As filed with the Securities and Exchange Commission on July 13, 2000
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-11
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
REDWOOD MORTGAGE INVESTORS VIII
(Exact name of registrant as specified in its charter)
CALIFORNIA 6611 94-3158788
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(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
650 El Camino Real, Suite G, Redwood City, California 94063 (650) 365-5341
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(Address and telephone number of principal executive offices)
650 El Camino Real, Suite G, Redwood City, California 94063 (650) 365-5341
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(Address of principal place of business or intended principal place of business)
D. Russell Burwell
------------------
650 El Camino Real, Suite G, Redwood City, California 94063 (650) 365-5341
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(Name, address, including zip code and telephone number,
including area code of agent for service)
Copies to:
Stephen C. Ryan, Esq.
Anne R. Knowles, Esq.
McCutchen, Doyle, Brown & Enersen, LLP
Three Embarcadero Center, Twenty Fifth Floor
San Francisco, CA 94119
Approximate date of commencement
of proposed sale to the public:
As soon as practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |X|
<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
Proposed
Title of Each Proposed Maximum
Class of Securities Amount Maximum Aggregate Amount of
to be Registered Being Registered Offering Per Unit (2) Offering Price Registration Fee
---------------- ---------------- --------------------- -------------- ----------------
Limited
Partnership
Interests (1) 30,000,000 $1.00 $30,000,000 $7,920.00
</TABLE>
(1) This registration statement covers all units
which may be acquired by limited partners if the maximum aggregate subscription
contemplated by this offering is obtained.
(2) Subscriptions will be accepted in the minimum amount of two thousand
(2,000) units ($2,000) and for greater amounts inmultiples of 1 unit ($1) each.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 9 (a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PART I
Registration Statement Item Prospectus Caption
Number and Caption
1. Forepart of the Registration Statement Front Cover Page of Prospectus
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus Cover Page
3. Summary Information, Risk Factors and Summary of the Offering;
Ratio of Earnings to Fixed Charges Inside Front Cover Page;
Risks and Other Factors
4. Determination of Offering Price Inapplicable
5. Dilution Inapplicable
6. Selling Security Holders Inapplicable
7. Plan of Distribution Plan of Distribution
8. Use of Proceeds Estimated Use of Proceeds
9. Selected Financial Data Inapplicable
10. Management's Discussion and Analysis Management's Discussion and
of Financial Condition and Results Analysis of Financial Condition
of Operations of the Partnership
11. General Information as to Registrant Summary of the Offering
12. Policy with Respect to Certain Activities Inapplicable
13. Investment Policies of Registrant
a. Investments in real estate or Inapplicable
interests in real estate
b. Investments in real estate Risk Factors; Investment
mortgages Objectives and Criteria;
Estimated Use of Proceeds
c. Securities of or interests in persons Inapplicable
primarily engaged in real estate
activities
d. Investments in other securities Inapplicable
14. Description of Real Estate Inapplicable
15. Operating Data Inapplicable
<PAGE>
16. Tax Treatment of Registrant and Its Federal Income Tax Consequences
Security Holder
17. Market Price of and Dividends on the Inapplicable
Registrant's Common Equity and
Related Stockholder Matters
18. Description of Registrant's Securities Terms of the Offering;
Description of Units; Summary
of Limited Partnership
Agreement
19. Legal Proceedings Inapplicable
20. Security Ownership of Certain Beneficial Inapplicable
Owners and Management
21. Directors and Executive Officers Management
22. Executive Compensation Compensation of the
General Partners and Affiliates
23. Certain Relationships and Related Management; Compensation of
Transactions the General Partners and
Affiliates; Conflicts of
Interest
24. Selection, Management and Custody Conflicts of Interest;
of Registrant's Investment Investment Objectives and
Criteria
25. Policies with Respect to Certain Conflicts of Interest;
Transactions Investment Objectives and
Criteria
26. Limitations of Liability Fiduciary Duty of General
Partners
27. Financial Statements and Information Financial Statements
28. Interests of Named Experts and Counsel Legal Opinion; Experts
29. Disclosure of Commission Position on Fiduciary Duty of General
Indemnification for Securities Partners
Act Liabilities
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
$30,000,000 Units of Limited Partnership Interest
$1 per Unit
We are engaged in business as a mortgage lender. We make loans to
individuals and business entities secured primarily by first and second deeds of
trust on California real estate. Loans are arranged and serviced by Redwood
Mortgage Corp.
Our investment objectives are to make investments that:
o Yield a high rate of return from mortgage lending
o Preserve and protect our capital
A maximum of 30,000,000 units ($30,000,000) are being offered
on a "best efforts" basis, which means that no one is guaranteeing that any
minimum number of units will be sold, through broker dealer member firms of the
National Association of Securities Dealers. As this is not our first offering of
units, all proceeds from the sale of units will be immediately available to us
for investment.
There are risks associated with an investment in the partnership (See "RISK
FACTORS") including the following:
o We will be subject to various conflicts of interest arising out of our
relationship to the general partners and their affiliates.
o Due to the speculative nature of the investment, there is a risk that you
could lose your entire investment.
o The formation loan to be made to Redwood Mortgage Corp. will be unsecured
and non-interest bearing, and repayment is not guaranteed.
o An investment in units involves material tax risks.
o Transfer of units is restricted; no public market for the units exists and
none is likely to develop.
o You will have a limited ability to liquidate your investment; you will be
subject to early withdrawal penalties and other restrictions and may be
required to accept less than you paid for your units.
o Our use of leverage may reduce the partnership's profitability or cause losses
through liquidation.
o We will rely on appraisals which may not be accurate to determine the fair
market value of the real property used to secure loans made by the
partnership.
o Loan defaults and foreclosures may adversely affect the partnership.
o You have no right to participate in the management of the partnership and
may only vote on those matters which are set forth in the limited
partnership agreement; all decisions with respect to the management of the
partnership will be made exclusively by the general partners.
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Price to Public Underwriting Proceeds to
commission (1) partnership
--------------------------------------------------------------------------------
Per Unit (Minimum
Investment 2,000 units) $1 $0 $1
Total Maximum $30,000,000 $0 $30,000,000
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(1) Underwriting commissions will be paid by Redwood Mortgage Corp. from
proceeds borrowed from the partnership. This loan is called the formation loan
and will be repaid by Redwood Mortgage Corp. over time.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if the
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The use of projections in this offering is prohibited. Any representation to the
contrary and predictions, written or oral, as to the amount or certainty of any
present or future cash benefit or tax consequence which may flow from an
investment in the partnership is not permitted.
The date of this prospectus is July 13, 2000
<PAGE>
TABLE OF CONTENTS
SUMMARY OF THE OFFERING........................................................1
The Partnership................................................................1
General Partners...............................................................1
Risk Factors...................................................................1
Terms Of The Offering..........................................................1
Estimated Use Of Proceeds......................................................2
Compensation Of The General Partners And Affiliates............................2
Conflicts Of Interest..........................................................2
Prior Performance Summary......................................................2
Investment Objectives And Criteria.............................................2
Federal Income Tax Consequences................................................3
Liquidity, Capital Withdrawal And Early Withdrawals............................3
Summary Of Limited Partnership Agreement.......................................3
Additional Information.........................................................3
Subscription Procedures........................................................3
RISK FACTORS...................................................................4
REAL ESTATE AND OPERATING RISKS................................................4
We Have Not Identified Any New Loans From Additional Proceeds Of
This Offering................................................................4
Loan Defaults And Foreclosures By Borrowers May Adversely Affect
Partnership..................................................................4
We Must Rely On Appraisals Which May Not Be Accurate Or May Be
Affected By Subsequent Events................................................4
Risks Associated With Junior Encumbrances......................................5
Risks Associated With Construction Loans.......................................5
Risk Of Real Estate Ownership After Foreclosure................................5
Risks Of Real Estate Development On Property Acquired By Us....................5
Bankruptcy And Legal Limitations On Personal Judgements May Adversely
Affect Our Profitability.....................................................6
Risks Associated With Unintended Violations Of Usury Statutes..................6
Risks Associated With High Cost Mortgages......................................6
Loan- To-Value Ratios Are Determined By Appraisals Which May Be In
Excess Of The Ultimate Purchase Price Of The Underlying Property.............7
Use Of Borrowed Money May Reduce Our Profitability Or Cause Losses
Through Liquidation..........................................................7
Changes In Interest Rates May Affect Your Return On Your Investment............7
Marshaling Of Assets Could Delay Or Reduce Recovery Of Loans...................8
Potential Liability For Toxic Or Hazardous Substances If We Are
Considered Owner Of Real Property............................................8
Potential Loss Of Revenue In The Event Of The Presence Of Hazardous
Substances..................................................................8
Potential Conflicts And Risks If We Invest In Loans With General
Partners Or Affiliates.......................................................9
INVESTMENT RISKS...............................................................9
There Is No Assurance You Will Receive Cash Distributions......................9
Your Ability To Recover Your Investment On Dissolution And Termination
Will Be Limited..............................................................9
Certain Kinds Of Losses Can Not Be Insured Against.............................9
Risks Related To Concentration Of Mortgages In The San Francisco Bay Area.....10
You Must Rely On General Partners For Management Decisions....................10
You Will Be Bound By Decision Of Majority Vote................................10
Net Worth Of The General Partners May Affect Ability Of General Partners
To Fulfill Their Obligations To The Partnership.............................10
Operating History Of The Partnership..........................................11
Risks Regarding Formation Loan And Repayment Thereof..........................11
Early Withdrawal Penalties....................................................11
Delays In Investment Could Adversely Affect Your Return.......................11
No Assurance Of Limitation Of Liability Of Limited Partners...................11
No Assurance That California Law Will Apply With Respect To Limitation
Of Liability Of Limited Partners............................................12
We Cannot Precisely Determine Compensation To Be Paid To General
Partners And Affiliates.....................................................12
Working Capital Reserves May Not Be Adequate..................................12
Purchase Of Units Is A Long Term Investment...................................12
<PAGE>
We May Be Required To Forego More Favorable Investment To Avoid Regulation
Under Investment Company Act of 1940........................................12
Use Of Forward Looking Statements.............................................13
TAX RISKS.....................................................................13
Material Tax Risks Associated With Investment In Units........................13
Risks Associated With Partnership Status For Federal Income Tax Purposes......13
Risks Associated With Characterization Of Partnership Income As Portfolio
Income.......................................................................13
Risks Of Partnership Characterization As A Publicly Traded Partnership........14
Risks Relating To Taxation Of Undistributed Revenues And Gain.................14
Risks Relating To Creation Of Unrelated Business Taxable Income...............14
Risks Of Applicability Of Alternative Minimum Tax.............................14
Risks Of Audit And Adjustment.................................................14
Risks Of Effects Of State And Local Taxation..................................15
ERISA RISKS...................................................................15
Risks Of Investment By Tax-Exempt Investors...................................15
INVESTOR SUITABILITY STANDARDS................................................16
Minimum Suitability Standards.................................................16
Minimum Purchase Amount.......................................................16
IRA Investors.................................................................16
ERISA Investors...............................................................16
Blue Sky Requirements.........................................................17
Subscription Agreement Warranties.............................................17
Subscription Procedure........................................................17
NOTICE TO CALIFORNIA RESIDENTS................................................17
TERMS OF THE OFFERING.........................................................17
No Escrow Established.........................................................17
Investment Of Subscriptions...................................................17
Purchase By General Partners And Affiliates...................................18
Guaranteed Payment For Offering Period........................................18
Election To Receive Periodic Cash Distributions...............................18
ESTIMATED USE OF PROCEEDS.....................................................19
CAPITALIZATION OF THE PARTNERSHIP.............................................20
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES...........................20
OFFERING STAGE................................................................21
OPERATING STAGE...............................................................21
LIQUIDATION STAGE.............................................................22
CONFLICTS OF INTEREST.........................................................24
Conflicts Arising As A Result Of The General Partners' Legal and Financial
Obligations to Other Partnerships...........................................24
Conflicts Arising From The General Partners' Allocation Of Time Between
The Partnership And Other Activities........................................24
Amount Of Loan Brokerage Commissions Affects Rate Of Return To Limited
Partners....................................................................25
Terms Of Formation Loan Are Not A Result Of Arms Length Negotiations..........25
Potential Conflicts If We Invest In Loans With General Partners
Or Affiliates...............................................................25
General Partners Will Represent Both Parties In Sales Of Real Estate
Owned to Affiliates.........................................................26
Professionals Hired By General Partners Do Not Represent You Or Any
Other Limited Partner.......................................................26
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS..............................26
Present State Of The Law......................................................27
Terms Of The Partnership Agreement............................................27
PRIOR PERFORMANCE SUMMARY.....................................................28
Experience and Background Of General Partners and Affiliates..................28
PUBLICLY OFFERED MORTGAGE PROGRAMS............................................29
PRIVATELY OFFERED MORTGAGE PROGRAMS...........................................29
Redwood Mortgage Investors V..................................................29
Redwood Mortgage Investors IV.................................................29
Redwood Mortgage Investors....................................................29
Corporate Mortgage Investors..................................................29
Additional Information........................................................29
<PAGE>
No Major Adverse Developments.................................................30
Prior Public Partnerships.....................................................30
Three Year Summary Of Loans Originated By Prior Limited Partnerships..........30
MANAGEMENT....................................................................31
General.......................................................................31
The General Partners..........................................................32
D. Russell Burwell............................................................32
Michael R. Burwell............................................................32
Gymno Corporation.............................................................32
Redwood Mortgage Corp.........................................................32
Affiliates of the General Partners............................................32
The Redwood Group, Ltd........................................................32
Theodore J. Fischer...........................................................32
SELECTED OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................33
SELECTED FINANCIAL DATA.......................................................34
ORGANIZATIONAL CHART..........................................................35
INVESTMENT OBJECTIVES AND CRITERIA............................................36
Principal Objectives..........................................................36
General Standards For Loans...................................................36
Priority Of Mortgages.........................................................36
Geographic Area Of Lending Activity...........................................37
Construction Loans............................................................37
Loan-To-Value Ratios..........................................................37
Terms Of Loans................................................................37
Equity Interests In Real Property.............................................38
Escrow Conditions.............................................................38
Loans To General Partners And Affiliates......................................38
Purchase Of Loans From Affiliates And Other Third Parties.....................38
Note Hypothecation............................................................38
Joint Ventures................................................................39
Diversification...............................................................39
Reserve Fund..................................................................39
Credit Evaluations............................................................39
Loan Brokerage Commissions....................................................39
Loan Servicing................................................................39
Sale Of Loans.................................................................39
Borrowing.....................................................................39
Other Policies................................................................39
CERTAIN LEGAL ASPECTS OF LOANS................................................40
Foreclosure...................................................................40
Tax Liens.....................................................................40
Anti-Deficiency Legislation...................................................40
Special Considerations In Connection With Junior Encumbrances.................41
"Due-On-Sale" Clauses.........................................................41
Due-On-Sale...................................................................41
Due-On-Encumbrance............................................................42
Prepayment Charges............................................................42
Real Property Loans...........................................................42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE
PARTNERSHIP.................................................................42
BUSINESS......................................................................47
FEDERAL INCOME TAX CONSEQUENCES...............................................52
Summary Of Material Tax Aspects...............................................52
Opinion Of Counsel............................................................53
Partnership Status.......................................................54
Publicly Traded Partnerships.............................................54
Results If Partnership Is Taxable As An Association......................55
Anti-Abuse Rules.........................................................56
<PAGE>
Taxation Of Partners - General................................................56
Allocation Of Profits And Losses..............................................56
Sale Of Partnership Units.....................................................56
Character Of Income Or Loss...................................................57
Treatment Of Loans Containing Participation Features..........................58
Repayment Or Sale Of Loans....................................................58
Property Held Primarily For Sale; Potential Dealer Status.....................58
Tax Consequences Of Reinvestment In Loans.....................................59
Partnership Organization, Syndication Fees And Acquisition Fees...............59
Original Issue Discount.......................................................59
Deduction Of Investment Interest..............................................59
Section 754 Election..........................................................60
Termination Of The Partnership................................................60
Tax Returns...................................................................60
Audit Of Tax Returns..........................................................60
Investment By Tax-Exempt Investors............................................61
Investment By Charitable Remainder Trusts.....................................62
Foreign Investors As Limited Partners.........................................62
State And Local Taxes.........................................................62
ERISA CONSIDERATIONS..........................................................63
General.......................................................................63
Fiduciaries Under ERISA.......................................................63
Prohibited Transactions Under ERISA And The Code..............................63
Plan Assets...................................................................64
Annual Valuation..............................................................64
Potential Consequences Of Treatment As Plan Assets............................65
DESCRIPTION OF UNITS..........................................................65
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT..................................66
Rights And Liabilities Of Limited Partners....................................66
Capital Contributions.........................................................66
Rights, Powers And Duties Of General Partners.................................66
Profits And Losses............................................................66
Cash Distributions............................................................67
Meeting.......................................................................67
Accounting And Reports........................................................67
Restrictions On Transfer......................................................67
General Partners' Interest....................................................67
Term Of Partnership...........................................................67
Winding Up....................................................................68
Dissenting Limited Partners' Rights...........................................68
TRANSFER OF UNITS.............................................................68
Restrictions On The Transfer Of Units.........................................68
No Assignment Permitted on Secondary Market..................................69
Withdrawal From Partnership...................................................69
DISTRIBUTION POLICIES.........................................................70
Distributions To The Limited Partners.........................................70
Cash Distributions............................................................70
Allocation Of Net Income And Net Losses.......................................71
REPORTS TO LIMITED PARTNERS...................................................71
PLAN OF DISTRIBUTION..........................................................71
Sales Commissions.............................................................71
Sales By Registered Investment Advisors.......................................71
Payment Of Sales Commission...................................................72
Payment Of Other Fees To Participating Broker Dealers.........................72
Suitability Requirements......................................................72
<PAGE>
Formation Loan................................................................73
Escrow Arrangements...........................................................73
Termination Date Of Offering..................................................74
Subscription Account..........................................................74
SUPPLEMENTAL SALES MATERIAL...................................................74
LEGAL PROCEEDINGS.............................................................75
LEGAL OPINION.................................................................75
EXPERTS.......................................................................75
ADDITIONAL INFORMATION........................................................75
TABULAR INFORMATION CONCERNING PRIOR PROGRAMS.................................75
GLOSSARY......................................................................76
INDEX TO THE FINANCIAL STATEMENTS.............................................78
APPENDIX I - PRIOR PERFORMANCE TABLES
EXHIBIT A - AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
EXHIBIT B - AMENDED AND RESTATED SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
<PAGE>
SUMMARY OF THE OFFERING
This summary highlights selected information contained elsewhere in
this prospectus. It does not contain all the information that is important to
your decision to invest in the partnership. To understand this offering fully,
you should read the entire prospectus carefully, including the "Risk Factors"
section and the financial statements.
The Partnership - We are Redwood Mortgage Investors VIII and we commenced
operations on or about April 12, 1993. We are located at 650 El Camino Real,
Suite G, Redwood City, California 94063 and our telephone number is (650)
365-5341.
We are engaged in business as a mortgage lender. We make loans to
individuals and business entities secured by residential, investment or
commercial property. In order to secure repayment of the loans, the loans are
secured by first and second, and in some limited cases, third deeds of trust on
the property.
General Partners - The general partners of the partnership are D. Russell
Burwell, Michael R. Burwell and Gymno Corporation, a California corporation and
Redwood Mortgage Corp., a California corporation. The general partners manage
and control the partnership affairs and will make all investment decisions for
us. The loans are arranged and serviced by Redwood Mortgage Corp.
Risk Factors - An investment in the partnership involves certain risks. The
following are the most significant risks relating to an investment in the
partnership:
o Although you will have an opportunity to review the partnership's
existing portfolio, you will not have an opportunity to review loans to be made
by the partnership from the proceeds of this offering until after the loans have
been made. Such decisions will be made exclusively by the general partners.
o No escrow will be established. All proceeds from the sale of units will
be immediately available for investment in loans.
o The general partners and their affiliates will receive fees from the
partnership. Most fees will be paid regardless of the economic return to you and
other limited partners or how successful the partnership is. The compensation to
be received by the general partners and their affiliates is based, in large part
upon the net asset value of the partnership and upon the principal balances of
the loans. The principal balances of the loans and the net asset value of the
partnership will be continually changing as new investments are made and as
income is allocated to your capital account or as cash distributions are made to
you.
o There are limits on your ability to transfer units. No public market
exists for units and none is likely to develop. Thus you may not be able to sell
your units quickly or profitably if the need arises.
Before you invest in the partnership, you should see the complete
discussion of the "Risk Factors" beginning on page 4 of this prospectus.
Terms of the Offering - Up to 30,000,000 units ($30,000,000) of limited
partnership interest in the partnership are offered in units of $1 each. The
units are being offered by selected registered broker dealers who are members of
the National Association of Securities Dealers, Inc. (the "participating broker
dealers"). They are being offered on a "best efforts" basis, which means that no
one is guaranteeing that any minimum number of units will be sold. We may also
accept orders from you if you utilize the services of a registered investment
advisor.
<PAGE>
Estimated Use of Proceeds. - The partnership will use the proceeds from the
sale of its units to make loans and pay expenses relating to the organization
and operation of the partnership. After the repayment of the formation loan, we
estimate that approximately 96% of the proceeds of this offering will be used to
make loans. The remaining proceeds will be used to pay expenses relating to the
organization and operation of the partnership. Until the formation loan is
repaid, a minimum of 84% of the proceeds will be used to make loans. However,
because of the time value of money, the amount of proceeds available to make
loans (96%) upon the repayment of the formation loan may be less than if 96% of
the proceeds of this offering were available to make loans today. If all of the
units we are offering are not sold, the amount of proceeds available to make
loans will be less.
Compensation of the General Partners and Affiliates - The general partners
and their affiliates have received and will continue to receive substantial
compensation in connection with the offering and the investment and management
of the partnership's assets. An affiliate of a general partner includes
generally any entity in which a general partner owns 10% or more or otherwise
controls any person owning directly or indirectly, 10% or more, of a general
partner and any officer, director or partner or a general partner. The receipt
of this compensation is not the result of arms length negotiations (See
"COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES" at page 20). The amount of
compensation to be paid to the general partners and their affiliates are
estimates and actual amounts paid may vary. Except as noted, there is no limit
on the dollar amount of compensation and fees to be paid to the general partners
and their affiliates.
Conflicts of Interest - The general partners and their affiliates will
experience conflicts of interest in connection with the management of the
partnership, including the following:
o The general partners and their affiliates have legal and financial
obligations with respect to other partnerships which are similar to their
obligations with respect to the partnership.
o The general partners and their affiliates have to allocate their time
between the partnership and other activities, including other real estate
partnerships in which they are involved.
o The amount of the loan brokerage commission payable to affiliates of the
general partners will affect the overall rate of return to the limited partners.
o In the event of default of the formation loan, a conflict of interest
would arise on the general partners' part in connection with the enforcement of
the formation loan and continued payment of other fees and compensation to
Redwood Mortgage Corp., including, but not limited to, the loan servicing fee
and the loan brokerage fee.
Prior Performance Summary - We have previously sponsored 8 prior
partnerships with investment objectives similar to the partnership and have made
2 prior offerings in the partnership with contributed capital as of May 31, 2000
totalling $41,593,569. We have been engaged in mortgage lending in the San
Francisco Bay Area since 1977. For a description of operations of the
partnership and prior programs of the general partners and their affiliates, see
"PRIOR PERFORMANCE SUMMARY" at page 27. Certain statistical data relating to
prior partnerships with investment objectives similar to ours is also provided
in the "Prior Performance Tables" included at the end of this prospectus.
Investment Objectives and Criteria - Our investment objectives are:
o To yield a high rate of return from mortgage lending, after the payment
of certain fees and expenses to the general partners and their affiliates, and
o Preserve and protect the partnership's capital.
Federal Income Tax Consequences - The section of this prospectus entitled
"FEDERAL INCOME TAX CONSEQUENCES" at page 50 contains a discussion of the most
significant federal income tax issues pertinent to the partnership. Other tax
issues of relevance to other taxpayers should be reviewed carefully by such
investors to determine special tax consequences of an investment prior to their
subscription.
Liquidity, Capital Withdrawals and Early Withdrawals - You have no right to
withdraw from the partnership or to obtain the return of all or any portion of
sums paid for the purchase of units (or reinvested earnings with respect
thereto) for one (1) year after the date such units are purchased. In order to
provide a certain degree of liquidity, after the one year period, you may
withdraw all or part of your capital accounts from the partnership in four equal
quarterly installments beginning the calendar quarter following the quarter in
which the notice of withdrawal is given. Such notice must be given thirty (30)
days prior to the end of the preceding quarter subject to a ten percent (10%)
early withdrawal penalty. The ten percent (10%) penalty is applicable to the
amount withdrawn as stated in the notice of withdrawal. The ten percent (10%)
penalty will be deducted, pro rata, from the four quarterly installments paid to
the limited partner. Withdrawal after the one year holding period and before the
five year holding period will be permitted only upon the terms set forth above.
You will also have the right after five years from the date of purchase of
the units to withdraw from the partnership. This will be done on an installment
basis, generally, over a five-year period (in 20 equal quarterly installments),
or over such longer period of time as the limited partner may desire or as may
be required in light of partnership cash flow. During this five-year (or longer)
period, we will pay any distributions with respect to units being liquidated
directly to the withdrawing limited partner. No penalty will be imposed on
withdrawals made in twenty quarterly installments or longer. There is also a
limited right of liquidation for your heirs upon your death.
Summary of Limited Partnership Agreement - Your rights and obligations in
the partnership and your relationship with the general partners will be governed
by the partnership agreement. Please refer to the "SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT" section at page 64 of this prospectus for more detailed
information concerning the terms of the partnership agreement. A complete copy
of the partnership agreement is attached as Exhibit A to this prospectus.
Additional Information - We have filed a registration statement under the
Securities Act of 1933, as amended. The partnership has filed with the
Securities and Exchange Commission, Washington, D.C. 20549, as amended, with
respect to the units offered pursuant to this prospectus. For further
information regarding the partnership, the general partners and their
activities, you should review the registration statement and to the exhibits
thereto which are available for inspection at no fee in the Office of the
Commission in Washington, D.C. 20549. Additionally, the Commission maintains a
website that contains reports, proxy information statements and other
information regarding registrants such as the partnership who file
electronically. The address of the Commission website is http://www.sec.gov.
Subscription Procedures In order to subscribe for units, you will be required to
deliver the following:
1. One executed copy of the subscription agreement, which incorporates a
power of attorney to the general partners.
2. A check in the amount of $1 for each unit subscribed for. The minimum
purchase is 2,000 units ($2,000). All checks should be made payable to "Redwood
Mortgage Investors VIII," and should be delivered to the partnership's offices.
<PAGE>
The subscription documents referred to above are contained in the "Investor
Subscription Documents" provided to prospective investors under separate cover
herewith.
RISK FACTORS
Investing in units involves a high degree of risk. You should specifically
consider the following risks:
Real Estate And Operating Risks
We Have Not Identified Any New Loans From Additional Proceeds of This
Offering - We have not yet identified any specific investments with respect to
the additional proceeds we will receive from this offering. Thus, this offering
presents increased uncertainties to you. You must rely entirely on the judgment
of the general partners in investing the proceeds of this offering. This means
you will be unable to evaluate, in advance, any of the terms of the loans
including the selection of borrowers, and the terms of the loans that will be
made.
Additionally, you will have no ability to evaluate the identification or
location of, or any other important economic and financial data pertaining to,
the underlying properties that secure the loans. No assurance can be given that
we will be successful in obtaining investments that meet our goals or that, if
investments are made, our objectives will be realized. Our current loan
portfolio is summarized in the sections of the prospectus entitled "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP" at page 41
and "BUSINESS" at page 46 of this prospectus.
Loan Defaults and Foreclosures By Borrowers May Adversely Affect
Partnership - We are in the business of lending money and, as such, take the
risk that borrowers may be unable to repay the loan we have made to them. Most
loans will be interest only or interest with small repayments of principal. This
means the loans are structured to provide for relatively small monthly payments
with a large "balloon" payment of principal due at the end of the term. Many
borrowers are unable to repay such loans at maturity out of their own funds and
are compelled to refinance or sell their property. Fluctuations in interest
rates and the unavailability of money could make it difficult for borrowers to
refinance their loans at maturity or sell their property. If a borrower is
unable to repay the loan and defaults, we may be forced to purchase the property
at a foreclosure sale. If we cannot quickly sell or refinance such property, and
the property does not produce any significant income, the partnership's
profitability will be adversely affected. The partnership may be required to
spend substantial funds if it is required to foreclose on a borrower. As of
March 31, 2000, the partnership's loan portfolio included seven (7) loans
delinquent over 90 days representing 14.86% of the total portfolio, inclusive of
one loan with a filed notice of default.
We Must Rely On Appraisals Which May Not Be Accurate or May Be Affected By
Subsequent Events - We are an "asset" rather than a "credit" lender. We are
relying primarily on the real property securing the loans to protect our
investment and not the credit worthiness of the borrower. We rely on appraisals,
prepared by unrelated third parties, to determine the fair market value of real
property used to secure our loans. We cannot guarantee that such appraisals
will, in any or all cases, be accurate. Additionally, since an appraisal fixes
the value of real property at a given point in time, subsequent events could
adversely affect the value of real property used to secure a loan. These
subsequent events may include general or local economic conditions, neighborhood
values, interest rates and new construction. Subsequent changes in applicable
governmental laws and regulations may also have the effect of severely limiting
the permitted uses of the property. This could also drastically reduce the
property's value. Accordingly, if an appraisal is not accurate or subsequent
events adversely effect the value of the property, our loan would not be as
secure as we anticipated. In the event of foreclosure, we may not be able to
recover our entire investment.
<PAGE>
Risks Associated With Junior Encumbrances - In the event of foreclosure
under a second or third deed of trust the debt secured by a senior deed(s) of
trust must be satisfied before any proceeds from the sale of the property can be
applied toward the debt owed to us. Furthermore, to protect our junior security
interest, we may be required to make substantial cash outlays for such items as
loan payments to senior lienholders to prevent their foreclosure, property
taxes, insurance, repairs, maintenance and any other expenses associated with
the property. These expenditures could have an adverse effect on our
profitability.
Risks Associated With Construction Loans - We may make construction loans
up to a maximum of ten percent (10%) of the partnership's loan portfolio.
Investing in construction loans subjects us to greater risk than loans related
to properties with operating histories. If the partnership forecloses on
property under construction, construction will generally have to be completed
before the property can begin to generate an income stream or could be sold. We
may not have adequate cash reserves on hand with respect to junior-encumbrances
and/or construction loans at all times to protect our security. If we did not
have adequate cash reserves, we could suffer a loss of our investment. (See
"CERTAIN LEGAL ASPECTS OF LOANS" at page 40).
Risks of Real Estate Ownership After Foreclosure - If a borrower is unable
to pay our loan or refinance it when it is due, we will be required to institute
foreclosure proceedings against the borrower. Although we may immediately be
able to sell the property, sometimes we will be required to own the property for
a period of time. Regardless of how long we own the property, we will be subject
to certain economic and liability risks attendant to all property ownership.
Depending on the type of property (whether it is a single family, multifamily or
commercial property, land, or a property under construction), the risks of
ownership will include the following:
o It is possible that the property could generate less income for us than
we could have earned from interest on the loan
o If the property is a rental property (either residential or commercial)
we will be required to find and keep tenants
o We will be required to oversee and control operating expenses
o We will be subject to general and local real estate and economic market
conditions which could adversely affect the value of the property
o We will be subject to any change in laws or regulations regarding taxes,
use, zoning and environmental protection and hazards
o We will be potentially liable for any injury that occurs on or to the
property
We will obtain the type of insurance customarily held by owners of real
property to the extent it is available. The type and nature of the insurance
will vary depending on the type of property, the use of the property and the
anticipated length of ownership.
Risks of Real Estate Development On Property Acquired By Us - If we have
acquired property through foreclosure or otherwise, there may be circumstances
in which it would be in the best interest of the partnership not to immediately
sell the property, but to develop it ourselves. To date, we have not held a
property for development. Depending upon the location of the property and market
conditions, the development done by us could be either residential (single or
multifamily) or commercial. It is likely that any development done by us would
be done in combination with other affiliated or nonaffiliated parties including
a general contractor. Development of any type of real estate involves certain
additional risks including the following:
o We will be required to rely on the skill and financial stability of third
party developers and contractors
o Any development or construction will involve obtaining local government
permits. We will be subject to the risk that our project does not meet the
requirements necessary to obtain those permits
o Any type of development and construction is subject to delays and cost
overruns
o There can be no guarantee that upon completion of the development that we
will be able to sell the property or realize a profit from the sale
o Economic factors and real estate market conditions could adversely affect
the value of the property
Bankruptcy and Legal Limitations On Personal Judgments May Adversely Affect
Our Profitability - Any borrower has the ability to delay a foreclosure sale by
us for a period ranging from several months to several years or more by filing a
petition in bankruptcy. The filing of a petition in bankruptcy automatically
stops or "stays" any actions to enforce the terms of the loan. The length of
this delay and the costs associated with it will generally have an adverse
impact on our profitability. Certain provisions of California law applicable to
all real estate loans may prevent us from obtaining a personal judgment against
a borrower if the proceeds from a foreclosure sale are insufficient to pay the
loans in full. This would result in a loss to the partnership. (See "CERTAIN
LEGAL ASPECTS OF LOANS" at page 40). As of May 31, 2000, no borrowers were in
bankruptcy.
Risks Associated With Unintended Usury Violations of Usury Statutes - laws
impose restrictions on the maximum interest that may be charged on our loans.
Potential penalties for violation of the usury law generally include restitution
of actual usurious interest paid by the borrower, damages in an amount equal to
three times the interest collected by the lender and unenforceability of the
loan. Under California law, a loan arranged by a licensed California real estate
broker will be exempt from applicable California usury provisions. Since Redwood
Mortgage Corp., a licensed California real estate broker, will arrange our
loans, our loans should be exempt from applicable state usury provisions.
Nevertheless, unintended violations of the usury statutes may occur. In such an
event, the partnership may have insufficient cash to pay any damages, thereby
adversely affecting the operations of the partnership. We could also lose our
entire investment.
Risks Associated With High Cost Mortgages - In March 1995, the Federal
Reserve Board issued final regulations governing high cost mortgages. A high
cost mortgage is any loan made to a consumer secured by the consumer's principal
residence if either (i) the annual percentage rate exceeds by more than ten
points the yield on Treasury securities having comparable periods of maturity or
(ii) the total fees payable by a consumer at or before closing exceeds the
greater of eight percent (8%) of the total loan amount or $400. These
regulations primarily focus on:
o additional disclosure with respect to the terms of the loan to the
borrower,
o the timing of such disclosures, and
o the prohibition of certain terms in the loan including balloon payments
and negative amortization.
The failure to comply with the regulations, even the unintended failure
will render the loan rescindable for up to three (3) years. The lender could
also be held liable for attorneys' fees, finance charges and fees paid by the
borrower and certain other money damages. Although the partnership anticipates
making relatively few loans that would qualify as high cost mortgages, the
failure to comply with these regulations could adversely affect the partnership.
<PAGE>
Loan-To-Value Ratios Are Determined By Appraisals Which May Be In Excess of
the Ultimate Purchase Price of Underlying Property - The general partners will
determine the principal amount of each loan. Generally, the amount of the loan
combined with the outstanding debt secured by a senior deed of the trust on the
security property compared to the value of the property, the so-called "loan to
value ratio" will not exceed the following:
o eighty percent (80%) of the appraised value for residential properties,
o seventy percent (70%) of the appraised value for commercial property and
o fifty percent (50%) of the appraised value for unimproved land.
Any of the foregoing loan-to-value ratios may be increased if, in the sole
discretion of the general partners, a given loan is supported by credit or other
factors adequate to justify a higher loan-to-value ratio. These factors include
high net worth, previous borrowing experience with us, and additional
collateral. To date, there have been no adjustments to the foregoing
loan-to-value ratios.
The foregoing loan-to-value ratios will not apply in the event we agree to
help finance the purchase of property we have acquired through foreclosure. They
will also not apply in the event we refinance a loan in default upon maturity.
However, in no event will the loan-to-value ratio for construction loans exceed
eighty percent (80%) of the independently appraised completed value of the
property. The loan-to-value ratios set forth above relate to the appraised value
of a property which may be in excess of the ultimate purchase price of the
underlying property. We cannot assure you that such appraisals will reflect the
actual amount buyers will pay for the property. Further, if the value of the
property declines to a value below the amount of the loan, the loan could become
under-collateralized. This would result in a risk of loss for the partnership if
the borrower defaults on the loan.
Use Of Borrowed Money May Reduce Our Profitability or Cause Losses Through
Liquidation - We are permitted and have borrowed funds for the purpose of making
loans, for increased liquidity, reducing cash reserve needs or for any other
proper partnership purpose on any terms commercially available. We may assign
all or a portion of our loan portfolio as security for such loans. The maximum
amount we may borrow is fifty percent (50%) of the outstanding principal balance
of our total loan portfolio. We anticipate engaging in such borrowing when the
interest rate at which we can borrow funds is somewhat less than the rate that
can be earned on our loans (See "INVESTMENT OBJECTIVES AND CRITERIA - Borrowing"
at page 39).
Changes in the interest rate have a particularly adverse effect on us if we
have borrowed money to fund loans. Borrowed money will bear interest at a
variable rate, whereas we are likely to be making fixed rate loans. Thus, if
prevailing interest rates rise, we may have to pay more in interest on the
borrowed money than we make on loans to our borrowers. This will reduce our
profitability or cause losses through liquidation of loans in order to repay the
debt on the borrowed money. It is possible that we could default on our
obligation if we cannot cover the debt on the borrowed money.
Changes In Interest Rates May Affect Your Return On Your Investment -
Mortgage interest rates are subject to abrupt and substantial fluctuations. We
have made, and anticipate to continue to make a large number of medium to long
range term (three to fifteen year) loans. Your purchase of units is an illiquid
investment. If prevailing interest rates rise above the average interest rate
being earned by our loan portfolio, you may be unable to quickly sell your units
in order to take advantage of higher returns available from other investments.
In addition, an increase in interest rates accompanied by a tight supply of
mortgage funds may make refinancing by borrowers with balloon payments difficult
or impossible. This is true regardless of the market value of the underlying
property at the time such balloon payments are due. In such event, the property
may be foreclosed upon (See "CERTAIN LEGAL ASPECTS OF LOANS" at page 40).
<PAGE>
Marshaling of Assets Could Delay Or Reduce Recovery of Loans - As security
for a single loan, we may require a borrower to execute deeds of trust on other
properties owned by the borrower in addition to the property the borrower is
purchasing or refinancing. This provides us with additional security for the
borrower's loan. In the event of a default by the borrower, we may be required
to "marshal" the assets of the borrower, if there are lienholders junior to us.
Marshaling is an equitable doctrine used to protect a junior lienholder with a
security interest in a single property from being "squeezed out" by a senior
lienholder, such as us, with security interest not only in the property, but in
one or more additional properties. Accordingly, if another creditor of the
borrower forced us to marshal the borrower's assets, foreclosure and eventual
recovery of the loan could be delayed or reduced, and our costs associated
therewith could be increased.
Potential Liability For Toxic Or Hazardous Substances If We Are Considered
Owner of Real Property - If we take an equity interest in, management control
of, or foreclose on any of the loans, we may be considered the owner of the real
property securing such loans. If foreclosure on any loan becomes necessary and
we acquire record ownership of the property through a foreclosure sale to
protect our investment, we will conduct our management of the property primarily
to protect our security interest in the property.
We will oversee the management of any facility on the property in order to
minimize the potential for liability for cleanup of any environmental
contamination under applicable federal, state, or local laws. In the event of
any environmental contamination, there can be no assurance that we would not
incur full recourse liability for the entire cost of any such removal and
cleanup, even if we did not know about or participate in the contamination. Full
recourse liability means that any of our property, including the contaminated
property, could be sold in order to pay the costs of cleanup in excess of the
value of the property at which such contamination occurred. Additionally, we
would have to bear the cost of such removal and cleanup which may exceed the
value of the property. In addition, we could incur liability to tenants and
other users of the affected property, or users of neighboring property,
including liability for consequential damages. Consequential damages are damages
which are a consequence of the contamination but are not costs required to clean
up the contamination, such as lost profits of a business.
Potential Loss Of Revenue In The Event Of The Presence of Hazardous
Substances - If we became the "owner" of any real property, we would also be
exposed to risk of lost revenues during any cleanup, the risk of lower lease
rates or decreased occupancy if the existence of such substances or sources on
the property were a health risk. If we fail to remove the substances or sources
and clean up the property, it is possible that federal, state, or local
environmental agencies could perform such removal and cleanup. Such agencies
would impose and subsequently foreclose liens on the property for the cost
thereof. A "lien" is a charge against the property of which the holder may cause
the property to be sold and use the proceeds in satisfaction of the lien. We may
find it difficult or impossible to sell the property prior to or following any
such cleanup. If such substances are discovered after we sell the property, we
could be liable to the purchaser thereof if the general partners knew or had
reason to know that such substances or sources existed. In such case, we could
also be subject to the costs described above.
If toxic or hazardous substances are present on real property, we as the
owner may be responsible for the costs of removal or treatment of the substance.
We may also incur liability to users of the property or users of neighboring
property for bodily injury arising from exposure to such substances. If we are
required to incur such costs or satisfy such liabilities, this could have a
material adverse effect on our profitability. Additionally, if a borrower is
required to incur such costs or satisfy such liabilities, this could result in
the borrower's inability to repay its loan from us. If we anticipate that we may
become the owner of property that may be subject to toxic or hazardous clean-up,
the general partners may, in their discretion, seek to transfer or sell the loan
to an affiliated or unaffiliated entity.
<PAGE>
Potential Conflicts and Risks If We Invest In Loans With General Partners
or Affiliates - We may invest in loans acquired by the general partners or
affiliates. Our portion of the total loan may be smaller or greater than the
portion of the loan made by the general partners or affiliates, but will
generally be on terms substantially similar to the terms of the our investment.
Such an investment would be made after a determination by the general partners
that the entire loan is in an amount greater than would be suitable for the
partnership to make on its own, or that we will benefit through broader
diversification of our loan portfolio. However, you should be aware that
investing with the general partners or affiliates could result in a conflict of
interest between the partnership and the general partners or affiliates in the
event that the borrower defaults on the loan and both the partnership and the
general partners or affiliates protect their own interest in the loan and in the
underlying security.
In order to minimize the conflicts of interest which may arise if we invest
in loans with the general partners or affiliates, we will acquire our interest
in the loan on the same terms and conditions as does the general partners or
affiliates and the terms of the loan will conform to the investment criteria
established by the partnership for the origination of loans. By investing in a
loan on the same terms and conditions as do the general partners or an
affiliate, we will be entitled to enforce the same rights as the general
partners or affiliate in such a loan and the general partners and affiliate will
not have greater rights in the loan than do we. As a result, in the event of a
default by the borrower, any efforts by the general partners, an affiliate, or
us to enforce the terms of the loan will benefit those persons with interests in
the loan based upon their respective ownership interests. (See "CONFLICTS OF
INTEREST" at page 24).
Investment Risks
There Is No Assurance You Will Receive Cash Distributions - The general
partners and their affiliates are paid and reimbursed by the partnership for
certain services performed for the partnership and expenses paid on behalf of
the partnership (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES" at
page 2). The general partners may retain other firms to perform other services.
The partnership bears all other expenses incurred in its operations. All of
these fees and expenses are deducted from cash funds generated by the operations
of the partnership prior to computing the amount that is available for
distribution to the general and limited partners. Therefore, the general
partners and affiliates may benefit as a result of our activities, irrespective
of any cash distributions to you. The general partners, in their discretion, may
also retain any portion of cash funds generated from operations for working
capital purposes of the partnership. Accordingly, there is no assurance as to
when or whether cash will be available for distributions to you.
Your Ability To Recover Your Investment On Dissolution and Termination Will
Be Limited - In the event of dissolution or termination of the partnership, the
proceeds realized from the liquidation of assets, if any, will be distributed to
the partners only after the satisfaction of claims of creditors. Accordingly,
your ability to recover all or any portion of your investment under such
circumstances will depend on the amount of funds so realized and claims to be
satisfied therefrom.
Certain Kinds of Losses Cannot Be Insured Against - We will require
comprehensive insurance, including fire and extended coverage, which is
customarily obtained for or by a lender, on properties in which it acquires a
security interest. Generally, such insurance will be obtained by and at the cost
of the borrower. However, there are certain types of losses (generally of a
catastrophic nature, such as civil disturbances and acts of God such as
earthquakes, floods and slides) which are either uninsurable or not economically
insurable. Should such a disaster occur to, or cause the destruction of, any
property serving as collateral for a loan, we could lose both our invested
capital and anticipated profits from such investment. In addition, on certain
real estate owned by us as a result of foreclosure, we may require homeowner's
liability insurance. However, insurance may not be available for theft,
vandalism, land or mud slides, hazardous substances or earthquakes on all real
estate owned and losses may result from destruction or vandalism of the property
thereby adversely effecting our profitability.
Risks Related To Concentration of Mortgages in the San Francisco Bay Area -
As of March 31, 2000, 78.99% ($35,746,812) of our loans are secured by
properties located in 6 counties that comprise the San Francisco Bay Area. While
the San Francisco Bay Area economy has recently enjoyed strong growth and low
unemployment, there is no guarantee that economic and real estate market
conditions will not change in the future. Recently, there are signs that the Bay
Area's growth and economic conditions may be slowing, or at least not growing at
as steady a rate as in the past several years. Our concentration of loans in the
San Francisco Bay Area exposes us to greater risk of loss if the economy in the
San Francisco Bay Area should change than if our loans were spread throughout
California or the nation. The San Francisco Bay Area economy and/or real estate
market conditions could be weakened by:
o An economic recession in or slowdown the area
o Overbuilding of commercial and residential properties
o Relocation of businesses outside of the area due to economic factors such
as high cost of living and of doing business within the region
o Increased interest rates thereby weakening the general real estate market
If the economy were to weaken it is likely that there would be more
property available for sale, values would fall, and lending opportunities would
decrease. In addition, a weak economy and increased unemployment could adversely
affect borrowers resulting in an increase in the number of loans in default.
You Must Rely on the General Partners For Management Decisions - All
decisions with respect to the management of the partnership will be made
exclusively by the general partners. Our success will, to a large extent, depend
on the quality of the management of the partnership, particularly as it relates
to lending decisions. You have no right or power to take part in the management
of the partnership. Accordingly, you should not purchase any of the units
offered hereby unless you are willing to entrust all aspects of the management
of the partnership to the general partners. You should carefully evaluate the
general partners' capabilities to perform such functions (See "MANAGEMENT" at
page 31).
You Will Be Bound By Decision of Subject to certain limitations, limited
partners holding a majority of units may vote Majority Vote to, among other
things:
o amend or terminate contracts for services and goods between the general
partners and the partnership,
o remove the general partners,
o dissolve the partnership,
o approve or disapprove the sale of all or substantially all of the
partnership's assets and
o amend the partnership agreement.
If you do not vote with the majority in interest of the other limited
partners, you nonetheless will be bound by the majority vote. The general
partners shall have the right to increase this offering or conduct an additional
offering of securities without obtaining your consent or the consent of any
other limited partner. (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT at
page 66" and "TRANSFER OF UNITS" at page 68).
Net Worth of the General Partners May Affect Ability of the General
Partners To Fulfill Their Obligations To The Partnership - The general partners
have represented that they have an aggregate net worth on a GAAP basis in excess
of $1,000,000, a significant portion of which consists of assets which are
illiquid. This may be relevant in evaluating the ability of the general partners
to fulfill their obligations and responsibilities to the partnership (See
"MANAGEMENT" at page 31).
Operating History of the Partnership - In addition to the partnership, the
general partners have been the general partners of 8 prior partnerships with
similar investment objectives. The general partners have also conducted prior
public offerings, raising $41,593,569 as of May 31, 2000. Our continued success
depends on the extent to which we will continue to operate in accordance with
the expectations and assumptions set forth in this prospectus (See "PRIOR
PERFORMANCE SUMMARY" at page 28).
Risks Regarding Formation Loan and Repayment Thereof - The partnership will
loan to Redwood Mortgage Corp., a general partner, funds in an amount equal to
the sales commissions (See "PLAN OF DISTRIBUTION - Formation Loan" at page 73).
The formation loan will be unsecured, will not bear interest and will be repaid
in annual installments. Redwood Mortgage Corp. shall make annual installments of
one-tenth of the principal balance of the formation loan as of December 31 of
each year. Such payment shall be due and payable by December 31 of the following
year. Prior to the termination of this offering, the principal balance of the
formation loan will increase as additional sales of units are made each year.
Upon completion of this offering, the balance of the formation loan will be
repaid in ten (10) equal annual installments of principal, without interest,
commencing on December 31 of the year following the year this offering
terminates. Redwood Mortgage Corp., at its option may prepay all or any part of
the formation loan. Redwood Mortgage Corp. intends to repay the formation loan
principally from loan brokerage commissions earned on loans and other fees paid
by the partnership.
Early Withdrawal Penalties Will Reduce Amount of Formation Loan - A portion
of the amount we receive from withdrawing limited partners as early withdrawal
penalties may first be applied to reduce the principal balance of the formation
loan. This will have the effect of reducing the amount owed by Redwood Mortgage
Corp. to the partnership. If all or any one of the initial general partners are
removed as a general partner by the vote of a majority of limited partners and a
successor or additional general partner(s) begins using any other loan brokerage
firm for the placement of loans or loan servicing, Redwood Mortgage Corp. will
be immediately released from any further payment obligation under the formation
loan (except for a proportionate share of the principal installment due at the
end of that year, pro rated according to the days elapsed). If all of the
general partners are removed, no other general partners are elected, the
partnership is liquidated and Redwood Mortgage Corp. is no longer receiving
payments for services rendered, the debt on the formation loan shall be forgiven
by the partnership. Redwood Mortgage Corp. will be immediately released from any
further obligations under the formation loan. As noted above, the formation loan
will not bear interest. The non-interest bearing feature of the formation loan
will have the effect of slightly diluting your rate of return, but to a much
lesser extent than if the partnership were required to bear all of its own
syndication expenses out of the offering proceeds.
Delays In Investment Could Adversely Affect Your Return - A delay will
occur between the time you purchase your units and the time the net proceeds of
the offering are invested. This delay could adversely affect the return paid to
you. In order to mitigate this risk, pending the investment of the proceeds of
this offering, funds will be placed in such highly liquid, short-term
investments as the general partners shall designate. The interest earned on such
interim investments is expected to be less than the interest earned by the
partnership on loans. The general partners estimate, based upon their historical
experience, that it will be no longer than ninety (90) days from the time your
funds are received by us until they are invested in loans.
No Assurance of Limitation of Liability of Limited Partners - As a limited
partner, you have no right to, and you take no part in, control and management
of the partnership's business. However, the partnership agreement authorizes all
limited partners to exercise the right to vote on certain matters, including the
right to remove the general partners and elect a successor general partner(s)
(See "SUMMARY OF PARTNERSHIP AGREEMENT - Rights and Liabilities of Limited
Partners" at page 66). The California Revised Limited Partnership Act expressly
provides that the right to vote on those matters will not cause you or any other
limited partner to have personal liability for partnership obligations in excess
of the amount of your capital contributions which have not been previously
returned to you. However, you may be required to return amounts distributed to
you as a return of your capital contribution if we are unable to pay creditors
who extended credit to us prior to the date of such return of capital.
No Assurance That California Law Will Apply With Respect To Limitation Of
Liability Of Limited Partners - McCutchen, Doyle, Brown & Enersen, LLP, counsel
for the partnership, has advised that strong arguments may be made in support of
the conclusion that California law governs in all states as to the liability of
the limited partners and that neither the possession nor the exercise of such
rights should affect the liability of the limited partners. However, McCutchen,
Doyle, Brown & Enersen, LLP, counsel for the partnership, has also advised that
since there is no authoritative precedent on this issue, a question exists as to
whether the exercise, or perhaps even the existence, of such voting rights might
provide a basis on which a court in a state other than California could hold
that you are not entitled to the limitation on liability for which the
partnership agreement provides. This is only a concern if you are not a
California resident.
We Cannot Precisely Determine Compensation To Be Paid General Partners and
Affiliates - The general partners and their affiliates are unable to predict the
amounts of compensation to be paid to them as set forth under "COMPENSATION OF
THE GENERAL PARTNERS AND AFFILIATES" at page 20. Any such prediction would
necessarily involve assumptions of future events and operating results which
cannot be made at this time.
Working Capital Reserves May Not Be Adequate - We intend to maintain
working capital reserves to meet our obligations, including carrying costs and
operating expenses of the partnership (See "ESTIMATED USE OF PROCEEDS" at page
20). The general partners believe such reserves are reasonably sufficient for
our contingencies. If for any reason those reserves are insufficient, the
general partners will have to borrow the required funds or require the
partnership to liquidate some or all of our loans. In the event the general
partners deem it necessary to borrow funds, there can be no assurance that such
borrowing will be on acceptable terms or even available to us. Such a result
might require us to liquidate our investments and abandon our activities.
Purchase of Units is a Long Term Investment - No public trading market for
the units exists. It is highly unlikely that a public trading market will ever
develop. Article VII of the partnership agreement imposes substantial
restrictions upon your ability to transfer units (See "SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT" at page 66 and "TRANSFER OF UNITS" at page 68). In
addition, the partnership agreement does not provide for the buy-back or
repurchase of units by the partnership or the general partners. It does however,
provide you with a limited right to withdraw capital from the partnership after
one year from the date of purchase subject to an early withdrawal penalty of 10%
of the amount withdrawn. You may also withdraw after five years from the date of
purchase without penalty subject to certain limitations. (See "TRANSFER OF UNITS
- Withdrawal from Partnership" at page 69). You may not, therefore, be able to
liquidate your investment in the event of an emergency before the five year
period without the ten percent (10%) penalty and any such liquidation is subject
to certain restrictions, including the availability of cash. There is no
assurance that the value of units for purposes of this withdrawal in any way
reflects the fair market value of the units. In addition, your units may not be
readily accepted as collateral for a loan. Consequently, you should consider the
purchase of units only as a long-term investment.
We May Be Required to Forego More Favorable Investments to Avoid Regulation
Under Investment Act of 1940 - The general partners intend to conduct the
operations of the partnership so that we will not be subject to regulation under
the Investment Company Act of 1940. Among Company other things, they will
monitor the proportions of our funds which are placed in various investments and
the form of such investments so that we do not come within the definition of an
investment company under such Act. As a result, we may have to forego certain
investments which would produce a more favorable return
Use of Forward Looking Statements - Some of the information in this
prospectus contains forward-looking statements that involve substantial risks
and uncertainties. You can identify these statements by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate" and
"continue" or similar words. You should read statements that contain these words
carefully because they: (1) discuss our future expectations; (2) contain
projections of our future results of operations or of our financial condition;
or (3) state other "forward-looking" information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
over which we have no control. These events may include future operating
results, our efforts to address year 2000 issues and potential competition among
other things. The risk factors listed in this section, as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Before you invest in the
partnership, you should be aware that the occurrence of events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
Tax Risks
Material Tax Risks Associated With Investment In Units - An investment in
units involves material tax risks for you. You are urged to consult your own tax
adviser with respect to the federal (as well as state and local) income tax
consequences of such an investment. For a more detailed description of the tax
consequences of an investment in units, you should review the section of this
prospectus entitled "FEDERAL INCOME TAX CONSEQUENCES at page 50."
Risks Associated With Partnership Status For Federal Income Tax Purposes -
We will not seek a ruling from the Internal Revenue Service that the partnership
will be treated as a partnership for federal income tax purposes. We have
received an opinion from McCutchen, Doyle, Brown & Enersen, LLP, that the
partnership should be treated as a partnership for federal income tax purposes.
Counsel's opinion represents only its best legal judgment, and has no binding
effect on the IRS or any court, and no assurance can be given that the
conclusions reached in said opinion would be sustained by a court if contested.
Any such contest to a determination by the IRS may impose an additional
litigation expense on the limited partners. If we are taxed as a corporation we
would, among other things, pay income tax on our earnings in the same manner and
at the same rate as a corporation, and losses, if any, would not be deductible
by the limited partners. Also, you would be taxed upon distributions
substantially in the manner that corporate shareholders are taxed on dividends.
Thus, if we were treated as an association taxable as a corporation, many of the
tax benefits that would otherwise be realized by you as a limited partner would
be lost (See "FEDERAL INCOME TAX CONSEQUENCE - Partnership Status" at page 54).
Risks Associated With Characterization of Partnership Income as Portfolio -
We are engaged in the trade or business of mortgage lending (See "FEDERAL INCOME
TAX CONSEQUENCES - Character of Income or Loss" at page 57). We anticipate that
we will Income likely be considered an "equity financed lending activity" such
that most of our income will be considered portfolio income not passive income.
Since such treatment is dependent upon a number of factors not yet determined
such as whether we are engaged in a trade or business, whether we incur
liabilities in connection with our activities, and the proper matching of the
allocable expenses incurred in the production of partnership income, there can
be no assurance that we will be treated as an equity financed lending activity.
If we are not, it is possible that we would be unable to allocate expenses to
the income produced, in which case investors might find their ability to offset
income with allocable expenses limited by the two percent (2%) floor on
miscellaneous investment expenses.
Furthermore, the partnership's guaranteed payment period will likely be
treated as a guaranteed payment to investors. As such, it should be treated as a
payment to partners for the use of capital and, to that extent, will be treated
as a payout of interest which again should be treated as portfolio income. If
such guaranteed payment period were treated as a partnership distributive share,
it is possible although unlikely, that such payment would constitute passive
income.
The determination of whether your share of income will constitute passive,
non-passive, or portfolio income is a technical one subject to the
interpretation of recent and complex regulations whose full impact has not yet
been determined. It is possible that the treatment of partnership income will be
different than what we currently anticipate.
Risks of Partnership Characterization As a Publicly Traded Partnership -
McCutchen, Doyle, Brown & Enersen, LLP, counsel for the partnership has given
its opinion that it is more likely than not that the partnership will not be
treated as a "publicly traded partnership" for federal income tax purposes. If
the partnership were classified as a "publicly traded partnership" it could
result in:
o taxation of the partnership as a corporation;
o application of the passive activity loss rules in a manner that could
adversely affect you and all investors; and
o taxation of a tax-exempt organization's share of the gross income of the
partnership as taxable unrelated trade or business income (See "FEDERAL INCOME
TAX CONSEQUENCES -- Publicly Traded Partnerships" at page 54).
Risks Relating to Taxation of Undistributed Revenues and Gain - We do not
anticipate that we will generate so-called "phantom income." The problem of
phantom income is commonly associated with leveraged real estate investment
programs. Whereas a leveraged real estate program would typically provide for
tax sheltered cash flow in its early years, such a program generally reaches a
cross-over point when the taxable income from the program exceeds the cash
distributions (due to decreasing depreciation and increasing non-deductible
principal payments under the typical amortization schedule for real estate
loans). As the partnership will not generally be claiming depreciation or
interest deductions on real estate, except in the case of a foreclosure of one
of the partnership's loans, the general partners anticipate, based upon
historical experience, that the partnership's taxable income will not differ
substantially from the cash flow generated by our lending activities.
Risks Relating to Creation of Unrelated Business Taxable Income - If you
are a tax-exempt investor (such as an employee pension benefit plan or an IRA)
may be subject to tax to the extent that income from the partnership is treated
as unrelated business taxable income ("UBTI"). McCutchen, Doyle, Brown &
Enersen, LLP, counsel to the partnership, has opined that it is more likely than
not that the income of the partnership will not constitute UBTI. We may borrow
funds on a limited basis. We do not currently intend to own and lease personal
property. If we borrow funds or lease personal property, we will use reasonable
efforts to do so in a manner that does not cause any significant amount of
partnership income to be treated as UBTI. As a result of the possibility that
some portion, although likely an insignificant portion, of partnership income
may be treated as UBTI, if you are a tax-exempt investor you should consult your
own tax advisors. An investment in units may not be suitable for charitable
remainder trusts.
Risks of Applicability of Alternative Minimum Tax - The application of the
alternative minimum tax to you could reduce certain tax benefits associated with
the purchase of units. The effect of the alternative minimum tax upon an
investor depends on his particular overall tax situation, and you should consult
with your own tax adviser regarding the possible application of this tax.
Risks of Audit and Adjustment - The IRS could challenge certain federal
income tax positions taken by the partnership if we are audited. Any adjustment
to the partnership's return resulting from an audit by the IRS would result in
adjustments to your tax returns and might result in an examination of items in
such returns unrelated to the partnership or an examination of tax returns for
prior or later years. Moreover, the partnership and investors could incur
substantial legal and accounting costs in contesting any IRS challenge,
regardless of the outcome. The general partners generally will have the
authority and power to act for and bind the partnership in connection with any
such audit or adjustment for administrative or judicial proceedings in
connection therewith.
Risks of Effects of State and Local Taxation - The state in which you
reside may impose an income tax upon your share of the taxable income of the
partnership. Furthermore, states in which the partnership will own property
generally impose income tax upon each partner's share of a partnership's taxable
income considered allocable to such states. Differences may exist between
federal income tax laws and state and local income tax laws. You are urged to
consult with your own tax advisers with respect to state and local taxation. The
partnership may be required to withhold state taxes from distributions to
investor in certain instances.
Erisa Risks
Risks of Investment By Tax-Exempt Investors - In considering an investment
in the partnership, if you are a pension or profit-sharing plan qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a), you should
consider (i) whether the investment satisfies the diversification requirements
of Section 404(a)(3) of the Employee Retirement Income Security Act of 1974
("ERISA"); (ii) whether the investment is prudent, since units are not freely
transferable and there may not be a market created in which you can sell or
otherwise dispose of the units; and (iii) whether interests in the partnership
or the underlying assets owned by the partnership constitute "Plan Assets" for
purposes of Section 4975 of the Code. ERISA requires that the assets of a plan
be valued at their fair market value as of the close of the plan year, and it
may not be possible to adequately value the units from year to year, since there
will not be a market for those units and the appreciation of any property may
not be shown in the value of the units until the partnership sells or otherwise
disposes of its investments (See "ERISA CONSIDERATIONS" at page 63).
<PAGE>
INVESTOR SUITABILITY STANDARDS
You should only purchase units if you have adequate financial means,
desire a relatively long term investment, and do not anticipate any need for
immediate liquidity.
Minimum Suitability Standards. We have established a minimum suitability
standard which requires that you have either:
o a net worth (exclusive of home, furnishings and automobiles) of at least
$30,000 plus an annual gross income of at least $30,000, or
o irrespective of annual gross income, a net worth of $75,000 (determined
with the same exclusions). In the case of sales to fiduciary accounts, such
conditions must be met by the fiduciary, by the fiduciary account or by the
donor who directly and indirectly supplied the funds for the purchase of units.
We have established these standards for two reasons: (1) the purchase of
units based upon the lack of liquidity of the units and (2) the fact that the
relative financial benefit of an investment with us may depend upon your tax
bracket. You will be required to represent in writing to us that:
o you comply with the applicable standards; or
o you are purchasing in a fiduciary capacity for a person meeting such
standards; or
o the standards are met by a donor who directly or indirectly supplies the
funds for the purchase of units.
The participating broker dealers will make reasonable inquiry to assure
that every prospective investor complies with the investor suitability
standards. The general partners will not accept subscriptions from you if you
are unable to represent in your subscription agreement that you meet such
standards. Under the laws of certain states, transferees may be required to
comply with the suitability standards set forth herein as a condition to
substitution as a limited partner. We will require certain assurances that such
standards are met before agreeing to any transfer of the units.
Minimum Purchase Amount. The general partners have established the
minimum purchase at 2,000 units ($2,000). The general partners may accept
subscriptions in excess of $2,000 in increments of one unit ($1). No person may
become an assignee of record or a substituted limited partner unless he is the
owner of a minimum of 2,000 units ($2,000). In addition to the transfer
restrictions imposed by us. If you are seeking to transfer your units, you will
be subject to the securities or "blue sky" laws of the state in which the
transfer is to take place (See "DESCRIPTION OF UNITS" at page 65 and "SUMMARY OF
THE LIMITED PARTNERSHIP AGREEMENT -Restrictions on Transfer" at page 67).
IRA Investors. A minimum of 2,000 units ($2,000) may be purchased,
transferred, assigned or retained by an Individual Retirement Account ("IRA")
and incremental amounts in excess thereof for spousal IRA's established under
Section 408 of the Internal Revenue Code of 1986, as amended ("Code"). You
should be aware, however, that an investment in the partnership will not, in and
of itself, create an IRA for you and that, in order to create an IRA, you must
comply with the provisions of Section 408 of the Code.
ERISA Investors. The investment objectives and policies of the
partnership have been designed to make the units suitable investments for
employee benefit plans under current law. In this regard, the Employee
Retirement Income Security Act of 1974 ("ERISA") provides a comprehensive
regulatory scheme for "plan assets." In accordance with final regulations
published by the Department of Labor in the Federal Register on November 13,
1986, the general partners will manage the partnership so as to assure that an
investment in the partnership by a qualified plan will not, solely by reason of
such investment, be considered to be an investment in the underlying assets of
the partnership so as to make the assets of the partnership "plan assets." The
final regulations are also applicable to an IRA. (See "ERISA RISKS -Investment
by Tax-Exempt Entities." at page 15)
The general partners are not permitted to allow the purchase of units
with assets of any qualified plans if the general partners (i) have investment
discretion with respect to the assets of the qualified plan invested in the
partnership, or (ii) regularly give individualized investment advice that serves
as the primary basis for the investment decisions made with respect to such
assets. This prohibition is designed to prevent violation of certain provisions
of ERISA.
Blue Sky Requirements. If we qualify units for sale in states which
have established suitability standards and minimum purchase requirements
different from those set by the partnership, such suitability standards and
minimum purchase requirements shall be set forth in a supplement to this
prospectus. No such additional requirements exist at this time.
Subscription Agreement Warranties. The subscription agreement requires that
you warrant that:
o you have received, read and understood the prospectus and that you are
relying on it for your investment;
o you meet the applicable suitability standards set forth in the
prospectus;
o you are aware that the subscription may be rejected by the general
partners;
o your investment is subject to certain risks described in the prospectus
and there will be no public market for the units;
o you have been informed by your participating broker dealer of all facts
relating to lack of liquidity or marketability;
o you understand the restrictions on transferability;
o you have sufficient liquid assets to provide for current needs and
personal contingencies or, if a trustee, that limited liquidity will not affect
its ability to make timely distributions;
o you have the power, capacity and authority to make the
investment;
o you are capable of evaluating the risks and merits of the
investment; and
o you are making the investment for your own account or your family's or in
your fiduciary capacity and not as an agent for another.
The purpose of the warranties is to ensure that you fully understand
the terms of our offering, the risks of an investment with us and that you have
the capacity to enter into a subscription agreement. The general partners, on
behalf of the partnership, intend to rely on the warranties in accepting a
subscription. In any claim or action against the general partners or
partnership, the general partners or partnership may use the warranties against
you as a defense or basis for seeking indemnity from you.
Subscription Procedure. In order to subscribe to units in the
partnership, you must read carefully and execute the "SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY." For each unit subscribed, you must tender the sum of $1 per
unit. The minimum investment is 2,000 units ($2,000).
NOTICE TO CALIFORNIA RESIDENTS
All certificates of limited partnership interests resulting from any
offer and/or sale in California will bear the following legend restricting
transfer:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
TERMS OF THE OFFERING
We are offering a maximum of 30,000,000 units ($30,000,000) on a "best
efforts" basis. A best efforts basis means no one is guaranteeing that any
minimum number of units will be sold. The units are being sold through selected
broker dealers (the "Participating Broker Dealers") who are members of the
National Association of Securities Dealers, Inc. ("NASD"), at a price of $1 per
unit. The minimum subscription is 2,000 units ($2,000). We may also accept
orders directly from you if you utilize the services of a registered investment
advisor. The general partners have the option to accept subscriptions for
fractional units in excess of the minimum subscription. For purposes of meeting
this minimum investment requirement, you may cumulate units you purchased
individually with those units purchased by your spouse or units purchased by
your pension or profit sharing plan, IRA or Keogh plan. You must pay $1 cash for
each unit upon subscription. The offering will terminate one year from the
effective date of this prospectus, unless the general partners, in their
discretion, terminate the offering earlier, or unless the general partners, in
their sole discretion, extend the offering for additional one-year periods.
No Escrow Established. There is no escrow. As this is not our first
offering of units in this partnership, all proceeds from the sale of units will
be immediately available to us for investment and will not be held in an escrow
account.
Investment of Subscriptions. Your subscription proceeds will be
deposited into a subscription account at a federally insured commercial bank or
other depository selected by the general partners. They will be invested in
short-term certificates of deposit, money market or other liquid asset accounts.
You will be admitted into the partnership only when your subscription funds are
required by us to fund a loan, or the formation loan, to create appropriate
reserves or to pay organizational expenses or other proper partnership purposes.
During the period prior to your admittance as a limited partner, proceeds of the
sale are irrevocable and will be held by the general partners for your account
in the subscription account. Your funds will be transferred from the
subscription account into the partnership's operating account on a first-in,
first-out basis. Upon your admission as a limited partner to the partnership,
your subscription funds will be released to the partnership and units will be
issued to you at the rate of $1 per unit or fraction thereof. Interest earned on
subscription funds while in the subscription account will be returned to you, or
if you elect to compound earnings, the amount equal to such interest will be
added to your investment in the partnership. If you elect to have such amount
added to your investment, the number of units actually issued shall be increased
accordingly.
Purchase by General Partners and Affiliates. The general partners and
their affiliates may, in their discretion, purchase units for their own account.
Any units so purchased will be counted for the purpose of obtaining the required
maximum subscriptions. The maximum amount of units that may be purchased by the
general partners or their affiliates is 50,000 units ($50,000). However, it is
not anticipated that such purchases will be made by the general partners and
their affiliates. To date, no purchases have been made. Purchases of units by
the general partners or their affiliates will be made for investment purposes
only on the same terms, conditions and prices as to unaffiliated parties.
Guaranteed Payment for Offering Period. The limited partners shall
receive a guaranteed payment from the earnings of the partnership for the
offering period, calculated on a monthly basis, equal to the greater of (i) the
partnership's earnings or (ii) the interest rate established by the Monthly
Weighted Average Cost of Funds for the 11th District Savings Institutions, as
announced by the Federal Home Loan Bank of San Francisco during the last week of
the preceding month, plus two points, up to a maximum interest rate of twelve
percent (12%). The Weighted Average Cost of Funds is derived from interest paid
on savings accounts, Federal Home Loan Bank advances, and other borrowed money
adjusted for valuation in the number of days in each month. The adjustment
factors are 1.086 for February, 1.024 for 30 day months and 0.981 for 31 day
months. As of the date of this prospectus, the Monthly Weighted Average Cost of
Funds for the 11th District as announced April 30, 2000, for the period ended
March, 2000, and in effect until May 31, 2000, is 5.0%. The guaranteed payment
period is the period commencing on the day you are admitted to the partnership
and ending three (3) months after the offering termination date. The guaranteed
payment period shall not be made over the life of the partnership. To the extent
the payment to be paid is in excess of the partnership's earnings, the general
partners will contribute sufficient capital to the partnership so that the
guaranteed payment may be made. (See "TERMS OF OFFERING - Guaranteed Payment for
Offering Period" at page 18). Since the offering period may be for a period of
one year, with additional one year periods, or such shorter period as when all
the units are sold, there is uncertainty regarding the exact length of the
guaranteed payment period.
Election to Receive Periodic Cash Distributions. To date, we have
provided you with an election to receive periodic cash distributions from the
partnership or to have earnings retained in your capital account that will
increase it in lieu of receiving periodic cash distributions. This election,
once made, is irrevocable for investors who choose to receive periodic cash
distributions from the partnership. However, you may change whether such
distributions are received on a monthly, quarterly or annual basis. If you
initially elect to retain earnings to increase your capital account in lieu of
periodic cash distributions you may, after three (3) years, elect to receive
periodic cash distributions. If you elect to retain your earnings in your
capital account, we will use those earnings for making further loans or other
proper partnership purposes. The earnings from these further loans will be
allocated among all investors; however; if you elected to retain your earnings,
you will be credited with an increasingly larger proportionate share of such
earnings than investors who receive periodic cash distributions, since your
capital account will be increasing over time. Annual cash distributions will be
made shortly after the calendar year end.
In order to provide you greater flexibility if you initially elect to
receive cash distributions and subsequently change your mind, we are going to
register with the SEC, a dividend reinvestment plan. The dividend reinvestment
plan will be on substantially the same terms as our current election to receive
distributions. However, it will provide plan participants with greater
flexibility. We anticipate that the dividend reinvestment plan will be filed in
2000 and take effect immediately. Until that time, you will still have the
election to receive cash distributions or to receive additional units as
described herein.
<PAGE>
ESTIMATED USE OF PROCEEDS
The following table sets forth our use of the proceeds as of March 31,
2000, received from our most recent offering of $30,000,000 of Units and
estimated application of the gross proceeds of the sale of the maximum number of
units being offered hereby. Upon the repayment of the formation loan, we
estimate that approximately 96% of the proceeds of this offering will be used to
make loans. Until the formation loan is repaid, we estimate that after deduction
of the public offering expenses, that approximately eighty-four percent (84%) of
the proceeds of this offering will be used for making loans assuming all units
are sold. As of March 31, 2000, 88.27% of the gross offering proceeds received
from the most recent offering, were used to make loans. Many of the figures set
forth are estimated, cannot be precisely calculated at this time and
consequently should not be relied upon as being definitive.
<TABLE>
Estimated Estimated
Use of Proceeds of the Most Recent Maximum Offering(1) Maximum Offering(2)
Offering
As of March 31, 2000 30,000,000 Units 30,000,000 Units
($30,000,000) sold ($30,000,000) sold with
leveraged funds
======================================================================= ============================ ===============================
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount Percent Dollar Amount Percent Dollar Amount Percent
-------------------------------------------- ---------------- ----------- ------------------ ----------- --------------- -----------
Gross Proceeds $24,378,460 85.30% $30,000,000 100.00% $30,000,000 66.67%
Leveraged Funds $4,200,000 14.70% 0 0 $15,000,000 33.33%
Total Partnership Funds $28,578,460 100.00% $30,000,000 100.00% $45,000,000 100.00%
Less Public Offering Expenses: (3)
Organizational and Offering Expenses $641,762 2.25% $1,200,000 4.00% $1,200,000 2.67%
Total Offering Expenses $641,762 2.25% $1,200,000 4.00% $1,200,000 2.67%
Amount Available for Investment $27,936,698 97.75% $28,800,000 96.00% $43,800,000 97.35%
Less:
Formation Loan (4) $1,908,840 6.68% $2,700,000 9.00% $2,700,000 6.00%
Working Capital Reserves (5) $800,200 2.80% $900,000 3.00% $900,000 2.00%
Cash Available for Extension of Loans (6) $21,027,658 88.27% $25,200,000 84.00% $40,200,000 89.33%
-------------------------
</TABLE>
(1) Does not include a capital contribution of the general partners in the
amount of 1/10th of 1% of the gross proceeds (See "SUMMARY OF THE LIMITED
PARTNERSHIP AGREEMENT - Capital Contributions" at page 66).
(2) This assumes that the general partners can leverage approximately fifty
percent (50%) of the gross offering proceeds.
(3) Consists of expenses incurred in connection with the organization and
formation of the partnership. These expenses include legal and accounting fees
and expenses, printing costs, filing fees and other disbursements in connection
with the sale and distribution of units. These expenses also include
reimbursements to participating broker dealers for bona fide expenses incurred
for due diligence purposes in a maximum amount of one-half of one percent (.5%)
of gross proceeds). (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"
at page 20).
(4) The amount of the formation loan set forth in this table is based upon
the maximum sales commissions allowable. The formation loan will not exceed nine
percent (9%) of the total gross proceeds of the offering based upon the maximum
sales commissions payable, (See "PLAN OF DISTRIBUTION - Formation Loan" at page
73). However, the general partners anticipate, based upon historical experience
and knowledge of professionals in the industry, that the formation loan will be
in the amount of (7.6%) of gross proceeds if the maximum is raised assuming that
sixty-five percent (65%) of the investors elect to reinvest their earnings and
acquire additional units and thirty-five percent (35%) and elect to receive
distributions. To the extent the actual amount of the formation loan is less
than the amount stated in the table, the cash available for extension of loans
will be increased proportionately. As of March 31, 2000, the formation loan for
the prior offering totalled 7.8% of the total gross proceeds of the offering.
Except for the formation loan made to Redwood Mortgage Corp., and reimbursement
of organizational and offering expenses, no other offering proceeds will be paid
to the general partners or their affiliates.
(5) The partnership anticipates maintaining an average balance of working
capital reserve equal to three percent (3%) of the gross proceeds of the
offering.
(6) These proceeds will be used to make loans (See "INVESTMENT OBJECTIVES
AND CRITERIA" at page 36). The exact amount of the cash available for extension
of loans will depend upon the amount of the formation loan, organization and
operating expenses, use of leveraged funds and cash reserves. (See Footnote (1)
above.)
CAPITALIZATION OF THE PARTNERSHIP
The capitalization of the partnership as of March 31, 2000, and as
adjusted to give effect to the sale of the maximum number of units offered
hereby, excluding any contributions of the general partners is as follows:
Actual As Adjusted (1)
------ ---------------
Units ($1.00 per unit) $ 41,666,176 $ 67,766,176
-----------------------
(1) Amount determined after deduction of certain offering expenses
aggregating $1,200,000 and maximum formation loan of $2,700,000. (See "Estimated
Use of Proceeds" at page 19).
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES
Set forth below in tabular form is a description of compensation that
we may pay the general partners and their affiliates. No other compensation will
be paid to the general partners or any affiliates from the partnership. These
compensation arrangements have been established by the general partners and are
not the result of arms-length negotiations. The general partners have compared
their compensation arrangements to those of unrelated parties providing the same
services. They have determined the following compensation levels are fair and
reasonable. In their review, the general partners have:
o analyzed the compensation arrangements in other offerings,
o spoken to other professionals in the industry including issuers,
promoters and broker dealers,
o examined "rate sheets" from banks and savings & loans which set
forth the rates being charged by those institutions for the same
or similar services
o collected data regarding compensation from trade association meetings
and/or other relevant periodicals. Thus, the amounts are approximately
equivalent to those which would customarily be paid to unrelated parties for the
same services.
The exact amount of future compensation payable to the general partners
cannot be precisely determined. The compensation to be received by the general
partners is based primarily upon the net asset value of the partnership and the
loan balances. The net asset value of the partnership is the partnership's total
assets less its total liabilities. The net asset value will fluctuate due to the
reinvestment of income, earnings distributions and the level of liquidations.
Loan balances outstanding will fluctuate during the term of the partnership
because loans will be continually maturing and "turning over". Accordingly, the
exact amount of fees to be paid to the general partners and their affiliates
cannot be determined. However, based upon the general partners' prior experience
with this partnership and in similar programs and upon certain assumptions made
as a result of that experience as set forth below, the general partners can
estimate on an annual average basis, assuming a minimum partnership life of
twelve (12) years, the amount of fees they and their affiliates will receive.
Except as noted below, there is no limit on the dollar amount of compensation
and fees paid to the general partners and their affiliates.
The amount of fees to be paid will vary from those estimated below due
to varying economic factors, over which the general partners have no control,
including, but not limited to, the state of the economy, lending competition in
the area where partnership loans are made, interest rates and partnership
earnings. We are subject to public reporting requirements and the partnership
will file quarterly and annual reports with the Securities and Exchange
Commission. These reports will be available to you and will set forth, among
other things, the exact amount of compensation and/or fees being paid to the
general partners and their affiliates.
The general partners' or their affiliates' ability to effect the nature
of the compensation by undertaking different actions is extremely limited.
Because we are only one of many lenders in the industry, the general partners'
ability to affect fees charged is virtually non-existent. Additionally, to a
large extent, the amount of fees paid to the general partners and their
affiliates is based upon decisions made by the borrower regarding, among other
things, type and amount of loan, prepayment on the loan and possible default on
the loan. The relationships with the general partners of the various entities
referred to herein are described under the caption "MANAGEMENT" at page 31.
OFFERING STAGE
Entity Receiving
Compensation Form and Method of Estimated Amount
------------------ ----------------------------------------------------------
Compensation
------------
General Partners Reimbursement of organization and Maximum of $1,200,000
and/or Affiliates offering expensesincluding, but
not limited to, attorneys' fees,
accounting fees, printing costs
and other selling expenses (other
than underwriting commissions)
equal to the lesser of ten percent
(10%) of the gross proceeds of the
offering or $1,200,000. The general
partners will pay any offering and
organization expenses in excess of
this amount.(1)
OPERATING STAGE
Entity Receiving
Compensation Form and Method of Estimated Amount
----------------- ----------------------------------------------------------
Compensation
------------
Redwood Mortgage Loan brokerage commissions average $285,000 per year(5)
Corp. approximately three to six percent
General Partner (3-6%) of the principal amount of
each loan, but may be higher or lower
depending upon market conditions.
Loan brokerage commissions are limited
to an amount not to exceed four percent
(4%) of the total partnership assets per
year. Such commissions are payable solely
by the borrower and not by us. (See
"TERMS OF THE OFFERING" at page 17).
Redwood Mortgage Processing and escrow fees for $19,200 per year(5)
Corp. services in connection with notary,
General Partner document preparation, credit
investigation, and escrow fees in an
amount equal to the fees customarily
charged by Redwood Mortgage Corp. for
comparable services in the geographical
area where the property securing the
loan is located, payable solely by the
borrower and not by the partnership.
Redwood Mortgage Loan servicing fee payable monthly $310,000 per year(5)
Corp. in an amount up to 1/8 of 1% of the
General Partner outstanding principal amount of each
loan. (2) (3)
General Partners Asset management fee payable monthly $119,000 per year(5)
in an amount up to 1/32 of 1% of the
"net asset value."(2)
Redwood Mortgage Reimbursement of expenses relating to $92,000 per year(5)
Corp. administration of the partnership,
General Partner subject to certain limitations, see
Article 10 of the partnership agreement.
(1)(4)
Gymno Corporation Reconveyance fee for reconveyance of Approximately $65
General Partner property upon full payment of loan, per deed of trust
payable by borrower. or market rate.
Redwood Mortgage Assumption fee for assumption of loans $5,000 per year(5)
Corp. payable by borrower as either a set
General Partner fee or a percentage of the loan.
Redwood Mortgage Extension fee for extending the loan $2,500 per year(5)
Corp. period payable by borrower as a
General Partner percentage of the loan.
Redwood Mortgage Interest earned, if any, between the $0 per year(5)
Corp. date of deposit of borrower's funds
General Partner into Redwood Mortgage Corp.'s trust
account and date of payment of such
funds by Redwood Mortgage Corp.
General Partners One percent (1%) interest in profits, $28,000 per year(5)
losses and distributions of earnings
and cash available for distribution.
LIQUIDATING STAGE
Entity Receiving
Compensation Form and Method of Estimated Amount
------------------ -----------------------------------------------------------
Compensation
------------
Redwood Mortgage Early withdrawal penalty equal to a $36,516 per year(5)
Corp. percentage of the sums withdrawn by
General Partner an early withdrawing limited partner,
a portion of which will be paid, based
upon the ratio between the formation
loan and the total amount of
organizational and syndication costs,
to the partnership as an early
withdrawal penalty, to reduce the
principal amount owed by Redwood
Mortgage Corp. for the formation loan
and the balance of which will be
retained by the partnership for its own
account. After the formation loan has
been paid, amounts received from the early
withdrawal penalty will be retained by the
partnership for its own account (See "TRANSFER
OF UNITS - Withdrawal from Partnership" at
page 69).
---------------------------------
(1) The general partners will endeavor to minimize such expenses to the
extent possible and to the extent consistent with the terms of the offering.
(See "TERMS OF THE OFFERING" at page 17).
(2) The general partners have assumed that the estimated amount of the loan
servicing fee payable will be approximately one percent (1%) per year. The
general partners are entitled to receive a loan servicing fee of up to one and
one-half percent (1 1/2%) per year. The general partners and their affiliates,
in their sole discretion, may elect to lower the loan servicing fee or asset
management fee for any period of time and thereafter raise the fees up to the
stated limits.
(3) On any property foreclosed upon, the loan servicing fee is payable by
the borrower up until the time of foreclosure. If, at the time of foreclosure,
the loan servicing fee has not been paid out of the cash proceeds from a
trustee's sale of the foreclosed property, the loan servicing fee will be
payable by the partnership.
(4) We shall reimburse the general partners or their affiliates for the
actual cost of goods and materials used for or by the partnership and obtained
from unaffiliated parties. In addition, we shall reimburse the general partners
or their affiliates for the cost of administrative services necessary to the
prudent operation of the partnership provided that such reimbursement will be
the lesser of (a) the actual cost of such services or (b) ninety percent (90%)
of the amount which the partnership would be required to pay independent parties
for comparable services. The partnership's annual report to limited partners
will provide a breakdown of the services performed and the amount reimbursed to
the general partners or affiliates.
<PAGE>
(5) The amount of fees to be paid to the general partners and their
affiliates are based on certain assumptions made in light of the general
partners' past experience with similar programs. In determining the average
annual fees to be paid to the general partners and their affiliates the general
partners have assumed, based upon their historical experience the following: (i)
a minimum partnership life of twelve (12) years assuming $15,000,000 is raised
in year one (1) and $15,000,000 is raised in year two (2); (ii) sixty percent
(60%) of the investors elect to retain or reinvest earnings and forty percent
(40%) elect to receive periodic cash distributions; (iii) a nine percent (9%)
yield in the first three (3) years of operation, an eight percent (8%) yield in
years four (4), five (5) and six (6) and a nine percent (9%) yield thereafter;
(iv) withdrawal rates similar to those experienced by past partnerships; (v) a
turnover rate on loans of ten percent (10%) in year three (3), fifteen percent
(15%) in year four (4) and twenty percent (20%) thereafter; and (vi) no
leveraging of the portfolio has been considered. However, because the estimated
amount of fees to be paid to the general partners and their affiliates are based
on certain assumptions and conditions, including, historical experience, which
may not provide an exact measurement of the fees to be paid, the general state
of the economy, interest rates, the turnover rate of loans, partnership
earnings, the duration and type of loans the partnership will make, and the
election of investors to receive periodic cash distributions or additional
units, the actual amount of fees paid will vary from those set forth above.
The following table summarizes the forms and amounts of compensation and
reimbursed expenses paid to the general partners or their affiliates for the
year ended December 31, 1999, and the period January 1, 2000, through March 31,
2000, showing actual amounts and the maximum allowable amounts for management
and servicing fees. No other compensation was paid to the general partners
during such periods. Amounts of compensation payable to the general partners in
connection with this offering may vary from those set forth below. Such fees
were established by the general partners and were not determined by arms-length
negotiation.
<TABLE>
Year Ended December 31, 1999 Period Ended January 1, 2000 to
March 31, 2000
Maximum
Maximum Amount
Amount Allowable
Form Actual Allowable Actual For Period
---- ------ --------- ------ ----------
PAID BY PARTNERSHIP
<S> <C> <C> <C> <C>
Servicing Fee $359,464 $539,196 $71,294 $106,941
Management Fee $42,215 $126,645 $12,930 $38,790
Reimbursement of Operating Expenses $85,171 $85,171 $25,827 $25,827
1% of Profits, Losses and Disbursements $27,655 $27,655 $9,297 $9,297
PAID BY BORROWERS
Loan Brokerage Fees (1) $682,118 $682,118 $367,205 $367,205
Processing and Servicing Fees $13,164 $13,164 $7,961 $7,961
------------------------
(footnotes to table)
</TABLE>
(1) Although Redwood Mortgage Corp. can receive loan brokerage fees of up
to six percent (6%) or higher if such fees could have been negotiated with
borrowers, the figures reflect actual loan brokerage fees charged on the loans.
<PAGE>
CONFLICTS OF INTEREST
The partnership is subject to various conflicts of interest arising out
of its relationship with the general partners and their affiliates. These
conflicts include conflicts related to the arrangements pursuant to which the
general partners will be compensated by the partnership. Because the partnership
was organized and is operated by the general partners, these conflicts will not
be resolved through arms length negotiations but through the exercise of the
general partners' judgment consistent with their fiduciary responsibility to you
and the other limited partners and the partnership's investment objectives and
policies.
The general partners are, and will be subject to, public reporting
requirements for prior public programs and for this program. They will continue
to have an obligation to keep you appraised of material developments with
respect to all partnerships in which they are the general partners, including
material developments or events which give rise to a conflict of interest. (See
"PRIOR PERFORMANCE SUMMARY" at page 28).
Additionally, the partnership agreement imposes upon the general
partners, an obligation to disclose and keep you appraised of any developments
that would otherwise be disclosed in accordance with public reporting
requirements, including those developments which would give rise to a conflict
of interest. Your power as a limited partner with respect to any such
developments including the power, subject to a majority vote to amend the
partnership agreement, to remove the general partners and/or amend or terminate
contracts for services or goods between the general partners and the
partnership, act as a check to the actions of general partners. (See "FIDUCIARY
RESPONSIBILITY OF THE GENERAL PARTNERS" at page 26 and "INVESTMENT OBJECTIVES
AND CRITERIA" at page 36). These conflicts include, but are not limited to, the
following:
1. Conflicts Arising As A Result Of The General Partners' Legal And
Financial Obligations To Other Partnerships. The general partners and their
affiliates serve as the general partners of other limited partnerships. These
partnerships include real estate mortgage limited partnerships with investment
objectives similar to those of the partnership. They may also organize other
real estate mortgage limited partnerships in the future, including partnerships
which may have investment objectives similar to those of the partnership. The
general partners and such affiliates have legal and financial obligations with
respect to these partnerships which are similar to their obligations with
respect to the partnership. As general partners, they may have contingent
liability for the obligations of such partnerships as well as those of the
partnership.
The level of compensation payable to the general partners or their
affiliates in connection with the organization and operation of other
partnerships may exceed that payable in connection with the organization and
operation of this partnership. However, the general partners and their
affiliates do not intend to offer for sale, interests in any other public
programs (but not necessarily private programs) with investment objectives
similar to the partnership, before substantially all initial proceeds of this
offering are invested or committed.
The general partners believe that they have sufficient financial and
legal resources to meet and discharge their obligations to the partnership and
to the other partnerships. In the event that a conflict were to arise, however,
the general partners will undertake the following steps: (i) they will seek the
advice of counsel with respect to the conflict; (ii) in the event of a short
fall of resources, they will seek to allot the partnerships' financial and legal
resources on a pro rata basis among the partnerships; (iii) in the event a pro
rata allotment would materially adversely affect the operations of any
partnership, the general partners will use their best efforts to apply available
resources to that partnership so as to attempt to prevent a material adverse
effect, and the remainder of the resources, if any, would be applied on a pro
rata basis.
2. Conflicts Arising From The General Partners' Allocation Of Time
Between The Partnership And Other Activities. The general partners and their
affiliates have conflicts of interest in allocating their time between the
partnership and other activities in which they are involved. However, the
general partners believe that they, and their affiliates, have sufficient
personnel to discharge fully their responsibilities to the partnership and to
other affiliated partnerships and ventures in which they are involved. Redwood
Mortgage Corp. also provides loan brokerage services to investors other than the
partnership. As a result, there will exist conflicts of interest on the part of
the general partners between the partnership and the other partnerships or
investors with which they are affiliated at such time. The general partners will
decide which loans are appropriate for funding by the partnership or by such
other partnerships and investors after consideration of all relevant factors,
including:
o the size of the loan,
o portfolio diversification,
o quality and credit worthiness of borrower,
o amount of uninvested funds,
o the length of time that excess funds have remained uninvested.
<PAGE>
To date, the individual general partners have each allocated
approximately 12-17 hours per week, exclusively on partnership activities and
estimate that they will continue to allocate approximately the same amount of
time in the future. This amount may be higher during the offering and marketing
stages and may be lower thereafter. The general partners believe that they will
have sufficient time, based upon the organization and personnel that they have
built and retained over the last twenty-three (23) years, to fully discharge
their obligations to the partnership. In the event that a conflict were to
arise, however, the general partners will take the following action: (i) they
will seek the advice of counsel with respect to the conflict; (ii) in the event
of a short fall of resources, they would seek to allot the partnership's
financial and legal resources on a pro rata basis among the partnerships; (iii)
in the event a pro rata allotment would materially adversely affect the
operations of any partnership, the general partners will use their best efforts
to apply resources to that partnership to attempt to prevent a material adverse
effect, and the remainder of the resources, if any, would be applied on a pro
rata basis.
3. Amount Of Loan Brokerage Commissions Affects Rate Of Return To You.
None of the compensation payable to the general partners was determined by arms
length negotiations. We anticipate that the loan brokerage commissions charged
to borrowers by Redwood Mortgage Corp. will average approximately three to six
percent (3-6%) of the principal amount of each loan, but may be higher or lower
depending upon market conditions. The loan brokerage commission shall be capped
at four percent (4%) per annum of the partnership's assets. Any increase in the
loan brokerage commission charged on loans may have a direct, adverse effect
upon the interest rates charged by the partnership on loans and thus the overall
rate of return to you. Conversely, if the general partners reduced the loan
brokerage commissions charged by Redwood Mortgage Corp. a higher rate of return
might be obtained for the partnership and the limited partners. This conflict of
interest will exist in connection with every loan transaction, and you must rely
upon the fiduciary duties of the general partners to protect their interests. In
an effort to partially resolve this conflict, Redwood Mortgage Corp. has agreed
that loan brokerage commissions shall be limited to four percent (4%) per annum
of the partnership's assets. In the event of a conflict with respect to the
payment of the loan brokerage commissions or the quality or type of loan, the
general partners will resolve the conflict in favor of the partnership.
The general partners have reserved the right to retain the services of
other firms, in addition to or in lieu of Redwood Mortgage Corp., to perform the
brokerage services, loan servicing and other activities in connection with the
partnership's loan portfolio that are described in this prospectus. Any such
other firms may also be affiliated with the general partners.
4. Terms Of Formation Loan Are Not A Result Of Arms Length
Negotiations. Redwood Mortgage Corp. will borrow from the partnership an amount
equal to not more than nine percent (9%) of the gross proceeds of this offering.
This loan (the "formation loan") will not bear interest. Accordingly, the
partnership's rate of return on the formation loan will be below the rate
obtainable by the partnership on its loans. The terms of the formation loan were
not the result of arms length negotiations. This loan will be an unsecured
obligation of Redwood Mortgage Corp. (See "PLAN OF DISTRIBUTION - Formation
Loan" at page 73). The amount of any early withdrawal penalties received by the
partnership from investors will reduce the principal balance of the formation
loan, thus reducing the amount owed from Redwood Mortgage Corp. to the
partnership. In the event of default in the payment of such loan a conflict of
interest would arise on our part in connection with the enforcement of the loan
and the continued payment of other fees and compensation, including the loan
brokerage fee and loan servicing fee, to Redwood Mortgage Corp. If the general
partners are removed, no other general partners are elected, the partnership is
liquidated and Redwood Mortgage Corp. is no longer receiving payments for
services rendered, the debt on the formation loan shall be forgiven by the
partnership and Redwood Mortgage Corp. shall be immediately released from any
further obligation under the formation loan. In the event of a conflict with
respect to the repayment of the formation loan, or a default thereof or the
continued payment of other fees and compensation to Redwood Mortgage Corp., the
partnership, at the partnership's expense, will retain independent counsel, who
has not previously represented the general partners to represent the partnership
in connection with such conflict.
5. Potential Conflicts If We Invest in Loans With General Partners Or
Affiliates. We may invest in loans acquired by the general partners or
affiliates. The partnership's portion of the total loan may be smaller or
greater than the portion of the loan made by the general partners or affiliates.
Such an investment would be made after a determination by the general partners
that the entire loan is in an amount greater than would be suitable for the
partnership to make on its own or that the partnership will benefit through
broader diversification of its loan portfolio. However, you should be aware that
investing with the general partners or affiliates could result in a conflict of
interest between the partnership and the general partners or affiliates in the
event that the borrower defaults on the loan. Both the partnership and the
general partners or affiliates will protect their own interest in the loan and
in the underlying security. In order to minimize the conflicts of interest which
may arise if the partnership invests in loans with the general partners or
affiliates, the partnership will acquire its interest in the loan on the same
terms and conditions as does the general partners or affiliates and the terms of
the loan will conform to the investment criteria established by the partnership
for the origination of loans. By investing in a loan on the same terms and
conditions as does the general partners or an affiliate, the partnership will be
entitled to enforce the same rights as the general partners or affiliate in such
loan and the general partners and affiliate will not have greater rights in the
loan than does the partnership.
6. General Partners Will Represent Both Parties In Sales Of Real Estate
Owned To Affiliates. In the event the partnership becomes the owner of any real
property by reason of foreclosure on a loan, the general partners' first
priority will be to arrange the sale of the property. The general partners will
attempt to obtain a price that will permit the partnership to recover the full
amount of its invested capital plus accrued but unpaid interest and other
charges, or so much thereof as can reasonably be obtained in light of current
market conditions. In order to facilitate such a sale, the general partners may,
but are not required to, arrange a sale to persons or entities controlled by
them, e.g., to another partnership or entity formed by one of the general
partners for the express purpose of acquiring foreclosure properties from
lenders such as the partnership. The general partners will be subject to
conflicts of interest in arranging such sales since they will represent both
parties to the transaction. For example, the partnership and the potential buyer
will have conflicting interests in determining the purchase price and other
terms and conditions of sale. The general partners decision will not be subject
to review by any outside parties.
The general partners have undertaken to resolve these conflicts as
follows:
(a) No foreclosed property will be sold to the general
partners or an affiliate unless the general partners have first used their best
efforts to sell the property at a fair price on the open market for at least 60
days.
(b) In the event the property will be sold to an affiliate,
the net purchase price must be more favorable to the partnership than any third
party offer received. The purchase price will also be (1) no lower than the
independently appraised value of such property at the time of sale, and (2) no
lower than the total amount of the partnership's "investment" in the property.
The partnership's investment includes without limitation the following:
o the unpaid principal amount of the partnership's loan,
o unpaid interest accrued to the date of foreclosure,
o expenditures made to protect the partnership's interest in the property
such as payments to senior lienholders and for insurance and taxes,
o costs of foreclosure (including attorneys' fees actually incurred to
prosecute the foreclosure or to obtain relief from a stay in bankruptcy), and
o any advances made by the general partners on behalf of the partnership
for any of the foregoing less any income or rents received, condemnation
proceeds or other awards received or similar monies received.
A portion of the purchase price may be paid by the affiliate executing a
promissory note in favor of the partnership. Any such note will be secured by a
deed of trust on the subject property. The principal amount of such a note, plus
any obligations secured by senior liens, will not exceed ninety percent (90%) of
the purchase price of the property. The terms and conditions of such a note will
be comparable to those the partnership requires when selling foreclosed
properties to third parties.
(c) Neither the general partners nor any of their affiliates
would receive a real estate commission in connection with such a sale.
It is the general partners' belief that these undertakings will yield a
price which is fair and reasonable for all parties,. However, no assurance can
be given that the partnership could not obtain a better price from an
unaffiliated third party purchaser.
7. Professionals Hired By General Partners Do Not Represent You Or Any
Other Limited Partners. The attorneys, accountants and other experts who perform
services for the partnership also perform services for the general partners and
their affiliates. It is anticipated that such representation will continue in
the future. Such professionals, including, McCutchen, Doyle Brown & Enersen,
LLP, counsel for the partnership and the general partners, do not represent you
or any other limited partner. Under the partnership agreement, you must
acknowledge and agree that such professionals, including, Landels Ripley &
Diamond, LLP, counsel for the partnership and the general partners, representing
the partnership and the general partners and their affiliates do not represent,
and shall not be deemed under applicable codes of professional conduct and
responsibility to have represented or be representing, any or all of the limited
partners in any respect. Such professionals, however, are obligated under those
codes not to engage in unethical or improper professional conduct. In the event
of a conflict regarding services performed by attorneys, accountants and other
experts, with respect to the general partners and/or the partnership and limited
partners, then the partnership, at partnership expense, will retain independent
counsel, who has not previously represented the partnership or the general
partners to represent the interests of the limited partners solely with respect
to the issue of a conflict regarding the services performed by professionals.
<PAGE>
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS
The general partners are accountable to the partnership as fiduciaries.
As such, they are under a fiduciary duty to exercise good faith and integrity in
conducting the partnership's affairs. They must conduct such affairs in the best
interest of the partnership. The California Revised Limited Partnership Act
provides that you as a limited partner may institute legal action on behalf of
yourself and all other similarly situated limited partners (a class action) to
recover damages for a breach by a general partner of its fiduciary duty. You may
also institute an action, or on behalf of the partnership (a partnership
derivative action) to recover damages from a general partner or third parties
where the general partner has failed or refused to enforce the obligation.
Present State of the Law. Based upon the present state of the law and
federal statutes, regulations, rules and relevant judicial and administrative
decisions, it appears that
(1) as a limited partner of the partnership you have the right, subject to
the provisions of applicable procedural rules and statutes to:
o bring partnership class actions,
o enforce rights of all limited partners similarly situated, and
o bring partnership derivative actions to enforce rights of the partnership
including, in each case, rights under certain rules and regulations of the
Securities and Exchange Commission; and
(2) if you are a limited partner who has suffered losses in connection
with the purchase or sale of your units due to a breach of fiduciary duty by the
general partners in connection with such purchase or sale, including
misapplication by the general partners of the proceeds from the sale of units,
you may have a right to recover such losses from the general partners in an
action based on Rule 10b-5 under the Securities and Exchange Act of 1934. In
addition, if you are an employee benefit plan who has acquired units, case law
applying the fiduciary duty concepts of ERISA could be viewed to apply to the
general partners. The general partners will provide quarterly and annual reports
of operations and must, on demand, give you or any limited partner or his/her
legal representative a copy of the Form 10-K and true and full information
concerning the partnership's affairs. Further, the partnership's books and
records may be inspected or copied by you or your legal representatives at any
time during normal business hours.
This is a rapidly developing and changing area of the law and this
summary, describing in general terms the remedies available to limited partners
for breaches of fiduciary duty by the general partners, is based on statutes and
judicial and administrative decisions as of the date of this prospectus. If you
have questions concerning the duties of the general partners or believe that a
breach of fiduciary duty by a general partner has occurred, you should consult
your own counsel.
Terms of the Partnership Agreement. Provision has been made in the
partnership agreement that the general partners shall have no liability to the
partnership for a loss arising out of any act or omission by the general
partners, provided that the general partners determine in good faith that their
conduct was in the best interest of the partnership and, provided further, that
their conduct did not constitute gross negligence or gross misconduct. As a
result, you may have a more limited right of action in certain circumstances
than you would in the absence of such a provision in the partnership agreement.
The partnership agreement also provides that, to the extent permitted
by law, the partnership will indemnify the general partners against liability
and related expenses (including attorneys' fees) incurred in dealings with third
parties. Such indemnification will apply, provided that the conduct of the
general partners is consistent with the standards described in the preceding
paragraph. Notwithstanding the foregoing, neither the general partners nor their
affiliates shall be indemnified for any liability imposed by judgment (including
costs and attorneys' fees) arising from or out of a violation of state or
federal securities laws associated with the offer and sale of units offered
hereby. However, indemnification will be allowed for settlements and related
expenses of lawsuits alleging securities law violations and for expenses
incurred in successfully defending such lawsuits provided that (a) a court
either approves indemnification of litigation costs if the general partners are
successful in defending the action; or (b) the settlement and indemnification is
specifically approved by the court of law which shall have been advised as to
the current position of the Securities and Exchange Commission (as to any claim
involving allegations that the Securities Act of 1933 was violated) and
California Commissioner of Corporations or the applicable state authority (as to
any claim involving allegations that the applicable state's securities laws were
violated). Any such indemnification shall be recoverable out of the assets of
the partnership and not from limited partners. A successful claim for such
indemnification would deplete partnership assets by the amount paid.
<PAGE>
PRIOR PERFORMANCE SUMMARY
The information presented in this section represents the historical experience
of real estate mortgage programs sponsored and managed by the general partners
and their affiliates. You should not assume that you will experience returns, if
any, comparable to those experienced by other investors' programs.
Experience and Background of General Partners and Affiliates. Since
1978, the general partners and their affiliates have sponsored and managed nine
(9) real estate mortgage limited partnerships including this partnership. All
partnerships have investment objectives similar to this partnership. Six of
these partnerships were offered without registration under the Securities Act of
1933 in reliance upon the intrastate offering exemption from the registration
requirements thereunder and/or the exemption for transactions not involving a
public offering. Three of these partnerships including this partnership were
registered under Securities Act of 1933. The effect of not registering six of
the prior partnerships is that the partners in the respective partnerships have
differing rights with respect to the transfer of their interests in the
partnerships. When securities are issued without registration under the
Securities Act of 1933, either in reliance upon the intrastate exemption or the
exemption for transactions not involving a public offering, those securities may
not be transferred without registration under, or an exemption from, the
Securities Act of 1933. On the other hand, securities issued pursuant to a
registration statement under the Securities Act of 1933 generally may be sold
without such registration. In general, securities issued pursuant to
registration under the Securities Act of 1933 are more freely transferable than
those which are issued without registration under the Securities Act of 1933.
However, even securities issued pursuant to a registration statement are subject
to restrictions on transfer under the securities laws of the states in which
they are issued and under the terms of their respective partnership agreements.
Not including the offerings by this partnership, as of March 31, 2000,
the 8 previous partnerships had raised aggregate capital contributions of
approximately $47,637,000 from approximately 3,098 investors and had total
current net assets under management of $33,252,695. As of March 31, 2000, the
number of loans made by these partnerships was approximately 1,984 and the
number of outstanding loans made by these earlier partnerships was approximately
226 ($30,434,585) which are secured by properties principally located in
Northern California. Of these loans,
o approximately 91, which represents twenty two percent (22%) of the other
partnerships' portfolios ($6,757,598) are secured by single family residences,
o 29, which represents eight percent (8%) of the other partnerships'
portfolios ($2,539,395) are secured by multifamily units,
o 81 which represents forty eight percent (48%) of the other partnerships'
portfolios ($14,652,635) are secured by commercial properties and
o 25 which represents twenty two percent (22%) of the other partnerships'
portfolios ($6,484,957) are secured by unimproved property.
As of May 31, 2000, this partnership has raised in two prior offerings,
aggregate capital contributions of approximately $41,593,569 from approximately
1,497 investors and has total current net assets under management of
$43,732,890. The first offering closed on October 31, 1996. The second offering
will close when this, the third offering becomes effective. As of May 31, 2000,
the number of outstanding loans made by the partnership was 58, ($51,325,058)
which are secured by properties located principally in Northern California. Of
these loans:
o 23, which represents thirty six percent (36.0%) of the partnership's
portfolio ($18,645,537) are secured by single family residences.
o 4, which represents seven percent (7.0%) of the partnership's portfolio
($3,583,502) are secured by multifamily units.
o 26, which represents forty six percent (46.0%) of the partnership's
portfolio ($23,680,166) are secured by commercial properties.
o 5, which represents eleven percent (11.0%) of the partnership's portfolio
($5,415,853) are secured by unimproved properties.
<PAGE>
PUBLICLY OFFERED MORTGAGE PROGRAMS
Redwood Mortgage Investors VII ("RMI VII"). RMI VII is a California
limited partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the general partners. RMI VII was registered under the
Securities Act of 1933. As of March 31, 2000, RMI VII had a total capitalization
of $10,798,037 and 800 investors.
Redwood Mortgage Investors VI ("RMI VI"). RMI VI is a California
limited partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the general partners. RMI VI was registered under the Securities
Act of 1933. As of March 31, 2000, RMI VI had a total capitalization of
$7,868,165 and 634 investors.
PRIVATELY OFFERED MORTGAGE PROGRAMS
Redwood Mortgage Investors V ("RMI V"). RMI V is a California limited
partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the general partners. RMI V was qualified under California
securities laws and a permit allowing RMI V to offer and sell units was issued
by the Commissioner of Corporations on September 15, 1986. As of March 31, 2000,
RMI V had a total capitalization of $2,865,700 and 300 investors.
Redwood Mortgage Investors IV ("RMI IV"). RMI IV is a California
limited partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are general partners. RMI IV was qualified under California
securities laws and a permit allowing RMI IV to offer and sell units was issued
by the Commissioner of Corporations on October 2, 1984. The Commissioner of
Corporations subsequently extended the effectiveness of the RMI IV offering
permit until September 18, 1986. As of March 31, 2000, RMI IV had a total
capitalization of $6,773,219 and 498 investors.
Redwood Mortgage Investors ("RMI"). RMI, Redwood Mortgage Investors II
("RMI II") and Redwood Mortgage Investors III ("RMI III") are California limited
partnerships of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are general partners. All 3 of these partnerships were sold only to
a limited number of selected California residents in compliance with applicable
federal and state securities laws. As of March 31, 2000, RMI had 17 investors,
RMI II had 18 investors and RMI III had 56 investors. The RMI offering
terminated on July 31, 1982, at which time it had a total capitalization of
approximately $1,090,916. The RMI II offering terminated on June 30, 1983, at
which time it had a total capitalization of approximately $1,282,802. The RMI
III offering terminated on June 30, 1984, at which time it had a total
capitalization of approximately $1,429,624. This partnership was re-offered in
July, 1992, and as of December 31, 1996, additional contributions of $858,800,
were received and the offering was subsequently closed.
Corporate Mortgage Investors ("CMI"). CMI is a California limited
partnership of which D. Russell Burwell and A & B Financial Services, Inc. are
the general partners. The offering period for CMI commenced August 1, 1978, and
interests in CMI have been closed. The interest in CMI was offered and sold
exclusively to qualified pension and profit sharing plans and other
institutional investors. Commencing January 1, 1984, a segregated portfolio was
created within CMI, into which all new subscriptions received by CMI were
placed. The two (2) portfolios within CMI were designated Portfolio I and
Portfolio II, respectively. As of March 31, 2000, the two portfolios had been
merged and had total assets of $1,491,152 and 37 investors.
The funds raised by these partnerships have been used to make loans
secured by deeds of trust. All loans are arranged and serviced by Redwood
Mortgage Corp., for which it receives substantial compensation. All of these
partnerships will have funds to invest in loans at the same time as this
partnership (See "CONFLICTS OF INTEREST" at page 24).
Copies of audited financial statements for all prior partnerships are
available from the general partners upon request and may be obtained upon
payment of a fee sufficient to cover copying costs. If you would like to receive
such information, you should contact the general partners at 650 El Camino Real,
Suite G, Redwood City, California 94063; (650) 365-5341. All of the foregoing
partnerships have achieved their stated goals to date.
Additional Information. Certain additional information regarding some
of the partnerships' discussed objectives are similar to the partnership's and
are set forth in Appendix I in the Prior Performance Tables:
TABLE I Experience in Raising and Investing Funds.
TABLE II Compensation to General Partners and Affiliates.
TABLE III Operating Results of Prior Limited Partnerships.
TABLE V Payment of Loans.
Table IV is not included herein because none of the partnerships has
completed its operations or disposed of all of its loans.
Table VI (Descriptions of Open Loans of Prior Limited Partnerships) is
contained in Part II of the Registration Statement.
Upon request, the general partners shall provide to you without charge,
a copy of the most recent Form 10-K Annual Report filed with the Securities and
Exchange Commission by any prior public program that has reported to the
Securities and Exchange Commission within the last twenty-four months. Exhibits
to any annual report on Form 10-K may be obtained upon payment of a fee
sufficient to cover the copying costs. You may review, read and copy all of our
filings at the SEC's Public Reference Room located at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. You can call the SEC at 1 800 SEC-0330 for
further information on the public reference room. Our SEC filings are also
available on the SEC's website at "http://www.sec.gov."
No Major Adverse Developments. There have been no major adverse
business developments or conditions experienced by any of the prior limited
partnerships that would be material to prospective investors in the partnership.
While the Tax Reform Act of 1986 made a number of changes to the tax laws, some
dealing with limitations on interest deductions, it is not expected to have a
material adverse effect upon the performance of the prior limited partnerships.
In fact, since the deductibility of residential mortgage interest is one of the
few deductible items of interest remaining, the Tax Reform Act of 1986 may in
fact enhance the utility of residential mortgage loans of the type offered by
these limited partnerships.
Prior Public Partnerships. In addition to the two prior public
offerings in this partnership, the general partners have previously sponsored
two public partnerships registered under the Securities Act of 1933. These
partnerships are RMI VI and RMI VII.
Three Year Summary of Loans Originated by Prior Limited Partnerships.
During the three-year period endingMarch 31, 2000, loans were made by prior
programs with investment objectives similar to those of the partnership. The
following table provides a summary of the loans originated for the three-year
period as of March 31, 2000. The last column of the following chart reflects
total outstanding loan balances on all loans for each prior program including
those which originated prior to the three (3) year period ending March 31, 2000.
<TABLE>
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
Name of partnership Number of Estimated Total Amount of Outstanding Loan Balances Total Outstanding Loans
Loans Loans Made 04/01/97 to Originated 04/01/97 to as of 03/31/2000
03/31/2000 03/31/2000
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
<S> <C> <C> <C> <C>
CMI 9 $1,108,250.00 $721,025.20 $1,408,826.15
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI 7 $675,000.00 $369,935.30 $1,030,934.53
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI II 2 $209,900.00 $109,765.89 $529,582.98
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI III 10 $865,700.00 $682,723.21 $1,424,371.83
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI IV 26 $5,360,034.48 $2,761,107.21 $6,063,993.56
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI V 11 $1,527,214.67 $356,380.54 $1,930,774.26
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI VI 19 $4,065,577.26 $1,494,613.88 $5,764,248.90
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI VII 43 $20,979,236.08 10,413,989.99 $12,281,853.27
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
RMI VIII (1) 54 55,055,800.40 43,310,535.27 45,252,162.77
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
TOTAL 181 $89,846,712.89 $60,220,076.49 $75,686,748.25
--------------------------- --------------- ---------------------------- ----------------------------- -------------------------
</TABLE>
<PAGE>
A further breakdown of these loans according to the type of deed of
trust, the location of the property securing the loans, and the type of property
securing the loan is provided below:
Loans
First Trust Deeds $53,073,350.00
Second Trust Deeds 33,466,545.82
Third Trust Deeds 3,306,817.07
--------------------------------
$89,846,712.89
================================
Location of Loans
San Francisco County 26,399,417.40
San Mateo County 18,236,646.42
Stanislaus County 16,013,317.07
Santa Clara County 7,625,300.00
Placer County 5,281,500.00
Contra Costa County 4,024,727.00
Marin County 4,004,000.00
Alameda County 3,661,055.00
Solano County 1,430,000.00
Sacramento County 855,000.00
Monterey County 775,000.00
Santa Cruz County 753,250.00
Lake County 737,500.00
Riverside County 50,000.00
Total $89,846,712.89
================================
Type of Property
Owner Occupied Homes $15,258,346.42
Non-Owner Occupied 19,067,867.45
Commercial 32,938,999.78
Land 16,405,717.07
Apartments 6,175,782.17
--------------------------------
Total $89,846,712.89
================================
1. This amount includes loans made by the partnership in its prior
offerings aggregating $45,000,000.
MANAGEMENT
General. The general partners will be responsible for the management of the
proceeds of the offering and the investments of the partnership. Services
performed by the general partners include, but are not limited to:
o implementation of partnership investment policies
o identification, selection and extension of loans
o preparation and review of budgets
o cash flow and taxable income or loss projections and working capital
requirements o periodic physical inspections and market surveys o supervision of
any necessary litigation o preparation and review of partnership reports,
communications with limited partners o supervision and review of partnership
bookkeeping, accounting and audits o supervision and review of partnership state
and federal tax returns
o supervision of professionals employed by the partnership in connection
with any of the foregoing, including attorneys and accountants.
The general partners may be removed by a majority of the limited partners (See
"SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT - Rights and Liabilities of the
Limited Partners" at page 66).
The General Partners.
D. Russell Burwell. D. Russell Burwell, age 67, General Partner, Director
(1978-present) and President (1979-present) of Redwood Mortgage Corp.; Director
(1978-present) and President (1979-present) of A & B Financial Services, Inc., a
finance company; Director (since 1986) and president (since 1986) of Gymno
Corporation. Mr. Burwell is licensed as a real estate sales person and is the
majority owner of The Redwood Group, Ltd. (described below). Mr. Burwell is the
father of Michael R. Burwell (described below).
Michael R. Burwell. Michael R. Burwell, age 43, General Partner, past
member of Board of Trustees and Treasurer, Mortgage Brokers Institute
(1984-1986); Director, Chief Financial Officer, Secretary, and Treasurer Redwood
Mortgage Corp. (1979-present); Director, Secretary and Treasurer A & B Financial
Services, Inc. (1980-present); Director, Chief Financial Officer and Secretary
(since 1986) of Gymno Corporation; Director, Secretary and Treasurer of The
Redwood Group, Ltd. (1979-present). Mr. Burwell is licensed as a real estate
sales person. He is the son of D. Russell Burwell described above.
Gymno Corporation. Gymno Corporation, General Partner, is a California
corporation formed in 1986 for the purpose of acting as a general partner of
this partnership and of other limited partnerships formed by the individual
general partners. D. Russell Burwell and Michael R. Burwell are equal (i.e.,
50-50) shareholders of Gymno Corporation. D. Russell Burwell and Michael R.
Burwell are Gymno's Directors; D. Russell Burwell is its President and Michael
R. Burwell is its Chief Financial Officer and Secretary.
Redwood Mortgage Corp. Redwood Mortgage Corp. is a licensed real estate
broker incorporated in 1978 under the laws of the State of California, and is
engaged primarily in the business of arranging and servicing mortgage loans.
Redwood Mortgage Corp. will act as the loan broker and servicing agent in
connection with loans, as it has done on behalf of several other limited
partnerships formed by the general partners (See "PRIOR PERFORMANCE SUMMARY" at
page 28). Redwood Mortgage Corp. is a subsidiary of The Redwood Group, Ltd.
The general partners have represented that they have a combined net
worth of in excess of $1,000,000 determined on a GAAP basis. Audited and
unaudited balance sheets for Gymno Corporation and Redwood Mortgage Corp. are
set forth hereafter.
Affiliates of the General Partners.
The Redwood Group, Ltd. The Redwood Group, Ltd., a California corporation,
is a diversified financial services company specializing in various aspects of
the mortgage lending and investment business. Its various subsidiaries have
arranged over 1 billion in loans secured in whole or in part by first, second
and third deeds of trust. Its subsidiaries include Redwood Mortgage Corp. and A
& B Financial Services, Inc. D. Russell Burwell, one of the general partners, is
the majority shareholder of The Redwood Group, Ltd.
Theodore J. Fischer. Theodore J. Fischer, age 51, Director and Vice
President of Redwood Mortgage Corp. (1980-present); licensed real estate broker
(1979-present); Assistant Vice President, Western Title Insurance Co.
(1977-1980); Business Development representative, Transamerica Title Insurance
Co. (1976-1977).
<PAGE>
SELECTED OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or entity owns beneficially more than five percent (5%) of
the ownership interest in the partnership. The following tables sets forth the
beneficial ownership interests in the partnership as of March 31, 2000, by (i)
each general partner of the partnership and (ii) all general partners as a
group.
Amount of
Beneficial Percent
Title of Name and Address Ownership of Class
Class
Units Gymno Corporation, 650 El Camino $35,100 1/10 of 1%
Real, Suite G, Redwood City,
California 94063(1)
D. Russell Burwell, 650 El Camino $0 0%
Real, Suite G, Redwood City,
California 94063
Michael R. Burwell, 650 El Camino $0 0%
Real, Suite G, Redwood City,
California 94063
Redwood Mortgage Corp, 650 El Camino $0 0%
Real; Suite P, Redwood ity,
California 94063 (2)
All general partners as a group $35,100 1/10 of 1%
-------------------------------------------------------
(1) Gymno Corporation is owned fifty percent (50%) by D. Russell Burwell
and fifty percent (50%) by Michael R. Burwell
(2) Redwood Mortgage Corp. is owned 100% by The Redwood Group Ltd, an
affiliate of the general partners.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
As of March 31, 2000 and for the Years ended December 31
-------------------------------------------------------------------------
1999 1998 1997
As of March 31,
2000
<S> <C> <C> <C> <C>
Loans secured by trust deeds $45,252,163 $35,693,148 $31,905,958 $25,304,989
Less: Allowance for loan losses $(836,206) ($834,359) $(414,073) $(257,500)
Real estate held for Sale $0 $0 $66,000 $70,138
Cash, cash equivalents and other assets $1,756,476 $2,776,120 $1,564,074 $1,539,947
Total assets $46,172,433 $37,634,909 $33,121,959 $26,657,574
Liabilities $4,473,992 $572,942 $6,074,305 $5,726,421
Partners' capital
General partners $32,265 $31,950 $22,323 $16,432
Limited partners $41,666,176 $37,030,017 $27,025,331 $20,914,721
Total partners' capital $41,698,441 $37,061,967 $27,047,654 $20,931,153
Total liabilities/partners' capital $46,172,433 $37,634,909 $33,121,,959 $26,657,574
Revenues $1,093,746 $4,426,245 $3,406,021 $2,629,457
Operating expenses
Promotional interest $0 $0 $0 $0
Management fee $12,930 $42,215 $31,651 $24,966
Provisions for losses on loans $1,847 $408,890 $162,969 $139,804
Provisions for losses on real estate held for sale $0 $0 $0 $0
Other $149,256 $1,032,860 $937,273 $665,729
Net income $929,713 $2,942,280 $2,274,128 $1,798,958
Net income allocated to general partners $9,297 $29,423 $22,741 $17,990
Net income allocated to Limited Partners $920,416 $2,912,857 $2,251,387 $1,780,968
Net income per $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $21 $84 $84 $84
- where partner receives income in monthly
Distributions $20 $81 $81 $81
</TABLE>
<PAGE>
<TABLE>
ORGANIZATIONAL CHART
---------------------------------------------------------------
THE REDWOOD GROUP, LTD.
---------------------------------------------------------------
<S> <C> <C>
------------------------------------
D. RUSSELL BURWELL (1)
------------------------------------
--------------------------------------- -------------------------
REDWOOD MORTGAGE CORP. (Corporate A & B FINANCIAL
General Partner) (2) SERVICES, INC. (2)
--------------------------------------- -------------------------
------------------------------------
GYMNO CORPORATION
(Corporate General Partner)
------------------------------------
----------------------------------- --------------------------------
D. RUSSELL BURWELL (3) MICHAEL R. BURWELL (3)
(Individual General Partner) (Individual General Partner)
----------------------------------- --------------------------------
------------------------------------
PARTNERSHIPS WE MANAGE
------------------------------------
---------------------------------------------------------------
CORPORATE MORTGAGE INVESTORS
REDWOOD MORTGAGE INVESTORS
REDWOOD MORTGAGE INVESTORS II
REDWOOD MORTGAGE INVESTORS III
REDWOOD MORTGAGE INVESTORS IV
REDWOOD MORTGAGE INVESTORS V
REDWOOD MORTGAGE INVESTORS VI
REDWOOD MORTGAGE INVESTORS VII
REDWOOD MORTGAGE INVESTORS VIII
---------------------------------------------------------------
</TABLE>
(1) D. Russell Burwell is the majority shareholder of The Redwood Group,
Ltd.
(2) Redwood Mortgage Corp. and A&B Financial Services, Inc. are
subsidiaries of The Redwood Group, Ltd.
(3) D. Russell Burwell and Michael R. Burwell are the sole shareholders of
Gymno Corporation.
<PAGE>
INVESTMENT OBJECTIVES AND CRITERIA
Principal Objectives. We are engaged in business as a mortgage lender.
We make loans to individuals and business entities secured primarily by first
and second deeds of trust on California real estate. We have been operating for
8 years and have made loans in the aggregate in excess of $101,900,000. As of
May 31, 2000, we have raised $41,593,569 in aggregate capital contributions in
two (2) prior offerings. We have not yet identified nor committed to make any
loans from any additional proceeds of this offering and, as of the date of the
prospectus, have not entered into any negotiations with respect to extending any
loans.
Our partnership's primary objectives are to:
o Yield a high rate of return from mortgage lending; and o Preserve and protect
the partnership's capital.
You should not expect the partnership to provide tax benefits of the
type commonly associated with limited partnership tax shelter investments. The
partnership is intended to serve as an investment alternative for investors
seeking current income. However, unlike other investments which are intended to
provide current income, your investment in the partnership will be:
o less liquid,
o not readily transferable, and
o not provide a guaranteed return over its investment life.
The foregoing objectives of the partnership will not change, however, the
limited partnership agreement does provide that the general partners shall have
sole and complete charge of the affairs of the partnership and shall operate the
business for the benefit of all partners.
General Standards for Loans. The partnership is engaged in the business
of making loans to members of the general public. These loans will generally be
secured by deeds of trust on the following types of real property, including:
o single-family residences (including homes, condominiums and townhouses,
including 1-4 unit residential buildings), o multifamily residential property
(such as apartment buildings), o commercial property (such as stores, shops,
offices, warehouses and retail strip centers), and o unimproved land.
Based on prior experience, we anticipate that of the number of loans made,
approximately 30% to 60% of the total dollar amount of loans will be secured by
single family residences, 20% to 50% by commercial properties, 1% to 20% by
apartments, and 1% to10% by unimproved land.
As of March 31, 2000, of the partnership's outstanding loan portfolio
44% is secured by single family residences, 43% by commercial properties, 1% by
multifamily properties and 12% by unimproved land. At March 31, 2000, the
percentage of land loans was slightly above our original predictions. Several
land loan opportunities became available which the general partners believed to
be good investments for the partnership. The partnership continues to raise
capital which, as raised and invested in loans, will reduce the outstanding land
loan balance in proportion to the total. The general partners estimate that when
all capital is raised that the percentage of land loans will lie within the
anticipated range. We will also make loans secured by promissory notes which
will be secured by deeds of trust and shall be assigned to the partnership. The
partnership's loans will not be insured by the Federal Housing Administration or
guaranteed by the Veterans Administration or otherwise guaranteed or insured.
With the exception of the formation loan to be made to Redwood Mortgage Corp.,
loans will be made pursuant to a set of guidelines designed to set standards for
the quality of the security given for the loans, as follows:
o Priority of Mortgages. The lien securing each loan will not be junior to
more than two other encumbrances (a first and, in some cases a second deed of
trust) on the real property which is to be used as security for the loan.
Although we may also make wrap-around or "all-inclusive" loans, those
wrap-around loans will include no more than two (2) underlying obligations (See
"CERTAIN LEGAL ASPECTS OF LOANS - Special Considerations in Connection with
Junior Encumbrances" at page 41). We anticipate that the partnership's loans
will eventually be diversified as to priority approximately as follows:
o first mortgages - 40-60%;
o second mortgages - 40-60%;
o third mortgages - 0-10%.
<PAGE>
As of March 31, 2000, of the partnership's outstanding loan
portfolio:
o fifty six percent (56%) were secured by first mortgages, o forty three
percent (43%) by second mortgages and o one percent (1%) by third mortgages.
o Geographic Area of Lending Activity. We will continue to generally limit
lending to properties located in California. Currently, we have made no loans
outside of California. Approximately 80% of our loans are secured by deeds of
trust on properties in the six San Francisco Bay Area counties. We anticipate
that this will continue in the future. These counties, which have an aggregate
population of over 3.5 million, are Santa Clara, San Mateo, San Francisco,
Alameda, Contra Costa and Marin. The economy of the area where the security is
located is important in protecting market values. Therefore, the general
partners will limit the largest percentage of our lending activity principally
to the San Francisco Bay Area since it has a broad diversified economic base, an
expanding working population and a minimum of buildable sites. The general
partners believe these factors contribute to a stable market for residential
property. Although we anticipate that the partnership's primary area of lending
will continue to be Northern California, we may elect to make loans secured by
real property located throughout California.
o Construction Loans. We may make construction loans (other than home
improvement loans on residential property) up to a maximum of 10% of our loan
portfolio. With respect to residential property, a construction loan is a loan
in which the proceeds are used to construct a new dwelling (up to four units) on
a parcel of property on which no dwelling previously existed or on which the
existing dwelling was entirely demolished. With respect to commercial property,
a construction loan is a loan in which the proceeds are used to construct an
entirely new building or add on or improve an existing building or facility. As
of March 31, 2000, 10% of our loans consisted of construction loans. In no event
will the loan-to-value ratio on construction loans exceed 80% of the
independently appraised completed value of the property. We will not make loans
secured by properties determined by the general partners to be special-use
properties. Special use properties are bowling alleys, churches and gas
stations.
o Loan-to-Value Ratios. The amount of the partnership's loan combined with
the outstanding debt secured by a senior deed of trust on the security property
generally will not exceed a specified percentage of the appraised value of the
security property as determined by an independent written appraisal at the time
the loan is made. These loan-to-value ratios are as follows:
Type of Security Property Loan to-Value Ratio
--------------------------------------------------------------------------------
Residential (including apartments) 80%
Commercial Property (including retail stores, office 70%
buildings, warehouses facilities, mixed use properties)
Unimproved Land 50%
Any of the above loan-to-value ratios may be increased if, in the sole
discretion of the general partners, a given loan is supported by credit adequate
to justify a higher loan-to-value ratio. In addition, such loan-to-value ratios
may be increased by 10% (e.g., to 90% for residential property), to the extent
mortgage insurance is obtained; however, the general partners do not anticipate
obtaining mortgage insurance. Finally, the foregoing loan-to-value ratios will
not apply to purchase-money financing offered by us to sell any real estate
owned (acquired through foreclosure) or to refinance an existing loan that is in
default at the time of maturity. In such cases, the general partners shall be
free to accept any reasonable financing terms that they deem to be in the best
interests of the partnership, in their sole discretion. Notwithstanding the
foregoing, in no event will the loan-to-value ratio on construction loans exceed
eighty percent (80%) of the independently appraised completed value of the
property. The target loan-to-value ratio for partnership loans as a whole is
approximately 70%. As of March 31, 2000, the loan to value ratio for the
partnership as a whole was 61.08%.
We receive an independent appraisal for the property that will secure our
mortgage loan. Appraisers retained by us shall be licensed or qualified as
independent appraisers by state certification or national organization or other
qualifications acceptable to the general partners. The general partners will
review each appraisal report and will conduct a "drive-by" for each property on
which an appraisal is made. A "drive by" means the general partners or their
affiliates will drive to the property and assess the front exterior of the
subject property, the adjacent properties and the neighborhood. A "drive by"
does not include entering any structures on the property. In many cases the
general partners do enter the structures on the property.
<PAGE>
o Terms of Loans. Most of our loans will be for a period of 1 to 10 years,
but in no event more than 15 years. Most loans will provide for monthly payments
of principal and/or interest. Many loans will provide for payments of interest
only or are only partially amortizing with a "balloon" payment of principal
payable in full at the end of the term. Some loans will provide for the deferral
and compounding of all or a portion of accrued interest for various periods of
time.
o Equity Interests in Real Property. Most of our loans will provide for
interest rates comparable to second mortgage rates prevailing in the
geographical area where the security property is located. However, we reserve
the right to make loans (up to a maximum of 25% of the partnership's loan
portfolio) bearing a reduced stated interest rate in return for an interest in
the appreciation in value of the security property during the term of the loan
(See "CONFLICTS OF INTEREST - Loan Brokerage Commissions" at page 24).
o Escrow Conditions. Loans will be funded through an escrow account handled
by a title insurance company or by Redwood Mortgage Corp., subject to the
following conditions:
|X| Satisfactory title insurance coverage will be obtained for all loans.
The title insurance policy will name the partnership as the insured and provide
title insurance in an amount at least equal to the principal amount of the loan.
Title insurance insures only the validity and priority of the partnership's deed
of trust, and does not insure the partnership against loss by reason of other
causes, such as diminution in the value of the security property, over
appraisals, etc.
|X| Satisfactory fire and casualty insurance will be obtained for all
loans, naming the partnership as loss payee in an amount equal to cover the
replacement cost of improvements.
|X| The general partners do not intend to arrange for mortgage insurance,
which would afford some protection against loss if the partnership foreclosed on
a loan and there was insufficient equity in the security property to repay all
sums owed. If the general partners determine in their sole discretion to obtain
such insurance, the minimum loan-to-value ratio for residential property loans
will be increased.
|X| All loan documents (notes, deeds of trust, escrow agreements, and any
other documents needed to document a particular transaction or to secure the
loan) and insurance policies will name the partnership as payee and beneficiary.
Loans will not be written in the name of the general partners or any other
nominee.
o Loans to General Partners and Affiliates. Although we may loan funds to
the general partners or their affiliates, no such loans have been made to date.
However, the partnership will make the formation loan to Redwood Mortgage Corp.
and may, in certain limited circumstances, loan funds to affiliates, to among
other things, purchase real estate owned by us as a result of foreclosure.
o Purchase of Loans from Affiliates and Other Third Parties. Existing loans
may be purchased, from the general partners, their affiliates or other third
parties, only so long as any such loan is not in default and otherwise satisfies
all of the foregoing requirements; provided, the general partners and their
affiliates will sell no more than a 90% interest and retain a 10% interest in
any loan sold to the partnership which they have held for more than 180 days. In
such case, the general partners and affiliates will hold their 10% interest and
the partnership will hold its 90% interest in the loan as tenants in common. The
purchase price to the partnership for any such loan will not exceed the par
value of the note or its fair market value, whichever is lower.
o Note Hypothecation. We also may make loans which will be secured by
assignments of secured promissory notes. The amount of a loan secured by an
assigned note will satisfy the loan-to-value ratios set forth above (which are
determined as a specified percentage of the appraised value of the underlying
property) and also will not exceed 80% of the principal amount of the assigned
note. For example, if the property securing a note is commercial property, the
total amount of outstanding debt secured by such property, including the debt
represented by the assigned note and any senior mortgages, must not exceed 70%
of the appraised value of such property, and the loan will not exceed 80% of the
principal amount of the assigned note. For purposes of making loans secured by
promissory notes, we shall rely on the appraised value of the underlying
property, as determined by an independent written appraisal which was conducted
within the last twelve (12) months. If such appraisal was not conducted within
the last twelve months, then we will arrange for a new appraisal to be prepared
for the property. All such appraisals will satisfy our loan-to-value ratios set
forth above. Any loan evidenced by a note assigned to the partnership will also
satisfy all other lending standards and policies described herein. Concurrently
with our making of the loan, the borrower of partnership funds, i.e., the holder
of the promissory note, shall execute a written assignment which shall assign to
the partnership his/its interest in the promissory note. No more than 20% of our
portfolio at any time will be secured by promissory notes. As of the date
hereof, none of our portfolio is secured by promissory notes. o
<PAGE>
JointVentures. We may also participate in loans with other lenders
(including certain affiliates or other limited partnerships organized by the
general partners), other individuals and pension funds, by providing funds for
or purchasing a fractional undivided interest in a loan meeting the requirements
set forth above. Because we will not participate in a loan in which would not
otherwise meet its requirements, the risk of such participation is minimized.
o Diversification. The maximum investment by the partnership in a loan will
not exceed the greater of (1) $50,000, or (2) 10% of the then total partnership
assets (See Joint Ventures, above).
o Reserve Fund. A contingency reserve fund equal to three percent (3%) of
the gross proceeds of the offering will be established for the purpose of
covering unexpected cash needs of the partnership.
Credit Evaluations. We may consider the income level and general
creditworthiness of a borrower to determine his or her ability to repay the loan
according to its terms, but such considerations are subordinate to a
determination that a borrower has sufficient equity in the security property to
satisfy the loan-to-value ratios described above. Therefore, loans may be made
to borrowers who are in default under other of their obligations (e.g., to
consolidate their debts) or who do not have sources of income that would be
sufficient to qualify for loans from other lenders such as banks or savings and
loan associations.
Loan Brokerage Commissions. Redwood Mortgage Corp. will receive loan
brokerage commissions for services rendered in connection with the review,
selection, evaluation, negotiation and extension of the loans from borrowers.
Redwood Mortgage Corp. anticipates that loan brokerage commissions will average
approximately three to six percent (3-6%) of the principal amount of each loan,
but may be higher or lower depending upon market conditions. The loan brokerage
commission will be limited to four percent (4%) per annum of the partnership's
total assets.
Loan Servicing. It is anticipated that all loans will be "serviced" (i.e.,
loan payments will be collected) by Redwood Mortgage Corp. Redwood Mortgage
Corp. will be compensated for such loan servicing activities (See "COMPENSATION
TO GENERAL PARTNERS AND AFFILIATES" at page 20). Both Redwood Mortgage Corp. and
the partnership have the right to cancel this servicing agreement and any other
continuing business relationships that may exist between them upon 30 days
notice.
Borrowers will make interest payments in arrears, i.e., with respect to
the preceding 30-day period, and will make their checks payable to Redwood
Mortgage Corp. Checks will be deposited in Redwood Mortgage Corp.'s trust
account, and, after checks have cleared, funds will be transferred to the
partnership's bank or money market account.
Sale of Loans. Although we have not done so in the past, the general
partners or their affiliates may sell loans to third parties including
affiliated parties (or fractional interests therein) if and when the general
partners determine that it appears to be advantageous to do so.
Borrowing. We will borrow funds for partnership activities including:
(1) making loans; (2) increasing the liquidity of the partnership; and (3)
reducing cash reserve needs. We may assign all or a portion of our loan
portfolio as security for such loan(s). As of March 31, 2000, we have borrowed
up to $4,200,000 pursuant to $9,000,000 line of credit. We anticipate engaging
in this type of transaction when the interest rate at which the partnership can
borrow funds is somewhat less than the rate that can be earned by us on our
loans, giving us the opportunity to earn a profit on this "spread." Such a
transaction involves certain elements of risk and also entails possible adverse
tax consequences (See "RISK FACTORS - Use of Borrowed Money May Reduce Our
Profitablilty Or Cause Losses Through Liquidation" at page 7 and "FEDERAL INCOME
TAX CONSEQUENCES - Investment by Tax-Exempt Investors" at page 61). It is our
intention to finance no more than fifty percent (50%) of the partnership's
investments with borrowed funds. (See "TAX RISKS - Risks Relating to Creation of
Unrelated Business Taxable Income" at page 14).
Other Policies. We shall not:
o issue senior securities
o invest in the securities of other issuers for the purpose of exercising
control
o underwrite securities of other issuers, or
o offer securities in exchange for property.
If we anticipate that we will become, through foreclosure or otherwise, the
owner of property that is subject to a high degree of risk, including without
limitation, property subject to hazardous or toxic cleanup, prolonged
construction or other risk, the general partners may, in their discretion, seek
to transfer or sell the loan to an affiliated or unaffiliated entity with the
expertise to manage the attendant risk.
CERTAIN LEGAL ASPECTS OF LOANS
Each of our loans (except the formation loan to Redwood Mortgage Corp.)
will be secured by a deed of trust, the most commonly used real property
security device in California. The following discusses certain legal aspects of
the loans with respect to Federal and California law only. The deed of trust
(also commonly referred to as a mortgage) creates a lien on the real property.
The parties to a deed of trust are: the debtor called the "trustor", a
third-party grantee called the "trustee", and the lender-creditor called the
"beneficiary." The trustor grants the property, irrevocably until the debt is
paid, "in trust, with power of sale" to the trustee to secure payment of the
obligation. The trustee has the authority to exercise the powers provided in the
deed of trust including non-judicial foreclosure of the property, and acts upon
the directions of the beneficiary. We will be a beneficiary under all deeds of
trust securing loans.
Foreclosure. Foreclosure of a deed of trust is accomplished in most
cases by a trustee's sale through a non-judicial foreclosure under the
power-of-sale provision in the deed of trust. Prior to such sale, the trustee
must record a notice of default and send a copy to the trustor, to any person
who has recorded a request for a copy of a notice of default and notice of sale,
to any successor in interest to the trustor and to the beneficiary of any junior
deed of trust. The trustor or any person having a junior lien or encumbrance of
record may, until five business days before the date a foreclosure sale is held,
cure the default by paying the entire amount of the debt then due. Such amount
does not include principal due only because of acceleration upon default, plus
costs and expenses actually incurred in enforcing the obligation and statutory
limited attorney's and trustee's fees. After the notice of default is recorded
and following a three (3) month notice period and at least 20 days before the
trustee's sale, a notice of sale must be posted in a public place and published
once a week over the 20 day period. A copy of the notice of sale must be posted
on the property, and sent to the trustor and to each person who has requested a
copy, to any successor in interest to the trustor and to the beneficiary of any
junior deed of trust, at least 20 days before the sale. Following the sale,
neither the trustor nor a junior lienholder has any further interest in the
property. A judgment may not be sought against the trustor for the difference
between the amount owed on the debt and the amount the beneficiary received upon
sale of the property.
A judicial foreclosure (in which the beneficiary's purpose is usually
to obtain a deficiency judgment), is subject to many of the delays and expenses
of other types of lawsuits, sometimes requiring up to several years to complete.
Following a judicial foreclosure sale, the trustor or his successors in interest
will have certain rights to redeem the property. However, such redemption rights
will not be available if the creditor waives the right to any deficiency.
Foreclosed junior lienholders do not have a right to redeem the property after a
judicial foreclosure sale. We generally will not pursue a judicial foreclosure
to obtain a deficiency judgment, except where, in the sole discretion of the
general partners, such a remedy is warranted in light of the time and expense
involved.
Tax Liens. Any liens for federal or state taxes filed after a loan is
made which is secured by a recorded deed of trust will be junior in priority to
the loan. Accordingly, the filing of federal or state tax liens after our loan
is made will not affect the priority of the partnership's deed of trust,
regardless of whether it is a senior or junior deed of trust. Real property tax
liens will be in all instances a lien senior to any deed of trust given by
borrowers. Accordingly, even if the partnership is the senior lienholder, if a
real property tax lien is filed, the partnership's deed of trust will be junior
to the real property tax lien. For a discussion of the effect of a junior lien
see "SPECIAL Considerations In Connection With Junior Encumbrances" at page 39.
Anti-Deficiency Legislation. California has four principal statutory
prohibitions which limit the remedies of a beneficiary under a deed of trust.
Two statutes limit the beneficiary's right to obtain a deficiency judgment
against the trustor following foreclosure of a deed of trust, one based on the
method of foreclosure and the other on the type of debt secured. Under one
statute, a deficiency judgment is barred where the foreclosure was accomplished
by means of a trustee's sale. Most of our loans will be enforced by means of a
trustee's sale, if foreclosure becomes necessary, and, therefore, a deficiency
judgment may not be obtained. However, it is possible that some of our loans
will be enforced by means of judicial foreclosure sales. Under the other
statute, a deficiency judgment is barred in any event where the foreclosed deed
of trust secured a "purchase money" obligation. With respect to loans, a
promissory note evidencing a loan used to pay all or a part of the purchase
price of a residential property occupied, at least in part, by the purchaser,
will be a purchase money obligation. Thus, under either statute, we will not be
able to seek a deficiency judgment.
Another statute, commonly know as the "one form of action" rule,
provides that the beneficiary commence an action to exhaust the security under
the deed of trust by foreclosure before a personal action may be brought against
the borrower. The fourth statutory provision limits any deficiency judgment
obtained by the beneficiary following a judicial foreclosure sale to the excess
of the outstanding debt over the fair market value of the property at the time
of sale, thereby preventing a beneficiary from obtaining a large deficiency
judgment against the debtor as a result of low bids at the judicial foreclosure
sale.
Other matters, such as litigation instituted by a defaulting borrower
or the operation of the federal bankruptcy laws, may have the effect of delaying
enforcement of the lien of a defaulted loan and may in certain circumstances
reduce the amount realizable from sale of a foreclosed property.
Special Considerations in Connection with Junior Encumbrances. In
addition to the general considerations concerning trust deeds discussed above,
there are certain additional considerations applicable to second and third deeds
of trust ("junior encumbrances"). By its very nature, a junior encumbrance is
less secure than more senior ones. Only the holder of a first trust deed is
permitted to bid in the amount of his credit at his foreclosure sale; junior
lienholders must bid cash. If a senior lienholder forecloses on its loan, unless
the amount of the bid exceeds the senior encumbrances, the junior lienholders
will receive nothing. However, in that event the junior lienholder may have a
personal action against the borrower to enforce the promissory note.
Accordingly, a junior lienholder (such as the partnership) will in most
instances be required to protect its security interest in the property by taking
over all obligations of the trustor with respect to senior encumbrances while
the junior lien holder commences his foreclosure, making adequate arrangements
either to (i) find a purchaser of the property at a price which will recoup the
junior lienholder's interest or (ii) to pay off the senior encumbrances so that
his encumbrance achieves first priority. Either alternative will require us to
make substantial cash expenditures to protect our interest (See "RISK FACTORS -
Loan Defaults and Foreclosures" at page 4).
We may also make wrap-around mortgage loans (sometimes called
"all-inclusive loans"), which are junior encumbrances to which all the
considerations discussed above will apply. A wrap-around loan is made when the
borrower desires to refinance his property but does not wish to retire the
existing indebtedness for any reason, e.g., a favorable interest rate or a large
prepayment penalty. A wrap-around loan will have a principal amount equal to the
outstanding principal balance of the existing debts plus the amount actually to
be advanced by us. The borrower will then make all payments directly to the
partnership, and the partnership in turn will pay the holder of the senior
encumbrance(s). The actual yield to the partnership under a wrap-around mortgage
loan will exceed the stated interest rate to the extent that such rate exceeds
the interest rate on the underlying senior loan, since the full principal amount
of the wrap-around loan will not actually be advanced by the partnership.
We will record a request for notice of default at the time the trust
deed is recorded. This procedure entitles the partnership to notice when any
senior lienholder files a Notice of Default and will provide more time to make
alternate arrangements for the partnership to protect its security interest.
In the event the borrower defaults solely upon his debt to the
partnership while continuing to perform with regard to the senior lienholder,
the partnership (as junior lienholder) will foreclose upon its security interest
in the manner discussed above in connection with deeds of trust generally. Upon
foreclosure by a junior lienholder, the property remains subject to all liens
senior to the foreclosed lien. Thus, were the partnership to purchase the
security property at its own foreclosure sale, it would acquire the property
subject to all senior encumbrances.
The standard form of deed of trust used by most institutional lenders,
like the one that will be used by the partnership, confers on the beneficiary
the right both to receive all proceeds collected under any hazard insurance
policy and all awards made in connection with any condemnation proceedings. The
standard form also confers upon us the power to apply such proceeds and awards
to any indebtedness secured by the deed of trust, in such order as the
beneficiary may determine. Thus, in the event improvements on the property are
damaged or destroyed by fire or other casualty, or in the event the property is
taken by condemnation, the beneficiary under the underlying first deed of trust
will have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation, and to apply the same to the indebtedness secured by the first
deed of trust before any such proceeds are applied to repay the loan. Applicable
case law, however, has imposed upon the lender the good faith obligation to
apply those proceeds towards the repair of the property in those situations.
"Due-on-Sale" Clauses. Our forms of promissory notes and deeds of
trust, like those of many lenders generally, contain "due-on-sale" clauses
permitting the partnership to accelerate the maturity of a loan if the borrower
sells the property. Some forms of the partnership's promissory notes and deeds
of trust will permit assumption by a subsequent buyer, but do not usually
contain "due-on-encumbrance" clauses which would permit the same action if the
borrower further encumbers the property (i.e., executes further deeds of trust).
The enforceability of these types of clauses has been the subject of several
major court decisions and Congressional legislation in recent years.
o Due-on-Sale. Federal law now provides that, notwithstanding any contrary
preexisting state law, due-on-sale clauses contained in mortgage loan documents
are enforceable in accordance with their terms by any lender after October 15,
1985. McCutchen, Doyle, Brown and Enersen, LLP, counsel for the partnership, has
advised that under the Garn-St. Germain Act we will probably be entitled to
enforce the "due-on-sale" clause anticipated to be used in the deeds of trust
given to secure the loans. On the other hand, acquisition of a property by us by
foreclosure on one of our loans, may also constitute a "sale" of the property,
and would entitle a senior lienholder to accelerate its loan against us. This
would be likely to occur if then prevailing interest rates were substantially
higher than the rate provided for under the accelerated loan. In that event, we
may be compelled to sell or refinance the property within a short period of
time, notwithstanding that it may not be an opportune time to do so.
o Due-on-Encumbrance. With respect to mortgage loans on residential
property containing four or less units, federal and California law prohibits
acceleration of the loan merely by reason of the further encumbering of the
property (e.g., execution of a junior deed of trust). This prohibition does not
apply to mortgage loans on other types of property. Although most of our second
mortgages will be on properties that qualify for the protection afforded by
federal law, some loans will be secured by apartment buildings or other
commercial properties which may contain due on encumbrance provisions. Second
mortgage loans made by us may trigger acceleration of senior loans on such
properties if the senior loans contain due-on-encumbrance clauses, although both
the number of such instances and the actual likelihood of acceleration is
anticipated to be minor. Failure of a borrower to pay off the accelerated senior
loan would be an event of default and subject us (as junior lienholder) to the
attendant risks (See "CERTAIN LEGAL ASPECTS OF LOANS - Special Considerations in
Connection with Junior Encumbrances" at page 41).
o Prepayment Charges. Some loans originated by the partnership provide for
certain prepayment charges to be imposed on the borrowers in the event of
certain early payments on the loans. Any prepayment charges collected on loans
will be retained by the partnership. Loans secured by deeds of trust encumbering
single-family owner-occupied dwellings may be prepaid at any time, regardless of
whether the note and deed of trust so provides, but prepayments made in any
12-month period during the first five years of the term of the loan which exceed
20% of the original balance of the loan may be subject to a prepayment charge
provided the note and deed of trust so provided. The law limits the prepayment
charge in such loans to an amount equal to six months advance interest on the
amount prepaid in excess of the permitted 20%, or interest to maturity,
whichever is less. If a loan that is secured by residential property is being
repaid because the lender has accelerated the loan upon the sale of the
property, California law does not allow a prepayment penalty to be charged.
o Real Property Loans. California statutory law imposes certain disclosure
requirements with respect to loans arranged by a California real estate broker
and secured by residential property. However, those requirements are applicable
to loans that are in a lesser amount than the anticipated loans. Notwithstanding
the preceding, the partnership intends to make disclosures to borrowers that
would satisfy these statutes to the extent reasonably practicable, regardless of
whether the statutes are applicable to the relevant loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE
PARTNERSHIP
On March 31, 2000, the partnership was in the offering stage of its
second offering, ($30,000,000). Contributed capital totalled $14,932,017 for the
first offering and $24,378,460 for the second offering, an aggregate of
$39,310,477 as of March 31, 2000. Of this amount, $31,000 remained in applicant
status. Accordingly, together with the initial approved offering of $15,000,000
the partnership has approval for an aggregate offering of $45,000,000.
Results of Operations. For the years ended December 31, 1997, 1998, and
1999, and the three months ended March 31, 2000.
The net income increase of $1,798,958 (46%) for the year ended December
31, 1997, $2,274,128 (26%) for the year ended December 31, 1998, $2,942,280
(29%) for the year ended December 31, 1999, and $929,713 (45%) for the three
month period ended March 31, 2000, as compared to the three month period ended
March 31, 1999, was primarily attributable to the increase in loans held by the
partnership:
3 months
through
December 31, December 31, December 31, March 31,
1997 1998 1999 2000
-------------------------------------------------------------
Loans outstanding $25,304,989 $31,905,958 $35,693,148 $45,252,163
<PAGE>
The partnership's ability to increase its loans was due to an increase
in the capital raised, the compounding of earnings by those limited partners who
have chosen to reinvest and by leveraging the loans through the use of a credit
line from a commercial bank. During the years ended December 31, 1997, 1998,
1999 and the three month period ended March 31, 2000, the partnership received
new capital contributions and reinvested compounding limited partner earnings
of:
3 months
ended
December 31, December 31, December 31, March 31,
1997 1998 1999 2000
--------------------------------------------------------------------------------
Capital contribution $5,565,372 $5,100,458 $9,530,318 $4,199,536
Reinvestment of
earnings $1,119,465 $1,440,687 $1,911,554 $588,985
To a lesser extent, loans outstanding have also increased through the
utilization of the partnership's line of credit. The effect of more outstanding
loans raised the interest earned on loans for the years ended:
3 months
through
December 31, December 31, December 31, March 31,
1997 1998 1999 2000
--------------------------------------------------------------------------------
Interest earned
on loans $2,613,008 $3,376,293 $4,337,427 $1,082,236
The partnership began funding loans on April 14, 1993 and as of March
31, 2000, distributed earnings at an average annualized yield of 8.36%.
Since the fall of 1999, mortgage interest rates have been rising due
primarily to economic forces and by the Federal Reserve raising its core
interest rates. New Mortgage Investments will be originated at higher interest
rates which could increase the average return across the entire Mortgage
Investment portfolio held by the Partnership. In the future, interest rates
likely will change from their current levels. The General Partners cannot at
this time predict at what levels interest rates will be in the future. Although
the rates charged by the Partnership are influenced by the level of interest
rates in the market, the General Partners do not anticipate that rates charged
by the Partnership to its borrowers will change significantly from the beginning
of 2000 over the next 12 months. Based upon the rates payable in connection with
the existing Mortgage Investments, the current and anticipated interest rates to
be charged by the Partnership and the General Partners' experience, the General
Partners anticipate that the annualized yield will range between eight & nine
percent (8% - 9%).
In 1995, the partnership established a line of credit with a commercial
bank secured by its loans and since its inception has increased the limit from
$3,000,000 to $9,000,000. For the years ended December 31, 1997, 1998, 1999 and
three months through March 31, 2000, interest on note payable-bank was $340,633,
$513,566, $526,697 and $13,530 respectively. From 1997 through March 31, 2000,
the increase in interest on notes payable-bank has been attributed to a higher
overall credit facility utilization. As of March 31, 2000 the partnership
borrowed $4,200,000 at an interest rate of prime +.25% (9.0%). This facility
could again increase as the partnership's capital increases. This added source
of funds will help in maximizing the partnership's yield by allowing the
partnership to minimize the amount of funds in lower yield investment accounts
when appropriate loans are not available. Additionally, the loans made by the
partnership bear interest at a rate in excess of the rate payable to the bank
which extended the line of credit. The amount to be retained by the partnership,
after payment of the line of credit cost, will be greater than those without the
use of the line of credit. As of March 31, 2000, the balance remained at
$4,200,000 and in accordance with the line of credit, the partnership paid all
accrued interest as of that date. As of December 31, 1997, 1998, 1999 and the
three months ended March 31, 2000, the outstanding balance on the line of credit
was $5,640,000, $5,947,000, $0 and $4,200,000 respectively. The credit line has
a fluctuating interest rate of .25% over the commercial bank's reference rate.
At March 31, 2000, the interest rate on the credit line was 9.0%, respectively.
The partnership's income and expenses, accruals and delinquencies are
within the normal range of the general partners' expectations, based upon their
experience in managing similar partnerships over the last twenty-three years.
Mortgage servicing fees increased from $189,692 to $295,052 to $359,464 and to
$71,294 for the years ended December 31, 1997, 1998, 1999 and three months
through March 31, 2000. The mortgage servicing fees increased primarily due to
increase in the outstanding loan portfolio. Asset management fees increased from
$24,966 to $31,651 to $42,215 and to $12,930 for the years ended December 31,
1997, 1998, 1999 and three months through March 31, 2000 respectively. The asset
management fee increase was due primarily to the increase in partners' capital
which the general partners are managing. All other partnership expenses
fluctuated within a narrow range commonly expected to occur, except for interest
on note payable - bank which was discussed earlier in the Management Discussion
and Analysis of Financial Condition and Results of Operations. Borrower's
foreclosures are a normal aspect of partnership operations and the general
partners anticipate that they will not have a material effect on liquidity.
Currently no foreclosures exist. Cash is constantly being generated from
interest earnings, late charges, pre-payment penalties, amortization of
principal and pay-off on loans. Currently, cash flow exceeds partnership
expenses and earnings requirements. Excess cash flow will be invested in new
loan opportunities, when available, and will be used to reduce the partnership
credit line or for other partnership business.
Allowance for Losses. The general partners regularly review the loan portfolio,
examining the status of delinquencies, the underlying collateral securing these
loans, borrowers' payment records, etc. Data from the local real estate market
and of the national and local economy are reviewed. Based upon this information
and other data, loss reserves are increased or decreased. In 1997, 1998, 1999
and three months through March 31, 2000, the partnership made provisions for
doubtful accounts of $139,804, $162,969, $408,890 and $1,847 respectively. These
provisions for doubtful accounts were made to guard against collection losses.
Total cumulative provision for doubtful accounts as of March 31, 2000, of
$836,206 is considered by the general partners to be adequate. Because of the
number of variables involved, the magnitude of the swings possible and the
general partners' inability to control many of these factors, actual results may
and do sometimes differ significantly from estimates made by the general
partners.
At the time of subscription to the partnership, limited partners must
elect whether to receive monthly, quarterly or annual cash distributions from
the partnership, or to compound earnings in their capital account. If you
initially elect to receive monthly, quarterly or annual distributions, such
election, once made, is irrevocable. However you may change your election
regarding whether you want to receive such distributions on a monthly, quarterly
or annual basis. If you initially elect to compound earnings in your capital
account, in lieu of cash distributions, you may, after three (3) years, change
the election and receive monthly, quarterly or annual cash distributions.
Earnings allocable to limited partners who elect to compound earnings in their
capital account, will be retained by the partnership for making further loans or
for other proper partnership purposes, and such amounts will be added to such
limited partners' capital accounts.
During the periods stated below, the partnership, after allocation of
syndication costs, made the following allocation of earnings both to the limited
partners who elected to compound their earnings, and those that chose to
distribute:
Three months
through
1997 1998 1999 March 31, 2000
-----------------------------------------------------------------
Compounding $1,119,465 $1,440,687 $1,911,554 $588,985
Distributing $495,480 $614,383 $826,291 $259,991
As of December 31, 1997, December 31, 1998, December 31, 1999, and
three months ending March 31, 2000, limited partners electing to withdraw
earnings represented 30%, 30%, 31% and 30% respectively of the limited partners'
outstanding capital accounts. These percentages have remained relatively stable.
The general partners anticipate that after all capital has been raised, the
percentage of limited partners electing to withdraw earnings will decrease due
to the dilution effect which occurs when compounding limited partners' capital
accounts grow through earnings reinvestment.
The partnership also allows the limited partners to withdraw their
capital account subject to certain limitations (see Withdrawal From Partnership
in the Limited Partnership Agreement). Once a limited partner's initial five
year hold period has passed, the general partners expect to see an increase in
liquidations due to the ability of limited partners to withdraw without penalty.
This affects the partnership by growing primarily through reinvestment of
earnings in years one through five. The general partners expect to see
increasing numbers of limited partner withdrawals in years five through eleven,
at which time the bulk of those limited partners who have sought withdrawal have
been liquidated. After year eleven, liquidation generally subsides and the
partnership capital again tends to increase through earnings reinvestment. Since
the five year hold period for most of the investors has yet to expire, as of
March 31, 2000, many limited partners may not as yet avail themselves of this
provision for liquidation. Earnings and capital liquidations including early
withdrawals since 1997 through March 31, 2000 were:
3 months
through
March 31,
1997 1998 1999 2000
----------- ----------- -------------- ------------
Earnings liquidation $495,480 $614,383 $826,291 $259,991
Capital liquidation* $132,619 $257,344 $592,357 $194,001
----------- ----------- -------------- ------------
Total $628,099 $871,727 $1,418,648 $453,992
=========== =========== ============== ============
* These amounts represent gross of early withdrawal penalties.
<PAGE>
Additionally, limited partners may liquidate their investment over a
one year period subject to certain limitations and penalties. During the past
three years, and three months through March 31, 2000, capital liquidated subject
to the 10% penalty for early withdrawal was:
Three months
through March
1997 1998 1999 31, 2000
------------------ ------------------ ----------------- ------------------
$132,619 $244,213 $411,838 $104,361
This represents 0.63%, 0.90%, 1.11% and 0.23% (.92% annualized), of the
limited partners' ending capital for the years ended December 31, 1997, 1998,
1999 and three months ending March 31, 2000 respectively. These withdrawals are
within the normally anticipated range and represent a small percentage of
limited partner capital.
Current Economic Conditions. The February 18, 2000 issue of the "Alert"
publication, published by the California Chamber of Commerce, said the following
about California's thriving economy:
"Job gains grew in the fourth quarter of 1999, as the California economy
accelerated. For the year as a whole, employment grew by 2.9 percent,
considerably stronger than in the nation. This gain likely will be revised
upward to 3.3 percent, or so, in the benchmark revisions to be released in late
February.
State unemployment, at 4.9 percent in the last four months, is lower than in
more than 30 years. Tax revenues are flooding into Sacramento, in part because
of the strong economy, but also because of exercised stock options, strong
bonuses and huge realized stock market gains.
The state economy's strength has been widespread across major industries, but
concern about residential real estate is growing.
Housing permits were issued at an annual rate of 139,000 units through November
1999, well below almost everyone's expectations and the 220,000 units averaged
annually in the 1980s. Clearly, not enough housing is being built in the state.
High land prices, restrictive local land use policies, the re-emergence of the
slow growth/no growth movement, and federal environmental regulations are
constraining home building. As a result, affordability is declining at an
alarming rate.
The affordability of existing homes is low in San Diego and Orange counties and
extremely low almost everywhere in the San Francisco Bay Area. In what seems
like a paradox, an oversupply of expensive new homes is developing. This also
happened under similar circumstances in the late 1980s.
In areas of particularly high land prices and long permitting and other building
delays, building entry and mid-level housing becomes more difficult to "pencil
out". As developers turn increasingly to expensive housing, the supply of
expensive housing can quickly outstrip demand. Also, the affordability of new
homes can dip considerably below that of existing homes.
In Orange County, for example, a relatively low 32 percent of households could
afford to buy the median-priced existing home sold in November; only 19 percent
could afford to buy the median-priced new home."
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates into more loan activity, which of course, is healthy for the
Partnership's lending activity.
The Year 2000 was considered by most to be a challenge for the entire
world with respect to the conversion of existing computerized operations. The
partnership relies on Redwood Mortgage Corp., third parties and various software
vendors for its hardware and software needs. Since year 2000 has come, we have
not experienced any computer hardware breakdowns. We assume that our testing and
upgrading of computer hardware prior to year 2000 identified all hardware areas
of concern. Computer software programs are all operational with only minor
problems being experienced with some programs. These problems are being
addressed by the appropriate software vendors or software programmers. All
annual computerized functions have not yet been run, however testing of the
operations has taken place. We do not expect any significant problems.
The costs of updating our computer systems were substantially borne by
the non affiliated software vendors and the in house system conversion costs to
the partnership were marginal.
Year 2000 issues do not appear to have affected, in any significant
manner, any industries or businesses in the marketplace in which the partnership
places its loans. We believe that year 2000 issues are a non-event and will have
little if any future effect on the partnership, its affiliates or the people and
businesses with which it associates.
The foregoing analysis of year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations, and financial condition. As such, this analysis may prove to be
inaccurate because of assumptions made by the general partners or the actual
development of future events. No assurance can be given that any of these
statements or predictions will ultimately prove to be correct or substantially
correct.
PORTFOLIO REVIEW - For the years ended December 31, 1997, 1998, 1999 and the
three months ended March 31, 2000.
Loan Portfolio
The partnership's loan portfolio consists primarily of short-term (one
to five years), fixed rate loans secured by real estate. As of December 31,
1997, 1998, 1999 and March 31, 2000, the partnership's loans secured by real
property collateral in the six San Francisco Bay Area counties (San Francisco,
San Mateo, Santa Clara, Alameda, Contra Costa, and Marin) represented 84.4%
($21,357,375), 74.7% ($23,839,166), 77.43% ($27,638,456) and 78.99%
($35,746,812) of the outstanding loan portfolio. The remainder of the portfolio
represented loans primarily in Northern California.
As of December 31, 1997, approximately, 30.7% ($7,764,145), of the loan
portfolio was invested in single family homes (1-4 units) approximately 23.6%
($5,982,649), of the loan portfolio was invested in multifamily dwellings,
(apartments over 4 units), and approximately 45.7% ($11,558,195), of the loan
portfolio was invested in commercial properties. As of December 31, 1998,
approximately 47.8% ($15,239,644) of the loan portfolio was invested in single
family homes (1-4 units), approximately 10.2% ($3,256,602) of the loan portfolio
was invested in multifamily dwellings (apartments over 4 units), and
approximately 42.0% ($13,409,712) of the loan portfolio was invested in
commercial properties. As of December 31, 1999, approximately, 51.25%
($18,293,897), was invested in single family homes (1-4 units), approximately
0.85% ($302,797) was invested in multifamily dwellings (apartments over 4
units), approximately, 33.63% ($12,004,502) was invested in commercial
properties, and approximately 14.27% ($5,091,951) was invested in unimproved
land. As of March 31, 2000, approximately 45.27% ($20,483,857), was invested in
single family homes (1-4 units), approximately 0.59% ($266,002), was invested in
multifamily dwellings (apartments over 4 units), approximately 41.91%
($18,966,450), was invested in commercial properties, and approximately 12.23%
($5,535,854) was invested in unimproved land.
As of March 31, 2000, the partnership held 57 loans secured by deeds of
trust. The following table sets forth the priorities, asset concentrations and
maturities of the loans held by the partnership as of March 31, 2000.
PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS
(As of March 31, 2000)
Number of Loans Amount Percent
================================================================================
1st Mortgages 28 $25,450,046 56%
2nd Mortgages 28 19,611,873 43%
3rd Mortgages 1 190,244 1%
--------------------------------------------------
Total 57 45,252,163 100.0%
Maturing prior to 12/31/00 22 15,496,465 34.24%
Maturing prior to 12/31/01 19 17,962,408 36.69%
Maturing prior to 12/31/02 7 7,936,020 17.54%
Maturing after 12/31/02 9 3,857,270 8.53%
--------------------------------------------------
Total 57 45,252,163 100.0%
Average Loan 793,898 1.75%
Largest Loan 2,900,000 6.41%
Smallest Loan 18,000 0.04%
Average Loan-to-Value 61.08%
<PAGE>
ASSET QUALITY
A consequence of lending activities is that losses will be experienced
and that the amount of such losses will vary from time to time, depending upon
the risk characteristics of the loan portfolio as affected by economic
conditions and the financial experiences of borrowers. Many of these factors are
beyond the control of the general partners. There is no precise method of
predicting specific losses or amounts that ultimately may be charged off on
particular segments of the loan portfolio, especially in light of the current
economic environment.
The conclusion that a loan may become uncollectible, in whole or in
part, is a matter of judgment. Although institutional lenders are subject to
requirements and regulations that, among other things, require them to perform
ongoing analyses of their portfolios, loan-to-value ratios, reserves, etc., and
to obtain and maintain current information regarding their borrowers and the
securing properties, the partnership is not subject to these regulations and has
not adopted these practices. Rather, the general partners, in connection with
the periodic closing of the accounting records of the partnership and the
preparation of the financial statements, determine whether the allowance for
loan losses is adequate to cover potential loan losses of the partnership. As of
March 31, 2000, the general partners have determined that the allowance for loan
losses of $836,206 is adequate in amount. Because of the number of variables
involved, the magnitude of the swings possible and the general partners'
inability to control many of these factors, actual results may and do sometimes
differ significantly from estimates made by the general partners. As of March
31, 2000, seven loans were delinquent over 90 days amounting to $ 6,722,232.
LIQUIDITY AND CAPITAL RESOURCES
The partnership relies upon purchases of units, loan payoffs,
borrowers' mortgage payments, and, to a lesser degree, its line of credit for
the source of funds for loans. Recently, mortgage interest rates have increased
somewhat from those available at the inception of the partnership. If interest
rates were to increase substantially, the yield of the partnership's loans may
provide lower yields than other comparable debt-related investments. As such,
additional limited partner unit purchases could decline, which would reduce the
overall liquidity of the partnership. Additionally, since the partnership has
made loans in primarily fixed rate loans, if interest rates were to rise, the
likely result would be a slower prepayment rate for the partnership. This could
cause a lower degree of liquidity as well as a slowdown in the ability of the
partnership to invest in loans at the then current rate. Conversely, in the
event interest rates were to decline, the partnership could see both or either
of a surge of unit purchases by prospective limited partners, and significant
borrower prepayments, which, if the partnership can only obtain the then
existing lower rates of interest may cause a dilution of the partnership's yield
on loans, thereby lowering the partnership's overall yield to the limited
partners. The partnership to a lesser degree relies upon its line of credit to
fund loans. Generally, the partnership's loans are fixed rate, whereas the
credit line is a variable rate loan. In the event of a significant increase in
overall interest rates, the credit line rate of interest could increase to a
rate above the average portfolio rate of interest. Should such an event occur,
the general partners would desire to pay off the line of credit. Retirement of
the line of credit would reduce the overall liquidity of the partnership.
BUSINESS
We are engaged in business as a mortgage lender for the primary purpose
of making loans secured primarily by first and second deeds of trust on
California real estate. Ninety nine percent (99%) of the partnership's loans are
secured by first and second deeds of trust. We commenced operations in April,
1993. We are located at 650 El Camino Real, Suite G, Redwood City, California
94063 and our telephone number is (650) 365-5341.
Loans are arranged and serviced by Redwood Mortgage Corp., a general
partner of the partnership. As of March 31, 2000, approximately 56% of the
partnership's loans are secured by first deeds of trust and 43% are secured by
second deeds of trust and 1% by third deeds of trust. The aggregate principal
balance of these loans total $45,252,163.
The following table shows the growth in total partnership capital,
loans and net income as of March 31, 2000, and for the years ended December 31,
1999, 1998, 1997:
Capital Loans Net Income
-------------- ---------------- --------------
2000 (as of March 31) $41,698,441 $45,252,163 $929,713
1999 37,061,967 35,693,148 2,942,280
1998 27,047,654 31,905,958 2,274,128
1997 20,931,153 25,304,989 1,798,958
As of March 31, 2000, the partnership had made one hundred seventy five
(175) loans, including eighty nine (89) first deeds of trust, seventy nine (79)
second deeds of trust and seven (7) third deeds of trust. The following table
sets forth the types and maturities of these loans. Many of these loans have
been repaid in full by the borrowers.
<PAGE>
<TABLE>
TYPES AND MATURITIES OF LOANS (As of March 31, 2000)
Number of Mortgage
Investments Amount Percent
----------------------- -------------------------- --------------------
<S> <C> <C> <C>
First Mortgage 89 $58,321,025 57.23%
Second Mortgage 79 $41,490,081 40.71%
Third Mortgage 7 $2,102,461 2.06%
----------------------- -------------------------- --------------------
175 $101,913,567 100.0%
======================= ========================== ====================
Maturing before 1/1/98 44 $11,327,426 11.11%
Maturing after 1/1/98 and before 1/1/2000 46 $25,329,899 24.86%
Maturing after 1/1/2000 and before 1/1/2002 51 $42,652,751 41.85%
Maturing after 1/1/2002 34 $22,603,491 22.18%
----------------------- -------------------------- --------------------
175 $101,913,567 100.0%
======================= ========================== ====================
Single Family Residences 83 $39,626,655 38.88%
Commercial Residences 60 $39,774,374 39.03%
Multi-Unit Property 18 $12,654,977 12.42%
Unimproved Land 14 $9,857,561 9.67%
----------------------- -------------------------- --------------------
175 $101,913,567 100.0%
======================= ========================== ====================
</TABLE>
DELINQUENCIES
As of March 31, 2000, we had 7 loans ($6,722,232) which were delinquent
over 90 days. This represents 14.86% of our outstanding portfolio. Only one of
these loans was in foreclosure.
ALLOWANCE FOR LOSSES
Loans and the related accrued interest, fees and advances are analyzed
on a continuous basis for recoverability. Delinquencies are identified and
followed as part of the loan system. A provision is made for doubtful accounts
to adjust the allowance for doubtful accounts to an amount considered by
management to be adequate to provide for unrecoverable accounts receivable. At
March 31, 2000, $836,206 was provided as an allowance for possible losses.
1. Table of open loans for the partnership as of March 31, 2000. As of
March 31, 2000, the partnership had fifty seven (57) open loans with a principal
outstanding balance totaling $45,252,163. Open loans are those loans in which
the principal amount of the loan is outstanding. That is, the loan has not been
paid back to the partnership.
The following table sets forth with respect to each open loan, the
following information:
o the date the loan was funded;
o the amount of the existing first or second mortgage on the property, if
any;
o the amount of the loan, the term of the loan;
o the appraised value of the property at the time the loan was made;
o the loan to value ratio at the time the loan was made; and
o the current status of the loan
Please be aware that the key to the footnotes indicated in the following table
appear at the bottom of the page.
<PAGE>
<TABLE>
a. Loans Secured By Single Family Residences (1-4 Units)
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- ------------- ------------- ------------- ---------- ------------- ------------- --------
----------------------------------------------------------- ------------- ---------- ------------- ------------- --------
Single Family Residences (county)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
San Mateo 1 03/29/96 $ 0 $ 0 $ 105,000 120 $ 140,000 75.00 A
Alameda 2 05/07/97 262,342 0 50,000 24 405,000 77.12 A
San Francisco 1 06/24/97 0 0 579,300 36 800,000 72.41 A
San Francisco 2 09/16/97 579,300 0 1,320,000 18 2,450,000 77.52 B
San Mateo, 1 10/07/97 0 0 250,000 360 435,000 57.47 A
San Francisco 1 10/23/97 0 0 2,400,000 18 3,403,034 70.53 A
Marin 2 03/25/98 1,300,000 0 894,000 24 1,097,000 81.49 B
San Francisco 2 08/07/98 1,702,800 0 950,700 18 4,205,000 63.10 A
San Francisco 1 11/03/98 0 0 910,000 18 1,300,000 70.00 A
San Francisco 2 11/13/98 1,320,000 0 1,155,000 18 3,300,000 75.00 A
San Francisco 2 11/03/98 910,000 0 953,000 18 2,800,000 66.54 A
San Mateo 1 11/25/98 0 0 2,600,000 12 3,946,429 65.88 C
Marin 1 03/04/99 0 0 1,210,000 24 1,860,000 65.05 B
San Francisco 2 04/27/99 2,400,000 0 430,345 12 4,435,862 63.81 A
San Mateo 2 07/30/99 264,025 0 950,000 18 1,550,000 78.32 A
Santa Clara 1 07/20/99 0 0 950,000 60 1,440,000 65.97 A
Lake 2 08/06/99 454,885 0 737,500 24 1,775,000 67.18 A
Santa Clara 2 08/17/99 668,433 0 850,000 120 2,800,000 54.23 A
Placer 1 10/28/99 0 0 3,297,500 18 5,194,572 63.48 A
San Francisco 2 01/25/00 492,978 0 399,767 60 1,430,000 62.45 A
Santa Clara 2 02/03/00 539,843 0 1,292,800 18 3,060,000 59.89 A
Contra Costa 2 02/28/00 1,935,712 0 650,000 36 4,476,200 57.77 A
Placer 2 03/30/00 3,297,500 0 409,950 13 5,194,572 71.37 A
b. Loans Secured By Multifamily Residences (5+ Units)
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- -------------- ------------ ------------- ---------- -------------- ----------- --------
---------------------------------------------- ------------ ------------- ---------- -------------- ----------- --------
Multiple Units (county)
San Joaquin 2 10/05/94 $713,917 $ 0 $ 200,000 60 $ 1,270,000 71.96 A
San Francisco 1 03/21/95 0 0 400,000 120 583,333 68.57 A
Contra Costa 2 03/31/99 5,733 0 38,727 60 58,042 76.60 A
</TABLE>
1 Indicates a first deed of trust on property
2 Indicates a second deed of trust on property
3 Indicates a third deed of trust on the property
4 The term loan to value ratio means the total amount of debt
secured by the property expressed as a percentage of the total
value of the property. Generally, the loan to value ratio will
not exceed 80% of the appraised value for residential
properties, 70% of the appraised value for commercial
properties and 50% of appraised value for unimproved land.
A. Loan current or less than 90 days delinquent
B. Loan 90 days or more delinquent
C. Loan in foreclosure
D. Loan in bankruptcy
<PAGE>
<TABLE>
c. Loans Secured By Commercial Property
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- -------------- ------------ ------------- ---------- -------------- ----------- --------
----------------------------------------------------------- ------------- ---------- -------------- ----------- --------
Commercial Properties (county)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sacramento 2 08/27/93 $ 846,019 $ 0 $ 67,500 120 $ 1,343,500 68.00 A
Alameda 1 11/16/93 0 0 192,500 60 256,667 75.00 B
Santa Clara 1 01/20/94 0 0 390,000 60 585,000 66.67 B
Fresno 1 06/15/95 0 0 130,000 60 225,000 57.78 A
San Mateo 1 02/16/96 0 0 75,000 60 265,000 28.30 A
San Mateo 2 08/20/96 74,754 0 65,000 54 265,000 52.74 A
Santa Clara 2 11/15/96 468,000 0 18,000 15 585,000 83.08 B
San Francisco 1 03/28/97 0 0 700,000 108 2,100,00 33.33 A
San Mateo 1 04/23/97 0 0 370,000 60 495,000 74.75 A
San Francisco 1 09/12/97 0 0 150,000 60 1,440,000 10.42 A
San Francisco 1 09/19/97 0 0 325,000 120 595,000 54.62 A
Alameda 2 09/30/97 156,750 0 169,555 120 568,125 57.43 A
Stanislaus 1 07/24/98 0 0 1,072,000 18 1,949,344 54.99 A
Santa Clara 1 11/04/98 0 0 1,800,000 24 2,610,000 68.97 A
Riverside 2 03/05/97 121,264 0 50,000 36 300,000 57.09 A
San Mateo 2 03/05/99 3,753,523 0 2,050,000 24 10,652,313 54.48 A
San Francisco 1 05/27/99 0 0 850,000 24 1,335,714 63.64 A
San Francisco 2 08/11/99 850,000 0 1,028,095 21 2,703,809 69.46 A
Contra Costa 1 11/16/99 0 0 1,185,000 24 1,580,000 75.00 A
Santa Clara 2 11/03/99 4,467,314 0 1,074,000 24 7,400,000 74.88 A
San Francisco 2 12/09/99 495,031 0 550,000 24 1,430,000 69.67 A
San Francisco 1 02/22/00 0 0 1,303,977 24 1,738,636 75.00 A
San Francisco 2 02/22/00 1,303,977 0 1,696,023 24 3,739,773 80.22 A
San Mateo 1 03/17/00 0 0 2,900,000 24 5,350,000 54.21 A
San Francisco 1 03/30/00 0 0 2,200,000 24 2,750,000 80.00 A
</TABLE>
1. Indicates a first deed of trust on property
2. Indicates a second deed of trust on property
3. Indicates a third deed of trust on the property
4. The term loan to value ratio means the total amount of debt
secured by the property expressed as a percentage of the total
value of the property. Generally, the loan to value ratio will
not exceed 80% of the appraised value for residential
properties, 70% of the appraised value for commercial
properties and 50% of appraised value for unimproved land.
A. Loan current or less than 90 days delinquent
B. Loan 90 days or more delinquent
C. Loan in foreclosure
D. Loan in bankruptcy
<PAGE>
<TABLE>
d. Loans Secured By Land
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- -------------- ------------ ------------- ---------- -------------- ----------- --------
----------------------------------------------------------- ------------- ---------- -------------- ----------- --------
Land (county)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanislaus 1 02/06/98 $ 0 $ 0 $ 350,000 18 $ 700,000 50.00 A
Santa Clara 1 06/16/99 0 0 120,000 24 240,000 50.00 A
Stanislaus 2 06/23/99 363,035 0 1,800,000 24 3,008,571 71.90 A
Stanislaus 2 06/23/99 2,133,726 0 2,600,000 24 9,004,878 52.57 A
Stanislaus 3 10/14/99 169,015 1,194,805 221,951 24 3,582,927 44.25 A
Stanislaus 3 02/15/00 2,600,000 221,951 475,610 24 6,037,073 54.21 A
</TABLE>
1 Indicates a first deed of trust on property
2 Indicates a second deed of trust on property
3 Indicates a third deed of trust on the property
4 The term loan to value ratio means the total amount of debt
secured by the property expressed as a percentage of the total
value of the property. Generally, the loan to value ratio will
not exceed 80% of the appraised value for residential
properties, 70% of the appraised value for commercial
properties and 50% of appraised value for unimproved land.
A. Loan current or less than 90 days delinquent
B. Loan 90 days or more delinquent
C. Loan in foreclosure
D. Loan in bankruptcy
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
CAUTION: WE DO NOT INTEND TO PROVIDE TAX BENEFITS OF THE TYPE COMMONLY
ASSOCIATED WITH LIMITED PARTNERSHIP TAX SHELTERS. NONETHELESS, THE INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP ARE COMPLEX. ACCORDINGLY,
PROSPECTIVE INVESTORS SHOULD NOT CONSIDER THIS DISCUSSION AS A SUBSTITUTE FOR
CAREFUL INDIVIDUAL TAX PLANNING. YOU SHOULD CONSULT WITH YOUR TAX ADVISORS,
ATTORNEYS OR ACCOUNTANTS ON MATTERS RELATING TO AN INVESTMENT IN THE PARTNERSHIP
WITH SPECIAL REFERENCE TO YOUR OWN SITUATION.
The following is a summary of federal income tax considerations
material to your investment in the partnership. This summary is based upon the
Code, effective and proposed administrative regulations (the "Regulations"),
judicial decisions, published and private rulings and procedural announcements
issued by the Treasury Department as in effect as of the date of this
prospectus, any of which may be subject to change, possibly with adverse
retroactive effect. Many provisions of the Code that significantly affect the
tax consequences of investments in real estate limited partnerships have not yet
been the subject of court decisions or authoritative interpretation by the IRS.
It is impossible to predict what tax legislation, if any, will be enacted, and
there can be no assurance that proposals that would adversely affect an
investment in the units will not be enacted into law.
In considering the tax aspects of the offering, you should note that
the partnership is not intended to be a so-called "tax shelter" and that,
accordingly, many of the tax aspects commonly associated with a "tax shelter"
are inapplicable to the partnership or are of minor importance. The partnership
does not expect to generate tax losses that can be used to offset your income
from sources other than the partnership and, if the partnership's investment
objectives are met, we will generate taxable income, as opposed to taxable loss,
for investors.
The availability and amount of tax benefits that will be claimed by the
partnership will depend not only upon the general legal principles described
below, but also upon certain decisions and factual determinations which will be
made in the future by the general partners as to which no legal opinion is
expressed and which are subject to potential controversy on factual or other
grounds. Such determinations include the proper characterization and purpose of
various fees, commissions and other expenses of the partnership, the
reasonableness and timing of fees, the dates on which the partnership commences
business, whether loans made by the partnership are for investment purposes, the
terms of the loans, whether the loans will have equity participation or original
issue discount features, whether the partnership is engaged in a trade or
business and other matters of a factual nature which will only be determined
based upon the future operations of the partnership.
No rulings have been or will be requested from the IRS concerning any
of the tax matters described herein. Accordingly, there can be no assurance that
the IRS or a court will not disagree with the following discussion or with any
of the positions taken by the partnership for federal income tax purposes.
This summary provides a discussion of tax consequences deemed material
by counsel but is not a complete or exhaustive analysis of all possible
applicable provisions of the Code, the regulations, and judicial and
administrative interpretations thereof. The income tax considerations discussed
below are necessarily general and will vary with the individual circumstances.
In particular, this summary assumes that the limited partners will be U.S.
taxpayers who are individuals or tax-exempt pension or profit-sharing trusts or
IRAs. It does not generally discuss the federal income tax consequences of an
investment in the partnership peculiar to corporate taxpayers, foreign
taxpayers, estates, taxable trusts, or to a transferee of limited partners. If
you are such a prospective investor, you should carefully consult your own
advisors on this issue. Other tax issues of relevance to other taxpayers should
be reviewed carefully by such investors to determine special tax consequence of
an investment prior to their subscription.
FOR THE FOREGOING REASONS, EACH PROSPECTIVE LIMITED PARTNER IS URGED TO CONSULT
HIS OWN TAX ADVISER WITH RESPECT TO THE FEDERAL AND STATE CONSEQUENCES TO SUCH
LIMITED PARTNER RESULTING FROM THE PURCHASE OF UNITS AND FROM FUTURE CHANGES IN
TAX LAWS AND REGULATIONS.
Summary of Material Tax Aspects. The following summarizes the primary
material tax aspects for an investment in the partnership. The very nature of an
investment in the partnership involves complex issues of taxation, and
accordingly, investors are urged to review the entire discussion of tax matters
in "FEDERAL INCOME TAX CONSEQUENCES" at page 50 and "TAX RISKS" at page 13 in
the prospectus. With respect to these issues, the partnership has received an
opinion of counsel as to the material tax aspects ("FEDERAL INCOME TAX
CONSEQUENCES - Opinion of Counsel") at page 51.
The principal tax aspect likely to be material to an investor is the
"flow through" of net income and net loss for tax purposes to limited partners.
Unlike a corporation, the partnership will not be liable for income taxes on net
income generated by the partnership. Rather, such income and loss will be
allocated among the limited partners and reported individually by the limited
partners on their income tax returns. If for any reason the partnership was not
treated as a partnership for tax purposes, it could result in the partnership
being taxed on its net income as well as limited partners being taxed for any
distributions to them.
The manner in which net income and net loss are allocated to the
partners will also likely be a material consideration. In general, the general
partners are allocated 1% of the net income and net loss and the limited
partners are allocated 99% of such items. Among the limited partners such items
are allocated according to their capital accounts. While counsel is opining that
such allocations will be respected, in the event such allocations were
recharacterized for tax purposes it could involve a shift in income or loss from
the limited partners to the general partners.
The character of the partnership's income may also be material to
investors. The partnership's income will generally be characterized as passive
income or portfolio income for tax purposes. Counsel is opining that the bulk of
the partnership's income should be treated as a portfolio income for tax
purposes and not as unrelated business taxable income. Portfolio income is
generally income from interest, dividends, royalties or certain rentals. Such
income generally cannot be offset by passive losses generated from other passive
investments. The partnership does not expect to generate taxable losses or
passive losses.
Other aspects of an investment in the partnership may be considered
material to limited partners based upon unique circumstances applicable to
individual partners. Accordingly, investors are urged to review the balance of
the discussion of tax consequences in this section.
Opinion of Counsel. The partnership has obtained an opinion from the
McCutchen, Doyle, Brown & Enersen, LLP ("Counsel") which states that the
sections of the prospectus which discuss the material tax risks and the section
of the prospectus entitled "FEDERAL INCOME TAX CONSEQUENCES" at page 50
accurately described each of the material tax issues and reflect counsel's
opinion regarding such matters referred to therein. Counsel has also opined that
in the aggregate, the significant tax benefits anticipated to result from an
investment in the partnership are more likely than not to be realized by an
investor. However, the significant tax benefits should not be considered a
primary investment feature of the partnership. The partnership is intended to
serve as an investment vehicle for investors seeking current income, and
possibly, appreciation through earnings compounding. Counsel has opined herein
that, subject to certain conditions and based upon certain representations,
that:
1. Partnership Tax Status. It is more likely than not that the
partnership will be treated as a partnership as defined in Sections 7701(a)(2)
and 761(a) of the Code and not as an association taxable as a corporation, and
that the limited partners will be subject to tax as partners pursuant to
Sections 701-706 of the Code.
2. Publicly Traded Partnerships. It is more likely than not that the
partnership will not constitute a publicly traded partnership for purposes of
Sections 7704, 469(k) and 512(c) of the Code.
3. Portfolio Income and Unrelated Business Taxable Income. It is more
likely than not that the income of the partnership will be treated as portfolio
income and not constitute unrelated business taxable income.
4. Basis. It is more likely than not a limited partner's basis for his or
her units will equal the purchase price of the units.
5. Allocations to the Limited Partners. It is more likely than not that
all material allocations to the limited partners of income, gain, loss and
deductions, as provided for in the partnership agreement and as discussed in the
prospectus, will be respected under Section 704(b) of the Code, or in the
alternative, will be deemed to be in accordance with the partners' interests in
the partnership.
Counsel's opinion is based upon the facts described in this prospectus
and upon facts and assumptions as they have been represented by the general
partners to counsel or determined by them as of the date of the opinion. Counsel
has not independently audited or verified the facts represented to it by the
general partners. The material assumptions and representations are summarized
below:
o The partnership will be organized and operated in accordance with the
California Revised Limited Partnership Act.
o The partnership will be operated in accordance with the
partnership agreement, and the partnership will have the
characteristics described in the prospectus and will be
operated as described in the prospectus.
o The partnership will not participate in any loan on terms
other than those described in "INVESTMENT OBJECTIVES AND
CRITERIA" at page 35 without first receiving certain advice of
counsel.
o The loans will be made by on substantially the terms and
conditions described in the prospectus in "INVESTMENT
OBJECTIVES AND CRITERIA" at page 35.
o The general partners will take certain steps in connection
with the transfer of units to decrease the likelihood that the
partnership will be treated as a publicly traded partnership
for purposes of Sections 7704, 469(k), and 512(c) of the Code.
Any alteration of the facts may adversely affect the opinion rendered.
Furthermore, the opinion of counsel is based upon existing law and applicable
regulations and proposed regulations, current published administrative positions
of the Service contained in revenue rulings and revenue procedures, and judicial
decisions, which are subject to change either prospectively or retroactively.
Counsel does not prepare or review the partnership's income tax
information return, which is prepared by the general partners and independent
accountants for the partnership. The partnership will make a number of decisions
on tax matters in preparing its partnership tax return and such matters and such
partnership tax return will be handled by the partnership, often with the advice
of independent accountants retained by the partnership, and usually is not
reviewed with counsel.
You should note that the opinion described herein represents only
counsel's best legal judgment and has no binding effect or official status of
any kind. You should note that any statement that a tax position "more likely
than not" will be sustained only means that in counsel's judgement, at least a
51% chance of prevailing exists if the IRS will challenge the tax position.
Thus, in the absence of a ruling from the Service, there can be no assurance
that the Service will not challenge the conclusion or propriety of any of
counsel's opinions and that such challenge would not be upheld by the courts.
Partnership Status. The partnership has not requested and does not
intend to request a ruling from the Service that the partnership will be treated
for federal income tax purposes as a partnership and not as an association
taxable as a corporation. It is more likely than not, in counsel's opinion, that
the partnership will be treated for federal income tax purposes as a partnership
and not as an association taxable as a corporation.
The ability to obtain income tax attributes anticipated from an
investment in units depends upon the classification of the partnership as a
partnership for federal income tax purposes and not as an association taxable as
a corporation. Regulations regarding entity classification have been issued
under Section 7701 of the Internal Revenue Code which, in effect, operate to
allow a business entity that is not otherwise required to be classified as a
corporation, i.e., and "eligible entity," to elect its classification for
federal income tax purposes. Under Section 301.7701-3(b) of the regulation, an
"eligible entity" that has at least two members will be treated as a partnership
in the absence of an election. Accordingly, while we do not intend to request a
ruling from the IRS as to the classification of the partnership for income tax
purposes, unless the partnership is deemed to be taxable as a corporation
pursuant to the application of the publicly traded partnership rules discussed
below, the partnership will qualify as a "eligible entity" and need not make an
election to be treated as a partnership for income tax purposes.
In the event that the partnership, for any reason, were to be treated
for federal income tax purposes as an association taxable as a corporation, the
partners of the partnership would be treated as stockholders with the following
results, among others: (1) the partnership would become a taxable entity subject
to the federal income tax imposed on corporations; (2) items of income, gain,
loss, deduction and credit would be accounted for by the partnership on its
federal income tax return and would not flow through to the partners; and (3)
distributions of cash would generally be treated as dividends taxable to the
partners at ordinary income rates, to the extent of current or accumulated
earnings and profits, and would not be deductible by the partnership in
computing it income tax.
Based on the entity classification regulations, and IRS rulings and
judicial decisions under Section 7701(a) of the Internal Revenue Code, all of
which are subject to change, and based upon certain representations of the
general partners and other assumptions, counsel has concluded that the
partnership will more likely than not be treated as a partnership for federal
income tax purposes and not as an association taxable as a corporation. In
rendering such opinion, counsel has also relied upon the fact that the
partnership is duly organized as a limited partnership under the laws of the
State of California and upon representation by the general partners that the
partnership will be organized and operated strictly in accordance with the
provisions of the partnership agreement. The remaining summary of the federal
tax consequences in the section assumes that the partnership will be classified
as a partnership for federal income tax purposes.
Publicly Traded Partnerships. Classification of the partnership as a
"publicly traded partnership" could result in (1) the partnership being taxable
as a corporation (See "Partnership Status" above), and (2) the treatment of net
income of the partnership as portfolio income rather than passive income (See
"Passive Loss Limitations" below). A publicly traded partnership is generally
defined under Section 7704 of the Internal Revenue Code as any partnership whose
interests are traded on an established securities market or are readily tradable
on a secondary market or the substantial equivalent thereof. In addition,
regulations have been issued (the Section 7704 regulations) which provide
guidance with respect to such classification standards, including certain safe
harbor standards which, if satisfied, preclude classification as a publicly
traded partnership.
The Section 7704 regulations contain definitions of what constitutes an
established securites market and a secondary market or the substantial
equivalent thereof. They also set forth what transfers may be disregarded in
determining whether such definitions are satisfied with respect to the
activities of a partnership. The general partners do not believe that units in
the partnership are traded on an established securities market or a secondary
market or a substantial equivalent thereof as defined in Section 7704
regulations. The general partners have also represented that they do not intend
to cause the units to be traded on an established securities market or a
secondary market in the future.
As noted above, the Section 7704 regulations provide certain safe
harbors, the "secondary market safe harbors" which, after taking into
consideration all transfers other than those deemed disregarded, may be
satisfied in order to avoid classification of such transfers as being made on a
secondary market or the substantial equivalent thereof. One of the secondary
market safe harbors provides that interests in a partnership will not be
considered tradeable on a secondary market or the substantial equivalent thereof
if the sum off the partnership interests transferred during any taxable year,
other than certain disregarded transfers, does not exceed 2% of the total
interest in the partnership's capital or profits. Disregarded transfers include,
among other things, transfers by gift, transfers at death, transfers between
family members, distributions from a qualified plan and block transfers, which
are defined as transfers by a partner during any 30 calendar day period units
representing more than 2% of the total interest in a partnership's capital or
profits.
A second safe harbor from classification as a publicly traded
partnership, dealing with redemption and repurchase agreements, is also provided
in the Section 7704 regulations. The Section 7704 regulations also make it clear
that the failure to satisfy a safe harbor provision under the regulations will
not cause a partnership to be treated as a publicly traded partnership if, after
taking into account all facts and circumstances, partners are not readily able
to buy, sell or exchange their partnership interests in a manner that is
comparable, economically, to trading on an established securities market.
The general partners have represented that the partnership will be
operated strictly in accordance with the partnership agreement, and they have
also represented that they will void any transfers or assignments of units if
they believe that such transfers or assignments will cause the partnership to be
treated as a publicly traded partnership under the Section 7704 regulations or
any other guidelines adopted by the IRS in the future. Based upon the
representations of the general partners, and assuming the partnership will be
operated strictly in accordance with the terms of the partnership agreement,
counsel has concluded that it is more likely than not the partnership will not
be classified as a publicly traded partnership under Section 7704 of the
Internal Revenue Code. Due to the complex nature of the safe harbor provisions
contained in Section 7704 regulations, and because any determination in this
regard will necessarily be based upon future facts not yet in existence, no
assurance can be given that the IRS will not challenge this conclusion or that
the partnership will not, at some time in the future, be deemed a publicly
traded partnership.
Even if the partnership were deemed a publicly traded partnership,
Section 7704(c) of the Internal Revenue Code provides an exception to taxation
of such an entity as a corporation if 90% or more of the gross income of such an
entity for each taxable year consists of "qualifying income." Qualifying income
includes interest, real property rents and gain from the sale of other
disposition of real property, but qualifying income does not include real
property rents which are contingent on the profits of the lessees or income from
the rental or lease of personal property. The general partners intend to operate
the partnership in such a manner as to qualify for the 90% qualifying income
exception. (see "INVESTMENT OBJECTIVES AND CRITERIA" at page 36). Investors
should note, however, that even if the partnership satisfies the qualifying
income exception, being deemed to be a publicly traded partnership would result
in certain other material adverse tax consequences to limited partners,
including the treatment of net income of the partnership as portfolio income
rather than passive income.
The general partners have represented that they will use their best
efforts to assure that the partnership is not treated as a "publicly traded
partnership." The general partners have also represented that they will not take
any affirmative action on behalf of the partnership to intentionally establish a
market for the partnership interests. Counsel is of the opinion that the
partnership, more likely than not, will not be treated as a "publicly traded
partnership" as defined above. Although the general partners will use their best
efforts to make sure that a secondary market or substantial equivalent thereof
does not develop for interests in the partnership, there can be no assurance
that a secondary market for the units will not develop, or that the IRS may take
the position that the partnership should be classified as a "publicly traded
partnership" for this purpose. In addition, regulations may be adopted that
would cause the partnership to be treated as a publicly traded partnership.
Results if Partnership is Taxable as an Association. If the partnership
were classified as an association taxable as a corporation, the partnership
itself would be subject to a federal income tax on any taxable income at regular
corporate tax rates. The limited partners would not be entitled to take into
account their distributive share of the partnership's deductions or credits, and
would not be subject to tax on their distributive share of the partnership's
income. Distributions to the partners would be treated as dividends to the
extent of accumulated and current earnings and profits; as a return of capital
to the extent of basis; and thereafter, as taxable income, perhaps as ordinary
income, to the extent distributions were in excess of the tax basis. In
addition, if the loss of partnership status occurred at a time when the
partnership's indebtedness exceeded the tax basis of its assets and such
corporate status was prospective only, it could be argued that a constructive
incorporation occurred, and that the limited partners realized gain under
Section 357(c) of the Code, measured by the difference between such indebtedness
and the partnership's tax basis of its assets. If for any reason the partnership
becomes taxable as a corporation prospectively, a constructive incorporation may
be deemed to have occurred and partners may be required to recognize income as
described in this section.
Anti-Abuse Rules. The regulations set forth broad "anti-abuse" rules
applicable to partnerships, which rules authorize the IRS to recast transactions
involving the use of partnerships either to reflect the underlying economic
arrangement or to prevent the use of a partnership to circumvent the intended
purpose of any provision of the Internal Revenue Code. The general partners are
not aware of any fact or circumstance which could cause these rules to be
applied to the partnership; however, if any of the transactions entered into by
the partnership were to be recharacterized under these rules, or the partnership
itself were to be recast as a taxable entity under these rules, material adverse
tax consequences to all of the partners might occur.
Taxation of Partners - General. If the partnership is treated for
federal income tax purposes as a partnership and not as an association taxable
as a corporation, it will file an annual informational income tax return, but
will not be subject as an entity to the payments of federal income tax. On his
personal income tax return, each limited partner will be required to report his
share of partnership income or loss without regard to the amount, if any, of
cash or other distributions made to him. Thus, each limited partner will be
taxed on his share of income even though the amount of cash distributed to him
may be more or less than the resulting tax liability.
Subject to various limitations referred to herein, each limited partner
may deduct his share of the partnership losses if any, to the extent of his tax
basis in his partnership interest. Any losses in excess of basis may be carried
forward indefinitely to offset future taxable income of the partnership. In
computing income or losses, the partnership will include appropriate deductions
for non-capital costs and the depreciation portion of capital costs. If cash
distributions in any one year exceed the partnership's taxable income (whether
in liquidation or otherwise), the amount of such excess will be treated as a
return of capital reducing the tax basis of the limited partner in his interest.
Any cash distributions in excess of the recipient's basis are treated as a sale
or exchange of the limited partnership interest resulting in taxable income to
the recipient.
A limited partner's basis will be decreased (but not below zero) by
actual distributions to him from the partnership, by his distributive share of
partnership losses, by an actual or deemed decrease in his share of partnership
nonrecourse borrowings, and by his share of nondeductible expenses of the
partnership which are not properly chargeable to his capital account. In the
event that cash distributions to a limited partner exceed the adjusted basis of
his units, a limited partner must recognize gain equal to such excess.
Allocation of Profits and Losses. The net profits and net losses of the
partnership will be allocated as specified in Article V of the limited
partnership agreement (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT" at
page 66).
For federal income tax purposes, each partner's distributive share of
specific items of income, gain, loss, deduction and credit is determined by
reference to the general ratio for sharing profits and losses as provided in the
partnership agreement. In general, the allocation provided in a partnership
agreement will control unless such allocation does not have "substantial
economic effect." If an allocation provision of a partnership agreement is found
to lack "substantial economic effect" partnership items will be allocated in
accordance with a partner's interest in the partnership based on all the facts
and circumstances.
Under the regulations, one of three alternative tests must be met in
order for an allocation to be valid under Section 704(b). Allocations are valid
if: (i) the allocation has substantial economic effect; or (ii) the partners can
show that, taking into account all facts and circumstances, the allocation is in
accordance with the partner's interests in the partnership; or (iii) the
allocation can be deemed to be in accordance with the partner's interests in the
partnership in accordance with special rules set forth in the regulations.
Counsel believes that the allocations of the income and loss of the
partnership has "substantial economic effect" based upon the fact that the
allocations affect the dollar amount of each partner's share of total
partnership income or loss independent of tax consequences; the capital accounts
of the partners will reflect the allocation; and the economic risk of loss will
be borne by the limited partners, or that in the alternative, the allocations,
if held to lack substantial economic effect, would nonetheless be deemed to be
in accordance with the partner's interests in the partnership. This would result
in the same treatment as if the allocations were held to have substantial
economic effect.
Sale of Partnership Units. You may be unable to sell your units as
there may be no public market for them. In the event that units are sold,
however, the selling party will realize gain or loss equal to the difference
between the gross sale price or proceeds received from sale and the investor's
adjusted tax basis in his units. Assuming the investor is not a "dealer" with
respect to such units and has held the units for more than 12 months, his gain
or loss will be long-term capital gain or loss, except for that portion of any
gain attributable to such investor's share of the partnership's "unrealized
receivables" and "inventory items" as defined in Section 751 of the Internal
Revenue Code, which portion would be taxable as ordinary income.
Ordinary income for individual taxpayers is currently taxed at a
maximum marginal rate of 39.6%. Capital gains, however, are taxed at a maximum
marginal rate of 20% i.e., for gains realized with respect to capital assets
held for more than 12 months. The Internal Revenue Code also provides, however,
that the portion of long-term capital gain arising from the sale or exchange of
depreciable real property which constitutes depreciation recapture will be taxed
at a maximum marginal rate of 25% rather than 20%. Capital losses may generally
be used to offset capital gains or may, in the absence of capital gains, be
deductible against ordinary income on a dollar-for-dollar basis up to a maximum
annual deduction of $3,000 ($1,500 in the case of a married individual filing a
separate return.)
Any recapture cost recovery allowances taken previously by the
partnership with respect to personal property associated with partnership real
properties will be treated as "unrealized receivables" for this purpose.
Investors should note that in this regard that Section 6050K of the Internal
Revenue Code requires the partnership to report any sale of units to the IRS if
any portion of the gain realized upon such sale is attributable to the
transferor's share of the partnership's "Section 751 property."
The partnership's taxable year will close on the date of sale with
respect to a limited partner (but not the remaining partners) who sells his
entire interest in the partnership. In such a case the partnership items would
be prorated pursuant to Section 706. In the event of a sale of less than the
entire interest of a limited partner, the partnership year will not terminate
with respect to the selling partner, but his proportionate share of items of
income, gain, loss, deduction and credit will also be determined pursuant to
Section 706.
In the case of either the sale of the properties or a sale of a
partner's interest in the partnership, a limited partner may realize taxable
income substantially in excess of the cash, if any, he receives as a result of
such sale. Further, a partner who sells an interest in the partnership may be
required to report a share of partnership income for the year of such sale even
though he received no cash distribution during the year or the amount of cash
distribution was less than his share of income required to be reported.
Character of Income or Loss. The 1986 Act distinguishes between income
from a "passive" activity and portfolio income. A passive activity includes (1)
trade or business activities in which the taxpayer does not materially
participate, and (2) rental activities where payments are primarily for the use
of tangible property. In general, losses generated by a passive activity will
only be allowed to offset income from a passive activity.
Portfolio income generally includes interest, dividends, royalty or
annuity income and gain from sales of portfolio assets, for example, property
held for investment. Portfolio income is not treated as passive income and must
be accounted for separately. Portfolio income is reduced by deductible expenses
(other than interest) that are clearly and directly allocable to such income.
Properly allocable interest expenses also reduce portfolio income. With regard
to interest, the Treasury has issued regulations which adopt a tracing rule.
Interest attributable to indebtedness which is used to purchase an interest in a
passive activity will be regarded as passive and subject to the passive loss
rules. Thus, if a limited partner borrowed all or a portion of the funds used to
purchase his unit(s), interest paid on such borrowing could be used to offset
income attributable to a passive activity.
The distinction between passive income and portfolio income thus has a
material effect on the partnership and the limited partners. If the partnership
is engaged in a passive activity, any income from the partnership is deemed
"passive income" which is available to be offset by any other passive losses
which the limited partner has from other sources. Portfolio income cannot be
offset by such passive losses. Specifically, passive losses from the
partnership, net of taxable income from the partnership, may be used to offset
passive income from other sources with any unused losses carried over into the
next tax year where they are available to offset passive income from the
partnership and other sources. In the year that the unit is disposed of, or the
partnership is dissolved, any unused passive loss is available to offset any
gain upon the disposition or dissolution, as the case may be, then to offset any
passive income from other sources and, finally, to offset ordinary income.
The regulations provide that the lesser of the partnership's net
passive income or the partnership's equity financed interest income shall be
treated as not from a passive activity. Such income is in turn treated as
interest income, or in other words, portfolio income.
The partnership's equity financed interest income is that portion of
its net interest income derived by excluding interest income allocable to
liabilities incurred in the activity. It is determined by multiplying net
interest income by a fraction whose numerator is the excess of the average
outstanding balance for the year of interest bearing assets, less the average
outstanding balance for the year of the liabilities incurred in the activity and
whose denominator is the average outstanding balance for the year of the
interest bearing assets held in the activity. Net interest income is the gross
interest income less expenses from the activity reasonably allocable to the
gross interest income.
<PAGE>
The partnership does not currently anticipate that it will have
significant liabilities incurred in connection with its lending activities.
Accordingly, its equity financed interest income should equal its net passive
income and such amount should be treated as portfolio income. To the extent that
the partnership does incur liabilities, it would require a portion of income
between passive and portfolio income.
The treatment of the partnership's equity financed interest income as
portfolio income is premised upon the partnership being engaged in a trade or
business.
Whether the partnership is engaged in the trade or business of lending
money will depend on the facts and circumstances. Such facts and circumstances
include the manner in which the partnership conducts its affairs and the nature
of its dealings with borrowers and other third parties and the number of loans
made by the partnership in any one year. For example, the courts have held that
a person who makes one or two loans in a year is not engaged in a trade or
business even though that person made many loans in preceding years. Similarly,
making up to five loans did not constitute a trade or business. On the other
hand, the making of twenty loans was deemed to be a trade or business. It is not
possible under the circumstances to determine whether the partnership will be
deemed to be engaged in a trade or business.
The partnership may also make payments to limited partners under its
Guaranteed Payment for Offering Period. The Guaranteed Payment for Offering
Period is likely to constitute a guaranteed payment as provided under Section
707(c). As such, these payments should be considered interest payments and be
treated as portfolio income.
Treatment of Loans Containing Participation Features. The partnership
may extend loans with an equity interest in the property securing the loans (See
"INVESTMENT OBJECTIVES AND CRITERIA- Equity Interests in Real Property" at page
38). With respect to loans containing participation features, an issue may arise
as to whether the relationship between the partnership and the mortgagor is that
of debtor and creditor or whether the partnership is engaged in a partnership or
joint venture with the mortgagor. If the partnership is a creditor of the
mortgagor, a limited partner's distributive share of income derived from the
mortgagor will be treated in full as interest income. If the partnership is a
partner or a joint venture with the mortgagor, the income from the participation
feature of the loans and/or the stated interest may be treated as a distribution
of profits of the partnership or joint venture. This would result in the receipt
of unrelated business taxable income for certain tax-exempt investors investing
in the partnership and would have material adverse effects for certain trusts.
In analyzing whether a partner's unsecured loan to a partnership should
be treated as a loan or a capital contribution (See Joseph Hambuechen, 43 T.C.
90 (1964)) and whether an unsecured loan constitutes a joint venture (See Hyman
Podell, 55 T.C. 429 (1970)), courts have considered all the facts and
circumstances surrounding the transactions and at times both lines of authority
consider the same factors. Counsel believes that in determining whether the
relationship between the partnership and a mortgagor is that of a debtor paying
interest or a joint venture distributing net profits, a court would consider the
following factors: (1) the names given to the certificates evidencing the
indebtedness; (2) the presence or absence of a maturity date; (3) the source of
the payments; (4) the right to enforce the payment of principal and interest;
(5) participation in management; (6) a status equal to or inferior to that of
regular creditors; (7) the intent of the parties; (8) "thin" or adequate
capitalization; (9) identity of or interest between creditor and borrower; (10)
payment of interest only out of net proceeds; and (11) the ability of the entity
to obtain loans from outside lending institutions.
Under relevant case law, whether a partnership or joint venture exists for
federal income tax purposes, turns on the intent of the parties, as evidenced by
their conduct, relevant agreements, and their respective abilities and capital
contributions. (See Commissioner v. Culbertson, 337 U.S. 733 (1949) Podell,
supra; Utility Trailer Mfg. Co. v. U.S., 212 F.Supp. 733 (D. Cal. 1963)).
Repayment or Sale of Loans. No gain or loss will be recognized by the
partnership upon the full repayment of principal of a loan. Any gain recognized
by the partnership on the sale or exchange of a loan will be treated as a
capital gain unless the partnership is deemed to be a "dealer" in loans for
federal income tax purposes (See "Property Held Primarily for Sale; Potential
Dealer Status" below). In such case, the entire gain, if any, would constitute
ordinary income.
Property Held Primarily for Sale; Potential Dealer Status. The
partnership has been organized to invest in loans. However, if the partnership
were at any time deemed for tax purposes to be holding one or more loans
primarily for sale to customers in the ordinary course of business, any gain or
loss realized upon the disposition of those loans would be taxable as ordinary
gain or loss rather than as capital gain or loss. Furthermore, such income would
also constitute unrelated business taxable income to any investors which are
tax-exempt entities (See "Investment by Tax-Exempt Investors" at page 61). Under
existing law, whether property is held primarily for sale to customers in the
ordinary course of business must be determined from all the facts and
circumstances surrounding the particular property and sale in question. The
partnership intends to hold the loans for investment purposes and to make such
occasional dispositions thereof as in the opinion of the general partners are
consistent with the partnership's investment objectives. Accordingly, the
partnership does not anticipate that it will be treated as a "dealer" with
respect to any of its properties. However, there is no assurance that the
Service will not take the contrary position.
Tax Consequences of Reinvestment in Loans. Limited partners may avail
themselves of a plan pursuant to which limited partners may forego current
distributions of cash available for distribution and have said amounts credited
to their capital accounts and used by the partnership in conducting partnership
activities. Limited partners who avail themselves of such an option may incur a
tax liability on their pro rata share of partnership income with no
corresponding cash with which to pay such tax liability. However, unit holders
which are tax-exempt investors should not incur any such tax liability, to the
extent said income is interest income and not UBTI (See "Property Held Primarily
for Sale; Potential Dealer Status" at page 58 and "Investment by Tax-Exempt
Investors" at page 61).
Partnership Organization, Syndication Fees and Acquisition Fees. Under
Section 709 of the Code, all organization, syndication fees and acquisition fees
must be capitalized. Organization fees and expenses paid or incurred after
December 31, 1976, may be amortized over a five year period. Amortization is not
allowed with respect to syndication expenses paid by a partnership. The
Regulations under Section 709 state that syndication costs include commissions,
professional fees and printing costs in marketing sales of partnership
interests, brokerage fees and legal and accounting fees regarding disclosure
matters. A portion of the fees incurred will be allocated to organizational
costs. The partnership intends to amortize all organization expenses ratably
over a five year period. The Service may challenge the deductibility of these
organization fees on the basis that these are fees paid in connection with the
syndication of the limited partners interests rather than organization fees. If
the Service were successful in taking these or other positions on such fees, the
partnership's and therefore the limited partners' deductions during the offering
period or for a five year term thereafter might be less than projected although
not significantly so.
Original Issue Discount. The partnership may be subject to the original
issue discount rules with respect to interest to be received with respect to
loans. Original issue discount may arise with respect to loans if (a) the
interest rate varies according to fixed terms; (b) the borrower is permitted to
defer interest payments to years after such interest accrues; and (c) the amount
of the partnership's share of interest income with respect to additional
interest or deferred interest related to the income appreciation from the
mortgage property under a right of participation is determined in a year prior
to the year in which payment of such amount is due. The partnership anticipates
extending mortgage loans under some or all of the proceeding terms, and to the
extent it does, the original discount rules may be applicable. Counsel cannot
opine as to the applicability of these rules prospectively since the partnership
has not identified such loans as of the date of this prospectus.
The amount of original issue discount under a mortgage loan containing
any of the foregoing terms is to be computed based upon the compound interest
method of calculation, resulting in the reporting of interest income in
increasing amounts each taxable year. Recognition by the partnership of original
issue discount with respect to a loan will increase the partnership's basis in
that loan, thereby reducing in like amount the income the partnership must
recognize in the year payment of the amount giving rise to the original issue
discount is actually received or upon disposition of the loan. The reporting of
the recognition by the partnership of original issue discount as income in any
particular tax year will have the effect of increasing the amount of income
which the limited partners must report from the partnership, without the
concurrent receipt of the cash distribution with which to pay tax, if any,
resulting from the reporting of such income. However, to the extent such
original issue discount constitutes "interest", tax exempt investors may exclude
such original issue discount in computing their unrelated business taxable
income liability.
Deduction of Investment Interest. The Code imposes substantial
limitations upon the deductibility of interest on funds borrowed by an investor
to purchase or to carry investment assets. Code Section 163(d) provides that a
deduction for "investment interest" may be taken by an individual only to the
extent of such individual's net investment income for the taxable year.
Investment interest generally is any interest that is paid or accrued on
indebtedness incurred or continued to purchase or carry investment property.
Investment interest includes interest expenses allocable to portfolio income and
investment and interest expenses allocable to an activity in which the taxpayer
does not materially participate, if such activity is not treated as a passive
activity under the passive loss rules. Investment interest does not include any
interest that is taken into account in determining a taxpayer's income or loss
from a passive activity or a rental activity in which a taxpayer actively
participates. Therefore, an investment expense attributable to an investment as
a limited partner in the partnership will be subject to the investment interest
limitations. This exclusion will not apply for interest expenses, if any,
allocable to portfolio income.
Net investment income consists of the excess of investment income over
investment expenses. Investment income generally includes gross income from
property held for investment, gain attributable to property held for investment
and amounts treated as portfolio income under the passive loss rules. Investment
income does not include income taken into account in computing gain or loss from
a passive activity. Passive losses allowable solely as a result of the passive
activity loss phase-in rules may, however, reduce investment income. Investment
expenses are deductible expenses (other than interest) directly connected with
the production of investment income. Generally, in calculating investment
expenses, however, only those expenses in excess of two percent (2%) of adjusted
gross income are included.
<PAGE>
It is not anticipated the partnership will incur any material amount of
"investment interest" that will be significantly limited by these rules.
However, investment interest that cannot be deducted for any year because of
these limitations may be carried over and deducted in succeeding taxable years,
subject to certain limitations.
Section 754 Election. Because of the complexities of the tax accounting
required, the partnership does not presently intend to file under Section 754 of
the Code an election to adjust the basis of the properties in the case of a
transfer of a limited partnership interest, although the general partners have
the authority to make such an election. The effect of such an election would be
that, with respect to the transferee limited partner only, the basis of the
partnership's properties would either be increased or decreased by the
difference between the transferee's basis for his limited partnership interest
and his proportionate share of the partnership's adjusted basis for all
properties. A substitute limited partner would have to account separately in his
personal income tax return for the special basis (and the deductions in
connection therewith) in his partnership interest attributable to the election
made pursuant to Section 754. Any increase or decrease resulting from such an
adjustment would be allowable among the partnership's assets in accordance with
rules established under the Code. After such adjustment has been made, the
transferee limited partner's share of the adjusted basis of the partnership's
properties would equal the adjusted basis of his limited partnership interest.
If (as presently anticipated) the partnership does not make such an election,
upon a sale of the properties subsequent to a transfer of a limited partnership
interest, taxable gain or loss to the transferee will be measured by the
difference between his share of the gross proceeds of such sale and his share of
the partnership's tax basis in the properties (which, in the absence of a
Section 754 election, will be unchanged by the transfer of the limited
partnership interest to him), rather than by the difference between his share of
such proceeds and the portion of the purchase price for his interest that was
allocable to the properties. As a consequence, such transferee will be subject
to a tax upon a portion of the proceeds which represents as to him a return of
capital, if the purchase price for his interest exceeds his share of the
adjusted basis for all properties. However, in the event of a taxable sale or
other disposition of his limited partnership interest, the purchase price paid
by the transferee is important since, notwithstanding the partnership's failure
to make a Section 754 election, such purchase price will be taken into account
in determining such transferee's basis for such interest. The absence of a right
to have such election made by the partnership may inhibit transferability of a
limited partnership interest since a potential transferee may consider this
factor as reducing the value of the interest.
Termination of the Partnership. A partnership is terminated for tax
purposes only (i) if no part of the partnership business, financial operation or
venture continues to be carried on by any of its partners, or (ii) if, within
any 12-month period, there is a sale or exchange of fifty percent (50%) or more
of the total interest in partnership capital and profits. If, upon such
termination, the partnership business is continued by the partners, they are
deemed to have received a distribution in liquidation of the partnership and to
have recontributed the distributed property to a successor entity. The original
partnership's taxable year closes with respect to all partners as the result of
such a "constructive" liquidating distribution and recontribution.
Upon termination of a partnership for federal income tax purposes, a
partner generally will recognize a capital gain to the extent cash distributed,
and the reduction, if any, in his pro rata share of partnership debt exceeds his
adjusted tax basis for his units immediately before the distribution, and will
recognize capital loss to the extent his adjusted tax basis of unrealized
receivables and substantially appreciated inventory distributed to him (if no
other property is distributed). However, if substantially appreciated inventory
or unrealized receivables are distributed non-pro rata in liquidation, such
distribution would be treated as a sale or exchange, with the result that the
distributee partners could be required to recognize both ordinary income and
capital gain on the distribution. Furthermore, depending upon the partnership
election, there may be a recapture of any investment tax credit taken.
Tax Returns. The partnership will furnish annually to you (but not to
assignees of limited partners unless they become substituted limited partners)
sufficient information from the partnership's tax return for you to prepare your
own federal, state and local tax returns. The partnership's tax returns will be
prepared by accountants to be selected by the general partners. There are
substantial additional penalties for failure to timely file the federal
information tax return of the partnership and/or filing of such a return that
fails to show the information required under Section 6031 of the Code.
Audit of Tax Returns. The general partners understand that the Service
is paying increased attention to the proper application of the tax laws to
partnerships. While the partnership is not being formed so as to allow investors
to avail themselves of losses or deductions generated by the partnership, the
Service still may choose to audit the partnership's information returns. An
audit of the partnership's information returns may precipitate an audit of the
income tax returns of limited partners. Any expense involved in an audit of a
limited partner's returns must be borne by such limited partner. Prospective
investors should also be aware that if the Service successfully asserts a
position to adjust any item of income, gain, deduction or loss reported on a
partnership information return, corresponding adjustments would be made to the
income tax returns of limited partners. Further, any such audit might result in
Service adjustments to items of non-partnership income or loss.
If a tax deficiency is determined, the taxpayer is liable for interest
on such deficiency from the due date of the return. Interest on underpayment is
payable at the federal short-term rate plus three percentage points, rounded to
the nearest full percent (rounding up in the case of a multiple of one-half of
one percent). The federal short-term rate is determined for the first month of
each quarter, and the rate so determined governs the calculation of the rate of
interest on underpayment for calendar quarter after the quarter during the first
month of which the rate is so determined. The "federal short-term rate" for a
month is determined by the Service based on the average market yield on
outstanding marketable obligations of the United States with remaining periods
to maturity of three years or less. In the case of any "substantial
underpayment" attributable to a "tax motivated transaction," the interest rate
on underpayment is one hundred twenty percent (120%) of the interest rate that
otherwise apply. A "substantial underpayment" is any underpayment of tax in
excess of $1,000 attributable to one or more "tax motivated transaction," which
is defined to include (among other things) certain valuation overstatements, any
use which may result in a substantial distortion of income for any period, and
any sham or fraudulent transaction.
The tax treatment of items of partnership income, gain, loss,
deductions or credit is to be determined at the partnership level in a unified
partnership proceeding, rather than in separate proceedings with the partners.
However, any partner has the right to participate in any administrative
proceeding at the partnership level. Generally, the "tax matters partner,"
Michael R. Burwell, would represent the partnership before the Service and may
enter into a settlement with the Service as to partnership tax issues which
generally will be binding on all of the partners, unless a partner timely files
a statement with the Service providing that tax matters partner shall not have
the authority to enter into a settlement agreement on his behalf. Similarly,
only one judicial proceeding contesting a Service determination may be filed on
behalf of a partnership and all partners. However, if the tax matters partner
fails to file such an action, then any partner, unless such partner owns less
than one percent (1%) interest in a partnership having more than 100 partners)
or a group of partners owning five percent (5%) or more of the profits interest
in the partnership may file such an action. The "tax matters partner" may
consent to an extension of the statute of limitation period for all partners
with respect to partnership items.
Investment by Tax-Exempt Investors. Tax-exempt investors, including
employee trusts and Individual Retirement Accounts ("IRAs"), are generally
exempt from federal income taxation. However, such organizations are subject to
taxation on their "unrelated business taxable income," as defined in Section 512
of the Code. Unrelated business taxable income does not, in general, include
interest, dividends, rents from real property, gain from the sale of property
other than inventory or property held primarily for sale to customers in the
ordinary course of business, and certain other types of passive investment
income, unless such income is derived from "debt-financed property" as defined
in Section 514 of the Code.
In addition to receiving interest income (which will comprise
substantially all of its income), the partnership may also receive payments in
the nature of points or loan servicing or origination fee at the time funds are
advanced under a loan. The fees paid for services rendered in connection with
the making or securing of loans, as opposed to fees paid merely for the use of
money, will not be treated as interest income and will most likely constitute
unrelated business taxable income.
Any partnership borrowing for the purpose of making additional loans
may result in "debt financed property" and, therefore, unrelated business
taxable income to tax-exempt limited partners to the extent that the Service
concludes that such borrowings are allocable to the limited partners for this
purpose (see Rev. Rule 76-354, 1976-2 C.B. 179). Furthermore, any borrowings by
a limited partner for the purpose of financing his investment in the partnership
can result in "debt-financed property" and, therefore, unrelated business
taxable income.
As a consequence of the exercise of a default remedy under a
partnership, the partnership may be forced to foreclose and hold real or other
property (which secures the loan) for a short period of time. The partnership is
permitted to borrow funds to assist in the operation of any property on the
security of which it has previously made a loan and the operations of which it
has subsequently taken over as a result of a default. Furthermore, the
foreclosed properties may be subject to other existing mortgages. Consequently,
any such acquired property may be deemed to be "debt-financed property." In such
event, net income and gain from any such property may constitute unrelated
business taxable income, although employee trusts (but not most other tax-exempt
organizations, including IRAs) may nevertheless qualify for an exception, found
in Code Section 514(c)(9), which would exempt them from taxation on such net
income in the case of the real property.
The partnership intends to hold its loans for investment and,
therefore, no unrelated business taxable income should result from the
disposition of these assets. Such may not be the case, however, if the
partnership does not act in accordance with this intention and it is determined
that the partnership is a dealer in the business of buying and selling loans.
The general partners have represented that they intend to conduct the activities
of the partnership in a manner so as to minimize or eliminate the risk of having
the partnership classified as a "dealer" for federal income tax purposes (See
"Property Held Primarily For Sale; Potential Dealer Status" at page 58.)
In computing unrelated business taxable income, a tax-exempt investor,
including an employee trust or IRA, may deduct a proportionate share of all
expenses which are directly connected with the activities generating such income
or with the "debt-financed property," as the case may be, and is also entitled
to an annual exclusion of $1,000 with respect to unrelated business taxable
income. Even though a portion of the income of a tax-exempt investor is
unrelated business taxable income, income from other sources which is not
unrelated business taxable income will not be subject to federal income
taxation. In addition, the receipt of unrelated business taxable income by a
tax-exempt investor generally will not affect its tax-exempt status if the
investment is not otherwise inconsistent with the nature of its tax exemption.
In addition to the general tax treatment of unrelated business taxable
income received by tax-exempt investors, special rules apply to charitable
remainder trusts. In general, a charitable remainder trust is a trust in which a
portion of an asset will be transferred to a charitable organization through the
use of a trust and the trust itself will not be subject to taxation on its
income. If a charitable remainder trust (which includes charitable remainder
annuity trusts, charitable remainder unitrusts and charitable remainder net
income trusts) receives any unrelated business taxable income for any taxable
year, the trust is taxable on all of its income as a complex trust. The
remainder trust is taxable on its accumulated income to the extent the income is
not distributed to beneficiaries and to the extent the income exceeds the amount
deductible under Section 661(a). The partnership does not anticipate that it
will generate any significant unrelated business taxable income. However,
prospective investors which are charitable remainder trusts should review their
individual tax situation with their tax advisors to determine the effect of the
receipt of unrelated business taxable income to the trust.
If you are a tax-exempt investor, you are strongly urged to consult
your own tax adviser with regard to the foregoing unrelated business taxable
income aspects of an investment in the partnership. Furthermore, with regard to
certain non-tax aspects of an investment in the partnership you should consider
"TAX RISKS - Investments by Tax-Exempt Investors" at page 15 and "ERISA
CONSIDERATIONS" at page 61.
Investment By Charitable Remainder Trusts. A charitable remainder trust
(CRT) is a trust created to provide income for the benefit of at least one
non-charitable beneficiary for life or a term of up to 20 years, with the
property comprising the trust corpus then transferred to a charitable
beneficiary upon the expiration of the trust. Upon the creation of a CRT, the
grantor would normally be entitled to a charitable income tax deduction equal to
the current fair market value of the remainder interest which will ultimately
pass to charity. A CRT is also exempt from federal income taxation if the trust
is established and maintained in compliance with highly complex rules contained
in the Internal Revenue Code and underlying regulations. Among these rules is a
provision that if any portion of the income recognized by a CRT is deemed to be
UBTI, all of the CRT's income for the taxable year in which UBTI is incurred,
from whatever sources derived, will be subject to income taxation at the trust
level. As set forth above in "Investment by Tax-Exempt Investors," the general
partners have used their best efforts to structure the partnership's activities
to avoid any of the partnership's income characterized as UBTI. Accordingly,
unless the partnership incurs indebtedness for the purpose of acquiring or
improving real properties, and hence is deemed to be holding property subject to
"acquisition indebtedness," or is deemed to hold its properties primarily for
sale to customers in the ordinary course of business, under current law, the
partnership's income should not be deemed to constitute UBTI to tax-exempt
investors.
Foreign Investors As Limited Partners. Foreign investors may purchase
units in the partnership. A foreign investor who purchases units and becomes a
limited partner in the partnership will generally be required to file a United
States tax return on which he must report his distributive share of the
partnership's items of income, gain, loss, deduction and credit. A foreign
investor must pay United States federal income tax at regular United States tax
rates on his share of any net income, whether ordinary or capital gains. A
foreign investor may also be subject to tax on his distributive share of the
partnership's income and gain in his country of nationality or residence or
elsewhere. In addition, distributions of net cash from operations or proceeds
from the sale of properties otherwise payable to a foreign investor from the
partnership or amounts payable upon the sale of a foreign investor's units may
be reduced by United States tax withholdings made pursuant to applicable
provisions of the Internal Revenue Code. Foreign investors should consult their
own tax advisors with regard to the effect of both the United States tax laws
and foreign laws on an investment in the partnership and the potential that the
partnership will be required to withhold federal income taxes from amount
otherwise payable to foreign investors.
State and Local Taxes. In addition to the federal income tax
consequences described above, prospective investors may be subject to state and
local tax consequences by reason of investment in the partnership. Your
distributive share of the taxable income or loss of the partnership generally
will be required to be included in determining your reportable income for state
or local income tax purposes in the jurisdiction in which you are a resident.
Further, upon your death, estate or inheritance taxes might be payable in such
jurisdictions based upon your interest in the partnership. In addition, you
might be subjected to income tax, estate or inheritance tax, or both. Depending
upon the applicable state and local laws, tax benefits which are available to
you for federal income tax purposes may not be available to you for state or
local income tax purposes.
Many states have implemented or are in the process of implementing
programs to require partnerships to withhold and pay state income taxes owed by
non-resident partners relating to income-producing properties located in their
states. For example California has required certain public real estate programs
to withhold and pay state taxes relating to income-producing properties located
in the state. In the event that the partnership is required to withhold state
taxes from cash distributions otherwise payable to limited partners, the amount
of the net cash from operations otherwise payable to such limited partners would
likely be reduced. In addition, such collection and filing requirements at the
state level may result in increases in the partnership's administrative expenses
which would likely have the effect of reducing returns to the limited partners.
You are urged to consult your personal tax advisor regarding the impact
of state and local taxes upon an investment in the partnership. A discussion of
state and local tax law is beyond the scope of this prospectus.
ERISA CONSIDERATIONS
General. The law governing retirement plan investment in the
partnership is the Employee Retirement Income Security Act of 1974 ("ERISA") and
the Code. Persons or organizations that exercise discretion or control over plan
assets are deemed to be fiduciaries under ERISA. Section 404 of ERISA provides
that a fiduciary is subject to a series of specific responsibilities and
prohibitions and is required to manage plan assets "solely in the interest of
plan participants." Section 404 of ERISA requires that plan fiduciaries
discharge their duty with care, skill, prudence and diligence (the so called
"prudent man rule") and that the fiduciary diversify the investments of the plan
unless under the circumstances it is clearly not prudent to do so. Regulations
issued by the Department of Labor ("DOL") under these statutory provisions
require that in making investments, the fiduciary consider numerous factors,
current return of the portfolio relative to the anticipated cash flow
requirements of the plan, and the projected return of the portfolio relative to
the funding objectives of the plan. In addition, before the enactment of ERISA,
the Internal Revenue Service, proceeding under a statutory mandate that all
qualified plans be for the exclusive benefit of participants and beneficiaries,
issued a similar set of investment considerations for plan fiduciaries. That
Internal Revenue Service position has not been modified since ERISA.
Consequently, a "Tax-Exempt Investor", which is defined as a qualified
profit-sharing, pension or retirement trust, an HR-10 (Keogh) Plan, or an
Individual Retirement Account (IRA), should, in general, purchase units of
limited partnership interest only when, considering all assets held by such
plans, those prudence, liquidity and diversification requirements are satisfied.
Fiduciaries Under ERISA. A fiduciary of a qualified plan is subject to
certain requirements under ERISA, including the duty to discharge of
responsibilities solely in the interest of, and for the benefit of the qualified
plan's participants and beneficiaries. A fiduciary is required to (a) perform
its duties with the skill, prudence and diligence of a prudent man acting in
like capacity, (b) diversify investments so as to minimize the risk of large
losses and (c) act in accordance with the qualified plan's governing documents.
Fiduciaries with respect to a qualified plan include any persons who
exercise or possess any discretionary power of control, management or
disposition over the funds or other property of the qualified plan. For example,
any person who is responsible for choosing a qualified plan's investments, or
who is a member of a committee that is responsible for choosing a qualified
plan's investments, is a fiduciary of the qualified plan. Also, an investment
professional whose advice will serve as one of the primary basis for a qualified
plan's investment decisions may be a fiduciary of the qualified plan, as may any
other person with special knowledge or influence with respect to a qualified
plan's investment or administrative activities.
While the beneficiary "owner" or "account holder" of an IRA is
generally treated as a fiduciary of the IRA under the Code, IRAs generally are
not subject to ERISA's fiduciary duty rules. Where a participant in a qualified
plan exercises control over such participant's individual account in the
qualified plan in a "self-directed investment" arrangement that meets the
requirements of Section 404(c) of ERISA, such participant (rather than the
person who would otherwise be a fiduciary of such qualified plan) will generally
be held responsible for the consequences of his investment decisions under
interpretations of applicable regulations of the Department of Labor. Certain
qualified plans of sole proprietorships, partnerships and closely-held
corporations of which the owners of one hundred percent (100%) of the equity of
such business and their respective spouses are the sole participants in such
plans at all times generally not subject to ERISA's fiduciary duty rules,
although they are subject to the Code's prohibited transaction rules, explained
below.
A person subject to ERISA's fiduciary rules with respect to a qualified
plan should consider those rules in the context of the particular circumstances
of the qualified plan before authorizing an investment of a portion of the
qualified plan's assets in units.
Prohibited Transactions Under ERISA and the Code. Section 4975 of the
Code (which applies to all qualified plans and IRAs) and Section 406 of ERISA
(which does not apply to IRAs or to certain qualified plans that, under the
rules summarized above, are not subject to ERISA's fiduciary rules) prohibit
qualified plans and IRAs from engaging in certain transactions involving "plan
assets" with parties that are "disqualified persons" under the Code or "parties
in interest" under ERISA ("disqualified persons" and "parties in interest" are
hereafter referred to as "disqualified persons"). Disqualified persons include
fiduciaries of the qualified plan or IRA, officers, directors, shareholders and
other owners of the company sponsoring the qualified plan and natural persons
and legal entities sharing certain family or ownership relationships with other
disqualified persons.
"Prohibited transactions" include any direct or indirect transfer or
use of a qualified plan's or IRA's assets to or for the benefit of a
disqualified person, any act by a fiduciary that involves the use of a qualified
plan's or IRA's assets in the fiduciary's individual interest or for the
fiduciary's own account, and any receipt by a fiduciary of consideration for his
or her own personal account from any party dealing with a qualified plan or IRA
in connection with a transaction involving the assets of the qualified plan or
the IRA. Under ERISA, a disqualified person that engages in a prohibited
transaction will be required to disgorge any profits made in connection with the
transaction and for any losses sustained by the qualified plan. In addition,
ERISA authorizes additional penalties and further relief from such transaction.
Section 4975 of the Code imposes excise taxes on a disqualified person that
engages in a prohibited transaction with a qualified plan or IRA.
In order to avoid the occurrence of a prohibited transaction under
Section 4975 of the Code and/or Section 406 of ERISA, units may not be purchased
by a qualified plan or IRA from assets as to which the general partners or any
of their affiliates are fiduciaries. Additionally, fiduciaries of, and other
disqualified persons with respect to, qualified plans and IRAs should be alert
to the potential for prohibited transactions that may occur in the context of a
particular qualified plan's or IRA's decision to purchase units.
Plan Assets. If the partnership's assets were determined under ERISA or
the Code to be "plan assets" of qualified plans and/or IRAs holding units,
fiduciaries of such qualified plans and IRAs might under certain circumstances
be subject to liability for actions taken by the general partners or their
affiliates. In addition, certain of the transactions described in the prospectus
in which the partnership might engage, including certain transactions with
affiliates, might constitute prohibited transactions under the Code and ERISA
with respect to such qualified plans and IRAs, even if their acquisition of
units did not originally constitute a prohibited transaction. Moreover,
fiduciaries with responsibilities to qualified plans (other than IRAs) might be
deemed to have improperly delegated their fiduciary responsibilities to the
general partner in violation of ERISA.
Although under certain circumstances ERISA and the Code, as interpreted
by the Department of Labor in currently effective regulations, apply a
"look-through" rule under which the assets of an entity in which a qualified
plan or IRA has made an equity investment may generally constitute "plan
assets," the applicable regulations except investments in certain publicly
registered securities from the application of the "look-through" principle.
In order to qualify for the exception described above, the securities
in question must be "publicly-offered securities." Publicly-offered securities
are defined as freely transferable, owned by at least 100 investors independent
of the issuer and of one another, and registered either (a) under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, or (b) sold as part of a public
offering pursuant to an effective registration statement under the Securities
Act of 1933 and registered under the Securities Exchange Act of 1934 within 120
days (or such later time as may be allowed by the Securities and Exchange
Commission) after the end of the issuer's fiscal year during which the offering
occurred.
The partnership's units should constitute "publicly-offered securities"
because (a) the general partners have represented that it is highly likely that
substantially more than 100 independent investors will purchase and hold units
in the partnership, and the Regulation states that, when 100 or more investors
independent of the issuer and of one another purchase a class of securities, the
class will be deemed to be widely held; (b) the general partners have
represented that the partnership's offering the units is registered under the
Securities Act of 1933 and that the general partners intend to register the
units in the partnership under the Securities Exchange Act of 1934; and (c)
although whether a security is freely transferable is a factual determination,
the limitations on the assignment of units and substitution of limited partners
contained in the partnership agreement, with the possible exception for
publicly-traded partnership discussed below, fall within the scope of certain
restrictions enumerated in the regulation that ordinarily will not affect a
determination that securities are freely transferable when the minimum
investment is $10,000 or less. The partnership agreement prohibits the
assignment or other transfer of units without the general partners' written
consent if the general partners determine in good faith that such transfer might
result in a change in the status of the partnership to a publicly-traded
partnership within the meaning of Section 7704 of the Code, as currently or
hereafter interpreted by the Service in rulings, regulations or other
publications, or by the courts, and such status would have a material adverse
impact on the limited partners or their assignees. In order to prevent the
partnership from being classified as a publicly-traded partnership, the general
partners have represented that it intends to prohibit transfers of units only to
the extent necessary to comply with the publicly traded partnership safe harbors
(See "FEDERAL INCOME TAX CONSEQUENCES--Publicly Traded partnerships" at page
54). The regulation permits restrictions that prohibit any transfer or
assignment that would result in a reclassification of the entity for federal
income tax purposes. In Advisory Opinion 89-14A, dated August 2, 1989, the
Department of Labor expressed its opinion that a restriction against transfer of
partnership interests that is drafted to avoid reclassification of a partnership
as a publicly-traded partnership would qualify as the type of restriction
contemplated by the regulation. Therefore, the restriction in the partnership
agreement should not, absent unusual circumstances, affect the free
transferability of the units within the meaning of the regulation.
Annual Valuation. Fiduciaries of retirement plans are required to
determine annually the fair market value of the assets of such retirement plans,
typically, as of the close of a plan's fiscal year. To enable the fiduciaries of
retirement plans subject to the annual reporting requirements of ERISA to
prepare reports relating to an investment in the partnership, the general
partners are required to furnish an annual statement of estimated unit value to
the investors. For the first three full fiscal years following the termination
of the offering, the value of a unit will be deemed $1.00, and no valuations
will be performed. Thereafter, the annual statement will report the estimated
value of each unit based on the estimated amount a unit holder would receive if
all partnership assets were sold as of the close of the partnership's fiscal
year for their estimated values and if such proceeds, without reduction for
selling expenses, together with the other funds of the partnership, were
distributed in liquidation of the partnership.
Such estimated values will be based upon annual valuations of
partnership properties performed by the general partners, but no independent
appraisals will be obtained. While the general partners are required under the
partnership agreement to obtain the opinion of an independent third party
stating that their estimates of value are reasonable, such general partner
valuations may not satisfy the requirements imposed upon fiduciaries under ERISA
for all retirement plans. The estimated value per unit will be reported to
limited partners in the partnership's next annual or quarterly report form 10-K
or 10-Q sent to the limited partners for the period immediately following
completion of the valuation process. There can be no assurance that the
estimated value per unit will actually be realized by the partnership or by the
limited partners upon liquidation in part because estimates do not necessarily
indicate the price at which properties could be sold. Limited partners may not
be able to realize estimated net asset value if they were to attempt to sell
their units, because no public market for units exists or is likely to develop.
Potential Consequences of Treatment as Plan Assets. In the event that
the units do not constitute "publicly-offered securities," the underlying assets
of the partnership are treated as plan assets under the regulations. If the
partnership's underlying assets are deemed to be plan assets, the partnership
may be required to take steps which could affect partners who are subject to
income tax, as well as qualified plans which may invest in the partnership. In
such event, the fiduciary duties, including compliance with the exclusive
benefit rule and the diversification and prudence requirements, must be
considered with respect to the investment in the partnership. Each partner of
the partnership who has authority or control with respect to the management or
disposition of the assets of the partnership, or who renders investment advice
for a fee or other compensation, direct or indirect, with respect to the assets
of the partnership would be treated as a fiduciary and therefore would be
personally liable for any losses to a qualified plan which invests in the
partnership resulting from a breach of fiduciary duty.
The prohibited transaction restrictions would apply to any transactions
in which the partnership engages involving the assets of the partnership and a
party-in-interest. Such restrictions could, for example, require that the
partnership and the general partners avoid transactions with entities that are
affiliated with the partnership or the general partners or that qualified plan
investors be given the opportunity to withdraw from the partnership. Also, the
general partners who participate in a prohibited transaction may be subject to
an excise tax. Finally, entering into a prohibited transaction may result in
loss of the qualified plan's tax-exempt status.
DESCRIPTION OF UNITS
The units will represent a limited partnership interest in the
partnership. Each unit is $1.
The limited partners representing a majority of the outstanding limited
partnership interests may, without the concurrence of the general partners, vote
to take the following actions:
o terminate the partnership;
o amend the limited partnership agreement, subject to certain limitations
described in Section 12.4 of the limited partnership agreement;
o approve or disapprove the sale of all or substantially all of the assets
of the partnership; or
o remove or replace one or all of the general partners. In addition,
limited partners representing ten percent (10%) of the limited partner interests
may call a meeting of the partnership. (See "SUMMARY OF THE LIMITED PARTNERSHIP
AGREEMENT" at page 66).
If you assign your units to another person, that person will not become
a substituted limited partner in your place unless the written consent of the
general partners to such substitution has been obtained. Such consent shall not
be unreasonably withheld. A person who does not become a substituted limited
partner shall be entitled to receive allocations and distributions attributable
to the unit properly transferred to him, but shall not have any of the other
rights of a limited partner, including the right to vote as a limited partner
and the right to inspect and copy the partnership's books.
There is not a public trading market for the units and none is likely
to exist. The transferability of the units will be subject to a number of
restrictions. Accordingly, the liquidity of the units will be limited and you
may not be able to liquidate your investment in the event of an emergency,
except as permitted in the withdrawal provisions described below. Any transferee
must be a person that would have been qualified to purchase units in this
offering and no transferee may acquire less than 2000 units. No unit may be
transferred if, in the judgment of the general partners, a transfer would
jeopardize the status of the partnership or cause a termination of the
partnership for federal income tax purposes. Transfers of the units will
generally require the consent of the California Commissioner of Corporations,
except as permitted in the Commissioner's Rules. Additional restrictions on
transfers of units may be imposed under the securities laws of other states upon
transfers occurring in or involving the residents of such states. In addition,
you will not be permitted to make any transfer or assignment of your interests
if the general partners determine such transfer or assignment would result in
the partnership being classified as a "publicly traded partnership" within the
meaning of Section 7704(b) of the Code or any rules, regulations or safe-harbor
guidelines promulgated thereunder.
We will not repurchase any units from you. However, you may withdraw
from the partnership after one year from the date of purchase in four quarterly
installments subject to a ten percent (10%) early withdrawal penalty being
deducted from your capital account. You may also withdraw after five years on an
installment basis, generally a five year period in twenty installments or
longer, without the imposition of any penalty (See "SUMMARY OF THE LIMITED
PARTNERSHIP AGREEMENT - Withdrawal from Partnership" at page 69).
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
The following is a summary of the limited partnership agreement for the
partnership, and is qualified in its entirety by the terms of the agreement
itself. You are urged to read the entire agreement, which is set forth as
Exhibit A to this prospectus.
Rights and Liabilities of Limited Partners. The rights, duties and
powers of limited partners are governed by the limited partnership agreement and
Sections 15611, et seq. of the California Corporations Code (the California
Revised Limited Partnership Act (the "partnership act")) and the discussion
herein of such rights, duties and powers is qualified in its entirety by
reference to such agreement and partnership act.
You as a limited partnership will not be responsible for the
obligations of the partnership. However, you will be liable to the extent of any
deficit in your capital accounts upon dissolution, and may also be liable for
any return of capital plus interest if necessary to discharge liabilities
existing at the time of such return. Any cash distributed to you may constitute,
wholly or in part, return of capital.
As a limited partner you will have no control over the management of
the partnership, except that limited partners representing a majority of the
outstanding limited partnership interests may, without the concurrence of the
general partners, take the following actions:
o terminate the partnership (including merger or reorganization with one or more
other partnerships); o amend the limited partnership agreement; o approve or
disapprove the sale of all or substantially all of the assets of the
partnership; or o remove and replace one or all of the general partners.
The approval of all limited partners is required to elect a new general partner
to continue the business of the partnership where there is no remaining general
partner after a general partner ceases to be a general partner other than by
removal. The general partners shall have the right to increase the size of this
offering or conduct an additional offering of securities without obtaining the
consent of the limited partners. Limited partners representing ten percent (10%)
of the limited partnership interests may call a meeting of the partnership.
Capital Contributions. Interests in the partnership will be sold in
units of $1, and no person may acquire less than 2000 units ($2,000). The
general partners have the discretion to accept subscriptions for fractional
units in excess of the minimum subscription. The general partners, collectively,
will contribute the sum of l/10th of 1% of the gross proceeds to the capital of
the partnership.
Rights, Powers and Duties of General Partners. Subject to the right of
the limited partners to vote on specified matters, the general partners will
have complete charge of the business of the partnership. The general partners
are not required to devote full time to partnership affairs but only such time
as is required for the conduct of partnership business. Any one of the general
partners acting alone has the power and authority to act for and bind the
partnership. The general partners are granted the special power of attorney of
each limited partner for the purpose of executing any document which the limited
partners have agreed to execute and deliver.
Profits and Losses. Profits and losses of the partnership will be
allocated among the limited partners according to their respective outstanding
capital accounts on a daily basis. Upon transfer of units (if permitted under
the limited partnership agreement and applicable law), profit and loss will be
allocated to the transferee beginning with the next succeeding calendar month.
One percent (1%) of all partnership profit and loss will be allocated to the
general partners.
<PAGE>
Cash Distributions. Upon your subscription for units, you will be
required to elect either (i) to receive monthly, quarterly or annual
distributions ("periodic distributions"); or (ii) to retain your earnings in
your capital account with us. The election to receive periodic cash
distributions is irrevocable although you may change whether such distributions
are received on a monthly, quarterly or annual basis. If you initially elected
to retain your earnings, you may, after three (3) years, change your election
and receive periodic cash distributions. The general partners will also receive
cash distributions equal to one percent (1%) of total partnership income. In
order to provide you greater flexibility, if you initially elect to receive cash
distributions and subsequently change your mind, we are going to register with
the SEC, a dividend reinvestment plan. We anticipate that the dividend
reinvestment plan will be filed in the first half of 2000 and take effect
immediately. Until that time, you will still have the election to receive cash
distributions or to retain your earnings in your capital account with us.
As a result, the relative percentage of partnership interests of
non-electing partners (including voting rights and shares of future income) will
gradually increase due to the compounding effect of crediting income to their
capital accounts, while the percentage interests of partners who receive cash
distributions will decrease during the term of the partnership.
Meeting. A general partner, or limited partners representing ten
percent (10%) of the limited partnership interests, may call a meeting of the
partnership on at least 30 days written notice. Unless the notice otherwise
specifies, all meetings will be held at 2:00 P.M. at our offices. As a limited
partner, you may vote in person or by proxy at the partnership meeting. A
majority of the outstanding limited partnership interests will constitute a
quorum at partnership meetings. There are no regularly scheduled meetings of the
limited partners.
Accounting and Reports. The general partners will cause to be prepared
and furnished to you, an annual report of the partnership's operation which will
be audited by an independent accounting firm. Within 120 days after the close of
the year covered by the report, a copy or condensed version will be furnished to
you. You shall also be furnished such detailed information as is reasonably
necessary to enable you to complete your own tax returns within 90 days after
the end of the year.
The general partners presently maintain the partnership's books and
records on the accrual basis for bookkeeping and accounting purposes, and also
intend to use the accrual basis method of reporting income and losses for
federal income tax purposes. The general partners reserve the right to change
such methods of accounting, upon written notice to limited partners. You may
inspect the books and records of the partnership at all reasonable times.
Restrictions on Transfer. The limited partnership agreement places
substantial limitations upon your ability to transfer units. Any transferee must
be a person that would have been qualified to purchase units in this offering
and no transferee may acquire or hold less than 2,000 units. No unit may be
transferred if, in the judgment of the general partners, and/or their counsel a
transfer would jeopardize our status as a partnership or cause a termination of
the partnership for federal income tax purposes. The written consent of the
California Commissioner of Corporations is also required prior to any sale or
transfer of units except as permitted. In addition, you will not be permitted to
make any transfer or assignment of your units if the general partners and/or
their counsel determine such transfer or assignment would result in the
partnership being classified as a "publicly traded partnership" within the
meaning of Section 7704(b) of the Code or any rules, regulations or safe-harbor
guidelines promulgated thereunder.
General Partners' Interest. Any general partner, or all of them, may
retire from the partnership at any time upon six months written notice to all
limited partners, in which event a retiring general partner would not be
entitled to any termination or severance payment from the partnership, except
for the return of his capital account balance. A general partner may also sell
and transfer his general partner interest in the partnership (including all
powers and authorities associated therewith) for such price as he shall
determine in his sole discretion, and neither the partnership nor the limited
partners will have any interest in the proceeds of such sale. However, the
successor general partner must be approved by limited partners holding a
majority of the outstanding limited partnership interests.
Term of Partnership. The term of the partnership commenced on the day
the limited partnership agreement was executed, and will continue until December
31, 2032. The partnership will dissolve and terminate if any one of the
following occurs:
o upon the removal, death, retirement, insanity, dissolution or bankruptcy
of a general partner, unless the business of the partnership is continued by a
remaining general partner, if any, or if there is no remaining general partner,
by a new general partner elected to continue the business of the partnership by
all the limited partners (or by a majority-in-interest of the limited partners,
in the case of removal);
o upon the affirmative vote of a majority-in interest of the limited
partners;
o upon the sale of all or substantially all (i.e., at least seventy percent
(70%)) of the partnership's assets; or
o otherwise by operation of law.
<PAGE>
Winding Up. The partnership will not terminate immediately upon the
occurrence of an event of dissolution, but will continue until its affairs have
been wound up. Upon dissolution of the partnership, the general partners will
wind up the partnership's affairs by liquidating the partnership's assets as
promptly as is consistent with obtaining the fair current value thereof, either
by sale to third parties or by collecting loan payments under the terms of the
loan. All funds received by us shall be applied to satisfy or provide for
partnership debts and the balance shall be distributed to partners in accordance
with the terms of the limited partnership agreement.
Dissenting Limited Partners' Rights. If we participate in any
acquisition of the partnership by another entity, any combination of the
partnership with another entity through a merger or consolidation, or any
conversion of the partnership into another form of business entity (such as a
corporation) that requires the approval of the outstanding limited partnership
interests, the result of which would cause the other entity to issue securities
to the limited partners, then each limited partner who does not approve such
reorganization (the "Dissenting Limited Partner") may require the partnership to
purchase for cash, at its fair market value, his or her interest in accordance
with Section 15679.2 of the California Corporations Code. The partnership,
however, may itself convert to another form of business entity (such as a
corporation, trust or association) if the conversion will not result in a
significant adverse change in (i) the voting rights of the limited partners,
(ii) the termination date of the partnership (currently, December 31, 2032,
unless terminated earlier in accordance with the partnership agreement), (iii)
the compensation payable to the general partners or their affiliates, or (iv)
the partnership's investment objectives.
The general partners will make the determination as to whether or not
any such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of the partnership; the tax consequences (from the
standpoint of the limited partners) of the conversion of the partnership to
another form of business entity and of an investment in a limited partnership as
compared to an investment in the type of business entity into which the
partnership would be converted; the historic and projected operating results of
the partnership's loans, and the then-current value and marketability of the
partnership's loans. In general, the general partners would consider any
material limitation on the voting rights of the limited partners or any
substantial increase in the compensation payable to the general partners or
their affiliates to be a significant adverse change in the listed provisions.
It is anticipated that, under the provisions of the partnership
agreement, the consummation of any such conversion of the partnership into
another form of business entity (whether or not approved by the general
partners) would require the approval of limited partners holding a majority of
the units.
TRANSFER OF UNITS
Restrictions on the Transfer of Units. There is no public or secondary
market for the units and none is expected to develop. Moreover, units may only
be transferred if certain requirements are satisfied, and transferees may become
limited partners only with the consent of the general partners. Under Article 7
of the partnership agreement, the assignment or other transfer of units will be
subject to compliance with the minimum investment and suitability standards
imposed by the partnership. (See "INVESTOR SUITABILITY STANDARDS" at page 16).
Under presently applicable state securities law guidelines, except in the case
of a transfer by gift or inheritance or upon family dissolution or an
intra-family transfer, each transferee of units of the partnership must
generally satisfy minimum investment and investor suitability standards similar
to those which were applicable to the original offering of units. Additionally,
following a transfer of less than all of your units, you must generally retain a
sufficient number of units to satisfy the minimum investment standards
applicable to your initial purchase of units. In the case of a transfer in which
a member firm of the National Association of Securities Dealers, Inc., is
involved, that firm must be satisfied that a proposed transferee of units
satisfies the suitability requirements as to financial position and net worth
specified in Section 3(b) of Appendix F to the NASD's Conduct Rules. The member
firm must inform the proposed transferee of all pertinent facts relating to the
liquidity and marketability of the units during the term of the investment.
Unless the general partners shall give their express written approval,
no units may be assigned or otherwise transferred to:
o a minor or incompetent (unless a guardian, custodian or conservator has
been appointed to handle the affairs of such person);
o any person not permitted to be a transferee under applicable law,
including, in particular but without limitation, applicable federal and state
securities laws;
o any person if, in the opinion of tax counsel, such assignment would
result in the termination under the Code of the partnership's taxable year of
its status as a partnership for federal income tax purposes;
o any person if such assignment would affect the partnership's existence or
qualification as a limited partnership under the California Act or the
applicable laws of any other jurisdiction in which the partnership is then
conducting business.
<PAGE>
Any such attempted assignment without the express written approval of
the general partners shall be void and ineffectual and shall not bind the
partnership. In the case of a proposed assignment, which is prohibited for
adverse tax consequences, however, the partnership shall be obligated to permit
such assignment to become effective if and when, in the opinion of counsel, such
assignment would no longer have either of the adverse consequences under the
Code which are specified in that clause.
No Assignment Permitted on Secondary Market. Section 7.03 of the
partnership agreement provides that so long as there are adverse federal income
tax consequences from being treated as a "publicly traded partnership" for
federal income tax purposes, the general partners shall not permit any interest
in a unit to be assigned on a secondary public market (or a substantial
equivalent thereof) as defined under the Code and any regulations promulgated
thereunder. If the general partners determine in their sole discretion, that a
proposed assignment was affected on a secondary market, the partnership and the
general partners have the right to refuse to recognize any such proposed
assignment and to take any action deemed necessary or appropriate in the general
partners' reasonable discretion so that such assignment is not in fact
recognized. For the purposes of Section 7.3 of the partnership agreement, any
assignment which results in a failure to meet the "safe harbor" provisions of
Notice 88-75 (July 5, 1988) issued by the Service or any substitute safe-harbor
provisions subsequently established by Treasury Regulations shall be treated as
causing the units to be publicly traded. The limited partners agree to provide
all information respecting assignments which the general partners deem necessary
in order to determine whether a proposed transfer occurred on a secondary
market. The general partners shall incur no liability to any investor or
prospective investor for any action or inaction by them in connection with the
foregoing, provided it acted in good faith.
Consequently, you may not be able to liquidate your investment in the
event of emergencies or for any other reasons. In addition, units may not be
readily accepted as collateral for loans.
Withdrawal from Partnership. You have no right to withdraw from the
partnership or to obtain the return of all or any portion of sums paid for the
purchase of units (or reinvested earnings with respect thereto) for one (1) year
after the date such units are purchased. In order to provide a certain degree of
liquidity, after the one year period, you may withdraw all or part of your
capital accounts from the partnership in four equal quarterly installments
beginning the calendar quarter following the quarter in which the notice of
withdrawal is given. Such notice must be given thirty (30) days prior to the end
of the preceding quarter subject to a ten percent (10%) early withdrawal
penalty. The ten percent (10%) penalty is applicable to the amount withdrawn as
stated in the notice of withdrawal. The ten percent (10%) penalty will be
deducted, pro rata, from the four quarterly installments paid to the limited
partner. Withdrawal after the one year holding period and before the five year
holding period will be permitted only upon the terms set forth above.
You will also have the right after five years from the date of purchase
of the units to withdraw from the partnership. This will be done on an
installment basis, generally, over a five-year period (in 20 equal quarterly
installments), or over such longer period of time as the limited partner may
desire or as may be required in light of partnership cash flow. During this
five-year (or longer) period, we will pay any distributions with respect to
units being liquidated directly to the withdrawing limited partner. No penalty
will be imposed on withdrawals made in twenty quarterly installments or longer.
The ten percent (10%) early withdrawal penalty will be received by the
partnership, and a portion of the sums collected as such penalty will be applied
toward the next installment(s) of principal, under the formation loan owed to
the partnership by Redwood Mortgage Corp., thereby reducing the amount owed to
the partnership from Redwood Mortgage Corp. Such portion shall be determined by
the ratio between the initial amount of the formation loan and the total amount
of organization and syndication costs incurred by the partnership in this
offering. After the formation loan has been paid, any withdrawal penalties will
be retained by the partnership for its own account. (See "PLAN OF DISTRIBUTION"
at page 71).
In the event of your death during your investment with us, your heirs
will be provided with the option to liquidate all or a portion of your
investment. Such liquidations will not be subject to any early withdrawal
penalties but will be limited in amount to $50,000 per year paid in equal
quarterly installments until the account is fully liquidated. Your heirs will be
required to notify us of their intent to liquidate your investment within 6
months from the date of death or the investment will become subject to our
regular liquidation provisions. Due to the complex nature of administering a
decedent's estate, the general partners reserve the right and discretion to
request any and all information they deem necessary and relevant in determining
the date of death, the name of the beneficiaries or any other matters they may
deem relevant.
You may commence withdrawal (or partial withdrawal) from the
partnership as of the end of any calendar quarter. The amount that a withdrawing
limited partner will receive from the partnership is based on the withdrawing
limited partner's capital account. A capital account is a sum calculated for tax
and accounting purposes, and may be greater than or less than the fair market
value of such investor's limited partnership interest in the partnership. The
fair market value of a your interest in the partnership will generally be
irrelevant in determining amounts to be paid upon withdrawal, except to the
extent that the current fair market value of the partnership's loan portfolio is
realized by sales of existing loans (which sales are not required to be made).
We will not establish a reserve from which to fund withdrawals. Our
capacity to return your capital account upon withdrawal is restricted to the
availability of partnership cash flow. For this purpose, cash flow is considered
to be available only after all current partnership expenses have been paid
(including compensation to the general partners and affiliates) and adequate
provision has been made for the payment of all periodic cash distributions on a
pro rata basis which must be paid to limited partners who elected to receive
such distributions upon subscription for units. No more than twenty percent
(20%) of the total limited partners' capital accounts outstanding for the
beginning of any calendar year shall be liquidated during any calendar year.
Notwithstanding this twenty percent (20%) limitation, the general partners shall
have the discretion to further limit the percentage of the total limited
partners' capital accounts that may be withdrawn in order to comply with any
regulation to be enacted by the IRS pursuant to Section 7704 of the Code and the
safe harbor provisions set forth in Notice 88-75 to avoid the partnership being
taxed as a corporation. If notices of withdrawal in excess of these limitations
are received by the general partners, the priority of distributions among
limited partners shall be determined as follows: first to those limited partners
withdrawing capital accounts according to the 20 quarter or longer installment
liquidation period, then ERISA plan limited partners withdrawing capital
accounts after five (5) years, over four (4) quarterly installments (which need
such sums to pay retirement benefits), then to limited partners withdrawing
capital accounts after five years over four quarterly installments, then to
administrators withdrawing capital accounts upon the death of a limited partner
and finally to all other limited partners withdrawing capital accounts. Except
as provided above, withdrawal requests will be considered by the general
partners in the order received.
Upon dissolution and termination of the partnership, a five-year
winding-up period is provided for liquidating the partnership's loan portfolio
and distributing cash to limited partners. Due to high prevailing interest rates
or other factors, the partnership could suffer reduced earnings (or losses) if a
substantial portion of its loan portfolio remains and must be liquidated quickly
at the end of such winding-up period. Limited partners who complete a withdrawal
from the partnership prior to any such liquidation will not be exposed to this
risk. Conversely, if prevailing interest rates have declined at a time when the
loan portfolio must be liquidated, unanticipated profits could be realized by
those limited partners who remained in the partnership until its termination.
DISTRIBUTION POLICIES
Distributions to the Limited Partners. The partnership will make
monthly, quarterly or annual distributions of all earnings to those limited
partners affirmatively electing to receive cash distributions upon subscription.
All other limited partners will not receive current distributions of earnings,
rather their earnings will be credited to their capital accounts on a monthly
basis and will increase their capital accounts, in lieu of receiving periodic
cash distributions. Earnings retained in your capital account will be used by us
for making further loans and for other proper partnership purposes. However,
there is no assurance as to the timing or amount of any distribution to the
holders of the units. To provide an added degree of flexibility, we are planning
to register a dividend reinvestment program during the year 2000 and anticipate
that it would be effective shortly thereafter. Until such time, the distribution
policy described above will still be in effect.
Cash available for distribution will be allocated to you and your
assignees in the ratio which the capital accounts owned by you bears to the
capital accounts then outstanding, subject to adjustment with respect to units
issued by the partnership during the quarter. For such purposes, a transferee
will be deemed to be the owner thereof as of the first day following the day the
transfer is completed and will therefore not participate in distributions for
the period prior to which the transfer occurs.
Earnings means cash funds available from operations from interest
payments, early withdrawal penalties not applied to the formation loan, late and
prepayment charges, interest on short-term investments and working capital
reserve, after deducting funds used to pay or provide for the payment of
partnership expenses and appropriate reserves.
Subject to the right of the general partners to terminate your right to
credit your capital account in lieu of receipt of periodic cash distributions,
such option to credit your capital account in lieu of receiving periodic cash
distributions will continue unless prohibited by applicable federal or state
law.
Cash Distributions. Cash available for distribution will be determined
by computing the net income during the calendar month on an accrual basis and in
accordance with generally accepted accounting principles. The term "Cash
Available for Distribution" means an amount of cash equal to the excess of
accrued income from operations and investment of, or the sale or refinancing or
other disposition of, partnership assets during any calendar month over the
accrued operating expenses of the partnership during such month, including any
adjustments for bad debt reserves or deductions as the general partners may deem
appropriate, all determined in accordance with generally accepted accounting
principles; provided, that such operating expenses shall not include any general
overhead expenses of the general partners not specifically related to, billed to
or reimbursable by the partnership as specified in Sections 10.15 through 10.17
of the limited partnership agreement. All cash available for distribution will
be allocated one percent (1%) to the general partners and ninety-nine percent
(99%) to the limited partners.
Allocation of Net Income and Net Losses. Net income and net loss for
accounting purposes for each fiscal quarter and all items of net profits or net
losses and credits for tax purposes for each quarter shall be allocated to the
partners as set forth in Article V of the limited partnership agreement. Net
income and net loss will be allocated one percent (1%) to the general partners
and ninety-nine percent (99%) to the limited partners.
REPORTS TO LIMITED PARTNERS
Within 90 days after the end of each fiscal year of the partnership,
the general partners will deliver to you such information as is necessary for
the preparation of your federal income tax return, and state income or other tax
returns. Within 120 days after the end of each partnership fiscal year, the
general partners will deliver to you, an annual report which includes audited
financial statements of the partnership prepared in accordance with generally
accepted accounting principles, and which contains a reconciliation of amounts
shown therein with amounts shown on the method of accounting used for tax
reporting purposes. Such financial statements include a profit and loss
statement, a balance sheet of the partnership, a cash flow statement and a
statement of changes in financial position. The annual report for each year
reports on the partnership's activities for that year, identifies the source of
partnership distributions, sets forth the compensation paid to the general
partners and their affiliates and a statement of the services performed in
consideration therefor and contains such other information as is deemed
reasonably necessary by the general partners to advise you of the affairs of the
partnership.
For as long as the partnership is required to file quarterly reports on
Form 10-Q and annual reports on Form 10-K with the Securities and Exchange
Commission, the information contained in each such report for a quarter shall be
sent within 60 days after the end of such quarter. If and when such reports are
not required to be filed, you will be furnished, within 60 days after the end of
each of the first three quarters of each partnership fiscal year, an unaudited
financial report for that period including a profit and loss statement, a
balance sheet and a cash flow statement. The foregoing reports for any period in
which fees are paid to the general partners or their affiliates for services
shall set forth the fees paid and the services rendered.
PLAN OF DISTRIBUTION
Subject to the conditions set forth in this prospectus and in
accordance with the terms and conditions of the partnership agreement, the
partnership offers through qualified broker dealers on a best efforts basis, a
maximum of 30,000,000 units ($30,000,000) of limited partnership interest at $1
per unit. The minimum subscription is 2,000 units ($2,000).
Sales Commissions. Participating broker dealers will receive sales
commissions of 5% of gross proceeds for subscriptions where investors elect to
receive cash distributions and sales commissions of 9% of gross proceeds will be
paid for subscriptions where investors elect to reinvest their earnings and
acquire additional units in the partnership. Additionally, participating broker
dealers may be entitled to receive up to .5% of the gross proceeds for bona fide
due diligence expenses, and certain other expense reimbursements and sales
seminar expenses payable by the partnership. Although total sales commissions
payable could equal 9%, the partnership anticipates, based on historical
experience, that the total sales commissions payable will not exceed 7.6%. This
number is based upon the general partners' assumption, based on historical
experience, that 65% of investors will elect to compound earnings and receive
additional units and 35% of investors will elect to receive distribution.
Sales by Registered Investment Advisors. In addition to purchasing
units though participating broker dealers, we may accept unsolicited orders for
units directly from you if you utilize the services of a registered investment
advisor. A registered investment advisor is an investment professional retained
by you to advise you regarding your investment strategy regarding all of your
assets, not just your investment with us. Registered investment advisors are
paid by you based upon the total amount of your assets being managed by the
registered investment advisor.
If you utilize the services of a registered investment advisor in
acquiring units, Redwood Mortgage Corp. will pay to the partnership, an amount
equal to the sales commissions otherwise attributable to a sale of units through
a participating broker dealer. The partnership will in turn credit such amounts
received by Redwood Mortgage Corp. to the account of the investor who placed the
unsolicited order.
o Election of Investors to Pay Client Fees. If you acquire units directly
from the partnership through the services of a registered investment advisor,
you will have the election to authorize us to pay your registered investment
advisor an estimated quarterly amount of no more than 2% annually of your
capital account that would otherwise be paid to you as periodic cash
distributions or compounded as earnings. For ease of reference, we have referred
to these fees as "client fees." If you elect to compound earnings, then the
amount of the earnings reinvested by you will be reduced by an amount equal to
the amount of the client fees paid. Thus, the amount of the periodic cash
distributions paid or the amount of earnings compounded will be less if you
elect to pay client fees through us. The authorization to pay client fees is
solely at your election and is not a requirement of investment with us.
o Client Fees are not Sales Commissions. All client fees paid will be paid
from those amounts that would otherwise be paid to you or compounded in your
capital account. The payment of all client fees is noncumulative and subject to
the availability of sufficient earnings in your capital account. In no event
will any such client fees be paid by us as sales commissions or other
compensation. We are merely agreeing to pay to the registered investment
advisor, as an administrative convenience to you, a portion of those amounts
that would otherwise be paid to you. In no event will the total of all
compensation including sales commissions, expense reimbursements, sales seminar
and/or due diligence expenses exceed 10% of the program proceeds received plus
an additional .5% for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conduct Rules.
o Representations and Warranties of Registered Investment Advisors. All
registered investment advisors will represent and warrant to the partnership
that, among other things, the investment in the units is suitable for you, that
he has informed you of all pertinent facts relating to the liquidity and
marketability of units, and that if he is affiliated with an NASD registered
broker or dealer, that all client fees received by him in connection with this
transaction will be run through the books and records of the NASD member in
compliance with Notice to Members 96-33 and Rules 3030 and 3040 of the NASD
Conduct Rules.
Payment of Sales Commissions. As of the date hereof, total commissions
have averaged 7.76% of limited partner units sold. In no event will the total of
all compensation payable to participating broker dealers, including sales
commissions, expense reimbursements, sales seminars and/or due diligence
expenses exceed ten percent (10%) of the program proceeds received plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conduct Rules. Further, in no event shall any individual
participating broker dealer receive total compensation including sales
commissions, expense reimbursements, sales seminar or expense reimbursement
exceed (10%) of the gross proceeds of their sales plus an additional (0.5%) for
bona fide due diligence expenses as set forth in Rule 2810 of the NASD Conduct
Rules (the "Compensation Limitation"). Units may also be offered or sold
directly by the general partners for which they will receive no sales
commissions. No commissions will be paid on any units acquired by partners in
lieu of periodic cash distributions.
Payment of Other Fees to Participating Broker Dealers. The partnership
will not pay referral or similar fees to any accountants, attorneys or other
persons in connection with the distribution of the units. Participating broker
dealers are not obligated to obtain any subscriptions, and there is no assurance
that any units will be sold.
The participating broker dealers shall not directly or indirectly
finance or arrange for the financing of, purchase of any units, nor shall the
proceeds of this offering be used either directly or indirectly to finance the
purchase of any units.
The selling agreement provides that with respect to any liabilities
arising out of the Securities Act of 1933, as amended, the general partners
shall indemnify the participating broker dealer. To the extent that
indemnification provisions purport to include indemnification for liabilities
arising under the Securities Act of 1933, such indemnification, in the opinion
of the Securities and Exchange Commission is contrary to public policy and
therefore unenforceable.
Suitability Requirements. You will be required to comply with (i) the
minimum purchase requirement and investor suitability standard of your state of
residence or (ii) the investor suitability standard imposed by the partnership
in the event that your state of residence does not impose such a standard (See
"INVESTOR SUITABILITY STANDARDS" at page 16).
In order to purchase any units, the you must complete and execute the
signature page for the subscription agreement. Any subscription for units must
be accompanied by tender of the sum of $1 per unit. The signature page is set
forth at the end of this prospectus at Exhibit B-l. By executing the signature
page for the subscription agreement, you agree to all of the terms of the
partnership agreement including the grant of a power of attorney under certain
circumstances. Units will be evidenced by a written partnership agreement.
Your subscription agreement will be accepted or rejected by the general
partners within thirty (30) days after its receipt. Subscriptions will be
effective only on acceptance by the general partners and the right is reserved
to reject any subscription "in whole or in part" for any reason.
The general partners and their affiliates may, in their discretion,
purchase units for their own. The maximum number of units that may be purchased
by the general partners or their affiliates is $50,000 (50,000 units). Purchases
of such units by the general partners or their affiliates will be made for
investment purposes only on the same terms, conditions and prices as to
unaffiliated parties. It is not anticipated that the general partners or their
affiliates will purchase units for their own accounts and no purchases have been
made to date.
Formation Loan. All selling commissions incurred in connection with the
offer and sale of units and all amounts paid in connection with unsolicited
orders will be paid by Redwood Mortgage Corp. The partnership lends to Redwood
Mortgage Corp., funds from the offering proceeds equal to the amount of sales
commission owed to the participating broker dealers. For example, if an investor
elects to invest over $10,000 and elects to reinvest his earnings, the
partnership will pay a 9% or $900 sales commission to the participating broker
dealer. Instead of paying $900 to the participating broker dealer, the
partnership will lend $900 to Redwood Mortgage Corp. in the form of a formation
loan. Redwood Mortgage Corp. pays the participating broker dealer its sales
commission and then repays the partnership the amount of the loan, in the case
of our example, $900. That loan, called a formation loan, is non-interest
bearing, unsecured, and is paid back to the partnership by Redwood Mortgage
Corp. over time.
Initially, upon the formation of the partnership, approximately eighty
four percent (84%) of each dollar invested will be available for loans assuming
that all units offered are purchased and no leveraged funds are utilized.
However, as Redwood Mortgage Corp. repays the formation loan, and if working
capital reserves are applied to loans as has occurred in prior programs,
approximately ninety-six percent (96%), will be available for investment in
loans.
Although it is possible that the amount of the formation loan could be
nine percent (9%) of the gross proceeds, it is anticipated that the formation
loan will average approximately (7.6%). Thus it is anticipated that the
formation loan will not exceed (7.6%) of the total gross proceeds of this
offering for the maximum offering amount assuming, based upon the general
partners' historical experience and knowledge of professionals in the industry,
that sixty-five percent (65%) of the investors elect to compound their earnings
and acquire additional units and thirty-five percent (35%) elect to receive
distributions or the actual amount of selling commissions incurred by Redwood
Mortgage Corp., whichever is less. As of the date hereof, the formation loan
represents 7.6% of capital raised. The formation loan will be unsecured, will
not bear interest and will be repaid in annual installments. Upon commencement
of this offering, Redwood Mortgage Corp. shall make annual installments of
one-tenth of the principal balance of the formation loan as of December 31 of
each year. Such payment shall be due and payable by December 31 of the following
year.
With respect to the prior formation loans, no sales commissions for the
second offering were paid in 1996, therefore, no payment was made in 1997. The
first payment of $43,223 was made December 31, 1998. That amount equaled 1/10th
of the amount loaned to Redwood Mortgage Corp. from the partnership to pay sales
commissions in 1997. Upon completion of the offering, the balance of the current
formation loan will be repaid in 10 equal annual installments of principal,
without interest, commencing on December 31 of the year following the year the
offering terminates. Thus, Redwood Mortgage Corp. will begin making annual
installment payments on December 31, 2001. As of March 31, 2000, the
partnership, in connection with the second formation loan, had loaned $1,908,840
to Redwood Mortgage Corp. from the offering proceeds to pay sales commissions to
participating broker dealers and $159,994 had been repaid.
The initial formation loan made in connection with the initial offering
of $15,000,000, is to be repaid over 10 years. Installments of principal,
without interest, are paid once a year. These installments commenced on December
31 of the year the offering terminated. The initial offering terminated in
September 1996, so repayments of the formation loan began in December 1996. The
total amount of the first formation loan was $1,074,840. As of March 31, 2000,
$372,647 had been repaid to the partnership.
Redwood Mortgage Corp., at its option, may prepay all or any part of
the formation loan. Redwood Mortgage Corp. intends to repay the formation loan
principally from loan brokerage commissions earned on loans, and the receipt of
a portion of the early withdrawal penalties and other fees paid by the
partnership. Since Redwood Mortgage Corp. will use the proceeds from loan
brokerage commissions on loans to repay the formation loan, if all or any one of
the initial general partners is removed as a general partner by the vote of a
majority of limited partners and a successor or additional general partner(s) is
thereafter designated, and if such successor or additional general partner(s)
begins using any other loan brokerage firm for the placement of loans, Redwood
Mortgage Corp. will be immediately released from any further obligation under
the formation loan (except for a proportionate share of the principal
installment due at the end of that year, pro rated according to the days
elapsed). In addition, if all of the general partners are removed, no successor
general partners are elected, the partnership is liquidated and Redwood Mortgage
Corp. is no longer receiving any payments for services rendered, the debt on the
formation loan shall be forgiven and Redwood Mortgage Corp. will be immediately
released from any further obligation under the formation loan.
Because the formation loan does not bear interest, it will have the
effect of slightly diluting the rate of return to limited partners, but to a
much lesser extent than if the partnership were required to bear all of its own
syndication expenses as is the case with certain other publicly offered mortgage
pools.
Escrow Arrangements. Funds received by the participating broker dealers
from subscriptions for units will be immediately available to us for investment.
As this is not our first offering, no escrow will be established. Subscription
proceeds will be released to the partnership and deposited into the our
operating account.
Termination Date of Offering. The offering will terminate one (1) year
from the effective date of the prospectus unless terminated earlier by the
general partners, or unless extended by the general partners for additional one
year periods.
Subscription Account. Your subscription will be deposited into a
subscription account at a federally insured commercial bank or depository and
invested in short-term certificates of deposit, a money market or other liquid
asset account. Once your subscription has been accepted, you will be admitted
into the partnership only when your subscription funds are required by the
partnership to fund a mortgage loan, for the formation loan, to create
appropriate reserves, or to pay organizational expenses or other proper
partnership activities (See "ESTIMATED USE OF PROCEEDS" at page 2). During the
period prior to your admittance of as a limited partner, proceeds from the sale
of units will be held by the general partners for your account in the
subscription account. Investors' funds will be transferred from the subscription
account into the partnership on a first-in, first-out basis. Upon your admission
to the partnership, your subscription funds will be released to the partnership
and units will be issued at the rate of $1 per unit or fraction thereon.
Interest earned on subscription funds while in the subscription account will be
returned to you, or if you elect to compound earnings (see below), the amount
equal to such interest will be added to your investment in the partnership, and
the number of units actually issued shall be increased accordingly.
The general partners anticipate that the delay between delivery of a
subscription agreement and admission to the partnership will be approximately 90
days, during which time you will earn interest at pass book savings account
rates. Subscription agreements are non-cancelable and subscription funds are
non-refundable for any reason. After having subscribed for at least 2,000 units
($2,000), you may at any time, and from time to time subscribe to purchase
additional units in the partnership as long as the offering is open. You are
liable for the payment of the full purchase price of all units for which you
have subscribed.
SUPPLEMENTAL SALES MATERIAL
Sales material in addition to this prospectus which may be used in
connection with this offering include a sales brochure which will highlight and
simplify certain information contained herein. If additional sales material is
prepared for use in connection with the offering, use of such material will be
conditioned on filing with and, if required, clearance by appropriate regulatory
authorities.
As of the date of this prospectus, it is anticipated that the following
sales material will be authorized for use by us in connection with this offering
o a brochure entitled Redwood Mortgage Investors VIII;
o a brochure describing Redwood Mortgage Corp. and its affiliated entities;
o a cover letter transmitting the prospectus;
o a summary description of the offering;
o a slide presentation;
o broker updates;
o an audio cassette presentation;
o certain third-party articles.
Only the brochure entitled Redwood Mortgage Investors VIII will be
delivered to you. All of the other materials will be for broker-dealer use only.
The general partners and their affiliates may also respond to specific
questions from participating broker dealers and prospective investors. Business
reply cards, introductory letters or similar materials may be sent to
participating broker dealers for customer use, and other information relating to
the offering may be made available to participating broker dealers for their
internal use. However, the offering is made only by means of this prospectus.
Except as described herein or in supplements hereto. We have not authorized the
use of other sales materials in connection with the offering. Although the
information contained in such material does not conflict with any of the
information contained in this prospectus, such material does not purport to be
complete and should not be considered as a part of this prospectus or the
registration statement of which this prospectus is a part, or as incorporated in
this prospectus or the registration statement by reference or as forming the
basis of the offering of the units described herein.
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this or
in supplements hereto or in supplemental sales literature issued by the
partnership and referred to in this prospectus or in supplements thereto. If you
receive such information or representations, such information or representations
must not be relied upon. This prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, any securities other than the units to
which it relates or any of such units to any person in any jurisdiction in which
such offeror solicitation is unlawful. The delivery of this prospectus at any
time does not imply that the information contained herein is correct at any time
subsequent to its date.
<PAGE>
LEGAL PROCEEDINGS
In the normal course of business we may become involved in various
types of legal proceedings such as assignments of rents, bankruptcy proceedings,
appointments of receivers, unlawful detainers, judicial foreclosures, etc, to
enforce the provisions of the deeds of trust, collect the debt owed under the
promissory notes or to protect/recoup its investment from the real property
secured by the deeds. None of these actions would typically be of any material
importance. As of the date hereof, we are not involved in any legal proceedings
other than those that would be considered part of the normal course of business.
LEGAL OPINION
Legal matters in connection with the units offered hereby will be
passed upon for the partnership McCutchen, Doyle, Brown & Enersen LLP, 350 The
Embarcadero, San Francisco, California 94105, counsel for the partnership and
the general partners. Such counsel has not represented the limited partners in
connection with the units offered hereby.
EXPERTS
The balance sheet of the partnership at December 31, 1998 and 1999, the
balance sheet at December 31, 1998, and 1999, of Gymno Corporation, a general
partner, and the balance sheet at September 30, 1998 and 1999 of Redwood
Mortgage Corp, a general partner, all included in this prospectus have been
examined by independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein and have been included herein in
reliance on such reports and the authority of such firm as experts in accounting
and auditing. The statements under the caption "FEDERAL INCOME TAX CONSEQUENCES"
at page 50 and "ERISA CONSIDERATIONS" at page 61 as they relate to the matters
referenced therein have been reviewed by the McCutchen, Doyle, Brown & Enersen,
LLP, and are included herein in reliance upon the authority of that firm as
experts thereon.
ADDITIONAL INFORMATION
The partnership has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the units offered pursuant to this prospectus.
For further information, reference is made to the registration statement and to
the exhibits thereto which are available for inspection at no fee in the Office
of the Commission in Washington, D.C., 450 Fifth Street, N.W., Washington, D.C.
20549. Photostatic copies of the material containing this information may be
obtained from the Commission upon paying of the fees prescribed by the rules and
regulations at the Washington office only. Additionally, the Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants, such as the partnership, that file
electronically. The address of the Commission's website is http://www.sec.gov.
TABULAR INFORMATION CONCERNING PRIOR PROGRAMS
Appendix I contains prior performance and investment information for
the general partners' previous programs. Tables I through III of Appendix I
contain unaudited information relating to the prior programs and their
experience in raising and investing funds, compensation of the general partners
and their affiliates and operating results of prior programs. Table V of
Appendix I contains unaudited information relating to the prior programs'
payment of mortgage loans. Table IV is not included because none of the
partnerships has completed its operations or disposed of all of its loans.
Purchasers of the units offered by this prospectus will not acquire any
ownership in interest in any prior program and should not assume that the
results of the prior programs will be indicative of the future results of this
partnership. Moreover, the operating results for the prior programs should not
be considered indicative of future results of the prior programs or whether the
prior programs will achieve their investment objectives which will in large part
depend on facts which cannot now be determined.
<PAGE>
GLOSSARY
The following are definitions of certain terms used in the prospectus
and not otherwise defined herein:
Assignee. The term "Assignee" shall mean a person who has acquired a
beneficial interest in one or more units but who is neither a limited partner
nor an assignee of record.
Capital Account. The term "Capital Account", means, with respect to any
partner, the capital account maintained for such partner in accordance with the
following provisions:
(a) To each partner's capital account there shall be credited, such
partner's capital contribution, such partner's distributive share of profits,
and any items in the nature of income and gain (from unexpected adjustments,
allocations or distributions) that are specially allocated to a partner and the
amount of any partnership liabilities that are assumed by such partner or that
are secured by any partnership property distributed to such partner.
(b) To each partner's capital account there shall be debited the amount
of cash and the gross asset value of any partnership 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 and losses
that specially allocated to a partner and the amount of any liabilities of such
partner that are assumed by the partnership or that are secured by any property
contributed by such partner to the partnership.
Distributions. The term "Distributions" means any cash or other
property distributed to holders and the general partners arising from their
interests in the partnership, but shall not include any payments to the general
partners under the provisions of Article 10 of the partnership agreement.
Earnings. The term "Earnings" means all revenues earned by the partnership
less all expenses incurred by the partnership.
Holders. The term "Holders" means the owners of units who are either
partners or assignees of record, and reference to a "Holder" shall be to any one
of them.
Limited Partnership Interest. The term "Limited Partnership Interest"
means a limited partnership interest in Redwood Mortgage Investors VIII,
acquired pursuant to the purchase of units and thereafter means the percentage
ownership interest of any limited partner in the partnership determined at any
time by dividing a limited partner's current capital account by the total
outstanding capital accounts of all limited partners.
Net Income or Net Loss. The term "Net Income or Net Loss" means for
each fiscal year or any other period, an amount equal to the partnership's
taxable income or loss for such fiscal year or other given 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
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) 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;
(b) Any expenditures of the partnership described in Section
105(a)(2)(B) of the Code or treated as Section 105(a)(2)(B) expenditures
pursuant to Treasury Regulation Section 1.7041(b)(2)(iv)(i), and not otherwise
taken into account in computing profits or losses pursuant to Section 10.16 of
the partnership agreement, shall be subtracted from such taxable income or loss;
(c) 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 gross asset value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its gross asset value;
(d) 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, amortization or other cost recovery
deductions for such fiscal year or other period, computed such that if the gross
asset value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of a fiscal year or other period, depreciation,
amortization or other cost recovery deductions shall be an amount which bears
the same ratio to such beginning gross asset value as the federal income tax
depreciation, amortization or other cost recovery deductions for such fiscal
year or other period bears to such beginning adjusted tax basis; and
(e) Notwithstanding any other provision of Section 10.16 of the
partnership agreement, any items in the nature of income or gain or expenses or
losses, which are specially allocated, shall not be taken into account in
computing profits or losses.
<PAGE>
Special-Use Properties. The term "Special-Use Properties" shall mean
bowling alleys, churches and gas stations.
Subscription Agreement. The term "Subscription Agreement" means the
agreement, attached to this prospectus as Exhibit B, in which a prospective
investor agrees to purchase units in Redwood Mortgage Investors VIII.
Tax-Exempt Investors. The term "Tax-Exempt Investor(s)" means qualified
pension, profit sharing and other private retirement trusts, bank funds for such
trusts, government pension and retirement trusts, HR-10 (Keogh) plans and
individual retirement accounts (IRAs).
Working Capital Reserve. The term "Working Capital Reserve" shall mean
a portion of the invested capital which the general partners, in their
discretion, determine is prudent to be maintained by the partnership to pay for
operating, and other costs and expenses the partnership may incur with respect
to its activities.
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
Page
Redwood Mortgage Investors VIII
Interim Financial Statements, as of March 31, 2000
(unaudited).................................................................79
Financial Statements, December 31, 1999 and 1998, with Auditor's
Report Thereon..............................................................95
Independent Auditor's Report..................................................96
GYMNO Corporation
Interim Financial Statements, as of March 31, 2000 (unaudited)...............113
Independent Auditor's
Report.......................................................................116
Financial Statements, December 31, 1999 and 1998, with Auditor's
Report Thereon...............................................................117
Redwood Mortgage Corp.
Interim Financial Statements, as of March 31, 2000 (unaudited)...............121
Independent Auditor's
Report.......................................................................125
Financial Statements, September 30, 1999 and 1998, with Auditor's
Report Thereon...............................................................126
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
INTERIM FINANCIAL STATEMENTS
In the opinion of the management of Redwood Mortgage Investors VIII, a
California limited partnership, all adjustments necessary for a fair statement
of financial position for the interim period presented herein have been made.
All such adjustments are of a normal, recurring nature. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. However, management of Redwood Mortgage Investors VIII believes that
the disclosures contained herein are adequate to make the information presented
not misleading. It is suggested that these unaudited financial statements be
read in conjunction with the corresponding audited financial statements and the
notes thereto included elsewhere in this prospectus.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
MARCH 31, 2000 (unaudited))
ASSETS
March 31,
2000
(unaudited)
----------------
----------------
Cash $646,503
----------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 45,252,163
Accrued Interest on Mortgage Investments 1,018,334
Advances on Mortgage Investments 36,104
Accounts receivables, unsecured 51,598
----------------
46,358,199
Less allowance for doubtful accounts 836,206
----------------
45,521,993
----------------
Investment in limited liability corporation, at cost
which approximates market 0
Prepaid expense-deferred loan fee 3,937
----------------
$46,172,433
================
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
MARCH 31, 2000 (unaudited)
LIABILITIES AND PARTNERS' CAPITAL
March 31,
2000
(unaudited)
--------------
--------------
Liabilities:
Accounts payable and accrued expenses $29,463
Note payable - bank line of credit 4,200,000
Deferred interest income 213,529
Investors in applicant status 31,000
--------------
--------------
4,473,992
--------------
--------------
Partners' Capital:
Limited partners' capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $311,128 and
$342,334 for 2000 and 1999, respectively:
and formation loan receivable of $2,451,039 and
$2,158,674for 2000 and 1999, respectively 41,666,176
General Partners' Capital, net of unallocated syndication
costs of $3,143 and $3,458 for 2000 and 1999,
respectively 32,265
--------------
Total Partners' Capital 41,698,441
--------------
Total Liabilities and Partners' Capital $46,172,433
==============
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2000 (unaudited)
Three Months
Ended March 31,
2000
--------------------
Revenues:
Interest on Mortgage Investments $1,082,236
Interest on bank deposits 7,318
Late charges 3,642
Miscellaneous 550
--------------------
1,093,746
--------------------
Expenses:
Mortgage servicing fees 71,294
Interest on note payable - bank 13,530
Amortization of loan origination fees 2,396
Provision for doubtful accounts and losses on real estate
acquired through foreclosure 1,847
Asset management fee - General Partner 12,930
Clerical costs through Redwood Mortgage Corp. 25,827
Professional services 21,788
Printing, supplies and postage 2,683
Other 7,278
--------------------
159,573
--------------------
Income before interest credited to partners in applicant status 934,173
Interest credited to partners in applicant status 4,460
--------------------
Net Income $929,713
====================
Net income: To General Partners(1%) $9,297
To Limited Partners (99%) 920,416
--------------------
Total - net income $929,713
====================
Net income per $1,000 invested by Limited Partners for
entire period:
-where income is reinvested and compounded $20.61
====================
-where partner receives income in monthly distributions $20.47
====================
See accompanying notes to financial statements.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
THREE MONTHS ENDED MARCH 31, 2000 (unaudited)
PARTNERS' CAPITAL
----------------------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-----------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
-------------- -------------- --------------- -------------- --------------
-------------- -------------- --------------- -------------- --- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1999 $330,000 $39,531,025 $(342,334) $(2,158,674) $37,030,017
Contributions on Application 4,199,536 0 0 0 0
Formation Loan increases 0 0 0 (360,965) (360,965)
Formation Loan payments 0 0 0 62,306 62,306
Interest credited to partners in
applicant status 4,460 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (662) 0 0 0 0
Transfers to Partners' capital (4,502,334) 4,502,334 0 0 4,502,334
Net Income 0 920,416 0 0 920,416
Syndication costs incurred 0 0 (43,538) 0 (43,538)
Allocation of syndication costs 0 (71,440) 71,440 0 0
Partners' withdrawals 0 (444,361) 0 0 (444,361)
Early withdrawal penalties 0 (9,631) 3,304 6,294 (33)
-------------- -------------- --------------- -------------- --------------
-------------- -------------- --------------- -------------- --------------
Balances at March 31, 2000 $31,000 $44,428,343 $(311,128) $(2,451,039) $41,666,176
============== ============== =============== ============== ==============
============== ============== =============== ============== ==============
PARTNERS' CAPITAL
-----------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
-------------------------------------------------
Capital Account
General Partners Unallocated Total Total Partners'
Syndication General Capital
Costs Partners
------------------ ---------------- ---------------- ------------------
Balances at December 31, 1999 $35,408 $(3,458) $31,950 $37,061,967
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (360,965)
Formation Loan payments 0 0 0 62,306
Interest credited to partners in applicant
status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 0 0 0 4,502,334
Net Income 9,297 0 9,297 929,713
Syndication costs incurred 0 (440) (440) (43,978)
Allocation of syndication costs (722) 722 0 0
Partners' withdrawals (8,575) 0 (8,575) (452,936)
Early withdrawal penalties 0 33 33 0
------------------ ---------------- ---------------- ------------------
------------------ ---------------- ---------------- ------------------
Balances at March 31, 2000 $35,408 $(3,143) $32,265 $41,698,441
================== ================ ================ ==================
================== ================ ================ ==================
See accompanying notes to financial statements
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (unaudited)
March 31,
2000
(unaudited)
---------------
---------------
Cash flows from operating activities:
Net income $929,713
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts. 1,847
Provision for losses (gains) on real estate held for sale 0
Increase (decrease) in accounts payable 50
(Increase) in accrued interest & advances (309,666)
(Increase) decrease in amount due from related companies 0
(Increase) decrease in deferred loan fee 2,395
Increase (decrease ) in deferred interest income 0
---------------
Net cash provided by operating activities 624,339
---------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 1,522,077 Mortgage Investments
made (11,081,092) Additions to real estate held for sale 0 Disposition of
Limited Liability Corporation 373,358 Accounts receivables, unsecured -
(disbursements) receipts (2,508)
---------------
Net cash used in investing activities (9,188,165)
---------------
Cash flows from financing activities
Increase (decrease) in note payable-bank 4,200,000
Contributions by partner applicants 4,199,536
Interest credited to partners in applicant status 4,460
Interest withdrawn by partners in applicant status (662)
Partners withdrawals (452,936)
Syndication costs incurred (43,978)
Formation Loan increases (360,965)
Formation Loan collections 62,306
---------------
Net cash provided by financing activities 7,607,761
---------------
Net increase (decrease) in cash and cash equivalents (956,065)
Cash - beginning of period 1,602,568
---------------
Cash - end of period $646,503
===============
===============
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, (the "Partnership") is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell, Gymno Corporation, a California corporation owned and operated by the
individual General Partners, and Redwood Mortgage Corp., a California
corporation. The Partnership was organized to engage in business as a mortgage
lender for the primary purpose of making Mortgage Investments secured by Deeds
of Trust on California real estate. Mortgage Investments are being arranged and
serviced by Redwood Mortgage Corp. At March 31, 2000, the Partnership was in the
offering stage, wherein contributed capital totalled $39,310,477 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $1 each (39,310,477). As of March 31, 2000, $31,000 remained in applicant
status.
A minimum of 250,000 units ($250,000) and a maximum of 15,000,000 units
($15,000,000) were initially offered through qualified broker-dealers. This
initial offering was closed in October, 1996. In December 1996, the Partnership
commenced a second offering of an additional 30,000,000 Units ($30,000,000). As
Mortgage Investments are identified, partners are transferred from applicant
status to admitted partners participating in Mortgage Investment operations.
Each month's income is distributed to partners based upon their proportionate
share of partners' capital. Some partners have elected to withdraw income on a
monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions are not paid directly by the Partnership out of the offering
proceeds. Instead, the Partnership loans to Redwood Mortgage Corp., a General
Partner, amounts to pay all sales commissions and amounts payable in connection
with unsolicited orders. This loan is referred to as the "Formation Loan". It is
unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017
(under the limit of 9.1% relative to the initial offering). It is to be repaid,
without interest, in ten annual installments of principal, which commenced on
January 1, 1997, following the year the initial offering closed, which was in
1996.
The Formation Loan relating to the second offering ($30,000,000) totalled
$1,908,840 at March 31, 2000, which was 7.83% of the limited partners
contributions of $24,378,460. Sales commissions range from 0% (units sold by
General Partners) to 9% of gross proceeds. The Partnership anticipates that the
sales commissions will approximate 7.6% based on the assumption that 65% of
investors will elect to reinvest earnings, thus generating 9% commissions. The
principal balance of the Formation Loan will increase as additional sales of
units are made each year. The amount of the annual installment payment to be
made by Redwood Mortgage Corp., during the offering stage, will be determined at
annual installments of one-tenth of the principal balance of the Formation Loan
as of December 31 of each year. Such payment shall be due and payable by
December 31 of the following year with the first such payment beginning December
31, 1997. Upon completion of the offering, the balance will be repaid in ten
equal annual installments.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
The following summarizes Formation Loan transactions to March 31, 2000:
<S> <C> <C> <C>
Initial Subsequent
Offering of Offering of
$15,000,000 $30,000,000 Total
-------------- --------------- ----------------
Limited Partner contributions $14,932,017 $24,378,460 $39,310,477
============== =============== ================
Formation Loan made $1,074,840 1,908,840 2,983,680
Payments to date (308,582) (159,994) (468,576)
Early withdrawal penalties applied (64,065) 0 (64,065)
-------------- --------------- ----------------
-------------- --------------- ----------------
Balance March 31, 2000 $702,193 $1,748,846 $2,451,039
============== =============== ================
Percent loaned of Partners' contributions 7.2% 7.8% 7.6%
============== =============== ================
</TABLE>
The Formation Loan, which is receivable from Redwood Mortgage Corp., a
General Partner, has been deducted from Limited Partners' Capital in the balance
sheet. As amounts are collected from Redwood Mortgage Corp., the deduction from
capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions, (including
printing costs, attorney and accountant fees, registration and filing fees and
other costs), will be paid by the Partnership.
Through March 31, 2000, organization costs of $12,500 and syndication costs of
$1,211,627 had been incurred by the Partnership with the following distribution:
Syndication Organization
Costs Costs Total
------------- -------------- ------------
Costs incurred $1,211,627 $12,500 $1,224,127
Early withdrawal penalties applied (34,892) 0 (34,892)
Allocated and amortized to date (862,464) (12,500) (874,964)
------------- -------------- ------------
March 31, 2000 balance $314,271 0 $314,271
============= ============== ============
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the General Partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of March 31, 2000 syndication costs attributable to the subsequent offering
($30,000,000) totalled $641,762, (3.0% of contributions), with the costs of the
offering being greater at the initial stages due to professional and filing fees
related to formulating the offering documents. The syndication costs payable by
the Partnership are estimated to be $1,200,000 if the maximum is sold (4% of
$30,000,000). The General Partners will pay any syndication expenses (excluding
selling commissions) in excess of ten percent of the gross proceeds or
$1,200,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make estimates
based on the information available that affect the reported amounts of assets
and liabilities as of the balance sheet date and revenues and expenses for the
related periods. Such estimates relate principally to the determination of the
allowance for doubtful accounts, including the valuation of impaired Mortgage
Investments, and the valuation of real estate acquired through foreclosure.
Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage Investments
to maturity, i.e., held for long-term investment. Therefore they are valued at
cost for financial statement purposes with interest thereon being accrued by the
simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 (effective
January 1, 1995) provide that if the probable ultimate recovery of the carrying
amount of a Mortgage Investment, with due consideration for the fair value of
collateral, is less than the recorded investment and related amounts due and the
impairment is considered to be other than temporary, the carrying amount of the
investment (cost) shall be reduced to the present value of future cash flows.
The adoption of these statements did not have a material effect on the financial
statements of the Partnership because that was the valuation method previously
used on impaired loans.
At March 31, 2000 and at December 31, 1999, and 1998, there were no Mortgage
Investments categorized as impaired by the Partnership. Had there been a
computed amount for the reduction in carrying values of impaired loans, the
reduction would have been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average Mortgage
Investment to appraised value of security at the time the losses were
consummated was 61.08%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At March 31, 2000, there were no properties
acquired by the Partnership as real estate owned (REO).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
Effective January 1, 1996, the Partnership adopted the provisions of Statement
No 121 (SFAS 121) of the Financial Accounting Standards Board, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be disposed
of". The adoption of SFAS 121 did not have a material impact on the
Partnership's financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Limited Liability Corporation (see Note 7)
The Partnership carries its investment in a Limited Liability Corporation as
investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell. In February, 2000, the Corporation sold it's real
estate and returned all advances made by the Partnership.
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other than
certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, and filing fees.
Organizational costs have been capitalized and were amortized over a five year
period. Syndication costs are charged against partners' capital and are being
allocated to individual partners consistent with the partnership agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees, and advances are
analyzed on a continuous basis for recoverability. Delinquencies are identified
and followed as part of the Mortgage Investment system. A provision is made for
doubtful accounts to adjust the allowance for doubtful accounts to an amount
considered by management to be adequate, with due consideration to collateral
values, to provide for unrecoverable accounts receivable, including impaired
Mortgage Investments, other Mortgage Investments, accrued interest and advances
on Mortgage Investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of March 31, 2000 and
December 31, 1999, was as follows:
March 31, December 31,
2000 1999
--------------- ----------------
Impaired mortgage investments $0 $0
Unspecified mortgage investments 797,115 795,268
Amounts receivable, unsecured 39,091 39,091
--------------- ----------------
$836,206 $834,359
=============== ================
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000 invested
by Limited Partners for the entire period are actual amounts allocated to
Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited Partners' pro rata share of Partners' Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or select other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the General Partners
and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation and
extension of Partnership Mortgage Investments in an amount up to 12% of the
Mortgage Investments until 6 months after the termination date of the offering.
Thereafter, mortgage brokerage commissions will be limited to an amount not to
exceed 4% of the total Partnership assets per year. The mortgage brokerage
commissions are paid by the borrowers, and thus, are not an expense of the
Partnership. For three months through March 31, 2000 and for the year ended
December 31, 1999, mortgage broker commissions paid by the borrowers were
$367,205 and $682,118, respectively.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid
principal, is paid to Redwood Mortgage Corp., or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
mortgage is located. Mortgage servicing fees of $71,294, $359,464 and $295,052,
were incurred for three months through March 31, 2000 and for years 1999 and
1998, respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnership's
Mortgage Investment portfolio and operations up to 1/32 of 1% of the "net asset
value" (3/8 of 1% annual). Management fees of $12,930, $42,215 and $31,651 were
incurred for the three months through March 31, 2000 and for years 1999 and
1998, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance, mortgage
assumption and mortgage extension fees. Such fees are incurred by the borrowers
and are paid to parties related to the General Partners.
E. Income and Losses
All income will be credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) shall be a total of 1%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
F. Operating Expenses
The General Partners are reimbursed by the Partnership for all operating
expenses actually incurred by them on behalf of the Partnership, including
without limitation, out-of-pocket general and administration expenses of the
Partnership, accounting and audit fees, legal fees and expenses, postage and
preparation of reports to Limited Partners. Such reimbursements are reflected as
expenses in the Statement of Income.
The General Partners collectively or severally were to contribute 1/10 of 1% in
cash contributions as proceeds from the offering are admitted to Limited Partner
capital. As of December 31, 1999 a General Partner, GYMNO Corporation, had
contributed $35,100, as capital in accordance with Section 4.02(a) of the
Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A . Applicant Status
Subscription funds received from purchasers of units are not admitted to the
Partnership until appropriate lending opportunities are available. During the
period prior to the time of admission, which is anticipated to be between 1-120
days in most cases, purchasers' subscriptions will remain irrevocable and will
earn interest at money market rates, which are lower than the anticipated return
on the Partnership's Mortgage Investment portfolio.
During the periods ending March 31, 2000, December 31, 1999 and 1998, interest
totaling $4,460, $1,914 and $4,454, respectively, was credited to partners in
applicant status. As Mortgage Investments were made and partners were
transferred to regular status to begin sharing in income from Mortgage
Investments secured by deeds of trust, the interest credited was either paid to
the investors or transferred to partners' capital along with the original
investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner terminated
as provided. The provisions provide for no capital withdrawal for the first five
years, subject to the penalty provision set forth in (E) below. Thereafter,
investors have the right to withdraw over a five-year period, or longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
At subscription, investors elect either to receive monthly, quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain limitations, a compounding investor may subsequently change his
election, but an investor's election to have cash distributions is irrevocable.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to their
respective capital accounts after 1% is allocated to the General Partners.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and accordingly
an investment in the Partnership is non-liquid. Limited Partners have no right
to withdraw from the Partnership or to obtain the return of their capital
account for at least one year from the date of purchase of Units. In order to
provide a certain degree of liquidity to the Limited Partners after the one-year
period, Limited Partners may withdraw all or part of their Capital Accounts from
the Partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount withdrawn as stated in the Notice of Withdrawal and will be
deducted from the Capital Account.
After five years from the date of purchase of the Units, Limited Partners have
the right to withdraw from the Partnership on an installment basis. Generally
this is done over a five year period in twenty (20) quarterly installments. Once
a Limited Partner has been in the Partnership for the minimum five year period,
no penalty will be imposed if withdrawal is made in twenty (20) quarterly
installments or longer. Notwithstanding the five-year (or longer) withdrawal
period, the General Partners may liquidate all or part of a Limited Partner's
capital account in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given. This withdrawal is subject to a 10% early withdrawal penalty applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.
The Partnership will not establish a reserve from which to fund withdrawals and,
accordingly, the Partnership's capacity to return a Limited Partner's capital is
restricted to the availability of Partnership cash flow.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner is admitted to the
Partnership and ending 3 months after the offering termination date, the General
Partners shall guarantee an earnings rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average Cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco on a
monthly basis, up to a maximum interest rate of 12%. To date, actual realization
exceeded the guaranteed amount for each month.
NOTE 5- LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a bank line of credit expiring September 30, 2000, of up to
$9,000,000 at .25% over prime secured by its Mortgage Investment portfolio. The
note payable balances were $4,200,000 and $0 at March 31, 2000 and December 31,
1999, respectively. The interest rate was 9.00% at March 31, 2000, (8.75% prime
plus .25%).
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the Partnership
contributed its interest (principally land) to a Limited Liability Corporation,
which is owned 100% by the Partnership, and which has completed the construction
and sold the property.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
March 31, December 31,
2000 1999
---------------- ----------------
Net Assets - Partners' Capital per
financial statements $41,698,441 $37,061,967
Non-amortized syndication costs 314,271 345,792
Allowance for doubtful accounts 836,206 834,359
Formation loans receivable 2,451,039 2,158,674
----------------- ----------------
Net assets tax basis $45,299,957 $40,400,792
----------------- ----------------
In 1999 and 1998, approximately 58% and 61% of taxable income was allocated to
tax exempt organizations, i.e., retirement plans, respectively. Such plans do
not have to file income tax returns unless their "unrelated business income"
exceeds $1,000. Applicable amounts become taxable when distribution is made to
participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INVESTMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
(a) Cash and Cash Equivalents. The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments (see note 2(c)) is $45,252,163.
The fair value of these investments of $43,963,217 is estimated based upon
projected cash flows discounted at the estimated current interest rates at which
similar Mortgage Investments would be made. The applicable amount of the
allowance for doubtful accounts along with accrued interest and advances related
thereto should also be considered in evaluating the fair value versus the
carrying value.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At March 31,
2000, there were 57 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 57
Total Mortgage Investments outstanding $45,252,163
Average Mortgage Investment outstanding $793,898
Average Mortgage Investment as percent of total 1.75%
Average Mortgage Investment as percent of Partners' Capital 1.90%
Largest Mortgage Investment outstanding 2,900,000
Largest Mortgage Investment as percent of total 6.41%
Largest Mortgage Investment as percent of Partners' Capital 6.95%
Number of counties where security is located (all California) 13
Largest percentage of Mortgage Investments in one county 37.47%
Average Mortgage Investment to appraised value of security at time
loan was consummated 61.08%
Number of Mortgage Investments in foreclosure status 1
Amount of Mortgage Investments in foreclosure $2,600,000
The following categories of Mortgage Investments are pertinent at March 31, 2000
and December 31, 1999:
March 31, December 31,
2000 1999
------------------ ------------------
First Trust Deeds $25,450,046 $19,388,394
Second Trust Deeds 19,611,873 16,082,803
Third Trust Deeds 190,244 221,951
------------------ ------------------
Total Mortgage Investments 45,252,163 35,693,148
Prior liens due other lenders 32,828,947 23,719,420
------------------ ------------------
Total debt $78,081,110 $59,412,568
================== ==================
Appraised property value at time of loan $127,842,437 $97,556,330
================== ==================
Total investments as a percent of appraisals 61.08% 60.90%
================== ==================
Investments by Type of Property
Owner occupied homes $7,118,852 $7,336,276
Non-Owner occupied homes 12,965,237 10,957,622
Apartments 266,003 302,797
Commercial 24,902,071 17,096,453
------------------ ------------------
$45,252,163 $35,693,148
================== ==================
The interest rates on the Mortgage Investments range from 8.00% to 14.50% at
March 31, 2000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
Scheduled maturity dates of mortgage investments as of March 31, 2000 are as
follows:
Year Ending
December 31,
-------------------
2000 $15,496,465
2001 17,962,408
2002 7,936,020
2003 0
2004 950,000
Thereafter 2,907,270
----------------
$45,252,163
================
The scheduled maturities for 2000 include approximately $4,762,888 in Mortgage
Investments which are past maturity at March 31, 2000. Interest payment on only
four of these loans was delinquent.
The cash balance at March 31, 2000 of $646,503 was in one bank with interest
bearing balances totalling $125,865. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $546,503. This bank is the same financial
institution that has provided the Partnership with the $9,000,000 limit line of
credit. At March 31, 2000, draw down against this facility was $4,200,000. As
and when deposits in the Partnership's bank accounts increase significantly
beyond the insured limit, the funds are either placed on new Mortgage
Investments or used to pay-down on the line of credit balance.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
(With Auditor's Report Thereon)
<PAGE>
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd. Ste. 208
Walnut Creek, CA 94598
(925) 932-3860
INDEPENDENT AUDITOR'S REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VIII
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VIII (A California Limited Partnership) listed in Item 8 on
form 10-K including balance sheets as of December 31, 1999 and 1998 and the
statements of income, changes in partners' capital and cash flows for the three
years ended December 31, 1999. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of REDWOOD MORTGAGE INVESTORS VIII
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for the three years ended December 31, 1999, in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the applicable accounting regulations of the Securities and Exchange
Commission.
/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
Walnut Creek, California
March 15, 2000
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
------------ ------------
Cash $1,602,568 $528,688
------------ ------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 35,693,148 31,905,958
Accrued Interest on Mortgage Investments 711,521 459,418
Advances on Mortgage Investments 33,251 211,145
Accounts receivables, unsecured 49,090 48,849
------------ ------------
36,487,010 32,625,370
Less allowance for doubtful accounts 834,359 414,073
------------ ------------
35,652,651 32,211,297
------------ ------------
Real Estate owned, acquired through foreclosure,
held for sale 0 66,000
Investment in limited liability corporation, at
cost which approximates market 373,358 304,139
Prepaid expense-deferred loan fee 6,332 11,835
------------ ------------
$37,634,909 $33,121,959
============ ============
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND PARTNERS' CAPITAL
1999 1998
------------- --------------
Liabilities:
Accounts payable and accrued expenses $29,413 $2,500
Note payable - bank line of credit 0 5,947,000
Deferred interest income 213,529 124,805
Investors in applicant status 330,000 0
------------- -------------
------------- -------------
572,942 6,074,305
------------- -------------
------------- -------------
Partners' Capital:
Limited partners' capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $342,334 and
$353,875 for 1999 and 1998, respectively:
and formation loan receivable of $2,158,674
and $1,640,904 for 1999 and 1998, respectively 37,030,017 27,025,331
General Partners' Capital, net of unallocated
syndication costs of $3,458 and $3,574 for
1999 and 1998, respectively 31,950 22,323
------------ -------------
Total Partners' Capital 37,061,967 27,047,654
------------ -------------
Total Liabilities and Partners'
Capital $37,634,909 $33,121,959
============ =============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
YEARS ENDED DECEMBER 31,
----------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
-------------- ------------- ---------------
Revenues:
Interest on Mortgage Investments $4,337,427 $3,376,293 $2,613,008
Interest on bank deposits 8,197 8,946 9,487
Late charges 27,859 19,384 6,432
Miscellaneous 52,762 1,398 530
--------------
------------- ---------------
4,426,245 3,406,021 2,629,457
-------------- ------------- ---------------
Expenses:
Mortgage servicing fees 359,464 295,052 189,692
Interest on note payable - bank 526,697 513,566 340,633
Amortization of loan origination fees 10,503 11,415 16,819
Provision for doubtful accounts and losses on real estate
acquired through foreclosure 408,890 162,969 139,804
Asset management fee - General Partner 42,215 31,651 24,966
Amortization of organization costs 0 1,875 2,500
Clerical costs through Redwood Mortgage Corp. 85,171 67,453 54,549
Professional services 31,814 27,462 36,717
Printing, supplies and postage 7,102 7,089 9,584
Other 10,195 8,907 5,673
------------- ---------------
--------------
1,482,051 1,127,439 820,937
-------------- ------------- ---------------
Income before interest credited to partners in applicant status 2,944,194 2,278,582 1,808,520
Interest credited to partners in applicant status 1,914 4,454 9,562
-------------- ------------- ---------------
Net Income $2,942,280 $2,274,128 $1,798,958
============== ============= ===============
Net income: To General Partners(1%) $29,423 $22,741 $17,990
To Limited Partners (99%) 2,912,857 2,251,387 1,780,968
--------------
------------- ---------------
Total - net income $2,942,280 $2,274,128 $1,798,958
============== ============= ===============
Net income per $1,000 invested by Limited Partners for entire period:
-where income is reinvested and compounded $84 $84 $84
============== ============= ===============
-where partner receives income in monthly distributions $81 $81 $81
============== ============= ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
PARTNERS' CAPITAL
---------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
--------------- -------------- -------------- --------------- --------------
Balances at December 31, 1996 $310,937 $16,181,189 $ (414,190) $(1,073,706) $14,693,293
Contributions on Application 5,251,969 0 0 0 0
Formation Loan increases 0 0 0 (420,510) (420,510)
Formation Loan payments 0 0 0 98,999 98,999
Interest credited to partners in
applicant status 9,562 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,849) 0 0 0 0
Transfers to Partners' capital (5,570,619) 5,565,372 0 0 5,565,372
Net Income 0 1,780,968 0 0 1,780,968
Syndication costs incurred 0 0 (188,517) 0 (188,517)
Allocation of syndication costs 0 (166,023) 166,023 0 0
Partners' withdrawals 0 (614,837) 0 0 (614,837)
Early withdrawal penalties 0 (13,261) 4,690 8,524 (47)
--------------- -------------- -------------- --------------- --------------
Balances at December 31, 1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
Contributions on Application 5,105,559 0 0 0 0
Formation Loan increases 0 0 0 (403,518) (403,518)
Formation Loan payments 0 0 0 133,580 133,580
Interest credited to partners in
applicant status 4,454 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to Partners' capital (5,108,460) 5,103,359 0 0 5,103,359
Net Income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners' withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
--------------- -------------- -------------- --------------- --------------
Balances at December 31, 1998 $0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
Contributions on Application 9,530,318 0 0 0 0
Formation Loan increases 0 0 0 (708,461) (708,461)
Formation Loan payments 0 0 0 164,731 164,731
Interest credited to partners in 1,914 0 0 0 0
applicant status
Upon admission to Partnership:
Interest withdrawn (1,002) 0 0 0 0
Transfers to Partners' capital (9,201,230) 9,191,719 0 0 9,191,719
Net Income 0 2,912,857 0 0 2,912,857
Syndication costs incurred 0 0 (177,099) 0 (177,099)
Allocation of syndication costs 0 (175,012) 175,012 0 0
Partners' withdrawals 0 (1,378,924) 0 0 (1,378,924)
Early withdrawal penalties 0 (39,725) 13,628 25,960 (137)
--------------- -------------- -------------- --------------- --------------
Balances at December 31, 1999 $330,000 $39,531,025 $(342,334) $(2,158,674) $37,030,017
=============== ============== ============== =============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
PARTNERS'
CAPITAL
-------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital
Account Unallocated Total
General Syndication Partners'
Partners Costs Total Capital
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1996 $15,549 $ (4,184) $11,365 $14,704,658
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (420,510)
Formation Loan payments 0 0 0 98,999
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,247 0 5,247 5,570,619
Net Income 17,990 0 17,990 1,798,958
Syndication costs incurred 0 (1,904) (1,904) (190,421)
Allocation of syndication costs (1,677) 1,677 0 0
Partners' withdrawals (16,313) 0 (16,313) (631,150)
Early withdrawal penalties 0 47 47 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (403,518)
Formation Loan payments 0 0 0 133,580
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,101 0 5,101 5,108,460
Net Income 22,741 0 22,741 2,274,128
Syndication costs incurred 0 (1,277) (1,277) (127,730)
Allocation of syndication costs (1,983) 1,983 0 0
Partners' withdrawals (20,758) 0 (20,758) (868,419)
Early withdrawal penalties 0 84 84 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (708,461)
Formation Loan payments 0 0 0 164,731
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 9,511 0 9,511 9,201,230
Net Income 29,423 0 29,423 2,942,280
Syndication costs incurred 0 (1,789) (1,789) (178,888)
Allocation of syndication costs (1,768) 1,768 0 0
Partners' withdrawals (27,655) 0 (27,655) (1,406,579)
Early withdrawal penalties 0 137 137 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1999 $35,408 $(3,458) $31,950 $37,061,967
================ ================= ================== ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1999 1998 1997
--------------- --------------- --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $2,942,280 $2,274,128 $1,798,958
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0 1,875 2,500
Provision for doubtful accounts. 420,286 156,573 139,804
Provision for losses (gains) on real estate held for sale (11,396) 6,396 0
Increase (decrease) in accounts payable 26,913 (855) (17,270)
(Increase) in accrued interest & advances (74,209) (122,783) (342,571)
(Increase) decrease in amount due from related companies (241) 2,999 (2,688)
(Increase) decrease in deferred loan fee 5,503 (1,684) 10,569
Increase (decrease ) in deferred interest income 88,724 41,739 (134,414)
--------------- --------------- --------------
Net cash provided by operating activities 3,397,860 2,358,388 1,454,888
--------------- --------------- --------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 20,243,729 14,262,838 10,279,337
Mortgage Investments made (24,030,919) (20,863,807) (19,941,336)
Disposition of real estate held for sale 79,282 0 0
Additions to real estate held for sale (1,886) (2,258) (3,254)
Additions to Limited Liability Corporation (69,219) (53,000) (60,000)
Accounts receivables, unsecured - (disbursements) receipts 0 13,995 12,490
--------------- --------------- --------------
Net cash used in investing activities (3,779,013) (6,642,232) (9,712,763)
--------------- --------------- --------------
Cash flows from financing activities
Increase (decrease) in note payable-bank (5,947,000) 307,000 4,140,000
Contributions by partner applicants 9,530,318 5,105,559 5,251,969
Interest credited to partners in applicant status 1,914 4,454 9,562
Interest withdrawn by partners in applicant status (1,002) (1,553) (1,849)
Partners withdrawals (1,406,579) (868,419) (631,150)
Syndication costs incurred (178,888) (127,730) (190,421)
Formation Loan increases (708,461) (403,518) (420,510)
Formation Loan collections 164,731 133,580 98,999
--------------- ---------------
--------------
Net cash provided by financing activities 1,455,033 4,149,373 8,256,600
--------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 1,073,880 (134,471) (1,275)
Cash - beginning of period 528,688 663,159 664,434
--------------- --------------- --------------
Cash - end of period $1,602,568 $528,688 $663,159
=============== =============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, (the "Partnership") is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the General Partners. At December 31, 1999, the Partnership was in
the offering stage, wherein contributed capital totalled $35,110,941 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $100 each (351,109.41). As of December 31, 1999, $330,000 remained in
applicant status.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units ($15,000,000)
were initially offered through qualified broker-dealers. This initial offering
was closed in October, 1996. In December 1996, the Partnership commenced a
second offering of an additional 300,000 Units ($30,000,000) As Mortgage
Investments are identified, partners are transferred from applicant status to
admitted partners participating in Mortgage Investment operations. Each month's
income is distributed to partners based upon their proportionate share of
partners capital. Some partners have elected to withdraw income on a monthly,
quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions are not paid directly by the Partnership out of the offering
proceeds. Instead, the Partnership loans to Redwood Mortgage Corp., an affiliate
of the General Partners, amounts to pay all sales commissions and amounts
payable in connection with unsolicited orders. This loan is referred to as the
"Formation Loan". It is unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017
(under the limit of 9.1% relative to the initial offering). It is to be repaid,
without interest, in ten annual installments of principal, which commenced on
January 1, 1997, following the year the initial offering closed, which was in
1996.
The Formation Loan relating to the second offering ($30,000,000) totalled
$1,547,875 at December 31, 1999, which was 7.7% of the limited partners
contributions of $20,178,924. Sales commissions range from 0% (units sold by
General Partners) to 9% of gross proceeds. The Partnership anticipates that the
sales commissions will approximate 7.6% based on the assumption that 65% of
investors will elect to reinvest earnings, thus generating 9% commissions. The
principal balance of the Formation Loan will increase as additional sales of
units are made each year. The amount of the annual installment payment to be
made by Redwood Mortgage Corp., during the offering stage, will be determined at
annual installments of one-tenth of the principal balance of the Formation Loan
as of December 31 of each year. Such payment shall be due and payable by
December 31 of the following year with the first such payment beginning December
31, 1997. Upon completion of the offering, the balance will be repaid in ten
equal annual installments.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
The following summarizes Formation Loan transactions to December 31, 1999:
<S> <C> <C> <C>
Initial Subsequent
Offering of Offering of
$15,000,000 $30,000,000 Total
-------------- --------------- ----------------
Limited Partner contributions $14,932,017 $20,178,924 $35,110,941
============== =============== ================
Formation Loan made $1,074,840 1,547,875 2,622,715
Payments to date (281,701) (124,569) (406,270)
Early withdrawal penalties applied (57,771) 0 (57,771)
-------------- --------------- ----------------
-------------- --------------- ----------------
Balance December 31, 1999 $735,368 $1,423,306 $2,158,674
============== =============== ================
Percent loaned of Partners' contributions 7.2% 7.7% 7.5%
============== =============== ================
</TABLE>
The Formation Loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the General Partners, has been deducted from Limited Partners'
Capital in the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions, (including
printing costs, attorney and accountant fees, registration and filing fees and
other costs), will be paid by the Partnership.
Through December 31, 1999, organization costs of $12,500 and syndication costs
of $1,167,649 had been incurred by the Partnership with the following
distribution:
Syndication Organization
Costs Costs Total
-------------- ------------- ------------
Costs incurred $1,167,649 $12,500 $1,180,149
Early withdrawal penalties applied (31,555) 0 (31,555)
Allocated and amortized to date (790,302) (12,500) (802,802)
-------------- ------------- ------------
December 31, 1999 balance $345,792 0 $345,792
============== ============= ============
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the General Partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of December 31, 1999 syndication costs attributable to the subsequent
offering ($30,000,000) totalled $597,784, (3.0% of contributions), with the
costs of the offering being greater at the initial stages due to professional
and filing fees related to formulating the offering documents. The syndication
costs payable by the Partnership are estimated to be $1,200,000 if the maximum
is sold (4% of $30,000,000). The General Partners will pay any syndication
expenses (excluding selling commissions) in excess of ten percent of the gross
proceeds or $1,200,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make estimates
based on the information available that affect the reported amounts of assets
and liabilities as of the balance sheet date and revenues and expenses for the
related periods. Such estimates relate principally to the determination of the
allowance for doubtful accounts, including the valuation of impaired mortgage
investments, and the valuation of real estate acquired through foreclosure.
Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage Investments
to maturity, i.e., held for long-term investment. Therefore they are valued at
cost for financial statement purposes with interest thereon being accrued by the
simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 (effective
January 1, 1995) provide that if the probable ultimate recovery of the carrying
amount of a Mortgage Investment, with due consideration for the fair value of
collateral, is less than the recorded investment and related amounts due and the
impairment is considered to be other than temporary, the carrying amount of the
investment (cost) shall be reduced to the present value of future cash flows.
The adoption of these statements did not have a material effect on the financial
statements of the Partnership because that was the valuation method previously
used on impaired loans.
At December 31, 1999, 1998, and 1997, there were no Mortgage Investments
categorized as impaired by the Partnership. Had there been a computed amount for
the reduction in carrying values of impaired loans, the reduction would have
been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average Mortgage
Investment to appraised value of security at the time the losses were
consummated was 60.90%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At December 31, 1999, there were no
properties acquired by the Partnership as real estate owned (REO).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Effective January 1, 1996, the Partnership adopted the provisions of Statement
No 121 (SFAS 121) of the Financial Accounting Standards Board, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be disposed
of". The adoption of SFAS 121 did not have a material impact on the
Partnership's financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Limited Liability Corporation (see Note 7)
The Partnership carries its investment in a Limited Liability Corporation as
investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell.
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other than
certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, and filing fees.
Organizational costs have been capitalized and were amortized over a five year
period. Syndication costs are charged against partners' capital and are being
allocated to individual partners consistent with the partnership agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees, and advances are
analyzed on a continuous basis for recoverability. Delinquencies are identified
and followed as part of the Mortgage Investment system. A provision is made for
doubtful accounts to adjust the allowance for doubtful accounts to an amount
considered by management to be adequate, with due consideration to collateral
values, to provide for unrecoverable accounts receivable, including impaired
Mortgage Investments, other Mortgage Investments, accrued interest and advances
on Mortgage Investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of December 31, 1999, and
1998 was as follows:
December 31,
-----------------------------------------------
1999 1998
--------------- ----------------
Impaired mortgage investments $0 $0
Unspecified mortgage investments 795,268 370,073
Amounts receivable, unsecured 39,091 44,000
--------------- ----------------
$834,359 $414,073
=============== ================
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000 invested
by Limited Partners for the entire period are actual amounts allocated to
Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited Partners' pro rata share of Partners' Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or select other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the General Partners
and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation and
extension of Partnership Mortgage Investments in an amount up to 12% of the
Mortgage Investments until 6 months after the termination date of the offering.
Thereafter, Mortgage Investment brokerage commissions will be limited to an
amount not to exceed 4% of the total Partnership assets per year. The Mortgage
Investment brokerage commissions are paid by the borrowers, and thus, are not an
expense of the Partnership. In 1999 and 1998, Mortgage Investment brokerage
commissions paid by the borrowers were $682,118 and $604,836, respectively.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid
principal, is paid to Redwood Mortgage Corp., or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
mortgage is located. Mortgage servicing fees of $359,464, $295,052 and $189,692
were incurred for years 1999, 1998 and 1997, respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnership's
Mortgage Investment portfolio and operations up to 1/32 of 1% of the "net asset
value" (3/8 of 1% annual). Management fees of $42,215, $31,651 and $24,966 were
incurred for years 1999, 1998 and 1997, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance, mortgage
assumption and mortgage extension fees. Such fees are incurred by the borrowers
and are paid to parties related to the General Partners.
E. Income and Losses
All income will be credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) shall be a total of 1%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) are reimbursed
by the Partnership for all operating expenses actually incurred by them on
behalf of the Partnership, including without limitation, out-of-pocket general
and administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to Limited Partners. Such
reimbursements are reflected as expenses in the Statement of Income.
The General Partners collectively or severally were to contribute 1/10 of 1% in
cash contributions as proceeds from the offering are admitted to Limited Partner
capital. As of December 31, 1999 a General Partner, GYMNO Corporation, had
contributed $35,100, as capital in accordance with Section 4.02(a) of the
Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units are not admitted to the
Partnership until appropriate lending opportunities are available. During the
period prior to the time of admission, which is anticipated to be between 1-120
days in most cases, purchasers' subscriptions will remain irrevocable and will
earn interest at money market rates, which are lower than the anticipated return
on the Partnership's Mortgage Investment portfolio.
During the periods ending December 31, 1999, 1998 and 1997, interest totaling
$1,914, $4,454 and $9,562, respectively, was credited to partners in applicant
status. As Mortgage Investments were made and partners were transferred to
regular status to begin sharing in income from Mortgage Investments secured by
deeds of trust, the interest credited was either paid to the investors or
transferred to partners' capital along with the original investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner terminated
as provided. The provisions provide for no capital withdrawal for the first five
years, subject to the penalty provision set forth in (E) below. Thereafter,
investors have the right to withdraw over a five-year period, or longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
At subscription, investors elect either to receive monthly, quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain limitations, a compounding investor may subsequently change his
election, but an investor's election to have cash distributions is irrevocable.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to their
respective capital accounts after 1% is allocated to the General Partners.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and accordingly
an investment in the Partnership is non-liquid. Limited Partners have no right
to withdraw from the Partnership or to obtain the return of their capital
account for at least one year from the date of purchase of Units. In order to
provide a certain degree of liquidity to the Limited Partners after the one-year
period, Limited Partners may withdraw all or part of their Capital Accounts from
the Partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount withdrawn as stated in the Notice of Withdrawal and will be
deducted from the Capital Account.
After five years from the date of purchase of the Units, Limited Partners have
the right to withdraw from the Partnership on an installment basis. Generally
this is done over a five year period in twenty (20) quarterly installments. Once
a Limited Partner has been in the Partnership for the minimum five year period,
no penalty will be imposed if withdrawal is made in twenty (20) quarterly
installments or longer. Notwithstanding the five-year (or longer) withdrawal
period, the General Partners may liquidate all or part of a Limited Partner's
capital account in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given. This withdrawal is subject to a 10% early withdrawal penalty applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.
The Partnership will not establish a reserve from which to fund withdrawals and,
accordingly, the Partnership's capacity to return a Limited Partner's capital is
restricted to the availability of Partnership cash flow.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner is admitted to the
Partnership and ending 3 months after the offering termination date, the General
Partners shall guarantee an earnings rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco on a
monthly basis, up to a maximum interest rate of 12%. To date, actual realization
exceeded the guaranteed amount for each month.
NOTE 5- LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a bank line of credit expiring September 30, 2000, of up to
$9,000,000 at .25% over prime secured by its Mortgage Investment portfolio. The
note payable balances were $0 and $5,947,000 at December 31, 1999, and 1998,
respectively, and the interest rate was 8.75% at December 31, 1999, (8.50% prime
plus .25%).
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the
Partnership has contributed its interest (principally land) to a Limited
Liability Corporation, which is owned 100% by the Partnership, and which will
complete the construction and sell the property. The Partnership expects to
realize a profit from the venture.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
-------------------------------------------
1999 1998
------------------ ----------------
Net Assets - Partners' Capital per
financial statements $37,061,967 $27,047,654
Non-amortized syndication costs 345,792 357,449
Allowance for doubtful accounts 834,359 414,073
Formation loans receivable 2,158,674 1,640,904
------------------ ----------------
Net assets tax basis $40,400,792 $29,460,080
================== ================
In 1999 and 1998, approximately 58% and 61% of taxable income was allocated to
tax exempt organizations, i.e., retirement plans, respectively. Such plans do
not have to file income tax returns unless their "unrelated business income"
exceeds $1,000. Applicable amounts become taxable when distribution is made to
participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INVESTMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
(a) Cash and Cash Equivalents. The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments (see note 2(c)) is $35,693,148.
The fair value of these investments of $35,825,175 is estimated based upon
projected cash flows discounted at the estimated current interest rates at which
similar loans would be made. The applicable amount of the allowance for doubtful
accounts along with accrued interest and advances related thereto should also be
considered in evaluating the fair value versus the carrying value.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At December 31,
1999, there were 53 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 53
Total Mortgage Investments outstanding $35,693,148
Average Mortgage Investment outstanding $673,456
Average Mortgage Investment as percent of total 1.89%
Average Mortgage Investment as percent of Partners' Capital 1.82%
Largest Mortgage Investment outstanding 2,600,000
Largest Mortgage Investment as percent of total 7.28%
Largest Mortgage Investment as percent of Partners' Capital 7.02%
Number of counties where security is located (all California) 13
Largest percentage of Mortgage Investments in one county 33.40%
Average Mortgage Investment to appraised value of security at time
loan was consummated 60.90%
Number of Mortgage Investments in foreclosure status 1
Amount of Mortgage Investments in foreclosure $2,600,000
The following categories of mortgage investments are pertinent at December 31,
1999 and 1998:
December 31,
------------------------------------------
1999 1998
------------------ ------------------
First Trust Deeds $19,388,394 $22,349,185
Second Trust Deeds 16,082,803 8,469,460
Third Trust Deeds 221,951 1,087,313
------------------ ------------------
Total mortgage investments 35,693,148 31,905,958
Prior liens due other lenders 23,719,420 26,411,096
------------------ ------------------
Total debt $59,412,568 $58,317,054
================== ==================
Appraised property value at time of loan $97,556,330 $98,011,150
================== ==================
Total investments as a percent of appraisals 60.90% 59.50%
================== ==================
Investments by Type of Property
Owner occupied homes $7,336,276 $6,450,199
Non-Owner occupied homes 10,957,622 8,789,445
Apartments 302,797 3,256,602
Commercial 17,096,453 13,409,712
------------------ ------------------
$35,693,148 $31,905,958
================== ==================
The interest rates on the mortgage investments range from 8.00% to 14.00% at
December 31, 1999.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Scheduled maturity dates of mortgage investments as of December 31, 1999 are as
follows:
Year Ending
December 31,
-------------------
2000 $16,579,436
2001 14,365,526
2002 962,638
2003 308,957
2004 950,000
Thereafter 2,526,591
----------------
$35,693,148
================
The scheduled maturities for 2000 include approximately $4,984,651 in Mortgage
Investments which are past maturity at December 31, 1999. Interest payment on
only four of these loans was delinquent.
The cash balance at December 31, 1999 of $1,602,568 was in one bank with
interest bearing balances totalling $1,481,699. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $1,502,568. This bank is the same
financial institution that has provided the Partnership with the $9,000,000
limit line of credit. At December 31, 1999, draw down against this facility was
$0. As and when deposits in the Partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed on new
Mortgage Investments or used to pay-down on the line of credit balance.
<PAGE>
GYMNO CORPORATION
INTERIM FINANCIAL STATEMENTS
In the opinion of the management of Gymno Corporation, a California
corporation (Gymno), all adjustments necessary for a fair statement of financial
position for the interim period presented herein have been made. All such
adjustments are of a normal, recurring nature. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, management of Gymno believes that the disclosures contained herein are
adequate to make the information presented not misleading. It is suggested that
this unaudited balance sheet be read in conjunction with the corresponding
audited balance sheet and the notes thereto included elsewhere in this
prospectus.
<PAGE>
GYMNO CORPORATION
BALANCE SHEET
AS OF March 31, 2000
(Unaudited)
ASSETS
March 31, 2000
-----------------
Cash and equivalents $5,280
Deferred income tax benefits 120
-----------------
Total current assets 5,400
-----------------
Investment in partnerships, at net equity:
Redwood Mortgage Investors IV 7,500
Redwood Mortgage Investors V 5,000
Redwood Mortgage Investors VI 9,773
Redwood Mortgage Investors VII 11,998
Redwood Mortgage Investors VIII 35,100
-----------------
69,371
-----------------
$74,771
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable - stockholders $971
Accrued income taxes 1,236
Loan from Redwood Mortgage at 8% interest 11,150
---------------
Total current liabilities 13,357
---------------
Stockholders' equity:
Common stock at stated value:
Authorized 1,000,000 shares of no par value
issued and outstanding 500 shares 5,000
Paid-in surplus 7,500
Retained earnings 48,914
---------------
Total stockholders' equity 61,414
---------------
$74,771
===============
See accompanying notes to balance sheets.
<PAGE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000
(unaudited)
NOTE 1 - ORGANIZATION
GYMNO Corporation (the Company) was formed in July, 1986 by D. Russell Burwell
and Michael R. Burwell, each owning 250 shares, for the purpose of serving as
corporate general partners of California limited partnerships, (presently
Redwood Mortgage Investors I, II, III, IV, V, VI, VII and VIII) which invest in
high-yield debt instruments, primarily promissory notes secured by deeds of
trust on California real estate.
As corporate general partner, the company receives management fees and/or a
small percentage of income for its services which are performed by the
stockholders. In addition, the company receives reconveyance fees.
The company has also acquired limited partnership interests in Redwood Mortgage
Investors VII. The company receives investment income from such limited
partnership interests.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The accompanying financial statements were prepared on the accrual basis of
accounting wherein revenue is recognized when earned and expenses are recognized
when incurred.
Earnings per share, included in the statements of income, were calculated by
dividing net income by the weighted average of common stock shares outstanding
during the period. There is only one class of shares (common stock) and there
are no provisions or agreements which could dilute earnings per share.
<PAGE>
GYMNO CORPORATION
(A California Corporation)
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(With Auditor's Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
GYMNO CORPORATION
We have audited the accompanying balance sheets of GYMNO Corporation as of
December 31, 1999 and 1998 and the related statements of income, stockholders'
equity and cash flows for the two years ended December 31, 1999. 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 test basis evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GYMNO Corporation as of
December 31, 1999 and 1998, and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
CAPORICCI, CROPPER & LARSON, LLP
Walnut Creek, CA
March 7, 2000
<PAGE>
GYMNO CORPORATION
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
------------------ -------------------
Cash and equivalents $ 2,508 $ 427
Deferred income tax benefits 174 143
------------------ -------------------
Total current assets 2,682 570
------------------ -------------------
Investment in partnerships, at net equity:
Redwood Mortgage Investors IV 7,500 7,500
Redwood Mortgage Investors V 5,000 5,000
Redwood Mortgage Investors VI 9,773 9,773
Redwood Mortgage Investors VII 12,048 12,248
Redwood Mortgage Investors VIII 35,099 25,589
------------------ ------------------
69,420 60,110
------------------ ------------------
$ 72,102 $ 60,680
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable - Stockholders $ 436 $ 436
Accrued income taxes 535 232
Loan from Redwood Mortgage, at 8% interest 11,985 8,598
------------------ ------------------
Total current liabilities
12,956 9,266
------------------ ------------------
Stockholders' Equity:
Common stock at stated value:
Authorized 1,000,000 shares of no par value;
issued and outstanding 500 shares 5,000 5,000
Paid-in surplus 7,500 7,500
Retained earnings 46,646 38,914
------------------- -----------------
Total stockholders' equity 59,146 51,414
------------------- -----------------
$ 72,102 $ 60,680
=================== =================
See accompanying notes to financial statements
<PAGE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - ORGANIZATION
GYMNO Corporation (the Company) was formed in July, 1986 by D. Russell Burwell
and Michael R. Burwell, each owning 250 shares, for the purpose of serving as
corporate General Partner of California limited partnerships, (presently Redwood
Mortgage Investors I, II, III, IV, V, VI, VII and VIII) which invest in
high-yield debt instruments, primarily promissory notes secured by deeds of
trust on California real estate.
As corporate General Partner, the Company receives management fees and/or a
small percentage of income for its services, which are performed by the
stockholders. In addition, the Company receives reconveyance fees.
The Company has also acquired a limited partnership interest in Redwood Mortgage
Investors VII. The Company receives investment income from such limited
partnership interests.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The accompanying financial statements were prepared on the accrual basis of
accounting wherein revenue is recognized when earned and expenses are recognized
when incurred.
Earnings per share, included in the statements of income, were calculated by
dividing net income by the weighted average of common stock shares outstanding
during the period. There is only one class of shares (common stock) and there
are no provisions or agreements which could dilute earnings per share.
NOTE 3 - RELATED PARTY FINANCING
Redwood Mortgage Corp., a related party, receives fees from the various
limited partnerships for managing the portfolios and servicing the loans. Gymno
Corporation had a loan balance from Redwood Mortgage Corp. of $11,985 at
December 31, 1999 with interest thereon calculated at 8%.
<PAGE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - INCOME TAXES
The following reflects the income taxes for the periods ending December 31, 1999
and 1998:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------------
CALIFORNIA FEDERAL CALIFORNIA FEDERAL
-------------------------------------------
Income before provision for
income taxes $ 10,680 $ 10,680 $ 7,120 $ 7,120
Nondeductible expenses - - - -
State Tax deduction:
Prior fiscal year tax - (953) - (863)
Taxable income differential-
partnerships 2,415 2,415 3,655 3,655
--------------------------------------------
Taxable income 13,095 12,142 10,775 9,912
--------------------------------------------
Tax rate
(California $800 minimum) 8.84% 15.00% 8.84% 15.00%
--------------------------------------------
Income tax thereon 1,158 1,821 953 1,487
Change in deferred income
tax benefit - (31) - (7)
--------------------------------------------
Income tax expense $ 1,158 $ 1,790 $ 953 $ 1,480
============================================
California income taxes were determined at the greatest of 8.84% of taxable
income or the minimum tax ($800) and Federal income taxes were determined at the
applicable Federal rate (15%).
Deferred income taxes are based on timing differences in deductions for
California income taxes which are deductible in the year after they apply (i.e.
- fiscal year 1999 taxes are deductible in 2000). At December 31, 1999, there
was a deferred income tax benefit of $174 relating to the $1,158 California
Franchise Tax deductible in the following year.
<PAGE>
REDWOOD MORTGAGE CORP.
INTERIM FINANCIAL STATEMENTS
In the opinion of the management of Redwood Mortgage Corp., a California
corporation, all adjustments necessary for a fair statement of financial
position for the interim period presented herein have been made. All such
adjustments are of a normal, recurring nature. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, management of Redwood Mortgage Corp. believes that the disclosures
contained herein are adequate to make the information presented not misleading.
It is suggested that this unaudited balance sheet be read in conjunction with
the corresponding audited balance sheet and the notes thereto included elsewhere
in this prospectus.
<PAGE>
REDWOOD MORTGAGE CORP.
BALANCE SHEETS
MAY 31, 2000 (unaudited)
ASSETS
May 31, 2000
---------------
Cash and equivalents $1,908,925
Accounts receivable:
Due from affiliate 84,454
Advances and deposits 16,814
Furniture, equipment and leasehold improvements,
net of accumulated depreciation and amortization
of $212,983 66,876
Deferred costs of mortgage related rights 2,337,185
Total assets $4,410,254
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $5,895
Promissory notes payable 375,000
Advances from partnerships 2,639,889
Deferred income taxex 577,044
---------------
Total liabilities 3,597,828
---------------
Stockholder's equity:
Common stock, wholly owned by Redwood Group,
Ltd, at stated value (1,000 shares outstanding) 4,000
Retained earnings 808,426
---------------
Total stockholder's equity 812,426
---------------
Total liabilities and stockholder's equity $4,410,254
===============
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
MAY 31, 2000
NOTE 1 - ORGANIZATION
Redwood Mortgage Corp., formerly Redwood Home Loan Co. (the Company), is a
General Partner and a wholly-owned subsidiary of Redwood Group, Ltd., which is
owned by D. Russell Burwell, and related parties. D. Russell Burwell, Michael R.
Burwell, and Gymno Corporation (owned by the Burwells) are General Partners in
eight limited partnerships which invest in high-yield debt instruments,
primarily promissory notes secured by deeds of trust on California real estate.
In addition, another related Company is General Partner in a ninth limited
partnership.
The Company maintains "trust accounts" to service mortgage investments made
principally by the aforementioned nine limited partnerships. As a real estate
broker licensed with the State of California, the Company arranges loans with
various maturities, all of which are secured by trust deeds.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o Accrual Basis
The accompanying financial statements were prepared on the accrual basis of
accounting wherein revenue is recognized when earned and expenses are
recognized when incurred. The company files its income tax returns on the
cash basis of accounting. A provision for income taxes is provided for
deferred taxes resulting from differences in the timing of reporting
revenue and expense items for accrual cash basis. The principal difference
is the tax on deferred costs of mortgage related rights.
o Use of Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported
amounts of assets and liabilities as of the balance sheet date and revenue
and expenses for the related periods. Such estimates relate principally to
lives assigned to furniture and equipment and to the period of
recoverability of deferred costs of mortgage related rights. Actual results
could differ from these estimates.
o Mortgage Servicing Rights
Consistent with statement of Financial Accounting Standards No 122 (FASB
122), the company has recognized as an asset rights to service loans of the
limited partnerships mentioned above. Such rights result in significant
revenue including mortgage servicing fees and loan commissions (See note
3). The costs of these rights include fees paid to broker-dealers to raise
capital for the partnerships. Such costs are being allocated over ten years
on a straight line basis.
o Cash and Cash Equivalents
Cash and cash equivalents represent cash and short term, highly liquid
investments with original maturities of three months or less. The company
had only "cash" accounts at September 30, 1999 and 1998.
o Furniture, Equipment and Leasehold Improvements, Net
Furniture, equipment and leasehold improvements are stated at cost less
depreciation and amortization computed primarily on a straight line basis
over estimated useful lines of 5 to 7 years.
o Income Taxes
Income taxes are accounted for using an asset and liability approach that
requires the recognition of deferred taxes for expected future tax
consequences of differences in timing of stating expenses and/or revenues.
Expected future events are considered other than changes in the tax law or
rates.
o Investments in Partnerships
Investments in partnership are accounted for using the equity method.
Accordingly, the investment is carried at cost, adjusted for the company's
share of the partnerships' income or losses.
NOTE 3 - INCOME FROM MORTGAGE RIGHTS OF LIMITED PARTNERSHIPS
The following are commissions and/or fees derived by the company from
related mortgage services.
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
MAY 31, 2000
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of partnership mortgage investments in an amount up to 12% of
the mortgage investments until 6 months after the termination date of an
offering. Only 1 of the 9 limited partnerships is in the offering stage.
Thereafter, mortgage investments brokerage commissions are limited to an
amount not to exceed 4% of the total partnership assets per year. The
mortgage investment brokerage commissions are paid by the borrowers, and
thus, not an expense of the partnerships.
B. Mortgage Service Fees
Monthly mortgage service fees of up to 1/8 of 1% (1.5% annual) of the
unpaid principal, are paid to Redwood Mortgage Corp., or such lesser amount
as is reasonable and customary in the geographic area where the property
securing the mortgage is located.
C. Other Fees
The Partnership Agreements provide for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. Such fees are incurred by
the borrowers and are paid to Redwood Mortgage Corp.
D. Clerical Fees
The Company is reimbursed for expenses and clerical costs associated with
accounting and related services incurred on behalf of the limited
partnerships.
NOTE 4 - ADVANCES FROM PARTNERSHIPS
The Company has financed the payment of costs of mortgage related rights,
which were paid primarily to broker-dealers to raise investment capital for
the limited partnerships, which invest in mortgages secured by deeds of
trust. The advances are from the limited partnerships and are non-interest
bearing and are being paid over a number of years from revenue generated
from the partnerships.
<PAGE>
REDWOOD MORTGAGE CORP.
(A California Corporation)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(with auditor's report thereon)
<PAGE>
CAPORICCI, CROPPER & LARSON, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 TREAT BOULEVARD, SUITE 208
WALNUT CREEK, CALIFORNIA 94598
(925) 932-3860
FAX (925) 932-3862
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
REDWOOD MORTGAGE CORP.
We have audited the accompanying balance sheets of Redwood Mortgage Corp. as of
September 30, 1999 and 1998. 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 audit.
We conducted our audit 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 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. We believe that our audit provided a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Redwood Mortgage Corp. as of
September 30, 1999 and 1998, in conformity with generally accepted accounting
principles.
/s/ Caporicci, Cropper & Larson, LLP
CAPORICCI, CROPPER & LARSON, LLP
Walnut Creek, California
December 2, 1999
<PAGE>
REDWOOD MORTGAGE CORP.
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
ASSETS
1999 1998
--------------- -------------
Cash and equivalents $444,980 $249,559
Accounts receivable:
Due from affiliate 83,354 95,354
Advances and deposits 16,845 16,133
Income taxes refundable 32,905 0
Prepaid Expenses 8,901 13,351
Furniture, equipment and leasehold improvements,
net of accumulated depreciation and
amortization of $209,270 and $189,108
respectively 54,457 46,432
Investment in partnerships 1,034,841 749,234
Deferred costs of mortgage related rights 1,853,025 1,566,574
Total assets $3,529,308 $2,736,637
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $8,885 $28,666
Due to parent company, Redwood Group, Ltd. 28,039 28,039
Pension/profit sharing liability 36,608 33,893
Advance from partnerships 2,166,328 1,845,891
Deferred income taxex 542,445 347,601
--------------- -------------
Total liabilities 2,782,305 2,284,090
--------------- -------------
Stockholder's equity:
Common stock, wholly owned by Redwood Group,
Ltd, at stated value (1,000 shares
outstanding) 4,000 4,000
Retained earnings 743,003 448,547
--------------- -------------
Total stockholder's equity 747,003 452,547
--------------- -------------
Total liabilities and stockholder's
equity $3,529,308 $2,736,637
=============== =============
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 - ORGANIZATION
Redwood Mortgage Corp., formerly Redwood Home Loan Co. (the Company), is a
wholly-owned subsidiary of Redwood Group, Ltd., which is owned by D. Russell
Burwell, and related parties. D. Russell Burwell, Michael R. Burwell, and Gymno
Corporation (owned by the Burwells) are General Partners in eight limited
partnerships which invest in high-yield debt instruments, primarily promissory
notes secured by deeds of trust on California real estate. In addition, another
related Company is General Partner in a ninth limited partnership.
The Company maintains "trust accounts" to service mortgage investments made
principally by the aforementioned nine limited partnerships. As a real estate
broker licensed with the State of California, the Company arranges loans with
various maturities, all of which are secured by trust deeds. At September 30,
1999, the Company was servicing a portfolio totaling $71,073,468.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o Accrual Basis
The accompanying financial statements were prepared on the accrual basis of
accounting wherein revenue is recognized when earned and expenses are
recognized when incurred. The company files its income tax returns on the
cash basis of accounting. A provision for income taxes is provided for
deferred taxes resulting from differences in the timing of reporting
revenue and expense items for accrual cash basis. The principal difference
is the tax on deferred costs of mortgage related rights.
o Use of Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported
amounts of assets and liabilities as of the balance sheet date and revenue
and expenses for the related periods. Such estimates relate principally to
lives assigned to furniture and equipment and to the period of
recoverability of deferred costs of mortgage related rights. Actual results
could differ from these estimates.
o Mortgage Servicing Rights
Consistent with statement of Financial Accounting Standards No 122 (FASB
122), the company has recognized as an asset rights to service loans of the
limited partnerships mentioned above. Such rights result in significant
revenue including mortgage servicing fees and loan commissions (See note
3). The costs of these rights include fees paid to broker-dealers to raise
capital for the partnerships. Such costs are being allocated over ten years
on a straight line basis.
o Cash and Cash Equivalents
Cash and cash equivalents represent cash and short term, highly liquid
investments with original maturities of three months or less. The company
had only "cash" accounts at September 30, 1999 and 1998.
o Furniture, Equipment and Leasehold Improvements, Net
Furniture, equipment and leasehold improvements are stated at cost less
depreciation and amortization computed primarily on a straight line basis
over estimated useful lines of 5 to 7 years.
o Income Taxes
Income taxes are accounted for using an asset and liability approach that
requires the recognition of deferred taxes for expected future tax
consequences of differences in timing of stating expenses and/or revenues.
Expected future events are considered other than changes in the tax law or
rates.
o Investments in Partnerships
Investments in partnership are accounted for using the equity method.
Accordingly, the investment is carried at cost, adjusted for the company's
share of the partnerships' income or losses.
NOTE 3 - INCOME FROM MORTGAGE RIGHTS OF LIMITED PARTNERSHIPS
The following are commissions and/or fees derived by the company from
related mortgage services.
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of partnership mortgage investments in an amount up to 12% of
the mortgage investments until 6 months after the termination date of an
offering. Only 1 of the 9 limited partnerships is in the offering stage.
Thereafter, mortgage investments brokerage commissions are limited to an
amount not to exceed 4% of the total partnership assets per year. The
mortgage investment brokerage commissions are paid by the borrowers, and
thus, not an expense of the partnerships.
E. Mortgage Service Fees
Monthly mortgage service fees of up to 1/8 of 1% (1.5% annual) of the
unpaid principal, are paid to Redwood Mortgage Corp., or such lesser amount
as is reasonable and customary in the geographic area where the property
securing the mortgage is located.
F. Other Fees
The Partnership Agreements provide for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. Such fees are incurred by
the borrowers and are paid to Redwood Mortgage Corp.
G. Clerical Fees
The Company is reimbursed for expenses and clerical costs associated with
accounting and related services incurred on behalf of the limited
partnerships.
NOTE 4 - ADVANCES FROM PARTNERSHIPS
The Company has financed the payment of costs of mortgage related rights,
which were paid primarily to broker-dealers to raise investment capital for
the limited partnerships, which invest in mortgages secured by deeds of
trust. The advances are from the limited partnerships and are non-interest
bearing and are being paid over a number of years from revenue generated
from the partnerships.
NOTE 5 - INCOME TAXES
Significant components of the provision for income taxes are as follows:
Fiscal year ended September 30
1999 1998
--------------- ----------------
Current:
Federal $ - $ 1,150
State (minimum $800) 800 38,765
--------------- ----------------
800 39,915
--------------- ----------------
Deferred:
Federal 55,605 46,721
State 139,239 (26,200)
--------------- ----------------
194,844 20,521
--------------- ----------------
Total $195,644 $60,436
=============== ================
Income before tax provision $490,100 $137,987
--------------- ----------------
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
Deferred income taxes are provided at 8.84% for California, and 34% for
Federal purposes. There are net operating loss carryforwards to fiscal year
September 30, 2000 of $708,408 Federal and $122,192 California. The timing in
utilization if the California net operating loss affects the effective rates
since only 50% of the loss is carried forward for five years rather than the
100% and fifteen years allowed for Federal purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes.
Significant components of the company's deferred tax liabilities are as
follows:
As of September 30,
1999 1998
------------- ------------
Timing Differences
------------------------------------------------
Deferred costs of mortgage related rights $1,853,025 $1,566,574
Income (loss) on investments in partnerships 97,403 (371,021)
Other assets and liabilities, net 6,569 10,238
------------- ------------
Subtotal: 1,956,997 1,205,791
Less California net operating loss carryforward (122,192) -
------------- ------------
Base for California deferred tax $1,834,805 $1,205,791
============= ============
California deferred tax @8.84% $162,197 $106,592
============= ============
Above timing differences $1,956,997 $1,205,791
Less California deferred taxes (162,197) (106,592)
Plus - California tax timing differences 31,984 -
Less Federal net operating loss carryforward (708,408) (390,348)
------------- ------------
Base for Federal deferred tax $1,118,376 $708,851
============= ============
Federal deferred tax @34% $380,218 $241,009
California deferred tax (above) 162,197 106,592
------------- ------------
Deferred tax liability $542,445 $347,601
============= ============
Increase for the year $194,844 $20,521
============= ============
NOTE 6 - INVESTMENT IN PARTNERSHIPS
The company had investments in partnerships carried at equity in net assets as
follows:
As of September 30,
-------------------------------------------
Partnerships (all December 31, year ends) 1999 1998 1997
---------------------------------------- ------------------------------------
Redwood Mortgage Investors IV $414 1,243 2,071
Norfolk Associates 1,034,427 747,991 220,870
Lockbrae Road Apartments - - 225,600
------------------------------------
$1,034,841 $749,234 $478,541
=====================================
A loss of $371,021 was realized in 1998 on the disposition of the investment in
Lockbrae Road Apartments, and a gain was realized in 1999 of $97,403 on Norfolk
Associates, which sold the property in fiscal year 1999. The investment in
Norfolk Associates will be converted to cash equivalents in late 1999 upon
dissolution of the partnership.
Redwood Mortgage Investors IV is one of the limited partnerships with
investments in mortgages. The company is liquidating its position therein.
PRIOR PERFORMANCE TABLES
The prior performance tables as referenced in the prior performance
summary of the prospectus present information on programs previously sponsored
by the general partners.
The purpose of the tables is to provide information on the performance
of these partnerships to assist prospective investors in evaluating the
experience of the general partners as sponsors of such partnerships. While none
of the information represents activities of an entity whose investment
objectives and criteria are identical to the partnership, in the opinion of the
general partners, all of the partnerships included in the tables had investment
objectives which were similar to those of the partnership. Factors considered in
making such determination included the type of investments, expected benefits
from investment and structure of the programs. Each of such prior programs had
the following objectives: (i) annual distributions of cash or credits to a
partner's capital account for additional loans; and (ii) preservation of the
partnership's capital. Redwood Mortgage Investors VI, Redwood Mortgage Investors
VII and the partnership differ from the prior programs in that they will
amortize organizational costs over a five (5) year period instead of a ten (10)
year period and will invest in a greater percentage of first deeds of trust. In
addition, the partnership's loan servicing fees may be slightly higher and
interest earned on the loans made by the partnership will differ due to economic
considerations and other factors at the present time. Accordingly, such prior
programs differed in certain respects from the partnership, and inclusion of
these tables does not imply that investors of the partnership will experience
results comparable to those experienced in the partnerships referred to in the
tables.
The tables consist of:
Table I Experience in Raising and Investing Funds.
Table II Compensation to General Partners and Affiliates.
Table III Operating Results of Prior Limited Partnerships.
Table V Payment of Mortgage Investments.
Persons who purchase interests in the partnership will not thereby
acquire any ownership interest in any of the partnerships to which these tables
relate. The inclusion of the following tables in the prospectus does not imply
that the partnership will make investments comparable to those reflected in the
tables with respect to cash flow, income tax consequences available to
investors, or other factors, nor does it imply that they will experience
returns, if any, comparable to those experienced by investors in the
partnerships referred to below.
The general partners have sponsored only two (2) other public programs
registered with the Securities and Exchange Commission. Therefore, the following
tables include information about prior non-public programs whose investment
objectives are similar to those of the partnership. These partnerships were
offered without registration under the Securities Act of 1933 in reliance upon
the intrastate offering exemption from the registration requirements thereunder
and/or the exemption for transactions not involving a public offering.
Additional information regarding the description of open mortgage
investments of prior limited partnerships is provided in Table VI in Part II of
this registration statement. The partnership will furnish without charge to each
person to whom this prospectus is delivered, upon request, a copy of Table VI.
<PAGE>
DEFINITIONS AND GLOSSARY OF TERMS
The following terms used in the tables have the following meanings:
"Cash Generated From Operations" shall mean excess or deficiency of
operating cash receipts over operating cash expenditures.
"GAAP" shall mean generally accepted accounting principles.
"Months To Invest 90% Of Amount Available For Investment" shall mean
the time period from commencement of the offering to date of close of escrow of
initial loans.
The following is a brief description of the tables:
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I summarizes, as a percentage basis, all funds through December
31, 1999, for partnerships which completed funding after January 1, 1989.
TABLE II - COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
Table II summarizes the compensation paid the general partners and
affiliates by those partnerships which completed funding after January 1, 1989.
TABLE III - OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
Table III summarizes the annual operating results from January 1, 1997,
through December 31, 1999 for prior limited partnerships that the general
partners have organized.
TABLE V - PAYMENT OF MORTGAGE INVESTMENTS
Table V presents information on the payment of the partnerships' mortgages
within the three (3) years ending December 31, 1999.
About one-third of the loans held by the partnerships are
fractionalized loans and held as undivided interests with other partnerships and
third parties. The information presented in Table V as to fractionalized loans
represents only that partnership's interest in a certain loan.
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
RMI VII
--------------
Dollar Amount Offered $12,000,000
Dollar Amount Raised $11,998,359
Percentage of Amount Raised 100.00%
Less Offering Expenses:
Organization Expense 3.55%
Percentage Available for Investment
Net of Offering Expenses 96.45%
Mortgage Investments Funded from Offering Proceeds
Secured by Deeds of Trust 86.85%
Formation Loan 7.62%
Selling Commissions Paid to Non-Affiliates 1.00%
Selling Commissions Paid to Affiliates 0
Mortgage Investments Commitments 0
Mortgage Investment Application or Mortgage
Investment Processing Fees 0
Funds Available for Future Commitments 0
Reserve 0.98%
--------------
Total 96.45%
==============
Date Offering Commenced 10/20/89
Length of Offering 36 months
Months to Commit 90% of Amount
Available for Investment
(Measured from Beginning of.
Offering) 38 months
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)~
RMI VI
---------------
Dollar Amount Offered $12,000,000
Dollar Amount Raised $9,772,594
Percentage of Amount Raised 100.00%
Less Offering Expenses:
Organization Expense 2.63%
Selling Commissions Paid to Non-Affiliates 1.00%
Selling Commissions Paid to Affiliates 0
Percentage Available for Investment
Net of Offering Expenses 96.37%
Mortgage Investments Funded from Offering
Proceeds Secured by Deeds of Trust 86.04%
Formation Loan 6.27%
Mortgage Investment Commitments 0
Mortgage Investment Application or Mortgage Investment
Processing Fees 0
Funds Available for Future
Commitments 1.06%
Reserve 3.00%
---------------
Total 96.37%
===============
Date Offering Commenced 09/03/87
Length of Offering 24 months
Months to Commit 90% of Amount Available for
Investment(Measured from Beginning of Offering) 25 months
<PAGE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
RMI VIII
---------------------
Date Offering Commenced Dollar Amount Raised
Amount Paid to General Partners and Affiliates from:
Offering Proceeds
Selling Commissions
Loan Application or Loan Processing Fees
Reimbursement of Expenses, at Cost
Acquisition Fees
Advisory Fees
Other
Loan Points, Processing and Other Fees Paid by the Borrowers to
Affiliates:
Points (1)
Processing Fees (1)
Other (1)
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to General Partners
and Affiliates:
Amount Paid to General Partners and Affiliates from Operations:
Partnership Management Fees
Earnings Fee
Mortgage Servicing Fee
Reimbursement of Expenses, at Cost
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnerships.
<PAGE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
RMI VII
-------------------
Date Offering Commenced 10/20/89
Dollar Amount Raised $11,998,359
Amount Paid to General Partners and Affiliates from:
Offering Proceeds 0
Selling Commissions 0
Loan Application or Loan
Processing Fees 0
Reimbursement of Expenses, at Cost 86,082
Acquisition Fees 0
Advisory Fees 0
Other 0
Loan Points, Processing and Other Fees Paid by the
Borrowers to Affiliates:
Points (1) $2,044,771
Processing Fees (1) 56,738
Other (1) 8,223
Dollar Amount of Cash Generated from Operations Before
Deducting from Payments to General Partners and Affiliates: $13,679,244
Amount Paid to General Partners and Affiliates from Operations:
Partnership Management Fees $113,911
Earnings Distribution 79,391
Mortgage Servicing Fee 638,933
Late Charges 0
Reimbursement of Expenses, at Cost 249,970
Prepayment Fee 0
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnership.
<PAGE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
RMI VI
-----------------
Date Offering Commenced 9/03/87
Dollar Amount Raised $ 9,772,594
Amount Paid to General Partners and Affiliates from:
Offering Proceeds 0
Selling Commissions 0
Loan Application or Loan Processing Fees 0
Reimbursement of Expenses, at Cost 103,708
Acquisition Fees 0
Advisory Fees 0
Other 0
Loan Points, Processing and Other Fees Paid by the Borrowers to
Affiliates:
Points (1) $1,553,306
Processing Fees (1) 62,155
Other (1) 8,429
Dollar Amount of Cash Generated from Operations Before Deducting
Payments to General Partners and Affiliates: $15,241,570
Amount Paid to General Partners and Affiliates from Operations:
Partnership Management Fees $91,562
Earnings Fee 88,583
Mortgage Servicing Fee 720,232
Reimbursement of Expenses, at Cost 291,754
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnerships.
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
--------------- -------------- -------------
<S> <C> <C> <C>
Gross Revenues $1,623,863 $1,657,728 $1,663,245
Less: General Partners' Mgmt Fee 0 16,141 44,524
Mortgage Servicing Fee 83,559 128,493 127,440
Administrative Expenses 80,614 72,602 70,293
Provision for Uncollected Accts 434,495 423,054 329,057
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 198,316 170,867 182,350
--------------- -------------- -------------
Net Income (GAAP Basis) dist. to Limited Partners $826,879 $846,571 $909,581
--------------- -------------- -------------
Sources of Funds - Net Income 826,879 $846,571 $909,581
Reduction in Assets 0 1,227,571 1,975,646
Increase in Liabilities 1,081,907 0 0
Early Withdrawal Penalties Applied to Synd. Costs 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital -collection on Formation
Loan 87,888 87,888 87,888
--------------- -------------- -------------
Cash generated from Operations $1,996,674 $2,162,030 $2,973,115
Use of Funds-Increase in Assets 610,362 0 0
Reduction in Liabilities 0 356,024 1,109,010
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 407,648 464,824 499,937
Return of Capital to LP's 1,212,916 1,400,475 1,436,942
--------------- -------------- -------------
Increase (Decrease) in Cash $(234,252) $(59,293) $(72,774)
Cash at the beginning of the year 755,089 520,837 461,544
Cash at the end of the year 520,837 461,544 388,770
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $61.02 $66.95 $78.61
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $59.38 $64.98 $75.91
Cash Distribution to Investors for $1,000 Invested
Income (1) $30.01 $36.09 $41.84
Capital (1) $89.28 $108.74 $120.26
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $75.49 $95.60 $82.19
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $73.81 $93.29 $79.37
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
------------- ------------- --------------
<S> <C> <C> <C>
Gross Revenues $1,036,596 $871,861 $1,086,317
Less: General Partners' Mgmt Fee 0 6,640 10,626
Mortgage Servicing Fee 39,918 70,630 50,150
Administrative Expenses 65,813 58,862 52,361
Provision for Uncollected Accts 268,101 180,054 437,558
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 133,577 43,170 14,713
------------- ------------- --------------
Net Income (GAAP Basis) dist. to Limited Partners $529,187 $512,505 $520,909
------------- ------------- --------------
Sources of Funds - Net Income $529,187 $512,505 $520,909
Reduction in Assets 1,763,235 1,159,329 1,915,163
Increase in Liabilities 0 0 0
Early Withdrawal Penalties Applied to Synd. Costs 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital - Collection of Formation
------------- ------------- --------------
Loan 62,328 59,521 0
------------- ------------- --------------
Cash generated from Operations $2,354,750 $1,731,355 $2,436,072
Use of Funds-Increase in Assets 0 0 0
Reduction in Liabilities 649,124 466,778 417,455
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 257,670 235,837 222,735
Return of Capital to LP's 1,297,410 1,060,108 975,362
------------- ------------- --------------
Net Increase (Decrease) in Cash $150,546 $(31,368) $820,520
Cash at the beginning of the year 180,597 331,143 299,775
Cash at the end of the year 331,143 299,775 1,120,295
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $52.88 $56.32 $62.40
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $51.64 $54.91 $60.68
Cash Distribution to Investors for $1,000 Invested
Income (1) $24.79 $25.01 $27.74
Capital (1) $124.81 $112.40 $121.46
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $30.48 $75.41 $74.48
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $29.89 $73.53 $72.81
NOTES:
(1) Based upon year's initial capital balances (2) The offering terminated in
September, 1989.
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
------------- ------------- ----------------
<S> <C> <C> <C>
Gross Revenues $320,600 $494,109 $388,020
Less: General Partners' Mgmt Fee 0 0 0
Mortgage Servicing Fee 0 0 0
Administrative Expenses 30,085 25,844 23,476
Provision for Uncollected Accts 56,504 303,397 196,256
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 53,466 7,454 15,258
------------- ------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $180,545 $157,414 $153,030
------------- ------------- ----------------
Sources of Funds - Net Income $180,545 $157,414 $153,030
Reduction in Assets 1,278,194 337,030 552,540
Increase in Liabilities 0 0 0
Early Withdrawal Penalties Applied to Synd. Costs 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 27,954 0 0
------------- ------------- ----------------
Cash generated from Operations $1,486,693 $494,444 $705,570
Use of Funds-Increase in Assets 0 0 0
Reduction in Liabilities 627,326 11,807 52,954
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 82,504 77,341 73,059
Return of Capital to LP's 792,784 376,931 338,585
------------- ------------- ----------------
Net Increase (Decrease) in Cash $(15,921) $28,365 $240,972
Cash at the beginning of the year 124,015 108,094 136,459
Cash at the end of the year 108,094 136,459 377,431
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $46 $47 $50
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $45 $46 $49
Cash Distribution to Investors for $1,000 Invested
Income (1) $20 $22 $23
Capital (1) $191 $108 $106
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $58 $92 $59
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $57 $90 $58
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
---------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $947,233 $913,462 $850,835
Less: General Partners' Mgmt Fee 9,803 9,303 8,846
Mortgage Servicing Fee 53,475 69,550 63,727
Administrative Expenses 47,083 42,769 39,839
Provision for Uncollected Accts 237,122 200,712 133,085
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 127,795 114,274 105,358
---------------- -------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $471,955 $476,854 $499,980
---------------- -------------- ----------------
Sources of Funds - Net Income $471,955 $476,854 $499,980
Reduction in Assets 0 378,202 1,577,489
Increase in Liabilities 297,222 15,717 0
Early Withdrawal Penalties Applied to Synd. Costs 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 0 0 0
---------------- -------------- ----------------
Cash generated from Operations $769,177 $870,773 $2,077,469
Use of Funds-Increase in Assets 48,154 0 0
Reduction in Liabilities 0 0 1,478,458
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 208,313 221,641 237,637
Return of Capital to LP's 647,257 667,647 575,517
---------------- -------------- ----------------
Net Increase (Decrease) in Cash $(134,547) $(18,515) $(214,143)
Cash at the beginning of the year 389,726 255,179 236,664
Cash at the end of the year 255,179 236,664 22,521
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $61 $65 $72
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $60 $63 $70
Cash Distribution to Investors for $1,000 Invested
Income (1) $26 $29 $33
Capital (1) $81 $88 $80
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $85 $79 $58
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $83 $76 $56
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
------------ --------------- -------------- --
<S> <C> <C> <C>
Gross Revenues $168,046 $183,854 $187,656
Less: General Partners' Mgmt Fee 2,229 2,222 2,206
Mortgage Servicing Fee 7,791 13,433 13,450
Administrative Expenses 13,950 14,983 14,302
Provision for Uncollected Accts 20,790 29,519 31,355
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Net Income (GAAP Basis) dist. to Limited Partners $123,286 $123,697 $126,343
------------ --------------- --------------
Sources of Funds - Net Income $123,286 $123,697 $126,343
Decrease in Assets 56,244 0 112,638
Increase in Liabilities 0 5,310 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital -collection on Formation
Loan 4,812 4,812 4,812
------------ --------------- -------------- --
Cash generated from Operations $184,342 $133,819 $243,793
Use of Funds-Increase in Assets 0 165,523 0
Decrease in Liabilities 6,724 0 5,310
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 79,219 78,559 82,717
Return of Capital to LP's 46,854 48,389 93,146
------------ --------------- -------------- --
Net Increase (Decrease) in Cash $51,545 $(158,652) $62,620
Cash at the beginning of the year 234,083 285,628 126,976
Cash at the end of the year 285,628 126,976 189,596
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $70 $71 $73
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $68 $69 $71
Cash Distribution to Investors for $1,000 Invested
Income (1) $45 $45 $47
Capital (1) $27 $28 $53
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $80 $65 $91
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $78 $65 $88
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
---------------- ------------- ---------------
<S> <C> <C> <C>
Gross Revenues $88,149 $76,313 $66,886
Less: General Partners' Mgmt Fee 2,841 2,606 2,277
Mortgage Servicing Fee 4,577 4,441 3,897
Administrative Expenses 9,811 9,401 9,487
Provision for Uncollected Accts 17,950 6,171 4,078
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
---------------- ------------- ---------------
Net Income (GAAP Basis) dist. to Limited Partners $52,970 $53,694 $47,147
------------- ---------------
----------------
Sources of Funds - Net Income $52,970 $53,694 $47,147
Decrease in Assets 0 58,220 229,205
Increase in Liabilities 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 0 0 0
---------------- ------------- ---------------
Cash generated from Operations $52,970 $111,914 $276,352
Use of Funds-Increase in Assets 15,540 0 0
Decrease in Liabilities 14,830 2,958 0
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 23,690 32,004 44,590
Return of Capital to LP's 97,517 107,897 95,694
---------------- ------------- ---------------
Net Increase (Decrease) in Cash $(98,607) $(30,945) $136,068
Cash at the beginning of the year 156,830 58,223 27,278
Cash at the end of the year 58,223 27,278 163,346
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $63 $70 $71
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $62 $68 $68
Cash Distribution to Investors for $1,000 Invested
Income (1) $27 $40 $62
Capital (1) $111 $134 $133
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $75 $31 $68
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $73 $30 $66
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
------------- ------------- ----------------
<S> <C> <C> <C>
Gross Revenues $130,974 $120,561 $143,560
Less: General Partners' Mgmt Fee 3,431 3,266 3,123
Mortgage Servicing Fee 7,499 7,744 8,057
Administrative Expenses 12,038 11,378 11,379
Provision for Uncollected Accts 20,435 7,456 34,289
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
------------- ------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $87,571 $90,717 $86,712
------------- ------------- ----------------
Sources of Funds - Net Income $87,571 $90,717 $86,712
Decrease in Assets 0 35,187 332,433
Increase in Liabilities 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 0 0 0
------------- ------------- ----------------
Cash generated from Operations $87,571 $125,904 $419,145
Use of Funds-Increase in Assets 140,251 0 0
Decrease in Liabilities 24,992 0 0
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 29,816 25,859 42,113
Return of Capital to LP's 130,035 101,698 152,140
------------- ------------- ----------------
Net Increase (Decrease) in Cash $(237,523) $(1,653) $224,892
Cash at the beginning of the year 253,941 16,418 14,765
Cash at the end of the year 16,418 14,765 239,657
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $65 $71 $71
Cash Distribution to Investors for $1,000 Invested
Income (1) $21 $20 $33
Capital (1) $93 $77 $118
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $68 $67 $93
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF DECEMBER 31, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 1999
--------------- ------------- -------------
<S> <C> <C> <C>
Gross Revenues $180,117 $171,863 $180,636
Less: General Partners' Mgmt Fee 12,229 11,244 10,668
Mortgage Servicing Fee 14,935 15,048 15,717
Administrative Expenses 14,182 13,269 12,606
Provision for Uncollected Accts 32,877 20,736 (65,748)
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
--------------- ------------- -------------
Net Income (GAAP Basis) dist. to Limited Partners $105,894 $111,566 $207,393
--------------- ------------- -------------
Sources of Funds - Net Income $105,894 $111,566 $207,393
Decrease in Assets 204,288 15,743 49,805
Increase in Liabilities 0 11,503 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 0 0 0
--------------- ------------- -------------
Cash generated from Operations $310,182 $138,812 $257,198
Use of Funds-Increase in Assets 0 0 0
Decrease in Liabilities 3,738 0 $4,752
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 33,904 31,596 23,695
Return of Capital to LP's 206,685 176,327 126,710
--------------- ------------- -------------
Net Increase (Decrease) in Cash $65,855 $(69,111) $102,041
Cash at the beginning of the year 84,926 150,781 81,670
Cash at the end of the year 150,781 81,670 183,711
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) $66 $76 $149
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) $66 $76 $149
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) $20 $19 $16
Capital (1) $169 $120 $75
CMI II (New Portfolio of CMI)
Income (1) $21 $21 $15
Capital (1) $93 $111 $95
Federal Income Tax Results for $1,000 Invested Capital
Ordinary Income from Operations CMI (Original Portfolio) $76 $93 $102
Ordinary Income from Operations CMI II (New Portfolio of
CMI) $76 $93 $102
NOTES:
(1) Based upon year's initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
CORPORATE MORTGAGE INVESTORS I & II
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Alameda 11/29/94 03/13/97 60,000.00 13,896.74 73,896.74
Amador 02/23/96 06/03/97 45,000.00 5,047.64 50,047.64
Santa Clara 04/26/94 11/05/97 87,500.00 31,938.26 119,438.26
San Mateo 02/28/97 12/29/97 35,000.00 3,097.18 38,097.18
San Francisco 07/28/95 05/31/98 145,000.00 24,789.91 169,789.91
Ventura 12/05/96 06/25/98 65,000.00 43,030.90 108,030.90
Alameda 09/29/88 10/26/98 74,600.00 64,089.87 138,689.87
Ventura 12/05/96 05/17/99 52,000.00 15,030.78 67,030.78
Ventura 12/05/96 07/19/99 65,000.00 22,157.23 87,157.23
San Mateo 06/27/95 11/29/99 85,000.00 46,719.21 131,719.21
San Mateo 03/12/99 12/01/99 75,000.00 9,101.99 84,101.99
--------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Contra Costa 06/21/88 04/07/97 54,600.00 28,890.31 83,490.31
San Francisco 08/24/94 06/30/97 87,500.00 27,241.68 114,741.68
Santa Barbara 05/10/94 10/31/97 100,000.00 39,560.36 139,560.36
San Mateo 12/02/97 08/19/98 150,000.00 9,358.83 159,358.83
San Mateo 02/02/96 10/02/98 175,000.00 51,682.83 226,682.83
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS I
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Sacramento 03/13/92 10/31/97 13,812.08 -11,914.86 1,897.22
Ventura 12/05/96 02/13/98 65,000.00 1,913.40 66,913.40
Ventura 12/05/96 02/13/98 65,000.00 13,110.67 78,110.67
Ventura 12/05/96 02/13/98 65,000.00 4,922.69 69,922.69
San Mateo 02/16/94 02/25/98 75,000.00 31,129.95 106,129.95
Contra Costa 08/30/93 03/02/99 29,502.78 23,776.64 53,279.42
Santa Clara 12/31/91 02/18/99 54,000.00 -30,585.00 23,415.00
Stanislaus 12/31/96 06/23/99 100,000.00 30,493.33 130,493.33
Contra Costa 10/23/85 07/19/99 5,958.05 23,479.72 29,437.77
San Mateo 09/28/99 11/18/99 100,000.00 1,414.81 101,414.81
Ventura 12/05/96 12/13/97 52,000.00 18,665.00 70,665.00
Sacramento 03/13/92 12/31/99 3,500.00 609.25 -3,200.11
Sacramento 03/13/92 12/31/99 2,000.00 362.55 -1,836.20
--------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
San Mateo 03/31/96 10/02/98 15,000.00 6,118.14 21,118.14
San Mateo 05/30/97 10/15/98 100,000.00 14,693.80 114,693.80
Santa Clara 12/31/92 06/01/99 54,500.00 47002.52 101,502.52
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS II
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Santa Clara 02/11/94 06/06/97 88,000.00 19,621.27 107,621.27
Sacramento 03/12/97 10/31/97 13,760.71 -12,627.29 1,133.42
Ventura 12/05/96 02/13/98 65,000.00 12,082.39 77,082.39
Ventura 12/05/96 02/13/98 65,000.00 13,599.29 78,599.29
San Mateo 02/16/94 02/25/98 50,000.00 10,376.65 60,376.65
Sacramento 03/13/92 12/31/99 3,500.00 609.25 -3,200.11
Sacramento 03/13/92 12/31/99 2,000.00 362.55 -1,836.20
--------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Alameda 06/01/92 05/13/98 100,000.00 87,651.58 187,651.58
--------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
RHL350 Santa Barbara 05/10/94 10/31/97 50,000.00 19,780.28
RHL509 Stanislaus 12/31/96 06/23/99 100,000.00 30,493.33
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS III
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Alameda 11/29/94 05/19/97 60,000.00 15,662.20 75,662.20
Alameda 11/03/94 07/10/97 73,000.00 19,586.80 92,586.80
Alameda 09/02/92 07/15/97 100,000.00 57,227.60 157,227.60
San Mateo 08/16/94 11/14/97 75,000.00 28,380.54 103,380.54
Ventura 12/05/96 03/03/98 65,000.00 10,539.20 75,539.20
San Mateo 02/01/98 12/31/98 30,000.00 3,111.01 33,111.01
Santa Clara 12/31/91 02/18/99 83,619.72 -47,253.20 36,366.52
Ventura 12/05/96 07/26/99 65,000.00 22,471.54 87,471.54
San Mateo 09/28/99 11/18/99 100,000.00 1,414.81 101,414.81
San Mateo 03/12/99 12/01/99 50,000.00 6,068.26 56,068.26
------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Alameda 06/01/92 05/13/98 60,000.00 52,592.89 112,592.89
Alameda 11/09/83 09/03/99 17,524.36 28,623.51 46,147.87
------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
San Francisco 08/24/94 06/30/97 87,500.00 27,241.69 114,741.69
San Mateo 03/31/98 08/19/98 60,000.00 3,289.28 63,289.28
San Mateo 10/18/96 11/18/98 100,000.00 25,160.00 125,160.00
Stanislaus 12/20/94 06/23/99 141,964.18 155,813.06 297,777.24
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS IV
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Alameda 09/02/92 07/15/97 78,750.00 45,066.81 123,816.81
San Mateo 03/20/90 08/29/97 80,000.00 77,498.01 157,498.01
San Francisco 11/06/92 11/04/97 12,266.67 5,240.50 17,507.17
Santa Clara 04/26/94 11/05/97 87,500.00 31,938.26 119,438.26
Alameda 12/24/91 12/31/97 67,257.75 30,392.45 97,650.20
San Mateo 11/16/87 01/19/98 40,000.00 54,832.78 94,832.78
San Mateo 10/16/92 04/01/98 76,760.00 70,117.71 146,877.71
Alameda 07/07/86 05/19/98 27,850.00 46,154.10 74,004.10
San Mateo 05/21/91 07/02/98 120,000.00 123,436.63 243,436.63
Contra Costa 04/10/97 02/04/99 12,500.00 2,616.39 15,116.39
San Mateo 08/29/97 05/26/99 15,282.02 2,264.56 17,546.58
Contra Costa 10/23/85 07/19/99 34,041.95 64,122.55 98,164.50
Ventura 12/05/96 09/03/99 65,000.00 23,677.32 88,677.32
-------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Alameda 03/13/97 05/01/98 500,000.00 61,215.28 561,215.28
Alameda 06/01/92 05/13/98 275,000.00 373,615.12 648,615.12
Sacramento 06/29/90 07/17/98 187,778.06 136,018.43 323,796.49
Sacramento 07/03/95 12/24/98 200,000.00 29,398.68 229,398.68
Contra Costa 12/31/94 02/04/99 175,000.00 105,355.18 280,355.18
Alameda 12/24/97 06/28/99 690,000.00 98,272.41 788,272.41
Alameda 04/27/89 06/10/99 65,000.00 78,181.27 143,181.27
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS IV
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
COMMERCIAL (county)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Alameda 12/12/90 03/24/97 201,671.45 271,459.89 473,131.34
San Luis Obispo 03/14/96 05/23/97 200,000.00 30,005.13 230,005.13
Contra Costa 04/26/91 06/23/97 114,952.65 154,302.43 269,255.08
San Mateo 12/31/90 12/05/97 260,000.00 205,321.34 465,321.34
Santa Clara 09/29/95 12/18/97 300,000.00 79,483.33 379,483.33
Contra Costa 09/29/92 05/04/98 100,000.00 65,297.83 165,297.83
Sonoma 05/26/93 07/09/98 292,500.00 361,093.01 653,593.01
San Mateo 12/02/97 08/19/98 90,000.00 7,588.88 97,588.88
San Mateo 02/02/96 10/02/98 275,000.00 69,864.78 344,864.78
San Mateo 05/30/97 10/15/98 250,000.00 36,734.50 286,734.50
San Mateo 08/26/93 03/12/99 133,000.00 52,840.61 185,840.61
Santa Clara 12/31/92 06/01/99 54,500.00 47,002.52 101,502.52
Stanislaus 12/20/94 06/23/99 946,427.86 1,076,196.15 2,022,624.01
Alameda 12/19/97 09/24/99 387,358.50 189,515.89 576,874.39
El Dorado 05/05/89 12/31/99 200,000.00 228,027.44 428,027.44
Stanislaus 12/03/98 01/29/99 600,000.00 63,683.85 663,683.85
---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS V
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
San Francisco 04/15/93 03/19/97 93,500.00 23,305.54 116,805.54
San Francisco 12/09/94 06/10/97 14,000.00 3,110.57 17,110.57
San Francisco 04/16/91 10/23/97 342,442.77 91,841.37 434,284.14
Sacramento 03/12/92 10/31/97 27,664.73 -23,852.44 3,812.29
San Mateo 11/18/92 12/10/97 25,000.00 15,165.60 40,165.60
Alameda 01/24/92 12/19/97 87,300.00 33,156.31 120,456.31
Santa Clara 12/31/91 02/18/99 228,620.18 -127,741.15 100,879.03
San Francisco 06/26/97 10/22/99 195,000.00 35,196.61 230,196.61
San Mateo 03/12/99 12/01/99 205,000.00 24,878.99 229,878.99
Sacramento 03/13/92 12/31/99 7,000.00 818.52 -6,788.84
Sacramento 03/13/92 12/31/99 4,000.00 725.12 -3,682.97
------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
Sacramento 06/29/90 07/17/98 126,555.01 65,224.49 191,779.50
------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
San Mateo 08/01/90 01/24/97 50,000.00 42,804.93 92,804.93
Contra Costa 04/26/91 06/23/97 115,032.96 154,302.43 269,335.39
Contra Costa 11/16/93 07/03/97 235,000.00 56,654.84 291,651.84
Sonoma 07/06/89 08/01/97 100,000.00 91,651.43 191,651.43
Santa Clara 09/29/95 12/18/97 100,000.00 26,660.60 126,666.60
Contra Costa 09/29/92 05/04/98 100,000.00 128,786.98 228,786.98
San Mateo 07/15/92 12/08/98 112,500.00 96,554.54 209,054.54
San Francisco 06/17/98 01/08/99 400,000.00 23,314.28 423,314.28
Sonoma 11/07/94 05/14/99 66,190.41 25,660.80 91,851.21
Stanislaus 12/20/94 06/23/99 236,606.97 261,799.03 498,406.00
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VI
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
San Mateo 10/10/96 04/14/97 37,055.61 1,527.25 38,582.86
Alameda 07/01/90 07/02/97 233,367.46 -127,393.18 105,974.28
Sacramento 03/13/92 10/31/97 55,307.12 -47,694.39 7,612.73
Alameda 01/24/92 12/19/97 87,300.00 32,875.31 120,175.31
Alameda 12/24/91 12/31/97 67,257.75 30,820.92 98,078.67
San Mateo 10/16/92 04/01/98 115,140.00 50,554.99 165,694.99
El Dorado 06/24/93 06/19/98 235,000.00 154,808.06 389,808.06
Alameda 02/23/95 06/23/98 153,320.99 52,892.71 211,213.70
San Mateo 07/25/88 02/17/99 49,000.00 66,190.49 115,190.49
Contra Costa 08/30/93 03/02/99 21,635.32 17,572.19 39,207.51
Ventura 12/05/96 05/17/99 13,000.00 6,491.67 19,491.67
San Mateo 05/15/96 05/28/99 145,000.00 31,017.05 176,017.05
Ventura 12/05/96 07/02/99 65,000.00 15,006.13 80,006.13
Solano 02/11/88 06/14/99 36,000.00 67,213.77 103,213.77
Santa Clara 12/31/91 02/18/99 285,793.30 -141,804.88 143,988.42
San Francisco 06/29/90 07/21/99 200,000.00 241,041.21 441,041.21
Contra Costa 02/10/99 09/14/99 335,000.00 20,891.09 355,891.09
Monterey 09/27/95 10/18/99 72,380.95 19,700.87 92,081.82
San Mateo 06/10/99 12/01/99 48,000.00 2,328.01 50,328.01
Stanislaus 09/15/98 12/10/99 500,000.00 68,137.84 568,137.84
Ventura 12/05/96 12/13/97 13,000.00 7,403.83 20,403.83
Sacramento 03/13/92 12/31/99 14,000.00 2,437.03 -12,604.74
Sacramento 03/13/92 12/31/99 8,000.00 1,450.21 -7,283.65
---------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
-------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Sacramento 08/19/88 07/28/97 509,985.54 -214,554.68 295,430.86
Sacramento 07/24/97 02/02/98 10,000.00 368.58 10,368.58
Alameda 03/13/98 05/01/98 350,000.00 15,781.59 365,781.59
Alameda 06/01/92 05/13/98 275,000.00 241,049.46 516,049.46
Sacramento 06/29/90 07/17/98 96,559.83 97,106.39 193,666.22
-------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VI
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
COMMERCIAL (county)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
San Mateo 08/01/90 01/24/97 50,000.00 42,561.13 92,561.13
Alameda 12/12/90 03/24/97 210,034.69 283,065.26 493,099.95
Alameda 11/05/90 03/31/97 78,740.20 105,095.44 183,835.64
Sonoma 07/06/89 08/01/97 100,000.00 91,374.72 191,374.72
Contra Costa 03/19/91 09/30/97 227,755.59 -186,413.27 41,342.32
Santa Barbara 05/10/94 10/31/97 100,000.00 40,222.70 140,222.70
Santa Clara 09/29/95 12/18/97 550,000.00 83,866.67 633,866.67
Sonoma 05/26/93 07/09/98 292,500.00 624,396.12 916,896.12
Alameda 08/11/88 08/03/98 73,000.00 93,566.06 166,566.06
San Mateo 02/02/96 10/02/98 150,000.00 31,079.87 181,079.87
San Francisco 06/17/98 01/08/99 700,000.00 40,799.99 740,799.99
Solano 11/07/94 05/14/99 72,809.59 27,404.49 100,214.08
Santa Clara 12/31/92 06/01/99 109,000.00 89,992.26 198,992.26
Stanislaus 12/20/94 06/23/99 567,856.74 625,917.71 1,193,774.45
Santa Clara 03/22/96 11/02/99 340,000.00 164,090.24 504,090.24
San Francisco 10/14/93 12/29/99 200,000.00 216,120.59 416,120.59
El Dorado 05/05/89 12/31/99 200,000.00 248,374.04 448,374.04
-------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VII
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
San Mateo 06/24/92 03/13/97 81,000.00 45,775.04 126,775.04
San Francisco 04/15/93 03/19/97 50,000.00 17,967.50 67,967.50
Alameda 08/16/91 04/11/97 66,000.00 41,506.43 107,506.43
San Mateo 10/10/96 04/14/97 29,944.39 1,234.15 31,178.54
San Francisco 07/15/96 05/09/97 320,000.00 20,144.66 340,144.66
Tuolomne 03/26/93 05/14/97 175,000.00 36,244.52 211,244.52
San Mateo 08/12/91 05/31/97 108,270.70 71,684.54 179,955.24
San Mateo 06/19/92 06/18/97 42,500.00 25,030.01 67,030.01
San Mateo 12/30/90 06/19/97 15,000.00 14,166.94 29,166.94
San Francisco 07/16/91 08/22/97 108,000.00 89,977.37 197,977.37
San Mateo 03/29/90 08/29/97 63,960.00 61,632.29 125,592.29
San Mateo 06/10/92 09/05/97 145,000.00 95,692.30 240,692.30
San Francisco 10/09/96 09/12/97 238,000.00 12,930.41 250,730.41
Marin 05/20/91 09/30/97 63,922.80 100,305.42 164,228.22
San Francisco 04/16/91 10/23/97 343,719.78 90,066.64 433,786.42
San Francisco 11/06/92 11/04/97 6,133.33 1,932.57 8,065.90
Alameda 12/24/91 12/31/97 37,984.50 17,405.28 55,389.78
San Mateo 11/19/90 06/16/98 91,000.00 94,499.63 185,499.63
El Dorado 06/24/93 06/19/98 300,000.00 197,627.33 497,627.33
Alameda 02/23/95 06/23/98 153,320.99 57,892.71 211,213.70
San Mateo 12/29/87 07/31/98 79,000.00 85,460.44 164,460.44
San Mateo 09/04/94 08/14/98 60,000.00 26,344.06 86,344.06
Santa Cruz 09/15/97 10/02/98 107,263.44 11,293.28 118,556.72
San Francisco 09/22/97 11/02/98 210,000.00 37,426.99 247,426.99
San Francisco 09/26/97 11/06/98 323,003.04 32,691.04 355,694.08
San Mateo 07/07/98 11/25/98 200,000.00 8,900.70 208,900.70
Santa Clara 12/31/91 02/18/99 152,400.85 -76,931.92 75,468.93
Contra Costa 08/30/93 03/02/99 126,861.90 103,048.66 229,910.56
Sonoma 04/17/92 03/31/99 15,850.00 11,109.80 26,959.80
San Mateo 08/29/97 05/26/99 12,217.98 2,050.36 14,268.34
Monterey 02/18/99 06/18/99 75,000.00 2,900.00 77,900.00
Monterey 06/18/97 06/18/99 687,500.00 125,402.84 812,902.84
Monterey 09/27/95 10/18/99 79,619.05 38,283.28 117,902.33
Ventura 12/05/96 10/22/99 65,000.00 22,919.09 87,919.09
Monterey 09/27/95 10/18/99 79,619.05 26,669.41 106,288.46
Ventura 12/05/96 10/22/99 65,000.00 24,809.71 89,809.71
San Mateo 09/28/99 11/18/99 100,000.00 2,831.63 102,831.63
Stanislaus 09/15/98 12/10/99 284,000.00 38,702.92 322,702.92
Solano 03/30/90 12/28/99 45,800.00 64,934.28 110,734.28
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VII
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
MULTIPLE 5+ UNITS (county)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
San Francisco 07/17/96 02/26/98 84,241.05 147,731.84 231,972.89
Alameda 03/13/97 05/01/98 1,400,000.00 263,875.12 1,663,875.12
San Mateo 07/25/89 02/17/99 45,000.00 46,422.67 91,422.67
--------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
--------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Alameda 12/13/91 01/31/97 52,760.73 67,026.76 119,787.49
Alameda 12/12/90 03/24/97 50,461.02 68,068.88 118,529.90
Santa Cruz 09/23/94 03/28/97 100,000.00 17,765.69 117,765.69
Alameda 11/05/90 03/31/97 236,177.62 106,668.62 342,846.24
San Francisco 01/15/97 04/01/97 442,500.00 4,022.19 446,522.19
Contra Costa 04/26/91 06/23/97 182,475.81 246,883.76 429,359.57
San Francisco 04/20/95 09/18/97 200,000.00 56,821.69 256,821.69
Contra Costa 03/19/91 09/30/97 227,957.56 -186,615.23 41,342.33
Santa Clara 03/27/96 10/24/97 400,000.00 54,360.37 454,360.37
Santa Barbara 05/10/94 10/31/97 125,000.00 50,276.97 175,276.97
Santa Clara 09/29/95 12/18/97 700,000.00 169,533.33 869,533.33
San Mateo 12/02/92 12/31/97 55,000.00 33,308.16 88,308.16
Solano 11/30/95 01/30/98 60,000.00 10,638.75 70,638.75
Contra Costa 09/29/92 05/04/98 350,000.00 258,375.49 608,375.49
Solano 09/30/97 06/05/98 480,000.00 42,640.01 522,640.01
Alameda 04/25/97 07/24/98 560,000.00 81,144.01 641,144.01
San Mateo 02/02/96 10/02/98 700,000.00 136,866.58 836,866.58
San Mateo 07/15/92 12/08/98 112,500.00 96,240.02 208,740.02
San Francisco 06/17/98 01/08/99 1,000,000.00 48,102.51 1,048,102.51
Stanislaus 12/03/98 01/29/99 600,000.00 10,868.92 610,868.92
San Mateo 08/26/93 03/12/99 133,000.00 53,554.50 186,554.50
Alameda 08/18/93 06/09/99 82,500.00 57,105.93 139,605.93
Stanislaus 12/31/96 06/23/99 950,000.00 289,866.67 1,239,866.67
Stanislaus 12/20/94 06/23/99 757,144.25 834,559.07 1,591,703.32
San Francisco 01/05/99 08/25/99 1,350,000.00 119,945.50 1,469,945.50
Alameda 12/19/97 09/24/99 832,820.75 407,458.11 1,240,278.86
Solano 09/24/98 09/30/99 950,000.00 106,896.15 1,056,896.15
Santa Clara 03/22/96 11/02/99 955,000.00 460,901.73 1,415,901.73
San Francisco 10/14/93 12/29/99 200,000.00 216,120.39 416,120.39
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VIII
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
SINGLE FAMILY 1-4 UNITS (county)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
San Francisco 03/27/96 03/18/97 125,000.00 14,059.97 139,059.97
San Francisco 04/15/93 03/19/97 70,125.00 22,935.84 93,060.84
San Mateo 03/09/95 03/27/97 80,000.00 18,925.90 98,952.90
San Mateo 04/11/96 04/21/97 325,000.00 32,826.90 357,826.90
Sonoma 03/04/94 04/25/97 93,400.00 27,746.86 121,146.86
Tuolomne 03/26/93 05/14/97 100,000.00 43,838.58 143,838.58
Santa Clara 06/30/95 06/06/97 44,000.00 9,251.29 53,251.29
Marin 10/17/95 06/09/97 770,000.00 105,256.69 875,256.69
San Mateo 08/09/96 06/24/97 65,000.00 6,511.02 71,511.02
Stanislaus 08/04/95 09/08/97 50,000.00 10,746.68 60,746.68
San Francisco 09/12/95 10/01/97 250,000.00 57,678.67 307,678.67
San Mateo 08/30/96 10/06/97 445,000.00 44,544.27 489,544.27
San Mateo 12/29/95 04/23/98 225,000.00 63,849.70 288,849.70
Marin 05/09/97 05/20/98 120,000.00 13,410.94 133,410.94
Marin 05/31/96 05/20/98 906,413.85 153,528.25 1,059,941.10
El Dorado 06/24/93 06/19/98 130,000.00 84,489.35 214,489.35
San Francisco 04/15/97 11/02/98 420,000.00 37,426.99 457,426.99
Marin 10/31/97 11/03/98 1,274,321.61 136,974.54 1,411,296.15
San Francisco 09/26/97 11/06/98 232,003.04 32,691.04 264,694.08
Mendocino 06/25/96 11/30/98 125,000.00 36,479.46 161,479.46
Alameda 06/20/95 02/05/99 66,000.00 30,505.41 96,505.41
Contra Costa 04/10/97 02/04/99 37,500.00 7,849.20 45,349.20
San Francisco 04/28/98 03/24/99 352,000.00 35,465.82 387,465.82
San Francisco 12/15/94 04/22/99 275,000.00 -1,767.18 273,232.82
Monterey 02/18/99 06/18/99 75,000.00 2,900.00 77,900.00
Monterey 06/18/97 06/18/99 687,500.00 125,402.84 812,902.84
San Mateo 10/16/98 09/24/99 201,573.15 12,715.93 214,289.08
San Francisco 06/26/97 10/22/99 195,000.00 35,196.61 230,196.61
Stanislaus 09/15/98 12/10/99 2,500,000.00 340,695.43 2,840,695.43
San Mateo 01/26/99 11/18/99 110,000.00 10,813.67 120,813.67
--------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VIII
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
MULTIPLE 5+ UNITS (county)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
San Francisco 07/17/96 02/26/98 1,014,320.42 147,731.84 1,162,052.26
San Mateo 12/29/95 03/12/98 425,000.00 114,078.49 539,078.49
Alameda 03/13/97 05/01/98 1,800,000.00 220,374.98 2,020,374.98
San Mateo 09/10/97 08/21/98 945,000.00 103,241.26 1,048,241.26
Contra Costa 12/30/94 02/04/99 525,000.00 209,970.62 734,970.62
San Francisco 08/11/98 06/18/99 1,362,500.00 130,636.73 1,493,136.73
Alameda 12/04/97 06/28/99 690,000.00 125,676.80 815,676.80
Alameda 02/04/99 09/23/99 606,598.37 25,526.45 632,124.82
Alameda 02/04/99 09/23/99 727,500.00 52,753.89 780,253.89
San Joaquin 07/11/95 09/23/99 660,000.00 326,215.96 986,215.96
---------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
---------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
San Luis Obispo 03/14/96 05/23/97 300,000.00 45,007.71 345,007.71
San Mateo 05/26/94 05/30/97 280,000.00 86,457.95 366,457.95
San Francisco 10/28/96 07/17/97 975,000.00 82,881.25 1,057,881.25
San Francisco 01/15/97 07/17/97 745,474.49 32,064.27 777,538.76
San Francisco 04/30/97 07/17/97 50,000.00 1,300.00 51,300.00
San Francisco 04/20/95 09/18/97 400,000.00 55,785.90 455,785.90
San Mateo 08/28/95 10/14/97 750,000.00 210,514.55 960,514.55
Santa Clara 03/27/96 10/24/97 800,000.00 151,285.28 951,285.28
Santa Barbara 05/10/94 10/31/97 425,000.00 167,181.54 592,181.54
San Mateo 06/30/95 12/05/97 130,000.00 45,729.11 175,729.11
Santa Clara 09/29/95 12/18/97 1,050,000.00 278,130.56 1,328,130.56
Alameda 09/13/95 01/23/98 60,000.00 18,775.03 78,775.03
Solano 09/30/97 06/05/98 480,000.00 42,640.01 522,640.01
Alameda 04/25/97 07/24/98 2,100,000.00 304,290.03 2,404,290.03
San Mateo 02/02/96 10/02/98 700,000.00 139,460.58 839,460.58
San Mateo 05/30/97 10/15/98 650,000.00 95,509.70 745,509.70
Santa Cruz 03/31/98 12/21/98 684,000.00 54,758.00 738,758.00
Santa Clara 06/11/98 12/28/98 2,000,000.00 132,000.00 2,132,000.00
San Francisco 06/17/98 01/08/99 1,515,000.00 64,792.61 1,579,792.61
Alameda 08/18/93 06/09/99 82,500.00 56,379.69 138,879.69
Stanislaus 12/31/96 06/23/99 1,450,000.00 442,153.34 1,892,153.34
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VIII
FOR THE THREE YEARS ENDING
DECEMBER 31, 1999
COMMERCIAL (county)(continued)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
--------------------------------------------------------------------------------------------------------
San Joaquin 01/01/96 08/06/99 320,000.00 69,177.57 389,177.57
San Francisco 01/05/99 08/25/99 1,350,000.00 119,945.50 1,469,945.50
Alameda 12/19/97 09/24/99 832,820.75 407,458.11 1,240,278.86
Solano 09/24/98 09/30/99 95,000.00 5,626.11 100,626.11
Stanislaus 12/03/98 01/29/99 600,000.00 111,190.26 711,190.26
Contra Costa 05/13/98 11/22/99 300,000.00 55,180.00 355,180.00
San Francisco 10/14/93 12/29/99 200,000.00 215,111.05 415,111.05
Santa Clara 03/22/96 11/02/99 955,000.00 460,901.73 1,415,901.73
San Luis Obispo 03/14/96 05/23/97 300,000.00 45,007.71 345,007.71
San Mateo 05/26/94 05/30/97 280,000.00 86,457.95 366,457.95
--------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership
THIS THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT was made
and entered into as of the 13 day of July, 2000, by and among D. RUSSELL
BURWELL, an individual, MICHAEL R. BURWELL, an individual, GYMNO CORPORATION, a
California corporation and REDWOOD MORTGAGE CORP., a California corporation
(collectively, the "General Partners"), and such other persons who have become
Limited Partners ("Existing Limited Partners") and as may be added pursuant to
the terms hereof (the "New Limited Partners") (collectively the "Limited
Partners").
RECITALS
A. On or about October 1993, the General Partners and the Limited
Partners entered into an agreement of limited partnership for the Partnership.
The Partnership offered $15,000,000 in Units and $14,932,017 were acquired by
investors. The Offering closed on October 31, 1996.
B. In order to increase the Partnership's capital base and permit the
Partnership to further diversify its portfolio, in September, 1996, the General
Partners elected to offer an additional 30,000,000 Units of which $24,378,460
had been acquired by Investors as of March 31,. 2000. The second offering will
close upon the effective date of the prospectus dated July 13, 2000.
C. Additionally, in January 2000, the General Partners elected to revise
their prospectus in order to meet the "Plain English" rules promulgated by the
Securities and Exchange Commission ("SEC").
D. In order to again increase the Partnership's capital base and permit the
Partnership to further diversify its portfolio, in July 13, 2000, the General
Partners elected to offer an additional $30,000.000.
E. In connection with the additional offering of Units and in order to correct
some ambiguities and update certain provisions of the Partnership Agreement, the
General Partners have elected to amend and restate the agreement of limited
partnerships (the "Partnership Agreement.)
ARTICLE 1
DEFINITIONS
Unless stated otherwise, the terms set forth in this Article I shall,
for all purposes of this Agreement, have the meanings as defined herein:
1.1 "Affiliate" means (a) any person directly or indirectly
controlling, controlled by or under common control with another person, (b) any
person owning or controlling ten percent (10%) or more of the outstanding voting
securities of such other person, (c) any officer, director or partner of such
person, or (d) if such other person is an officer, director or partner, any
company for which such person acts in any such capacity.
1.2 "Agreement" means this Limited Partnership Agreement, as amended from
time to time.
1.3 "Capital Account" means, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account there shall be credited,
in the event such Partner utilized the services of a Participating Broker
Dealer, such Partner's Capital Contribution, or if such Partner acquired his
Units through an unsolicited sale, such Partner's Capital Contribution plus the
amount of the sales commissions otherwise payable is paid, such Partner's
distributive share of Profits and any items in the nature of income or gain
(from unexpected adjustments, allocations or distributions) that are specially
allocated to a Partner and the amount of any Partnership liabilities that are
assumed by such Partner or that are secured by any Partnership property
distributed to such Partner.
(b) To each Partner's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any Partnership 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 that are specially allocated to a Partner and the amount of any
liabilities of such Partner that are assumed by the Partnership or that are
secured by any property contributed by such Partner to the Partnership.
In the event any interest in the Partnership is transferred in
accordance with Section 7.2 of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred interest.
In the event the Gross Asset Values of the Partnership assets are
adjusted pursuant to Section 1.9, the Capital Accounts of all Partners shall be
adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership recognized gain or loss equal to the amount of such aggregate net
adjustment.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), and shall be interpreted and applied in
a manner consistent with such Regulation. In the event the General Partners
shall 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
the then existing Treasury Regulation, the General Partners 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 IX hereof upon the
dissolution of the Partnership. The General Partners shall adjust the amounts
debited or credited to Capital Accounts with respect to (a) any property
contributed to the Partnership or distributed to the General Partners, and (b)
any liabilities that are secured by such contributed or distributed property or
that are assumed by the Partnership or the General Partners, in the event the
General Partners shall determine such adjustments are necessary or appropriate
pursuant to Treasury Regulation Section 1.704-l(b)(2)(iv) as provided for in
Section 5.4. The General Partners shall make any appropriate modification in the
event unanticipated events might otherwise cause this Agreement not to comply
with Treasury Regulation Section 1.704-l(b) as provided for in Sections 5.6 and
12.4(k).
1.4 "Cash Available for Distribution" means an amount of cash equal to
the excess of accrued income from operations and investment of, or the sale or
refinancing or other disposition of, Partnership assets during any calendar
month over the accrued operating expenses of the Partnership during such month,
including any adjustments for bad debt reserves or deductions as the General
Partners may deem appropriate, all determined in accordance with generally
accepted accounting principles; provided, that such operating expenses shall not
include any general overhead expenses of the General Partners not specifically
related to, billed to or reimbursable by the Partnership as specified in
Sections 10.13 through 10.15.
1.5 "Code" means the Internal Revenue Code of 1986 and corresponding
provisions of subsequent revenue laws.
1.6 "Continuing Servicing Fee" means an amount equal to approximately
(0.25%) of the Limited Partnership's capital account which amount shall be paid
to certain participating Broker Dealers payable only in connection with the
initial offering of 150,000 Units pursuant to the Prospectus dated May 19, 1993.
1.7 "Deed of Trust" means the lien or liens created on the real
property or properties of the borrower securing the borrower's obligation to the
Partnership to repay the Mortgage Investment.
1.8 "Earnings" means all revenues earned by the Partnership less
all expenses incurred by the Partnership.
1.9 "Fiscal Year" means a year ending December 31st.
1.10 "First Formation Loan" means a loan to Redwood Mortgage Corp., an
affiliate of the General Partners, in connection with the initial offering of
150,000 Units pursuant to the Prospectus dated May 19, 1993, equal to the amount
of the sales commissions (excluding any Continuing Servicing Fees) and all
amounts payable in connection with any unsolicited sales. Redwood Mortgage Corp.
will pay all sales commissions (excluding any Continuing Servicing Fees) and all
amounts payable in connection with any unsolicited sales from the First
Formation Loan. The First Formation Loan will be unsecured, and will be repaid
in ten (10) equal annual installments of principal, without interest commencing
on December 31 of the year in which the initial offering terminates.
1.11 "Formation Loans" means collectively the First, Second and Third
Formation Loan.
1.12 "General Partners" means D. Russell Burwell, Michael R. Burwell, Gymno
Corporation, a California corporation, and Redwood Mortgage Corp., a California
corporation or any Person substituted in place thereof pursuant to this
Agreement. "General Partner" means any one of the General Partners.
1.13 "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross 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 contributed Partner and the Partnership;
(b) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the General Partners, as of the following times: (a) the acquisition of an
additional interest in the Partnership (other than pursuant to Section 4.2) 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 other than money, unless all
Partners receive simultaneous distributions of undivided interests in the
distributed property in proportion to their Interests in the Partnership; and
(c) the termination of the Partnership for federal income tax purposes pursuant
to Section 708(b)(1)(B) of the Code; and
(c) If the Gross Asset Value of an asset has been determined
or adjusted pursuant to clause (a) or (b) above, such Gross Asset Value shall
thereafter be adjusted by the depreciation, amortization or other cost recovery
deduction allowable which is taken into account with respect to such asset for
purposes of computing Profits and Losses.
1.14 "Guaranteed Payment for Offering Period" means the payment
guaranteed to Limited Partners by the General Partners during the Guaranteed
Payment Period. The Guaranteed Payment for Offering Period calculated on a
monthly basis, shall be equal to the greater of (i) the Partnership's Earnings
or (ii) the interest rate established by the Monthly Weighted Average Cost of
Funds for the 11th District Savings Institutions, as announced by the Federal
Home Loan Bank of San Francisco during the last week of the preceding month,
plus two points, up to a maximum interest rate of 12%. The Weighted Average Cost
of Funds is derived from interest paid on savings accounts, Federal Home Loan
Bank advances, and other borrowed money adjusted from valuation in the number of
days in each month. The adjustment factors are 1.086 for February, 1.024 for 30
day months and 0.981 for 31 day months. As of the date of the Prospectus, the
Monthly Weighted Average Funds for the 11th District as announced April 30,
2000, for the period ended March 31, 2000, and in effect until May 31, 2000, is
5.0%. The Guaranteed Payment Period is the period commencing on the day a
Limited Partner is admitted to the Partnership and ending three months after the
Offering Termination Date. To the extent the return to be paid is in excess of
the Partnership's Earnings, the Guaranteed Payment for Offering Period shall be
payable by the General Partners out of a Capital Contribution to the Partnership
and/or fees payable to the General Partners or Redwood Mortgage Corp. which are
lowered or waived.
1.15 "Limited Partners" means the Initial Limited Partner until it
shall withdraw as such, and the purchasers of Units in Redwood Mortgage
Investors VIII, who are admitted thereto and whose names are included on the
Certificate and Agreement of Limited Partnership of Redwood Mortgage Investors
VIII. Reference to a "Limited Partner" shall be to any one of them.
1.16 "Limited Partnership Interest" means the percentage ownership
interest of any Limited Partner in the Partnership determined at any time by
dividing a Limited Partner's current Capital Account by the total outstanding
Capital Accounts of all Limited Partners.
1.17 "Majority of the Limited Partners" means Limited Partners holding
a majority of the total outstanding Limited Partnership Interests as of the
first day of the current calendar month.
1.18 "Mortgage Investment(s)" or "Loans" means the loan(s) and/or an
undivided interest in the loans the Partnership intends to extend to the general
public secured by real property deeds of trust.
1.19 "Net Asset Value" means the Partnership's total assets less its total
liabilities.
1.20 "Partners" means the General Partners and the Limited Partners,
collectively. "Partner" means any one of the Partners.
1.21 "Partnership" means Redwood Mortgage Investors VIII, a California
limited partnership, the limited partnership created pursuant to this Agreement.
1.22 "Partnership Interest" means the percentage ownership interest of
each Partner in the partnership as defined in Section 5.1.
1.23 "Person" means any natural person, partnership, corporation,
unincorporated association or other legal entity.
1.24 "Profits" and "Losses" mean, for each Fiscal Year or any other
period, an amount equal to the Partnership's taxable income or loss for such
Fiscal Year or other given 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 Code Section 703(a)(1) shall be
included in taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section 1.21 shall be added to such taxable income or loss;
(b) 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 Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and
not otherwise taken into account in computing Profits or Losses pursuant to this
Section 1.21, shall be subtracted from such taxable income or loss.
(c) 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 Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(d) 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, amortization or other cost
recovery deductions for such Fiscal Year or other period, computed such that if
the Gross of an Asset Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of a Fiscal Year or other period,
depreciation, amortization or other cost recovery deductions shall be an amount
which bears the same ratio to such beginning Gross Asset Value as the federal
income tax depreciation, amortization or other cost recovery deductions for such
Fiscal Year or other period bears to such beginning adjusted tax basis; and
(e) Notwithstanding any other provision of this Section 1.21,
any items in the nature of income; or gain or expenses or losses, which are
specially allocated, shall not be taken into account in computing Profits or
Losses.
1.25 "Sales Commissions" means the amount of compensation, which may be
paid under one of two options, to be paid to Participating Broker Dealers in
connection with the sale of Units.
1.26 "Second Formation Loan" means the loan to Redwood Mortgage Corp.,
a General Partner, in connection with the second offering of 300,000 Units
pursuant to the Prospectuses dated December 4, 1996 and February 28, 2000 equal
to the amount of the sales commissions and the amounts payable in connection
with unsolicited sales. Redwood Mortgage Corp. will pay all sales commissions
and amounts due in connection with unsolicited sales from the Second Formation
Loan. The Second Formation Loan will be unsecured, will not bear interest and
will be repaid in annual installments.
1.27 "Third Formation Loan" means the loan to Redwood Mortgage Corp., a
General Partner, in connection with the offering of 30,000,000 Units pursuant to
the Prospectus dated July XX, 2000 equal to the amount of the sales commissions
and the amounts payable with the unsolicited sales. Redwood Mortgage Corp. will
pay all sales commissions and amounts due in connenction with the unsolicited
sales from the Third Formation Loan. The Third Formation Loan will be unsecured,
will not bear interest, and will be repaid in annual installments.
1.28 "Units" mean the shares of ownership of the Partnership issued to
Limited Partners upon their admission to the Partnership, pursuant to the
Partnership's Prospectuses dated February 2, 1993, December 4, 1996 and February
28, 2000, July XX, 2000 and any supplements or amendments thereto (the
"Prospectus").
ARTICLE 2
ORGANIZATION OF THE LIMITED PARTNERSHIP
2.1 Formation. The parties hereto hereby agree to form a limited
partnership, pursuant to the provision of Chapter 3, Title 2, of the California
Corporations Code, as in effect on the date hereof, commonly known as the
California Revised Limited Partnership Act (the "California Act").
2.2 Name. The name of the Partnership is REDWOOD MORTGAGE INVESTORS VIII, a
California limited partnership.
2.3 Place of Business. The principal place of business of the
Partnership shall be located at 650 El Camino Real, Suite G, Redwood City,
California 94063, until changed by designation of the General Partners, with
notice to all Limited Partners.
2.4 Purpose. The primary purpose of this Partnership is to engage in
business as a mortgage lender for the primary purpose of making Loans secured by
deeds of trust (the "Loans") on California real estate.
2.5 Substitution of Limited Partner. A Limited Partner may assign all
or a portion of his Partnership Interest and substitute another person in his
place as a Limited Partner only in compliance with the terms and conditions of
Section 7.2.
2.6 Certificate of Limited Partnership. The General Partners shall duly
execute and file with the Office of the Secretary of State of the State of
California, a Certificate of Limited Partnership pursuant to the provisions of
Section 15621 of the California Corporations Code. Thereafter, the General
Partners shall execute and cause to be filed Certificates of Amendment of the
Certificate of Limited Partnership whenever required by the California Act or
this Agreement. At the discretion of the General Partners, a certified copy of
the Certificate of Limited Partnership may also be filed in the Office of the
Recorder of any county in which the Partnership shall have a place of business
or in which real property to which it holds title shall be situated.
2.7 Term. The Partnership shall be formed and its term shall commence
as of the date on which this Limited Partnership Agreement is executed and the
Certificate of Limited Partnership referred to in Section 2.6 is filed with the
Office of the Secretary of State, and shall continue until December 31, 2032,
unless earlier terminated pursuant to the provisions of this Agreement or by
operation of law.
2.8 Power of Attorney. Each of the Limited Partners irrevocably
constitutes and appoints the General Partners, and each of them, any one of them
acting alone, as his true and lawful attorney-in-fact, with full power and
authority for him, and in his name, place and stead, to execute, acknowledge,
publish and file:
(a) This Agreement, the Certificate of Limited Partnership and any
amendments or conciliation thereof required under the laws of the State of
California;
(b) Any certificates, instruments and documents, including, without
limitation, Fictitious Business Name Statements, as may be required by, or may
be appropriate under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; and
(c) Any documents which may be required to effect the
continuation of the Partnership, the admission of an additional or substituted
Partner, or the dissolution and termination of the Partnership.
Each Limited Partner hereby agrees to execute and deliver to the
General Partners within five (5) days after receipt of the General Partners'
written request therefore, such other and further statements of interest and
holdings, designations, and further statements of interest and holdings,
designations, powers of attorney and other instruments that the General Partners
deem necessary to comply with any laws, rules or regulations relating to the
Partnership's activities.
2.9 Nature of Power of Attorney. The foregoing grant of authority is a
special power of attorney coupled with an interest, is irrevocable, and survives
the death of the undersigned or the delivery of an assignment by the undersigned
of a Limited Partnership Interest; provided, that where the assignee thereof has
been approved by the General Partners for admission to the Partnership as a
substituted Limited Partner, the Power of Attorney survives the delivery of such
assignment for the sole purpose of enabling the General Partners to execute,
acknowledge and file any instrument necessary to effect such substitution.
ARTICLE 3
THE GENERAL PARTNERS
3.1 Authority of the General Partners. The General Partners shall have
all of the rights and powers of a partner in a general partnership, except as
otherwise provided herein.
3.2 General Management Authority of the General Partners. Except as
expressly provided herein, the General Partners shall have sole and complete
charge of the affairs of the Partnership and shall operate its business for the
benefit of all Partners. Each of the General Partners, acting alone or together,
shall have the authority to act on behalf of the Partnership as to any matter
for which the action or consent of the General Partners is required or
permitted. Without limitation upon the generality of the foregoing, the General
Partners shall have the specific authority:
(a) To expend Partnership funds in furtherance of the business of the
Partnership and to acquire and deal with assets upon such terms as they deem
advisable, from affiliates and other persons;
(b) To determine the terms of the offering of Units, including the right to
increase the size of the offering or offer additional securities, the amount for
discounts allowable or commissions to be paid and the manner of complying with
applicable law;
(c) To employ, at the expense of the Partnership, such agents, employees,
independent contractors, attorneys and accountants as they deem reasonable and
necessary;
(d) To effect necessary insurance for the proper protection of the
Partnership, the General Partners or Limited Partners;
(e) To pay, collect, compromise, arbitrate, or otherwise adjust any and all
claims or demands against the Partnership;
(f) To bind the Partnership in all transactions involving the Partnership's
property or business affairs, including the execution of all loan documents and
the sale of notes and to change the Partnership's investment objectives,
notwithstanding any other provision of this Agreement; provided, however, the
General Partners may not, without the consent of a Majority of the Limited
Partners, sell or exchange all or substantially all of the Partnership's assets,
as those terms are defined in Section 9.1;
(g) To amend this Agreement with respect to the matters described in
Subsections 12.4(a) through (k) below;
(h) To determine the accounting method or methods to be used by the
Partnership, which methods may be changed at any time by written notice to all
Limited Partners;
(i) To open accounts in the name of the Partnership in one or more banks,
savings and loan associations or other financial institutions, and to deposit
Partnership funds therein, subject to withdrawal upon the signature of the
General Partners or any person authorized by them;
(j) To borrow funds for the purpose of making Loans, provided that the
amount of borrowed funds does not exceed fifty percent (50%) of the
Partnership's Loan portfolio and in connection with such borrowings, to pledge
or hypothecate all or a portion of the assets of the Partnership as security for
such loans; and
(k) To invest the reserve funds of the Partnership in cash, bank accounts,
certificates of deposits, money market accounts, short-term bankers acceptances,
publicly traded bond funds or any other liquid assets.
3.3 Limitations. Without a written consent of or ratification by all
Limited Partners, the General Partners shall have no authority to do any act
prohibited by law; or to admit a person as a Limited Partner other than in
accordance with the terms of this Agreement.
3.4 No Personal Liability. The General Partners shall have no personal
liability for the original invested capital or any Limited Partner or to repay
the Partnership any portion or all of any negative balance in their capital
accounts, except as otherwise provided in Article 4.
3.5 Compensation to General Partners. The General Partners shall be
entitled to be compensated and reimbursed for expenses incurred in performing
its management functions in accordance with the provisions of Article 10
thereof, and may receive compensation from parties other than the Partnership.
3.6 Fiduciary Duty. The General Partners shall have the fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, and they shall not employ such funds or assets in any manner except
for the exclusive benefit of the Partnership.
3.7 Allocation of Time to Partnership Business. The General Partners
shall not be required to devote full time to the affairs of the Partnership, but
shall devote whatever time, effort and skill they deem to be reasonably
necessary for the conduct of the Partnership's business. The General Partners
may engage in any other businesses or activities, including businesses related
to or competitive with the Partnership.
3.8 Assignment by a General Partner. A General Partner's interest in
income, losses and distributions of the Partnership shall be assignable at the
discretion of a General Partner, which, if made, may be converted, at a General
Partner's option, into a limited partnership interest to the extent of the
assignment.
3.9 Partnership Interest of General Partners. The General Partners
shall be allocated a total of one percent (1%) of all items of Partnership
income, gains, losses, deductions and credits as described in Section 5.1, which
shall be shared equally among them.
3.10 Removal of General Partners. A General Partner may be removed upon the
following conditions:
(a) By written consent of a majority of the Limited Partners.
Limited Partners may exercise such right by presenting to the General Partner a
notice, with their acknowledged signatures thereon, to the effect that the
General Partner is removed; the notice shall set forth the grounds for removal
and the date on which removal is become effective;
(b) Concurrently with such notice or within thirty (30) days
thereafter by notice similarly given, a majority of the Limited Partners may
also designate a successor as General Partner;
(c) Substitution of a new General Partner, if any, shall be
effective upon written acceptance of the duties and responsibilities of a
General Partner by the new General Partner. Upon effective substitution of a new
General Partner, this Agreement shall remain in full force and effect, except
for the change in the General Partner, and business of the Partnership shall be
continued by the new General Partner. The new General Partner shall thereupon
execute, file and record an amendment to the Certificate of Limited Partnership
in the manner required by law.
(d) Failure of the Limited Partners giving notice of removal
to designate a new General Partner within the time specified herein or failure
of the new General Partner so designated to execute written acceptance of the
duties and responsibilities of a General Partner hereunder within ten (10) days
after such designation shall dissolve and terminate the Partnership, unless the
business of the Partnership is continued by the remaining General Partners, if
any.
In the event that all of the General Partners are removed, no other
General Partners are elected, the Partnership is liquidated and Redwood Mortgage
Corp. is no longer receiving payments for services rendered, the debt on the
Formation Loan shall be forgiven by the Partnership and Redwood Mortgage Corp.
will be immediately released from any further obligation under the Formation
Loan.
3.11 Commingling of Funds. The funds of the Partnership shall not be
commingled with funds of any other person or entity.
3.12 Right to Rely on General Partners. Any person dealing with the
Partnership may rely (without duty of further inquiry) upon a certificate signed
by the General Partners as to:
(a) The identity of any General Partner or Limited Partner;
(b) The existence or nonexistence of any fact or facts which constitute a
condition precedent to acts by a General Partner or which are in any further
manner germane to the affairs of the Partnership;
(c) The persons who are authorized to execute and deliver any instrument or
document of the Partnership; or
(d) Any act or failure to act by the Partnership or any other matter
whatsoever involving the Partnership or any Partner.
3.13 Sole and Absolute Discretion. Except as otherwise provided in this
Agreement, all actions which any General Partner may take and all determinations
which any General Partner may take and all determinations which any General
Partners may make pursuant to this Agreement may be taken and made at the sole
and absolute discretion of such General Partner.
3.14 Merger or Reorganization of the General Partners. The following is
not prohibited and will not cause a dissolution of the Partnership: (a) a merger
or reorganization of the General Partners or the transfer of the ownership
interest of the General Partners; and (b) the assumption of the rights and
duties of the General Partners by the transferee of the rights and duties of the
General Partners by the transferee entity so long as such transferee is an
affiliate under the control of the General Partners.
3.15 Dissenting Limited Partners' Rights. If the Partnership
participates in any acquisition of the Partnership by another entity, any
combination of the Partnership with another entity through a merger or
consolidation, or any conversion of the Partnership into another form of
business entity (such as a corporation) that requires the approval of the
outstanding limited partnership interest, the result of which would cause the
other entity to issue securities to the Limited Partners, then each Limited
Partner who does not approve of such reorganization (the "Dissenting Limited
Partner") may require the Partnership to purchase for cash, at its fair market
value, the interest of the Dissenting Limited Partner in the Partnership in
accordance with Section 15679.2 of the California Corporations Code. The
Partnership, however, may itself convert to another form of business entity
(such as a corporation, trust or association) if the conversion will not result
in a significant adverse change in (i) the voting rights of the Limited
Partners, (ii) the termination date of the Partnership (currently, December 31,
2032, unless terminated earlier in accordance with the Partnership Agreement),
(iii) the compensation payable to the General Partners or their Affiliates, or
(iv) the Partnership's investment objectives.
The General Partners will make the determination as to whether or not
any such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of the Partnership; the tax consequences (from the
standpoint of the Limited Partners) of the conversion of the Partnership to
another form of business entity and of an investment in a limited partnership as
compared to an investment in the type of business entity into which the
Partnership would be converted; the historic and projected operating results of
the Partnership's Loans, and the then-current value and marketability of the
Partnership's Loans. In general, the General Partners would consider any
material limitation on the voting rights of the Limited Partners or any
substantial increase in the compensation payable to the General Partners or
their Affiliates to be a significant adverse change in the listed provisions.
3.16 Exculpation and Indemnification. The General Partners shall have
no liability whatsoever to the Partnership or to any Limited Partner, so long as
a General Partner determined in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the Partnership, and
such loss or liability did not result from the gross negligence or gross
misconduct of the General Partner being held harmless. The General Partners or
any Partnership employee or agent shall be entitled to be indemnified by the
Partnership, at the expense of the Partnership, against any loss or liability
(including attorneys' fees, which shall be paid as incurred) resulting from
assertion of any claim or legal proceeding relating to the activities of the
Partnership, including claims, or legal proceedings brought by a third party or
by Limited Partners, on their own behalf or as a Partnership derivative suit, so
long as the party to be indemnified determined in good faith that the course of
conduct which gave rise to such claim or proceeding was in the best interests of
the Partnership and such course of conduct did not constitute gross negligence
or gross misconduct; provided, however, any such indemnification shall only be
recoverable out of the assets of the Partnership and not from Limited Partners.
Nothing herein shall prohibit the Partnership from paying in whole or in part
the premiums or other charge for any type of indemnity insurance by which the
General Partners or other agents or employees of the Partnership are indemnified
or insured against liability or loss arising out of their actual or asserted
misfeasance or nonfeasance in the performance of their duties or out of any
actual or asserted wrongful act against the Partnership including, but not
limited to judgments, fines, settlements and expenses incurred in the defense of
actions, proceedings and appeals therefrom. Notwithstanding the foregoing,
neither the General Partners nor their affiliates shall be indemnified for any
liability imposed by judgment (including costs and attorneys' fees) arising from
or out of a violation of state or federal securities laws associated with the
offer and sale of Units offered hereby. However, indemnification will be allowed
for settlements and related expenses of lawsuits alleging securities law
violations and for expenses incurred in successfully defending such lawsuits
provided that (a) a court either approves indemnification of litigation costs if
the General Partners are successful in defending the action; or (b) the
settlement and indemnification is specifically approved by the court of law
which shall have been advised as to the current position of the Securities and
Exchange Commission (as to any claim involving allegations that the Securities
Act of 1933 was violated) and California Commissioner of Corporations or the
applicable state authority (as to any claim involving allegations that the
applicable state's securities laws were violated).
ARTICLE 4
CAPITAL CONTRIBUTIONS; THE LIMITED PARTNERS
4.1 Capital Contribution by General Partners. The General Partners,
collectively, shall contribute to the Partnership an amount in cash equal to
1/10 of 1% of the aggregate capital contributions of the Limited Partners.
4.2 Other Contributions.
(a) Capital Contribution by Initial Limited Partner. The Initial Limited
Partner made a cash capital contribution to the Partnership of $1,000. Upon the
admission of additional Limited Partners to the Partnership pursuant to Section
4.2(b) of this Agreement, the Partnership promptly refunded to the Initial
Limited Partner its $1,000 capital contribution and upon receipt of such sum the
Initial Limited Partner was withdrawn from the Partnership as its Initial
Limited Partner.
(b) Capital Contributions of Existing Limited Partners. The Existing
Limited Partners have contributed in the aggregate to the capital of the
Partnership an amount equal to $39,310,477 of March 31, 2000.
(c) Capital Contributions of New Limited Partners. The New Limited Partners
shall contribute to the capital of the Partnership an amount equal to one dollar
($1) for each Unit subscribed for by each such New Limited Partners, with a
minimum subscription of two thousand (2000) Units per Limited Partner (including
subscriptions from entities of which such limited partner is the sole beneficial
owner). The total additional capital contributions of the New Limited Partners
will not exceed $30,000,000.
(d) Escrow Account. No escrow account will be established and all proceeds
from the sale of Units will be remitted directly to the Partnership.
Subscription Agreements shall be accepted or rejected within 30 days of
their receipt. All subscription monies deposited by persons whose subscriptions
are rejected shall be returned to such subscribers forthwith after such
rejection without interest. The public offering of Units shall terminate one
year from the effective date of the Prospectus unless fully subscribed at an
earlier date or terminated on an earlier date by the General Partners, or unless
extended by the General Partners for additional one year periods.
(e) Subscription Account. Subscriptions received after the
activation of the Partnership will be deposited into a subscription account at a
federally insured commercial bank or other depository and invested in short-term
certificates of deposit, a money market or other liquid asset account.
Prospective investors whose subscriptions are accepted will be admitted into the
Partnership only when their subscription funds are required by the Partnership
to fund a Loan, or the Formation Loan, to create appropriate reserves or to pay
organizational expenses or other proper Partnership purposes. During the period
prior to admittance of investors as Limited Partners, proceeds from the sale of
Units are irrevocable, and will be held by the General Partners for the account
of Limited Partners in the subscription account. Investors' funds will be
transferred from the subscription account into the Partnership on a first-in,
first-out basis. Upon admission to the Partnership, subscription funds will be
released to the Partnership and Units will be issued at the rate of $1 per unit
or fraction thereof. Interest earned on subscription funds while in the
subscription account will be returned to the subscriber, or if the subscriber
elects to compound earnings, the amount equal to such interest will be added to
his investment in the Partnership, and the number of Units actually issued shall
be increased accordingly. In the event only a portion of a subscribing Limited
Partner's funds are required, then all funds invested by such subscribing
Limited Partners at the same time shall be transferred. Any subscription funds
remaining in the subscription account after the expiration of one (1) year from
the date any such subscription funds were first received by the General Partners
shall be returned to the subscriber.
(f) Admission of Limited Partners. Subscribers shall be
admitted as Limited Partners when their subscription funds are required by the
Partnership to fund a Loan, or the Formation Loan, to create appropriate
reserves or to pay organizational expenses, as described in the Prospectus.
Subscriptions shall be accepted or rejected by the General Partners on behalf of
the Partnership within 30 days of their receipt. Rejected subscriptions and
monies shall be returned to subscribers forthwith.
The Partnership shall amend Schedule A to the Limited Partnership
Agreement from time to time to effect the substitution of substituted Limited
Partners in the case of assignments, where the assignee does not become a
substituted Limited Partner, the Partnership shall recognize the assignment not
later than the last day of the calendar month following acceptance of the
assignment by the General Partners.
No person shall be admitted as a Limited Partner who has not executed
and filed with the Partnership the subscription form specified in the Prospectus
used in connection with the public offering, together with such other documents
and instruments as the General Partners may deem necessary or desirable to
effect such admission, including, but not limited to, the execution,
acknowledgment and delivery to the General Partners of a power of attorney in
form and substance as described in Section 2.8 hereof.
(g) Names, Addresses, Date of Admissions, and Contributions of
Limited Partners. The names, addresses, date of admissions and Capital
Contributions of the Limited Partners shall be set forth in Schedule A attached
hereto, as amended from time to time, and incorporated herein by reference.
4.3 Election to Receive Monthly, Quarterly or Annual Cash
Distributions. Upon subscription for Units, a subscribing Limited Partner must
elect whether to receive monthly, quarterly or annual cash distributions from
the Partnership or to have earnings retained in his capital account that will
increase it in lieu of receiving periodic cash distributions. If the Limited
Partner initially elects to receive monthly, quarterly or annual distributions,
such election, once made, is irrevocable. However, a Limited Partner may change
his election regarding whether he wants to receive such distributions on a
monthly, quarterly or annual basis. If the Limited Partner initially elects to
have earnings retained in his capital account in lieu of cash distributions, he
may after three (3) years, change his election and receive monthly, quarterly or
annual cash distributions. Earnings allocable to Limited Partners who elect to
have earnings retained in their capital account will have earnings retained by
the Partnership to be used for making further Loans or for other proper
Partnership purposes. The Earnings from such further Loans will be allocated
among all Partners; however, Limited Partners who elect to have earnings
retained in their capital account will be credited with an increasingly larger
proportionate share of such Earnings than Limited Partners who receive monthly,
quarterly or annual distributions since Limited Partners' Capital Accounts who
elect to have earnings retained in their capital accounts will increase over
time. Annual distributions will be made after the calendar year. In order to
provide greater flexibility to investors, the Partnership is going to register
with the Securities and Exchange Commission a dividend reinvestment plan. The
dividend reinvestment plan will be on substantially the same terms as described
herein with respect to the ability to receive monthly, quarterly or annual
distributions or to reinvest earnings. However, it will give Investors a greater
degree of flexibility of moving from one option to another throughout the term
of their investment in the Partnership. It is anticipated that the dividend
reinvestment plan will be filed during 2000 and take effect immediately. Until
the effectiveness of the dividend reinvestment plan is final, the foregoing
elect to receive cash distributions or reinvested earnings will remain in place.
4.4 Interest. No interest shall be paid on, or in respect of, any
contribution to Partnership Capital by any Partner, nor shall any Partner have
the right to demand or receive cash or other property in return for the
Partner's Capital Contribution.
4.5 Loans. Any Partner or Affiliate of a Partner may, with the written
consent of the General Partners, lend or advance money to the Partnership. If
the General Partners or, with the written consent of the General Partners, any
Limited Partner shall make any loans to the Partnership or advance money on its
behalf, the amount of any such loan or advance shall not be treated as a
contribution to the capital of the Partnership, but shall be a debt due from the
Partnership. The amount of any such loan or advance by a lending Partner or an
Affiliate of a Partner shall be repayable out of the Partnership's cash and
shall bear interest at a rate of not in excess of the greater of (i) the prime
rate established, from time to time, by any major bank selected by the General
Partners for loans to the bank's most creditworthy commercial borrowers, plus 5%
per annum, or (ii) the maximum rate permitted by law. None of the Partners or
their Affiliates shall be obligated to make any loan or advance to the
Partnership.
4.6 No Participation in Management. Except as expressly provided
herein, the Limited Partners shall take no part in the conduct or control of the
Partnership business and shall have no right or authority to act for or bind the
Partnership.
4.7 Rights and Powers of Limited Partners. In addition to the matters
described in Section 3.10 above, the Limited Partners shall have the right to
vote upon and take any of the following actions upon the approval of a Majority
of the Limited Partners, without the concurrence of the General Partners.
(a) Dissolution and termination of the Partnership prior to the expiration
of the term of the Partnership as stated in Section 2.7 above
(b) Amendment of this Agreement, subject to the limitations set forth in
Section 12.4;
(c) Disapproval of the sale of all or substantially all the assets of the
Partnership (as defined in Subsection 9.1(c) below); or
(d) Removal of the General Partners and election of a successor, in the
manner and subject to the conditions described in Section 3.10 above.
Except as expressly set forth above or otherwise provided for in this
Agreement, the Limited Partners shall have no other rights as set forth in the
California Act.
4.8 Meetings. The General Partners, or Limited Partners representing
ten percent (10%) of the outstanding Limited Partnership Interests, may call a
meeting of the Partnership and, if desired, propose an amendment to this
Agreement to be considered at such meeting. If Limited Partners representing the
requisite Limited Partnership Interests present to the General Partners a
statement requesting a Partnership meeting, the General Partners shall fix a
date for such meeting and shall, within twenty (20) days after receipt of such
statement, notify all of the Limited Partners of the date of such meeting and
the purpose for which it has been called. Unless otherwise specified, all
meetings of the Partnership shall be held at 2:00 P.M. at the office of the
Partnership, upon not less than ten (10) and not more than sixty (60) days
written notice. At any meeting of the Partnership, Limited Partners may vote in
person or by proxy. A majority of the Limited Partners, present in person or by
proxy, shall constitute a quorum at any Partnership meeting. Any question
relating to the Partnership which may be considered and acted upon by the
Limited Partners hereunder may be considered and acted upon by vote at a
Partnership meeting, and any consent required to be in writing shall be deemed
given by a vote by written ballot. Except as expressly provided above,
additional meeting and voting procedures shall be in conformity with Section
15637 of the California Corporations Code, as amended.
4.9 Limited Liability of Limited Partners. Units are non-assessable,
and no Limited Partner shall be personally liable for any of the expenses,
liabilities, or obligations of the Partnership or for any of the losses thereof
beyond the amount of such Limited Partners' capital contribution to the
Partnership and such Limited Partners' share of any undistributed net income and
gains of the Partnership, provided, that any return of capital to Limited
Partners (plus interest at the legal rate on any such amount from the date of
its return) will remain liable for the payment of Partnership debts existing on
the date of such return of capital; and, provided further, that such Limited
Partner shall be obligated upon demand by the General Partners to pay the
Partnership cash equal to the amount of any deficit remaining in his Capital
Account upon winding up and termination of the Partnership.
4.10 Representation of Partnership. Each of the Limited Partners hereby
acknowledges and agrees that the attorneys representing the Partnership and the
General Partners and their Affiliates do not represent and shall not be deemed
under the applicable codes of professional responsibility to have represented or
be representing any or all of the Limited Partners in any respect at any time.
Each of the Limited Partners further acknowledges and agrees that such attorneys
shall have no obligation to furnish the Limited Partners with any information or
documents obtained, received or created in connection with the representation of
the Partnership, the General Partners and/or their Affiliates.
ARTICLE 5
PROFITS AND LOSSES; CASH DISTRIBUTIONS
5.1 Income and Losses. All Income and Losses of the Partnership shall
be credited to and charged against the Partners in proportion to their
respective "Partnership Interests", as hereafter defined. The Partnership
Interest of the General Partners shall at all times be a total of one percent
(1%), to be shared equally among them and the Partnership Interest of the
Limited Partners collectively shall be ninety-nine percent (99%), which shall be
allocated among them according to their respective Limited Partnership
Interests.
<PAGE>
Income and Losses realized by the Partnership during any month shall be
allocated to the Partners as of the close of business on the last day of each
calendar month, in accordance with their respective Limited Partnership
Interests and in proportion to the number of days during such month that they
owned such Limited Partnership Interests, without regard to Income and Losses
realized with respect to time periods within such month.
5.2 Cash Earnings. Earnings as of the close of business on the last day
of each calendar month shall be allocated among the Partners in the same
proportion as Income and Losses as described in Section 5.1 above. Earnings
allocable to those Limited Partners who elect to receive cash distributions as
described below shall be distributed to them in cash as soon as practicable
after the end of each calendar month. The General Partners' allocable share of
Earnings shall also be distributed concurrently with cash distributions to
Limited Partners. Earnings allocable to those Limited Partners who elected to
receive additional Units shall be retained by the Partnership and credited to
their respective Capital Accounts as of the first day of the succeeding calendar
month. Earnings to Limited Partners shall be distributed only to those Limited
Partners who elect in writing, upon their initial subscription for the purchase
of Units or after three (3) years to receive such distributions during the term
of the Partnership. Each Limited Partner's decision whether to receive such
distributions shall be irrevocable, except as set forth in paragraph 4.3 above.
5.3 Cash Distributions Upon Termination. Upon dissolution and termination
of the Partnership, Cash Available for Distribution shall thereafter be
distributed to Partners in accordance with the provisions of Section 9.3 below.
5.4 Special Allocation Rules.
(a) For purposes of this Agreement, a loss or allocation (or
item thereof) is attributable to non-recourse debt which is secured by
Partnership property to the extent of the excess of the outstanding principal
balance of such debt (excluding any portion of such principal balance which
would not be treated as an amount realized under Internal Revenue Code Section
1001 and Paragraph (a) of Section 1.1001-2 if such debt were foreclosed upon
over the adjusted basis of such property. This excess is herein defined as
"Minimum Gain (whether taxable as capital gain or as ordinary income) as more
explicitly set forth in Treasury Regulation T.704 l(b)(4)(iv)(c).
Notwithstanding any other provision of Article V, the allocation of loss or
deduction (or item thereof, attributable to non-recourse debt which is secured
by Partnership property will be allowed only to the extent that such allocation
does not cause the sum of the deficit capital account balances of the Limited
Partners receiving such allocations to exceed the minimum gain determined at the
end of the Partnership able year to which the allocations relate. The balance of
such losses shall be allocated to the General Partners. Any Limited Partner with
a deficit capital account balance resulting in whole or in part from allocations
of loss or deduction (or item thereof) attributable to non-recourse debt which
is secured by Partnership property shall, to the extent possible, be allocated
income or gain (or item thereof) in an amount not less than the minimum gain at
a time no later than the time at which the minimum gain is reduced below the sum
if such deficit capital account balances. This section is intended and shall be
interpreted to comply with the requirements of Treasury Regulation Section
1.704-l(b)(4)(iv)(e).
(b) In the event any Limited Partner receives any adjustments,
allocations or distributions, not covered by Section 75.4(a), so as to result in
a deficit capital account, items of Partnership income and gain shall be
specially allocated to such Limited Partners in an amount and manner sufficient
to eliminate the deficit balances in their Capital Accounts created by such
adjustments, allocations or distributions as quickly as possible. This Section
shall operate a qualified income offset as utilized in Treasury Regulation
Section 1.704-1(b)(23)(ii)(d).
(c) Syndication expenses for any fiscal year or other period
shall be specially allocated to the Limited Partners in proportion to their
Units, provided that if additional Limited Partners are admitted to the
Partnership on different dates, all Syndication Expenses shall be divided among
the Persons who own Units from time to time so that, to the extent possible, the
cumulative Syndication Expenses allocated with respect to each Unit at any time
is the same amount. In the event the General Partners shall determine that such
result is not likely to be achieved through future allocations of Syndication
Expenses, the General Partners may allocate a portion of Net Income or Losses so
as to achieve the same effect on the Capital Accounts of the Unit Holders,
notwithstanding any other provision of this Agreement.
(d) For purposes of determining the Net Income, Net Losses, or
any other items allocable to any period, Net Income, Net Losses, and any such
other items shall be determined on a daily, monthly, or other basis, as
determined by the General Partners using any permissible method under Code
Section 706 and the Treasury Regulations thereunder.
(e) Notwithstanding Section 5.1 and 5.2 hereof, (i) Net Losses
allocable to the period prior to the admission of any additional Limited
Partners pursuant to Section 4.2(b) and (e) hereof shall be allocated 99% to the
General Partners and 1% to the Initial Limited Partner and Net Income during
that same period, if any, shall be allocated to the General Partners, and (ii)
Profits or Losses allocable to the period commencing with the admission of any
additional such Limited Partners and all subsequent periods shall be allocated
pursuant to Section 5.1.
(f) 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 divided among the Partners in the same
proportions as they share Net Income or Net Losses, as the case may be, for the
year.
(g) The General Partners may adopt any procedure or convention
they deem reasonable to account for unsolicited investments made by
Limited Partners and the payment of a portion of the Formation Loan to
such Partners' Capital Account.
5.5 704(c) Allocations. In accordance with Code 704(c) and the Treasury
Regulations thereunder income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any variation
between the adjusted basis of such property to the Partnership for federal
income tax purposes and its initial fair market value.
Any elections or other decisions relating to such allocations shall be
made by the General Partners in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this Section 5.5 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.
5.6 Intent of Allocations. It is the intent of the Partnership that
this Agreement comply with the safe harbor test set out in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(D) and 1.704-l(b)(4)(iv)(D) and the requirements of
those Sections, including the qualified income offset and minimum gain
chargeback, which are hereby incorporated by reference. If, for whatever
reasons, the Partnership is advised by counsel or its accountants that the
allocation provisions of this Agreement are unlikely to be respected for federal
income tax purposes, the General Partners are granted the authority to amend the
allocation provisions of this Agreement, to the minimum extent deemed necessary
by counsel or its accountants to effect the plan of Allocations and
Distributions provided in this Agreement. The General Partners shall have the
discretion to adopt and revise rules, conventions and procedures as it believes
appropriate with respect to the admission of Limited Partners to reflect
Partners' interests in the Partnership at the close of the years.
5.7 Guaranteed Payment for Offering Period. The Limited Partners shall
receive a guaranteed payment from the Earnings of the Partnership during the
Guaranteed Payment Period. The Guaranteed Payment for Offering Period,
calculated on a monthly basis, shall be equal to the greater of (i) the
Partnership's Earnings or (ii) the interest rate established by the Monthly
Weighted Average Cost of Funds for the 11th District Savings Institutions, as
announced by the Federal Home Loan Bank of San Francisco during the last week of
the preceding month, plus two points, up to a maximum interest rate of 12%. The
Weighted Average Cost of Funds is derived from the interest paid on savings
accounts, Federal Home Loan Bank advances, and other borrowed money adjusted for
valuation in the number of days in each month. The adjustment factors are 1.086
for February, 1.024 for 30 day months and 0.981 for 31 day months. As of the
date of the Prospectus the Monthly Weighted Average Cost of Funds for the 11th
District as announced August 30, 1999, for the period ended May 30, 1999, and in
effect until September 30, 1999, is 4.50%. The Guaranteed Payment Period is the
period commencing on the day a Limited Partner is admitted to the Partnership
and ending three months after the Offering Termination Date. To the extent the
interest rate to be paid is in excess of the Partnership's Earnings, the
Guaranteed Payment for Offering Period shall be payable by the General Partners
out of a Capital Contribution, to the Partnership and/or fees payable to the
General Partners or Redwood Mortgage Corp. which are lowered or waived.
Amounts paid pursuant to this Section 5.7 are intended to constitute
guaranteed payments within the meaning of I.R.C. Code Section 707(c) and shall
not be treated as distributions for purposes of computing the recipient's
Capital Accounts. In the event the Partnership is unable to make any payments
required to be made pursuant to this Section 5.7, the General Partners shall
promptly make additional Capital Contributions sufficient to enable the
Partnership to make such payments on a timely basis; provided however, that the
General Partners shall not be obligated to make such Capital Contribution if
such amounts would be subject to claims of creditors such that the guaranteed
payments would not be available to be made to the Limited Partners. In such
event, the General Partners shall pay the interest out of its fees as set forth
above.
ARTICLE 6
BOOKS AND RECORDS, REPORTS AND RETURNS
6.1 Books and Records. The General Partners shall cause the Partnership to
keep the following:
(a) Complete books and records of account in which shall be entered fully
and accurately all transactions and other matters relating to the Partnership.
(b) A current list setting forth the full name and last known business or
residence address of each Partner which shall be listed in alphabetical order
and stating his respective Capital Contribution to the Partnership and share in
Profits and Losses.
(c) A copy of the Certificate of Limited Partnership and all amendments
thereto.
(d) Copies of the Partnership's federal, state and local income tax returns
and reports, if any, for the six (6) most recent years.
(e) Copies of this Agreement, including all amendments thereto, and the
financial statements of the Partnership for the three (3) most recent years.
All such books and records shall be maintained at the Partnership's
principal place of business and shall be available for inspection and copying
by, and at the sole expense of, any Partner, or any Partner's duly authorized
representatives, during reasonable business hours.
6.2 Annual Statements. The General Partners shall cause to be prepared
at least annually, at Partnership expense, financial statements prepared in
accordance with generally accepted accounting principles and accompanied by a
report thereon containing an opinion of an independent certified public
accounting firm. The financial statements will include a balance sheet,
statements of income or loss, partners' equity, and changes in financial
position. The General Partners shall have prepared at least annually, at
Partnership expense: (i) a statement of Cash Flow; (ii) Partnership information
necessary in the preparation of the Limited Partners' federal and state income
tax returns; (iii) a report of the business of the Partnership; (iv) a statement
as to the compensation received by the General Partners and their Affiliates,
during the year from the Partnership which shall set forth the services rendered
or to be rendered by the General Partners and their Affiliates and the amount of
fees received; and (v) a report identifying distributions from (a) Earnings of
that year, (b) Earnings of prior years, (c) Working Capital Reserves and other
sources, and (d) a report on the costs reimbursed to the General Partners, which
allocation shall be verified by independent public accountants in accordance
with generally accepted auditing standards. Copies of the financial statements
and reports shall be distributed to each Limited Partner within 120 days after
the close of each taxable year of the Partnership; provided, however, all
Partnership information necessary in the preparation of the Limited Partners'
federal income tax returns shall be distributed to each Limited Partner not
later than 90 days after the close of each fiscal year of the Partnership.
6.3 Semi-Annual Report. Until the Partnership is registered under
Section 12(g) of the Securities Exchange Act of 1934, the General Partners shall
have prepared, at Partnership expense, a semi-annual report covering the first
six months of each fiscal year, commencing with the six-month period ending
after the Initial Closing Date, and containing unaudited financial statements
(balance sheet, statement of income or loss and statement of Cash Flow) and a
statement of other pertinent information regarding the Partnership and its
activities during the six-month period. Copies of this report shall be
distributed to each Limited Partner within 60 days after the close of the
six-month period.
6.4 Quarterly Reports. The General Partners shall cause to be prepared
quarterly, at Partnership Expense: (i) a statement of the compensation received
by the General Partners and Affiliates during the quarter from the Partnership,
which statement shall set forth the services rendered by the General Partners
and Affiliates and the amount of fees received, and (ii) other relevant
information. Copies of the statements shall be distributed to each Limited
Partner within 60 days after the end of each quarterly period. The information
required by Form 10-Q (if required to be filed with the Securities and Exchange
Commission) will be supplied to each Limited Partner within 60 days of each
quarterly period. If the Partnership is registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended, the General Partners shall cause to
be prepared, at Partnership expense, a quarterly report for each of the first
three quarters in each fiscal year containing unaudited financial statements
(consisting of a balance sheet, a statement of income or loss and a statement of
Cash Flow) and a statement of other pertinent information regarding the
Partnership and its activities during the period covered by the report. Copies
of the statements and other pertinent information shall be distributed to each
Limited Partner within 60 days after the close of the quarter covered by the
report of the Partnership. The quarterly financial statements shall be
accompanied by the report thereon, if any, of the independent accountants
engaged by the Partnership or, if there is no such report, the certificate of
the General Partners that the financial statements were prepared without audit
from the books and records of the Partnership. Copies of the financial
statements, if any, filed with the Securities and Exchange Commission shall be
distributed to each Limited Partner within 60 days after the close of the
quarterly period covered by the report of the Partnership.
6.5 Filings. The General Partners, at Partnership expense, shall cause
the income tax returns for the Partnership to be prepared and timely filed with
the appropriate authorities. The General Partners, at Partnership expense, shall
also cause to be prepared and timely filed, with appropriate federal and state
regulatory and administrative bodies, all reports required to be filed with
those entities under then current applicable laws, rules and regulations. The
reports shall be prepared by the accounting or reporting basis required by the
regulatory bodies. Any Limited Partner shall be provided with a copy of any of
the reports upon request without expense to him. The General Partners, at
Partnership expense, shall file, with the securities administrators for the
various states in which this Partnership is registered, as required by such
states, a copy of each report referred to this Article VI.
6.6 Suitability Requirements. The General Partners, at Partnership
expense, shall maintain for a period of at least four years a record of the
information obtained to indicate that a Limited Partner complies with the
suitability standards set forth in the Prospectus.
6.7 Fiscal Matters.
(a) Fiscal Year. The Partnership shall adopt a fiscal year beginning on the
first day of January of each year and ending on the last day of December;
provided, however, that the General Partners in their sole discretion may,
subject to approval by the Internal Revenue Service and the applicable state
taxing authorities at any time without the approval of the Limited Partners
change the Partnership's fiscal year to a period to be determined by the General
Partners.
(b) Method of Accounting. The accrual method of accounting shall be used
for both income tax purposes and financial reporting purposes.
(c) Adjustment of Tax Basis. Upon the transfer of an interest in the
Partnership, the Partnership may, at the sole discretion of the General
Partners, elect pursuant to Section 754 of the Internal Revenue Code of 1986, as
amended, to adjust the basis of the Partnership property as allowed by Sections
734(b) and 743(b) thereof.
6.8 Tax Matters Partner. In the event the Partnership is subject to
administrative or judicial proceedings for the assessment or collection of
deficiencies for federal taxes for the refund of overpayments of federal taxes
arising out of a Partner's distributive share of profits, Michael R. Burwell,
for so long as he is a General Partner, shall act as the Tax-Matters Partner
("TMP") and shall have all the powers and duties assigned to the TMP under
Sections 6221 through 6232 of the Code and the Treasury Regulations thereunder.
The Partners agree to perform all acts necessary under Section 6231 of the Code
and Treasury Regulations thereunder to designate Michael R. Burwell as the TMP.
ARTICLE 7
TRANSFER OF PARTNERSHIP INTERESTS
7.1 Interest of General Partners. A successor or additional General Partner
may be admitted to the Partnership as follows:
(a) With the consent of all General Partners and a Majority of
the Limited Partners, any General Partner may at any time designate one or more
Persons to be successors to such General Partner or to be additional General
Partners, in each case with such participation in such General Partner's
Partnership Interest as they may agree upon, provided that the Limited
Partnership Interests shall not affected thereby; provided, however, that the
foregoing shall be subject to the provisions of Section 9.1(d) below, which
shall be controlling in any situation to which such provisions are applicable.
(b) Upon any sale or transfer of a General Partner's
Partnership Interest, the successor General Partner shall succeed to all the
powers, rights, duties and obligations of the assigning General Partner
hereunder, and the assigning General Partner shall thereupon be irrevocably
released and discharged from any further liabilities or obligations of or to the
Partnership or the Limited Partners accruing after the date of such transfer.
The sale, assignment or transfer of all or any portion of the outstanding stock
of a corporate General Partner, or of any interest therein, or an assignment of
a General Partner's Partnership Interest for security purposes only, shall not
be deemed to be a sale or transfer of such General Partner's Partnership
interest subject to the provisions of this Section 7.1.
(c) In the event that all or any one of the initial General
Partners are removed by the vote of a majority of Limited Partners and a
successor or additional General Partner(s) is designated pursuant to Section
3.10, prior to a Person's admission as a successor or additional General Partner
pursuant to this Section 7.1, such Person shall execute in writing (i)
acknowledging that Redwood Mortgage Corp., a General Partner, has been repaying
the Formation Loans, which are discussed in Section 10.9, with the proceeds it
receives from loan brokerage commissions on Loans, fees received from the early
withdrawal penalties and fees for other services paid by the Partnership, and
(ii) agreeing that if such successor or additional General Partner(s) begins
using the services of another mortgage loan broker or loan servicing agent, then
Redwood Mortgage Corp. shall immediately be released from all further
obligations under the Formation Loans (except for a proportionate share of the
principal installment due at the end of that year, prorated according to the
days elapsed).
7.2 Transfer of Limited Partnership Interest. No assignee of the whole
or any portion of a Limited Partnership Interest in the Partnership shall have
the right to become a substituted Limited Partner in place of his assignor,
unless the following conditions are first met.
(a) The assignor shall designate such intention in a written instrument of
assignment, which shall be in a form and substance reasonably satisfactory to
the General Partners;
(b) The written consent of the General Partners to such substitution shall
be obtained, which consent shall not be unreasonably withheld, but which, in any
event, shall not be given if the General Partners determine that such sale or
transfer may jeopardize the continued ability of the Partnership to qualify as a
"partnership" for federal income tax purposes or that such sale or transfer may
violate any applicable securities laws (including any investment suitability
standards);
(c) The assignor and assignee named therein shall execute and acknowledge
such other instruments as the General Partners may deem necessary to effectuate
such substitution, including, but not limited to, a power of attorney with
provisions more fully described in Sections 2.8 and 2.9 above;
(d) The assignee shall accept, adopt and approve in writing all of the
terms and provisions of this Agreement as the same may have been amended;
(e) Such assignee shall pay or, at the election of the General Partners,
obligate himself to pay all reasonable expenses connected with such
substitution, including but not limited to reasonable attorneys' fees associated
therewith; and
The Partnership has received, if required by the General Partners, a
legal opinion satisfactory to the General Partners that such transfer will not
violate the registration provisions of the Securities Act of 1933, as amended,
which opinion shall be furnished at the Limited Partner's expense.
7.3 Further Restrictions on Transfers. Notwithstanding any provision to
the contrary contained herein, the following restrictions shall also apply to
any and all proposed sales, assignments and transfer of Limited Partnership
Interests, and any proposed sale, assignment or transfer in violation of same to
void ab initio.
(a) No Limited Partner shall make any transfer or assignment
of all or any part of his Limited Partnership Interest if said transfer or
assignment would, when considered with all other transfers during the same
applicable twelve month period, cause a termination of the Partnership for
federal or California state income tax purposes.
(b) Instruments evidencing a Limited Partnership Interest
shall bear and be subject to legend conditions in substantially the following
forms:
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 OR CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
(c) No Limited Partner shall make any transfer or assignment
of all or any of his Limited Partnership Interest if the General Partners
determine such transfer or assignment would result in the Partnership being
classified as a "publicly traded partnership" with the meaning of Section
7704(b) of the Code or any regulations or rules promulgated thereunder.
ARTICLE 8
WITHDRAWAL FROM PARTNERSHIP
8.1 Withdrawal by Limited Partners. No Limited Partner shall have the
right to withdraw from the Partnership, receive cash distributions or otherwise
obtain the return of all or any portion of his Capital Account balance for a
period of one year after such Limited Partner's initial purchase of Units,
except for monthly, quarterly or annual distributions of Cash Available for
Distribution, if any, to which such Limited Partner may be entitled pursuant to
Section 5.2 above. Withdrawal after a minimum one year holding period and before
the five year holding period as set forth below shall be permitted in accordance
with subsection (a) below. Additionally, as set forth below in subsection (g)
there shall be a limited right of withdrawal upon the death of a Limited
Partner. If a Limited Partner elects to withdraw either after the one (1) year
holding period or the five (5) year withholding period or his heirs elect to
withdraw after his death, he will continue to receive distributions or have
those Earnings compounded depending upon his initial election, based upon the
balance of his capital account during the withdrawal period. Limited Partners
may also withdraw after a five year holding period in accordance with subsection
b(i) and (ii). A Limited Partner may withdraw or partially withdraw from the
Partnership upon the following terms:
(a) A Limited Partner who desires to withdraw from the
Partnership after the expiration of the above referenced one year period shall
give written notice of withdrawal ("Notice of Withdrawal") to the General
Partners, which Notice of Withdrawal shall state the sum or percentage interests
to be withdrawn. Subject to the provisions of subsections (e) and (f) below,
such Limited Partner may liquidate part or all of his entire Capital Account in
four equal quarterly installments beginning the quarter following the quarter in
which the Notice of Withdrawal is given, provided that such notice was received
thirty (30) days prior to the end of the quarter. An early withdrawal under this
subsection (a) shall be subject to a 10% early withdrawal penalty applicable to
the sum withdrawn as stated in the Notice of Withdrawal. The 10% penalty shall
be subject to and payable upon the terms set forth in subsection (c) below.
(b) A Limited Partner who desires to withdraw from the
Partnership after the expiration of the above referenced five year period shall
give written notice of withdrawal ("Notice of Withdrawal") to the General
Partners, and subject to the provisions of subsections (e) and (f) below such
Limited Partner's Capital Account shall be liquidated as follows:
(i) Except as provided in subsection (b) ( ii) below, the Limited Partner's
Capital Account shall be liquidated in twenty (20) equal quarterly installments
each equal to 5% of the total Capital Account beginning the calendar quarter
following the quarter in which the Notice of Withdrawal is given, provided that
such notice is received thirty (30) days prior to the end of the preceding
quarter. Upon approval by the General Partners, the Limited Partner's Capital
Account may be liquidated upon similar terms over a period longer than twenty
(20) equal quarterly installments.
(ii) Notwithstanding subsection (b)(i) above, any Limited Partner may
liquidate part or all of his entire outstanding Capital Account in four equal
quarterly installments beginning of the calendar quarter following the preceding
quarter in which Notice of Withdrawal is given, provided that such notice was
received thirty (30) days prior to the end of the preceding quarter. An early
withdrawal under this subsection 8.1(b)(ii) shall be subject to a 10% early
withdrawal penalty applicable to any sums prior to the time when such sums could
have been withdrawn pursuant to the withdrawal provisions set forth in
subsection (a)(i) above.
(c) The 10% early withdrawal penalty will be deducted pro rata
from the Limited Partner's Capital Account. The 10% early withdrawal penalty
will be received by the Partnership, and a portion of the sums collected as such
early withdrawal penalty shall be applied by the Partnership toward the next
installment(s) of principal under the Formation Loan owed to the Partnership by
Redwood Mortgage Corp., a General Partner and any successor firm, as described
in Section 10.9 below. This portion shall be determined by the ratio between the
initial amount of the Formation Loan and the total amount of the organizational
and syndication costs incurred by the Partnership in this offering of Units. The
balance of such early withdrawal penalties shall be retained by the Partnership
for its own account. After the Formation Loan has been paid, the 10% early
withdrawal penalty will be used to pay the Continuing Servicing Fee, as set
forth in Section 10.13 below. The balance of such early withdrawal penalties
shall be retained by the Partnership for its own account.
(d) Commencing with the end of the calendar month in which
such Notice of Withdrawal is given, and continuing on or before the twentieth
day after the end of each month thereafter, any Cash Available for Distribution
allocable to the Capital Account (or portion thereof) with respect to which
Notice of Withdrawal has been given shall also be distributed in cash to the
withdrawing Limited Partner in the manner provided in Section 5.2 above.
(e) During the liquidation period described in subsections
8.1(a) and (b), the Capital Account of a withdrawing Limited Partner shall
remain subject to adjustment as described in Section 1.3 above. Any reduction in
said Capital Account by reason of an allocation of Losses, if any, shall reduce
all subsequent liquidation payments proportionately. In no event shall any
Limited Partner receive cash distributions upon withdrawal from the Partnership
if the effect of such distribution would be to create a deficit in such Limited
Partner's Capital Account.
(f) Payments to withdrawing Limited Partners shall at all times be subject to
the availability of sufficient cash flow generated in the ordinary course of the
Partnership's business, and the Partnership shall not be required to liquidate
outstanding Loans prior to their maturity dates for the purposes of meeting the
withdrawal requests of Limited Partners. For this purpose, cash flow is
considered to be available only after all current Partnership expenses have been
paid (including compensation to the General Partners and Affiliates) and
adequate provision has been made for the payment of all monthly or annual cash
distributions on a pro rata basis which must be paid to Limited Partners who
elected to receive such distributions upon subscription for Units pursuant to
Section 4.3 or who changed their initial election to compound Earnings as set
forth in Section 4.3. Furthermore, no more than 20% of the total Limited
Partners' Capital Accounts outstanding for the beginning of any calendar year
shall be liquidated during any calendar year. If Notices of Withdrawal in excess
of these limitations are received by the General Partners, the priority of
distributions among Limited Partners shall be determined as follows: first, to
those Limited Partners withdrawing Capital Accounts according to the 20 quarter
or longer installment liquidation period described under subsection (b)(i)
above, then to ERISA plan Limited Partners withdrawing Capital Accounts under
subsection (b)(ii) above, then to all other Limited Partners withdrawing Capital
Accounts under subsection (b)(ii) above, then to Administrators withdrawing
Capital Accounts under subsection (g) below, and finally to all other Limited
Partners withdrawing Capital Accounts under subsection (a) above.
(g) Upon the death of a Limited Partner, a Limited Partner's heirs or executors
may, subject to certain conditions as set forth herein, liquidate all or a part
of the deceased Limited Partner's investment without penalty. An executor, heir
or other administrator of the Limited Partner's estate (for ease of reference
the "Administrator") shall give written notice of withdrawal ("Notice of
Withdrawal") to the General Partners within 6 months of the Limited Partner's
date of death. The total amount available to be liquidated in any one year shall
be limited to $50,000. The liquidation of the Limited Partner's capital account
in any one year shall be made in four equal quarterly installments beginning the
calendar quarter following the quarter in which time the Notice of Withdrawal is
received. Due to the complex nature of administering a decedent's estate, the
General Partners reserve the right and discretion to request any and all
information they deem necessary and relevant in determining the date of death,
the name of the beneficiaries and/or any other matters they deem relevant. The
General Partners retain the discretion to refuse or to delay the liquidation of
a deceased Limited Partner's investment unless or until the General Partners
have received all such information they deem relevant. The liquidation of a
Limited Partner's capital account pursuant to this subsection is subject to the
provisions of subsections 8.1(d), (e) and (f) above.
8.2 Retirement by General Partners. Any one or all of the General
Partners may withdraw ("retire") from the Partnership upon not less than six (6)
months written notice of the same to all Limited Partners. Any retiring General
Partner shall not be liable for any debts, obligations or other responsibilities
of the Partnership or this Agreement arising after the effective date of such
retirement.
8.3 Payment to Terminated General Partner. If the business of the
Partnership is continued as provided in Section 9.1(d) or 9.1(e) below upon the
removal, retirement, death, insanity, dissolution, or bankruptcy of a General
Partner, then the Partnership shall pay to such General Partner, or his/its
estate, a sum equal to such General Partner's outstanding Capital Account as of
the date of such removal, retirement, death, insanity, dissolution or
bankruptcy, payable in cash within thirty (30) days after such date. If the
business of the Partnership is not so continued, then such General Partner shall
receive from the Partnership such sums as he may be entitled to receive in the
course of terminating the Partnership and winding up its affairs, as provided in
Section 9.3 below.
ARTICLE 9
DISSOLUTION OF THIS PARTNERSHIP; MERGER OF THE PARTNERSHIP
9.1 Events Causing Dissolution. The Partnership shall dissolve upon
occurrence of the earlier of the following events:
(a) Expiration of the term of the Partnership as stated in Section 2.7
above.
(b) The affirmative vote of a majority of the Limited Partners.
(c) The sale of all or substantially all of the Partnership's assets;
provided, for purposes of this Agreement the term "substantially all of the
Partnership's assets" shall mean assets comprising not less than seventy percent
(70%) of the aggregate fair market value of the Partnership's total assets as of
the time of sale.
(d) The retirement, death, insanity, dissolution or bankruptcy of a General
Partner unless, within ninety (90) days after any such event (i) the remaining
General Partners, if any, elect to continue the business of the Partnership, or
(ii) if there are no remaining General Partners, all of the Limited Partners
agree to continue the business of the Partnership and to the appointment of a
successor General Partner who executes a written acceptance of the duties and
responsibilities of a General Partner hereunder.
(e) The removal of a General Partner, unless within ninety (90) days after
the effective date of such removal (i) the remaining General Partners, if any,
elect to continue the business of the Partnership, or (ii) if there are no
remaining General Partners, a successor General Partner is approved by a
majority of the Limited Partners as provided in Section 3.7 above, which
successor executes a written acceptance as provided therein and elects to
continue the business of the Partnership.
(f) Any other event causing the dissolution of the Partnership under the
laws of the State of California.
9.2 Winding Up and Termination. Upon the occurrence of an event of
dissolution, the Partnership shall immediately be terminated, but shall continue
until its affairs have been wound up. Upon dissolution of the Partnership,
unless the business of the Partnership is continued as provided above, the
General Partners will wind up the Partnership's affairs as follows:
(a) No new Loans shall be made or purchased;
(b) Except as may be agreed upon by a majority of the Limited
Partners in connection with a merger or consolidation described in Sections 9.5,
9.6 or 9.7, the General Partners shall liquidate the assets of the Partnership
as promptly as is consistent with recovering the fair market value thereof,
either by sale to third parties or by servicing the Partnership's outstanding
Loans in accordance with their terms; provided, however, the General Partners
shall liquidate all Partnership assets for the best price reasonably obtainable
in order to completely wind up the Partnership's affairs within five (5) years
after the date of dissolution;
<PAGE>
(c) Except as may be agreed upon by a majority of the Limited
Partners in connection with a merger or consolidation described in Sections 9.5,
9.6 or 9.7, all sums of cash held by the Partnership as of the date of
dissolution, together with all sums of cash received by the Partnership during
the winding up process from any source whatsoever, shall be distributed in
accordance with Section 9.3 below.
9.3 Order of Distribution of Assets. In the event of dissolution as
provided in Section 9.1 above, the cash of the Partnership shall be distributed
as follows:
(a) All of the Partnership's debts and liabilities to persons other than
Partners shall be paid and discharged;
(b) All of the Partnership's debts and liabilities to Partners shall be
paid and discharged;
(c) The balance of the cash of the Partnership shall be distributed to the
Partners in proportion to their respective outstanding Capital Accounts.
Upon dissolution, each Limited Partner shall look solely to the assets
of the Partnership for the return of his Capital Contribution, and if the
Partnership assets remaining after the payment or discharge of the debts and
liabilities of the Partnership is insufficient to return the Capital
Contribution of each Limited Partner, such Limited Partner shall have no
recourse against the General Partners or any other Limited Partner. The
winding-up of the affairs of the Partnership and the distribution of its assets
shall be conducted exclusively by the General Partners. It is hereby authorized
to do any and all acts and things authorized by law for these purposes. In the
event of insolvency, dissolution, bankruptcy or resignation of all of the
General Partners or removal of the General Partners by the Limited Partners, the
winding up of the affairs of the Partnership and the distribution of its assets
shall be conducted by such person or entity as may be selected by a vote of a
majority of the outstanding Units, which person or entity is hereby authorized
to do any and all acts and things authorized by law for such purposes.
9.4 Compliance With Timing Requirements of Regulations. In the event
the Partnership is "liquidated" within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this
Article 9 (if such liquidation constitutes a dissolution of the Partnership) or
Article 5 hereof (if it does not) to the General Partners and Limited Partners
who have positive Capital Accounts in compliance with Treasury Regulation
Section 1.704-1(b)(2)(ii)(b)(2) and (b) if the General Partners' Capital
Accounts have a deficit balance (after giving effect to all contributions,
distributions, and allocations for all taxable years, including the year during
which such liquidation occurs), such General Partners shall contribute to the
capital of the Partnership the amount necessary to restore such deficit balance
to zero in compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3);
9.5 Merger or Consolidation of the Partnership. The Partnership's
business may be merged or consolidated with one or more limited partnerships
that are Affiliates of the Partnership, provided the approval of the required
percentage in interest of Partners is obtained pursuant to Section 9.6. Any such
merger or consolidation may be effected by way of a sale of the assets of, or
units in, the Partnership or purchase of the assets of, or units in, another
limited partnership(s), or by any other method approved pursuant to Section 9.6.
In any such merger or consolidation, the Partnership may be either a
disappearing or surviving entity.
9.6 Vote Required. The principal terms of any merger or consolidation
described in Section 9.5 must be approved by the General Partners and by the
affirmative vote of a Majority of the Limited Partners.
9.7 Sections Not Exclusive. Sections 9.5 and 9.6 shall not be
interpreted as setting forth the exclusive means of merging or consolidating the
Partnership in the event that the California Revised Limited Partnership Act, or
any successor statute, is amended to provide a statutory method by which the
Partnership may be merged or consolidated.
ARTICLE 10
TRANSACTIONS BETWEEN THE PARTNERSHIP,
THE GENERAL PARTNERS AND AFFILIATES
10.1 Loan Brokerage Commissions. The Partnership will enter into Loan
transactions where the borrower has employed and agreed to compensate the
General Partners or an Affiliate of the General Partners to act as a broker in
arranging the loan. The exact amount of the Loan Brokerage Commissions are
negotiated with prospective borrowers on a case by case basis. It is estimated
that such commissions will be approximately three percent (3%) to six percent
(6%) of the principal amount of each Loan made during that year. The Loan
Brokerage Commissions shall be capped at 4% of the Partnership's total assets
per year.
10.2 Loan Servicing Fees. A General Partner or an Affiliate of a
General Partner may act as servicing agent with respect to all Loans, and in
consideration for such collection efforts he/it shall be entitled to receive a
monthly servicing fee up to one-eighth of one percent (.125%) of the total
unpaid principal balance of each Loan serviced, or such higher amount as shall
be customary and reasonable between unrelated Persons in the geographical area
where the property securing the Loan is located. The General Partners or an
Affiliate may lower such fee for any period of time and thereafter raise it up
to the limit set forth above.
10.3 Escrow and Other Loan Processing Fees. The General Partners or an
Affiliate of a General Partner may act as escrow agent for Loans made by the
Partnership, and may also provide certain document preparation, notarial and
credit investigation services, for which services the General Partners shall be
entitled to receive such fees as are permitted by law and as are generally
prevailing in the geographical area where the property securing the Loan is
located.
10.4 Asset Management Fee. The General Partners shall receive a monthly
fee for managing the Partnership's Loan portfolio and general business
operations in an amount up to 1/32 of one percent (.03125%) of the total "net
asset value" of all Partnership assets (as hereafter defined), payable on the
first day of each calendar month until the Partnership is finally wound up and
terminated. "Net asset value" shall mean total Partner's capital, determined in
accordance with generally accepted accounting principles as of the last day of
the preceding calendar month. The General Partners, in their discretion, may
lower such fee for any period of time and thereafter raise it up to the limit
set forth above.
10.5 Reconveyance Fees. The General Partners may receive a fee from a
borrower for reconveyance of a property upon full payment of a loan in an amount
as is generally prevailing in the geographical area where the property is
located.
10.6 Assumption Fees. A General Partner or an Affiliate of the General
Partners may receive a fee payable by a borrower for assuming a Loan in an
amount equal to a percentage of the Loan or a set fee.
10.7 Extension Fee. A General Partner or an Affiliate of the General
Partners may receive a fee payable by a borrower for extending the Loan period
in an amount equal to a percentage of the loan.
10.8 Prepayment and Late Fees. Any prepayment and late fees collected by a
General Partner or an Affiliate of the General Partners in connection with Loans
shall be paid to the Partnership.
10.9 Formation Loans to Redwood Mortgage Corp. The Partnership may lend
to Redwood Mortgage Corp., a sum not to exceed 10% of the total amount of
Capital Contributions to the Partnership by the Limited Partners, the proceeds
of which shall be used solely for the purpose of paying selling commissions and
all amounts payable in connection with unsolicited orders received by the
General Partners. The Formation Loans shall be unsecured and shall be evidenced
by a non-interest bearing promissory note executed by Redwood Mortgage Corp. in
favor of the Partnership. The First Formation Loan is being repaid in ten (10)
equal annual installments of principal without interest, commencing on December
31, 1996. As of March 31, 2000, the total aggregate amount of the First
Formation Loan equaled $1,074,840 of which $372,647 had been repaid by Redwood
Mortgage Corp. The Second Formation Loan will be repaid as follows: Upon the
commencement of the offering in December, 1996, Redwood Mortgage Corp. has made
annual installments of one-tenth of the principal balance of the Formation loan
as of December 31 of each year. Such payment shall be due and payable by
December 31 of the following year. As of March 31, 2000, the Partnership had
loaned $1,908,840 to Redwood Mortgage Corp. of which $159,994 had been repaid.
The principal balance of the Second Formation Loan will increase as additional
sales of Units are made each year. The amount of the annual installment payment
to be made by Redwood Mortgage Corp. during the offering stage, will be
determined by the principal balance of the Second Formation Loan on December 31
of each year. Upon the completion of the offering, the balance of the Second
Formation Loan will be repaid in ten (10) equal annual installments of
principal, without interest, commencing on December 31 of the year following the
year this offering terminates. As the second offering will terminate when the
third offering is approved, equal annual installments shall commence on December
31, 2001. The Third Formation Loan will be repaid under the same terms and
conditions as the Second Formation Loan. Redwood Mortgage Corp. at its option
may prepay all or any part of the Formation Loans. Redwood Mortgage Corp. will
repay the Formation Loans principally from loan brokerage commissions earned on
Loans, early withdrawal penalties and other fees paid by the Partnership. Since
Redwood Mortgage Corp. will use the proceeds from loan brokerage commissions on
Loans to repay the Formation Loans and, with respect to the initial offering of
150,000 Units, for the continued payment of the Continuing Servicing Fees, if
all or any one of the initial General Partners is removed as a General Partner
by the vote thereafter designated, and if such successor or additional General
Partner(s) begins using any other loan brokerage firm for the placement of
Loans, Redwood Mortgage Corp. will be immediately released from any further
obligation under the Formation Loans (except for a proportionate share of the
principal installment due at the end of that year, pro rated according to the
days elapsed and for the continued payment of the Continuing Servicing Fees with
respect to the initial offering of 150,000 Units.) In addition, if all of the
General Partners are removed, no successor General Partners are elected, the
Partnership is liquidated and Redwood Mortgage Corp. is no longer receiving any
payments for services rendered, the debt on the Formation Loans shall be
forgiven and Redwood Mortgage Corp. will be immediately released from any
further obligations under the Formation Loans or Continuing Servicing Fees with
respect to the initial offering of 150,000 Units.
<PAGE>
10.10 Sale of Loans and Loans Made to General Partners or Affiliates.
The Partnership may sell existing Loans to the General Partners or their
Affiliates, but only so long as the Partnership receives net sales proceeds from
such sales in an amount equal to the total unpaid balance of principal, accrued
interest and other charges owing under such Loan, or the fair market value of
such Loan, whichever is greater. Notwithstanding the foregoing, the General
Partners shall be under no obligation to purchase any Loan from the Partnership
or to guarantee any payments under any Loan. Generally, Loans will not be made
to the General Partners or their Affiliates. However, the Partnership may make
the Formation Loans to Redwood Mortgage Corp. and may in certain limited
circumstances, loan funds to Affiliates to purchase real estate owned by the
Partnership as a result of foreclosure.
10.11 Purchase of Loans from General Partners or Affiliates. The
Partnership may purchase existing Loans from the General Partners or Affiliates,
provided that the following conditions are met:
(a) At the time of purchase the borrower shall not be in default under the
Loan;
(b) No brokerage commissions or other compensation by way of premiums or
discounts shall be paid to the General Partners or their Affiliates by reason of
such purchase; and
(c) If such Loan was held by the seller for more than 180 days, the seller
shall retain a ten percent (10%) interest in such Loan.
10.12 Interest. Redwood Mortgage Corp. shall be entitled to keep interest
if any, earned on the Loans between the date of deposit of borrower's funds into
Redwood Mortgage Corp.'s trust account and date of payment of such funds by
Redwood Mortgage Corp.
10.13 Sales Commissions.
(a) The Units are being offered to the public on a best
efforts basis through the Participating Broker-Dealers. The Participating
Broker-Dealers may receive commissions as follows: at the rate of either (5%) or
(9%) (depending upon the investor's election to receive cash distributions or to
compound earnings and acquire additional Units in the Partnership) of the Gross
Proceeds on all of their sales. In no event will the total of all compensation
payable to Participating Broker Dealers, including sales commissions, expense
reimbursements, sales seminars and/or due diligence expenses exceed ten percent
(10%) of the program proceeds received plus an additional (0.5%) for bona fide
due diligence expenses as set forth in Rule 2810 of the NASD Conduct Rules.
Further, in no event shall any individual Participating Broker Dealer receive
total compensation including sales commissions, expense reimbursements, sales
seminar or expense reimbursement exceed (10%) of the gross proceeds of their
sales plus an additional (0.5%) for bona fide due diligence expenses as set
forth in Rule 2810 of the NASD Conduct Rules (the "Compensation Limitation").In
the event the Partnership receives any unsolicited orders directly from an
investor who did not utilize the services of a Participating Broker Dealer,
Redwood Mortgage Corp. through the Formation Loans will pay to the Partnership
an amount equal to the amount of the sales commissions otherwise attributable to
a sale of a Unit through a Participating Broker Dealer. The Partnership will in
turn credit such amounts received from Redwood Mortgage Corp. to the account of
the Investor who placed the unsolicited order. All unsolicited orders will be
handled only by the General Partners.
Sales commissions will not be paid by the Partnership out of the offering
proceeds. All sales commissions will be paid by Redwood Mortgage Corp., which
will also act as the mortgage loan broker for all Loans as set forth in Section
10.7 above. With respect to the initial offering of 150,000 Units, the
Continuing Servicing Fee will be paid by Redwood Mortgage Corp., but will not be
included in the first Formation Loan. The Partnership will loan to Redwood
Mortgage Corp. funds in an amount equal to the sales commissions and all amounts
payable in connection with unsolicited sales by the General Partners, as a
Formation Loan. With respect to the initial offering of 150,000 Units, Redwood
Mortgage Corp. will use the proceeds from loan brokerage commissions on Loans to
pay the Continuing Servicing Fees, and if all or any one of the initial General
Partners is removed as a General Partner by the vote thereafter designated, if
such successor or additional General Partner(s) use any other loan brokerage
firm for the placement of Loans, Redwood Mortgage Corp. will be immediately
released from any further obligation to continue to pay any Continuing Servicing
Fees. In addition, if all of the General Partners are removed, no successor
General Partners are elected, the Partnership is liquidated and Redwood Mortgage
Corp. is no longer receiving any payments for services rendered, Redwood
Mortgage Corp. will be immediately released from any further obligation to
continue to pay any Continuing Servicing Fee in connection with the initial
offering of 150,000 Units. Units may also be offered or sold directly by the
General Partners for which they will receive no sales commissions. The
Partnership shall reimburse Participating Broker-Dealers for bona fide due
diligence expenses in an amount up to (.5%) of the Gross Proceeds.
(b)
<PAGE>
Sales by Registered Investment Advisors. The General Partners
may accept unsolicited orders received directly from Investors if an Investor
utilizes the services of a registered investment advisor. A registered
investment advisor is an investment professional retained by a Limited Partner
to advise him regarding all of his assets, not just an investment in the
Partnership. Registered investment advisors are paid by the Investor based upon
the total amount of the Investor's assets being managed by the registered
investment advisor.
If an investor utilizes the services of a registered investment advisor,
Redwood Mortgage Corp. will pay to the Partnership an amount equal to the sales
commission otherwise attributable to a sale of Units through a participating
broker dealer. The Partnership will in turn credit such amounts received by
Redwood Mortgage Corp. to the account of the Investor who placed the unsolicited
order.
If an Investor acquires units directly through the services of a registered
investment advisor, the Investor will have the election to authorize the
Partnership to pay the registered investment advisor an estimated quarterly
amount of no more than 2% annually of his capital account that would otherwise
be paid as periodic cash distributors or compounded as earnings. For ease of
reference, we refer to these as "Client Fees." The payment of Client Fees will
be paid from those amounts that would otherwise be distributable to you or
compounded in your capital account. The payment of Client Fees is noncumulative
and subject to the availability of sufficient earnings in your capital account.
In no event will any such Client Fees be paid to us as sales commissions or
other compensation. The Partnership is merely agreeing as an administrative
convenience to pay the registered investment advisor a portion of those amounts
that would be paid to you.
All registered investment advisors will be required to represent and
warrant to the Partnership, that among other things, the investment in the units
is suitable for the Investor, that he has informed the Investor of all pertinent
facts relating to the liquidating and marketability of the units, and that if he
is affiliated with a NASD registered broker or dealer, that all Client Fees
received by him in connection with any transactions with the Partnership will be
run through the books and records of the NASD member in compliance with Notice
to Members 96-33 and Rules 3030 and 3040 of the NASD Conduct Rules.
10.14 Reimbursement of Organizational Expenses. The General Partners
may be reimbursed for, or the Partnership may pay directly, all expenses in
connection with the organization or offering of the Units including, without
limitation, attorneys' fees, accounting fees, printing costs and other selling
expenses (other than underwriting commissions) in an amount equal to the lesser
of ten percent (10%) of the gross proceeds of the Offering or $1,200,000. The
General Partners may, at their election, any offering and organization expenses
in excess of this amount.
10.15 Reimbursement. The Partnership shall reimburse the General
Partners or their Affiliates for the actual cost to the General Partners or
their Affiliates (or pay directly), the cost of goods and materials used for or
by the Partnership and obtained from entities unaffiliated with the General
Partners or their Affiliates. The Partnership shall also pay or reimburse the
General Partners or their Affiliates for the cost of administrative services
necessary to the prudent operation of the Partnership, provided that such
reimbursement will be at the lower of (A) the actual cost to the General
Partners or their Affiliates of providing such services, or (B) 90% of the
amount the Partnership would be required to pay to non affiliated persons
rendering similar services in the same or comparable geographical location. The
cost of administrative services as used in this subsection shall mean the pro
rata cost of personnel, including an allocation of overhead directly
attributable to such personnel, based on the amount of time such personnel spent
on such services, or other method of allocation acceptable to the program's
independent certified public accountant.
10.16 Non-reimbursable Expenses. The General Partners will pay and will
not be reimbursed by the Partnership for any general or administrative overhead
incurred by the General Partners in connection with the administration of the
Partnership which is not directly attributable to services authorized by
Sections 10.15 or 10.17.
10.17 Operating Expenses. Subject to Sections 10.14 and 10.15 and 10.16
all expenses of the Partnership shall be billed directly to and paid by the
Partnership which may include, but are not limited to: (i) all salaries,
compensation, travel expenses and fringe benefits of personnel employed by the
Partnership and involved in the business of the Partnership. including persons
who may also be employees of the General Partners or Affiliates of the General
Partners, but excluding control persons of either the General Partners or
Affiliates of the General Partners, (ii) all costs of borrowed money, taxes and
assessments on Partnership properties foreclosed upon and other taxes applicable
to the Partnership, (iii) legal, audit, accounting, and brokerage fees, (iv)
printing, engraving and other expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and recording of documents
evidencing ownership of an interest in the Partnership or in connection with the
business of the Partnership, (v) fees and expenses paid to leasing agents,
consultants, real estate brokers, insurance brokers, and other agents, (vi)
costs and expenses of foreclosures, insurance premiums, real estate brokerage
and leasing commissions and of maintenance of such property, (vii) the cost of
insurance as required in connection with the business of the Partnership, (viii)
expenses of organizing, revising, amending, modifying or terminating the
Partnership, (ix) expenses in connection with Distributions made by the
Partnership, and communications, bookkeeping and clerical work necessary in
maintaining relations with the Limited Partners and outside parties, including
the cost of printing and mailing to such persons certificates for Units and
reports of meetings of the Partnership, and of preparation of proxy statements
and solicitations of proxies in connection therewith, (x) expenses in connection
with preparing and mailing reports required to be furnished to the Limited
Partners for investor, tax reporting or other purposes, or other reports to the
Limited Partners which the General Partners deem to be in the best interests of
the Partnership, (xi) costs of any accounting, statistical or bookkeeping
equipment and services necessary for the maintenance of the books and records of
the Partnership including, but not limited to, computer services and time, (xii)
the cost of preparation and dissemination of the information relating to
potential sale, refinancing or other disposition of Partnership property, (xiii)
costs incurred in connection with any litigation in which the Partnership is
involved, as well as in the examination, investigation or other proceedings
conducted by any regulatory agency with jurisdiction over the Partnership
including legal and accounting fees incurred in connection therewith. (xiv)
costs of any computer services used for or by the Partnership, (xv) expenses of
professionals employed by the Partnership in connection with any of the
foregoing, including attorneys, accountants and appraisers. For the purposes of
Sections 10.17(i), a control person is someone holding a 5% or greater equity
interest in the General Partners or affiliate or a person having the power to
direct or cause the direction of the General Partners or Affiliate, whether
through the ownership of voting securities, by contract or otherwise.
10.18 Deferral of Fees and Expense Reimbursement. The General Partners
may defer payment of any fee or expense reimbursement provided for herein. The
amount so deferred shall be treated as a non-interest bearing debt of the
Partnership and shall be paid from any source of funds available to the
Partnership, including cash available for Distribution prior to the
distributions to Limited Partners provided for in Article 5.
10.19 Payment upon Termination. Upon the occurrence of a terminating
event specified in Article 9 of the termination of an affiliate's agreement, any
portion of any reimbursement or interest in the Partnership payable according to
the provisions of this Agreement if accrued, but not yet paid, shall be paid by
the Partnership to the General Partners or Affiliates in cash, within thirty
(30) days of the terminating event or termination date set forth in the written
notice of termination.
ARTICLE 11
ARBITRATION
11.1 Arbitration. As between the parties hereto, all questions as to
rights and obligations arising under the terms of this Agreement are subject to
arbitration, including any question concerning any right or duty under the
Securities Act of 1933, the Securities Exchange Act of 1934 and the securities
laws of any state in which Units are offered, and such arbitration shall be
governed by the rules of the American Arbitration Association.
11.2 Demand for Arbitration. If a dispute should arise under this
Agreement, any Partner may within 60 days make a demand for arbitration by
filing a demand in writing for the other.
11.3 Appointment of Arbitrators. The parties may agree upon one
arbitrator, but in the event that they cannot agree, there shall be three, one
named in writing by each of the parties within five (5) days after demand for
arbitration is given and a third chosen by the two appointed. Should either
party refuse or neglect to join in the appointment of the arbitrator(s) or to
furnish the arbitrator(s) with any papers or information demanded, the
arbitrator(s) are empowered by both parties to proceed ex parte.
11.4 Hearing. Arbitration shall take place in San Mateo, California,
and the hearing before the arbitrator(s) of the matter to be arbitrated shall be
at the time and place within said city as is selected by the arbitrator(s). The
arbitrator(s) shall select such time and place promptly after his (or their)
appointment and shall give written notice thereof to each party at least sixty
(60) days prior to the date so fixed. At the hearing any relevant evidence may
be presented by either party, and the formal rules of evidence applicable to
judicial proceedings shall not govern. Evidence may be admitted or excluded in
the sole discretion of the arbitrator(s). Said arbitrator(s) shall hear and
determine the matter and shall execute and acknowledge their award in writing
and cause a copy thereof to be delivered to each of the parties.
11.5 Arbitration Award. If there is only one arbitrator, his decision
shall be binding and conclusive on the parties, and if there are three
arbitrators the decision of any two shall be binding and conclusive. The
submission of a dispute to the arbitrator(s) and the rendering of his (or their)
decision shall be a condition precedent to any right of legal action on the
dispute. A judgment confirming the award of the arbitrator(s) may be rendered by
any Court having Jurisdiction; or such Court may vacate, modify, or correct the
award in accordance with the prevailing sections of California State Law.
11.6 New Arbitrators. If three arbitrators are selected under the
foregoing procedure but two of the three fail to reach an Agreement in the
determination of the matter in question, the matter shall be decided by three
new arbitrators who shall be appointed and shall proceed in the same manner, and
the process shall be repeated until a decision is finally reached by two of the
three arbitrators selected.
11.7 Costs of Arbitration. The costs of such arbitration shall be borne by
the losing party or in such proportions as the arbitrators shall determine.
ARTICLE 12
MISCELLANEOUS
12.1 Covenant to Sign Documents. Without limiting the power granted by
Sections 2.8 and 2.9, each Partner covenants, for himself and his successors and
assigns, to execute, with acknowledgment or verification, if required, any and
all certificates, documents and other writings which may be necessary or
expedient to form the Partnership and to achieve its purposes, including,
without limitation, the Certificate of Limited Partnership and all amendments
thereto, and all such filings, records or publications necessary or appropriate
laws of any jurisdiction in which the Partnership shall conduct its business.
12.2 Notices. Except as otherwise expressly provided for in this
Agreement, all notices which any Partner may desire or may be required to give
any other Partners shall be in writing and shall be deemed duly given when
delivered personally or when deposited in the United States mail, first-class
postage pre-paid. Notices to Limited Partners shall be addressed to the Limited
Partners at the last address shown on the Partnership records. Notices to the
General Partners or to the Partnership shall be delivered to the Partnership's
principal place of business, as set forth in Section 2.3 above or as hereafter
charged as provided herein. Notice to any General Partner shall constitute
notice to all General Partners.
12.3 Right to Engage in Competing Business. Nothing contained herein
shall preclude any Partner from purchasing or lending money upon the security of
any other property or rights therein, or in any manner investing in,
participating in, developing or managing any other venture of any kind, without
notice to the other Partners, without participation by the other Partners, and
without liability to them or any of them. Each Limited Partner waives any right
he may have against the General Partners for capitalizing on information
received as a consequence of the General Partners management of the affairs of
this Partnership.
12.4 Amendment. This Agreement is subject to amendment by the
affirmative vote of a Majority of the Limited Partners in accordance with
Section 4.5; provided, however, that no such amendment shall be permitted if the
effect of such amendment would be to increase the duties or liabilities of any
Partner or materially change any Partner's interest in Profits, Losses,
Partnership assets, distributions, management rights or voting rights, except as
agreed by that Partner. In addition, and notwithstanding anything to the
contrary contained in this Agreement the General Partners shall have the right
to amend this Agreement, without the vote or consent of any of the Limited
Partnership, when:
(a) There is a change in the name of the Partnership or the amount of the
contribution of any Limited Partner;
(b) A Person is substituted as a Limited Partner;
(c) An Additional Limited Partner is admitted;
(d) A Person is admitted as a successor or additional General Partner in
accordance with the terms of this Agreement;
(e) A General Partner retires, dies, files a petition in bankruptcy,
becomes insane or is removed, and the Partnership business is continued by a
remaining or replacement General Partner;
(f) There is a change in the character of the business of the Partnership;
(g) There is a change in the time as stated in the Agreement for the
dissolution of the Partnership, or the return of a Partnership contribution;
(h) To cure any ambiguity, to correct or supplement any provision which may
be inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under this Agreement which will not be
inconsistent with the provisions of this Agreement;
(i) To delete or add any provision of this Agreement required to be so
deleted or added by the Staff of the Securities and Exchange Commission or by a
State "Blue Sky" Administrator or similar official, which addition or deletion
is deemed by the Administrator or official to be for the benefit or protection
of the Limited Partners;
(j) To elect for the Partnership to be governed by any successor California
statute governing limited partnerships; and
(k) To modify provisions of this Agreement as noted in Sections 1.3 and 5.6
to cause this Agreement to comply with Treasury Regulation Section 1.704-1(b).
The General Partners shall notify the Limited Partners within a
reasonable time of the adoption of any such amendment.
12.5 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes any and all prior agreements and
representations, either oral or in writing, between the parties hereto with
respect to the subject matter contained herein.
12.6 Waiver. No waiver by any party hereto of any breach of, or default
under, this Agreement by any other party shall be construed or deemed a waiver
of any other breach of or default under this Agreement, and shall not preclude
any party from exercising or asserting any rights under this Agreement with
respect to any other.
12.7 Severability. If any term, provision, covenant or condition of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the provisions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
12.8 Application of California law; Venue. This Agreement and the
application or interpretation thereof shall be governed, construed, and enforced
exclusively by its terms and by the law of the State of California and the
appropriate Courts in the County of San Mateo, State of California shall be the
appropriate forum for any litigation arising hereunder.
12.9 Captions. Section titles or captions contained in this Agreement
are inserted only as a matter of convenience and for reference and in no way
define, limit, extend or describe the scope of this Agreement.
12.10 Number and Gender. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders.
12.11 Counterparts. This Agreement may be executed in counterparts, any
or all of which may be signed by a General Partner on behalf of the Limited
Partners as their attorney-in-fact.
12.13 Waiver of Action for Partition. Each of the parties hereto
irrevocably waives during the term of the Partnership any right that it may have
to maintain any action for partition with respect to any property of the
Partnership.
12.14 Defined Terms. All terms used in this Agreement which are defined
in the Prospectus of Redwood Mortgage Investors VIII, dated February 28, 2000
shall have the meanings assigned to them in said Prospectus, unless this
Agreement shall provide for a specific definition in Article 2.
12.15 Assignability. Each and all of the covenants, terms, provisions
and arguments herein contained shall be binding upon and inure to the benefit of
the successors and assigns of the respective parties hereto, subject to the
requirements of Article 7.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hand the
day and year first above written.
GENERAL PARTNERS:
-------------------------------------------------
D. Russell Burwell
-------------------------------------------------
Michael R. Burwell
GYMNO CORPORATION
A California Corporation
By:
-------------------------------------------------
D. Russell Burwell, President
REDWOOD MORTGAGE CORP.
A California Corporation
By:
-------------------------------------------------
D. Russell Burwell, President
LIMITED PARTNERS:
GYMNO CORPORATION
(General Partner and Attorney-in-Fact)
By:
-------------------------------------------------
D. Russell Burwell, President
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership
The undersigned hereby applies to become a limited partner in REDWOOD
MORTGAGE INVESTORS VIII, a California limited partnership (the "partnership"),
and subscribes to purchase the number of units specified herein in accordance
with the terms and conditions of the limited partnership agreement attached as
Exhibit A to the prospectus dated July 13, 2000.
1. Representations and Warranties. The undersigned represents and warrants
to the partnership and its general partners as follows:
(a) I have received, read and understand the prospectus dated
July 13, 2000, and in making this investment I am relying only on the
information provided therein. I have not relied on any statements or
representations inconsistent with those contained in the prospectus.
(b) I, or the fiduciary account for which I am purchasing,
meet the applicable suitability standards and financial requirements set forth
in the prospectus under "INVESTOR SUITABILITY STANDARDS" as they pertain to the
state of my primary residence and domicile.
(c) I am aware that this subscription may be rejected in whole
or in part by the general partners in their sole and absolute discretion; that
my investment, if accepted, is subject to certain risks described in part in
"RISKS AND OTHER FACTORS" set forth in the prospectus; and that there will be no
public market for units, and accordingly, it may not be possible for me to
readily liquidate my investment in the partnership.
(d) I have been informed by the participating broker-dealer
firm specified herein, if any, of all pertinent facts relating to the lack of
liquidity or marketability of this investment. I understand that units may not
be sold or otherwise disposed of without the prior written consent of the
general partners, which consent may be granted or withheld in their sole
discretion, that any transfer is subject to numerous other restrictions
described in the prospectus and in the limited partnership agreement, and that
if I am a resident of California or if the transfer occurs in California, any
such transfer is also subject to the prior written consent of the California
Commissioner of Corporations. I have liquid assets sufficient to assure myself
that such purchase will cause me no undue financial difficulties and that I can
provide for my current needs and possible personal contingencies, or if I am the
trustee of a retirement trust, that the limited liquidity of the units will not
cause difficulty in meeting the trust's obligations to make distributions to
plan participants in a timely manner.
(e) I am of the age of majority (as established in the state
in which I am domiciled) if I am an individual, and in any event, I have full
power, capacity, and authority to enter into a contractual relationship with the
partnership. If acting in a representative or fiduciary capacity for a
corporation, partnership or trust, or as a custodian or agent for any person or
entity, I have full power or authority to enter into this subscription agreement
in such capacity and on behalf of such corporation, partnership, trust, person
or entity.
(f) By virtue of my own investment acumen and experience or
financial advice from my independent advisors (other than a person receiving
commissions by reason of my purchase of units), I am capable of evaluating the
risks and merits of an investment in the partnership.
(g) I am buying the units solely for my own account, or for
the account of a member or members of my immediate family or in a fiduciary
capacity for the account of another person or entity and not as an agent for
another.
(h) I acknowledge and agree that counsel representing the
partnership, the general partners and their affiliates does not represent me and
shall not be deemed under the applicable codes of professional responsibility to
have represented or to be representing me or any of the limited partners in any
respect.
(i) If I am buying the units in a fiduciary capacity or as a
custodian for the account of another person or entity, I have been directed by
that person or entity to purchase the unit(s), and such person or entity is
aware of my purchase of units on their behalf, and consents thereto and is aware
of the merits and risks involved in the investment in the partnership.
By making these representations, the subscriber has not waived any
right of action available under applicable federal or state securities laws.
2. Power of Attorney. The undersigned hereby irrevocably constitutes
and appoints the general partners, and each of them, either one acting alone, as
his true and lawful attorney-in-fact, with full power and authority for him, and
in his name, place and stead, to execute, acknowledge, publish and file:
(a) The limited partnership agreement and any amendments thereto or
cancellations thereof required under the laws of the State of California;
(b) Any other instruments, and documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
partnership is doing or intends to do business; and
(c) Any documents which may be required to effect the
continuation of the partnership, the admission of an additional or substituted
limited partner, or the dissolution and termination of the partnership.
The power of attorney granted above is a special power of attorney
coupled with an interest, is irrevocable, and shall survive the death or
incapacity of the undersigned or, if the undersigned is a corporation,
partnership, trust or association, the dissolution or termination thereof. The
power of attorney shall also survive the delivery of an assignment of units by a
limited partner; provided, that where the assignee thereof has been approved by
the general partners for admission to the partnership as a substituted limited
partner, such power of attorney shall survive the delivery of such assignment
for the sole purpose of enabling the general partners to execute, acknowledge,
file and record any instrument necessary to effect such substitution.
3. Acceptance. This subscription agreement will be accepted or rejected
by a general partner within thirty (30) days of its receipt by the partnership.
Upon acceptance, this subscription will become irrevocable, and will obligate
the undersigned to purchase the number of units specified herein, for the
purchase price of $1 per unit. The general partners will return a countersigned
copy of this subscription agreement to accepted subscribers, which copy
(together with my canceled check) will be evidence of my purchase of units.
4. Payment of Subscription Price. The full purchase price for units is
$1 per unit, payable in cash concurrently with delivery of this subscription
agreement. I understand that my subscription funds will be held by the general
partners, until my funds are needed by the partnership to fund a mortgage
investment or for other proper partnership purposes, and only then will I
actually be admitted to the partnership. In the interim, my subscription funds
will earn interest at passbook savings accounts rates. If I elect to receive
monthly, quarterly or annual cash distributions, then such interest will be
returned to me after I am admitted to the partnership. If I elect to allow my
share of partnership income to be paid in the form of additional units that will
be reinvested by the partnership, then such interest will be invested in the
partnership in which case I understand that the number of units I initially
subscribed for will be increased accordingly. If I initially elect to receive
additional units and reinvest my share of partnership income, I may after three
(3) years change my election and receive monthly, quarterly or annual cash
distributions. I understand that if I initially elect to receive monthly,
quarterly or annual cash distributions, my election to receive cash
distributions is irrevocable. However, I understand that I may change whether I
receive such distributions on a monthly, quarterly or annual basis.
5. THE UNDERSIGNED AGREES TO INDEMNIFY AND HOLD REDWOOD MORTGAGE
INVESTORS VIII, A CALIFORNIA LIMITED PARTNERSHIP, AND ITS GENERAL PARTNERS AND
OTHER AGENTS AND EMPLOYEES HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LIABILITIES, AND DAMAGES, INCLUDING, WITHOUT LIMITATION, ALL ATTORNEYS'
FEES WHICH SHALL BE PAID AS INCURRED) WHICH ANY OF THEM MAY INCUR, IN ANY MANNER
OR TO ANY PERSON, BY REASON OF THE FALSITY, INCOMPLETENESS OR MISREPRESENTATION
OF ANY INFORMATION FURNISHED BY THE UNDERSIGNED HEREIN OR IN ANY DOCUMENT
SUBMITTED HEREWITH.
6. Signature. The undersigned represents that: (a) I have read the
foregoing and that all the information provided by me is accurate and complete;
and (b) I will notify the general partners immediately of any material adverse
change in any of the information set forth herein which occurs prior to the
acceptance of my subscription.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
SUBSCRIPTION AGREEMENT
PLEASE READ THIS AGREEMENT BEFORE SIGNING
--------------------------------------------------------------------------------
Type Of Ownership: (check one)
1.[ ] SINGLE PERSON (I) *12.[ ] INDIVIDUAL RETIREMENT ACCOUNT (IRA)
(Investor and Trust Custodian must sign)
2.[ ] MARRIED PERSON-SEPARATE PROPERTY (I-2)
*13.[ ] IRA/SEP (SEP)
*3.[ ] COMMUNITY PROPERTY (COM) (Investor and Trust Custodian must sign)
*4.[ ] TENANTS IN COMMON (T) *14.[ ] ROLLOVER IRA (ROI)
(All parties must sign) (Investor and Trust Custodian must sign)
*5.[ ] JOINT TENANTS WITH RIGHTS 15.[ ] KEOGH (H.R.10) (K)
OF SURVIVORSHIP (J) (Custodian signature required)
(All parties must sign)
6.[ ] CORPORATION (C): 16.[ ] PARTNERSHIP (P)
(Authorized party must sign) (Authorized Party must sign)
7.[ ] TRUST (TR) 17.[ ] NON-PROFIT ORGANIZATION (NP)
(Trustee signature required) (Authorized Party must sign)
[ ] Taxable
[ ] Tax Exempt
18.[ ] CUSTODIAN (CU)
8.[ ] PENSION PLAN (PP) (Custodian signature required)
(Trustee signature required)
19.[ ] CUSTODIAN/UGMA (UGM)
(Custodian signature required)
9.[ ] PROFIT SHARING PLAN (PSP)
(Trustee signature required)
20.[ ] OTHER (Explain)
*10.[ ] ROTH IRA (RRA)
(Investor and Trust Custodian ----------------------------------------
must sign)
----------------------------------------
*11.[ ] Rollover ROTH IRA (RRI)
(Investor and Trust Custodian ----------------------------------------
must sign)
* Two or more signatures required. Complete Sections 1 through 6 where
applicable.
--------------------------------------------------------------------------------
<PAGE>
1. INVESTOR NAME AND ADDRESS Type or print
your name(s) exactly as it should
appear in the account records of the
partnership. Complete this section for
all trusts other than IRA/Keogh or
other qualified plans. If IRA/Keogh or
qualified plan, Section 2 must also be
completed. All checks and
correspondence will go to this address
unless another address is listed in
Sections 2 or 5 below.
---------------------------------------
Individual Name
---------------------------------------
(Additional Name(s) if held in joint
tenancy, community property, tenants-
in-common)
---------------------------------------
Street Address
---------------------------------------
City State Zip Code
---------------------------------------
Daytime Home
Phone Number Phone Number
---------------------------------------
Taxpayer ID# Social Security #
A social security number or taxpayer
identification number is required for
each individual investor. (For IRAs,
Keoghs (HR10) and qualified plans, the
taxpayer identification number is your
plan or account tax or employer
identification number. For most
individual taxpayers, it is your social
security number. NOTE: If the units are
to be held in more than one name, only
one number will be used and will be
that of the first person listed).
2. TRUST COMPANY Name of Trust Company,
REGISTRATION Custodian or Administrator:
---------------------------------------
Please print here the exact name of
Trust Company, Custodian or
Administrator
---------------------------------------
Address
---------------------------------------
City State Zip Code
---------------------------------------
Taxpayer ID# Tax Year End
---------------------------------------
SIGNATURE:
(X)------------------------------------
(Trust Company, Custodian or
Administrator)
<PAGE>
3. INVESTMENT Number of units to be purchased--------
Minimum subscription is
2,000 units at $1 per unit Amount of payment enclosed-------------
($2,000), with additional
investments of any amount.
Make check payable to "Redwood Mortgage Investors VIII"
If the investor has elected to compound
his share of monthly, quarterly or
annual income (see 4 below), then the
interest earned on subscription funds
until admission to the partnership will
be invested in additional units on
behalf of the investor; therefore, the
actual number of units to be issued to
the investor upon admission to the
partnership will be increased.
Check one:[ ] Initial [ ] Additional
Investment Investment
4. DISTRIBUTIONS Does the investor wish to have his
income compounded and reinvested?
[ ] YES [ ] NO
If "NO", income shall be distributed:
[ ] Monthly [ ] Quarterly [ ] Annually
The election to compound income may
only be changed after three (3) years.
5. SPECIAL ADDRESS FOR ---------------------------------------
CASH DISTRIBUTIONS Name
(If the same as in 2, ---------------------------------------
please disregard) Address
---------------------------------------
City State Zip Code
---------------------------------------
Account Number
If cash distributions are to be sent to
a money market or other account at an
address other than that listed, please
enter that account number and address
here. All other communications will be
mailed to the investor's registered
address of record under Sections 1 or
2, or to the alternate address listed
in Section 5 above. In no event will
the partnership or its affiliates be
responsible for any adverse
consequences of direct deposits.
6. SIGNATURES IN WITNESS WHEREOF, the undersigned has
executed below this
day of 20 , at
------- ----- --------------
Investor's primary
residence is in
-----------------------
(X)
---------------------------------------
(Investor Signature and Title)
(X)
---------------------------------------
(Investor Signature and Title)
(X)
---------------------------------------
(Investor Signature and Title)
<PAGE>
7. BROKER-DEALER DATA The undersigned broker-dealer hereby
(To be completed by selling certifies that (i) a copy of the
broker-dealer) prospectus, as amended and/or
supplemented to date, has been
delivered to the above investor; and
(ii) that the appropriate suitability
determination as set forth in the
prospectus has been made and that the
appropriate records are being
maintained.
(X)
---------------------------------------
Broker-Dealer Authorized Signature
(Required on all orders)
Broker-Dealer Name:
--------------------
Street Address:
------------------------
City, State, Zip Code:
-----------------
Registered Representative
Name (Last, First):
---------------------
Street Address:
------------------------
City, State, Zip Code
------------------
Phone No.:
-----------------------------
The registered representative, by
signing below, certifies that he has
reasonable grounds to believe, on the
basis of information obtained from the
investor concerning his investment
objectives, other investments,
financial situation and needs and any
other information known by the selling
broker-dealer, that investment in the
units is suitable for the investor and
that suitability records are being
maintained; and that he has informed
the investor of all pertinent facts
relating to the liquidity and
marketability of the units.
Registered Representative's Signature:
(X)
---------------------------------------
8. ACCEPTANCE This subscription accepted
This subscription will not be REDWOOD MORTGAGE INVESTORS VIII,
an effective agreement until A California Limited Partnership
it or a facsimile is signed by P.O. Box 5096
a general partner of Redwood Redwood City, California 94063
Mortgage Investors VIII, a (650) 365-5341
California limited partnership
By:
------------------------------------
(Office Use Only)
Account #:
-----------------------------
Investor Check Date:
-------------------
Check Amount:
---------------------------
Check #:
-------------------------------
Entered By: Checked By:
---------- ---------
Date Entered:
---------------------------
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
REDWOOD MORTGAGE INVESTORS VIII,
A California Limited Partnership
UNSOLICITED SALES
The undersigned hereby applies to become a limited partner in REDWOOD
MORTGAGE INVESTORS VIII, a California limited partnership (the "partnership"),
and subscribes to purchase the number of units specified herein in accordance
with the terms and conditions of the limited partnership agreement attached as
Exhibit A to the prospectus dated July 13, 2000.
1. Representations and Warranties. The undersigned represents and warrants
to the partnership and its general partners as follows:
(a) I have received, read and understand the prospectus dated
July 13, 2000, and in making this investment I am relying only on the
information provided therein. I have not relied on any statements or
representations inconsistent with those contained in the prospectus.
(b) I, or the fiduciary account for which I am purchasing,
meet the applicable suitability standards and financial requirements set forth
in the prospectus under "INVESTOR SUITABILITY STANDARDS" as they pertain to the
state of my primary residence and domicile.
(c) I am aware that this subscription may be rejected in whole
or in part by the general partners in their sole and absolute discretion; that
my investment, if accepted, is subject to certain risks described in part in
"RISKS AND OTHER FACTORS" set forth in the prospectus; and that there will be no
public market for units, and accordingly, it may not be possible for me to
readily liquidate my investment in the partnership.
(d) I have been informed by the registered investment advisor
("advisor") or participating broker-dealer firm specified herein, if any, of all
pertinent facts relating to the lack of liquidity or marketability of this
investment. I understand that units may not be sold or otherwise disposed of
without the prior written consent of the general partners, which consent may be
granted or withheld in their sole discretion, that any transfer is subject to
numerous other restrictions described in the prospectus and in the limited
partnership agreement, and that if I am a resident of California or if the
transfer occurs in California, any such transfer is also subject to the prior
written consent of the California Commissioner of Corporations. I have liquid
assets sufficient to assure myself that such purchase will cause me no undue
financial difficulties and that I can provide for my current needs and possible
personal contingencies, or if I am the trustee of a retirement trust, that the
limited liquidity of the units will not cause difficulty in meeting the trust's
obligations to make distributions to plan participants in a timely manner.
(e) I am of the age of majority (as established in the state
in which I am domiciled) if I am an individual, and in any event, I have full
power, capacity, and authority to enter into a contractual relationship with the
partnership. If acting in a representative or fiduciary capacity for a
corporation, partnership or trust, or as a custodian, or agent for any person or
entity. I have full power or authority to enter into this subscription agreement
in such capacity and on behalf of such corporation, partnership, trust, person
or entity;
(f) By virtue of my own investment acumen and experience or
financial advice from my independent advisors (other than a person receiving
commissions by reason of my purchase of units), I am capable of evaluating the
risks and merits of an investment in the partnership.
(g) I am buying the units solely for my own account, or for
the account of a member or members of my immediate family or in a fiduciary
capacity for the account of another person or entity and not as an agent for
another.
(h) I acknowledge and agree that counsel representing the
partnership, the general partners and their affiliates does not represent me and
shall not be deemed under the applicable codes of professional responsibility to
have represented or to be representing me or any of the limited partners in any
respect.
(i) If I am buying the units in a fiduciary capacity or as a
custodian for the account of another person or entity, I have been directed by
that person or entity to purchase the unit(s), and such person or entity is
aware of my purchase of units on their behalf, and consents thereto and is aware
of the merits and risks involved in the investment in the partnership.
(j) If I have used the services of an advisor in connection
with my acquisition of units, I understand that I may, but am not obligated to,
authorize the partnership to pay any client fees owing to my advisor based upon
the outstanding balance in my capital account and payable from cash
distributions payable to me either in the form of cash or units. I further
understand and acknowledge that if I elect to have such client fees paid through
the partnership I will receive less cash or units, as applicable, from
distributions than an investor who does not pay such client fees or does not pay
such client fees through the partnership. Further, I understand and acknowledge,
that the partnership and the general partners are merely, as an administrative
convenience, making such payments of client fees to the advisor, and shall have
no liability as a result thereof.
(k) If I authorize the partnership to pay any client fees
pursuant to the terms of the authorization to make payments of client fees (the
"authorization") I understand and acknowledge that neither the partnership nor
the general partners shall have any liability for disbursement. The undersigned
further acknowledges that all cash distributions by the partnership are
noncumulative and thus the obligation to pay client fees pursuant to the terms
of the authorization is noncumulative. Further, the undersigned understands that
the general partners are in no way guaranteeing that there will be sufficient
cash flow for cash distributions or that such distribution will be sufficient to
make the payments authorized by the authorization. In the event of insufficient
cash distributions, the general partners and the partnership shall have no
liability to the undersigned or their registered investment advisor.
By making these representations, the subscriber has not waived any
right of action available under applicable federal or state securities laws.
2. Power of Attorney. The undersigned hereby irrevocably constitutes
and appoints the general partners, and each of them, either one acting alone, as
his true and lawful attorney-in-fact, with full power and authority for him, and
in his name, place and stead, to execute, acknowledge, publish and file:
(a) The limited partnership agreement and any amendments thereto or
cancellations thereof required under the laws of the State of California;
(b) Any other instruments, and documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction in which the
partnership is doing or intends to do business; and
(c) Any documents which may be required to effect the
continuation of the partnership, the admission of an additional or substituted
limited partner, or the dissolution and termination of the partnership.
The power of attorney granted above is a special power of attorney
coupled with an interest, is irrevocable, and shall survive the death or
incapacity of the undersigned or, if the undersigned is a corporation,
partnership, trust or association, the dissolution or termination thereof. The
power of attorney shall also survive the delivery of an assignment of units by a
limited partner; provided, that where the assignee thereof has been approved by
the general partners for admission to the partnership as a substituted limited
partner, such power of attorney shall survive the delivery of such assignment
for the sole purpose of enabling the general partners to execute, acknowledge,
file and record any instrument necessary to effect such substitution.
<PAGE>
3. Acceptance. This subscription agreement will be accepted or rejected
by a general partner within thirty (30) days of its receipt by the partnership.
Upon acceptance, this subscription will become irrevocable, and will obligate
the undersigned to purchase the number of units specified herein, for the
purchase price of $1 per unit. The general partners will return a countersigned
copy of this subscription agreement to accepted subscribers, which copy
(together with my canceled check) will be evidence of my purchase of units.
4. Payment of Subscription Price. The full purchase price for units is
$1 per unit, payable in cash concurrently with delivery of this subscription
agreement. I understand that my subscription funds will be held by the general
partners until my funds are needed by the partnership to fund a mortgage
investment or for other proper partnership purposes, and only then will I
actually be admitted to the partnership. In the interim, my subscription funds
will earn interest at passbook savings accounts rates. If I elect to receive
monthly, quarterly or annual cash distributions, then such interest will be
returned to me after I am admitted to the partnership. If I elect to allow my
share of partnership income to be paid in the form of additional units that will
be reinvested by the partnership, then such interest will be invested in the
partnership in which case I understand that the number of units I initially
subscribed for will be increased accordingly. If I initially elect to receive
additional units and reinvest my share of partnership income, I may after three
(3) years change my election and receive monthly, quarterly or annual cash
distributions. I understand that if I initially elect to receive monthly,
quarterly or annual cash distributions, my election to receive cash
distributions is irrevocable. However, I understand that I may change whether I
receive such distributions on a monthly, quarterly or annual basis.
5. THE UNDERSIGNED AGREES TO INDEMNIFY AND HOLD REDWOOD MORTGAGE
INVESTORS VIII, A CALIFORNIA LIMITED PARTNERSHIP, AND ITS GENERAL PARTNERS AND
OTHER AGENTS AND EMPLOYEES HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LIABILITIES, AND DAMAGES, INCLUDING, WITHOUT LIMITATION, ALL ATTORNEYS'
FEES WHICH SHALL BE PAID AS INCURRED WHICH ANY OF THEM MAY INCUR, IN ANY MANNER
OR TO ANY PERSON, BY REASON OF THE FALSITY, INCOMPLETENESS OR MISREPRESENTATION
OF ANY INFORMATION FURNISHED BY THE UNDERSIGNED HEREIN OR IN ANY DOCUMENT
SUBMITTED HEREWITH.
6. Signature. The undersigned represents that: (a) I have read the
foregoing and that all the information provided by me is accurate and complete;
and (b) I will notify the general partners immediately of any material adverse
change in any of the information set forth herein which occurs prior to the
acceptance of my subscription.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
SUBSCRIPTION AGREEMENT
PLEASE READ THIS AGREEMENT BEFORE SIGNING
--------------------------------------------------------------------------------
Type Of Ownership: (check one)
1.[ ] SINGLE PERSON (I) *12.[ ] INDIVIDUAL RETIREMENT ACCOUNT (IRA)
(Investor and Trust Custodian must sign)
2.[ ] MARRIED PERSON-SEPARATE PROPERTY (I-2)
*13.[ ] IRA/SEP (SEP)
*3.[ ] COMMUNITY PROPERTY (COM) (Investor and Trust Custodian must sign)
*4.[ ] TENANTS IN COMMON (T) *14.[ ] ROLLOVER IRA (ROI)
(All parties must sign) (Investor and Trust Custodian must sign)
*5.[ ] JOINT TENANTS WITH RIGHTS 15.[ ] KEOGH (H.R.10) (K)
OF SURVIVORSHIP (J) (Custodian signature required)
(All parties must sign)
6.[ ] CORPORATION (C): 16.[ ] PARTNERSHIP (P)
(Authorized party must sign) (Authorized Party must sign)
7.[ ] TRUST (TR) 17.[ ] NON-PROFIT ORGANIZATION (NP)
(Trustee signature required) (Authorized Party must sign)
[ ] Taxable
[ ] Tax Exempt
18.[ ] CUSTODIAN (CU)
8.[ ] PENSION PLAN (PP) (Custodian signature required)
(Trustee signature required)
19.[ ] CUSTODIAN/UGMA (UGM)
(Custodian signature required)
9.[ ] PROFIT SHARING PLAN (PSP)
(Trustee signature required)
20.[ ] OTHER (Explain)
*10.[ ] ROTH IRA (RRA)
(Investor and Trust Custodian ----------------------------------------
must sign)
----------------------------------------
*11.[ ] Rollover ROTH IRA (RRI)
(Investor and Trust Custodian ----------------------------------------
must sign)
* Two or more signatures required. Complete Sections 1 through 6 where
applicable.
--------------------------------------------------------------------------------
<PAGE>
1. INVESTOR NAME AND ADDRESS Type or print
your name(s) exactly as it should
appear in the account records of the
partnership. Complete this section for
all trusts other than IRA/Keogh or
other qualified plans. If IRA/Keogh or
qualified plan, Section 2 must also be
completed. All checks and
correspondence will go to this address
unless another address is listed in
Sections 2 or 5 below.
---------------------------------------
Individual Name
---------------------------------------
(Additional Name(s) if held in joint
tenancy, community property, tenants-
in-common)
---------------------------------------
Street Address
---------------------------------------
City State Zip Code
---------------------------------------
Daytime Home
Phone Number Phone Number
---------------------------------------
Taxpayer ID# Social Security #
A social security number or taxpayer
identification number is required for
each individual investor. (For IRAs,
Keoghs (HR10) and qualified plans, the
taxpayer identification number is your
plan or account tax or employer
identification number. For most
individual taxpayers, it is your social
security number. NOTE: If the units are
to be held in more than one name, only
one number will be used and will be
that of the first person listed).
2. TRUST COMPANY Name of Trust Company,
REGISTRATION Custodian or Administrator:
---------------------------------------
Please print here the exact name of
Trust Company, Custodian or
Administrator
---------------------------------------
Address
---------------------------------------
City State Zip Code
---------------------------------------
Taxpayer ID# Tax Year End
---------------------------------------
SIGNATURE:
(X)------------------------------------
(Trust Company, Custodian or
Administrator)
<PAGE>
3. INVESTMENT Number of units to be purchased--------
Minimum subscription is
2,000 units at $1 per unit Amount of payment enclosed-------------
($2,000), with additional
investments of any amount.
Make check payable to "Redwood Mortgage Investors VIII"
If the investor has elected to compound
his share of monthly, quarterly or
annual income (see 4 below), then the
interest earned on subscription funds
until admission to the partnership will
be invested in additional units on
behalf of the investor; therefore, the
actual number of units to be issued to
the investor upon admission to the
partnership will be increased.
Check one:[ ] Initial [ ] Additional
Investment Investment
4. DISTRIBUTIONS Does the investor wish to have his
income compounded and reinvested?
[ ] YES [ ] NO
If "NO", income shall be distributed:
[ ] Monthly [ ] Quarterly [ ] Annually
The election to compound income may
only be changed after three (3) years.
5. SPECIAL ADDRESS FOR ---------------------------------------
CASH DISTRIBUTIONS Name
(If the same as in 2, ---------------------------------------
please disregard) Address
---------------------------------------
City State Zip Code
---------------------------------------
Account Number
If cash distributions are to be sent to
a money market or other account at an
address other than that listed, please
enter that account number and address
here. All other communications will be
mailed to the investor's registered
address of record under Sections 1 or
2, or to the alternate address listed
in Section 5 above. In no event will
the partnership or its affiliates be
responsible for any adverse
consequences of direct deposits.
6. SIGNATURES IN WITNESS WHEREOF, the undersigned has
executed below this
day of 20 , at
------- ----- --------------
Investor's primary
residence is in
-----------------------
(X)
---------------------------------------
(Investor Signature and Title)
(X)
---------------------------------------
(Investor Signature and Title)
(X)
---------------------------------------
(Investor Signature and Title)
<PAGE>
7. ADVISOR DATA (To be completed by recommending advisor)
The undersigned advisor hereby certifies that (i) a copy of the prospectus, as
amended and/or supplemented to date, has been delivered to the above investor;
and (ii) that the appropriate suitability determination as set forth in the
prospectus has been made and that the appropriate records are being maintained.
Advisor:
Last Name First:
----------------------------------------------------------------
Street Address:
-----------------------------------------------------------------
City, State, Zip Code:
----------------------------------------------------------
Broker-Dealer Affiliated? [ ]YES [ ]NO Broker-Dealer Name___________________
Are you a registered investment advisor ("RIA") under applicable state or
federal law? [ ]YES [ ]NO
The advisor, by signing below, (1) certifies that he has reasonable grounds to
believe, on the basis of information obtained from the investor concerning his
investment objectives, other investments, financial situation and needs and any
other information known by the advisor, that investment in the units is suitable
for the investor and that suitability records are being maintained; (2)
certifies that if the advisor is affiliated with an NASD firm, that all fees
received by him in connection with this transaction will be run through the
books and records of the NASD member firm in compliance with Notice to Members
96-33 and Rules 3030 and 3040 of the NASD Conduct Rules; (3) that he has
informed the investor of all pertinent facts relating to the liquidity and
marketability of the units; (4) the undersigned agrees and acknowledges that the
general partners are relying upon the certification of the undersigned herein
with respect to the suitability of the client to purchase limited partnership
units in the partnership; (5) that if the undersigned's client has elected to
pay client fees from earnings, the undersigned hereby represents and warrants
that he is a registered investment advisor under applicable federal and/or state
securities laws; (6) that, if applicable, he understands and acknowledges that
neither the partnership or the general partners shall have any liability to him
with respect to any client fees paid from investors' earnings under the
authorization agreement and that the general partners and the partnership in no
way guarantee that there will be sufficient cash for distribution to investors
and, thus in the case of a signed authorization agreement, sufficient cash for
the investor to pay his client fees from earnings; and (7) that, in any dispute
between the undersigned and the investor regarding payment of client fees, the
partnership and the general partners will respect the wishes of the investor and
that the general partners and the partnership will have no liability to the
undersigned as a result thereof.
Advisor's Signature
-------------------------------------------------
Print or Type Name:
-------------------------------------------------
Please check applicable box. (Only clients of RIAs may elect to have client fees
paid, provided such client fees are no more than 2% annually of the RMI VIII
assets under management which, for purposes of this subscription agreement is
the investor's capital account.):
[ ] Yes, client fees paid. If client fees are to be paid, a completed
authorization to make payments of client fees ("authorization") attached hereto
must be completed, signed and returned to the general partners along with this
subscription agreement.
If the investor has elected to receive cash distributions, client fees will be
calculated on a monthly basis, based upon the capital account balance of the
investor at the end of the month. Such client fees will be paid to the advisor
at the same time the investor receives their distributions (either on a monthly,
quarterly or annual basis), as set forth in Item 4 above.
If the Investor has elected to reinvest their earnings in lieu of receiving
periodic cash distributions, client fees will be calculated on a monthly basis,
based upon the capital account balance of the investor at the end of the month.
Such client fees shall be paid to the advisor (please check one):
[ ] Monthly [ ] Quarterly [ ] Annually
[ ] No client fees paid from earnings or distributions
8. ACCEPTANCE This subscription will not be an effective agreement until it
is signed by a general partner of Redwood Mortgage Investors VIII, a California
limited partnership
This subscription accepted
REDWOOD MORTGAGE INVESTORS VIII,
A California Limited Partnership
P.O. Box 5096
Redwood City, California 94063
(650) 365-5341
By:
-------------------------------------
(Office Use Only)
Account #:
--------------------
Investor Check Date:
--------------------
Check Amount:
--------------------
Check #:
--------------------
Entered By: Checked By:
-------- ---------------
Date Entered:
--------------------------------
<PAGE>
--------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VIII
AUTHORIZATION TO MAKE PAYMENTS OF CLIENT FEES
FOR INVESTORS WHO UTILIZE THE SERVICES OF REGISTERED INVESTMENT ADVISORS
--------------------------------------------------------------------------------
The undersigned limited partner hereby certifies that the
undersigned is a limited partner owning units in Redwood Mortgage Investors VIII
(the "partnership" or "RMI VIII"). By signing and delivering this authorization
to the partnership and the general partners, the undersigned hereby authorizes
and directs the partnership to pay to the person or entity set forth below as
the payee an estimated annual amount equal to _____% (not more than 2% annually)
of the undersigned's capital account ("client fees"). All client fees payable
will be calculated on a monthly basis based upon the capital account balance of
the investor at the end of the month. If the investor elected to receive
periodic cash distributions, such client fees will be paid at the same time the
investor receives distributions, either monthly, quarterly or annually. If the
investor has elected to reinvest earnings in lieu of receiving periodic cash
distributions, such client fees shall be paid to the advisor on either a
monthly, quarterly or annual basis as determined by the investor in the
completed subscription agreement. The capital accounts of the limited partners
who elect to pay client fees through the partnership will be less than the
capital accounts of limited partners who do not pay client fees or who do pay
client fees through the partnership.
The undersigned acknowledges and agrees that neither the
partnership nor the general partners shall have any liability for disbursements
made pursuant to this authorization. The undersigned acknowledges that all
periodic cash distributions by the partnership are non-cumulative. Further, the
undersigned acknowledges that the general partners are in no way guaranteeing
that there will be sufficient cash flow for periodic cash distributions or that
such distributions will be sufficient to make the payments authorized by this
agreement. In the event of insufficient earnings, the partnership and the
general partners shall have no liability to the undersigned or the payee. The
undersigned further acknowledges and agrees that the partnership is authorized
to comply with this request unless and until this authorization is expressly
revoked in writing and terminated by the undersigned limited partner. Any
revocation of this authorization shall be effective the quarter after the
quarter in which it is received by the partnership.
PAYEE 1 LIMITED PARTNER
Please designate whether Advisor
or Broker/Dealer Firm
-------------------------------- -----------------------------------------
Name of Payee - Please Print Name of Limited Partner - Please Print
-------------------------------- -----------------------------------------
Authorized Signature of Payee Signature of Limited Partner (or Trustee)
-------------------------------- -----------------------------------------
Firm Name Signature of Joint Owner (if applicable)
-------------------------------- -----------------------------------------
Street Address Date of Admission
------------------------------------------------------------
City, State, Zip Code
Limited partners in RMI VIII (the "partnership") who utilized the
services of an advisor may authorize the direct payment by the partnership of a
portion of the earnings otherwise distributable to them or otherwise used to
acquire additional units by executing this authorization and delivering it to
the partnership. Execution of the authorization is at the option of the limited
partner and is not required in connection with an investment in the partnership.
This authorization is not intended to describe an investment in the partnership
or to be used as sales material or in any other manner in connection with the
offer or sale of units in the partnership. An offer to sell units of the
partnership may only be made by the prospectus. This document is not authorized
to be used in any way in connection with the offer or sale of units in the
partnership, and unauthorized use of this document is strictly prohibited and
may constitute a violation of federal and state securities laws.
PLEASE INCLUDE DOCUMENT WITH THE COMPLETED SUBSCRIPTION AGREEMENT
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. Other Expenses of Issuance and Distribution.
-------------------------------------------
The expenses payable in connection with the issuance and
distribution of the securities being registered are estimated on the maximum
offering amount of $30,000,000 to be as follows:
Maximum of
$ 30,000,000
---------------------
SEC Registration Fee $7,920.00
NASD Registration Fee 3,500.00
California Registration Fee 2,500.00
Printing and Engraving Expenses 110,000.00
Accounting Fees and Expenses 50,000.00
Legal Fees and Expenses 200,000.00
Other Blue Sky Filing Fees and Expenses 35,000.00
Postage 70,000.00
Advertising and Sales 100,000.00
Sales Literature 120,000.00
Due Diligence 150,000.00
Sales Seminars 275,000.00
Miscellaneous 75,000.00
---------------------
Total $1,198,920.00
=====================
ITEM 31 Sales to Special Parties.
------------------------
Inapplicable
ITEM 32. Recent Sales of Unregistered Securities.
---------------------------------------
None
ITEM 33 Indemnification of Directors and Officers
-----------------------------------------
Section 3.16 of the Limited Partnership Agreement provides
that the General Partners and their Affiliates shall be indemnified by the
Partnership for liability and related expenses (including attorneys fees)
incurred in dealing with third parties, excluding matters arising under the
Securities Act of 1933, as amended, provided the General Partners or their
Affiliates acted in good faith, and provided that the conduct did not constitute
gross negligence or gross misconduct.
ITEM 34. Treatment of Proceeds from Stock Being Registered
Inapplicable.
<PAGE>
ITEM 35. Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements Included in the Prospectus:
1. Redwood Mortgage Investors VIII:
Report of Independent Public Accountant
Financial Statements as of December 31, 1999 and 1998
(audited) Interim Financial Statements as of March 31, 2000
(unaudited)
2. Gymno Corporation:
Report of Independent Public Accountant
Financial Statements as of December 31, 1999 and 1998
(audited) Balance Sheet at March 31, 2000 (unaudited)
3. Redwood Mortgage Corp.:
Report of Independent Public Accountant Balance Sheets at
September 30, 1999 and 1998 (audited) Balance Sheet at
March 31, 2000 (unaudited)
<PAGE>
(b) Exhibits:
Exhibit Number
1.1 Form of Participating Dealer Agreement
1.2 Form of Advisory Agreement
3.1 Third Amended and Restated Limited Partnership Agreement
3.2 Special Notice for California Residents
* 3.3 Certificate of Limited Partnership
5.1 Opinion of Counsel as to the Legality of the Securities Being
Registered
5.2 Opinion of Counsel as to ERISA Matters
8.1 Opinion of Counsel on Certain Tax Matters
10.2 Loan Servicing Agreement
10.3 (a) Form of Note secured by Deed of Trust for Construction Loans
which provides for interest only payments
(b) Form of Note secured by Deed of Trust for Commercial Loans
which provides for interest only payments
(c) Form of Note secured by Deed of Trust for Commercial Loans
which provides for principal and interest payments
(d) Form of Note secured by Deed of Trust for Residential Loans
which provides for interest only payments
(e) Form of Note secured by Deed of Trust for Residential Loans
which provides for interest and principal prepayments
.
10.4 (a) Construction Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing to accompany Exhibit
10.3(a)
(b) Deed of Trust, Assignment of Leases and Rents, and Security
Agreement and Fixture Filing to accompany Exhibits 10.3(b)
and 10.3(c)
(c) Deed of Trust, Assignment of Leases and Rents, and Security
Agreement and Fixture Filing to accompany Exhibit 10.3(d)
10.6 Agreement to Seek a Lender
24.2 Consent of the Law Offices McCutchen, Doyle, Brown and
Enersen, LLP
24.3 Consent of Parodi & Cropper
24.4 Consent of Caporicci, Cropper & Larson, LLP
* Filed under Form SE
<PAGE>
ITEM 36. Undertaking.
-----------
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
1. To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. That each such post-effective amendment will comply with the applicable
forms, rules and regulations of the Commission in effect at the time such
post-effective amendment is filed.
4. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the terminating of the
offering.
5. To provide the Underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
6. To send to each limited partner at least on an annual basis
a detailed statement of any transactions with the general partners or its
affiliates, and of fees, commissions, compensation and other benefits paid, or
accrued to the general partners or its affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services performed.
7. To provide to the limited partners the financial statements required by
Form 10-K for the first full fiscal year of operations of the partnership.
8. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expense incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication for such issue.
The General Partners also undertake to file, after the end of
the distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of
ten percent (10%) or more (cumulative basis) of the net proceeds of the offering
and to provide the information contained in such report to the Limited Partners
at least once each quarter after the distribution period of the offering has
ended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in Redwood City, State of California, on July 13, 2000.
REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership
By:/s/D. Russell Burwell
-----------------------------------
D. Russell Burwell, General Partner
By:/s/Michael R. Burwell
----------------------------------
Michael R. Burwell, General Partner
GYMNO CORPORATION
General Partner
By:/s/D. Russell Burwell
----------------------------------
D. Russell Burwell, President
REDWOOD MORTGAGE CORP.
General Partner
By:/s/D. Russell Burwell
----------------------------------
D. Russell Burwell, President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
President of Gymno Corporation July 13, 2000
/s/ D. Russell Burwell (Principal Executive Officer);
---------------------- Director of Gymno Corporation;
D. Russell Burwell President of Redwood Mortgage Corp.
Secretary/Treasurer of Gymno July 13, 2000
Corporation (Principal Financial
and Accounting Officer); Director
/s/ Michael R. Burwell of Gymno Corporation;
---------------------- Secretary/Treasurer of Redwood
Michael R. Burwell Mortgage Corp.
/s/ D. Russell Burwell General Partner July 13, 2000
----------------------
D. Russell Burwell
/s/ Michael R. Burwell General Partner July 13, 2000
----------------------
Michael R. Burwell
<PAGE>
Exhibit 1-1
30,000,000 Limited Partnership Units
($1 per Unit)
REDWOOD MORTGAGE INVESTORS VIII
PARTICIPATING BROKER DEALER AGREEMENT
----------------------------
----------------------------
----------------------------
----------------------------
Gentlemen:
D. Russell Burwell, Michael R. Burwell, Gymno Corporation, a
California corporation and Redwood Mortgage Corp., a California corporation are
the General Partners of Redwood Mortgage Investors VIII, a California Limited
partnership (the "Partnership") engaged in business as a mortgage lender. The
Partnership will loan Redwood Mortgage Corp., a California corporation, funds
(the "Formation Loan") out of which Redwood Mortgage Corp. will pay sales
commissions under this Agreement. The General Partners, on behalf of the
Partnership, propose to offer and sell to qualified investors, upon the terms
and subject to the conditions set forth in the Prospectus dated July 13, 2000
(the "Prospectus"), limited partnership interests ("Units") of the Partnership
at an offering price of $1 per Unit, with a minimum investment of two (2)
thousand (2,000) Units per purchaser. The offering is for a maximum of
30,000,000 Units ($30,000,000).
1. Sale of Units. The General Partners hereby appoint you to effect sales of
Units, on a best efforts basis, for the account of the Partnership. This
appointment shall commence on the date hereof. Subject to the terms and
conditions of this Agreement and upon the basis of the representations and
warranties herein set forth, you accept such appointment and agree to use your
best efforts to find purchasers of Units. Offers and sales of Units may only be
made in accordance with the terms of the offering thereof as set forth in the
Prospectus.
2. Eligible Purchasers of Units. You agree not to offer or sell Units to any
person who does not meet the suitability standards set forth in the Prospectus.
Each prospective purchaser must complete and execute a Subscription Agreement,
and return it to the undersigned together with such other documents, instruments
or information as the General Partners may request together with a check in the
full amount of the purchase price for the number of Units subscribed for. As
this is not the first offering of Units in the Partnership, no escrow will be
established and all funds shall be immediately available to the Partnership. A
purchaser's check shall be made payable to "Redwood Mortgage Investors VIII" and
remitted directly to Redwood Mortgage Investors VIII, 650 El Camino Real, Suite
G, Redwood City, California 94063, Attention: D. Russell Burwell, together with
the above referenced documents by noon of the next business day after your
receipt. You shall ascertain that each Subscription Agreement sent in by a
prospective purchaser of Units has been fully completed and properly executed by
such prospective purchaser.
The General Partners, no later than thirty (30) days after such receipt of
such Subscription Agreement, shall determine whether they wish to accept the
proposed purchaser as a limited partner in the Partnership. It is understood
that the General Partners reserve the right to reject the tender of any
Subscription Agreement or any reason whatsoever. Should the General Partners
determine to accept the tender of a Subscription Agreement the General Partners
will promptly advise you of such action. Should the General Partners determine
to reject such tender, they will notify you of such determination within this
thirty (30) day period and will return to you the tendered Subscription
Agreement. If the funds are being held by the Partnership, the General Partners
will return to you a check made payable to the proposed purchaser in the same
amount as the proposed purchaser's initial check. You agree to return this
Subscription Agreement and check to the prospective purchaser by noon of the
next business day. You shall not be entitled to any commissions with respect to
subscription offers which are rejected.
3. Compensation. In consideration of your services in soliciting and
obtaining purchasers of Units, Redwood Mortgage Corp. agrees to pay out of the
Formation Loan to you, a sales commission in accordance with the following
number of Units sold:
<PAGE>
(a) You shall be paid a sales commission of either (i) five
percent (5%) of the gross proceeds from the sale of Units, if the investor
elects to receive monthly, quarterly or annual cash distributions of his
allocable share of Partnership income or (ii) nine percent (9%) of the gross
proceeds from the sale of such Units, if the investor elects to allow his
allocable share of cash distributions to be received in the form of additional
Units. Except as otherwise set forth in this Agreement or any supplements
thereto, in no event shall you be entitled to receive any commission with
respect an investor's election to receive additional Units in lieu of Periodic
Cash Distributions.
Furthermore, you may, at our discretion, and provided that you meet certain
selling requirements receive additional sales commissions as set forth in the
Supplemental Participating Broker Dealer Agreement.
In addition, you may be paid, in the discretion of the General Partners, up
to one-half of one percent (.5%) of the gross proceeds of the Offering for bona
fide accountable expenses as set forth in NASD Notice to Members 82-51 incurred
by you, in connection with the performance of your due diligence services under
this Agreement, including by way of illustration (i) the cost of independent
auditors, accountants and legal counsel; and (ii) the costs to supervise, review
and exercise due diligence activities with respect to the Partnership,
including, without limitation, telephone calls and travel.
An investor's written election to receive monthly, quarterly or annual cash
distributions as indicated on his Subscription Agreement shall be final and
binding on all parties. However, such investor may change his initial decision
regarding whether he wants the cash distributions paid to him on a monthly,
quarterly or annual basis. After three (3) years an investor who initially
elected to receive additional Units in lieu of Periodic Cash Distributions may
elect to receive monthly, quarterly or annual cash distributions. The decision
of an investor to receive cash distributions after three (3) years will not
effect the payment of sales commissions.
You may also be paid, in the discretion of the General Partners, for
certain expense reimbursements and sales seminar expenses.
Commissions, expense reimbursements and sales seminar expenses (and due
diligence expenses if specified above) shall be paid within 30 days after the
Partnership's acceptance of a prospective investor's proper tender of a
completed Subscription Agreement.
Total compensation, including commissions, expense reimbursements and sales
seminars expenses, to be paid by Redwood Mortgage Corp. and the Partnership for
the sale of Units shall not exceed a maximum of ten percent (10%) of the gross
proceeds of the offering received plus a maximum of one-half of one percent
(.5%) of gross proceeds of the offering received for bona fide due diligence
expense reimbursements on an accountable basis as set forth in NASD Notice to
Members 82-51 or that amount allowable under NASD Notice to Members 89-16.
4. Further Agreements of Broker-Dealer.
(a) You represent that you are a corporation duly organized, validly existing
and in good standing under the laws of the Jurisdiction in which you are
incorporated, with all requisite power and authority to enter into this
Agreement and to carry out your obligations hereunder.
(b) You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc., and shall maintain such registration
and qualification throughout the term of this Agreement.
(c) You covenant and agree to comply with any applicable
requirements of the Securities Exchange Act of 1934, the Securities Act of 1933,
the California Corporations Code, the laws of the state in which you are
registered and sell Units, the published rules and regulations of the Securities
and Exchange Commission, the By-Laws and the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD"). Furthermore, you specifically
covenant and agree not to deliver the Partnership's sales literature, if any, to
any person unless such sales literature is accompanied or preceded by a copy of
the Prospectus.
(d) You will not give any information or make any
representations or warranties in connection with the offering of Units other
than, or inconsistent with, those contained in the Prospectus and any sales
material approved in writing by the General Partners of the Partnership. You
will deliver a copy of the Prospectus to each investor to whom an offer is made
prior to or simultaneously with the first solicitation of any offer to sell the
Units to an investor. You agree to deliver or send any supplements and any
amended Prospectus to any investor you have previously sent to or given a
Prospectus prior to or simultaneously with the first solicitation of an offer to
sell the Units to an investor. You will not deliver the approved sales material
to any person unless such sales material is accompanied or preceded by the
Prospectus. You expressly agree not to prepare or use any sales literature,
advertisements or other materials in connection with the offering or sale of the
Units without our prior written consent. You agree that to the extent
information is provided to you marked "For Broker-Dealer Use Only", you will not
provide such information to prospective investors.
(e) You will solicit only eligible purchasers of Units as
described in the Prospectus under "INVESTOR SUITABILITY STANDARDS - Minimum Unit
Purchase."
(f) You agree to make diligent inquiries and maintain a record
thereof for a period of at least six years of all prospective purchasers of the
Units, in order to ascertain whether the purchase of Units represents a suitable
investment for such purchaser, and whether the purchaser is otherwise eligible
to purchase Units in accordance with the terms of the offering. Such inquiry
shall also be made with respect to any resales or transfers of Units.
Accordingly, you shall satisfy the following requirements:
(i) In recommending to a prospective investor the purchase of Units, you
shall have reasonable grounds to believe, on the basis of information obtained
from the investor concerning his investment objectives, other investments,
financial situation and needs, and any other information known by you or your
representatives, that the investor (or, if the investor is acting as trustee or
custodian of a trust or other entity, that such other trust or entity) is or
will be in a financial position to realize to a significant extent the benefits
described in the Prospectus, that such investor has a fair market net worth
sufficient to sustain the risks inherent in the purchase of Units, including
loss of investment and lack of liquidity, and that Units are otherwise suitable
as an investment.
(ii) You shall also maintain in your files documents disclosing the basis
upon which your determination of suitability was reached as to each investor.
(iii) Notwithstanding the foregoing, you shall not execute any transaction
for the purchase or sale of Units in a discretionary account, without prior
written approval of the transaction by your customer.
(iv) Prior to executing any transaction for the purchase or sale of Units,
and any resale or transfer of Units as permitted, you (or one of your associated
persons) shall fully inform the prospective investor of all pertinent facts
relating to the liquidity and marketability of Units during the term of the
Partnership.
(g) In connection with offering and selling Units, you agree to comply with
all of the applicable requirements under the Securities Act of 1933, as amended
(hereinafter referred to as the "Act"), the Securities Exchange Act of 1934, as
amended, the "Securities Exchange Act"), including without limitation, the
provisions of Rule 10b-6, Rule 10b-9, Rule 15c2-4 and Rule l5c2-8 under the
Securities Exchange Act, the Conduct Rules of the NASD, and state blue sky or
securities laws. You agree that you will not rely exclusively on us to satisfy
your duty of due diligence and, in particular, you agree to obtain from us and
from other sources such information as you deem necessary to comply with Rule
2810 of NASD Conduct Rules. You further agree to supply the Partnership with
such written reports of your activities relating to the offer and sale of Units
as the Partnership may request from time to time.
(h) You agree to diligently make inquiries as required by law of all
prospective purchasers of Units in order to ascertain whether a purchase of
Units is suitable for each such purchaser, and not rely solely on information
supplied by each purchaser. You also agree to promptly transmit to the
Partnership all fully completed and duly executed Subscription Agreements. You
shall retain all records relating to investor suitability as to each purchaser
for a period of six years from the date of sale of the Units to each purchaser.
Upon reasonable notice to you, the General Partners, or their designated agents,
shall have the right to inspect such records.
(i) By executing this Agreement, you represent and warrant that you have
reasonable grounds to believe (based on information made available to you by the
General Partners of the Partnership through the Prospectus and other materials,
or otherwise obtained as a result of inquiries conducted by you or other NASD
member firms) that all material facts concerning the Partnership are adequately
and accurately disclosed and provide a basis for evaluating the Partnership,
including facts relating to items of compensation, physical properties, tax
aspects, financial stability and experience of the sponsor, conflicts of
interest and risk factors, and appraisals or other reports.
(j) For purposes of 4(i) above, you may rely upon the results of an inquiry
conducted by another member broker dealer, provided that:
(i) You have reasonable grounds to believe that such inquiry was conducted
with due care;
(ii) The results of the inquiry were provided to you with the consent of
the member broker dealer conducting or directing the inquiry;
(iii) No broker dealer that participated in the inquiry is the Sponsor or
affiliate of the Sponsor.
5. Termination. Either party may terminate this Agreement at any time,
effective immediately, by giving written notice to other party. In the event of
termination, you shall not be entitled to any commissions or any restitution for
the value of your services rendered prior to or subsequent to the effective date
of such termination, excepting only such commissions as may have been earned
with respect to Units already sold by you and accepted by the Partnership prior
to the termination date.
6. Expenses. You shall bear all your own expenses incurred in connection
with the offer and sale of Units, and you shall not be entitled to any
reimbursement for such expenses by the Partnership except to the extent that any
due diligence expenses are specified in Section 3 of this Agreement.
7. Indemnification.
(a) The Partnership and the General Partners agree to indemnify you and
your officers, directors, representatives and controlling persons against
losses, claims, damages or liabilities (including reasonable attorneys' fees) to
which you or such other persons may become subject, under federal or state
securities laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement of a material fact contained in the Prospectus or the omission
to state therein, material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which they were
made not misleading. The foregoing indemnity shall include reimbursement of any
legal or other expenses reasonably incurred in connection with investigation or
defending any such loss, claim, damage, liability or action, and shall be paid
by you as such expenses are incurred.
(b) You agree to indemnify and hold harmless the Partnership, its
General Partners and all other dealers participating in the offering of Units,
and each officer, director and controlling person of such persons, against any
losses, claims, damages or liabilities (including reasonable attorneys' fees) to
which any of such persons may become subject, under federal or state securities
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any statements,
actions or omissions by you or any person controlled by you or acting on your
behalf, which statement, action or omission is untrue or is inconsistent with or
in violation of any provision of federal or state securities laws, the rules and
regulations of the Securities and Exchange Commission, or the NASD Conduct
Rules. The foregoing indemnity shall include reimbursement of any legal or other
expenses reasonably incurred in connection with investigation or defending any
such loss, claim, damage, liability or action, and shall be paid by you as such
expenses are incurred.
(c) In order to provide for just and equitable contribution in any case
in which (i) a claim is made for indemnification pursuant to this Section 7 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that express provisions of this
Section 7 provide for indemnification in such case or (ii) contribution may be
required on the part of a party thereto, then the General Partners, the
Partnership, and Participating Dealers shall contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (which shall, for
all purposes of this Agreement include, without limitation, all costs of defense
and investigation and ail attorneys fees) in either such case (after
contribution from others) in such proportions that the Participating Dealers are
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the aggregate amounts received by
the Participating Dealers pursuant to Section 3 of this agreement bear to the
aggregate of the offering price of the Units, and the General Partners and the
Partnership shall be responsible for the balance; provided, however, that the
contribution of each such Participating Dealer shall not be in excess of their
proportionate share (based upon the ratio of the aggregate purchase price of the
Units sold by such Participating Dealer to the aggregate purchase price of the
Units sold) of the portion of such losses, claims, damages or liabilities for
which the Participating Dealer is responsible. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. If the full amount of the
contribution specified in this subsection (c) of Section 7 is not permitted by
law, then each Participating Dealer and each person who controls each
Participating Dealer shall be entitled to contribution from the General Partners
and the Partnership and controlling persons to the full extent permitted by law.
<PAGE>
8. Arbitration.
(a) As between the parties hereto, all questions as to rights and
obligations arising under the terms of this Agreement are subject to
arbitration, including any question concerning any right or duty under the
Securities Act of 1933, the Securities Exchange Act of 1934, and the securities
laws of any state in which Units are offered, and the Conduct Rules of the NASD
and such arbitration shall be governed by the rules of the American Arbitration
Association.
(b) If a dispute should arise under this Agreement, any Party may
within 60 days make a demand for arbitration by filing a demand in writing for
the other.
(c) The parties may agree upon one arbitrator, but in the event that
they cannot agree, there shall be three, one named in writing by each of the
parties within five (5) days after demand for arbitration is given and a third
chosen by the two appointed. Should either party refuse or neglect to join in
the appointment of the arbitrator(s) or to furnish the arbitrator(s) with any
papers or information demanded, the arbitrator(s) are empowered by both parties
to proceed ex parte.
(d) Arbitration shall take place in San Mateo, California, and the
hearing before the arbitrator(s) of the matter to be arbitrated shall be at the
time and place within said city as is selected by the arbitrator(s). The
arbitrator(s) shall select such time and place promptly after his (or their)
appointment and shall give written notice thereof to each party at least sixty
(60) days prior to the date so fixed. At the hearing any relevant evidence may
be presented by either party, and the formal rules of evidence applicable to
judicial proceedings shall not govern. Evidence may be admitted or excluded in
the sole discretion of the arbitrator(s). Said arbitrator(s) shall hear and
determine the matter and shall execute and acknowledge their award in writing
and cause a copy thereof to be delivered to each of the parties.
(e) If there is only one arbitrator, his decision shall be binding and
conclusive on the parties, and if there are three arbitrators the decision of
any two shall be binding and conclusive. The submission of a dispute to the
arbitrator(s) and the rendering of his (or their) decision shall be a condition
precedent to any right of legal action on the dispute. A judgment confirming the
award of the arbitrator(s) may be rendered by any Court having jurisdiction; or
such Court may vacate, modify, or correct the award in accordance with the
prevailing sections of California State Law.
(f) If three arbitrators are selected under the foregoing procedure but
two of the three fail to reach an Agreement in the determination of the matter
in question, the matter shall be decided by three new arbitrators who shall be
appointed and shall proceed in the same manner, and the process shall be
repeated until a decision is finally reached by two of the three arbitrators
selected.
(g) The costs of such arbitration shall be borne by the losing party or
in such proportions as the arbitrator(s) shall determine.
9. Authority. It is understood that your relationship with the Partnership
is as an independent contractor and that nothing herein shall be construed and
creating a relationship of partnership, joint venturers, employer and employee
or any other agency relationship between you and the Partnership.
10. Survival of Indemnities, Warranties and Representations. The indemnity
agreements and the representations and warranties of the parties as set forth
herein shall remain operative and in full force and effect, regardless of any
termination or cancellation of this Agreement, and shall survive the delivery of
any payment for Units.
11. Notices. All communications hereunder shall be in writing and shall be
mailed, hand delivered or telegraphed, all charges prepaid, to the respective
parties at the addresses set forth herein. The address of the Partnership and
its General Partners is 650 El Camino Real, Suite G, Redwood City, California
94063 (telephone: (415) 365-5341), until changed by written notice.
12. Successors and Assigns. This Agreement and the terms and provisions
hereof shall inure to the benefit of and shall be binding upon the successors
and assigns of the parties hereto; provided, however, that in no in event shall
the term "successors and assigns" as used herein include any purchaser, as such,
of any Units. In addition, and without limiting the generality of the foregoing,
the indemnity agreements contained herein shall inure to the benefit of the
successors and assigns of the parties hereto, and shall be valid irrespective of
any investigation made or not made by or on behalf of any party hereto.
13. Applicable Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California and the appropriate courts
in the County of San Mateo, California should be the forum for any litigation
arising hereunder. Please confirm your Agreement with the General Partners and
Redwood Mortgage Corp. to the terms contained herein and your acceptance of this
appointment by dating and signing below and return a fully executed copy of this
Participating Dealer Agreement to us.
--------------------------------------
D. Russell Burwell, President REDWOOD MORTGAGE CORP.
By:___________________________________
Its:___________________________________
BROKER-DEALER ACCEPTANCE
ACCEPTED this __ day of
__________, 2000
By: ______________________________
(Print Name)
----------------------------------
(Signature)
----------------------------------
Title
----------------------------------
Taxpayer 1. D. No.
----------------------------------
(Telephone Number)
----------------------------------
Type of Entity:
(corporation, partnership or proprietorship)
<PAGE>
Exhibit 1.2
30,000,000 Limited Partnership Units
($1 per Unit)
REDWOOD MORTGAGE INVESTORS VIII
ADVISORY AGREEMENT
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Gentlemen:
D. Russell Burwell, Michael R. Burwell, Gymno Corporation, a California
corporation, and Redwood Mortgage Corp. , a California corporation, are the
General Partners of Redwood Mortgage Investor VIII, a California Limited
partnership (the "Partnership") engaged in business as a mortgage lender. The
General Partners, on behalf of the Partnership, propose to offer and sell to
qualified investors, upon the terms and subject to the conditions set forth in
the Prospectus dated July 13, 2000 (the "Prospectus"), limited partnership
interests ("Units") of the Partnership at an offering price of $1 per Unit, with
a minimum investment of two (2) thousand (2,000) Units per purchaser. The
offering is for a maximum of 30,000,000 Units ($30,000,000).
1. Advisory Relationship. You are in the business of advising clients
with respect to certain investments including investments in the Partnership
(the "Advisor"). As an Advisor you do not receive any sales commissions or other
compensation from the Partnership, but instead receive your fees directly from
your client. You do not act as a broker dealer and investments in the
Partnership are made directly by the Investor.
2. Eligible Purchasers of Units. You agree not to advise to any client
to invest in Units who does not meet the suitability standards set forth in the
Prospectus. You agree that you will deliver and cause each prospective purchaser
to complete and execute a Subscription Agreement, and return it to the
undersigned together with such other documents, instruments or information as
the General Partners may request together with a check in the full amount of the
purchase price for the number of Units subscribed for. You agree to inform
purchasers that a purchaser's check shall be made payable to "Redwood Mortgage
Investors VIII" and remitted directly to Redwood Mortgage Investors VIII, 650 El
Camino Real, Suite G, Redwood City, California 94063, Attention: D. Russell
Burwell. You shall ascertain that each Subscription Agreement sent in by a
prospective purchaser of Units has been fully completed and properly executed by
such prospective purchaser.
3. No Compensation. As an Advisor to the Investor you will receive no
compensation from the Partnership in connection with any Units purchased by a
client who you have advised to invest in the Partnership.
4. Further Agreements of Advisor.
(a) You covenant and agree to comply with any applicable
requirements of the Securities Exchange Act of 1934, the Securities Act of 1933,
the California Corporations Code, the laws of the state in which you are
advising clients, the published rules and regulations of the Securities and
Exchange Commission, and any other applicable agency. Furthermore, you
specifically covenant and agree not to deliver the Partnership's sales
literature, if any, to any person unless such sales literature is accompanied or
preceded by a copy of the Prospectus.
5. Further Agreements of Advisor.
(a) You covenant and agree to comply with any applicable
requirements of the Securities Exchange Act of 1934, the Securities Act of 1933,
the California Corporations Code, the laws of the state in which you are
advising clients, the published rules and regulations of the Securities and
Exchange Commission, and any other applicable agency. Furthermore, you
specifically covenant and agree not to deliver the Partnership's sales
literature, if any, to any person unless such sales literature is accompanied or
preceded by a copy of the Prospectus.
(b) You will not give any information or make any
representations or warranties in connection with the offering of Units other
than, or inconsistent with, those contained in the Prospectus and any sales
material approved in writing by the General Partners of the Partnership. You
will deliver a copy of the Prospectus to each investor to whom you are advising.
You will not deliver the approved sales material to any person unless such sales
material is accompanied or preceded by the Prospectus. You expressly agree not
to prepare or use any sales literature, advertisements or other materials in
connection with your advisory services. You agree that to the extent information
is provided to you marked "For Broker-Dealer and/or Advisor Use Only", you will
not provide such information to prospective investors.
(c) You will only advise eligible purchasers of Units to
invest in the Partnership as described in the Prospectus under "INVESTOR
SUITABILITY STANDARDS - Minimum Unit Purchase."
(d) You agree to make diligent inquiries and maintain a record
thereof for a period of at least six years of all clients who you advise to
purchase Units in, in order to ascertain whether the purchase of Units
represents a suitable investment for such purchaser, and whether the purchaser
is otherwise eligible to purchase Units in accordance with the terms of the
offering. Accordingly, you shall satisfy the following requirements:
(i) In recommending to a prospective investor the purchase of Units, you
shall have reasonable grounds to believe, on the basis of information obtained
from the investor concerning his investment objectives, other investments,
financial situation and needs, and any other information known by you or your
representatives, that the investor (or, if the investor is acting as trustee or
custodian of a trust or other entity, that such other trust or entity) is or
will be in a financial position to realize to a significant extent the benefits
described in the Prospectus, that such investor has a fair market net worth
sufficient to sustain the risks inherent in the purchase of Units, including
loss of investment and lack of liquidity, and that Units are otherwise suitable
as an investment.
(ii) You shall also maintain in your files documents disclosing the basis
upon which your determination of suitability was reached as to each investor.
(e) In connection with your advisory activity, you agree to
comply with all of the applicable requirements under the Securities Act of 1933,
as amended (hereinafter referred to as the "Act"), the Securities Exchange Act
of 1934, as amended, the "Securities Exchange Act"). We have no due diligence
obligation to you.
(f) You agree to diligently make inquiries as required by law
of all clients who you recommend to purchase Units in order to ascertain whether
an investment in Units is suitable for each such purchaser, and not rely solely
on information supplied by each purchaser. You shall retain all records relating
to investor suitability as to each purchaser for a period of six years. Upon
reasonable notice to you, the General Partners, or their designated agents,
shall have the right to inspect such records.
(g) By executing this Agreement, you represent and warrant
that you have reasonable grounds to believe (based on information made available
to you by the General Partners of the Partnership through the Prospectus and
other materials, or otherwise obtained as a result of inquiries conducted by
you) that all material facts concerning the Partnership are adequately and
accurately disclosed and provide a basis for evaluating the Partnership,
including facts relating to items of compensation, physical properties, tax
aspects, financial stability and experience of the sponsor, conflicts of
interest and risk factors, and appraisals or other reports.
5. Termination. Either party may terminate this Agreement at any time,
effective immediately, by giving written notice to other party.
6. Expenses. You shall bear all your own expenses incurred in connection
with your advisory activities and shall not be entitled to any reimbursement.
7. Indemnification.
(a) The Partnership and the General Partners agree to
indemnify against losses, claims, damages or liabilities (including reasonable
attorneys' fees) to which you or such other persons may become subject, under
federal or state securities laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement of a material fact contained in the Prospectus or the
omission to state therein, material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
which they were made not misleading. The foregoing indemnity shall include
reimbursement of any legal or other expenses reasonably incurred in connection
with investigation or defending any such loss, claim, damage, liability or
action, and shall be paid by you as such expenses are incurred.
(b) You agree to indemnify and hold harmless the Partnership,
its General Partners, their affiliated mortgage company (Redwood Mortgage),
against any losses, claims, damages or liabilities (including reasonable
attorneys' fees) to which any of such persons may become subject, under federal
or state securities laws or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any statements, actions or omissions by you or any person controlled by you or
acting on your behalf, which statement, action or omission is untrue or is
inconsistent with or in violation of any provision of federal or state
securities laws, the rules and regulations of the Securities and Exchange
Commission, or other applicable agency. The foregoing indemnity shall include
reimbursement of any legal or other expenses reasonably incurred in connection
with investigation or defending any such loss, claim, damage, liability or
action, and shall be paid by you as such expenses are incurred.
8. Arbitration.
(a) As between the parties hereto, all questions as to rights
and obligations arising under the terms of this Agreement are subject to
arbitration, including any question concerning any right or duty under the
Securities Act of 1933, the Securities Exchange Act of 1934, and the securities
laws of any state in which Units are offered, and such arbitration shall be
governed by the rules of the American Arbitration Association.
(b) If a dispute should arise under this Agreement, any Party
may within 60 days make a demand for arbitration by filing a demand in writing
for the other.
(c) The parties may agree upon one arbitrator, but in the
event that they cannot agree, there shall be three, one named in writing by each
of the parties within five (5) days after demand for arbitration is given and a
third chosen by the two appointed. Should either party refuse or neglect to join
in the appointment of the arbitrator(s) or to furnish the arbitrator(s) with any
papers or information demanded, the arbitrator(s) are empowered by both parties
to proceed ex parte.
(d) Arbitration shall take place in San Mateo, California, and
the hearing before the arbitrator(s) of the matter to be arbitrated shall be at
the time and place within said city as is selected by the arbitrator(s). The
arbitrator(s) shall select such time and place promptly after his (or their)
appointment and shall give written notice thereof to each party at least sixty
(60) days prior to the date so fixed. At the hearing any relevant evidence may
be presented by either party, and the formal rules of evidence applicable to
judicial proceedings shall not govern. Evidence may be admitted or excluded in
the sole discretion of the arbitrator(s). Said arbitrator(s) shall hear and
determine the matter and shall execute and acknowledge their award in writing
and cause a copy thereof to be delivered to each of the parties.
(e) If there is only one arbitrator, his decision shall be
binding and conclusive on the parties, and if there are three arbitrators the
decision of any two shall be binding and conclusive. The submission of a dispute
to the arbitrator(s) and the rendering of his (or their) decision shall be a
condition precedent to any right of legal action on the dispute. A judgment
confirming the award of the arbitrator(s) may be rendered by any Court having
jurisdiction; or such Court may vacate, modify, or correct the award in
accordance with the prevailing sections of California State Law.
(f) If three arbitrators are selected under the foregoing
procedure but two of the three fail to reach an Agreement in the determination
of the matter in question, the matter shall be decided by three new arbitrators
who shall be appointed and shall proceed in the same manner, and the process
shall be repeated until a decision is finally reached by two of the three
arbitrators selected.
(g) The costs of such arbitration shall be borne by the losing
party or in such proportions as the arbitrator(s) shall determine.
9. Authority. It is understood that your relationship with the Partnership
is as an independent contractor and that nothing herein shall be construed and
creating a relationship of partnership, joint ventures, employer and employee or
any other agency relationship between you and the Partnership.
10. Survival of Indemnities, Warranties and Representations. The
indemnity agreements and the representations and warranties of the parties as
set forth herein shall remain operative and in full force and effect, regardless
of any termination or cancellation of this Agreement, and shall survive the
delivery of any payment for Units.
11. Notices. All communications hereunder shall be in writing and shall be
mailed, hand delivered or telegraphed, all charges prepaid, to the respective
parties at the addresses set forth herein. The address of the Partnership and
its General Partners is 650 El Camino Real, Suite G, Redwood City, California
94063 (telephone: (650) 365-5341), until changed by written notice.
12. Successors and Assigns. This Agreement and the terms and provisions
hereof shall inure to the benefit of and shall be binding upon the successors
and assigns of the parties hereto; provided, however, that in no in event shall
the term "successors and assigns" as used herein include any purchaser, as such,
of any Units. In addition, and without limiting the generality of the foregoing,
the indemnity agreements contained herein shall inure to the benefit of the
successors and assigns of the parties hereto, and shall be valid irrespective of
any investigation made or not made by or on behalf of any party hereto.
13. Applicable Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California and the appropriate courts
in the County of San Mateo, California should be the forum for any litigation
arising hereunder.
Please confirm your Agreement with the General Partners to the terms
contained herein and return a fully executed copy of this Advisory Agreement to
us.
--------------------------------------
D. Russell Burwell, General Partner
BROKER-DEALER ACCEPTANCE
ACCEPTED this __ day of
__________, 2000
By: ______________________________
(Print Name)
----------------------------------
(Signature)
----------------------------------
Title
----------------------------------
Taxpayer 1. D. No.
----------------------------------
(Telephone Number)
----------------------------------
Type of Entity:
(corporation, partnership or proprietorship)
<PAGE>
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership
THIS THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT was made
and entered into as of the 13 day of July, 2000, by and among D. RUSSELL
BURWELL, an individual, MICHAEL R. BURWELL, an individual, GYMNO CORPORATION, a
California corporation and REDWOOD MORTGAGE CORP., a California corporation
(collectively, the "General Partners"), and such other persons who have become
Limited Partners ("Existing Limited Partners") and as may be added pursuant to
the terms hereof (the "New Limited Partners") (collectively the "Limited
Partners").
RECITALS
A. On or about October 1993, the General Partners and the Limited
Partners entered into an agreement of limited partnership for the Partnership.
The Partnership offered $15,000,000 in Units and $14,932,017 were acquired by
investors. The Offering closed on October 31, 1996.
B. In order to increase the Partnership's capital base and permit the
Partnership to further diversify its portfolio, in September, 1996, the General
Partners elected to offer an additional 30,000,000 Units of which $24,378,460
had been acquired by Investors as of March 31,. 2000. The second offering will
close upon the effective date of the prospectus dated July 13, 2000.
F. Additionally, in January 2000, the General Partners elected to revise
their prospectus in order to meet the "Plain English" rules promulgated by the
Securities and Exchange Commission ("SEC").
G. In order to again increase the Partnership's capital base and permit the
Partnership to further diversify its portfolio, in July 13, 2000, the General
Partners elected to offer an additional $30,000.000.
H. In connection with the additional offering of Units and in order to correct
some ambiguities and update certain provisions of the Partnership Agreement, the
General Partners have elected to amend and restate the agreement of limited
partnerships (the "Partnership Agreement.)
ARTICLE 1
DEFINITIONS
Unless stated otherwise, the terms set forth in this Article I shall,
for all purposes of this Agreement, have the meanings as defined herein:
1.1 "Affiliate" means (a) any person directly or indirectly
controlling, controlled by or under common control with another person, (b) any
person owning or controlling ten percent (10%) or more of the outstanding voting
securities of such other person, (c) any officer, director or partner of such
person, or (d) if such other person is an officer, director or partner, any
company for which such person acts in any such capacity.
1.2 "Agreement" means this Limited Partnership Agreement, as amended from
time to time.
1.3 "Capital Account" means, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account there shall be credited,
in the event such Partner utilized the services of a Participating Broker
Dealer, such Partner's Capital Contribution, or if such Partner acquired his
Units through an unsolicited sale, such Partner's Capital Contribution plus the
amount of the sales commissions otherwise payable is paid, such Partner's
distributive share of Profits and any items in the nature of income or gain
(from unexpected adjustments, allocations or distributions) that are specially
allocated to a Partner and the amount of any Partnership liabilities that are
assumed by such Partner or that are secured by any Partnership property
distributed to such Partner.
(b) To each Partner's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any Partnership 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 that are specially allocated to a Partner and the amount of any
liabilities of such Partner that are assumed by the Partnership or that are
secured by any property contributed by such Partner to the Partnership.
In the event any interest in the Partnership is transferred in
accordance with Section 7.2 of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred interest.
In the event the Gross Asset Values of the Partnership assets are
adjusted pursuant to Section 1.9, the Capital Accounts of all Partners shall be
adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership recognized gain or loss equal to the amount of such aggregate net
adjustment.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), and shall be interpreted and applied in
a manner consistent with such Regulation. In the event the General Partners
shall 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
the then existing Treasury Regulation, the General Partners 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 IX hereof upon the
dissolution of the Partnership. The General Partners shall adjust the amounts
debited or credited to Capital Accounts with respect to (a) any property
contributed to the Partnership or distributed to the General Partners, and (b)
any liabilities that are secured by such contributed or distributed property or
that are assumed by the Partnership or the General Partners, in the event the
General Partners shall determine such adjustments are necessary or appropriate
pursuant to Treasury Regulation Section 1.704-l(b)(2)(iv) as provided for in
Section 5.4. The General Partners shall make any appropriate modification in the
event unanticipated events might otherwise cause this Agreement not to comply
with Treasury Regulation Section 1.704-l(b) as provided for in Sections 5.6 and
12.4(k).
1.4 "Cash Available for Distribution" means an amount of cash equal to
the excess of accrued income from operations and investment of, or the sale or
refinancing or other disposition of, Partnership assets during any calendar
month over the accrued operating expenses of the Partnership during such month,
including any adjustments for bad debt reserves or deductions as the General
Partners may deem appropriate, all determined in accordance with generally
accepted accounting principles; provided, that such operating expenses shall not
include any general overhead expenses of the General Partners not specifically
related to, billed to or reimbursable by the Partnership as specified in
Sections 10.13 through 10.15.
1.5 "Code" means the Internal Revenue Code of 1986 and corresponding
provisions of subsequent revenue laws.
1.6 "Continuing Servicing Fee" means an amount equal to approximately
(0.25%) of the Limited Partnership's capital account which amount shall be paid
to certain participating Broker Dealers payable only in connection with the
initial offering of 150,000 Units pursuant to the Prospectus dated May 19, 1993.
1.7 "Deed of Trust" means the lien or liens created on the real
property or properties of the borrower securing the borrower's obligation to the
Partnership to repay the Mortgage Investment.
1.8 "Earnings" means all revenues earned by the Partnership less all
expenses incurred by the Partnership.
1.9 "Fiscal Year" means a year ending December 31st.
1.10 "First Formation Loan" means a loan to Redwood Mortgage Corp., an
affiliate of the General Partners, in connection with the initial offering of
150,000 Units pursuant to the Prospectus dated May 19, 1993, equal to the amount
of the sales commissions (excluding any Continuing Servicing Fees) and all
amounts payable in connection with any unsolicited sales. Redwood Mortgage Corp.
will pay all sales commissions (excluding any Continuing Servicing Fees) and all
amounts payable in connection with any unsolicited sales from the First
Formation Loan. The First Formation Loan will be unsecured, and will be repaid
in ten (10) equal annual installments of principal, without interest commencing
on December 31 of the year in which the initial offering terminates.
1.11 "Formation Loans" means collectively the First, Second and Third
Formation Loan.
1.12 "General Partners" means D. Russell Burwell, Michael R. Burwell, Gymno
Corporation, a California corporation, and Redwood Mortgage Corp., a California
corporation or any Person substituted in place thereof pursuant to this
Agreement. "General Partner" means any one of the General Partners.
1.13 "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross 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 contributed Partner and the Partnership;
(b) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the General Partners, as of the following times: (a) the acquisition of an
additional interest in the Partnership (other than pursuant to Section 4.2) 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 other than money, unless all
Partners receive simultaneous distributions of undivided interests in the
distributed property in proportion to their Interests in the Partnership; and
(c) the termination of the Partnership for federal income tax purposes pursuant
to Section 708(b)(1)(B) of the Code; and
(c) If the Gross Asset Value of an asset has been determined
or adjusted pursuant to clause (a) or (b) above, such Gross Asset Value shall
thereafter be adjusted by the depreciation, amortization or other cost recovery
deduction allowable which is taken into account with respect to such asset for
purposes of computing Profits and Losses.
1.14 "Guaranteed Payment for Offering Period" means the payment
guaranteed to Limited Partners by the General Partners during the Guaranteed
Payment Period. The Guaranteed Payment for Offering Period calculated on a
monthly basis, shall be equal to the greater of (i) the Partnership's Earnings
or (ii) the interest rate established by the Monthly Weighted Average Cost of
Funds for the 11th District Savings Institutions, as announced by the Federal
Home Loan Bank of San Francisco during the last week of the preceding month,
plus two points, up to a maximum interest rate of 12%. The Weighted Average Cost
of Funds is derived from interest paid on savings accounts, Federal Home Loan
Bank advances, and other borrowed money adjusted from valuation in the number of
days in each month. The adjustment factors are 1.086 for February, 1.024 for 30
day months and 0.981 for 31 day months. As of the date of the Prospectus, the
Monthly Weighted Average Funds for the 11th District as announced April 30,
2000, for the period ended March 31, 2000, and in effect until May 31, 2000, is
5.0%. The Guaranteed Payment Period is the period commencing on the day a
Limited Partner is admitted to the Partnership and ending three months after the
Offering Termination Date. To the extent the return to be paid is in excess of
the Partnership's Earnings, the Guaranteed Payment for Offering Period shall be
payable by the General Partners out of a Capital Contribution to the Partnership
and/or fees payable to the General Partners or Redwood Mortgage Corp. which are
lowered or waived.
1.15 "Limited Partners" means the Initial Limited Partner until it
shall withdraw as such, and the purchasers of Units in Redwood Mortgage
Investors VIII, who are admitted thereto and whose names are included on the
Certificate and Agreement of Limited Partnership of Redwood Mortgage Investors
VIII. Reference to a "Limited Partner" shall be to any one of them.
1.16 "Limited Partnership Interest" means the percentage ownership
interest of any Limited Partner in the Partnership determined at any time by
dividing a Limited Partner's current Capital Account by the total outstanding
Capital Accounts of all Limited Partners.
1.17 "Majority of the Limited Partners" means Limited Partners holding
a majority of the total outstanding Limited Partnership Interests as of the
first day of the current calendar month.
1.18 "Mortgage Investment(s)" or "Loans" means the loan(s) and/or an
undivided interest in the loans the Partnership intends to extend to the general
public secured by real property deeds of trust.
1.19 "Net Asset Value" means the Partnership's total assets less its total
liabilities.
1.20 "Partners" means the General Partners and the Limited Partners,
collectively. "Partner" means any one of the Partners.
1.21 "Partnership" means Redwood Mortgage Investors VIII, a California
limited partnership, the limited partnership created pursuant to this Agreement.
1.22 "Partnership Interest" means the percentage ownership interest of
each Partner in the partnership as defined in Section 5.1.
1.23 "Person" means any natural person, partnership, corporation,
unincorporated association or other legal entity.
1.24 "Profits" and "Losses" mean, for each Fiscal Year or any other
period, an amount equal to the Partnership's taxable income or loss for such
Fiscal Year or other given 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 Code Section 703(a)(1) shall be
included in taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section 1.21 shall be added to such taxable income or loss;
(b) 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 Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and
not otherwise taken into account in computing Profits or Losses pursuant to this
Section 1.21, shall be subtracted from such taxable income or loss.
(c) 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 Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(d) 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, amortization or other cost
recovery deductions for such Fiscal Year or other period, computed such that if
the Gross of an Asset Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of a Fiscal Year or other period,
depreciation, amortization or other cost recovery deductions shall be an amount
which bears the same ratio to such beginning Gross Asset Value as the federal
income tax depreciation, amortization or other cost recovery deductions for such
Fiscal Year or other period bears to such beginning adjusted tax basis; and
(e) Notwithstanding any other provision of this Section 1.21,
any items in the nature of income; or gain or expenses or losses, which are
specially allocated, shall not be taken into account in computing Profits or
Losses.
1.25 "Sales Commissions" means the amount of compensation, which may be
paid under one of two options, to be paid to Participating Broker Dealers in
connection with the sale of Units.
1.26 "Second Formation Loan" means the loan to Redwood Mortgage Corp.,
a General Partner, in connection with the second offering of 300,000 Units
pursuant to the Prospectuses dated December 4, 1996 and February 28, 2000 equal
to the amount of the sales commissions and the amounts payable in connection
with unsolicited sales. Redwood Mortgage Corp. will pay all sales commissions
and amounts due in connection with unsolicited sales from the Second Formation
Loan. The Second Formation Loan will be unsecured, will not bear interest and
will be repaid in annual installments.
1.27 "Third Formation Loan" means the loan to Redwood Mortgage Corp., a
General Partner, in connection with the offering of 30,000,000 Units pursuant to
the Prospectus dated July XX, 2000 equal to the amount of the sales commissions
and the amounts payable with the unsolicited sales. Redwood Mortgage Corp. will
pay all sales commissions and amounts due in connenction with the unsolicited
sales from the Third Formation Loan. The Third Formation Loan will be unsecured,
will not bear interest, and will be repaid in annual installments.
1.28 "Units" mean the shares of ownership of the Partnership issued to
Limited Partners upon their admission to the Partnership, pursuant to the
Partnership's Prospectuses dated February 2, 1993, December 4, 1996 and February
28, 2000, July XX, 2000 and any supplements or amendments thereto (the
"Prospectus").
ARTICLE 2
ORGANIZATION OF THE LIMITED PARTNERSHIP
2.1 Formation. The parties hereto hereby agree to form a limited
partnership, pursuant to the provision of Chapter 3, Title 2, of the California
Corporations Code, as in effect on the date hereof, commonly known as the
California Revised Limited Partnership Act (the "California Act").
2.2 Name. The name of the Partnership is REDWOOD MORTGAGE INVESTORS VIII, a
California limited partnership.
2.3 Place of Business. The principal place of business of the
Partnership shall be located at 650 El Camino Real, Suite G, Redwood City,
California 94063, until changed by designation of the General Partners, with
notice to all Limited Partners.
2.4 Purpose. The primary purpose of this Partnership is to engage in
business as a mortgage lender for the primary purpose of making Loans secured by
deeds of trust (the "Loans") on California real estate.
2.5 Substitution of Limited Partner. A Limited Partner may assign all
or a portion of his Partnership Interest and substitute another person in his
place as a Limited Partner only in compliance with the terms and conditions of
Section 7.2.
2.6 Certificate of Limited Partnership. The General Partners shall duly
execute and file with the Office of the Secretary of State of the State of
California, a Certificate of Limited Partnership pursuant to the provisions of
Section 15621 of the California Corporations Code. Thereafter, the General
Partners shall execute and cause to be filed Certificates of Amendment of the
Certificate of Limited Partnership whenever required by the California Act or
this Agreement. At the discretion of the General Partners, a certified copy of
the Certificate of Limited Partnership may also be filed in the Office of the
Recorder of any county in which the Partnership shall have a place of business
or in which real property to which it holds title shall be situated.
2.7 Term. The Partnership shall be formed and its term shall commence
as of the date on which this Limited Partnership Agreement is executed and the
Certificate of Limited Partnership referred to in Section 2.6 is filed with the
Office of the Secretary of State, and shall continue until December 31, 2032,
unless earlier terminated pursuant to the provisions of this Agreement or by
operation of law.
2.8 Power of Attorney. Each of the Limited Partners irrevocably
constitutes and appoints the General Partners, and each of them, any one of them
acting alone, as his true and lawful attorney-in-fact, with full power and
authority for him, and in his name, place and stead, to execute, acknowledge,
publish and file:
(a) This Agreement, the Certificate of Limited Partnership and any
amendments or conciliation thereof required under the laws of the State of
California;
(b) Any certificates, instruments and documents, including,
without limitation, Fictitious Business Name Statements, as may be required by,
or may be appropriate under, the laws of any state or other jurisdiction in
which the Partnership is doing or intends to do business; and
(c) Any documents which may be required to effect the
continuation of the Partnership, the admission of an additional or substituted
Partner, or the dissolution and termination of the Partnership.
Each Limited Partner hereby agrees to execute and deliver to the
General Partners within five (5) days after receipt of the General Partners'
written request therefore, such other and further statements of interest and
holdings, designations, and further statements of interest and holdings,
designations, powers of attorney and other instruments that the General Partners
deem necessary to comply with any laws, rules or regulations relating to the
Partnership's activities.
2.9 Nature of Power of Attorney. The foregoing grant of authority is a
special power of attorney coupled with an interest, is irrevocable, and survives
the death of the undersigned or the delivery of an assignment by the undersigned
of a Limited Partnership Interest; provided, that where the assignee thereof has
been approved by the General Partners for admission to the Partnership as a
substituted Limited Partner, the Power of Attorney survives the delivery of such
assignment for the sole purpose of enabling the General Partners to execute,
acknowledge and file any instrument necessary to effect such substitution.
ARTICLE 3
THE GENERAL PARTNERS
3.1 Authority of the General Partners. The General Partners shall have
all of the rights and powers of a partner in a general partnership, except as
otherwise provided herein.
3.2 General Management Authority of the General Partners. Except as
expressly provided herein, the General Partners shall have sole and complete
charge of the affairs of the Partnership and shall operate its business for the
benefit of all Partners. Each of the General Partners, acting alone or together,
shall have the authority to act on behalf of the Partnership as to any matter
for which the action or consent of the General Partners is required or
permitted. Without limitation upon the generality of the foregoing, the General
Partners shall have the specific authority:
(a) To expend Partnership funds in furtherance of the business
of the Partnership and to acquire and deal with assets upon such terms as they
deem advisable, from affiliates and other persons;
(b) To determine the terms of the offering of Units, including
the right to increase the size of the offering or offer additional securities,
the amount for discounts allowable or commissions to be paid and the manner of
complying with applicable law;
(c) To employ, at the expense of the Partnership, such agents, employees,
independent contractors, attorneys and accountants as they deem reasonable and
necessary;
(d) To effect necessary insurance for the proper protection of the
Partnership, the General Partners or Limited
Partners;
(e) To pay, collect, compromise, arbitrate, or otherwise adjust any and all
claims or demands against the Partnership;
(f) To bind the Partnership in all transactions involving the
Partnership's property or business affairs, including the execution of all loan
documents and the sale of notes and to change the Partnership's investment
objectives, notwithstanding any other provision of this Agreement; provided,
however, the General Partners may not, without the consent of a Majority of the
Limited Partners, sell or exchange all or substantially all of the Partnership's
assets, as those terms are defined in Section 9.1;
(g) To amend this Agreement with respect to the matters described in
Subsections 12.4(a) through (k) below;
(h) To determine the accounting method or methods to be used by the
Partnership, which methods may be changed at any time by written notice to all
Limited Partners;
(i) To open accounts in the name of the Partnership in one or
more banks, savings and loan associations or other financial institutions, and
to deposit Partnership funds therein, subject to withdrawal upon the signature
of the General Partners or any person authorized by them;
(j) To borrow funds for the purpose of making Loans, provided
that the amount of borrowed funds does not exceed fifty percent (50%) of the
Partnership's Loan portfolio and in connection with such borrowings, to pledge
or hypothecate all or a portion of the assets of the Partnership as security for
such loans; and
(k) To invest the reserve funds of the Partnership in cash,
bank accounts, certificates of deposits, money market accounts, short-term
bankers acceptances, publicly traded bond funds or any other liquid assets.
3.3 Limitations. Without a written consent of or ratification by all
Limited Partners, the General Partners shall have no authority to do any act
prohibited by law; or to admit a person as a Limited Partner other than in
accordance with the terms of this Agreement.
3.4 No Personal Liability. The General Partners shall have no personal
liability for the original invested capital or any Limited Partner or to repay
the Partnership any portion or all of any negative balance in their capital
accounts, except as otherwise provided in Article 4.
3.5 Compensation to General Partners. The General Partners shall be
entitled to be compensated and reimbursed for expenses incurred in performing
its management functions in accordance with the provisions of Article 10
thereof, and may receive compensation from parties other than the Partnership.
3.6 Fiduciary Duty. The General Partners shall have the fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, and they shall not employ such funds or assets in any manner except
for the exclusive benefit of the Partnership.
3.7 Allocation of Time to Partnership Business. The General Partners
shall not be required to devote full time to the affairs of the Partnership, but
shall devote whatever time, effort and skill they deem to be reasonably
necessary for the conduct of the Partnership's business. The General Partners
may engage in any other businesses or activities, including businesses related
to or competitive with the Partnership.
3.8 Assignment by a General Partner. A General Partner's interest in
income, losses and distributions of the Partnership shall be assignable at the
discretion of a General Partner, which, if made, may be converted, at a General
Partner's option, into a limited partnership interest to the extent of the
assignment.
3.9 Partnership Interest of General Partners. The General Partners
shall be allocated a total of one percent (1%) of all items of Partnership
income, gains, losses, deductions and credits as described in Section 5.1, which
shall be shared equally among them.
3.10 Removal of General Partners. A General Partner may be removed upon the
following conditions:
(a) By written consent of a majority of the Limited Partners.
Limited Partners may exercise such right by presenting to the General Partner a
notice, with their acknowledged signatures thereon, to the effect that the
General Partner is removed; the notice shall set forth the grounds for removal
and the date on which removal is become effective;
(b) Concurrently with such notice or within thirty (30) days
thereafter by notice similarly given, a majority of the Limited Partners may
also designate a successor as General Partner;
(c) Substitution of a new General Partner, if any, shall be
effective upon written acceptance of the duties and responsibilities of a
General Partner by the new General Partner. Upon effective substitution of a new
General Partner, this Agreement shall remain in full force and effect, except
for the change in the General Partner, and business of the Partnership shall be
continued by the new General Partner. The new General Partner shall thereupon
execute, file and record an amendment to the Certificate of Limited Partnership
in the manner required by law.
(d) Failure of the Limited Partners giving notice of removal
to designate a new General Partner within the time specified herein or failure
of the new General Partner so designated to execute written acceptance of the
duties and responsibilities of a General Partner hereunder within ten (10) days
after such designation shall dissolve and terminate the Partnership, unless the
business of the Partnership is continued by the remaining General Partners, if
any.
In the event that all of the General Partners are removed, no other
General Partners are elected, the Partnership is liquidated and Redwood Mortgage
Corp. is no longer receiving payments for services rendered, the debt on the
Formation Loan shall be forgiven by the Partnership and Redwood Mortgage Corp.
will be immediately released from any further obligation under the Formation
Loan.
3.11 Commingling of Funds. The funds of the Partnership shall not be
commingled with funds of any other person or entity.
3.12 Right to Rely on General Partners. Any person dealing with the
Partnership may rely (without duty of further inquiry) upon a certificate signed
by the General Partners as to:
(a) The identity of any General Partner or Limited Partner;
(b) The existence or nonexistence of any fact or facts which constitute a
condition precedent to acts by a General Partner or which are in any further
manner germane to the affairs of the Partnership;
(c) The persons who are authorized to execute and deliver any instrument or
document of the Partnership; or
(d) Any act or failure to act by the Partnership or any other matter
whatsoever involving the Partnership or any Partner.
3.13 Sole and Absolute Discretion. Except as otherwise provided in this
Agreement, all actions which any General Partner may take and all determinations
which any General Partner may take and all determinations which any General
Partners may make pursuant to this Agreement may be taken and made at the sole
and absolute discretion of such General Partner.
3.14 Merger or Reorganization of the General Partners. The following is
not prohibited and will not cause a dissolution of the Partnership: (a) a merger
or reorganization of the General Partners or the transfer of the ownership
interest of the General Partners; and (b) the assumption of the rights and
duties of the General Partners by the transferee of the rights and duties of the
General Partners by the transferee entity so long as such transferee is an
affiliate under the control of the General Partners.
3.15 Dissenting Limited Partners' Rights. If the Partnership
participates in any acquisition of the Partnership by another entity, any
combination of the Partnership with another entity through a merger or
consolidation, or any conversion of the Partnership into another form of
business entity (such as a corporation) that requires the approval of the
outstanding limited partnership interest, the result of which would cause the
other entity to issue securities to the Limited Partners, then each Limited
Partner who does not approve of such reorganization (the "Dissenting Limited
Partner") may require the Partnership to purchase for cash, at its fair market
value, the interest of the Dissenting Limited Partner in the Partnership in
accordance with Section 15679.2 of the California Corporations Code. The
Partnership, however, may itself convert to another form of business entity
(such as a corporation, trust or association) if the conversion will not result
in a significant adverse change in (i) the voting rights of the Limited
Partners, (ii) the termination date of the Partnership (currently, December 31,
2032, unless terminated earlier in accordance with the Partnership Agreement),
(iii) the compensation payable to the General Partners or their Affiliates, or
(iv) the Partnership's investment objectives.
The General Partners will make the determination as to whether or not
any such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of the Partnership; the tax consequences (from the
standpoint of the Limited Partners) of the conversion of the Partnership to
another form of business entity and of an investment in a limited partnership as
compared to an investment in the type of business entity into which the
Partnership would be converted; the historic and projected operating results of
the Partnership's Loans, and the then-current value and marketability of the
Partnership's Loans. In general, the General Partners would consider any
material limitation on the voting rights of the Limited Partners or any
substantial increase in the compensation payable to the General Partners or
their Affiliates to be a significant adverse change in the listed provisions.
3.16 Exculpation and Indemnification. The General Partners shall have
no liability whatsoever to the Partnership or to any Limited Partner, so long as
a General Partner determined in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the Partnership, and
such loss or liability did not result from the gross negligence or gross
misconduct of the General Partner being held harmless. The General Partners or
any Partnership employee or agent shall be entitled to be indemnified by the
Partnership, at the expense of the Partnership, against any loss or liability
(including attorneys' fees, which shall be paid as incurred) resulting from
assertion of any claim or legal proceeding relating to the activities of the
Partnership, including claims, or legal proceedings brought by a third party or
by Limited Partners, on their own behalf or as a Partnership derivative suit, so
long as the party to be indemnified determined in good faith that the course of
conduct which gave rise to such claim or proceeding was in the best interests of
the Partnership and such course of conduct did not constitute gross negligence
or gross misconduct; provided, however, any such indemnification shall only be
recoverable out of the assets of the Partnership and not from Limited Partners.
Nothing herein shall prohibit the Partnership from paying in whole or in part
the premiums or other charge for any type of indemnity insurance by which the
General Partners or other agents or employees of the Partnership are indemnified
or insured against liability or loss arising out of their actual or asserted
misfeasance or nonfeasance in the performance of their duties or out of any
actual or asserted wrongful act against the Partnership including, but not
limited to judgments, fines, settlements and expenses incurred in the defense of
actions, proceedings and appeals therefrom. Notwithstanding the foregoing,
neither the General Partners nor their affiliates shall be indemnified for any
liability imposed by judgment (including costs and attorneys' fees) arising from
or out of a violation of state or federal securities laws associated with the
offer and sale of Units offered hereby. However, indemnification will be allowed
for settlements and related expenses of lawsuits alleging securities law
violations and for expenses incurred in successfully defending such lawsuits
provided that (a) a court either approves indemnification of litigation costs if
the General Partners are successful in defending the action; or (b) the
settlement and indemnification is specifically approved by the court of law
which shall have been advised as to the current position of the Securities and
Exchange Commission (as to any claim involving allegations that the Securities
Act of 1933 was violated) and California Commissioner of Corporations or the
applicable state authority (as to any claim involving allegations that the
applicable state's securities laws were violated).
ARTICLE 4
CAPITAL CONTRIBUTIONS; THE LIMITED PARTNERS
4.1 Capital Contribution by General Partners. The General Partners,
collectively, shall contribute to the Partnership an amount in cash equal to
1/10 of 1% of the aggregate capital contributions of the Limited Partners.
4.2 Other Contributions.
(a) Capital Contribution by Initial Limited Partner. The
Initial Limited Partner made a cash capital contribution to the Partnership of
$1,000. Upon the admission of additional Limited Partners to the Partnership
pursuant to Section 4.2(b) of this Agreement, the Partnership promptly refunded
to the Initial Limited Partner its $1,000 capital contribution and upon receipt
of such sum the Initial Limited Partner was withdrawn from the Partnership as
its Initial Limited Partner.
(b) Capital Contributions of Existing Limited Partners. The Existing
Limited Partners have contributed in the aggregate to the capital of the
Partnership an amount equal to $39,310,477 of March 31, 2000.
(c) Capital Contributions of New Limited Partners. The New Limited Partners
shall contribute to the capital of the Partnership an amount equal to one dollar
($1) for each Unit subscribed for by each such New Limited Partners, with a
minimum subscription of two thousand (2000) Units per Limited Partner (including
subscriptions from entities of which such limited partner is the sole beneficial
owner). The total additional capital contributions of the New Limited Partners
will not exceed $30,000,000.
(d) Escrow Account. No escrow account will be established and all proceeds
from the sale of Units will be remitted directly to the Partnership.
Subscription Agreements shall be accepted or rejected within 30 days of
their receipt. All subscription monies deposited by persons whose subscriptions
are rejected shall be returned to such subscribers forthwith after such
rejection without interest. The public offering of Units shall terminate one
year from the effective date of the Prospectus unless fully subscribed at an
earlier date or terminated on an earlier date by the General Partners, or unless
extended by the General Partners for additional one year periods.
(e) Subscription Account. Subscriptions received after the
activation of the Partnership will be deposited into a subscription account at a
federally insured commercial bank or other depository and invested in short-term
certificates of deposit, a money market or other liquid asset account.
Prospective investors whose subscriptions are accepted will be admitted into the
Partnership only when their subscription funds are required by the Partnership
to fund a Loan, or the Formation Loan, to create appropriate reserves or to pay
organizational expenses or other proper Partnership purposes. During the period
prior to admittance of investors as Limited Partners, proceeds from the sale of
Units are irrevocable, and will be held by the General Partners for the account
of Limited Partners in the subscription account. Investors' funds will be
transferred from the subscription account into the Partnership on a first-in,
first-out basis. Upon admission to the Partnership, subscription funds will be
released to the Partnership and Units will be issued at the rate of $1 per unit
or fraction thereof. Interest earned on subscription funds while in the
subscription account will be returned to the subscriber, or if the subscriber
elects to compound earnings, the amount equal to such interest will be added to
his investment in the Partnership, and the number of Units actually issued shall
be increased accordingly. In the event only a portion of a subscribing Limited
Partner's funds are required, then all funds invested by such subscribing
Limited Partners at the same time shall be transferred. Any subscription funds
remaining in the subscription account after the expiration of one (1) year from
the date any such subscription funds were first received by the General Partners
shall be returned to the subscriber.
(f) Admission of Limited Partners. Subscribers shall be
admitted as Limited Partners when their subscription funds are required by the
Partnership to fund a Loan, or the Formation Loan, to create appropriate
reserves or to pay organizational expenses, as described in the Prospectus.
Subscriptions shall be accepted or rejected by the General Partners on behalf of
the Partnership within 30 days of their receipt. Rejected subscriptions and
monies shall be returned to subscribers forthwith.
The Partnership shall amend Schedule A to the Limited Partnership
Agreement from time to time to effect the substitution of substituted Limited
Partners in the case of assignments, where the assignee does not become a
substituted Limited Partner, the Partnership shall recognize the assignment not
later than the last day of the calendar month following acceptance of the
assignment by the General Partners.
No person shall be admitted as a Limited Partner who has not executed
and filed with the Partnership the subscription form specified in the Prospectus
used in connection with the public offering, together with such other documents
and instruments as the General Partners may deem necessary or desirable to
effect such admission, including, but not limited to, the execution,
acknowledgment and delivery to the General Partners of a power of attorney in
form and substance as described in Section 2.8 hereof.
(g) Names, Addresses, Date of Admissions, and Contributions of
Limited Partners. The names, addresses, date of admissions and Capital
Contributions of the Limited Partners shall be set forth in Schedule A attached
hereto, as amended from time to time, and incorporated herein by reference.
4.3 Election to Receive Monthly, Quarterly or Annual Cash
Distributions. Upon subscription for Units, a subscribing Limited Partner must
elect whether to receive monthly, quarterly or annual cash distributions from
the Partnership or to have earnings retained in his capital account that will
increase it in lieu of receiving periodic cash distributions. If the Limited
Partner initially elects to receive monthly, quarterly or annual distributions,
such election, once made, is irrevocable. However, a Limited Partner may change
his election regarding whether he wants to receive such distributions on a
monthly, quarterly or annual basis. If the Limited Partner initially elects to
have earnings retained in his capital account in lieu of cash distributions, he
may after three (3) years, change his election and receive monthly, quarterly or
annual cash distributions. Earnings allocable to Limited Partners who elect to
have earnings retained in their capital account will have earnings retained by
the Partnership to be used for making further Loans or for other proper
Partnership purposes. The Earnings from such further Loans will be allocated
among all Partners; however, Limited Partners who elect to have earnings
retained in their capital account will be credited with an increasingly larger
proportionate share of such Earnings than Limited Partners who receive monthly,
quarterly or annual distributions since Limited Partners' Capital Accounts who
elect to have earnings retained in their capital accounts will increase over
time. Annual distributions will be made after the calendar year. In order to
provide greater flexibility to investors, the Partnership is going to register
with the Securities and Exchange Commission a dividend reinvestment plan. The
dividend reinvestment plan will be on substantially the same terms as described
herein with respect to the ability to receive monthly, quarterly or annual
distributions or to reinvest earnings. However, it will give Investors a greater
degree of flexibility of moving from one option to another throughout the term
of their investment in the Partnership. It is anticipated that the dividend
reinvestment plan will be filed during 2000 and take effect immediately. Until
the effectiveness of the dividend reinvestment plan is final, the foregoing
elect to receive cash distributions or reinvested earnings will remain in place.
4.4 Interest. No interest shall be paid on, or in respect of, any
contribution to Partnership Capital by any Partner, nor shall any Partner have
the right to demand or receive cash or other property in return for the
Partner's Capital Contribution.
4.5 Loans. Any Partner or Affiliate of a Partner may, with the written
consent of the General Partners, lend or advance money to the Partnership. If
the General Partners or, with the written consent of the General Partners, any
Limited Partner shall make any loans to the Partnership or advance money on its
behalf, the amount of any such loan or advance shall not be treated as a
contribution to the capital of the Partnership, but shall be a debt due from the
Partnership. The amount of any such loan or advance by a lending Partner or an
Affiliate of a Partner shall be repayable out of the Partnership's cash and
shall bear interest at a rate of not in excess of the greater of (i) the prime
rate established, from time to time, by any major bank selected by the General
Partners for loans to the bank's most creditworthy commercial borrowers, plus 5%
per annum, or (ii) the maximum rate permitted by law. None of the Partners or
their Affiliates shall be obligated to make any loan or advance to the
Partnership.
4.6 No Participation in Management. Except as expressly provided
herein, the Limited Partners shall take no part in the conduct or control of the
Partnership business and shall have no right or authority to act for or bind the
Partnership.
4.7 Rights and Powers of Limited Partners. In addition to the matters
described in Section 3.10 above, the Limited Partners shall have the right to
vote upon and take any of the following actions upon the approval of a Majority
of the Limited Partners, without the concurrence of the General Partners.
(a) Dissolution and termination of the Partnership prior to the expiration
of the term of the Partnership as stated in Section 2.7 above
(b) Amendment of this Agreement, subject to the limitations set forth in
Section 12.4;
(c) Disapproval of the sale of all or substantially all the assets of the
Partnership (as defined in Subsection 9.1(c) below); or
(d) Removal of the General Partners and election of a successor, in the
manner and subject to the conditions described in Section 3.10 above.
Except as expressly set forth above or otherwise provided for in this
Agreement, the Limited Partners shall have no other rights as set forth in the
California Act.
4.8 Meetings. The General Partners, or Limited Partners representing
ten percent (10%) of the outstanding Limited Partnership Interests, may call a
meeting of the Partnership and, if desired, propose an amendment to this
Agreement to be considered at such meeting. If Limited Partners representing the
requisite Limited Partnership Interests present to the General Partners a
statement requesting a Partnership meeting, the General Partners shall fix a
date for such meeting and shall, within twenty (20) days after receipt of such
statement, notify all of the Limited Partners of the date of such meeting and
the purpose for which it has been called. Unless otherwise specified, all
meetings of the Partnership shall be held at 2:00 P.M. at the office of the
Partnership, upon not less than ten (10) and not more than sixty (60) days
written notice. At any meeting of the Partnership, Limited Partners may vote in
person or by proxy. A majority of the Limited Partners, present in person or by
proxy, shall constitute a quorum at any Partnership meeting. Any question
relating to the Partnership which may be considered and acted upon by the
Limited Partners hereunder may be considered and acted upon by vote at a
Partnership meeting, and any consent required to be in writing shall be deemed
given by a vote by written ballot. Except as expressly provided above,
additional meeting and voting procedures shall be in conformity with Section
15637 of the California Corporations Code, as amended.
4.9 Limited Liability of Limited Partners. Units are non-assessable,
and no Limited Partner shall be personally liable for any of the expenses,
liabilities, or obligations of the Partnership or for any of the losses thereof
beyond the amount of such Limited Partners' capital contribution to the
Partnership and such Limited Partners' share of any undistributed net income and
gains of the Partnership, provided, that any return of capital to Limited
Partners (plus interest at the legal rate on any such amount from the date of
its return) will remain liable for the payment of Partnership debts existing on
the date of such return of capital; and, provided further, that such Limited
Partner shall be obligated upon demand by the General Partners to pay the
Partnership cash equal to the amount of any deficit remaining in his Capital
Account upon winding up and termination of the Partnership.
4.10 Representation of Partnership. Each of the Limited Partners hereby
acknowledges and agrees that the attorneys representing the Partnership and the
General Partners and their Affiliates do not represent and shall not be deemed
under the applicable codes of professional responsibility to have represented or
be representing any or all of the Limited Partners in any respect at any time.
Each of the Limited Partners further acknowledges and agrees that such attorneys
shall have no obligation to furnish the Limited Partners with any information or
documents obtained, received or created in connection with the representation of
the Partnership, the General Partners and/or their Affiliates.
ARTICLE 5
PROFITS AND LOSSES; CASH DISTRIBUTIONS
5.1 Income and Losses. All Income and Losses of the Partnership shall
be credited to and charged against the Partners in proportion to their
respective "Partnership Interests", as hereafter defined. The Partnership
Interest of the General Partners shall at all times be a total of one percent
(1%), to be shared equally among them and the Partnership Interest of the
Limited Partners collectively shall be ninety-nine percent (99%), which shall be
allocated among them according to their respective Limited Partnership
Interests.
<PAGE>
Income and Losses realized by the Partnership during any month shall be
allocated to the Partners as of the close of business on the last day of each
calendar month, in accordance with their respective Limited Partnership
Interests and in proportion to the number of days during such month that they
owned such Limited Partnership Interests, without regard to Income and Losses
realized with respect to time periods within such month.
5.2 Cash Earnings. Earnings as of the close of business on the last day
of each calendar month shall be allocated among the Partners in the same
proportion as Income and Losses as described in Section 5.1 above. Earnings
allocable to those Limited Partners who elect to receive cash distributions as
described below shall be distributed to them in cash as soon as practicable
after the end of each calendar month. The General Partners' allocable share of
Earnings shall also be distributed concurrently with cash distributions to
Limited Partners. Earnings allocable to those Limited Partners who elected to
receive additional Units shall be retained by the Partnership and credited to
their respective Capital Accounts as of the first day of the succeeding calendar
month. Earnings to Limited Partners shall be distributed only to those Limited
Partners who elect in writing, upon their initial subscription for the purchase
of Units or after three (3) years to receive such distributions during the term
of the Partnership. Each Limited Partner's decision whether to receive such
distributions shall be irrevocable, except as set forth in paragraph 4.3 above.
5.3 Cash Distributions Upon Termination. Upon dissolution and termination
of the Partnership, Cash Available for Distribution shall thereafter be
distributed to Partners in accordance with the provisions of Section 9.3 below.
5.4 Special Allocation Rules.
(a) For purposes of this Agreement, a loss or allocation (or
item thereof) is attributable to non-recourse debt which is secured by
Partnership property to the extent of the excess of the outstanding principal
balance of such debt (excluding any portion of such principal balance which
would not be treated as an amount realized under Internal Revenue Code Section
1001 and Paragraph (a) of Section 1.1001-2 if such debt were foreclosed upon
over the adjusted basis of such property. This excess is herein defined as
"Minimum Gain (whether taxable as capital gain or as ordinary income) as more
explicitly set forth in Treasury Regulation T.704 l(b)(4)(iv)(c).
Notwithstanding any other provision of Article V, the allocation of loss or
deduction (or item thereof, attributable to non-recourse debt which is secured
by Partnership property will be allowed only to the extent that such allocation
does not cause the sum of the deficit capital account balances of the Limited
Partners receiving such allocations to exceed the minimum gain determined at the
end of the Partnership able year to which the allocations relate. The balance of
such losses shall be allocated to the General Partners. Any Limited Partner with
a deficit capital account balance resulting in whole or in part from allocations
of loss or deduction (or item thereof) attributable to non-recourse debt which
is secured by Partnership property shall, to the extent possible, be allocated
income or gain (or item thereof) in an amount not less than the minimum gain at
a time no later than the time at which the minimum gain is reduced below the sum
if such deficit capital account balances. This section is intended and shall be
interpreted to comply with the requirements of Treasury Regulation Section
1.704-l(b)(4)(iv)(e).
(b) In the event any Limited Partner receives any adjustments,
allocations or distributions, not covered by Section 75.4(a), so as to result in
a deficit capital account, items of Partnership income and gain shall be
specially allocated to such Limited Partners in an amount and manner sufficient
to eliminate the deficit balances in their Capital Accounts created by such
adjustments, allocations or distributions as quickly as possible. This Section
shall operate a qualified income offset as utilized in Treasury Regulation
Section 1.704-1(b)(23)(ii)(d).
(c) Syndication expenses for any fiscal year or other period
shall be specially allocated to the Limited Partners in proportion to their
Units, provided that if additional Limited Partners are admitted to the
Partnership on different dates, all Syndication Expenses shall be divided among
the Persons who own Units from time to time so that, to the extent possible, the
cumulative Syndication Expenses allocated with respect to each Unit at any time
is the same amount. In the event the General Partners shall determine that such
result is not likely to be achieved through future allocations of Syndication
Expenses, the General Partners may allocate a portion of Net Income or Losses so
as to achieve the same effect on the Capital Accounts of the Unit Holders,
notwithstanding any other provision of this Agreement.
(d) For purposes of determining the Net Income, Net Losses, or
any other items allocable to any period, Net Income, Net Losses, and any such
other items shall be determined on a daily, monthly, or other basis, as
determined by the General Partners using any permissible method under Code
Section 706 and the Treasury Regulations thereunder.
(e) Notwithstanding Section 5.1 and 5.2 hereof, (i) Net Losses
allocable to the period prior to the admission of any additional Limited
Partners pursuant to Section 4.2(b) and (e) hereof shall be allocated 99% to the
General Partners and 1% to the Initial Limited Partner and Net Income during
that same period, if any, shall be allocated to the General Partners, and (ii)
Profits or Losses allocable to the period commencing with the admission of any
additional such Limited Partners and all subsequent periods shall be allocated
pursuant to Section 5.1.
(f) 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 divided among the Partners in the same
proportions as they share Net Income or Net Losses, as the case may be, for the
year.
(g) The General Partners may adopt any procedure or convention they deem
reasonable to account for unsolicited investments made by Limited Partners and
the payment of a portion of the Formation Loan to such Partners' Capital
Account.
5.5 704(c) Allocations. In accordance with Code 704(c) and the Treasury
Regulations thereunder income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any variation
between the adjusted basis of such property to the Partnership for federal
income tax purposes and its initial fair market value.
Any elections or other decisions relating to such allocations shall be
made by the General Partners in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this Section 5.5 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.
5.6 Intent of Allocations. It is the intent of the Partnership that
this Agreement comply with the safe harbor test set out in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(D) and 1.704-l(b)(4)(iv)(D) and the requirements of
those Sections, including the qualified income offset and minimum gain
chargeback, which are hereby incorporated by reference. If, for whatever
reasons, the Partnership is advised by counsel or its accountants that the
allocation provisions of this Agreement are unlikely to be respected for federal
income tax purposes, the General Partners are granted the authority to amend the
allocation provisions of this Agreement, to the minimum extent deemed necessary
by counsel or its accountants to effect the plan of Allocations and
Distributions provided in this Agreement. The General Partners shall have the
discretion to adopt and revise rules, conventions and procedures as it believes
appropriate with respect to the admission of Limited Partners to reflect
Partners' interests in the Partnership at the close of the years.
5.7 Guaranteed Payment for Offering Period. The Limited Partners shall
receive a guaranteed payment from the Earnings of the Partnership during the
Guaranteed Payment Period. The Guaranteed Payment for Offering Period,
calculated on a monthly basis, shall be equal to the greater of (i) the
Partnership's Earnings or (ii) the interest rate established by the Monthly
Weighted Average Cost of Funds for the 11th District Savings Institutions, as
announced by the Federal Home Loan Bank of San Francisco during the last week of
the preceding month, plus two points, up to a maximum interest rate of 12%. The
Weighted Average Cost of Funds is derived from the interest paid on savings
accounts, Federal Home Loan Bank advances, and other borrowed money adjusted for
valuation in the number of days in each month. The adjustment factors are 1.086
for February, 1.024 for 30 day months and 0.981 for 31 day months. As of the
date of the Prospectus the Monthly Weighted Average Cost of Funds for the 11th
District as announced August 30, 1999, for the period ended May 30, 1999, and in
effect until September 30, 1999, is 4.50%. The Guaranteed Payment Period is the
period commencing on the day a Limited Partner is admitted to the Partnership
and ending three months after the Offering Termination Date. To the extent the
interest rate to be paid is in excess of the Partnership's Earnings, the
Guaranteed Payment for Offering Period shall be payable by the General Partners
out of a Capital Contribution, to the Partnership and/or fees payable to the
General Partners or Redwood Mortgage Corp. which are lowered or waived.
Amounts paid pursuant to this Section 5.7 are intended to constitute
guaranteed payments within the meaning of I.R.C. Code Section 707(c) and shall
not be treated as distributions for purposes of computing the recipient's
Capital Accounts. In the event the Partnership is unable to make any payments
required to be made pursuant to this Section 5.7, the General Partners shall
promptly make additional Capital Contributions sufficient to enable the
Partnership to make such payments on a timely basis; provided however, that the
General Partners shall not be obligated to make such Capital Contribution if
such amounts would be subject to claims of creditors such that the guaranteed
payments would not be available to be made to the Limited Partners. In such
event, the General Partners shall pay the interest out of its fees as set forth
above.
ARTICLE 6
BOOKS AND RECORDS, REPORTS AND RETURNS
6.1 Books and Records. The General Partners shall cause the Partnership to
keep the following:
(a) Complete books and records of account in which shall be entered fully
and accurately all transactions and other matters relating to the Partnership.
(b) A current list setting forth the full name and last known business or
residence address of each Partner which shall be listed in alphabetical order
and stating his respective Capital Contribution to the Partnership and share in
Profits and Losses.
(c) A copy of the Certificate of Limited Partnership and all amendments
thereto.
(d) Copies of the Partnership's federal, state and local income tax returns
and reports, if any, for the six (6) most recent years.
(e) Copies of this Agreement, including all amendments thereto, and the
financial statements of the Partnership for the three (3) most recent years.
All such books and records shall be maintained at the Partnership's
principal place of business and shall be available for inspection and copying
by, and at the sole expense of, any Partner, or any Partner's duly authorized
representatives, during reasonable business hours.
6.2 Annual Statements. The General Partners shall cause to be prepared
at least annually, at Partnership expense, financial statements prepared in
accordance with generally accepted accounting principles and accompanied by a
report thereon containing an opinion of an independent certified public
accounting firm. The financial statements will include a balance sheet,
statements of income or loss, partners' equity, and changes in financial
position. The General Partners shall have prepared at least annually, at
Partnership expense: (i) a statement of Cash Flow; (ii) Partnership information
necessary in the preparation of the Limited Partners' federal and state income
tax returns; (iii) a report of the business of the Partnership; (iv) a statement
as to the compensation received by the General Partners and their Affiliates,
during the year from the Partnership which shall set forth the services rendered
or to be rendered by the General Partners and their Affiliates and the amount of
fees received; and (v) a report identifying distributions from (a) Earnings of
that year, (b) Earnings of prior years, (c) Working Capital Reserves and other
sources, and (d) a report on the costs reimbursed to the General Partners, which
allocation shall be verified by independent public accountants in accordance
with generally accepted auditing standards. Copies of the financial statements
and reports shall be distributed to each Limited Partner within 120 days after
the close of each taxable year of the Partnership; provided, however, all
Partnership information necessary in the preparation of the Limited Partners'
federal income tax returns shall be distributed to each Limited Partner not
later than 90 days after the close of each fiscal year of the Partnership.
6.3 Semi-Annual Report. Until the Partnership is registered under
Section 12(g) of the Securities Exchange Act of 1934, the General Partners shall
have prepared, at Partnership expense, a semi-annual report covering the first
six months of each fiscal year, commencing with the six-month period ending
after the Initial Closing Date, and containing unaudited financial statements
(balance sheet, statement of income or loss and statement of Cash Flow) and a
statement of other pertinent information regarding the Partnership and its
activities during the six-month period. Copies of this report shall be
distributed to each Limited Partner within 60 days after the close of the
six-month period.
6.4 Quarterly Reports. The General Partners shall cause to be prepared
quarterly, at Partnership Expense: (i) a statement of the compensation received
by the General Partners and Affiliates during the quarter from the Partnership,
which statement shall set forth the services rendered by the General Partners
and Affiliates and the amount of fees received, and (ii) other relevant
information. Copies of the statements shall be distributed to each Limited
Partner within 60 days after the end of each quarterly period. The information
required by Form 10-Q (if required to be filed with the Securities and Exchange
Commission) will be supplied to each Limited Partner within 60 days of each
quarterly period. If the Partnership is registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended, the General Partners shall cause to
be prepared, at Partnership expense, a quarterly report for each of the first
three quarters in each fiscal year containing unaudited financial statements
(consisting of a balance sheet, a statement of income or loss and a statement of
Cash Flow) and a statement of other pertinent information regarding the
Partnership and its activities during the period covered by the report. Copies
of the statements and other pertinent information shall be distributed to each
Limited Partner within 60 days after the close of the quarter covered by the
report of the Partnership. The quarterly financial statements shall be
accompanied by the report thereon, if any, of the independent accountants
engaged by the Partnership or, if there is no such report, the certificate of
the General Partners that the financial statements were prepared without audit
from the books and records of the Partnership. Copies of the financial
statements, if any, filed with the Securities and Exchange Commission shall be
distributed to each Limited Partner within 60 days after the close of the
quarterly period covered by the report of the Partnership.
6.5 Filings. The General Partners, at Partnership expense, shall cause
the income tax returns for the Partnership to be prepared and timely filed with
the appropriate authorities. The General Partners, at Partnership expense, shall
also cause to be prepared and timely filed, with appropriate federal and state
regulatory and administrative bodies, all reports required to be filed with
those entities under then current applicable laws, rules and regulations. The
reports shall be prepared by the accounting or reporting basis required by the
regulatory bodies. Any Limited Partner shall be provided with a copy of any of
the reports upon request without expense to him. The General Partners, at
Partnership expense, shall file, with the securities administrators for the
various states in which this Partnership is registered, as required by such
states, a copy of each report referred to this Article VI.
6.6 Suitability Requirements. The General Partners, at Partnership
expense, shall maintain for a period of at least four years a record of the
information obtained to indicate that a Limited Partner complies with the
suitability standards set forth in the Prospectus.
6.7 Fiscal Matters.
(a) Fiscal Year. The Partnership shall adopt a fiscal year beginning on the
first day of January of each year and ending on the last day of December;
provided, however, that the General Partners in their sole discretion may,
subject to approval by the Internal Revenue Service and the applicable state
taxing authorities at any time without the approval of the Limited Partners
change the Partnership's fiscal year to a period to be determined by the General
Partners.
(b) Method of Accounting. The accrual method of accounting shall be used
for both income tax purposes and financial reporting purposes.
(c) Adjustment of Tax Basis. Upon the transfer of an interest in the
Partnership, the Partnership may, at the sole discretion of the General
Partners, elect pursuant to Section 754 of the Internal Revenue Code of 1986, as
amended, to adjust the basis of the Partnership property as allowed by Sections
734(b) and 743(b) thereof.
6.8 Tax Matters Partner. In the event the Partnership is subject to
administrative or judicial proceedings for the assessment or collection of
deficiencies for federal taxes for the refund of overpayments of federal taxes
arising out of a Partner's distributive share of profits, Michael R. Burwell,
for so long as he is a General Partner, shall act as the Tax-Matters Partner
("TMP") and shall have all the powers and duties assigned to the TMP under
Sections 6221 through 6232 of the Code and the Treasury Regulations thereunder.
The Partners agree to perform all acts necessary under Section 6231 of the Code
and Treasury Regulations thereunder to designate Michael R. Burwell as the TMP.
ARTICLE 7
TRANSFER OF PARTNERSHIP INTERESTS
7.1 Interest of General Partners. A successor or additional General Partner
may be admitted to the Partnership as follows:
(a) With the consent of all General Partners and a Majority of
the Limited Partners, any General Partner may at any time designate one or more
Persons to be successors to such General Partner or to be additional General
Partners, in each case with such participation in such General Partner's
Partnership Interest as they may agree upon, provided that the Limited
Partnership Interests shall not affected thereby; provided, however, that the
foregoing shall be subject to the provisions of Section 9.1(d) below, which
shall be controlling in any situation to which such provisions are applicable.
(b) Upon any sale or transfer of a General Partner's
Partnership Interest, the successor General Partner shall succeed to all the
powers, rights, duties and obligations of the assigning General Partner
hereunder, and the assigning General Partner shall thereupon be irrevocably
released and discharged from any further liabilities or obligations of or to the
Partnership or the Limited Partners accruing after the date of such transfer.
The sale, assignment or transfer of all or any portion of the outstanding stock
of a corporate General Partner, or of any interest therein, or an assignment of
a General Partner's Partnership Interest for security purposes only, shall not
be deemed to be a sale or transfer of such General Partner's Partnership
interest subject to the provisions of this Section 7.1.
(c) In the event that all or any one of the initial General
Partners are removed by the vote of a majority of Limited Partners and a
successor or additional General Partner(s) is designated pursuant to Section
3.10, prior to a Person's admission as a successor or additional General Partner
pursuant to this Section 7.1, such Person shall execute in writing (i)
acknowledging that Redwood Mortgage Corp., a General Partner, has been repaying
the Formation Loans, which are discussed in Section 10.9, with the proceeds it
receives from loan brokerage commissions on Loans, fees received from the early
withdrawal penalties and fees for other services paid by the Partnership, and
(ii) agreeing that if such successor or additional General Partner(s) begins
using the services of another mortgage loan broker or loan servicing agent, then
Redwood Mortgage Corp. shall immediately be released from all further
obligations under the Formation Loans (except for a proportionate share of the
principal installment due at the end of that year, prorated according to the
days elapsed).
7.2 Transfer of Limited Partnership Interest. No assignee of the whole
or any portion of a Limited Partnership Interest in the Partnership shall have
the right to become a substituted Limited Partner in place of his assignor,
unless the following conditions are first met.
(a) The assignor shall designate such intention in a written instrument of
assignment, which shall be in a form and substance reasonably satisfactory to
the General Partners;
(b) The written consent of the General Partners to such substitution shall
be obtained, which consent shall not be unreasonably withheld, but which, in any
event, shall not be given if the General Partners determine that such sale or
transfer may jeopardize the continued ability of the Partnership to qualify as a
"partnership" for federal income tax purposes or that such sale or transfer may
violate any applicable securities laws (including any investment suitability
standards);
(c) The assignor and assignee named therein shall execute and acknowledge
such other instruments as the General Partners may deem necessary to effectuate
such substitution, including, but not limited to, a power of attorney with
provisions more fully described in Sections 2.8 and 2.9 above;
(d) The assignee shall accept, adopt and approve in writing all of the
terms and provisions of this Agreement as the same may have been amended;
(e) Such assignee shall pay or, at the election of the General Partners,
obligate himself to pay all reasonable expenses connected with such
substitution, including but not limited to reasonable attorneys' fees associated
therewith; and
The Partnership has received, if required by the General Partners, a
legal opinion satisfactory to the General Partners that such transfer will not
violate the registration provisions of the Securities Act of 1933, as amended,
which opinion shall be furnished at the Limited Partner's expense.
7.3 Further Restrictions on Transfers. Notwithstanding any provision to
the contrary contained herein, the following restrictions shall also apply to
any and all proposed sales, assignments and transfer of Limited Partnership
Interests, and any proposed sale, assignment or transfer in violation of same to
void ab initio.
(a) No Limited Partner shall make any transfer or assignment
of all or any part of his Limited Partnership Interest if said transfer or
assignment would, when considered with all other transfers during the same
applicable twelve month period, cause a termination of the Partnership for
federal or California state income tax purposes.
(b) Instruments evidencing a Limited Partnership Interest
shall bear and be subject to legend conditions in substantially the following
forms:
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 OR CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
(c) No Limited Partner shall make any transfer or assignment
of all or any of his Limited Partnership Interest if the General Partners
determine such transfer or assignment would result in the Partnership being
classified as a "publicly traded partnership" with the meaning of Section
7704(b) of the Code or any regulations or rules promulgated thereunder.
ARTICLE 8
WITHDRAWAL FROM PARTNERSHIP
8.1 Withdrawal by Limited Partners. No Limited Partner shall have the
right to withdraw from the Partnership, receive cash distributions or otherwise
obtain the return of all or any portion of his Capital Account balance for a
period of one year after such Limited Partner's initial purchase of Units,
except for monthly, quarterly or annual distributions of Cash Available for
Distribution, if any, to which such Limited Partner may be entitled pursuant to
Section 5.2 above. Withdrawal after a minimum one year holding period and before
the five year holding period as set forth below shall be permitted in accordance
with subsection (a) below. Additionally, as set forth below in subsection (g)
there shall be a limited right of withdrawal upon the death of a Limited
Partner. If a Limited Partner elects to withdraw either after the one (1) year
holding period or the five (5) year withholding period or his heirs elect to
withdraw after his death, he will continue to receive distributions or have
those Earnings compounded depending upon his initial election, based upon the
balance of his capital account during the withdrawal period. Limited Partners
may also withdraw after a five year holding period in accordance with subsection
b(i) and (ii). A Limited Partner may withdraw or partially withdraw from the
Partnership upon the following terms:
(a) A Limited Partner who desires to withdraw from the
Partnership after the expiration of the above referenced one year period shall
give written notice of withdrawal ("Notice of Withdrawal") to the General
Partners, which Notice of Withdrawal shall state the sum or percentage interests
to be withdrawn. Subject to the provisions of subsections (e) and (f) below,
such Limited Partner may liquidate part or all of his entire Capital Account in
four equal quarterly installments beginning the quarter following the quarter in
which the Notice of Withdrawal is given, provided that such notice was received
thirty (30) days prior to the end of the quarter. An early withdrawal under this
subsection (a) shall be subject to a 10% early withdrawal penalty applicable to
the sum withdrawn as stated in the Notice of Withdrawal. The 10% penalty shall
be subject to and payable upon the terms set forth in subsection (c) below.
(b) A Limited Partner who desires to withdraw from the
Partnership after the expiration of the above referenced five year period shall
give written notice of withdrawal ("Notice of Withdrawal") to the General
Partners, and subject to the provisions of subsections (e) and (f) below such
Limited Partner's Capital Account shall be liquidated as follows:
(i) Except as provided in subsection (b)(ii) below, the Limited Partner's
Capital Account shall be liquidated in twenty (20) equal quarterly installments
each equal to 5% of the total Capital Account beginning the calendar quarter
following the quarter in which the Notice of Withdrawal is given, provided that
such notice is received thirty (30) days prior to the end of the preceding
quarter. Upon approval by the General Partners, the Limited Partner's Capital
Account may be liquidated upon similar terms over a period longer than twenty
(20) equal quarterly installments.
(ii) Notwithstanding subsection (b)(i) above, any Limited Partner may
liquidate part or all of his entire outstanding Capital Account in four equal
quarterly installments beginning of the calendar quarter following the preceding
quarter in which Notice of Withdrawal is given, provided that such notice was
received thirty (30) days prior to the end of the preceding quarter. An early
withdrawal under this subsection 8.1(b)(ii) shall be subject to a 10% early
withdrawal penalty applicable to any sums prior to the time when such sums could
have been withdrawn pursuant to the withdrawal provisions set forth in
subsection (a)(i) above.
(c) The 10% early withdrawal penalty will be deducted pro rata
from the Limited Partner's Capital Account. The 10% early withdrawal penalty
will be received by the Partnership, and a portion of the sums collected as such
early withdrawal penalty shall be applied by the Partnership toward the next
installment(s) of principal under the Formation Loan owed to the Partnership by
Redwood Mortgage Corp., a General Partner and any successor firm, as described
in Section 10.9 below. This portion shall be determined by the ratio between the
initial amount of the Formation Loan and the total amount of the organizational
and syndication costs incurred by the Partnership in this offering of Units. The
balance of such early withdrawal penalties shall be retained by the Partnership
for its own account. After the Formation Loan has been paid, the 10% early
withdrawal penalty will be used to pay the Continuing Servicing Fee, as set
forth in Section 10.13 below. The balance of such early withdrawal penalties
shall be retained by the Partnership for its own account.
(d) Commencing with the end of the calendar month in which
such Notice of Withdrawal is given, and continuing on or before the twentieth
day after the end of each month thereafter, any Cash Available for Distribution
allocable to the Capital Account (or portion thereof) with respect to which
Notice of Withdrawal has been given shall also be distributed in cash to the
withdrawing Limited Partner in the manner provided in Section 5.2 above.
(e) During the liquidation period described in subsections
8.1(a) and (b), the Capital Account of a withdrawing Limited Partner shall
remain subject to adjustment as described in Section 1.3 above. Any reduction in
said Capital Account by reason of an allocation of Losses, if any, shall reduce
all subsequent liquidation payments proportionately. In no event shall any
Limited Partner receive cash distributions upon withdrawal from the Partnership
if the effect of such distribution would be to create a deficit in such Limited
Partner's Capital Account.
(h) Payments to withdrawing Limited Partners shall at all times be subject to
the availability of sufficient cash flow generated in the ordinary course of the
Partnership's business, and the Partnership shall not be required to liquidate
outstanding Loans prior to their maturity dates for the purposes of meeting the
withdrawal requests of Limited Partners. For this purpose, cash flow is
considered to be available only after all current Partnership expenses have been
paid (including compensation to the General Partners and Affiliates) and
adequate provision has been made for the payment of all monthly or annual cash
distributions on a pro rata basis which must be paid to Limited Partners who
elected to receive such distributions upon subscription for Units pursuant to
Section 4.3 or who changed their initial election to compound Earnings as set
forth in Section 4.3. Furthermore, no more than 20% of the total Limited
Partners' Capital Accounts outstanding for the beginning of any calendar year
shall be liquidated during any calendar year. If Notices of Withdrawal in excess
of these limitations are received by the General Partners, the priority of
distributions among Limited Partners shall be determined as follows: first, to
those Limited Partners withdrawing Capital Accounts according to the 20 quarter
or longer installment liquidation period described under subsection (b)(i)
above, then to ERISA plan Limited Partners withdrawing Capital Accounts under
subsection (b)(ii) above, then to all other Limited Partners withdrawing Capital
Accounts under subsection (b)(ii) above, then to Administrators withdrawing
Capital Accounts under subsection (g) below, and finally to all other Limited
Partners withdrawing Capital Accounts under subsection (a) above.
(i) Upon the death of a Limited Partner, a Limited Partner's heirs or executors
may, subject to certain conditions as set forth herein, liquidate all or a part
of the deceased Limited Partner's investment without penalty. An executor, heir
or other administrator of the Limited Partner's estate (for ease of reference
the "Administrator") shall give written notice of withdrawal ("Notice of
Withdrawal") to the General Partners within 6 months of the Limited Partner's
date of death. The total amount available to be liquidated in any one year shall
be limited to $50,000. The liquidation of the Limited Partner's capital account
in any one year shall be made in four equal quarterly installments beginning the
calendar quarter following the quarter in which time the Notice of Withdrawal is
received. Due to the complex nature of administering a decedent's estate, the
General Partners reserve the right and discretion to request any and all
information they deem necessary and relevant in determining the date of death,
the name of the beneficiaries and/or any other matters they deem relevant. The
General Partners retain the discretion to refuse or to delay the liquidation of
a deceased Limited Partner's investment unless or until the General Partners
have received all such information they deem relevant. The liquidation of a
Limited Partner's capital account pursuant to this subsection is subject to the
provisions of subsections 8.1(d), (e) and (f) above.
8.2 Retirement by General Partners. Any one or all of the General
Partners may withdraw ("retire") from the Partnership upon not less than six (6)
months written notice of the same to all Limited Partners. Any retiring General
Partner shall not be liable for any debts, obligations or other responsibilities
of the Partnership or this Agreement arising after the effective date of such
retirement.
8.3 Payment to Terminated General Partner. If the business of the
Partnership is continued as provided in Section 9.1(d) or 9.1(e) below upon the
removal, retirement, death, insanity, dissolution, or bankruptcy of a General
Partner, then the Partnership shall pay to such General Partner, or his/its
estate, a sum equal to such General Partner's outstanding Capital Account as of
the date of such removal, retirement, death, insanity, dissolution or
bankruptcy, payable in cash within thirty (30) days after such date. If the
business of the Partnership is not so continued, then such General Partner shall
receive from the Partnership such sums as he may be entitled to receive in the
course of terminating the Partnership and winding up its affairs, as provided in
Section 9.3 below.
ARTICLE 9
DISSOLUTION OF THIS PARTNERSHIP; MERGER OF THE PARTNERSHIP
9.1 Events Causing Dissolution. The Partnership shall dissolve upon
occurrence of the earlier of the following events:
(a) Expiration of the term of the Partnership as stated in Section 2.7
above.
(b) The affirmative vote of a majority of the Limited Partners.
(c) The sale of all or substantially all of the Partnership's assets;
provided, for purposes of this Agreement the term "substantially all of the
Partnership's assets" shall mean assets comprising not less than seventy percent
(70%) of the aggregate fair market value of the Partnership's total assets as of
the time of sale.
(d) The retirement, death, insanity, dissolution or bankruptcy of a General
Partner unless, within ninety (90) days after any such event (i) the remaining
General Partners, if any, elect to continue the business of the Partnership, or
(ii) if there are no remaining General Partners, all of the Limited Partners
agree to continue the business of the Partnership and to the appointment of a
successor General Partner who executes a written acceptance of the duties and
responsibilities of a General Partner hereunder.
(e) The removal of a General Partner, unless within ninety (90) days after
the effective date of such removal (i) the remaining General Partners, if any,
elect to continue the business of the Partnership, or (ii) if there are no
remaining General Partners, a successor General Partner is approved by a
majority of the Limited Partners as provided in Section 3.7 above, which
successor executes a written acceptance as provided therein and elects to
continue the business of the Partnership.
(f) Any other event causing the dissolution of the Partnership under the
laws of the State of California.
9.2 Winding Up and Termination. Upon the occurrence of an event of
dissolution, the Partnership shall immediately be terminated, but shall continue
until its affairs have been wound up. Upon dissolution of the Partnership,
unless the business of the Partnership is continued as provided above, the
General Partners will wind up the Partnership's affairs as follows:
(a) No new Loans shall be made or purchased;
(b) Except as may be agreed upon by a majority of the Limited Partners in
connection with a merger or consolidation described in Sections 9.5, 9.6 or 9.7,
the General Partners shall liquidate the assets of the Partnership as promptly
as is consistent with recovering the fair market value thereof, either by sale
to third parties or by servicing the Partnership's outstanding Loans in
accordance with their terms; provided, however, the General Partners shall
liquidate all Partnership assets for the best price reasonably obtainable in
order to completely wind up the Partnership's affairs within five (5) years
after the date of dissolution;
<PAGE>
(c) Except as may be agreed upon by a majority of the Limited Partners in
connection with a merger or consolidation described in Sections 9.5, 9.6 or 9.7,
all sums of cash held by the Partnership as of the date of dissolution, together
with all sums of cash received by the Partnership during the winding up process
from any source whatsoever, shall be distributed in accordance with Section 9.3
below.
9.3 Order of Distribution of Assets. In the event of dissolution as
provided in Section 9.1 above, the cash of the Partnership shall be distributed
as follows:
(a) All of the Partnership's debts and liabilities to persons other than
Partners shall be paid and discharged;
(b) All of the Partnership's debts and liabilities to Partners shall be
paid and discharged;
(c) The balance of the cash of the Partnership shall be distributed to the
Partners in proportion to their respective outstanding Capital Accounts.
Upon dissolution, each Limited Partner shall look solely to the assets
of the Partnership for the return of his Capital Contribution, and if the
Partnership assets remaining after the payment or discharge of the debts and
liabilities of the Partnership is insufficient to return the Capital
Contribution of each Limited Partner, such Limited Partner shall have no
recourse against the General Partners or any other Limited Partner. The
winding-up of the affairs of the Partnership and the distribution of its assets
shall be conducted exclusively by the General Partners. It is hereby authorized
to do any and all acts and things authorized by law for these purposes. In the
event of insolvency, dissolution, bankruptcy or resignation of all of the
General Partners or removal of the General Partners by the Limited Partners, the
winding up of the affairs of the Partnership and the distribution of its assets
shall be conducted by such person or entity as may be selected by a vote of a
majority of the outstanding Units, which person or entity is hereby authorized
to do any and all acts and things authorized by law for such purposes.
9.4 Compliance With Timing Requirements of Regulations. In the event
the Partnership is "liquidated" within the meaning of Treasury Regulation
Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this
Article 9 (if such liquidation constitutes a dissolution of the Partnership) or
Article 5 hereof (if it does not) to the General Partners and Limited Partners
who have positive Capital Accounts in compliance with Treasury Regulation
Section 1.704-1(b)(2)(ii)(b)(2) and (b) if the General Partners' Capital
Accounts have a deficit balance (after giving effect to all contributions,
distributions, and allocations for all taxable years, including the year during
which such liquidation occurs), such General Partners shall contribute to the
capital of the Partnership the amount necessary to restore such deficit balance
to zero in compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3);
9.5 Merger or Consolidation of the Partnership. The Partnership's
business may be merged or consolidated with one or more limited partnerships
that are Affiliates of the Partnership, provided the approval of the required
percentage in interest of Partners is obtained pursuant to Section 9.6. Any such
merger or consolidation may be effected by way of a sale of the assets of, or
units in, the Partnership or purchase of the assets of, or units in, another
limited partnership(s), or by any other method approved pursuant to Section 9.6.
In any such merger or consolidation, the Partnership may be either a
disappearing or surviving entity.
9.6 Vote Required. The principal terms of any merger or consolidation
described in Section 9.5 must be approved by the General Partners and by the
affirmative vote of a Majority of the Limited Partners.
9.7 Sections Not Exclusive. Sections 9.5 and 9.6 shall not be
interpreted as setting forth the exclusive means of merging or consolidating the
Partnership in the event that the California Revised Limited Partnership Act, or
any successor statute, is amended to provide a statutory method by which the
Partnership may be merged or consolidated.
ARTICLE 10
TRANSACTIONS BETWEEN THE PARTNERSHIP,
THE GENERAL PARTNERS AND AFFILIATES
10.1 Loan Brokerage Commissions. The Partnership will enter into Loan
transactions where the borrower has employed and agreed to compensate the
General Partners or an Affiliate of the General Partners to act as a broker in
arranging the loan. The exact amount of the Loan Brokerage Commissions are
negotiated with prospective borrowers on a case by case basis. It is estimated
that such commissions will be approximately three percent (3%) to six percent
(6%) of the principal amount of each Loan made during that year. The Loan
Brokerage Commissions shall be capped at 4% of the Partnership's total assets
per year.
10.2 Loan Servicing Fees. A General Partner or an Affiliate of a
General Partner may act as servicing agent with respect to all Loans, and in
consideration for such collection efforts he/it shall be entitled to receive a
monthly servicing fee up to one-eighth of one percent (.125%) of the total
unpaid principal balance of each Loan serviced, or such higher amount as shall
be customary and reasonable between unrelated Persons in the geographical area
where the property securing the Loan is located. The General Partners or an
Affiliate may lower such fee for any period of time and thereafter raise it up
to the limit set forth above.
10.3 Escrow and Other Loan Processing Fees. The General Partners or an
Affiliate of a General Partner may act as escrow agent for Loans made by the
Partnership, and may also provide certain document preparation, notarial and
credit investigation services, for which services the General Partners shall be
entitled to receive such fees as are permitted by law and as are generally
prevailing in the geographical area where the property securing the Loan is
located.
10.4 Asset Management Fee. The General Partners shall receive a monthly
fee for managing the Partnership's Loan portfolio and general business
operations in an amount up to 1/32 of one percent (.03125%) of the total "net
asset value" of all Partnership assets (as hereafter defined), payable on the
first day of each calendar month until the Partnership is finally wound up and
terminated. "Net asset value" shall mean total Partner's capital, determined in
accordance with generally accepted accounting principles as of the last day of
the preceding calendar month. The General Partners, in their discretion, may
lower such fee for any period of time and thereafter raise it up to the limit
set forth above.
10.5 Reconveyance Fees. The General Partners may receive a fee from a
borrower for reconveyance of a property upon full payment of a loan in an amount
as is generally prevailing in the geographical area where the property is
located.
10.6 Assumption Fees. A General Partner or an Affiliate of the General
Partners may receive a fee payable by a borrower for assuming a Loan in an
amount equal to a percentage of the Loan or a set fee.
10.7 Extension Fee. A General Partner or an Affiliate of the General
Partners may receive a fee payable by a borrower for extending the Loan period
in an amount equal to a percentage of the loan.
10.8 Prepayment and Late Fees. Any prepayment and late fees collected by a
General Partner or an Affiliate of the General Partners in connection with Loans
shall be paid to the Partnership.
10.9 Formation Loans to Redwood Mortgage Corp. The Partnership may lend
to Redwood Mortgage Corp., a sum not to exceed 10% of the total amount of
Capital Contributions to the Partnership by the Limited Partners, the proceeds
of which shall be used solely for the purpose of paying selling commissions and
all amounts payable in connection with unsolicited orders received by the
General Partners. The Formation Loans shall be unsecured and shall be evidenced
by a non-interest bearing promissory note executed by Redwood Mortgage Corp. in
favor of the Partnership. The First Formation Loan is being repaid in ten (10)
equal annual installments of principal without interest, commencing on December
31, 1996. As of March 31, 2000, the total aggregate amount of the First
Formation Loan equaled $1,074,840 of which $372,647 had been repaid by Redwood
Mortgage Corp. The Second Formation Loan will be repaid as follows: Upon the
commencement of the offering in December, 1996, Redwood Mortgage Corp. has made
annual installments of one-tenth of the principal balance of the Formation loan
as of December 31 of each year. Such payment shall be due and payable by
December 31 of the following year. As of March 31, 2000, the Partnership had
loaned $1,908,840 to Redwood Mortgage Corp. of which $159,994 had been repaid.
The principal balance of the Second Formation Loan will increase as additional
sales of Units are made each year. The amount of the annual installment payment
to be made by Redwood Mortgage Corp. during the offering stage, will be
determined by the principal balance of the Second Formation Loan on December 31
of each year. Upon the completion of the offering, the balance of the Second
Formation Loan will be repaid in ten (10) equal annual installments of
principal, without interest, commencing on December 31 of the year following the
year this offering terminates. As the second offering will terminate when the
third offering is approved, equal annual installments shall commence on December
31, 2001. The Third Formation Loan will be repaid under the same terms and
conditions as the Second Formation Loan. Redwood Mortgage Corp. at its option
may prepay all or any part of the Formation Loans. Redwood Mortgage Corp. will
repay the Formation Loans principally from loan brokerage commissions earned on
Loans, early withdrawal penalties and other fees paid by the Partnership. Since
Redwood Mortgage Corp. will use the proceeds from loan brokerage commissions on
Loans to repay the Formation Loans and, with respect to the initial offering of
150,000 Units, for the continued payment of the Continuing Servicing Fees, if
all or any one of the initial General Partners is removed as a General Partner
by the vote thereafter designated, and if such successor or additional General
Partner(s) begins using any other loan brokerage firm for the placement of
Loans, Redwood Mortgage Corp. will be immediately released from any further
obligation under the Formation Loans (except for a proportionate share of the
principal installment due at the end of that year, pro rated according to the
days elapsed and for the continued payment of the Continuing Servicing Fees with
respect to the initial offering of 150,000 Units.) In addition, if all of the
General Partners are removed, no successor General Partners are elected, the
Partnership is liquidated and Redwood Mortgage Corp. is no longer receiving any
payments for services rendered, the debt on the Formation Loans shall be
forgiven and Redwood Mortgage Corp. will be immediately released from any
further obligations under the Formation Loans or Continuing Servicing Fees with
respect to the initial offering of 150,000 Units.
<PAGE>
10.10 Sale of Loans and Loans Made to General Partners or Affiliates.
The Partnership may sell existing Loans to the General Partners or their
Affiliates, but only so long as the Partnership receives net sales proceeds from
such sales in an amount equal to the total unpaid balance of principal, accrued
interest and other charges owing under such Loan, or the fair market value of
such Loan, whichever is greater. Notwithstanding the foregoing, the General
Partners shall be under no obligation to purchase any Loan from the Partnership
or to guarantee any payments under any Loan. Generally, Loans will not be made
to the General Partners or their Affiliates. However, the Partnership may make
the Formation Loans to Redwood Mortgage Corp. and may in certain limited
circumstances, loan funds to Affiliates to purchase real estate owned by the
Partnership as a result of foreclosure.
10.11 Purchase of Loans from General Partners or Affiliates. The
Partnership may purchase existing Loans from the General Partners or Affiliates,
provided that the following conditions are met:
(a) At the time of purchase the borrower shall not be in default under the
Loan;
(b) No brokerage commissions or other compensation by way of premiums or
discounts shall be paid to the General Partners or their Affiliates by reason of
such purchase; and
(c) If such Loan was held by the seller for more than 180 days, the seller
shall retain a ten percent (10%) interest in such Loan.
10.12 Interest. Redwood Mortgage Corp. shall be entitled to keep interest
if any, earned on the Loans between the date of deposit of borrower's funds into
Redwood Mortgage Corp.'s trust account and date of payment of such funds by
Redwood Mortgage Corp.
10.14 Sales Commissions.
(a) The Units are being offered to the public on a best
efforts basis through the Participating Broker-Dealers. The Participating
Broker-Dealers may receive commissions as follows: at the rate of either (5%) or
(9%) (depending upon the investor's election to receive cash distributions or to
compound earnings and acquire additional Units in the Partnership) of the Gross
Proceeds on all of their sales. In no event will the total of all compensation
payable to Participating Broker Dealers, including sales commissions, expense
reimbursements, sales seminars and/or due diligence expenses exceed ten percent
(10%) of the program proceeds received plus an additional (0.5%) for bona fide
due diligence expenses as set forth in Rule 2810 of the NASD Conduct Rules.
Further, in no event shall any individual Participating Broker Dealer receive
total compensation including sales commissions, expense reimbursements, sales
seminar or expense reimbursement exceed (10%) of the gross proceeds of their
sales plus an additional (0.5%) for bona fide due diligence expenses as set
forth in Rule 2810 of the NASD Conduct Rules (the "Compensation Limitation").In
the event the Partnership receives any unsolicited orders directly from an
investor who did not utilize the services of a Participating Broker Dealer,
Redwood Mortgage Corp. through the Formation Loans will pay to the Partnership
an amount equal to the amount of the sales commissions otherwise attributable to
a sale of a Unit through a Participating Broker Dealer. The Partnership will in
turn credit such amounts received from Redwood Mortgage Corp. to the account of
the Investor who placed the unsolicited order. All unsolicited orders will be
handled only by the General Partners.
Sales commissions will not be paid by the Partnership out of the offering
proceeds. All sales commissions will be paid by Redwood Mortgage Corp., which
will also act as the mortgage loan broker for all Loans as set forth in Section
10.7 above. With respect to the initial offering of 150,000 Units, the
Continuing Servicing Fee will be paid by Redwood Mortgage Corp., but will not be
included in the first Formation Loan. The Partnership will loan to Redwood
Mortgage Corp. funds in an amount equal to the sales commissions and all amounts
payable in connection with unsolicited sales by the General Partners, as a
Formation Loan. With respect to the initial offering of 150,000 Units, Redwood
Mortgage Corp. will use the proceeds from loan brokerage commissions on Loans to
pay the Continuing Servicing Fees, and if all or any one of the initial General
Partners is removed as a General Partner by the vote thereafter designated, if
such successor or additional General Partner(s) use any other loan brokerage
firm for the placement of Loans, Redwood Mortgage Corp. will be immediately
released from any further obligation to continue to pay any Continuing Servicing
Fees. In addition, if all of the General Partners are removed, no successor
General Partners are elected, the Partnership is liquidated and Redwood Mortgage
Corp. is no longer receiving any payments for services rendered, Redwood
Mortgage Corp. will be immediately released from any further obligation to
continue to pay any Continuing Servicing Fee in connection with the initial
offering of 150,000 Units. Units may also be offered or sold directly by the
General Partners for which they will receive no sales commissions. The
Partnership shall reimburse Participating Broker-Dealers for bona fide due
diligence expenses in an amount up to (.5%) of the Gross Proceeds.
<PAGE>
(c) Sales by Registered Investment Advisors. The General Partners may
accept unsolicited orders received directly from Investors if an Investor
utilizes the services of a registered investment advisor. A registered
investment advisor is an investment professional retained by a Limited Partner
to advise him regarding all of his assets, not just an investment in the
Partnership. Registered investment advisors are paid by the Investor based upon
the total amount of the Investor's assets being managed by the registered
investment advisor.
If an investor utilizes the services of a registered investment advisor,
Redwood Mortgage Corp. will pay to the Partnership an amount equal to the sales
commission otherwise attributable to a sale of Units through a participating
broker dealer. The Partnership will in turn credit such amounts received by
Redwood Mortgage Corp. to the account of the Investor who placed the unsolicited
order.
If an Investor acquires units directly through the services of a registered
investment advisor, the Investor will have the election to authorize the
Partnership to pay the registered investment advisor an estimated quarterly
amount of no more than 2% annually of his capital account that would otherwise
be paid as periodic cash distributors or compounded as earnings. For ease of
reference, we refer to these as "Client Fees." The payment of Client Fees will
be paid from those amounts that would otherwise be distributable to you or
compounded in your capital account. The payment of Client Fees is noncumulative
and subject to the availability of sufficient earnings in your capital account.
In no event will any such Client Fees be paid to us as sales commissions or
other compensation. The Partnership is merely agreeing as an administrative
convenience to pay the registered investment advisor a portion of those amounts
that would be paid to you.
All registered investment advisors will be required to represent and
warrant to the Partnership, that among other things, the investment in the units
is suitable for the Investor, that he has informed the Investor of all pertinent
facts relating to the liquidating and marketability of the units, and that if he
is affiliated with a NASD registered broker or dealer, that all Client Fees
received by him in connection with any transactions with the Partnership will be
run through the books and records of the NASD member in compliance with Notice
to Members 96-33 and Rules 3030 and 3040 of the NASD Conduct Rules.
10.14 Reimbursement of Organizational Expenses. The General Partners
may be reimbursed for, or the Partnership may pay directly, all expenses in
connection with the organization or offering of the Units including, without
limitation, attorneys' fees, accounting fees, printing costs and other selling
expenses (other than underwriting commissions) in an amount equal to the lesser
of ten percent (10%) of the gross proceeds of the Offering or $1,200,000. The
General Partners may, at their election, any offering and organization expenses
in excess of this amount.
10.15 Reimbursement. The Partnership shall reimburse the General
Partners or their Affiliates for the actual cost to the General Partners or
their Affiliates (or pay directly), the cost of goods and materials used for or
by the Partnership and obtained from entities unaffiliated with the General
Partners or their Affiliates. The Partnership shall also pay or reimburse the
General Partners or their Affiliates for the cost of administrative services
necessary to the prudent operation of the Partnership, provided that such
reimbursement will be at the lower of (A) the actual cost to the General
Partners or their Affiliates of providing such services, or (B) 90% of the
amount the Partnership would be required to pay to non affiliated persons
rendering similar services in the same or comparable geographical location. The
cost of administrative services as used in this subsection shall mean the pro
rata cost of personnel, including an allocation of overhead directly
attributable to such personnel, based on the amount of time such personnel spent
on such services, or other method of allocation acceptable to the program's
independent certified public accountant.
10.16 Non-reimbursable Expenses. The General Partners will pay and will
not be reimbursed by the Partnership for any general or administrative overhead
incurred by the General Partners in connection with the administration of the
Partnership which is not directly attributable to services authorized by
Sections 10.15 or 10.17.
10.17 Operating Expenses. Subject to Sections 10.14 and 10.15 and 10.16
all expenses of the Partnership shall be billed directly to and paid by the
Partnership which may include, but are not limited to: (i) all salaries,
compensation, travel expenses and fringe benefits of personnel employed by the
Partnership and involved in the business of the Partnership. including persons
who may also be employees of the General Partners or Affiliates of the General
Partners, but excluding control persons of either the General Partners or
Affiliates of the General Partners, (ii) all costs of borrowed money, taxes and
assessments on Partnership properties foreclosed upon and other taxes applicable
to the Partnership, (iii) legal, audit, accounting, and brokerage fees, (iv)
printing, engraving and other expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and recording of documents
evidencing ownership of an interest in the Partnership or in connection with the
business of the Partnership, (v) fees and expenses paid to leasing agents,
consultants, real estate brokers, insurance brokers, and other agents, (vi)
costs and expenses of foreclosures, insurance premiums, real estate brokerage
and leasing commissions and of maintenance of such property, (vii) the cost of
insurance as required in connection with the business of the Partnership, (viii)
expenses of organizing, revising, amending, modifying or terminating the
Partnership, (ix) expenses in connection with Distributions made by the
Partnership, and communications, bookkeeping and clerical work necessary in
maintaining relations with the Limited Partners and outside parties, including
the cost of printing and mailing to such persons certificates for Units and
reports of meetings of the Partnership, and of preparation of proxy statements
and solicitations of proxies in connection therewith, (x) expenses in connection
with preparing and mailing reports required to be furnished to the Limited
Partners for investor, tax reporting or other purposes, or other reports to the
Limited Partners which the General Partners deem to be in the best interests of
the Partnership, (xi) costs of any accounting, statistical or bookkeeping
equipment and services necessary for the maintenance of the books and records of
the Partnership including, but not limited to, computer services and time, (xii)
the cost of preparation and dissemination of the information relating to
potential sale, refinancing or other disposition of Partnership property, (xiii)
costs incurred in connection with any litigation in which the Partnership is
involved, as well as in the examination, investigation or other proceedings
conducted by any regulatory agency with jurisdiction over the Partnership
including legal and accounting fees incurred in connection therewith. (xiv)
costs of any computer services used for or by the Partnership, (xv) expenses of
professionals employed by the Partnership in connection with any of the
foregoing, including attorneys, accountants and appraisers. For the purposes of
Sections 10.17(i), a control person is someone holding a 5% or greater equity
interest in the General Partners or affiliate or a person having the power to
direct or cause the direction of the General Partners or Affiliate, whether
through the ownership of voting securities, by contract or otherwise.
10.18 Deferral of Fees and Expense Reimbursement. The General Partners
may defer payment of any fee or expense reimbursement provided for herein. The
amount so deferred shall be treated as a non-interest bearing debt of the
Partnership and shall be paid from any source of funds available to the
Partnership, including cash available for Distribution prior to the
distributions to Limited Partners provided for in Article 5.
10.19 Payment upon Termination. Upon the occurrence of a terminating
event specified in Article 9 of the termination of an affiliate's agreement, any
portion of any reimbursement or interest in the Partnership payable according to
the provisions of this Agreement if accrued, but not yet paid, shall be paid by
the Partnership to the General Partners or Affiliates in cash, within thirty
(30) days of the terminating event or termination date set forth in the written
notice of termination.
ARTICLE 11
ARBITRATION
11.1 Arbitration. As between the parties hereto, all questions as to
rights and obligations arising under the terms of this Agreement are subject to
arbitration, including any question concerning any right or duty under the
Securities Act of 1933, the Securities Exchange Act of 1934 and the securities
laws of any state in which Units are offered, and such arbitration shall be
governed by the rules of the American Arbitration Association.
11.2 Demand for Arbitration. If a dispute should arise under this
Agreement, any Partner may within 60 days make a demand for arbitration by
filing a demand in writing for the other.
11.3 Appointment of Arbitrators. The parties may agree upon one
arbitrator, but in the event that they cannot agree, there shall be three, one
named in writing by each of the parties within five (5) days after demand for
arbitration is given and a third chosen by the two appointed. Should either
party refuse or neglect to join in the appointment of the arbitrator(s) or to
furnish the arbitrator(s) with any papers or information demanded, the
arbitrator(s) are empowered by both parties to proceed ex parte.
11.4 Hearing. Arbitration shall take place in San Mateo, California,
and the hearing before the arbitrator(s) of the matter to be arbitrated shall be
at the time and place within said city as is selected by the arbitrator(s). The
arbitrator(s) shall select such time and place promptly after his (or their)
appointment and shall give written notice thereof to each party at least sixty
(60) days prior to the date so fixed. At the hearing any relevant evidence may
be presented by either party, and the formal rules of evidence applicable to
judicial proceedings shall not govern. Evidence may be admitted or excluded in
the sole discretion of the arbitrator(s). Said arbitrator(s) shall hear and
determine the matter and shall execute and acknowledge their award in writing
and cause a copy thereof to be delivered to each of the parties.
11.5 Arbitration Award. If there is only one arbitrator, his decision
shall be binding and conclusive on the parties, and if there are three
arbitrators the decision of any two shall be binding and conclusive. The
submission of a dispute to the arbitrator(s) and the rendering of his (or their)
decision shall be a condition precedent to any right of legal action on the
dispute. A judgment confirming the award of the arbitrator(s) may be rendered by
any Court having Jurisdiction; or such Court may vacate, modify, or correct the
award in accordance with the prevailing sections of California State Law.
11.6 New Arbitrators. If three arbitrators are selected under the
foregoing procedure but two of the three fail to reach an Agreement in the
determination of the matter in question, the matter shall be decided by three
new arbitrators who shall be appointed and shall proceed in the same manner, and
the process shall be repeated until a decision is finally reached by two of the
three arbitrators selected.
11.7 Costs of Arbitration. The costs of such arbitration shall be borne by
the losing party or in such proportions as the arbitrators shall determine.
ARTICLE 12
MISCELLANEOUS
12.1 Covenant to Sign Documents. Without limiting the power granted by
Sections 2.8 and 2.9, each Partner covenants, for himself and his successors and
assigns, to execute, with acknowledgment or verification, if required, any and
all certificates, documents and other writings which may be necessary or
expedient to form the Partnership and to achieve its purposes, including,
without limitation, the Certificate of Limited Partnership and all amendments
thereto, and all such filings, records or publications necessary or appropriate
laws of any jurisdiction in which the Partnership shall conduct its business.
12.2 Notices. Except as otherwise expressly provided for in this
Agreement, all notices which any Partner may desire or may be required to give
any other Partners shall be in writing and shall be deemed duly given when
delivered personally or when deposited in the United States mail, first-class
postage pre-paid. Notices to Limited Partners shall be addressed to the Limited
Partners at the last address shown on the Partnership records. Notices to the
General Partners or to the Partnership shall be delivered to the Partnership's
principal place of business, as set forth in Section 2.3 above or as hereafter
charged as provided herein. Notice to any General Partner shall constitute
notice to all General Partners.
12.3 Right to Engage in Competing Business. Nothing contained herein
shall preclude any Partner from purchasing or lending money upon the security of
any other property or rights therein, or in any manner investing in,
participating in, developing or managing any other venture of any kind, without
notice to the other Partners, without participation by the other Partners, and
without liability to them or any of them. Each Limited Partner waives any right
he may have against the General Partners for capitalizing on information
received as a consequence of the General Partners management of the affairs of
this Partnership.
12.4 Amendment. This Agreement is subject to amendment by the
affirmative vote of a Majority of the Limited Partners in accordance with
Section 4.5; provided, however, that no such amendment shall be permitted if the
effect of such amendment would be to increase the duties or liabilities of any
Partner or materially change any Partner's interest in Profits, Losses,
Partnership assets, distributions, management rights or voting rights, except as
agreed by that Partner. In addition, and notwithstanding anything to the
contrary contained in this Agreement the General Partners shall have the right
to amend this Agreement, without the vote or consent of any of the Limited
Partnership, when:
(a) There is a change in the name of the Partnership or the amount of the
contribution of any Limited Partner;
(b) A Person is substituted as a Limited Partner;
(c) An Additional Limited Partner is admitted;
(d) A Person is admitted as a successor or additional General Partner in
accordance with the terms of this Agreement;
(e) A General Partner retires, dies, files a petition in
bankruptcy, becomes insane or is removed, and the Partnership business is
continued by a remaining or replacement General Partner;
(f) There is a change in the character of the business of the Partnership;
(g) There is a change in the time as stated in the Agreement for the
dissolution of the Partnership, or the return of a Partnership contribution;
(h) To cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision, or to make any
other provisions with respect to matters or questions arising under this
Agreement which will not be inconsistent with the provisions of this Agreement;
(i) To delete or add any provision of this Agreement required to be so
deleted or added by the Staff of the Securities and Exchange Commission or by a
State "Blue Sky" Administrator or similar official, which addition or deletion
is deemed by the Administrator or official to be for the benefit or protection
of the Limited Partners;
(j) To elect for the Partnership to be governed by any successor California
statute governing limited partnerships; and
(k) To modify provisions of this Agreement as noted in Sections 1.3 and 5.6
to cause this Agreement to comply with Treasury Regulation Section 1.704-1(b).
The General Partners shall notify the Limited Partners within a
reasonable time of the adoption of any such amendment.
12.5 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes any and all prior agreements and
representations, either oral or in writing, between the parties hereto with
respect to the subject matter contained herein.
12.6 Waiver. No waiver by any party hereto of any breach of, or default
under, this Agreement by any other party shall be construed or deemed a waiver
of any other breach of or default under this Agreement, and shall not preclude
any party from exercising or asserting any rights under this Agreement with
respect to any other.
12.7 Severability. If any term, provision, covenant or condition of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the provisions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
12.8 Application of California law; Venue. This Agreement and the
application or interpretation thereof shall be governed, construed, and enforced
exclusively by its terms and by the law of the State of California and the
appropriate Courts in the County of San Mateo, State of California shall be the
appropriate forum for any litigation arising hereunder.
12.9 Captions. Section titles or captions contained in this Agreement
are inserted only as a matter of convenience and for reference and in no way
define, limit, extend or describe the scope of this Agreement.
12.10 Number and Gender. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders.
12.11 Counterparts. This Agreement may be executed in counterparts, any
or all of which may be signed by a General Partner on behalf of the Limited
Partners as their attorney-in-fact.
12.13 Waiver of Action for Partition. Each of the parties hereto
irrevocably waives during the term of the Partnership any right that it may have
to maintain any action for partition with respect to any property of the
Partnership.
12.14 Defined Terms. All terms used in this Agreement which are defined
in the Prospectus of Redwood Mortgage Investors VIII, dated February 28, 2000
shall have the meanings assigned to them in said Prospectus, unless this
Agreement shall provide for a specific definition in Article 2.
12.15 Assignability. Each and all of the covenants, terms, provisions
and arguments herein contained shall be binding upon and inure to the benefit of
the successors and assigns of the respective parties hereto, subject to the
requirements of Article 7.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hand the
day and year first above written.
GENERAL PARTNERS:
/s/ D. Russell Burwell
--------------------------------------------
D. Russell Burwell
/s/ Michael R. Burwell
--------------------------------------------
Michael R. Burwell
GYMNO CORPORATION
A California Corporation
By:/s/ D. Russell Burwell
--------------------------------------------
D. Russell Burwell, President
REDWOOD MORTGAGE CORP.
A California Corporation
By:/s/ D. Russell Burwell
--------------------------------------------
D. Russell Burwell, President
LIMITED PARTNERS:
GYMNO CORPORATION
(General Partner and Attorney-in-Fact)
By:/s/ D. Russell Burwell
--------------------------------------------
D. Russell Burwell, President
<PAGE>
Exhibit 3.2
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
COMMISSIONER'S RULE 260.141.11
260.141.11 Restriction on Transfer
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534
shall cause a copy of this section to be delivered to each issuee or
transferee of such security.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the
prior written consent of the Commissioner (until this condition is
removed pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse or any
custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants or spouse; or to a
transferee by a trustee or custodian for the account of the
transferee or the transferee's ancestors, descendants or
spouse;
(5) to the holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign
state, territory or country who is neither domiciled in this
state to the knowledge of the broker-dealer, nor actually
present in this state if the sale of such securities is not in
violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an
underwriting syndicate or group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the
security for which the Commissioner's written consent is
obtained or under this rule is not required;
(10) by way of a sale qualified under Sections 25111, 25112, or
25113, or 25121 of the Code, of the securities to be
transferred, provided that no order under Section 25140 or
Subdivision (a) of Section 25143 is in effect with respect to
such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation
to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112, or
25113 of the Code, provided that no order under Section 25140
or Subdivision (a) of Section 25148 is in effect with respect
to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of
another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of
another state, if, in either such case, such person (i)
discloses to potential purchasers at the sale that transfer of
the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the
securities, provided that any such transfer is on the
condition that any certificate evidencing the security issued
to such transferee shall contain the legend required by this
section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently
stamped or printed thereon in capital letters of not less than 10-point
size, reading as follows:
"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."
<PAGE>
Exhibit 5.2
July 7, 2000
D. Russell Burwell
Michael R. Burwell
Gymno Corporation
Redwood Mortgage Corp.
Redwood Mortgage Investors VIII
650 El Camino Real, Suite G
Redwood City, CA 94063
Re: Redwood Mortgage Investors VIII;
ERISA Opinion;
Our File No.: _______________
Gentlemen:
We are acting as counsel for Redwood Mortgage Investors VIII, a limited
partnership formed under the California Revised Limited Partnership Act, with
respect to its Registration Statement on Form S-11, Registration No. __________,
as may be amended (the "Registration Statement") and the Preliminary Prospectus
(the "Prospectus") included therein, filed by you with the Securities and
Exchange Commission in connection with the registration under the Securities Act
of 1933, as amended, of up to 30,000,000 Units of Limited Partnership Interests
(the "Units"). Unless otherwise stated herein, capitalized terms not otherwise
defined shall have the meanings ascribed to them in the Prospectus.
You have requested our opinion as to certain questions arising under
the Employee Retirement Income Security Act of 1974 involved in the operation of
the referenced Partnership. This opinion is based upon the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"), the applicable
Department of Labor Regulations ("DOL Regulations"), proposed DOL Regulations,
the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated thereunder (the "Regulations"), and proposed
Treasury Regulations (the "Proposed Treasury Regulations"), current
administrative rulings and judicial interpretations of the foregoing, all
existing as of the date of this letter. It must be emphasized, however, that all
such authority is subject to modification at any time by legislative, judicial
and/or administrative action and that any such modification could be applied on
a retroactive basis.
The Partnership will not request (and would not likely obtain) a ruling
from the Department of Labor as to any matters related to ERISA and the herein
described transactions. While the Partnership will receive this opinion, it is
not binding upon the Department of Labor. Thus, there can be no assurance that
the Department of Labor will not contest one or more of the conclusions reached
herein, or one or more matters as to which no opinion is expressed herein, nor
can there be any assurance that the Department of Labor will not prevail in any
such contest. Further, even if the Department of Labor were not successful in
any such contest, the Partnership, or the Limited Partners in opposing the
Department of Labor's position, could incur substantial legal, accounting and
other expenses.
OPINION
Our opinion is limited to a consideration of the following matters:
(1) Whether the underlying assets of the Partnership will, under ERISA, be
considered "plan assets" of a Tax-Exempt Investor that invests in the
Partnership, and
(2) Whether various proposed transactions involving the Partnership, the
General Partners, their Affiliates and the Tax-Exempt Investors will violate
either (1) the prohibitions against fiduciary self-dealing in Section 406(b) of
ERISA and Sections 4975(c)(1)(E) and (F) of the Code, or (2) the prohibitions
against transactions with parties in interest in Section 406(a) of ERISA and
Sections 4975(c)(1)(A) through (D) of the Code.
Section 406(b) of ERISA and Sections 4975(c)(1)(E) and (F) of the Code
prohibit a fiduciary of a Tax-Exempt Investor from engaging with the Tax-Exempt
Investor in various acts of self-dealing. If the General Partners or their
Affiliates are fiduciaries with respect to Tax-Exempt Investors, investment by
those plans in the Partnership could constitute a violation of Section 406(b) of
ERISA and Section 4975(c)(1)(E) and (F) of the Code. Therefore, the critical
issue is to what extent, if any, the General Partners or their Affiliates meet
the definition of "fiduciary" under ERISA. Under Section 3 (2 1)(A) of ERISA,
. . . a person is a fiduciary with respect to a plan to the
extent (i) he exercises any discretionary authority or
discretionary control respecting management of such plan or
exercises any authority or control respecting management or
disposition of its assets, (ii) he renders investment advice
for a fee or other compensation, direct or indirect, with
respect to any moneys or other property of such plan, or has
any authority or responsibility to do so, or (iii) he has any
discretionary authority or discretionary responsibility in the
administration of such plan.
Section 4975(e)(3) of the Code contains a substantially similar definition.
Based on the facts presented in the Prospectus, we are of the opinion
that the General Partners and their Affiliates are not fiduciaries with respect
to Tax-Exempt Investors for the reasons discussed below. First, the General
Partners and their Affiliates will not permit Tax-Exempt Investors to purchase
Units with assets of any plans (i) if the General Partners and their Affiliates
have investment discretion with respect to such assets or (ii) if they regularly
give individualized investment advice which serves as the primary basis for the
investment decisions made with respect to such assets. In rendering this
opinion, we assume that no transaction will be entered into in violation of
these restrictions. Second, the activities of the General Partners and their
Affiliates with respect to the Partnership will not make the General Partners
and their Affiliates fiduciaries with respect to any Tax-Exempt Investors. None
of their activities with respect to the Partnership, as described in the
Prospectus, involve management or administration of a plan or rendering
investment advice to a plan. Therefore, the General Partners and their
Affiliates would be fiduciaries only if they were involved in "management or
disposition" of "plan assets."
The term "plan assets" is not defined by statue; however, in 1975, the
Department of Labor2 issued Interpretive Bulletin 75-2 ("1.13 75-2") on the
question of whether a transaction between a "party in interest"3 to a plan and a
corporation or partnership in which the plan has invested would constitute a
prohibited transaction. The Department of Labor stated, in part, that:
Generally, investment by a plan in securities . . . of a
corporation or partnership will not, solely by reason of such
investment, be considered to be an investment in the
underlying assets of such corporation or partnership so as to
make the assets "plan assets" and thereby make a subsequent
transaction between the party-in-interest and a corporation or
partnership a prohibited transaction under Section 40-6 of
[ERISA].
It is our opinion that the underlying assets of the Partnership will not be
considered assets of Tax-Exempt Investors under the law currently in effect. On
January 8, 1985, the Department of Labor issued proposed regulations concerning
the definition of what constitutes the assets of a plan. "Proposed Regulations
Relating to the Definition of Plan Assets", 50 Fed. Reg. 961 (Jan. 8, 1985). An
amendment to such proposed regulations was issued by the Department of Labor on
February 15, 1985 (50 Fed. Reg. 6361) (such proposed regulations, as so amended,
are referred to herein as the "Proposed DOL Regulations").
The Proposed DOL Regulations were published in final form on November
13, 1986 (51 Fed. Reg. 41262, (November 13, 1986)) and are generally effective
on or after March 13, 1987 (the "Final DOL Regulations"). Under the Final DOL
Regulations, when a Tax-Exempt Investor acquires an equity interest in another
entity, the plan's assets include its investment but do not, solely by reason of
such investment, include any of the underlying assets of the entity where the
equity interest is of an entity that is a "publicly offered security." 29 CFR
2510.3-101(a)(2).
An "equity interest" means any interest in an equity other than an
instrument that is treated as indebtedness under applicable local law. A profits
interest in a partnership is considered an equity interest. 29 CFR
2510.3-101(b)(1). Accordingly, based upon counsel's opinion attached as Exhibit
5.1 to the Registration Statement, we are of the opinion that the Units in the
Partnership will be "equity interests."
[FN]
1 If the advisor is affiliated with an NASD broker-dealer firm, all fees
received by him in connection with this transaction will be run through the
books and records of the NASD member in compliance with Notice to Members 96-33
and Rules 3030 and 3040 of the NASD Conduct Rules
2 The Department of Labor has authority to interpret Section 406 of ERISA
and Section 4975(c)(1) of the Code. Section 102(a) Reorganization Plan No. 1978.
3 As used herein, the phrase "party in interest" refers to both a party in
interest under Section 3(14) of ERISA and a disqualified person under Section
4975(e) (2) of the Code.
</FN>
<PAGE>
The Units will be considered a "publicly offered security" only if they
are: (i) "freely transferable," (ii) part of a class of securities that is
"widely held," and (iii) sold pursuant to an effective registration statement
under the Securities Act of 1933 and is later registered under the Securities
Exchange Act of 1934. 29 CFR 2510.3 - 10 1 (b)(2).
The determination of whether the Partnership Units are "freely
transferable" is a factual one. Nevertheless, where the minimum required
investment is $10,000 or less, the securities are likely to be considered freely
transferable. 29 CFR 2510.3-101(b)(4) and 51 Fed. Reg. 41268. The presence of
any of the following restrictions governing the transferability of Units will
not affect this finding:
(1) Any requirement that not less than a minimum number of shares or units
of such security be transferred or assigned by any investor, provided that such
requirement does not prevent transfer of all of the then remaining shares or
units held by an investor;
(2) Any prohibition against transfer or assignment of such security or
rights in respect thereof to an ineligible or unsuitable investor;
(3) Any restriction on, or prohibition against, any transfer or assignment
which would either result in a termination or reclassification of the entity for
federal or state tax purposes or which would violate any state or federal
statute, regulation, court order, Judicial decree, or rule of law;
(4) Any requirement that reasonable transfer or administrative fees be paid
in connection with a transfer or assignment;
(5) Any requirement that advance notice of a transfer or assignment be
given to the entity and any requirement regarding execution of documentation
evidencing such transfer or assignment (including documentation setting forth
representations from either or both of the transferor or transferee as to
compliance with any restriction or requirement described in this paragraph of
this section or requiring compliance with the entity's governing instruments);
(6) Any restriction on substitution of an assignee as a limited partner of
a partnership, including a general partner consent requirement, provided that
the economic benefits of ownership of the assignor may be transferred or
assigned without regard to such restriction or consent (other than compliance
with any other restriction described in this paragraph of this section;
(7) Any administrative procedure which establishes an effective date, or an
event, such as completion of the offering, prior to which a transfer or
assignment will not be effective; and
(8) Any limitation or restriction on transfer or assignment which is not s
created or imposed by the issuer or any person acting for or on behalf of such
issuer.
Accordingly, while a factual matter, we are of the opinion that the Units
will be considered freely transferable within the meaning of the Final DOL
Regulations.
Whether the Units are considered "widely held" is determined by a
bright-line test that the Units be held by 100 or more investors, independent
from each other and management. 29 CFR 2510.3-101(b)(3). Based upon the
representations of the General Partners, it is our opinion that the Partnership
will meet this test.
Finally, pursuant to the registration of the Units with the Securities and
Exchange Commission and the undertakings required therewith, we are of the
opinion that the Partnership will meet the "registration" requirements of 29 CFR
2510 3-101(b)(2).
Therefore, we are of the opinion that only the Units of the Partnership,
rather than the underlying investments of the Partnership, will be considered
the plan assets by the Tax-Exempt Investors subscribing for Units in the
Partnership.
If, on the other hand, the underlying assets of the Partnership were deemed
to be "plan assets" under ERISA (i) the prudence standards and other provisions
of Part 4 of Title I of ERISA applicable to investments by employee benefit
plans and their fiduciaries would extend (as to all plan fiduciaries) to
investments made by the Partnership and (ii) certain transactions that the
Partnership might seek to enter into might constitute "prohibited transactions"
under ERISA.
Based on and subject to the foregoing opinion regarding the status of the
Partnership's underlying assets as other than plan assets, the activities of the
General Partners and their Affiliates with respect to management and disposition
of those assets do not make the General Partners and their Affiliates
fiduciaries with respect to any Tax-Exempt Investors. Therefore, we are of the
opinion that the prohibitions against fiduciary self-dealing contained in
Section 406(b) of ERISA and Sections 4975(c)(1)(E) and (F) of the Code would not
be violated by the dealings of the General Partners and their Affiliates with
the Partnership or the Tax-Exempt Investor's investment in the Partnership.
Under Section 406(a)(1) of ERISA, a fiduciary of a plan may not cause the
plan to enter into a transaction with a party in interest to the plan if that
transaction constitutes a direct or indirect --
(1) sale or exchange, or leasing, of any property between the plan and a
party in interest;
(2) lending of money or other extension of credit between the plan and a
party in interest;
(3) furnishing of goods, services, or facilities between the plan and a
party in interest;
(4) transfer to, or use by or for the benefit of, a party in interest, of
any assets of the plan; or
(5) acquisition, on behalf of the plan, of any employer security or
employer real property in violation of Section 407(a).
Sections 4975(c)(1)(A) through (D) of the Code describe prohibited
transactions that are identical to those described in Sections 406(a)(1)(A)
through (D)) of ERISA (substituting the term "disqualified person" for "party in
interest"). There is no indication that the General Partners or their Affiliates
will be parties in interest or disqualified persons with respect to any
Tax-Exempt Investors as those terms are defined in Section 3(14) of ERISA and
Section 4975(e)(2) of the Code.
SCOPE OF OPINION
The current state of the law with respect to many issues which might be
raised in connection with the activities described herein is unsettled. Several
of the relevant statutory provisions discussed above have been enacted only
recently; few or no judicial interpretation of these provisions. Therefore, the
consequences to the Partnership cannot be predicted with a high degree of
assurance.
There is no assurance that the Department of Labor will not raise
issues that have not been discussed herein. The Department of Labor may disagree
with our conclusions and may be upheld by a court. The Department of Labor has
indicated that it will closely scrutinize activities such as those in which the
Partnership will be engaged, and there is a very substantial possibility that
the Department of Labor will examine the Partnership's activities and take
position adverse to the Partnership.
No opinion is expressed with respect to Federal or state securities
laws, state and local taxes, and Federal or State income tax issues or any other
Federal or state laws not explicitly referred to or discussed herein. Further,
we have assumed no obligation to revise or supplement this Opinion letter should
applicable law be changed by legislative, judicial or administrative law or
otherwise.
Except as set forth herein, we have made no independent attempt to
verify the facts or representations or assumption made herein except to the
extent we deem reasonable under ABA Formal Opinion 335 and in connection with
our position as counsel to the Partnership. Where we render an opinion "to the
best of our knowledge" or concerning an item that "has come to our attention" or
our opinion otherwise refers to knowledge it means a conscious awareness of
facts or other information based upon: (i) an inquiry of attorneys within this
firm, (ii) receipt of a certificate executed by the General Partners covering
such matters; (iii) such other actual investigation, if any, that we
specifically set forth herein. `Reference to "us" or "our" is limited to a
reference to the lawyer who signs this Opinion Letter or any lawyer of this firm
who has been actively involved in preparing the relevant documents.
The opinions expressed in this letter are based solely upon the
information and representations set forth above and we have not attempted, nor
deemed it necessary, to verify independently the relevant or pertinent facts or
representations. If there have been any misstatements of facts or omissions of
any material facts, or any amendment or change in any document referred to
herein, please notify us, since any misstatement, omission or change may effect
all or part of this opinion.
This opinion is furnished solely to advise the Partnership, the Limited
Partners, and you concerning the certain issues arising under ERISA involved in
the operation of the Partnership. We have not represented the Limited Partners
in connection with the preparation of the Registration Statement. Limited
Partners should consult their own advisors and counsel with respect to the
matters discussed herein. Except as expressly set forth below, this opinion may
not be filed with or furnished to any other person, or any governmental agency,
except for registered broker dealers who have executed selling agreements, and
may not be quoted in whole or in part or otherwise referred to in any context,
without, in each instance, out prior written consent, and without, in each
instance, the exercise of due diligence on your part to verify that there are no
material errors or omissions of fact and no changes in the facts or in the text
of the documents you have provided us.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the references to this firm contained therein
concerning this opinion and under the headings "ERISA CONSIDERATIONS" and
"EXPERTS" in the Prospectus.
Sincerely yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
By:_______________________________
A Member of the Firm
<PAGE>
Exhibit 8.1
July 7, 2000
D. Russell Burwell
Michael R. Burwell
Gymno Corporation
Redwood Mortgage Corp.
Redwood Mortgage Investors VIII
650 El Camino Real, Suite G
Redwood City, CA 94063
Re: Redwood Mortgage Investors VIII;
ERISA Opinion;
Our File No.: _______________
Gentlemen:
This is an opinion which you have requested as to the summary of
federal income tax consequences set forth in the section entitled "RISKS
FACTORS," under the subheading "Tax Risks" and in the section entitled "FEDERAL
INCOME TAX CONSEQUENCES" of the prospectus ("Prospectus") contained in the Form
S-11 Registration Statement for Redwood Mortgage Investors VIII (the
"Partnership") to be filed with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended,
of up to 30,000,000 Units of Limited Partnership Interests (the "Units" or
"Securities").
We have been retained to represent the General Partners and the
Partnership in connection with the offering of the Units. We have not
represented the Limited Partners, or any other party in connection with the
preparation of this opinion or the offering of Securities by the Partnership. In
rendering this opinion, we have examined the following:
1. The Third Amended and Restated Limited Partnership Agreement of the
Partnership, dated July 13, 2000, as amended (the "Partnership Agreement").
2. The Certificate of Limited Partnership of the Partnership filed with the
Limited Partnership Division of the California Secretary of State's Office (the
"Certificate").
3. The Prospectus.
4. Such other documents and instruments we have considered necessary for
rendering the opinions hereinafter set forth.
In our examination of the forgoing, we have assumed the authenticity of
original documents, the accuracy of copies and the genuineness of signatures. We
have relied upon the representations and statements of the General Partners,
that they currently have and intend to maintain substantial assets, other than
their interest in the Partnership, that could be reached by a creditor of the
Partnership within the meaning of Income Tax Regulation Section 301.7701-2(d).
We have also conducted various meetings, discussions and conversations
with the General Partners regarding the offer and sale of the Securities.
Nothing has come to our attention in our representation of the Partnership that
would make it unreasonable to assume that the above documents will be utilized
in the manner intended as set forth those documents. However, we have not
independently verified any of the facts or representations contained in such
documents.
As to matters of fact, we have relied upon certificates of the General
Partners, public officials or other persons and other documents and have assumed
the genuineness of all signatures, the authenticity of all documents purporting
to be originals, and the conformity to the originals of all documents purporting
to be copies thereof.
In rendering this Opinion, we have assumed that: (1) each other party
that has executed or will execute a document, instrument or agreement to which
the Partnership is a party duly and validly executed and delivered each
document, instrument or agreement to which such party is a signatory and that
such party's obligations set forth therein are its legal, valid and binding
obligations, enforceable in accordance with their respective terms; (2) each
person executing any document, instrument or agreement on behalf of any such
party is duly authorized to do so; and (3) each natural person executing any
instrument, document or agreement referred to herein is legally competent to do
so.
We are lawyers admitted to practice in California and have reviewed
such laws of the United States and California as we have deemed necessary for
the purpose of providing the opinions set forth herein. We have not reviewed the
laws of any jurisdiction other than the United States and California, and
accordingly, we express no opinion herein as to the laws of any other state or
jurisdiction.
Capitalized terms used herein and not otherwise defined in this opinion
shall have the same meaning as they have in the Partnership Agreement, as the
context requires.
We have made the following observations and assumptions for purposes of
our opinion:
1. We assume for purposes of this opinion generally that (i) the
Partnership has an objective to carry on business for profit and derive the
gains therefrom; (ii) the Partnership has taken, and will in the future continue
to take all action necessary under the laws of California and any other
applicable jurisdiction to permit it to conduct business in those states as
contemplated by the Partnership Agreement; and (iii) the offer and sale of the
units have been made in strict compliance with the terms of the Prospectus;
2. We note that the Partnership will keep its books on an accrual basis
and we assume that (i) income and losses of the Partnership each year will be
computed in accordance with the applicable provisions of the Code and the
regulations promulgated thereunder, and (ii) no actions will be taken by the
Partnership or by any of the Partners after the date of this opinion which would
have the effect of changing the tax results set forth below.
3. We have assumed that the Partnership Agreement has been duly
executed and the Certificate of Limited Partnership and all amendments thereto
have been duly executed and filed.
4. The Partnership will be organized and operated in accordance with
the Revised Uniform Limited Partnership Act, as adopted by, and in effect in,
the State of California.
5. The Partnership will be operated in accordance with the Partnership
Agreement, and the Partnership will have the characteristics described in the
Prospectus and will be operated as described in the Prospectus.
6. The Partnership will not participate in any Loan on terms other than
those described in "INVESTMENT OBJECTIVES AND CRITERIA" without first receiving
certain advice of Counsel.
7. The Loans will be made by on substantially the terms and conditions
described in the Prospectus in "INVESTMENT OBJECTIVES AND CRITERIA."
8. The net worth of the individual General Partners will continue to
exceed an amount intended to assure that the Partnership may qualify as a
partnership for federal income tax purposes.
9. The General Partners will take certain steps in connection with the
transfer of Units to decrease the likelihood that the Partnership will be
treated as a publicly traded partnership for purposes of Sections 7704, 469(k),
and 512(c) of the Code.
This opinion is based upon the provisions of the Internal Revenue Code
of 1986 (the "Code"), as amended the applicable Treasury Regulations promulgated
thereunder (the "Regulations') and proposed Treasury Regulations (the "Proposed
Treasury Regulations"), current administrative rulings and judicial opinions of
the foregoing, all existing as of the date of this letter. It must be
emphasized, however, that all such authority is subject to modification at any
time by legislative, judicial and/or administrative action and that any such
modification could be applied on a retroactive basis. Future tax reform
proposals may have a material adverse effect on the potential tax benefits that
may be expected to be realized from an investment in the Partnership. Even under
current law, the existence and amount of deductions expected to be claimed by
the Partnership involve complex legal and factual issues and will depend on
certain factual determinations, characterizations, expenditures and other
matters, all or any of which may be subject to challenge and passable
disallowance by the Internal Revenue Service (the "Service") upon an audit of
the personal tax return of a Partner.
Although it is our opinion that the Partnership will not be considered
a "tax shelter" in rendering this opinion, we have considered the relevant
professional standards, including the requirements of Revised Formal Opinion 346
issued on January 29, 1982 by the American Bar Association's Standing Committee
on Ethics and Professional Responsibility and Treasury Department Circular 230,
as modified by 31 C.F.R. Part 10, ss. 10.7 (February 14, 1984). Generally
speaking, under Opinion 346 and Circular 230, counsel must consider all material
tax issues in light of the facts and must fully and fairly address all such
issues. Further, where possible, an opinion should be formulated as to the
likely outcome on the merits of all material tax issues. In addition, an overall
evaluation should be made of the extent to which tax benefits of the proposed
investment in the aggregate are likely to be realized.
The Partnership will not request (and would not likely obtain) a ruling
from the Service as to any tax matters related to the herein described
transactions. While the Partnership will receive this opinion as to certain tax
matters, it is not binding upon the Service. Thus, there can be no assurance
that the Service will not contest one or more of the conclusions reached herein,
or one or more tax matters as to which no opinion is expressed herein, nor can
there be any assurance that the Service will not prevail in any such contest.
Further, even if the Service was not successful in any such contest, the
Partnership, in opposing the Service's position, could incur substantial legal,
accounting and other expenses.
OPINION
As more fully described in the section of the Prospectus entitled
"FEDERAL INCOME TAX CONSEQUENCES" and specifically subject to the qualifications
set forth therein, it is our opinion that:
1. The summary of the income tax consequences set forth in the section
of the Prospectus entitled "RISKS FACTORS" under the subheading "Tax Risks" and
in the sections entitled FEDERAL INCOME TAX CONSEQUENCES" and "ERISA
CONSIDERATIONS" is an accurate statement of the matters discussed therein and,
to the extent such summary involves matters of law, is correct under the Code,
the Regulations, and existing interpretations thereof;
2. It is more likely than not that the Partnership will be treated as a
partnership as defined in Sections 7701(a)(2) and 761 (a) of the Code and not as
an association taxable as a corporation, and that the Limited Partners will be
subject to tax as partners pursuant to Sections 701-706 of the Code.
3. Based upon Notice 88-75, the representations of the General
Partners, and the provisions of the Partnership Agreement, it is more likely
than not that the Partnership will not constitute a publicly traded partnership
for purposes of Sections 7704, 469(k) and 512(c) of the Code.
4. Assuming that the Partnership makes the Loans on substantially the
terms and conditions described in "INVESTMENT OBJECTIVES AND CRITERIA" it is
more likely than not that the income of the Partnership will be treated as
portfolio income and not constitute unrelated business taxable income.
5. It is more likely than not a Limited Partner's basis for his or her
Units will equal, in the case of those who utilize the services of a
Participating Broker Dealer, the purchase price of the Units and, in case of
those who acquired Units through unsolicited sales, the purchase price of the
Units plus an amount equal to the amount of the sales commissions otherwise due
assuming no Continuing Servicing Fee is paid had the Limited Partnership
utilized the services of a Participating Broker Dealer.
6. It is more likely than not that all material allocations to the
Limited Partners of income, gain, loss and deductions, as provided for in the
Partnership Agreement and as discussed in the Prospectus, will be respected
under Section 704(b) of the Code, or in the alternative, will be deemed to be in
accordance with the Partners' interests in the Partnership.
7. Based solely upon the manner in which the Partnership has in the
past extended Mortgage Investments, we have concluded that the sale or
disposition of all or a portion of the Partnership's Mortgage Investment
portfolio would be treated as a disposition of a capital asset.
This letter contains only our opinion as to federal income tax issues
which are expected to be of relevance to U.S. taxpayers who are individuals.
Thus, no opinion is expressed as to the federal income tax consequences to other
taxpayers, including, but not limited to, non-U.S. citizens, foreign
corporations, foreign partnerships, foreign trusts or foreign estates.
Based upon and subject to the foregoing we wish to advise you that the
section of the Prospectus entitled "FEDERAL INCOME TAX CONSEQUENCES" accurately
reflects our opinion as to those matters therein as set forth as to which an
opinion is specifically attributed to us.
<PAGE>
SCOPE OF OPINION
In the preparation of the Prospectus and in rendition of this Opinion,
we have sought to adhere to certain relevant professional standards embodied in
federal regulations and in American Bar Association Formal Opinion 346 regarding
the rendition of tax opinions. These standards direct a lawyer issuing certain
tax opinions to consider all material tax issues and to address fully and fairly
in the offering materials all the material tax issues which involve the
reasonable possibility of a challenge by the Internal Revenue Service. The
foregoing addresses, in our opinion, all material tax issues which involve a
reasonable possibility of challenge by the IRS. We believe that this opinion,
together with the section in the Prospectus entitled "FEDERAL INCOME TAX
CONSEQUENCES," addresses fully and fairly all such issues. It is not feasible to
present in this opinion (and in the section of the Prospectus entitled "FEDERAL
INCOME TAX CONSEQUENCES") a detailed explanation of the effect of the tax
treatment of partnerships originating, investing in, holding, selling and
disposing of loans, or the tax treatment of investments in such partnerships.
The current state of the law with respect to many issues which might be raised
in connection with the activities described herein is unsettled. Several of the
relevant statutory provisions discussed above have been enacted only recently;
few Regulations have been proposed or promulgated under these provisions, and
there is little or no judicial interpretation of these provisions. Therefore,
the tax consequences to the Partnership cannot be predicted with a high degree
of assurance. Further, although the transactions contemplated by the Prospectus
are prospective in nature, we are not assuming an obligation to revise or
supplement this Opinion Letter should applicable law be changed by legislative,
judicial or administrative action or otherwise.
There is no assurance that the Service will not raise issues that have
not been discussed herein. The Service may disagree with our conclusions and may
be upheld by a court. The Service has indicated that it will closely scrutinize
activities such as those in which the Partnership will be engaged, and there is
a very substantial possibility that the Service will examine the Partnership's
activities and take positions adverse to the Partnership.
No opinion is expressed with respect to Federal or state securities
laws, state and local taxes, and Federal income tax issues other than those
discussed herein, or any other Federal or state laws not explicitly referred to
or discussed herein.
Except as set forth herein, we have made no independent attempts to
verify the facts or representations or assumptions made herein except to the
extent we deem reasonable under ABA Formal Opinion 346 and 335 and in connection
with our position as counsel to the Partnership. Where we render an opinion "to
the best of our knowledge" or concerning an item that "has come to our
attention" or our opinion otherwise refers to knowledge it means a conscious
awareness of facts or other information based upon: (1) any inquiry of attorneys
within this firm; (2) receipt of a certificate executed by the General Partners
covering such matters; (3) such other actual investigation, if any, that we
specifically set forth herein, Reference to "us" or "our" is limited to a
reference to the lawyer who signs this Opinion letter or any lawyer of this firm
who has been actively involved in preparing the documents.
The opinions expressed in this letter are based solely upon the
information and representations set forth above and we have not attempted, nor
deemed it necessary, to verify independently the relevant or pertinent facts or
representations. If there have been any misstatements of a fact or omission of
any material facts, or any amendment or change in any document referred to
herein, please notify us, since any misstatement, omission or change, after the
date of this Opinion may effect all or part of this letter.
This opinion is furnished solely to advise the Partnership, the Limited
Partners, and you concerning the federal income tax issues discussed herein. We
have not represented the Limited Partners. The Limited Partners should consult
their own tax advisors with respect to the tax consequences of the Partnership's
activities described and discussed herein. Except as expressly set forth herein,
this opinion may not be filed with or furnished to any other person, or any
governmental agency, and may not be quoted in whole or in part or otherwise
referred to in any context, without, in each instance, our prior written
consent, and without, in each instance, the exercise of due diligence on your
part to verify that there are no material errors or omissions of fact and no
changes in the facts or in the text of the documents you have provided to us.
We hereby consent to the inclusion of this opinion in the Registration
Statement as an Exhibit thereto and to the references to our firm under the
heading "FEDERAL INCOME TAX CONSEQUENCES" and "EXPERTS" in the Prospectus.
Sincerely yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
By:_______________________________
A Member of the Firm
<PAGE>
Exhibit 10.2
LOAN SERVICING AGREEMENT
AND AUTHORIZATION TO COLLECT
This Agreement is entered into as of the date set forth below by and
between Redwood Mortgage Corp., a California corporation (BROKER) and
BENEFICIARY for the purpose of establishing the terms, conditions and authority
for the servicing of a loan evidenced by a promissory note (the Note) and deed
of trust (the Deed of Trust), described as follows:
Borrower: ____________________________________________________________________
Loan Amount: $ __________ Term: ____________ Interest Rate: _________%
Late Charge: $ ___________ Prepayment Bonus: Yes _____ No _____
Deed of Trust Recorded: Instrument No. __________ County _______________, CA
Beneficiary's Investment: $ ________ Percentage of Ownership: ___________%
It is understood that the BENEFICIARY'S interest in said Note may be a
partial ownership, and that other lenders (partial beneficiaries) also may own
fractional undivided interests in said Note. BENEFICIARY and the other partial
beneficiaries (collectively Beneficiaries) are not engaged in a partnership or
joint venture, but their relationship is specifically agreed to be that of
tenants in common. This Agreement shall be executed in counterpart by all
Beneficiaries, each of which shall be deemed an original and all of which
together shall constitute one agreement, and the terms hereof shall be uniformly
binding upon and enforceable by BENEFICIARY and all other partial beneficiaries,
against BROKER and as between themselves.
BENEFICIARY hereby appoints BROKER to service the Note on his behalf
from and after the close of escrow, to hold the original Note and the original
Deed of Trust as BENEFICIARY'S agent, and to deliver copies of all other
documents as provided in BENEFICIARY'S escrow instructions executed in
connection with this loan transaction to BENEFICIARY at the address indicated
below. Such servicing activities shall include all activities reasonably and
customarily required to collect, disburse and account for payment of principal,
interest, late charges and prepayment bonuses under the Note and to enforce all
the terms and provisions of the Note and Deed of Trust. BROKER accepts such
appointment and agrees to use diligence in the performance of its duties
hereunder.
BROKER further agrees as follows: (1) All loan payments received by
BROKER hereunder shall be deposited immediately into BROKERS trust account,
which trust account shall be maintained in accordance with the provisions of law
and rule for trust accounts of licensed real estate brokers and in accordance
with the provisions of Rule 260.105.30 of Title 10 of the California
Administrative Code; (2) Such loan payments shall not be commingled with the
other assets of BROKER or any affiliate, or used for any transaction other than
the transaction for which such funds are received by BROKER; (3) All loan
payments received on the Note (less service fees as described below and other
costs, charges, and anticipated foreclosure expenses) shall be transmitted to
BENEFICIARY and the other partial beneficiaries pro rata according to their
respective percentage ownership interests in the Note within 25 days after
receipt thereof by BROKER; (4) BROKER shall provide BENEFICIARY with a monthly
and annual accounting of BENEFICIARY'S interest in the Note; (5) BROKER shall
use diligence and care to assure that proper casualty insurance is maintained on
the real property covered by the Deed of Trust or Deeds of Trust securing the
Note; (6) BROKER shall issue demands for payment and otherwise enforce the terms
of the note in accordance with its established policies; (7) BROKER shall
request Notices of Default on prior encumbrances pursuant to California Civil
Code Section 2924(b) and will promptly notify BENEFICIARY of any such defaults,
and (8) To the extent required by 10 Cal.Adm.C. Rule 260.105.30(j)(3), BROKER
will arrange for the inspection of BROKER'S trust account by an independent
certified public accountant and forward the report of such accountant to the
California Commissioner of Corporations in the manner required by law.
In the event of any default by the obligor or obligors under the Note,
Broker shall perform all acts and execute all documents necessary to exercise
the power of sale contained in the Deed of Trust or Deeds of Trust securing
same, including without limitation the following: Substitute trustees, select a
foreclosure agent, give demands, accept reinstatements, commence litigation to
enforce the collection of the note, obtain relief from any court-ordered stay of
foreclosure proceedings, defend any litigation which may seek to restrain said
foreclosure, receive a trustees deed for the benefit of BENEFICIARIES, as
tenants-in-common, and otherwise to do all things reasonably necessary or
appropriate to enforce BENEFICIARY'S rights under the Note and Deed of Trust or
Deeds of Trust. BENEFICIARY hereby authorizes BROKER to initiate, maintain
and/or defend any such legal actions or proceedings in the name of BENEFICIARY,
and to employ attorneys therefor at BENEFICIARY'S expense.
BENEFICIARY agrees that BROKER shall not be liable for any costs,
expenses or damages that may arise from or in connection with any acts or
omissions of BROKER or its agents or employees hereunder, so long as any such
act or omission shall have been undertaken in good faith, notwithstanding any
active or passive negligence (whether sole or contributory) of BROKER or its
agents or employees, and BENEFICIARY shall hold BROKER harmless therefrom.
In consideration for the services to be rendered hereunder, BROKER
shall be entitled to receive an annual service fee equal to one and one half
percent (1.5%), or such lesser amount as may be agreed to by BROKER and
BENEFICIARY from time to time, of the outstanding principal balance of the Note,
payable in equal monthly installments, or in other periodic payments if payments
by obligor are made other than monthly. BROKER is hereby authorized to deduct
and retain all such service fees from the collected monthly loan payments. In
addition, BENEFICIARY hereby assigns to BROKER fifty percent (50%), or such
lesser amount as may be agreed to by BROKER and BENEFICIARY from time to time,
of all collected late charges that become due and owing under the Note, and,
further, in the event BROKER has advanced its own sums to BENEFICIARY shall be
deemed to have assigned to BROKER one hundred percent (100%) of all such late
charges accruing and paid with respect to such payments. In addition,
BENEFICIARY hereby assigns to BROKER twenty percent (20%), or such lesser amount
as may be agreed to by BROKER and BENEFICIARY from time to time, of all
collected prepayment penalties that become due and owing under the Note.
In the event of default in payment of any sum due under the Note,
BROKER shall be authorized to advance such payments to BENEFICIARY, but shall
have no obligation whatsoever to do so. In the event the source for any payment
to BENEFICIARY is not the obligor under the Note, then BROKER shall inform
BENEFICIARY of the actual source of such payment. BROKER shall also be
authorized to advance monthly payments or other sums to any senior lien holder,
to pay insurance and taxes and to pay any other expenses reasonably incurred in
connection with the enforcement of the Note and the protection of the security
of the Deed of Trust securing same, but shall have no obligation whatsoever to
do so.
In the event of a default under the Note or Deed of Trust, or any
foreclosure action, legal action, sale or any other event in which payments are
advanced to BENEFICIARY or any other person or expenses are incurred to protect
the rights of BENEFICIARY under the Note and Deed of Trust, then BENEFICIARY
agrees to pay (or reimburse BROKER for) his pro rata share of such advances and
expenses upon demand therefor by BROKER, according to his respective ownership
interest in the Note. In the event BENEFICIARY fails to pay such sums upon
demand, then the following provisions shall apply: (1) interest shall accrue on
such sums at the same rate as is provided in the Note, and (2) BROKER and the
other partial beneficiaries shall have the option, but not the obligation, to
advance such sums for the benefit of BENEFICIARY, and in such event the
defaulting BENEFICIARY shall and hereby agrees to forfeit, in favor of the other
partial Beneficiaries who advance defaulting BENEFICIARY'S share of such sums,
twenty-five percent (25%) of defaulting BENEFICIARY'S ownership interest in the
Note and Deed of Trust. It is further agreed that said defaulting BENEFICIARY
shall forfeit, in favor of the other partial Beneficiaries, all interest in any
profits or excess funds that said defaulting BENEFICIARY may otherwise be
entitled to. All sums thereafter collected by BROKER hereunder shall be applied
in the following priority; (1) first, to the reinstatement of any senior liens
or encumbrances; (2) Second, to reimburse BROKER for any advances made by BROKER
hereunder; (3) Third, to reimburse all Beneficiaries for any advances made to
enforce the Note or protect the security of the Deed of Trust or Deeds of Trust
securing same, in the same order as such advances were make; (4) Fourth, to the
payment of principal under the Note; (5) Fifth, to the payment of accrued but
unpaid interest under the Note (such principal and interest to be allocated
among all BENEFICIARIES after providing for any defaulting BENEFICIARY'S partial
forfeiture as described above); and (6) Thereafter, any remaining sums shall be
allocated only among those BENEFICIARIES who did not default in the advancement
of sums upon demand therefor by BROKER.
In the event BENEFICIARY assigns his interest in the Note to any
person, such assignment shall be evidenced by execution and delivery to BROKER
of an Assignment of Note and Deed of Trust in recordable form, and the assignee
shall be required to execute a counterpart of this Agreement.
BENEFICIARIES holding 50% or more of the unpaid dollar amount of the
Note may determine and direct the actions by BROKER on behalf of all
BENEFICIARIES in the event of default or with respect to other matters requiring
the direction or approval of the BENEFICIARIES.
Upon any default under the Note or Deed of Trust BENEFICIARY shall have
the right to (1) direct the Trustee under the Deed of Trust to exercise the
power of sale contained therein, or (2) to bring an action of judicial
foreclosure, in which event all other partial BENEFICIARIES shall be joined
therein. BENEFICIARY understands and acknowledges that, if the power of sale
under the Deed of Trust securing the Note is exercised, all BENEFICIARIES may
acquire fee title to the security property as tenants-in-common. In such event,
reasonable cooperation between all BENEFICIARIES will be essential for the
protection of this investment, and BENEFICIARY therefore agrees to execute in
favor of BROKER a special power of attorney authorizing BROKER on behalf of
BENEFICIARY to sell such property on such terms and conditions as BROKER may
deem proper and reasonable.
BENEFICIARY hereby authorizes BROKER, as BENEFICIARY'S agent, to
receive and act upon any Notice of Rescission delivered by any borrower under
the Truth in Lending Simplification and Reform Act (the Act) with respect to the
Note or any refinancing thereof. In the event that BENEFICIARY is a creditor as
defined in the Act, BENEFICIARY hereby agrees that BROKER shall comply with all
requirements of the Act and regulations issued thereunder, and to give all
written disclosures required thereby.
In the event at the time of maturity of this Note, the borrower is in
the process of refinancing the loan with the assistance of BROKER, the
BENEFICIARY agrees to extend the term of this loan for an additional period not
to exceed (90) days or such other period of time to which the BROKER AND
BENEFICIARY agree. All other terms and conditions of the original Promissory
Note shall continue in full force and effect during said extension period.
This Agreement may be terminated by the parties as follows: (1) by
BROKER, at any time, upon 30 days written notice to BENEFICIARY, (2) by
BENEFICIARY and/or other partial BENEFICIARIES holding 50% of the outstanding
ownership interests in the Note, upon 30 days written notice to BROKER.
BENEFICIARY understands that this Agreement may not be terminated by BENEFICIARY
alone without the written consent of such 50% interest of all owners of the
Note, and further that other partial Beneficiaries have the right to terminate
this Agreement as to all Beneficiaries including the undersigned BENEFICIARY,
without BENEFICIARY'S consent, if such other partial BENEFICIARIES constitute
such 50% interest of all owners of the Note. In such event, BENEFICIARY agrees
to accept the substitution of any servicing agent chosen by such 50% interest so
long as the compensation to be paid shall not exceed the amounts set forth
herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the respective dates set forth below.
BROKER: REDWOOD MORTGAGE CORP, a California corporation
By:____________________________________________
D. Russell Burwell, President
Date: __________________________________________
BENEFICIARY: _____________________________________
By:_____________________________________________
D. Russell Burwell, President
<PAGE>
EXHIBIT 10.3 (a)
PROMISSORY NOTE
Loan No.: ________________ ________________, 2000
Redwood City, California
FOR VALUABLE CONSIDERATION, ________________________________ (herein
"Maker"), hereby promises to pay to _________________________, or order (herein
"Payee"), at the address set forth below, or at such other address as the holder
hereof may, from time to time designate, the sum of ____________________
($__________) with interest on the unpaid balance of the principal sum disbursed
by Payee to or for the account of Maker at the interest rate specified below.
1. Interest and Payments.
(a) Fixed Rate Interest. Maker agrees that fixed interest
earned by and payable to Payee hereunder ("Interest") shall be equal to
____________ percent (____%) per year of the outstanding principal amount
disbursed beginning on the date of disbursement of funds by Payee. Interest
shall be calculated for actual days elapsed on the basis of a 360-day year,
which results in higher interest payments than if a 365-day were used.
(b) Payments. Interest only shall be payable by Maker from the
date of disbursement of funds by Payee, with the Interest for the period through
________ due and payable upon execution and delivery of this Note. Beginning on
______________, and on the first day of each consecutive month thereafter until
the Maturity Date (as defined below), Maker shall make monthly payments of
Interest only. All payments received shall be credited first to costs, then to
Interest, and last to principal due hereunder.
2. Maturity Date. The outstanding principal balance of this Note and all
accrued but unpaid Interest shall be due and ------------- payable in full on
_________________ ("Maturity Date").
3. Prepayment. The right is reserved by Maker to prepay the outstanding
principal amount in whole or in part together ---------- with accrued Interest
thereon. All prepayments shall be applied to the most remote principal
installments then unpaid under this Note.
4. Late Charge. If Payee fails to receive any payments of Interest or
principal within ten (10) days after the date the same is due and payable, a
late charge to compensate Payee for damages Payee will suffer as a result shall
be immediately due and payable. Maker recognizes that a default by Maker in
making the payments agreed to be paid when due will result in Payee's incurring
additional expenses in servicing the loan, including, but not limited to,
sending out notices of delinquency, computing interest and segregating the
delinquent sums from not delinquent sums on all accounting, loan and data
processing records, in loss to Payee of the use of the money due, and in
frustration to Payee in meeting its other financial commitments. Maker agrees
that, if for any reason Maker fails to pay any amounts due under this Note so
that Payee fails to receive such payments within ten (10) days after the same
are due and payable, Payee shall be entitled to damages for the detriment caused
thereby, but that it is extremely difficult and impractical to ascertain the
extent of such damages. Maker therefore agrees that a sum equal to $.06 for each
$1.00 of each payment that becomes delinquent ten (10) days after its due date,
is a reasonable estimate of the fair average compensation for the loss and
damages Payee will suffer, that such amount shall be presumed to be the amount
of damages sustained by Payee in such case, and that Maker agrees to pay Payee
this sum on demand.
5. Default. If there exists any Event of Default, as defined below,
under the terms of this Note or under the terms of the Construction Deed of
Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing
("Deed of Trust"), or any other document executed in connection with this Note
(herein called "Loan Documents"), Payee or the holder hereof is expressly
authorized without notice or demand of any kind to make all sums of Interest and
principal and any other sums owing under this Note immediately due and payable
and to apply all payments made on this Note or any of the Loan Documents to the
payment of any such part of any Event of Default as it may elect.
An Event of Default shall be either (1) a default in the
payment of the whole or in any part of the several installments of this Note
when due, or (2) any of the Events of Default contained in any of the Loan
Documents. At any time after an Event of Default the entire unpaid balance of
principal, together with Interest accrued thereon, shall, at the option of the
legal holder hereof and without notice (except as specified in any Loan
Documents) and without demand or presentment, become due and payable at the
place of payment. Anything contained herein or in any of the Loan Documents to
the contrary notwithstanding, the principal balance together with accrued
Interest thereon so accelerated and declared due as aforesaid shall continue to
bear Interest and shall include compensation for late payments on any and all
overdue installments as described above.
If an Event of Default has occurred, the failure of Payee or
the holder hereof to promptly exercise its rights to declare the indebtedness
remaining unpaid hereunder to be immediately due and payable shall not
constitute a waiver of such rights while such Event of Default continues nor a
waiver of such right in connection with any future Event of Default.
Maker hereby waives presentment for payment, protest and
demand, and notice of protest, demand, dishonor, nonpayment and nonperformance
including notice of dishonor with respect to any check or draft used in payment
of any sum due hereunder.
6. Legal Limits. All agreements between Maker and Payee are hereby
expressly limited so that in no event whatsoever, whether by reason of deferment
in accordance with this Note or under any agreement or by virtue of the
advancement of the loan proceeds, acceleration or maturity of the loan, or
otherwise, shall the amount paid or agreed to be paid to the Payee for the loan,
use, forbearance or detention of the money to be loaned hereunder or to
compensate Payee for damages to be suffered by reason of a late payment hereof,
exceed the maximum permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof, or of any provision in any of
the Loan Documents at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, ipso facto the
obligations to be fulfilled shall be reduced to the limit of such validity. This
provision shall never be superseded or waived and shall control every other
provision of all agreements between Maker and Payee.
7. Attorneys' Fees. If an action is instituted on this Note, or if any
other judicial or non-judicial action is instituted by the holder hereof or by
any other person, and an attorney is employed by the holder hereof to appear in
any such action or proceeding or to reclaim, sequester, protect, preserve or
enforce the holder's interest in the real property security or any other
security for this Note, including, but not limited to, proceedings to foreclose
the loan evidenced hereby, proceedings under the United States Bankruptcy Code,
or in eminent domain, or under the probate code, or in connection with any state
or federal tax lien, or to enforce an assignment of rents, or for the
appointment of a receiver, or disputes regarding the proper disbursement of
construction loan funds, the Maker and every endorser and guarantor hereof and
every person who assumes the obligations evidenced by this Note and the Loan
Documents, jointly and severally promise to pay reasonable attorney's fees for
services performed by the holder's attorneys, and all costs and expenses
incurred incident to such employment. If Maker is the prevailing party in any
action by Maker pursuant to this Note, Payee shall pay such attorneys fees as
the court may direct.
8. Interest After Expiration or Acceleration. If the entire balance of
principal and accrued Interest is not paid in full on the Maturity Date, or upon
acceleration of this Note as provided in paragraphs 5 above or 10 below, without
waiving or modifying in any way any of the rights, remedies or recourse, Payee
may have under this Note or under any of the Loan Documents by virtue of this
default, the entire unpaid balance of principal and accrued interest shall bear
interest from the Maturity Date or the date of acceleration until paid in full a
the higher of: (a) eighteen percent (18%) per annum; or (b) a fluctuating rate
per annum at all times equal to the Discount Rate established by the Federal
Reserve Bank of San Francisco ("Discount Rate") plus ____________ percent (___%)
("Maturity Interest Rate"). If at any time the Discount Rate (or any previously
substituted alternative index) is no longer available, is unverifiable, or is no
longer calculated in substantially the same manner as before, then Payee may, in
its sole and absolute discretion, select and substitute an alternative index
over which Payee has no control. In addition, the holder hereof shall have any
and all other rights and remedies available at law or in equity or under the
Deed of Trust.
9. Security. This Note is secured by and is entitled to the benefits of
the Deed of Trust dated on or about the date of this Note executed by Maker to
PLM LENDER SERVICES, INC., a California corporation, as Trustee, for the use and
benefit of Payee covering and relating to the interest of Maker in the property
particularly described in Exhibit A to the Deed of Trust ("Property"). The
provisions of the Deed of Trust are incorporated herein by reference as if set
forth in full, and this Note is subject to all of the covenants and conditions
therein contained.
10. Acceleration. Without limiting the obligations of Maker or the
rights and remedies of Payee or the holder hereof under the terms and covenants
of this Note and the Deed of Trust, Maker agrees that Payee shall have the
right, at its sole option, to declare any indebtedness and obligations hereunder
or under the Deed of Trust, irrespective of the Maturity Date specified herein,
due and payable in full if: (1) Maker or any one or more of the
tenants-in-common, joint tenants, or other persons comprising Maker sells,
enters into a contract of sale, conveys, alienates or encumbers the Property or
any portion thereof or any fractional undivided interest therein, or suffers
Maker's title or any interest therein to be divested or encumbered, whether
voluntarily or involuntarily, or leases with an option to sell, or changes or
permits to be changed the character or use of the Property, or drills or
extracts or enters into a lease for the drilling for or extracting of oil, gas
or other hydrocarbon substances or any mineral of any kind or character on the
Property; (2) The interest of any general partner of Maker (or the interest of
any general partner in a partnership that is a partner) is assigned or
transferred; (3) More than twenty-five percent (25%) of the corporate stock of
Maker (or of any corporate partner or other corporation comprising Maker) is
sold, transferred or assigned; (4) There is a change in beneficial ownership
with respect to more than twenty-five percent (25%) of Maker (if Maker is a
partnership, limited liability company, trust or other legal entity) or of any
partner or tenant-in-common of Maker which is a partnership, limited liability
company, trust or other legal entity; or (5) a default has occurred hereunder or
under any Loan Document and is continuing. In such case, Payee or other holder
of this Note may exercise any and all of the rights and remedies and recourses
set forth in the Deed of Trust and as granted by law. Maker and any successor
who acquires any record interest in the Property agrees to notify Payee promptly
in writing of any transaction or event described in this section.
11. Governing Law and Severability. This Note is made pursuant to, and
shall be construed and governed by, the laws of the State of California. If any
paragraph, clause or provision of this Note or any of the Loan Documents is
construed or interpreted by a court of competent jurisdiction to be void,
invalid or unenforceable, such decision shall affect only those paragraphs,
clauses or provisions so construed or interpreted and shall not affect the
remaining paragraphs, clauses and provisions of this Note or the other Loan
Documents.
12. Time of Essence. Time is of the essence of this Note.
---------------
13. Payment Without Offset. Principal and Interest shall be paid
without deduction or offset in immediately available funds in lawful money of
the United States of America. Payments shall be deemed received only upon actual
receipt by Payee and upon Payee's application of such payments as provided
herein.
14. Notices. All notices under this Note shall be in writing and shall be
served in person or by first class or
-------
certified mail addressed to the following respective parties as follows:
MAKER: ___________________________
___________________________
Attn:______________________
PAYEE: ___________________________
650 El Camino Real, Suite G
Redwood City, California 94063-1394
Attn: Michael Burwell
Any such notice or demand so served by first class or certified mail shall be
deposited in the United States mail, with postage thereon fully prepaid and
addressed to the party so to be served at its address above stated or at such
other address of which said party shall have theretofore notified in writing, as
provided above, the party giving such notice. Service of any such notice or
demand so made shall be deemed effective on the day of actual delivery or the
expiration of three business days after the date of mailing, whichever is the
earlier in time.
15. Collection. Any remittances by check or draft may be handled for
collection in accordance with the practices of the collecting party and any
receipt issued therefor shall be void unless the amount due is actually received
by Payee.
16. Assignment. Payee or other holder of this Note may assign all of its
rights, title and interest in this Note to any person, firm, corporation or
other entity without the consent of Maker.
17. Relationship. The relationship of the parties hereto is that of
borrower and lender and it is expressly understood and agreed that nothing
contained herein or in any of the Loan Documents shall be interpreted or
construed to make the parties partners, joint venturers or participants in any
other legal relationship except for borrower and lender.
18. Remedies. No right, power or remedy given Payee by the terms of
this Note, or in the Loan Documents is intended to be exclusive of any right,
power or remedy, and each and every such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy given to Payee
by the terms of any of the Loan Documents or by any statute against Maker or any
other person. Every right, power and remedy of Payee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing, executed by Payee.
19. Headings. The subject headings of the paragraphs of this Note are
included for purposes of convenience only, and shall not affect the construction
or interpretation of any of its provisions.
<PAGE>
20. Jury Trial Waiver.
MAKER AND PAYEE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF
THIS NOTE AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER
IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY MAKER AND PAYEE AND MAKER
ACKNOWLEDGES THAT NEITHER THE PAYEE NOR ANY PERSON ACTING ON BEHALF OF THE PAYEE
HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR
HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. MAKER AND
PAYEE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT MAKER AND PAYEE HAVE ALREADY RELIED ON THIS WAIVER
IN ENTERING INTO THIS NOTE AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. MAKER AND PAYEE FURTHER ACKNOWLEDGE
THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED)
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL.
Maker: ______________ Payee: _____________
Maker: _________________________________
<PAGE>
EXHIBIT 10.3 (b)
PROMISSORY NOTE
Loan No.: _______________________ __________________, 20______
__________________, California
FOR VALUABLE CONSIDERATION, __________________________________
(herein "Maker"), hereby promises to pay to _________________________________,
or order (herein "Payee"), at the address set forth below, or at such other
address as the holder hereof may from time to time designate, the sum of
___________________________ ($_______________) with interest on the unpaid
balance of the principal sum disbursed by Payee to or for the account of Maker
at the interest rate specified below.
1. Interest and Payments
(a) Fixed Rate Interest. Maker agrees that fixed interest
earned by and payable to Payee hereunder ("Interest") shall be equal to
______________ percent (___%) per year of the principal sum disbursed by Payee.
Interest shall be calculated for actual days elapsed on the basis of a 360-day
year, which results in higher interest payments than if a 365-day were used.
(b) Payments. Interest only shall be payable by Maker from the
date of disbursement of funds by Payee, with the Interest for the period through
________, 20___ due and payable upon execution and delivery of this Note.
Beginning on _______, 20___, and on the first day of each consecutive month
thereafter until the Maturity Date (as defined below), Maker shall make monthly
payments of Interest only. All payments received shall be credited first to
costs, then to Interest, and last to principal due hereunder.
2. Maturity Date. The outstanding principal balance of this Note and all
accrued but unpaid Interest shall be due and payable in full on ________, 20___
("Maturity Date").
3. Prepayment. The right is reserved by Maker to prepay the outstanding
principal amount in whole or in part together with accrued Interest thereon. All
prepayments shall be applied to the most remote principal installments then
unpaid under this Note.
4. Late Charge. If Payee fails to receive any payments of Interest or
principal within ten (10) days after the date the same is due and payable, a
late charge to compensate Payee for damages Payee will suffer as a result shall
be immediately due and payable. Maker recognizes that a default by Maker in
making the payments agreed to be paid when due will result in Payee's incurring
additional expenses in servicing the loan, including, but not limited to,
sending out notices of delinquency, computing interest, and segregating the
delinquent sums from not delinquent sums on all accounting, loan and data
processing records, in loss to Payee of the use of the money due, and in
frustration to Payee in meeting its other financial commitments. Maker agrees
that if for any reason Maker fails to pay any amounts due under this Note so
that Payee fails to receive such payments within ten (10) days after the same
are due and payable, Payee shall be entitled to damages for the detriment caused
thereby, but that it is extremely difficult and impractical to ascertain the
extent of such damages. Maker therefore agrees that a sum equal to $.06 for each
$1.00 of each payment that becomes delinquent ten (10) days after its due date,
is a reasonable estimate of the fair average compensation for the loss and
damages Payee will suffer, that such amount shall be presumed to be the amount
of damages sustained by Payee in such case, and that Maker agrees to pay Payee
this sum on demand.
5. Default. If there exists any Event of Default, as defined below,
under the terms of this Note or under the terms of the Deed of Trust, Assignment
of Leases and Rents, Security Agreement and Fixture Filing ("Deed of Trust")
dated on or about the date of this Note executed by Maker to PLM Lender
Services, Inc., a California corporation, as Trustee, for the use and benefit of
Payee covering and relating to the interest of Maker in the property
particularly described in Exhibit A to the Deed of Trust ("Property") or any
other document executed in connection with this Note (herein called "Loan
Documents"), Payee or the holder hereof is expressly authorized without notice
or demand of any kind to make all sums of Interest and principal and any other
sums owing under this Note immediately due and payable and to apply all payments
made on this Note or any of the Loan Documents to the payment of any such part
of any Event of Default as it may elect.
An Event of Default shall be either: (1) a default in the
payment of the whole or in any part of the several installments of this Note
when due, or (2) any of the Events of Default contained in any of the Loan
Documents. At any time after an Event of Default the entire unpaid balance of
principal, together with Interest accrued thereon, shall, at the option of the
legal holder hereof and without notice (except as specified in any Loan
Documents) and without demand or presentment, become due and payable at the
place of payment. Anything contained herein or in any of the Loan Documents to
the contrary notwithstanding, the principal balance together with accrued
Interest thereon so accelerated and declared due as aforesaid shall continue to
bear Interest and shall include compensation for late payments on any and all
overdue installments as described above.
If an Event of Default has occurred, the failure of Payee or
the holder hereof to promptly exercise its rights to declare the indebtedness
remaining unpaid hereunder to be immediately due and payable shall not
constitute a waiver of such rights while such Event of Default continues nor a
waiver of such right in connection with any future Event of Default.
Maker hereby waives presentment for payment, protest and
demand, and notice of protest, demand, dishonor, nonpayment and nonperformance
including notice of dishonor with respect to any check or draft used in payment
of any sum due hereunder.
6. Legal Limits. All agreements between Maker and Payee are hereby
expressly limited so that in no event whatsoever, whether by reason of deferment
in accordance with this Note or under any agreement or by virtue of the
advancement of the loan proceeds, acceleration or maturity of the loan, or
otherwise, shall the amount paid or agreed to be paid to the Payee for the loan,
use, forbearance or detention of the money to be loaned hereunder or to
compensate Payee for damages to be suffered by reason of a late payment hereof,
exceed the maximum permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof, or of any provision in any of
the Loan Documents at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, ipso facto the
obligations to be fulfilled shall be reduced to the limit of such validity. This
provision shall never be superseded or waived and shall control every other
provision of all agreements between Maker and Payee.
7. Attorneys' Fees. If an action is instituted on this Note, or if any
other judicial or non-judicial action is instituted by the holder hereof or by
any other person, and an attorney is employed by the holder hereof to appear in
any such action or proceeding or to reclaim, sequester, protect, preserve or
enforce the holder's interest in the real property security or any other
security for this Note, including, but not limited to, proceedings to foreclose
the loan evidenced hereby, proceedings under the United States Bankruptcy Code,
or in eminent domain, or under the probate code, or in connection with any state
or federal tax lien, or to enforce an assignment of rents, or for the
appointment of a receiver, the Maker and every endorser and guarantor hereof and
every person who assumes the obligations evidenced by this Note and the Loan
Documents, jointly and severally promise to pay reasonable attorney's fees for
services performed by the holder's attorneys, and all costs and expenses
incurred incident to such employment. If Maker is the prevailing party in any
action by Maker pursuant to this Note, Payee shall pay such attorneys fees as
the court may direct.
8. Interest After Expiration or Acceleration. If the entire balance of
principal and accrued Interest is not paid in full on the Maturity Date or upon
acceleration of this Note as provided in paragraphs 5 above or 10 below, without
waiving or modifying in any way any of the rights, remedies or recourse Payee
may have under this Note or under any of the Loan Documents by virtue of this
default, the entire unpaid balance of principal and accrued Interest shall bear
interest from the Maturity Date or the date of acceleration until paid in full
at the higher of: (a) eighteen percent (18%) per annum; or (b) a fluctuating
rate per annum at all times equal to the Discount Rate of the Federal Reserve
Bank of San Francisco ("Discount Rate") plus ______________ percent (___%)
("Maturity Interest Rate"). If at any time the Discount Rate (or any previously
substituted alternative index) is no longer available, is unverifiable, or is no
longer calculated in substantially the same manner as before, then Payee may, in
its sole and absolute discretion, select and substitute an alternative index
over which Payee has no control. In addition, the holder hereof shall have any
and all other rights and remedies available at law or in equity or under the
Deed of Trust.
9. Security. This Note is secured by and is entitled to the benefits of the
Deed of Trust. The provisions of the Deed of Trust are incorporated herein by
reference as if set forth in full, and this Note is subject to all of the
covenants and conditions therein contained.
10. Acceleration. Without limiting the obligations of Maker or the
rights and remedies of Payee or the holder hereof under the terms and covenants
of this Note and the Deed of Trust, Maker agrees that Payee shall have the
right, at its sole option, to declare any indebtedness and obligations hereunder
or under the Deed of Trust, irrespective of the Maturity Date specified herein,
due and payable in full if: (1) Maker or any one or more of the
tenants-in-common, joint tenants, or other persons comprising Maker sells,
enters into a contract of sale, conveys, alienates or encumbers the Property or
any portion thereof or any fractional undivided interest therein, or suffers
Maker's title or any interest therein to be divested or encumbered, whether
voluntarily or involuntarily, or leases with an option to sell, or changes or
permits to be changed the character or use of the Property, or drills or
extracts or enters into a lease for the drilling for or extracting of oil, gas
or other hydrocarbon substances or any mineral of any kind or character on the
Property; (2) The interest of any general partner of Maker (or the interest of
any general partner in a partnership that is a partner) is assigned or
transferred; (3) If Maker is a corporation or partnership, more than twenty-five
percent (25%) of the corporate stock of Maker (or of any corporate partner or
other corporation comprising Maker) is sold, transferred or assigned; (4) There
is a change in beneficial ownership with respect to more than twenty-five
percent (25%) of Maker (if Maker is a limited liability company, trust or other
legal entity) or of any partner or tenant-in-common of Maker which is a limited
liability company, trust or other legal entity; or (5) a default has occurred
hereunder or under any Loan Document and is continuing. In such case, Payee or
other holder of this Note may exercise any and all of the rights and remedies
and recourses set forth in the Deed of Trust and as granted by law. Maker and
any successor who acquires any record interest in the Property agrees to notify
Payee promptly in writing of any transaction or event described in this section.
11. Governing Law and Severability. This Note is made pursuant to, and
shall be construed and governed by, the laws of the State of California. If any
paragraph, clause or provision of this Note or any of the Loan Documents is
construed or interpreted by a court of competent jurisdiction to be void,
invalid or unenforceable, such decision shall affect only those paragraphs,
clauses or provisions so construed or interpreted and shall not affect the
remaining paragraphs, clauses and provisions of this Note or the other Loan
Documents.
12. Time of Essence. Time is of the essence of this Note.
13. Payment Without Offset. Principal and Interest shall be paid
without deduction or offset in immediately available funds in lawful money of
the United States of America. Payments shall be deemed received only upon actual
receipt by Payee and upon Payee's application of such payments as provided
herein.
14. Notices. All notices under this Note shall be in writing and shall
be effective upon personal delivery to the authorized representatives of either
party or upon being sent by certified or first class mail, postage prepaid,
addressed to the following respective parties as follows:
MAKER: ________________________________
________________________________
Attn: __________________________
PAYEE: ________________________________
650 El Camino Real, Suite G
Redwood City, California 94063-1394
Attn: Michael Burwell
15. Collection. Any remittances by check or draft may be handled for
collection in accordance with the practices of the collecting party and any
receipt issued therefor shall be void unless the amount due is actually received
by Payee.
16. Assignment. Payee or other holder of this Note may assign all of its
rights, title and interest in this Note to any person, firm, corporation or
other entity without the consent of Maker.
17. Relationship. The relationship of the parties hereto is that of
borrower and lender and it is expressly understood and agreed that nothing
contained herein or in any of the Loan Documents shall be interpreted or
construed to make the parties partners, joint venturers or participants in any
other legal relationship except for borrower and lender.
18. Remedies. No right, power or remedy given Payee by the terms of
this Note, or in the Loan Documents is intended to be exclusive of any right,
power or remedy, and each and every such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy given to Payee
by the terms of any of the Loan Documents or by any statute against Maker or any
other person. Every right, power and remedy of Payee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing, executed by Payee.
19. Joint and Several Liability. If Maker is composed of more than one
person, then each person comprising Maker shall be jointly and severally liable
for the obligations, covenants and agreements created by or arising out of this
Note.
20. Jury Trial Waiver. MAKER AND PAYEE HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO,
THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS RELATIONSHIP THAT IS BEING
ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY
MAKER AND PAYEE AND MAKER ACKNOWLEDGES THAT NEITHER THE PAYEE NOR ANY PERSON
ACTING ON BEHALF OF THE PAYEE HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE
THIS WAIVER OF TRAIL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. MAKER AND PAYEE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT MAKER AND PAYEE HAVE
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE AND THAT EACH OF THEM
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. MAKER AND
PAYEE FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
Maker: _____ Payee: _____
21. Headings. The subject headings of the paragraphs of this Note are
included for purposes of convenience only, and shall not affect the construction
or interpretation of any of its provisions.
Maker: _________________________________
_________________________________
<PAGE>
EXHIBIT 10.3 (c)
PROMISSORY NOTE
Loan No.: _______________________ __________________, 20______
__________________, California
FOR VALUABLE CONSIDERATION, __________________________________
(herein "Maker"), hereby promises to pay to _________________________________,
or order (herein "Payee"), at the address set forth below, or at such other
address as the holder hereof may from time to time designate, the sum of
___________________________ ($_______________) with interest on the unpaid
balance of the principal sum disbursed by Payee to or for the account of Maker
at the interest rate specified below.
1. Interest and Payments
(a) Fixed Rate Interest. Maker agrees that fixed interest
earned by and payable to Payee hereunder ("Interest") shall be equal to
______________ percent (___%) per year of the principal sum disbursed by Payee.
Interest shall be calculated for actual days elapsed on the basis of a 360-day
year, which results in higher interest payments than if a 365-day were used.
(b) Payments. Interest shall be payable by Maker from the date
of disbursement of funds by Payee, with the Interest for the period through
________, 2000 due and payable upon execution and delivery of this Note.
Beginning on _______, 2000, and on the first day of each consecutive month
thereafter until the Maturity Date (as defined below), Maker shall make monthly
payments of $_________ consisting of principal and Interest. All payments
received shall be credited first to costs, then to Interest, and last to
principal due hereunder.
2. Maturity Date. The outstanding principal balance of this Note and all
accrued but unpaid Interest shall be due and payable in full on ________, 19___
("Maturity Date").
3. Prepayment. The right is reserved by Maker to prepay the outstanding
principal amount in whole or in part together with accrued Interest thereon. All
prepayments shall be applied to the most remote principal installments then
unpaid under this Note.
4. Late Charge. If Payee fails to receive any payments of Interest or
principal within ten (10) days after the date the same is due and payable, a
late charge to compensate Payee for damages Payee will suffer as a result shall
be immediately due and payable. Maker recognizes that a default by Maker in
making the payments agreed to be paid when due will result in Payee's incurring
additional expenses in servicing the loan, including, but not limited to,
sending out notices of delinquency, computing interest, and segregating the
delinquent sums from not delinquent sums on all accounting, loan and data
processing records, in loss to Payee of the use of the money due, and in
frustration to Payee in meeting its other financial commitments. Maker agrees
that if for any reason Maker fails to pay any amounts due under this Note so
that Payee fails to receive such payments within ten (10) days after the same
are due and payable, Payee shall be entitled to damages for the detriment caused
thereby, but that it is extremely difficult and impractical to ascertain the
extent of such damages. Maker therefore agrees that a sum equal to $.06 for each
$1.00 of each payment that becomes delinquent ten (10) days after its due date,
is a reasonable estimate of the fair average compensation for the loss and
damages Payee will suffer, that such amount shall be presumed to be the amount
of damages sustained by Payee in such case, and that Maker agrees to pay Payee
this sum on demand.
5. Default. If there exists any Event of Default, as defined below,
under the terms of this Note or under the terms of the Deed of Trust, Assignment
of Leases and Rents, Security Agreement and Fixture Filing ("Deed of Trust")
dated on or about the date of this Note executed by Maker to PLM Lender
Services, Inc., a California corporation, as Trustee, for the use and benefit of
Payee covering and relating to the interest of Maker in the property
particularly described in Exhibit A to the Deed of Trust ("Property") or any
other document executed in connection with this Note (herein called "Loan
Documents"), Payee or the holder hereof is expressly authorized without notice
or demand of any kind to make all sums of Interest and principal and any other
sums owing under this Note immediately due and payable and to apply all payments
made on this Note or any of the Loan Documents to the payment of any such part
of any Event of Default as it may elect.
An Event of Default shall be either: (1) a default in the
payment of the whole or in any part of the several installments of this Note
when due, or (2) any of the Events of Default contained in any of the Loan
Documents. At any time after an Event of Default the entire unpaid balance of
principal, together with Interest accrued thereon, shall, at the option of the
legal holder hereof and without notice (except as specified in any Loan
Documents) and without demand or presentment, become due and payable at the
place of payment. Anything contained herein or in any of the Loan Documents to
the contrary notwithstanding, the principal balance together with accrued
Interest thereon so accelerated and declared due as aforesaid shall continue to
bear Interest and shall include compensation for late payments on any and all
overdue installments as described above.
If an Event of Default has occurred, the failure of Payee or
the holder hereof to promptly exercise its rights to declare the indebtedness
remaining unpaid hereunder to be immediately due and payable shall not
constitute a waiver of such rights while such Event of Default continues nor a
waiver of such right in connection with any future Event of Default.
Maker hereby waives presentment for payment, protest and
demand, and notice of protest, demand, dishonor, nonpayment and nonperformance
including notice of dishonor with respect to any check or draft used in payment
of any sum due hereunder.
6. Legal Limits. All agreements between Maker and Payee are hereby
expressly limited so that in no event whatsoever, whether by reason of deferment
in accordance with this Note or under any agreement or by virtue of the
advancement of the loan proceeds, acceleration or maturity of the loan, or
otherwise, shall the amount paid or agreed to be paid to the Payee for the loan,
use, forbearance or detention of the money to be loaned hereunder or to
compensate Payee for damages to be suffered by reason of a late payment hereof,
exceed the maximum permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof, or of any provision in any of
the Loan Documents at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, ipso facto the
obligations to be fulfilled shall be reduced to the limit of such validity. This
provision shall never be superseded or waived and shall control every other
provision of all agreements between Maker and Payee.
7. Attorneys' Fees. If an action is instituted on this Note, or if any
other judicial or non-judicial action is instituted by the holder hereof or by
any other person, and an attorney is employed by the holder hereof to appear in
any such action or proceeding or to reclaim, sequester, protect, preserve or
enforce the holder's interest in the real property security or any other
security for this Note, including, but not limited to, proceedings to foreclose
the loan evidenced hereby, proceedings under the United States Bankruptcy Code,
or in eminent domain, or under the probate code, or in connection with any state
or federal tax lien, or to enforce an assignment of rents, or for the
appointment of a receiver, the Maker and every endorser and guarantor hereof and
every person who assumes the obligations evidenced by this Note and the Loan
Documents, jointly and severally promise to pay reasonable attorney's fees for
services performed by the holder's attorneys, and all costs and expenses
incurred incident to such employment. If Maker is the prevailing party in any
action by Maker pursuant to this Note, Payee shall pay such attorneys fees as
the court may direct.
8. Interest After Expiration or Acceleration. If the entire balance of
principal and accrued Interest is not paid in full on the Maturity Date or upon
acceleration of this Note as provided in paragraphs 5 above or 10 below, without
waiving or modifying in any way any of the rights, remedies or recourse Payee
may have under this Note or under any of the Loan Documents by virtue of this
default, the entire unpaid balance of principal and accrued Interest shall bear
interest from the Maturity Date or the date of acceleration until paid in full
at the higher of: (a) eighteen percent (18%) per annum; or (b) a fluctuating
rate per annum at all times equal to the Discount Rate of the Federal Reserve
Bank of San Francisco ("Discount Rate") plus ______________ percent (___%)
("Maturity Interest Rate"). If at any time the Discount Rate (or any previously
substituted alternative index) is no longer available, is unverifiable, or is no
longer calculated in substantially the same manner as before, then Payee may, in
its sole and absolute discretion, select and substitute an alternative index
over which Payee has no control. In addition, the holder hereof shall have any
and all other rights and remedies available at law or in equity or under the
Deed of Trust.
9. Security. This Note is secured by and is entitled to the benefits of the
Deed of Trust. The provisions of the Deed of Trust are incorporated herein by
reference as if set forth in full, and this Note is subject to all of the
covenants and conditions therein contained.
10. Acceleration. Without limiting the obligations of Maker or the
rights and remedies of Payee or the holder hereof under the terms and covenants
of this Note and the Deed of Trust, Maker agrees that Payee shall have the
right, at its sole option, to declare any indebtedness and obligations hereunder
or under the Deed of Trust, irrespective of the Maturity Date specified herein,
due and payable in full if: (1) Maker or any one or more of the
tenants-in-common, joint tenants, or other persons comprising Maker sells,
enters into a contract of sale, conveys, alienates or encumbers the Property or
any portion thereof or any fractional undivided interest therein, or suffers
Maker's title or any interest therein to be divested or encumbered, whether
voluntarily or involuntarily, or leases with an option to sell, or changes or
permits to be changed the character or use of the Property, or drills or
extracts or enters into a lease for the drilling for or extracting of oil, gas
or other hydrocarbon substances or any mineral of any kind or character on the
Property; (2) The interest of any general partner of Maker (or the interest of
any general partner in a partnership that is a partner) is assigned or
transferred; (3) If Maker is a corporation or partnership, more than twenty-five
percent (25%) of the corporate stock of Maker (or of any corporate partner or
other corporation comprising Maker) is sold, transferred or assigned; (4) There
is a change in beneficial ownership with respect to more than twenty-five
percent (25%) of Maker (if Maker is a limited liability company, trust or other
legal entity) or of any partner or tenant-in-common of Maker which is a limited
liability company, trust or other legal entity; or (5) a default has occurred
hereunder or under any Loan Document and is continuing. In such case, Payee or
other holder of this Note may exercise any and all of the rights and remedies
and recourses set forth in the Deed of Trust and as granted by law. Maker and
any successor who acquires any record interest in the Property agrees to notify
Payee promptly in writing of any transaction or event described in this section.
11. Governing Law and Severability. This Note is made pursuant to, and
shall be construed and governed by, the laws of the State of California. If any
paragraph, clause or provision of this Note or any of the Loan Documents is
construed or interpreted by a court of competent jurisdiction to be void,
invalid or unenforceable, such decision shall affect only those paragraphs,
clauses or provisions so construed or interpreted and shall not affect the
remaining paragraphs, clauses and provisions of this Note or the other Loan
Documents.
12. Time of Essence. Time is of the essence of this Note.
13. Payment Without Offset. Principal and Interest shall be paid
without deduction or offset in immediately available funds in lawful money of
the United States of America. Payments shall be deemed received only upon actual
receipt by Payee and upon Payee's application of such payments as provided
herein.
14. Notices. All notices under this Note shall be in writing and shall
be effective upon personal delivery to the authorized representatives of either
party or upon being sent by certified or first class mail, postage prepaid,
addressed to the following respective parties as follows:
MAKER: ________________________________
________________________________
Attn: __________________________
PAYEE: ________________________________
650 El Camino Real, Suite G
Redwood City, California 94063-1394
Attn: Michael Burwell
15. Collection. Any remittances by check or draft may be handled for
collection in accordance with the practices of the collecting party and any
receipt issued therefor shall be void unless the amount due is actually received
by Payee.
16. Assignment. Payee or other holder of this Note may assign all of its
rights, title and interest in this Note to any person, firm, corporation or
other entity without the consent of Maker.
17. Relationship. The relationship of the parties hereto is that of
borrower and lender and it is expressly understood and agreed that nothing
contained herein or in any of the Loan Documents shall be interpreted or
construed to make the parties partners, joint venturers or participants in any
other legal relationship except for borrower and lender.
18. Remedies. No right, power or remedy given Payee by the terms of
this Note, or in the Loan Documents is intended to be exclusive of any right,
power or remedy, and each and every such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy given to Payee
by the terms of any of the Loan Documents or by any statute against Maker or any
other person. Every right, power and remedy of Payee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing, executed by Payee.
19. Joint and Several Liability. If Maker is composed of more than one
person, then each person comprising Maker shall be jointly and severally liable
for the obligations, covenants and agreements created by or arising out of this
Note.
20. Jury Trial Waiver. MAKER AND PAYEE HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO,
THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS RELATIONSHIP THAT IS BEING
ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY
MAKER AND PAYEE AND MAKER ACKNOWLEDGES THAT NEITHER THE PAYEE NOR ANY PERSON
ACTING ON BEHALF OF THE PAYEE HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE
THIS WAIVER OF TRAIL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. MAKER AND PAYEE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT MAKER AND PAYEE HAVE
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE AND THAT EACH OF THEM
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. MAKER AND
PAYEE FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
Maker: _____ Payee: _____
21. Headings. The subject headings of the paragraphs of this Note are
included for purposes of convenience only, and shall not affect the construction
or interpretation of any of its provisions.
Maker: _________________________________
_________________________________
<PAGE>
EXHIBIT 10.3 (d)
NOTE SECURED BY DEED OF TRUST
Loan No.:
2000 Redwood City, California
--------------------------
(PROPERTY ADDRESS)
1. BORROWER'S PROMISE TO PAY LOAN AND INTEREST
In return for a loan I promise to pay $_________ (this amount will be
called "Principal"), plus interest at a yearly rate of _________ percent (__%)
to the order of
___________________________________________________________________ (who will be
called "Lender").
I understand that the Lender may transfer this Note. The Lender or
anyone who takes an interest in this Note by transfer and who is entitled to
receive payments under this Note will be called the "Note Holder(s)".
All payments received on this Note shall be applied pro rata in
proportion to the interest held by each of the Note Holder(s).
Interest will be charged on that part of Principal, which has not been
paid. Interest will be charged beginning on ____________, 20__ and continuing
until the full amount of Principal and interest has been paid. I also agree to
pay interest at the above rate on the prepaid finance charges, which are a part
of the Principal.
2. PAYMENTS
I will pay interest only by making payments each month of $_______. I
will make my payments on the ___ day of each month beginning on _________, 20__.
I will make these payments every month until _________, 20___ (the "Due Date").
On the Due Date I will still owe the Principal; on the Due Date I will pay all
amounts I owe under this Note, in full, on that date.
I will make my monthly payments at P.O. Box 5096, Redwood City, CA
94063-0096 or at a different place if I am notified by the Note Holder(s).
3. BORROWER'S FAILURE TO PAY AS REQUIRED
(A) LATE CHARGE FOR OVERDUE PAYMENTS
If the Note Holder(s) has not received the full amount of any of my
monthly payments by the end of 10th calendar days after the date it is due, I
will pay a late charge to the Note Holder(s). The amount of the charge will be
6% of the amount overdue or $5.00, whichever is more. I will pay this late
charge only once on any late payment.
(B) NONPAYMENT - DEFAULT
If I do not pay any payment of Principal or interest by the date stated
in Section 2 above, I will be in default, and the Lender and the Note Holder may
demand that I pay immediately all amounts that I owe under this Note.
Even if, at a time which I am in default, the Note Holder does not
demand that I pay immediately in full as described above, the Note Holder will
still have the right to do so if I am in default at a later time. If there is
more than one Note Holder, any one Note Holder may exercise any right under this
Note in the event of a default. A default upon any interest of any Note Holder
shall be a default upon all interests.
(C) ADVANCES
All advances made pursuant to the terms of the Deed of Trust securing
this Note shall bear interest from the date of advance at the rate of interest
in this Note.
<PAGE>
(D) PAYMENT OF NOTE HOLDER'S COSTS AND EXPENSES
If the Note Holder has required me to pay immediately in full as
described above, the Note Holder will have the right to be paid back for all of
its costs and expenses to the extent not prohibited by applicable law. Those
expenses include, for example, reasonable attorney's fees.
(E) INTEREST INCREASE IF NOTE NOT PAID ON DUE DATE
If the Note Holder has not received all amounts owed under this Note on
the Due Date, I will pay interest on the full amount of unpaid Principal at
_______ percent (__%) per annum plus the loan or forbearance rate established by
the Federal Reserve Bank of San Francisco on advances to member banks under
Section 13 and 13a of the Federal Reserve Act, on the Due Date, or the rate of
interest called for in this Note, whichever is greater.
4. THIS NOTE IS SECURED BY A DEED OF TRUST
This Note is secured by a Deed of Trust upon real property in
_______________________ County, California.
5. BORROWER'S REQUIRED REPAYMENT IN FULL BEFORE THE SCHEDULED DATE
In the event of any sale or conveyance of any part of the real property
described in the Deed of Trust securing this Note, then the Note Holder(s) may
demand payment in full of all amounts that I owe under this Note, as allowed by
law.
6. BORROWER'S PAYMENTS BEFORE THEY ARE DUE - PREPAYMENT PENALTY.
I have the right to make payments of principal at any time before they
are due. There shall be no prepayment penalty.
7. INTENT TO COMPLY WITH LAW
It is the intent of all of the parties to this Note to abide by all of
the provisions of the California Business and Professions Code governing Real
Property Loans and any terms of this Note inconsistent with that law are hereby
waived by the Lender and Note Holder(s).
8. Jury Trial Waiver.
MAKER AND PAYEE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF
THIS NOTE AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER
IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY MAKER AND PAYEE AND MAKER
ACKNOWLEDGES THAT NEITHER THE PAYEE NOR ANY PERSON ACTING ON BEHALF OF THE PAYEE
HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR
HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. MAKER AND
PAYEE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT MAKER AND PAYEE HAVE ALREADY RELIED ON THIS WAIVER
IN ENTERING INTO THIS NOTE AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. MAKER AND PAYEE FURTHER ACKNOWLEDGE
THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED)
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL.
Maker: __________ Payee: __________
---------------------------------- ------------------------
(Borrower) (Date)
---------------------------------- ------------------------
(Borrower) (Date)
<PAGE>
EXHIBIT 10.3 (e)
NOTE SECURED BY DEED OF TRUST
Loan No.:
2000 Redwood City, California
---------------------------
(PROPERTY ADDRESS)
1. BORROWER'S PROMISE TO PAY LOAN AND INTEREST
In return for a loan I promise to pay $________________ (this amount
will be called "Principal"), plus interest at a yearly rate of __________
percent (___%) to the order of
____________________________________________________________________ (who will
be called "Lender").
I understand that the Lender may transfer this Note. The Lender or
anyone who takes an interest in this Note by transfer and who is entitled to
receive payments under this Note will be called the "Note Holder(s)".
All payments received on this Note shall be applied pro rata in
proportion to the interest held by each of the Note Holder(s).
Interest will be charged on that part of Principal which has not been
paid. Interest will be charged beginning on _____________, 20__ and continuing
until the full amount of Principal and interest has been paid. I also agree to
pay interest at the above rate on the prepaid finance charges, which are a part
of the Principal.
2. PAYMENTS
I will pay Principal and interest by making payments of each month of
$___________. I will make my payments on the ___ day of each month beginning on
________, 20 ____. I will make these payments every month until _________, 20___
(the "Due Date"). On the Due Date I will pay remaining Principal plus accrued
interest that I owe under this Note, in full, on that date.
I will make my monthly payments at P.O. Box 5096, Redwood City, CA
94063-0096 or at a different place if I am notified by the Note Holder(s).
3. BORROWER'S FAILURE TO PAY AS REQUIRED
(A) LATE CHARGE FOR OVERDUE PAYMENTS
If the Note Holder(s) has not received the full amount of any of my
monthly payments by the end of 10th calendar days after the date it is due, I
will pay a late charge to the Note Holder(s). The amount of the charge will be
6% of the amount overdue or $5.00, whichever is more. I will pay this late
charge only once on any late payment.
(B) NONPAYMENT - DEFAULT
If I do not pay any payment of Principal or interest by the date stated
in Section 2 above, I will be in default, and the Lender and the Note Holder may
demand that I pay immediately all amounts that I owe under this Note.
Even if, at a time which I am in default, the Note Holder does not
demand that I pay immediately in full as described above, the Note Holder will
still have the right to do so if I am in default at a later time. If there is
more than one Note Holder, any one Note Holder may exercise any right under this
Note in the event of a default. A default upon any interest of any Note Holder
shall be a default upon all interests.
(C) ADVANCES
All advances made pursuant to the terms of the Deed of Trust securing
this Note shall bear interest from the date of advance at the rate of interest
in this Note.
(D) PAYMENT OF NOTE HOLDER'S COSTS AND EXPENSES
If the Note Holder has required me to pay immediately in full as
described above, the Note Holder will have the right to be paid back for all of
its costs and expenses to the extent not prohibited by applicable law. Those
expenses include, for example, reasonable attorney's fees.
(E) INTEREST INCREASE IF NOTE NOT PAID ON DUE DATE
If the Note Holder has not received all amounts owed under this Note on
the Due Date, I will pay interest on the full amount of unpaid Principal at
________ percent (__%) per annum plus the loan or forbearance rate established
by the Federal Reserve Bank of San Francisco on advances to member banks under
Section 13 and 13a of the Federal Reserve Act, on the Due Date, or the rate of
interest called for in this Note, whichever is greater.
4. THIS NOTE IS SECURED BY A DEED OF TRUST
This Note is secured by a Deed of Trust upon real property in
_______________________ County, California.
5. BORROWER'S REQUIRED REPAYMENT IN FULL BEFORE THE SCHEDULED DATE
In the event of any sale or conveyance of any part of the real property
described in the Deed of Trust securing this Note, then the Note Holder(s) may
demand payment in full of all amounts that I owe under this Note, as allowed by
law.
6. BORROWER'S PAYMENTS BEFORE THEY ARE DUE - PREPAYMENT PENALTY.
I have the right to make payments of principal at any time before they
are due. There shall be no prepayment penalty.
7. INTENT TO COMPLY WITH LAW
It is the intent of all of the parties to this Note to abide by all of
the provisions of the California Business and Professions Code governing Real
Property Loans and any terms of this Note inconsistent with that law are hereby
waived by the Lender and Note Holder(s).
8. Jury Trial Waiver.
MAKER AND PAYEE HEREBY WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF
THIS NOTE AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER
IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY MAKER AND PAYEE AND MAKER
ACKNOWLEDGES THAT NEITHER THE PAYEE NOR ANY PERSON ACTING ON BEHALF OF THE PAYEE
HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR
HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. MAKER AND
PAYEE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT MAKER AND PAYEE HAVE ALREADY RELIED ON THIS WAIVER
IN ENTERING INTO THIS NOTE AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. MAKER AND PAYEE FURTHER ACKNOWLEDGE
THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED)
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL.
Maker: _____ Payee: _____
-------------------------------- ------------------------
(Borrower) (Date)
-------------------------------- ------------------------
(Borrower) (Date)
<PAGE>
EXHIBIT 10.4 (a)
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Redwood Mortgage Corp.
650 El Camino Real, Suite G
Redwood City, California 94063-1394
Attn: Michael Burwell
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LOAN NO.:
CONSTRUCTION DEED OF TRUST, ASSIGNMENT
OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FILING
THIS CONSTRUCTION DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING (this "Deed of Trust") is made as of
______________, 20___, by ____________________________________________________,
whose address is _____________________________________________________________,
(herein "Trustor"), to PLM LENDER SERVICES, INC., a California corporation,
whose address is 577 Salmar Avenue, Suite #100, Campbell, California 95008,
(herein "Trustee"), in favor of
--------------------------------------------------------------------,
whose address is 650 El Camino Real, Suite G, Redwood City, California
94063-1394 (herein "Beneficiary").
Trustor, in consideration of the loan described below, irrevocably
grants, conveys, transfers and assigns to Trustee, its successors and assigns,
in trust, with power of sale and right of entry and possession, all of Trustor's
estate, right, title and interest in and to that certain real property located
in the City of ________________, County of _______________, State of California,
more particularly described in Exhibit A attached hereto and incorporated herein
by this reference (the "Land"),
TOGETHER WITH THE FOLLOWING:
(a) Improvements. All buildings and other improvements now or hereafter
located on the Land, including, but not limited to, the Fixtures (as defined
below) (collectively, the "Improvements");
(b) Fixtures. All fixtures (goods that are or become so related to the
Land or Improvements that an interest in them arises under real estate law) now
or hereafter located on, attached to, installed in or used in connection with
the Land and Improvements;
(c) Intellectual Property Rights, Other Personal Property. All
intangible property and rights relating to the Land or the operation thereof, or
used in connection therewith, including, without limitation, tradenames and
trademarks; all machinery, equipment, building materials, appliances and goods
of every nature whatsoever (herein collectively called "equipment" and other
"personal property") now or hereafter located in, or on, attached or affixed to,
or used or intended to be used in connection with, the Land, including, but
without limitation, all heating, lighting, laundry, incinerating, gas, electric
and power equipment, engines, pipes, pumps, tanks, motors, conduits,
switchboards, plumbing, lifting, cleaning, fire prevention, fire extinguishing,
refrigerating, ventilating and communications apparatus, air cooling and air
conditioning apparatus, elevators and escalators and related machinery and
equipment, pool and pool operation and maintenance equipment and apparatus,
shades, awnings, blinds, curtains, drapes, attached floor coverings, including
rugs and carpeting, television, radio and music cable antennae and systems,
screens, storm doors and windows, stoves, refrigerators, dishwashers and other
installed appliances, attached cabinets, partitions, ducts and compressors,
furnishings and furniture, and trees, plants and other items of landscaping
(except that the foregoing equipment and other personal property covered hereby
shall not include machinery, apparatus, equipment, fittings and articles of
personal property used in the business of Trustor (commonly referred to as
"trade fixtures") whether the same are annexed to said real property or not,
unless the same are also used in the operation of any building or other
improvement located thereon or unless the same cannot be removed without
materially damaging said real property or any such building or other
improvement), all of which, including replacements and additions thereto, shall,
to the fullest extent permitted by law and for the purposes of this Deed of
Trust, be deemed to be part and parcel of, and appropriated to the use of, said
real property and, whether affixed or annexed thereto or not, be deemed
conclusively to be real property and conveyed by this Deed of Trust, and all
proceeds and products of any and all thereof;
(d) Contracts, Permits, Plans, Easements. All now or hereafter existing
plans and specifications prepared for construction of Improvements on the Land
and all studies, data and drawings related thereto, and also all contracts and
agreements of Trustor relating to the plans and specifications or to the
studies, data and drawings, or to the construction of Improvements on the
Property (the "Plans and Specifications"); all contracts, permits, certificates,
plans, studies, data, drawings, licenses, approvals, entitlements and
authorizations, however, characterized, issued or in any way furnished for the
acquisition, construction, operation and use of the Land and Improvements,
including building permits, environmental certificates, licenses, certificates
of operation, warranties and guaranties; all easements, rights and appurtenances
thereto or used in connection with the above-described real property;
(e) Interest in Leases. All existing and future Leases relating to the Land
and Improvements or any interest in them;
(f) Proceeds. All rents, royalties, issues, profits, revenues, income,
remittances, payments and other benefits arising or derived from the use or
enjoyment of all or any portion of the Land or Improvements, or derived from any
Lease, sublease, license, or agreement relating to the use or enjoyment of the
Land or Improvements (subject to the rights given below to Trustor to collect
and apply such rents, royalties, issues, profits, revenues, income, remittances,
payments and other benefits);
(g) Funds. Any of Trustor's funds held by or on behalf of Beneficiary,
including pursuant to the Holdback Agreement, as defined below;
(h) Additional Proceeds. All Trustor's other existing or future
estates, easements, licenses, interests, rights, titles, homestead or other
claims or demands, both in law and in equity in the Mortgaged Property (as
defined below) including, without limitation, (1) all damages or awards made to
Trustor related to the Land or Improvements, including without limitation, for
the partial or complete taking by eminent domain, or by an proceeding or
purchase in lieu of eminent domain, of the Land and Improvements, and (2) all
proceeds of any insurance covering the Land and Improvements. Trustor agrees to
execute and deliver, from time to time, such further instruments and documents
as may be required by Beneficiary to confirm the lien of this Deed of Trust on
any of the foregoing.
All of the foregoing property referred to in this section, together with the
Land, are herein referred to as the "Mortgaged Property".
FOR THE PURPOSE OF SECURING, in such order of priority as Beneficiary
may elect:
(a) The repayment of the indebtedness evidenced by Trustor's promissory
note of even date herewith payable to the order of Beneficiary in the original
principal sum of ________________________________________________________
($_____________), with interest thereon, as provided therein, and all prepayment
charges, late charges and loan fees required thereunder, and all extensions,
renewals, modifications, amendments and replacements thereof (herein "Note");
(b) The payment of all other sums which may be advanced by or otherwise
be due to Trustee or Beneficiary under any provision of this Deed of Trust or
under any other instrument or document referred to in subsection (c) below, with
interest thereon at the rate provided herein or therein;
(c) The performance of each and every of the covenants and agreements
of Trustor contained (1) herein, in the Note, and in any note evidencing a
Future Advance (as hereinafter defined), (2) in the Environmental Agreement and
Indemnity executed by Trustor concurrently herewith, (3) in the Holdback
Agreement by and between Beneficiary and Trustor executed contemporaneously
herewith (the "Holdback"), and in any and all pledge agreements, supplemental
agreements, assignments and all instruments of indebtedness or security now or
hereafter executed by Trustor in connection with any indebtedness referred to in
subsection (a) above or subsection (d) below or for the purpose of supplementing
or amending this Deed of Trust or any instrument secured hereby (all of the
foregoing in these Clauses (2) and (3), as the same may be amended, modified or
supplemented from time to time, being referred to hereinafter as "Related
Agreements"); and
(d) The repayment of any other loans or advances, with interest
thereon, hereafter made to Trustor (or any successor in interest to Trustor as
the owner of the Mortgaged Property or any part thereof) by Beneficiary when the
promissory note evidencing the loan or advance specifically states that said
note is secured by this Deed of Trust, together with all extensions, renewals,
modifications, amendments and replacements thereof (herein "Future Advance").
<PAGE>
ARTICLE I
COVENANTS OF TRUSTOR
To protect the security of this Deed of Trust, Trustor covenants and
agrees as follows:
1.01 Performance of Obligations Secured.
Trustor shall promptly pay when due the principal of and interest on
the indebtedness evidenced by the Note, the principal of and interest on any
Future Advances, and any prepayment, late charges and loan fees provided for in
the Note or in any note evidencing a Future Advance or provided for herein, and
shall further perform fully and in a timely manner all other obligations of
Trustor contained herein or in the Note or in any note evidencing a Future
Advance or in any of the Related Agreements. All sums payable by Trustor
hereunder shall be paid without demand, counterclaim, offset, deduction or
defense and Trustor waives all rights now or hereinafter conferred by statute or
otherwise to any such demand, counterclaim, offset, deduction or defense.
1.02 Insurance.
Trustor shall keep the Mortgaged Property insured with an all-risk
policy insuring against loss or damage by fire and earthquake with extended
coverage and against any other risks or hazards which, in the opinion of
Beneficiary, should be insured against, in an amount not less than 100% of the
full insurable value thereof on a replacement cost basis, with an inflation
guard endorsement, with a company or companies and in such form and with such
endorsements as may be approved or required by Beneficiary, including, if
applicable, boiler explosion coverage and sprinkler leakage coverage. All losses
under said insurance, and any other insurance obtained by Trustor with respect
to the Mortgaged Property whether or not required by Beneficiary, shall be
payable to Beneficiary and shall be applied in the manner provided in Section
1.03 hereof. Trustor shall also carry comprehensive general public liability
insurance and twelve (12) months' rent loss insurance in such form and amounts
and with such companies as are satisfactory to Beneficiary. Trustor shall also
carry insurance against flood if required by the Federal Flood Disaster
Protection Act of 1973 and regulations issued thereunder. All hazard, flood and
rent loss insurance policies shall be endorsed with a standard noncontributory
mortgagee clause in favor of and in form acceptable to Beneficiary, and may be
canceled or modified only upon not less than thirty (30) days' prior written
notice to Beneficiary. All of the above-mentioned insurance policies or
certificates of such insurance satisfactory to Beneficiary, together with
receipts for the payment of premiums thereon, shall be delivered to and held by
Beneficiary, which delivery shall constitute assignment to Beneficiary of all
return premiums to be held as additional security hereunder. All renewal and
replacement policies shall be delivered to Beneficiary at least thirty (30) days
before the expiration of the expiring policies. Beneficiary shall not by the
fact of approving, disapproving, accepting, preventing, obtaining or failing to
obtain any insurance, incur any liability for or with respect to the amount of
insurance carried, the form or legal sufficiency of insurance contracts,
solvency of insurance companies, or payment or defense of lawsuits, and Trustor
hereby expressly assumes full responsibility therefor and all liability, if any,
with respect thereto.
1.03 Condemnation and Insurance Proceeds.
(a) The proceeds of any award or claim for damages, direct or
consequential, in connection with any condemnation or other taking of or damage
or injury to the Mortgaged Property, or any part thereof, or for conveyance in
lieu of condemnation, are hereby assigned to and shall be paid to Beneficiary.
In addition, all causes of action, whether accrued before or after the date of
this Deed of Trust, of all types for damages or injury to the Mortgaged Property
or any part thereof, or in connection with any transaction financed by funds
loaned to Trustor by Beneficiary and secured hereby, or in connection with or
affecting the Mortgaged Property or any part thereof, including, without
limitation, causes of action arising in tort or contract and causes of action
for fraud or concealment of a material fact, are hereby assigned to Beneficiary
as additional security, and the proceeds thereof shall be paid to Beneficiary.
Beneficiary may at its option appear in and prosecute in its own name any action
or proceeding to enforce any such cause of action and may make any compromise or
settlement thereof. Trustor, immediately upon obtaining knowledge of any
casualty damage to the Mortgaged Property or damage in any other manner in
excess of $25,000.00 or knowledge of the institution of any proceedings relating
to condemnation or other taking of or damage or injury to the Mortgaged Property
or any portion thereof, will immediately notify Beneficiary in writing.
Beneficiary, in its sole discretion, may participate in any such proceedings and
may join Trustor in adjusting any loss covered by insurance.
(b) All compensation, awards, proceeds, damages, claims, insurance
recoveries, rights of action and payments which Trustor may receive or to which
Trustor may become entitled with respect to the Mortgaged Property in the event
of any damage or injury to or a partial condemnation or other partial taking of
the Mortgaged Property shall be paid over to Beneficiary and shall be applied
first toward reimbursement of all costs and expenses of Beneficiary in
connection with recovery of the same, and then shall be applied, as follows:
(1) Beneficiary shall consent to the application of such payments to
the restoration of the Mortgaged Property so damaged if and only if Trustor
fulfills all of the following conditions (a breach of any one of which shall
constitute an Event of Default under this Deed of Trust and shall entitle
Beneficiary to exercise all rights and remedies Beneficiary may have in such
event): (a) that no default or Event of Default is then outstanding under this
Deed of Trust, the Note, or any Related Agreement; (b) that Trustor is not in
default under any of the terms, covenants and conditions of any of the Leases
(hereinafter defined); (c) that the Leases shall continue in full force and
effect; (d) that Trustor has in force rental continuation and business
interruption insurance covering the Mortgaged Property for the longer of twelve
(12) months or the time Beneficiary reasonably estimates will be necessary to
complete such restoration and rebuilding; (e) Beneficiary is satisfied that
during the period from the time of damage or taking until restoration and
rebuilding of the Mortgaged Property is completed (the "Gap Period") Trustor's
net income from (1) all leases, subleases, licenses and other occupancy
agreements affecting the Mortgaged Property (the "Leases") which may continue
without abatement of rent during such Gap Period, plus (2) all Leases in effect
during the Gap Period without abatement of rent which Trustor may obtain in
substitution for any of the same which did not continue during such Gap Period,
plus (3) the proceeds of rental continuation and business interruption
insurance, is sufficient to satisfy Trustor's obligations under this Deed of
Trust as they come due; (f) Beneficiary is satisfied that the insurance or award
proceeds shall be sufficient to fully restore and rebuild the Mortgaged Property
free and clear of all liens except the lien of this Deed of Trust, or, in the
event that such proceeds are in Beneficiary's sole judgment insufficient to
restore and rebuild the Mortgaged Property, then Trustor shall deposit promptly
with Beneficiary funds which, together with the insurance or award proceeds,
shall be sufficient in Beneficiary's sole judgment to restore and rebuild the
Mortgaged Property; (g) construction and completion of restoration and
rebuilding of the Mortgaged Property shall be completed in accordance with plans
and specifications and drawings submitted to and approved by Beneficiary, which
plans, specifications and drawings shall not be substantially modified, changed
or revised without the Beneficiary's prior written consent; (h) Beneficiary
shall also have approved all prime and subcontractors, and the general contract
or contracts the Trustor proposes to enter into with respect to the restoration
and rebuilding; and (i) any and all monies which are made available for
restoration and rebuilding hereunder shall be disbursed through Beneficiary, the
Trustee or a title insurance and trust company satisfactory to Beneficiary, in
accord with standard construction lending practice, including, if requested by
Beneficiary, monthly lien waivers and title insurance datedowns, and the
provision of payment and performance bonds by Trustor, or in any other manner
approved by Beneficiary in Beneficiary's sole discretion; or
(2) If less than all of conditions (a) through (i) in subsection (1)
above are satisfied, then such payments shall be applied in the sole and
absolute discretion of Beneficiary (a) to the payment or prepayment with any
applicable prepayment premium of any indebtedness secured hereby in such order
as Beneficiary may determine, or (b) to the reimbursement of Trustor's expenses
incurred in the rebuilding and restoration of the Mortgaged Property. In the
event Beneficiary elects under this subsection (2) to make any monies available
to restore the Mortgaged Property, then all of conditions (a) through (i) in
subsection (1) above shall apply, except such conditions which Beneficiary, in
its sole discretion, may waive.
(c) If any material part of the Mortgaged Property is damaged or
destroyed and the loss is not adequately covered by insurance proceeds collected
or in the process of collection, Trustor shall deposit, within ten (10) days of
the Beneficiary's request therefor, the amount of the loss not so covered.
(d) All compensation, awards, proceeds, damages, claims, insurance
recoveries, rights of action and payments which Trustor may receive or to which
Trustor may become entitled with respect to the Mortgaged Property in the event
of a total condemnation or other total taking of the Mortgaged Property shall be
paid over to Beneficiary and shall be applied first toward reimbursement of all
costs and expenses of Beneficiary in connection with recovery of the same, and
then shall be applied to the payment or prepayment with any applicable
prepayment premium of any indebtedness secured hereby in such order as
Beneficiary may determine, until the indebtedness secured hereby has been paid
and satisfied in full. Any surplus remaining after payment and satisfaction of
the indebtedness secured hereby shall be paid to Trustor as its interest may
then appear.
(e) Any application of such amounts or any portion thereof to any
indebtedness secured hereby shall not be construed to cure or waive any default
or notice of default hereunder or invalidate any act done pursuant to any such
default or notice.
(f) If any part of any automobile parking areas included within the
Mortgaged Property is taken by condemnation or before such areas are otherwise
reduced, Trustor shall provide parking facilities in kind, size and location to
comply with all Leases, and before making any contract for such substitute
parking facilities, Trustor shall furnish to Beneficiary satisfactory assurance
of completion thereof, free of liens and in conformity with all governmental
zoning, land use and environmental regulations.
1.04 Taxes, Liens and Other Items.
Trustor shall pay at least ten days before delinquency, all taxes,
bonds, assessments, special assessments, common area charges, fees, liens,
charges, fines, penalties, impositions and any and all other items which are
attributable to or affect the Mortgaged Property and which may attain a priority
over this Deed of Trust by making payment prior to delinquency directly to the
payee thereof, unless Trustor shall be required to make payment to Beneficiary
on account of such items pursuant to Section 1.05 hereof. Prior to the
delinquency of any such taxes or other items, Trustor shall furnish Beneficiary
with receipts indicating such taxes and other items have been paid. Trustor
shall promptly discharge any lien which has attained or may attain priority over
this Deed of Trust. In the event of the passage after the date of this Deed of
Trust of any law deducting from the value of real property for the purposes of
taxation any lien thereon, or changing in any way the laws for the taxation of
deeds of trust or debts secured by deeds of trust for state, federal or any
other purposes, or the manner of the collection of any such taxes, so as to
affect this Deed of Trust, the Beneficiary and holder of the debt which it
secures shall have the right to declare the principal sum and the interest due
on a date to be specified by not less than thirty (30) days written notice to be
given to Trustor by Beneficiary; provided, however, that such election shall be
ineffective if Trustor is permitted by law to pay the whole of such tax in
addition to all other payments required hereunder and if, prior to such
specified date, does pay such taxes and agrees to pay any such tax when
hereafter levied or assessed against the Mortgaged Property, and such agreement
shall constitute a modification of this Deed of Trust.
1.05 Funds for Taxes and Insurance.
If an Event of Default has occurred under this Deed of Trust or under
any of the Related Agreements, regardless of whether the same has been cured,
then thereafter at any time Beneficiary may, at its option to be exercised upon
thirty (30) days' written notice to Trustor, require the deposit with
Beneficiary or its designee by Trustor, at the time of each payment of an
installment of interest or principal under the Note, of an additional amount
sufficient to discharge the obligations of Trustor under Sections 1.02 and 1.04
hereof as and when they become due. The determination of the amount payable and
of the fractional part thereof to be deposited with Beneficiary shall be made by
Beneficiary in its sole discretion. These amounts shall be held by Beneficiary
or its designee not in trust and not as agent of Trustor and shall not bear
interest, and shall be applied to the payment of the obligations in such order
or priority as Beneficiary shall determine. If at any time within thirty (30)
days prior to the due date of any of the aforementioned obligations the amounts
then on deposit therefor shall be insufficient for the payment of such
obligation in full, Trustor shall within ten (10) days after demand deposit the
amount of the deficiency with Beneficiary. If the amounts deposited are in
excess of the actual obligations for which they were deposited, Beneficiary may
refund any such excess, or, at its option, may hold the same in a reserve
account, not in trust and not bearing interest, and reduce proportionately the
required monthly deposits for the ensuing year. Nothing herein contained shall
be deemed to affect any right or remedy of Beneficiary under any other provision
of this Deed of Trust or under any statute or rule of law to pay any such amount
and to add the amount so paid to the indebtedness hereby secured.
All amounts so deposited shall be held by Beneficiary or its designee
as additional security for the sums secured by this Deed of Trust and upon the
occurrence of an Event of Default hereunder Beneficiary may, in its sole and
absolute discretion and without regard to the adequacy of its security
hereunder, apply such amounts or any portion thereof to any part of the
indebtedness secured hereby. Any such application of said amounts or any portion
thereof to any indebtedness secured hereby shall not be construed to cure or
waive any default or notice of default hereunder.
If Beneficiary requires deposits to be made pursuant to this Section
1.05, Trustor shall deliver to Beneficiary all tax bills, bond and assessment
statements, statements of insurance premiums, and statements for any other
obligations referred to above as soon as such documents are received by Trustor.
If Beneficiary sells or assigns this Deed of Trust, Beneficiary shall
have the right to transfer all amounts deposited under this Section 1.05 to the
purchaser or assignee, and Beneficiary shall thereupon be released and have no
further liability hereunder for the application of such deposits, and Trustor
shall look solely to such purchaser or assignee for such application and for all
responsibility relating to such deposits.
1.06 Assignment of Rents and Profits.
(a) All of Trustor's interest in any Leases or other occupancy
agreements pertaining to the Mortgaged Property now existing or hereafter
entered into, and all of the rents, royalties, issues, profits, revenue, income
and other benefits of the Mortgaged Property arising from the use or enjoyment
of all or any portion thereof or from any Lease or agreement pertaining to
occupancy of any portion of the Mortgaged Property now existing or hereafter
entered into whether now due, past due, or to become due, including all prepaid
rents and security deposits, and including without limitation all present or
future rights of Trustor in and to all operating revenues derived from the
operation of the Mortgaged Property (the "Rents and Profits"), are hereby
absolutely, presently and unconditionally assigned, transferred and conveyed to
Beneficiary to be applied by Beneficiary in payment of the principal and
interest and all other sums payable on the Note, and of all other sums payable
under this Deed of Trust subject to the rights of residential tenants under
California Civil Code Section 1950.5(d). Prior to the occurrence of any Event of
Default (hereinafter defined), Trustor shall have a license to collect and
receive all Rents and Profits, which license shall be terminable at the sole
option of Beneficiary, without regard to the adequacy of its security hereunder
and without notice to or demand upon Trustor, upon the occurrence of any Event
of Default. It is understood and agreed that neither the foregoing assignment of
Rents and Profits to Beneficiary nor the exercise by Beneficiary of any of its
rights or remedies under Article IV hereof shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Mortgaged Property or the use, occupancy, enjoyment or operation
of all or any portion thereof, unless and until Beneficiary, in person or by
agent, assumes actual possession thereof. Nor shall appointment of a receiver
for the Mortgaged Property by any court at the request of Beneficiary or by
agreement with Trustor, or the entering into possession of the Mortgaged
Property or any part thereof by such receiver, be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Mortgaged Property or the use, occupancy, enjoyment or operation
of all or any portion thereof. Upon the occurrence of any Event of Default, this
shall constitute a direction to and full authority to each lessee under any
Lease and each guarantor of any Lease to pay all Rents and Profits to
Beneficiary without proof of the default relied upon. Trustor hereby irrevocably
authorizes each lessee and guarantor to rely upon and comply with any notice or
demand by Beneficiary for the payment to Beneficiary of any Rents and Profits
due or to become due.
(b) Trustor shall apply the Rents and Profits to the payment of all
necessary and reasonable operating costs and expenses of the Mortgaged Property,
debt service on the indebtedness secured hereby, and a reasonable reserve for
future expenses, repairs and replacements for the Mortgaged Property, before
using the Rents and Profits for Trustor's personal use or any other purpose not
for the direct benefit of the Mortgaged Property.
(c) Trustor warrants as to each Lease now covering all or any part of
the Mortgaged Property: (1) that each Lease is in full force and effect; (2)
that no default exists on the part of the lessees or Trustor under Leases
constituting more than 5%, in the aggregate, of all units in the Mortgaged
Property; (3) that no rent has been collected more than one month in advance;
(4) that no Lease or any interest therein has been previously assigned or
pledged; (5) that no lessee under any Lease has any defense, setoff or
counterclaim against Trustor; (6) that all rent due to date under each Lease has
been collected and no concession has been granted to any lessee in the form of a
waiver, release, reduction, discount or other alteration of rent due or to
become due; and (7) that the interest of the lessee under each Lease is as
lessee only, with no options to purchase or rights of first refusal. All the
foregoing warranties shall be deemed to be reaffirmed and to continue until
performance in full of the obligations under this Deed of Trust.
(d) Trustor shall at all times perform the obligations of lessor under
all such Leases. Trustor shall not execute any further assignment of any of the
Rents and Profits or any interest therein or suffer or permit any such
assignment to occur by operation of law. Trustor shall at any time or from time
to time, upon request of Beneficiary, transfer and assign to Beneficiary in such
form as may be satisfactory to Beneficiary, Trustor's interest in any Lease,
subject to and upon the condition, however, that prior to the occurrence of any
Event of Default hereunder Trustor shall have a license to collect and receive
all Rents and Profits under such Lease upon accrual, but not prior thereto, as
set forth in subsection (a) above. Whenever requested by Beneficiary, Trustor
shall furnish to Beneficiary a certificate of Trustor setting forth the names of
all lessees under any Leases, the terms of their respective Leases, the space
occupied, the rents payable thereunder, and the dates through which any and all
rents have been paid.
(e) Without the prior written consent of Beneficiary, Trustor shall not
(1) accept prepayments of rent exceeding one month under any Leases of any part
of the Mortgaged Property; (2) take any action under or with respect to any such
Leases which would decrease the monetary obligations of the lessee thereunder or
otherwise materially decrease the obligations of the lessee or the rights or
remedies of the lessor, including, without limitation, any reduction in rent or
granting of an option to renew for a term greater than one year; (3) modify or
amend any such Leases or, except where the lessee is in default, cancel or
terminate the same or accept a surrender of the leased premises, provided,
however, that Trustor may renew, modify or amend Leases in the ordinary course
of business so long as such actions do not decrease the monetary obligations of
the lessee thereunder, or otherwise decrease the obligations of the lessee or
the rights and remedies of the lessor; (4) consent to the assignment or
subletting of the whole or any portion of the lessee's interest under any Lease
which has a term of more than five years; (5) create or permit any lien or
encumbrance which, upon foreclosure, would be superior to any such Leases; or
(6) in any other manner impair Beneficiary's rights and interest with respect to
the Rents and Profits.
(f) Each Lease, or any part thereof, shall make provision for the
attornment of the lessee thereunder to any person succeeding to the interest of
Trustor as the result of any foreclosure or transfer in lieu of foreclosure
hereunder, said provision to be in form and substance approved by Beneficiary.
If any Lease provides for the abatement of rent during repair of the demised
premises by reason of fire or other casualty, Trustor shall furnish rental
insurance to Beneficiary, the policies to be in amount and form and written by
such companies as shall be satisfactory to Beneficiary. Each Lease shall remain
in full force and effect despite any merger of the interest of Trustor and any
lessee thereunder.
(g) Beneficiary shall be deemed to be the creditor of each lessee in
respect of any assignments for the benefit of creditors and any bankruptcy,
arrangement, reorganization, insolvency, dissolution, receivership or other
debtor-relief proceedings affecting such lessee (without obligation on the part
of Beneficiary, however, to file timely claims in such proceedings or otherwise
pursue creditor's rights therein). Beneficiary shall have the right to assign
Trustor's right, title and interest in any Leases to any subsequent holder of
this Deed of Trust or any participating interest therein or to any person
acquiring title to all or any part of the Mortgaged Property through foreclosure
or otherwise. Any subsequent assignee shall have all the rights and powers
herein provided to Beneficiary. Beneficiary shall have the authority, as
Trustor's attorney-in-fact, such authority being coupled with an interest and
irrevocable, to sign the name of Trustor and to bind Trustor on all papers and
documents relating to the operation, leasing and maintenance of the Mortgaged
Property.
1.07 Security Agreement.
(a) This Deed of Trust is intended to be a security agreement pursuant
to the California Uniform Commercial Code for (a) any and all items of personal
property specified above as part of the Mortgaged Property which, under
applicable law, may be subject to a security interest pursuant to the California
Uniform Commercial Code and which are not herein effectively made part of the
real property, (b) any and all items of property specified above as part of the
Mortgaged Property which, under applicable law, constitute fixtures and may be
subject to a security interest under Section 9-313 of the California Uniform
Commercial Code; and (c) all rights of Trustor in and to that certain account in
the name of Trustor and maintained with Builders Control at PO Box 856, Oakland,
California 94604-0856, created pursuant to the Holdback Agreement, and all funds
held by Beneficiary on behalf of Trustor in the "Loan in Process Account"
created by the Holdback, together with all interest and proceeds thereof; and
Trustor hereby grants Beneficiary a security interest in said property, all of
which is referred to herein as "Personal Property," and in all additions
thereto, substitutions therefor and proceeds thereof, for the purpose of
securing all indebtedness and other obligations of Trustor now or hereafter
secured by this Deed of Trust, which shall be a paramount and superior lien on
all such Personal Property at all times. Trustor agrees to execute and deliver
financing and continuation statements covering the Personal Property from time
to time and in such form as Beneficiary may require to perfect and continue the
perfection of Beneficiary's lien or security interest with respect to said
property. Trustor shall pay all costs of filing such statements and renewals and
releases thereof and shall pay all reasonable costs and expenses of any record
searches for financing statements Beneficiary may reasonably require. Upon the
occurrence of any default of Trustor hereunder, Beneficiary shall have the
rights and remedies of a secured party under California Uniform Commercial Code,
including, Section 9501(4) thereof, as well as all other rights and remedies
available at law or in equity, and, at Beneficiary's option, Beneficiary may
also invoke the remedies provided in Article IV of this Deed of Trust as to such
property.
1.08 Acceleration.
(a) Trustor acknowledges that in making the loan evidenced by the Note
and this Deed of Trust (the "Loan"), Beneficiary has relied upon: (1) Trustor's
credit rating; (2) Trustor's financial stability; and (3) Trustor's experience
in owning and operating real property comparable to the Mortgaged Property.
Without limiting the obligations of Trustor or the rights and remedies of
Beneficiary, Beneficiary shall have the right, at its option, to declare any
indebtedness and obligations under the Note and this Deed of Trust, irrespective
of the maturity date specified therein, due and payable in full if: (1) Trustor
or any one or more of the tenants-in-common, joint tenants, or other persons
comprising Trustor sells, enters into a contract of sale, conveys, alienates or
encumbers the Mortgaged Property or any portion thereof or any fractional
undivided interest therein, or suffers Trustor's title or any interest therein
to be divested or encumbered, whether voluntarily or involuntarily, or leases
with an option to sell, or changes or permits to be changed the character or use
of the Mortgaged Property, or drills or extracts or enters into a lease for the
drilling for or extracting of oil, gas or other hydrocarbon substances or any
mineral of any kind or character on the Mortgaged Property; (2) The interest of
any general partner of Trustor (or the interest of any general partner in a
partnership that is a partner) is assigned or transferred; (3) More than
twenty-five percent (25%) of the corporate stock of Trustor (or of any corporate
partner or other corporation comprising Trustor) is sold, transferred or
assigned; (4) There is a change in beneficial ownership with respect to more
than twenty-five percent (25%) of Trustor (if Trustor is a partnership, limited
liability company, trust or other legal entity) or of any partner or
tenant-in-common of Trustor which is a partnership, limited liability company,
trust or other legal entity; (5) a default has occurred hereunder or under the
Note or any Related Agreements and is continuing. In such case, Beneficiary or
other holder of the Note may exercise any and all of the rights and remedies and
recourses set forth in Article IV herein, and as granted by law.
(b) In order to allow Beneficiary to determine whether enforcement of
the foregoing provisions is desirable, Trustor agrees to notify Beneficiary
promptly in writing of any transaction or event described in Clauses 1.08(a)
above. In addition to other damages and costs resulting from the breach by
Trustor of its obligations under this subsection (b), Trustor acknowledges that
failure to give such notice may damage Beneficiary in an amount equal to not
less than the difference between the interest payable on the indebtedness
specified herein, and the interest and loan fees which Beneficiary could obtain
on said sum on the date that the event of acceleration occurred and was
enforceable by Beneficiary under applicable law. Trustor shall pay to
Beneficiary all damages Beneficiary sustains by reason of the breach of the
covenant of notice set forth in this subsection (b) and the amount thereof shall
be added to the principal of the Note and shall bear interest and shall be
secured by this Deed of Trust.
(c) Notwithstanding subsection 1.08(a) above, Trustor may from time to
time replace items of personal property and fixtures constituting a part of the
Mortgaged Property, provided that: (1) the replacements for such items of
personal property or fixtures are of equivalent value and quality; and (2)
Trustor has good and clear title to such replacement property free and clear of
any and all liens, encumbrances, security interests, ownership interests, claims
of title (contingent or otherwise), or charges of any kind, or the rights of any
conditional sellers, vendors or any other third parties in or to such
replacement property have been expressly subordinated at no cost to Beneficiary
to the lien of this Deed of Trust in a manner satisfactory to Beneficiary; and
(3) at the option of Beneficiary, Trustor provides at no cost to Beneficiary a
satisfactory opinion of counsel to the effect that this Deed of Trust
constitutes a valid and subsisting second lien on and security interest in such
replacement property and is not subject to being subordinated or the priority
thereof affected under any applicable law, including, but not limited, to the
provisions of Section 9-313 of the California Uniform Commercial Code.
1.09 Preservation and Maintenance of Mortgaged Property.
Trustor shall keep the Mortgaged Property and every part thereof in
good condition and repair, and shall not permit or commit any waste, impairment,
or deterioration of the Mortgaged Property, or commit, suffer or permit any act
upon or use of the Mortgaged Property in violation of law or applicable order of
any governmental authority, whether now existing or hereafter enacted and
whether foreseen or unforeseen, or in violation of any covenants, conditions or
restrictions affecting the Mortgaged Property, or bring or keep any article upon
any of the Mortgaged Property or cause or permit any condition to exist thereon
which would be prohibited by or could invalidate any insurance coverage
maintained, or required hereunder to be maintained, by Trustor on or with
respect to any part of the Mortgaged Property, and Trustor further shall do all
other acts which from the character or use of the Mortgaged Property may be
reasonably necessary to protect the Mortgaged Property. Trustor shall underpin
and support, when necessary, any building, structure or other improvement
situated on the Mortgaged Property and shall not remove or demolish any building
on the Mortgaged Property. Trustor shall complete or restore and repair promptly
and in a good workmanlike manner any building, structure or improvement which
may be constructed, damaged or destroyed thereon and pay when due all claims for
labor performed and materials furnished therefor, whether or not insurance or
other proceeds are available to cover in whole or in part the costs of any such
completion, restoration or repair; provided, however, that Trustor shall not
demolish, remove, expand or extend any building, structure or improvement on the
Mortgaged Property, nor construct, restore, add to or alter any such building,
structure or improvement, nor consent to or permit any of the foregoing to be
done, without in each case obtaining the prior written consent of Beneficiary
thereto.
If this Deed of Trust is on a condominium or a cooperative apartment or
planned development project, Trustor shall perform all of Trustor's obligations
under any applicable declaration of condominium or master deed, or any
declaration of covenants, conditions and restrictions pertaining to any such
project, or any by-laws or regulations of the project or owners' association or
constituent documents.
Trustor shall not drill or extract or enter into any lease for the
drilling for or extraction of oil, gas or other hydrocarbon substances or any
mineral of any kind or character on or from the Mortgaged Property or any part
thereof without first obtaining Beneficiary's written consent.
Unless required by applicable law or unless Beneficiary has otherwise
first agreed in writing, Trustor shall not make or allow to be made any changes
in the nature of the occupancy or use of the Mortgaged Property or any part
thereof for which the Mortgaged Property or such part was intended at the time
this Deed of Trust was delivered.
1.10 Financial Statements; Offset Certificates.
(a) Trustor, without expense to Beneficiary, shall, upon receipt of
written request from Beneficiary, furnish to Beneficiary (1) an annual statement
of the operation of the Mortgaged Property prepared and certified by Trustor,
showing in reasonable detail satisfactory to Beneficiary total rents or other
proceeds received and total expenses together with an annual balance sheet and
profits and loss statement, within one hundred twenty (120) days after the close
of each fiscal year of Trustor, beginning with the fiscal year first ending
after the date of delivery of this Deed of Trust, (2) within 30 days after the
end of each calendar quarter (March 31, June 30, September 30, December 31)
interim statements of the operation of the Mortgaged Property showing in
reasonable detail satisfactory to Beneficiary total rents and income received
and total expenses, for the previous quarter, certified by Trustor, and (3)
copies of Trustor's annual state and federal income tax filing within thirty
(30) days of filing. Trustor shall keep accurate books and records, and allow
Beneficiary, its representatives and agents, upon demand, at any time during
normal business hours, access to such books and records, including any
supporting or related vouchers or papers, shall allow Beneficiary to make
extracts or copies of any thereof, and shall furnish to Beneficiary and its
agents convenient facilities for the audit of any such statements, books and
records.
(b) Trustor, within three (3) days upon request in person or within
five (5) days upon request by mail, shall furnish a written statement duly
acknowledged of all amounts due on any indebtedness secured hereby, whether for
principal or interest on the Note or otherwise, and stating whether any offsets
or defenses exist against the indebtedness secured by this Deed of Trust and
covering such other matters with respect to any such indebtedness as Beneficiary
may reasonably require.
<PAGE>
1.11 Trustee's Costs and Expenses; Governmental Charges.
Trustor shall pay all costs, fees and expenses of Trustee, its agents
and counsel in connection with the performance of its duties under this Deed of
Trust, including, without limitation, the cost of any trustee's sale guaranty or
other title insurance coverage ordered in connection with any sale or
foreclosure proceedings hereunder, and shall pay all taxes (except federal and
state income taxes) or other governmental charges or impositions imposed by any
governmental authority on Trustee or Beneficiary by reason of its interest in
the Note, or any note evidencing a Future Advance, or this Deed of Trust.
1.12 Protection of Security; Costs and Expenses.
Trustor agrees that, at any time and from time to time, it will execute
and deliver all such further documents and do all such other acts and things as
Beneficiary may reasonably request in writing in order to protect the security
and priority of the lien created hereby. Trustor further agrees that it will
execute such additional documents or amendments to this Deed of Trust, the Note
or the Related Agreements as Beneficiary may reasonably request to insure that
such documents reflect the party's agreement with regard to the business terms
agreed upon by the parties hereto. Trustor shall appear in and defend any action
or proceeding purporting to affect the security hereof or the rights or powers
of the Beneficiary or Trustee, and shall pay all costs and expenses, including,
without limitation, cost of evidence of title and reasonable attorneys' fees, in
any such action or proceeding in which Beneficiary or Trustee may appear, and in
any suit brought by Beneficiary to foreclose this Deed of Trust or to enforce or
establish any other rights or remedies of Beneficiary hereunder. If Trustor
fails to perform any of the covenants or agreements contained in this Deed of
Trust, or if any action or proceeding is commenced which affects Beneficiary's
interest in the Mortgaged Property or any part thereof, including, but not
limited to, eminent domain, code enforcement, or proceedings of any nature
whatsoever under any federal or state law, whether now existing or hereafter
enacted or amended, relating to bankruptcy, insolvency, arrangement,
reorganization or other form of debtor relief, or to a decedent, then
Beneficiary or Trustee may, but without obligation to do so and without notice
to or demand upon Trustor and without releasing Trustor from any obligation
hereunder, make such appearances, commence, defend or appear in any such action
or proceeding affecting the Mortgaged Property, pay, contest or compromise any
encumbrance, charge or lien which affects the Mortgaged Property, disburse such
sums and take such action as Beneficiary or Trustee deems necessary or
appropriate to protect Beneficiary's interest, including, but not limited to,
disbursement of reasonable attorneys' fees, entry upon the Mortgaged Property to
make repairs or take other action to protect the security hereof, and payment,
purchase, contest or compromise of any encumbrance, charge or lien which in the
judgment of either Beneficiary or Trustee appears to be prior or superior
hereto. Trustor further agrees to pay all reasonable expenses of Beneficiary
(including fees and disbursements of counsel) incident to the protection of the
rights of Beneficiary hereunder, or to enforcement or collection of payment of
the Note or any Future Advances, whether by judicial or nonjudicial proceedings,
or in connection with any bankruptcy, insolvency, arrangement, reorganization or
other debtor relief proceeding of Trustor, or otherwise. Any amounts disbursed
by Beneficiary or Trustee pursuant to this Section 1.12 shall be additional
indebtedness of Trustor secured by this Deed of Trust and each of the Related
Agreements as of the date of disbursement and shall bear interest at the rate
set forth in the Note. All such amounts shall be payable by Trustor immediately
without demand. Nothing contained in this Section 1.12 shall be construed to
require Beneficiary or Trustee to incur any expense, make any appearance, or
take any other action.
1.13 Fixture Filing.
This Deed of Trust constitutes a financing statement filed as a fixture
filing in the Official Records of the County Recorder of the county in which the
Mortgaged Property is located with respect to any and all fixtures included
within the term "Mortgaged Property" as used herein and with respect to any
goods or other personal property that may now be or hereafter become such
fixtures.
1.14 Notify Lender of Default.
Trustor shall notify Beneficiary in writing within five (5) days of the
occurrence of any Event of Default or other event which, upon the giving of
notice or the passage of time or both, would constitute an Event of Default.
1.15 Management of Mortgaged Property.
Trustor shall manage the Mortgaged Property through its own personnel
or a third party manager approved by Beneficiary, and shall not hire, retain or
contract with any other third party for property management services without the
prior written approval by Beneficiary of such party and the terms of its
contract for management services; provided, however, Beneficiary shall not
withhold approval of a new manager if the new manager has a reputation and
experience in managing properties similar to the Mortgaged Property which are
greater than or equal to the present experience and reputation of the current
manager.
<PAGE>
1.16 Miscellaneous.
Trustor shall: (a) make or permit no termination or material amendment
of any agreement between Trustor and a third party relating to the Mortgaged
Property or the loan secured hereby (including, without limitation, the Leases)
(the "Third Party Agreements") without the prior written approval of
Beneficiary, except amendments to Leases permitted by Section 1.06 hereof, (b)
perform Trustor's obligations under each Third Party Agreement, and (c) comply
promptly with all governmental requirements relating to Trustor, the loan
secured hereby and the Mortgaged Property.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
To induce the Beneficiary to make the loan secured hereby, Trustor
represents and warrants to Beneficiary, in addition to any representations and
warranties in the Note or any Related Agreements, that as of the date hereof and
throughout the term of the loan secured hereby until the Note is paid in full
and all obligations under this Deed of Trust are performed:
2.01 Power and Authority.
Trustor is duly organized and validly existing, qualified to do
business and in good standing in the State of California and has full power and
due authority to execute, deliver and perform this Deed of Trust, the Note, and
any Related Agreements in accordance with their terms. Such execution, delivery
and performance has been duly authorized by all necessary trust action and
approved by each required governmental authority or other party.
2.02 No Default or Violations.
No Event of Default (as defined hereafter) or event which, with notice
or passage of time or both, would constitute an Event of Default ("Unmatured
Event of Default") has occurred and is continuing under this Deed of Trust, the
Note, or any of the Related Agreements. Trustor is not in violation of any
governmental requirement (including, without limitation, any applicable
securities law) or in default under any agreement to which it is bound, or which
affects it or any of its property, and the execution, delivery and performance
of this Deed of Trust, the Note, or any of the Related Agreements in accordance
with their terms and the use and occupancy of the Mortgaged Property will not
violate any governmental requirement (including, without limitation, any
applicable usury law), or conflict with, be inconsistent with or result in any
default under, any of the provisions of any deed of trust, easement, restriction
of record, contract, document, agreement or instrument of any kind to which any
of the foregoing is bound or which affects it or any of its property, except as
identified in writing and approved by Beneficiary.
2.03 No Limitation or Governmental Controls.
There are no proceedings of any kind pending, or, to the knowledge of
Trustor, threatened against or affecting Trustor, the Mortgaged Property
(including any attempt or threat by any governmental authority to condemn or
rezone all or any portion of the Mortgaged Property), any party constituting
Trustor or any general partner in any such party, or involving the validity,
enforceability or priority of this Deed of Trust, the Note or any of the Related
Agreements or enjoining or preventing or threatening to enjoin or prevent the
use and occupancy of the Mortgaged Property or the performance by Beneficiary of
its obligations hereunder, and there are no rent controls, governmental
moratoria or environment controls presently in existence, or, to the knowledge
of Trustor, threatened or affecting the Mortgaged Property, except as identified
in writing to, and approved by, Beneficiary.
2.04 Liens.
Title to the Mortgaged Property, or any part thereof, is not subject to
any liens, encumbrances or defects of any nature whatsoever, whether or not of
record, and whether or not customarily shown on title insurance policies, except
as identified in writing and approved by Beneficiary.
2.05 Financial and Operating Statements.
All financial and operating statements submitted to Beneficiary in
connection with this loan secured hereby are true and correct in all respects,
have been prepared in accordance with generally accepted accounting principles
(applied, in the case of any unaudited statement, on a basis consistent with
that of the preceding fiscal year) and fairly present the respective financial
conditions of the subjects thereof and the results of their operations as of the
respective dates shown thereon. No materially adverse changes have occurred in
the financial conditions and operations reflected therein since their respective
dates, and no additional borrowings have been made since the date thereof other
than the borrowing made under this Deed of Trust and any other borrowing
approved in writing by Beneficiary.
2.06 Other Statements to Beneficiary.
Neither this Deed of Trust, the Note, any Related Agreement, nor any
document, agreement, report, schedule, notice or other writing furnished to the
Beneficiary by or on behalf of any party constituting Trustor, or any general
partner of any such party, contains any omission or misleading or untrue
statement of any fact material to any of the foregoing.
2.07 Third Party Agreements.
Each Third Party Agreement is unmodified and in full force and effect
and free from default on the part of each party thereto, and all conditions
required to be (or which by their nature can be) satisfied by any party to date
have been satisfied. Trustor has not done or said or omitted to do or say
anything which would give to any obligor on any Third Party Agreement any basis
for any claims against Beneficiary or any counterclaim to any claim which might
be made by Beneficiary against such obligor on the basis of any Third Party
Agreement.
ARTICLE III
EVENTS OF DEFAULT
Each of the following shall constitute an event of default ("Event of
Default") hereunder:
3.01 Failure to make any payment of principal or interest on the Note or any
Future Advance, when and as the same shall become due and payable, whether at
maturity or by acceleration or as part of any prepayment or otherwise, or
default in the performance of any of the covenants or agreements of Trustor
contained herein, or default in the performance of any of the covenants or
agreements of Trustor contained in the Note, or in any note evidencing a Future
Advance, or in any of the Related Agreements, after the expiration of the period
of time, if any, permitted for cure of such default thereunder.
3.02 The appointment, pursuant to an order of a court of competent jurisdiction,
of a trustee, receiver or liquidator of the Mortgaged Property or any part
thereof, or of Trustor, or any termination or voluntary suspension of the
transaction of business of Trustor, or any attachment, execution or other
judicial seizure of all or any substantial portion of Trustor's assets which
attachment, execution or seizure is not discharged within thirty (30) days.
3.03 Trustor, any trustee of Trustor, any general partner of Trustor, or any
trustee of a general partner of Trustor (each of which shall constitute
"Trustor" for purposes of this Section 3.03 and Sections 3.04 and 3.05 below)
shall file a voluntary case under any applicable bankruptcy, insolvency, debtor
relief, or other similar law now or hereafter in effect, or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or similar official) of the Trustor or for any
part of the Mortgaged Property or any substantial part of Trustor's property, or
shall make any general assignment for the benefit of Trustor's creditors, or
shall fail generally to pay Trustor's debts as they become due or shall take any
action in furtherance of any of the foregoing.
3.04 A court having jurisdiction shall enter a decree or order for relief in
respect of the Trustor, in any involuntary case brought under any bankruptcy,
insolvency, debtor relief, or similar law now or hereafter in effect, or Trustor
shall consent to or shall fail to oppose any such proceeding, or any such court
shall enter a decree or order appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Trustor or for any
part of the Mortgaged Property or any substantial part of the Trustor's
property, or ordering the winding up or liquidation of the affairs of the
Trustor, and such decree or order shall not be dismissed within sixty (60) days
after the entry thereof.
3.05 Default under the terms of any agreement of guaranty relating to the
indebtedness evidenced by the Note or relating to any Future Advance, or the
occurrence of any of the events enumerated in Sections 3.02, 3.03 or 3.04 with
regard to any guarantor of the Note or any Future Advance, or the revocation,
limitation or termination of the obligations of any guarantor of the Note or any
Future Advance, except in accordance with the express written terms of the
instrument of guaranty.
3.06 The occurrence of any event or transaction described in subsection 1.08(a)
above without the prior written consent of Beneficiary.
<PAGE>
3.07 Without the prior written consent of Beneficiary in each case, (a) the
dissolution or termination of existence of Trustor, voluntarily or
involuntarily; (b) the amendment or modification in any respect of Trustor's
partnership agreement or its partnership resolutions relating to this
transaction; or (c) the distribution of any of the Trustor's capital, except for
distribution of the proceeds of the loan secured hereby and cash from
operations; as used herein, cash from operations shall mean any cash of the
Trustor earned from operation of the Mortgaged Property, but not from a sale or
refinancing of the Mortgaged Property or from borrowing, available after paying
all ordinary and necessary current expenses of the Trustor, including expenses
incurred in the maintenance of the Mortgaged Property, and after establishing
reserves to meet current or reasonably expected obligations of the Trustor.
3.08 The imposition of a tax, other than a state or federal income tax, on or
payable by Trustee or Beneficiary by reason of its ownership of the Note, or its
ownership of any note evidencing a Future Advance, or this Deed of Trust, and
Trustor not promptly paying said tax, or it being illegal for Trustor to pay
said tax.
3.09 Any representation, warranty, or disclosure made to Beneficiary by Trustor
or any guarantor of any indebtedness secured hereby in connection with or as an
inducement to the making of the loan evidenced by the Note or in connection with
or as an inducement to the making of any Future Advance, or this Deed of Trust
(including, without limitation, the representations and warranties contained in
Article II of this Deed of Trust), or any of the Related Agreements, proving to
be false or misleading in any material respect as of the time the same was made,
whether or not any such representation or disclosure appears as part of this
Deed of Trust.
3.10 Any other event occurring which, under this Deed of Trust, or under the
Note or any note evidencing a Future Advance, or under any of the Related
Agreements constitutes a default by Trustor hereunder or thereunder or gives
Beneficiary the right to accelerate the maturity of the indebtedness, or any
part thereof, secured hereby.
ARTICLE IV
REMEDIES
Upon the occurrence of any Event of Default, Trustee and Beneficiary
shall have the following rights and remedies:
4.01 Acceleration.
Beneficiary may declare the entire principal amount of the Note and/or
any Future Advances then outstanding (if not then due and payable), and accrued
and unpaid interest thereon, and all other sums or payments required thereunder,
to be due and payable immediately, and notwithstanding the stated maturity in
the Note, or any note evidencing any Future Advance, the principal amount of the
Note and/or any Future Advance and the accrued and unpaid interest thereon and
all other sums or payments required thereunder shall thereupon become and be
immediately due and payable.
4.02 Entry.
Irrespective of whether Beneficiary exercises the option provided in
Section 4.01 above, Beneficiary in person or by agent or by court-appointed
receiver may enter upon, take possession of, manage and operate the Mortgaged
Property or any part thereof and do all things necessary or appropriate in
Beneficiary's sole discretion in connection therewith, including, without
limitation, making and enforcing, and if the same be subject to modification or
cancellation, modifying or canceling Leases upon such terms or conditions as
Beneficiary deems proper, obtaining and evicting tenants, and fixing or
modifying rents, contracting for and making repairs and alterations, and doing
any and all other acts which Beneficiary deems proper to protect the security
hereof; and either with or without so taking possession, in its own name or in
the name of Trustor, sue for or otherwise collect and receive the Rents and
Profits, including those past due and unpaid, and apply the same less costs and
expenses of operation and collection, including reasonable attorneys' fees, upon
any indebtedness secured hereby, and in such order as Beneficiary may determine.
Upon request of Beneficiary, Trustor shall assemble and make available to
Beneficiary at the site of the real property covered hereby any of the Mortgaged
Property which has been removed therefrom. The entering upon and taking
possession of the Mortgaged Property, or any part thereof, and the collection of
any Rents and Profits and the application thereof as aforesaid shall not cure or
waive any default theretofore or thereafter occurring or affect any notice or
default hereunder or invalidate any act done pursuant to any such default or
notice, and, notwithstanding continuance in possession of the Mortgaged Property
or any part thereof by Beneficiary, Trustor or a receiver, and the collection,
receipt and application of the Rents and Profits, Beneficiary shall be entitled
to exercise every right provided for in this Deed of Trust or by law or in
equity upon or after the occurrence of a default, including, without limitation,
the right to exercise the power of sale. Any of the actions referred to in this
Section 4.02 may be taken by Beneficiary irrespective of whether any notice of
default or election to sell has been given hereunder and without regard to the
adequacy of the security for the indebtedness hereby secured.
<PAGE>
4.03 Judicial Action.
Beneficiary may bring an action in any court of competent jurisdiction
to foreclose this instrument or to enforce any of the covenants and agreements
hereof.
4.04 Power of Sale.
Beneficiary may elect to cause the Mortgaged Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Mortgaged Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable law, separate and apart from the sale of real
property. Sales hereunder of any personal property only shall be conducted in
any manner permitted by the California Uniform Commercial Code. Where the
Mortgaged Property consists of real property and personal property located on or
within the real property, Beneficiary may elect in its discretion to dispose of
both the real and personal property together in one sale pursuant to real
property law as permitted by Section 9-501(4) of the California Uniform
Commercial Code. Should Beneficiary elect to sell the Mortgaged Property, or any
part thereof, which is real property or which Beneficiary has elected to treat
as real property as provided above, Beneficiary or Trustee shall give such
notice of default and election to sell as may then be required by law.
Thereafter, upon the expiration of such time and the giving of such notice of
sale as may then be required by law, and without the necessity of any demand on
Trustor, Trustee, at the time and place specified in the notice of sale, shall
sell said real property or part thereof at public auction to the highest bidder
for cash in lawful money of the United States. Trustee may, and upon request of
Beneficiary shall, from time to time, postpone any sale hereunder by public
announcement thereof at the time and place noticed therefor. If the Mortgaged
Property consists of several lots, parcels or items of property, Beneficiary
may: (a) designate the order in which such lots, parcels or items shall be
offered for sale or sold, or (b) elect to sell such lots, parcels or items
through a single sale, or through two or more successive sales, or in any other
manner Beneficiary deems in its best interest. Any person, including Trustor,
Trustee or Beneficiary, may purchase at any sale hereunder, and Beneficiary
shall have the right to purchase at any sale hereunder by crediting upon the bid
price the amount of all or any part of the indebtedness hereby secured. Should
Beneficiary desire that more than one sale or other disposition of the Mortgaged
Property be conducted, Beneficiary may, at its option, cause the same to be
conducted simultaneously, or successively, on the same day, or at such different
days or times and in such order as Beneficiary may deem to be in its best
interests, and no such sale shall terminate or otherwise affect the lien of this
Deed of Trust on any part of the Mortgaged Property not sold until all
indebtedness secured hereby has been fully paid. In the event Beneficiary elects
to dispose of the Mortgaged Property through more than one sale, Trustor agrees
to pay the costs and expenses of each such sale and of any judicial proceedings
wherein the same may be made, including reasonable compensation to Trustee and
Beneficiary, their agents and counsel, and to pay all expenses, liabilities and
advances made or incurred by Trustee in connection with such sale or sales,
together with interest on all such advances made by Trustee at the lower of the
rate set forth in the Note, or the maximum rate permitted by law to be charged
by Trustee. Upon any sale hereunder, Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession; and the recitals
in any such deed or deeds of facts, such as default, the giving of notice of
default and notice of sale, and other facts affecting the regularity or validity
of such sale or disposition, shall be conclusive proof of the truth of such
facts and any such deed or deeds shall be conclusive against all persons as to
such facts recited therein.
4.05 Environmental Default and Remedies.
In the event that any portion of the Mortgaged Property is determined
to be "environmentally impaired" (as "environmentally impaired" is defined in
California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected
parcel" (as "affected parcel" is defined in California Code of Civil Procedure
Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting
Beneficiary's or Trustee's rights and remedies under this Deed of Trust,
Beneficiary may elect to exercise its right under California Code of Civil
Procedure Section 726.5(a) to (1) waive its lien on such environmentally
impaired or affected portion of the Mortgaged Property and (2) exercise (i) the
rights and remedies of an unsecured creditor, including reduction of its claim
against Trustor to judgment, and (ii) any other rights and remedies permitted by
law. For purposes of determining Beneficiary's right to proceed as an unsecured
creditor under California Code of Civil Procedure Section 726.5(a), Trustor
shall be deemed to have willfully permitted or acquiesced in a release or
threatened release of hazardous materials, within the meaning of California Code
of Civil Procedure Section 726.5(d)(1), if the release or threatened release of
hazardous materials was knowingly or negligently caused or contributed to by any
lessee, occupant or user of any portion of the Mortgaged Property and Trustor
knew or should have known of the activity by such lessee, occupant or user which
caused or contributed to the release or threatened release. All costs and
expenses, including, but not limited to, attorneys' fees, incurred by
Beneficiary in connection with any action commenced under this Section 4.05,
including any action required by California Code of Civil Procedure Section
726.5(b) to determine the degree to which the Mortgaged Property is
environmentally impaired, plus interest thereon at the rate specified in the
Note, shall be added to the indebtedness secured by this Deed of Trust and shall
be due and payable to Beneficiary upon its demand made at any time following the
conclusion of such action.
4.06 Proceeds of Sale.
The proceeds of any sale made under or by virtue of this Article IV,
together with all other sums which then may be held by Trustee or Beneficiary
under this Deed of Trust, whether under the provisions of this Article IV or
otherwise, shall be applied as follows:
FIRST: To the payment of costs and expenses of sale and of any judicial
proceedings wherein the same may be made, including reasonable compensation to
Trustee and Beneficiary, their agents and counsel, and to the payment of all
expenses, liabilities and advances made or incurred by Trustee under this Deed
of Trust, together with interest on all advances made by Trustee at the lower of
the interest rate set forth in the Note or the maximum rate permitted by law to
be charged by Trustee.
SECOND: To the payment of any and all sums expended by Beneficiary
under the terms of this Deed of Trust, not then repaid, with accrued interest at
the rate set forth in the Note, and all other sums (except advances of principal
and interest thereon) required to be paid by Trustor pursuant to any provisions
of this Deed of Trust, or the Note, or any note evidencing any Future Advance,
or any of the Related Agreements, including but not limited to all expenses,
liabilities and advances made or incurred by Beneficiary under this Deed of
Trust or in connection with the enforcement thereof, together with interest
thereon as herein provided except for any amounts incurred under or as a result
of the Environmental Agreement.
THIRD: To the payment of the entire amount then due, owing or unpaid
for principal and interest upon the Note and any notes evidencing any Future
Advances, with interest on the unpaid principal at the rate set forth therein
from the date of advancement thereof until the same is paid in full.
FOURTH: To the payment of any and all expenses, liabilities and
advances made or incurred by Beneficiary under this Deed of Trust or otherwise
in connection with the Environmental Agreement or in connection with the
enforcement thereof, together with interest thereon as herein provided.
FIFTH: The remainder, if any, to the person or persons legally
entitled thereto.
4.07 Waiver of Marshaling.
Trustor, for itself and for all persons hereafter claiming through or
under it or who may at any time hereafter become holders of liens junior to the
lien of this Deed of Trust, hereby expressly waives and releases all rights to
direct the order in which any of the Mortgaged Property shall be sold in the
event of any sale or sales pursuant hereto and to have any of the Mortgaged
Property and/or any other property now or hereafter constituting security for
any of the indebtedness secured by this Deed of Trust marshaled upon any
foreclosure of this Deed of Trust or of any other security for any of said
indebtedness.
4.08 Remedies Cumulative.
No remedy herein conferred upon or reserved to Trustee or Beneficiary
is intended to be exclusive of any other remedy herein or by law provided, but
each shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute. No
delay or omission of Trustee or Beneficiary to exercise any right or power
accruing upon any Event of Default shall impair any right or power or shall be
construed to be a waiver of any Event of Default or any acquiescence therein;
and every power and remedy given by this Deed of Trust to Trustee or Beneficiary
may be exercised from time to time as often as may be deemed expedient by
Trustee or Beneficiary. If there exists additional security for the performance
of the obligations secured hereby, the holder of the Note, at its sole option,
and without limiting or affecting any of its rights or remedies hereunder, may
exercise any of the rights and remedies to which it may be entitled hereunder
either concurrently with whatever rights and remedies it may have in connection
with such other security or in such order as it may determine. Any application
of any amounts or any portion thereof held by Beneficiary at any time as
additional security hereunder, whether pursuant to Section 1.03 or Section 1.05
hereof or otherwise, to any indebtedness secured hereby shall not extend or
postpone the due dates of any payments due from Trustor to Beneficiary hereunder
or under the Note, any Future Advances or any of the Related Agreements, or
change the amounts of any such payments or otherwise be construed to cure or
waive any default or notice of default hereunder or invalidate any act done
pursuant to any such default or notice.
<PAGE>
ARTICLE V
MISCELLANEOUS
5.01 Severability.
In the event any one or more of the provisions contained in this Deed
of Trust shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Deed of Trust, but this Deed of Trust shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
5.02 Certain Charges.
Trustor agrees to pay Beneficiary for each statement of Beneficiary as
to the obligations secured hereby, furnished at Trustor's request, the maximum
fee allowed by law, or if there be no maximum fee, then such reasonable fee as
is charged by Beneficiary as of the time said statement is furnished. Trustor
further agrees to pay the charges of Beneficiary for any other service rendered
Trustor, or on its behalf, connected with this Deed of Trust or the indebtedness
secured hereby, including, without limitation, the delivery to an escrow holder
of a request for full or partial reconveyance of this Deed of Trust,
transmitting to an escrow holder moneys secured hereby, changing its records
pertaining to this Deed of Trust and indebtedness secured hereby to show a new
owner of the Mortgaged Property, and replacing an existing policy of insurance
held hereunder with another such policy.
5.03 Notices.
All notices expressly provided hereunder to be given by Beneficiary to
Trustor and all notices and demands of any kind or nature whatsoever which
Trustor may be required or may desire to give to or serve on Beneficiary shall
be in writing and shall be served in person or by first class or certified mail.
Any such notice or demand so served by first class or certified mail shall be
deposited in the United States mail, with postage thereon fully prepaid and
addressed to the party so to be served at its address above stated or at such
other address of which said party shall have theretofore notified in writing, as
provided above, the party giving such notice. Service of any such notice or
demand so made shall be deemed effective on the day of actual delivery as shown
by the addressee's return receipt or the expiration of three business days after
the date of mailing, whichever is the earlier in time, except that service of
any notice of default or notice of sale provided or required by law shall, if
mailed, be deemed effective on the date of mailing.
5.04 Trustor Not Released.
Extension of the time for payment or modification of the terms of
payment of any sums secured by this Deed of Trust granted by Beneficiary to any
successor in interest of Trustor shall not operate to release, in any manner,
the liability of the original Trustor. Beneficiary shall not be required to
commence proceedings against such successor or refuse to extend time for payment
or otherwise modify the terms of payment of the sums secured by this Deed of
Trust by reason of any demand made by the original Trustor. Without affecting
the liability of any person, including Trustor, for the payment of any
indebtedness secured hereby, or the lien of this Deed of Trust on the remainder
of the Mortgaged Property for the full amount of any such indebtedness and
liability unpaid, Beneficiary and Trustee are respectively empowered as follows:
Beneficiary may from time to time and without notice (a) release any person
liable for the payment of any of the indebtedness, (b) extend the time or
otherwise alter the terms of payment of any of the indebtedness, (c) accept
additional real or personal property of any kind as security therefor, whether
evidenced by deeds of trust, mortgages, security agreement or any other
instruments of security, or (d) alter, substitute or release any property
securing the indebtedness; Trustee may, at any time, and from time to time, upon
the written request of Beneficiary, which Beneficiary may withhold in its sole
discretion (1) consent to the making of any map or plat of the Mortgaged
Property or any part thereof, (2) join in granting any easement or creating any
restriction thereon, (3) join in any subordination or other agreement affecting
this Deed of Trust or the lien or charge hereof, or (4) reconvey, without any
warranty, all or part of the Mortgaged Property.
5.05 Inspection.
Beneficiary may at any reasonable time or times make or cause to be
made entry upon and inspection of the Mortgaged Property or any part thereof in
person or by agent.
5.06 Reconveyance.
Upon the payment in full of all sums secured by this Deed of Trust,
Beneficiary shall request Trustee to reconvey the Mortgaged Property and shall
surrender this Deed of Trust and all notes evidencing indebtedness secured by
this Deed of Trust to Trustee. Upon payment of its fees and any other sums owing
to it under this Deed of Trust, Trustee shall reconvey the Mortgaged Property
without warranty to the person or persons legally entitled thereto. Trustor
shall pay all costs of recordation, if any. The recitals in such conveyance of
any matters of facts shall be conclusive proof of the truthfulness thereof. The
grantee in such reconveyance may be described as "the person or persons legally
entitled thereto." Five years after issuance of such full reconveyance, Trustee
may destroy said notes and this Deed of Trust unless otherwise directed by
Beneficiary.
5.07 Statute of Limitations.
The pleading of any statute of limitations as a defense to any and all
obligations secured by this Deed of Trust is hereby waived to the fullest extent
permitted by law.
5.08 Interpretation.
Wherever used in this Deed of Trust, unless the context otherwise
indicates a contrary intent, or unless otherwise specifically provided herein,
the word "Trustor" shall mean and include both Trustor and any subsequent owner
or owners of the Mortgaged Property, and the word "Beneficiary" shall mean and
include not only the original Beneficiary hereunder but also any future owner
and holder, including pledgees, of the Note secured hereby. In this Deed of
Trust whenever the context so requires, the masculine gender includes the
feminine and/or neuter, and the neuter includes the feminine and/or masculine,
and the singular number includes the plural and conversely. In this Deed of
Trust, the use of the word "including" shall not be deemed to limit the
generality of the term or clause to which it has reference, whether or not
non-limiting language (such as "without limitation," or "but not limited to," or
words of similar import) is used with reference thereto, but rather shall be
deemed to include any word which could reasonably fall within the broadest
possible scope of such general statement, term or matter. The captions and
headings of the Articles and Sections of this Deed of Trust are for convenience
only and are not to be used to interpret, define or limit the provisions of this
Deed of Trust.
5.09 Consent; Delegation to Sub-Agents.
The granting or withholding of consent by Beneficiary to any
transaction as required by the terms hereof shall not be deemed a waiver of the
right to require consent to future or successive transactions. Wherever a power
of attorney is conferred upon Beneficiary hereunder, it is understood and agreed
that such power is conferred with full power of substitution, and Beneficiary
may elect in its sole discretion to exercise such power itself or to delegate
such power, or any part thereof, to one or more sub-agents.
5.10 Successors and Assigns.
All of the grants, obligations, covenants, agreements, terms,
provisions and conditions herein shall run with the land and shall apply to,
bind and inure to the benefit of, the heirs, administrators, executors, legal
representatives, and warranties contained herein as well as the obligations
arising therefrom are and shall be joint and several as to each such party.
5.11 Governing Law.
The loan secured by this Deed of Trust is made pursuant to, and shall
be construed and governed by, the laws of the State of California and the rules
and regulations promulgated thereunder.
5.12 Substitution of Trustee.
Beneficiary may remove Trustee at any time or from time to time and
appoint a successor trustee, and upon such appointment, all powers, rights,
duties and authority of Trustee, as aforesaid, shall thereupon become vested in
such successor. Such substitute trustee shall be appointed by written instrument
duly recorded in the county or counties where the real property covered hereby
is located, which appointment may be executed by any authorized agent of
Beneficiary or in any other manner permitted by applicable law.
5.13 No Waiver.
No failure or delay by Beneficiary in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. No waiver, consent or approval of any kind by Beneficiary shall be
effective unless contained in writing signed and delivered by Beneficiary. No
notice to or demand on Trustor in any case shall entitle Trustor to any other
notice or demand in similar or other circumstances, nor shall such notice or
demand constitute a waiver of the rights of Beneficiary to any other or further
actions.
<PAGE>
5.14 Beneficiary Not Partner of Trustor; Trustor to Indemnify Beneficiary.
The exercise by Beneficiary of any of its rights, privileges or
remedies conferred hereunder or under the Note or any other Related Agreements
or under applicable law, shall not be deemed to render Beneficiary a partner or
a co-venturer with the Trustor or with any other person. Any and all of such
actions will be exercised by Beneficiary solely in furtherance of its role as a
secured lender advancing funds for use by the Trustor as provided in this Deed
of Trust. Trustor shall indemnify Beneficiary against any claim by any third
party for any injury, damage or liability of any kind arising out of any failure
of Trustor to perform its obligations in this transaction, shall notify
Beneficiary of any lawsuit based on such claim, and at Beneficiary's election,
shall defend Beneficiary therein at Trustor's own expense by counsel
satisfactory to Beneficiary or shall pay the Beneficiary's cost and attorneys'
fees if Beneficiary chooses to defend itself on any such claim.
5.15 Time of Essence.
Time is declared to be of the essence in this Deed of Trust, the Note
and any Related Agreements and of every part hereof and thereof.
5.16 Entire Agreement.
Once the Note, this Deed of Trust, and all of the other Related
Agreements, if any, have been executed, all of the foregoing constitutes the
entire agreement between the parties hereto and none of the foregoing may be
modified or amended in any manner other than by supplemental written agreement
executed by the parties hereto; provided, however, that all written and oral
representations of Trustor, and of any partner, principal or agent of Trustor,
previously made to Beneficiary shall be deemed to have been made to induce
Beneficiary to make the loan secured hereby and to enter into the transaction
evidenced hereby and by the Note and the Related Agreements, and shall survive
the execution hereof and the closing pursuant hereto. This Deed of Trust cannot
be changed or modified except by written agreement signed by both Trustor and
Beneficiary.
5.17 No Third Party Benefits.
This Deed of Trust, the Note and the other Related Agreements, if any,
are made for the sole benefit of Trustor and Beneficiary and their successors
and assigns, and convey no other legal interest to any party under or by reason
of any of the foregoing. Whether or not Beneficiary elects to employ any or all
of the rights, powers or remedies available to it under any of the foregoing,
Beneficiary shall have no obligation or liability of any kind to any third party
by reason of any of the foregoing or any of Beneficiary's actions or omissions
pursuant thereto or otherwise in connection with this transaction.
5.18 Junior Deed of Trust.
(a) Notwithstanding anything herein to the contrary, the parties
acknowledge that this Deed of Trust is a second lien on the Mortgaged Property
subject to the prior deed of trust in favor of _________________________________
dated ________________, 19___ and recorded on __________________, 19___ in the
Official Records of _______________________ County, California (the "Superior
Deed of Trust"). It is a covenant hereof that Trustor shall faithfully and fully
observe and perform each and every term, covenant and condition of any and all
Superior Deed of Trust and of any and all loan agreements, notes, Superior Deed
of Trust (the "Superior Financing Documents"), and shall not permit any of such
Superior Financing Documents to go into default. Trustor shall immediately
notify Beneficiary of any default or delinquency under any of the Superior
Financing Documents, and shall provide Beneficiary with a copy of any notice of
default or delinquency received by Trustor pursuant to any of the Superior
Financing Documents. A default or delinquency under any one of the Superior
Financing Documents shall automatically and immediately constitute an Event of
Default under this Deed of Trust, and in consequence thereof, Beneficiary may
avail itself of any remedies it may have for an Event of Default hereunder,
including, without limitation, acceleration of the Note.
(b) Beneficiary is hereby expressly authorized to advance at its option
all sums necessary to keep any of the Superior Financing Documents in good
standing, and all sums so advanced, together with interest thereon at the
default rates (as defined in the Note), shall be repayable on demand to
Beneficiary and shall be secured by the lien of this Deed of Trust, as in the
case of other advances made by Beneficiary hereunder.
(c) Trustor agrees that Trustor shall not make any agreement with the
holder of any Superior Financing Documents which shall in any way modify,
change, alter or extend any of the terms or conditions of any such Superior
Financing Documents, nor shall Trustor request or accept any future advances
under such Superior Financing Documents without the express written consent of
Beneficiary.
<PAGE>
REQUEST FOR NOTICES
Trustor hereby requests that a copy of any Notice of Default and Notice
of Sale as may be required by law be mailed to Trustor at its address above
stated.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
day and year first hereinabove written.
TRUSTOR: _________________________________
<PAGE>
EXHIBIT A
DESCRIPTION OF THE PROPERTY
<PAGE>
STATE OF CALIFORNIA
COUNTY OF ______________________)
On __________________, 20___ before me, ___________________________, a
Notary Public in and for said State, personally appeared ______________________
______________________________________________ personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------
(Signature)
(SEAL)
STATE OF CALIFORNIA
COUNTY OF ___________________________)
On __________________, 20___ before me, ___________________________, a
Notary Public in and for said State, personally appeared ______________________
_______________________________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------
(Signature)
(SEAL)~
successors and assigns of Trustor and the successors in trust of Trustee
and the endorsees, transferees, successors and assigns of Beneficiary. In the
event Trustor is composed of more than one party, the obligations, covenants,
agreements,
<PAGE>
EXHIBIT 10.4 (b)
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Redwood Mortgage Corp.
650 El Camino Real, Suite G
Redwood City, California 94063-1394
Attn: Michael Burwell
------------------------------------------------------------------------------
LOAN NO.:
DEED OF TRUST, ASSIGNMENT
OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (this "Deed of Trust") is made as of ______________, 19___,
by ____________________________________________________, the owner(s) of the
property described below, whose address is ____________________________________,
(herein "Trustor"), to PLM LENDER SERVICES, INC., a California corporation,
whose address is 577 Salmar Avenue, Suite #100, Campbell, California 95008,
(herein "Trustee"), in favor of
____________________________________________________________________, whose
address is 650 El Camino Real, Suite G, Redwood City, California 94063-1394
(herein "Beneficiary").
Trustor, in consideration of the indebtedness described by this Deed of
Trust, irrevocably grants, conveys, transfers and assigns to Trustee, its
successors and assigns, in trust, with power of sale and right of entry and
possession, all of Trustor's present and future estate, right, title and
interest in and to the following (which shall hereafter be referred to as the
"Mortgaged Property"):
(a) Land. That certain real property located in the City of
________________, County of _______________, State of California, more
particularly described in Exhibit A attached hereto and incorporated herein by
this reference (the "Land");
(b) Improvements. All buildings and other improvements now or hereafter
located on the Land, including, but not limited to, the Fixtures (as defined
below) (collectively, the "Improvements");
(c) Fixtures. All fixtures (goods that are or become so related to the
Land or Improvements that an interest in them arises under real estate law) now
or hereafter located on, attached to, installed in or used in connection with
the Land and Improvements;
(d) Intellectual Property Rights, Other Personal Property. All
intangible property and rights relating to the Land or the operation thereof, or
used in connection therewith, including, without limitation, tradenames and
trademarks; all machinery, equipment, building materials, appliances and goods
of every nature whatsoever (herein collectively called "equipment" and other
"personal property") now or hereafter located in, or on, attached or affixed to,
or used or intended to be used in connection with, the Land and the
Improvements, including, but without limitation, all heating, lighting, laundry,
incinerating, gas, electric and power equipment, engines, pipes, pumps, tanks,
motors, conduits, switchboards, plumbing, lifting, cleaning, fire prevention,
fire extinguishing, refrigerating, ventilating and communications apparatus, air
cooling and air conditioning apparatus, elevators and escalators and related
machinery and equipment, pool and pool operation and maintenance equipment and
apparatus, shades, awnings, blinds, curtains, drapes, attached floor coverings,
including rugs and carpeting, television, radio and music cable antennae and
systems, screens, storm doors and windows, stoves, refrigerators, dishwashers
and other installed appliances, attached cabinets, partitions, ducts and
compressors, furnishings and furniture, and trees, plants and other items of
landscaping (except that the foregoing equipment and other personal property
covered hereby shall not include machinery, apparatus, equipment, fittings and
articles of personal property used in the business of Trustor (commonly referred
to as "trade fixtures") whether the same are annexed to said real property or
not, unless the same are also used in the operation of any building or other
improvement located thereon or unless the same cannot be removed without
materially damaging said real property or any such building or other
improvement), all of which, including replacements and additions thereto, shall,
to the fullest extent permitted by law and for the purposes of this Deed of
Trust, be deemed to be part and parcel of, and appropriated to the use of, said
real property and, whether affixed or annexed thereto or not, be deemed
conclusively to be real property and conveyed by this Deed of Trust, and all
proceeds and products of any and all thereof;
(e) Contracts, Permits, Plans, Easements. All now or hereafter existing
plans and specifications prepared for construction of Improvements on the Land
and all studies, data and drawings related thereto, and also all contracts and
agreements of Trustor relating to the plans and specifications or to the
studies, data and drawings, or to the construction of Improvements on the Land
(the "Plans and Specifications"); all contracts, permits, certificates, plans,
studies, data, drawings, licenses, approvals, entitlements and authorizations,
however, characterized, issued or in any way furnished for the acquisition,
construction, operation and use of the Land or the Improvements, including
building permits, environmental certificates, licenses, certificates of
operation, warranties and guaranties; all easements, rights and appurtenances
thereto or used in connection with the above-described Land or Improvements;
(f) Interest in Leases. All existing and future Leases (as defined in
Section 1.03 (b) (1) below) relating to the Land and Improvements or any
interest in them;
(g) Proceeds. All rents, royalties, issues, profits, revenues, income,
remittances, payments and other benefits arising or derived from the use or
enjoyment of all or any portion of the Land or Improvements, or derived from any
Lease, sublease, license, or agreement relating to the use or enjoyment of the
Land or Improvements (subject to the rights given below to Trustor to collect
and apply such rents, royalties, issues, profits, revenues, income, remittances,
payments and other benefits);
(h) Additional Proceeds. All Trustor's other existing or future
estates, easements, licenses, interests, rights, titles, homestead or other
claims or demands, both in law and in equity in the Mortgaged Property
including, without limitation, (1) all damages or awards made to Trustor related
to the Mortgaged Property, including without limitation, for the partial or
complete taking by eminent domain, or by an proceeding or purchase in lieu of
eminent domain, of the Mortgaged Property, and (2) all proceeds of any insurance
covering the Mortgaged Property. Trustor agrees to execute and deliver, from
time to time, such further instruments and documents as may be required by
Beneficiary to confirm the lien of this Deed of Trust on any of the foregoing.
FOR THE PURPOSE OF SECURING, in such order of priority as Beneficiary
may elect:
(a) The repayment of the indebtedness evidenced by Trustor's promissory
note of even date herewith payable to the order of Beneficiary in the original
principal sum of ________________________________________________________
($_____________), with interest thereon, as provided therein, and all prepayment
charges, late charges and loan fees required thereunder, and all extensions,
renewals, modifications, amendments and replacements thereof (herein "Note");
(b) The payment of all other sums which may be advanced by or otherwise
be due to Trustee or Beneficiary under any provision of this Deed of Trust or
under any other instrument or document referred to in subsection (c) below, with
interest thereon at the rate provided herein or therein;
(c) The performance of each and every of the covenants and agreements
of Trustor contained in (1) this Deed of Trust and the Note, and in any note
evidencing a Future Advance (as hereinafter defined), (2) in the Environmental
Agreement and Indemnity executed by Trustor concurrently herewith, and in any
and all pledge agreements, supplemental agreements, assignments and all
instruments of indebtedness or security now or hereafter executed by Trustor in
connection with any indebtedness referred to in subsection (a) above or
subsection (d) below or for the purpose of supplementing or amending this Deed
of Trust or any instrument secured hereby (all of the foregoing in Clause (2),
as the same may be amended, modified or supplemented from time to time, being
referred to hereinafter as "Related Agreements"); and
(d) The repayment of any other loans or advances, with interest
thereon, hereafter made to Trustor (or any successor in interest to Trustor as
the owner of the Mortgaged Property or any part thereof) by Beneficiary when the
promissory note evidencing the loan or advance specifically states that said
note is secured by this Deed of Trust, together with all extensions, renewals,
modifications, amendments and replacements thereof (herein "Future Advance").
ARTICLE I
COVENANTS OF TRUSTOR
To protect the security of this Deed of Trust, Trustor covenants and
agrees as follows:
1.01 Performance of Obligations Secured.
Trustor shall promptly pay when due the principal of and interest on
the indebtedness evidenced by the Note, the principal of and interest on any
Future Advances, and any prepayment, late charges and loan fees provided for in
the Note or in any note evidencing a Future Advance or provided for herein, and
shall further perform fully and in a timely manner all other obligations of
Trustor contained herein or in the Note or in any note evidencing a Future
Advance or in any of the Related Agreements. All sums payable by Trustor
hereunder shall be paid without demand, counterclaim, offset, deduction or
defense and Trustor waives all rights now or hereinafter conferred by statute or
otherwise to any such demand, counterclaim, offset, deduction or defense.
1.02 Insurance.
Trustor shall keep the Mortgaged Property insured with an all-risk
policy insuring against loss or damage by fire and earthquake with extended
coverage and against any other risks or hazards which, in the opinion of
Beneficiary, should be insured against, in an amount not less than 100% of the
full insurable value thereof on a replacement cost basis, with an inflation
guard endorsement, with a company or companies and in such form and with such
endorsements as may be approved or required by Beneficiary, including, if
applicable, boiler explosion coverage and sprinkler leakage coverage. All losses
under said insurance, and any other insurance obtained by Trustor with respect
to the Mortgaged Property whether or not required by Beneficiary, shall be
payable to Beneficiary and shall be applied in the manner provided in Section
1.03 hereof. Trustor shall also carry comprehensive general public liability
insurance and twelve (12) months' rent loss insurance in such form and amounts
and with such companies as are satisfactory to Beneficiary. Trustor shall also
carry insurance against flood if required by the Federal Flood Disaster
Protection Act of 1973 and regulations issued thereunder. All hazard, flood and
rent loss insurance policies shall be endorsed with a standard noncontributory
mortgagee clause in favor of and in form acceptable to Beneficiary, and may be
canceled or modified only upon not less than thirty (30) days' prior written
notice to Beneficiary. All of the above-mentioned insurance policies or
certificates of such insurance satisfactory to Beneficiary, together with
receipts for the payment of premiums thereon, shall be delivered to and held by
Beneficiary, which delivery shall constitute assignment to Beneficiary of all
return premiums to be held as additional security hereunder. All renewal and
replacement policies shall be delivered to Beneficiary at least thirty (30) days
before the expiration of the expiring policies. Beneficiary shall not by the
fact of approving, disapproving, accepting, preventing, obtaining or failing to
obtain any insurance, incur any liability for or with respect to the amount of
insurance carried, the form or legal sufficiency of insurance contracts,
solvency of insurance companies, or payment or defense of lawsuits, and Trustor
hereby expressly assumes full responsibility therefor and all liability, if any,
with respect thereto.
1.03 Condemnation and Insurance Proceeds.
(a) The proceeds of any award or claim for damages, direct or
consequential, in connection with any condemnation or other taking of or damage
or injury to the Mortgaged Property, or any part thereof, or for conveyance in
lieu of condemnation, are hereby assigned to and shall be paid to Beneficiary.
In addition, all causes of action, whether accrued before or after the date of
this Deed of Trust, of all types for damages or injury to the Mortgaged Property
or any part thereof, or in connection with any transaction financed by funds
loaned to Trustor by Beneficiary and secured hereby, or in connection with or
affecting the Mortgaged Property or any part thereof, including, without
limitation, causes of action arising in tort or contract and causes of action
for fraud or concealment of a material fact, are hereby assigned to Beneficiary
as additional security, and the proceeds thereof shall be paid to Beneficiary.
Beneficiary may at its option appear in and prosecute in its own name any action
or proceeding to enforce any such cause of action and may make any compromise or
settlement thereof. Trustor, immediately upon obtaining knowledge of any
casualty damage to the Mortgaged Property or damage in any other manner in
excess of $25,000.00 or knowledge of the institution of any proceedings relating
to condemnation or other taking of or damage or injury to the Mortgaged Property
or any portion thereof, will immediately notify Beneficiary in writing.
Beneficiary, in its sole discretion, may participate in any such proceedings and
may join Trustor in adjusting any loss covered by insurance.
(b) All compensation, awards, proceeds, damages, claims, insurance
recoveries, rights of action and payments which Trustor may receive or to which
Trustor may become entitled with respect to the Mortgaged Property in the event
of any damage or injury to or a partial condemnation or other partial taking of
the Mortgaged Property shall be paid over to Beneficiary and shall be applied
first toward reimbursement of all costs and expenses of Beneficiary in
connection with recovery of the same, and then shall be applied, as follows:
(1) Beneficiary shall consent to the application of such payments to
the restoration of the Mortgaged Property so damaged if and only if Trustor
fulfills all of the following conditions (a breach of any one of which shall
constitute an Event of Default under this Deed of Trust and shall entitle
Beneficiary to exercise all rights and remedies Beneficiary may have in such
event): (a) that no default or Event of Default is then outstanding under this
Deed of Trust, the Note, or any Related Agreement; (b) that Trustor is not in
default under any of the terms, covenants and conditions of any of the Leases
(hereinafter defined); (c) that the Leases shall continue in full force and
effect; (d) that Trustor has in force rental continuation and business
interruption insurance covering the Mortgaged Property for the longer of twelve
(12) months or the time Beneficiary reasonably estimates will be necessary to
complete such restoration and rebuilding; (e) Beneficiary is satisfied that
during the period from the time of damage or taking until restoration and
rebuilding of the Mortgaged Property is completed (the "Gap Period") Trustor's
net income from (1) all leases, subleases, licenses and other occupancy
agreements affecting the Mortgaged Property (the "Leases") which may continue
without abatement of rent during such Gap Period, plus (2) all Leases in effect
during the Gap Period without abatement of rent which Trustor may obtain in
substitution for any of the same which did not continue during such Gap Period,
plus (3) the proceeds of rental continuation and business interruption
insurance, is sufficient to satisfy Trustor's obligations under this Deed of
Trust as they come due; (f) Beneficiary is satisfied that the insurance or award
proceeds shall be sufficient to fully restore and rebuild the Mortgaged Property
free and clear of all liens except the lien of this Deed of Trust, or, in the
event that such proceeds are in Beneficiary's sole judgment insufficient to
restore and rebuild the Mortgaged Property, then Trustor shall deposit promptly
with Beneficiary funds which, together with the insurance or award proceeds,
shall be sufficient in Beneficiary's sole judgment to restore and rebuild the
Mortgaged Property; (g) construction and completion of restoration and
rebuilding of the Mortgaged Property shall be completed in accordance with plans
and specifications and drawings submitted to and approved by Beneficiary, which
plans, specifications and drawings shall not be substantially modified, changed
or revised without the Beneficiary's prior written consent; (h) Beneficiary
shall also have approved all prime and subcontractors, and the general contract
or contracts the Trustor proposes to enter into with respect to the restoration
and rebuilding; and (i) any and all monies which are made available for
restoration and rebuilding hereunder shall be disbursed through Beneficiary, the
Trustee or a title insurance and trust company satisfactory to Beneficiary, in
accord with standard construction lending practice, including, if requested by
Beneficiary, monthly lien waivers and title insurance datedowns, and the
provision of payment and performance bonds by Trustor, or in any other manner
approved by Beneficiary in Beneficiary's sole discretion; or
(2) If less than all of conditions (a) through (i) in subsection (1)
above are satisfied, then such payments shall be applied in the sole and
absolute discretion of Beneficiary (a) to the payment or prepayment with any
applicable prepayment premium of any indebtedness secured hereby in such order
as Beneficiary may determine, or (b) to the reimbursement of Trustor's expenses
incurred in the rebuilding and restoration of the Mortgaged Property. In the
event Beneficiary elects under this subsection (2) to make any monies available
to restore the Mortgaged Property, then all of conditions (a) through (i) in
subsection (1) above shall apply, except such conditions which Beneficiary, in
its sole discretion, may waive.
(c) If any material part of the Mortgaged Property is damaged or
destroyed and the loss is not adequately covered by insurance proceeds collected
or in the process of collection, Trustor shall deposit, within ten (10) days of
the Beneficiary's request therefor, the amount of the loss not so covered.
(d) All compensation, awards, proceeds, damages, claims, insurance
recoveries, rights of action and payments which Trustor may receive or to which
Trustor may become entitled with respect to the Mortgaged Property in the event
of a total condemnation or other total taking of the Mortgaged Property shall be
paid over to Beneficiary and shall be applied first toward reimbursement of all
costs and expenses of Beneficiary in connection with recovery of the same, and
then shall be applied to the payment or prepayment with any applicable
prepayment premium of any indebtedness secured hereby in such order as
Beneficiary may determine, until the indebtedness secured hereby has been paid
and satisfied in full. Any surplus remaining after payment and satisfaction of
the indebtedness secured hereby shall be paid to Trustor as its interest may
then appear.
(e) Any application of such amounts or any portion thereof to any
indebtedness secured hereby shall not be construed to cure or waive any default
or notice of default hereunder or invalidate any act done pursuant to any such
default or notice.
(f) If any part of any automobile parking areas included within the
Mortgaged Property is taken by condemnation or before such areas are otherwise
reduced, Trustor shall provide parking facilities in kind, size and location to
comply with all Leases, and before making any contract for such substitute
parking facilities, Trustor shall furnish to Beneficiary satisfactory assurance
of completion thereof, free of liens and in conformity with all governmental
zoning, land use and environmental regulations.
1.04 Taxes, Liens and Other Items.
Trustor shall pay at least ten days before delinquency, all taxes,
bonds, assessments, special assessments, common area charges, fees, liens,
charges, fines, penalties, impositions and any and all other items which are
attributable to or affect the Mortgaged Property and which may attain a priority
over this Deed of Trust by making payment prior to delinquency directly to the
payee thereof, unless Trustor shall be required to make payment to Beneficiary
on account of such items pursuant to Section 1.05 hereof. Prior to the
delinquency of any such taxes or other items, Trustor shall furnish Beneficiary
with receipts indicating such taxes and other items have been paid. Trustor
shall promptly discharge any lien which has attained or may attain priority over
this Deed of Trust. In the event of the passage after the date of this Deed of
Trust of any law deducting from the value of real property for the purposes of
taxation any lien thereon, or changing in any way the laws for the taxation of
deeds of trust or debts secured by deeds of trust for state, federal or any
other purposes, or the manner of the collection of any such taxes, so as to
affect this Deed of Trust, the Beneficiary and holder of the debt which it
secures shall have the right to declare the principal sum and the interest due
on a date to be specified by not less than thirty (30) days written notice to be
given to Trustor by Beneficiary; provided, however, that such election shall be
ineffective if Trustor is permitted by law to pay the whole of such tax in
addition to all other payments required hereunder and if, prior to such
specified date, does pay such taxes and agrees to pay any such tax when
hereafter levied or assessed against the Mortgaged Property, and such agreement
shall constitute a modification of this Deed of Trust.
1.05 Funds for Taxes and Insurance.
If an Event of Default has occurred under this Deed of Trust or under
any of the Related Agreements, regardless of whether the same has been cured,
then thereafter at any time Beneficiary may, at its option to be exercised upon
thirty (30) days' written notice to Trustor, require the deposit with
Beneficiary or its designee by Trustor, at the time of each payment of an
installment of interest or principal under the Note, of an additional amount
sufficient to discharge the obligations of Trustor under Sections 1.02 and 1.04
hereof as and when they become due. The determination of the amount payable and
of the fractional part thereof to be deposited with Beneficiary shall be made by
Beneficiary in its sole discretion. These amounts shall be held by Beneficiary
or its designee not in trust and not as agent of Trustor and shall not bear
interest, and shall be applied to the payment of the obligations in such order
or priority as Beneficiary shall determine. If at any time within thirty (30)
days prior to the due date of any of the aforementioned obligations the amounts
then on deposit therefor shall be insufficient for the payment of such
obligation in full, Trustor shall within ten (10) days after demand deposit the
amount of the deficiency with Beneficiary. If the amounts deposited are in
excess of the actual obligations for which they were deposited, Beneficiary may
refund any such excess, or, at its option, may hold the same in a reserve
account, not in trust and not bearing interest, and reduce proportionately the
required monthly deposits for the ensuing year. Nothing herein contained shall
be deemed to affect any right or remedy of Beneficiary under any other provision
of this Deed of Trust or under any statute or rule of law to pay any such amount
and to add the amount so paid to the indebtedness hereby secured.
All amounts so deposited shall be held by Beneficiary or its designee
as additional security for the sums secured by this Deed of Trust and upon the
occurrence of an Event of Default hereunder Beneficiary may, in its sole and
absolute discretion and without regard to the adequacy of its security
hereunder, apply such amounts or any portion thereof to any part of the
indebtedness secured hereby. Any such application of said amounts or any portion
thereof to any indebtedness secured hereby shall not be construed to cure or
waive any default or notice of default hereunder.
If Beneficiary requires deposits to be made pursuant to this Section
1.05, Trustor shall deliver to Beneficiary all tax bills, bond and assessment
statements, statements of insurance premiums, and statements for any other
obligations referred to above as soon as such documents are received by Trustor.
If Beneficiary sells or assigns this Deed of Trust, Beneficiary shall
have the right to transfer all amounts deposited under this Section 1.05 to the
purchaser or assignee, and Beneficiary shall thereupon be released and have no
further liability hereunder for the application of such deposits, and Trustor
shall look solely to such purchaser or assignee for such application and for all
responsibility relating to such deposits.
1.06 Assignment of Rents and Profits.
(a) All of Trustor's interest in any Leases or other occupancy
agreements pertaining to the Mortgaged Property now existing or hereafter
entered into, and all of the rents, royalties, issues, profits, revenue, income
and other benefits of the Mortgaged Property arising from the use or enjoyment
of all or any portion thereof or from any Lease or agreement pertaining to
occupancy of any portion of the Mortgaged Property now existing or hereafter
entered into whether now due, past due, or to become due, including all prepaid
rents and security deposits, and including without limitation all present or
future rights of Trustor in and to all operating revenues derived from the
operation of the Mortgaged Property (the "Rents and Profits"), are hereby
absolutely, presently and unconditionally assigned, transferred and conveyed to
Beneficiary to be applied by Beneficiary in payment of the principal and
interest and all other sums payable on the Note, and of all other sums payable
under this Deed of Trust subject to the rights of residential tenants under
California Civil Code Section 1950.5(d). Prior to the occurrence of any Event of
Default (hereinafter defined), Trustor shall have a license to collect and
receive all Rents and Profits, which license shall be terminable at the sole
option of Beneficiary, without regard to the adequacy of its security hereunder
and without notice to or demand upon Trustor, upon the occurrence of any Event
of Default. It is understood and agreed that neither the foregoing assignment of
Rents and Profits to Beneficiary nor the exercise by Beneficiary of any of its
rights or remedies under Article IV hereof shall be deemed to make Beneficiary a
"mortgagee-in-possession" or otherwise responsible or liable in any manner with
respect to the Mortgaged Property or the use, occupancy, enjoyment or operation
of all or any portion thereof, unless and until Beneficiary, in person or by
agent, assumes actual possession thereof. Nor shall appointment of a receiver
for the Mortgaged Property by any court at the request of Beneficiary or by
agreement with Trustor, or the entering into possession of the Mortgaged
Property or any part thereof by such receiver, be deemed to make Beneficiary a
mortgagee-in-possession or otherwise responsible or liable in any manner with
respect to the Mortgaged Property or the use, occupancy, enjoyment or operation
of all or any portion thereof. Upon the occurrence of any Event of Default, this
shall constitute a direction to and full authority to each lessee under any
Lease and each guarantor of any Lease to pay all Rents and Profits to
Beneficiary without proof of the default relied upon. Trustor hereby irrevocably
authorizes each lessee and guarantor to rely upon and comply with any notice or
demand by Beneficiary for the payment to Beneficiary of any Rents and Profits
due or to become due.
(b) Trustor shall apply the Rents and Profits to the payment of all
necessary and reasonable operating costs and expenses of the Mortgaged Property,
debt service on the indebtedness secured hereby, and a reasonable reserve for
future expenses, repairs and replacements for the Mortgaged Property, before
using the Rents and Profits for Trustor's personal use or any other purpose not
for the direct benefit of the Mortgaged Property.
(c) Trustor warrants as to each Lease now covering all or any part of
the Mortgaged Property: (1) that each Lease is in full force and effect; (2)
that no default exists on the part of the lessees or Trustor under Leases
constituting more than 5%, in the aggregate, of all units in the Mortgaged
Property; (3) that no rent has been collected more than one month in advance;
(4) that no Lease or any interest therein has been previously assigned or
pledged; (5) that no lessee under any Lease has any defense, setoff or
counterclaim against Trustor; (6) that all rent due to date under each Lease has
been collected and no concession has been granted to any lessee in the form of a
waiver, release, reduction, discount or other alteration of rent due or to
become due; and (7) that the interest of the lessee under each Lease is as
lessee only, with no options to purchase or rights of first refusal. All the
foregoing warranties shall be deemed to be reaffirmed and to continue until
performance in full of the obligations under this Deed of Trust.
(d) Trustor shall at all times perform the obligations of lessor under
all such Leases. Trustor shall not execute any further assignment of any of the
Rents and Profits or any interest therein or suffer or permit any such
assignment to occur by operation of law. Trustor shall at any time or from time
to time, upon request of Beneficiary, transfer and assign to Beneficiary in such
form as may be satisfactory to Beneficiary, Trustor's interest in any Lease,
subject to and upon the condition, however, that prior to the occurrence of any
Event of Default hereunder Trustor shall have a license to collect and receive
all Rents and Profits under such Lease upon accrual, but not prior thereto, as
set forth in subsection (a) above. Whenever requested by Beneficiary, Trustor
shall furnish to Beneficiary a certificate of Trustor setting forth the names of
all lessees under any Leases, the terms of their respective Leases, the space
occupied, the rents payable thereunder, and the dates through which any and all
rents have been paid.
(e) Without the prior written consent of Beneficiary, Trustor shall not
(1) accept prepayments of rent exceeding one month under any Leases of any part
of the Mortgaged Property; (2) take any action under or with respect to any such
Leases which would decrease the monetary obligations of the lessee thereunder or
otherwise materially decrease the obligations of the lessee or the rights or
remedies of the lessor, including, without limitation, any reduction in rent or
granting of an option to renew for a term greater than one year; (3) modify or
amend any such Leases or, except where the lessee is in default, cancel or
terminate the same or accept a surrender of the leased premises, provided,
however, that Trustor may renew, modify or amend Leases in the ordinary course
of business so long as such actions do not decrease the monetary obligations of
the lessee thereunder, or otherwise decrease the obligations of the lessee or
the rights and remedies of the lessor; (4) consent to the assignment or
subletting of the whole or any portion of the lessee's interest under any Lease
which has a term of more than five years; (5) create or permit any lien or
encumbrance which, upon foreclosure, would be superior to any such Leases; or
(6) in any other manner impair Beneficiary's rights and interest with respect to
the Rents and Profits.
(f) Each Lease, or any part thereof, shall make provision for the
attornment of the lessee thereunder to any person succeeding to the interest of
Trustor as the result of any foreclosure or transfer in lieu of foreclosure
hereunder, said provision to be in form and substance approved by Beneficiary.
If any Lease provides for the abatement of rent during repair of the demised
premises by reason of fire or other casualty, Trustor shall furnish rental
insurance to Beneficiary, the policies to be in amount and form and written by
such companies as shall be satisfactory to Beneficiary. Each Lease shall remain
in full force and effect despite any merger of the interest of Trustor and any
lessee thereunder.
(g) Beneficiary shall be deemed to be the creditor of each lessee in
respect of any assignments for the benefit of creditors and any bankruptcy,
arrangement, reorganization, insolvency, dissolution, receivership or other
debtor-relief proceedings affecting such lessee (without obligation on the part
of Beneficiary, however, to file timely claims in such proceedings or otherwise
pursue creditor's rights therein). Beneficiary shall have the right to assign
Trustor's right, title and interest in any Leases to any subsequent holder of
this Deed of Trust or any participating interest therein or to any person
acquiring title to all or any part of the Mortgaged Property through foreclosure
or otherwise. Any subsequent assignee shall have all the rights and powers
herein provided to Beneficiary. Beneficiary shall have the authority, as
Trustor's attorney-in-fact, such authority being coupled with an interest and
irrevocable, to sign the name of Trustor and to bind Trustor on all papers and
documents relating to the operation, leasing and maintenance of the Mortgaged
Property.
1.07 Security Agreement.
This Deed of Trust is intended to be a security agreement pursuant to
the California Uniform Commercial Code for (a) any and all items of personal
property specified above as part of the Mortgaged Property which, under
applicable law, may be subject to a security interest pursuant to the California
Uniform Commercial Code and which are not herein effectively made part of the
real property, and (b) any and all items of property specified above as part of
the Mortgaged Property which, under applicable law, constitute fixtures and may
be subject to a security interest under Section 9-313 of the California Uniform
Commercial Code; and Trustor hereby grants Beneficiary a security interest in
said property, all of which is referred to herein as "Personal Property," and in
all additions thereto, substitutions therefor and proceeds thereof, for the
purpose of securing all indebtedness and other obligations of Trustor now or
hereafter secured by this Deed of Trust, which shall be a paramount and superior
lien on all such Personal Property at all times. Trustor agrees to execute and
deliver financing and continuation statements covering the Personal Property
from time to time and in such form as Beneficiary may require to perfect and
continue the perfection of Beneficiary's lien or security interest with respect
to said property. Trustor shall pay all costs of filing such statements and
renewals and releases thereof and shall pay all reasonable costs and expenses of
any record searches for financing statements Beneficiary may reasonably require.
Upon the occurrence of any default of Trustor hereunder, Beneficiary shall have
the rights and remedies of a secured party under California Uniform Commercial
Code, including, Section 9501(4) thereof, as well as all other rights and
remedies available at law or in equity, and, at Beneficiary's option,
Beneficiary may also invoke the remedies provided in Article IV of this Deed of
Trust as to such property.
1.08 Acceleration.
(a) Trustor acknowledges that in making the loan evidenced by the Note
and this Deed of Trust (the "Loan"), Beneficiary has relied upon: (1) Trustor's
credit rating; (2) Trustor's financial stability; and (3) Trustor's experience
in owning and operating real property comparable to the Mortgaged Property.
Without limiting the obligations of Trustor or the rights and remedies of
Beneficiary, Beneficiary shall have the right, at its option, to declare any
indebtedness and obligations under the Note and this Deed of Trust, irrespective
of the maturity date specified therein, due and payable in full if: (1) Trustor
or any one or more of the tenants-in-common, joint tenants, or other persons
comprising Trustor sells, enters into a contract of sale, conveys, alienates or
encumbers the Mortgaged Property or any portion thereof or any fractional
undivided interest therein, or suffers Trustor's title or any interest therein
to be divested or encumbered, whether voluntarily or involuntarily, or leases
with an option to sell, or changes or permits to be changed the character or use
of the Mortgaged Property, or drills or extracts or enters into a lease for the
drilling for or extracting of oil, gas or other hydrocarbon substances or any
mineral of any kind or character on the Mortgaged Property; (2) The interest of
any general partner of Trustor (or the interest of any general partner in a
partnership that is a partner) is assigned or transferred; (3) If Trustor is a
corporation or a partnership, more than twenty-five percent (25%) of the
corporate stock of Trustor (or of any corporate partner or other corporation
comprising Trustor) is sold, transferred or assigned; (4) There is a change in
beneficial ownership with respect to more than twenty-five percent (25%) of
Trustor (if Trustor is a partnership, limited liability company, trust or other
legal entity) or of any partner or tenant-in-common of Trustor which is a
partnership, limited liability company, trust or other legal entity; (5) a
default has occurred hereunder or under any document executed in connection with
this Deed of Trust and is continuing. In such case, Beneficiary or other holder
of the Note may exercise any and all of the rights and remedies and recourses
set forth in Article IV herein, and as granted by law.
(b) In order to allow Beneficiary to determine whether enforcement of
the foregoing provisions is desirable, Trustor agrees to notify Beneficiary
promptly in writing of any transaction or event described in Clauses 1.08(a)
above. In addition to other damages and costs resulting from the breach by
Trustor of its obligations under this subsection (b), Trustor acknowledges that
failure to give such notice may damage Beneficiary in an amount equal to not
less than the difference between the interest payable on the indebtedness
specified herein, and the interest and loan fees which Beneficiary could obtain
on said sum on the date that the event of acceleration occurred and was
enforceable by Beneficiary under applicable law. Trustor shall pay to
Beneficiary all damages Beneficiary sustains by reason of the breach of the
covenant of notice set forth in this subsection (b) and the amount thereof shall
be added to the principal of the Note and shall bear interest and shall be
secured by this Deed of Trust.
(c) Notwithstanding subsection 1.08(a) above, Trustor may from time to
time replace items of personal property and fixtures constituting a part of the
Mortgaged Property, provided that: (1) the replacements for such items of
personal property or fixtures are of equivalent value and quality; and (2)
Trustor has good and clear title to such replacement property free and clear of
any and all liens, encumbrances, security interests, ownership interests, claims
of title (contingent or otherwise), or charges of any kind, or the rights of any
conditional sellers, vendors or any other third parties in or to such
replacement property have been expressly subordinated at no cost to Beneficiary
to the lien of this Deed of Trust in a manner satisfactory to Beneficiary; and
(3) at the option of Beneficiary, Trustor provides at no cost to Beneficiary a
satisfactory opinion of counsel to the effect that this Deed of Trust
constitutes a valid and subsisting second lien on and security interest in such
replacement property and is not subject to being subordinated or the priority
thereof affected under any applicable law, including, but not limited, to the
provisions of Section 9-313 of the California Uniform Commercial Code.
1.09 Preservation and Maintenance of Mortgaged Property.
Trustor shall keep the Mortgaged Property and every part thereof in
good condition and repair, and shall not permit or commit any waste, impairment,
or deterioration of the Mortgaged Property, or commit, suffer or permit any act
upon or use of the Mortgaged Property in violation of law or applicable order of
any governmental authority, whether now existing or hereafter enacted and
whether foreseen or unforeseen, or in violation of any covenants, conditions or
restrictions affecting the Mortgaged Property, or bring or keep any article upon
any of the Mortgaged Property or cause or permit any condition to exist thereon
which would be prohibited by or could invalidate any insurance coverage
maintained, or required hereunder to be maintained, by Trustor on or with
respect to any part of the Mortgaged Property, and Trustor further shall do all
other acts which from the character or use of the Mortgaged Property may be
reasonably necessary to protect the Mortgaged Property. Trustor shall underpin
and support, when necessary, any building, structure or other improvement
situated on the Mortgaged Property and shall not remove or demolish any building
on the Mortgaged Property. Trustor shall complete or restore and repair promptly
and in a good workmanlike manner any building, structure or improvement which
may be constructed, damaged or destroyed thereon and pay when due all claims for
labor performed and materials furnished therefor, whether or not insurance or
other proceeds are available to cover in whole or in part the costs of any such
completion, restoration or repair; provided, however, that Trustor shall not
demolish, remove, expand or extend any building, structure or improvement on the
Mortgaged Property, nor construct, restore, add to or alter any such building,
structure or improvement, nor consent to or permit any of the foregoing to be
done, without in each case obtaining the prior written consent of Beneficiary
thereto.
If this Deed of Trust is on a condominium or a cooperative apartment or
planned development project, Trustor shall perform all of Trustor's obligations
under any applicable declaration of condominium or master deed, or any
declaration of covenants, conditions and restrictions pertaining to any such
project, or any by-laws or regulations of the project or owners' association or
constituent documents.
Trustor shall not drill or extract or enter into any lease for the
drilling for or extraction of oil, gas or other hydrocarbon substances or any
mineral of any kind or character on or from the Mortgaged Property or any part
thereof without first obtaining Beneficiary's written consent.
Unless required by applicable law or unless Beneficiary has otherwise
first agreed in writing, Trustor shall not make or allow to be made any changes
in the nature of the occupancy or use of the Mortgaged Property or any part
thereof for which the Mortgaged Property or such part was intended at the time
this Deed of Trust was delivered.
1.10 Financial Statements; Offset Certificates.
(a) Trustor, without expense to Beneficiary, shall, upon receipt of
written request from Beneficiary, furnish to Beneficiary (1) an annual statement
of the operation of the Mortgaged Property prepared and certified by Trustor,
showing in reasonable detail satisfactory to Beneficiary total rents or other
proceeds received and total expenses together with an annual balance sheet and
profits and loss statement, within one hundred twenty (120) days after the close
of each fiscal year of Trustor, beginning with the fiscal year first ending
after the date of delivery of this Deed of Trust, (2) within 30 days after the
end of each calendar quarter (March 31, June 30, September 30, December 31)
interim statements of the operation of the Mortgaged Property showing in
reasonable detail satisfactory to Beneficiary total rents and income received
and total expenses, for the previous quarter, certified by Trustor, and (3)
copies of Trustor's annual state and federal income tax filing within thirty
(30) days of filing. Trustor shall keep accurate books and records, and allow
Beneficiary, its representatives and agents, upon demand, at any time during
normal business hours, access to such books and records, including any
supporting or related vouchers or papers, shall allow Beneficiary to make
extracts or copies of any thereof, and shall furnish to Beneficiary and its
agents convenient facilities for the audit of any such statements, books and
records.
(b) Trustor, within three (3) days upon request in person or within
five (5) days upon request by mail, shall furnish a written statement duly
acknowledged of all amounts due on any indebtedness secured hereby, whether for
principal or interest on the Note or otherwise, and stating whether any offsets
or defenses exist against the indebtedness secured by this Deed of Trust and
covering such other matters with respect to any such indebtedness as Beneficiary
may reasonably require.
1.11 Trustee's Costs and Expenses; Governmental Charges.
Trustor shall pay all costs, fees and expenses of Trustee, its agents
and counsel in connection with the performance of its duties under this Deed of
Trust, including, without limitation, the cost of any trustee's sale guaranty or
other title insurance coverage ordered in connection with any sale or
foreclosure proceedings hereunder, and shall pay all taxes (except federal and
state income taxes) or other governmental charges or impositions imposed by any
governmental authority on Trustee or Beneficiary by reason of its interest in
the Note, or any note evidencing a Future Advance, or this Deed of Trust.
1.12 Protection of Security; Costs and Expenses.
Trustor agrees that, at any time and from time to time, it will execute
and deliver all such further documents and do all such other acts and things as
Beneficiary may reasonably request in writing in order to protect the security
and priority of the lien created hereby. Trustor further agrees that it will
execute such additional documents or amendments to this Deed of Trust, the Note
or the Related Agreements as Beneficiary may reasonably request to insure that
such documents reflect the party's agreement with regard to the business terms
agreed upon by the parties hereto. Trustor shall appear in and defend any action
or proceeding purporting to affect the security hereof or the rights or powers
of the Beneficiary or Trustee, and shall pay all costs and expenses, including,
without limitation, cost of evidence of title and reasonable attorneys' fees, in
any such action or proceeding in which Beneficiary or Trustee may appear, and in
any suit brought by Beneficiary to foreclose this Deed of Trust or to enforce or
establish any other rights or remedies of Beneficiary hereunder. If Trustor
fails to perform any of the covenants or agreements contained in this Deed of
Trust, or if any action or proceeding is commenced which affects Beneficiary's
interest in the Mortgaged Property or any part thereof, including, but not
limited to, eminent domain, code enforcement, or proceedings of any nature
whatsoever under any federal or state law, whether now existing or hereafter
enacted or amended, relating to bankruptcy, insolvency, arrangement,
reorganization or other form of debtor relief, or to a decedent, then
Beneficiary or Trustee may, but without obligation to do so and without notice
to or demand upon Trustor and without releasing Trustor from any obligation
hereunder, make such appearances, commence, defend or appear in any such action
or proceeding affecting the Mortgaged Property, pay, contest or compromise any
encumbrance, charge or lien which affects the Mortgaged Property, disburse such
sums and take such action as Beneficiary or Trustee deems necessary or
appropriate to protect Beneficiary's interest, including, but not limited to,
disbursement of reasonable attorneys' fees, entry upon the Mortgaged Property to
make repairs or take other action to protect the security hereof, and payment,
purchase, contest or compromise of any encumbrance, charge or lien which in the
judgment of either Beneficiary or Trustee appears to be prior or superior
hereto. Trustor further agrees to pay all reasonable expenses of Beneficiary
(including fees and disbursements of counsel) incident to the protection of the
rights of Beneficiary hereunder, or to enforcement or collection of payment of
the Note or any Future Advances, whether by judicial or nonjudicial proceedings,
or in connection with any bankruptcy, insolvency, arrangement, reorganization or
other debtor relief proceeding of Trustor, or otherwise. Any amounts disbursed
by Beneficiary or Trustee pursuant to this Section 1.12 shall be additional
indebtedness of Trustor secured by this Deed of Trust and each of the Related
Agreements as of the date of disbursement and shall bear interest at the rate
set forth in the Note. All such amounts shall be payable by Trustor immediately
without demand. Nothing contained in this Section 1.12 shall be construed to
require Beneficiary or Trustee to incur any expense, make any appearance, or
take any other action.
1.13 Fixture Filing.
This Deed of Trust constitutes a financing statement filed as a fixture
filing in the Official Records of the County Recorder of the county in which the
Mortgaged Property is located with respect to any and all fixtures included
within the term "Mortgaged Property" as used herein and with respect to any
goods or other personal property that may now be or hereafter become such
fixtures.
1.14 Notify Lender of Default.
Trustor shall notify Beneficiary in writing within five (5) days of the
occurrence of any Event of Default or other event which, upon the giving of
notice or the passage of time or both, would constitute an Event of Default.
1.15 Management of Mortgaged Property.
Trustor shall manage the Mortgaged Property through its own personnel
or a third party manager approved by Beneficiary, and shall not hire, retain or
contract with any other third party for property management services without the
prior written approval by Beneficiary of such party and the terms of its
contract for management services; provided, however, Beneficiary shall not
withhold approval of a new manager if the new manager has a reputation and
experience in managing properties similar to the Mortgaged Property which are
greater than or equal to the present experience and reputation of the current
manager.
1.16 Miscellaneous.
Trustor shall: (a) make or permit no termination or material amendment
of any agreement between Trustor and a third party relating to the Mortgaged
Property or the loan secured hereby (including, without limitation, the Leases)
(the "Third Party Agreements") without the prior written approval of
Beneficiary, except amendments to Leases permitted by Section 1.06 hereof, (b)
perform Trustor's obligations under each Third Party Agreement, and (c) comply
promptly with all governmental requirements relating to Trustor, the loan
secured hereby and the Mortgaged Property.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
To induce the Beneficiary to make the loan secured hereby, Trustor
represents and warrants to Beneficiary, in addition to any representations and
warranties in the Note or any Related Agreements, that as of the date hereof and
throughout the term of the loan secured hereby until the Note is paid in full
and all obligations under this Deed of Trust are performed:
2.01 Power and Authority.
Trustor is duly organized and validly existing, qualified to do
business and in good standing in the State of California and has full power and
due authority to execute, deliver and perform this Deed of Trust, the Note, and
any Related Agreements in accordance with their terms. Such execution, delivery
and performance has been duly authorized by all necessary trust action and
approved by each required governmental authority or other party.
2.02 No Default or Violations.
No Event of Default (as defined hereafter) or event which, with notice
or passage of time or both, would constitute an Event of Default ("Unmatured
Event of Default") has occurred and is continuing under this Deed of Trust, the
Note, or any of the Related Agreements. Trustor is not in violation of any
governmental requirement (including, without limitation, any applicable
securities law) or in default under any agreement to which it is bound, or which
affects it or any of its property, and the execution, delivery and performance
of this Deed of Trust, the Note, or any of the Related Agreements in accordance
with their terms and the use and occupancy of the Mortgaged Property will not
violate any governmental requirement (including, without limitation, any
applicable usury law), or conflict with, be inconsistent with or result in any
default under, any of the provisions of any deed of trust, easement, restriction
of record, contract, document, agreement or instrument of any kind to which any
of the foregoing is bound or which affects it or any of its property, except as
identified in writing and approved by Beneficiary.
2.03 No Limitation or Governmental Controls.
There are no proceedings of any kind pending, or, to the knowledge of
Trustor, threatened against or affecting Trustor, the Mortgaged Property
(including any attempt or threat by any governmental authority to condemn or
rezone all or any portion of the Mortgaged Property), any party constituting
Trustor or any general partner in any such party, or involving the validity,
enforceability or priority of this Deed of Trust, the Note or any of the Related
Agreements or enjoining or preventing or threatening to enjoin or prevent the
use and occupancy of the Mortgaged Property or the performance by Beneficiary of
its obligations hereunder, and there are no rent controls, governmental
moratoria or environment controls presently in existence, or, to the knowledge
of Trustor, threatened or affecting the Mortgaged Property, except as identified
in writing to, and approved by, Beneficiary.
2.04 Liens.
Title to the Mortgaged Property, or any part thereof, is not subject to
any liens, encumbrances or defects of any nature whatsoever, whether or not of
record, and whether or not customarily shown on title insurance policies, except
as identified in writing and approved by Beneficiary.
2.05 Financial and Operating Statements.
All financial and operating statements submitted to Beneficiary in
connection with this loan secured by this Deed of Trust are true and correct in
all respects, have been prepared in accordance with generally accepted
accounting principles (applied, in the case of any unaudited statement, on a
basis consistent with that of the preceding fiscal year) and fairly present the
respective financial conditions of the subjects thereof and the results of their
operations as of the respective dates shown thereon. No materially adverse
changes have occurred in the financial conditions and operations reflected
therein since their respective dates, and no additional borrowings have been
made since the date thereof other than the borrowing made under this Deed of
Trust and any other borrowing approved in writing by Beneficiary.
2.06 Other Statements to Beneficiary.
Neither this Deed of Trust, the Note, any Related Agreement, nor any
document, agreement, report, schedule, notice or other writing furnished to the
Beneficiary by or on behalf of any party constituting Trustor, or any general
partner of any such party, contains any omission or misleading or untrue
statement of any fact material to any of the foregoing.
2.07 Third Party Agreements.
Each Third Party Agreement is unmodified and in full force and effect
and free from default on the part of each party thereto, and all conditions
required to be (or which by their nature can be) satisfied by any party to date
have been satisfied. Trustor has not done or said or omitted to do or say
anything which would give to any obligor on any Third Party Agreement any basis
for any claims against Beneficiary or any counterclaim to any claim which might
be made by Beneficiary against such obligor on the basis of any Third Party
Agreement.
<PAGE>
ARTICLE III
EVENTS OF DEFAULT
Each of the following shall constitute an event of default ("Event of
Default") hereunder:
3.01 Failure to make any payment of principal or interest on the Note or any
Future Advance, when and as the same shall become due and payable, whether at
maturity or by acceleration or as part of any prepayment or otherwise, or
default in the performance of any of the covenants or agreements of Trustor
contained herein, or default in the performance of any of the covenants or
agreements of Trustor contained in the Note, or in any note evidencing a Future
Advance, or in any of the Related Agreements, after the expiration of the period
of time, if any, permitted for cure of such default thereunder.
3.02 The appointment, pursuant to an order of a court of competent jurisdiction,
of a trustee, receiver or liquidator of the Mortgaged Property or any part
thereof, or of Trustor, or any termination or voluntary suspension of the
transaction of business of Trustor, or any attachment, execution or other
judicial seizure of all or any substantial portion of Trustor's assets which
attachment, execution or seizure is not discharged within thirty (30) days.
3.03 Trustor, any trustee of Trustor, any general partner of Trustor, or any
trustee of a general partner of Trustor (each of which shall constitute
"Trustor" for purposes of this Section 3.03 and Sections 3.04 and 3.05 below)
shall file a voluntary case under any applicable bankruptcy, insolvency, debtor
relief, or other similar law now or hereafter in effect, or shall consent to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or similar official) of the Trustor or for any
part of the Mortgaged Property or any substantial part of Trustor's property, or
shall make any general assignment for the benefit of Trustor's creditors, or
shall fail generally to pay Trustor's debts as they become due or shall take any
action in furtherance of any of the foregoing.
3.04 A court having jurisdiction shall enter a decree or order for relief in
respect of the Trustor, in any involuntary case brought under any bankruptcy,
insolvency, debtor relief, or similar law now or hereafter in effect, or Trustor
shall consent to or shall fail to oppose any such proceeding, or any such court
shall enter a decree or order appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Trustor or for any
part of the Mortgaged Property or any substantial part of the Trustor's
property, or ordering the winding up or liquidation of the affairs of the
Trustor, and such decree or order shall not be dismissed within sixty (60) days
after the entry thereof.
3.05 Default under the terms of any agreement of guaranty relating to the
indebtedness evidenced by the Note or relating to any Future Advance, or the
occurrence of any of the events enumerated in Sections 3.02, 3.03 or 3.04 with
regard to any guarantor of the Note or any Future Advance, or the revocation,
limitation or termination of the obligations of any guarantor of the Note or any
Future Advance, except in accordance with the express written terms of the
instrument of guaranty.
3.06 The occurrence of any event or transaction described in subsection 1.08(a)
above without the prior written consent of Beneficiary.
3.07 Without the prior written consent of Beneficiary in each case, (a) the
dissolution or termination of existence of Trustor, or any party constituting
Trustor, voluntarily or involuntarily; (b) the amendment or modification in any
respect of Trustor's partnership agreement or its partnership resolutions
relating to this transaction; or (c) the distribution of any of the Trustor's
capital, or of any party constituting Trustor, except for distribution of the
proceeds of the loan secured hereby and cash from operations; as used herein,
cash from operations shall mean any cash of the Trustor earned from operation of
the Mortgaged Property, but not from a sale or refinancing of the Mortgaged
Property or from borrowing, available after paying all ordinary and necessary
current expenses of the Trustor, including expenses incurred in the maintenance
of the Mortgaged Property, and after establishing reserves to meet current or
reasonably expected obligations of the Trustor.
3.08 The imposition of a tax, other than a state or federal income tax, on or
payable by Trustee or Beneficiary by reason of its ownership of the Note, or its
ownership of any note evidencing a Future Advance, or this Deed of Trust, and
Trustor not promptly paying said tax, or it being illegal for Trustor to pay
said tax.
3.09 Any representation, warranty, or disclosure made to Beneficiary by Trustor
or any guarantor of any indebtedness secured hereby in connection with or as an
inducement to the making of the loan evidenced by the Note or in connection with
or as an inducement to the making of any Future Advance, or this Deed of Trust
(including, without limitation, the representations and warranties contained in
Article II of this Deed of Trust), or any of the Related Agreements, proving to
be false or misleading in any material respect as of the time the same was made,
whether or not any such representation or disclosure appears as part of this
Deed of Trust.
3.10 Any other event occurring which, under this Deed of Trust, or under the
Note or any note evidencing a Future Advance, or under any of the Related
Agreements constitutes a default by Trustor hereunder or thereunder or gives
Beneficiary the right to accelerate the maturity of the indebtedness, or any
part thereof, secured hereby.
ARTICLE IV
REMEDIES
Upon the occurrence of any Event of Default, Trustee and Beneficiary
shall have the following rights and remedies:
4.01 Acceleration.
Beneficiary may declare the entire principal amount of the Note and/or
any Future Advances then outstanding (if not then due and payable), and accrued
and unpaid interest thereon, and all other sums or payments required thereunder,
to be due and payable immediately, and notwithstanding the stated maturity in
the Note, or any note evidencing any Future Advance, the principal amount of the
Note and/or any Future Advance and the accrued and unpaid interest thereon and
all other sums or payments required thereunder shall thereupon become and be
immediately due and payable.
4.02 Entry.
Irrespective of whether Beneficiary exercises the option provided in
Section 4.01 above, Beneficiary in person or by agent or by court-appointed
receiver may enter upon, take possession of, manage and operate the Mortgaged
Property or any part thereof and do all things necessary or appropriate in
Beneficiary's sole discretion in connection therewith, including, without
limitation, making and enforcing, and if the same be subject to modification or
cancellation, modifying or canceling Leases upon such terms or conditions as
Beneficiary deems proper, obtaining and evicting tenants, and fixing or
modifying rents, contracting for and making repairs and alterations, and doing
any and all other acts which Beneficiary deems proper to protect the security
hereof; and either with or without so taking possession, in its own name or in
the name of Trustor, sue for or otherwise collect and receive the Rents and
Profits, including those past due and unpaid, and apply the same less costs and
expenses of operation and collection, including reasonable attorneys' fees, upon
any indebtedness secured hereby, and in such order as Beneficiary may determine.
Upon request of Beneficiary, Trustor shall assemble and make available to
Beneficiary at the site of the real property covered hereby any of the Mortgaged
Property which has been removed therefrom. The entering upon and taking
possession of the Mortgaged Property, or any part thereof, and the collection of
any Rents and Profits and the application thereof as aforesaid shall not cure or
waive any default theretofore or thereafter occurring or affect any notice or
default hereunder or invalidate any act done pursuant to any such default or
notice, and, notwithstanding continuance in possession of the Mortgaged Property
or any part thereof by Beneficiary, Trustor or a receiver, and the collection,
receipt and application of the Rents and Profits, Beneficiary shall be entitled
to exercise every right provided for in this Deed of Trust or by law or in
equity upon or after the occurrence of a default, including, without limitation,
the right to exercise the power of sale. Any of the actions referred to in this
Section 4.02 may be taken by Beneficiary irrespective of whether any notice of
default or election to sell has been given hereunder and without regard to the
adequacy of the security for the indebtedness hereby secured.
4.03 Judicial Action.
Beneficiary may bring an action in any court of competent jurisdiction
to foreclose this instrument or to enforce any of the covenants and agreements
hereof.
4.04 Power of Sale.
Beneficiary may elect to cause the Mortgaged Property or any part
thereof to be sold under the power of sale herein granted in any manner
permitted by applicable law. In connection with any sale or sales hereunder,
Beneficiary may elect to treat any of the Mortgaged Property which consists of a
right in action or which is property that can be severed from the real property
covered hereby or any improvements thereon without causing structural damage
thereto as if the same were personal property, and dispose of the same in
accordance with applicable law, separate and apart from the sale of real
property. Sales hereunder of any personal property only shall be conducted in
any manner permitted by the California Uniform Commercial Code. Where the
Mortgaged Property consists of real property and personal property located on or
within the real property, Beneficiary may elect in its discretion to dispose of
both the real and personal property together in one sale pursuant to real
property law as permitted by Section 9-501(4) of the California Uniform
Commercial Code. Should Beneficiary elect to sell the Mortgaged Property, or any
part thereof, which is real property or which Beneficiary has elected to treat
as real property as provided above, Beneficiary or Trustee shall give such
notice of default and election to sell as may then be required by law.
Thereafter, upon the expiration of such time and the giving of such notice of
sale as may then be required by law, and without the necessity of any demand on
Trustor, Trustee, at the time and place specified in the notice of sale, shall
sell said real property or part thereof at public auction to the highest bidder
for cash in lawful money of the United States. Trustee may, and upon request of
Beneficiary shall, from time to time, postpone any sale hereunder by public
announcement thereof at the time and place noticed therefor. If the Mortgaged
Property consists of several lots, parcels or items of property, Beneficiary
may: (a) designate the order in which such lots, parcels or items shall be
offered for sale or sold, or (b) elect to sell such lots, parcels or items
through a single sale, or through two or more successive sales, or in any other
manner Beneficiary deems in its best interest. Any person, including Trustor,
Trustee or Beneficiary, may purchase at any sale hereunder, and Beneficiary
shall have the right to purchase at any sale hereunder by crediting upon the bid
price the amount of all or any part of the indebtedness hereby secured. Should
Beneficiary desire that more than one sale or other disposition of the Mortgaged
Property be conducted, Beneficiary may, at its option, cause the same to be
conducted simultaneously, or successively, on the same day, or at such different
days or times and in such order as Beneficiary may deem to be in its best
interests, and no such sale shall terminate or otherwise affect the lien of this
Deed of Trust on any part of the Mortgaged Property not sold until all
indebtedness secured hereby has been fully paid. In the event Beneficiary elects
to dispose of the Mortgaged Property through more than one sale, Trustor agrees
to pay the costs and expenses of each such sale and of any judicial proceedings
wherein the same may be made, including reasonable compensation to Trustee and
Beneficiary, their agents and counsel, and to pay all expenses, liabilities and
advances made or incurred by Trustee in connection with such sale or sales,
together with interest on all such advances made by Trustee at the lower of the
rate set forth in the Note, or the maximum rate permitted by law to be charged
by Trustee. Upon any sale hereunder, Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession; and the recitals
in any such deed or deeds of facts, such as default, the giving of notice of
default and notice of sale, and other facts affecting the regularity or validity
of such sale or disposition, shall be conclusive proof of the truth of such
facts and any such deed or deeds shall be conclusive against all persons as to
such facts recited therein.
4.05 Environmental Default and Remedies.
In the event that any portion of the Mortgaged Property is determined
to be "environmentally impaired" (as "environmentally impaired" is defined in
California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected
parcel" (as "affected parcel" is defined in California Code of Civil Procedure
Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting
Beneficiary's or Trustee's rights and remedies under this Deed of Trust,
Beneficiary may elect to exercise its right under California Code of Civil
Procedure Section 726.5(a) to (1) waive its lien on such environmentally
impaired or affected portion of the Mortgaged Property and (2) exercise (i) the
rights and remedies of an unsecured creditor, including reduction of its claim
against Trustor to judgment, and (ii) any other rights and remedies permitted by
law. For purposes of determining Beneficiary's right to proceed as an unsecured
creditor under California Code of Civil Procedure Section 726.5(a), Trustor
shall be deemed to have willfully permitted or acquiesced in a release or
threatened release of hazardous materials, within the meaning of California Code
of Civil Procedure Section 726.5(d)(1), if the release or threatened release of
hazardous materials was knowingly or negligently caused or contributed to by any
lessee, occupant or user of any portion of the Mortgaged Property and Trustor
knew or should have known of the activity by such lessee, occupant or user which
caused or contributed to the release or threatened release. All costs and
expenses, including, but not limited to, attorneys' fees, incurred by
Beneficiary in connection with any action commenced under this Section 4.05,
including any action required by California Code of Civil Procedure Section
726.5(b) to determine the degree to which the Mortgaged Property is
environmentally impaired, plus interest thereon at the rate specified in
Paragraph 2(b) of the Note, shall be added to the indebtedness secured by this
Deed of Trust and shall be due and payable to Beneficiary upon its demand made
at any time following the conclusion of such action.
4.06 Proceeds of Sale.
The proceeds of any sale made under or by virtue of this Article IV,
together with all other sums which then may be held by Trustee or Beneficiary
under this Deed of Trust, whether under the provisions of this Article IV or
otherwise, shall be applied as follows:
FIRST: To the payment of costs and expenses of sale and of any judicial
proceedings wherein the same may be made, including reasonable compensation to
Trustee and Beneficiary, their agents and counsel, and to the payment of all
expenses, liabilities and advances made or incurred by Trustee under this Deed
of Trust, together with interest on all advances made by Trustee at the lower of
the interest rate set forth in the Note or the maximum rate permitted by law to
be charged by Trustee.
SECOND: To the payment of any and all sums expended by Beneficiary
under the terms of this Deed of Trust, not then repaid, with accrued interest at
the rate set forth in the Note, and all other sums (except advances of principal
and interest thereon) required to be paid by Trustor pursuant to any provisions
of this Deed of Trust, or the Note, or any note evidencing any Future Advance,
or any of the Related Agreements, including but not limited to all expenses,
liabilities and advances made or incurred by Beneficiary under this Deed of
Trust or in connection with the enforcement thereof, together with interest
thereon as herein provided except for any amounts incurred under or as a result
of the Environmental Agreement.
THIRD: To the payment of the entire amount then due, owing or unpaid
for principal and interest upon the Note and any notes evidencing any Future
Advances, with interest on the unpaid principal at the rate set forth therein
from the date of advancement thereof until the same is paid in full.
FOURTH: To the payment of any and all expenses, liabilities and
advances made or incurred by Beneficiary under this Deed of Trust or otherwise
in connection with the Environmental Agreement or in connection with the
enforcement thereof, together with interest thereon as herein provided.
FIFTH: The remainder, if any, to the person or persons legally entitled
thereto.
4.07 Waiver of Marshaling.
Trustor, for itself and for all persons hereafter claiming through or
under it or who may at any time hereafter become holders of liens junior to the
lien of this Deed of Trust, hereby expressly waives and releases all rights to
direct the order in which any of the Mortgaged Property shall be sold in the
event of any sale or sales pursuant hereto and to have any of the Mortgaged
Property and/or any other property now or hereafter constituting security for
any of the indebtedness secured by this Deed of Trust marshaled upon any
foreclosure of this Deed of Trust or of any other security for any of said
indebtedness.
4.08 Remedies Cumulative.
No remedy herein conferred upon or reserved to Trustee or Beneficiary
is intended to be exclusive of any other remedy herein or by law provided, but
each shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute. No
delay or omission of Trustee or Beneficiary to exercise any right or power
accruing upon any Event of Default shall impair any right or power or shall be
construed to be a waiver of any Event of Default or any acquiescence therein;
and every power and remedy given by this Deed of Trust to Trustee or Beneficiary
may be exercised from time to time as often as may be deemed expedient by
Trustee or Beneficiary. If there exists additional security for the performance
of the obligations secured hereby, the holder of the Note, at its sole option,
and without limiting or affecting any of its rights or remedies hereunder, may
exercise any of the rights and remedies to which it may be entitled hereunder
either concurrently with whatever rights and remedies it may have in connection
with such other security or in such order as it may determine. Any application
of any amounts or any portion thereof held by Beneficiary at any time as
additional security hereunder, whether pursuant to Section 1.03 or Section 1.05
hereof or otherwise, to any indebtedness secured hereby shall not extend or
postpone the due dates of any payments due from Trustor to Beneficiary hereunder
or under the Note, any Future Advances or any of the Related Agreements, or
change the amounts of any such payments or otherwise be construed to cure or
waive any default or notice of default hereunder or invalidate any act done
pursuant to any such default or notice.
ARTICLE V
MISCELLANEOUS
5.01 Severability.
In the event any one or more of the provisions contained in this Deed
of Trust shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Deed of Trust, but this Deed of Trust shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
5.02 Certain Charges.
Trustor agrees to pay Beneficiary for each statement of Beneficiary as
to the obligations secured hereby, furnished at Trustor's request, the maximum
fee allowed by law, or if there be no maximum fee, then such reasonable fee as
is charged by Beneficiary as of the time said statement is furnished. Trustor
further agrees to pay the charges of Beneficiary for any other service rendered
Trustor, or on its behalf, connected with this Deed of Trust or the indebtedness
secured hereby, including, without limitation, the delivery to an escrow holder
of a request for full or partial reconveyance of this Deed of Trust,
transmitting to an escrow holder moneys secured hereby, changing its records
pertaining to this Deed of Trust and indebtedness secured hereby to show a new
owner of the Mortgaged Property, and replacing an existing policy of insurance
held hereunder with another such policy.
5.03 Notices.
All notices expressly provided hereunder to be given by Beneficiary to
Trustor and all notices and demands of any kind or nature whatsoever which
Trustor may be required or may desire to give to or serve on Beneficiary shall
be in writing and shall be served in person or by first class or certified mail.
Any such notice or demand so served by first class or certified mail shall be
deposited in the United States mail, with postage thereon fully prepaid and
addressed to the party so to be served at its address above stated or at such
other address of which said party shall have theretofore notified in writing, as
provided above, the party giving such notice. Service of any such notice or
demand so made shall be deemed effective on the day of actual delivery as shown
by the addressee's return receipt or the expiration of three business days after
the date of mailing, whichever is the earlier in time, except that service of
any notice of default or notice of sale provided or required by law shall, if
mailed, be deemed effective on the date of mailing.
5.04 Trustor Not Released.
Extension of the time for payment or modification of the terms of
payment of any sums secured by this Deed of Trust granted by Beneficiary to any
successor in interest of Trustor shall not operate to release, in any manner,
the liability of the original Trustor. Beneficiary shall not be required to
commence proceedings against such successor or refuse to extend time for payment
or otherwise modify the terms of payment of the sums secured by this Deed of
Trust by reason of any demand made by the original Trustor. Without affecting
the liability of any person, including Trustor, for the payment of any
indebtedness secured hereby, or the lien of this Deed of Trust on the remainder
of the Mortgaged Property for the full amount of any such indebtedness and
liability unpaid, Beneficiary and Trustee are respectively empowered as follows:
Beneficiary may from time to time and without notice (a) release any person
liable for the payment of any of the indebtedness, (b) extend the time or
otherwise alter the terms of payment of any of the indebtedness, (c) accept
additional real or personal property of any kind as security therefor, whether
evidenced by deeds of trust, mortgages, security agreement or any other
instruments of security, or (d) alter, substitute or release any property
securing the indebtedness; Trustee may, at any time, and from time to time, upon
the written request of Beneficiary, which Beneficiary may withhold in its sole
discretion (1) consent to the making of any map or plat of the Mortgaged
Property or any part thereof, (2) join in granting any easement or creating any
restriction thereon, (3) join in any subordination or other agreement affecting
this Deed of Trust or the lien or charge hereof, or (4) reconvey, without any
warranty, all or part of the Mortgaged Property.
5.05 Inspection.
Beneficiary may at any reasonable time or times make or cause to be
made entry upon and inspection of the Mortgaged Property or any part thereof in
person or by agent.
5.06 Reconveyance.
Upon the payment in full of all sums secured by this Deed of Trust,
Beneficiary shall request Trustee to reconvey the Mortgaged Property and shall
surrender this Deed of Trust and all notes evidencing indebtedness secured by
this Deed of Trust to Trustee. Upon payment of its fees and any other sums owing
to it under this Deed of Trust, Trustee shall reconvey the Mortgaged Property
without warranty to the person or persons legally entitled thereto. Trustor
shall pay all costs of recordation, if any. The recitals in such conveyance of
any matters of facts shall be conclusive proof of the truthfulness thereof. The
grantee in such reconveyance may be described as "the person or persons legally
entitled thereto." Five years after issuance of such full reconveyance, Trustee
may destroy said notes and this Deed of Trust unless otherwise directed by
Beneficiary.
5.07 Statute of Limitations.
The pleading of any statute of limitations as a defense to any and all
obligations secured by this Deed of Trust is hereby waived to the fullest extent
permitted by law.
5.08 Interpretation.
Wherever used in this Deed of Trust, unless the context otherwise
indicates a contrary intent, or unless otherwise specifically provided herein,
the word "Trustor" shall mean and include both Trustor and any subsequent owner
or owners of the Mortgaged Property, and the word "Beneficiary" shall mean and
include not only the original Beneficiary hereunder but also any future owner
and holder, including pledgees, of the Note secured hereby. In this Deed of
Trust whenever the context so requires, the masculine gender includes the
feminine and/or neuter, and the neuter includes the feminine and/or masculine,
and the singular number includes the plural and conversely. In this Deed of
Trust, the use of the word "including" shall not be deemed to limit the
generality of the term or clause to which it has reference, whether or not
non-limiting language (such as "without limitation," or "but not limited to," or
words of similar import) is used with reference thereto, but rather shall be
deemed to include any word which could reasonably fall within the broadest
possible scope of such general statement, term or matter. The captions and
headings of the Articles and Sections of this Deed of Trust are for convenience
only and are not to be used to interpret, define or limit the provisions of this
Deed of Trust.
5.09 Consent; Delegation to Sub-Agents.
The granting or withholding of consent by Beneficiary to any
transaction as required by the terms hereof shall not be deemed a waiver of the
right to require consent to future or successive transactions. Wherever a power
of attorney is conferred upon Beneficiary hereunder, it is understood and agreed
that such power is conferred with full power of substitution, and Beneficiary
may elect in its sole discretion to exercise such power itself or to delegate
such power, or any part thereof, to one or more sub-agents.
5.10 Successors and Assigns.
All of the grants, obligations, covenants, agreements, terms,
provisions and conditions herein shall run with the land and shall apply to,
bind and inure to the benefit of, the heirs, administrators, executors, legal
representatives, successors and assigns of Trustor and the successors in trust
of Trustee and the endorsees, transferees, successors and assigns of
Beneficiary. In the event Trustor is composed of more than one party, the
obligations, covenants, agreements, and warranties contained herein as well as
the obligations arising therefrom are and shall be joint and several as to each
such party.
5.11 Governing Law.
The loan secured by this Deed of Trust is made pursuant to, and shall
be construed and governed by, the laws of the State of California and the rules
and regulations promulgated thereunder.
5.12 Substitution of Trustee.
Beneficiary may remove Trustee at any time or from time to time and
appoint a successor trustee, and upon such appointment, all powers, rights,
duties and authority of Trustee, as aforesaid, shall thereupon become vested in
such successor. Such substitute trustee shall be appointed by written instrument
duly recorded in the county or counties where the real property covered hereby
is located, which appointment may be executed by any authorized agent of
Beneficiary or in any other manner permitted by applicable law.
5.13 No Waiver.
No failure or delay by Beneficiary in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. No waiver, consent or approval of any kind by Beneficiary shall be
effective unless contained in writing signed and delivered by Beneficiary. No
notice to or demand on Trustor in any case shall entitle Trustor to any other
notice or demand in similar or other circumstances, nor shall such notice or
demand constitute a waiver of the rights of Beneficiary to any other or further
actions.
5.14 Beneficiary Not Partner of Trustor; Trustor to Indemnify Beneficiary.
The exercise by Beneficiary of any of its rights, privileges or
remedies conferred hereunder or under the Note or any other Related Agreements
or under applicable law, shall not be deemed to render Beneficiary a partner or
a co-venturer with the Trustor or with any other person. Any and all of such
actions will be exercised by Beneficiary solely in furtherance of its role as a
secured lender advancing funds for use by the Trustor as provided in this Deed
of Trust. Trustor shall indemnify Beneficiary against any claim by any third
party for any injury, damage or liability of any kind arising out of any failure
of Trustor to perform its obligations in this transaction, shall notify
Beneficiary of any lawsuit based on such claim, and at Beneficiary's election,
shall defend Beneficiary therein at Trustor's own expense by counsel
satisfactory to Beneficiary or shall pay the Beneficiary's cost and attorneys'
fees if Beneficiary chooses to defend itself on any such claim.
5.15 Time of Essence.
Time is declared to be of the essence in this Deed of Trust, the Note
and any Related Agreements and of every part hereof and thereof.
5.16 Entire Agreement.
Once the Note, this Deed of Trust, and all of the other Related
Agreements, if any, have been executed, all of the foregoing constitutes the
entire agreement between the parties hereto and none of the foregoing may be
modified or amended in any manner other than by supplemental written agreement
executed by the parties hereto; provided, however, that all written and oral
representations of Trustor, and of any partner, principal or agent of Trustor,
previously made to Beneficiary shall be deemed to have been made to induce
Beneficiary to make the loan secured hereby and to enter into the transaction
evidenced hereby and by the Note and the Related Agreements, and shall survive
the execution hereof and the closing pursuant hereto. This Deed of Trust cannot
be changed or modified except by written agreement signed by both Trustor and
Beneficiary.
5.17 No Third Party Benefits.
This Deed of Trust, the Note and the other Related Agreements, if any,
are made for the sole benefit of Trustor and Beneficiary and their successors
and assigns, and convey no other legal interest to any party under or by reason
of any of the foregoing. Whether or not Beneficiary elects to employ any or all
of the rights, powers or remedies available to it under any of the foregoing,
Beneficiary shall have no obligation or liability of any kind to any third party
by reason of any of the foregoing or any of Beneficiary's actions or omissions
pursuant thereto or otherwise in connection with this transaction.
5.18 Junior Deed of Trust.
(a) Notwithstanding anything herein to the contrary, the parties
acknowledge that this Deed of Trust is a second lien on the Mortgaged Property
subject to the prior deed of trust in favor of
________________________________________________________________ dated
________________, 20___ and recorded on __________________, 20___ in the
Official Records of _______________________ County, California (the "Superior
Deed of Trust"). It is a covenant hereof that Trustor shall faithfully and fully
observe and perform each and every term, covenant and condition of any and all
Superior Deed of Trust and of any and all loan agreements, notes, Superior Deed
of Trust (the "Superior Financing Documents"), and shall not permit any of such
Superior Financing Documents to go into default. Trustor shall immediately
notify Beneficiary of any default or delinquency under any of the Superior
Financing Documents, and shall provide Beneficiary with a copy of any notice of
default or delinquency received by Trustor pursuant to any of the Superior
Financing Documents. A default or delinquency under any one of the Superior
Financing Documents shall automatically and immediately constitute an Event of
Default under this Deed of Trust, and in consequence thereof, Beneficiary may
avail itself of any remedies it may have for an Event of Default hereunder,
including, without limitation, acceleration of the Note.
(b) Beneficiary is hereby expressly authorized to advance at its option
all sums necessary to keep any of the Superior Financing Documents in good
standing, and all sums so advanced, together with interest thereon at the
default rates (as defined in the Note), shall be repayable on demand to
Beneficiary and shall be secured by the lien of this Deed of Trust, as in the
case of other advances made by Beneficiary hereunder.
(c) Trustor agrees that Trustor shall not make any agreement with the
holder of any Superior Financing Documents which shall in any way modify,
change, alter or extend any of the terms or conditions of any such Superior
Financing Documents, nor shall Trustor request or accept any future advances
under such Superior Financing Documents without the express written consent of
Beneficiary.
REQUEST FOR NOTICES
Trustor hereby requests that a copy of any Notice of Default and Notice
of Sale as may be required by law be mailed to Trustor at its address above
stated.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
day and year first hereinabove written.
TRUSTOR: _________________________________
<PAGE>
EXHIBIT A
DESCRIPTION OF THE PROPERTY
<PAGE>
STATE OF CALIFORNIA
COUNTY OF ______________________)
On __________________, 20___ before me, ___________________________, a
Notary Public in and for said State, personally appeared ______________________
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------
(Signature)
(SEAL)
STATE OF CALIFORNIA
COUNTY OF ___________________________)
On __________________, 20___ before me, ___________________________, a
Notary Public in and for said State, personally appeared ______________________
_______________________________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------
(Signature)
(SEAL)~
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED, MAIL TO
-- --
Name REDWOOD MORTGAGE CORP.
P.O. BOX 5096
Address REDWOOD CITY, CA 94063-0096
-- --
Title Order No. Escrow No.
---------- -----------------
--------------------------------------------------------------------------------
SPACE ABOVE THIS LINE FOR RECORDER'S USE
Loan No.:
DEED OF TRUST AND ASSIGNMENT OF RENTS
BY THIS DEED OF TRUST, made this day of , 2000, between
this
, herein called Trustor, whose address is,
and PLM LENDER SERVICES, INC., a California Corporation,
,herein called Trustee, and
,herein called Beneficiary,
Trustor grants, transfers, and assigns to Trustee, in trust, with power of sale,
that property in City of County, California, described as:
<PAGE>
Trustor also assigns to Beneficiary all rents, issues and profits of said realty
reserving the right to collect and use the same except during continuance of
default hereunder and during continuance of such default authorizing Beneficiary
to collect and enforce the same by any lawful means in the name of any party
hereto.
For the purpose of securing:
(1) Payment of the indebtedness by one promissory note in the principal sum of $
of even date herewith, payable to Beneficiary, and any extensions or renewals
thereof;
(2) the payment of any money that may be advanced by the Beneficiary to Trustor,
or his successors, with interest thereon, evidenced by additional notes
(indicating they are so secured) or by endorsement on the original note,
executed by Trustor or his successor; (3) performance of each agreement of
Trustor incorporated by reference or contained herein.
<PAGE>
On October 25, 1973, identical fictitious Deeds of Trust were recorded in the
offices of the County Recorders of the Counties of the State of California, the
first page thereof appearing in the book and at the page of the records of the
respective County Recorder as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COUNTY BOOK PAGE COUNTY BOOK PAGE COUNTY BOOK PAGE
Alameda 3540 89 Marin 2736 463 Santa Barbara 2486 1244
Alpine 18 753 Mariposa 143 717 Santa Clara 0623 713
Amador 250 243 Mendocino 942 242 Santa Cruz 2358 744
Butte 1870 678 Merced 1940 361 Shasta 1195 293
Calaveras 368 92 Modoc 225 668 Sierra 59 439
Colusa 409 347 Mono 160 215 Siskiyou 697 407
Contra Costa 7077 178 Monterey 877 243 Solano 1860 581
Del Norte 174 526 Napa 922 96 Sonoma 2810 975
El Dorado 1229 594 Nevada 665 303 Stanislaus 2587 332
Fresno 6227 411 Orange 10961 398 Sutter 817 182
Glenn 565 290 Placer 1528 440 Tehema 630 522
Humboldt 1213 31 Plumas 227 443 Trinity 161 393
Imperial 1355 801 Riverside 1973 139405 Tulare 3137 567
Inyo 205 660 Sacramento 731025 59 Tuolumne 396 309
Kern 4809 2351 San Benito 386 94 Ventura 4182 662
Kings 1018 394 San Bernadino 8294 877 Yolo 1081 335
Lake 743 552 San Francisco B820 585 Yuba 564 163
Lassen 271 367 San Joaquin 3813 6 San Diego File No.
Los Angeles T8512 751 San Luis Obispo 1750 491 73-
Madera 1176 234 San Mateo 6491 600 299568
</TABLE>
The provisions contained in Section A, including paragraphs 1 through 5, and the
provisions contained in Section B, including paragraphs 1 through 9 of said
fictitious Deeds of Trust are incorporated herein as fully as though set forth
at length and in full herein, except certain amendments to the fictitious Deed
of Trust are set forth on an amendment attached hereto and incorporated herein.
The undersigned Trustor requests that a copy of any notice of default and any
notice of sale hereunder be mailed to Trustor at the address hereinabove set
forth, being the address designed for the purpose of receiving such notice. The
Note securing this Deed of Trust provides as follows:
Borrower's required repayment in full before scheduled date
A. In the event of any sale or conveyance of any part of the real property
described in the Deed of Trust securing this Note, then the Note Holder may
demand payment in full of all amounts that I owe under this Note, as allowed by
law.
TRUSTOR:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
AMENDMENT TO FICTITIOUS DEED OF TRUST RECORDED IN _________ COUNTY AT BOOK ____,
PAGE ___, AND ADDENDUM TO THAT CERTAIN DEED OF TRUST DATED _______________
BETWEEN ________________________, TRUSTOR, PLM LENDER SERVICES, INC., A
CALIFORNIA CORPORATION, TRUSTEE, AND _________________________________,
BENEFICIARY.
Paragraph 5, Section A, is deleted and instead the following applies:
5) To pay immediately and without demand all sums so expended by
Beneficiary or Trustee, with interest from date of expenditure at the rate
provided for in the note securing the within Deed of Trust, and to pay for any
statement provided for by law regarding the obligations secured hereby in the
amount demanded by Beneficiary, not exceeding the maximum amount permitted by
law at the time of the request therefore.
The third paragraph of Paragraph 5, Section B, is deleted and instead the
following applies:
After deducting all costs, fees and expenses of Trustee and of this
Trust, including cost of evidence of title in connection with sale, Trustee
shall apply the proceeds of sale to payment of: all sums expended under the
terms hereof, not then repaid, with accrued interest at the rate provided for in
the note securing the within Deed of Trust; all other sums then secured hereby;
and the reminder, if any, to the person legally entitled thereto.
The following is added as Paragraph 10, Section B:
10) Nothing in this instrument shall be interpreted to confer rights or
obligations which are prohibited by the California Business and Professions Code
and Beneficiary and Trustee waives any right inconsistent herewith.
TRUSTOR:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.6
AGREEMENT TO SEEK A LENDER
(Agency Agreement)
DATE: Loan No.:
I engage REDWOOD MORTGAGE CORP. (the Broker) to act as my exclusive agent to
find a lender or lenders willing to loan money to me in the principal amount of
$__________ bearing interest at ______ percent (__%) per annum according to the
terms of the Mortgage Loan Disclosure Statement/Good Faith Estimate (the
Disclosure Statement) I have executed with Broker, a copy of which is attached
to this Agreement, or upon other terms and conditions as I approve. The loan is
to be secured by a Deed of Trust on real property owned entirely or in part by
me at ______________.
I agree to pay a brokerage commission, processing charges and fees for arranging
the loan in accordance with the Disclosure Statement.
If my loan application is approved by Broker in its sole discretion, Broker
shall use its best efforts to obtain a lender or lenders willing to loan the
requested funds to me. The Broker shall have the exclusive right to act as my
agent in this regard for a period of sixty (60) days from the date the loan
application is approved, except that if this loan application is for a loan
which is subject to California Business and Professions Code 10243, then the
period of agency shall be forty five (45) days from the date the loan
application is approved.
I recognize that in addition to acting as my agent, Broker may also be acting as
agent for lenders seeking borrowers such as private parties, institutional
lenders or government agencies, including the lender which ultimately lends me
money. I agree that Broker may act as dual agent for me and for any lender to
me. In addition, I recognize that Broker may, if it so chooses, lend me its own
funds or funds which it controls.
Broker shall incur no liability to me if it is unable to obtain a lender
interested in loaning money to me, and Broker has no obligation to loan me its
own funds.
If loan funds are not disbursed because of any information I fail to disclose
accurately, for instance the existence and terms of any lien affecting the
property which will be security for this loan, or actual title to such property,
I understand that Broker has performed its duties and may incur expenses and
liabilities to other parties. Therefore, I agree to pay Broker the commission
and all other expenses incurred in arranging the loan as listed in the
Disclosure Statement as may be provided by law.
I hereby authorize Broker to deliver to a prospective lender credit information
available to Broker, including reports received from Credit Reporting Agencies.
If applicable, Broker shall retain possession of original Note and original Deed
of Trust, and forward them in accordance with the instructions of the lender.
I recognize and agree that this agreement may be terminated by Broker at any
time before funding of the loan to me. I further recognize and agree that this
agreement shall automatically terminate when the loan funds are disbursed to me
and that Broker has no further obligations to me at that time and that Broker
may continue to act as agent for lender during the time the loan to me is
outstanding.
I agree that all claims or disputes between me and Broker arising out of or
relating to the loan, including Broker's arranging of the loan and my disclosure
of information to Broker shall be determined by binding arbitration in
accordance with the rules of the American Arbitration Association and that the
judgment of the arbitrators may be entered in a court of law. I UNDERSTAND THAT
BY SIGNING THIS AGREEMENT I AM GIVING UP THE RIGHT TO A JURY OR COURT TRIAL AND
AGREEING TO HAVE DISPUTES DECIDED BY NEUTRAL ARBITRATORS.
I have read the above Agreement and I do agree.
-------------------------------------------- ---------------------------
Name (Date)
-------------------------------------------- ---------------------------
Name (Date)
THE REAL PROPERTY WHICH WILL SECURE THE REQUESTED LOAN IS MY RESIDENCE
Yes ______ No _______
(BORROWER INITIAL YES OR NO)
<PAGE>
Exhibit 24.2
CONSENT OF COUNSEL
TO REDWOOD MORTGAGE INVESTORS VIII
We hereby consent to the use in the Registration Statement on Form
S-11, and any amendments or supplements of our form of opinions in respect to
certain tax and ERISA matters and legality as to the issuance of securities, and
to any reference to our firm included in or made part of the Registration
Statement. In giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under the Securities Act of
1933, as amended, or the Rules and Regulations promulgated thereunder.
/s/ McCutchen, Doyle, Brown & Enersen, LLP
-----------------------------
McCutchen, Doyle, Brown & Enersen, LLP
San Francisco, California
July 13, 2000
<PAGE>
Exhibit 24.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO REDWOOD MORTGAGE INVESTORS VIII
We hereby consent to the use of our reports accompanying the balance
sheets of the general partner, GYMNO Corporation and the financial statements of
the partnership, Redwood Mortgage Investors VIII, in this prospectus, and any
supplements thereto, and Registration Statement filed on Form S-11 for Redwood
Mortgage Investors VIII. We also consent to the reference to our firm under the
reference "experts" in the prospectus.
/s/Parodi & Cropper
--------------------------------
Parodi & Cropper
(Predecessor firm of Caporicci, Cropper & Larson)
July 13, 2000
<PAGE>
Exhibit 24.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO REDWOOD MORTGAGE INVESTORS VIII
We hereby consent to the use of our reports accompanying the balance
sheets of the general partner, GYMNO Corporation, the general partner Redwood
Mortgage Corp., and the financial statements of the partnership, Redwood
Mortgage Investors VIII, in this prospectus, and any supplements thereto, and
Registration Statement filed on Form S-11 for Redwood Mortgage Investors VIII.
We also consent to the reference to our firm under the reference "experts" in
the prospectus.
/s/ Caporicci, Cropper & Larson, LLP
--------------------------------
Caporicci, Cropper & Larson
July 13, 2000
