating General Partner, if there
is then no other Operating General Partner, or, if there is
then one or more other Operating General Partners, but the
remaining Operating General Partner or the Special Limited
Partner does not elect to continue the business of the
Partnership pursuant to Section 11.2 hereof, the Limited
Partner may elect within 90 days thereafter to continue the
Partnership on substantially identical terms to those of
this Agreement to carry on the business of the Partnership
and designate a successor general partner to serve in place
of such Withdrawing Operating General Partner with the
approval of each Authority and each Lender, if such approval
is required.
B. If the Limited Partner shall designate a
successor general partner and obtain all necessary approvals
therefor where the Withdrawal is Involuntary, the Limited
Partner at its option may require that the Interest of such
Withdrawing Operating General Partner be transferred to the
successor general partner upon its written assumption of the
obligations of such Withdrawing Operating General Partner
under this Agreement (except for any obligations of such
Withdrawing Operating General Partner under this Agreement
specifically excepted by the Special Limited Partner). In
such event, the successor general partner shall pay to such
Withdrawing Operating General Partner or its legal
representative as the purchase price for its Interest an
amount to be agreed upon between them. If a Withdrawing
Operating General Partner and the successor general partner
cannot agree upon the consideration for the transfer of such
Interest within 60 days after such Withdrawal, consideration
therefor shall be the fair market value of such Interest as
determined by a committee of three qualified real estate
appraisers, one selected by such Withdrawing Operating
General Partner, one selected by the Special Limited Partner
and a third selected by the other two real estate appraisers
(or, if the first two real estate appraisers cannot agree
upon the third real estate appraiser within 30 days such
third appraiser shall be selected by the American
Arbitration Association). The purchase of such Withdrawing
Operating General Partner's Interest under this Section 11
.3B shall take place within ten days after the purchase
price is determined (whether by agreement or appraisal), and
the closing shall take place at the office of the Special
Limited Partner. The purchase price for such Interest shall
be payable by a promissory note bearing interest at a rate
equal to the Prime Rate and payable solely out of Sale or
Refinancing Transaction Proceeds payable with respect to the
Interest being purchased, shall be secured by the Interest
being purchased and shall otherwise be without recourse to
the maker.
C. Unless any other General Partner shall
agree to continue the Partnership pursuant to Section 11.2
hereof, the Interest of such other General Partner other
than such Withdrawing Operating General Partner shall be
converted into and shall be deemed to be that of a limited
partner with the same Interest in the Partnership as such
General Partner had as a general partner prior to the
Withdrawal, reduced by an amount reasonably necessary to
compensate the successor general partner for assuming the
obligations of such other General Partners. Such Interest
shall be purchased by the successor general partner
concurrently with the purchase of such Withdrawing Operating
General Partner's Interest in accordance with and on the
same terms and conditions as set forth in Section 11.3B
hereof.
11.4 Special Removal Rights.
A. Notwithstanding any other provision of this
Agreement to the contrary, the following events shall be
considered a Major Default under the terms of this
Agreement:
(i) Any Operating General Partner (and,
if applicable, the Withdrawing General Partner and/or NCMC)
shall:
(a) materially violate its
fiduciary responsibilities as a General Partner of the
Partnership;
(b) be in material breach of any
provision of this Agreement, the Investment Agreement, or
the Operating Deficit and Rental Achievement Agreement for
ten days after notice thereof has been given by the Special
Limited Partner: provided however, that if such breach is of
the type that cannot reasonably be cured within ten days,
the Special Limited Partner shall not have the right to
remove the Operating General Partner under this Section
11.4A(i)(b) with respect to such breach for a 30-day period
after such notice is given so long as such Operating General
Partner (and, if applicable, the Withdrawing General Partner
or NCMC) is diligently pursuing a cure of such breach at all
times during such 30-day period and accomplishes such cure
within such 30-day period; provided further. ho ever, that
if such breach is of the type that cannot reasonably be
cured within 30 days, the Operating General Partner (and, if
applicable, the Withdrawing General Partner or NCMC) shall
have an additional 30 days (for a total of 60 days) so long
as the Operating General Partner, Withdrawing General
Partner or NCMC, as applicable, is diligently pursuing a
cure of such breach at all times during such additional 30-
day period, neither the Partnership, the Special Limited
Partner nor the Limited Partner is adversely affected in a
material way by such additional time to cure and the
Operating General Partner accomplishes such cure within such
additional 30-day period;
(c) willfully violate any law,
regulation or order applicable to the Partnership which has
or may have a material adverse effect on the Partnership or
the Apartment Complex; or
(d) become Bankrupt (except that
if one Person comprising the Operating General Partner
becomes Bankrupt, it shall not affect the rights of any
other Operating General Partner provided such other Persons
comprising the Operating General Partner are acceptable to
each Lender, to the extent such approvals are required and
such remaining Persons satisfy the requirements of Section
5.11 hereof); or
(ii) The Partnership shall:
(a) be in material breach of any
Project Document;
(b) at any time after Rental
Achievement, incur an Operating Deficit with respect to any
period of four consecutive months;
(c) be in any situation where the
annual amount of the Housing Tax Credits which the
Partnership is entitled to claim under Section 42 of the
Code is less than 80% the annual amount of Housing Tax
Credits set forth in Section 3.8 hereof.
Upon a Major Default, the Special
Limited Partner shall have the right, but not the
obligation, in its sole discretion and upon ten days' prior
notice to the Operating General Partner, in the case of the
occurrence of an event specified in this Section 11.4A
[subject to the provisions of subsection (i)(d)], to remove
the Operating General Partner and to appoint itself or any
of its Affiliates or any other Person to succeed the
Operating General Partner as the Operating General Partner
in accordance with the provisions of Section 11.2 hereof .
B. The Operating General Partner agrees to
jointly and severally indemnify and hold the Limited Partner
and the Special Limited Partner harmless from and against
all losses, costs and expenses incurred in connection with a
Major Default pursuant to Section 11.4A(i) and the exercise
of the remedies provided above, including, without
limitation, all legal fees and other expenses of the Limited
Partner and Special Limited Partner in connection therewith.
C. The removal of an Operating General Partner
pursuant to Section 11 .4A hereof (other than pursuant to
Section 11 .4A(i)(d) hereof) shall be treated for purposes
of this Agreement as a Voluntary Withdrawal of such
Operating General Partner subject to the provisions of
Section 1 1.1 B.
D. If a Major Default occurs, and the Special
Limited Partner does not exercise its right to remove the
Operating General Partner, the Limited Partner, upon the
vote of a Majority in Interest of the limited partners of
the Limited Partner, shall cause the Special Limited Partner
to remove such Operating General Partner, upon ten days'
prior written notice to such Operating General Partner and
to appoint the Special Limited Partner or any of its
Affiliates to succeed such Operating General Partner as an
Operating General Partner of the Partnership in accordance
with the provisions of Section 11.2 hereof.
11.5 Additional Operating General Partner. At any
time, the Operating General Partner, with the Consent of the
Special Limited Partner (but the consent of the Limited
Partner shall not be necessary), and subject to any
applicable approvals of each Authority and each Lender, may
admit an additional operating general partner to the
Partnership with such share of the aggregate Operating
General Partner Interest as shall be agreed upon between the
Operating General Partner and the additional operating
general partner. Such consent shall not be required if an
Affiliate of the Operating General Partner is added as an
additional operating general partner. Such consent shall not
be unreasonably withheld or delayed if an Affiliate of the
Operating General Partner is substituted as the sole
Operating General Partner provided that the net worth of the
substituted Operating General Partner is not less than the
net worth of the Operating General Partner as of the date
the Limited Partner is admitted into the Partnership. Any
additional operating general partner, as a condition of
receiving any Interest, shall agree to be bound by the terms
of this Agreement, the Investment Agreement, the Project
Documents and any other document required in connection
therewith to the same extent and on the same terms as the
Operating General Partner.
11.6 Amendment of Schedule and Agreement. Upon the
admission of a successor or additional operating general
partner or the Withdrawal of the Operating General Partner,
Schedule A attached hereto shall be amended to reflect such
admission or Withdrawal and such amendment and/or
Certificate of Amendment shall be filed as required by the
Uniform Act. The Special Limited Partner may exercise the
power of attorney granted in Section 14.2 hereof to effect
the provisions of this Section 11.6.
11.7 Survival of Liabilities. It is expressly
understood that no Withdrawal, Assignment, pledge or
encumbrance of the Operating General Partner's Interest,
even if it results in the substitution of the Assignee as a
Partner, shall release such Withdrawing Operating General
Partner(s) from any liability to the Partnership all of
which shall survive such Withdrawal, Assignment, pledge or
encumbrance.
ARTICLE 12
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Events Which Cause a Dissolution. The
Partnership shall continue in full force and effect until
December 31, 2010, except that the Partnership shall be
dissolved prior thereto upon the happening of any of the
following events:
A. An election to dissolve the Partnership
made in writing by the General Partners;
B. The Withdrawal of an Operating General
Partner, if the Partnership is not continued in accordance
with Sections 11.2 or 11.3 hereof;
C. Any event which shall make it unlawful for
the existence of the Partnership to be continued;
D. The sale or other disposition of all or
substantially all of the assets of the Partnership; or
E. Upon the vote of a Majority in Interest of
the limited partners of the Limited Partner.
12.2 Actions of Liquidating Agent Upon Dissolution.
Upon the dissolution of the Partnership, the Partnership
shall be liquidated in accordance with this Article 12 and
the Uniform Act. The liquidation shall be conducted and
supervised by the Operating General Partner or, if there is
no remaining Operating General Partner, by the Special
Limited Partner (the Operating General Partner or Special
Limited Partner, as the case may be, being hereinafter
referred to as the "Liquidating Agent"). The Liquidating
Agent shall have all of the rights in connection with the
liquidation and termination of the Partnership that a
general partner would have with respect to the assets and
liabilities of the Partnership during the term of the
Partnership, and the Liquidating Agent is hereby expressly
authorized and empowered to effectuate the liquidation and
termination of the Partnership and the transfer of any
assets and liabilities of the Partnership. The Liquidating
Agent shall have the right from time to time, by revocable
powers of attorney, to delegate to one or more persons any
or all of such rights and powers and the authority and power
to execute documents in connection therewith, and to fix the
reasonable compensation of each such person, which
compensation shall be charged as an expense of liquidation.
The Liquidating Agent is also expressly authorized to
distribute the Partnership's property to the Partners
subject to liens.
12.3 Statements on Termination. Each Partner shall be
furnished with a statement prepared by the Liquidating Agent
which shall set forth the assets and liabilities of the
Partnership as of the date of complete liquidation, and each
Partner's share thereof. Upon compliance with the
distribution plan set forth in Section 12.4 hereof, the
Limited Partner and the Special Limited Partner shall each
cease to be a partner of the Partnership, and the
Liquidating Agent shall execute, acknowledge and cause to be
filed a certificate of termination of the Partnership and
any other certificates regarding the dissolution and
termination of the Partnership as required by the Uniform
Act.
12.4 Priority on Liquidation; Distribution of Non-
Liquid Assets.
A. The Liquidating Agent shall, to the extent
feasible, liquidate the assets of the Partnership as
promptly as shall be practicable. To the extent the proceeds
are sufficient therefor. as the Liquidating Agent shall deem
appropriate, the proceeds of such liquidation shall be
applied in accordance with the provisions of Sections
9.2B(i) through (viii) hereof, and the balance of the assets
of the Partnership shall be distributed by the Liquidating
Agent, subject to Section 1 2.4C in compliance with Section
1.704-1 (b)(2)(ii)(b)(2) of the Regulations, to the Partners
with positive balances in their Capital Accounts, in
accordance with the ratio of such positive Capital Account
balances, after giving effect to all contributions,
distributions, allocations and adjustments required
hereunder, for all periods, in the order of priority
established pursuant to Section 9.1 H hereof. Any
distribution described in the preceding sentence to be made
to the General Partners which will cause the General
Partners to have a contribution requirement described in the
second paragraph of Section 1 2.4B (or will increase such
contribution requirement) shall not be made and shall
instead be deemed to have first been distributed to the
General Partners and then contributed by the General
Partners to the Partnership. Thereafter, such amount shall
be distributed in the manner described in this Section 1
2.4A as if it constituted additional assets of the
Partnership.
B. Upon the dissolution of the Partnership
pursuant to this Article 12, if the positive Capital Account
balance, if any, of the Operating General Partner (computed
after making all allocations pursuant to Section 9.1 and
before making any distributions pursuant to Section 9.2B and
this Section 12.4) exceeds the net amount distributable to
the Operating General Partner pursuant to Section 9.2B
(taking into account any contributions which may be required
to be made by the Operating General Partner pursuant to the
following paragraph of this Section 1 2.4B), then the
Partnership shall make a guaranteed payment, pursuant to
Code Section 707(c), to the Limited Partner in the amount of
such excess for the use of the Limited Partner's capital.
In the event the Partnership is
"liquidated" within the meaning of Section 1.704-1
(b)(2)(ii)(g) of the Regulations, if the General Partners'
Capital Accounts have a deficit balance in the aggregate
(after giving effect to all contributions, distributions and
allocations for all taxable years, including the year during
which such liquidation occurs), the General Partners shall
contribute to the capital of the Partnership an amount equal
to the lesser of (I) the amount necessary to restore such
deficit balance to zero, or (ii) an amount equal to the
excess of (a) 1.01% of the Capital Contributions of the
Limited Partner over (b) the Capital Contributions
previously made by the General Partners, in compliance with
Section 1.704-1 (b)(2)(ii)(b)(3) of the Regulations. Any
amount required to be contributed by the General Partners
pursuant to the preceding sentence shall be contributed by
the General Partners in proportion to their respective
deficit Capital Account balances, if any. If the Limited
Partner has a deficit balance in his Capital Account (after
giving effect to all contributions, distributions (other
than the distribution described in the last sentence of
Section 1 2.4A) and allocations for all taxable years,
including the year during which such liquidation occurs),
such Limited Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect
to such deficit, and such deficit shall not be considered a
debt owed to the Partnership or to any other Person for any
purpose whatsoever.
C. If the Liquidating Agent, shall determine,
in its sole discretion, that it is not feasible to liquidate
all or part of the assets of the Partnership or that an
immediate sale of all or part of such assets would cause an
undue loss to the Partners, the Liquidating Agent may
distribute those assets in kind to the Partners or to a
liquidation trust or similar vehicle for the purpose of the
orderly liquidation of such assets at the earliest possible
time for the benefit of, and in the best interests of the
Partners.
Any distribution of assets in kind shall be distributed on
the basis of the fair market value thereof (which shall be
determined by independent appraisal) and any Partner
entitled to any interest in such assets shall receive such
interest therein as a tenant-in-common with all other
Partners so entitled. If the Liquidating Agent, in its sole
discretion, deems it not feasible to distribute to each
Partner an aliquot share of each asset, the Liquidating
Agent may allocate and distribute specific assets to one or
more Partners as tenants-in-common as the Liquidating Agent
shall determine to be fair and equitable, taking into
consideration, inter alia, the basis for tax purposes of
each asset distributed and the effect of crediting or
charging the Capital Accounts for any unrealized
appreciation or unrealized depreciation.
12.5 Orderly Liquidation. A reasonable time shall be
allowed for the orderly liquidation of the assets of the
Partnership and the discharge of liabilities so as to
minimize the losses normally attendant upon a liquidation.
12.6 No Goodwill Value. At no time during
continuation of the Partnership shall any value ever be
placed on the Partnership name, or the right to its use, or
to the goodwill appertaining to the Partnership or its
business, either as among the Partners or for the purpose of
determining the value of any Interest, nor shall the legal
representatives of any Partner have any right to claim any
such value. In the event of a termination and dissolution of
the Partnership as provided in this Agreement, neither the
Partnership name, nor the right to its use, nor the same
goodwill, if any, shall be considered as an asset of the
Partnership, and no valuation shall be put thereon for the
purpose of liquidation or distribution, or for any other
purpose whatsoever; nor shall any value ever be placed
thereon as between the remaining or surviving Partners and
the legal representatives of the estate of any deceased,
insane, incompetent, dissolved, liquidated or Bankrupt
Partner.
ARTICLE 13
FOREIGN PARTNERS
13.1 Certification of Non-Foreign Status.
A. Each Partner shall upon acquiring an
Interest certify that he is not a Foreign Person on forms to
be provided by the Operating General Partner at the time of
admission. At any time that an Interest is transferred or
assigned, the transferee shall certify to non-foreign status
prior to the transfer or assignment of such Interest. Such
certifications shall be made on a form to be provided by the
Operating General Partner.
B. Each Partner shall notify the Operating
General Partner if he becomes a Foreign Person within 30
days of such change.
C. Prior to a disposition of a United States
Real Property Interest or a distribution attributable to a
disposition of a United States Real Property Interest or any
other distribution by the Partnership, each Partner may be
required to certify to non-foreign status.
13.2 Withholding of Certain Amounts Attributable to
Interests of Foreign Partners.
A. In the event that either (i) the
Partnership's actual or deemed amount realized upon
disposition of any United States Real Property Interest is
attributed to a Foreign Partner or (ii) the Partnership
makes a distribution to any Foreign Partner:
(i) Any tax required to be withheld
under Sections 1445 or 1446 of the Code shall be charged to
that Foreign Partner's Capital Account as if the amount of
such tax had been distributed to such Partner;
(ii) The Operating General Partner
shall have the right to make a loan to the Partnership in an
amount equal to the amount of tax required to be withheld
pursuant to Sections 1445 or 1446 of the Code to the extent
that cash is needed to make the required withholding payment
attributable to that Foreign Partner; and
(iii) The Operating General Partner may
retain appropriate portions of a Foreign Partner's
distributions until any withholding obligations relating to
that Foreign Partner are satisfied and may apply such
distributions to repay any loan made pursuant to Section 13
. 2A(ii) hereof .
B. For purposes of this Section 13.2, any
Partner who fails to provide a certification of a non-
foreign status within five days after a request to do so by
the Operating General Partner shall be treated as a Foreign
Person.
ARTICLE 14
MISCELLANEOUS
14.1 Law Governing. This Agreement shall be governed
by and construed in accordance with the laws of the State
applicable to contracts made and to be performed entirely
therein.
14.2 Durable Power of Attorney. Each Partner hereby
irrevocably constitutes and appoints the Special Limited
Partner and the President, Vice President and Secretary of
the Special Limited Partner, his true and lawful attorney-in-
fact and agent with full power and authority to act in his
name, place and stead to execute, acknowledge, swear to,
deliver, file, record and publish any document requisite to
carrying out the intention and purposes set forth below,
including, but not limited to, the execution,
acknowledgment, swearing to, delivery, filing, recording and
publication of amendments to the Original Certificate, which
such persons reasonably deem necessary or appropriate:
A. To qualify or continue (except in the event
of a dissolution of the Partnership pursuant to Article 12
hereof) the Partnership as a limited partnership; and
B. To accomplish the purposes and carry out
the powers of the Partnership as set forth in the second
sentence of Section 5.2B hereof.
Notwithstanding the foregoing, no action shall be taken
pursuant to the power of attorney without ten day's prior
notice to the Operating General Partner (except that no
notice shall be required if the Partnership would suffer
irreparable harm unless such action is taken immediately).
The power of attorney hereby granted is a special power of
attorney coupled with an interest and shall survive the
subsequent death, incompetency, disability, incapacity,
dissolution, Bankruptcy or termination of any Partner. No
Person shall take any action as an attorney-in-fact of any
Partner which is not expressly authorized by the terms of
this Agreement or which would in any way increase the
liability of any Partner beyond the liability expressly set
forth in this Agreement or which would otherwise materially
adversely affect any Partner.
14.3 Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an
original for all purposes, but all of which taken together
shall constitute only one agreement. The production of any
executed counterpart of this Agreement shall be sufficient
for all purposes without producing or accounting for any
other counterpart thereof.
14.4 Separability of Provisions. Each provision of
this Agreement shall be considered separate and if for any
reason any provision or provisions herein (i) are determined
to be invalid or contrary to any existing or future law,
such invalidity shall not impair the operation of or affect
those portions of this Agreement which are valid or (ii)
would cause the Limited Partner to be liable for the
obligations of the Partnership (other than under the rules,
directives and regulations of any Authority) under the laws
of the State as the same may now or hereafter exist, such
provision or provisions shall be deemed void and of no
effect.
14.5 Address and Notice. All notices, demands,
solicitations of consent or approval, and other
communications hereunder required or permitted shall be in
writing and shall be deemed to have been given (i) when
personally delivered or telecopied, (ii) one business day
after the date when deposited with an overnight courier or
(iii) five days after the date when deposited in the United
States mail and sent postage prepaid by registered or
certified mail, return receipt requested, addressed as
follows:
A. If to the Partnership, the Operating
General Partner, to the intended recipient at:
50 California Street, Suite 3300
San Francisco, California 94111
Tel: (415) 693-3910
Fax: (415) 989-1204
With a copy to:
John Shaw
Resource Holdings, Inc.
520 Fifth Avenue, 40th Floor
New York, New York 10022
Tel: (212) 980-3883
Fax: (212) 935-3851
B. If to the Limited Partner and/or the
Special Limited Partner, to the intended recipient at:
9090 Wilshire Boulevard, Suite 201
Beverly Hills, California 90211
Attention: President (NCTC)
Tel: (310) 278-2191
Fax: (310) 278-6835
With copies to:
Resch Polster Alpert & Berger
10390 Santa Monica Boulevard, Fourth Floor
Los Angeles, California 90025-5058
Attention: Real Estate Department
Tel: (310) 277-8300
Fax: (310) 552-3209
14.6 Computation of Time. In computing any period of
time pursuant to this Agreement, the day of the act, event
or default from which the designated period of time begins
to run shall not be included.
14.7 Titles and Captions. All article and section
titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the text of
this Agreement.
14.8 Entire Agreement. This Agreement and the
Investment Agreement contain the entire understanding
between and among the parties and supersedes any prior
understandings and agreements between and among them
respecting the subject matter of this Agreement.
14.9 Agreement Binding. This Agreement shall be
binding upon and inure to the benefit of the heirs,
executors. administrators, legal representatives and
permitted successors and assigns of the parties hereto.
14.10 Parties in Interest. Nothing herein shall be
construed to be for the benefit of or enforceable by any
third party including, but not limited to, any creditor of
the Partnership.
14.11 Amendments; Other Actions.
A. This Agreement may not be amended except by
the Operating General Partner with the Consent of the
Special Limited Partner, or by the Limited Partner upon the
vote of a Majority in Interest of the limited partners of
the Limited Partner, and, in each case, the approval, if
required, of each Authority; provided. however, that all
Partners must give their consent in writing to any amendment
which would (i) extend the term of the Partnership as set
forth in Section 12.1 hereof, ii) amend this Section 14.11,
(iii) increase or extend the liability or obligation of the
Limited Partner or the Special Limited Partner, (iv)
increase the amount of Capital Contributions payable by the
Limited Partner or the Special Limited Partner, (v)
accelerate the date of payment of any portion of the Limited
Partner Contribution, (vi) alter the distribution or
allocation to the Partners of any profits and losses and
distributions of the Partnership or (vii) alter the rights,
powers and duties of a General Partner without such General
Partner's consent.
B. Notwithstanding any other provision of this
Agreement, no action may be taken under this Agreement
unless such action is taken in compliance with the
provisions of the Uniform Act.
14.12 Survival of Representations, Warranties and
Agreements. All representations, warranties and agreements
shall survive until the dissolution and termination of the
Partnership, except to the extent that a representation,
warranty or agreement expressly provides otherwise.
14.13 Further Assurances. The Partners shall execute
and deliver such further instruments and do such further
acts and things as may be required to carry out the intent
and purposes of this Agreement.
14.14 Remedies Cumulative. No remedy conferred upon
or reserved to the Partnership or any Partner by this
Agreement is intended to be exclusive of any other remedy.
Each and every such remedy shall be cumulative and shall be
in addition to any other remedy given to the Partnership or
any Partner hereunder or now or hereafter existing at law or
in equity or by statute.
14.15 Attorneys' Fees. Subject to the indemnification
provisions of Section 5.8 hereof, in the event that any
court or arbitration proceeding is brought under or in
connection with this Agreement, the prevailing party in such
proceeding whether at trial or on appeal) shall be entitled
to recover from the other party all costs, expenses. and
reasonable attorneys' fees incident to any such proceeding.
The term prevailing party" as used herein shall mean the
party in whose favor the final judgment or award is entered
in any such judicial or arbitration proceeding.
14.16 Meetings. Meetings of the Partnership may be
called by the Operating General Partner, the Special Limited
Partner or by the Limited Partner for any matters for which
the Partners may vote as set forth in this Agreement or to
obtain information concerning the Partnership. A list of
names and addresses of all Partners shall be maintained as
part of the books and records of the Partnership and shall
be made available upon request to any Partner or its
representative at no cost. Upon receipt of a request from
any Person entitled to call a meeting stating the purposes
of the meeting, the Operating General Partner or the Special
Limited Partner shall provide the Partners, within ten days
after receipt of such request, notice of a meeting and the
purpose of such meeting to be held on a date not less than
15 nor more than 60 days after receipt of such request, at a
time and place within or without the State convenient to the
Partners. Included within the notice shall be a detailed
statement of the action proposed, including a verbatim
statement of the wording of any resolution proposed for
adoption by the Limited Partner and any proposed amendment
to this Agreement. Said notice shall provide for proxies or
written consents which specify a choice between approval and
disapproval of each matter to be acted upon at a meeting. A
Majority in Interest of Limited Partners entitled to vote,
represented in person or by proxy, shall constitute a quorum
at a meeting.
14.17 Enforceability. It is agreed that the rights
granted to the Special Limited Partner and the Limited
Partner hereunder are of a special and unique kind and
character and that, if there is a breach by the Operating
General Partner of any material provision of this Agreement,
the Special Limited Partner and the Limited Partner would
not have any adequate remedy at law. It is expressly agreed,
therefore. that the rights of the Special Limited Partner
and the Limited Partner hereunder shall be enforceable by a
decree of specific performance. Such remedy shall be
cumulative and not exclusive and shall be in addition to any
and all other remedies the Special Limited Partner and the
Limited Partner may have pursuant to this Agreement, at law,
or in equity. The parties agree that the substance of the
transaction contemplated hereby relates directly to real
estate, and, therefore, a lis pendens or similar notice may
be filed or recorded against the Apartment Complex in the
event of any such action for specific performance.
14.18 Indemnification. Each of the General Partners
agrees to jointly and severally indemnify and hold the
Partnership and the other Partners harmless from and against
all losses, costs and expenses incurred as a result of
actions or omissions relating to the Partnership and its
duties hereunder to the extent such actions or omissions
constitute gross negligence or willful misconduct,
including, without limitation, all legal fees and other
expenses of the Partnership and/or the other Partners in
connection therewith. If one or more of the representations
and warranties contained in this Agreement by the Operating
General Partner shall prove to be untrue in any respect, or
if the Operating General Partner shall default in its
performance of any agreement or covenant contained in
Section 5.9 hereof, the Operating General Partner shall
indemnify and hold harmless the Limited Partner and the
Special Limited Partner (and their general partners, limited
partners, directors, officers, shareholders, employees,
agents, affiliates, successors and assigns) and the
Partnership from and against any and all losses, claims,
damages, liabilities and expenses incurred by such persons
resulting from any such untruth or inaccuracy or from any
such failure of performance, including, without limitation,
all foreseeable and unforeseeable consequential damages, and
reasonable attorneys' and accountants' fees and costs, court
costs, and costs of appeal. Nothing herein shall impose any
liability on any other person, corporation, officer,
director, shareholder, agent or employee of the parties
providing such indemnification.
14.19 Liability of Investor's Partners.
A. No Person who is at any time a partner
(whether limited or general) of the Limited Partner shall
have any personal liability for the payment or performance
of any obligation of the Limited Partner arising under or in
connection with this Agreement, the Investment Agreement or
any document or instrument delivered pursuant to the terms
of the Investment Agreement (including, without limitation,
the Capital Note).
B. No Person who is at any time an officer,
director or shareholder of the Operating General Partner or
the Special Limited Partner shall have any personal
liability for the payment or performance of any obligation
of their respective corporate entities arising under or in
connection with this Agreement, the Investment Agreement or
any document or instrument delivered pursuant to the terms
of the Investment Agreement.
14.20 Brokers' Commission; Indemnity. Each of the
parties hereto warrants and represents to the other that it
has not been introduced to the other by any real estate or
business broker, nor has it been in contact with any broker
regarding the Apartment Complex; and each agrees to
indemnify and hold the other harmless from all suits,
claims, actions, losses or expenses (including reasonable
attorneys' fees) arising from the claim of any Person to a
brokerage or other fee or commission in connection with the
transactions contemplated hereunder as a result of contact
with or other action, alleged or actual, of the indemnifying
party .
IN WITNESS WHEREOF, this Agreement has been duly
executed as of the day and year first above written.
OPERATING GENERAL PARTNER: NCQ REDBIRD, INC.,
a California corporation
By /s/ Herbert J. Jaffe
Its President
LIMITED PARTNER: NATIONAL CORPORATE TAX CREDIT FUND,
a California limited partnership
By National Partnership Investments Corp.,
a California corporation,
General Partner
By /s/ Shawn Horwitz
Its Executive Vice President
SPECIAL LIMITED PARTNER: NATIONAL CORPORATE TAX CREDIT, INC.,
a California corporation
By /s/ Shawn Horwitz
Its Executive Vice President
WITHDRAWING GENERAL PARTNER: NCQ REALTY, INC.,
a Delaware corporation
By /s/ Herbert J. Jaffe
Its President
SCHEDULE A TO THE
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF REDBIRD TRAILS ASSOCIATES, L.P.
Name and Address Capital Contribution
Operating General Partner:
NCQ Redbird, Inc., $ 100.00
50 California Street
Suite 3300
San Francisco, California 94111
Special Limited Partner:
National Corporate Tax Credit, Inc. $ 100.00
9090 Wilshire Boulevard, Suite 201
Beverly Hills, California 90211
Limited Partner:
National Corporate Tax Credit Fund $ 1,256,158.00
9090 Wilshire Boulevard, Suite 201
Beverly Hills, California 90211
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
SIGNATURE MIDWEST, L.P.
(also known as North Oak)
By and Among
NCQ NORTH OAK, INC.,
as the Operating General Partner
and
NATIONAL CORPORATE TAX CREDIT, INC.,
as the Special Limited Partner
and
NATIONAL CORPORATE TAX CREDIT FUND,
a California limited partnership,
as the Limited Partner
Dated as of November 23, 1994
TABLE OF CONTENTS
ARTICLE TITLE PAGE
1 Defined Terms 1
2 General 14
2.1 Continuation of the Partnership 14
2.2 Principal Office 15
2.3 Principal Place of Business; Resident
Agent 15
2.4 Term 15
2.5 Purpose 15
3 Capital Contributions 16
3.1 Operating General Partner 16
3.2 Withdrawal of Withdrawing General
Partner 16
3.3 Special Limited Partner 16
3.4 Limited Partner 16
3.5 Treatment of Other Advances 16
3.6 Capital Accounts: Interest; Withdrawal 17
3.7 Liability of Limited Partner and Special
Limited Partner 17
3.8 Housing Tax Credit Protection; Adjustment
of Interests 17
3.9 Default in Limited Partner Contribution 18
4 Compliance with Authority Requirements;
Partnership Borrowings 19
4.1 Authority Requirements 19
4.2 Loans 19
5 Rights, Powers and Obligations of the
Operating General Partner and Limitations
Thereon 20
5.1 Exercise of Management 20
5.2 Duties and Authority of Operating
General Partner 22
5.3 Delegation of Operating General Partner
Authority; Tax Matters Partner 22
5.4 Lease, Conveyance or Refinancing of
Assets of the Partnership 24
5.5 Restrictions on Authority 25
5.6 Activities of Partners 26
5.7 Dealing with Affiliates 26
5.8 Indemnification and Liability of the
Operating General Partner
and Special Limited Partner 27
5.9 Representations and Warranties 28
5.10 Additional Covenants of Operating
General Partner 29
5.11 Maintenance of Net Worth 29
5.12 Obligation to Repair and Rebuild
Apartment Complex 29
6 Certain Payments 30
6.1 Development Fee 30
6.2 [Intentionally omitted] 30
6.3 Incentive Management Fee and
Resale Incentive Fee 30
7 Accounting, Reports, Books,
Bank Accounts and Fiscal Year 30
7.1 Bank Accounts 30
7.2 Books of Account; Fiscal Year 30
7 3 Reports 31
7.4 Other Reports 32
7.5 Tax Returns and Tax Treatment 32
8 Management Agent 33
8.1 Designation of Management Agent 33
8.2 Management Fee 34
8.3 Absence of Management Agent 34
8.4 Rights of Special Limited Partner 34
9 Distributions; Allocations of Profits and Losses;
Housing Tax Credits; Capital Accounts 35
9.1 Profits, Losses and Housing Tax
Credits 35
9.2 Distribution and Application of Cash Flow
and Sale or Refinancing Transaction
Proceeds 42
10 Transfer of Partner Interests 44
10.1 Assignment of Limited Partner and Special
Limited Partner Interests 44
10.2 Substituted Partners; Admission 44
10.3 Assignees 45
11 Withdrawal of Operating General Partner;
New Operating General Partner 46
11.1 Withdrawal 46
11.2 Effect of Withdrawal; Election to
Continue Business 47
11.3 Continuation of Partnership 47
11.4 Special Removal Rights 48
11.5 Additional Operating General Partner 50
11.6 Amendment of Schedule and Agreement 50
11.7 Survival of Liabilities 50
12 Dissolution and Termination of the Partnership 50
12.1 Events Which Cause a Dissolution 50
12.2 Actions of Liquidating Agent
Upon Dissolution 51
12.3 Statements on Termination 51
12.4 Priority on Liquidation; Distribution
of Non-Liquid Assets 51
12.5 Orderly Liquidation 53
12.6 No Goodwill Value 53
13 Foreign Partners 53
13.1 Certification of Non-Foreign Status 53
13.2 Withholding of Certain Amounts Attributable
to Interests of Foreign Partners 53
14 Miscellaneous 54
14.1 Law Governing 54
14.2 Durable Power of Attorney 54
14.3 Counterparts 55
14.4 Separability of Provisions 55
14.5 Address and Notice 55
14.6 Computation of Time 56
14.7 Titles and Captions 56
14.8 Entire Agreement 56
14.9 Agreement Binding 56
14.10 Parties in Interest 56
14.11 Amendments; Other Actions 56
14.12 Survival of Representations,
Warranties and Agreements 57
14.13 Further Assurances 57
14.14 Remedies Cumulative 57
14.15 Attorneys' Fees 57
14.16 Meetings 57
14.17 Enforceability 58
14.18 Indemnification 58
SIGNATURE MIDWEST, L.P.
(also known as North Oak)
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
This SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP (the "Agreement") of Signature Midwest, L.P.
(the "Partnership"), dated as of November 23, 1994, is by and
among NCQ North Oak, Inc., a California corporation, as the
Operating General Partner, National Corporate Tax Credit,
Inc., a California corporation, as the Special Limited
Partner, National Corporate Tax Credit Fund, a California
limited partnership, as the Limited Partner, and NCQ Realty,
Inc., a Delaware corporation, as the Withdrawing General
Partner .
W I T N E S S E T H:
WHEREAS, the Partnership was formed as a limited
partnership under the laws of the State of Missouri pursuant
to the Original Partnership Agreement (as defined below);
and
WHEREAS, pursuant to the Investment Agreement (as
defined below), the Special Limited Partner, the Limited
Partner, the Withdrawing General Partner and certain other
parties entered into the Amended and Restated Agreement of
Limited Partnership dated as of January 1, 1993 (the
"Amended Partnership Agreement"); and
WHEREAS, the parties hereto desire to enter into this
Second Amended and Restated Agreement of Limited Partnership
(the "Agreement") to effect the (i) admission of the
Operating General Partner to serve as the sole general
partner, (ii) the withdrawal of the Withdrawing General
Partner (subject to provisions of Section 3.2 hereof), (iii)
convert the Interest of National Corporate Tax Credit, Inc.,
from that of an administrative general partner to that of a
Special Limited Partner, (iv) the continuation of the
Partnership, (v) the reallocation of Profits, Losses,
credits and distributions of Cash Flow and other proceeds of
the Partnership among the Partners, (vi) the respective
rights, obligations and interests of the Partners to each
other and to the Partnership, and (vii) certain other
matters.
NOW, THEREFORE, in consideration of the covenants and
agreements hereinafter set forth, the parties hereto agree
that the Amended Partnership Agreement is hereby amended and
restated in its entirety to read as follows:
ARTICLE 1
DEFINED TERMS
Capitalized terms used in this Agreement
shall, unless the context otherwise requires, have the
meanings specified in this Article 1. Certain additional
defined terms may be set forth elsewhere in this Agreement.
Each definition or pronoun herein shall be deemed to refer
to the singular, plural, masculine, feminine or neuter as
the context requires. Words such as "herein," "hereinafter,"
"hereof," "hereto" and "hereunder," when used with reference
to this Agreement, refer to this Agreement as a whole,
unless the context otherwise requires.
"Accountants" means such firm or firms of independent
certified public accountants as may be engaged by the
Operating General Partner with the Consent of the Special
Limited Partner from time to time, and shall initially be
Landsman, Frank & Sinclaire, 9595 Wilshire Boulevard, Suite
811, Beverly Hills, California 90212, telephone (310) 274-
9922, and facsimile (310) 858-1640
"Adjusted Capital Account Deficit" means, with
respect to any Partner, the deficit balance, if any, in such
Partner's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following
adjustments:
(i) Crediting to such Capital Account all
amounts which such Partner is obligated to restore or is
deemed to be obligated to restore pursuant to Sections 1.704-
2(g)(1 ) and 1.704-2(i)(5) of the Regulations; and
(ii) Debiting from such Capital Account the
items described in paragraphs (4), (5) and (6) of Section
1.704-1 (b)(2)(ii)(d) of the Regulations.
The foregoing definition of Adjusted Capital
Account Deficit is intended to comply with the provisions of
Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
"Affiliate" of a specified Person means (i) any
Person directly or indirectly controlling, controlled by or
under common control with the Person specified, (ii) any
Person owning or controlling 10% or more of the outstanding
voting securities or beneficial interests of the Person
specified, (iii) any officer, director, partner, trustee or
member of the immediate family of the Person specified, (iv)
if the Person specified is an officer, director, general
partner or trustee, any corporation, partnership or trust
for which that Person acts in that capacity or (v) any
Person who is an officer, director, general partner, trustee
or holder of 10% or more of the outstanding voting
securities or beneficial interests of any Person described
in clauses (i) through (iv). The term "control" (including
the term "controlled by" and "under common control within)
means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Second Amended and Restated
Agreement of Limited Partnership, as it may be amended from
time to time.
"Amended Partnership Agreement" means the Amended and
Restated Agreement of Limited Partnership dated as of
January 1, 1993.
"Apartment Complex" means, collectively, the
Improvements and the Land on which the Improvements are
located, and all related facilities (including all fixtures,
appliances and personal property required in connection with
the use, operation and maintenance thereof).
"Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes,
except as follows:
(i) The initial Asset Value of any asset
contributed by a Partner to the Partnership shall be the
gross fair market value of such asset, as determined by the
contributing Partner and the Partnership;
(ii) The Asset Values of all Partnership
assets shall be adjusted to equal their respective gross
fair market values, as determined by the Operating General
Partner, with the Consent of the Special Limited Partner, as
of the following times: (a) the acquisition of an additional
interest in the Partnership by any new or existing Partner
in exchange for more than a de minimis Capital Contribution;
(b) the distribution by the Partnership to a Partner of more
than a de minimis amount of Partnership property as
consideration for an interest in the Partnership; and (c)
the liquidation of the Partnership within the meaning of
Section 1.704-1 (b)(2)(ii)(g) of the Regulations; provided.
however, that adjustments pursuant to clauses (a) and (b)
above shall be made only if the Operating General Partner
reasonably determines, with the Consent of the Special
Limited Partner, that such adjustments are necessary or
appropriate to reflect the relative economic interests of
the Partners in the Partnership;
(iii) The Asset Value of any Partnership asset
distributed to any Partner shall be the gross fair market
value of such asset on the date of distribution; and
(iv) The Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments
to the adjusted bases of such assets pursuant to Section
734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining
Capital Accounts pursuant to Section 1.704-1 (b)(2)(iv)(m)
of the Regulations and Section 9.1D(vii) hereof; Provided.
however, that Asset Values shall not be adjusted pursuant to
this subparagraph (iv) to the extent the Operating General
Partner determines, with the Consent of the Special Limited
Partner, that an adjustment pursuant to subparagraph (ii)
hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment
pursuant to this subparagraph (iv).
If the Asset Value of any asset has been
determined or adjusted pursuant to subparagraphs (i), (ii),
or (iv) hereof, such Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Profits and Losses.
"Assignment" means a valid sale, exchange, transfer
or other disposition of all or any portion of an Interest.
"Assignor" means a Partner who makes an Assignment and
"Assignee" means a Person who receives an Assignment.
"Authority" means (i) any applicable housing finance
authority or other agency authorized to issue bonds or other
evidence of indebtedness to finance residential housing
development and (ii) the housing credit agency (as defined
in Section 42(h)(7)(A) of the Code) of the State having
jurisdiction over the Apartment Complex. To the extent
applicable, Authority shall also mean any governmental body
or agency having jurisdiction over the operations of the
Apartment Complex.
"Bankruptcy" or "Bankrupt" means, with respect to any
Partner, such Partner making an assignment for the benefit
of creditors, becoming a party to any liquidation or
dissolution action or proceeding with respect to such
Partner or any bankruptcy, reorganization, insolvency or
other proceeding for the relief of financially distressed
debtors with respect to such Partner, or the appointment of
a receiver, liquidator, custodian or trustee for such
Partner or a substantial part of such Partner's assets and,
if any of the same occur involuntarily, the same not being
dismissed, stayed or discharged within 60 days; or the entry
of an order for relief against such Partner under Title 11
of the United States Code. A Partner shall be deemed
Bankrupt if the Bankruptcy of such Partner shall have
occurred and be continuing.
"Break-Even Level" means, with respect to any period,
the operation of the Apartment Complex such that the actual
collected receipts on a cash basis (including government
subsidies actually received during such period) by the
Partnership of revenues from rental income from the
Apartment Complex, at the required low-income rates, is
sufficient to meet all operating obligations of the
Partnership and the distribution described in Section
9.2A(iv) hereof. All such operating obligations will be
computed on the accrual basis of accounting and include,
without limitation, payments of principal and interest due
on the Mortgage Note and any other loans encumbering the
Apartment Complex and all other indebtedness of the
Partnership (including unamortized repayment obligations of
principal and interest on any loans outstanding, whether or
not then due), real estate taxes, insurance premiums,
accounting fees, mortgage insurance premiums (if any),
management fees, reserves for repairs and replacements
(which reserves shall require the Consent of the Special
Limited Partner), reserves which have been required by any
Lender or any Authority, reserves for all taxes or payments
in lieu of taxes, capital expenditures to the extent not
covered by insurance proceeds or releases from reserves,
compliance monitoring fees charged by the Authority or any
other Governmental Agency relating to allocation of the
Housing Tax Credits and any other expenses which were
incurred during that period. Real estate taxes, insurance
premiums, accounting fees and all material costs and
expenses which are seasonal, including, but not limited to,
fuel or other utility costs, shall be annualized so as to
reflect on a monthly basis the average of expenses so
incurred. All rent concessions, rebates and other rental
incentives shall be treated as operating obligations and
spread over the term of the lease to which they apply.
Without limiting the generality of the foregoing, the
Partnership's revenues for purposes of determining Break-
Even Level shall not include Capital Contributions, the
proceeds of Partnership borrowings or loans, interest or any
other income earned on investment of Partnership funds,
casualty insurance proceeds or Sale or Refinancing
Transaction Proceeds.
"Capital Account" means, with respect to any Partner,
the Capital Account maintained for such Partner in
accordance with the following provisions:
(i) To each Partner's Capital Account there
shall be credited such Partner's Capital Contributions, such
Partner's distributive share of Profits and any items in the
nature of income or gain which are specially allocated
pursuant to Sections 9.1 D, 9.1 E and 9.1 F hereof, and the
amount of all Partnership liabilities assumed by such
Partner or which are secured by any property distributed to
such Partner;
(ii) To each Partner's Capital Account there
shall be debited the amount of cash and the Asset Value of
any property distributed to such Partner pursuant to any
provision of this Agreement, such Partner's distributive
share of Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Sections
9.1 D, 9.1 E or 9.1 F hereof, and the amount of all
liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such
Partner to the Partnership;
(iii) In the event all or a portion of an
Interest in the Partnership is transferred in accordance
with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the
extent it relates to the transferred Interest; and
(iv) In determining the amount of any
liability for purposes of subparagraphs (i) and (ii) hereof,
there shall be taken into account Section 752(c) and any
other applicable provisions of the Code and Regulations.
The foregoing provisions and the other
provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Sections 1.704-
1 (b) and 1.704-2 of the Regulations, and shall be
interpreted and applied in a manner consistent with such
Regulations. In the event the Special Limited Partner shall
determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating
to liabilities which are secured by contributed or
distributed property or which are assumed by the Partnership
or Partners) are computed in order to comply with such
Regulations, the Special Limited Partner may make such
modifications, provided that it is not likely to have a
material effect on the amounts distributable to any Partner
pursuant to Sections 9.2 or 12.4 hereof upon the dissolution
of the Partnership and after providing notice thereof to the
Operating General Partner. The Special Limited Partner also
shall, to the extent permitted by Section 1.704-1
(b)(2)(iv)(q) of the Regulations, (i) make all adjustments
that are necessary or appropriate to maintain equality
between the Capital Accounts of the Partners and the amount
of Partnership capital reflected on the Partnership's
balance sheet, as computed for book purposes, and (ii) make
all appropriate modifications in the event unanticipated
events (for example, the acquisition by the Partnership of
oil or gas properties) might otherwise cause this Agreement
not to comply with Section 1.704-1 (b) of the Regulations.
"Capital Contribution" means the total amount of cash
and the agreed fair market value of other property, if any,
contributed to the Partnership by each Partner, including in
accordance with Schedule A attached hereto. Any reference in
this Agreement to the Capital Contribution of a then Partner
shall include the contributions to the capital of the
Partnership made by any predecessor in interest of such
Partner.
"Capital Note" means the portion of the Limited
Partner Contribution evidenced by a nonrecourse promissory
note payable to the order of the Partnership and due upon
the occurrence of certain conditions precedent, as more
fully set forth in the Investment Agreement.
"Cash Expenditures" means all disbursements of cash
(excluding distributions pursuant to Section 9.2A hereof)
determined on an accrual basis during the Fiscal Year
(excluding distributions to Partners), including, without
limitation, payment of operating expenses, payment of
principal and interest of the Partnership's indebtedness
(excluding payments of principal and interest of Voluntary
Loans and Operating Loans), mortgage insurance premiums (if
any), cost of repair, replacement and restoration of the
Apartment Complex, amounts allocated to reserves by the
Operating General Partner with the Consent of the Special
Limited Partner, and the payment of the fees set forth in
Article 6 hereof. In addition, the net increase during the
year in any escrow account or reserve maintained by or for
the Partnership shall be considered a cash expenditure
during the year. Cash Expenditures payable to Partners or
Affiliates of Partners shall be paid after Cash Expenditures
payable to third parties.
"Cash Flow" means the excess of Cash Receipts over
Cash Expenditures. Cash Flow shall be determined separately
for each Fiscal Year or portion thereof.
"Cash Receipts" means all cash receipts of the
Partnership from whatever source derived other than from a
Sale or Refinancing Transaction, including, without
limitation, cash from operations, net insurance recoveries
(other than proceeds from title insurance recoveries) and
Capital Contributions. In addition, the net reduction in any
year in the amount of any escrow account or reserve
maintained by or for the Partnership shall be considered a
cash receipt of the Partnership for such year.
Notwithstanding the foregoing, Cash Receipts received within
30 days prior to the close of a Fiscal Year and intended for
use in meeting the Partnership's obligations (including the
cost of acquiring assets or paying debts or expenses) in the
subsequent Fiscal Year may, in the discretion of the Special
Limited Partner, be deemed to be received in such subsequent
Fiscal Year.
"Certificate" means the Original Certificate or any
other instrument filed in the Filing Office as the
Certificate of Limited Partnership of the Partnership in
accordance with the Uniform Act, as amended from time to
time.
"Class" means a specific class or grouping of
Partners (i.e., the General Partners or the Limited
Partner).
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute.
"Compliance Period" shall have the meaning provided
in Section 42(i)(1) of the Code.
"Consent of the Special Limited Partner" means the
prior written consent or approval of the Special Limited
Partner.
"Credit Period" means, with respect to Housing Tax
Credits, the period of ten taxable years beginning with the
taxable year in which the Apartment Complex is placed in
service or, at the election of the Special Limited Partner,
the succeeding taxable year, provided that the Apartment
Complex is eligible for Housing Tax Credits as of the close
of the first year of such period.
"Depreciation" means, for each Fiscal Year or other
period, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable for federal income
tax purposes with respect to an asset for such year or other
period, except that if the Asset Value of an asset differs
from its adjusted basis for federal income tax purposes at
the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such
beginning Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction
for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal
income tax depreciation, amortization or other cost recovery
deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Asset Value
using any reasonable method selected by the Operating
General Partner, with the Consent of the Special Limited
Partner.
"Development Fee" means the fee, if any, to be paid
by the Partnership pursuant to the Operating Deficit and
Rental Achievement Agreement.
"Filing Office" means the Secretary of State or such
other office in which certificates of limited partnership
are properly filed under the Uniform Act as enacted in the
State.
"Final Determination" means (i) a decision of a court
of competent jurisdiction from which no appeal is available,
(ii) a binding agreement between the Partnership and the IRS
with respect to such issue, or (iii) a final ruling or
administrative determination by the IRS.
"Fiscal Year" means the twelve-month period which
begins on the first day of January and ends of the thirty-
first day of December of each calendar year (or ends on the
date of final dissolution for the year in which the
Partnership is wound up and dissolved).
"Foreign Partner" means a Partner who at the time of
acquisition of such Partner's Interest is a United States
citizen or a resident alien of the United States and whose
status subsequently changes to that of a non-resident alien
of the United States.
"Foreign Person" means a non-resident alien, foreign
corporation, foreign partnership, foreign trust or foreign
estate, within the meaning of Sections 897 and 1445 of the
Code.
"Funding Period" means the three-year period
commencing on the date that the Permanent Loan is funded.
"General Partner" or "General Partners" means any or
all Persons designated as General Partners in Schedule A,
including, without limitation, the Operating General Partner
and any Person or Persons who, at the time of reference
thereto, have been admitted as additional or successor
General Partners.
"General Partner Priority" means the priority
distribution due to the Operating General Partner in the
amount of $1,540,238.
"Governmental Agreements" means all agreements
between the Partnership and any Authority with respect to
the Apartment Complex and relating to insuring,
supplementing, subsidizing, endorsing or otherwise affecting
the Mortgage or the Apartment Complex and all such
agreements with respect to bond financing secured by a
Mortgage, including any regulatory agreement, Authority
Insurance Obligation or Rental Assistance Contract.
"Housing Tax Credits" means any low-income housing
tax credits under Section 42 of the Code.
"HUD" means the United States Department of Housing
and Urban Development, or any successor federal agency.
"Improvements" means those certain buildings
containing 132 apartment units, and the ancillary and
appurtenant facilities being constructed by the Partnership
upon the Land.
"Interest" means the entire ownership interest of a
Partner in the Partnership at any particular time, including
the right of such Partner to any and all benefits to which a
Partner may be entitled as provided in this Agreement,
together with the obligations of such Partner to comply with
all terms and provisions of this Agreement.
"Investment Agreement" means the Investment
Agreement, dated as of January 1, 1993, among the
Partnership, the Withdrawing General Partner, the Special
Limited Partner, the Limited Partner, and certain other
parties, including all Exhibits and Schedules thereto.
"Involuntary Withdrawal" means, as to any General
Partner, any Withdrawal caused by the death, adjudication of
insanity or incompetence or Bankruptcy.
"IRS" means the Internal Revenue Service.
"Land" means that certain parcel of real property
owned by the Partnership on which the Improvements are
located in Dallas. Texas, the legal description of which
appears as Exhibit A-1 to the Investment Agreement.
"Lender" means any lender under any mortgage or deed
of trust constituting the Mortgage .
"Limited Partner" means National Corporate Tax Credit
Fund, A California Limited Partnership, and its successors
and assigns.
"Limited Partner Contribution" means the gross
investment of the Limited Partner in the Partnership, a
total equal to $769,061, plus any supplemental amounts paid
in addition to that provided for in the Investment Agreement
less any amounts paid to the Limited Partner pursuant to
Section 3.8A hereof.
"Liquidating Agent" means that Person conducting and
supervising the liquidation of the Partnership in accordance
with the terms of Section 12.2 hereof.
"Major Default" means the happening of any one of the
events set forth under Section 1 1.4A hereof.
"Majority in Interest" means with respect to each
Class, those Partners holding more than one-half of the
Interests held by such Class.
"Management Agent" means the person approved by each
Authority and selected to provide management services to the
Apartment Complex from time to time in accordance with
Article 8 hereof.
"Management Agreement" means the agreement between
the Partnership and the Management Agent in connection with
management of the Apartment Complex entered into pursuant to
the authority granted by Article 8 hereof.
"Mortgage" means any mortgage or deed of trust
securing an indebtedness of the Partnership evidenced by a
Mortgage Note and encumbering the Apartment Complex, as such
indebtedness may be increased, decreased or refinanced in
accordance with this Agreement and the Project Documents.
Where the context permits, the term "Mortgage" shall include
any mortgage, deed, deed of trust, note, regulatory
agreement, security agreement, assumption agreement or other
instrument executed in connection with a Mortgage Note which
is binding on the Partnership; and in case any Mortgage is
replaced or supplemented by any subsequent document, the
term "Mortgage" shall refer to any such subsequent document.
"Mortgage Note" means any promissory note held by a
Lender evidencing indebtedness secured by a Mortgage.
"NCMC" means National Capital Management Corporation,
a Delaware corporation.
"Nonrecourse Debt" has the meaning given to the term
"nonrecourse liability" in Section 1.704-2(b)(3) of the
Regulations.
"Nonrecourse Deductions" has the meaning set forth in
Section 1 .704-2(b)(1 ) of the Regulations. The amount of
Nonrecourse Deductions for each Fiscal Year shall equal the
excess, if any, of the net increase, if any, in the amount
of Partnership Minimum Gain during that Fiscal Year over the
aggregate amount of any distributions during that Fiscal
Year of proceeds of a Nonrecourse Debt that are allocable to
an increase in Partnership Minimum Gain, determined in
accordance with the provisions of Section 1.704-2(c) of the
Regulations.
"Occupancy" means occupancy under leases (i) having a
term of not less than six months (ii) under which full
rental payments have commenced at rental rates which are
consistent with the definition of "rent restricted unit"
under Section 42(9)(2) of the Code, or at such other rental
rates as may be prescribed under any applicable restrictions
contained in the Project Documents, but in no event at rates
which are less than 90% of those approved by the Special
Limited Partner in writing, (iii) to tenants actually
occupying the apartment unit and who meet the income
requirements of Section 42(9) of the Code and (iv) on such
other terms as are commercially reasonable and customary
under residential apartment leasing practices observed in
the area in which the Apartment Complex is located. An
occupancy shall not be included in the determination of
Rental Achievement unless and until each of the foregoing
criteria has been complied with. Except for the calculation
of "Occupancy" for purposes of determining whether the
Partnership has attained Rental Achievement, a vacant unit
will be included in the determination of Occupancy provided
it was previously "Occupied" under all of the conditions set
forth above and since the vacation thereof by the qualified
tenants, it has continued to be available only as a "rent
restricted unit within the definition of Section 42(9)(2) of
the Code. With respect to Rental Achievement, "Occupancy"
will not include any unit which is not physically occupied
at the time of the determination by a tenant meeting all of
the above-stated qualifications.
"Operating Deficit" means, for any specified period
of time, the amount by which the actual collected receipts
on a cash basis (including government subsidies actually
received during such period) by the Partnership of revenues
from rental income from the Apartment Complex, at the
required low-income rates, is less than the amount necessary
to meet all operating obligations of the Partnership. Such
operating obligations will be computed on the same basis and
include those payments set forth under "Break-Even Level,"
above. Without limiting the generality of the foregoing, the
Partnership's revenues for purposes of calculating any
Operating Deficit shall not include Capital Contributions,
the proceeds of Partnership borrowings or loans, interest or
any other income earned on investment of Partnership funds,
casualty insurance proceeds, or Sale or Refinancing
Transaction Proceeds.
"Operating Deficit and Rental Achievement Agreement"
means that certain agreement between the Partnership, NCMC,
the Limited Partner and the Special Limited Partner, of
current date herewith.
"Operating General Partner" means NCQ North Oak,
Inc., together with its permitted respective successors and
assigns.
"Operating Loans" means loans made to the Partnership
pursuant to the Operating Deficit and Rental Achievement
Agreement to fund Operating Deficits occurring during the
Funding Period, which loans do not bear interest and are
repayable only as provided in Article
"Original Agreement" means the Agreement of Limited
Partnership of the Partnership dated December 30, 1991.
"Original Certificate" means the Certificate of
Limited Partnership for the Partnership, filed with the
Filing Office on December 30, 1991.
"Original Partnership Agreement" means, collectively,
the Original Certificate and the Original Agreement.
"Partner" or "Partners" means any or all of the
General Partners and the Limited Partner.
"Partner Nonrecourse Debt" has the meaning set forth
in Section 1 .704-2(b)(4) of the Regulations.
"Partner Nonrecourse Debt Minimum Gain" has the
meaning set forth in Section 1.704- 2(i)(2) of the
Regulations and shall be determined in accordance with
Section 1.704-2(I)(3) of the Regulations.
"Partner Nonrecourse Deductions" has the meaning set
forth in Section 1 .704-2(I)(2) of the Regulations. The
amount of Partner Nonrecourse Deductions with respect to a
Partner Nonrecourse Debt for a Partnership Fiscal Year
equals the excess, if any, of the net increase, If any, in
the amount of Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt during that
Fiscal Year over the aggregate amount of any distributions
during that Fiscal Year to the Partner that bears the
economic risk of loss for such Partner Nonrecourse Debt to
the extent that such distributions are from the proceeds of
such Partner Nonrecourse Debt which are allocable to an
increase in Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined
according to the provisions of Section 1.704-2(i)(2) of the
Regulations.
"Partnership" means the limited partnership governed
by this Agreement, as such Agreement may from time to time
be amended or reconstituted.
"Partnership Minimum Gain" has the meaning set forth
in Section 1.704-2(d) of the Regulations.
"Permanent Loan" shall have the meaning set forth in
the Investment Agreement.
"Person" means any individual or entity, and the
heirs, executors, administrators, legal representatives,
successors and assigns of such Person as the context may
require.
"Prime Rate" means the rate of interest publicly
announced from time to time by Bank of America National
Trust and Savings Association in Los Angeles, as its prime
rate.
"Profits" and "Losses" means, for each Fiscal Year or
other period, an amount equal to the Partnership's taxable
income or loss for such year or period, determined in
accordance with Section 703(a) of the Code (for this purpose
all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a)(1 ) of the
Code, as well as each item of income, gain, expense,
deduction and loss of the Partnership for such year or
period 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 and not otherwise taken into
account in computing Profits or Losses shall be added to
such taxable income or loss;
(ii) Any expenditures of the Partnership
described in Section 705(a)(2)(B) of the Code or treated as
Section 705(a)(2)(B) of the Code expenditures pursuant to
Section 1.704-1 (b)(2)(iv)(i) of the Regulations, and not
otherwise taken into account in computing Profits or Losses,
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 Asset Value of the
property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Asset Value:
(iv) In the event of a distribution of
Partnership assets to a Partner (whether in connection with
a liquidation or otherwise), or in the event the Asset Value
of any Partnership asset is adjusted upon the acquisition of
an additional interest in the Partnership, unrealized
income, gain, loss and deduction inherent in such
distributed or adjusted assets (not previously reflected in
Capital Accounts) shall be allocated pursuant to Section 9.1
hereof as if there had been a taxable disposition of such
distributed or adjusted assets at fair market value:
(v) In lieu of the depreciation, amortization,
and other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken
into account Depreciation for such fiscal year or other
period, computed in accordance with the definition of
Depreciation herein; and
(vi) Notwithstanding any other provision of
this definition of Profits and Losses, any items that are
allocated pursuant to Sections 9.1 D or 9.1 E hereof shall
not be taken into account in computing Profits or Losses.
"Project Debt" means all of the debt secured or
contemplated to be secured by the Apartment Complex.
"Project Documents" means the Governmental
Agreements, the Management Agreement, the Mortgage, the
Mortgage Note, and any other document related to the
financing or operation of the Apartment Complex, as any such
document may be amended from time to time.
"Qualified Units" means those low-income apartment
units in the Apartment Complex which meet the requirements
of Section 42(i)(3) of the Code.
"Regulations" means the Income Tax Regulations
(whether proposed, temporary or final) promulgated under the
Code as such regulations may be amended from time to time
(including corresponding provisions of succeeding
regulations).
"Rental Achievement" means the date that all of the
following conditions have been fulfilled: (i) the Apartment
Complex shall have been placed in service on or before
December 31, 1993; (ii) the funding of the permanent loan
for the Apartment Complex shall have occurred: (iii) all
Governmental Approvals specified in the Investment Agreement
shall have been received; and (iv) (a) 90% Occupancy of
the Apartment Complex by tenants who meet the income
requirements of Section 42(q) of the Code and (b) the
Partnership has attained Break-Even Level, in each case, for
three consecutive months (which three-month period may
commence as early as three months prior to the funding of
the Permanent Loan as provided in Paragraph 2.3 of the
Investment Agreement; Provided. however, that for purposes
of determining Break-Even Level, operating obligations for
said three-month period shall be deemed to include principal
and interest due on the Permanent Loan as if the Permanent
Loan had been funded) at rental rates which permit 100% of
the apartment units of the Apartment Complex to qualify for
the Housing Tax Credits. Notwithstanding anything contained
herein to the contrary, Rental Achievement shall not occur
unless the Partnership's basis in the Apartment Complex as
of December 31, 1992, was greater than 10% of the reasonably
expected basis of the Apartment Complex as provided in
Section 42(h)(1 )(E) of the Code.
"Sale or Refinancing Transaction" means any of the
following items or transactions not in the ordinary course
of business: a sale, transfer, exchange or other disposition
of all or substantially all of the assets of the
Partnership, a condemnation of the Apartment Complex or any
part thereof, recoveries of damage awards and insurance
proceeds (other than business or rental interruption
insurance proceeds), the refinancing of any Mortgage Note or
other indebtedness of the Partnership and any similar item
or transaction; provided, however, that neither
distributions which are deemed returns of capital for
federal income tax purposes nor the payment of Capital
Contributions shall be included within the meaning of the
term "Sale or Refinancing Transaction."
"Sale or Refinancing Transaction Proceeds" means all
cash receipts of the Partnership arising from a Sale or
Refinancing Transaction (including principal and interest
received on a debt obligation received as consideration, in
whole or in part, on a Sale or Refinancing Transaction) less
the following: (i) the amount of cash paid or to be paid in
connection with or as an expense of such Sale or Refinancing
Transaction, and, with regard to damage recoveries or
insurance or condemnation proceeds (other than for temporary
loss of use), cash paid or to be paid for repairs,
replacements or renewals resulting from damage to or partial
condemnation of the affected property; and (ii) the amount
necessary for the payment of all debts and obligations of
the Partnership due upon the occurrence of the particular
Sale or Refinancing Transaction.
"Special Limited Partner" means National Corporate
Tax Credit, Inc., a California corporation, and its
successors and assigns.
"State" means the state in which the Apartment
Complex is located.
"Subsequent Closing" shall have the meaning set forth
in the Investment Agreement.
"Substituted Partner" means any transferee of an
Interest who is admitted to the Partnership as a successor
partner.
"Tax Matters Partner" means the Partner designated
from time to time as the Tax Matters Partner of the
Partnership pursuant to Section 5.3D hereof.
"Unavoidable Events" means strikes, acts of God,
governmental restrictions, severe or unusual shortages of
labor or materials, enemy action, riot, civil commotion,
fire, unavoidable casualty or other causes beyond the
reasonable control of a party. Lack of funds shall not be
deemed a cause beyond the control of a party.
"Uniform Act" means the Uniform Limited Partnership
Act, or its equivalent, as it may be adopted or amended from
time to time by the State, or any successor statute
governing the operation of limited partnerships.
"United States Real Property Interest" means any
direct or indirect interest in United States real property
as defined in Section 897(c) of the Code and the Regulations
promulgated thereunder.
"Voluntary Loan" means a voluntary, unsecured
interest-bearing loan by any Partner to the Partnership as
described in Section 4.2 hereof.
"Withdrawing" or "Withdrawal" (including the verb
form "Withdraw" and the adjectival form "Withdrawn") means,
as to the Operating General Partner, the occurrence of the
death, adjudication of insanity or incompetence, Bankruptcy,
dissolution or liquidation of such Partner, or the
withdrawal, removal or retirement from the Partnership of
such Partner for any reason, including any Assignment of its
Interest and those situations when a General Partner may no
longer continue as a General Partner by reason of any law or
pursuant to any term of this Agreement.
"Withdrawing General Partner" means NCQ Realty, Inc.,
who is hereby withdrawing from the Partnership.
ARTICLE 2
GENERAL
2.1 Continuation of the Partnership.
A. The Partnership shall be continued as a
limited partnership pursuant to this Agreement. The name of
the Partnership shall continue to be the name set forth at
the beginning of this Agreement or such other name selected
by the Operating General Partner, with the Consent of the
Special Limited Partner, as may be acceptable to the Filing
Office.
B. As soon after the execution of this
Agreement as is practicable, the Operating General Partner
shall file this Agreement and/or a certificate related
hereto in the Filing Office in accordance with the Uniform
Act. The Operating General Partner shall from time to time
take all such other actions as may be deemed to be necessary
or appropriate, including the preparation and filing of such
amendments to this Agreement and any other certificate,
document or instrument as may be required under the laws of
the State, to (I) effectuate and permit the continuation of
the Partnership as a limited partnership under the laws of
the State, (ii) enable the Partnership to do business in the
State, and (iii) protect the limited liability of the
Limited Partner and the Special Limited Partner under the
laws of the State. The Partners shall execute such
certificates, documents and instruments and take such other
action as may be necessary to enable the Operating General
Partner to fulfill their responsibilities under this Section
2.1 B. The power of attorney granted in Section 14.2 hereof
may be exercised by the Special Limited Partner to effect
the provisions of this Section 2.1 B. In the event the
Operating General Partner fails to comply with this Section
2.1 B, the Special Limited Partner is authorized to do so on
behalf of the Operating General Partner.
2.2 Principal Office. The principal office of the
Partnership shall be located at 50 California Street, Suite
3300, San Francisco, California 94111. The Operating General
Partner may maintain such other offices on behalf of the
Partnership in the State as they may from time to time deem
advisable. The Partnership's books and records and other
documents, agreements and information will be made available
at its principal office in accordance with the Uniform Act.
The principal office of the Partnership may be changed by
the Operating General Partner, in which event prior written
notice thereof shall be given by the Operating General
Partner to all the other Partners.
2.3 Principal Place of Business; Resident Agent. The
principal place of business of the Partnership shall be at
the location of the Apartment Complex. John S. Waugh, 245
One at Energy Square, 4925 Greenville Avenue, Dallas, Texas
75206, has been appointed the Partnership's resident agent
for the service of process in the State.
2.4 Term. The Partnership shall continue in full
force and effect until the dissolution and termination of
the Partnership pursuant to Article 12 hereof.
2 . 5 Purpose.
A. The specific business and purpose of the
Partnership is investment in real property and the provision
of low income housing through the construction, renovation,
rehabilitation, operation (including conversion to
cooperative or condominium form of ownership and the sale of
apartment units, if permitted) and leasing of the Apartment
Complex and any commercial space located therein, and in
connection therewith, subject to and in accordance with the
permission of each applicable Authority and all Governmental
Agreements, to make and perform contracts and other
undertakings and to engage in any and all activities and
transactions as may be necessary or advisable in connection
therewith, including, but not limited to, the purchase,
transfer, mortgage, pledge and exercise of all other rights,
powers, privileges and other incidences of ownership with
respect to the Apartment Complex and to borrow or raise
money without limitation as to amount or manner and to carry
on any and all activities related to any of the foregoing.
B. In order to carry out its business and
purpose under Section 2.5A hereof and subject to the
limitations set forth elsewhere in this Agreement, the
Partnership is hereby authorized to:
(i) Acquire, renovate, rehabilitate,
own, maintain and operate the Apartment Complex;
(ii) Mortgage, refinance, lease,
transfer and exchange or otherwise convey and encumber, with
the Consent of the Special Limited Partner (subject to the
provisions of Paragraph 2.3 of the Investment Agreement),
the Apartment Complex (including conversion to cooperative
or condominium form of ownership and the sale of apartment
units) in furtherance of any and all of the objectives of
the business of the Partnership;
(iii) Enter into, perform and carry
out contracts of any kind necessary to, or in connection
with or incidental to, the acquisition, renovation,
rehabilitation, ownership, financing, maintenance and
operation of the Apartment Complex, including, but not by
way of limitation, any contracts with any Authority which
may be desirable or necessary to comply with the
requirements of such Authority, including any agreements
relating to regulations or restrictions contained in any
mortgages as to rents, sales, charges, capital structure,
rate of return and methods of operation;
(iv) Rent dwelling units and commercial
space, if any, therein from time to time in accordance with
applicable federal, state and local regulations, in such a
manner so as to qualify for the Housing Tax Credits, collect
the rents therefrom, pay the expenses incurred in connection
therewith, and distribute the net proceeds to the Partners,
subject to any requirements which may be imposed by any
Authority; and
(v) Carry on any and all activities
incidental and appropriate to effectuate the purposes of the
Partnership.
C. The sole purpose of the Partnership is to
acquire, own, hold, maintain, manage, operate, improve,
sell, exchange, lease, dispose of and otherwise deal with
the property, together with such other activities as may be
necessary or advisable in connection with the ownership of
the property. Notwithstanding anything contained herein to
the contrary, the Partnership shall not engage in any
business unrelated to the Apartment Complex and shall not
own any assets other than those related to the Apartment
Complex and/or otherwise in furtherance of the purposes of
the Partnership. The Partnership shall not incur any
indebtedness other than the indebtedness related to the
Apartment Complex and/or as otherwise herein provided. The
Partnership shall maintain its own separate books, records
and accounts.
ARTICLE 3
CAPITAL CONTRIBUTIONS
3.1 Admission of Operating General Partner. The
Operating General Partner is hereby admitted to the
Partnership as the sole general partner hereof. The
contribution of the Operating General Partner is set forth
in Schedule A.
3.2 Withdrawal of Withdrawing General Partner. The
Withdrawing General Partner hereby withdraws from the
Partnership. The Withdrawing General Partner acknowledges
that it has no further interest in the Partnership and shall
be deemed to have withdrawn as of the date hereof.
Notwithstanding anything to the contrary, the withdrawal of
the Withdrawing General Partner shall not reduce, modify or
amend (i) the representations and warranties and covenants
of the Withdrawing General Partner set forth in Section
11.4A hereof, the Operating Deficit and Rental Achievement
Agreement or the Certificate of NCQ Realty, Inc., of even
date herewith (the "NCQ Certification), or (ii) any other
provision of the Operating Deficit and Rental Achievement
Agreement (including without limitation, the Withdrawing
General Partner's right to receive any Development Fee).
3.3 Special Limited Partner. The Capital Contribution
of the Special Limited Partner is set forth in Schedule A.
3.4 Limited Partner. The Limited Partner Contribution
is set forth on Schedule A and payment thereof shall be
subject to and as provided in the Investment Agreement.
3.5 Treatment of Other Advances. If any Partner or
Affiliate shall advance funds to the Partnership other than
the amount of its Capital Contribution, the amount of such
advance shall not be considered a contribution to the
capital of the Partnership. Unless otherwise indicated to
the contrary elsewhere in this Agreement, any such advance
shall be considered a Voluntary Loan in accordance with
Section 4.2 below.
3.6 Capital Accounts; Interest; Withdrawal. No
Partner shall have the right to demand a return of its
Capital Contribution, except as otherwise provided in this
Agreement or as specifically provided in the Investment
Agreement. No Partner shall have priority over any other
Partner, either as to return of its Capital Contribution or
as to Profits, Losses or distributions, except as otherwise
specifically provided herein and in the Investment
Agreement. Subject to the provisions of Section 3.8 and
except as otherwise specifically provided herein or in the
Operating Deficit and Rental Achievement Agreement, no
General Partner shall be personally liable for the return of
the Limited Partner Contribution, or any portion thereof, it
being expressly understood that any such return shall be
made solely from assets of the Partnership. No interest
shall be paid on any Capital Account or Capital
Contribution. No Partner shall have the right to demand or
receive property other than cash for its Interest. Each of
the Partners does hereby agree to, and does hereby, waive
any right such Partner may otherwise have to cause any asset
of the Partnership to be partitioned or to file a complaint
or institute any proceeding at law or in equity seeking to
have any such asset partitioned.
3.7 Liability of Limited Partner and Special Limited
Partner. Neither the Limited Partner nor the Special Limited
Partner shall be liable for any debts, liabilities,
contracts or obligations of the Partnership, except as
provided by law. The Limited Partner shall be liable only to
make the Limited Partner Contribution as and when due under
this Agreement and pursuant to the terms of Section 2.1 of
the Investment Agreement.
3.8 Housing Tax Credit Protection; Adjustment of
Interests.
A. Except as provided in this Section 3.8A, in
the event that the amount of the Housing Tax Credits
available to or received by the Partnership in any taxable
year prior to the termination of the Credit Period is less
than $170,860 for any reason (including, without limitation,
the rehabilitated portion of the Apartment Complex not being
placed in service during 1993, a change in law or the
failure of the Partnership to operate the Apartment Complex
so as to have 100% of the apartment units therein eligible
for the Housing Tax Credits), or if all or any part of the
Housing Tax Credits for any year are subsequently
recaptured, the Limited Partner Contribution shall be
reduced by an amount equal to $0.4502 for each $1.00 of
reduction and/or recapture of the Housing Tax Credits. Each
remaining installment of the Limited Partner Contribution
then outstanding shall be reduced, pro rata, so that the
aggregate contributions, when made, will total the new
amount of the Limited Partner Contribution. If the
outstanding balance of the Limited Partner Contribution has
been reduced to zero by reason of the aforesaid adjustments
to the Limited Partner Contribution and/or payments
previously made thereon or offsets applied thereto, then
(i) Cash Flow distributed to the Limited Partner pursuant to
Section 9.2A(iv) hereof shall be increased by $1.00 for each
$1.00 by which the Housing Tax Credits finally allowed the
Partnership (after the effect of any recapture) in any
taxable year is less than $170,860 plus the amount of
interest included as part of a recapture, and the amount
distributable to the Operating General Partner pursuant to
Section 9.2A(v) shall be decreased by the same amount, and
(ii) the Sale or Refinancing Transaction Proceeds
distributed to the Limited Partner pursuant to Section
9.2B(vii) shall be increased by $1.00 for each $1.00 (to the
extent such adjustment is not fully taken into account in
clause (i) above) by which the Housing Tax Credits finally
allowed the Partnership (after the effect of any recapture)
in any taxable year is less than $170,860 plus the amount of
interest included as part of a recapture, and the amount
distributable to the Operating General Partner pursuant to
Section 9.2B(viii) shall be decreased by the same amount.
Notwithstanding the foregoing, but subject to Paragraph 2.2
of the Investment Agreement, for 1993 the Housing Tax
Credits attributable to the Apartment Complex shall be
prorated based on the actual Occupancy for the amount of
time that the Apartment Complex is in service, and there
shall be available to the Partnership in the year 2003,
Housing Tax Credits in an amount equal to the excess of
$170,860 over the prorated amount available in 1993.
Notwithstanding anything contained above to the contrary, if
the change in the law causing the recapture or reduction of
Housing Tax Credits is such that compliance therewith is not
within the reasonable control of the Operating General
Partner and/or Management Agent, then the only adjustment
shall be the adjustment of Sale or Refinancing Transaction
Proceeds as contemplated above. For purposes of this Section
3.8A, Housing Tax Credits with respect to a taxable year
shall be determined as available to or received by the
Partnership (a) by good faith determination of the
Accountants, or (b) as a result of a Final Determination.
B. The Operating General Partner shall enter
into a security agreement pursuant to which the Operating
General Partner will grant to the Limited Partner a first
priority security interest in the collateral described
therein as security for NCMC's obligations under the
Operating Deficit and Rental Achievement Agreement. The
Operating General Partner will, at its expense, execute,
acknowledge and deliver all such further instruments and
assurances and take all such further actions as the Limited
Partner shall reasonably require in order to perfect the
priority of such security interest.
C. If all or a portion of the Limited Partner
Contribution is returned to it under Section 3.8A hereof,
the Operating General Partner shall promptly file an
amendment to this Agreement and/or the Certificate in the
Filing Office reflecting such return as a reduction of the
Limited Partner Contribution.
3.9 Default in Limited Partner Contribution.
A. The failure by the Limited Partner to make
the timely payment of the entire amount of each installment
of the Limited Partner Contribution when due, unless such
failure is a result of the exercise of the remedies set
forth in Section 3.8 hereof or as otherwise provided herein
or in the Investment Agreement, shall constitute a default
on behalf of the Limited Partner. Upon a default, the
Operating General Partner shall have the right to demand
that said default be cured, and upon the expiration of 45
days following notice of demand the Operating General
Partner shall have the right to remove the Special Limited
Partner and cause a reduction in the Limited Partner's
interest in Profits and Losses and rights to receive cash
from Operations, Sales or Refinancing Proceeds and the
Housing Tax Credits collectively, the "Limited Partner's
Interest") for the Fiscal Year in which the default occurs
and thereafter in the manner set forth in Section 3.9B
hereof.
B. In the event the Limited Partner's Interest
is reduced in accordance with Section 3.9A hereof, the
Limited Partner's Interest shall be reduced to an amount
equal to the product obtained by multiplying such Limited
Partner's Interest by 90% of a fraction the numerator of
which shall be the Limited Partner Contribution actually
made and the denominator of which shall be the aggregate
Limited Partner Contribution which the Limited Partner is
obligated to contribute to the Partnership pursuant to the
terms of the Investment Agreement, reduced by any
adjustments to the Limited Partner Contribution as provided
herein or pursuant to the terms of the Investment Agreement.
Any reduction in the Limited Partner's Interest pursuant to
this Section 3.9 shall inure to the benefit of the Operating
General Partner who may accept such Interest as either a
General or a Limited Partner.
ARTICLE 4
COMPLIANCE WITH AUTHORITY REQUIREMENTS;
PARTNERSHIP BORROWINGS
4.1 Authority Requirements. The following provisions
shall apply at all times: (I) each of the provisions of this
Agreement shall be subject to, and the Operating General
Partner covenants to act in accordance with, the Project
Documents, the Investment Agreement and all applicable
federal, state, and local laws and regulations; (ii) such
documents, laws and regulations, as amended or supplemented,
shall govern the rights and obligations of the Partners,
their heirs, executors, administrators, successors and
assigns; (iii) upon any dissolution of the Partnership or
any transfer of the Apartment Complex, no title or right to
the possession and control of the Apartment Complex and no
right to collect rent therefrom shall pass to any person who
is not, or does not become, bound by the Governmental
Agreements in a manner satisfactory to each Authority; (iv)
no amendment of this Agreement shall affect the rights of
any Authority under any of the Project Documents or the
Investment Agreement without the prior written consent of
such Authority; (v) any conveyance or transfer of title to
all or any portion of the Apartment Complex required or
permitted under this Agreement shall in all respects be
subject to any and all conditions, approvals and other
requirements of the rules and regulations of any Authority
applicable thereto; and (vi) the Operating General Partner
shall at no time do or cause to be done any act directly or
indirectly affecting the Apartment Complex except with the
prior approval or pursuant to the requirements of each
Authority and each Lender, if such approval is required.
4.2 Loans. All borrowings by the Partnership shall be
subject to the terms of this Agreement, the Project
Documents, the Investment Agreement and applicable rules,
regulations and directives of any Authority. To the extent
borrowings are permitted they may be made from any source,
including any Partner or an Affiliate thereof; Provided,
however, that any borrowings from the Operating General
Partner or its Affiliates shall be on arm's length terms and
shall require the Consent of the Special Limited Partner.
Except as may be otherwise specifically set forth in this
Agreement, if any Partner or Affiliate thereof shall lend
any monies to the Partnership, such loan shall be unsecured
and the amount of any such loan shall not be an increase of
such Partner's Capital Contribution nor affect in any way
such Partner's share of the Profits and Losses or
distributions of the Partnership. Any loan by a Partner or
its Affiliate, other than an Operating Loan, shall be a
Voluntary Loan, shall bear interest per annum at a rate
equal to 2% in excess of the Prime Rate and shall be
repayable as set forth in Article 9 hereof (to the extent
permitted by each Authority); Provided, however, that any
Voluntary Loan shall be made solely for the benefit of the
Partnership. No Voluntary Loan by the Operating General
Partner or its Affiliates may be made to the Partnership
during the time that the Operating General Partner is
obligated to make Operating Loans to the Partnership. The
Operating General Partner shall have the option to buy any
Voluntary Loan made by any other Partner for an amount equal
to its original principal plus interest per annum at a rate
equal to 2% in excess of the Prime Rate.
ARTICLE 5
RIGHTS, POWERS AND OBLIGATIONS OF THE
OPERATING GENERAL PARTNER AND LIMITATIONS THEREON
5 .1 Exercise of Management.
A. The overall management and control of the
business, assets and affairs of the Partnership shall be
vested in the Operating General Partner and, subject to the
specific limitations and restrictions set forth in this
Article 5 and in Article 4 hereof, the Operating General
Partner, in extension of and not in limitation of the powers
given it by law, shall have full, exclusive and complete
charge of the management of the business of the Partnership
in accordance with its purpose stated in Section 2.5 hereof.
The Limited Partner shall not take part in the management or
control of the business of the Partnership or have authority
to bind the Partnership.
B. If at any time more than one Person
constitutes the Operating General Partner, then the
Operating General Partner shall act by vote of a Majority in
Interest of the Persons constituting the Operating General
Partner, except where otherwise specified herein or as
otherwise agreed by the Persons constituting the Operating
General Partner upon notice to the Special Limited Partner
and the Limited Partner.
C. Any Operating General Partner, to the
extent of its authorization, may from time to time, by an
instrument in writing, delegate all or any of its powers or
duties hereunder to another Operating General Partner. Such
writing shall fully authorize such other Operating General
Partner to act alone without requirement of any other act or
signature of the delegating Operating General Partner, to
take any action of any type and to do anything and
everything which the delegating Operating General Partner
may be authorized to take or do hereunder except insofar as
said delegation may be limited to certain acts or
activities; provided, however, that any such delegation
shall not relieve the delegating Operating General Partner
of its obligations or liabilities under this Agreement.
D. Each obligation of the Operating General
Partner under this Agreement shall be the joint and several
obligation of each Operating General Partner and each such
obligation shall survive any withdrawal of an Operating
General Partner pursuant to Article 11 hereof .
5.2 Duties and Authority of Operating General Partner.
A. The Operating General Partner shall devote
to the Partnership such time as may be necessary for the
proper performance of the duties of the Operating General
Partner. The Operating General Partner shall have the
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 Operating General
Partner shall not employ, or permit another to employ, such
funds or assets in any manner except for the exclusive
benefit of the Partnership. The signature of an Operating
General Partner shall be needed on any instrument, document
or agreement to bind the Partnership, and third parties may
rely fully on any such instrument, document or agreement
signed by the Operating General Partner. The Operating
General Partner is authorized and directed to:
(i) Take all action that may be
necessary or appropriate to carry out the purposes of the
Partnership as described in this Agreement;
(ii) Make or cause to be made
inspections of the Apartment Complex and assure that the
Apartment Complex is being properly maintained and necessary
repairs are being made;
(iii) Prepare or cause to be prepared
in conformity with customary business practice all reports
required to be furnished to the Partners or required by
taxing bodies or other governmental agencies, including
operations reports of the Apartment Complex and the
financial statements and reports referred to in, and in
accordance with the provisions of, Section 7.3 hereof;
(iv) Cause the property of the
Partnership at all times to be insured in a manner similar
to other property of like kind in the same locality and in
such amounts and on such terms as will fully and adequately
protect the Partnership as determined in the good faith
judgment of the Special Limited Partner (provided that such
insurance must be in an amount at least sufficient to repair
and rebuild the Apartment Complex under the circumstances
and in the manner described in Section 5.12 hereof);
(v) Obtain and maintain in force or
cause to be obtained and maintained in force Worker's
Compensation Insurance and such other insurance as may be
required by applicable law or governmental regulation;
(vi) Obtain and maintain in force or
cause to be obtained and maintained in force adequate public
liability insurance, the amount of coverage of which shall
require the Consent of the Special Limited Partner; and
(vii) Do all other things (subject to
the restrictions contained herein) that may be necessary or
desirable in order properly and efficiently to administer
and carry on the affairs, assets and business of the
Partnership, including, but not limited to, the execution
of all conveyances, deeds, notes, mortgages and other
documents.
B. The Operating General Partner shall operate
the Apartment Complex and shall cause the Management Agent
to manage the Apartment Complex in such a manner that the
Apartment Complex will be eligible to receive all of the
allocated Housing Tax Credits with respect to 100% of the
apartment units in the Apartment Complex, as provided in
Sections 42(b)(2)(B)(i) and (ii) of the Code, respectively.
To that end, the Operating General Partner agrees, without
limitation, to make all elections necessary under Section 42
of the Code (including those requested by the Special
Limited Partner) to allow the Partnership or its Partners to
claim the Housing Tax Credits, to enter into the extended
low-income housing commitment required by Section 42(h)(6)
of the Code, to operate the Apartment Complex and cause the
Management Agent to manage the Apartment Complex so as to
comply with the requirements of Section 42 of the Code,
including Sections 42(9) and (i)(3) of the Code, and to make
all certifications required by Section 42(1) of the Code.
C. The Operating General Partner agrees that
it shall prepare or cause to be prepared an annual budget in
connection with the operations of the Apartment Complex for
the succeeding Fiscal Year of the Partnership and shall
deliver the same to the Special Limited Partner not later
than November 1 of the Fiscal Year preceding the Fiscal Year
to which such budget relates. Such budget shall not be
adopted until the Special Limited Partner shall have
approved the same in writing. If each such General Partner
does not disapprove such proposed budget within 45 days
after receipt, then such budget shall be deemed approved.
Notwithstanding anything to the contrary contained herein,
the Partnership shall not make any expenditure of funds, or
commit to make any such expenditure, other than in response
to an emergency, except as provided for in an annual budget
so approved by the Special Limited Partner.
5.3 Delegation of Operating General Partner Authority;
Tax Matters Partner.
A. Except as otherwise provided herein and
subject to Sections 5.4, 5.5 and 5.6 below, the Operating
General Partner is hereby fully authorized to take any
action of any type and to do anything and everything which a
general partner of a limited partnership organized under the
Uniform Act may be authorized to take or do thereunder, and
specifically, without limitation of such authority, to
execute, sign, seal and deliver in the name and on behalf of
the Partnership:
(i) Any note, mortgage or other
instrument or document in connection with the Mortgage, the
Mortgage Note or any Governmental Agreement, and all other
agreements, contracts, certificates, instruments and
documents required by any Authority and/or any Lender in
connection therewith or with the acquisition, improvement,
operation or leasing of the Apartment Complex or otherwise
required by any Authority and/or any Lender;
(vii) Do ail other things (subject to
the restrictions contained herein) that may be necessary or
desirable in order properly and efficiently to administer
and carry on the affairs, assets and business of the
Partnership, including, but not limited to, the execution
of all conveyances, deeds, notes, mortgages and other
documents.
B. The Operating General Partner shall operate
the Apartment Complex and shall cause the Management Agent
to manage the Apartment Complex in such a manner that the
Apartment Complex will be eligible to receive all of the
allocated Housing Tax Credits with respect to 100% of the
apartment units in the Apartment Complex, as provided in
Sections 42(b)(2)(B)(i) and (ii) of the Code, respectively.
To that end, the Operating General Partner agrees, without
limitation, to make all elections necessary under Section 42
of the Code (including those requested by the Special
Limited Partner) to allow the Partnership or its Partners to
claim the Housing Tax Credits, to enter into the extended
low-income housing commitment required by Section 42(h)(6)
of the Code, to operate the Apartment Complex and cause the
Management Agent to manage the Apartment Complex so as to
comply with the requirements of Section 42 of the Code,
including Sections 42(9) and (i)(3) of the Code, and to make
all certifications required by Section 42(1) of the Code.
C. The Operating General Partner agrees that
it shall prepare or cause to be prepared an annual budget in
connection with the operations of the Apartment Complex for
the succeeding Fiscal Year of the Partnership and shall
deliver the same to the Special Limited Partner not later
than November 1 of the Fiscal Year preceding the Fiscal Year
to which such budget relates. Such budget shall not be
adopted until the Special Limited Partner shall have
approved the same in writing. If each such General Partner
does not disapprove such proposed budget within 45 days
after receipt, then such budget shall be deemed approved.
Notwithstanding anything to the contrary contained herein,
the Partnership shall not make any expenditure of funds, or
commit to make any such expenditure, other than in response
to an emergency, except as provided for in an annual budget
so approved by the Special Limited Partner.
5.3 Delegation of Operating General Partner Authority;
Tax Matters Partner.
A. Except as otherwise provided herein and
subject to Sections 5.4, 5.5 and 5.6 below, the Operating
General Partner is hereby fully authorized to take any
action of any type and to do anything and everything which a
general partner of a limited partnership organized under the
Uniform Act may be authorized to take or do thereunder, and
specifically, without limitation of such authority, to
execute, sign, seal and deliver in the name and on behalf of
the Partnership:
(i) Any note, mortgage or other
instrument or document in connection with the Mortgage, the
Mortgage Note or any Governmental Agreement, and all other
agreements, contracts, certificates, instruments and
documents required by any Authority and/or any Lender in
connection therewith or with the acquisition, improvement,
operation or leasing of the Apartment Complex or otherwise
required by any Authority and/or any Lender;
(ii) Any deed, lease, mortgage note,
bill of sale, contract or any other instrument purporting to
convey or encumber the real or personal property of the
Partnership;
(iii) Any rent supplement or leasing or
other contract or agreement providing for public or non-
public financial assistance, directly or indirectly, to
tenants of the Apartment Complex;
(iv) Any and all agreements, contracts,
documents, certificates and instruments whatsoever involving
the acquisition, improvement, management, maintenance,
leasing or operation of the Apartment Complex, including the
employment of such Persons as may be necessary therefor; and
(v) Any and all instruments,
agreements, contracts, certificates and documents requisite
to carrying out the intention and purpose of this Agreement,
including, without limitation, the filing of all business
certificates, this Agreement and all amendments thereto, and
documents required pursuant to the Project Documents or by
any Authority and/or any Lender in connection with any
financing.
B. Every contract, agreement, certificate,
document or other instrument executed by the Operating
General Partner shall be conclusive evidence in favor of
every Person relying thereon or claiming thereunder that, at
the time of the delivery thereof, the Partnership was in
existence; secondly, that this Agreement had not been
terminated or cancelled or amended in any manner so as to
restrict such authority (except as shown in any instrument
duly filed in the Filing Office); and thirdly, that the
execution and delivery thereof was duly authorized by the
Operating General Partner. Any Person dealing with the
Partnership or the Operating General Partner may always rely
on a certificate signed by the Operating General Partner:
(i) As to the identity of the Partners;
(ii) As to the existence or
nonexistence of any fact or facts which constitute
conditions precedent to acts by any General Partner or are
in any other manner germane to the affairs of the
Partnership;
(iii) As to who is authorized to
execute and deliver any instrument, contract, agreement,
certificate or document for the Partnership;
(iv) As to the authenticity of any copy
of this Agreement and amendments thereto; or
(v) As to any act or failure to act by
the Partnership or as to any other matter whatsoever
involving the Partnership or the Apartment Complex.
C. The Partners hereby consent to the exercise
by the Operating General Partner of the powers conferred on
it by this Agreement.
D. All of the Partners hereby agree that the
Operating General Partner shall be the Tax Matters Partner
pursuant to the Code and in connection with any audit of the
federal income tax returns of the Partnership; provided,
however, that the Tax Matters Partner shall not have the
authority to bind the Partnership or any of its Partners in
connection with any audit of the federal income tax returns
of the Partnership without the Consent of the Special
Limited Partner, and if the Special Limited Partner is
admitted as an administrative general partner, it shall
become the Tax Matters Partner and further provided that if
the Tax Matters Partner shall withdraw from the Partnership,
become Bankrupt or be dissolved, the remaining General
Partner shall thereafter be the Tax Matters Partner. If the
Tax Matters Partner shall determine to litigate any
administrative determination relating to federal income tax
matters, it shall litigate such matter in such court as the
Tax Matters Partner shall decide with the Consent of the
Special Limited Partner. The Partnership shall indemnify the
General Partners from and against any claim, liability and
expense (including attorneys' fees it may incur in
connection with its duties as Tax Matters Partner.
5.4 Lease, Conveyance or Refinancing of Assets of the
Partnership.
A. Except as may be otherwise expressly
provided in Section 4.1 hereof and elsewhere in this
Agreement, the Operating General Partner, with the approval
of each Authority (if required), is hereby authorized to
sell, lease, exchange, refinance or otherwise transfer,
convey or encumber all or substantially all of the assets of
the Partnership; provided, however, that notwithstanding any
other provision of this Agreement (other than Section 5.4B
and Section 5.4C hereof) but subject to the provisions of
Paragraph 2.3 of the Investment Agreement, the terms of any
such sale, exchange, refinancing or other transfer,
conveyance or encumbrance must receive the Consent of the
Special Limited Partner and the consent of the Limited
Partner before such transaction is consummated, except that
neither the Consent of the Special Limited Partner nor the
consent of the Limited Partner shall be required for the
leasing of apartment units to tenants in the normal course
of operations, the leasing of all or substantially all of
the apartment units to a public housing authority at rents
satisfactory to such authority or leases or concessions of
facilities related to the operation of the Apartment
Complex, and except that refinancing in accordance with the
provisions of Paragraph 2.3 of the Investment Agreement
shall only require the Consent of the Special Limited
Partner which shall not be unreasonably withheld.
B. Notwithstanding any provision of this
Agreement to the contrary, the Special Limited Partner shall
have the right at any time after the end of the fourteenth
year of the Compliance Period to require, by notice to the
Operating General Partner that the Operating General Partner
submit a written request (the "Termination of the Extended
Use Notice") to the housing credit agency to find a person
to acquire the Partnership's interest in the low-income
portion of the Apartment Complex pursuant to the provisions
of the extended low-income housing commitment agreement
entered into by and between the Partnership and such housing
credit agency (the "Extended Use Agreement") and in
accordance with the provisions of Section 42(h)(6) of the
Code. If the Operating General Partner shall fail to submit
the Termination of the Extended Use Notice within seven days
of the Special Limited Partner's request therefor, then the
Special Limited Partner shall have the right at any time
thereafter to submit the Termination of the Extended Use
Notice to such housing credit agency. If within one year of
the housing credit agency's receipt of the Termination of
the Extended Use Notice, the housing credit agency presents
a "qualified contract", as said term is defined in Section
42(h)(6)(F) of the Code (hereinafter "Qualified Contract"),
for the acquisition of the Apartment Complex, then the
Operating General Partner shall cause the Partnership
promptly to sell the Apartment Complex in accordance with
the terms of said Qualified Contract.
C. Notwithstanding any provision of this
Agreement to the contrary, at any time after the later of:
(i) the end of the Compliance Period, or (ii) the expiration
of one year after the date upon which the Termination of the
Extended Use Notice was submitted to the housing credit
agency (if such Notice was delivered prior to the end of the
Compliance Period), the Special Limited Partner shall have
the right to require, by notice to the Operating General
Partner (the "Required Sale Notice"), that the Operating
General Partner promptly use its best efforts to obtain a
buyer for the Apartment Complex on the most favorable terms
then obtainable. The Operating General Partner shall submit
the terms of any proposed sale to the Special Limited
Partner and the Limited Partner for their approval as
provided in Section 5.4A hereof. If the Operating General
Partner shall fail to so obtain a buyer for the Apartment
Complex within twelve months of the Required Sale Notice or
if the Special Limited Partner and/or the Limited Partner in
its/their sole discretion shall withhold its/their consent
to any proposed sale to such buyer, then the Special Limited
Partner shall have the right at any time thereafter to
obtain a buyer for the Apartment Complex on terms acceptable
to the Special Limited Partner (but not less favorable to
the Partnership than any proposed sale previously rejected
by the Special Limited Partner). In the event that the
Special Limited Partner so obtains a buyer, it shall notify
the Operating General Partner and the Limited Partner in
writing with respect to the terms and conditions of the
proposed sale, and, provided the Limited Partner approves
the terms of such sale, the Operating General Partner shall
cause the Partnership promptly to sell the Apartment Complex
to such buyer.
D. A sale of the Apartment Complex prior to
the end of the Compliance Period may only take place if the
conditions of Section 42(j)(6) of the Code will be satisfied
upon such sale either (i) by having the purchaser of the
Apartment Complex post the required bond on behalf of the
Partnership, or (ii) with the Consent of the Special Limited
Partner, by having the Partnership post such bond.
E . Notwithstanding anything contained herein
to the contrary, the Operating General Partner shall have
the right at any time prior to the closing of any sale
pursuant to this Section 5.4 to purchase the Interests of
the Limited Partner and the Special Limited Partner for a
sum equal to 135% of the Limited Partner Contribution
(reduced by the amount of all prior distributions to the
Limited Partner under Section 9.2B(vii) hereof). Upon
consummation of such sale, the Special Limited Partner and
the Limited Partner shall have no further right, title or
interest in the Partnership.
5.5 Restrictions on Authority. Notwithstanding any
other provisions of this Agreement:
A. No General Partner shall have authority to
perform any act with respect to the Partnership and/or the
Apartment Complex in violation of any applicable law or
regulation, the Project Documents, the Investment Agreement,
or any agreement between the Partnership and any Authority
or any Lender, or to take any action which under the Uniform
Act or this Agreement requires the approval, ratification or
consent of some or all of the Partners without first
obtaining such approval, ratification or consent, as the
case may be.
B. The Operating General Partner shall have no
authority to do any of the following acts with respect to
the Partnership and/or the Apartment Complex, except with
the Consent of the Special Limited Partner (which consent
shall not be unreasonably withheld with respect to the
actions described in subparagraphs (i) and (vi) below) and
the approval, to the extent required, of any Authority and
any Lender:
(i) Acquire any real or personal
property (tangible or intangible) in addition to the
Apartment Complex the aggregate value of which shall exceed
$15,000 (other than easements or similar rights necessary or
appropriate for the operation of the Apartment Complex);
(ii) Become personally liable on or in
respect of, or guarantee, a Mortgage Note or a Mortgage or,
except as otherwise contemplated in the Operating Deficit
and Rental Achievement Agreement, or any other indebtedness
of the Partnership;
(iii) Pay any salary, fees or other
compensation to the Operating General Partner or its
Affiliates, except as authorized by Section 5.7, or Articles
6 and 8 hereof, or as otherwise specifically provided for in
this Agreement;
(iv) Sell all or any portion of the
Apartment Complex or modify or refinance the Mortgage
(except as contemplated in Paragraph 2.3 of the Investment
Agreement) or incur any indebtedness for borrowed money
except in accordance with Section 5.4 hereof;
(v) Terminate the services of the
Accountants or the Management Agent, or amend or modify any
Project Document or the Investment Agreement; or
(vi) Make any capital improvement to
the Apartment Complex the aggregate value of which shall
exceed $25,000 in any one year (other than in response to an
emergency) .
Notwithstanding anything contained in this Agreement
to the contrary, the Operating General Partner shall have
the right to refinance the Permanent Loan, or any
replacement thereof, up to a maximum outstanding principal
of $3,200,000, provided such new financing will be fully
serviced at a debt coverage of not less than 120% of Net
Cash and the Net Cash of the Partnership for the preceding
year was at least $400,000.
5.6 Activities of Partners. It is understood that
each General Partner is and will be engaged in other
activities and occupations unrelated to the Partnership, and
each General Partner shall be required to devote only so
much of its time as shall be necessary to the proper conduct
of the affairs of the Partnership. Any Partner may engage in
and have an interest in other business ventures of every
nature and description, independently or with others,
including, but not limited to, the ownership, financing,
leasing, operating, construction, rehabilitation,
renovation, improvement, management and development of real
property whether or not such real property is directly or
indirectly in competition with the Apartment Complex;
provided, however, that nothing herein shall be construed to
relieve a General Partner of any of its fiduciary
obligations with respect to the management of the Apartment
Complex. Neither the Partnership nor any other Partner shall
have any rights by virtue of this Agreement in and to such
independent ventures or the income or profits derived
therefrom, regardless of the location of such real property
and whether or not such venture was presented to such
Partner as a direct or indirect result of its connection
with the Partnership or the Apartment Complex.
5.7 Dealing with Affiliates. Subject to the
restrictions contained in this Agreement, the Operating
General Partner may, for, in the name and on behalf of, the
Partnership, enter into agreements or contracts for
performance of services for the Partnership as an
independent contractor with itself or its Affiliates and the
Operating General Partner may obligate the Partnership to
pay compensation for and on account of any such services;
provided. however, that unless the terms of such
compensation and/or services are specified in this
Agreement, such compensation and services shall require the
Consent of the Special Limited Partner, which consent shall
not be unreasonably withheld provided such compensation
shall be on terms not less favorable to the Partnership than
if such compensation and services were paid to and/or
performed by a Person who was not an Operating General
Partner or an Affiliate thereof.
5.8 Indemnification and Liability of the Operating
General Partner and the Special Limited Partner.
A. The Partnership, its receiver or its
trustee, shall indemnify and hold harmless the Special
Limited Partner, the Operating General Partner and their
Affiliates from any liability, loss or damage incurred by
them by reason of any act performed or omitted to be
performed by them on behalf of the Partnership, including
costs and reasonable attorneys' fees (which attorneys' fees
may be paid as incurred) and any amount expended in the
settlement of any claim of liability, loss or damage;
provided. however, that (i) if such liability, loss or
damage arises out of any action or inaction of any
Affiliate, such action or inaction must have occurred while
such party was engaged in activities which could have been
engaged in by the Special Limited Partner or the Operating
General Partner in its capacity as such; (ii) if such
liability, loss or damage arises out of action or inaction
of the Special Limited Partner or the Operating General
Partner or their Affiliates, (a) such party(ies) must have
reasonably determined, in good faith, that such course of
conduct was in the best interests of the Partnership, (b)
such party(ies) must have been acting on behalf of or
performing services for the Partnership, and (c) such course
of conduct must not have constituted fraud, negligence,
misrepresentation, breach of this Agreement or misconduct by
such party(ies); and (iii) any such indemnification shall be
recoverable only from the assets of the Partnership and not
from the assets of any Partner. All judgments against the
Partnership, the Special Limited Partner or the Operating
General Partner or their Affiliates, wherein such party(ies)
is/are entitled to indemnification, must first be satisfied
from Partnership assets before such party(ies) is/are
responsible for these obligations; provided, however, that
notwithstanding the foregoing, in no event shall the
Partnership be required to sell the Apartment Complex, or
any part thereof or any interest therein which would result
in a loss or recapture of Housing Tax Credits before the end
of the Compliance Period to satisfy its indemnification
obligation to the Special Limited Partner or the Operating
General Partner or their Affiliates. The Partnership shall
not pay for any insurance covering liability of the Special
Limited Partner or the Operating General Partner or their
Affiliates for actions or omissions for which
indemnification is not permitted hereunder; provided,
however, that nothing contained herein shall preclude the
Partnership from purchasing and paying for such types of
insurance, including extended coverage liability and
casualty and workers' compensation, as would be customary
for any person owning comparable assets and engaged in
similar business, or from naming such party(ies) as
additional insured parties thereunder, if such addition does
not add to the premiums payable by the Partnership. Nothing
contained herein shall constitute a waiver by the Limited
Partner of any right which it may have against any party
under federal or state securities laws nor a waiver of the
fiduciary duty owed to it by the Special Limited Partner or
the Operating General Partner or their Affiliates under
common law. The provision of advances from the Partnership
to the Special Limited Partner or the Operating General
Partner or their Affiliates for legal expenses and other
costs incurred as a result of a legal action potentially
subject to indemnification is permissible if the following
three conditions are satisfied: (x) the legal action relates
to the performance of duties or services by such indemnified
party(ies) on behalf of the Partnership; (y) the legal
action is initiated by a third party who is not a Partner or
an Affiliate: and (z) such indemnified party(ies) undertake
in writing to repay to the Partnership the funds so advanced
in cases in which they would not be entitled to
indemnification hereunder. Notwithstanding anything to the
contrary contained herein. in no event shall any indemnity
under this Section 5.8A be applicable to any expenditure or
obligation of the Special Limited Partner or the Operating
General Partner or their Affiliates which is the subject of
a separate obligation to or agreement with the Partnership
or the Limited Partner by such party(ies).
B. Notwithstanding the provisions of Section
5.8A hereof, the Special Limited Partner, the Operating
General Partner and their Affiliates shall not be
indemnified or held harmless from any liability, loss or
damage incurred by them in connection with, and shall
indemnify and hold harmless the Partnership and the other
Partners from and against any liability, loss or damage
incurred by them by reason of, (i) any liability of such
party arising under or pursuant to the Investment Agreement,
the Operating Deficit and Rental Achievement Agreement or
any other Exhibit or Schedule to the Investment Agreement;
or (ii) any claim or settlement involving allegations that
federal or state securities laws associated with the offer
and sale of an Interest were violated by such party(ies)
unless: (a) the indemnitee is successful in defending such
action on the merits of each count involving securities laws
violations and such indemnification is specifically approved
by a court of competent jurisdiction; (b) such claims have
been dismissed with prejudice on the merits by a court of
competent jurisdiction and the court specifically approves
such indemnification; or (c) a court of competent
jurisdiction approves a settlement of the claims against the
entity seeking indemnification involving securities law
violations and specifically finds that indemnification of
the settlement and related costs should be made. Any person
seeking indemnification shall apprise the court as to the
current position of the Securities and Exchange Commission,
the California Commissioner of Corporations, and other
applicable state securities administrators regarding
indemnification for violations of securities law. Without
limiting the generality of the foregoing, each Partner
hereby waives, to the extent permissible under applicable
law, all claims under any federal or state securities laws.
5 . 9 Representations and Warranties. The Operating
General Partner hereby represents and warrants to each of
the other Partners that the following is true and accurate
as of the date hereof and will be true and accurate on the
date each installment of the Limited Partner Contribution is
made to the Partnership:
A. Organization and Authorization.
(i) Due Authorization. The execution and
delivery of this Agreement by the Operating General Partner
and the performance of the transactions contemplated herein
have been duly authorized by all requisite corporate actions
and proceedings, and will not violate or result in a breach
of, or default under, any instrument or agreement to which
the Operating General Partner is a party or is bound or to
which its properties are subject, or any law, administrative
rule, regulation or decree of any court, governmental body
or administrative agency applicable to any of them or their
respective properties. The Operating General Partner is a
corporation, duly organized, validly existing and in good
standing under the laws of the state of its formation and in
the state where the Apartment Complex is located, with power
to enter into this Agreement and to consummate the
transactions contemplated hereby.
(ii) Enforceability. As of the date
hereof, this Agreement is binding upon and enforceable
against the Operating General Partner and the Partnership,
in accordance with its terms in all material respects,
subject to (a) bankruptcy, insolvency, moratorium,
reorganization and other laws relating to or affecting the
rights of creditors generally, and (b) the possible
unavailability of equitable remedies, such as specific
performance.
B. Consents Required. No consent, approval, or
authorization of, or registration or declaration with, any
federal, state or local governmental agency, authority or
body is required in connection with the execution of this
Agreement.
C. Liens, Pledges or Encumbrances. The
Interests are not subject to any lien, pledge or encumbrance
of any nature whatsoever.
D. Litigation. There is no litigation, action,
or, to the best knowledge of the Operating General Partner,
after due inquiry, any proceeding, investigation or claim
pending or threatened against or involving the Apartment
Complex, the Partnership or the Operating General Partner or
which questions the validity of this Agreement, and, to the
best of the Operating General Partner's knowledge, after due
inquiry, there is no fact or circumstance which could give
rise to any such litigation, action, proceeding,
investigation or claim. To the best of the Operating General
Partner's knowledge, no statutory or other lien for taxes
not yet due and payable, exists with respect to the
Partnership, the Apartment Complex, the Operating General
Partner, or any property of any of the foregoing. The
Operating General Partner has not received any notice of
taking, condemnation, betterment or assessment, actual or
proposed, with respect to the Apartment Complex: and the
Operating General Partner has no reason to believe after due
inquiry that any such taking, condemnation, betterment or
assessment has been proposed or is under consideration.
E. Agreements Affecting the Apartment Complex.
(i) Agreements Affecting Ownership or
Operation. There is no material contract or agreement,
written or oral, affecting the ownership or operation of the
Apartment Complex other than the Management Agreement, the
Mortgage and the Governmental Agreements; and to the best of
the Operating General's Partners knowledge, no party to any
of such contract or agreement is (or, with notice or the
passage of time or both, would be) in material default
thereunder and all conditions to the effectiveness or
continuing effectiveness thereof required to be satisfied by
the date hereof have been satisfied in all material
respects. There is no contract or agreement, written or
oral, which would prohibit the prepayment of the Mortgage or
restrict the refinancing, sale or other disposition of the
Apartment Complex. Except for the Management Agent, no
Affiliate of the Operating General Partner, except as set
forth in the Partnership Agreement, is a party to any
contract or agreement with the Partnership.
(ii) Default or Acceleration of
Obligations. To the best knowledge of the Operating General
Partner, the execution and delivery of this Agreement, and
the performance of the transactions contemplated hereby,
will not permit any party to the Mortgage or any other
obligation evidenced as an exception in the Title Policy or
any Bring Down Certificate to accelerate the payment
thereof, to declare a default (or declare a default after
giving notice or the passage of time or both), to require
payment of any penalty or other charge, to alter, modify or
amend any term thereof, or to impose any other requirement,
restriction or charge of any kind on the Apartment Complex
or the Partnership or the Operating General Partner therein.
Without limiting the generality of the foregoing, no event
has occurred which with the giving of notice, the passage of
time or both would constitute a default under any of the
Project Documents.
(iii Agreements Regarding Interests in
the Partnership. Except as contemplated hereby, neither the
Partnership, the Operating General Partner, nor the
Apartment Complex, is subject to any outstanding agreement
with any third party pursuant to which any such party has or
may acquire any interest in the Apartment Complex (other
than the Mortgage), the Operating General Partner or the
Partnership.
F. Other Matters Affecting the Apartment Complex.
(i) Title to the Apartment complex. To
the best of the Operating General Partner's knowledge, the
Partnership has and will continue to have, good record,
insurable and indefeasible fee simple title to the Apartment
Complex, free from all easements, rights-of-way, liens,
security interests, encumbrances, defects and other title
exceptions of any kind, except for the exceptions (the
"Permitted Encumbrances) attached as Schedule 6 of the
Investment Agreement. To the best of the Operating General
Partner's knowledge, except for the Apartment Complex, the
Housing Tax Credits, and the contractual rights referred to
herein, the Partnership owns no other property, tangible or
intangible, real or personal. All real estate taxes,
personal property taxes, assessments, water and sewer
charges and other municipal charges relating to the
Apartment Complex, to the extent due and owing, have been
paid in full.
(ii) Insurance. The amount of insurance
which will be maintained by the Partnership against a
casualty loss (as defined in Section 42j)(4)(E) of the Code)
with respect to the Apartment Complex will be the greater of
(1 ) such amount which is sufficient to permit a replacement
of the Apartment Complex within a reasonable period of time
following any such casualty and (2) the sum of the Mortgage
and the Capital Contribution. Each of said policies is in
full force and effect, and all premiums due and payable
thereunder have been paid.
(iii) Flood Plain Insurance. The
Apartment Complex either is not located in a federal flood
plain (as such term is defined in HUD rules and/or
regulations), or ,if it is located in a federal flood plain,
the Operating General Partner has obtained prior to the date
hereof, flood plain insurance, at no additional expense to
the Limited Partner.
(iv) Fire Damage. The Apartment Complex
has not been damaged by fire or other casualty except for
possible minor damage which has been fully repaired and
restored prior to the date hereof.
(v) Utilities. All utility services
necessary for the operation of the Apartment Complex for its
intended purpose, including water supply, storm and sanitary
sewer facilities, gas, electric and telephone facilities,
are available at the boundaries of the Land and either reach
the Land through adjoining public streets or if they pass
through adjoining private land do so in accordance with
valid, permanent, non-terminable public or private
easements; there is no impediment or restriction with
respect to connecting any utilities to the Improvements.
(vi) Roads. The roads providing access
to the Improvements have been completed.
(vii) Contractors and Liens. All
contractors and subcontractors have been paid all amounts
due them to date. Neither the Operating General Partner nor,
to the best knowledge of the Operating General Partner, the
Partnership has made any contract or commitment, the
performance of which could give rise to a lien against the
Apartment Complex, except with a person or entity which has
given a lien waiver with respect thereto.
G. Administrative, Zoning and Environmental
Compliance.
(i) Compliance With Law. The operation
of the Apartment Complex complies with all applicable laws,
rules, restrictions, orders and regulations of all
governmental authorities in all material respects. All
governmental certificates, authorizations, permits and
licenses required to own, operate and occupy the
Improvements (the "Governmental Permits") have been
obtained, and true, complete and current copies thereof have
been previously provided to the Limited Partner, a true,
complete and current list of which is annexed hereto as
Schedule 8 of the Investment Agreement. No material
violation of any requirement of any governmental authority
exists with respect to the Improvements and the anticipated
and actual use and operation thereof complies with
applicable planning, building, zoning, environmental and
other laws, ordinances, regulations and restrictive
covenants affecting the Land. To the best knowledge of the
Operating General Partner, after due inquiry, no notice of
violation of any statute, code, law, ordinance, regulation,
or permit has been noted or given by any governmental
authority having jurisdiction over the development of the
Apartment Complex which notice has not been heretofore
complied with in all material respects, or the defects
specified therein remedied to the satisfaction of the
governmental authority, or both.
(ii) Environmental Compliance. To the
best of the Operating General Partner's knowledge, the
Apartment Complex is not in violation of any federal, state
or local law, ordinance or regulation relating to industrial
hygiene or to the environmental conditions on, under or
about the Apartment Complex including, but not limited to,
soil and groundwater conditions. To the best of the
Operating General Partner's knowledge, no Hazardous
Substance has been used, generated, manufactured, stored or
disposed of on, under or about the Apartment Complex or
transported to or from the Apartment Complex. The term
Hazardous Substance" means any substance defined as a
hazardous substance, hazardous material, hazardous waste,
toxic substance or toxic waste in the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), 42 U.S.C. Section 9601 et sea.;
the Hazardous Materials Transportation Act, as amended, 39
U.S.C. Section 1801 et sea.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901 et sea.; or
any similar applicable state or local law; or in any
regulation adopted or publication promulgated pursuant to
any said law. In connection with the acquisition of the
Apartment Complex, the Partnership undertook appropriate
inquiry into the previous ownership and uses of the Land and
the Apartment Complex consistent with good commercial
practice and such inquiries were believed to be reasonably
sufficient for the Partnership to successfully establish an
innocent landowner defense pursuant to Section 101(35) of
CERCLA. Further, the Operating General Partner nor any of
its affiliates has given any waiver or release of liability
pursuant to CERCLA or any of the aforementioned statutes or
any similar applicable state or local law to any person or
entity in the chain of title of the Land or the Apartment
Complex. The Operating General Partner hereby agrees to
indemnify and hold harmless the Limited Partner, the Special
Limited Partner, the Partnership and their respective
partners, directors, officers, employees and agents, from
and against any and all liability, including all foreseeable
and unforeseeable consequential damages, including, without
limitation, the cost of any required or necessary repair,
cleanup or detoxification, and the preparation of all
closure and other required plans, whether such action is
required or necessary prior to or following the Closing,
directly or indirectly arising out of the use, generation,
manufacture, storage or disposal of Hazardous Substance on,
under or about the Apartment Complex by the Operating
General Partner or its agents, contractors or employees.
Nothing herein shall impose any liability on any other
person, corporation, officer, director, shareholder, agent
or employee of the parties providing such indemnification.
(iii) Default. Neither the Operating
General Partner nor the Partnership is in default with
respect to any law, administrative rule, regulation,
judgment, decision, order, writ, injunction, decree or
demand of any court or any governmental authority, and the
consummation of the transactions contemplated herein will
not conflict with, or constitute a breach of or default
under, any of the foregoing or any agreement or instrument
applicable to the Partnership, the Operating General Partner
or the Apartment Complex.
(iv) Regulatory Scheme. The Apartment
Complex is not subject to any federal, state or local
regulatory scheme, other than as will be provided for in the
Governmental Agreements, which does not generally affect all
rental properties in the locality in which the Apartment
Complex is located.
H. Absence of Undisclosed Liabilities. Except
for liabilities and obligations of the Partnership in
connection with the Investment Agreement, the Mortgage or
arising in the ordinary course of business, none of which
individually or in the aggregate are materially adverse. and
except for liens for taxes not yet due, the Partnership does
not have, and none of its assets is subject to, any material
debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise. There is no fact
known to the Operating General Partner which might
reasonably serve as the basis, in whole or in part, for the
assertion of any material liability or obligation against
the Partnership. The Operating General Partner has not lent
or otherwise advanced any funds to the Partnership other
than its Capital Contribution and the Partnership has no
unsatisfied obligation to make any payment of any kind to
the Operating General Partner or its Affiliates outstanding
as of the date hereof.
1. Housing Tax Credits. For purposes of
Housing Tax Credits and Section 42 of the Code, the
Partnership elected under Section 42(f)(1 ) of the Code to
have the Credit Period with respect to each building in the
Apartment Complex commence with the 1993 taxable year of the
Partnership.
J. Qualified Nonrecourse and Commercial
Financing; Fees.
(i) All of the Project Debt is
nonrecourse as to the Partnership and no person has any
personal liability with respect to such Project Debt
(excluding for this purpose, however, any form of credit
enhancement provided by a financial institution which is not
a "related person" (as defined in Section 465(b)(3)(C) of
the Code) with respect to the Partnership, any of its
Partners or any of its former partners). None of the Project
Debt is convertible;
(ii) Each component of the Project Debt
(i) represents a loan from a federal, state or local
government or instrumentality thereof, or is guaranteed by a
federal state or local government, or (ii) is borrowed from
a person or entity which is actively and regularly engaged
in the business of lending money and which is not (1 ) a
"related person" (as defined in Section 49(a)(1 )(D)(v) of
the Code) with respect to the Partnership or any of its
present or former Partners, (2) a person or entity from
which the Partnership acquired the Land or the Apartment
Complex, (3) a person or entity which has received or will
receive a fee with respect to the Partnership's investment
in the Apartment Complex, or (4) a "related person" (as
defined in Section 49(a)(1 )(D)(v) of the Code) with respect
to any person or entity described in the foregoing clause
(2) or (3);
(iii) Each component of the Project
Debt which does not represent a loan from a federal, state
or local government or instrumentality thereof (or a loan
guaranteed by a federal, state or local government) is
borrowed from a "qualified person" (as defined in Section
49(a)(1)(D)(iv) of the Code) and constitutes "qualified
commercial financing" (as defined in Section 49(a)(1)(D)(ii)
of the Code) as modified by Section 42(k) of the Code and
qualified nonrecourse financing" (as defined in Section
465(b)(6)(B) of the Code), in each case with respect to the
Partnership, each of its Partners and each of its former
partners; and
K. Prior Activities. The Operating General
Partner has not sought the protection of or been subject to
any proceeding under any bankruptcy or insolvency or
debtor's relief provision of state or federal law. Neither
the Operating General Partner nor any Affiliate has ever
been indicted for any criminal activity, including criminal
fraud or for any similar crime, or had a complaint filed
against it alleging violation of any anti-fraud provision of
state or federal securities law or alleging violation of any
registration or reporting provision of state or federal
securities law, nor has any such person or entity ever had a
judgment rendered against it as a defendant (or admitted to
liability) in any action based upon civil fraud or
misrepresentation.
L. Untrue or Misleading Statements. The
documents delivered to the Limited Partner and/or the
Special Limited Partner or annexed to the Investment
Agreement as Exhibits or Schedules constitute true, correct
and complete copies of the instruments which they purport to
be, and, with respect to each of such documents, to the best
knowledge of the Operating General Partner, there is no
other document of the same sort or amendment or other
related agreement which has been executed by the parties
thereto. To the best knowledge of the Operating General
Partner, no fact necessary to make the information and
statements contained in this Section 5.9 not misleading in
any material respect has been omitted therefrom, and no
material fact concerning the Apartment Complex or the
Operating General Partner has been withheld from the Limited
Partner and/or the Special Limited Partner. All of the
covenants, representations and warranties contained herein
shall survive the date hereof and the Subsequent Closing.
M. Scope of Representations. The Limited
Partner's due diligence review of the Apartment Complex, the
Partnership and the Operating General Partner shall not
diminish the scope or enforceability of any of the foregoing
representations and warranties, except in the event of
actual knowledge of the Special Limited Partner or the
Limited Partner of any inaccurate representation, warranty
or statement of fact prior to the date hereof.
N. Subsequent Closing. In addition to the
conditions set forth in Paragraph 3.6 of the Investment
Agreement, the Operating General Partner shall deliver a
certificate, dated as of the Subsequent Closing Date,
certifying on behalf of itself and the Partnership, that the
representations and warranties set forth above continue to
be true, correct and in force as of such date.
5.10 Additional Covenants of Operating General
Partner. The Operating General Partner shall permit the
Special Limited Partner, the Limited Partner and their
respective representatives to have access to the Apartment
Complex at all reasonable times during normal business hours
and to examine all agreements and plans and specifications
and shall deliver copies and such reports as may reasonably
be required by the Special Limited Partner. The Operating
General Partner shall promptly provide the Special Limited
Partner and the Limited Partner with copies of all
correspondence, notices and reports sent pursuant to and
received under the Project Documents or from any Authority
with respect to the Apartment Complex, together with copies
of all other correspondence which a prudent investor would
wish to examine in connection with a similar transaction.
5.11 Maintenance of Net Worth. The Operating General
Partner represents that it has a net worth sufficient to
allow the Partnership to be treated as a partnership
pursuant to the Code, the Regulations and advance ruling
requirements. The Operating General Partner covenants that
it will maintain sufficient net worth to meet the net worth
test of Internal Revenue Service advance ruling
requirements.
5.12 Obligation to Repair and Rebuild Apartment
Complex. With the approval of any Lender and any Authority,
if such approval is required, all insurance proceeds
received by the Partnership due to fire or other casualty
affecting the Apartment Complex will be utilized to repair
and rebuild the Apartment Complex in accordance with Section
42(j)(4)(E) of the Code and to the extent required by any
Lender and any Authority and thereafter to the extent any
amount remains as a Cash Receipt.
ARTICLE 6
CERTAIN PAYMENTS
6.1 Development Fee. The Partnership shall pay NCMC
and the Withdrawing General Partner, as their interests may
appear, the Development Fee.
6.2 [Intentionally omitted.]
6.3 Incentive Management Fee and Resale Incentive
Fee. Subject to Section 9.1F(ii), it is intended that (i)
the amounts distributable to the Operating General Partner
pursuant to Sections 9.2A(v) and (vi) constitute an
incentive management fee, and (ii) the amounts distributable
to the Operating General Partner pursuant to Sections
9.2B(vi), (viii) and (ix) constitute a resale incentive fee.
Such fees shall not be treated as distributions to the
Operating General Partner with respect to its Interest in
the Partnership.
ARTICLE 7
ACCOUNTING, REPORTS, BOOKS,
BANK ACCOUNTS AND FISCAL YEAR
7.1 Bank Accounts. The bank accounts of the
Partnership shall be maintained in such banking institutions
authorized to do business in the State or such other states
as permitted by each Authority and as the General Partners
shall determine. The Partnership's funds shall not be
commingled with the funds of any other Person and shall not
be used except for the business of the Partnership. All
deposits (including security deposits and other funds
required by any Authority or Lender to be placed in escrow
and other funds not needed in the operation of the
Partnership's business) shall be deposited, to the extent
permitted by each Authority or Lender, in interest-bearing
accounts or invested in obligations of or guaranteed by the
United States. any state thereof, or any agency,
municipality or other political subdivision of any of the
foregoing, commercial paper (investment grade), certificates
of deposit and time deposits in commercial banks with
capital in excess of $50,000,000 and in mutual (money
market) funds investing in any or all of the foregoing;
provided, however, that any funds required to be placed in
escrow by any Authority or Lender shall be controlled by
such Authority or Lender and the General Partners shall not
be permitted to make any withdrawal from such funds without
the express written consent of such Authority or Lender to
the extent required.
7.2 Books of Account; Fiscal Year. Complete and
accurate books of account, in which shall be entered, fully
and accurately, each and every transaction of the
Partnership, shall be kept or caused to be kept by the
Operating General Partner. The books shall be kept on an
accrual basis of accounting. All of the Partnership's books
of account, together with an executed copy of this Agreement
and copies of such other instruments as the General Partners
may execute hereunder. including amendments thereto, shall
at all times be kept at the principal office of the
Partnership and shall be available during normal business
hours for inspection and copying by any Partner or its duly
authorized representative or, at the expense of any Partner,
for audit by such Partner or its duly authorized
representative.
7.3 Reports.
A. The Operating General Partner shall, within
five days after the Operating General Partner has notice of
the occurrence of any of the following specified events
occurs, notify the Limited Partner of any correspondence
from the Authority relating to or referencing the Housing
Tax Credits, any change made or proposed to the allocation
of Housing Tax Credits or any notice of audit by the
Authority or other Governmental Agency, any material cost
overruns in the rehabilitation of the Apartment Complex, any
material damage to or change in the rehabilitation of the
Apartment Complex, any notice of default under the Mortgage,
breach of any Governmental Agreement or Project Document,
any non-payment of taxes, the filing of any lien against the
Apartment Complex, or non-compliance with any federal,
state, or local law, ordinance, or regulation, commencement
or termination of any lawsuit against the Partnership or any
of its property, cancellation or non-renewal of any
insurance, cancellation or non-renewal of any subsidy
agreement, any material change to the Project Documents, any
extraordinary item charges or credits or any other material
charges or credits to income of an unusual nature or any
material provisions for loss, any other circumstance which,
either in amount or time or otherwise materially affects the
business of the Partnership or the interest of the Partners
or the Housing Tax Credits, or any occurrence that would
cause any representation or warranty of the Operating
General Partner herein to become inaccurate in any material
respect.
B. Within 30 days after the end of each
calendar month, the Operating General Partner shall have
prepared and shall deliver to each of the Partners a
detailed income and expense statement and occupancy
report/updated rent roll for such month.
C. Within 45 days after the end of each of the
first three quarters of each Fiscal Year, the Operating
General Partner shall have prepared and shall deliver to the
other Partners, commencing with the first quarterly period
ending after the Closing Date, a balance sheet and
statements of income (or loss) and Cash Flow for, or as of
the end of, such quarter in such form and substance as the
Special Limited Partner shall reasonably request so as to
facilitate the Limited Partner's filings with the Securities
and Exchange Commission and any other filings required by
law, none of which need be audited unless required by law,
together with a report of other pertinent information
regarding the Partnership and its activities during such
quarter, including, but not limited to, a statement of the
amount of all fees and other compensation paid by the
Partnership during such quarter to the Operating General
Partner or any of their Affiliates. All such balance sheets,
reports and statements provided pursuant to this Section
7.3C, other than the statement of Cash Flow shall be
prepared in accordance with generally accepted accounting
principles, consistently applied, and shall accurately
reflect the information contained on the Partnership's books
and records.
D. Within 30 days after the end of each six-
month fiscal period, the Operating General Partner shall
send to the other Partners preliminary drafts of (i) the
balance sheet of the Partnership as of the end of such six-
month fiscal period and statements of income (loss),
Partners' equity and cash flow of the Partnership for such
six-month fiscal period, all of which shall be prepared in
accordance with generally accepted accounting
principles, consistently applied, and, with respect to each
fiscal period that also corresponds to the end of a Fiscal
Year, shall be accompanied by an audit report of the
Accountants containing an unqualified opinion of the
Accountants, and (ii) a statement of Cash Flow for such
fiscal period (which need not be audited), showing
distributions in respect of such fiscal period, which
statement shall identify distributions from (a) Cash Flow
generated during the fiscal period, (b) Cash Flow generated
during the immediately preceding comparable fiscal periods,
(c) proceeds from the disposition of property and
investments, and (d) reserves and other sources. The
Operating General Partner shall send final drafts of each of
the aforementioned statements to the other Partners within
60 days after the end of six-month fiscal period.
E. If the Operating General Partner shall
fail, for any reason, to deliver to the other Partners when
due any of tax returns and schedules thereto and/or the
annual financial statements required pursuant to this
Section 7.3 and/or Section 7.5 hereof, the Operating General
Partner shall pay the Limited Partner, as liquidated damages
for such failure, an amount equal to $50.00 for each day
that elapses after the third business day following the
respective due date and notice from the Special Limited
Partner of such failure until such information or statements
have been delivered to the other Partners. Such payments
shall not be deemed to be either a Capital Contribution or a
loan from the Operating General Partner and neither the
Partnership nor any other Partner shall be under any
obligation to repay any such amount paid by the Operating
General Partner. Notwithstanding anything contained in this
Section 7.3E to the contrary, no damages shall be payable
with respect to the reports and statements for the Fiscal
Year 1993. Further, no damages shall be payable by the
Operating General Partner if the Administrative General
Partner selects the Accountants and the Operating General
Partner has delivered or made available, in a timely manner,
all information needed by the Accountants to prepare the
reports and statements.
7.4 Other Reports. The Operating General Partner
shall from time to time submit to the Partners such other
written reports and information regarding the operations of
the Partnership as may be reasonably required by the Limited
Partner to satisfy its reporting requirement to its partners
or governmental authorities. In addition, the Operating
General Partner shall provide the Special Limited Partner
and the Limited Partner with copies of all information,
reports, and filings pertaining to the Housing Tax Credits
and/or the "qualified basis" (as defined in Section 42 of
the Code) of the Apartment Complex. The Operating General
Partner shall provide to the Partners by November 30 of each
Fiscal Year an estimate of each Partner's share of Profits
and Losses for federal and state income tax purposes for
such Fiscal Year. The Limited Partner shall be entitled to
receive a list of all limited partners of the Partnership.
7.5 Tax Returns and Tax Treatment.
A. The Operating General Partner shall, for
each Fiscal Year, file on behalf of the Partnership a United
States Partnership Return of Income within the time
prescribed by law for such filing. The Operating General
Partner shall also file on behalf of the Partnership such
other tax returns and other documents from time to time as
may be required by the federal government or by any state or
any subdivision thereof. All tax returns shall be prepared
by the Accountants.
B. The Operating General Partner shall send to
the other Partners such tax information, including, without
limitation, a copy of Schedule K-l, as shall be reasonably
necessary for inclusion by the Limited Partner and the
Special Limited Partner in their federal income tax returns
and required state income tax and other tax returns. The
Operating General Partner shall send this information to the
Special Limited Partner for its review and approval within
45 days after the end of each Fiscal Year. The Special
Limited Partner shall have the right to review and approve
such information prior to the filing of the related tax
returns with the appropriate taxing authority. At such time
as the Operating General Partner has received the Consent of
the Special Limited Partner to the tax returns, the
Operating General Partner shall promptly file final tax
returns and simultaneously provide the Special Limited
Partner with evidence of filing.
C. If the Special Limited Partner disapproves
the tax return and/or Schedule K-l in a timely fashion, the
Special Limited Partner and the Operating General Partner
shall proceed in good faith to attempt to resolve any item
in dispute and the Operating General Partner shall file any
necessary requests for extensions of time to file the
return. If prior to the expiration of the last available
extension, the Special Limited Partner and the Operating
General Partner cannot agree on the resolution of such
disputed item or items, then the tax return shall be filed
as requested by the Special Limited Partner, in which event
the Special Limited Partner shall not be entitled to any
indemnification for such item(s) notwithstanding anything
contained in this Agreement to the contrary.
ARTICLE 8
MANAGEMENT AGENT
8.1 Designation of Management Agent. During the term
of the Operating Deficit and Rental Achievement Agreement,
the Operating General Partner shall have the responsibility
for managing the Apartment Complex and obtaining a
management agent (the "Management Agent"), the choice of
which with respect to any successor to the Management Agent
at the Closing shall require the Consent of the Special
Limited Partner, which consent shall not be unreasonably
withheld provided such successor Management Agent is an
Affiliate of the Operating General Partner. The Management
Agent at the Closing shall be NCM Management, Ltd., or some
other Affiliate of the Operating General Partner.
Notwithstanding the foregoing, but subject to the provisions
of the next succeeding sentence, the consent of the Special
Limited Partner shall not be required to a successor
Management Agent provided such successor is controlled by
the Operating General Partner or its parent corporation and
is qualified to manage the Apartment Complex and the
approval of each Authority is obtained, if required. The
Management Agreement provides that the Management Agent
shall certify annually that the Apartment Complex, and each
of its tenants, are in compliance with all regulations and
requirements required to qualify the Partnership to receive
Housing Tax Credits with respect to the Apartment Complex.
The Management Agreement also provides that after the
expiration of the Funding Period the Management Agreement
shall terminate if the Apartment Complex is not in full
compliance with any of the rules or regulations governing
the operation thereof, including, but not limited to, the
rules and regulations of the Housing Tax Credits. and such
default is not cured within the cure period provided for
under the applicable rule or regulation or if no set cure
period exists, then within 30 days after notice of such non-
compliance so long as the Operating General Partner is
diligently pursuing a cure of such breach at all times
during such 30-day period and accomplishes such cure within
such 30-day period: provided. however, that if such breach
is of the type that cannot reasonably be cured within 30
days, the Operating General Partner shall have an additional
30 days (for a total of 60 days) so long as such Operating
General Partner is diligently pursuing a cure of such breach
at all times during such additional 30-day period, neither
the Partnership, the Special Limited Partner nor the Limited
Partner is adversely affected in a material way by such
additional time to cure and the Operating General Partner
accomplishes such cure within such additional 30-day period.
Upon termination of the Management Agreement, for whatever
reason, the Special Limited Partner, in its sole discretion
shall designate the successor management agent for the
Apartment Complex.
8.2 Management Fee. The Management Agent shall
receive a management fee payable by the Partnership on an
annual basis in an amount not to exceed 6% of the gross
rental receipts from the Apartment Complex for management
services in accordance with the Management Agreement as
approved by each Authority (if such approval is required);
The term of any Management Agreement shall not exceed one
year without the Consent of the Special Limited Partner, and
no payment or penalty shall be payable by the Partnership
for failure to renew any such agreement.
8.3 Absence of Management Agent. The Operating
General Partner will have the duty to manage the Apartment
Complex during any period when there is no Management Agent
and the Partnership will pay the Operating General Partner
for such services an annual management fee equal to such
amount as each Authority shall approve from time to time or,
if no approval is required, a fee equal to the amounts set
forth in Section 8.2 hereof. If at any time prior to the
expiration of the Funding Period the present Management
Agent shall cease to act as the Management Agent, the
Operating General Partner shall be authorized, subject to
the Consent of the Special Limited Partner and the approval
of each Authority and Lender (if required), to retain and to
enter into a Management Agreement with a different
Management Agent on terms at least as favorable to the
Partnership as the terms and conditions of the Management
Agreement with the present Management Agent.
8.4 Rights of Special Limited Partner. Subject to the
approval of each Authority, if required, and notwithstanding
any longer term of any Management Agreement or other
contract, the Special Limited Partner shall have the right
in the event the Operating General Partner is removed as
such General Partner pursuant to Section 11.4 hereof, to
terminate the Management Agreement and every other contract
between the Partnership and the removed Operating General
Partner and/or Affiliates of the removed Operating General
Partner by notice, effective simultaneously with such
removal. The Operating General Partner hereby represents and
warrants to the other Partners that all existing contracts
between the Partnership and the Operating General Partner,
or Affiliates of the Operating General Partner have been
amended to contain this right and the Operating General
Partner covenants not to enter any future contract with the
Partnership or cause the Partnership to enter into any
future contract with any of its Affiliates which does not
contain such right.
ARTICLE 9
DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES;
HOUSING TAX CREDITS; CAPITAL ACCOUNTS
9.1 Profits, Losses and Housing Tax Credits.
A. Profits and Losses Other Than from Sale or
Refinancing.
(i) Profits. Profits other than from
Sale or Refinancing for any taxable year shall be allocated
99% to the Limited Partner and 1% to the Operating General
Partner, except that commencing with the taxable year 2004,
and for each taxable year thereafter, such Profits shall be
allocated as follows:
(a) First, to each of the
Partners, in proportion to the excess, if any, of the
cumulative Losses previously allocated to each such Partner
solely by reason of Section 9.1 C over the cumulative
Profits previously allocated to such Partner pursuant to
this Section 9.1 A(i), Section 9.1 B(i)(a), Section 9.1
B(i)(b) and Section 9.1 B(i)(c), until such excess has been
entirely eliminated with respect to each such Partner;
(b) Second, to each of the
Partners in proportion to the excess, if any, of the
cumulative Losses previously allocated to each such Partner
pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) over the cumulative Profits previously allocated to
such Partner pursuant to this Section 9.1 A(i), Section 9.1
B(i)(a), Section 9.1 B(i)(b) and Section 9.1 B(i)(c), until
such excess has been entirely eliminated with respect to
each such Partner;
(c) Third, to each of the
Partners in proportion to the excess, if any, of the sum of
the cumulative Losses previously allocated to each such
Partner pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) plus the cumulative distributions received (and to be
received for the subject taxable year) by each such Partner
(except as provided in Section 6.3) pursuant to Sections
9.2A(iv) and (vi), over the cumulative Profits previously
allocated to such Partner pursuant to this Section 9 .1 A(i)
. Section 9.1 B(i)(a), Section 9 .1 B(i)(b) and Section 9.1
B(i)(c), until such excess has been entirely eliminated with
respect to each such Partner; and
(d) The balance. if any, so as
to result, to the extent possible, in the excess, if any, of
all Profits allocated to the Partners pursuant to this
Section 9.1 A(i), Section 9.1 B(i)(a), Section 9.1 B(i)(b)
and Section 9.1 B(i)(c), over all Losses allocated pursuant
to Section 9.1A(ii) and Section 9.1B(ii) and all
distributions made (and to be made for such taxable year) to
the Partners (except as provided in Section 6.3) pursuant to
Sections 9.2A(iv) and (vi) being allocated 99% to the
Limited Partner and 1% to the Operating General Partner.
(ii) Losses. Losses other than from
Sale or Refinancing for any taxable year shall be allocated
99% to the Limited Partner and 1% to the Operating General
Partner.
B. Profits and Losses From Sale or Refinancing.
(i) Profits. Profits from Sale or
Refinancing for any taxable year shall be allocated as
follows:
(a) First, to each of the
Partners, in proportion to the excess, if any, of the
cumulative Losses previously allocated to each such Partner
solely by reason of Section 9.1 C over the cumulative
Profits previously allocated pursuant to Section 9.1 A(i),
this Section 9.1 B(i)(a), Section 9.1 B(i)(b) and Section
9.1 B(i)(c), until such excess has been entirely eliminated
with respect to each such Partner;
(b) Second, to each of the
Partners, in proportion to the excess. if any, of the
cumulative Losses previously allocated to each such Partner
pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) over the cumulative Profits previously allocated to
such Partner pursuant to Section 9.1 A(i), Section 9.1
B(i)(a), this Section 9.1 B(i)(b) and Section 9.1 B(i)(c),
until such excess is entirely eliminated with respect to
each such Partner:
(c) Third, to each of the
Partners, in proportion to the excess, if any, of the sum of
the cumulative Losses previously allocated to each such
Partner pursuant to Section 9.1 A(ii) and Section 9.1 B(ii)
(including any such Losses described in subparagraph (a)
above) plus the cumulative distributions received (and to be
received for such taxable year) by each such Partner (except
as provided in Section 6.3) pursuant to Sections 9.2A(iv)
and (vi), over the cumulative Profits previously allocated
to such Partner pursuant to Section 9.1 A(i), Section 9.1
B(i)(a), Section 9.1 B(i)(b) and this Section 9.1 B(i)(c),
until such excess has been entirely eliminated with respect
to each such Partner
(d) Fourth, 99% to the Limited
Partner, 0.9% to the Operating General Partner and 0.1% to
the Special Limited Partner until the Limited Partner has
been allocated Profits pursuant to this Section 9.1 B(i)(d)
sufficient to cause the positive balance in the Limited
Partner's Capital Account to equal 135% of the Limited
Partner Contribution reduced by any prior distributions to
the Limited Partner pursuant to Section 9.2B(vii); and
(e) Thereafter, 99% to the
Limited Partner, 0.9% to the Operating General Partner and
0.1% to the Special Limited Partner.
(ii) Losses. Losses from Sale or
Refinancing for any taxable year shall be allocated in the
following order and priority:
(a) First, an amount of Losses
from Sale or Refinancing equal to the aggregate positive
balances (if any) in the Capital Accounts of all Partners
having positive Capital Account balances shall be allocated
to the Partners having positive Capital Account balances in
proportion to their positive Capital Account balances until
all such Capital Accounts have a zero balance; and
(b) The balance, if any, 99% to
the Limited Partner, 0.9% to the Operating General Partner
and 0.1% to the Special Limited Partner.
C. Limitation on Allocation of Losses. The
aggregate Losses allocated to the Partners pursuant to
Section 9.1A(ii) or 9.1B(ii) shall not exceed the maximum
amount of Losses that can be so allocated without causing
any Partner who is not a General Partner to have an Adjusted
Capital Account Deficit at the end of any fiscal year. In
the event some but not all of the Partners would have
Adjusted Capital Account Deficits as a consequence of an
allocation pursuant to Section 9.1 A(ii) or 9.1 B(ii), the
limitation set forth in this Section 9.1 C shall be applied
on a Partner-by-Partner basis so as to allocate the maximum
permissible Losses to each Partner who is not a General
Partner under Section 1.704-1 (b)(2)(ii)(d) of the
Regulations. All Losses in excess of the limitation set
forth in this Section 9.1C shall be allocated to the
Operating General Partner.
D. Special Allocations. The following special
allocations shall be made in the following order and
priority:
(i) Partnership Minimum Gain
Chargeback. Notwithstanding any other provision of this
Section 9.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership fiscal year or other
period, each Partner shall be specially allocated items of
Partnership income and gain for such year or other period
(and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partnership
Minimum Gain. determined in accordance with Regulations
Section 1.704-2(9)(2). Allocations pursuant to the previous
sentence shall be made in proportion to the respective
amounts required to be allocated to the various Partners
pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-
2(f)(6). This Section 9.1D(i) is intended to comply with the
minimum gain chargeback requirement in Section 1 .704-2(f)
of the Regulations and shall be interpreted consistently
therewith. To the extent permitted by such Section of the
Regulations and for purposes of this Section 9.1 D(i) only,
each Partner's Adjusted Capital Account Deficit shall be
determined prior to any other allocations pursuant to this
Section 9.1 D with respect to such fiscal year or other
period and without regard to any net decrease in Partner
Nonrecourse Debt Minimum Gain during such fiscal year or
other period.
(ii) Partner Nonrecourse Debt Minimum
Gain Chargeback. Notwithstanding any other provision of this
Section 9.1 except Section 9.1 D(i), if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any
Partnership fiscal year or other period, each Partner with a
share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(5) shall be specially
allocated items of Partnership income and gain for such year
or other period (and, if necessary, subsequent years) in an
amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective
amounts required to be allocated to the various Partners
pursuant thereto. The items to be so allocated shall be
determined in accordance with Section 1.704-2(i)(4) of the
Regulations. This Section 9.1 D(ii) is intended to comply
with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith. Solely for purposes of this Section
9.1 D(ii), each Partner's Adjusted Capital Account Deficit
shall be determined prior to any other allocations pursuant
to this Section 9.1 D with respect to such fiscal year or
other period, other than allocations pursuant to Section 9.1
D(i) hereof.
(iii) Qualified Income Offset. In the
event any Partner unexpectedly receives any adjustments,
allocations. or distributions described in Regulations
Sections 1.704-1 (b)(2)(ii)(d)(4), 1.704-1 (b)(2)(ii)(d)(5),
or 1.704-1 (b)(2)(ii)(d)(6), items of Partnership income and
gain shall be specially allocated to each such Partner in an
amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible, provided
that an allocation pursuant to this Section 9.1 D(iii) shall
be made only if and to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 9.1 have been
tentatively made as if this Section 9.1 D(iii) were not in
this Agreement.
(iv) Gross Income Allocation. In the
event any Partner has a deficit Capital Account at the end
of any Partnership fiscal year that is in excess of the sum
of (i) the amount such Partner is obligated to restore
pursuant to any provision of this Agreement, and (ii) the
amount such Partner is deemed to be obligated to restore
pursuant to Regulations Sections 1.704-2(9)(1 ) and 1 .704-
2(i)(5), each such Partner shall be specially allocated
items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation
pursuant to this Section 9.1 D(iv) shall be made only if and
to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations
provided for in this Section 9.1 have been tentatively made
as if this Section 9.1 D(iv) and Section 9.1 D(iii) were not
in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse
Deductions for any fiscal year or other period shall be
specially allocated 99% to the Limited Partner and 1% to the
Operating General Partner.
(vi) Partner Nonrecourse Deductions.
Any Partner Nonrecourse Deductions for any fiscal year or
other period shall be allocated, in accordance with Section
1 .704-2(i)( 1 ), to the Partner that bears the economic
risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable.
(vii) Code Section 754 Adjustments. To
the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1
(b)(2)(iv)(m), the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis), and such gain or loss
shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the
Regulations.
(viii) Basis Increases. In the event
the adjusted tax basis of any property that has been placed
in service by the Partnership is increased pursuant to Code
Section 50(c), such increase shall be specially allocated
among the Partners (as an item in the nature of income or
gain) in the same proportions as the investment tax credit
that is recaptured with respect to such property is shared
among the Partners.
(ix) Basis Reductions. Any reduction in
the adjusted tax basis (or cost) of Partnership property
pursuant to Code Section 50(c) shall be specially allocated
among the Partners (as an item in the nature of expenses or
losses) in the same proportions as the basis (or cost) of
such property is allocated pursuant to Regulations Section
1.46-3(f)(2)(i).
(x) Gross Deduction Allocation.
Commencing with the taxable year 2004, and for each taxable
year thereafter, gross deductions of the Partnership shall
first be allocated to the Operating General Partner until
the Operating General Partner has been allocated a
cumulative amount of such gross deductions equal to the
amount of the Operating General Partner's positive Capital
Account balance, if any, upon the Limited Partner's
admission to the Partnership (after taking into account any
Capital Contributions made by, or distributions made to, the
Operating General Partner in connection with the Limited
Partner's admission to the Partnership), plus all Capital
Contributions made by the Operating General Partner
thereafter.
E. Curative Allocations. The n Regulatory
Allocations" consist of (x) Allocations made to a Partner
(or predecessor) under Section 9.1 D(iii) and Section 9.1
D(iv), allocations to be made to a Partner (or predecessor)
under Section 9.1 D(i) to the extent the cumulative amount
of such allocations exceeds the cumulative amount of
Nonrecourse Deductions allocated to such Partner (or
predecessor), and (y) allocations made to a Partner (or
predecessor) under Section 9.1 D(ii) to the extent the
cumulative amount of such Allocations exceeds the cumulative
amount of Partner Nonrecourse Deductions allocated to such
Partner (or predecessor). Notwithstanding any other
provisions of this Section 9.1 (other than the Regulatory
Allocations), the Regulatory Allocations shall be taken into
account in allocating other items of income, gain, loss and
deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items
and the Regulatory Allocations to each Partner shall be
equal to the net amount that would have been allocated to
each such Partner if the Regulatory Allocations had not
occurred.
F. Other Allocation Rules.
(i) For purposes of computing the
Profits, Losses or any other items allocable to any period,
Profits, Losses and any other such items shall be determined
on a daily, monthly, or other basis, as determined by the
Special Limited Partner using any permissible method under
Code Section 706 and the Regulations thereunder.
(ii) Notwithstanding anything to the
contrary that may be expressed or implied in this Agreement,
the aggregate interest of the General Partners in each item
of Partnership income, gain, loss, deduction or credit shall
be equal to at least 1% of each of those items at all times
during the existence of the Partnership. In the
determination of the interests of the General Partners in
these items, any Limited Partnership Interests owned by the
General Partners shall be taken into account.
(iii) For purposes of determining a
Partner's proportionate share of the excess nonrecourse
liabilities" of the Partnership within the meaning of
Regulations Section 1 .752-3(a)(3) (or the equivalent
sections of any earlier Regulations which may be determined
to be applicable), the Partners' interests in Partnership
Profits shall be allocated 1% to the Operating General
Partner and 99% to the Limited Partner.
(iv) To the extent permitted by
Sections 1 .704-2(h) and 1 .704-2(I)(6) of the Regulations,
the General Partners shall endeavor to treat distributions
of Cash Flow and Sale or Refinancing Transaction Proceeds as
having been made from proceeds of Nonrecourse Debt or
Partner Nonrecourse Debt only to the extent that such
distributions would have otherwise caused or increased an
Adjusted Capital Account Deficit for any Partner.
(v) The basis (or cost) of any
Partnership property shall be allocated among the Partners
in accordance with Regulations Section 1.46-3(f)(2)(i).
(vi) In the event Partnership
"investment credit property" (as defined in Code Section
50(a)(5)(A)) property is disposed of during any taxable
year, Profits for such taxable year (and, to the extent such
Profits are insufficient, Profits for subsequent taxable
years) in an amount equal to the excess, if any, of (i) the
reduction in the adjusted tax basis (or cost) of such
property pursuant to Code Section 50(c), over (ii) any
increase in the adjusted tax basis of such property pursuant
to Code Section 50(c) caused by the disposition of such
property, shall be excluded from the Profits allocated
pursuant to Sections 9.1 A and 9.1 B hereof and shall
instead be allocated among the Partners in proportion to
their respective shares of such excess, determined pursuant
to Sections 9.1 D(viii) and 9.1 D(ix) hereof. In the event
more than one item of such property is disposed of by the
Partnership, the foregoing sentence shall apply to such
items in the order in which they are disposed of by the
Partnership, so that Profits equal to the entire amount of
such excess with respect to the first such property disposed
of shall be allocated prior to any allocations with respect
to the second such property disposed of, and so forth.
G. Tax Allocations.
(i) In General. Except as otherwise
provided in this Agreement, all items of Partnership income,
gain. loss, deduction, and any other allocations not
otherwise provided for shall be allocated among the Partners
for tax purposes in the same proportions as they are
allocated Profits or Losses or items thereof pursuant to
Section 9.1 hereof for such year. Any elections or other
decisions relating to such allocations shall be made by the
Special Limited Partner in any manner that reasonably
reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 9.1 G 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 Person's Capital Account or share of Profits, Losses,
other items or distributions pursuant to any provision of
this Agreement.
(ii) Code Section 704(c). In accordance
with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect
to any property contributed to the capital of the
Partnership or owned by the Partnership upon the occurrence
of any of the events described in Treasury Regulations
Section 1.704-1 (b)(2)(iv)(f)(5) shall, solely for tax
purposes (and not for purposes of determining Capital
Accounts or allocating Profits, Losses or items thereof), be
allocated among the Partners so as to take into account any
variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and (i) its
Asset Value at the time of the contribution or as adjusted
for the occurrence pursuant to paragraph (ii) of the
definition of Asset Value set forth herein, as the case may
be, or (ii) its fair market value at the time of the
occurrence if the Asset Value is not adjusted pursuant to
said paragraph. Notwithstanding the foregoing, no allocation
shall be made pursuant to clause (ii) of this Section 9.1
G(ii) if an equivalent allocation has been made pursuant to
Section 9.1 G(i) in connection with a transaction that would
otherwise result in an allocation pursuant to this Section
9.1 G(ii). The foregoing provision is intended to comply
with Section 704(c) of the Code and with Treasury
Regulations Section 1.704-1 (b). To the extent permitted by
the Code and Treasury Regulations, any variation referred to
in this Section 9.1 G(ii) shall be taken into account by
allocations of gain from a Disposition and not through
allocations of depreciation.
(iii) Recapture. Gain from the
disposition of Partnership assets which is allocated to a
Partner for tax purposes shall include, to the extent
possible, ordinary income consisting directly or indirectly
of recaptured deductions (for depreciation or otherwise) to
the same extent and in the same proportion as such
deductions were previously allocated to such Partner .
(iv) Section 751 Assets. In the event
that a Partner (other than a Partner who becomes a Partner
by purchasing the Interest in the Partnership of another
Partner) is admitted (an "Admission") to the Partnership
after the date hereof or in the event that a Partner's
interest in Profits or Losses is increased (an "Increase")
after the date hereof, the Partner so admitted shall obtain
no interest, or the Partner so increased shall obtain no
greater interest than prior to the Increase, in the
Partnership's "unrealized receivables" (as defined in
Section 751 (c) of the Code), determined immediately prior
to such Admission or Increase. As the respective interests
in such "unrealized receivables" of the Partners who were
Partners prior to such Admission or such Increase are not
reduced thereby, the Partner so admitted or so increased
shall, to the extent required, obtain a greater than
proportionate interest in the Partnership's other assets
(including the assets contributed by such Partner),
determined after giving effect to such Admission or
Increase.
(v) Housing Tax Credits.
(a) Pursuant to Regulations
Section 1.704-1 (b)(4)(ii), Housing Tax Credits shall be
allocated among the Partners in accordance with their
respective shares of Partnership expenditures that give rise
to such Housing Tax Credits in the taxable year to which
such Housing Tax Credits relate. Because the allocations of
Nonrecourse Deductions, Losses and Profits (and related
items of income and deductions) provide for allocations of
expenditures which give rise to Housing Tax Credits in the
ratio of 99% to the Limited Partner 1% to the Operating
General Partner, the Partners intend that Housing Tax
Credits shall be allocated 99% to the Limited Partner and 1%
to the Operating General Partner.
(b) In the event there occurs a
recapture of Housing Tax Credits previously allocated to the
Partners, then, pursuant to Section 42(j)(1 ) of the Code,
Housing Tax Credits shall be recaptured by the Partners who
originally claimed said Housing Tax Credits, in proportion
to the ratio in which such recaptured Housing Tax Credits
were claimed .
H. Order of Priority. The allocation and
distribution provisions of this Agreement will be applied in
the order in which they are listed (from first to last):
Section 9.1 D (other than clauses (v) and (vi) thereof);
Section 9.1 E: Section 9.1 F; Section 9.1A(i); Section 9.1
B(i); Section 9.1 D(vi); Section 9.1 D(v); Section 9.1
A(ii); Section 9.1 B(ii); Section 9.2A; Section 9.2B; and
Section 12.4.
9.2 Distribution and Application of Cash Flow and
Sale or Refinancing Transaction Proceeds. Except as
otherwise provided by this Agreement or required by law
(including all applicable rules, directives and regulations
of each Authority), cash distributions shall be made to the
Partners on the following bases within 60 days after the end
of each calendar quarter:
A. Cash Flow shall be applied in the following
order of priority:
(i) To repay any Voluntary Loans
payable to the Limited Partner or the Special Limited
Partner;
(ii) To repay any Voluntary Loans
payable to the Operating General Partner;
(iii) To NCMC in an amount equal to the
unpaid balance of any Operating Loan made by it and then to
the Operating General Partner in an amount equal to the
unpaid balance of all Operating Loans made by it:
(iv) To the Limited Partner until the
Limited Partner has received on a cumulative basis an annual
distribution pursuant to this subsection (iv) equal to an
annual amount of $21,562; Provided. however, for the Fiscal
Year ending December 31, 1993, such distribution shall have
been prorated based upon the number of days from the date on
which the Limited Partner pays the installment of the
Limited Partner Contribution described in Paragraph 2.1 (b)
of the Investment Agreement until the end of such Fiscal
Year, and provided further, however, that in the event a
portion of the Limited Partner Contribution described in
Paragraph 2.1 (a) is escrowed, the distributions pursuant to
this Section 9.2A(iv) shall accrue. but shall not be made
until the escrowed funds have been released;
(v) To the Operating General Partner
until the Operating General Partner has received an amount
equal to (1 ) the General Partner Priority plus (2) a 9.25%
per annum return thereon, compounded annually, reduced by
the amount of all prior distributions to the Operating
General Partner under this Section 9.2A(v) and Section
9.2B(vi) (in accordance with Section 6.3(i); and
(vi) The balance, 50% to the Limited
Partner, 0.1% to the Special Limited Partner and 49.9% to
the Operating General Partner (in accordance with Section
6.3(I) hereof ) .
8. Subject to the provisions of Sections 3.8
and 12.4 hereof and, with respect to subsection (vi), below,
the provisions of Paragraph 2.2 of the Investment Agreement,
Sale or Refinancing Transaction Proceeds shall be applied in
the following order of priority:
(i) To the payment of liabilities of
the Partnership then due and owing to Persons other than the
Partners;
(ii) To establish such reserves as the
Operating General Partner, with the Consent of the Special
Limited Partner, determines to be reasonably necessary for
any contingent or foreseeable liability or obligation of the
Partnership; provided. however, that the balance of any such
reserve remaining at such time as the Operating General
Partner, with the Consent of the Special Limited Partner,
shall determine that such reserve is no longer necessary
shall be distributed in accordance with subparagraphs (iii)
through (ix) of this Section 9.2B;
(iii) To repay any Voluntary Loans
payable to the Limited Partner or the Special Limited
Partner;
(iv) To repay any Voluntary Loans
payable to the Operating General Partner;
(v) To NCMC in an amount equal to the
unpaid balance of any Operating Loan made by it;
(vi) To the Operating General Partner
until the Operating General Partner has received an amount
equal to (1 ) the General Partner Priority plus (2) a 9.25%
per annum return thereon, compounded annually, reduced by
the amount of all prior distributions to the Operating
General Partner under Section 9.2A(v) and this Section
9.2B(vi) (in accordance with Section 6.3(ii)); Provided.
however, if the distribution results from a sale, the
distribution described in this Section 9.2B(vi) shall be
subordinated to the distributions required pursuant to
Section 9.2B(vii) hereof;
(vii) 99% to the Limited Partner, 0.1%
to the Special Limited Partner and 0.9% to the Operating
General Partner until the Limited Partner has received an
amount equal to 135% of the Limited Partner Contribution,
reduced by the amount of all prior distributions to the
Limited Partner under this Section 9.2B(vii);
(viii) To the Operating General Partner
until the Operating General Partner has received an amount
equal to $3,000,000 (in accordance with Section 6.3(ii)
hereof); and
(ix) The balance, if any, 50% to the
Limited Partner, 0.1% to the Special Limited Partner and
49.9% to the Operating General Partner (in accordance with
Section 6.3(ii) hereof).
C. Except as otherwise provided in this
Section 9.2, each Partner shall share in distributions in
accordance with this Section 9.2 from the date on which such
Partner is admitted to the Partnership.
ARTICLE 10
TRANSFER OF PARTNER INTERESTS
10.1 Assignment of Limited Partner and Special
Limited Partner Interests. The Limited Partner and the
Special Limited Partner shall have the right at any time to
make an Assignment of their Interests without the consent or
approval of the Operating General Partner or any other
Partners. The Operating General Partner shall cooperate with
the Limited Partner and the Special Limited Partner in
facilitating such Assignment by promptly furnishing complete
and accurate financial and other relevant data regarding the
Partnership, the Apartment Complex, the Operating General
Partner and the Affiliates of the Operating General Partner
and any other matters reasonably necessary in the judgment
of the Special Limited Partner to facilitate and effect such
Assignment. The Limited Partner and the Special Limited
Partner shall notify the Operating General Partner as to any
proposed Assignment. Notwithstanding anything to the
contrary in the foregoing, the Operating General Partner
shall have the right at any time after the later of i) end
of the Compliance Period and (ii) receipt by the Limited
Partner of aggregate distributions equal to 135% of the
Limited Partner Contribution, to require, by notice to the
Special Limited Partner and to the Limited Partner that the
Special Limited Partner and Limited Partner assign its
interests to the Operating General Partner or its assignee
and withdraw from the Partnership. In connection with such
assignment, the Limited Partner and the Special Limited
Partner shall (x) represent and warrant the each has the
full right, title and interest in its respective Interest
and that each such assignment shall be without lien, claim
or encumbrance (except as set forth herein or in the
Mortgage) and (y) agree to provide such further assurances
of title and instruments of transfer as may be reasonably
required by the Operating General Partner.
10.2 Substituted Partners: Admission.
A. Except as otherwise provided in Article 11
hereof, no additional partner shall be admitted to the
Partnership without the Consent of the Special Limited
Partner and the consent of the Operating General Partner.
B. No Assignee shall be admitted as a
Substituted Partner unless (i) the Operating General
Partner, with the Consent of the Special Limited Partner,
approves, in each's sole and absolute discretion. admission
of such Assignee, (ii) the Assignee expressly agrees to be
bound, to the same extent as the Assignor, by the provisions
of this Agreement, the Project Documents and any other
documents required in connection therewith and to assume the
obligations of the Assignor hereunder, and (iii) the
Assignee shall have agreed to pay all reasonable expenses
and legal fees relating to the Assignment and its admission
as a Substituted Partner.
C. Upon the admission of a Substituted
Partner, Schedule A shall be amended to reflect the name and
address of such Substituted Partner and to eliminate the
name and address of the Assignor, and an amendment to this
Agreement and/or the Certificate reflecting such admission
shall be filed in accordance with the Uniform Act. No
consent or approval of the Limited Partner (other than the
Assignor and the Assignee) shall be required and the Special
Limited Partner may exercise the power of attorney granted
in Section 14.2 hereof to effect the provisions of this
Article 10.
10.3 Assignees.
A. Any Person who acquires in any manner
whatsoever any Interest, irrespective of whether such Person
has accepted and adopted in writing the terms and provisions
of this Agreement, shall be deemed by the acceptance of the
benefit of the acquisition thereof to have agreed to be
subject to and bound by all the obligations of this
Agreement that any predecessor in interest of such Person
was subject to or bound by. A person acquiring an Interest,
including the personal representatives and heirs of a
deceased Partner, shall have only such rights, and shall be
subject to all the obligations, as are set forth in this
Agreement; and, without limiting the generality of the
foregoing, such Person shall not have any right to have the
value of his Interest ascertained or receive the value of
such
Interest or, in lieu thereof. profits attributable to any
right in the Partnership, except as herein set forth.
B. Any Assignee pursuant to an Assignment
satisfying the conditions of this Article 10 who does not
become a Substituted Partner in accordance with this Article
10 shall have the right to receive the same share of the
Profits and Losses and distributions of the Partnership to
which his Assignor would have been entitled. If such
Assignee desires to make an Assignment of his Interest, he
shall be subject to all the provisions of this Article 10 to
the same extent and in the same manner as any Partner
desiring to make an Assignment.
C. Any Partner who shall Assign all of his
Interest shall cease to be a Partner and shall no longer
have any rights or privileges of a Partner except that,
unless and until his Assignee is admitted to the Partnership
as a Substituted Partner in accordance with this Article 10,
such Assignor shall retain all rights and be subject to all
obligations under the Uniform Act.
D. In the event of an Assignment, the
obligation of the Assignor to make Capital Contributions or
loans hereunder shall be extinguished only by and to the
extent of Capital Contributions or loans actually made by
him or his Assignee.
E. In the event that an Assignment shall be
made, there shall be filed with the Partnership a duly
executed and acknowledged counterpart of the instrument
effecting such Assignment. Such instrument must evidence the
written acceptance of the Assignee to all the terms and
provisions of this Agreement. If such instrument is not so
filed, the Partnership need not recognize any such purported
Assignment for any purpose.
ARTICLE 11
WITHDRAWAL OF OPERATING GENERAL PARTNER;
NEW OPERATING GENERAL PARTNER
11.1 Withdrawal.
A. The Operating General Partner may not
Withdraw (other than an Involuntary Withdrawal) from the
Partnership or Assign, pledge or encumber all or any part of
its Interest without the Consent of the Special Limited
Partner, and, to the extent required, the consent of each
Authority and each Lender. The consent of the Limited
Partner shall not be required.
B. In the event of a Withdrawal (other than an
Involuntary Withdrawal) of an Operating General Partner or
the pledge or encumbrance of any part of its Interest in
violation of Section 11.1 A hereof or the removal of an
Operating General Partner pursuant to Section 1 1.4, the
Interest of the Withdrawing Operating General Partner shall
immediately and automatically terminate on the effective
date of such Withdrawal (or the effective date of such
Assignment, pledge, encumbrance or removal) and such
Operating General Partner shall have no further right to
participate in the management or operation of the
Partnership or to receive any future allocations of Profits
and Losses, any distributions from the Partnership or any
other funds or assets of the Partnership, nor shall it be
entitled to receive or to be paid by the Partnership any
further payments of fees (including fees which have been
earned but are unpaid) or to be repaid any outstanding
advances or loans made by it to the Partnership. From and
after the effective date of such Withdrawal, pledge or
encumbrance, the rights of such Withdrawing Operating
General Partner to receive or to be paid such allocations.
distributions, funds, assets, fees or repayments shall be
reallocated to the other Operating General Partner or
Operating General Partners, or if there is no other
Operating General Partner at that time, to the Special
Limited Partner. Notwithstanding such Withdrawal, pledge,
encumbrance or removal, and loss of any right to receive
such allocations, distributions, funds, assets, fees and
repayments, such Withdrawing Operating General Partner shall
remain liable to the Partnership and the other Partners for
all obligations theretofore incurred by it under this
Agreement, or which may arise upon or following such
Withdrawal, pledge, encumbrance or removal. Notwithstanding
anything herein to the contrary, any remaining Partner shall
have all other rights and remedies against such Withdrawing
Operating General Partner as provided by law.
C. Upon the Involuntary Withdrawal of an
Operating General Partner, its Interest shall automatically
convert to an Interest of a limited partner but it shall not
be entitled to participate in the management of the
Partnership's business or to participate in any allocation
of Profits or Losses or distributions payable to the Limited
Partner or the Special Limited Partner. Subject to the
provisions of Section 11.3B hereof, such limited partner or
its successors shall be entitled to share in the Profits and
Losses and distributions at the same times and in the same
manner as such Withdrawing Operating General Partner would
have otherwise received as an Operating General Partner
reduced by an amount reasonably necessary to compensate the
remaining General Partners or any successor general partner
for assuming the obligations of an Operating General Partner
who has committed the Involuntary Withdrawal .
11.2 Effect of Withdrawal; Election to Continue
Business. Upon the occurrence of an event giving rise to a
Withdrawal of an Operating General Partner (i) any remaining
Operating General Partner, if any, or, if there be no
remaining Operating General Partner, such Withdrawing
Operating General Partner or its legal representative shall
promptly notify the Limited Partner of such Withdrawal (the
"Withdrawal Notice"), (ii) the Special Limited Partner shall
have the right to become an Operating General Partner by
appointing itself or any of its Affiliates to succeed such
Withdrawing Operating General Partner, (iii) the Special
Limited Partner shall have the right to appoint another
Person to succeed such Withdrawing Operating General Partner
and serve as Operating General Partner, and (iv) the
Partnership shall be dissolved and terminated unless the
then remaining Operating General Partner or the Special
Limited Partner or the Limited Partner, pursuant to the
provisions of Section 11.3, elects to continue the business
of the Partnership. If the Limited Partner so elects,
Withdrawal of a General Partner shall not be deemed to be
effective until the expiration of 90 days from the day on
which the Withdrawal Notice has been mailed to the Limited
Partner. A Withdrawn Operating General Partner shall remain
liable for obligations incurred by it under this Agreement
through the effective date of its Withdrawal, even if such
Withdrawal shall be an Involuntary Withdrawal and whether in
compliance with or in violation of this Agreement.
11.3 Continuation of Partnership.
A. Upon the occurrence of an event giving rise
to the Withdrawal of an Operating General Partner, if there
is then no other Operating General Partner, or, if there is
then one or more other Operating General Partners, but the
remaining Operating General Partner or the Special Limited
Partner does not elect to continue the business of the
Partnership pursuant to Section 11.2 hereof, the Limited
Partner may elect within 90 days thereafter to continue the
Partnership on substantially identical terms to those of
this Agreement to carry on the business of the Partnership
and designate a successor general partner to serve in place
of such Withdrawing Operating General Partner with the
approval of each Authority and each Lender, if such approval
is required.
B. If the Limited Partner shall designate a
successor general partner and obtain all necessary approvals
therefor where the Withdrawal is Involuntary, the Limited
Partner at its option may require that the Interest of such
Withdrawing Operating General Partner be transferred to the
successor general partner upon its written assumption of the
obligations of such Withdrawing Operating General Partner
under this Agreement (except for any obligations of such
Withdrawing Operating General Partner under this Agreement
specifically excepted by the Special Limited Partner). In
such event, the successor general partner shall pay to such
Withdrawing Operating General Partner or its legal
representative as the purchase price for its Interest an
amount to be agreed upon between them. If a Withdrawing
Operating General Partner and the successor general partner
cannot agree upon the consideration for the transfer of such
Interest within 60 days after such Withdrawal, consideration
therefor shall be the fair market value of such Interest as
determined by a committee of three qualified real estate
appraisers, one selected by such Withdrawing Operating
General Partner, one selected by the Special Limited Partner
and a third selected by the other two real estate appraisers
(or, if the first two real estate appraisers cannot agree
upon the third real estate appraiser within 30 days such
third appraiser shall be selected by the American
Arbitration Association). The purchase of such Withdrawing
Operating General Partner's Interest under this Section 11
.3B shall take place within ten days after the purchase
price is determined (whether by agreement or appraisal), and
the closing shall take place at the office of the Special
Limited Partner. The purchase price for such Interest shall
be payable by a promissory note bearing interest at a rate
equal to the Prime Rate and payable solely out of Sale or
Refinancing Transaction Proceeds payable with respect to the
Interest being purchased, shall be secured by the Interest
being purchased and shall otherwise be without recourse to
the maker.
C. Unless any other General Partner shall
agree to continue the Partnership pursuant to Section 11.2
hereof, the Interest of such other General Partner other
than such Withdrawing Operating General Partner shall be
converted into and shall be deemed to be that of a limited
partner with the same Interest in the Partnership as such
General Partner had as a general partner prior to the
Withdrawal, reduced by an amount reasonably necessary to
compensate the successor general partner for assuming the
obligations of such other General Partners. Such Interest
shall be purchased by the successor general partner
concurrently with the purchase of such Withdrawing Operating
General Partner's Interest in accordance with and on the
same terms and conditions as set forth in Section 11.3B
hereof.
11.4 Special Removal Rights.
A. Notwithstanding any other provision of this
Agreement to the contrary, the following events shall be
considered a Major Default under the terms of this
Agreement:
(i) Any Operating General Partner (and,
if applicable, the withdrawing General Partner or NCMC)
shall:
(a) materially violate its
fiduciary responsibilities as a General Partner of the
Partnership;
(b) be in material breach of any
provision of this Agreement, the Investment Agreement, or
the Operating Deficit and Rental Achievement Agreement for
ten days after notice thereof has been given by the Special
Limited Partner; Provided. however, that if such breach is
of the type that cannot reasonably be cured within ten days,
the Special Limited Partner shall not have the right to
remove the Operating General Partner under this Section
11.4A(i)(b) with respect to such breach for a 30-day period
after such notice is given so long as such Operating General
Partner (and, if applicable, the Withdrawing General Partner
or NCMC) is diligently pursuing a cure of such breach at all
times during such 30-day period and accomplishes such cure
within such 30-day period; provided further. however, that
if such breach is of the type that cannot reasonably be
cured within 30 days, the Operating General Partner (and. if
applicable, the Withdrawing General Partner or NCMC) shall
have an additional 30 days (for a total of 60 days) so long
as the Operating General Partner, Withdrawing General
Partner or NCMC, as applicable, is diligently pursuing a
cure of such breach at all times during such additional 30-
day period, neither the Partnership, the Special Limited
Partner nor the Limited Partner is adversely affected in a
material way by such additional time to cure and the
Operating General Partner accomplishes such cure within such
additional 30-day period;
(c) willfully violate any law,
regulation or order applicable to the Partnership which has
or may have a material adverse effect on the Partnership or
the Apartment Complex; or
(d) become Bankrupt (except that
if one Person comprising the Operating General Partner
becomes Bankrupt, it shall not affect the rights of any
other Operating General Partner provided such other Persons
comprising the Operating General Partner are acceptable to
each Lender, to the extent such approvals are required and
such remaining Persons satisfy the requirements of Section
5.11 hereof); or
(ii) The Partnership shall:
(a) be in material breach of any
Project Document;
(b) at any time after Rental
Achievement, incur an Operating Deficit with respect to any
period of four consecutive months;
(c) be in any situation where the
annual amount of the Housing Tax Credits which the
Partnership is entitled to claim under Section 42 of the
Code is less than 80% the annual amount of Housing Tax
Credits set forth in Section 3.8 hereof.
Upon a Major Default, the Special
Limited Partner shall have the right, but not the
obligation, in its sole discretion and upon ten days' prior
notice to the Operating General Partner, in the case of the
occurrence of an event specified in this Section 11.4A
[subject to the provisions of subsection (i)(d)]. to remove
the Operating General Partner and to appoint itself or any
of its Affiliates or any other Person to succeed the
Operating General Partner as the Operating General Partner
in accordance with the provisions of Section 11.2 hereof .
B. The Operating General Partner agrees to
jointly and severally indemnify and hold the Limited Partner
and the Special Limited Partner harmless from and against
all losses, costs and expenses incurred in connection with a
Major Default pursuant to Section 11.4A(i) and the exercise
of the remedies provided above, including, without
limitation, all legal fees and other expenses of the Limited
Partner and Special Limited Partner in connection therewith.
C. The removal of an Operating General Partner
pursuant to Section 11 .4A hereof (other than pursuant to
Section 11 .4A(i)(d) hereof) shall be treated for purposes
of this Agreement as a Voluntary Withdrawal of such
Operating General Partner subject to the provisions of
Section 1 1.1 B.
D. If a Major Default occurs. and the Special
Limited Partner does not exercise its right to remove the
Operating General Partner, the Limited Partner, upon the
vote of a Majority in Interest of the limited partners of
the Limited Partner, shall cause the Special Limited Partner
to remove such Operating General Partner, upon ten days'
prior written notice to such Operating General Partner and
to appoint the Special Limited Partner or any of its
Affiliates to succeed such Operating General Partner as an
Operating General Partner of the Partnership in accordance
with the provisions of Section 11.2 hereof.
11.5 Additional Operating General Partner. At any
time, the Operating General Partner, with the Consent of the
Special Limited Partner (but the consent of the Limited
Partner shall not be necessary), and subject to any
applicable approvals of each Authority and each Lender, may
admit an additional operating general partner to the
Partnership with such share of the aggregate Operating
General Partner Interest as shall be agreed upon between the
Operating General Partner and the additional operating
general partner. Such consent shall not be required if an
Affiliate of the Operating General Partner is added as an
additional operating general partner. Such consent shall not
be unreasonably withheld or delayed if an Affiliate of the
Operating General Partner is substituted as the sole
Operating General Partner provided that the net worth of the
substituted Operating General Partner is not less than the
net worth of the Operating General Partner as of the date
the Limited Partner is admitted into the Partnership. Any
additional operating general partner, as a condition of
receiving any Interest, shall agree to be bound by the terms
of this Agreement, the Investment Agreement, the Project
Documents and any other document required in connection
therewith to the same extent and on the same terms as the
Operating General Partner.
11.6 Amendment of Schedule and Agreement. Upon the
admission of a successor or additional operating general
partner or the Withdrawal of the Operating General Partner,
Schedule A attached hereto shall be amended to reflect such
admission or Withdrawal and such amendment and/or
Certificate of Amendment shall be filed as required by the
Uniform Act. The Special Limited Partner may exercise the
power of attorney granted in Section 14.2 hereof to effect
the provisions of this Section 11.6.
11.7 Survival of Liabilities. It is expressly
understood that no Withdrawal, Assignment, pledge or
encumbrance of the Operating General Partner's Interest,
even if it results in the substitution of the Assignee as a
Partner, shall release Such Withdrawing Operating General
Partner(s) from any liability to the Partnership all of
which shall survive such Withdrawal, Assignment, pledge or
encumbrance.
ARTICLE 12
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
12.1 Events Which Cause a Dissolution. The
Partnership shall continue in full force and effect until
December 31, 2010, except that the Partnership shall be
dissolved prior thereto upon the happening of any of the
following events:
A. An election to dissolve the Partnership
made in writing by the General Partners;
B. The Withdrawal of an Operating General
Partner, if the Partnership is not continued in accordance
with Sections 11.2 or 11.3 hereof;
C. Any event which shall make it unlawful for
the existence of the Partnership to be continued;
D. The sale or other disposition of all or
substantially all of the assets of the Partnership; or
E. Upon the vote of a Majority in Interest of
the limited partners of the Limited Partner.
12.2 Actions of Liquidating Agent Upon Dissolution.
Upon the dissolution of the Partnership, the Partnership
shall be liquidated in accordance with this Article 12 and
the Uniform Act. The liquidation shall be conducted and
supervised by the Operating General Partner or, if there is
no remaining Operating General Partner, by the Special
Limited Partner (the Operating General Partner or Special
Limited Partner, as the case may be, being hereinafter
referred to as the "Liquidating Agent"). The Liquidating
Agent shall have all of the rights in connection with the
liquidation and termination of the Partnership that a
general partner would have with respect to the assets and
liabilities of the Partnership during the term of the
Partnership, and the Liquidating Agent is hereby expressly
authorized and empowered to effectuate the liquidation and
termination of the Partnership and the transfer of any
assets and liabilities of the Partnership. The Liquidating
Agent shall have the right from time to time, by revocable
powers of attorney, to delegate to one or more persons any
or all of such rights and powers and the authority and power
to execute documents in connection therewith. and to fix the
reasonable compensation of each such person, which
compensation shall be charged as an expense of liquidation.
The Liquidating Agent is also expressly authorized to
distribute the Partnership's property to the Partners
subject to liens.
12.3 Statements on Termination. Each Partner shall be
furnished with a statement prepared by the Liquidating Agent
which shall set forth the assets and liabilities of the
Partnership as of the date of complete liquidation, and each
Partner's share thereof. Upon compliance with the
distribution plan set forth in Section 12.4 hereof, the
Limited Partner and the Special Limited Partner shall each
cease to be a partner of the Partnership, and the
Liquidating Agent shall execute, acknowledge and cause to be
filed a certificate of termination of the Partnership and
any other certificates regarding the dissolution and
termination of the Partnership as required by the Uniform
Act.
12.4 Priority on Liquidation; Distribution of Non-
Liquid Assets.
A. The Liquidating Agent shall, to the extent
feasible, liquidate the assets of the Partnership as
promptly as shall be practicable. To the extent the proceeds
are sufficient therefor, as the Liquidating Agent shall deem
appropriate, the proceeds of such liquidation shall be
applied in accordance with the provisions of Sections
9.2B(i) through (viii) hereof, and the balance of the assets
of the Partnership shall be distributed by the Liquidating
Agent, subject to Section 1 2.4C in compliance with Section
1.704-1(b)(2)(ii)(b)(2) of the Regulations, to the Partners
with positive balances in their Capital Accounts, in
accordance with the ratio of such positive Capital Account
balances, after giving effect to all contributions,
distributions, allocations and adjustments required
hereunder, for all periods, in the order of priority
established pursuant to Section 9.1 H hereof. Any
distribution described in the preceding sentence to be made
to the General Partners which will cause the General
Partners to have a contribution requirement described in the
second paragraph of Section 1 2.4B (or will increase such
contribution requirement) shall not be made and shall
instead be deemed to have first been distributed to the
General Partners and then contributed by the General
Partners to the Partnership. Thereafter, such amount shall
be distributed in the manner described in this Section 12.4A
as if it constituted additional assets of the Partnership.
B. Upon the dissolution of the Partnership
pursuant to this Article 12, if the positive Capital Account
balance, if any, of the Operating General Partner (computed
after making all allocations pursuant to Section 9.1 and
before making any distributions pursuant to Section 9.2B and
this Section 12.4) exceeds the net amount distributable to
the Operating General Partner pursuant to Section 9.2B
(taking into account any contributions which may be required
to be made by the Operating General Partner pursuant to the
following paragraph of this Section 1 2.4B), then the
Partnership shall make a guaranteed payment, pursuant to
Code Section 707(c), to the Limited Partner in the amount of
such excess for the use of the Limited Partner's capital.
In the event the Partnership is
"liquidated" within the meaning of Section 1.704-1
(b)(2)(ii)(g) of the Regulations, if the General Partners'
Capital Accounts have a deficit balance in the aggregate
(after giving effect to all contributions. distributions and
allocations for all taxable years including the year during
which such liquidation occurs), the General Partners shall
contribute to the capital of the Partnership an amount equal
to the lesser of (I) the amount necessary to restore such
deficit balance to zero, or (ii) an amount equal to the
excess of (a) 1.01% of the Capital Contributions of the
Limited Partner over (b) the Capital Contributions
previously made by the General Partners. in compliance with
Section 1.704- 1 (b)(2)(ii)(b)(3) of the Regulations. Any
amount required to be contributed by the General Partners
pursuant to the preceding sentence shall be contributed by
the General Partners in proportion to their respective
deficit Capital Account balances, if any. If the Limited
Partner has a deficit balance in his Capital Account (after
giving effect to all contributions, distributions (other
than the distribution described in the last sentence of
Section 1 2.4A) and allocations for all taxable years,
including the year during which such liquidation occurs),
such Limited Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect
to such deficit. and such deficit shall not be considered a
debt owed to the Partnership or to any other Person for any
purpose whatsoever.
C. If the Liquidating Agent, shall
determine, in its sole discretion, that it is not feasible
to liquidate all or part of the assets of the Partnership or
that an immediate sale of all or part of such assets would
cause an undue loss to the Partners, the Liquidating Agent
may distribute those assets in kind to the Partners or to a
liquidation trust or similar vehicle for the purpose of the
orderly liquidation of such assets at the earliest possible
time for the benefit of, and in the best interests of the
Partners.
Any distribution of assets in kind shall be distributed on
the basis of the fair market value thereof (which shall be
determined by independent appraisal) and any Partner
entitled to any interest in such assets shall receive such
interest therein as a tenant-in-common with all other
Partners so entitled. If the Liquidating Agent, in its sole
discretion. deems it not feasible to distribute to each
Partner an aliquot share of each asset, the Liquidating
Agent may allocate and distribute specific assets to one or
more Partners as tenants-in-common as the Liquidating Agent
shall determine to be fair and equitable, taking into
consideration, inter alia, the basis for tax purposes of
each asset distributed and the effect of crediting or
charging the Capital Accounts for any unrealized
appreciation or unrealized depreciation.
12.5 Orderly Liquidation. A reasonable time shall be
allowed for the orderly liquidation of the assets of the
Partnership and the discharge of liabilities so as to
minimize the losses normally attendant upon a liquidation.
12.6 No Goodwill Value. At no time during
continuation of the Partnership shall any value ever be
placed on the Partnership name, or the right to its use, or
to the goodwill appertaining to the Partnership or its
business, either as among the Partners or for the purpose of
determining the value of any Interest, nor shall the legal
representatives of any Partner have any right to claim any
such value. In the event of a termination and dissolution of
the Partnership as provided in this Agreement, neither the
Partnership name, nor the right to its use, nor the same
goodwill, if any, shall be considered as an asset of the
Partnership, and no valuation shall be put thereon for the
purpose of liquidation or distribution, or for any other
purpose whatsoever; nor shall any value ever be placed
thereon as between the remaining or surviving Partners and
the legal representatives of the estate of any deceased,
insane, incompetent, dissolved, liquidated or Bankrupt
Partner.
ARTICLE 13
FOREIGN PARTNERS
13.1 Certification of Non-Foreign Status.
A. Each Partner shall upon acquiring an
Interest certify that he is not a Foreign Person on forms to
be provided by the Operating General Partner at the time of
admission. At any time that an Interest is transferred or
assigned. the transferee shall certify to non-foreign status
prior to the transfer or assignment of such Interest. Such
certifications shall be made on a form to be provided by the
Operating General Partner.
B. Each Partner shall notify the Operating
General Partner if he becomes a Foreign Person within 30
days of such change.
C. Prior to a disposition of a United States
Real Property Interest or a distribution attributable to a
disposition of a United States Real Property Interest or any
other distribution by the Partnership, each Partner may be
required to certify to non-foreign status.
13.2 Withholding of Certain Amounts Attributable to
Interests of Foreign Partners.
A. In the event that either (i) the
Partnership's actual or deemed amount realized upon
disposition of any United States Real Property Interest is
attributed to a Foreign Partner or (ii) the Partnership
makes a distribution to any Foreign Partner:
(i) Any tax required to be withheld
under Sections 1445 or 1446 of the Code shall be charged to
that Foreign Partner's Capital Account as if the amount of
such tax had been distributed to such Partner;
(ii) The Operating General Partner
shall have the right to make a loan to the Partnership in an
amount equal to the amount of tax required to be withheld
pursuant to Sections 1445 or 1446 of the Code to the extent
that cash is needed to make the required withholding payment
attributable to that Foreign Partner; and
(iii) The Operating General Partner
may retain appropriate portions of a Foreign Partner's
distributions until any withholding obligations relating to
that Foreign Partner are satisfied and may apply such
distributions to repay any loan made pursuant to Section 13
. 2A(ii ) hereof .
B. For purposes of this Section 13.2, any
Partner who fails to provide a certification of a non-
foreign status within five days after a request to do so by
the Operating General Partner shall be treated as a Foreign
Person.
ARTICLE 14
MISCELLANEOUS
14.1 Law Governing. This Agreement shall be governed
by and construed in accordance with the laws of the State
applicable to contracts made and to be performed entirely
therein.
14.2 Durable Power of Attorney. Each Partner hereby
irrevocably constitutes and appoints the Special Limited
Partner and the President. Vice President and Secretary of
the Special Limited Partner, his true and lawful attorney-in-
fact and agent with full power and authority to act in his
name, place and stead to execute, acknowledge, swear to,
deliver, file, record and publish any document requisite to
carrying out the intention and purposes set forth below,
including, but not limited to, the execution,
acknowledgment, swearing to, delivery, filing, recording and
publication of amendments to the Original Certificate, which
such persons reasonably deem necessary or appropriate:
A. To qualify or continue (except in the
event of a dissolution of the Partnership pursuant to
Article 12 hereof) the Partnership as a limited partnership;
and
B. To accomplish the purposes and carry out
the powers of the Partnership as set forth in the second
sentence of Section 5.2B hereof.
Notwithstanding the foregoing, no action shall be taken
pursuant to the power of attorney without ten day's prior
notice to the Operating General Partner (except that no
notice shall be required if the Partnership would suffer
irreparable harm unless such action is taken immediately).
The power of attorney hereby granted is a special power of
attorney coupled with an interest and shall survive the
subsequent death, incompetency, disability, incapacity,
dissolution, Bankruptcy or termination of any Partner. No
Person shall take any action as an attorney-in-fact of any
Partner which is not expressly authorized by the terms of
this Agreement or which would in any way increase the
liability of any Partner beyond the liability expressly set
forth in this Agreement or which would otherwise materially
adversely affect any Partner.
14.3 Counterparts. This Agreement may be signed in
any number of counterparts, each of which shall be an
original for all purposes, but all of which taken together
shall constitute only one agreement. The production of any
executed counterpart of this Agreement shall be sufficient
for all purposes without producing or accounting for any
other counterpart thereof.
14.4 Separability of Provisions. Each provision of
this Agreement shall be considered separate and if for any
reason any provision or provisions herein (i) are determined
to be invalid or contrary to any existing or future law,
such invalidity shall not impair the operation of or affect
those portions of this Agreement which are valid or (ii)
would cause the Limited Partner to be liable for the
obligations of the Partnership (other than under the rules,
directives and regulations of any Authority) under the laws
of the State as the same may now or hereafter exist, such
provision or provisions shall be deemed void and of no
effect.
14.5 Address and Notice. All notices, demands,
solicitations of consent or approval, and other
communications hereunder required or permitted shall be in
writing and shall be deemed to have been given (i) when
personally delivered or telecopied, (ii) one business day
after the date when deposited with an overnight courier or
(iii) five days after the date when deposited in the United
States mail and sent postage prepaid by registered or
certified mail, return receipt requested, addressed as
follows:
A. If to the Partnership or the Operating
General Partner, to the intended recipient at:
50 California Street, Suite 3300
San Francisco, California 94111
Tel: (415) 693-3910
Fax: (415) 989-1204
With a copy to:
John Shaw
Resource Holdings, Inc.
520 Madison Avenue
40th Floor
New York, New York 10022
Tel: (212) 980-3883
Fax: (212) 935-3851
B. If to the Limited Partner and/or the
Special Limited Partner, to the intended recipient at:
9090 Wilshire Boulevard, Suite 201
Beverly Hills, California 90211
Attention: President (NCTC)
Tel: (310) 278-2191
Fax: (310) 278-6835
With copies to:
Resch Polster Alpert & Berger
10390 Santa Monica Boulevard, Fourth Floor
Los Angeles, California 90025-5058
Attention: Real Estate Department
Tel: (310) 277-8300
Fax: (310) 552-3209
14.6 Computation of Time. In computing any period of
time pursuant to this Agreement, the day of the act, event
or default from which the designated period of time begins
to run shall not be included.
14.7 Titles and Captions. All article and section
titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the text of
this Agreement.
14.8 Entire Agreement. This Agreement and the
Investment Agreement contain the entire understanding
between and among the parties and supersedes any prior
understandings and agreements between and among them
respecting the subject matter of this Agreement.
14.9 Agreement Binding. This Agreement shall be
binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives and
permitted successors and assigns of the parties hereto.
14.10 Parties in Interest. Nothing herein shall be
construed to be for the benefit of or enforceable by any
third party including, but not limited to, any creditor of
the Partnership.
14.11 Amendments; Other Actions.
A. This Agreement may not be amended except by
the Operating General Partner with the Consent of the
Special Limited Partner, or by the Limited Partner upon the
vote of a Majority in Interest of the limited partners of
the Limited Partner, and, in each case, the approval, if
required, of each Authority; provided, however, that all
Partners must give their consent in writing to any amendment
which would (i) extend the term of the Partnership as set
forth in Section 12.1 hereof, (ii) amend this Section 14.11,
(iii) increase or extend the liability or obligation of the
Limited Partner or the Special Limited Partner, (iv)
increase the amount of Capital Contributions payable by the
Limited Partner or the Special Limited Partner, (v)
accelerate the date of payment of any portion of the Limited
Partner Contribution, (vi) alter the distribution or
allocation to the Partners of any profits and losses and
distributions of the Partnership or (vii) alter the rights,
powers and duties of a General Partner without such General
Partner's consent.
B. Notwithstanding any other provision of this
Agreement, no action may be taken under this Agreement
unless such action is taken in compliance with the
provisions of the Uniform Act.
14.12 Survival of Representations, Warranties and
Agreements. All representations, warranties and agreements
shall survive until the dissolution and termination of the
Partnership, except to the extent that a representation,
warranty or agreement expressly provides otherwise.
14.13 Further Assurances. The Partners shall execute
and deliver such further instruments and do such further
acts and things as may be required to carry out the intent
and purposes of this Agreement.
14.14 Remedies Cumulative. No remedy conferred upon
or reserved to the Partnership or any Partner by this
Agreement is intended to be exclusive of any other remedy.
Each and every such remedy shall be cumulative and shall be
in addition to any other remedy given to the Partnership or
any Partner hereunder or now or hereafter existing at law or
in equity or by statute .
14.15 Attorneys' Fees. Subject to the indemnification
provisions of Section 5.8 hereof, in the event that any
court or arbitration proceeding is brought under or in
connection with this Agreement, the prevailing party in such
proceeding (whether at trial or on appeal) shall be entitled
to recover from the other party all costs, expenses, and
reasonable attorneys' fees incident to any such proceeding.
The term "prevailing party" as used herein shall mean the
party in whose favor the final judgment or award is entered
in any such judicial or arbitration proceeding.
14.16 Meetings. Meetings of the Partnership may be
called by the Operating General Partner, the Special Limited
Partner or by the Limited Partner for any matters for which
the Partners may vote as set forth in this Agreement or to
obtain information concerning the Partnership. A list of
names and addresses of all Partners shall be maintained as
part of the books and records of the Partnership and shall
be made available upon request to any Partner or its
representative at no cost. Upon receipt of a request from
any Person entitled to call a meeting stating the purposes
of the meeting, the Operating General Partner or the Special
Limited Partner shall provide the Partners, within ten days
after receipt of such request, notice of a meeting and the
purpose of such meeting to be held on a date not less than
15 nor more than 60 days after receipt of such request, at a
time and place within or without the State convenient to the
Partners. Included within the notice shall be a detailed
statement of the action proposed, including a verbatim
statement of the wording of any resolution proposed for
adoption by the Limited Partner and any proposed amendment
to this Agreement. Said notice shall provide for proxies or
written consents which specify a choice between approval and
disapproval of each matter to be acted upon at a meeting. A
Majority in Interest of Limited Partners entitled to vote,
represented in person or by proxy, shall constitute a quorum
at a meeting.
14.17 Enforceability. It is agreed that the rights
granted to the Special Limited Partner and the Limited
Partner hereunder are of a special and unique kind and
character and that, if there is a breach by the Operating
General Partner of any material provision of this Agreement,
the Special Limited Partner and the Limited Partner would
not have any adequate remedy at law. It is expressly agreed,
therefore, that the rights of the Special Limited Partner
and the Limited Partner hereunder shall be enforceable by a
decree of specific performance. Such remedy shall be
cumulative and not exclusive and shall be in addition to any
and all other remedies the Special Limited Partner and the
Limited Partner may have pursuant to this Agreement, at law,
or in equity. The parties agree that the substance of the
transaction contemplated hereby relates directly to real
estate, and, therefore, a lis pendens or similar notice may
be filed or recorded against the Apartment Complex in the
event of any such action for specific performance.
14.18 Indemnification. Each of the General Partners
agrees to jointly and severally indemnify and hold the
Partnership and the other Partners harmless from and against
all losses, costs and expenses incurred as a result of
actions or omissions relating to the Partnership and its
duties hereunder to the extent such actions or omissions
constitute gross negligence or willful misconduct,
including, without limitation, all legal fees and other
expenses of the Partnership and/or the other Partners in
connection therewith. If one or more of the representations
and warranties contained in this Agreement by the Operating
General Partner shall prove to be untrue in any respect, or
if the Operating General Partner shall default in its
performance of any agreement or covenant contained in
Section 5.9 hereof, the Operating General Partner shall
indemnify and hold harmless the Limited Partner and the
Special Limited Partner (and their general partners, limited
partners, directors, officers, shareholders, employees,
agents, affiliates, successors and assigns) and the
Partnership from and against any and all losses, claims,
damages, liabilities and expenses incurred by such persons
resulting from any such untruth or inaccuracy or from any
such failure of performance, including, without limitation,
all foreseeable and unforeseeable consequential damages. and
reasonable attorneys' and accountants' fees and costs, court
costs, and costs of appeal. Nothing herein shall impose any
liability on any other person, corporation, officer,
director, shareholder, agent or employee of the parties
providing such indemnification.
14.19 Liability of Investor's Partners.
A. No Person who is at any time a partner
(whether limited or general) of the Limited Partner shall
have any personal liability for the payment or performance
of any obligation of the Limited Partner arising under or in
connection with this Agreement, the Investment Agreement or
any document or instrument delivered pursuant to the terms
of the Investment Agreement (including, without limitation,
the Capital Note).
B. No Person who is at any time an officer,
director or shareholder of the Operating General Partner or
the Special Limited Partner shall have any personal
liability for the payment or performance of any obligation
of their respective corporate entities arising under or in
connection with this Agreement, the Investment Agreement or
any document or instrument delivered pursuant to the terms
of the Investment Agreement.
14.20 Brokers' Commission; Indemnity. Each of the
parties hereto warrants and represents to the other that it
has not been introduced to the other by any real estate or
business broker, nor has it been in contact with any broker
regarding the Apartment Complex; and each agrees to
indemnify and hold the other harmless from all suits,
claims, actions, losses or expenses (including reasonable
attorneys' fees) arising from the claim of any Person to a
brokerage or other fee or commission in connection with the
transactions contemplated hereunder as a result of contact
with or other action, alleged or actual, of the indemnifying
party.
IN WITNESS WHEREOF, this Agreement has been duly
executed as of the day and year first above written.
OPERATING GENERAL PARTNER: NCQ NORTH OAK, INC.,
a California corporation
By /s/ Herbert J. Jaffe
Its President
LIMITED PARTNER: NATIONAL CORPORATE TAX CREDIT FUND,
a California limited partnership
By National Partnership Investments Corp.,
a California corporation,
General Partner
By /s/ Shawn Horwitz
Its Executive Vice President
SPECIAL LIMITED PARTNER: NATIONAL CORPORATE TAX CREDIT, INC.,
a California corporation
By /s/ Shawn Horwitz
Its Executive Vice President
WITHDRAWING GENERAL PARTNER: NCQ REALTY, INC.,
a Delaware corporation
By /s/ Herbert J. Jaffe
Its President
SCHEDULE A TO THE
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF SIGNATURE MIDWEST, L.P.
Name and Address Capital Contribution
Operating General Partner:
NCQ North Oak, Inc., $ 100.00
50 California Street
Suite 3300
San Francisco, California 94111
Special Limited Partner:
National Corporate Tax Credit, Inc. $ 100.00
9090 Wilshire Boulevard, Suite 201
Beverly Hills, California 90211
Limited Partner:
National Corporate Tax Credit Fund $ 769,061.00
9090 Wilshire Boulevard, Suite 201
Beverly Hills, California 90211
OPERATING DEFICIT AND RENTAL ACHIEVEMENT AGREEMENT
THIS AGREEMENT is made as of November 23, 1994, among
Signature Midwest, L.P., a Missouri limited partnership (the
"Partnership"), National Capital Management Corp., a
Delaware corporation ("NCMC"), National Corporate Tax Credit
Fund, a California limited partnership ("Investor"), and
National Corporate Tax Credit, Inc., a California
corporation (the "Special Limited Partner").
NOW THEREFORE, in consideration of the mutual
promises of the parties hereto and of other good and
valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used herein have
the same meanings as set forth in the Investment Agreement,
dated as of January 1, 1993, by and between the Partnership,
Investor, the Special Limited Partner, NCQ Realty, Inc., a
Delaware corporation and an affiliate of NCMC ("NCQ"), and
certain other parties (the "Investment Agreement") and the
Second Amended and Restated Agreement of Limited Partnership
of the Partnership of even date herewith (the "Amended
Partnership Agreement"), each as amended, unless
specifically defined herein.
2. Operating Deficit Agreement.
2.1 NCMC hereby covenants that from the date
hereof until the funding of the Permanent Loan it will pay
all expenses of operating and maintaining the Apartment
Complex to the extent necessary to maintain Break-Even
Level, up to a maximum of $75,000. Any payments required
pursuant to this Paragraph 2.1 shall be deemed an advance to
the Operating General Partner and a subsequent capital
contribution to the Partnership by the Operating General
Partner.
2.2 NCMC hereby covenants to lend to the
Partnership, up to a maximum of $75,000 (exclusive of any
amounts advanced pursuant to Paragraph 2.1), any amounts
required to fund Operating Deficits incurred by the
Partnership during the three-year period commencing with the
date on which the Permanent Loan is funded. All loans made
by NCMC pursuant to this Paragraph 2.2 shall not bear
interest and shall be repayable by the Partnership in the
manner provided in Article 9 of the Amended Partnership
Agreement for Operating Loans .
2.3 Any advances required pursuant to
Paragraph 2.1 or loans required pursuant to Paragraph 2.2
shall be made and funded by NCMC when the operating
obligations of the Partnership giving rise to the Operating
Deficit are due or, if no due date is specified, by the
earlier of (a) the end of the calendar year in which
incurred, or (b) within 30 days after presentation of each
invoice to the Partnership) in fulfillment of the
obligations of NCMC to the Partnership, Investor, and the
Special Limited Partner. In the event payments due hereunder
are not paid by NCMC within ten days, the Partnership,
Investor and/or the Special Limited Partner (the "Advancing
Party"), has the right, without any obligation and without
releasing NCMC to advance any such amounts required to be
paid by NCMC. Such advances shall not be deemed a Voluntary
Loan, but rather a loan to NCMC and, in addition to all
other rights and remedies available to the Advancing Party,
NCMC shall reimburse the Advancing Party the full amount of
such funds advanced by it plus interest in such amount from
the date so advanced at the rate per annum which is the
lesser of (x) the rate equal to 2% over the Prime Rate, or
(y) the maximum rate permitted by the laws of the State. In
the event there is any Cash Flow and/or Sale or Refinancing
Transaction Proceeds which would otherwise be payable to NCQ
pursuant to Section 9.2A or Section 9.2B of the Amended
Partnership Agreement, the Partnership shall first apply
such funds to any unpaid amounts owed the Special Limited
Partner and/or Investor as the Advancing Party hereunder.
2.4 NCMC may cause NCQ or the Operating
General Partner to perform any of NCMC's obligations under
Paragraphs 2.1 or 2.2, which performance shall be deemed
satisfaction of NCMC's obligation, but only to the extent so
performed.
3. Rescission Rights.
3.1 NCMC covenants that more than 10% of all
qualified expenditures of the Apartment Complex were
incurred by December 31, 1992
3.2 At Investor's election, any and all fees
paid to NCQ and (including without limitation the
Development Fee and Operating Deficit Fee) shall be returned
to the Partnership and the transaction(s) contemplated by
the Investment Agreement shall be rescinded if NCMC is in
default under any of the terms of this Agreement and such
default is not cured within ten days after notice from the
Special Limited Partner or Investor.
3.3 If Rental Achievement shall not have
occurred by December 31, 1994, or any of the grounds for
rescission described in Paragraph 3.2 arises, NCMC shall
notify Investor and the Special Limited Partner within 30
days thereafter, which notice (the "Rescission Notice")
shall also automatically constitute an offer by NCMC to
return all fees previously paid to it (or NCQ), and an offer
by NCMC and the Partnership to rescind the transactions
contemplated by the Investment Agreement, to return the
Capital Contribution to Investor (together with interest
thereon at the Prime Rate) and to pay all expenses incurred
by Investor in connection with negotiating, entering into
and acting under the Investment Agreement. If they wish to
accept the foregoing offers (collectively, the "Offer"),
Investor and the Special Limited Partner must send written
acceptance of the Offer to NCMC within 60 days after such
notice, but prior to the occurrence of Rental Achievement,
in which event NCMC and the Partnership shall fulfill their
obligations under the Offer within ten days after acceptance
of the Offer. Furthermore, if NCMC fails to give the
Rescission Notice as required above, Investor and the
Special Limited Partner may, at their option, within 90
days, unilaterally give written notice of their election to
rescind, which shall be deemed acceptance of the Offer that
NCMC and the Partnership were required to make. Upon
acceptance of the Offer, Investor and the Special Limited
Partner shall have no further liability to the Partnership
or NCQ and upon the return of the Capital Contribution, the
Interests shall terminate and NCMC shall cause NCQ to
forthwith cause an amendment to the Amended Partnership
Agreement to be filed reflecting the withdrawal of Investor
and the Special Limited Partner.
3.4 Investor and the Special Limited Partner
hereby confirm that neither has any intention as of the date
of this Agreement to rescind the transactions contemplated
by the Investment Agreement; provided, however, such present
disinclination to effect a rescission shall not preclude
Investor and the Special Limited Partner from accepting the
Offer or unilaterally electing to rescind, all as set forth
in Paragraph 3.3.
4. Development Fee and Operating Default Fee.
As consideration for the covenant of NCMC to
advance funds to the Partnership under the circumstances
described in this Agreement, the Partnership shall pay NCMC
and NCQ, as their interests may appear, a Development Fee
and an Operating Fee of $768,061 payable (I) $576,295 upon
receipt by the Partnership of the portion of the Capital
Contribution described in Paragraph 2.1(a) of the Investment
Agreement and (ii) $191,766 upon receipt by the Partnership
of the portion of the Capital Contribution described in
Paragraph 2.1 (b) of the Investment Agreement.
5. Other Provisions Incorporated by Reference.
Paragraphs 8, 9, 10, 11, 12 and 14 of the
Investment Agreement are hereby incorporated by reference,
and shall be fully applicable to this Agreement as if set
forth herein in full, notwithstanding any subsequent
termination of the Investment Agreement.
EXECUTED by the duly authorized representatives of
the undersigned parties as of the date first set forth
above.
PARTNERSHIP: SIGNATURE MIDWEST, L.P.,
a Missouri limited partnership
By NCQ North Oak, Inc.,
a California corporation,
General Partner
By /s/Leslie A. Filler
Its Secretary
NCMC: NATIONAL CAPITAL MANAGEMENT CORPORATION,
a Delaware corporation
By /s/Herbert J. Jaffe
Its President
INVESTOR: NATIONAL CORPORATE TAX CREDIT FUND.
a California limited partnership
By National Partnership Investments Corp.
a California corporation.
General Partner
By /s/ Shawn Horwitz
Its Executive Vice President
SPECIAL LIMlTED PARTNER:NATIONAL CORPORATE TAX CREDIT,INC.
a California corporation
By /s/ Shawn Horwitz
Its Executive Vice President
SECURITY AGREEMENT
Upon the terms hereof, for value received, the
undersigned, NCQ North Oak, Inc., a California corporation
and its affiliates (collectively, "Debtor"), hereby grants
to National Corporate Tax Credit Fund, a California limited
partnership, and National Corporate Tax Credit Inc., a
California corporation (collectively, "Secured Party"), on
the terms and conditions hereinafter set forth, a security
interest in the collateral described below and in all
proceeds thereof (the "Collateral"):
A. 100% of Debtor's right, title and interest
in Signature Midwest, L.P., a Missouri limited partnership
(the "Partnership");
B. All dividends, distributions, salaries,
fees, loan proceeds, sale proceeds, insurance proceeds,
condemnation proceeds, and other proceeds from the
Partnerships; and
C. All of Debtor's rights to manage, direct,
or control the Partnerships.
1 . The Obligations Secured. The security interest
granted herein shall secure each and every one of the
following obligations (the "Obligations"):
1.1 Performance by Debtor of all of its
obligations under the Partnership's Second Amended and
Restated Agreement of Limited Partnership, dated of even
date herewith, by and between Debtor and Secured Party (the
"Second Amended Partnership Agreement");
1.2 Performance by Debtor of all of its
obligations pursuant to this Agreement; and
1.3 Court costs and reasonable attorneys' fees
incurred in any proceeding to enforce the collection of the
other items constituting the Obligations, after default.
2. Debtor's Covenants. Without limiting the scope of
the obligations of Debtor as the operating general partner
of the Partnership, Debtor covenants and agrees to do all of
the following:
2.1 To fully, faithfully, and timely perform,
or cause to be performed, all of the Obligations;
2.2 To deliver to Secured Party, from time to
time as Secured Party may reasonably request, such
information as may be necessary or proper to keep Secured
Party fully informed with respect to the status and
condition of the Collateral;
2.3 To give written notice to Secured Party of
any change of address of Debtor or either of the
Partnerships not less than ten days prior to such change;
2.4 To notify Secured Party promptly of any
claim, action, or proceeding affecting the Collateral, or
Secured Party's security interest in the Collateral, and, at
the request of Secured Party, to appear in and defend, at
Debtor's expense, any such action or proceeding;
2.5 To create no other security interest in
the Collateral or in any part thereof, nor otherwise
transfer or encumber all or any part of or an interest in
the Collateral or permit the Collateral to become subject to
any lien, attachment, execution, sequestration, or other
legal or equitable process;
2.6 To keep and perform all covenants,
conditions, and agreements to be kept and performed by
Debtor with respect to the Partnership Interests which
comprise the Collateral; and
2.7 To do all things reasonably necessary or
appropriate to enable Secured Party to exercise fully its
rights under this Agreement, and to execute, cause to be
acknowledged and deliver such additional documents, and take
such further actions and provide such additional
information, as may be reasonably necessary to effect the
purposes of this Agreement and to provide Secured Party with
such evidence of compliance with all of the terms hereof as
Secured Party may from time to time reasonably request.
3. Representations and Warranties. Debtor hereby
warrants and represents that:
3.1 Debtor is the owner of the Collateral,
clear of all claims, liens, and security interests, except
the security interest granted by this Agreement;
3.2 Debtor has the right, power, and authority
to enter into and carry out this Agreement; and
3.3 Debtor is not engaged in the business of
buying or selling property such as the Collateral.
4. Default and Remedies.
4.1 The term "default," as used herein, means
the occurrence of any of the following events:
4.1.1 The failure of Debtor to meet
its Obligations set forth in Section 1 of this Agreement
within any applicable cure period; or
4.1.2 The failure of Debtor punctually
and properly to perform any other of the Obligations or any
part thereof within 30 days after receipt of notice of
nonperformance; or
4.1.3 The insolvency of the
Partnership; or
4.1.4 The levy against the Collateral
or the Apartment Complex, or any part thereof, or any
execution, attachment, sequestration, or other writ; or
4.1.5 The adjudication of the
Partnership or the Operating General Partner, as a bankrupt,
or the granting to either relief as a debtor; or
4.1.6 The filing, by way of petition or
answer, of any petition or other pleading seeking
adjudication of the Partnership or the Operating General
Partner, as a bankrupt, or for other relief as a debtor, or
an adjustment of any of their debts, or any other relief
under any bankruptcy, reorganization, debtors' relief, or
insolvency laws now or hereafter existing.
4.2 Upon the occurrence of any event of
default, Secured Party, at its option, may:
4.2.1 Foreclose upon the Collateral,
by any available judicial procedure or in a private or other
nonjudicial proceeding, and succeed to all of Debtor's
right, title, and interest in and to the Collateral and all
amounts payable thereunder; and/or
4.2.2 Exercise any and all rights and
remedies which Secured Party may have hereunder, or under
the Uniform Commercial Code of the State in which the
Apartment Complex is located (the "Governing Jurisdiction"),
or any other applicable agreement or law, or some or all of
the foregoing, no such remedy being intended to be exclusive
of any other remedy; and/or
4.2.3 Exercise any other rights and
remedies which Secured Party may have as to any other
security for the Obligations hereunder; and/or
4.2.4 Exercise any and all other rights
and remedies which Secured Party may now or hereafter have
at law or in equity.
Notwithstanding the foregoing to the contrary, in the event
Secured Party is contesting in good faith any of the
defaults alleged by Debtor, then Debtor shall not exercise
any of the foregoing remedies until there has been a final
non-appealable judicial (including arbitration and
mediation) determination that such default or defaults have
occurred. The foregoing restriction on the exercise of
Debtors remedies shall not, however, affect the rights of
Debtor under the Amended Partnership Agreement or otherwise
existing at law, in equity or by statute .
4.3 Debtor covenants and agrees that it shall
take such action and shall execute such documents as may be
necessary or desirable to effectuate and evidence any
transfer of the Collateral pursuant to the terms of this
Agreement from Debtor to any transferee following Debtor's
default hereunder.
4.4 Should Debtor fail to make any advance or
to do or cause to be done any act required under the terms
of the Obligations, then Secured Party may, without
obligation so to do, following notice to Debtor, and without
releasing Debtor from any obligation hereunder:
4.4.1 Make any such payment or do
or perform any such act in such manner and to such extent as
Secured Party in its sole discretion may determine to be
necessary or proper to preserve the value of the Apartment
Complex and/or the Collateral, and/or to protect the
security afforded by this Agreement; or
4.4.2 Do or perform any act which
Debtor is obligated hereunder to do or perform or cause to
be done or performed; or
4.4.3 Pay, purchase, contest, or
compromise any encumbrance, charge or lien, which in the
judgment of Secured Party appears to affect the Collateral,
either of the Partnerships, or the Apartment Complex.
In exercising any such powers or performing any such acts
Secured Party is hereby authorized to enter upon the
Apartment Complex at any time for such purpose and to incur
any liability and expend whatever amounts in its absolute
discretion it may deem necessary therefor, including, but
not limited to, the cost of evidence of title and the
employment of counsel and the payment of counsel's
reasonable fees, and reimbursement by Debtor of all such
liability, costs, and expenditures is secured hereby.
5. No Waiver. The acceptance by Secured Party at any
time, and from time to time, of part performance of the
Obligations shall not be deemed to be a waiver of any
default then existing or of its right to demand full
performance. No waiver by Secured Party of any default shall
be deemed to be a waiver of any subsequent default nor shall
any waiver by Secured Party be deemed to be a continuing
waiver, and no waiver may be effectively asserted against
Secured Party unless contained in a writing signed by
Secured Party. No delay or omission by Secured Party in
exercising any right or power hereunder, or under any other
document evidencing one or more of the Obligations, shall
impair any such right or power or be construed as a waiver
thereof nor shall any single or partial exercise of any
right or power preclude other or future exercise thereof, or
the exercise of any other right or power of Secured Party
hereunder or under such other documents.
6. Successors and Assigns. Until full and final
performance hereunder and under all of the Obligations, this
Agreement shall be binding on Debtor, Debtor's successors
and assigns, and shall inure to the benefit of Secured
Party, its successors, and assigns. This provision is not
intended nor shall it operate to negate the transfer
restrictions contained in Section 2.5 hereof.
7. Governing Law. This Agreement shall be construed
according to the laws of the Governing Jurisdiction.
8. Attorneys' Fees. In the event that legal action is
taken by Secured Party or Debtor in connection with this
Security Agreement or any related document or matter, the
losing party in such legal action shall pay, in addition to
such other damages as such party may be required to pay,
reasonable attorneys' fees to the prevailing party.
9. Financing Statements. Upon execution hereof,
Debtor shall execute and deliver to Secured Party a
financing statement with regard to the Collateral. Secured
Party shall be entitled to file and/or record said financing
statement as appropriate and to take such other actions as
may be necessary or desirable to perfect its security
interest in the Collateral, or any part thereof.
10. Limitation of Liability. Any other provisions of
this Agreement to the contrary notwithstanding, the security
interest hereinabove described is assigned and transferred
to Secured Party by way of collateral security only, and,
accordingly, Secured Party by its acceptance hereof shall
not be deemed to have assumed or become liable for any of
the obligations or liabilities of Debtor in or to either of
the Partnerships, either provided for by the terms of the
Partnership Agreement, as now existing or hereafter amended
or modified, or arising by operation of law, or otherwise,
and Debtor hereby acknowledges that Debtor remains liable
thereunder to the same extent as though this assignment had
not been made.
11. Headings. The section headings herein are for
convenience of reference only, and shall not be used to
limit or aid in the construction hereof.
12. Time. Time is of the essence hereof.
Executed as of November 23, 1994.
DEBTOR: NCQ NORTH OAK, INC.
a California corporation
By /s/ Herbert J. Jaffe
Its President
SECURED PARTY: NATIONAL CORPORATE TAX CREDIT FUND,
a California limited partnership
By National Partnership Investments Corp.,
a California corporation,
General Partner
By /s/ Shawn Horwitz
Its Executive Vice President
NATIONAL CORPORATE TAX CREDIT, INC.,
a California corporation
By /s/ Shawn Horwitz
Its Executive Vice President
November 23 1994
National Corporate Tax Credit Fund
National Corporate Tax Credit, Inc.
9090 Wilshire Boulevard, Suite 201
Beverly Hills, California 90211
Re: Signature Midwest, L.P.,
a Missouri limited Partnership
Gentlemen:
Reference is made to that certain Investment
Agreement, entered into as of January 1, 1993 (the
"Investment Agreement"), by and between NCQ Realty, Inc., a
Delaware corporation (the "Withdrawing General Partner"),
National Corporate Tax Credit Fund, a California limited
partnership (the "Investor"), National Corporate Tax Credit,
Inc., a California corporation (the "Special Limited
Partner"), and other parties. Any capitalized word or phrase
not defined herein shall have the meaning ascribed to it in
the Investment Agreement and the Exhibits and Schedules
thereto. Notwithstanding anything contained in the
Investment Agreement to the contrary, it is hereby agreed
and understood:
1. The last sentence of Paragraph 2.2 of the
Investment Agreement is hereby modified to replace the
reference to "80%" with "50%".
2. The Investment Agreement shall terminate in all
respects as between the Withdrawing General Partner,
Investor, the Special Limited Partner and NCQ Realty, Inc.,
as an Existing Limited Partner upon the funding of the
Permanent Loan and the release to the Partnership of the
Escrow Deposit pursuant to the terms and conditions of the
Escrow Agreement).
3. At such time as National Capital Management
Corporation, a Delaware corporation ("NCMC"), executes and
delivers to Investor two duplicate originals of the
Operating Deficit and Rental Achievement Agreement, a copy
of which is attached hereto as Exhibit A, the Rental
Achievement Agreement and the Operating Deficit Agreement
shall terminate and be of no further force or effect.
Notwithstanding anything contained in the Investment
Agreement or the Amended Partnership Agreement to the
contrary, to the extent the amount of Housing Tax Credits
available to the Partnership is reduced due to a Final
Determination that the eligible basis of the Apartment
Complex as of December 31, 1994, is less than $1,708,600,
there shall be no reduction in the amount of the Capital
Contribution that is to be paid to the Partnership nor any
reallocation of Cash Flow or Sale or Refinancing Transaction
Proceeds pursuant to Section 3.8A of the Amended Partnership
Agreement.
Reference is made to the Security Agreement, dated as
of January 1, 1993, by and between NCQ Realty, Inc., as
debtor, and Investor and the Special Limited Partner,
jointly as secured parties, a copy of which is attached to
the Investment Agreement as Exhibit J (the "Security
Agreement"). It is hereby agreed that the property described
in paragraph B of the Security Agreement is only part of the
Collateral to the extent received by the debtor after the
occurrence of a default (as that term is therein defined).
Further, Sections 1.1 and 1.2 of the Security Agreement are
deleted in their entirety and replaced with the following
land Sections 1.3, 1.4 and 1.5 are renumbered accordingly):
1.1 Performance by National Capital Management
Corporation, a Delaware corporation ("NCMC"), of all of
its obligations under that certain Operating Deficit
and Rental Achievement Agreement, dated as of November
23, 1994, by and between the North Oak Partnership,
NCMC and Secured Party;
All references to the defined term "Principal"
contained in the Indemnity Agreement, also dated as of
January 1, 1993, by and between Investor, the Partnership
and the Withdrawing General Partner are hereby deleted.
Accordingly, the defined term "Indemnitees" shall only
include the Partnership and the Withdrawing General Partner.
Further, the limitation on the indemnification obligations
of the "Limited Partner" (as set forth in paragraph 4 of
said Indemnity Agreement) shall only apply to the extent
that the Withdrawing General Partner made false statements
or failed to disclose material information or failed to
provide information requested by Investor in a timely manner
after notice, or is otherwise responsible for any matter
with respect to which the indemnity (or right of
contribution described in paragraph 2 thereof) would have
related but for the provisions of said paragraph 4.
Please indicate your acceptance of the foregoing by
executing a copy of this letter where indicated below and
returning it to the undersigned.
Very truly yours,
NCQ Realty, Inc.,
a Delaware corporation
By /s/ Leslie A. Filler
Its Secretary
Agreed to and Accepted as of the date written above:
National Corporate Credit Fund,
a California limited partnership
By National Partnership Investments Corp.,
a California corporation
General Partner
By /s/ Shawn Horwitz
Its Executive Vice President
National Corporate Tax Credit, Inc.;
a California corporation
By /s/ Shawn Horwitz
Its Executive Vice President
NCQ North Oak, Inc.
a California corporation
By /s/ Leslie A. Filler
Its Secretary
National Capital Management Corporation,
a Delaware corporation
By /s/ Herbert J. Jaffe
Its President
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is entered into as of
December 30, 1993, by and between Signature Midwest, L.P., a
Missouri limited partnership (the "Partnership"), NCQ
Realty, Inc., a Delaware corporation (the "Operating General
Partner"), and National Corporate Tax Credit Fund, a
California limited partnership (the "Limited Partner").
For valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties
agree as follows:
1 . The Limited Partner agrees to indemnify and hold
harmless the Partnership, the Operating General Partner, and
the Principal (collectively, the "Indemnitees") from any
loss, cost, expense, liability, or damages (including, but
not limited to, reasonable attorneys' fees and court costs)
arising out of any claims made by any person under the
Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, or the securities laws and regulations
of any state or jurisdiction, arising out of or relating to
the offering of interests or the reporting or other
requirements of the Limited Partner.
2. In the event that the indemnity described in
Paragraph 1 or any portion thereof or the application
thereof shall to any extent be invalid or unenforceable, and
such invalidity or unenforceability is not due to any act or
failure to act of the Indemnitees, the parties agree that a
right of contribution shall exist on the part of the
Indemnitees to the extent of 90% of any and all loss, costs,
expense, liability, or damages for which the Indemnitees may
become liable. The parties hereby agree further that in such
event and upon the incurring by the Indemnitees of any such
loss, cost, expense, liability, or damages and the giving by
the Indemnitees of written notice thereof to the Limited
Partner, shall promptly pay to the Indemnitees an amount
equal to 95% of any such loss, cost expense, liability, or
damage incurred by the Indemnitees as aforesaid, plus
interest thereon until the date of payment at the rate
awarded by the court.
3. The Indemnitees shall promptly notify the Limited
Partner in writing in the event any one of them receives any
summons or any other written official or unofficial notice
or threat of litigation alleging that they (or any party
comprising the Indemnitees) may be liable for any matter
with respect to which the foregoing indemnities relate. In
the event litigation is instituted against the Indemnitees
with respect to the indemnified matter, the Limited Partner
shall have the right, within ten business days of having
received such notice, to select counsel which will represent
the Indemnitees in connection with such litigation, provided
that such counsel is reasonably acceptable to the
Indemnitees. In the event such counsel is not selected by
the Limited Partner pursuant to the preceding sentence, the
Indemnitees shall have the right to select their own counsel
whose reasonable fees and expenses shall be paid or
reimbursed as required hereinabove by the Limited Partner,
as its obligations may be pursuant to the foregoing
provisions of this Agreement. The Limited Partner may pursue
any litigation relating to any of the foregoing indemnified
matters to final determination by a court of competent
jurisdiction, and expressly reserves the right, at its sole
discretion, to appeal from any adverse judgment or order.
The Indemnitees shall have no right to settle without the
Limited Partner's express written approval. The Indemnitees
agree to cooperate with the Limited Partner and the Limited
Partner's counsel in connection with any such litigation. In
the event the Indemnitees breach any of the provisions of
this Paragraph, the obligations of the Limited Partner shall
automatically terminate.
4. Notwithstanding anything contained in this
Agreement to the contrary, the Limited Partner shall have no
obligations under Paragraph 1 nor shall the Indemnitees have
any right of contribution under Paragraph 2 to the extent
the particular loss, cost, expense, liability, or damages
(including, but not limited to, reasonable attorneys' fees
and court costs) arises out of or is the result of any claim
or allegation that any of the Indemnitees made false
statements or failed to disclose material information or
failed to provide information requested by the Limited
Partner in a timely manner after notice, or is otherwise
responsible for any matter with respect to which the
indemnity (or the right of contribution described in
Paragraph 2) would have related but for the provisions of
this Paragraph 4. Further, the Principal agrees to indemnify
the Limited Partner and the partners of the Limited Partner
from any loss, cost, expense, liability or damages
(including, but not limited to, reasonable attorneys fees)
arising out of and such false statements, false information
or non-disclosed information. Such indemnification shall be
handled in the manner as provided in Paragraph 3.
EXECUTED as of the date first set forth above.
PARTNERSHIP: SIGNATURE MIDWEST, L.P.,
a Missouri limited partnership
By NCQ Realty, Inc.,
a Delaware corporation,
Its General Partner
By /s/Herbert J. Jaffe
Its Vice President
OPERATING GENERAL PARTNER: NCQ REALTY, INC.,
a Delaware corporation
By /s/ Herbert J. Jaffe
Its Vice President
LIMITED PARTNER:NATIONAL CORPORATE TAX CREDIT FUND,
a California limited partnership
By National Partnership Investments Corp.,
a California corporation,
its General Partner
By /s/Bruce E. Nelson
Its President
NATIONAL CAPITAL MANAGEMENT CORPORATION
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY STATE OR COUNTRY OF
ORGANIZATION
NCQ Realty, Inc. Delaware
NCQ Redbird, Inc. Delaware
NCQ North Oak, Inc. Delaware
Georgia Properties, Inc. Georgia
Jensen Corporation Delaware
Alexemma Corp. Texas
National Capital Benefits Corporation Delaware
NCB Insurance Limited Bermuda
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS IN
FORM 10KSB FOR THE PERIOD ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 965,014
<SECURITIES> 0
<RECEIVABLES> 2,699,606
<ALLOWANCES> 25,000
<INVENTORY> 1,717,361
<CURRENT-ASSETS> 7,526,705
<PP&E> 12,040,916
<DEPRECIATION> 3,179,550
<TOTAL-ASSETS> 17,900,327
<CURRENT-LIABILITIES> 4,882,031
<BONDS> 0
<COMMON> 54,289
0
0
<OTHER-SE> 9,268,800
<TOTAL-LIABILITY-AND-EQUITY> 17,900,327
<SALES> 5,691,585
<TOTAL-REVENUES> 12,142,055
<CGS> 4,642,611
<TOTAL-COSTS> 11,626,951
<OTHER-EXPENSES> 1,446,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,101
<INCOME-PRETAX> (942,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> (942,041)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (942,041)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
