EXHIBIT A
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
FIFTH AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OWENS MORTGAGE INVESTMENT FUND, A CALIFORNIA LIMITED PARTNERSHIP
THIS FIFTH AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (the
"Agreement"), dated November 10, 2000, is made and entered into by and among
Owens Financial Group, Inc. as General Partner (the "General Partner"), and the
Limited Partners of Owens Mortgage Investment Fund, a California Limited
Partnership (hereinafter referred to collectively as the "Limited Partners").
RECITALS
A. Owens Mortgage Investment Fund, a California Limited Partnership
(the "Partnership") was formed on June 14, 1984, under the California Uniform
Limited Partnership Act, under the name "Owens Mortgage Investment Fund II".
Effective October 16, 1992, the Partnership changed its name to its current
name.
B. The Limited Partnership Agreement was amended and restated as of
October 16, 1992, December 14, 1998, February 16, 1999, and April 17, 2000 and
it is desired to again amend and restate the Agreement as hereinafter set forth.
The Partners therefore agree as follows:
I. FORMATION
1. California Revised Limited Partnership Act. The Partnership was
formed on June 14, 1984 and, until the February 16, 1999 amendment and
restatement (the 'Third Amendment and Restatement'), was governed by and
pursuant to the provisions of California Corporations Code, Title 2, Chapter 2,
known as the Uniform Limited Partnership Act (the "Act"). The General Partner,
pursuant to and by the Third Amendment and Restatement, elected under California
Corporations Code Section 15712(b)(1) to have the Partnership governed
thenceforth by California Corporations Code, Title 2, Chapter 3, the California
Revised Limited Partnership Act.
2. Name. The name of the Partnership is "Owens Mortgage Investment
Fund, a California Limited Partnership."
3. Place of Business. The principal place of business for the
Partnership is located at 2221 Olympic Blvd., Walnut Creek, CA 94595; provided,
however, that the General Partner may change the address of the principal office
by notice in writing to all Limited Partners. In addition, the Partnership may
maintain such other offices and places of business as the General Partner may
deem advisable at any other place or places within the United States.
4. Addresses for the General Partner and Limited Partners. The
principal place of business of the General Partner is 2221 Olympic Boulevard,
Walnut Creek, California 94595. The address for each of the Limited Partners is
that address shown on the books and records of the Partnership located at its
principal place of business. The Limited Partners may change such places of
residence by written notice to the Partnership, which notice shall become
effective upon receipt.
5. Term. The Partnership commenced on June 14, 1984. Unless earlier
dissolved under the provisions of this Agreement, the Partnership will dissolve
on December 31, 2034. The Partnership may be extended by the affirmative vote of
a Majority-In-Interest of the Limited Partners.
6. Purpose. The business and purposes of the Partnership are to make or
purchase first, second, third, wraparound, participating and construction
mortgage loans and mortgage loans on leasehold interests, and to do all things
reasonably related thereto, including, but not limited to, developing, managing
and either holding for investment or disposing of real property acquired through
foreclosure.
7. Agent for Service of Process; Tax Matters Partner. So long as the
General Partner maintains a principal place of business in California, the
General Partner is the Partnership's agent for service of process. If the
General Partner moves from California, the Limited Partners will designate a new
agent for service of process. The General Partner also is the "Tax Matters
Partner" as defined in Section 6231(a)(7) of the Internal Revenue Code of 1986,
as amended.
II. DEFINITIONS
The following terms shall have the following respective meanings:
"Acquisition and Origination Expenses" means expenses including but not
limited to legal fees and expenses, travel and communications expenses, costs of
appraisals, accounting fees and expenses, title insurance funded by the
Partnership, and miscellaneous expenses related to the origination, selection
and acquisition of mortgages, whether or not acquired. The General Partner or
its Affiliates shall not receive reimbursement of Acquisition and Origination
Expenses.
"Acquisition and Origination Fees" means the total of all fees and
commissions paid to the General Partner by any party in connection with making
or investing in Mortgage Loans. Included in the computation of such fees or
commissions shall be any selection fee, mortgage placement fee, nonrecurring
management fee, and any origination fee, loan fee, or points paid by borrowers
to the General Partner, or any fee of a similar nature, however designated.
"Administrator" means the agency or official administering the
securities law of a state in which Units are registered or qualified for offer
and sale.
"Affiliate" means: (i) any person directly or indirectly controlling,
controlled by, or under common control with another person; (ii) any person
owning or controlling ten percent (10%) or more of the outstanding voting
securities of such other person; (iii) any officer, director, or partner of such
person; and (iv) if such other person is an officer, director, or partner, any
company for which such person acts in such capacity.
"Capital Account" means the definition in Article III hereof.
"Capital Contribution" means the total investment and contribution to
the capital of the Partnership by a Partner in cash or by way of automatic
reinvestment of Partnership distributions and, in the case of the General
Partner, its Carried Interest as hereinafter defined.
"Capital Transaction" means the repayment of principal or prepayment of
a Mortgage Loan to the extent classified as a return of capital under the Code,
and the foreclosure, sale, exchange, condemnation, eminent domain taking or
other disposition of a Mortgage Loan or Real Property subject to a Mortgage
Loan, or the payment of insurance or a guarantee with respect to a Mortgage
Loan.
"Carried Interest" (previously called "Promotional Interest") means a
Partnership Interest held by the General Partner, which participates in all
allocations and distributions, equal to one half (1/2) of one percent (1%) of
the aggregate Capital Accounts of the Limited Partners, said Carried Interest
being an expense of the Partnership, subject to the limitation set forth in
Article IX. 1. (c) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or corresponding provisions of subsequent revenue laws.
"Controlling Person" means any Person, whatever their title, who
performs functions for the General Partner similar to those of (i) chairman or
member of the board of directors; (ii) executive or senior management, such as
the president, vice-president, or chief financial officer; or (iii) those
holding 5% or more equity interest in the General Partner or a Person having the
power to direct or cause the direction of the General Partner, whether through
the ownership of voting securities, by contract, or otherwise.
"Front-End Fees" means fees and expenses paid by any party to acquire
assets for the Partnership, including Organization and Offering Expenses,
Acquisition and Origination Expenses, Acquisition and Origination Fees, interest
on deferred fees and expenses, and any other similar fees, however designated by
the General Partner.
"Independent Expert" means a Person with no material current or prior
business or personal relationship with the General Partner who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership, and who is qualified to perform such
work.
"Investment in Mortgage Loans" means the amount of Capital
Contributions used to make or invest in Mortgage Loans or the amount actually
paid or allocated to the purchase of mortgages, working capital reserves
allocable thereto (except that working capital reserves in excess of 3.0% shall
not be included), and other cash payments such as interest and taxes but
excluding Front-End Fees.
"Late Payment Charges" means additional charges paid by borrowers on
delinquent loans and loans past maturity held by the Partnership, including
additional interest and late payment fees.
"Majority-In-Interest" means Limited Partners holding a majority of the
outstanding Units (excluding any Units held by the General Partner).
"Management Fee" means a fee paid to the General Partner or other
Persons for management and administration of the Partnership.
"Mortgage Loans" means investments of the Partnership that are notes,
debentures, bonds, and other evidence of indebtedness or obligations which are
negotiable or nonnegotiable and which are secured or collateralized by mortgages
or deeds of trust.
"NASAA Guidelines" means the Mortgage Program Guidelines of the North
American Securities Administrators Association, Inc. adopted on September 10,
1996.
"Net Income Available for Distribution" means Profits and Losses, as
defined below, reduced by amounts set aside for restoration or creation of
reserves and increased by amounts provided by the reduction or elimination of
reserves at the discretion of the General Partner.
"Net Proceeds" means the net cash proceeds from any Capital
Transaction.
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles, except that if any of
such assets have been depreciated, then the amount of the depreciation relative
to any particular asset may be added to the depreciated cost of such asset to
compute total assets, provided that the amount of depreciation may be added only
to the extent that the amount resulting after adding such depreciation does not
exceed the fair market value of such asset.
"Organization and Offering Expenses" means those expenses incurred in
connection with and in preparing for registration and subsequently offering and
distributing Units to the public, including sales commissions, if any, paid to
broker-dealers in connection with the distribution of Units and any advertising
expenses.
"Partners" means the holders of Partnership interests, including the
General Partner and the Limited Partners.
"Partnership Interest" means a limited partnership unit or other
indicium of ownership in the Partnership.
"Person" means any natural person, partnership, corporation,
association, or other legal entity.
"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 Code Section 703(a) (for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss).
"Program" means a limited or general partnership, limited liability
company, limited liability partnership, trust, joint venture, unincorporated
association or similar organization other than a corporation formed and operated
for the primary purpose of investment in mortgage loans.
"Property Management Fee" means any fee paid for day-to-day
professional property management services.
"Prospectus" shall mean the prospectus that forms a part of the
effective registration statement under the Securities Act of 1933, as amended,
including any preliminary prospectus.
"Real property" means and includes land and any buildings, structures,
improvements, fixtures, and equipment located on or used in connection with
land, but does not include, deeds of trust, mortgages, mortgage loans or
interests therein.
"Regulations" means, except where the context indicates otherwise, the
permanent, temporary, proposed, or proposed and temporary regulations of the
United States Department of the Treasury under the Code, as such regulations may
be lawfully changed from time to time.
"Reinvested Distributions" means Units purchased under the
Partnership's Reinvested Distribution Plan that is described in Article III. 3.
of this Agreement.
"Roll-Up" means a transaction involving the acquisition, merger,
conversion, or consolidation, either directly or indirectly of the Partnership
and the issuance of securities of a Roll-Up Entity. Such term does not include a
transaction involving the conversion of corporate, trust, limited liability
company, or association form of only the Partnership if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following: (a) Partners' voting rights; (b) the term of existence of the
Partnership; (c) General Partner compensation; (d) the Partnership's investment
objectives.
"Roll-Up Entity" means a partnership, real estate investment trust,
corporation, trust, limited liability company or other entity that would be
created or would survive after the successful completion of a proposed Roll-Up
transaction.
"Sponsor" means the General Partner or any Person directly or
indirectly instrumental in organizing, wholly or in part, a Program or any
Person who will manage or participate in the management of a Program, any
Afflilate of any such Person, but does not include a Person whose only relation
with the Program is as that of an independent property manager, whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only compensation
is for professional services rendered in connection with the offering of Program
Interests.
"Unit" means an interest in the Partnership and represents a
contribution either in cash or through reinvestment of distributions of One
Dollar ($1.00) to the capital of the Partnership by a Limited Partner, and
entitles the holder thereof to the rights and interests of Limited Partners as
herein provided.
III. PARTNERSHIP INTEREST AND CAPITAL
1. Capital Contributions of Partners. The capital of the Partnership
shall be contributed by the Limited Partners and the General Partner. The
Limited Partners shall contribute to the capital of the Partnership cash or
reinvested distributions in the amount of One Dollar ($1.00) for each Unit
subscribed. The General Partner shall contribute to the capital of the
Partnership cash in an amount equal to one-half of one percent (1/2 of 1%) of
the aggregate of the Capital Accounts of the Limited Partners. The General
Partner shall also receive the Carried Interest in the capital of the
Partnership.
2. Sale of Units. In the General Partner's sole discretion, Units up to
an aggregate outstanding amount of $500,000,000 may be offered and sold by the
Partnership. Purchasers of such Units shall become Limited Partners immediately
on acceptance of subscriptions by the General Partner. Subscriptions shall be
accepted or rejected by the Partnership within 30 days of their receipt by the
General Partner; if rejected, all funds will be returned to the subscriber
within 10 business days.
3. Limited Partners' Reinvested Distributions: A Limited Partner may
elect to participate in the Partnership's Reinvested Distributions Plan (the
"Plan") at the time of his purchase of Units, by making such election in the
form of the Subscription Agreement for Units executed by each Limited Partner.
Participation in the Plan will commence as of the date of acceptance by the
Partnership of the Limited Partner's Subscription Agreement. Subsequently, a
Limited Partner may revoke any previous election or make a new election to
participate in the Plan by sending written notice to the Partnership. Such
notice shall be effective for the month in which the notice is received, if
received at least ten (10) days prior to the end of the calendar month;
otherwise the notice is effective the following month.
Distributions to which a Limited Partner participating in the Plan is
entitled shall be used to purchase additional Units at $1.00 per Unit. Units so
purchased under the Plan are credited to the Limited Partner's Capital Account
as of the first day of the month following the month in which the Reinvested
Distribution is made. If a Limited Partner revokes a previous election to
participate in the Plan, distributions made by the Partnership subsequent to the
month in which the revocation notice is received by the Partnership shall be
made in cash to the Limited Partner instead of being reinvested in Units.
The General Partner will mail to each Limited Partner who is a
participant in the Plan a statement of account describing the Reinvested
Distributions received, the number of Units purchased thereby, the purchase
price per Unit, and the total number of Units held by the Limited Partner,
within thirty (30) days after the Reinvested Distributions have been credited.
The General Partner will also mail an updated Prospectus to each Limited Partner
each time a new Prospectus is filed, which fully describes the Plan, including
the minimum investment amount, the type or source of proceeds which may be
reinvested and the tax consequences of the reinvestment to the Limited Partners.
Each Limited Partner who is a participant in the Plan must continue to
meet the investor suitability standards described in the Subscription Agreement
and Prospectus for participation in each reinvestment. It is the responsibility
of each Limited Partner to notify the General Partner promptly if he or she no
longer meets the suitability standards.
The terms and conditions of the Plan may be amended, supplemented, or
terminated for any reason by the Partnership at any time by mailing notice
thereof at least thirty (30) days prior to the effective date of such action to
each Limited Partner who is a participant in the Plan at his last address of
record.
The General Partner, in its sole discretion, may suspend or terminate
the Plan if:
(a) it determines that the Plan impairs the capital or the
operations of the Partnership or that an emergency makes continuance of the Plan
not reasonably practicable;
(b) any governmental or regulatory agency with jurisdiction
over the Partnership so demands for the protection of Limited Partners;
(c) in the opinion of counsel for the Partnership, such Plan
is not permitted by federal or state law; or repurchase, sales, assignments,
transfers and the exchange of Units in the Partnership within the previous
twelve (12) consecutive months would result in the Partnership being considered
terminated within the meaning of Section 708 of the Code; or
(d) it determines that allowing any further Reinvested
Distributions would give rise to a material risk that the Partnership would be
treated for any taxable year as a "publicly traded partnership," within the
meaning of Code Section 7704.
4. Nonassessability of Units. The Units are nonassessable. Once a Unit
has been paid for in full, the holder of the Unit has no obligation to make
additional Capital Contributions to the Partnership.
5. Capital Accounts. The Partnership shall maintain a Capital Account
for each Partner. Initially, the Capital Account of each Partner shall be the
amount equal to the initial Capital Contribution made by such Partner in
exchange for his or her interest in the Partnership. Thereafter, each Partner's
Capital Account shall be maintained in accordance with the provisions of Section
1.704-1(b)(2)(iv) of the Regulations and will be determined as follows:
(a) To each Partner's Capital Account there shall be credited
the amount of cash contributed by such Partner to the Partnership, and such
Partner's distributive share of Partnership profits.
(b) To each Partner's Capital Account there shall be debited
the amount of cash distributed to such Partner pursuant to any provision of this
Agreement and such Partner's distributive share of Partnership losses.
In the event any 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.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
reasonably determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto, are computed in order to
comply with such Regulations, the General Partner may make such modification,
provided that it is not likely to have a material effect on the amounts
distributable to any Partner pursuant to Article XIII hereof upon the
dissolution of the Partnership. The General Partner also shall (a) make any
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, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(q), and (b) make any appropriate
modifications in the event unanticipated events (for example, the acquisition by
the Partnership of oil or gas properties) might otherwise cause this Partnership
not to comply with Regulation Section 1.704-1(b).
Neither a Limited Partner nor a General Partner is entitled to withdraw
any part of his or its Capital Account or to receive any distributions from the
Partnership except as specifically provided in this Agreement. No interest shall
be paid on any Capital Contribution.
6. No Liability of Limited Partners. A Limited Partner shall not be or
become liable for the obligations of the Partnership in an amount in excess of
his Capital Account.
IV. MANAGEMENT
1. Control in General Partner. Subject to the limitations of Article
IV.5 of this Agreement., and except as otherwise expressly stated elsewhere in
this Agreement, the General Partner has exclusive control over the business of
the Partnership, including the power to assign duties, to determine how to
invest the Partnership's assets, to sign bills of sale, title documents, leases,
notes, security agreements, Mortgage Loans and contracts, and to assume
direction of the business operations. As manager of the Partnership and its
business, the General Partner has all duties generally associated with such
position, including, but not limited to, dealing with Limited Partners, being
responsible for all accounting, tax and legal matters, performing internal
reviews of the Partnership's investments and loans, determining how and when to
invest the Partnership's capital, and determining the course of action to take
with respect to Partnership loans that are in default; and has all the powers
with respect and ancillary thereto. Without limiting the generality of the
foregoing, such powers include the right:
(a) To evaluate potential Partnership investments and to
expend the capital of the Partnership in furtherance of the Partnership's
business;
(b) To acquire, hold, lease, sell, trade, exchange, or
otherwise dispose of all or any portion of Partnership property or any interest
therein at such price and upon such terms and conditions as the General Partner
may deem proper;
(c) To cause the Partnership to become a joint venturer,
partner or member of an entity formed to own, develop, operate and/or dispose of
properties owned or co-owned by the Partnership acquired through or resulting
from foreclosure of a Mortgage Loan;
(d) To manage, operate and develop Partnership property, or to
employ and supervise a property manager who may, or may not, be an Affiliate of
the General Partner;
(e) To borrow money from banks and other lending institutions
for any Partnership purpose, and as security therefor, to encumber Partnership
property;
(f) To repay in whole or in part, refinance, increase, modify,
or extend, any obligation, affecting Partnership property;
(g) To employ from time to time, at the expense of the
Partnership, persons, including the General Partner or its Affiliates, required
for the operation of the Partnership's business, including employees, agents,
independent contractors, brokers, accountants, attorneys, and others; to enter
into agreements and contracts with such persons on such terms and for such
compensation as the General Partner determines to be reasonable; and to give
receipts, releases, and discharges with respect to all of the foregoing and any
matters incident thereto as the General Partner may deem advisable or
appropriate; provided, however, that any such agreement or contract between the
Partnership and the General Partner or between the Partnership and an Affiliate
of the General Partner shall contain a provision that such agreement or contract
may be terminated by the Partnership without penalty on sixty (60) days' written
notice and without advance notice if the General Partner or Affiliate who is a
party to such contract or agreement resigns or is removed pursuant to the terms
of this Agreement. Whenever possible, contracts between the Partnership and
others shall contain a provision recognizing that the Limited Partners shall
have no personal liability for performance or observance of the contract;
(h) To maintain, at the expense of the Partnership, adequate
records and accounts of all operations and expenditures and furnish the Limited
Partners with annual statements of account as of the end of each calendar year,
together with all necessary tax-reporting information;
(i) To purchase, at the expense of the Partnership, liability
and other insurance to protect the property of the Partnership and its business;
(j) To refinance, recast, modify, consolidate, or extend any
Mortgage Loan or other investment owned by the Partnership;
(k) To pay all expenses incurred in connection with the
operation of the Partnership;
(l) To file tax returns on behalf of the Partnership and to
make any and all elections available under the Code, as amended;
(m) Without the consent of the Limited Partners, to modify,
delete, add to or correct from time to time any provision of this Agreement for
one or more of the following reasons, provided no such change shall adversely
affect the rights of Limited Partners:
(i) To cure any ambiguity or formal defect or omission
herein;
(ii) To grant to Limited Partners any additional
rights, remedies, powers or authorities that may be lawfully granted or
conferred upon them;
(iii) To conform this Agreement to applicable laws and
regulations, including without limitation, federal and state securities and tax
laws and regulations, and the NASAA Guidelines; and
(iv) To make any other change in this Agreement which,
in the judgment of the General Partner, does not adversely affect the rights of
the Limited Partners.
(n) To elect to have the Partnership governed by the
California Revised Limited Partnership Act, California Corporations Code, Title
2, Chapter 3, pursuant to Section 15712(b)(1) thereof.
The General Partner shall give prompt written notice to all Limited Partners of
each change to this Agreement made pursuant to Subsection (m).
2. Limitations on General Partner's Authority. Without the concurrence
of a Majority-in-Interest, the General Partner has no authority to:
(a) amend this Agreement in any respect that adversely affects
the rights of the Limited Partners;
(b) do any act in contravention of this Agreement;
(c) do any act which would make it impossible to carry on the
ordinary business of the Partnership;
(d) confess a judgment against the Partnership;
(e) possess Partnership property or assign the rights of the
Partnership in property for other than a partnership purpose;
(f) admit a person as a General Partner;
(g) voluntarily withdraw as General Partner unless such
withdrawal would not affect the tax status of the Partnership and would not
materially adversely affect the Limited Partners;
(h) sell, pledge, refinance, or exchange all or substantially
all of the assets of the Partnership;
(i) dissolve the Partnership;
(j) cause the merger or other reorganization of the
Partnership;
(k) grant to the General Partner or any of its Affiliates an
exclusive right to sell any Partnership assets;
(l) receive or permit the General Partner or any Affiliate of
the General Partner to receive any insurance brokerage fee or write any
insurance policy covering the Partnership or any Partnership property;
(m) receive from the Partnership a rebate or participate in
any reciprocal business arrangement which would enable the General Partner or
any of its Affiliates to do so;
(n) commingle the Partnership's assets with those of any other
Person;
(o) use or permit another to use the Partnership's assets in
any manner, except for the exclusive benefit of the Partnership;
(p) pay or award, directly or indirectly, any commissions or
other compensation to any person engaged by a potential investor for investment
advice as an inducement to such advisor to advise the purchase of Units;
provided, however, that this clause shall not prohibit the normal sales
commissions payable to a registered broker-dealer or other properly licensed
person for selling Units; or
(q) receive, directly or indirectly, a commission or fee
(except as permitted under Article IX. of this Agreement) in connection with the
reinvestment or distribution of Net Proceeds.
3. Right to Purchase Receivables and Loans. As long as the requirements
of Article VI. 9 of this Agreement are met, the General Partner, in its sole
discretion, may at any time, but is not obligated to:
(a) purchase from the Partnership the interest receivable or
principal on delinquent Mortgage Loans held by the Partnership;
(b) purchase from a senior lienholder the interest receivable
or principal on mortgage loans senior to Mortgage Loans held by the Partnership
held by such senior lienholder;
(c) use its own monies to cover any other costs associated
with Mortgage Loans held by the Partnership such as property taxes, insurance
and legal expenses;
4. Extent of General Partner's Obligation and Fiduciary Duty. The
General Partner shall devote such time to the business of the Partnership as the
General Partner determines, in good faith, to be reasonably necessary to conduct
the business of the Partnership. The General Partner shall not be required to
devote all of its business time to the affairs of the Partnership, and the
General Partner and its Affiliates may engage for their own account and for the
account of others in any other business ventures and employments, including
ventures and employments having a business similar or identical or competitive
with the business of the Partnership. The General Partner has fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in the General Partner's possession or control, and
the General Partner will not employ, or permit another to employ such funds or
assets in any manner except for the exclusive benefit of the Partnership. The
General Partner will not allow the assets of the Partnership to be commingled
with the assets of the General Partner or any other Person. The Partnership
shall not permit a Limited Partner to contract away the fiduciary duty owed to
such Limited Partner by the General Partner under common law. If at any time the
General Partner owns any Units as a Limited Partner, its right to vote such
Units will be waived and not considered outstanding in any vote for removal of
the General Partner or regarding any transaction between the Partnership and the
General Partner.
5. Liability and Indemnification of General Partner.
(a) Neither the General Partner nor any of its Affiliates,
agents or attorneys (hereinafter, an "Indemnified Party") shall be liable,
responsible or accountable in damages or otherwise to any other Partner, the
Partnership, its receiver or trustee (the Partnership, its receiver or trustee
are hereinafter referred to as "Indemnitors") for, and the Indemnitors agree to
indemnify, pay, protect and hold harmless each Indemnified Party (on the demand
of such Indemnified Party) from and against any and all liabilities,
obligations, losses, damages, actions, judgments, suits, proceedings, reasonable
costs, reasonable expenses and disbursements (including, without limitation, all
reasonable costs and expenses of defense, appeal and settlement of any and all
suits, actions or proceedings instituted against such Indemnified Party or the
Partnership and all reasonable costs of investigation in connection therewith)
(collectively referred to as "Liabilities" for the remainder of this Section)
which may be imposed on, incurred by, or asserted against such Indemnified Party
or the Partnership in any way relating to or arising out of any action or
inaction on the part of the Partnership or on the part of such Indemnified Party
in connection with services to or on behalf of the Partnership (and with respect
to an Indemnified Party which is an Affiliate of the General Partner for an act
which the General Partner would be entitled to indemnification if such act were
performed by it) which such Indemnified Party in good faith determined was in
the best interest of the Partnership. Notwithstanding the foregoing, each
Indemnified Party shall be liable, responsible and accountable, and neither the
Partnership nor Indemnitor shall be liable to an Indemnified Party, for any
portion of such Liabilities which resulted from such Indemnified Party's (i) own
fraud, gross negligence or misconduct or knowing violation of law, (ii) breach
of fiduciary duty to the Partnership or any Partner, or (iii) breach of this
Agreement, regardless of whether or not any such act was first determined by the
Indemnified Party, in good faith, to be in the best interests of the
Partnership. If any action suit or proceeding shall be pending against the
Partnership or any Indemnified Party relating to or arising out of any such
action or inaction, such Indemnified Party shall have the right to employ, at
the reasonable expense of the Partnership (subject to the provisions of
Subsection 5(b), below), separate counsel of such indemnified Party's choice in
such action, suit or proceeding. The satisfaction of the obligations of the
Partnership under this Section shall be from and limited to the assets of the
Partnership and no Limited Partner shall have any personal liability on account
thereof.
(b) Cash advances from Partnership funds to an Indemnified
Party for legal expenses and other costs incurred as a result of any legal
action initiated against an Indemnified Party by a Limited Partner are
prohibited. Cash advances from Partnership funds to an Indemnified Party for
reasonable legal expenses and other costs incurred as a result of any legal
action or proceeding are permissible if (i) such suit, action or proceeding
relates to or arises out of any action or inaction on the part of the
Indemnified Party in the performance of its duties or provision of its services
on behalf of the Partnership; (ii) such suit, action or proceeding is initiated
by a third party who is not a Limited Partner; and (iii) the Indemnified Party
undertakes by written agreement to repay any funds advanced pursuant to this
Section in the cases in which such Indemnified Party would not be entitled to
indemnification under Subsection 5(a) above. If advances are permissible under
this Section, the Indemnified Party shall have the right to bill the Partnership
for, or otherwise request the Partnership to pay, at any time and from time to
time after such Indemnified Party shall become obligated to make payments
therefor, any and all amounts for which such Indemnified Party believes in good
faith that such Indemnified Party is entitled to indemnification under
Subsection 5(a) above. The Partnership shall pay any and all such bills and
honor any and all such requests for payment within 60 days after such bill or
request is received. In the event that a final determination is made that the
Partnership is not so obligated for any amount paid by it to a particular
Indemnified Party, such Indemnified Party will refund such amount within 60 days
of such final determination, and in the event that a final determination is made
that the Partnership is so obligated for any amount not paid by the Partnership
to a particular Indemnified Party, the Partnership will pay such amount to such
Indemnified Party within 60 days of such final determination.
(c) Notwithstanding anything to the contrary contained in
Subsection 7(a) above, neither the General Partner nor any of its Affiliates,
agents, or attorneys, nor any person acting as a broker-dealer with respect to
the Units shall be indemnified from any liability, loss or damage incurred by
them arising due to an alleged violation of federal or state securities laws
unless (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular Indemnified
Party, or (ii) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular Indemnified Party, or (iii)
a court of competent jurisdiction approves a settlement of the claims against
the particular Indemnified Party and finds that indemnification of the
settlement and related costs should be made. Prior to seeking a court approval
for indemnification, the General Partner shall undertake to cause the party
seeking indemnification to apprise the court of the position of the Securities
and Exchange Commission and the California Commissioner of the Department of
Corporations with respect to indemnification for securities violations.
(d) The Partnership shall not incur the cost of the portion of
any insurance which insures any party against any liability as to which such
party is prohibited from being indemnified as set forth above.
(e) For purposes of this Section 5, an Affiliate, agent or
attorney of the General Partner shall be indemnified by the Partnership only in
circumstances where such person has performed an act on behalf of the
Partnership or the General Partner within the scope of the authority of the
General Partner and for which the General Partner would have been entitled to
indemnification had such act been performed by it.
V. VOTING AND OTHER RIGHTS OF LIMITED PARTNERS
1. No Limited Partner, as such, shall take part in the management of
the business of, or transact any business for, the Partnership, nor have the
power to sign for or bind the Partnership to any agreement or document.
Notwithstanding the foregoing, Limited Partners holding at least a
Majority-In-Interest may, without the concurrence of the General Partner, vote
or consent in writing in accordance with Article VII.3 of this Agreement (and
such vote or consent will be required) to:
(a) amend this Agreement (except for any amendment permitted
to be made by the General Partner as provided in Article IV. 4. (m) of this
Agreement; provided that any amendment which modifies the compensation or
distributions to which the General Partner is entitled or which affects the
duties of the General Partner shall require the written consent of the General
Partner).
(b) dissolve and windup the Partnership,
(c) remove the General Partner and elect one or more new
General Partners (see Article XII. 1. and 2.), or
(d) approve or disapprove the sale, pledge, refinancing, or
exchange of all or substantially all of the assets of the Partnership.
2. The Limited Partners and their designated representatives shall have
access to all books and records of the Partnership during normal business hours.
An alphabetical -list of the names, addresses and business telephone numbers of
all Limited Partners along with the number of Units held by each of them is
maintained as a part of the books and records of the Partnership and shall be
made available on request to any Limited Partner or his representative for a
stated purpose including, without limitation, matters relating to Limited
Partners' voting rights, tender offers, and the exercise of Limited Partners'
rights under federal proxy law. A copy of the Limited Partner list shall be
mailed to any Limited Partner requesting it within ten business days of the
request and may include a reasonable charge for the copy work. The Limited
Partner list shall be updated at least quarterly to reflect changes in the
information contained therein.
If the General Partner neglects or refuses to exhibit, produce or mail
a copy of the Limited Partner list as requested, the General Partner shall be
liable to any Partner requesting the list for the costs, including attorneys'
fees, incurred by that Partner for compelling the production of the list, and
for actual damages suffered by any Partner by reason of such refusal or neglect.
It shall be a defense that the actual purpose and reason for the requests for
inspection or for a copy thereof, or of using the same for a commercial purpose
other than in the interest of the Partner relative to the affairs of the
Partnership. The General Partner may require the Partner requesting the Limited
Partner list to represent that the list is not requested for a commercial
purpose unrelated to the Partner's interest in the Partnership. The remedies
provided hereunder to Partners requesting copies of the list are in addition to,
and shall not in any way limit, other remedies available to Partners under
federal law, or the laws of California.
VI. INVESTMENT AND OPERATING POLICIES
1. The General Partner shall commit at least 86.5% of Capital
Contributions to Investment in Mortgage Loans. The Partnership may make or
purchase Mortgage Loans of such duration and on such real property and with such
additional security as the General Partner in its sole discretion shall
determine. Such Mortgage Loans may be senior to other mortgage loans on such
property, or junior to other mortgage loans on such property, all in the sole
discretion of the General Partner.
The Partnership normally shall not make or invest in Mortgage Loans on
any one property if at the time of the acquisition of the loan the aggregate
amount of all Mortgage Loans outstanding on the property, including loans of the
Partnership, would exceed an amount equal to 80% of the appraised value of the
property as determined by independent appraisal, unless substantial
justification exists because of the presence of other underwriting criteria. For
purposes of this Subsection, the "aggregate amount of all Mortgage Loans
outstanding on the property, including the loans of the Partnership, shall
include all interest (excluding contingent participations in income and/or
appreciation in value of the mortgaged property), the current payment of which
may be deferred pursuant to the terms of such loans. This restriction applies to
all loans, including construction loans.
2. The Partnership will not incur indebtedness for the purpose of
making or purchasing Mortgage Loans, except:
(a) to prevent default under prior loans or to discharge them
entirely if this becomes necessary to protect the Partnership's Mortgage Loans,
and
(b) to assist in the development or operation of any real
property on which the Partnership has theretofore made or purchased a Mortgage
Loan and has subsequently taken over the operation thereof as a result of
default or to protect such Mortgage Loan.
The total amount of indebtedness incurred by the Partnership
shall at no time exceed the sum of 10% of the aggregate fair market value of all
Partnership loans. The General Partner shall be prohibited from providing
financing to the Partnership.
3. The Partnership will limit any single Mortgage Loan and will limit
its Mortgage Loans to any one borrower to not more than 10% of the total
Partnership assets as of the date the loan is made or purchased.
4. The Partnership may not invest in or make Mortgage Loans on
unimproved real property in an amount in excess of 25% of the total Partnership
assets.
5. The Partnership may not invest in real estate contracts of sale
otherwise known as land sale contracts unless such contracts are in recordable
form and appropriately recorded in the chain of title.
6. The Partnership shall require that a mortgagee's or owner's title
insurance policy as to the priority of a mortgage or the condition of title be
obtained in connection with the making or purchasing of each Mortgage Loan. The
Partnership shall also receive an independent, on-site appraisal for each
property on which it makes or purchases a Mortgage Loan. All such appraisals
shall be conducted by an Independent Expert. Such appraisals will be retained at
the office of the Partnership and will be available for review and duplication
by any Limited Partner for a period of at least five years after the last day
that the Partnership holds a mortgage secured by the subject property.
7. There shall at all times be title, fire, and casualty insurance in
an amount equal to the Partnership's Mortgage Loan plus any outstanding senior
lien on the security property naming the Partnership and any senior lienholder
as loss payees, and, where such senior lienholder exists, a Request for Notice
of Default shall be recorded in the county where the security property is
situated.
8. Mortgage Loans may be purchased from the General Partner or its
Affiliates only if the General Partner acquires such loans in its own name and
temporarily holds title thereto for the purpose of facilitating the acquisition
of such loans, and provided that such loans are purchased by the Partnership for
a price no greater than the cost of such loans to the General Partner (except
compensation in accordance with Article IX of this Agreement), there is no other
benefit arising out of such transactions to the General Partner, such loans are
not in default, and otherwise satisfy all requirements of this Article VI.
Accordingly, all income generated (except Acquisition and Origination Fees) and
expenses associated with a Mortgage Loan so acquired shall be treated as
belonging to the Partnership. The General Partner shall not sell a loan to the
Partnership if the cost of the loan exceeds the funds reasonably anticipated to
be available to the Partnership to purchase the loan.
Normally, when the Partnership has sufficient funds available to invest
in a specific Mortgage Loan, the General Partner will give the Partnership
priority in purchasing such Mortgage Loan over other Persons to whom the General
Partner may sell Mortgage Loans as a part of its business. Factors that further
influence the General Partner in determining whether the Partnership has
priority over other investors include the following: (i) All loans originated by
the General Partner which are secured by property located outside the State of
California and that satisfy investment criteria of the Partnership will be
acquired by the Partnership; (ii) All hypothecation loans will be acquired by
the Partnership.
9. The Partnership shall not sell a Mortgage Loan to the General
Partner unless all of the following criteria are met: (i) the loan is in
default; (ii) the General Partner pays the Partnership an amount in cash equal
to the cost of the loan to the Partnership (including all cash payments and
carrying costs related thereto); and (iii) the General Partner assumes all of
the Partnership's obligations and liabilities incurred in connection with the
holding of the loan by the Partnership.
10. The Partnership shall not acquire a loan from, or sell a loan to,
another Program in which the General Partner has an interest.
11. The Partnership shall not sell a foreclosed property to the General
Partner or to another Program in which the General Partner has an interest.
12. The Partnership will maintain a contingency reserve in an aggregate
amount of at least 1-1/2% of the aggregate Capital Accounts of the Limited
Partners. The cash Capital Contributions of the General Partner specified in
Article III.1. of this Agreement, up to a maximum of 1/2 of 1% of the aggregate
Capital Accounts of the Limited Partners, will be available as an additional
contingency reserve if considered necessary by the General Partner.
13. The Partnership will not reinvest Net Income Available for
Distribution, unless it is Limited Partners' Reinvested Distributions under
Article III. 3. of this Agreement.
14. No loans may be made by the Partnership to the General Partner or
an Affiliate except as provided in Article IV. 5. of this Agreement.
VII. ACCOUNTING RECORDS, REPORTS AND MEETINGS
1. Books of Accounts and Records. The Partnership's books and records
are maintained in accordance with Code Section 703(a) at the principal office of
the Partnership, and each Partner has access thereto at all reasonable times as
provided in Article V.2. of this Agreement. The books and records shall be kept
in accordance with sound accounting practices and principles applied in a
consistent manner by the Partnership and shall reflect all transactions and be
appropriate and adequate for the business of the Partnership. The Partnership
shall file all required documents with the applicable regulatory agencies.
2. Cash and Cash Equivalents and Marketable Securities. Partnership
cash, cash equivalents and marketable securities are deposited and/or invested
in the name of the Partnership in one or more financial institutions designated
by the General Partner and shall be withdrawn on the signature of the General
Partner or any Person or Persons authorized by it.
3. Meetings of Limited Partners. Special meetings of the Limited
Partners to vote upon any matters as to which the Limited Partners are
authorized to take action under this Agreement may be called at any time by the
General Partner, or a Limited Partner or Limited Partners holding more than ten
percent (10%) of the outstanding Units by delivering written notice, either in
person, or by registered mail, of such call to the General Partner. As soon as
possible, but in all cases within ten (10) days following receipt of such
request, and at any time a meeting is called by the General Partner, the General
Partner shall cause a written notice, either in person or by registered mail, to
be given to the Limited Partners entitled to vote at such meeting, that a
meeting will be held at a time and place fixed by the General Partner,
convenient to the Limited Partners, which is not less than fifteen (15) days nor
more than sixty (60) days after the sending of the notice of the meeting.
Included with the notice of the meeting 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 Partners and of any proposed amendment to
this Agreement. There shall be deemed to be a quorum at any meeting of the
Partnership at which a Majority-In-Interest attend such meeting in person or by
a valid proxy. The General Partner shall be entitled to notice of and to attend
all meetings of the Limited Partners, regardless of whether called by the
General Partner. Any action that may be taken at any meeting of the Limited
Partners may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by Limited Partners holding a
Majority-in-Interest.
4. Reports. Within sixty (60) days after the end of each fiscal year of
the Partnership, the General Partner will deliver to each Limited Partner such
information as is necessary for the preparation by each Limited Partner of his
federal income tax return.
Within sixty days (60) days after the end of each quarter of the
Partnership, the General Partner will transmit to each Limited Partner a report
which includes a balance sheet, a statement of income for the quarter then
ended, a statement of cash flows for the quarter then ended and other pertinent
information regarding the Partnership and its activities during the quarter
covered by the report, all of which may be unaudited.
Within one hundred twenty (120) days after the end of the Partnership's
calendar year, the General Partner will transmit to each Limited Partner an
annual report which will include financial statements of the Partnership audited
by the Partnership's independent public accountants and prepared on an accrual
basis in accordance with generally accepted accounting principles. Such
financial statements will include the Partnership's statements of income,
balance sheets, statements of cash flows and statements of Partners' capital
with a reconciliation with respect to information furnished to Limited Partners
for income tax purposes. The annual report for each year will report on the
Partnership's activities for that year and identify the source of Partnership
distributions as is deemed reasonably necessary by the General Partner to advise
the Limited Partners of the affairs of the Partnership. In addition, the annual
report will contain a breakdown of the costs reimbursed to the General Partner
and Affiliates. The Partnership's independent certified public accountants must
perform agreed-upon procedures to verify the allocation of such costs to the
Partnership by, at a minimum, a review of the time records of individual
employees (the costs of whose services were reimbursed) and a review of the
specific nature of the work performed by each such employee. This review will be
reported on by the independent certified public accountants in a report that is
separate from the Partnership's audited financial statements. The additional
costs of such verification will be itemized by said accountants and may be
reimbursed to the General Partner by the Partnership only to the extent that
such reimbursement when added to the costs for administrative services rendered
does not exceed the competitive rate for such services as determined by this
paragraph.
The Partnership will have available upon written request for review by
Limited Partners a copy of the information filed with the Securities and
Exchange Commission on Form 10-K not more than ninety (90) days after the
closing of the fiscal year end, and on Form 10-Q not more than forty-five (45)
days after the closing of each other quarterly fiscal period, by dissemination
of such Form 10-K and Form 10-Q or any other report containing substantially the
same information as required by Form 10-K and Form 10-Q.
VIII. ALLOCATIONS AND DISTRIBUTIONS
1. Allocations of Profits and Losses. Profits and Losses for any fiscal
year shall be allocated: (i) ninety-nine and 01/100 percent (99.01%) to the
Limited Partners in proportion to their Capital Accounts, and (ii) 99/100
percent (.99%) to the General Partner.
2. Distributions.
(a) Net Income Available for Distribution. Net Income
Available for Distribution shall be allocated ninety-nine percent and 01/100
(99.01%) to the Limited Partners and 99/100 percent (.99%) to the General
Partner and shall be distributed in cash to those Limited Partners who have on
file with the Partnership their written election to receive such distributions.
A pro rata share of the total Net Income Available for Distribution to Limited
Partners shall be distributed monthly in cash to each Limited Partner who has on
file with the Partnership his written election to receive such distributions, in
proportion to the weighted average Capital Account of each Limited Partner
during the preceding calendar month. All sums of Net Income Available for
Distribution not so distributed to the Limited Partners shall be credited
proportionately to the Capital Accounts of the remaining Limited Partners and
reinvested in Units in accordance with Article III.3 of this Agreement. The
General Partner's proportionate share of Net Income Available for Distribution
shall be distributed to the General Partner or credited to its Capital Accounts.
(b) Net Proceeds. Net Proceeds, if any, may be reinvested in
new Mortgage Loans, may be used to improve or maintain properties acquired by
the Partnership through foreclosure, may be used to pay operating expenses or
may be distributed to the Partners, in each event in the sole discretion of the
General Partner. In the event of any distributions of Net Proceeds, such
distributions shall be made to the Partners according to the allocations
described in Subsection 2 (a) above, provided that no such distributions are to
be made to the General Partner with respect to that portion of its Capital
Account represented by the Carried Interest, until the Limited Partners shall
have received 100% of their Capital Accounts. Reinvestment of Net Proceeds will
not take place unless sufficient cash will be distributed to Partners to pay any
state or federal income tax created by the Capital Transaction that created the
Net Proceeds.
IX. TRANSACTIONS BETWEEN THE PARTNERSHIP AND
THE GENERAL PARTNER
1. Compensation to General Partner from the Partnership. The General
Partner is entitled to receive the following fees, compensation and expense
reimbursements from the Partnership:
(a) Management Fee. In consideration of the management
services rendered to the Partnership, the General Partner is entitled to receive
from the Partnership a Management Fee payable monthly, subject to a maximum of
2.75% per annum, of the average unpaid balance of the Partnership's Mortgage
Loans at the end of each month in the calendar year. Although the Management Fee
is paid monthly, the maximum payment is calculated on an annual basis; thus, the
Management Fee in any one month could exceed .2292% (2.75% / 12 months) of the
unpaid balance of the Partnership's Mortgage Loans at the end of such month,
provided that the maximum annual Management Fee shall not exceed 2.75% of the
average unpaid balance of the Partnership's Mortgage Loans at the end of each
month in the calendar year. In the event the Management Fee paid by the General
Partner in a calendar year exceeds such 2.75%, the General Partner shall
promptly refund such excess to the Partnership. The Management Fee may be
accrued without interest when Partnership funds are not available for its
payment. Any accrued Management Fee may be paid from the next available Net
Income Available for Distribution or Net Proceeds. No Management Fee may be paid
from Partnership reserves.
(b) Loan Servicing Fee. The General Partner may act as
servicing agent with respect to all Partnership loans, in consideration for
which it shall be entitled to receive from the Partnership a monthly fee, which,
when added to all other fees paid in connection with the servicing of a
particular loan, does not exceed the lesser of the customary, competitive fee in
the community where the loan is placed for the provision of such mortgage
services on that type of loan or up to 0.25% per annum of the unpaid balance of
the Partnership's Mortgage Loans at the end of each month.
(c) Carried Interest (previously the "Promotional Interest").
The Carried Interest can only be taken if a minimum of 86.5% of Capital
Contributions are committed to Investment in Mortgages.
(d) Partnership Expenses. All of the Partnership's expenses
shall be billed directly, to the extent practicable, to and paid by the
Partnership. Reimbursement to the General Partner, or its Affiliates, for any
expenses paid by the General Partner, or its Affiliates, including, but not
limited to, legal and accounting expenses, filing fees, printing costs, goods,
services and materials used by or for the Partnership will be made from Net
Income Available for Distribution immediately following the expenditure. Except
as indicated in this Article IX.1(d), the General Partner or any affiliate shall
not be reimbursed by the Partnership for services for which the General Partner
is entitled to compensation by way of a separate fee. Excluded from the
allowable reimbursement shall be: (i) rent or depreciation, utilities, capital
equipment, or other administrative items; and (ii) salaries, fringe benefits,
travel expenses, and other administrative items incurred or allocated to any
Controlling Person of the General Partner or Affiliates. The Partnership,
however, may reimburse the General Partner and any affiliate for salaries (and
related salary expenses, but excluding expenses incurred in connection with the
administration of the Partnership) for nonmanagement and nonsupervisory services
which could be performed, directly for the Partnership by independent parties,
such as legal, accounting, transfer agent, data processing and duplicating.
There shall be no reimbursement for management and supervisory personnel (e.g.,
services of employees of the General Partner or its Affiliates who oversee the
work which would have been performed by an independent party if such party had
been so engaged). The amounts charged to the Partnership shall not exceed the
lesser of (a) the actual cost of such services, or (b) the amounts which the
Partnership would be required to pay to independent parties for comparable
services. Reimbursement may also be made for the allocable cost charged by
independent parties for maintenance and repair of data processing and other
special purpose equipment used for or by the Partnership. The reimbursement for
expenses provided for in this Article IX.1(d) shall be made to the General
Partner regardless of whether any distributions are made to the Limited Partners
under the provisions of Article VIII.2.
(e) No Other Fees. The General Partner is not entitled to
receive real estate brokerage commissions, Property Management Fees, insurance
service fees or a Promotional Interest (as defined by the NASAA Guidelines) from
the Partnership. In addition, the General Partner is not entitled to receive
reimbursement of Acquisition and Origination Expenses incurred by the General
Partner or its Affiliates in the origination, selection and acquisition of
Mortgage Loans.
2. Payments by Borrowers.
(a) Acquisition and Origination Fees. The General Partner or
its Affiliates shall be entitled to receive and retain all Acquisition and
Origination Fees paid or payable by borrowers for services rendered in
connection with the evaluation and consideration of potential investments of the
Partnership.
(b) Late Payment Charges. The General Partner shall receive
all Late Payment Charges paid by borrowers on delinquent loans held by the
Partnership.
X. ASSIGNMENT OF INTEREST: SUBSTITUTED LIMITED PARTNERS
1. General Partner. The interest of a General Partner shall not be
assignable in whole or in part, except when a substitution is made by vote of
the Limited Partners or as provided in Article XI.2.
2. Partnership Interests. A Limited Partner's interests in the
Partnership may be transferred by written instrument satisfactory in form to the
General Partner, accompanied by such assurance of the genuineness and
effectiveness of each signature and the obtaining of any necessary governmental
or other approvals as may be reasonably required by the General Partner,
provided, however, that:
(a) no transfer may be made of a fractional unit, and no
transfer may be made if, as a result of such transfer, a Limited Partner (other
than one transferring all of his units) will own fewer than two thousand (2,000)
units except where such transfer occurs by operation of law;
(b) no transfer may be made except where the transfer complies
with any restriction imposed under applicable state securities laws or
regulations with regard to suitability standards;
(c) no transfer may be made if, in the opinion of tax counsel
for the Partnership, it would jeopardize the status of the Partnership as a
partnership for Federal or any applicable state income tax purposes; and
(d) the transferor will pay in advance all legal, recording,
and accounting costs in connection with any transfer, and the cost of any tax
advice necessary under Subsection 2(b) above.
Assignments complying with the above shall be recognized by the
Partnership not later than the last day of the calendar month in which the
written notice of assignment is received by the Partnership.
No assignee of a Limited Partner shall have the right to become a
Limited Partner unless the General Partner has consented in writing to the
substitution of such Limited Partner, the granting or denial of which shall be
within the absolute discretion of the General Partner.
XI. DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A LIMITED PARTNER
1. Effect of Death or Legal Incompetency of a Limited Partner on the
Partnership. The death or legal incompetency of a Limited Partner shall not
cause a dissolution of the Partnership or entitle the Limited Partner or his
estate to a return of capital.
2. Rights of Personal Representative. On the death or legal
incompetency of a Limited Partner, his personal representative shall have all
the rights of a Limited Partner for the purpose of settling his estate or
managing his property, including the rights of assignment and withdrawal.
3. Withdrawal of Limited Partners. To withdraw, or partially withdraw
from the Partnership, a Limited Partner must give written notice thereof to the
General Partner and may thereafter obtain the return, in cash, of his Capital
Account, or the portion thereof as to which he requests withdrawal, within 61 to
91 days after written notice of withdrawal is delivered to the General Partner,
subject to the following limitations:
(a) except with regard to the right of the personal
representative of a deceased Limited Partner under Section 2 of this Article XI,
no notice of withdrawal shall be honored and no withdrawal made until the
expiration of at least one year from the date of a purchase of Units by any
Limited Partner on or after the date of effectiveness of this Agreement, other
than by way of Reinvested Distributions discussed in Article III. 3.
(b) any such cash payments in return of an outstanding Capital
Account shall be made by the Partnership only from Net Proceeds and Capital
Contributions.
(c) a maximum of $100,000 may be withdrawn by any Limited
Partner during any calendar quarter;
(d) the Limited Partners shall have the right to receive such
distributions of cash from their Capital Accounts only to the extent such funds
are available; the General Partner shall not be required to establish a reserve
fund for the purpose of funding such payments; the General Partner shall not be
required to use any other sources of Partnership funds other than those set
forth in Subsection 3(a) above; the General Partner shall not be required to
sell or otherwise liquidate any portion of the Partnership's loan portfolio or
any other asset in order to make a cash distribution of any Capital Account;
(e) during the ninety (90) days following receipt of written
notice of withdrawal from a Limited Partner, the General Partner shall not
refinance any loans of the Partnership or reinvest any Net Proceeds or Capital
Contributions in new loans or other nonliquid investment unless and until the
Partnership has sufficient funds available to distribute to the withdrawing
Limited Partner the amount of his Capital Account in cash that he is
withdrawing;
(f) the amount to be distributed to any withdrawing Limited
Partner shall be a sum equal to the amount of such Limited Partner's Capital
Account as of the date of such distribution, as to which the Limited Partner has
given a notice of withdrawal under this Subsection 3, notwithstanding that such
sum may be greater or lesser than such Limited Partner's proportionate share of
the current fair market value of the Partnership's net assets;
(g) in no event shall the General Partner permit the
withdrawal during any calendar year of total amounts from the Capital Accounts
of Limited Partners that exceeds ten percent (10%) of the aggregate Capital
Accounts of all outstanding Limited Partners' Units, except upon the vote of the
Limited Partners to dissolve the Partnership pursuant to Article V above;
(h) requests by Limited Partners for withdrawal will be
honored in the order in which they are received by the General Partner. If any
request may not be honored, due to any limitations imposed by this subsection 3
(except the one year holding limitation set forth in Subsection 3(a)), the
General Partner will so notify the requesting Limited Partner in writing, whose
request, if not withdrawn by the Limited Partner, will subsequently be honored
if and when the limitation no longer is imposed; and
(i) if a Limited Partner's Capital Account would have a
balance of less than $2,000 following a requested withdrawal, the General
Partner, at its discretion, may distribute to such Limited Partner the entire
balance in such account.
XII. BANKRUPTCY, WITHDRAWAL, REMOVAL, OR DISSOLUTION OF THE GENERAL PARTNER
1. Removal of the General Partner. A Majority-In-Interest by vote or
written consent given in accordance with Article VII.3 of this Agreement may
remove the General Partner. Written notice of such removal setting forth the
effective date thereof shall be served upon the General Partner and, as of the
effective date, shall terminate all of its rights and powers as a General
Partner.
2. Dissolution or Continuance of Partnership. The filing of a
certificate of dissolution, withdrawal, removal, or adjudication of bankruptcy
of the General Partner (any of which events is referred to hereafter as the
"Terminating Event,"and the General Partner affected as the "Terminated General
Partner") shall immediately destroy the agency relationship between the
Partnership and the Terminated General Partner. No other events affecting the
General Partner shall constitute or be a "Terminating Event." A Terminating
Event shall dissolve the Partnership and cause it to be wound up pursuant to
Subsection (b) below, unless the Partnership is continued by a new general
partner elected in place of the Terminated General Partner by a
Majority-In-Interest, as set forth in (a) below.
(a) Following a Terminating Event, if a Majority-In-Interest
of the Limited Partners promptly by written consent agree to continue the
business of the Partnership and within six (6) months of such Terminating Event
admit one or more General Partners, then the Partnership shall continue without
dissolution and winding up. A successor General Partner must be named if the
newly admitted General Partner under this provision is an individual.
(b) If a Majority-In-Interest do not agree by written consent
to continue the business of the Partnership or do not act to admit one or more
new General Partners within six (6) months of the Terminating Event, the
Partnership is dissolved and its affairs shall be wound up in accordance with
Article 8 of the California Revised Limited Partnership Act, Sections 15681 to
15685, and Article XIII of this Agreement.
3. Rights of Terminated General Partner. Upon the occurrence of a
Terminating Event, the Partnership shall pay to the Terminated General Partner
all amounts then accrued and owing to the Terminated General Partner. The
Partnership shall also terminate the Terminated General Partner's interest in
Partnership profits, gains, losses, net proceeds, distributions, and capital by
payment of an amount equal to the then present fair market value of the
Terminated General Partner's interest determined by agreement of the Terminated
General Partner and the Partnership, or, if they cannot agree, by arbitration in
accordance with the then current rules of the American Arbitration Association.
The expense of arbitration is to be borne equally by the Terminated General
Partner and the Partnership. The method of payment to the Terminated General
Partner must be fair and must protect the solvency and liquidity of the
Partnership. Where the termination is voluntary, the method of payment will be
deemed presumptively fair where it provides for a non-interest bearing unsecured
promissory note with principal payable, if at all, from distributions which the
Terminated General Partner otherwise would have received under the Agreement had
the General Partner not terminated. Where the termination is involuntary, the
method of payment will be deemed presumptively fair where it provides for an
interest bearing promissory note coming due in no less than 5 years with equal
installments each year.
XIII. DISSOLUTION AND WINDING UP
1. Upon the vote or written consent of a Majority-In-Interest or as
otherwise provided in this Agreement, the Partnership shall be dissolved and
wound up, the assets shall be liquidated and converted to cash and the net
proceeds distributed to the Partners after payment of the debts of the
Partnership as provided herein and by applicable law. In settling accounts after
liquidation, the monies of the Partnership shall be applied in the following
manner:
(a) the liabilities of the Partnership to creditors other than
the General Partner shall be paid or otherwise adequately provided for;
(b) the liabilities of the Partnership to the General Partner
shall be paid or otherwise provided for; and
(c) the remaining assets shall be distributed to the Limited
Partners and the General Partner in the same manner as Net Proceeds are
distributed under Article VIII.2(b) hereof.
2. In the event that, upon dissolution and winding up of the
Partnership, following the sale or other disposition of all of its assets, and
after crediting any gain or charging any loss pursuant to Article VIII, the
General Partner shall have a deficient balance in its Capital Account, then the
General Partner shall contribute in cash to the capital of the Partnership an
amount which is equal to such deficit in its Capital Account.
XIV. ROLL-UP
1. In connection with a proposed Roll-up, an appraisal of all
Partnership assets shall be obtained from a competent, Independent Expert. If
the appraisal will be included in the Prospectus used to offer the securities of
a Roll-Up Entity, the appraisal shall be filed with the Securities and Exchange
Commission and the states as an Exhibit to the Registration Statement for the
offering. Partnership assets shall be appraised on a consistent basis. The
appraisal shall be based on an evaluation of all relevant information and shall
indicate the value of the Partnership's assets as of a date immediately prior to
the announcement of the proposed Roll-Up. The appraisal shall assume an orderly
liquidation of the Partnership's assets over a 12-month period, shall consider
other balance sheet items, and shall be net of the assumed cost of sale. The
terms of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Partnership and its Limited Partners. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Partners in
connection with the proposed Roll-up.
2. In connection with a proposed Roll-up, the person sponsoring the
Roll-up shall provide each Limited Partner with a document which instructs the
Limited Partner on the proper procedure for voting against or dissenting from
the Roll-Up and shall offer to Limited Partners voting "no" on the proposal the
choice of: (a) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up; or (b) one of the following (i) remaining as Limited Partners
in the Partnership and preserving their interests therein on the same terms and
conditions as existed previously, or (ii) receiving cash in an amount equal to
the Limited Partners' pro rata share of the appraised value of the net assets of
the Partnership.
3. The Partnership shall not participate in any proposed Roll-Up which
would result in Limited Partners having democracy rights in the Roll-Up Entity
which are less than those provided for under Articles IV, V and VII of this
Agreement. If the Roll-Up Entity is a corporation, the voting rights of Limited
Partners shall correspond to the voting rights provided for in these guidelines
to the greatest extent possible.
4. The Partnership shall not participate in any proposed Roll-Up which
includes provisions which would operate to materially impede or frustrate the
accumulation of shares by any purchaser of the securities of the Roll-Up Entity
(except to the minimum extent necessary to preserve the tax status of the
Roll-Up Entity). The Partnership shall not participate in any proposed Roll-Up
which would limit the ability of a Limited Partner to exercise the voting rights
of its securities of the Roll-Up on the basis of the number of Partnership Units
held by that Limited Partner.
5. The Partnership shall not participate in any proposed Roll-Up in
which the Limited Partners' rights of access to the records of the Roll-Up
Entity will be less than those provided for under Article V of this Agreement.
6. The Partnership shall not participate in any proposed Roll-Up in
which any of the costs of the transaction would be borne by the Partnership if
the Roll-Up is not approved by the Limited Partners.
XV. INVESTMENTS IN OR WITH OTHER PROGRAMS
1. The Partnership shall be permitted to invest in general partnerships
or joint ventures (including entities in limited liability company and limited
liability partnership form) with non-Affiliates that own one or more particular
loans, if the Partnership, alone or together with any publicly registered
Affiliate of the Partnership meeting the requirements of paragraph 2 of this
Subsection, acquires a controlling interest in such a general partnership or
joint venture, but in no event shall duplicate fees be permitted. For purposes
of this paragraph, "controlling interest" means an equity interest possessing
the power to direct or cause the direction of the management and policies of the
general partnership or joint venture, including the authority to:
(a) review all contracts entered into by the general
partnership or joint venture that will have a material effect on its business or
assets;
(b) cause a sale of the loan or its interest therein subject
in certain cases where required by the partnership or joint venture agreement,
to limits as to time, minimum amounts, and/or a right of first refusal by the
joint venture partner or consent of the joint venture partner;
(c) approve budgets and major capital expenditures, subject to
a stated minimum amount; (d) veto any sale of the loan, or, alternatively, to
receive a specified preference on sale or proceeds; and
(e) exercise a right of first refusal on any desired sale by
the joint venture partner of its interest in the mortgage except for transfer to
an Affiliate of the joint venture partner.
2. The Partnership shall be permitted to invest in general partnerships
or joint ventures with other publicly registered Affiliates of the Partnership
if all of the following conditions are met:
(a) the Programs have substantially identical investment
objectives.
(b) there are no duplicate fees.
(c) the compensation to Sponsors is substantially identical in
each Program.
(d) each program must have a right of first refusal to buy if
the other Programs wish to sell assets held in the joint venture.
(e) the investment of each Program is on substantially the
same terms and conditions.
(f) the Prospectus discloses the potential risk of impasse on
joint venture decisions since no Program controls and the potential risk that
while a Program may have the right to buy the asset from the partnership or
joint venture, it may not have the resources to do so.
3. The Partnership shall be permitted to invest in general partnerships
or joint ventures with Affiliates other than publicly registered Affiliates of
the Partnership only under the following conditions:
(a) the investment is necessary to relieve the Sponsor from
any commitment to purchase a loan entered into in compliance with Article III.
6. prior to the closing of the offering period of the Program;
(b) there are no duplicate fees;
(c) the investment of each entity is on substantially the same
terms and conditions;
(d) the Program provides for a right of first refusal to buy
if the Sponsor wishes to sell a loan held in the joint venture; and
(e) the Prospectus discloses the potential risk of impasse on
joint venture decisions.
4. Other than as specifically permitted in paragraphs 2 and 3 of this
Subsection, the Partnership shall not be permitted to invest in general
partnerships or joint ventures with Affiliates.
5. The Partnership shall be permitted to invest in general partnership
interests of limited partnerships only if the Partnership alone or together with
any publicly registered Affiliate of the Partnership meeting the requirements of
paragraph 2 of this Article acquires a "controlling interest" as defined in
paragraph 1 of this Article, no duplicate fees are permitted, and no additional
compensation beyond that permitted by Article IX shall be paid to the Sponsor.
6. A Program that is an "upper-tier Program" shall be permitted to
invest in interests of other Programs (the "lower-tier Programs") only if the
conditions provided for under Sections V.G. 6. and 7. of the NASAA Guidelines
are met.
XVI. SIGNATURES
Any security agreement, chattel mortgage, lease, contract of sale, bill
of sale, or other similar document to which the Partnership is a party, shall be
executed by the General Partner, and no other signatures shall be required.
XVII. SPECIAL POWER OF ATTORNEY
Any person who becomes a Limited Partner after the effective date of
this Agreement shall execute and deliver to the General Partner a special power
of attorney in form acceptable to the General Partner (existing Limited Partners
having already executed and delivered same) in which the General Partner is
constituted and appointed as the attorney-in-fact for such Limited Partner with
power and authority to act in his name and on his behalf to execute,
acknowledge, and swear to in the execution, acknowledgment, and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
1. This Agreement and all certificates of Limited Partnership, as well
as all amendments to the foregoing which, under the laws of the State of
California or the laws of any other state, are required to be filed or recorded
or which the General Partner deems it advisable to file or record;
2. All other instruments or documents which may be required to be filed
or recorded by the Partnership under the laws of any state or by any
governmental agency, or which the General Partner deems it advisable to file or
record; and
3. All instruments or documents which may be required to effect the
continuation of the Partnership, the admission of additional or substituted
Limited Partners, the withdrawal of Limited Partners, or the dissolution and
termination of the Partnership, provided such continuation, admission,
withdrawal and dissolution and termination are in accordance with the terms of
this Agreement.
The special power of attorney to be concurrently granted upon admission
as such by each Limited Partner:
1. is a special power of attorney coupled with an interest, is
irrevocable, shall survive the death of the granting Limited Partner, and is
limited to those matters herein set forth;
2. shall survive an assignment by a Limited Partner of all or any
portion of his Units except that, where the assignee of the Units owned by a
Limited Partner has been approved by the General Partner for admission to the
Partnership as a substituted Limited Partner, the special power of attorney
shall survive each assignment for the purpose of enabling the General Partner to
execute, acknowledge, and file any instrument or document necessary to effect
such substitution.
XVIII. MISCELLANEOUS
1. Notices. Any notice, payment, demand, or communication required or
permitted to be given by any provision of this Agreement shall be deemed to have
been sufficiently given or served for all purposes if delivered personally to
the party or to an officer of the party to whom the same is directed, or if sent
by registered or certified mail, postage and charges prepaid addressed as
follows:
If to the General Partner:
Owens Financial Group, Inc.
2221 Olympic Boulevard
P. O. Box 2400
Walnut Creek, CA 94595
If to a Limited Partner, at such Limited Partner's address for purposes
of notice which is set forth on the books and records of the Partnership, or in
either case as the General Partner or a Limited Partner shall designate pursuant
to the notice provision hereof. Any such notice shall be deemed to be given on
the date on which the same was deposited in a regularly maintained receptacle
for the deposit of United States mail, addressed and sent as aforesaid.
2. Application of California Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
3. Execution in Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had all
signed the same document. All counterparts shall be construed together and shall
constitute one agreement.
4. Waiver of Action for Partition. Each of the parties hereto
irrevocably waives during the term of the Partnership any right that he or it
may have to maintain any action for partition with respect to the property of
the Partnership.
5. Assignability. Except as expressly limited herein, each and all of
the covenants, terms, provisions, and agreements herein contained shall be
binding upon and inure to the benefit of the successors and assigns of the
respective parties hereto.
6. Interpretation. As used in this Agreement, the masculine includes
the feminine and neuter and the singular includes the plural, as determined by
the context.
7. Captions. Paragraphs, titles, or captions in no way define, limit,
extend, or describe the scope of this Agreement nor the intent of any of its
provisions.
8. Adjustment of Basis. The General Partner may elect, pursuant to Code
Section 754, to adjust the basis of Partnership property under the circumstances
and in the manner provided in Code Sections 734 and 743. The General Partner
shall, in the event of such an election, take all necessary steps to effect the
election.
9. Entire Agreement. This Agreement constitutes the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective this 15th day of November, 2000.
GENERAL PARTNER:
OWENS FINANCIAL GROUP, INC.
By: /William C. Owens/
William C. Owens, President
LIMITED PARTNERS:
By: OWENS FINANCIAL GROUP, INC., GENERAL PARTNER
By: /William C. Owens/
William C. Owens, President
As Attorney-In-Fact for the Limited Partners
