NATIONAL GOLF PROPERTIES INC
8-K, 1998-03-26
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549


                                   FORM 8-K
                                CURRENT REPORT
                                        

                      PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934


        Date of Report (Date of earliest event reported): March 4, 1998

                        COMMISSION FILE NUMBER 1-12246

                        NATIONAL GOLF PROPERTIES, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



                   MARYLAND                                 95-4549193
         (State or other jurisdiction of                 (I.R.S. Employer
                  incorporation)                      Identification Number)


     2951 28TH STREET, SUITE 3001
     SANTA MONICA, CALIFORNIA                                   90405
(Address of principal executive offices)                      (Zip Code)


                                (310) 664-4100
             (Registrant's telephone number, including area code)


                                NOT APPLICABLE
  (Former name, former address and former fiscal year, if changed since last
                                    report)
<PAGE>
 
ITEM 5.   OTHER EVENTS.

          On March 4, 1998, National Golf Operating Partnership, L.P., a
Delaware limited partnership (the "Operating Partnership"), of which National
Golf Properties, Inc., a Maryland corporation, is the general partner, completed
the private placement of 1,200,000 8% Series A Cumulative Redeemable Preferred
Units, representing a limited partnership interest in the Operating Partnership,
to an institutional investor for a contribution to the Operating Partnership of
$60 million. The Operating Partnership used the net proceeds from such private
placement to reduce outstanding indebtedness under the Operating Partnership's
revolving credit facility.


ITEM 7.   EXHIBITS.

Exhibit No.    Description
- -----------
    3.1        Articles Supplementary of the Registrant

   10.1        Amended and Restated Agreement of Limited Partnership of National
               Golf Operating Partnership, L.P., dated as of March 4, 1998

   10.2        Registration Rights Agreement, dated as of March 4, 1998, by and
               among National Golf Properties, Inc., National Golf Operating
               Partnership, L.P. and the unit holders named therein

   10.3        Contribution Agreement, dated as of March 4, 1998, between Belair
               Capital Fund LLC, National Golf Operating Partnership, L.P. and
               National Golf Properties, Inc.
<PAGE>
 
                                  SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                  NATIONAL GOLF PROPERTIES, INC.
 
 
 
 
Date:  March 26, 1998             By:/s/ William C. Regan
                                     -----------------------------------------
                                     William C. Regan
                                     Vice President - Controller and Treasurer

                                      S-1

<PAGE>
 
                                                                     EXHIBIT 3.1


                         NATIONAL GOLF PROPERTIES, INC.

                             ARTICLES SUPPLEMENTARY

                                1,200,000 SHARES

               8% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK


          National Golf Properties, Inc., a Maryland corporation (the
"CORPORATION"), hereby certifies to the State Department of Assessments and
- ------------                                                               
Taxation of Maryland that:

          FIRST:    Pursuant to the authority expressly vested in the Board of
          -----                                                               
Directors of the Corporation by Article IV of the Articles of Incorporation of
the Corporation filed with the Department on March 28, 1995, as amended by
Amended Articles of Incorporation filed with the Department on March 30, 1995,
as amended by Articles of Merger filed with the Department on August 31, 1995
(the "CHARTER") and Section 2-105 of the Maryland General Corporation Law (the
      -------                                                                 
"MGCL"), the Board of Directors of the Corporation (the "BOARD OF DIRECTORS"),
- -----                                                    ------------------   
by resolutions duly adopted on February 26, 1998 has classified 1,200,000 shares
of the authorized but unissued Preferred Stock par value $.01 per share
("PREFERRED STOCK") as a separate class of Preferred Stock, authorized the
  ---------------                                                          
issuance of a maximum of 1,200,000 shares of such class of Preferred Stock, set
certain of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, terms and conditions
of redemption and other terms and conditions of such class of Preferred Stock,
and pursuant to the powers contained in the Bylaws of the Corporation and the
MGCL, appointed a committee (the "COMMITTEE") of the Board of Directors and
                                  ---------                                
delegated to the Committee, to the fullest extent permitted by the MGCL and the
Charter and Bylaws of the Corporation, all powers of the Board of Directors with
respect to designating, and setting all other preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of, such
class of Preferred Stock determining the number of shares of such class of
Preferred Stock (not in excess of the aforesaid maximum number) to be issued and
the consideration and other terms and conditions upon which such shares of such
class of Preferred Stock are to be issued.

          SECOND:   Pursuant to the authority conferred upon the Committee as
          ------                                                             
aforesaid, the Committee has unanimously adopted resolutions designating the
aforesaid class of Preferred Stock as the "8% Series A Cumulative Redeemable
Preferred Stock," setting the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, terms and
conditions of redemption and other terms and conditions of such 8% Series A
Cumulative Redeemable Preferred Stock (to the extent not set by the Board of
Directors in the resolutions referred to in Article FIRST of these Articles
                                                    -----                  
<PAGE>
 
Supplementary) and authorizing the issuance of up to 1,200,000 shares of 8%
Series A Cumulative Redeemable Preferred Stock.

          THIRD:    The class of Preferred Stock of the Corporation created by
          -----                                                               
the resolutions duly adopted by the Board of Directors of the Corporation and by
the Committee and referred to in Articles FIRST and SECOND of these Articles
                                          -----     ------                  
Supplementary shall have the following designation, number of shares,
preferences, conversion and other rights, voting powers, restrictions and
limitation as to dividends, qualifications, terms and conditions of redemption
and other terms and conditions:

          SECTION 1.     DESIGNATION AND NUMBER.  A series of Preferred Stock,
                         ----------------------                               
designated the "8% Series A Cumulative Redeemable Preferred Stock" (the "SERIES
                                                                         ------
A PREFERRED STOCK") is hereby established.  The number of shares of Series A
- -----------------                                                           
Preferred Stock shall be 1,200,000.

          SECTION 2.     RANK.      The Series A Preferred Stock will, with
                         ----                                              
respect to distributions or rights upon voluntary or involuntary liquidation,
winding-up or dissolution of the Corporation, or both, rank senior to all
classes or series of Common Stock (as defined in the Charter) and to all classes
or series of equity securities of the Corporation now or hereafter authorized,
issued or outstanding, other than any class or series of equity securities of
the Corporation expressly designated as ranking on a parity with or senior to
the Series A Preferred Stock as to distributions or rights upon voluntary or
involuntary liquidation, winding-up or dissolution of the Corporation, or both.
For purposes of these Articles Supplementary, the term "PARITY PREFERRED STOCK"
                                                        ---------------------- 
shall be used to refer to any class or series of equity securities of the
Corporation now or hereafter authorized, issued or outstanding expressly
designated by the Corporation to rank on a parity with Series A Preferred Stock
with respect to distributions or rights upon voluntary or involuntary
liquidation, winding-up or dissolution of the Corporation, or both, as the
context may require.  The term "equity securities" does not include debt
securities, which will rank senior to the Series A Preferred Stock prior to
conversion.

          SECTION 3.     DISTRIBUTIONS.  (a)  Payment of Distributions.  Subject
                         -------------        ------------------------          
to the rights of holders of Parity Preferred Stock as to the payment of
distributions and holders of equity securities ranking senior to the Series A
Preferred Stock as to payment of distributions, holders of Series A Preferred
Stock will be entitled to receive, when, as and if declared by the Corporation,
out of funds legally available for the payment of distributions, cumulative
preferential cash distributions at the rate per annum of 8% of the $50.00
liquidation preference per share of Series A Preferred Stock.  Such
distributions shall be cumulative, shall accrue from the original date of
issuance and will be payable quarterly in arrears, on or before the 15/th/ of
February, May, August and November of each year and, in the event of a
redemption, on the redemption date (each a "PREFERRED STOCK DISTRIBUTION PAYMENT
                                            ------------------------------------
DATE"), commencing in each case on the first Preferred Stock Distribution
- ----                                                                     
Payment Date after the original date of issuance.  The amount of the
distribution payable for any 
<PAGE>
 
period will be computed on the basis of a 360-day year of twelve 30-day months
and for any period shorter than a full quarterly period for which distributions
are computed, the amount of the distribution payable will be computed on the
basis of the actual number of days elapsed in such a 30-day month. If any date
on which distributions are to be made on the Series A Preferred Stock is not a
Business Day (as defined herein), then payment of the distribution to be made on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except that,
if such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date. Distributions on the Series A
Preferred Stock will be made to the holders of record of the Series A Preferred
Stock on the relevant record dates, which, unless otherwise provided by the
Corporation with respect to any distribution, will be 15 Business Days prior to
the relevant Preferred Stock Distribution Payment Date (each a "DISTRIBUTION
                                                                ------------
RECORD DATE"). Notwithstanding anything to the contrary set forth herein, each
- -----------
share of Series A Preferred Stock shall also continue to accrue all accrued and
unpaid distributions up to the exchange date on any Series A Preference Unit (as
defined in the Amended and Restated Limited Partnership Agreement of National
Golf Operating Partnership, L.P. dated as of February 24, 1998 (the
"AMENDMENT")) validly exchanged into such share of Series A Preferred Stock in
 ---------
accordance with the provisions of such Amendment.

          The term "BUSINESS DAY" shall mean each day, other than a Saturday or
                    ------------                                               
a Sunday, which is not a day on which banking institutions in New York, New York
or Los Angeles, California are authorized or required by law, regulation or
executive order to close.

          (b) Limitation on Distributions.  No distributions on the Series A
              ---------------------------                                   
Preferred Stock shall be declared or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of the
Corporation, including any agreement relating to its indebtedness, prohibits
such declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration, payment or setting
apart for payment shall be restricted or prohibited by law.

          (c) Distributions Cumulative.  Notwithstanding the foregoing,
              ------------------------                                 
distributions on the Series A Preferred Stock will accrue whether or not the
terms and provisions set forth in SECTION 3(B) hereof at any time prohibit the
current payment of distributions, whether or not the Corporation has earnings,
whether or not there are funds legally available for the payment of such of such
distributions and whether or not such distributions are authorized.  Accrued but
unpaid distributions on the Series A Preferred Stock will accumulate as of the
Preferred Stock Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.

          (d) Priority as to Distributions.  (i)  So long as any Series A
              ----------------------------                               
Preferred 
<PAGE>
 
Stock is outstanding, no distribution of cash or other property shall
be authorized, declared, paid or set apart for payment on or with respect to any
class or series of Common Stock or any class or series of other stock of the
Corporation ranking junior as to the payment of distributions to the Series A
Preferred Stock (such Common Stock or other junior stock, collectively, "JUNIOR
                                                                         ------
STOCK"), nor shall any cash or other property be set aside for or applied to the
- -----                                                                           
purchase, redemption or other acquisition for consideration of any Series A
Preferred Stock, any Parity Preferred Stock with respect to distributions or any
Junior Stock, unless, in each case, all distributions accumulated on all Series
A Preferred Stock and all classes and series of outstanding Parity Preferred
Stock as to payment of distributions have been paid in full.  The foregoing
sentence will not prohibit (i) distributions payable solely in Junior Stock,
(ii) the conversion of Junior Stock or Parity Preferred Stock into stock of the
Corporation ranking junior to the Series A Preferred Stock as to distributions,
and (iii) purchase by the Corporation of such Series A Preferred Stock, Parity
Preferred Stock with respect to distributions or Junior Stock pursuant to
Article IV.C.3. of the Charter with respect to the Common Stock and comparable
Charter provisions with respect to other classes of capital stock of the
Corporation to the extent required to preserve the Corporation's status as a
real estate investment trust.

          (ii) So long as distributions have not been paid in full (or a sum
sufficient for such full payment is not irrevocably deposited in trust for
payment) upon the Series A Preferred Stock, all distributions authorized and
declared on the Series A Preferred Stock and all classes or series of
outstanding Parity Preferred Stock with respect to distributions shall be
authorized and declared so that the amount of distributions authorized and
declared per share of Series A Preferred Stock and such other classes or series
of Parity Preferred Stock shall in all cases bear to each other the same ratio
that accrued distributions per share on the Series A Preferred Stock and such
other classes or series of Parity Preferred Stock (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such class or series of Parity Preferred Stock do not have cumulative
distribution rights) bear to each other.

          (e) No Further Rights.  Holders of Series A Preferred Stock shall not
              -----------------                                                
be entitled to any distributions, whether payable in cash, other property or
otherwise, in excess of the full cumulative distributions described herein.

          SECTION 4.     LIQUIDATION PREFERENCE.  (a)  Payment of Liquidating
                         ----------------------        ----------------------
Distributions.  Subject to the rights of holders of Parity Preferred Stock with
- -------------                                                                  
respect to rights upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation and subject to equity securities ranking senior to
the Series A Preferred Stock with respect to rights upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution or the proceeds
thereof, after payment or provision for debts and other liabilities of the
Corporation, but before any payment or distributions of the assets shall be made
to holders of Common Stock or any 
<PAGE>
 
other class or series of shares of the Corporation that ranks junior to the
Series A Preferred Stock as to rights upon liquidation, dissolution or winding-
up of the Corporation, an amount equal to the sum of (i) a liquidation
preference of $50 per share of Series A Preferred Stock, and (ii) an amount
equal to any accumulated and unpaid distributions thereon to the date of
payment. In the event that, upon such voluntary or involuntary liquidation,
dissolution or winding-up, there are insufficient assets to permit full payment
of liquidating distributions to the holders of Series A Preferred Stock and any
Parity Preferred Stock as to rights upon liquidation, dissolution or winding-up
of the Corporation, all payments of liquidating distributions on the Series A
Preferred Stock and such Parity Preferred Stock shall be made so that the
payments on the Series A Preferred Stock and such Parity Preferred Stock shall
in all cases bear to each other the same ratio that the respective rights of the
Series A Preferred Stock and such other Parity Preferred Stock (which shall not
include any accumulation in respect of unpaid distributions for prior
distribution periods if such Parity Preferred Stock do not have cumulative
distribution rights) upon liquidation, dissolution or winding-up of the
Corporation bear to each other.

          (b) Notice.  Written notice of any such voluntary or involuntary
              ------                                                      
liquidation, dissolution or winding-up of the Corporation, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by (i) fax and (ii) by first
class mail, postage pre-paid, not less than 30 and not more that 60 days prior
to the payment date stated therein, to each record holder of the Series A
Preferred Stock at the respective addresses of such holders as the same shall
appear on the share transfer records of the Corporation.

          (c) No Further Rights.  After payment of the full amount of the
              -----------------                                          
liquidating distributions to which they are entitled, the holders of Series A
Preferred Stock will have no right or claim to any of the remaining assets of
the Corporation.

          (d) Consolidation, Merger or Certain Other Transactions.  The
              ---------------------------------------------------      
consolidation or merger or other business combination of the Corporation with or
into any corporation, trust or other entity (or of any corporation, trust or
other entity with or into the Corporation) shall not be deemed to constitute a
liquidation, dissolution or winding-up of the Corporation.

          (e) Permissible Distributions.  In determining whether a distribution
              -------------------------                                        
(other than upon voluntary or involuntary liquidation) by dividend, redemption
or other acquisition of shares of stock of the Corporation or otherwise is
permitted under the MGCL, no effect shall be given to amounts that would be
needed, if the Corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of holders of shares of
stock of the Corporation whose preferential rights upon dissolution are superior
to those receiving the distribution.

          SECTION 5.     OPTIONAL REDEMPTION.  (a)  Right of Optional
                         --------------------       -----------------
Redemption. The 
<PAGE>
 
Series A Preferred Stock may not, subject to SECTION 7 hereof, be redeemed prior
to March 4, 2003. On or after such date, the Corporation shall have the
right to redeem the Series A Preferred Stock, in whole or in part, at any time
or from time to time, upon not less than 30 nor more than 60 days' written
notice, at a redemption price, payable in cash, equal to $50 per share of Series
A Preferred Stock plus accumulated and unpaid distributions to the date of
redemption. If fewer than all of the outstanding shares of Series A Preferred
Stock are to be redeemed, the shares of Series A Preferred Stock to be redeemed
shall be selected pro rata (as nearly as practicable without creating fractional
units).

          (b) Limitation on Redemption.  (i)  The redemption price of the Series
              ------------------------                                          
A Preferred Stock (other than the portion thereof consisting of accumulated but
unpaid distributions) will be payable solely out of the sale proceeds of capital
stock of the Corporation and from no other source.  For purposes of the
preceding sentence, "capital stock" means any equity securities (including
Common Stock and Preferred Stock), shares, participation or other ownership
interests (however designated) and any rights (other than debt securities
convertible into or exchangeable for equity securities) or options to purchase
any of the foregoing.

          (ii) Subject to SECTION 7 hereof, the Corporation may not redeem fewer
than all of the outstanding shares of Series A Preferred Stock unless all
accumulated and unpaid distributions have been paid on all Series A Preferred
Stock for all quarterly distribution periods terminating on or prior to the date
of redemption.
 
          (c) Procedures for Redemption.  (i)  Notice of redemption will be (i)
              -------------------------                                        
faxed, and (ii) mailed by the Corporation, postage prepaid, not less than 30 nor
more than 60 days prior to the redemption date, addressed to the respective
holders of record of the Series A Preferred Stock to be redeemed at their
respective addresses as they appear on the transfer records of the Corporation.
No failure to give or defect in such notice shall affect the validity of the
proceedings for the redemption of any Series A Preferred Stock except as to the
holder to whom such notice was defective or not given.  In addition to any
information required by law or by the applicable rules of any exchange upon
which the Series A Preferred Stock may be listed or admitted to trading, each
such notice shall state:  (i) the redemption date, (ii) the redemption price,
(iii) the number of shares of Series A Preferred Stock to be redeemed, (iv) the
place or places where such shares of Series A Preferred Stock are to be
surrendered for payment of the redemption price, (v) that distributions on the
Series A Preferred Stock to be redeemed will cease to accumulate on such
redemption date and (vi) that payment of the redemption price and any
accumulated and unpaid distributions will be made upon presentation and
surrender of such Series A Preferred Stock.  If fewer than all of the shares of
Series A Preferred Stock held by any holder are to be redeemed, the notice
mailed to such holder shall also specify the number of shares of Series A
Preferred Stock held by such holder to be redeemed.

          (ii) If the Corporation gives a notice of redemption in respect of
<PAGE>
 
Series A Preferred Stock (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Corporation will deposit
irrevocably in trust for the benefit of the Series A Preferred Stock being
redeemed funds sufficient to pay the applicable redemption price, plus any
accumulated and unpaid distributions, if any, on such shares to the date fixed
for redemption, without interest, and will give irrevocable instructions and
authority to pay such redemption price and any accumulated and unpaid
distributions, if any, on such shares to the holders of the Series A Preferred
Stock upon surrender of the Series A Preferred Stock by such holders at the
place designated in the notice of redemption.  On and after the date of
redemption, distributions will cease to accumulate on the Series A Preferred
Stock or portions thereof called for redemption, unless the Corporation defaults
in the payment thereof.  If any date fixed for redemption of Series A Preferred
Stock is not a Business Day, then payment of the redemption price payable on
such date will be made on the next succeeding day that is a Business Bay (and
without any interest or other payment in respect of any such delay) except that,
if such Business Day falls in the next calendar year, such payment will be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption.  If payment of the
redemption price  or any accumulated or unpaid distributions in respect of the
Series A Preferred Stock is improperly withheld or refused and not paid by the
Corporation, distributions on such Series A Preferred Stock will continue to
accumulate from the original redemption date to the date of payment, in which
case the actual payment date will be considered the date fixed for redemption
for purposes of calculating the applicable redemption price and any accumulated
and unpaid distributions.

          (d) Status of Redeemed Stock.  Any Series A Preferred Stock that shall
              ------------------------                                          
at any time have been redeemed shall after such redemption, have the status of
authorized but unissued Preferred Stock, without designation as to class or
series until such shares are once more designated as part of a particular class
or series by the Board of Directors.

          SECTION 6.     VOTING RIGHTS.  (a)  General.  Holders of the Series A
                         -------------        -------                          
Preferred Stock will not have any voting rights, except as set forth below.

          (b) Right to Elect Directors.  If at any time full distributions shall
              ------------------------                                          
not have been timely made on any Series A Preferred Stock with respect to any
six (6) prior quarterly distribution periods, whether or not consecutive, (a
                                                                            
"PREFERRED DISTRIBUTION DEFAULT"), the holders such Series A Preferred Stock,
- -------------------------------                                              
voting together as a single class with the holders of each class or series of
Parity Preferred Stock upon which like voting rights have been conferred and are
exercisable, will have the right to elect two additional directors to serve on
the Corporation's Board of Directors (the "PREFERRED STOCK DIRECTORS") at a
                                           -------------------------       
special meeting called by the holders of record of at least 10% of the
outstanding shares of Series A Preferred Stock or any such class or series of
Parity Preferred Stock or at the next annual meeting of stockholders, and at
each subsequent annual meeting of stockholders or special meeting held in place
thereof, until all such distributions in arrears and distributions for the
current quarterly period on the Series A Preferred Stock and each such class or
series of 
<PAGE>
 
Parity Preferred Stock have been paid in full. A distribution in respect of
Series A Preferred Stock shall be considered timely made if made within two (2)
Business Days after the applicable Preferred Stock Distribution Payment Date if
at time of such late payment there shall not be any prior quarterly distribution
periods in respect of which full distributions were not timely made at the
applicable Preferred Stock Distribution Date. If and when all accumulated
distributions and the distribution for the current distribution period on the
Series A Preferred Stock shall have been paid in full or set aside for payment
in full, the holders of the Series A Preferred Stock shall be divested of the
voting rights set forth in SECTION 6(b) herein (subject to revesting in the
event of each and every Preferred Distribution Default) and, if all
distributions in arrears and the distributions for the current distribution
period have been paid in full or set aside for payment in full on all other
classes or series of Parity Preferred Stock upon which like voting rights have
been conferred and are exercisable, the term and office of each Preferred Stock
Director so elected shall terminate. Any Preferred Stock Director may be removed
at any time with or without cause by the vote of, and shall not be removed
otherwise than by the vote of, the holders of record of a majority of the
outstanding Series A Preferred Stock when they have the voting rights set forth
in SECTION 6(b) (voting separately as a single class with all other classes or
series of Parity Preferred Stock upon which like voting rights have been
conferred and are exercisable). So long as a Preferred Distribution Default
shall continue, any vacancy in the office of a Preferred Stock Director may be
filled by written consent of the Preferred Stock Director remaining in office,
or if none remains in office, by a vote of the holders of record of a majority
of the outstanding Series A Preferred Stock when they have the voting rights set
forth in SECTION 6(b) (voting separately as a single class with all other
classes or series of Parity Preferred Stock upon which like voting rights have
been conferred and are exercisable). The Preferred Stock Director shall each be
entitled to one vote per director on any manner.

          (c) Certain Voting Rights.  So long as any Series A Preferred Stock
              ---------------------                                          
remains outstanding, the Corporation shall not, without the affirmative vote of
the holders of at least two-thirds of the Series A Preferred Stock outstanding
at the time (i) designate or create, or increase the authorized or issued amount
of, any class or series of shares ranking prior to the Series A Preferred Stock
with respect to payment of distributions or rights upon liquidation, dissolution
or winding-up or reclassify any authorized shares of the Corporation into any
such shares, or create, authorize or issue any obligations or security
convertible into or evidencing the right to purchase any such shares, (ii)
designate or create, or increase the authorized or issued amount of, any Parity
Preferred Stock or reclassify any authorized shares of the Corporation into any
such shares, or create, authorize or issue any obligations or security
convertible into or evidencing the right to purchase any such shares, but only
to the extent such Parity Preferred Stock is issued to a an affiliate of the
Corporation, or (iii) either (A) consolidate, merge into or with, or convey,
transfer or lease its assets substantially as an entirety, to any corporation or
other entity, or (B) amend, alter or repeal the provisions of the Corporation's
Charter (including these Articles Supplementary) or By-laws, whether by merger,
consolidation or otherwise, in each case that would materially and adversely
affect the powers, special rights, preferences, privileges or voting power of
the Series A 
<PAGE>
 
Preferred Stock or the holders thereof; provided, however, that with respect to
the occurrence of any event set forth in (iii) above, so long as (a) the
Corporation is the surviving entity and the Series A Preferred Stock remains
outstanding with the terms thereof unchanged, or (b) the resulting, surviving or
transferee entity is a corporation organized under the laws of any state and
substitutes the Series A Preferred Stock for other preferred stock having
substantially the same terms and same rights as the Series A Preferred Stock,
including with respect to distributions, voting rights and rights upon
liquidation, dissolution or winding-up, then the occurrence of any such event
shall not be deemed materially and adversely affect such rights, privileges or
voting powers of the holders of the Series A Preferred Stock and provided
further that any increase in the amount of authorized Preferred Stock or the
creation or issuance of any other class or series of Preferred Stock, or any
increase in an amount of authorized shares of each class or series, in each case
ranking either (a) junior to the Series A Preferred Stock with respect to
payment of distributions or the distribution of assets upon liquidation,
dissolution or winding-up, or (b) on a parity with the Series A Preferred Stock
with respect to payment of distributions or the distribution of assets upon
liquidation, dissolution or winding-up to the extent such Preferred Stock is not
issued to a affiliate of the Corporation, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.

          SECTION 7.     RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX
                         ------------------------------------------------------
BENEFIT.
- ------- 

          (a) Definitions.  for the purposes of this SECTION 7 of these Articles
              -----------                                                       
Supplementary, the following terms shall have the following meanings:

               "BENEFICIAL OWNERSHIP" shall mean ownership of Series A
                --------------------
Preferred Stock by a Person who is or would be treated as an owner of such
Series A Preferred Stock either actually or constructively through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of
the Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have the correlative meanings.

               "BENEFICIAL OWNERSHIP LIMIT" shall mean 9.8% (by value) of the
                --------------------------                                   
outstanding shares of capital stock the Corporation.

               "CHARITABLE BENEFICIARY" shall mean one or more beneficiaries of
                ----------------------
a Trust, as determined pursuant to SECTION 7(c)(VI) of these Articles
Supplementary, each of which shall be an organization described in Sections
170(b)(1)(A), 170(c)(2) or 501(c)(3) of the Code.

     "CODE" shall mean the Internal Revenue Code of 1986, as amended.  All
      ----                                                                
section references to the Code shall include any successor provisions thereof as
may be adopted from time to time.
<PAGE>
 
             "CONSTRUCTIVE OWNERSHIP" shall mean ownership of Series A Preferred
              ----------------------
Stock by a Person who is or would be treated as an owner of such Series A
Preferred Stock either actually or constructively through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.  The
terms "Constructive Owner," "Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.

             "CONSTRUCTIVE OWNERSHIP LIMIT" shall mean 9.8% (by value) of the
              ----------------------------                                   
outstanding shares of capital stock the Corporation.

             "IRS" means the United States Internal Revenue Service.
              ---                                                   

             "MARKET PRICE" shall mean the last reported sales price reported on
              ------------
the New York Stock Exchange of the Series A Preferred Stock on the trading day
immediately preceding the relevant date, or if the Series A Preferred Stock is
not then traded on the New York Stock Exchange, the last reported sales price of
the Series A Preferred Stock on the trading day immediately preceding the
relevant date as reported on any exchange or quotation system over wich the
Series A Preferred Stock may be traded, or if the Series A Preferred Stock is
not then traded over any exchange or quotation system, then the market price of
the Series A Preferred Stock on the relevant date as determined in good faith by
the Board of Directors of the Corporation.

        "MGCL" shall mean the Maryland General Corporation Law, as amended
         ----
from time to time, and any successor statue hereafter enacted.

             "OPERATING PARTNERSHIP" shall mean National Golf Operating
              ---------------------                                    
Partnership, L.P., a Delaware limited partnership.

              "PARTNERSHIP AGREEMENT" shall mean the Agreement of Limited
               ---------------------                                     
Partnership of the Operating Partnership, as such agreement may be  amended from
time to time.

              "PERSON" shall mean an individual, corporation, partnership,
               ------
limited liability company, estate, trust (including a trust qualified under
Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c)
of the Code, association, private foundation within the meaning of Section
509(a) of the Code, joint stock company or other entity; but does not include an
underwriter acting in a capacity as such in a public offering of shares of
Series A Preferred Stock provided that the ownership of such shares of Series A
Preferred Stock by such underwriter would not result in the Corporation being
"closely held" within the meaning of Section 856(h) 
<PAGE>
 
of the Code, or otherwise result in the Corporation failing to qualify as a
REIT.

          "PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any
           -------------------------------                                 
purported Transfer (or other event) which results in a transfer to a Trust, as
provided in SECTION 7(b)(ii) of these Articles Supplementary, the Purported
Record Transferee, unless the Purported Record Transferee would have acquired or
owned shares of Series A Preferred Stock for another Person who is the
beneficial transferee or owner of such shares, in which case the Purported
Beneficial Transferee shall be such Person.

          "PURPORTED RECORD TRANSFEREE" shall mean, with respect to any
           ---------------------------                                 
purported Transfer (or other event) which results in a transfer to a Trust, as
provided in SECTION 7(b)(ii) of these Articles Supplementary, the record holder
of the Series A Preferred Stock if such Transfer had been valid under SECTION
7(b)(i) of these Articles Supplementary.

          "REIT" shall mean a real estate investment trust under Sections 856
           ----                                                              
through 860 of the Code and, for purposes of taxation of the Corporation under
applicable state law, comparable provisions of the law of such state.

          "RESTRICTION TERMINATION DATE" shall mean the first day after the date
           ----------------------------                                         
hereof on which the Board of Directors of the Corporation determines that it is
no longer in the best interests of the Corporation to attempt to, or continue
to, qualify as a REIT.

          "TRANSFER" shall mean any sale, transfer, gift, assignment, devise or
           --------                                                            
other disposition of Series A Preferred Stock, (including (i) the granting of
any option or entering into any agreement for the sale, transfer or other
disposition of Series A Preferred Stock or (ii) the sale, transfer, assignment
or other disposition of any securities (or rights convertible into or
exchangeable for Series A Preferred Stock), whether voluntary or involuntary,
whether such transfer has occurred of record or beneficially or Beneficially or
Constructively (including but not limited to transfers of interests in other
entities which results in changes in Beneficial or Constructive Ownership of
Series A Preferred Stock), and whether such transfer has occurred by operation
of law or otherwise.

          "TRUST" shall mean each of the trusts provided for in SECTION
           -----                                                       
7(C) of these Articles Supplementary.

          "TRUSTEE" shall mean any Person unaffiliated with the 
           -------
<PAGE>
 
         Corporation, or a Purported Beneficial Transferee, or a Purported
         Record Transferee, that is appointed by the Corporation to serve as
         trustee of a Trust.

         (b)  Restriction on Ownership and Transfers.
              -------------------------------------- 

              (i)    Prior to the Restriction Termination Date:

                     (A) except as provided in SECTION 7(i) of these Articles
              Supplementary, no Person shall Beneficially Own Series A Preferred
              Stock which, taking into account any other capital stock of the
              Corporation Beneficially Owned by such Person, would cause such
              ownership to exceed the Beneficial Ownership Limit;

                     (B) except as provided in SECTION 7(i) of these Articles
              Supplementary, no Person shall Constructively Own Series A
              Preferred Stock which, taking into account any other capital stock
              of the Corporation Constructively Owned by such Person, would
              cause such ownership to exceed the Constructive Ownership Limit;

                     (C) no Person shall Beneficially or Constructively Own
              Series A Preferred Stock which, taking into account any other
              capital stock of the Corporation Beneficially or Constructively
              Owned by such Person, would result in the Corporation being
              "closely held" within the meaning of Section 856(h) of the Code,
              or otherwise failing to qualify as a REIT (including but not
              limited to Beneficial or Constructive Ownership that would result
              in the Corporation owning (actually or Constructively) an interest
              in a tenant that is described in Section 856(d)(2)(B) of the Code
              if the income derived by the Corporation (either directly or
              indirectly through one or more partnerships) from such tenant
              would cause the Corporation to fail to satisfy any of the gross
              income requirements of Section 856(c) of the Code or comparable
              provisions of state law).

          (ii) If, prior to the Restriction Termination Date, any Transfer
(whether or not such Transfer is the result of a transaction entered into
through the facilities of the New York Stock Exchange ("NYSE")) or other event
                                                        ----                  
occurs that, if effective, would result in any Person Beneficially or
Constructively Owning Series A Preferred Stock in violation of SECTION 7(b)(i)
of these Articles Supplementary, (1) then that number of shares of Series A
Preferred Stock that otherwise would cause such Person to violate SECTION
7(b)(i) of these Articles Supplementary (rounded up to the nearest whole share)
shall be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in SECTION 7(c), effective as of the close of business
on the business day prior to the date of such Transfer or other event, and such
Purported Beneficial Transferee shall thereafter have 
<PAGE>
 
no rights in such shares or (2) if, for any reason, the transfer to the Trust
described in clause (1) of this sentence is not automatically effective as
provided therein to prevent any Person from Beneficially or Constructively
Owning Series A Preferred Stock in violation of SECTION 7(b)(i) of these
Articles Supplementary, then the Transfer of that number of shares of Series A
Preferred Stock that otherwise would cause any Person to violate SECTION 7(b)(i)
shall be void ab initio, and the Purported Beneficial Transferee shall have no
rights in such shares.

               (iii)   Notwithstanding any other provisions contained herein,
prior to the Restriction Termination Date, any Transfer of Series A Preferred
Stock (whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE) that, if effective, would result in the
capital stock of the Corporation being beneficially owned by less than 100
Persons (determined without reference to any rules of attribution) shall be void
ab initio, and the intended transferee shall acquire no rights in such Series A
Preferred Stock.

                (iv)   It is expressly intended that the restrictions on
ownership and Transfer described in this SECTION 7(b) shall apply to the
exchange rights provided in Section 16.7 of the Partnership Agreement.
Notwithstanding any of the provisions of the Partnership Agreement to the
contrary, a partner of the Operating Partnership shall not be entitled to effect
an exchange of an interest in the Operating Partnership for Series A Preferred
Stock if the actual or beneficial or Beneficial or Constructive Ownership of
Series A Preferred Stock would be prohibited under the provisions of this
SECTION 7.

          (c)   Transfers of Series A Preferred Stock in Trust.
                ---------------------------------------------- 

                (i) Upon any purported Transfer or other event described in
SECTION 7(b)(ii) of these Articles Supplementary, such Series A Preferred Stock
shall be deemed to have been transferred to the Trustee in his capacity as
trustee of a Trust for the exclusive benefit of one or more Charitable
Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as
of the close of business on the business day prior to the purported Transfer or
other event that results in a transfer to the Trust pursuant to SECTION
7(b)(ii). The Trustee shall be appointed by the Corporation and shall be a
Person unaffiliated with the Corporation, any Purported Beneficial Transferee,
or any Purported Record Transferee. Each Charitable Beneficiary shall be
designated by the Corporation as provided in SECTION 7(c)(vi) of these Articles
Supplementary.

               (ii) Series A Preferred Stock held by the Trustee shall be issued
and outstanding Series A Preferred Stock of the Corporation. The Purported
Beneficial Transferee or Purported Record Transferee shall have no rights in the
shares of Series A Preferred Stock held by the Trustee. The Purported Beneficial
Transferee or Purported Record Transferee shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have no rights to
dividends and shall not possess any rights to vote or other rights attributable
to the shares of Series A Preferred Stock held in the Trust.
<PAGE>
 
             (iii)  The Trustee shall have all voting rights and rights to
dividends with respect to Series A Preferred Stock held in the Trust, which
rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary.  Any dividend or distribution paid prior to the discovery by the
Corporation that shares of Series A Preferred Stock have been transferred to the
Trustee  shall be paid to the Trustee upon demand, and any dividend or
distribution declared but unpaid shall be paid when due to the Trustee with
respect to such Series A Preferred Stock.  Any dividends or distribution so paid
over to the Trustee shall be held in trust for the Charitable Beneficiary.

             The Purported Record Transferee and Purported Beneficial Transferee
shall have no voting rights with respect to the Series A Preferred Stock held in
the Trust and, subject to Maryland law, effective as of the date the Series A
Preferred Stock has been transferred to the Trustee, the Trustee shall have the
authority (at the Trustee's sole discretion) (i) to rescind as void any vote
cast by a Purported Record Transferee with respect to such Series A Preferred
Stock prior to the discovery by the Corporation that the Series A Preferred
Stock has been transferred to the Trustee and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Corporation has already
taken irreversible corporate action, then the Trustee shall not have the
authority to rescind and recast such vote.  Notwithstanding any other provision
of these Articles Supplementary to the contrary, until the Corporation has
received notification that the Series A Preferred Stock has been transferred
into a Trust, the Corporation shall be entitled to rely on its share transfer
and other stockholder records for purposes of preparing lists of stockholders
entitled to vote at meetings, determining the validity and authority of proxies
and otherwise conducting votes of stockholders.

             (iv) Within 20 days of receiving notice from the Corporation that
shares of Series A Preferred Stock have been transferred to the Trust, the
Trustee of the Trust shall sell the shares of Series A Preferred Stock held in
the Trust to a Person, designated by the Trustee, whose ownership of the shares
of Series A Preferred Stock will not violate the ownership limitations set forth
in SECTION 7(b)(i).  Upon such sale, the interest of the Charitable Beneficiary
in the shares of Series A Preferred Stock sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and to the Charitable Beneficiary as provided in this SECTION 7(c)(iv).  The
Purported Record Transferee shall receive the lesser of (1) the price paid by
the Purported Record Transferee for the shares of Series A Preferred Stock in
the transaction that resulted in such transfer to the Trust (or, if the event
which resulted in the transfer to the Trust did not involve a purchase of such
shares of Series A Preferred Stock at Market Price, the Market Price of such
shares of Series A Preferred Stock on the day of the event which resulted in the
transfer of such shares of Series A Preferred Stock to the Trust) and (2) the
price per share received by the Trustee (net of any commissions and other
expenses of sale) from the sale or other disposition of the shares of Series A
Preferred Stock held in the Trust.  Any net sales proceeds in excess of the
amount payable to the Purported Record Transferee shall be immediately paid to
the Charitable Beneficiary together with any dividends or other 
<PAGE>
 
distributions thereon. If, prior to the discovery by the Corporation that shares
of such Series A Preferred Stock have been transferred to the Trustee, such
shares of Series A Preferred Stock are sold by a Purported Record Transferee
then (i) such shares of Series A Preferred Stock shall be deemed to have been
sold on behalf of the Trust and (ii) to the extent that the Purported Record
Transferee received an amount for such shares of Series A Preferred Stock that
exceeds the amount that such Purported Record Transferee was entitled to receive
pursuant to this SECTION 7(c)(iv), such excess shall be paid to the Trustee upon
demand.

          (v) Series A Preferred Stock transferred to the Trustee shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price paid by the Purported
Record Transferee for the shares of Series A Preferred Stock in the transaction
that resulted in such transfer to the Trust (or, if the event which resulted in
the transfer to the Trust did not involve a purchase of such shares of Series A
Preferred Stock at Market Price, the Market Price of such shares of Series A
Preferred Stock on the day of the event which resulted in the transfer of such
shares of Series A Preferred Stock to the Trust) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer.  The Corporation
shall have the right to accept such offer until the Trustee has sold the shares
of Series A Preferred Stock held in the Trust pursuant to SECTION 7(c)(iv).
Upon such a sale to the Corporation, the interest of the Charitable Beneficiary
in the shares of Series A Preferred Stock sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and any dividends or other distributions held by the Trustee with respect to
such Series A Preferred Stock shall thereupon be paid to the Charitable
Beneficiary.

          (vi) By written notice to the Trustee, the Corporation shall designate
one or more nonprofit organizations to be the Charitable Beneficiary of the
interest in the Trust such that (i) the Series A Preferred Stock held in the
Trust would not violate the restrictions set forth in SECTION 7(b)(i) in the
hands of such Charitable Beneficiary and (ii) each Charitable Beneficiary is an
organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the
Code.

       (d) Remedies For Breach.  If the Board of Directors or a committee
           -------------------                                           
thereof or other designees if permitted by the MGCL shall at any time determine
in good faith that a Transfer or other event has taken place in violation of
SECTION 7(b) of these Articles Supplementary or that a Person intends to
acquire, has attempted to acquire or may acquire beneficial ownership
(determined without reference to any rules of attribution), Beneficial Ownership
or Constructive Ownership of any shares of Series A Preferred Stock of the
Corporation in violation of SECTION 7(b) of these Articles Supplementary, the
Board of Directors or a committee thereof or other designees if permitted by the
MGCL shall take such action as it deems advisable to refuse to give effect or to
prevent such Transfer, including, but not limited to, causing the Corporation to
redeem shares of Series A Preferred Stock, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
such Transfer; provided, however, that any Transfers (or, in the case 
<PAGE>
 
of events other than a Transfer, ownership or Constructive Ownership or
Beneficial Ownership) in violation of SECTION 7(b)(i) of these Articles
Supplementary, shall automatically result in the transfer to a Trust as
described in SECTION 7(b)(ii) and any Transfer in violation of SECTION 7(b)(iii)
shall automatically be void ab initio irrespective of any action (or non-action)
by the Board of Directors.

          (e) Notice of Restricted Transfer.  Any Person who acquires or
              -----------------------------                             
attempts to acquire shares of Series A Preferred Stock in violation of SECTION
7(b) of these Articles Supplementary, or any Person who is a Purported
Beneficial Transferee such that an automatic transfer to a Trust results under
SECTION 7(b)(ii) of these Articles Supplementary, shall immediately give written
notice to the Corporation of such event and shall provide to the Corporation
such other information as the Corporation may request in order to determine the
effect, if any, of such Transfer or attempted Transfer on the Corporation's
status as a REIT.

          (f) Owners Required To Provide Information.  Prior to the Restriction
              --------------------------------------                           
Termination date each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Series A Preferred Stock and each Person (including the
shareholder of record) who is holding Series A Preferred Stock for a beneficial
owner or Beneficial Owner or Constructive Owner shall provide to the Corporation
such information that the Corporation may request, in good faith, in order to
determine the Corporation's status as a REIT.

          (g) Remedies Not Limited.  Nothing contained in these Articles
              --------------------                                      
Supplementary (but subject to SECTION 7(n) of these Articles Supplementary)
shall limit the authority of the Board of Directors to take such other action as
it deems necessary or advisable to protect the Corporation and the interests of
its shareholders by preservation of the Corporation's status as a REIT.

          (h) Ambiguity.  In the case of an ambiguity in the application of any
              ---------                                                        
of the provisions of this SECTION 7 of these Articles Supplementary, including
any definition contained in SECTION 7(a), the Board of Directors shall have the
power to determine the application of the provisions of this SECTION 7 with
respect to any situation based on the facts known to it (subject, however, to
the provisions of SECTION 7(n) of these Articles Supplementary).  In the event
SECTION 7 requires an action by the Board of Directors and these Articles
Supplementary fail to provide specific guidance with respect to such action, the
Board of Directors shall have the power to determine the action to be taken so
long as such action is not contrary to the provisions of SECTION 7.  Absent a
decision to the contrary by the Board of Directors (which the Board of Directors
may make in its sole and absolute discretion), if a Person would have (but for
the remedies set forth in SECTION 7(b)) acquired Beneficial or Constructive
Ownership of Series A Preferred Stock in violation of SECTION 7(b)(i), such
remedies (as applicable) shall apply first to the shares of Series A Preferred
Stock which, but for such remedies, would have been actually owned by such
Person, and second to shares of Series A Preferred Stock, which, but for such
remedies, would have been 
<PAGE>
 
Beneficially Owned or Constructively Owned (but not actually owned) by such
Person, pro rata among the Persons who actually own such shares of Series A
Preferred Stock based upon the relative number of the shares of Series A
Preferred Stock held by each such Person.

          (i)  Exceptions.
               ---------- 

               (i) Subject to SECTION 7(b)(i)(C), the Board of Directors, in its
sole discretion, may exempt a Person from the limitation on a Person
Beneficially Owning shares of Series A Preferred Stock in violation of SECTION
7(b)(i)(A) if the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain that no
individual's Beneficial Ownership of such shares of Series A Preferred Stock
will violate SECTION 7(b)(i)(A) or that any such violation will not cause the
Corporation to fail to qualify as a REIT under the Code, and agrees that any
violation of such representations or undertakings (or other action which is
contrary to the restrictions contained in SECTION 7(b) of these Articles
Supplementary) or attempted violation will result in such Series A Preferred
Stock being transferred to a Trust in accordance with SECTION 7(b)(ii) of these
Articles Supplementary.

              (ii) Subject to SECTION 7(b)(i)(C), the Board of Directors, in its
sole discretion, may exempt a Person from the limitation on a Person
Constructively Owning Series A Preferred Stock in violation of SECTION
7(b)(i)(B), if such Person does not and represents that it will not own,
actually or Constructively, an interest in a tenant of the Corporation (or a
tenant of any entity owned in whole or in part by the Corporation) that would
cause the Corporation to own, actually or Constructively more than a 9.8%
interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant and
the Corporation obtains such representations and undertakings from such Person
as are reasonably necessary to ascertain this fact and agrees that any violation
or attempted violation will result in such Series A Preferred Stock being
transferred to a Trust in accordance with SECTION 7(b)(ii) of these Articles
Supplementary. Notwithstanding the foregoing, the inability of a Person to make
the certification described in this SECTION 7(i)(ii) shall not prevent the Board
of Directors, in its sole discretion, from exempting such Person from the
limitation on a Person Constructively Owning Series A Preferred Stock in
violation of SECTION 7(b)(i)(B) if the Board of Directors determines that the
resulting application of Section 856(d)(2)(B) of the Code and comparable
provisions of applicable state law would affect the characterization of less
than 0.5% of the gross income (as such term is used in Section 856(c)(2) of the
Code) of the Corporation in any taxable year, after taking into account the
effect of this sentence with respect to all other capital stock of the
Corporation to which this sentence applies.

             (iii) Prior to granting any exception pursuant to SECTION
7(i)(i) or (ii) of these Articles Supplementary, the Board of Directors may
require a ruling from the Internal Revenue Service, or an opinion of counsel, in
either case in form and substance satisfactory to the Board of Directors in its
sole discretion, as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT.
<PAGE>
 
          (j) Legends.  Each certificate for Series A Preferred Stock shall bear
              -------                                                           
the following legends:

                                 CLASS OF STOCK

          "THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE
CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK.
THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS
AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK BEFORE THE ISSUANCE OF
SHARES OF SUCH CLASS OF PREFERRED STOCK. THE CORPORATION WILL FURNISH, WITHOUT
CHARGE, TO ANY STOCKHOLDER MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE
CORPORATION'S CHARTER AND A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE
RIGHTS, PREFERENCES, CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS
AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE CORPORATION
HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY
PREFERRED OR SPECIAL CLASS AND SERIES, (i) THE DIFFERENCES IN THE RELATIVE
RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND
(ii) THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES
OF SUBSEQUENT SERIES.  REQUESTS FOR SUCH WRITTEN  STATEMENT MAY BE DIRECTED TO
THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE."

                     RESTRICTION ON OWNERSHIP AND TRANSFER

          "THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP
AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A
REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE").  SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY
PROVIDED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK, (i) NO
PERSON MAY BENEFICIALLY OWN SHARES OF THE CORPORATION'S SERIES A PREFERRED STOCK
WHICH, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE CORPORATION
BENEFICIALLY OWNED BY SUCH PERSON, WOULD CAUSE SUCH OWNERSHIP TO EXCEED THE
BENEFICIAL OWNERSHIP LIMIT OF 9.8%; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES
OF THE CORPORATION'S SERIES A PREFERRED STOCK WHICH, TAKING 
<PAGE>
 
INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE CORPORATION CONSTRUCTIVELY OWNED BY
SUCH PERSON, WOULD CAUSE SUCH OWNERSHIP TO EXCEED THE CONSTRUCTIVE OWNERSHIP
LIMIT OF 9.8%; (iii) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A
PREFERRED STOCK THAT, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF THE
CORPORATION BENEFICIALLY OR CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD RESULT IN
THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE OR
OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON
MAY TRANSFER SERIES A PREFERRED STOCK IF SUCH TRANSFER WOULD RESULT IN THE
CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY
PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK WHICH CAUSES OR WILL CAUSE A PERSON
TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK IN EXCESS OF THE
ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SERIES A PREFERRED STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST
FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE
CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE
BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES
THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS
DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED
TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB
INITIO. ALL TERMS IN THIS LEGEND DEFINED IN THE ARTICLES SUPPLEMENTARY FOR THE
SERIES A PREFERRED STOCK SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN THE
ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON
TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH
<PAGE>
 
HOLDER OF SERIES A PREFERRED STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR
SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL
OFFICE."

          (k) Exchange of Series A Preferred Units.  So long as the Corporation
              ------------------------------------                             
remains the general partner of the Operating Partnership, the Board of Directors
of the Corporation is hereby expressly vested with authority (subject to the
restrictions on ownership, transfer and redemption of Series A Preferred Stock
set forth in this SECTION 7) to issue, and shall issue to the extent provided in
the Partnership Agreement, Series A Preferred Stock in exchange for Series A
Preferred Units (as defined in the Partnership Agreement) (the "SERIES A
                                                                --------
PREFERRED UNITS").
- ---------------   

          (l) Reservation of Shares.  Pursuant to the obligations of the
              ---------------------                                     
Corporation under the Partnership Agreement to issue Series A Preferred Stock in
exchange for Series A Preferred Units, the Board of Directors is hereby required
to reserve and authorize for issuance a number of authorized but unissued shares
of Series A Preferred Stock not less than the number of Series A Preferred Units
issued to permit the Corporation to issue Series A Preferred Stock in exchange
for Series A Preferred Units that may be exchanged for or converted into Series
A Preferred Stock as provided in the Partnership Agreement.

          (m) Severability.  If any provision of this SECTION 7 or any
              ------------                                            
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.

          (n) NYSE.  Nothing in this SECTION 7 shall preclude the settlement of
              ----                                                             
any transaction entered into through the facilities of the NYSE.  The shares of
Series A Preferred Stock that are the subject of such transaction shall continue
to be subject to the provisions of this SECTION 7 after such settlement.

          (o) Applicability of Section 7.  The provisions set forth in this
              --------------------------                                   
SECTION 7 shall apply to the Series A Preferred Stock notwithstanding any
contrary provisions of the Series A Preferred Stock provided for elsewhere in
these Articles Supplementary.

          SECTION 8.     NO CONVERSION RIGHTS.  The holders of the Series A
                         --------------------                              
Preferred Stock shall not have any rights to convert such shares into shares of
any other class or series of stock or into any other securities of, or interest
in, the Corporation.

          SECTION 9.     NO SINKING FUND.  No sinking fund shall be established
                         ---------------                                       
for the retirement or redemption of Series A Preferred Stock.
<PAGE>
 
          SECTION 10.    NO PREEMPTIVE RIGHTS.  No holder of the Series A
                         --------------------                            
Preferred Stock of the Corporation shall, as such holder, have any preemptive
rights to purchase or subscribe for additional shares of stock of the
Corporation or any other security of the Corporation which it may issue or sell.

          FOURTH:   The Series A Preferred Stock have been classified and
          ------                                                         
designated by the Board of Directors under the authority contained in the
Charter.

          FIFTH:    These Articles Supplementary have been approved by the Board
          -----                                                                 
of Directors in the manner and by the vote required by law.

          SIXTH:    The undersigned President of the Corporation acknowledges
          -----                                                              
these Articles Supplementary to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
<PAGE>
 
          IN WITNESS WHEREOF, the Corporation has caused Articles Supplementary
to be executed under seal in its name and on its behalf by its President and
attested to by its Secretary on this 4th day of March, 1998.

                                    NATIONAL GOLF PROPERTIES, INC.


                                    By: /s/ James M. Stanich
                                       ------------------------
                                       James M. Stanich
                                       President



     [SEAL]

     ATTEST:

     /s/ Scott S. Thompson
     -------------------------
     Scott S. Thompson
     Secretary

<PAGE>

                                                                    EXHIBIT 10.1
================================================================================






                              AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                    NATIONAL GOLF OPERATING PARTNERSHIP, L.P

                        (a Delaware limited partnership)

                           Dated as of March 4, 1998





================================================================================
<PAGE>



                               TABLE OF CONTENTS
                               -----------------
<TABLE>
<CAPTION>

                                                                                            PAGE
                                                                                            ----
<S>                                                                                         <C> 
ARTICLE 1.  DEFINED TERMS.................................................................     2

ARTICLE 2.  ORGANIZATIONAL MATTERS........................................................    18
     Section 2.1.  Organization...........................................................    18
     Section 2.2.  Name...................................................................    19
     Section 2.3.  Registered Office and Agent; Principal Office..........................    19
     Section 2.4.  Power of Attorney......................................................    19
     Section 2.5.  Term...................................................................    20

ARTICLE 3.  PURPOSE.......................................................................    21
     Section 3.1.  Purpose and Business...................................................    21
     Section 3.2.  Powers.................................................................    21
     Section 3.3.  Partnership Only for Purposes Specified................................    21
     Section 3.4.  Representations and Warranties by the Parties..........................    22

ARTICLE 4.  CAPITAL CONTRIBUTIONS.........................................................    24
     Section 4.1.  Capital Contributions of the Partners..................................    24
     Section 4.2.  Additional Capital Contributions Generally.............................    24
     Section 4.3.  Loans by Partners......................................................    24
     Section 4.4.  Loans by Third Parties.................................................    25
     Section 4.5.  Additional Funding and Capital Contributions...........................    25
     Section 4.6.  Stock Incentive Plan...................................................    29

ARTICLE 5.  DISTRIBUTIONS.................................................................    29
     Section 5.1.  Requirement and Characterization of Distributions......................    29
     Section 5.2.  Distributions in Kind..................................................    30
     Section 5.3.  Amounts Withheld.......................................................    30
     Section 5.4.  Distributions Upon Liquidation.........................................    30
     Section 5.5.  Distributions to Reflect Issuance of Additional Partnership
     Interests............................................................................    30

ARTICLE 6.  ALLOCATIONS...................................................................    31
     Section 6.1.  Timing and Amount of Allocations of Net Income and Net Loss............    31
     Section 6.2.  General Allocations....................................................    31
     Section 6.3.  Additional Allocation Provisions.......................................    32
     Section 6.4.  Tax Allocations........................................................    35

ARTICLE 7.  MANAGEMENT AND OPERATIONS OF BUSINESS.........................................    35
     Section 7.1.  Management.............................................................    35
     Section 7.2.  Certificate of Limited Partnership.....................................    39
     Section 7.3.  Restrictions on General Partner's Authority............................    40
</TABLE>


                                       i
<PAGE>

<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>                                                                                         <C>
     Section 7.4.  Reimbursement of the General Partner...................................    43
     Section 7.5.  Outside Activities of the General Partner..............................    43
     Section 7.6.  Contracts with Affiliates..............................................    45
     Section 7.7.  Indemnification........................................................    46
     Section 7.8.  Liability of the General Partner.......................................    48
     Section 7.9.  Other Matters Concerning the General Partner...........................    49
     Section 7.10. Title to Partnership Assets............................................    50
     Section 7.11. Reliance by Third Parties..............................................    50

ARTICLE 8.  RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS....................................    51
     Section 8.1.  Limitation of Liability................................................    51
     Section 8.2.  Management of Business.................................................    51
     Section 8.3.  Outside Activities of Limited Partners.................................    51
     Section 8.4.  Return of Capital......................................................    51
     Section 8.5.  Rights of Limited Partners Relating to the Partnership.................    52
     Section 8.6.  Common Limited Partner Exchange and Put Rights.........................    53

ARTICLE 9.  BOOKS, RECORDS, ACCOUNTING AND REPORTS........................................    60
     Section 9.1.  Records and Accounting.................................................    60
     Section 9.2.  Fiscal Year............................................................    60
     Section 9.3.  Reports................................................................    60

ARTICLE 10. TAX MATTERS...................................................................    61
     Section 10.1. Preparation of Tax Returns.............................................    61
     Section 10.2. Tax Elections..........................................................    61
     Section 10.3. Tax Matters Partner....................................................    61
     Section 10.4. Organizational Expenses................................................    63
     Section 10.5. Withholding............................................................    63

ARTICLE 11. TRANSFERS AND WITHDRAWALS.....................................................    64
     Section 11.1. Transfer...............................................................    64
     Section 11.2. Transfer of General Partner's Partnership Interest.....................    64
     Section 11.3. Limited Partners' Rights to Transfer...................................    65
     Section 11.4. Substituted Limited Partners...........................................    68
     Section 11.5. Assignees..............................................................    69
     Section 11.6. General Provisions.....................................................    70

ARTICLE 12. ADMISSION OF PARTNERS.........................................................    72
     Section 12.1. Admission of Successor General Partner.................................    72
     Section 12.2. Admission of Additional Limited Partners...............................    72
     Section 12.3. Amendment of Agreement and Certificate of Limited                      
                   Partnership............................................................    73
     Section 12.4. Limit on Number of Partners............................................    73

ARTICLE 13. DISSOLUTION AND LIQUIDATION...................................................    73
     Section 13.1. Dissolution............................................................    73
</TABLE>


                                      ii
<PAGE>

<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>                                                                                         <C>
     Section 13.2.  Winding Up............................................................    74
     Section 13.3.  Compliance with Timing Requirements of Regulations....................    75
     Section 13.4.  Deemed Distribution and Recontribution................................    76
     Section 13.5.  Rights of Limited Partners............................................    76
     Section 13.6.  Notice of Dissolution.................................................    76
     Section 13.7.  Cancellation of Certificate of Limited Partnership....................    77
     Section 13.8.  Reasonable Time for Winding-Up........................................    77
     Section 13.9.  Waiver of Partition...................................................    77

ARTICLE 14. PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS...............................    77
     Section 14.1.  Procedures For Actions And Consents of Partners.......................    77

ARTICLE 15. GENERAL PROVISIONS............................................................    78
     Section 15.1.  Addresses and Notice..................................................    79
     Section 15.2.  Titles and Captions...................................................    79
     Section 15.3.  Pronouns and Plurals..................................................    79
     Section 15.4.  Further Action........................................................    79
     Section 15.5.  Binding Effect........................................................    79
     Section 15.6.  Creditors.............................................................    79
     Section 15.7.  Waiver................................................................    79
     Section 15.8.  Counterparts..........................................................    80
     Section 15.9.  Applicable Law........................................................    80
     Section 15.10. Invalidity of Provisions..............................................    80
     Section 15.11. Limitation to Preserve REIT Status....................................    80
     Section 15.12. Partition.............................................................    81
     Section 15.13. No Third-Party Rights Created Hereby..................................    81
     Section 15.14. Entire Agreement......................................................    81

ARTICLE 16. SERIES A PREFERRED UNITS......................................................    82
     Section 16.1.  Designation and Number................................................    82
     Section 16.2.  Distributions.........................................................    82
     Section 16.3.  Liquidation Proceeds..................................................    84
     Section 16.4.  Optional Redemption...................................................    84
     Section 16.5.  Voting Rights.........................................................    86
     Section 16.6.  Transfer Restrictions.................................................    87
     Section 16.7.  Exchange Rights.......................................................    88
     Section 16.8.  No Conversion Rights..................................................    92
     Section 16.9.  No Sinking Fund.......................................................    93
     Section 16.10. Reports...............................................................    93
</TABLE>


                                      iii

<PAGE>

                                                                    EXHIBIT 10.1
 
                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                   NATIONAL GOLF OPERATING PARTNERSHIP, L.P.

          THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as
of March 4, 1998, is entered into by and among National Golf Properties, Inc., a
Maryland corporation (the "REIT"), as the General Partner and the Persons whose
names are set forth on Exhibit A as attached hereto, as the Limited Partners,
together with any other Persons who become Partners in the Partnership as
provided herein.

          WHEREAS, the Partnership was formed on August 18, 1993 and an original
Agreement of Limited Partnership was entered into between the REIT, as General
Partner, and the Limited Partners;

          WHEREAS, in connection with the REIT's assignment and contribution to
the Partnership of certain golf course properties acquired from Golf
Enterprises, Inc., the REIT, as General Partner, entered into the Amendment of
Agreement of Limited Partnership dated as of July 25, 1996.

          WHEREAS, in order to clarify certain provisions of the original
Agreement of Limited Partnership, as amended, the REIT, as General Partner,
entered into the First Amendment of Agreement of Limited Partnership, dated as
of July 29, 1996;

          WHEREAS, on the date hereof, Belair Capital Fund LLC, a Massachusetts
limited liability company ("Contributor"), is making a Capital Contribution of
$60,000,000 in cash to the Partnership in exchange for an aggregate of 1,200,000
8% Series A Cumulative Redeemable Preferred Units of limited partnership
interest in the Partnership with rights, preferences, exchange and other rights,
voting powers and restrictions, limitations as to distributions, qualifications
and terms and conditions as set forth herein;

          WHEREAS, the REIT, as General Partner, desires to amend and restate
the Partnership Agreement to reflect (i)  the prior amendments of the
Partnership Agreement, (ii) the issuance of the Series A Cumulative Redeemable
Preferred Units, (iii) the admission of the Contributor as an Additional Limited
Partner and holder of 1,200,000 Series A Cumulative Redeemable Preferred Units
and (iv) certain other matters described herein;
<PAGE>
 
          WHEREAS, Contributor desires to become a party to the Partnership
Agreement as a Limited Partner and to be bound by all terms, conditions and
other provisions of the Partnership Agreement; and

          WHEREAS, the REIT, as General Partner, has obtained the written
consent of Limited Partners representing at least the minimum number of
Partnership Interests (as defined in the Partnership Agreement) required to
amend the Partnership Agreement pursuant to Section 7.3 and Article 14 of the
Partnership Agreement.

          NOW, THEREFORE, BE IT RESOLVED, that for good and adequate
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:


                                  ARTICLE 1.

                                 DEFINED TERMS

          The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

          "Act" means the Delaware Revised Uniform Limited Partnership Act, as
           ---                                                                
it may be amended from time to time, and any successor to such statute.

          "Additional Funds" shall have the meaning set forth in Section 4.5.A.
           ----------------                                                    

          "Additional Limited Partner" means a Person admitted to the
           --------------------------                                
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.

          "Adjusted Capital Account Deficit" means, with respect to any Partner,
           --------------------------------                                     
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:

               (i) decrease such deficit by any amounts which such Partner is
     obligated to restore pursuant to this Agreement or is deemed to be
     obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c)
     or the penultimate sentence of each of Regulations Sections 1.704-2(i)(5)
     and 1.704-2(g); and

               (ii) increase such deficit by the items described in Regulations
     Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.

                                       2
<PAGE>
 
          "Adjustment Date" shall have the meaning set forth in Section 4.5.F.
           ---------------                                                    
hereof.

          "Affiliate" means, with respect to any Person, any Person directly or
           ---------                                                           
indirectly controlling, controlled by or under common control with such Person,
and when used in Section 11.3, such Person's Immediate Family.

          "Agreed Value" means (i) in the case of any Contributed Property set
           ------------                                                       
forth in Exhibit A and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in Exhibit A; (ii) in the case of
any Contributed Property not set forth in Exhibit A and as of the time of its
contribution to the Partnership, the fair market value of such property or other
consideration as determined by the General Partner, reduced by any liabilities
either assumed by the Partnership upon such contribution or to which such
property is subject when contributed; and (iii) in the case of any property
distributed to a Partner by the Partnership, the fair market value of such
property as determined by the General Partner at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of the
distribution as determined under Section 752 of the Code and the Regulations
thereunder.

          "Agreement" means this Amended and Restated Agreement of Limited
           ---------                                                      
Partnership, as it may be amended, supplemented or restated from time to time.

          "Appraisal" means with respect to any assets, the opinion of an
           ---------                                                     
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith; such opinion may be in the form of an
opinion by such independent third party that the value for such property or
asset as set by the General Partner is fair, from a financial point of view, to
the Partnership.

          "Assignee" means a Person to whom one or more Partnership Units have
           --------                                                           
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.

          "Available Cash" means, with respect to any period for which such
           --------------                                                  
calculation is being made, (i) the sum, without duplication, of:

               (a) the Partnership's Net Income or Net Loss (as the case may be)
          for such period,

               (b) Depreciation and all other noncash charges deducted in
          determining Net Income or Net Loss for such period,

               (c) the amount of any reduction in reserves of the Partnership
          referred to in clause (ii)(f) below (including, without limitation,
          reductions resulting because the General Partner determines such
          amounts are no longer necessary),

                                       3
<PAGE>
 
               (d) the excess of the net proceeds from the sale, exchange,
          disposition or refinancing of Partnership property for such period
          over the gain (or loss, as the case may be) recognized from such sale,
          exchange, disposition or refinancing during such period (excluding
          Terminating Capital Transactions), and

               (e) all other cash received by the Partnership for such period
          that was not included in determining Net Income or Net Loss for such
          period;

          (ii) less the sum, without duplication, of:

               (a) all principal debt payments made during such period by the
          Partnership,

               (b) capital expenditures made by the Partnership during such
          period,

               (c) investments in any entity (including loans made thereto) to
          the extent that such investments are not otherwise described in
          clauses (ii)(a) or (b),

               (d) all other expenditures and payments not deducted in
          determining Net Income or Net Loss for such period,

               (e) any amount included in determining Net Income or Net Loss for
          such period that was not received by the Partnership during such
          period, and

               (f) the amount of any increase in reserves established during
          such period which the General Partner determines are necessary or
          appropriate in its sole and absolute discretion.

          Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or include any disbursements made or
reserves established, after commencement of the dissolution, liquidation and
winding up of the Partnership.

          "Board of Directors" means the Board of Directors of the General
           ------------------                                             
Partner.

          "Business Day" shall mean each day, other than a Saturday or a Sunday,
           ------------                                                         
which is not a day on which banking institutions in Los Angeles, California, or
New York, New York are authorized or required by law, regulation or executive
order to close.

          "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 added such
Partner's Capital Contributions, such Partner's share of Net Income and any
items in the nature of income or gain which are specially allocated pursuant to
Section 6.3 hereof, and the amount of any

                                       4
<PAGE>
 
Partnership liabilities assumed by such Partner or which are secured by any
property distributed to such Partner.

          (b) From each Partner's Capital Account, there shall be subtracted the
amount of cash and the Gross Asset Value of any property distributed to such
Partner pursuant to any provision of this Agreement, such Partner's distributive
share of Net Losses and any items in the nature of expenses or losses which are
specially allocated pursuant to Section 6.3 hereof, and the amount of any
liabilities of such Partner assumed by the Partnership or which are secured by
any property contributed by such Partner to the Partnership.

          (c) In the event any interest in the Partnership is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.

          (d) In determining the amount of any liability for purposes of
subsections (a) and (b) hereof, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.

          (e) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the General
Partner shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed in order to comply with
such Regulations, the General Partner may make such modification provided that
it is not likely to have a material effect on the amounts distributable to any
Person pursuant to Article 13 of this Agreement upon the dissolution of the
Partnership.  The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.

          "Capital Contribution" means, with respect to any Partner, the amount
           --------------------                                                
of money and the initial Gross Asset Value of any property (other than money)
contributed to the Partnership by such Partner.

          "Cash Amount" is defined in Section 8.6.C.
           -----------                              

                                       5
<PAGE>
 
          "Certificate" means the Certificate of Limited Partnership of the
           -----------                                                     
Partnership filed in the office of the Delaware Secretary of State, as amended
from time to time in accordance with the terms hereof and the Act.

          "Charter" means the Articles of Incorporation of the General Partner
           -------                                                            
filed in the State of Maryland on August 31, 1995, as amended or restated from
time to time.

          "Code" means the Internal Revenue Code of 1986, as amended from time
           ----                                                               
to time or any successor statute thereto, as interpreted by the applicable
regulations thereunder.  Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of future law.

          "Common Limited Partner" means any Person holding Common Units and
           ----------------------                                           
named as a Common Limited Partner in Exhibit A attached hereto, as such Exhibit
may be amended from time to time, or any Substituted Limited Partner or
Additional Limited Partner, in such Person's capacity as a Common Limited
Partner in the Partnership.

          "Common Unit" means a Partnership Unit representing a Limited
           -----------                                                 
Partnership Interest that is without preference as to distributions and
allocations or rights upon voluntary or involuntary liquidation, dissolution or
winding-up.

          "Consent" means the consent to, approval of, or vote on a proposed
           -------                                                          
action by a Partner given in accordance with Article 14 hereof.

          "Consent of the Limited Partners" means the Consent of a Majority in
           -------------------------------                                    
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and may be given
or withheld by a Majority in Interest of the Limited Partners, unless otherwise
expressly provided herein, in their sole and absolute discretion.

          "Constructive Ownership" means ownership determined through the
           ----------------------                                        
application of the constructive ownership rules of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code, as such provisions may be modified
from time to time.  The terms "Constructive," "Constructive Owner,"
"Constructively Owns" and "Constructively Owned" shall have the correlative
meanings.

          "Contributed Properties" means each property or other asset, in such
           ----------------------                                             
form as may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (or, to the extent provided in applicable
Regulations, deemed contributed by the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code).

          "Contribution Agreement" means the Contribution Agreement, dated as of
           ----------------------                                               
the date of this Agreement, between Contributor and the Partnership and the
REIT.

                                       6
<PAGE>
 
          "Debt" means, as to any Person, as of any date of determination, (i)
           ----                                                               
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
which, in accordance with generally accepted accounting principles, should be
capitalized.

          "Deemed Partnership Interest Value" means, as of any date with respect
           ---------------------------------                                    
to any class of Partnership Interests, the Deemed Value of the Partnership
Interests of such class or series multiplied by the applicable Partner's
Percentage Interest of such class or series.

          "Deemed Value of the Partnership Interests" means, as of any date with
           -----------------------------------------                            
respect to any class or series of Partnership Interests, (i) the total number of
Partnership Units of the General Partner in such class or series of Partnership
Interests (as provided for in Sections 4.1 and 4.5.D) issued and outstanding as
of the close of business on such date multiplied by the Value of a share of
capital stock of the General Partner which corresponds to such class or series
of Partnership Interests on such date; (ii) divided by the Percentage Interest
of the General Partner in such class or series of Partnership Interests on such
date; provided that, if no outstanding shares of capital stock of the General
      --------                                                               
Partner correspond to a class or series of Partnership Interests, the Deemed
Value of Partnership Interests with respect to such class or series shall be
equal to an amount reasonably determined by the General Partner.

          "Depreciation" means, for each fiscal year or other period, an amount
           ------------                                                        
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.

          "DGP" means David G. Price, an individual.
           ---                                      

          "Effective Date" means the date of closing of the sale of REIT Shares
           --------------                                                      
pursuant to that certain Underwriting Agreement among the General Partner, the
Partnership and Morgan Stanley & Co., Incorporated et al., upon which the
                                                   ------                
Certificate was filed.

                                       7
<PAGE>
 
          "Election Notice" is defined in Section 4.6.E.
           ---------------                              

          "Excess Units" has the meaning set forth in Section 16.A(iii).
           ------------                                                 

          "Exchange" has the meaning set forth in Section 8.6.
           --------                                           

          "Funding Debt" means the incurrence of any Debt by or on behalf of the
           ------------                                                         
General Partner for the purpose of providing funds to the Partnership.

          "Funding Notice" has the meaning set forth in Section 4.5.B.
           --------------                                             

          "General Partner" means the REIT or its successors as general partner
           ---------------                                                     
of the Partnership.

          "General Partner Interest" means a Partnership Interest held by the
           ------------------------                                          
General Partner.  A General Partner Interest may be expressed as a number of
Partnership Units.

          "General Partner Loan" is defined in Section 4.5.C.
           --------------------                              

          "General Partner Payment" shall have the meaning set forth in Section
           -----------------------                                             
15.11.

          "General Partner Properties" means the properties identified on
           --------------------------                                    
Exhibit A attached hereto, and any rents, proceeds or assets resulting from the
ownership and operation of such properties, so long as such properties are owned
by the General Partner.

          "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 contributing Partner and the General Partner (as set forth
on Exhibit A attached hereto, as such Exhibit may be amended from time to time);
provided that, if the contributing Partner is the General Partner, then, except
with respect to the General Partner's initial Capital Contribution or capital
contributions of cash, REIT Shares or other shares of capital stock of the
General Partner, the determination of the fair market value of the contributed
asset shall be determined by (i) the price paid by the General Partner if the
asset is acquired by the General Partner contemporaneously with its contribution
to the Partnership, or (ii) by Appraisal.

          (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
Partner using such reasonable method of valuation as it may adopt; provided,
however, that for this purpose, the net value of all of the Partnership assets,
in the aggregate, shall be equal to the Deemed Value of the

                                       8
<PAGE>
 
Partnership Interests of all classes of Partnership Interests then outstanding,
regardless of the method of valuation adopted by the General Partner, as of the
following times:

               (i)   the acquisition of an additional interest in the
     Partnership by a new or existing Partner in exchange for more than a de
     minimis Capital Contribution, if the General Partner reasonably determines
     that such adjustment is necessary or appropriate to reflect the relative
     economic interests of the Partners in the Partnership;

               (ii)  the distribution by the Partnership to a Partner of more
     than a de minimis amount of Partnership property as consideration for an
     interest in the Partnership, if the General Partner reasonably determines
     that such adjustment is necessary or appropriate to reflect the relative
     economic interests of the Partners in the Partnership;

               (iii) the liquidation of the Partnership within the meaning of
     Regulations Section 1.704-1(b)(2)(ii)(g); and

               (iv)  at such other times as the General Partner shall reasonably
     determine necessary or advisable in order to comply with Regulations
     Sections 1.704-1(b) and 1.704-2.

          (c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner provided
that, if the distributee is the General Partner, or if the distributee and the
General Partner cannot agree on such a determination, by Appraisal.

          (d) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to
the extent that the General Partner reasonably determines that an adjustment
pursuant to subparagraph (b) is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subparagraph (d).

          (e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subparagraph (a), (b) or (d), such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Income and Net Losses.

          "Immediate Family" means, with respect to any Person, such Person's
           ----------------                                                  
estate and heirs and current and former spouse(s), parents, parents-in-law,
children, children-in-law, siblings and grandchildren and any trust or estate,
all of the beneficiaries of which consist of such

                                       9
<PAGE>
 
Person or such Person's current or former spouse, parents, parents-in-law,
children-in-law, children, siblings or grandchildren.

          "Incapacity" or "Incapacitated" means, (i) as to any individual
           ----------      -------------                                 
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his estate;
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (iii) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner.  For purposes of this
definition, bankruptcy of a Partner shall be deemed to have occurred when (a)
the Partner commences a voluntary proceeding seeking liquidation, reorganization
or other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a
final and nonappealable order for relief under any bankruptcy, insolvency or
similar law now or hereafter in effect has been entered against the Partner, (c)
the Partner executes and delivers a general assignment for the benefit of the
Partner's creditors, (d) the Partner files an answer or other pleading admitting
or failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect has not been dismissed within 120 days after the
commencement thereof, (g) the appointment without the Partner's consent or
acquiescence of a trustee, receiver of liquidator has not been vacated or stayed
within 90 days of such appointment, or (h) an appointment referred to in clause
(g) is not vacated within 90 days after the expiration of any such stay.

          "Indemnitee" means (i) any Person made a party to a proceeding by
           ----------                                                      
reason of his status as (A) the General Partner or (B) a director of the General
Partner or officer of the Partnership or the General Partner, and (ii) such
other Persons (including Affiliates of the General Partner or the Partnership)
as the General Partner may designate from time to time, in its sole and absolute
discretion.

          "IRS" means the Internal Revenue Service, which administers the
           ---                                                           
internal revenue laws of the United States.

          "Junior Stock" means any class or series of capital stock of the
           ------------                                                   
General Partner  ranking junior as to the payment of distributions to the Series
A Preferred Stock.

          "Junior Units" has the meaning set forth in Section 16.2.C hereof.
           ------------                                                     

                                       10
<PAGE>
 
          "Limited Partner" means any Common Limited Partner or Preferred
           ---------------                                               
Limited Partner.

          "Limited Partnership Interest" means a Partnership Interest of a
           ----------------------------                                   
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement.  A Limited Partnership Interest may
be expressed as a number of Partnership Units.

          "Liquidating Events" has the meaning set forth in Section 13.1.
           ------------------                                            

          "Liquidator" has the meaning set forth in Section 13.2.A.
           ----------                                              

          "Majority in Interest of the Limited Partners" means those Limited
           --------------------------------------------                     
Partners (other than (i) any Limited Partner 50% or more of whose equity is
owned, directly or indirectly, by the General Partner and (ii) any Preferred
Limited Partner) holding in the aggregate Percentage Interests that are greater
than fifty percent (50%) of the aggregate Percentage Interests of all Limited
Partners (other than (i) any Limited Partner 50% or more of whose equity is
owned, directly or indirectly, by the General Partner and (ii) any Preferred
Limited Partner).

          "Net Income" or "Net Loss" means for each fiscal year of the
           ----------      --------                                   
Partnership, an amount equal to the Partnership's taxable income or loss for
such fiscal year, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:

          (a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Income or Net Loss
pursuant to this definition of Net Income or Net Loss shall be added to such
taxable income or loss;

          (b) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Net Income or Net Loss pursuant to this definition of Net Income or
Net Loss shall be subtracted from such taxable income or loss;

          (c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (b) or subparagraph (c) of the definition of
Gross Asset Value, the amount of such adjustment shall be taken into account as
gain or loss from the disposition of such asset for purposes of computing Net
Income or Net Loss;

                                       11
<PAGE>
 
          (d) Gain or loss resulting from any disposition of 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;

          (e) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such fiscal year;

          (f) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's interest in the Partnership, the amount of
such adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Net Income or Net Loss; and

          (g) Notwithstanding any other provision of this definition of Net
Income or Net Loss, any items which are specially allocated pursuant to Section
6.3 hereof shall not be taken into account in computing Net Income or Net Loss.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to Section 6.3 hereof shall be
determined by applying rules analogous to those set forth in this definition of
Net Income or Net Loss.

Solely for purposes of allocating Net Income or Net Loss in any Partnership Year
to the holders of the Series A Preferred Units pursuant to Sections 6.2.B.1(b)
and (d), and Section 6.2.B.2(b), items of Net Income and Net Loss, as the case
may be, shall not include Depreciation with respect to properties that are
"ceiling limited" in respect of Preferred Limited Partners.  For purposes of the
preceding sentence, Partnership property shall be considered ceiling limited in
respect of a Preferred Limited Partner if Depreciation attributable to such
Partnership property which would otherwise be allocable to such Partner, without
regard to this paragraph, exceeded depreciation determined for federal income
tax purposes attributable to such Partnership property which would otherwise be
allocable to such Partner by more than 5%.

          "Nonrecourse Deductions" has the meaning set forth in Regulations
           ----------------------                                          
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).

          "Nonrecourse Liability" has the meaning set forth in Regulations
           ---------------------                                          
Section 1.752-1(a)(2).

                                       12
<PAGE>
 
          "Notice of Exchange" means the Notice of Exchange substantially in the
           ------------------                                                   
form of Exhibit B to this Agreement.

          "Notice of Put" means the Notice of Put substantially in the form of
           -------------                                                      
Exhibit B to this Agreement.

          "Original Limited Partner" means the Limited Partners of the
           ------------------------                                   
Partnership listed on Schedule A hereto, as of August 18, 1993.

          "Original Limited Partnership Unit" means a Partnership Unit held by
           ---------------------------------                                  
an Original Limited Partner on August 18, 1993.

          "Parity Preferred Unit" means any class or series of Partnership
           ---------------------                                          
Interests of the Partnership now or hereafter authorized, issued or outstanding
expressly designated by the Partnership to rank on a parity with Series A
Preferred Units with respect to distributions or rights upon voluntary or
involuntary liquidation, winding up or dissolution of the Partnership, or both,
as the context may require.

          "Partner" means a General Partner or a Limited Partner, and "Partners"
           -------                                                     -------- 
means the General Partner and the Limited Partners.

          "Partner Minimum Gain" means an amount, with respect to each Partner
           --------------------                                               
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).

          "Partner Nonrecourse Debt" has the meaning set forth in Regulations
           ------------------------                                          
Section 1.704-2(b)(4).

          "Partner Nonrecourse Deductions" has the meaning set forth in
           ------------------------------                              
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(i)(2).

          "Partnership" means the limited partnership formed under the Act and
           -----------                                                        
pursuant to this Agreement, and any successor thereto.

          "Partnership Interest" means an ownership interest in the Partnership
           --------------------                                                
of either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.  There may be one or
more classes or series of Partnership Interests as provided in Section 4.5.  A
Partnership Interest may be expressed as a number of Partnership Units.  Unless
otherwise

                                       13
<PAGE>
 
expressly provided for by the General Partner at the time of the original
issuance of any Partnership Interests, all Partnership Interests (whether of a
Limited Partner or a General Partner) shall be of the same class or series.  The
Partnership Interest represented by Series A Preferred Units shall be considered
a separate class or series of Partnership Interest.

          "Partnership Minimum Gain" has the meaning set forth in Regulations
           ------------------------                                          
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(d).

          "Partnership Record Date" means the record date established by the
           -----------------------                                          
General Partner for the distribution of Available Cash with respect to
Partnership Interests that are not entitled to any preference in distribution
pursuant to Section 5.1 hereof which record date shall be the same as the record
date established by the General Partner for a distribution to its stockholders
of some or all of its portion of such distribution.

          "Partnership Unit" means, with respect to any class or series of
           ----------------                                               
Partnership Interest, a fractional, undivided share of such class or series of
Partnership Interest issued pursuant to Sections 4.1 and 4.5.  The ownership of
Partnership Units may be evidenced by a certificate for units substantially in
the form of Exhibit C hereto or as the General Partner may determine with
respect to any class or series of Partnership Units issued from time to time
under Sections 4.1 and 4.5.

          "Partnership Year" means the fiscal year of the Partnership, which
           ----------------                                                 
shall be the calendar year.

          "Percentage Interest" means, as to a Partner holding a class or series
           -------------------                                                  
of Partnership Interests, its interest in such class or series as determined by
dividing the Partnership Units of such class or series owned by such Partner by
the total number of Partnership Units of such class or series then outstanding
as specified in Exhibit A attached hereto, as such Exhibit may be amended from
time to time.  If the Partnership issues more than one class or series of
Partnership Interest, the interest in the Partnership among the classes or
series of Partnership Interests shall be determined as set forth in the
amendment to the Partnership Agreement setting forth the rights and privileges
of such additional classes or series of Partnership Interest, if any, as
contemplated by Section 4.5.D.

          "Person" means an individual or a corporation, partnership, limited
           ------                                                            
liability company, trust, unincorporated organization, association or other
entity.

          "Preemptive Contribution" is defined in Section 4.5.E.
           -----------------------                              

          "Preferred Limited Partner" means any Person holding a Preferred Unit,
           -------------------------                                            
and named as a Preferred Limited Partner in Exhibit A attached hereto, as such
Exhibit may be

                                       14
<PAGE>
 
amended from time to time, or any Substitute Limited Partner or Additional
Limited Partner, in such Person's capacity as a Preferred Limited Partner in the
Partnership.

          "Preferred Share" means a share of the General Partner's preferred
           ---------------                                                  
stock, par value $.01 per share, with such rights, priorities and preferences as
shall be designated by the Board of Directors in accordance with the Charter.

          "Preferred Unit" means a Series A Preferred Unit and any other
           --------------                                               
Partnership Unit representing a Limited Partnership Interest, with such rights,
priorities and preferences as shall be designated by the General Partner
pursuant to Section 4.5.D other than Common Units.

          "Preferred Unit Distribution Payment Date" has the meaning set forth
           ----------------------------------------                           
in Section 16.2.A.

          "Preferred Unit Partnership Record Date" has the meaning set forth in
           --------------------------------------                              
Section 16.2.A.

          "Primary Offering Notice" shall have the meaning set forth in Section
           -----------------------                                             
8.6.G.

          "Priority Return" shall mean, an amount equal to 8% per annum,
           ---------------                                              
determined on the basis of a 360 day year of twelve 30 day months (or actual
days for any month which is shorter than a full monthly period), cumulative to
the extent not distributed for any given distribution period pursuant to
Sections 5.1 and 16.2 hereof, on the stated value of $50 per Series A Preferred
Unit, commencing on the date of the issuance of such Series A Preferred Unit
which shall be the date of this Agreement.

          "Pro Rata Contribution" has the meaning set forth in Section 4.5.E.
           ---------------------                                             

          "Properties" means such interests in real property and personal
           ----------                                                    
property, including without limitation, fee interests, interests in ground
leases, interests in joint ventures or partnerships, interests in mortgages, and
Debt instruments as the Partnership may hold from time to time.

          "PTP" has the meaning set forth in Section 16.6 hereof.
           ---                                                   

          "Public Offering Funding" is defined in Section 8.6.D.
           -----------------------                              

          "Public Offering Funding Amount" is defined in Section 8.6.D.
           ------------------------------                              

          "Put" has the meaning set forth in Section 8.6 hereof.
           ---                                                  

          "Put Amount" means the lesser of (i) the Cash Amount or (ii) the
           ----------                                                     
Public Offering Funding Amount.

                                       15
<PAGE>
 
          "Qualified REIT Subsidiary" means any Subsidiary of the General
           -------------------------                                     
Partner that is a "qualified REIT subsidiary" within the meaning of Section
856(i) of the Code.

          "Qualified Transferee" means an "Accredited Investor" as defined in
           --------------------                                              
Rule 501 promulgated under the Securities Act.

          "Registrable Shares" has the meaning set forth in Section 8.6.
           ------------------                                           

          "Regulations" means the Income Tax Regulations promulgated under the
           -----------                                                        
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).

          "Regulatory Allocations" has the meaning set forth in Section
           ----------------------                                      
6.3.A(viii).

          "REIT" means a real estate investment trust under Sections 856 through
           ----                                                                 
860 of the Code.

          "REIT Requirements" has the meaning set forth in Section 5.1.
           -----------------                                           

          "REIT Series A Preferred Share" means a share of 8% Series A
           -----------------------------                              
Cumulative Redeemable Preferred Stock, par value $.01 per share, liquidation
preference $50 per share, of the General Partner.

          "REIT Share" shall mean a share of common stock of the General
           ----------                                                   
Partner.

          "REIT Shares Amount"  means, as of any date, an aggregate number of
           ------------------                                                
REIT Shares equal to the number of Tendered Units, as adjusted pursuant to
Section 7.5 (as a result of the General Partner owning assets held other than on
behalf of the Partnership) and, as appropriate, for stock dividends and
distributions, stock splits and subdivisions, reverse stock splits and
combinations, distributions of rights, warrants or options, and distributions of
evidences of indebtedness or assets relating to assets not received by the
General Partner pursuant to a pro rata distribution by the Partnership.
                              --- ----                                 

          "Securities Act" means the Securities Act of 1933, as amended, and the
           --------------                                                       
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.

          "Series A Limited Partner" means any Person holding Series A Preferred
           ------------------------                                             
Units and named as a Series A Limited Partner in Exhibit A attached hereto, as
such Exhibit may be amended from time to time, or any Substitute Limited
Partner, in such Person's capacity as a Series A Limited Partner in the
Partnership.

                                       16
<PAGE>
 
          "Series A Preferred Units" means the Partnership's 8% Series A
           ------------------------                                     
Cumulative Redeemable Limited Partnership Units, with the rights, priorities and
preferences set forth herein.

          "Single Funding Notice" has the meaning set forth in Section 8.6.C.
           ---------------------                                             

          "Specified Exchange Date" means the day of receipt by the General
           -----------------------                                         
Partner of a Notice of Exchange.

          "Specified Put Date" means the tenth Business Day after receipt by the
           ------------------                                                   
General Partner of a Notice of Put; provided that in the event that the General
                                    -------- ----                              
Partner elects a Public Offering Funding pursuant to Section 8.6.C, such
Specified Put Date shall be deemed deferred until the next Business Day
following the date of the closing of the Public Offering Funding, provided that
the General Partner has complied in all respects with its obligations with
respect to the Public Offering Funding.

          "Stock Incentive Plan" means, collectively, the 1993 Stock Option and
           --------------------                                                
Incentive Plan for Key Employees of National Golf Properties, Inc., National
Golf Operating Partnership, L.P. and American Golf Corporation; the 1995
Independent Director Equity Participation Plan of National Golf Properties,
Inc.; the 1997 Equity Participation Plan of National Golf Properties, Inc.,
National Golf Operating Partnership, L.P. and American Golf Corporation; and any
similar or successor plans.

          "Subsequent Put" shall have the meaning set forth in Section 8.6.G.
           --------------                                                    

          "Subsidiary" means, with respect to any Person, any corporation,
           ----------                                                     
partnership, limited liability company, joint venture or other entity of which a
majority of (i) the voting power of the voting equity securities or (ii) the
outstanding equity interests is owned, directly or indirectly, by such Person.

          "Substituted Limited Partner" means a Person who is admitted as a
           ---------------------------                                     
Limited Partner to the Partnership pursuant to Section 11.4.

          "Tenant" means any tenant from which the General Partner derives rent
           ------                                                              
either directly or indirectly through partnerships, including the Partnership.

          "Tendered Units" has the meaning set forth in Section 8.6.A.
           --------------                                             

          "Terminating Capital Transaction" means any sale or other disposition
           -------------------------------                                     
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.

                                       17
<PAGE>
 
          "Twelve-Month Period" means a twelve-month period ending on the first
           -------------------                                                 
anniversary of the Effective Date or on each subsequent anniversary thereof.

          "Valuation Date" means the date of receipt by the General Partner of a
           --------------                                                       
Notice of Exchange or Notice of Put or any other date with respect to which
"Value" must be determined hereunder, or, if such date is not a Business Day,
the immediately preceding Business Day.

          "Value" means, with respect to any share of capital stock of the
           -----                                                          
General Partner, the average of the daily market price for the ten (10)
consecutive trading days immediately preceding the Valuation Date.  The market
price for each such trading day shall be:  (i) if such shares are listed or
admitted to trading on any securities exchange or the Nasdaq National Market,
the closing price, regular way, on such day, or if no such sale takes place on
such day, the average of the closing bid and asked prices on such day, (ii) if
such shares are not listed or admitted to trading on any securities exchange or
the Nasdaq National Market, the last reported sale price on such day or, if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, as reported by a reliable quotation source designated by the General
Partner, or (iii) if such shares are not listed or admitted to trading on any
securities exchange or the Nasdaq National Market and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such  day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 10 days prior to the date in
question) for which prices have been so reported; provided that if there are no
                                                  -------- ----                
bid and asked prices reported during the 10 days prior to the date in question,
the Value of such shares shall be determined by the General Partner acting in
good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate.  In the event the REIT
Shares Amount includes rights that a holder of REIT Shares would be entitled to
receive, then the Value of such rights shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate; and
provided further that, in connection with determining the Deemed Value of the
- -------- ------- ----                                                        
Partnership Interests for purposes of determining the number of additional Units
issuable upon a Capital Contribution funded by an underwritten public offering
of shares of capital stock of the General Partner, then the Value of such shares
shall be the public offering price per share of such class or series of capital
stock sold.


                                  ARTICLE 2.

                            ORGANIZATIONAL MATTERS

          Section 2.1. Organization
                       ------------

          The Partnership is a limited partnership formed pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement.  Except as expressly provided 

                                       18
<PAGE>
 
herein to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.

          Section 2.2. Name
                       ----

          The name of the Partnership is National Golf Operating Partnership,
L.P.  The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof.  The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires.  The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.

          Section 2.3. Registered Office and Agent; Principal Office
                       ---------------------------------------------

          The address of the registered office of the Partnership in the State
of Delaware is located at 1209 Orange Street, Wilmington, Delaware, and the
registered agent for service of process on the Partnership in the State of
Delaware at such registered office is Corporation Trust Company.  The principal
office of the Partnership is 2951 28th Street, Suite 3001, Santa Monica,
California 90405, or such other place as the General Partner may from time to
time designate by notice to the Limited Partners.  The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.

          Section 2.4. Power of Attorney
                       -----------------

          A.  Each Limited Partner and each Assignee hereby irrevocably
constitutes and appoints the General Partner, any Liquidator, and authorized
officers and attorneys-in-fact of each, and each of those acting singly, in each
case with full power of substitution, as its true and lawful agent and attorney-
in-fact, with full power and authority in its name, place and stead to:

          (1)  execute, swear to, acknowledge, deliver, file and record in the
               appropriate public offices (a) all certificates, documents and
               other instruments (including, without limitation, this Agreement
               and the Certificate and all amendments or restatements thereof)
               that the General Partner or the Liquidator deems appropriate or
               necessary to form, qualify or continue the existence or
               qualification of the Partnership as a limited partnership (or a
               partnership in which the limited partners have limited liability)
               in the State of Delaware and in all other jurisdictions in which
               the Partnership may conduct business or own property; (b) all
               instruments that the General Partner deems appropriate or
               necessary to reflect any amendment, change, modification or
               restatement of this Agreement in accordance with its 

                                       19
<PAGE>
 
               terms; (c) all conveyances and other instruments or documents
               that the General Partner deems appropriate or necessary to
               reflect the dissolution and liquidation of the Partnership
               pursuant to the terms of this Agreement, including, without
               limitation, a certificate of cancellation; (d) all instruments
               relating to the admission, withdrawal, removal or substitution of
               any Partner pursuant to, or other events described in, Article
               11, 12 or 13 hereof or the Capital Contribution of any Partner;
               and (e) all certificates, documents and other instruments
               relating to the determination of the rights, preferences and
               privileges of Partnership Interests; and

          (2)  execute, swear to, acknowledge and file all ballots, consents,
               approvals, waivers, certificates and other instruments
               appropriate or necessary, in the sole and absolute discretion of
               the General Partner, to make, evidence, give, confirm or ratify
               any vote, consent, approval, agreement or other action which is
               made or given by the Partners hereunder or is consistent with the
               terms of this Agreement or appropriate or necessary, in the sole
               discretion of the General Partner, to effectuate the terms or
               intent of this Agreement.

Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article 14 hereof or as may be
otherwise expressly provided for in this Agreement.

          B.  The foregoing power of attorney is hereby declared to be
irrevocable and a special power coupled with an interest, in recognition of the
fact that each of the Partners will be relying upon the power of the General
Partner and any Liquidator to act as contemplated by this Agreement in any
filing or other action by it on behalf of the Partnership, and it shall survive
and not be affected by the subsequent Incapacity of any Limited Partner or
Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby agrees to be bound by any representation made
by the General Partner or any Liquidator, acting in good faith pursuant to such
power of attorney; and each such Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner or any Liquidator, taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver to
the General Partner or any Liquidator, within 15 days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.

          Section 2.5. Term
                       ----

                                       20
<PAGE>
 
          The term of the Partnership commenced on August 18, 1993 and shall
continue until December 31, 2092 unless it is dissolved sooner pursuant to the
provisions of Article 13 or as otherwise provided by law.


                                  ARTICLE 3.

                                   PURPOSE

          Section 3.1. Purpose and Business
                       --------------------

          The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT for federal income tax
purposes, unless the General Partner has determined to cease to qualify as a
REIT, (ii) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing and (iii) to do anything necessary or
incidental to the foregoing.  The business of the Partnership shall at all times
be conducted in a manner substantially consistent with the policies set forth
under the caption "Policies and Objectives With Respect to Certain Activities"
in the final prospectus with respect to the initial public offering of REIT
Shares, unless otherwise consented to in writing by the General Partner and the
Majority in Interest of the Limited Partners.

          Section 3.2. Powers
                       ------

          The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of the General Partner to continue to qualify as a REIT, (ii) could
subject the General Partner to any additional taxes under Section 857 or Section
4981 of the Code, except with respect to the distribution of Available Cash to
the Series A Limited Partners in accordance with Section 16.2, or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) under (i), (ii) or (iii) shall have been specifically consented to by
the General Partner in writing.

          Section 3.3. Partnership Only for Purposes Specified
                       ---------------------------------------

          The Partnership shall be a partnership only for the purposes specified
in Section 3.1 hereof, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof.  Except as otherwise provided in this 

                                       21
<PAGE>
 
Agreement, no Partner shall have any authority to act for, bind, commit or
assume any obligation or responsibility on behalf of the Partnership, its
properties or any other Partner. No Partner, in its capacity as a Partner under
this Agreement, shall be responsible or liable for any indebtedness or
obligation of another Partner, nor shall the Partnership be responsible or
liable for any indebtedness or obligation of any Partner, incurred either before
or after the execution and delivery of this Agreement by such Partner, except as
to those responsibilities, liabilities, indebtedness or obligations incurred
pursuant to and as limited by the terms of this Agreement and the Act.

          Section 3.4. Representations and Warranties by the Parties
                       ---------------------------------------------

          A.  Each Partner that is an individual represents and warrants to each
other Partner that (i) such Partner has, in the case of any Person other than an
individual, the power and authority, or, in the case of an individual, the legal
capacity, to enter into this Agreement and perform such Partner's obligations
hereunder, (ii) the consummation of the transactions contemplated by this
Agreement to be performed by such Partner will not result in a breach or
violation of, or a default under, any agreement by which such Partner or any of
such Partner's property is or are bound, or any statute, regulation, order or
other law to which such Partner is subject, (iii) such Partner is not a "foreign
person" within the meaning of Section 1445(f) of the Code, (iv) except for DGP,
such Partner does not own, directly or indirectly, (a) two percent (2%) or more
of the total combined voting power of all classes of stock entitled to vote, or
two percent (2%) or more of the total number of shares of all classes of stock,
of any corporation that is a tenant of either the General Partner or the
Partnership or (b) an interest of two percent (2%) or more in the assets or net
profits of any tenant of the General Partner or the Partnership and (v) this
Agreement is binding upon, and enforceable against, such Partner in accordance
with its terms.

          B.  Each Partner that is not an individual represents and warrants to
each other Partner that (i) its execution and delivery of this Agreement and all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
stockholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its certificate of limited partnership, partnership agreement, trust agreement,
limited liability company operating agreement, charter or by-laws, as the case
may be, any agreement by which such Partner or any of such Partner's properties
or any of its partners, beneficiaries, trustees or stockholders, as the case may
be, is or are bound, or any statute, regulation, order or other law to which
such Partner or any of its partners, trustees, beneficiaries or stockholders, as
the case may be, is or are subject, (iii) such Partner is neither a "foreign
person" within the meaning of Section 1445(f) of the Code nor a "foreign
partner" within the meaning of Section 1446(e) of the Code, (iv) except for DGP,
such Partner does not own, directly or indirectly, (a) two percent (2%) or more
of the total combined voting power of all classes of stock entitled to vote, or
two percent (2%) or more of the

                                       22
<PAGE>
 
total number of shares of all classes of stock, of any corporation that is a
tenant of either the General Partner or the Partnership or (b) an interest of
two percent (2%) or more in the assets or net profits of any tenant of the
General Partner or the Partnership and (v) this Agreement has been duly executed
and delivered by such Partner and is binding upon, and enforceable against, such
Partner in accordance with its terms.

          C.  Each Partner represents, warrants and agrees that it has acquired
and continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances.  Each Partner further represents and
warrants that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds it has invested in the Partnership in what it
understands to be a highly speculative and illiquid investment.

          D.  Each Limited Partner, other than David G. Price, Dallas Price,
those persons or entities who Constructively Own the Partnership Units owned by
the Prices, and any other Limited Partner to whom the General Partner has
granted an exception in its sole discretion to this Section 3.4.D (but, with
respect to any such other Limited Partner, only to the extent of the exception
so granted by the General Partner), further represents, warrants and agrees as
follows:

              (i)   At any time a Person actually owns or Constructively Owns a
     25% or greater capital interest or profits interest in the Partnership,
     such Person does not and will not, without the prior written consent of the
     General Partner, (a) actually own or Constructively Own (1) with respect to
     any Tenant that is a corporation, any stock of such Tenant and (2) with
     respect to any Tenant that is not a corporation, any interests in either
     the assets or net profits of such Tenant; or (b) actually own or
     Constructively Own any stock in the General Partner, other than any REIT
     Shares or other shares of capital stock of the General Partner such Person
     may actually or Constructively acquire (1) as a result of an exchange of
     Tendered Units pursuant to Section 8.6 or (2) upon the exercise of options
                                -----------                     
     granted or delivery of REIT Shares pursuant to any Stock Incentive Plan, in
     each case subject to the applicable ownership limitations with respect to
     such shares of capital stock as set forth in the Charter.

              (ii)  Upon request of the General Partner, such Limited Partner
     will disclose to the General Partner the amount of REIT Shares or other
     shares of capital stock of the General Partner that it actually owns or
     Constructively Owns.

              (iii) It understands that if, for any reason, (a) the
representations, warranties or agreements set forth in Section 3.4.D(i) are
                                                       ----------------  
violated or (b) the Partnership's actual ownership or Constructive Ownership of
REIT Shares or other shares of capital stock of the 

                                       23
<PAGE>
 
General Partner violates the limitations set forth in the Charter, then (x) some
or all of the redemption or exchange rights of the Limited Partners may become
non-exercisable, and (y) some or all of such shares owned by the Limited
Partners and/or some or all of the Partnership Units owned by the Limited
Partners may be automatically transferred to a trust for the benefit of a
charitable beneficiary, as provided in the Charter and Exhibit D of this
Agreement, respectively.

          E.  The representations and warranties contained in Sections 3.4.A,
3.4.B, 3.4.C, and 3.4.D hereof shall survive the execution and delivery of this
Agreement by each Partner and the dissolution, liquidation and termination of
the Partnership.

          F.  Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that projections and
any other information, including, without limitation, financial and descriptive
information and documentation, which may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.


                                  ARTICLE 4.

                             CAPITAL CONTRIBUTIONS

          Section 4.1 Capital Contributions of the Partners
                      -------------------------------------

          At the time of execution of this Agreement, the Partners shall make or
shall have made Capital Contributions as set forth in Exhibit A to this
Agreement. The Partners shall own Partnership Units of the class or series and
in the amounts set forth in Exhibit A and shall have a Percentage Interest in
the Partnership as set forth in Exhibit A, which Percentage Interest shall be
adjusted in Exhibit A from time to time by the General Partner to the extent
necessary to accurately reflect exchanges, redemptions, Capital Contributions,
the issuance of additional Partnership Units or similar events having an effect
on a Partner's Percentage Interest. Except as required by law or as otherwise
provided in Sections 4.5, 4.6 and 10.5, the Partners shall have no obligation to
make any additional Capital Contributions or loans to the Partnership. Unless
otherwise specified by the General Partner at the time of the creation of any
class of Partnership Interests, such Partnership Interests shall be Common Units
and the corresponding class or series of capital stock for any Partnership Units
issued shall be REIT Shares.

          Section 4.2. Additional Capital Contributions Generally
                       ------------------------------------------

          Except as otherwise required by law or pursuant to this Article 4, no
Partner shall be required or permitted to make any additional capital
contributions to the Partnership.

          Section 4.3. Loans by Partners
                       -----------------

                                       24
<PAGE>
 
          Except as otherwise provided in Section 4.5, no Partner shall be
required or permitted to make any loans to the Partnership.

          Section 4.4. Loans by Third Parties
                       ----------------------

          Subject to Section 4.5, the Partnership may incur Debt, or enter into
other similar credit, guarantee, financing or refinancing arrangements for any
purpose (including, without limitation, in connection with any further
acquisition of Properties) from any Person that is not the General Partner upon
such terms as the General Partner determines appropriate; provided that, the
Partnership shall not incur any Debt under which a breach, violation or default
would be deemed to occur by virtue of the transfer of any Limited Partnership
Interest or General Partner Interest; and, provided, further, that no prepayment
prior to the tenth anniversary of the Effective Date shall reduce the aggregate
principal amount of Debt of the Partnership below $10,000,000, and any Debt
which refinances Debt outstanding upon the closing of the initial public
offering, shall be non-recourse to the General Partner, except to the extent
otherwise agreed to by the Consent of the Limited Partners.

          Section 4.5. Additional Funding and Capital Contributions
                       --------------------------------------------

          A.  General.  The General Partner may, at any time and from time to
              -------                                                        
time determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition of additional Properties or for such other purposes
as the General Partner may determine.  Additional Funds may be raised by the
Partnership, at the election of the General Partner, in any manner provided in,
and in accordance with, the terms of this Section 4.5.  No Person shall have any
preemptive, preferential or similar right or rights to subscribe for or acquire
any Partnership Interest, except as set forth in this Section 4.5.

          B.  Additional General Partner Capital Contributions.  Upon written
              ------------------------------------------------               
notice (the "Funding Notice") to the Partners of the need for Additional Funds
and the anticipated source(s) thereof, the General Partner may, or, to the
extent the General Partner raises all or any portion of the Additional Funds
through the sale or other issuance of REIT Shares or other equity interests in
the General Partner, the General Partner shall, contribute the Additional Funds
to the capital of the Partnership in exchange for General Partner Interests;
provided, that, the proceeds of the initial public offering of REIT Shares may
be loaned to the Partnership on such terms as are described in the final
prospectus for such offering with the Consent of the Limited Partners, and,
provided further, that no Funding Notice need be given with respect to (i) the
funds received in consideration for REIT Shares or other interests issued by the
General Partner pursuant to the Stock Incentive Plan or (ii) REIT Shares or
other interests contributed to the Partnership pursuant to the Stock Incentive
Plan.  The obligations of the General Partner with respect to Additional Funds
shall not apply to the issuance of REIT Shares or other equity interests of the
General Partner the proceeds of which are used by the General Partner to acquire
Common Units pursuant to Section 8.6.

                                       25
<PAGE>
 
          C.  General Partner Loans.  Upon delivery of a Funding Notice to the
              ---------------------                                           
Partners, the General Partner may, or, to the extent the General Partner enters
into a Funding Debt, the General Partner shall, lend the Additional Funds to the
Partnership (a "General Partner Loan"); provided, however, that the General
                                        --------  -------                  
Partner shall not be obligated to lend the net proceeds of any Funding Debt to
the Partnership in a manner that would be inconsistent with the General
Partner's ability to remain qualified as a REIT. If the General Partner enters
into such a Funding Debt, the General Partner Loan will consist of the net
proceeds from such Funding Debt and will be on comparable terms and conditions,
including interest rate, repayment schedule and costs and expenses, as shall be
applicable with respect to or incurred in connection with such Funding Debt.
Otherwise, all General Partner Loans made pursuant to this Section 4.5 shall be
on terms and conditions no less favorable to the Partnership than would be
available to the Partnership from any third party. Notwithstanding any other
provision of this Section 4.5, the Partners acknowledge that, except with the
Consent of the Limited Partners, all loans from third parties relating to, or
for use by, the Partnership, shall be borrowed by the Partnership and not by the
General Partner. Notwithstanding the foregoing, in the event that the General
Partner incurs Debt secured solely by the General Partner Properties and
personal property incident thereto in an amount such that the customary loan-to-
value ratio for non-recourse debt secured by such properties is not exceeded,
the proceeds of such incurrence need not be contributed or loaned to the
Partnership but may be used for such purpose as the General Partner determines.

          D.  Additional Capital Contributions.  Subject to the prior delivery
              --------------------------------                                
of a Funding Notice, the General Partner may raise all or any portion of the
Additional Funds by accepting additional Capital Contributions of cash.  The
General Partner also may accept additional Capital Contributions of real
property or any other non-cash assets.  In connection with any such additional
Capital Contributions (of cash or property), and subject to Section 16.5 hereof,
the General Partner is hereby authorized to cause the Partnership from time to
time to issue to Partners (including the General Partner) or other Persons
(including, without limitation, in connection with the contribution of property
to the Partnership) additional Partnership Units or other Partnership Interests
in one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers, and duties, including rights, powers, and duties senior to then
existing Limited Partnership Interests, all as shall be determined by the
General Partner in its sole and absolute discretion subject to Delaware law, and
as set forth by amendment to this Agreement, including without limitation, (i)
the allocations of items of Partnership income, gain, loss, deduction, and
credit to such class or series of Partnership Interests; (ii) the right of each
such class or series of Partnership Interests to share in Partnership
distributions; (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; and (iv) the
right to vote, including, without limitation, the Limited Partner approval
rights set forth in Section 11.2.A hereof; provided that no such additional
                                           -------------                   
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless (a) the additional Partnership Interests are issued in connection
with the grant, award, or issuance of shares of the General Partner pursuant to
Section 4.5.B above, which shares have designations, preferences, and other
rights (except 

                                       26
<PAGE>
 
voting rights) such that the economic interests attributable to such shares are
substantially similar to the designations, preferences and other rights of the
additional Partnership Interests issued to the General Partner in accordance
with this Section 4.5.D, (b) the additional Partnership Interests are issued to
all Partners holding Partnership Interests in the same class in proportion to
their respective Percentage Interests in such class, (c) the additional
Partnership Interests are issued in connection with the General Partner's
contribution of all or some of the General Partner Properties and personal
property reasonably incident thereto, or (d) the additional Partnership
Interests are issued with the Consent of the Limited Partners; provided further
                                                               -------- -------
that no additional Partnership Interests other than Common Units shall be issued
after the date of this Agreement without the unanimous consent of all Common
Limited Partners.  In the event that the Partnership issues additional
Partnership Interests pursuant to this Section 4.5.D, the General Partner shall
make such revisions to this Agreement (including but not limited to the
revisions described in Section 5.5, Section 6.2.C, and Section 8.6.H) as it
determines are necessary to reflect the issuance of such additional Partnership
Interests.

          E.  Preemptive Rights of Partners.  The Funding Notice delivered by
              -----------------------------                                  
the General Partner prior to its making or accepting (on behalf of the
Partnership) any additional cash Capital Contributions pursuant to either
Section 4.5.B or 4.5.D herein but not pursuant to the Stock Incentive Plan shall
contain the total amount of additional Capital Contributions sought to be made
to the Partnership, and the terms and conditions pertaining thereto.  Each
Partner may elect to make an additional Capital Contribution not to exceed the
product of (i) the total amount of additional Capital Contributions being
sought, and (ii) such Partner's Percentage Interest (with such product deemed
        ---                                                                  
the "Pro Rata Contribution").  Such election shall be made, if at all, by
providing written notice thereof (the "Election Notice") to the General Partner
within ten (10) days after delivery of the Funding Notice.  Failure to respond
to such notice shall be deemed to be an election not to make such Capital
Contribution.  Such Election Notice shall contain the amount of the additional
Capital Contribution, if any, the Partner is to make (such additional Capital
Contribution not to exceed the respective Pro Rata Contribution of such Partner)
equal to all or any portion of its Pro Rata Contribution (with all or such
portion thereof that such partner elects to make hereinafter referred to as the
"Preemptive Contribution").

          F.  Percentage Interest Adjustments in the Case of Capital
              ------------------------------------------------------
Contributions for Partnership Units.  Upon the acceptance of additional Capital
- -----------------------------------                                            
Contributions in exchange for any class of Partnership Units, the Percentage
Interest related thereto shall be equal to a fraction, the numerator of which is
equal to the amount of the additional Capital Contributions as of the Business
Day immediately preceding the date on which the additional Capital Contributions
are made (an "Adjustment Date") and the denominator of which is equal to the sum
of (i) the Deemed Value of the Partnership Interests of such class or series
(computed as of the Business Day immediately preceding the Adjustment Date) and
(ii) the aggregate amount of additional Capital Contributions contributed to the
Partnership on such Adjustment Date in respect of such class or series.  The
Percentage Interest of each other Partner holding Partnership Interests of such
class or series not making a full pro rata Capital Contribution shall be
                                  --- ----                              
adjusted to equal a 

                                       27
<PAGE>
 
fraction, the numerator of which is equal to the sum of (i) the Deemed
Partnership Interest Value of such Limited Partner in respect of such class or
series (computed as of the Business Day immediately preceding the Adjustment
Date) and (ii) the amount of additional Capital Contributions made by such
Partner to the Partnership in respect of such class or series as of such
Adjustment Date, and the denominator of which is equal to the sum of (i) the
Deemed Value of the Partnership Interests of such class or series (computed as
of the Business Day immediately preceding the Adjustment Date), plus (ii) the
                                                                ----         
aggregate amount of additional Capital Contributions contributed to the
Partnership on such Adjustment Date in respect of such class or series.
Notwithstanding the foregoing, solely for purposes of calculating a Partner's
Percentage Interest pursuant to this Section 4.3.F, (i) in the case of cash
Capital Contributions by the General Partner, such Capital Contributions will be
deemed to equal the cash contributed by the General Partner plus, in the case of
cash contributions funded by an offering of REIT Shares or other shares of
capital stock of the General Partner, the offering costs attributable to the
cash contributed to the Partnership, (ii) in the case of the contribution of
Properties (or any portion thereof) by the General Partner which were acquired
by the General Partner in exchange for REIT Shares immediately prior to such
contribution, the General Partner shall be issued a number of Partnership Units
equal to the number of REIT Shares issued by the General Partner in exchange for
such properties, the Partnership Units held by the other Partners shall not be
adjusted, and the Partners' Percentage Interests shall be adjusted accordingly,
and (iii) in the case of a contribution of all or any portion of the General
Partner Properties and any personal property reasonably incident thereto by the
General Partner, the Percentage Interest related to such Capital Contribution
shall be determined in good faith by the Board of Directors. The General Partner
shall promptly give each Partner written notice of its Percentage Interest, as
adjusted.

          G.  Special Supplemental Capital Contribution by the General Partner.
              ----------------------------------------------------------------  
Notwithstanding the other provisions contained in this Article 4, immediately
following the closing of the General Partner's acquisition of an interest in
certain golf course properties and related assets (the "Purchased Assets") from
Golf Enterprises, Inc., a Kansas corporation ("GEI"), pursuant to that certain
Asset Purchase Agreement and Agreement and Plan of Merger (the "Acquisition
Agreement"), dated as of February 2, 1996 and amended on February 16, 1996 by
that certain First Amendment to the Asset Purchase Agreement and Plan of Merger,
among the General Partner, GEI Acquisition Corporation, a Kansas corporation
("Newco") and GEI, the General Partner contributed all of its interest in the
Purchased Assets collectively as a special supplemental Capital Contribution to
the Partnership.  Upon such Capital Contribution, (i) the General Partner was
issued that number of Partnership Units equal to the number of shares of
Purchaser Common Stock (as defined in the Acquisition Agreement) issued as
Acquisition Consideration (as defined in the Acquisition Agreement) pursuant to
the Acquisition Agreement, (ii) the Agreed Value and the Gross Asset Value of
the Contributed Property was deemed to be equal to $40,786,649, (iii) Exhibit A
to this Agreement was appropriately amended to reflect such issuance and the
corresponding adjustments in the Percentage Interest of each of the Partners, as
well as the Agreed Value and the Gross Asset Value of the Contributed Property,
and (iv) the Capital Account of the General Partner was appropriately adjusted.
This Paragraph G of 

                                       28
<PAGE>
 
Section 4.5 shall not be construed to permit any Capital Contribution other than
the contribution of the General Partner's interest in the Purchased Assets by
the General Partner.

          Section 4.6. Stock Incentive Plan
                       --------------------

          If at any time or from time to time the General Partner is required,
pursuant to the Stock Incentive Plan, to make a contribution of REIT Shares to
the Partnership, such contribution shall be treated as an additional Capital
Contribution as provided in Section 4.5, in an amount equal to the Value of a
REIT Share (provided, that, for these purposes, only the trading day on which
the General Partner contributes such REIT Shares to the Partnership shall be
considered) multiplied by the number of REIT Shares contributed by the General
Partner to the Partnership. In consideration for such contribution, the General
Partner's Capital Account shall be adjusted as provided in this Agreement and
the General Partner shall be issued a number of Partnership Units equal to the
number of REIT Shares so contributed. Furthermore, if at any time or from time
to time the General Partner issues or sells REIT Shares pursuant to the Stock
Incentive Plan (other than a contribution to the Partnership as provided above),
it may contribute the proceeds therefrom to the Partnership as an additional
Capital Contribution as provided in Section 4.5. In consideration for such
contribution, the General Partner's Capital Account shall be adjusted as
provided in this Agreement and the General Partner shall be issued a number of
Partnership Units equal to the number of REIT Shares so issued or sold.
Notwithstanding the foregoing, the preemptive rights provided in Section 4.5.F
shall not apply to the Capital Contributions described above in this Section
4.6.

                                  ARTICLE 5.

                                 DISTRIBUTIONS

          Section 5.1. Requirement and Characterization of Distributions
                       -------------------------------------------------

          The General Partner shall cause the Partnership to distribute
quarterly all, or such portion as the General Partner may in its discretion
determine, of Available Cash generated by the Partnership to the Partners who
are Partners on the applicable record date with respect to such distribution,
(1) first, with respect to any Partnership Interests that are entitled to any
preference in distribution, in accordance with the rights of such class of
Partnership Interests (and within such class, pro rata in proportion to the
respective Percentage Interests on the applicable record date), and, (2) second,
with respect to Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class on a quarterly basis and in accordance
with the terms of such class to the Partners who are Partners of such class on
the Partnership Record Date with respect to such distribution (and within each
such class, pro rata in proportion with the respective Percentage Interests on
such Partnership Record Date).  Unless otherwise expressly provided for herein
or in an agreement at the time a new class of Partnership Interests is created
in accordance with Article 4 hereof, no Partnership Interest shall be entitled
to a distribution in preference to any other Partnership Interest.  The General
Partner shall take such reasonable efforts, as 

                                       29
<PAGE>
 
determined by it in its sole and absolute discretion and consistent with its
qualification as a REIT, (i) to cause the Partnership to distribute sufficient
amounts to enable the General Partner to pay stockholder dividends that will (a)
satisfy the requirements for qualifying as a REIT under the Code and Regulations
("REIT Requirements"), and (b) avoid any federal income or excise tax liability
of the General Partner, except to the extent that a distribution pursuant to
clause (b) would prevent the Partnership from making a distribution to the
holders of Series A Preferred Units in accordance with Section 16.2 and (ii) to
distribute Available Cash to the Limited Partners so as to preclude any such
distribution or portion thereof from being treated as part of a sale of property
to the Partnership by a Limited Partner under Section 707 of the Code or the
Regulations thereunder; provided that the General Partner and the Partnership
                        --------
shall not have liability to a Limited Partner under any circumstances as a
result of any distribution to a Limited Partner being so treated.

          Section 5.2. Distributions in Kind
                       ---------------------

          Except as expressly provided herein, no right is given to any Partner
to demand and receive property other than cash.  The General Partner may
determine, in its sole and absolute discretion, to make a distribution in kind
to the Partners of Partnership assets, and such assets shall be distributed in
such a fashion as to ensure that the fair market value is distributed and
allocated in accordance with Articles 5, 6 and 10; provided, however, that, in
                                                   --------  -------          
such case, the General Partner shall distribute only cash to the Series A
Limited Partners.

          Section 5.3. Amounts Withheld
                       ----------------

          All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners, or Assignees, as the case may be, pursuant to Section 5.1 for
all purposes under this Agreement.

          Section 5.4. Distributions Upon Liquidation
                       ------------------------------

          Proceeds from a Terminating Capital Transaction shall be distributed
to the Partners in accordance with Section 13.2.

          Section 5.5. Distributions to Reflect Issuance of Additional 
                       -----------------------------------------------
Partnership Interests
- ---------------------

          In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Section 4.5.D or 4.6, the General Partner shall make such revisions to this
Article 5 as it determines are necessary to reflect the issuance of such
additional Partnership Interests.

                                       30
<PAGE>
 
                                  ARTICLE 6.
                                 ALLOCATIONS

          Section 6.1. Timing and Amount of Allocations of Net Income and Net 
                       ------------------------------------------------------
Loss
- -----

          Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each fiscal year of the Partnership as of the end of
each such year.  Subject to the other provisions of this Article 6, an
allocation to a Partner of a share of Net Income or Net Loss shall be treated as
an allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Income or Net Loss.

          Section 6.2. General Allocations
                       -------------------

          A.  In General.  Except as otherwise provided in this Article 6, Net
              ----------

Income and Net Loss shall be allocated to each of the Partners holding the same
class of Partnership Interests in accordance with their respective Percentage
Interest of such class.

          B.  1.  Net Income.  Net Income for any Partnership Year shall be
                  ----------                                               
allocated in the following manner and order of priority:

     (a)  First, 100% to the General Partner in an amount equal to the
remainder, if any, of the cumulative Net Losses allocated to the General Partner
pursuant to Section 6.2.B.2(c) for all prior Partnership Years minus the
cumulative Net Income allocated to the General Partner pursuant to this Section
6.2.B.1(a) for all prior Partnership Years;

     (b)  Second, 100% to the Series A Limited Partners in an amount equal to
the remainder, if any, of the cumulative Net Losses allocated to the Series A
Limited Partners pursuant to Section 6.2.B.2(b) for all prior Partnership Years
minus the cumulative Net Income allocated to the Series A Limited Partners
pursuant to this Section 6.2.B.1(b) for all prior Partnership Years;

     (c)  Third, 100% to the General Partner and the Common Limited Partners in
an amount equal to the remainder, if any, of the cumulative Net Losses allocated
to each such Partner pursuant to Section 6.2.B.2(a) for all prior Partnership
Years minus the cumulative Net Income allocated to each Partner pursuant to this
Section 6.2.B.1(c) for all prior Partnership Years;

     (d)  Fourth, 100% to the Series A Limited Partners until the Series A
Limited Partners have been allocated an amount equal to the remainder, if any,
of (i) the cumulative Priority Return to the last day of the current Partnership
Year or to the date of redemption, to the extent Series A Preferred Units are
redeemed during such year, minus (ii) the cumulative Net Income allocated to the
Series A Limited Partners pursuant to this Section 6.2.B.1(d) for all prior
Partnership Years;

                                       31
<PAGE>
 
     (e)  Fifth, 100% to the General Partner and the Common Limited Partner in
accordance with their respective Percentage Interests of such class.

          2.  Net Losses.  Net Losses for any Partnership Year shall be
              ----------                                               
allocated in the following manner and order of priority.

     (a) First, 100% to the General Partner and the Common Limited Partners in
accordance with their respective Percentage Interests (to the extent consistent
with this Section 6.2.B.2(a)) until the Adjusted Capital Account of each such
Partner is zero (not taking into account the General Partner's deemed obligation
to restore a deficit balance in its Capital Account pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c)(2));

     (b) Second, 100% to the Series A Limited Partners until the Adjusted
Capital Account of the  Series A Limited Partners are zero; and

     (c) Third, 100% to the General Partner.

         C.  Notwithstanding Sections 6.2.A. and B, any item of deduction
attributable to payments made by the Partnership to or on behalf of Paul W.
Major ("Major") pursuant to (i) that certain Non-Qualified Stock Option
Agreement (as amended from time to time), dated as of April 30, 1997, by and
between David G. Price ("Price"), Major, and the Partnership, with respect to
its rights and covenants contained therein, or (ii) that certain Letter
Agreement, dated as of January 28, 1998, by and between Price, Major, and the
Partnership, with respect to its rights and covenants contained therein, shall
be specially allocated to Price in an amount equal to 100% of such item of
deduction.

         D.  Allocations to Reflect Issuance of Additional Partnership
             ---------------------------------------------------------
Interests.  In the event that the Partnership issues additional Partnership
- ---------
Interests to the General Partner or any Additional Limited Partner pursuant to
Section 4.5 or 4.6 hereof, the General Partner shall make such revisions to this
Section 6.2 as it determines are necessary to reflect the terms of the issuance
of such additional Partnership Interests, including making preferential
allocations to certain classes of Partnership Interests, subject to the terms of
the Series A Preferred Units.

          Section 6.3. Additional Allocation Provisions
                       --------------------------------

          Notwithstanding the foregoing provisions of this Article 6:

          A.  Regulatory Allocations.
              ---------------------- 

              (i) Minimum Gain Chargeback.  Except as otherwise provided in 
                  -----------------------        
     Regulations Section 1.704-2(f), notwithstanding the provisions of Section
     6.2 of the Agreement, or any other provision of this Article 6, if there is
     a net decrease in Partnership Minimum Gain during any fiscal year, each
     Partner shall be specially 

                                       32
<PAGE>
 
     allocated items of Partnership income and gain for such year (and, if
     necessary, subsequent years) in an amount equal to such Partner's share of
     the net decrease in Partnership Minimum Gain, as determined under
     Regulations Section 1.704-2(g). Allocations pursuant to the previous
     sentence shall be made in proportion to the respective amounts required to
     be allocated to each Partner pursuant thereto. The items to be allocated
     shall be determined in accordance with Regulations Sections 1.704-2(f)(6)
     and 1.704-2(j)(2). This Section 6.3.A(i) is intended to qualify as a
     "minimum gain chargeback" within the meaning of Regulation Section 1.704-
     2(f) which shall be controlling in the event of a conflict between such
     Regulation and this Section 6.3.A(i).

              (ii)   Partner Minimum Gain Chargeback.  Except as otherwise 
                     -------------------------------    
     provided in Regulations Section 1.704-2(i)(4), and notwithstanding the
     provisions of Section 6.2 of the Agreement or any other provision of this
     Article 6 (except Section 6.3.A(i)), if there is a net decrease in Partner
     Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal
     year, each Partner who has a share of the Partner Minimum Gain attributable
     to such Partner Nonrecourse Debt, determined in accordance with Regulations
     Section 1.704-2(i)(5), shall be specially allocated items of Partnership
     income and gain for such year (and, if necessary, subsequent years) in an
     amount equal to such Partner's share of the net decrease in Partner Minimum
     Gain attributable to such Partner Nonrecourse Debt, determined in
     accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to
     the previous sentence shall be made in proportion to the respective amounts
     required to be allocated to each General Partner and Limited Partner
     pursuant thereto. The items to be so allocated shall be determined in
     accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This
     Section 6.3.A(ii) is intended to qualify as a "chargeback of partner
     nonrecourse debt minimum gain" within the meaning of Regulation Section
     1.704-2(i) which shall be controlling in the event of a conflict between
     such Regulation and this Section 6.3.A(ii).

              (iii) Nonrecourse Deductions and Partner Nonrecourse Deductions.
                    --------------------------------------------------------- 
     Any Nonrecourse Deductions for any fiscal year shall be specially allocated
     to the Partners in accordance with their Percentage Interests attributable
     to such deductions. Any Partner Nonrecourse Deductions for any fiscal year
     shall be specially allocated to the Partner(s) who bears the economic risk
     of loss with respect to the Partner Nonrecourse Debt to which such Partner
     Nonrecourse Deductions are attributable, in accordance with Regulations
     Sections 1.704-2(b)(4) and 1.704-2(i).

              (iv)  Qualified Income Offset.  If any Partner unexpectedly 
                    -----------------------         
     receives an adjustment, allocation or distribution described in Regulations
     Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income
     and gain shall be allocated, in accordance with Regulations Section 1.704-
     1(b)(2)(ii)(d), to the Partner in an amount and manner sufficient to
     eliminate, to the extent required by such Regulations, the Adjusted Capital
     Account Deficit of the Partner as quickly as possible provided that an

                                       33
<PAGE>
 
     allocation pursuant to this Section 6.3.A(iv) shall be made if and only to
     the extent that such Partner would have an Adjusted Capital Account Deficit
     after all other allocations provided in this Article 6 have been
     tentatively made as if this Section 6.3.A(iv) were not in the Agreement. It
     is intended that this Section 6.3.A(iv) qualify and be construed as a
     "qualified income offset" within the meaning of Regulations 1.704-
     1(b)(2)(ii)(d), which shall be controlling in the event of a conflict
     between such Regulations and this Section 6.3.A(iv).

              (v)    Gross Income Allocation.  In the event any Partner has a 
                     -----------------------  
     deficit Capital Account at the end of any fiscal year which is in excess of
     the sum of (1) the amount (if any) such Partner is obligated to restore to
     the Partnership, and (2) the amount such Partner is deemed to be obligated
     to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the
     penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-
     2(i)(5), each such Partner shall be specially allocated items of
     Partnership income and gain in the amount of such excess as quickly as
     possible, provided that an allocation pursuant to this Section 6.3.A(v)
     shall be made if and only to the extent that such Partner would have a
     deficit Capital Account in excess of such sum after all other allocations
     provided in this Article 6 have been tentatively made as if this Section
     6.3.A(v) and Section 6.3.A(iv) were not in the Agreement.

              (vi)   Limitation on Allocation of Net Loss.  To the extent any 
                     ------------------------------------     
     allocation of Net Loss would cause or increase an Adjusted Capital Account
     Deficit as to any Partner, such allocation of Net Loss shall be reallocated
     among the other Partners in accordance with their respective Percentage
     Interests, subject to the limitations of this Section 6.3.A(vi).

              (vii)  Section 754 Adjustment.  To the extent an adjustment to 
                     ----------------------           
     the adjusted tax basis of any Partnership asset pursuant to Code Section
     734(b) or Code Section 743(b) is required, pursuant to Regulations Section
     1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to
     be taken into account in determining Capital Accounts as the result of a
     distribution to a Partner in complete liquidation of his interest in the
     Partnership, the amount of such adjustment to the Capital Accounts shall be
     treated as an item of gain (if the adjustment increases the basis of the
     asset) or loss (if the adjustment decreases such basis) and such gain or
     loss shall be specially allocated to the Partners in accordance with their
     interests in the Partnership in the event that Regulations Section 1.704-
     1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such distribution was
     made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

              (viii) Curative Allocation.  The allocations set forth in 
                     -------------------       
     Sections 6.3.A(i), (ii), (iii), (iv), (v), (vi) and (vii) (the "Regulatory
     Allocations") are intended to comply with certain regulatory requirements,
     including the requirements of Regulations Sections 1.704-1(b) and 1.704-2.
     Notwithstanding the provisions of Sections 6.1 and 6.2, the 

                                       34
<PAGE>
 
     Regulatory Allocations shall be taken into account in allocating other
     items of income, gain, loss and deduction among the Partners so that, to
     the extent possible, the net amount of such allocations of other items and
     the Regulatory Allocations to each Partner shall be equal to the net amount
     that would have been allocated to each such Partner if the Regulatory
     Allocations had not occurred.

          B.  For purposes of determining a Partner's proportional share of the
"excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), each Partner's interest in Partnership
profits shall be such Partner's Percentage Interest, provided that the Series A
Limited Partners shall have no share of such excess nonrecourse liabilities.

          Section 6.4. Tax Allocations
                       ---------------

          A.  In General.  Except as otherwise provided in this Section 6.4, for
              ----------                                                        
income tax purposes each item of income, gain, loss and deduction (collectively,
"Tax Items") shall be allocated among the Partners in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated pursuant
to Sections 6.2 and 6.3.

          B.  Allocations Respecting Section 704(c) Revaluations.
              --------------------------------------------------  
Notwithstanding Section 6.4.A, Tax Items with respect to Partnership property
that is contributed to the Partnership by a Partner shall be shared among the
Partners for income tax purposes pursuant to Regulations promulgated under
Section 704(c) of the Code, so as to take into account the variation, if any,
between the basis of the property to the Partnership and its initial Gross Asset
Value. With respect to Partnership property that is initially contributed to the
Partnership upon its formation, such variation between basis and initial Gross
Asset Value shall be taken into account under the "traditional method" as
described in Regulations Section 1.704-3(b). With respect to properties
subsequently contributed to the Partnership, the Partnership shall account for
such variation under any method approved under Section 704(c) of the Code and
the applicable regulations as chosen by the General Partner. In the event the
Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraph
(b) of the definition of Gross Asset Value (provided in Article 1 of this
Agreement), subsequent allocations of Tax Items with respect to such asset shall
take account of the variation, if any, between the adjusted basis of such asset
and its Gross Asset Value in the same manner as under Section 704(c) of the Code
and the applicable regulations consistent with the requirements of Regulations
Section 1.704-1(b)(2)(iv)(g) using any method approved under Section 704(c) of
the Code and the applicable regulations as chosen by the General Partner.


                                  ARTICLE 7.
                     MANAGEMENT AND OPERATIONS OF BUSINESS

          Section 7.1. Management
                       ----------

                                       35
<PAGE>
 
          A.  Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership.  The General Partner may not be removed
by the Limited Partners with or without cause.  In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to the other provisions hereof,
shall have full power and authority to do all things deemed necessary or
desirable by it to conduct the business of the Partnership, to exercise all
powers set forth in Section 3.2 hereof and to effectuate the purposes set forth
in Section 3.1 hereof, including, without limitation:

          (1)  the making of any expenditures, the lending of money (including,
               without limitation the Participating Mortgage Loans described in
               the final prospectus with respect to the initial public offering
               of REIT Shares), borrowing of money (including, without
               limitation, making prepayments on loans and borrowing money to
               permit the Partnership to make distributions to its Partners in
               such amounts as will permit the General Partner (so long as the
               General Partner has determined to qualify as a REIT) to avoid the
               payment of any federal income tax (including, for this purpose,
               any excise tax pursuant to Section 4981 of the Code), to make
               distributions to its stockholders sufficient to permit the
               General Partner to maintain REIT status and to satisfy any Put
               rights pursuant to Section 8.6), the assumption or guarantee of,
               or other contracting for, indebtedness and other liabilities, the
               issuance of evidences of indebtedness (including the securing of
               same by mortgage, deed of trust or other lien or encumbrance on
               the Partnership's assets) and the incurring of any obligations it
               deems necessary for the conduct of the activities of the
               Partnership; provided, that all such borrowing, incurrence of
               Debt and prepayments shall be subject to the limitations set
               forth in Sections 4.4 and 4.5;

          (2)  the making of tax, regulatory and other filings, or rendering of
               periodic or other reports to governmental or other agencies
               having jurisdiction over the business or assets of the
               Partnership;

          (3)  the acquisition, disposition, mortgage, pledge encumbrance,
               hypothecation or exchange of any assets of the Partnership or the
               merger or other combination of the Partnership with or into
               another entity; provided, that, in the event of any sale,
               exchange, disposition or other transfer of any property of the
               Partnership contributed at the time of the closing of the initial
               public offering of REIT Shares, occurring prior to the end of the
               fifteenth (15th) year following the Effective Date, the
               Partnership shall no 

                                       36
<PAGE>
 
               later than the end of the calendar quarter in which such sale,
               exchange, disposition or other transfer becomes a taxable event
               to Partners effect a distribution of cash (or, at the option of
               the General Partner, a promissory note, bearing interest at the
               then approved price per annum equal to the dividend yield on the
               REIT Shares, based on the most recent quarterly dividend and the
               Value of a REIT Share as of the date of issuance of such note),
               and due and payable as soon as reasonably practicable but in no
               event later than 90 days after the date of issuance), in addition
               to its then regular quarterly distribution, in an amount such
               that the pro rata share thereof received by each Partner shall 
                        --- ---- 
               equal or exceed the total liability of such Partner for federal,
               state and local income and franchise taxes resulting from such
               sale, exchange, disposition or other transfer and from such
               distribution as determined in accordance with the books and
               records of the Partnership (which determination will be
               conclusive and binding absent manifest error); provided, further,
                                                              --------  ------- 
               that any Partner may elect not to receive all or any portion of
               such additional distribution and in such event, although such
               Partner's Capital Account will not be reduced to the extent that
               no distribution is received by such Partner, the Partner's
               Percentage Interest or the number of Partnership Units considered
               owned by such Partner shall not be adjusted, it being the intent
               that the sole effect of the election not to receive a
               distribution will be to increase the amount of cash or other
               property to be received by such Partner upon a dissolution of the
               Partnership; and provided, further, however, that any Partner may
                                --------  -------  -------
               elect not to receive all or any portion of such distribution in
               cash but in lieu thereof to receive a promissory note bearing
               interest at a rate per annum equal to the annualized dividend
               yield on the REIT Shares based on the most recent quarterly
               dividend and the Value of a REIT Share as of the date of issuance
               of such note and due and payable on the third anniversary of
               issuance.

          (4)  the mortgage, pledge, encumbrance or hypothecation of any assets
               of the Partnership, and the use of the assets of the Partnership
               (including, without limitation, cash on hand) for any purpose
               consistent with the terms of this Agreement and on any terms it
               sees fit, including, without limitation, the financing of the
               conduct of the operations of the General Partner or the
               Partnership, the lending of funds to other Persons (including,
               without limitation, the General Partner (if necessary to permit
               the financing or capitalization of a subsidiary of the General
               Partner or the Partnership) and any Subsidiaries of the
               Partnership) and the repayment of obligations of the Partnership,
               any of its Subsidiaries and any other Person in which it has an
               equity investment;

                                       37
<PAGE>
 
          (5)  the negotiation, execution and performance of any contracts,
               leases, conveyances or other instruments that the General Partner
               considers useful or necessary to the conduct of the Partnership's
               operations or the implementation of the General Partner's powers
               under this Agreement;

          (6)  the distribution of Partnership cash or other Partnership assets
               in accordance with this Agreement;

          (7)  the selection and dismissal of employees of the Partnership
               (including, without limitation, employees having titles such as
               "president," "vice president," "secretary" and "treasurer"), and
               agents, outside attorneys, accountants, consultants and
               contractors of the Partnership and the determination of their
               compensation and other terms of employment or hiring;

          (8)  the maintenance of such insurance for the benefit of the
               Partnership and the Partners as it deems necessary or
               appropriate;

          (9)  the formation of, or acquisition of an interest in, and the
               contribution of property to, any further limited or general
               partnerships, joint ventures or other relationships that it deems
               desirable (including, without limitation, the acquisition of
               interests in, and the contributions of property to, any
               Subsidiary and any other Person in which it has an equity
               investment from time to time); provided that as long as the
               General Partner has determined to continue to qualify as a REIT,
               the Partnership may not engage in any such formation, acquisition
               or contribution that would cause the General Partner to fail to
               qualify as a REIT;

          (10) the control of any matters affecting the rights and obligations
               of the Partnership, including the conduct of litigation and the
               incurring of legal expense and the settlement of claims and
               litigation, and the indemnification of any Person against
               liabilities and contingencies to the extent permitted by law;

          (11) the undertaking of any action in connection with the
               Partnership's direct or indirect investment in any Person
               (including, without limitation, the contribution or loan of funds
               by the Partnership to such Persons);

          (12) the determination of the fair market value of any Partnership
               property distributed in kind using such reasonable method of
               valuation as it may adopt, provided that such methods are
               otherwise consistent with requirements of this Agreement; and

                                       38
<PAGE>
 
          (13) the enforcement of any rights against any Partner pursuant to
               representations, warranties, covenants and indemnities relating
               to such Partner's contribution of property or assets to the
               Partnership.

          B.  Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation.  The execution, delivery or performance by the General Partner or
the Partnership of any agreement authorized or permitted under this Agreement
shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.

          C.  At all times from and after the date hereof, the General Partner
may cause the Partnership to obtain and maintain (i) casualty, liability and
other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnities hereunder.

          D.  At all times from and after the date hereof, the General Partner
may cause the Partnership to establish and maintain working capital reserves in
such amounts as the General Partner, in its sole and absolute discretion, deems
appropriate and reasonable from time to time.

          E.  In exercising its authority under this Agreement, the General
Partner may, but, other than as expressly set forth in the Contribution
Agreement, shall be under no obligation to, take into account the tax
consequences to any Partner (including the General Partner) of any action taken
by the General Partner. The General Partner and the Partnership shall not have
liability to a Partner under any circumstances as a result of an income tax
liability incurred by such Partner as a result of an action (or inaction) by the
General Partner pursuant to its authority under this Agreement.

          Section 7.2. Certificate of Limited Partnership
                       ----------------------------------

          To the extent that such action is determined by the General Partner to
be reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other state, the District of Columbia or any other jurisdiction, in
which the Partnership may elect to do business or own property.  Subject to the
terms of Section 8.5.A(4) hereof, the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate or any
amendment thereto to any Limited Partner.  The General Partner shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be reasonable and necessary or appropriate for the formation, continuation,

                                       39
<PAGE>
 
qualification and operation of a limited partnership (or a partnership in which
the limited partners limited liability) in the State of Delaware any other
state, or the District of Columbia, in which the Partnership may elect to do
business or own property.

          Section 7.3. Restrictions on General Partner's Authority
                       -------------------------------------------

          A.  The General Partner may not take any action in contravention of
this Agreement, including, without limitation:

          (1)  take any action that would make it impossible to carry on the
               ordinary business of the Partnership, except as otherwise
               provided in this Agreement;

          (2)  possess Partnership property, or assign any rights in specific
               Partnership property, for other than a Partnership purpose except
               as otherwise provided in this Agreement;

          (3)  admit a Person as a Partner, except as otherwise provided in this
               Agreement;

          (4)  perform any act that would subject a Limited Partner to liability
               as a general partner in any jurisdiction or any other liability
               except as provided herein or under the Act; or

          (5)  enter into any contract, mortgage, loan or other agreement that
               prohibits or restricts, or has the effect of prohibiting or
               restricting, the ability of a Limited Partner to exercise its
               rights set forth herein to effect in full an Exchange or a Put or
               an exchange or redemption pursuant to Section 16.7, except with
               the written consent of such Limited Partner (for purposes of
               clarification, contracts with respect to the issuance of
               additional Partnership Interests pursuant to Section 4.5.D which
               prohibit or restrict such Exchange or Put rights solely by virtue
               of the preferences, rights, powers and duties attributable to the
               Partnership Interests subject to such contract shall be deemed
               not to include such prohibitions or restrictions); provided that
               this subparagraph (5) shall not apply to any contract or
               agreement with respect to indebtedness under which a Limited
               Partner's exercise of a Put or redemption pursuant to Section
               16.7 would constitute a default or breach thereunder if such
               contract or agreement is or was entered into with a third party
               on commercially reasonable terms negotiated on an arms-length
               basis (it being agreed that if such default or breach would arise
               by virtue of the election by the General Partner to cause the
               Partnership to redeem all or a portion of the Series A Preferred
               Units for cash pursuant to Section 16.7.A(ii), the General
               Partner shall 

                                       40
<PAGE>
 
          make such election only with respect to Excess Units as defined in
          Section 16.7.A(iii)).

          B.  The General Partner shall not, without the prior Consent of the
Limited Partners, undertake, on behalf of the Partnership, any of the following
actions or enter into any transaction which would have the effect of such
transactions:

          (1)  except as provided in Section 7.3.C., amend, modify or terminate
               this Agreement other than to reflect the admission, substitution,
               termination or withdrawal of partners pursuant to Article 12
               hereof;

          (2)  make a general assignment for the benefit of creditors or appoint
               or acquiesce in the appointment of a custodian, receiver or
               trustee for all or any part of the assets of the Partnership;

          (3)  institute any proceeding for Bankruptcy on behalf of the
               Partnership; or

          (4)  subject to the rights of transfer provided in Section 11.2,
               approve or acquiesce to the transfer of the Partnership Interest
               of the General Partner, or admit into the Partnership any
               Additional or Substitute General Partners.

          C.  Notwithstanding Section 7.3.B, the General Partner shall have the
power, without the Consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:

          (1)  to add to the obligations of the General Partner or surrender any
               right or power granted to the General Partner or any Affiliate of
               the General Partner for the benefit of the Limited Partners;

          (2)  to reflect the issuance of additional Partnership Interests
               pursuant to Sections 4.5.D and 4.6 or the admission,
               substitution, termination, or withdrawal of Partners in
               accordance with this Agreement;

          (3)  to reflect a change that is of an inconsequential nature and does
               not adversely affect the Limited Partners in any material
               respect, or to cure any ambiguity, correct or supplement any
               provision in this Agreement not inconsistent with law or with
               other provisions, or make other changes with respect to matters
               arising under this Agreement, that will not be inconsistent with
               law or with the provisions of this Agreement;

                                       41
<PAGE>
 
          (4)  to satisfy any requirements, conditions, or guidelines contained
               in any order, directive, opinion, ruling or regulation of a
               federal or state agency or contained in federal or state law;

          (5)  to reflect such changes as are reasonably necessary for the
               General Partner to maintain its status as a REIT, including
               changes which may be necessary due to a change in applicable law
               (or an authoritative interpretation thereof) or a ruling of the
               IRS; and

          (6)  to modify the manner in which Capital Accounts are computed but
               only to the extent set forth in the definition of "Capital
               Account."

The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.

          D.  Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement
shall not be amended, and no action may be taken by the General Partner, without
the Consent of each Partner adversely affected if such amendment or action would
(i) convert a Limited Partner's interest in the Partnership into a general
partner's interest (except as the result of the General Partner acquiring such
interest), (ii) modify the limited liability of a Limited Partner, (iii) alter
rights of the Partner to receive distributions pursuant to Article 5, Section
7.1.A(3), Section 13.2 or Article 16, or the allocations specified in Article 6
(except as permitted pursuant to Section 4.2, Section 4.5 and Section 7.3.C),
(iv) alter or modify the Exchange Right, Put Right, REIT Shares Amount or Put
Amount as set forth in Sections 8.6 and 11.2, and related definitions thereof,
(v) cause the termination of the Partnership prior to the time set forth in
Sections 2.5 or 13.1, (vi) alter the redemption or exchange rights as set forth
in Sections 16.4 and 16.7 hereof, respectively, or (vii) amend this Section
7.3.D. Further, no amendment may alter the restrictions on the General Partner's
authority set forth elsewhere in this Section 7.3 without the Consent specified
in such section. Any such amendment or action consented to by any Limited
Partner shall be effective as to that Limited Partner, notwithstanding the
absence of such consent by any other Limited Partner.

          E.  For so long as the Partnership Interests of all of the Limited
Partners of the Partnership equal, in the aggregate, not less than fifteen
percent (15%), the General Partner shall not, without the prior Consent of the
Limited Partners, undertake, on behalf of the Partnership, any of the following
actions:

          (1)  Dissolve the Partnership.

          (2)  Agree to or consummate any merger, consolidation, reorganization
               or other business combination to which the Partnership is a
               party, in each case resulting in the disposition by the then
               Limited Partners and Assignees of all outstanding Limited
               Partnership Interests and interests of 

                                       42
<PAGE>
 
               Assignees therein in consideration for (a) cash, (b) debt
               instruments or other evidences of indebtedness, (c) other
               securities issued by a corporation, partnership or other entity,
               other than (i) the General Partner, (ii) the Partnership or (iii)
               any entity at least 80% of the total assets of which (on the
               basis of market value) are comprised of assets which, immediately
               prior to such transaction, were assets of the Partnership, or (d)
               any combination of the consideration described in (a), (b) and/or
               (c) above.

          (3)  Sell or otherwise transfer all or substantially all of the assets
               of the Partnership.

          Section 7.4. Reimbursement of the General Partner.
                       ------------------------------------

          A.  Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments and allocations to which it may be entitled), the General Partner shall
not be compensated for its services as general partner of the Partnership.

          B.  Subject to Section 15.11, the General Partner shall be reimbursed
on a monthly basis, or such other basis as the General Partner may determine in
its sole and absolute discretion, for all expenses it incurs relating to the
ownership of interests in and operation of, or for the benefit of, the
Partnership.   The Limited Partners acknowledge that the General Partner's sole
business is the ownership of interests in and operation of the Partnership and
the General Partner Properties and personal property reasonably incident thereto
and that all of the General Partner's expenses are incurred for the benefit of
the Partnership; provided that, the General Partner shall not be reimbursed for
                 -------- ----                                                 
expenses it incurs relating to the organization of the Partnership and the
General Partner or the initial public offering or subsequent public offerings of
REIT Shares, other shares of capital stock or Funding Debt by the General
Partner, but shall be reimbursed for expenses it incurs with respect to any
other issuance of additional Partnership Interests pursuant to the provisions
hereof.  Such reimbursements shall be in addition to any reimbursement of the
General Partner as a result of indemnification pursuant to Section 7.7 hereof.

          C.  If and to the extent any reimbursements to the General Partner
pursuant to this Section 7.4 constitute gross income of the General Partner (as
opposed to the repayment of advances made by the General Partner on behalf of
the Partnership), such amounts shall constitute guaranteed payments within the
meaning of Section 707(c) of the Code, shall be treated consistently therewith
by the Partnership and all Partners, and shall not be treated as distributions
for purposes of computing the Partners' Capital Accounts.

          Section 7.5. Outside Activities of the General Partner.
                       -----------------------------------------

                                       43
<PAGE>
 
          A.  The General Partner shall not, directly or indirectly, enter into
or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner and
the management of the business of the Partnership, its operation as a public
reporting company with a class (or classes) of securities registered under the
Securities Exchange Act of 1934, as amended, its operation as a REIT and such
activities as are incidental to the same. Without the Consent of the Limited
Partners, the General Partner shall not, directly or indirectly, participate in
or otherwise acquire any interest in any real or personal property, except its
General Partner Interest, its minority interest in any Subsidiary Partnership(s)
(held directly or indirectly through a Qualified REIT Subsidiary) that the
General Partner holds in order to maintain such Subsidiary Partnership's status
as a partnership, and such bank accounts, similar instruments or other short-
term investments as it deems necessary to carry out its responsibilities
contemplated under this Agreement and the Charter. In the event the General
Partner desires to contribute cash to any Subsidiary Partnership to acquire or
maintain an interest of 1% or less in the capital of such partnership, the
General Partner may acquire such cash from the Partnership in exchange for a
reduction in the General Partner's Partnership Units, in an amount equal to the
amount of such cash divided by the Value of a REIT Share on the day such cash is
received by the General Partner. Notwithstanding the foregoing, the General
Partner may acquire Properties in exchange for REIT Shares, to the extent such
Properties are immediately contributed by the General Partner to the
Partnership, pursuant to the terms described in Section 4.5.E. Any Limited
                                                -------------              
Partner Interests acquired by the General Partner, whether pursuant to exercise
by a Limited Partner of its rights to Exchange or Put or exchange pursuant to
Section 16.7 or otherwise, shall be automatically converted into a General
Partner Interest comprised of an identical number of Partnership Units with the
same rights, priorities and preferences as the class or series acquired.  If, at
any time after the Effective Date, the General Partner acquires material assets
(other than on behalf of the Partnership), the definition of "REIT Shares
Amount" shall be adjusted, as reasonably agreed to by the General Partner and
the other Limited Partners, to reflect the relative Value of a share of capital
stock of the General Partner relative to the Deemed Partnership Interest Value
of the related Partnership Unit.  The General Partner's General Partner Interest
in the Partnership, its minority interest in any Subsidiary Partnership(s) (held
directly or indirectly through a Qualified REIT Subsidiary) that the General
Partner holds in order to maintain such Subsidiary Partnership's status as a
partnership, and interests in such short-term liquid investments, bank accounts
or similar instruments as the General Partner deems necessary to carry out its
responsibilities contemplated under this Agreement and the Charter are interests
which the General Partner is permitted to acquire and hold for purposes of this
Section 7.5.A.
- ------------- 

          B.  Notwithstanding the limitations set forth in Section 7.5.A. above,
the Partners agree that the General Partner was permitted to acquire, and may
continue to own, the General Partner Properties and personal property reasonably
incident thereto.  In order to create an initial Exchange ratio of one Common
Unit for one REIT share, the number of Common Units held by the General Partner
is less than the number of REIT Shares issued by the General Partner.  In
addition, the Partners agree that until the earlier of the fifth (5th)
anniversary of the 

                                       44
<PAGE>
 
Effective Date or the date on which all of the General Partner Properties and
personal property reasonably incident thereto is contributed to the Partnership
pursuant to Section 4.5.D, the net fair market value of the General Partner
Properties and personal property incident thereto shall be deemed to appreciate
or depreciate at the same rate as the Properties and, as a result, the one-for-
one Exchange ratio (absent other adjustments) will continue to be appropriate.
On the fifth (5th) anniversary of the Effective Date and every five (5) years
thereafter, and upon the contribution of any portion of the General Partner
Properties and personal property reasonably incident thereto to the Partnership,
the Board of Directors shall in good faith review the value of the portion of
the General Partner Properties and any such personal property then owned by the
General Partner as compared to the Properties, shall make the determination set
forth in Section 4.5.D(c) upon any such contribution, and shall, to the extent
deemed necessary, adjust such Exchange ratio to account for value fluctuations.

          C.  In the event the General Partner exercises its rights under the
Charter to purchase REIT Shares or Preferred Shares, then the General Partner
shall cause the Partnership to purchase from it a number of Partnership Units of
the appropriate class as determined based on, in the case of REIT Shares, an
amount equal to the number of REIT Shares (as adjusted pursuant to Sections
7.5.A or B) so purchased or, in the case of Preferred Shares, an equal number of
Preferred Units which correspond in ranking to the Preferred Shares so
purchased, in each case on the same terms that the General Partner purchased
such REIT Shares or Preferred Shares, as applicable.

          Section 7.6. Contracts with Affiliates.
                       -------------------------

          A.  The Partnership may lend or contribute to Persons in which it has
an equity investment, and such Persons may borrow funds from the Partnership, on
terms and conditions established in the sole and absolute discretion of the
General Partner.  The foregoing authority shall not create any right or benefit
in favor of any Person.

          B.  Except as provided in Section 7.5.A, the Partnership may transfer
assets to joint ventures, other partnerships, corporations or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law.

          C.  The General Partner, in its sole and absolute discretion and
without the approval of the Limited Partners, may propose and adopt on behalf of
the Partnership employee benefit plans funded by the Partnership for the benefit
of employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership or any of the
Partnership's Subsidiaries.

                                       45
<PAGE>
 
          D.  The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, such conflict avoidance agreements with
various Affiliates of the Partnership and the General Partner, on such terms as
the General Partner, in its sole and absolute discretion, believes are
advisable.

          E.  The General Partner, in its sole and absolute discretion and
without the approval of the Limited Partners, may propose and adopt on behalf of
the Partnership Employee benefit plans funded by the Partnership for the benefit
of employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership, the General Partner
or any of the Partnership's Subsidiaries.  The General Partner also is expressly
authorized to cause the Partnership to issue to it Partnership Units
corresponding to REIT Shares issued by the General Partner pursuant to its Stock
Incentive Plan or any similar or successor plan and to repurchase such
Partnership Units from the General Partner to the extent necessary to permit the
General Partner to repurchase such REIT Shares in accordance with such plan.


          Section 7.7. Indemnification.
                       ---------------

          A.  The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees and expenses), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the operations
of the Partnership as set forth in this Agreement in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to the
matter giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful.  Without limitation, the
foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to
a loan guaranty or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
subject to), and the General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.7 in favor of any Indemnitee
                                       -----------                           
having or potentially having liability for any such indebtedness.  The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A.  The termination of any proceeding by
conviction or upon a plea of nolo contendere or its equivalent, or any entry of
an order of probation prior to judgment, creates a rebuttable presumption that
the Indemnitee acted in a manner contrary to that specified in this Section
7.7.A.  Any indemnification pursuant to this Section 7.7 shall be made only out
of the assets of the Partnership.  Notwithstanding the foregoing provisions, the
General Partner shall be 

                                       46
<PAGE>
 
entitled to reimbursement by the Partnership for any amounts paid by it in
satisfaction of indemnification obligations owed by the General Partner to
present or former directors of the General Partner or its predecessors, as
provided for in or pursuant to the Charter and By-Laws of the General Partner.

          B.  Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in Section 7.7.A has been met, and (ii) a written undertaking by or
on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.

          C.  The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.

          D.  The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by any such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.

          E.  For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of Section 7.7; and actions taken or
omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.

          F.  In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.

          G.  An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.

                                       47
<PAGE>
 
          H.  The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.

          I.  If and to the extent any reimbursements to the General Partner
pursuant to this Section 7.7 constitute gross income of the General Partner (as
                 -----------                                                   
opposed to the repayment of advances made by the General Partner on behalf of
the Partnership), such amounts shall constitute guaranteed payments within the
meaning of Section 707(c) of the Code, shall be treated consistently therewith
by the Partnership and all Partners, and shall not be treated as distributions
for purposes of computing the Partners' Capital Accounts.

          Section 7.8. Liability of the General Partner.
                       --------------------------------

          A.  Notwithstanding anything to the contrary set forth in this
Agreement, none of the General Partner or any of its officers, directors, agents
and employees shall be liable or accountable in damages or otherwise to the
Partnership, any Partners or any Assignees, or their successors or assigns, for
losses sustained, liabilities incurred or benefits not derived as a result of
errors in judgment or mistakes of fact or law or of any act or omission if the
General Partner acted in good faith.

          B.  The Limited Partners expressly acknowledge that (i) the General
Partner is acting for the benefit of the Partnership, the Limited Partners and
the General Partner's stockholders collectively, and (ii) the General Partner is
under no obligation to give priority to the separate interests of the Limited
Partners, on the one hand, or the General Partner's stockholders, on the other,
in deciding whether to cause the Partnership to take (or decline to take) any
actions (including, without limitation, with respect to the tax consequences to
either).

          C  Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents.  The General Partner
shall not be responsible for any misconduct or negligence on the part of any
such agent appointed by it in good faith.

          D.  Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of the General Partner and any of its officers,
directors, agents and employees to the Partnership and the Limited Partners
under this Section 7.8 as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.

          E.  Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct and gross negligence, or pursuant to any express indemnities
given to the Partnership 

                                       48
<PAGE>
 
by any Partner pursuant to any other written instrument, no Partner shall have
any personal liability whatsoever, to the Partnership or to the other Partner,
for the debts or liabilities of the Partnership or its obligations hereunder,
and the full recourse of the other Partner shall be limited to the interest of
that Partner in the Partnership. To the fullest extent permitted by law, no
officer, director or stockholder of the General Partner shall be liable to the
Partnership for money damages except for (i) active and deliberate dishonesty
established by a final judgment or (ii) actual receipt of an improper benefit or
profit in money, property or services. Without limitation of the foregoing, and
except for fraud, willful misconduct and gross negligence, or pursuant to any
such express indemnity, no property or assets of any Partner, other than its
interest in the Partnership, shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgment (or other judicial
process) in favor of any other Partner(s) and arising out of, or in connection
with, this Agreement. This Agreement is executed by the officers of the General
Partner solely as officers of the same and not in their own individual
capacities.

          Section 7.9. Other Matters Concerning the General Partner.
                       --------------------------------------------

          A.  The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.

          B.  The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion of such Persons as to matters which such General Partner
reasonably believes to be within such Person's professional or expert competence
shall be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.

          C.  The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact.  Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.

          D.  Notwithstanding any other provisions of this Agreement or any non-
mandatory provision of the Act, any action of the General Partner on behalf of
the Partnership or any decision of the General Partner to refrain from acting on
behalf of the Partnership, undertaken in the good faith belief that such action
or omission is necessary or advisable in order (i) to protect the ability of the
General Partner to continue to qualify as a REIT or (ii) to avoid the General
Partner incurring any taxes under Section 857 or Section 4981 of the Code
(except with respect to the distribution of Available Cash to the Series A
Limited Partners in accordance with 

                                       49
<PAGE>
 
Section 16.2), is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.

          Section 7.10. Title to Partnership Assets.
                        ---------------------------

          Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; provided,
                                                                     -------- 
however, that the General Partner shall use its best efforts to cause beneficial
- -------                                                                         
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable.  All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which legal title to such Partnership assets is held.

          Section 7.11. Reliance by Third Parties.
                        -------------------------

          Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority to encumber, sell or otherwise use in any
manner any and all assets of the Partnership and to enter into any contracts on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially.  Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing.  In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives.  Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.

                                       50
<PAGE>
 
                                  ARTICLE 8.
                  RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

          Section 8.1. Limitation of Liability.
                       -----------------------

          The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement or under the Act.

          Section 8.2. Management of Business.
                       ----------------------

          No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operations, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership.  The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent, representative, or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.

          Section 8.3. Outside Activities of Limited Partners.
                       --------------------------------------

          Subject to any agreements entered into by a Limited Partner or its
Affiliates with the General Partner, the Partnership or a Subsidiary and any
employment agreement), any Limited Partner and any officer, director, employee,
agent, trustee, Affiliate or stockholder of any Limited Partner shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities in direct competition with the Partnership.  Neither the Partnership
nor any Partners shall have any rights by virtue of this Agreement in any
business ventures of any Limited Partner or Assignee.  Subject to such
agreements, none of the Limited Partners nor any other Person shall have any
rights by virtue of this Agreement or the partnership relationship established
hereby in any business ventures of any other Person, other than the General
Partner, and such Person shall have no obligation pursuant to this Agreement to
offer any interest in any such business ventures to the Partnership, any Limited
Partner or any such other Person, even if such opportunity is of a character
which, if presented to the Partnership, any Limited Partner or such other
Person, could be taken by such Person.

          Section 8.4. Return of Capital.
                       -----------------

          Except pursuant to the rights of Exchange and Put set forth in Section
8.6 and the redemption and exchange rights set forth in Sections 16.4 and 16.7,
no Limited Partner shall be entitled to the withdrawal or return of his Capital
Contribution, except to the extent of 

                                       51
<PAGE>
 
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except as expressly set forth herein with
respect to the rights, priorities and preferences of the Preferred Limited
Partners holding any series of Preferred Units, no Limited Partner or Assignee
shall have priority over any other Limited Partner or Assignee either as to the
return of Capital Contributions or as otherwise expressly provided in this
Agreement, as to profits, losses, distributions or credits.

          Section 8.5. Rights of Limited Partners Relating to the Partnership.
                       ------------------------------------------------------

          A.  In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:

          (1)  to obtain a copy of the most recent annual and quarterly reports
               filed with the Securities and Exchange Commission by the General
               Partner pursuant to the Securities Exchange Act of 1934, as
               amended, and each report sent to the stockholders of the General
               Partner;

          (2)  to obtain a copy of the Partnership's federal, state and local
               income tax returns for each Partnership Year;

          (3)  to obtain a current list of the name and last known business,
               residence or mailing address of each Partner;

          (4)  to obtain a copy of this Agreement and the Certificate and all
               amendments thereto, together with executed copies of all powers
               of attorney pursuant to which this Agreement, the Certificate and
               all amendments thereto have been executed; and

          (5)  to obtain true and full information regarding the amount of cash
               and a description and statement of any other property or services
               contributed by each Partner and which each Partner has agreed to
               contribute in the future, and the date on which each became a
               Partner.

          B.  The Partnership shall notify each Common Limited Partner in
writing of any adjustment made in the calculation of the REIT Shares Amount
within 10 Business Days of the date such change becomes effective.

          C.  Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that

                                       52
<PAGE>
 
(i) the General Partner believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or the General Partner or (ii)
the Partnership or the General Partner is required by law or by agreements with
unaffiliated third parties to keep confidential.

          Section 8.6. Common Limited Partner Exchange and Put Rights.
                       ----------------------------------------------

          A.  On or after the date one (1) year after the Effective Date, and
prior to the date forty (40) years after the Effective Date, each Common Limited
Partner shall have the right (subject to the terms and conditions set forth
herein) to require the General Partner to acquire all or a portion of the Common
Units held by such Common Limited Partner (such Common Units being hereafter
"Tendered Units") in exchange for, at the election of such Common Limited
Partner, (i) REIT Shares, in which event such required acquisition shall be
considered a "Exchange," or (ii) cash, in which event such required acquisition
shall be considered a "Put."  Any Exchange or Put shall be exercised pursuant to
a Notice of Exchange or Notice of Put, as the case may be, delivered to the
General Partner by the Common Limited Partner who is exercising the relevant
right (the "Tendering Partner").

          B.  A Tendering Partner effecting an Exchange shall have the right to
receive, on the Specified Exchange Date, the REIT Shares Amount (calculated as
of the Valuation Date) with respect to the Tendered Units, subject to the
limitations on ownership and provisions with respect to Excess Shares set forth
in Article IV of the Charter.  The REIT Shares Amount shall be delivered as duly
authorized, validly issued, fully paid and nonassessable REIT Shares and, if
applicable, rights, free of any pledge, lien, encumbrance or restriction, other
than those provided in the Charter, the By-Laws of the General Partner, the
Securities Act and relevant state securities or blue sky laws.  Notwithstanding
any delay in such delivery, the Tendering Partner shall be deemed the owner of
such REIT Shares and rights for all purposes, including without limitation,
rights to vote or consent, receive dividends, and exercise rights, as of the
Specified Exchange Date.

          C.  (1)  A Tendering Partner effecting a Put shall have the right to
receive on the Specified Put Date cash in the amount of the Put Amount;
provided, that, within five (5) Business Days after receipt of the Notice of
- --------  ----                                                              
Put, the General Partner shall give written notice to the Tendering Partner as
to whether the General Partner will purchase the Tendered Units with the
proceeds of a registered public offering (a "Public Offering Funding") of a
number of REIT Shares ("Registrable Shares") equal to the REIT Shares Amount
with respect to the Tendered Units.  In the event that the General Partner fails
to give such notice, it will be deemed to have elected not to purchase the
Tendered Units through a Public Offering Funding and shall purchase the Tendered
Units on the Specified Put Date for cash in the amount (the "Cash Amount") equal
to the Value on the Valuation Date of the REIT Shares Amount (calculated as of
the Valuation Date) with respect to the Tendered Units.

                                       53
<PAGE>
 
               (2)  In the event that the General Partner elects a Public
     Offering Funding with respect to a Put covering in excess of 75,000 Common
     Units, it may at such time, give notice (a "Single Funding Notice") of such
     election to all Common Limited Partners and require that all Common Limited
     Partners elect whether or not to effect a Put to be funded through such
     Public Offering Funding.  In the event a Common Limited Partner elects to
     effect such a Put, it shall give notice thereof and of the number of Common
     Units to be made subject thereto in writing to the General Partner within
     10 Business Days after receipt of the Single Funding Notice, and such
     Common Limited Partner shall be treated as a Tendering Partner for all
     purposes of this Section 8.6.  In the event that a Common Limited Partner
     does not so elect, it shall be deemed to have waived its right to effect a
     Put for the current Twelve-Month Period, except that it may effect a Put
     for no more than 20,000 Common Units during such Twelve-Month Period.

          D.  In the event that the General Partner elects a Public Offering
Funding, it shall purchase the Tendered Units on the Specified Put Date for cash
in immediately available funds in the amount (the "Public Offering Funding
Amount") equal to the lesser of (i) the Cash Amount or (ii) the proceeds
received by the General Partner from the Public Offering Funding after deduction
of reasonable expenses related thereto, including underwriting discounts and
commissions, legal and accounting fees and expenses, Securities and Exchange
Commission ("SEC") registration fees, state blue sky and securities laws fees
and expenses, printing expenses, NASD filing fees and listing fees.

          E.  If the General Partner elects a Public Offering Funding, the
following additional terms and conditions shall apply:

               (1) As soon as practicable after the General Partner gives the
     Tendering Partner notice of its election, the General Partner shall use its
     best efforts to effect as promptly as possible a registration,
     qualification or compliance (including, without limitation, the execution
     of an undertaking to file post-effective amendments, appropriate
     qualifications under applicable blue sky or other state securities laws and
     appropriate compliance with applicable regulations issued under the
     Securities Act and any other governmental requirements or regulations) as
     would permit or facilitate the sale and distribution of the REIT Shares;
     provided, that, the General Partner shall not by reason hereof, be required
     to submit to jurisdiction or taxation, or qualify to do business in any
     jurisdiction in which such submission or qualification would not be
     otherwise required; provided, further, that if the General Partner shall
                         --------  -------                                   
     deliver a certificate to the Tendering Partner stating that the General
     Partner has determined in the good faith judgment of the Board of Directors
     that such filing, registration or qualification would require disclosure of
     material non-public information, the disclosure of which would have
     a material adverse effect on the General Partner, then the General Partner
     may delay making any filing or delay the effectiveness of any registration
     or qualification for the shorter of (a) the period ending on the date upon
     which such information is disclosed to 

                                       54
<PAGE>
 
     the public or ceases to be material or (b) an aggregate period of 90 days
     in connection with any Public Offering Funding.

               (2) The General Partner shall advise the Tendering Partner,
     regularly and promptly upon any request, of the status of the registration,
     including the timing of all filings, the selection of and understandings
     with underwriters, dealers and brokers, the nature and contents of all
     communications with the Securities and Exchange Commission and other
     governmental bodies, the expenses related to the Public Offering Funding as
     they are being incurred, the nature of marketing activities, and any other
     matters reasonably related to the timing, price and expenses relating to
     the Public Offering Funding and the compliance by the General Partner with
     its obligations with respect thereto.  In addition, the General Partner and
     each Tendering Partner may, but shall be under no obligation to, enter into
     understandings in writing ("Pricing Agreements") whereby the Tendering
     Partner will agree in advance as to the acceptability of the net price
     (after deducting all expenses referred to in Section 8.6.D) at or below the
     Value on the Valuation Date of a REIT Share, at which the Registrable
     Shares are to be offered pursuant to the Public Offering Funding (the
     "Price").  Furthermore, the General Partner shall establish pricing
     notification procedures with each such Tendering Partner, such that the
     Tendering Partner will have the maximum opportunity practicable to
     determine whether to become a Withdrawing Partner pursuant to Section
     8.6.E(3) below.

               (3) The General Partner, upon notification of the Price from the
     managing underwriter(s) engaged by the General Partner in order to sell the
     Registrable Shares, shall immediately use its best efforts to notify the
     Tendering Partner of the Price.  Each Tendering Partner shall have one hour
     (as such time may be extended by the General Partner) to elect to withdraw
     his Put (a Tendering Partner making such an election being a "Withdrawing
     Partner"), and Common Units with a REIT Shares Amount equal to such
     excluded Registrable Shares shall be considered to be withdrawn from the
     related Put.  If a Tendering Partner, within such time period, does not
     notify the General Partner of such Tendering Partner's election not to
     become a Withdrawing Partner, then such Tendering Partner shall, except as
     otherwise provided in a Pricing Agreement, be deemed to have elected to
     become a Withdrawing Partner, without liability to the General Partner.  To
     the extent that the General Partner  is unable to notify any Tendering
     Partner, such unnotified Tendering Partner shall, except as otherwise
     provided in any Pricing Agreement, be deemed to have elected to become a
     Withdrawing Partner.  Each Tendering Partner whose Put is being funded
     through the Public Offering Funding who does not become a Withdrawing
     Partner shall have the right, subject to the approval of the managing
     underwriter(s), to Put additional Common Units in a number no greater than
     the number of Common Units withdrawn.  In the event that the Price is in
     excess of the Value on the Valuation Date of a REIT Share, then the
     Withdrawing Partner shall bear its pro rata share of the expenses described
     in Section 8.6.D (such share calculated as if such Partner had not been a
     Withdrawing Partner).  If more than one 

                                       55
<PAGE>
 
     Tendering Partner so elects to Put additional Common Units, then such
     Common Partnership Units shall be Put on a pro rata basis, based on the
     number of additional Common Units sought to be so Put.

               (4) The General Partner shall take all reasonable action in order
     to effectuate the sale of the Registrable Shares including, but not limited
     to, the entering into of an underwriting agreement in customary form with
     the managing underwriter(s) selected for such underwriting by the Tendering
     Partner or, if there is more than one Tendering Partner, by the Tendering
     Partner who, together with the affiliates of such Tendering Partner,
     beneficially owns the greatest number of Common Units then being made
     subject to a Put.  Notwithstanding any other provision of this Agreement,
     if the managing underwriter(s) advises the General Partner in writing that
     marketing factors require a limitation of the number of shares to be
     underwritten, then the General Partner shall so advise all Tendering
     Partners and the number of Common Units to be sold to the General Partner
     pursuant to the Put shall be allocated among all Tendering Partners in
     proportion, as nearly as practicable, to the respective number of Common
     Units as to which each Tendering Partner elected to effect a Put.  No
     Registrable Shares excluded from the underwriting by reason of the managing
     underwriter's marketing limitation shall be included in such registration.

               (5) The General Partner may include securities for its own
     account in any registration filed pursuant to Section 8.6.D hereof and, if
     the managing underwriter has not limited the number of Registrable Shares
     to be underwritten, the General Partner may include securities for the
     account of others in such registration, in each case only if and to the
     extent that (i) the managing underwriter, the General Partner and Tendering
     Partners owning Common Units representing at least seventy-five percent
     (75%) of the Common Units with respect to which the Public Offering Funding
     is being effected so agree in writing, and (ii) the right of any party to
     Put Common Units pursuant to this Section 8.6, and the Put Amount to be
     received by such party (including by virtue of the number of Registrable
     Shares which would otherwise have been included in such registration and
     underwriting, the offering price for such Registrable Shares and the
     underwriting commissions or discounts for such Registrable Shares) will not
     thereby be limited, reduced or adversely affected.

          F.  Notwithstanding the provisions of Section 8.6.A, a Common Limited
Partner shall not be entitled to effect an Exchange if the ownership or right to
acquire REIT Shares by such Partner on or prior to the Specified Exchange Date
would be prohibited under the Charter.

          G.  Notwithstanding anything herein to the contrary, with respect to
any Exchange or Put pursuant to this Section 8.6:

                                       56
<PAGE>
 
          (1)  All Common Units acquired by the General Partner pursuant thereto
               shall automatically, and without further action required, be
               converted into and deemed to be General Partner Interests
               comprised of the same number of Common Units.

          (2)  Each Common Limited Partner may not effect an Exchange (a) for
               less than 2,500 Partnership Units or, if such Common Limited
               Partner holds less than 2,500 Partnership Units, all of the
               Common Units held by such Partner; or (b) for more than the
               greater of 75,000 Common Units or one-third of the number of
               Common Units set forth by its name on Exhibit A hereto as of the
               closing of the initial public offering of REIT Shares, less the
               number of Common Units made subject to a Put during the same
               Twelve-Month Period;

          (3)  Each Common Limited Partner may not effect a Put (a) for less
               than 5,000 Common Units or, if such Common Limited Partner holds
               less than 5,000 Common Units, all of the Common Units held by
               such Common Limited Partner, or (b) for more than one-third of
               the number of Common Units set forth by its name on Exhibit A
               hereto as of the closing of the initial public offering of REIT
               Shares, less the number of Common Units made subject to an
               Exchange during the same Twelve-Month Period;

          (4)  Each Common Limited Partner (a) may effect an Exchange or Put
               only once in each Twelve-Month Period, and (b) may not effect an
               Exchange or Put during the period after the Partnership Record
               Date with respect to a distribution and before the record date
               established by the General Partner for a distribution to its
               stockholders of some or all of its portion of such distribution.

          (5)  Notwithstanding anything herein to the contrary, with respect to
               any Put, in the event the General Partner gives notice to all
               Common Limited Partners (a "Primary Offering Notice") that it
               desires to effect a primary offering of its equity securities for
               cash (other than an offering in connection with a merger,
               consolidation or similar transaction, or employee benefit or
               similar plans) then, unless the General Partner otherwise
               consents, the actions described in Section 8.6.E as to a Public
               Offering Funding with respect to any Notice of Put thereafter
               received may be delayed until the earlier of (a) the completion
               of the primary offering or (b) 120 days following the giving of
               the Primary Offering Notice; provided that, to the extent that
               the managing underwriter(s) of such primary offering advise that
               the inclusion of such additional REIT Shares will not adversely
               affect the offering, additional REIT Shares the

                                       57
<PAGE>
 
               proceeds of which are to be used to satisfy a Put
               made subject to such a Notice of Put (a "Subsequent Put")
               (without regard to the limitations of subparagraph (3) (a) of
               this paragraph G) shall be included in such offering, and the
               procedures of this Section 8.6 shall otherwise be followed as
               closely as practicable; provided, further that, unless the entire
                                       --------  ------- ----                   
               REIT Shares Amount relating to the Common Units made subject to
               the Subsequent Put shall be sold in such offering, such
               Subsequent Put shall not count as a Put for purposes of
               subparagraph (4) of this Paragraph G; and, provided, further,
                                                     ---  --------  ------- 
               that a Primary Offering Notice may be given no more than once in
               any Twelve-Month Period without the Consent of the Common Limited
               Partners.

          (6)  The General Partner may delay a Public Offering Funding, such
               that it will not occur (1) during the same Twelve-Month Period as
               the General Partner has effected a "Demand Registration" pursuant
               to the Registration Rights Agreement dated as of August 18, 1993,
               among the General Partner and certain Common Limited Partners (it
               being understood that in the event a Notice of Put is received
               prior to the receipt of requisite requests for a Demand
               Registration, such Notice of Put shall control, and vice versa)
                                                                   ---- ----- 
               or (b) within 120 days following the closing of any prior Public
               Offering Funding;

          (7)  The consummation of such Exchange or Put shall be subject to the
               expiration or termination of the applicable waiting period, if
               any, under the Hart-Scott-Rodino Antitrust Improvements Act of
               1976, as amended.

          (8)  Each Tendering Partner shall continue to own all Common Units
               subject to any Exchange or Put, and be treated as a Common
               Limited Partner with respect such Common Units for all purposes
               of this Agreement, until such Common Units are transferred to the
               General Partner and the consideration provided by this Section
               8.6 is delivered in full on the Specified Exchange Date or
               Specified Put Date, as the case may be.  Until a Specified
               Exchange Date, the Tendering Partner shall have no rights as a
               stockholder of the General Partner.

          (9)  The right of each Common Limited Partner to effect a Put shall be
               subject to the ability of the Partnership to comply with the
               terms of Section 16.2.C(i).

          For purposes of determining compliance with the restrictions set forth
          in this Paragraph G, all Common Units beneficially owned by Affiliates
          of a Common Limited Partner shall be considered to be owned or held by
          such Common 

                                       58
<PAGE>
 
          Limited Partner. In addition, (i) each lending institution, if any, to
          which Common Units are transferred upon the exercise of remedies in
          respect of a Pledge (as defined in Section 11.3.A(iii) hereof) as
          contemplated by Section 11.3.A(iii) hereof (each such lending
          institution a "Lending Institution Transferee") shall be entitled to
          exercise all rights of a Common Limited Partner under this Section 8.6
          as if such Lending Institution Transferee were a Common Limited
          Partner hereunder, provided, however, that (a) such Lending
          Institution Transferee shall not be deemed to be a Substituted Limited
          Partner for purposes of this Agreement on account of exercising its
          remedies against Partnership Units, and (b) all Lending Institution
          Transferees of all or any portion of a Limited Partner's Partnership
          Interest, together with such Common Limited Partner, shall have no
          greater rights under this Section 8.6 than are available to such
          Common Limited Partner, whether or not such Lending Institution
          Transferees act individually or jointly with each other or such Common
          Limited Partner; (ii) any two or more Lending Institution Transferees
          to which Common Units were pledged by the same Common Limited Partner
          or any of such Common Limited Partner's Affiliates may act jointly in
          exercising the rights of a Common Limited Partner under this Section
          8.6; and (iii) for purposes of determining compliance with the
          restrictions set forth in this Paragraph G, all Common Units of a
          Common Limited Partner or any of its Affiliates transferred to Lending
          Institution Transferees shall be considered to be owned or held by
          such Common Limited Partner or such Affiliate, such that the maximum
          number of Common Units as to which an Exchange or Put may be effected
          by any Lending Institution Transferee (or any two or more Lending
          Institution Transferees acting jointly) at any time shall be the
          maximum number of Common Units that such Common Limited Partner would
          then be entitled to effect if such Common Limited Partner would then
          be entitled to effect if such Partnership Interests had not been
          pledged.

          H.  Notwithstanding the provisions of this Section 8.6 permitting the
General Partner to delay a Public Offering Funding by virtue of an event
described in Section 8.6.E, the giving of a Primary Offering Notice, or a delay
referred to in Section 8.6.G.(6), the General Partner shall use its reasonable
efforts to take all such actions, as are consistent with the purposes of such
delay provisions, to effect a Public Offering Funding at the earliest time
practicable.  It is understood that such periods of delay shall run, to the
extent practicable, concurrently, and shall not limit the right of a Common
Limited Partner to deliver a Notice of Put.

          I.  In the event that the Partnership issues additional Partnership
Interests to any Additional Limited Partner pursuant to Section 4.5.D, the
General Partner shall make such revisions to this Section 8.6 as it determines
are necessary to reflect the issuance of such additional Partnership Interests.

                                       59
<PAGE>
 
          J.  In the event of a Put, the General Partner shall have the right to
assign to the Partnership, and the Partnership agrees to accept such assignment,
the right or obligation to acquire Common Units subject to a Put as described in
this Section 8.6.



                                   ARTICLE 9.
                    BOOKS, RECORDS, ACCOUNTING AND REPORTS

          Section 9.1. Records and Accounting.
                       ----------------------

          The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Sections 9.3 or Section 8.5.A.
Any records maintained by or on behalf of the Partnership in the regular course
of its business may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, micrographics or any other information storage device,
provided that the records so maintained are convertible into clearly legible
written form within a reasonable period of time.  The books of the Partnership
shall be maintained, for financial and tax reporting purposes, on an accrual
basis in accordance with generally accepted accounting principles.

          Section 9.2. Fiscal Year.
                       -----------

          The fiscal year of the Partnership shall be the calendar year.

          Section 9.3. Reports.
                       -------

          A.  As soon as practicable, but in no event later than 105 days after
the close of each Partnership Year, or such later date as they are filed with
the Securities and Exchange Commission, the General Partner shall cause to be
mailed to each Limited Partner as of the close of the Partnership Year, an
annual report containing financial statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner.

          B.  As soon as practicable, but in no event later than 105 days after
the close of each calendar quarter (except the last calendar quarter of each
year) or such later date as they are filed with the Securities and Exchange
Commission, the General Partner shall cause to be mailed to each Limited Partner
as of the last day of the calendar quarter, a report containing unaudited
financial statements of the Partnership, or of the General Partner, if such
statements 

                                       60
<PAGE>
 
are prepared solely on a consolidated basis with those of the General Partner,
in accordance with the applicable law or regulation, or as the General Partner
determines to be appropriate.


                                  ARTICLE 10.
                                  TAX MATTERS

          Section 10.1. Preparation of Tax Returns.
                        --------------------------

          The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within 90 days of the close of each
taxable year, the tax information reasonably required by Limited Partners for
federal and state income tax reporting purposes.  The Limited Partners shall
promptly provide the General Partner with such information relating to the
Contributed Properties, including tax basis and other relevant information, as
may be reasonably requested by the General Partner from time to time.

          Section 10.2. Tax Elections.
                        -------------

          Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code, including the election under Section 754 of the Code.  The
General Partner shall have the right to seek to revoke any such election
(including without limitation, any election under Section 754 of the Code) upon
the General Partner's determination in its sole and absolute discretion that
such revocation is the best interests of the Partners.

          Section 10.3. Tax Matters Partner.
                        -------------------

          A.  The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes.  Pursuant to Section 6223(c)(3) of
the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profit interest of each
of the Limited Partners; provided, however, that such information is provided to
the Partnership by the Limited Partners.

          B.  The tax matters partner is authorized, but not required:

          (1)  to enter into any settlement with the IRS with respect to any
               administrative or judicial proceedings for the adjustment of
               Partnership items required to be taken into account by a Partner
               for income tax purposes (such administrative proceedings being
               referred to as a "tax audit" and such 

                                       61
<PAGE>
 
               judicial proceedings being referred to as "judicial review"), and
               in the settlement agreement the tax matters partner may expressly
               state that such agreement shall bind all Partners, except that
               such settlement agreement shall not bind any Partner (i) who
               (within the time prescribed pursuant to the Code and Regulations)
               files a statement with the IRS providing that the tax matters
               partner shall not have the authority to enter into a settlement
               agreement on behalf of such Partner or (ii) who is a "notice
               partner" (as defined in Section 6231 of the Code) or a member of
               a "notice group" (as defined in Section 6223(b)(2) of the Code);

          (2)  in the event that a notice of a final administrative adjustment
               at the Partnership level of any item required to be taken into
               account by a Partner for tax purposes (a "final adjustment") is
               mailed to the tax matters partner, to seek judicial review of
               such final adjustment, including the filing of a petition for
               readjustment with the Tax Court or the United States Claims
               Court, or the filing of a complaint for refund with the District
               Court of the United States for the district in which the
               Partnership's principal place of business is located;

          (3)  to intervene in any action brought by any other Partner for
               judicial review of a final adjustment;

          (4)  to file a request for an administrative adjustment with the IRS
               at any time and, if any part of such request is not allowed by
               the IRS, to file an appropriate pleading (petition or complaint)
               for judicial review with respect to such request;

          (5)  to enter into an agreement with the IRS to extend the period for
               assessing any tax which is attributable to any item required to
               be taken into account by a Partner for tax purposes, or an item
               affected by such item; and

          (6)  to take any other action on behalf of the Partners of the
               Partnership in connection with any tax audit or judicial review
               proceeding to the extent permitted by applicable law or
               regulations.

          The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.

          C.  The tax matters partner shall receive no compensation for its
services.  All third party costs and expenses incurred by the tax matters
partner in performing his duties as such 

                                       62
<PAGE>
 
(including legal and accounting fees) shall be borne by the Partnership. Nothing
herein shall be construed to restrict the Partnership from engaging an
accounting firm to assist the tax matters partner in discharging his duties
hereunder, so long as the compensation paid by the Partnership for such services
is reasonable.

          Section 10.4. Organizational Expenses.
                        -----------------------

          The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a 60-month period as provided in
Section 709 of the Code.

          Section 10.5. Withholding.
                        -----------

          Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code.  Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within 15 days after notice from the General Partner that
such payment must be made unless (i) the Partnership withholds such payment from
a distribution which would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner
and shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner (including, without limitation, the right to receive
distributions). Any amounts payable by a Limited Partner hereunder shall bear
interest at the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
                                                        ------------------- 
plus four percentage points (but not higher than the maximum lawful rate) from
the date such amount is due (i.e., 15 days after demand) until such amount is
                             ----                                            
paid in full.  Each Limited Partner shall take such actions as the Partnership
or he General Partner shall request in order to perfect or enforce the security
interest created hereunder.

                                       63
<PAGE>
 
                                  ARTICLE 11.
                           TRANSFERS AND WITHDRAWALS

          Section 11.1. Transfer.
                        --------

          A.  The term "transfer," when used in this Article 11 with respect to
a Partnership Unit, shall be deemed to refer to a transaction by which the
General Partner purports to assign its General Partner Interest to another
Person or by which a Limited Partner purports to assign its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift (outright or
in trust), pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise.  Except to the extent otherwise specified, the
term "transfer" when used in this Article 11 does not include any redemption of
Common Units by the Partnership or acquisition of Common Units from a Common
Limited Partner by the General Partner pursuant to Section 8.6 or any exchange
or redemption of Series A Preferred Units pursuant to Section 16.7.  No part of
the interest of a Limited Partner shall be subject to the claims of any
creditor, any spouse for alimony or support, or to legal process, and may not be
voluntarily or involuntarily alienated or encumbered, except as may be
specifically provided for in this Agreement.

          B. No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void ab initio unless
                                                       -- ------
otherwise consented to by the General Partner in its sole and absolute
discretion.

          Section 11.2. Transfer of General Partner's Partnership Interest.
                        --------------------------------------------------

          A.  Subject to Section 11.2.B., the General Partner shall not withdraw
from the Partnership and shall not sell, assign, pledge, encumber or otherwise
dispose of all or any portion of its interest in the Partnership (whether by
sale, disposition, statutory merger or consolidation, liquidation or otherwise)
without the Consent of the Limited Partners.  Upon any transfer of such a
Partnership Interest pursuant to the Consent of the Limited Partners and
otherwise in accordance with the provisions of this Section 11.2.A, the
transferee shall become a substitute General Partner for all purposes herein,
and shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for all duties
of the General Partner, once such transferee has executed such instruments as
may be necessary to effectuate such admission and to confirm the agreement of
such transferee to be bound by all the terms and provisions of this Agreement
with respect to the Partnership Interest so acquired.  It is a condition to any
such transfer that the transferee assumes, by operation of law or express
agreement, all of the obligations of the transferor General Partner under this
Agreement with respect to such transferred Partnership Interest, and no such
transfer (other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the 

                                       64
<PAGE>
 
transferor General Partner are assumed by a successor corporation by operation
of law) shall relieve the transferor General Partner of its obligations under
this Agreement without the Consent of the Limited Partners. In the event the
General Partner withdraws from the Partnership, in violation of this Agreement
or otherwise, or otherwise dissolves or terminates, or upon the Bankruptcy of
the General Partner, a Majority In Interest of the Limited Partners may elect to
continue the Partnership business by selecting a Substitute General Partner in
accordance with the Act.

          B.  Notwithstanding any provision herein to the contrary, the General
Partner may, without the Consent of the Limited Partners, effect a transfer of
up to one-third (1/3) of its original General Partner Interest, to one or more
transferees subject to the following restrictions and limitations:

          (1)  The General Partner shall at all times after such transfer
               continue to be the sole general partner of the Partnership,
               vested with the powers and rights and liable for all obligations
               and responsible for all duties of same which powers, rights,
               obligations and duties may not be delegated or assigned;

          (2)  The transferee shall receive only the economic interest of the
               General Partnership Interest as an assignee, including the right
               to receive distributions from the Partnership and the share of
               Net Income, Net Losses, gain and loss attributable to the
               Partnership Units assigned to such transferee, but shall not be
               deemed to be a holder of Partnership Units for any other purpose
               under this Agreement, and shall not be entitled to effect a
               Consent with respect to such Partnership Units on any matter
               presented to Partners for approval and shall not be counted as a
               Limited Partner for purposes of determining the Consent of the
               Limited Partners or the Majority In Interest of the Limited
               Partners.  The transferee shall be admitted as a substitute or
               additional General Partner only upon receipt of the Consent of
               the Limited Partners therefor.

          (3)  Such transfer shall not be effected by merger, consolidation,
               liquidation, or sale of all or substantially all of the assets of
               the General Partner.

          Section 11.3. Limited Partners' Rights to Transfer.
                        ------------------------------------

          A.  Prior to the third (3rd) anniversary of the closing of the initial
public offering of REIT Shares, no Limited Partner shall transfer all or any
portion of its Partnership Interest to any transferee without the consent of the
General Partner, which consent may be withheld in its sole and absolute
discretion; provided, however, that any Limited Partner or transferee of
            --------  -------                                           
Partnership Units or Assignee may, at any time before or after such third
anniversary, without the consent of the General Partner, (i) transfer all or any
portion of its 

                                       65
<PAGE>
 
Partnership Interest to the General Partner or to the Affiliates of the
transferor or Affiliates of DGP, subject to the provisions of Section 11.6, (ii)
transfer its Partnership Interest pursuant to its rights to effect an Exchange
or a Put as provided in Section 8.6 hereof or transfer its Partnership Interest
pursuant to its rights to effect an exchange as provided in Section 16.7 and
(iii) subject to Section 11.6, pledge (a "Pledge") all or any portion of its
Partnership Interest to a lending institution which is not an Affiliate of such
Limited Partner, as collateral or security for a bona fide loan or other
extension of credit, and transfer such pledged Partnership Interest to such
lending institution in connection with the exercise of remedies under such loan
or extension or credit. After such third (3rd) anniversary, each Limited
Partner, and each transferee of Partnership Units or Assignee shall also have
the right to transfer all or any portion of its Partnership Interest to any
Person, subject to the provisions of Section 11.6 and to satisfaction of each of
the following conditions:

        (a)    General Partner Right of First Refusal.  The transferring 
               --------------------------------------                 
               Partner shall give written notice of the proposed transfer to the
               General Partner, which notice shall state (i) the identity of the
               proposed transferee, and (ii) the amount and type of
               consideration proposed to be received for the transferred
               Partnership Units. The General Partner shall have ten (10)
               Business Days upon which to give the transferring Partner notice
               of its election to acquire the Partnership Units on the proposed
               terms. If it so elects, it shall purchase the Partnership Units
               on such terms within ten (10) Business Days after giving notice
               of such election; provided, that, in the event that the proposed
                                 --------  ----   
               terms involve a purchase for cash, the General Partner may at its
               election deliver in lieu of all or any portion of such cash a
               note payable to the transferring Partner at a date as soon as
               reasonably practicable but in no event later than 180 days after
               such purchase, and bearing interest at an annual rate equal to
               the total dividends declared with respect to one REIT Share for
               the four preceding fiscal quarters of the General Partner,
               divided by the Value of a REIT Share as of the closing of such
               purchase; and, provided, further, that such closing may be
               deferred to the extent necessary to effect compliance with the
               Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
               applicable, and any other applicable requirements of law. If it
               does not so elect, the transferring Partner may transfer such
               Partnership Units to a third party, on terms no more favorable to
               the transferee than the proposed terms, subject to the other
               conditions of this Section 11.3.

        (b)    Qualified Transferee.  Any transfer of a Partnership Interest 
               --------------------     
               in Common Units shall be made only to a single Qualified 
               Transferee; provided, that, for such purposes, all Qualified
                           --------  ---- 
               Transferees which are Affiliates, or which comprise investment
               accounts or funds managed by a single Qualified Transferee and
               its Affiliates, shall be considered together to be a single

                                       66
<PAGE>
 
               Qualified Transferee; provided, further, that, each transfer 
                                     --------  -------  ----     
               meeting the minimum transfer restriction of subsection (c) below
               may be to a separate Qualified Transferee.

        (c)    Minimum Transfer Restriction.  Any transferring Common Limited 
               ----------------------------       
               Partner must transfer not less than the lesser of (i) greater of
               50,000 Common Units or one-third (1/3) of the number of Common
               Units owned by such Partner as of the Effective Date, or (ii) all
               of the remaining Common Units owned by such transferring Partner;
               provided, that, for purposes of determining compliance with the
               --------  ----                                                 
               foregoing restriction, all Common Units owned by Affiliates of a
               Common Limited Partner shall be considered to be owned by such
               Common Limited Partner.

        (d)    Transferee Agreement to Exchange.  Any proposed transferee of 
               --------------------------------       
               Common Units shall deliver to the General Partner a written
               agreement reasonably satisfactory to the General Partner to the
               effect that, subject to the ownership restrictions contained in
               the Charter, the transferee will, (i) within six (6) months after
               consummation of the Common Units transfer, Exchange its Common
               Units into REIT Shares in accordance with the terms of the
               Exchange rights provided in Section 8.6, and (ii) to the extent
               prohibited from effecting such an Exchange by virtue of such
               ownership restrictions, effect a further Exchange of Common Units
               once during each subsequent six-month period to the extent such
               ownership restrictions then permit.

        (e)    No Further Transfers.  The transferee of Common Units shall not
               --------------------       
               be permitted to effect any further transfer of the Common Units,
               other than to its own Affiliates, Affiliates of DGP or to the
               General Partner.

          It is a condition to any transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its sole and
absolute discretion.  Notwithstanding the foregoing, any transferee of any
transferred Partnership Interest shall be subject to any and all ownership
limitations contained in the Charter which may limit or restrict such
transferee's ability to exercise its Exchange rights or the exchange rights set
forth in Section 16.7.  Any transferee, whether or not admitted as a Substituted
Limited Partner, shall take subject to the obligations of the transferor
hereunder.  Unless admitted as a Substituted Limited Partner, no transferee,

                                       67
<PAGE>
 
whether by a voluntary transfer, by operation of law or otherwise, shall have
any rights hereunder, other than the rights of an Assignee as provided in
Section 11.5.

          B.  If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate, and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership.  The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.

          C.  The General Partner may prohibit any transfer otherwise permitted
under Section 11.3 by a Limited Partner of his Partnership Units if, in the
opinion of legal counsel to the Partnership, such transfer would require the
filing of a registration statement under the Securities Act by the Partnership
or would otherwise violate any federal or state securities laws or regulations
applicable to the Partnership or the Partnership Units.

          D.  No transfer by a Limited Partner of his Partnership Units
(including any Exchange or Put pursuant to Section 8.6, any redemption or
exchange pursuant to Sections 16.4 and 16.7, any other acquisition of Common
Units or Series A Preferred Units by the General Partner or the Partnership) may
be made to any person if (i) in the opinion of legal counsel for the
Partnership, it could result in the Partnership being treated as an association
taxable as a corporation, or (ii) such transfer is effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.

          E.  No transfer of any Partnership Units may be made to a lender to
the Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion; provided that, as a condition to such
                                     -------- ----                        
consent, the lender will be required to enter into an arrangement with the
Partnership and the General Partner to redeem or exchange for the REIT Shares
Amount or the specified amount of REIT Series A Preferred Shares, as the case
may be, any Partnership Units in which a security interest is held
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.

          Section 11.4. Substituted Limited Partners.
                        ----------------------------

          A.  No Limited Partner shall have the right to substitute a transferee
(including transferees pursuant to transfers permitted by Section 11.3) as a
Limited Partner in his place.  The General Partner shall, however, have the
right to consent to the admission of a transferee of the interest of a Limited
Partner pursuant to this Section 11.4 as a Substituted Limited Partner, 

                                       68
<PAGE>
 
which consent may be given or withheld by the General Partner in its sole and
absolute discretion. The General Partner's failure or refusal to permit a
transferee of any such interests to become a Substituted Limited Partner shall
not give rise to any cause of action against the Partnership or any Partner.

          B.  A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement. The admission of any transferee as a Substituted Limited
Partner shall be subject to the transferee executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
(including without limitation, the provisions of Section 12.4 and such other
documents or instruments as may be required to effect the admission, each in
form and substance satisfactory to the General Partner) and the acknowledgment
by such transferee that each of the representations and warranties set forth in
Section 3.4 hereof are true and correct with respect to such transferee as of
the date of the transfer of the Partnership Interest to such transferee and will
continue to be true to the extent required by such representations or
warranties.

          C.  Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.

          Section 11.5. Assignees.
                        ---------

          If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement.  An Assignee shall be
entitled to all the rights of an assignee of a limited partnership interest
under the Act, including the right to receive distributions from the Partnership
and the share of Net Income, Net Losses, gain and loss attributable to the
Partnership Units assigned to such transferee, the rights to transfer the
Partnership Units provided in this Article 11, the rights to effect an Exchange
or a Put provided in Section 8.6 and the right of redemption or exchange for
REIT Series A Preferred Shares provided in Section 16.7, but shall not be deemed
to be a holder of Partnership Units for any other purpose under this Agreement,
and shall not be entitled to effect a Consent with respect to such Partnership
Units on any matter presented to the Limited Partners for approval (such Consent
remaining with the transferor Limited Partner).  In the event any such
transferee desires to make a further assignment of any such Partnership Units,
such transferee shall be subject to all the provisions of this Article 11 to the
same extent and in the same manner as any Limited Partner desiring to make an
assignment of Partnership Units. Notwithstanding anything contained in this
Agreement to the contrary, as a condition to becoming an Assignee, any
prospective Assignee must first execute and deliver to the Partnership an
acknowledgment that each of the representations and warranties set forth in
Section 3.4 hereof 

                                       69
<PAGE>
 
are true and correct with respect to such prospective Assignee as of the date of
the prospective assignment of the Partnership Interest to such prospective
Assignee and will continue to be true to the extent required by such
representations or warranties.

          Section 11.6. General Provisions.
                        ------------------

          A.  No Limited Partner may withdraw from the Partnership other than
(i) as a result of a permitted transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11, with respect to which the
transferee becomes a Substituted Limited Partner, or (ii) pursuant to an
Exchange or a Put of all of its Common Units under Section 8.6 or a redemption
or exchange of all of such Limited Partner's Series A Preferred Units under
Section 16.4 or Section 16.7.

          B.  Any Limited Partner who shall transfer all of his Partnership
Units in a transfer permitted pursuant to this Article 11 where such transferee
was admitted as a Substituted Limited Partner or pursuant to the exercise of its
rights of Exchange or Put of all of its Partnership Units under Section 8.6 or
its rights of redemption or exchange of all of its Series A Preferred Units
under Section 16.7 shall cease to be a Limited Partner.

          C.  Transfers pursuant to this Article 11 may only be made as of the
first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise consents, which shall not be unreasonably withheld.

          D.  If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 or exchanged or redeemed pursuant to Sections 8.6,
16.4 or 16.7, on any day other than the first day of a Partnership Year, then
Net Income, Net Losses, each item thereof and all other items attributable to
such Partnership Interest for such fiscal year shall be divided and allocated
between the transferor Partner and the transferee Partner by taking into account
their varying interests during the fiscal year in accordance with Section 706(d)
of the Code, using the interim closing of the books method.  Except as otherwise
required by Section 706(d) of the Code, solely for purposes of making such
allocations, each of such items for the calendar month in which the transfer or
assignment occurs shall be allocated to the Person who is a Partner as of
midnight on the last day of said month and none of such items for the calendar
month in which a redemption or exchange occurs will be allocated to the
redeeming or exchanging Partner.  All distributions of Available Cash with
respect to which the Partnership Record Date is before the date of such
transfer, assignment, exchange or redemption shall be made to the transferor
Partner, and all distributions of Available Cash thereafter, in the case of a
transfer or assignment other than an exchange or redemption, shall be made to
the transferee Partner.

          E.  In addition to any other restrictions on transfer herein
contained, including without limitation the provisions of this Article 11 and
Section 12.4, in no event may any transfer 

                                       70
<PAGE>
 
or assignment of a Partnership Interest by any Partner (including any Exchange,
Put, redemption of Series A Preferred Units or exchange of Series A Preferred
Units for REIT Series A Preferred Shares, or any other acquisition of Common
Units or Series A Preferred Units by the Partnership or the General Partner) be
made (i) to any person or entity who lacks the legal right, power or capacity to
own a Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest, (iv) in the event such transfer would cause the General
Partner to cease to comply with the REIT Requirements; (v) if such transfer
would cause a termination of the Partnership for federal or state income tax
purposes (except as a result of an Exchange or Put, or redemption or exchange
for cash or REIT Series A Preferred Shares pursuant to Sections 16.4 and 16.7,
of all Partnership Units held by all Limited Partners); (vi) if such transfer
would, in the opinion of counsel to the Partnership, cause the Partnership to
cease to be classified as a partnership for Federal or state income tax purposes
(except as a result of the Exchange or Put, and redemption or exchange for cash
or REIT Series A Preferred Shares pursuant to Sections 16.4 and 16.7, of all
Partnership Units held by all Limited Partners); (vii) if such transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in Section 3(14)
of ERISA) or a "disqualified person" (as defined in Section 4975(c) of the
Code); (viii) if such transfer would, in the opinion of counsel to the
Partnership, cause any portion of the assets of the Partnership to constitute
assets of any employee benefit plan pursuant to Department of Labor Regulations
Section 2510.2-101; (ix) if such transfer requires the registration of such
Partnership Interest, or requires the registration of the exchange of such
Partnership Interest for any capital stock of the General Partner, pursuant to
any applicable federal or state securities laws (other than pursuant to any
applicable registration rights agreement); (x) if such transfer is effectuated
through an "established securities market" or a "secondary market" (or the
substantial equivalent thereof) within the meaning of Section 7704 of the Code
or such transfer could cause the Partnership to become a "Publicly Traded
Partnership," as such term is defined in Sections 469(k)(2) or 7704(b) of the
Code; (xi) if such transfer subjects the Partnership to be regulated under the
Investment Company Act of 1940, the Investment Advisors Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended; (xii) if the
transferee or assignee of such Partnership Interest is unable to make the
representations set forth in Section 3.4 or such transfer could otherwise
adversely affect the ability of the General Partner to remain qualified as a
REIT; or (xiii) if in the opinion of legal counsel for the Partnership such
transfer would adversely affect the ability of the General Partner to continue
to qualify as a REIT or subject the General Partner to any additional taxes
under Section 857 or Section 4981 of the Code.

          F.  The General Partner shall monitor the transfers of interests in
the Partnership (including any Exchange, Put, redemption of Series A Preferred
Units or exchange of Series A Preferred Units for REIT Series A Preferred
Shares, or any other acquisition of Common Units or Series A Preferred Units by
the Partnership or the General Partner) to determine (i) if such interests are
being traded on an "established securities market" or a "secondary market (or
the substantial equivalent thereof)" within the meaning of Section 7704 of the
Code, and (ii) whether 

                                       71
<PAGE>
 
such transfers of interests would result in the Partnership being unable to
qualify for at least one of the "safe harbors" set forth in Regulations Section
1.7704-1 or such other applicable guidance published by the IRS setting forth
safe harbors under which interests will not be treated as "readily tradable on a
secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code including, without limitation, IRS Notice 88-75, to the
extent applicable (the "Safe Harbors"). The General Partner shall have the
authority, in its sole discretion, to take all steps reasonably necessary or
appropriate to prevent any trading of interests or any recognition by the
Partnership of such transfers and to insure that at least one of the Safe
Harbors is met.


                                  ARTICLE 12.
                             ADMISSION OF PARTNERS

          Section 12.1. Admission of Successor General Partner.
                        --------------------------------------

A successor to all of the General Partner's General Partner Interest pursuant to
Section 11.2 hereof who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as the General Partner effective
upon such transfer.  Any such transferee shall carry on the business of the
Partnership without dissolution.  In each case, the admission shall be subject
to the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.  In the
case of such admission on any day other than the first day of a Partnership
Year, all items attributable to the General Partner Interest for such
Partnership Year shall be allocated between the transferring General Partner and
such successor as provided in Article 11 hereof.

          Section 12.2. Admission of Additional Limited Partners.
                        ----------------------------------------

          A.  A Person (other than an existing Partner) who makes a Capital
Contribution to the Partnership in accordance with this Agreement shall be
admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance in form
satisfactory to the General Partner of all of the terms and conditions of this
Agreement, including, without limitation, the power of attorney granted in
Section 2.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.

          B.  Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion (it being understood that such consent is
hereby granted with respect to all signatories of this Agreement).  The
admission of any Person as an Additional Limited Partner shall become 

                                       72
<PAGE>
 
effective on the date upon which the name of such Person is recorded on the
books and records of the Partnership, following the receipt of the Capital
Contribution in respect of such Limited Partner, the documents set forth in
Paragraph A of this Section 12.2 hereof and the consent of the General Partner
to such admission. If any Additional Limited Partner is admitted to the
Partnership on any day other than the first day of a Partnership Year, then Net
Income, Net Losses, each item thereof and all other items allocable among
Partners and Assignees for such Partnership Year shall be allocated among such
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing books method. Solely for purposes
of making such allocations, each of such items for the calendar month in which
an admission of an Additional Limited Partner occurs shall be allocated among
all the Partners and Assignees including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner (other than in its capacity
as an Assignee) and except as otherwise agreed to by the Additional Limited
Partners and the General Partner, and all distributions of Available Cash
thereafter shall be made to all Partners and Assignees including such Additional
Limited Partner.

          Section 12.3. Amendment of Agreement and Certificate of Limited
                        -------------------------------------------------
Partnership.
- -----------
  
          For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.

          Section 12.4. Limit on Number of Partners.
                        ---------------------------

          The Partnership shall not at any time have more than 100 Partners
(including as Partners those persons indirectly owning an interest in the
Partnership through a partnership, limited liability company, S corporation or
grantor trust (such entity, a "flow through entity"), but only if substantially
all of the value of such person's interest in the flow through entity is
attributable to the flow through entity's interest (direct or indirect) in the
Partnership).


                                  ARTICLE 13.
                          DISSOLUTION AND LIQUIDATION

          Section 13.1. Dissolution.
                        -----------

          The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement.  Upon
the withdrawal of the General Partner, any

                                       73
<PAGE>
 
successor General Partner shall continue the business of the Partnership.  The
Partnership shall dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following ("Liquidating Events"):

          A.  the expiration of its term as provided in Section 2.5 hereof;

          B.  an event of withdrawal of the General Partner, as defined in the
Act, unless, within 90 days after the withdrawal, a Majority in Interest of the
Limited Partners and at least a Majority in Interest of all the remaining
partners agree in writing, in their sole and absolute discretion, to continue
the business of the Partnership and to the appointment, effective as of the date
of withdrawal, of a substitute General Partner;

          C.  an election to dissolve the Partnership made by the General
Partner, subject to the Consent of the Limited Partners;

          D.  entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;

          E.  the sale of all or substantially all of the assets and properties
of the Partnership;

          F.  a bankruptcy of the General Partner within the meaning of the Act,
unless a majority in interest of the remaining Partners agree in writing to
continue the business of the Partnership and to the appointment, effective as of
a date prior to the date of such bankruptcy, of a substitute General Partner; or

          G.  the Exchange, Put or other redemption or exchange for REIT Shares
or REIT Series A Preferred Shares of all Partnership Units (other than those of
the General Partner) pursuant to this Agreement.

          Section 13.2. Winding Up.
                        ----------

          A.  Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner (or, in the event there is no remaining General Partner, any
Person elected by a Majority in Interest of the Limited Partners (the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and distributed
in the following order:

                                       74
<PAGE>
 
          (1)  First, to the payment and discharge of or provision for all of
               the Partnership's debts and liabilities to creditors other than
               the Partners;

          (2)  Second, to the payment and discharge of or provision for all of
               the Partnership's debts and liabilities to the General Partner;

          (3)  Third, to the payment and discharge of or provision for all of
               the Partnership's debts and liabilities to the other Partners;
               and

          (4)  The balance, if any, to the General Partner and Limited Partners
               in accordance with their positive Capital Account balances,
               determined after taking into account all Capital Account
               adjustments for the Partnership taxable year during which the
               liquidation occurs (other than those made as a result of the
               liquidating distribution set forth in this Section 13.2.A(4)).

The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4.

          B.  Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time.  The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.

          Section 13.3. Compliance with Timing Requirements of Regulations.
                        --------------------------------------------------

          In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in his Capital Account (after giving effect
to all contributions, distributions and allocations for the taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, 

                                       75
<PAGE>
 
and such deficit shall not be considered a debt owed to the Partnership or to
any other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article 13 may be:

          (A) distributed to a trust established for the benefit of the General
Partner and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership.  The assets of any
such trust shall be distributed to the General Partner and Limited Partners from
time to time, in the reasonable discretion of the General Partner, in the same
proportions and the amount distributed to such trust by the Partnership would
otherwise have been distributed to the General partner and Limited Partners
pursuant to this Agreement; or

          (B) withheld to provide a reasonable reserve for partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.

          Section 13.4. Deemed Distribution and Recontribution.
                        --------------------------------------

          If the Partnership is liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) and no Liquidating Event has occurred, and is
continuing, the Partnership property shall not be liquidated, the Partnership's
debts and liabilities shall not be paid or discharged (except to the extent due
and payable in the ordinary course) and the Partnership's affairs shall not be
wound up.  Instead, solely for federal income tax purposes, the Partnership
shall be deemed to have contributed the Partnership property in-kind to a "new
partnership," which shall be deemed to have taken the Partnership property
subject to all debts and liabilities of the Partnership.  Immediately
thereafter, the Partnership shall be deemed to have been liquidated,
distributing new partnership interests to the Partners, all in accordance with
their respective Capital Accounts.  The new partnership shall operate in
accordance with this Agreement.

          Section 13.5. Rights of Limited Partners.
                        --------------------------

          Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of his Capital
Contribution and shall have no right or power to demand or receive property from
the General Partner.  Except as expressly set forth herein with respect to the
rights, priorities and preferences of the Preferred Limited Partners holding any
series of Preferred Units, no Limited Partner shall have priority over any other
Limited Partner as to the return of his Capital Contributions, distributions or
allocations.

          Section 13.6. Notice of Dissolution.
                        ---------------------

                                       76
<PAGE>
 
          In the event a Liquidating Event occurs or an event occurs that would,
but for provisions of Section 13.1, result in a dissolution of the Partnership,
the General Partner shall, within 30 days thereafter, provide written notice
thereof to each of the Partners and to all other parties with whom the
Partnership regularly conducts business (as determined in the discretion of the
General Partner) and shall publish notice thereof in a newspaper of general
circulation in each place in which the Partnership regularly conducts business
(as determined in the discretion of the General Partner).

          Section 13.7. Cancellation of Certificate of Limited Partnership.
                        --------------------------------------------------

          Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken.

          Section 13.8. Reasonable Time for Winding-Up.
                        ------------------------------

          A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.

          Section 13.9. Waiver of Partition.
                        -------------------

          Each Partner hereby waives any right to partition of the Partnership
property.



                                  ARTICLE 14.
                PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS

          Section 14.1. Procedures For Actions And Consents of Partners.
                        -----------------------------------------------

          A.  The actions requiring consent or approval of the Partners or of
the Limited Partners pursuant to this Agreement, including Sections 7.3 and
16.5, or otherwise pursuant to applicable law, are subject to the following
procedures.

          B.  Amendments to this Agreement requiring the consent or approval of
Limited Partners may be proposed by the General Partner or by any Limited
Partners holding 25 percent or more of the Partnership Units held by Limited
Partners.  Following such proposal, the General Partner shall submit any
proposed amendment to the Partners or to the Limited Partners, as appropriate.
The General Partner shall seek the written consent or approval of the Partners
or 

                                       77
<PAGE>
 
of the Limited Partners on the proposed amendment or shall call a meeting to
vote thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written consent, the General Partner may require a
response within a reasonable specified time, but not less than 15 days, and
failure to respond in such time period shall constitute a consent which is
consistent with the General Partner's recommendation (if so recommended) with
respect to the proposal; provided, that, an action shall become effective at
                         --------  ----                                     
such time as requisite consents are received even if prior to such specified
time.  The Series A Limited Partners agree not to object to any amendment
proposed after December 31, 1998 to one or more of Section 11.3.D, 11.6.E and
12.4 that is deemed appropriate or necessary by the General Partner in its sole
and absolute discretion, it being understood that no such amendment would itself
cause the Series A Limited Partners to be in violation of the Agreement.

          C.  Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Common Limited Partners holding 25 percent or more of the Partnership Interests
held by Common Limited Partners.  The call shall state the nature of the
business to be transacted.  Notice of any such meeting shall be given to all
Partners not less than seven days nor more than 30 days prior to the date of
such meeting.  Partners may vote in person or by proxy at such meeting.
Whenever the vote of the Percentage Interests of the Partners or Consent of the
Limited Partners is permitted or required under this Agreement, such vote or
Consent may be given at a meeting of Partners or may be given in accordance with
the procedure prescribed in Section 14.1.D.

          D.  Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by the percentage as is expressly required by this
Agreement for the action in question. Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of
the Percentage Interests of the Partners (expressly required by this Agreement).
Such consent shall be filed with the General Partner. An action so taken shall
be deemed to have been taken at a meeting held on the effective date so
certified.

          E.  Each Limited Partner may authorize any Person or Persons to act
for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting.  Every proxy must be signed by the Limited Partner or his
attorney-in-fact.  No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy.  Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.

          F.  Each meeting of Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate.


                                 ARTICLE 15. 

                                       78
<PAGE>
 
                              GENERAL PROVISIONS

          Section 15.1. Addresses and Notice.
                        --------------------

          Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication (including
by telecopy, facsimile, or commercial courier service) to the Partner or
Assignee at the address set forth in Exhibit A or such other address as the
Partners shall notify the General Partner in writing.

          Section 15.2. Titles and Captions.
                        -------------------

          All article or section titles or captions in this Agreement are for
convenience only.  They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.

          Section 15.3. Pronouns and Plurals.
                        --------------------

          Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.

          Section 15.4. Further Action.
                        --------------

          The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.

          Section 15.5. Binding Effect.
                        --------------

          This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.

          Section 15.6. Creditors.
                        ---------

          Other than as expressly set forth herein with respect to Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.

          Section 15.7. Waiver.
                        ------

                                       79
<PAGE>
 
          No failure or delay by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon any breach thereof shall constitute waiver
of any such breach or any other covenant, duty, agreement or condition,

          Section 15.8.  Counterparts.
                         ------------

          This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.

          Section 15.9.  Applicable Law.
                         --------------

          This Agreement shall be construed in accordance with and governed by
the laws (other than the law governing the choice of law) of the State of
Delaware, without regard to the principles of conflicts of law.  In the event of
a conflict between any provision of this Agreement and any non-mandatory
provision of the Act, the provisions of this Agreement shall control and take
precedence.

          Section 15.10. Invalidity of Provisions.
                         ------------------------

          If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.

          Section 15.11. Limitation to Preserve REIT Status.
                         ----------------------------------

          To the extent that any amount paid or credited to the General Partner
or its officers, directors, employees or agents pursuant to Section 7.4 or
Section 7.7 would constitute gross income to the General Partner for purposes of
Sections 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then,
notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:

              (i)  an amount equal to the excess, if any, of (a) 4.17% of the
     General Partner's total gross income (but not including the amount of any
     General Partner Payments) for the fiscal year which is described in
     subsections (A) through (H) of Section 856(c)(2) of the Code over (b) the
     amount of gross income (within the meaning of Section 856(c)(2) of the
     Code) derived by the General Partner from sources other than those
     described in subsections (A) through (H) of Section 856(c)(2) of the Code
     (but not including the amount of any General Partner Payments); or

              (ii) an amount equal to the excess, if any, of (a) 25% of the
     General 

                                       80
<PAGE>
 
     Partner's total gross income (but not including the amount of any General
     Partner Payments) for the fiscal year which is described in subsections (A)
     through (I) of Section 856(c)(3) of the Code over (b) the amount of gross
     income (within the meaning of Section 856(c)(3) of the Code) derived by the
     General Partner from sources other than those described in subsections (A)
     through (I) of Section 856(c)(3) of the Code (but not including the amount
     of any General Partner Payments);

provided, however, that General Partner Payments in excess of the amounts set
- --------  -------                                                            
forth in subparagraphs (i) and (ii) above may be made if the General Partner, as
a condition precedent, obtains an opinion of tax counsel that the receipt of
such excess amounts would not adversely affect the General Partner's ability to
qualify as a REIT.  To the extent General Partner Payments may not be made in a
year due to the foregoing limitations, such General Partner Payments shall carry
over and be treated as arising in the following year, provided, however, that
                                                      --------  -------      
such amounts shall not carry over for more than five years, and if not paid
within such five year period, shall expire; provided further, that (i) as
                                            -------- -------             
General Partner Payments are made, such payments shall be applied first to carry
over amounts outstanding, if any, and (ii) with respect to carry over amounts
for more than one Partnership Year, such payments shall be applied to the
earliest Partnership Year first.

          Section 15.12. Partition
                         ---------

          No Partner nor any successor-in-interest to a Partner shall have the
right while this Agreement remains in effect to have any property of the
Partnership partitioned, or to file a complaint or to institute any proceeding
at law or in equity to have such property of the Partnership partitioned, and
each Partner, on behalf of itself and its successors and assigns hereby waives
any such right.  It is the intention of the Partners that the rights of the
parties hereto and their successors-in-interest to Partnership Property, as
among themselves, shall be governed by the terms of this Agreement, and that the
rights of the Partners and their successors-in-interest shall be subject to the
limitations and restrictions as set forth in this Agreement.

          Section 15.13. No Third-Party Rights Created Hereby
                         ------------------------------------

          The provisions of this Agreement are solely for the purpose of
defining the interests of the Partners, inter se; and no other person, firm or
                                        ----- --                              
entity (i.e., a party who is not a signatory hereto or a permitted successor to
        ----                                                                   
such signatory hereto) shall have any right, power, title or interest by way of
subrogation or otherwise, in and to the rights, powers, title and provisions of
this Agreement.

          Section 15.14. Entire Agreement. This Agreement (together with the 
                         ----------------
Contribution Agreement as to rights and obligations in respect of the Series A
Preferred Units) contains the entire understanding and agreement among the
Partners with respect to the subject

                                       81
<PAGE>
 
matter hereof and supersedes any other prior written or oral understandings or
agreements among them with respect thereto.


                                    ARTICLE 16.
                           SERIES A PREFERRED UNITS

          Section 16.1. Designation and Number
                        ----------------------

          A series of Partnership Units in the Partnership designated as 8%
Series A Cumulative Redeemable Preferred Units (the "Series A Preferred Units")
                                                     ------------------------  
is hereby established.  The number of Series A Preferred Units shall be
1,200,000.

          Section 16.2. Distributions
                        -------------

          A.  Payment of Distributions.  Subject to the rights of holders of
              ------------------------                                      
Parity Preferred Units as to the payment of distributions, pursuant to Section
5.1 hereof, holders of Series A Preferred Units will be entitled to receive,
when, as and if declared by the Partnership acting through the General Partner,
out of Available Cash, cumulative preferential cash distributions at the rate
per annum of 8% of the original Capital Contribution per Series A Preferred
Unit.  Such distributions shall be cumulative, shall accrue from the original
date of issuance and will be payable (A) quarterly in arrears on or before
February 15, May 15, August 15 and November 15 of each year, commencing on May
15, 1998, and, (B) in the event of (i) an exchange of Series A Preferred Units
into REIT Series A Preferred Shares, or (ii) a redemption of Series A Preferred
Units, on the exchange date or redemption date, as applicable (each a "Preferred
                                                                       ---------
Unit Distribution Payment Date").  The amount of the distribution payable for
- ------------------------------                                               
any period will be computed on the basis of a 360-day year of twelve 30-day
months and for any period shorter than a full quarterly period for which
distributions are computed, the amount of the distribution payable will be
computed on the basis of the actual number of days elapsed in such a 30-day
month.  If any date on which distributions are to be made on the Series A
Preferred Units is not a Business Day, then payment of the distribution to be
made on such date will be made on the next succeeding day that is a Business Day
(and without any interest or other payment in respect of any such delay) except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date.  Distributions on the Series A
Preferred Units will be made to the holders of record of the Series A Preferred
Units on the relevant record dates, which will be fifteen (15) days prior to the
relevant Preferred Unit Distribution Payment Date (the "Preferred Unit
                                                        --------------
Partnership Record Date").
- -----------------------   

          B.  Distributions Cumulative.  Notwithstanding the foregoing,
              ------------------------                                 
distributions on the Series A Preferred Units will accrue whether or not the
terms and provisions of any agreement of the Partnership at any time prohibit
the current payment of distributions, whether or not the Partnership has
earnings, whether or not there are funds legally available for the payment

                                       82
<PAGE>
 
of such distributions and whether or not such distributions are authorized.
Accrued but unpaid distributions on the Series A Preferred Units will accumulate
as of the Preferred Unit Distribution Payment Date on which they first become
payable. Accumulated and unpaid distributions will not bear interest.

          C.  Priority as to Distributions. So long as any Series A Preferred 
              ---------------------------- 

Units are outstanding, no distribution of cash or other property shall be
authorized, declared, paid or set apart for payment on or with respect to any
class or series of Partnership Interest of the Partnership ranking junior as to
the payment of distributions to the Series A Preferred Units (collectively,
"Junior Units"), nor shall any cash or other property (other than capital stock 
 ------------                      
of the General Partner which corresponds in ranking to the Partnership Interests
being acquired) be set aside for or applied to the purchase, redemption or other
acquisition for consideration of any Series A Preferred Units, any Parity
Preferred Units with respect to distributions or any Junior Units, unless, in
each case, all distributions accumulated on all Series A Preferred Units and all
classes and series of outstanding Parity Preferred Units as to payment of
distributions have been paid in full. The foregoing sentence will not prohibit
(a) distributions payable solely in Junior Units, (b) the exchange of Junior
Units or Parity Preferred Units into Partnership Interests of the Partnership
ranking junior to the Series A Preferred Units as to distributions, (c) the
redemption of Partnership Interests corresponding to REIT Series A Preferred
Shares, Parity Preferred Stock with respect to distributions or Junior Stock to
be purchased by the General Partner pursuant to the Charter with respect to the
General Partner's common stock and comparable charter provisions with respect to
other classes or series of capital stock of the General Partner to preserve the
General Partner's status as a real estate investment trust, provided that such
redemption shall be upon the same terms as the corresponding purchase pursuant
to Article IV of the Charter or such other comparable provisions, (d) the
acquisition of Common Units upon exercise of Put rights pursuant to Section 8.6
(i) with the proceeds of a sale of Common Units or other Junior Units by the
Partnership or proceeds received from the General Partner upon a sale of REIT
Shares or other Junior Stock by the General Partner or (ii) for cash in an
amount, which, when taken together with the aggregate amount of all cash paid
previously pursuant to this clause (ii), does not exceed $5.0 million, or (e)
cash distributions from the proceeds of sales of property of the Partnership
pursuant to Section 7.1.A(3).

          (ii) So long as distributions have not been paid in full (or a sum
sufficient for such full payment is not irrevocably deposited in trust for
payment) upon the Series A Preferred Units, all distributions authorized and
declared on the Series A Preferred Units and all classes or series of
outstanding Parity Preferred Units with respect to distributions shall be
authorized and declared so that the amount of distributions authorized and
declared per Series A Preferred Unit and such other classes or series of Parity
Preferred Units shall in all cases bear to each other the same ratio that
accrued distributions per Series A Preferred Unit and such other classes or
series of Parity Preferred Units (which shall not include any accumulation in
respect of unpaid distributions for prior distribution periods if such class or
series of Parity Preferred Units do not have cumulative distribution rights)
bear to each other.

                                       83
<PAGE>
 
          (iii) Notwithstanding anything to the contrary set forth herein,
distributions on Partnership Interests held by either (a) the General Partner or
(b) any other holder of Partnership Interest in the Partnership, in each case
ranking junior to or on parity with the Series A Preferred Units may be made,
without preserving the priority of distributions described in Sections 16.2.C(i)
and (ii), but only to the extent such distributions are required to preserve the
real estate investment trust status of the General Partner and, in addition, in
the case of any holder other than the General Partner only to the extent
required by the Partnership Agreement.

          D.  No Further Rights.  Holders of the Series A Preferred Units shall
              -----------------                                                
not be entitled to any distributions, whether payable in cash, other property or
otherwise, in excess of the full cumulative distributions described herein.

          Section 16.3. Liquidation Proceeds
                        --------------------

          A.  Upon voluntary or involuntary liquidation, dissolution or winding-
up of the Partnership, distributions on the Series A Preferred Units shall be
made in accordance with Article 13 of the Partnership Agreement.

          B.  Notice.  Written notice of any such voluntary or involuntary
              ------                                                      
liquidation, dissolution or winding-up of the Partnership, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by (i) fax and (ii) by first
class mail, postage pre-paid, not less than 30 and not more that 60 days prior
to the payment date stated therein, to each record holder of the Series A
Preferred Units at the respective addresses of such holders as the same shall
appear on the transfer records of the Partnership.

          C.  No Further Rights.  After payment of the full amount of the
              -----------------                                          
liquidating distributions to which they are entitled, the holders of Series A
Preferred Units will have no right or claim to any of the remaining assets of
the Partnership.

          D.  Consolidation, Merger or Certain Other Transactions.  The
              ---------------------------------------------------      
consolidation or merger or other business combination of the Partnership with or
into any corporation, trust or other entity (or of any corporation, trust or
other entity with or into the Partnership) shall not be deemed to constitute a
liquidation, dissolution or winding-up of the Partnership.

          Section 16.4. Optional Redemption
                        -------------------

          A.  Right of Optional Redemption. The Series A Preferred Units may not
              ----------------------------                                      
be redeemed prior to the fifth anniversary of the issuance date. On or after
such date, the Partnership shall have the right to redeem the Series A Preferred
Units, in whole or in part, at any time or from time to time, upon not less than
30 nor more than 60 days' written notice, at a redemption price, payable in
cash, equal to the Capital Account balance of the holder of Series A Preferred
Units (the "Redemption Price"); provided, however, that no redemption pursuant
            ----------------   
to 

                                       84
<PAGE>
 
this Section 16.4 will be permitted if the Redemption Price does not equal or
exceed the original Capital Contribution of such holder plus the cumulative
Priority Return to the redemption date to the extent not previously distributed.
If fewer than all of the outstanding Series A Preferred Units are to be
redeemed, the Series A Preferred Units to be redeemed shall be selected pro rata
(as nearly as practicable without creating fractional units).

          B.  Limitation on Redemption. (i) The Redemption Price of the Series A
              ------------------------ 

Preferred Units (other than the portion thereof consisting of accumulated but
unpaid distributions) will be payable solely out of the sale proceeds of capital
stock of the General Partner, which will be contributed by the General Partner
to the Partnership as additional capital contribution, or out of the sale of
limited partner interests in the Partnership and from no other source. For
purposes of the preceding sentence, "capital stock" means any equity securities
(including Common Stock and Preferred Stock (as such terms are defined in the
Charter)), shares, participation or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities) or options to purchase any of the foregoing.

          (ii) The Partnership may not redeem fewer than all of the outstanding
Series A Preferred Units unless all accumulated and unpaid distributions have
been paid on all Series A Preferred Units for all quarterly distribution periods
terminating on or prior to the date of redemption.

          C.  Procedures for Redemption. (i)  Notice of redemption will be (i)
              ------------------------- 
faxed, and (ii) mailed by the Partnership, by certified mail, postage prepaid,
not less than 30 nor more than 60 days prior to the redemption date, addressed
to the respective holders of record of the Series A Preferred Units at their
respective addresses as they appear on the records of the Partnership. No
failure to give or defect in such notice shall affect the validity of the
proceedings for the redemption of any Series A Preferred Units except as to the
holder to whom such notice was defective or not given. In addition to any
information required by law, each such notice shall state: (a) the redemption
date, (b) the Redemption Price, (c) the aggregate number of Series A Preferred
Units to be redeemed and if fewer than all of the outstanding Series A Preferred
Units are to be redeemed, the number of Series A Preferred Units to be redeemed
held by such holder, which number shall equal such holder's pro rata share
(based on the percentage of the aggregate number of outstanding Series A
Preferred Units that the total number of Series A Preferred Units held by such
holder represents) of the aggregate number of Series A Preferred Units to be
redeemed, (d) the place or places where such Series A Preferred Units are to be
surrendered for payment of the Redemption Price, (e) that distributions on the
Series A Preferred Units to be redeemed will cease to accumulate on such
redemption date and (f) that payment of the Redemption Price will be made upon
presentation and surrender of such Series A Preferred Units.

                                       85
<PAGE>
 
          (ii) If the Partnership gives a notice of redemption in respect of
Series A Preferred Units (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Partnership will deposit
irrevocably in trust for the benefit of the holders of the Series A Preferred
Units being redeemed funds sufficient to pay the applicable Redemption Price and
will give irrevocable instructions and authority to pay such Redemption Price to
the holders of the Series A Preferred Units upon surrender of the Series A
Preferred Units by such holders at the place designated in the notice of
redemption.  On and after the date of redemption, distributions will cease to
accumulate on the Series A Preferred Units or portions thereof called for
redemption, unless the Partnership defaults in the payment thereof.  If any date
fixed for redemption of Series A Preferred Units is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date fixed for redemption.  If payment of the Redemption Price is improperly
withheld or refused and not paid by the Partnership, distributions on such
Series A Preferred Units will continue to accumulate from the original
redemption date to the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating the
applicable Redemption Price.

          Section 16.5. Voting Rights
                        -------------

          A.  General.  Holders of the Series A Preferred Units will not have
              -------                                                         
any voting rights or right to consent to any matter requiring the consent or
approval of the Limited Partners, except as set forth below and in Sections
7.3.D.

          B.  Certain Voting Rights.  So long as any Series A Preferred Units
              ---------------------                                          
remains outstanding, the Partnership shall not, without the affirmative vote of
the holders of at least two-thirds of the Series A Preferred Units outstanding
at the time (i) authorize or create, or increase the authorized or issued amount
of, any class or series of Partnership Interests ranking senior to the Series A
Preferred Units with respect to payment of distributions or rights upon
liquidation, dissolution or winding-up or reclassify any Partnership Interests
of the Partnership into any such Partnership Interest, or create, authorize or
issue any obligations or security convertible into or evidencing the right to
purchase any such Partnership Interests, (ii) authorize or create, or increase
the authorized or issued amount of any Parity Preferred Units or reclassify any
Partnership Interest of the Partnership into any such Partnership Interest or
create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such Partnership Interests, but only to the
extent such Parity Preferred Units are issued to an affiliate of the
Partnership, other than the General Partner to the extent the issuance of such
interests was to allow the General Partner to issue corresponding preferred
stock to persons who are not affiliates of the Partnership or (iii) either
consolidate, merge into or with, or convey, transfer or lease its assets
substantially as an entirety to, any corporation or other entity or amend, alter
or

                                       86
<PAGE>
 
repeal the provisions of the Partnership Agreement (including, without
limitation, this Article 16), whether by merger, consolidation or otherwise, in
each case in a manner that would materially and adversely affect the powers,
special rights, preferences, privileges or voting power of the Series A
Preferred Units or the holders thereof; provided, however, that with respect to
the occurrence of any event set forth in (iii) above, so long as (a) the
Partnership is the surviving entity and the Series A Preferred Units remain
outstanding with the terms thereof unchanged, or (b) the resulting, surviving or
transferee entity is a partnership, limited liability company or other pass-
through entity organized under the laws of any state and substitutes, for the
Series A Preferred Units, other interests in such entity having substantially
the same terms and rights as the Series A Preferred Units, including with
respect to distributions, voting rights and rights upon liquidation, dissolution
or winding-up, then the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, privileges or voting powers of the
holders of the Series A Preferred Units; and provided further that any increase
in the amount of Partnership Interests or the creation or issuance of any other
class or series of Partnership Interests, in each case ranking (a) junior to the
Series A Preferred Units with respect to payment of distributions or the
distribution of assets upon liquidation, dissolution or winding-up, or (b) on a
parity to the Series A Preferred Units with respect to payment of distributions
or the distribution of assets upon liquidation, dissolution or winding-up to the
extent such Partnership Interest are not issued to an affiliate of the
Partnership, other than the General Partner to the extent the issuance of such
interests was to allow the General Partner to issue corresponding preferred
stock to persons who are not affiliates of the Partnership, shall not be deemed
to materially and adversely affect such rights, preferences, privileges or
voting powers.

          Section 16.6. Transfer Restrictions
                        ---------------------

          The Series A Preferred Units shall be subject to the provisions of
Article 11 hereof; provided, however, that the Series A Preferred Units shall
not be subject to the transfer restrictions described in Section 11.3.A hereof
except for the last paragraph of Section 11.3.A (to which the Series A Preferred
Units shall be subject).  No transfer of the  Series A Preferred Units is
permitted, without the consent of the General Partner, which consent may be
given or withheld in its sole and absolute discretion, if such transfer would
result in more than four partners holding all outstanding Series A Preferred
Units within the meaning of Treasury Regulation Section 1.7704-1(h)(3);
provided, however, that the General Partner's consent may not be unreasonably
withheld if (a) such transfer would not result in more than ten partners holding
all outstanding Series A Preferred Units within the meaning of Treasury
Regulation Section 1.7704-1(h)(3) and (b) the General Partner is relying on a
provision other than Treasury Regulation Section 1.7704-1(h) to avoid
classification of Operating Partnership as a "publicly traded partnership"
within the meaning of Code Section 7704 (a "PTP").  In addition, no transfer may
                                            ---                                 
be made to any person if such transfer would cause the exchange of the Series A
Preferred Units for REIT Series A Preferred Shares, as provided herein, to be
required to be registered under the Securities Act of 1933, as amended, or any
state securities laws. If Contributor concludes based on an opinion of
nationally recognized independent counsel that there is a substantial risk that
Contributor's 

                                       87
<PAGE>
 
interest in the Partnership will represent more than 19.5% (the "19.5% Limit")
of the total profits and capital interests in the Partnership (determined in
accordance with Regulations Section 1.731-2(e)(4)), and the General Partner
agrees with such conclusion, such agreement not to be unreasonably withheld,
Contributor shall, subject to the above limitations, be permitted to transfer so
much of its Series A Preferred Units as may be appropriate to alleviate the risk
of not satisfying the 19.5% Limit to the trust described in Exhibit D, with the
Contributor having the rights set forth in such Exhibit.

          Section 16.7. Exchange Rights
                        ---------------

          A.  Right to Exchange. (i) The Series A Preferred Units will be
              ----------------- 
exchangeable in whole but not in part unless expressly otherwise provided herein
at anytime on or after the tenth anniversary of the date of issuance, at the
option of 51% of the holders of all outstanding Series A Preferred Units, for
authorized but previously unissued REIT Series A Preferred Shares at an exchange
rate of one REIT Series A Preferred Share from the General Partner for one
Series A Preferred Unit, subject to adjustment as described below (the "Exchange
                                                                        --------
Price"), provided that the Series A Preferred Units will become exchangeable at
- -----                                               
any time, in whole but not in part, unless expressly otherwise provided herein,
at the option of 51% of the holders of all outstanding Series A Preferred Units
for REIT Series A Preferred Shares, if (y) at any time full distributions shall
not have been timely made on any Series A Preferred Unit with respect to six (6)
prior quarterly distribution periods, whether or not consecutive, provided,
however, that a distribution in respect of Series A Preferred Units shall be
considered timely made if made within two (2) Business Days after the applicable
Preferred Unit Distribution Payment Date if at the time of such late payment
there shall not be any prior quarterly distribution periods in respect of which
full distributions were not timely made or (z) upon receipt by a holder or
holders of Series A Preferred Units of (A) notice from the General Partner that
the General Partner or a Subsidiary of the General Partner has taken the
position that the Partnership is, or upon the consummation of an identified
event in the immediate future will be, a PTP and (B) an opinion rendered by an
outside nationally recognized independent counsel familiar with such matters
addressed to a holder or holders of Series A Preferred Units, that the
Partnership is or likely is, or upon the occurrence of a defined event in the
immediate future will be or likely will be, a PTP. In addition, the Series A
Preferred Units may be exchanged for REIT Series A Preferred Shares, in whole
but not in part unless expressly otherwise provided herein, at the option of 51%
of the holders of all outstanding Series A Preferred Units prior to the tenth
anniversary of the issuance date and after the third anniversary thereof if such
holders of a Series A Preferred Units shall deliver to the General Partner
either (i) a private ruling letter addressed to such holder of Series A
Preferred Units or (ii) an opinion of independent counsel reasonably acceptable
to the General Partner based on the enactment of temporary or final Treasury
Regulations or the publication of a Revenue Ruling, in either case to the effect
that an exchange of the Series A Preferred Units at such earlier time would not
cause the Series A Preferred Units to be considered "stock and securities"
within the meaning of section 351(e) of the Code for purposes of determining
whether the holder of such Series A Preferred Units is an "investment company"
under section 721(b) of 

                                       88
<PAGE>
 
the Code if an exchange is permitted at such earlier date. Furthermore, the
Series A Preferred Units, if Contributor so determines, may be exchanged in
whole but not in part (regardless of whether held by Contributor) for REIT
Series A Preferred Shares (but only if the exchange in whole may be accomplished
consistently with the ownership limitations set forth under the Series A
Articles Supplementary, taking into account exceptions thereto) if Contributor
concludes, based on the advice of nationally recognized independent counsel,
that there is a substantial risk that its interest in the Partnership will not
satisfy the 19.5% Limit and the General Partner agrees with such conclusion,
such agreement not to be unreasonably withheld; provided, however, that if, as a
result of such conclusion, Contributor's interest in the Partnership is reduced
pursuant to the last sentence of Section 16.6 hereof (which procedure shall be
available to Contributor to the exclusion of the procedure under this sentence
for so long as, on a cumulative basis, sales of 10% or fewer of the Series A
Preferred Units originally acquired by Contributor would in the opinion of the
above-referenced counsel reduce the risk that Contributor's interest in the
Partnership would not satisfy the 19.5% Limit to less than a substantial risk,
and thereafter shall be a permitted alternative to the procedure pursuant to
this sentence) or the risk of Contributor not satisfying the 19.5% Limit
otherwise is reduced below a substantial risk, then an exchange in whole under
this sentence shall not be permitted unless and until a change in facts occurs
and a further determination by Contributor is made under this sentence.

          (ii)  Notwithstanding anything to the contrary set forth in Section
16.7.A(i), if an Exchange Notice (as defined herein) has been delivered to the
General Partner, then the General Partner may, at its option, within ten (10)
Business Days after receipt of the Exchange Notice, elect to cause the
Partnership to redeem all or a portion of the outstanding Series A Preferred
Units for cash in an amount equal to the original Capital Contribution per
Series A Preferred Unit and all accrued and unpaid distributions thereon to the
date of redemption. If the General Partner elects to redeem fewer than all of
the outstanding Series A Preferred Units, the number of Series A Preferred Units
held by each holder to be redeemed shall equal such holder's pro-rata share
(based on the percentage of the aggregate number of outstanding Series A
Preferred Units that the total number of Series A Preferred Units held by such
holder represents) of the aggregate number of Series A Preferred Units being
redeemed.

          (iii) In the event an exchange of all Series A Preferred Units
pursuant to Section 16.7.A would violate the provisions on ownership limitation
of the General Partner set forth in Section 7 of the Articles Supplementary to
the Charter with respect to REIT Series A Preferred Shares (the "Series A
Articles Supplementary"), each holder of Series A Preferred Units shall be
entitled to exchange, pursuant to the provisions of Section 16.7.B, a number of
Series A Preferred Units which would comply with the provisions on the ownership
limitation of the General Partner set forth in such Section 7 of the Series A
Articles Supplementary, with respect to such holder, and any Series A Preferred
Units not so exchanged (the "Excess Units") shall be redeemed by the Partnership
                             ------------                                       
for cash in an amount equal to the original Capital Contribution per Excess
Unit, plus any accrued and unpaid distributions thereon to the date of

                                       89
<PAGE>
 
redemption subject to any restriction thereon contained in any debt instrument
or agreement of the Partnership.  In the event an exchange would result in
Excess Units, as a condition to such exchange, each holder of such units agrees
to provide representations and covenants reasonably requested by the General
Partner relating to (i) the widely held nature of the interests in such holder,
sufficient to assure the General Partner that the holder's ownership of stock of
the General Partner (without regard to the limits described above) will not
cause any individual to own in excess of 9.8% of the stock of the General
Partner; and (ii) to the extent such holder can so represent and covenant
without obtaining information from its owners, the holder's ownership of tenants
of the Partnership and its affiliates.  For purposes of determining the number
of Excess Units under this Section 16.7.A(iii), the "Beneficial Ownership Limit"
and "Constructive Ownership Limit" set forth in the Series A Articles
Supplementary shall be deemed to be 9%.  To the extent the General Partner would
not be able to pay the cash set forth above in exchange for the Excess Units,
and to the extent consistent with the Charter, the General Partner agrees that
it will grant to the holders of the Series A Preferred Units exceptions to the
Beneficial Ownership Limit and Constructive Ownership Limit set forth in the
Series A Articles Supplementary sufficient to allow such holders to exchange all
of their Series A Preferred Units for REIT Series A Preferred Stock, provided
such holders furnish to the General Partner representations acceptable to the
General Partner in its sole and absolute discretion which assure the General
Partner that such exceptions will not jeopardize the General Partner's tax
status as a REIT for purposes of federal and applicable state law.
Notwithstanding any provision of this Agreement to the contrary, no Series A
Limited Partner shall be entitled to effect an exchange of Series A Preferred
Units for REIT Series A Preferred Shares to the extent that ownership or right
to acquire such shares would cause the Partner or any other Person or, in the
opinion of counsel selected by the General Partner, may cause the Partner or any
other Person, to violate the restrictions on ownership and transfer of REIT
Series A Preferred Shares set forth in the Charter.  To the extent any such
attempted exchange for REIT Series A Preferred Shares would be in violation of
the previous sentence, it shall be void ab initio and such Series A Limited
Partner shall not acquire any rights or economic interest in the REIT Series A
Preferred Shares otherwise issuable upon such exchange.

          (iv)  The redemption of Series A Preferred Units described in Section
16.7.A(ii) and (iii) shall be subject to the provisions of Section 16.4.B(i) and
Section 16.4.C(ii); provided, however, that the term "Redemption Price" in such
Sections 16.4.B(i) and 16.4.C(ii) shall be read to mean the original Capital
Contribution per Series A Preferred Unit being redeemed plus all accrued and
unpaid distributions to the redemption date.

          B.  Procedure for Exchange and/or Redemption of Series A Preferred
              --------------------------------------------------------------
Units.
- ----- 

          (i)  Any exchange shall be exercised pursuant to a notice of exchange
(the "Exchange Notice") delivered to the General Partner by the Partners
      ---------------                                                   
representing at least 51% of the outstanding Series A Preferred Units (or by
Contributor in the case of an exchange pursuant to the last sentence of Section
16.7.A.(i) hereof) by (a) fax and (b) by certified mail postage prepaid.  The
General Partner may effect any exchange of Series A Preferred Units, or exercise
its option to 

                                       90
<PAGE>
 
redeem any portion of the Series A Preferred Units for cash pursuant to Section
16.7.A(ii) or redeem Excess Units pursuant to Section 16.7.A(iii), by delivering
to each holder of record of Series A Preferred Units, within ten (10) Business
Days following receipt of the Exchange Notice, (a) if the General Partner elects
to cause the Partnership to exchange any of the Series A Preferred Units then
outstanding, (1) certificates representing the Series A Preferred Shares being
issued in exchange for the Series A Preferred Units of such holder being
exchanged and (2) a written notice (a "Redemption Notice") stating (A)
                                       -----------------
the redemption date, which may be the date of such Redemption Notice or any
other date which is not later than sixty (60) days following the receipt of the
Exchange Notice, (B) the redemption price, (C) the place or places where the
Series A Preferred Units are to be surrendered and (D) that distributions on the
Series A Preferred Units will cease to accrue on such redemption date, or (b) if
the General Partner elects to cause the Partnership to redeem all of the Series
A Preferred Units then outstanding in exchange for cash, a Redemption Notice.
Series A Preferred Units shall be deemed canceled (and any corresponding
Partnership Interest represented thereby deemed terminated) simultaneously with
the delivery of shares of Series A Preferred Shares (with respect to Series A
Preferred Units exchanged) or simultaneously with the redemption date (with
respect to Series A Preferred Units redeemed). Holders of Series A Preferred
Units shall deliver any canceled certificates representing Series A Preferred
Units which have been exchanged or redeemed to the office of General Partner
(which currently is located at 2951 28th Street, Suite 3001, Santa Monica, CA
90405) within ten (10) Business Days of the exchange or redemption with respect
thereto. Notwithstanding anything to the contrary contained herein, any and all
Series A Preferred Units to be exchanged for REIT Series A Preferred Stock
pursuant to this Section 16.7 shall be so exchanged in a single transaction at
one time. As a condition to exchange, the General Partner may require the
holders of Series A Preferred Units to make such representations as may be
reasonably necessary for the General Partner to establish that the issuance of
REIT Series A Preferred Shares pursuant to the exchange shall not be required to
be registered under the Securities Act of 1933, as amended, or any state
securities laws. Any Series A Preferred Shares issued pursuant to this Section
16.7 shall be delivered as shares which are duly authorized, validly issued,
fully paid and nonassessable, free of any pledge, lien, encumbrance or
restriction other than those provided in the Charter, the By-Laws of the General
Partner, the Securities Act and relevant state securities or blue sky laws.

          The certificates representing the Series A Preferred Shares issued
upon exchange of the Series A Preferred Units shall contain the following
legend:

          THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
          SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
          (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
          SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR (B) IF THE
          CORPORATION HAS BEEN FURNISHED WITH A SATISFACTORY OPINION 

                                       91
<PAGE>
 
          OF COUNSEL FOR THE HOLDER OF THE SHARES REPRESENTED HEREBY, OR OTHER
          EVIDENCE SATISFACTORY TO THE CORPORATION, THAT SUCH TRANSFER, SALE,
          ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM
          THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS
          THEREUNDER.

          (ii) In the event of an exchange of Series A Preferred Units for REIT
Series A Preferred Shares, an amount equal to the accrued and unpaid
distributions to the date of exchange on any Series A Preferred Units tendered
for exchange shall (i) accrue on the REIT Series A Preferred Shares into which
such Series A Preferred Units are exchanged, and (ii) continue to accrue on such
Series A Preferred Units, which shall remain outstanding following such
exchange, with the General Partner as the holder of such REIT Series A Preferred
Units. Notwithstanding anything to the contrary set forth herein, in no event
shall a holder of a Series A Preferred Unit that was validly exchanged for REIT
Series A Preferred Shares pursuant to this section  (other than the General
Partner now holding such Series A Preferred Unit), receive a distribution out of
Available Cash of the Partnership, if such holder, after exchange, is entitled
to receive a distribution out of Available Cash with respect to the REIT Series
A Preferred Shares for which such Series A Preferred Unit was exchanged or
redeemed.

          (iii)  Fractional REIT Series A Preferred Shares are not to be issued
upon exchange but, in lieu thereof, the General Partner will pay a cash
adjustment based upon the fair market value of the REIT Series A Preferred
Shares on the day prior to the exchange date as determined in good faith by the
Board of Directors of the General Partner.

          C.  Adjustment of Exchange Price.   In case the General Partner shall
              ----------------------------                                     
be a party to any transaction (including, without limitation, a merger,
consolidation, statutory share exchange, tender offer for all or substantially
all of the General Partner's capital stock or sale of all or substantially all
of the General Partner's assets), in each case as a result of which the REIT
Series A Preferred Shares will be converted into the right to receive shares of
capital stock, other securities or other property (including cash or any
combination thereof), each Series A Preferred Unit will thereafter be
exchangeable into the kind and amount of shares of capital stock and other
securities and property receivable (including cash or any combination thereof)
upon the consummation of such transaction by a holder of that number of REIT
Series A Preferred Shares or fraction thereof into which one Series A Preferred
Unit was exchangeable immediately prior to such transaction. The General Partner
may not become a party to any such transaction unless the terms thereof are
consistent with the foregoing.

          Section 16.8. No Conversion Rights
                        --------------------

                                       92
<PAGE>
 
          The holders of the Series A Preferred Units shall not have any rights
to convert such Partnership Units into any other class of Partnership Interests
or any interest in the Partnership.

          Section 16.9. No Sinking Fund
                        ---------------

          No sinking fund shall be established for the retirement or redemption
of the Series A Preferred Units.

          Section 16.10. Reports
                         -------

          In addition to the reports required pursuant to Section 9.3, so long
as any Series A Preferred Units are outstanding, the General Partner shall cause
to be mailed to each Series A Limited Partner:

          A.  As soon as available, but in no event later than ten Business Days
following the date on which the General Partner files its annual report in
respect of a fiscal year on Form 10-K, or such other applicable form ("Form 10-
K"), with the Securities and Exchange Commission (the "Commission") (or, in the
event that the Partnership is required under rules and regulations promulgated
by the Commission to file with the Commission a Form 10-K separate from General
Partner's Form 10-K, ten business days after the filing of such report by the
Partnership with the Commission), a complete copy of the Partnership's financial
statements for such fiscal year including a balance sheet, income statement and
cash flow statement for such fiscal year prepared in accordance with GAAP
(except with respect to footnotes); and

          B.  As soon as available, but in no event later than ten Business Days
following the date on which the General Partner files its quarterly report in
respect of a fiscal quarter on Form 10-Q, or such other applicable form ("Form
10-Q"), with the Commission (or, in the event the Partnership is required under
rules and regulations promulgated by the Commission to file with the Commission
a Form 10-Q separate from the General Partner's Form 10-Q, ten business days
after the filing of such report by the Partnership with the Commission), a
complete copy of the Partnership's unaudited quarterly financial statements for
such fiscal quarter including a balance sheet, income statement and cash flow
statement for such fiscal quarter prepared in accordance with GAAP (except with
respect to footnotes).

                                       93
<PAGE>
 
        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                                    NATIONAL GOLF PROPERTIES, INC., as General
                                    Partner



                                    By:  /s/ James M. Stanich
                                        ------------------------------------ 
                                        James M. Stanich
                                        President

                                    BELAIR CAPITAL FUND LLC

                                    By:  Eaton Vance Management, as its Manager


                                    By:  /s/ Thomas Otis
                                        ------------------------------------  
                                        Thomas Otis
                                        Vice President

                                       94
<PAGE>
 
                                   EXHIBIT A
                          PARTNERS, CONTRIBUTIONS AND
                             PARTNERSHIP INTERESTS

<TABLE>
<CAPTION>
                                                                       Gross Asset                                    Percentage
                                                     Agreed Value of    Value of                                     Interest (by
               Name                      Cash          Contributed     Contributed       Total       Partnership       class or 
            of Partner               Contributions      Property*       Property     Contributions      Units           series)
- ------------------------------    ------------------ ---------------   -----------   -------------   ------------    ---------------
<S>                               <C>                 <C>              <C>            <C>             <C>             <C>    
                                                                      (In thousands, except Units)

Common Units:
 
General Partner
- ---------------
National Golf Properties, Inc.        $    171,975         $  40,787     $  40,787       $ 212,762    12,229,825              58.46
 
Common Limited Partners
- -----------------------
The Price Revocable Trust
     Amendment in Entirety,
     February 9, 1987                            -         $ 136,618     $ 178,203    $    136,618     6,698,239              31.84
David G. Price                                   -            21,211        24,529          21,211     1,041,014               4.95
Black Lake / Penasquitos Ltd.                    -               602           602             602        24,844               0.12
American Golf Corporation                        -               140           140             140         6,854               0.03
Supermarine Aviation, Ltd.                       -             3,107         3,112           3,107       152,498               0.72
RSJ Golf, Inc.                                   -               137           224             137         6,732               0.03
Myreshan, Inc.                                   -             3,041         4,660           3,041       149,273               0.71
Joan P. Anawalt 1995
    Revocable Trust                              -             5,064         6,530           5,064       248,517               1.18
Joan P. Stewart Income Trust                     -             1,225         2,019           1,225        60,146               0.29
Joan P. Anawalt 1993
     Annuity Income Trust                        -             1,462         1,523           1,462        71,731               0.34
Richard C. and Sheri L. Price                    -             1,705         2,651           1,705        83,701               0.40
Edward R. Sause                                  -             1,132         1,998           1,132        55,550               0.26
Barbara M. Colton                                -               182           182             182         8,930               0.04
Richard Bermudez                                 -               619           768             619        30,361               0.14
Ernest C. Burns                                  -               509           659             509        25,001               0.12
Robert H. Williams                               -             1,528         1,976           1,528        75,003               0.36
                                      ------------         ---------     ---------    ------------    ----------             ------ 
                                                 -           178,282       229,776    $    178,282     8,738,394              41.54
 
Total Common Units                    $    171,975         $ 219,069     $ 270,563    $    391,044    21,038,219             100.00%

 
Preferred Units:
 
Series A Limited Partners
- -------------------------
Belair Capital Fund LLC               $ 60,000,000                                    $ 60,000,000     1,200,000             100.00%
</TABLE>
                                                                           

                               *   *   *   *   *

General Partner Properties:

Bear Creek Golf World, Houston, Texas (3 courses)
Lake Houston Golf Club, Huffman, Texas (1 course)


- ----------------------------
* Net of Debt (if any) to which the Contributed Property is subject. 


                                      A-1
<PAGE>
 
                                   EXHIBIT B
                           NOTICE OF [EXCHANGE] [PUT]

          The undersigned hereby irrevocably (i) [exchanges] [puts] ____________
Common Limited Partnership Units in National Golf Operating Partnership, L.P. in
accordance with the terms of the Limited Partnership Agreement of National Golf
Operating Partnership, L.P. and the [Exchange Right] [Put Right] referred to
therein, (ii) surrenders such Common Limited Partnership Units and all right,
title and interest therein, and (iii) directs that the [REIT Shares] [Put
Amount] deliverable upon exercise of the right of [Exchange] [Put] be delivered
to the address specified below, [and such REIT Shares be registered or placed in
the name(s) and at the address(es) specified below.]

Dated:  ________________________

   Name of Common Limited Partner:



                                    --------------------------------------------
                                    (Signature of Common Limited Partner)

 
                                    --------------------------------------------
                                    (Street Address)

 
                                    --------------------------------------------
                                    (City)      (State)  (Zip Code)



                                    Signature Guaranteed by:


                                    --------------------------------------------

                                     
[If REIT Shares are to be issued, issue to:

Please insert social security or identifying number:

Name:]

                                      B-1
<PAGE>
 
                                   EXHIBIT C
                            FORM OF UNIT CERTIFICATE

                       CERTIFICATE FOR PARTNERSHIP UNITS
                                       OF
                   National Golf Operating Partnership, L.P.

No. ______________                                           [COMMON] [8% SERIES
                                                         A CUMULATIVE REDEEMABLE
                                                                PREFERRED] UNITS

          National Golf Properties, Inc., as the General Partner of National
Golf Operating Partnership, L.P., a Delaware limited partnership (the
"Partnership"), hereby certifies that _________________________ is a Limited
Partner of the Partnership whose Partnership Interests therein, as set forth in
the Agreement of Limited Partnership of National Golf Operating Partnership,
L.P., as amended or supplemented from time to time (the "Partnership
Agreement"), under which the Partnership is existing and as filed in the Office
of the Secretary of State of Delaware (copies of which are on file at the
Partnership's principal office in Santa Monica, California), represent ________
[Common Units (as such term is defined in the Partnership Agreement)] [8% Series
A Cumulative Redeemable Preferred Units] (the "Partnership Units").

          THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT
MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE PARTNERSHIP AGREEMENT (A
COPY OF WHICH IS ON FILE WITH THE OPERATING PARTNERSHIP).  EXCEPT AS OTHERWISE
PROVIDED IN THE PARTNERSHIP AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE PARTNERSHIP UNITS REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF
THE OPERATING PARTNERSHIP HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF
COUNSEL FOR THE HOLDER OF THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE,
OR OTHER EVIDENCE SATISFACTORY TO THE OPERATING PARTNERSHIP, THAT SUCH TRANSFER,
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE
PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT
THEREUNDER.

DATED:                              National Golf Properties, Inc.

                                    General Partner of
                                    National Golf Operating
                                    Partnership, L.P.

ATTEST:

By:                                 By:
   --------------------------           ------------------------
   James M. Stanich                     Scott S. Thompson
   President                            Secretary


                                      C-1
<PAGE>
 
                                   EXHIBIT D
                                        
         RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX BENEFIT

(a)  Definitions. for the purposes of this Exhibit D, the following terms shall
     -----------                                                               
     have the following meanings:

                "Charitable Beneficiary" shall mean one or more beneficiaries of
          a Trust, as determined pursuant to subsection (c)(vi), each of which
          shall be an organization described in Sections 170(b)(1)(A), 170(c)(2)
          or 501(c)(3) of the Code.

                "Constructive Ownership" shall mean ownership of Partnership
          Units by a Person who is or would be treated as an owner of such
          Partnership Units either actually or constructively through the
          application of Section 318 of the Code, as modified by Section
          856(d)(5) of the Code. The terms "Constructive Owner," "Constructively
          Owns" and "Constructively Owned" shall have the correlative meanings.

                "Exempted Person" shall mean David G. Price, Dallas Price, those
          Persons or entities who Constructively Own the Partnership Units owned
          by the Prices, and any other Person exempted from time to time by the
          General Partner in its sole and absolute discretion.

                "Market Price" shall mean the market price of the Partnership
          Units on the relevant date as determined in good faith by the General
          Partner; provided, however, if the General Partner has outstanding
          shares of capital stock which correspond to such Partnership Units,
          the Market Price of each such Partnership Unit shall be equal to the
          Value of a share of such capital stock, subject to adjustment if the
          right to exchange such Partnership Units for such stock is other than
          one-to-one.

                "Ownership Limit" shall mean 24.5% of the capital and profits
          interests of the Partnership.

                "Person" shall mean an individual, corporation, partnership,
          limited liability company, estate, trust (including a trust qualified
          under Section 401(a) or 501(c)(17) of the Code), a portion of a trust
          permanently set aside for or to be used exclusively for the purposes
          described in Section 642(c) of the Code, association, private
          foundation within the meaning of Section 509(a) of the Code, joint
          stock company or other entity.

                "Purported Beneficial Transferee" shall mean, with respect to
          any purported Transfer (or other event) which results in a transfer to
          a Trust, as provided in subsection (b)(ii), the Purported Record
          Transferee, unless the Purported Record Transferee would have acquired
          or owned Partnership Units for another Person who

                                      D-1
<PAGE>
 
          is the beneficial transferee or owner of such Partnership Units, in
          which case the Purported Beneficial Transferee shall be such Person.

                "Purported Record Transferee" shall mean, with respect to any
          purported Transfer (or other event) which results in a transfer to a
          Trust, as provided in subsection (b)(ii), the holder of the
          Partnership Units as set forth or to be set forth in Exhibit A to the
          Partnership Agreement, and any Assignee of such Partnership Units, if
          such Transfer or ownership had been valid under subsection (b)(i).

                "Restriction Termination Date" shall mean the first day after
          the date hereof on which the General Partner determines, in its sole
          and absolute discretion, that compliance with subsection (b)(i) is no
          longer necessary or advisable.

                "Transfer" shall mean any sale, transfer, gift, assignment,
          devise or other disposition of Partnership Units, (including (i) the
          granting of any option or entering into any agreement for the sale,
          transfer or other disposition of Partnership Units or (ii) the sale,
          transfer, assignment or other disposition of any securities (or rights
          convertible into or exchangeable for Partnership Units), whether
          voluntary or involuntary, whether such transfer has occurred of record
          or beneficially or Constructively (including but not limited to
          transfers of interests in other entities which results in changes in
          Constructive Ownership of Partnership Units), and whether such
          transfer has occurred by operation of law or otherwise.

                "Trust" shall mean each of the trusts provided for in subsection
          (c).

                "Trustee" shall mean any Person unaffiliated with the
          Partnership, or a Purported Beneficial Transferee, or a Purported
          Record Transferee, that is appointed by the Partnership to serve as
          trustee of a Trust.

Capitalized terms used and not defined herein shall have the meanings ascribed
to them in the Agreement of Limited Partnership of National Golf Operating
Partnership, L.P. (the "Partnership Agreement), as such agreement may be amended
from time to time.  All references to "Section" refer to the Partnership
Agreement.

  (b) Restriction on Ownership and Transfers.
      -------------------------------------- 

      (i)  Prior to the Restriction Termination Date, no Person, other than an
Exempted Person, shall at any time Constructively Own Partnership Units in
excess of the Ownership Limit if the representations contained in Section
3.4.D(i)(a) are not at such time true and correct.

      (ii) If, prior to the Restriction Termination Date, any Transfer or other
event occurs that, if effective, would result in any Person Constructively
Owning Partnership Units in violation of subsection (b)(i), (1) then that number
of Partnership Units that otherwise would cause

                                      D-2
<PAGE>
 
     such Person to violate subsection (b)(i) (rounded up to the nearest whole
     Partnership Unit) shall be automatically transferred (provided such
     Transfer is not in violation of the restrictions on transfer set forth in
     the Partnership Agreement, except to the extent the General Partner waives
     such restrictions) to a Trust for the benefit of a Charitable Beneficiary,
     as described in subsection (c), effective as of the close of business on
     the business day prior to the date of such Transfer or other event, and
     such Purported Beneficial Transferee shall thereafter have no rights in
     such Partnership Units or (2) if, for any reason, the transfer to the Trust
     described in clause (1) of this sentence is not automatically effective as
     provided therein to prevent any Person from Constructively Owning
     Partnership Units in violation of subsection (b)(i), then the Transfer of
     that number of Partnership Units that otherwise would cause any Person to
     violate subsection (b)(i) shall be void ab initio, and the Purported
     Beneficial Transferee shall have no rights in such Partnership Units.


  (c) Transfers of Partnership Units in Trust.
      --------------------------------------- 

      (i)   Upon any purported Transfer or other event described in subsection
(b)(ii), such Partnership Units shall be deemed to have been transferred to the
Trustee in his capacity as trustee of a Trust for the exclusive benefit of one
or more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed
to be effective as of the close of business on the business day prior to the
purported Transfer or other event that results in a transfer to the Trust
pursuant to subsection (b)(ii). The Trustee shall be appointed by the
Partnership and shall be a Person unaffiliated with the Partnership, any
Purported Beneficial Transferee, or any Purported Record Transferee. Each
Charitable Beneficiary shall be designated by the Partnership as provided in
subsection (c)(vi).

      (ii)  Partnership Units held by the Trustee shall be issued and
outstanding Partnership Units of the Partnership. The Purported Beneficial
Transferee or Purported Record Transferee shall have no rights in the
Partnership Units held by the Trustee. The Purported Beneficial Transferee or
Purported Record Transferee shall not benefit economically from ownership of any
Partnership Units held in trust by the Trustee, shall have no rights to
distributions or allocations with respect to Partnership Units held in the Trust
and shall not possess any rights to vote or other rights attributable to the
Partnership Units held in the Trust.

      (iii) The Trustee shall have all voting rights and rights to distributions
and allocations with respect to Partnership Units held in the Trust, which
rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any distribution paid prior to the discovery by the Partnership
that Partnership Units have been transferred to the Trustee shall be paid to the
Trustee upon demand, and any distribution with respect to such Partnership Units
shall be paid when due to the Trustee. Any distributions so paid over to the
Trustee shall be held in trust for the Charitable Beneficiary.

      The Purported Record Transferee and Purported Beneficial Transferee shall
have no voting rights with respect to the Partnership Units held in the Trust
and, subject to Maryland law, effective as of the date the Partnership Units has
been transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a 

                                      D-3
<PAGE>
 
Purported Record Transferee with respect to such Partnership Units prior to the
discovery by the Partnership that the Partnership Units has been transferred to
the Trustee and (ii) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary; provided, however,
that if the Partnership has already taken irreversible action, then the Trustee
shall not have the authority to rescind and recast such vote. Notwithstanding
any other provision of this Exhibit D to the contrary, until the Partnership has
received notification that the Partnership Units have been transferred into a
Trust, the Partnership shall be entitled to rely on its Partnership Unit
transfer and other unitholder records for purposes of preparing Exhibit A to the
Partnership Agreement, lists of unitholders entitled to vote at meetings, and
otherwise conducting votes of Partners.

          (iv) Within 20 days of receiving notice from the Partnership that
Partnership Units have been transferred to the Trust, the Trustee of the Trust
shall, in accordance with the terms of (and subject to the limitations contained
in) the Partnership Agreement, sell the Partnership Units held in the Trust to a
Person, designated by the Trustee, whose ownership of the Partnership Units will
not violate the ownership limitations set forth in subsection (b)(i). Upon such
sale, the interest of the Charitable Beneficiary in the Partnership Units sold
shall terminate and the Trustee shall distribute the net proceeds of the sale to
the Purported Record Transferee and to the Charitable Beneficiary as provided in
this subsection (c)(iv). The Purported Record Transferee shall receive the
lesser of (1) the price paid by the Purported Record Transferee for the
Partnership Units in the transaction that resulted in such transfer to the Trust
(or, if the event which resulted in the transfer to the Trust did not involve a
purchase of such Partnership Units at Market Price, the Market Price of such
Partnership Units on the day of the event which resulted in the transfer of such
Partnership Units to the Trust) and (2) the price per Partnership Unit received
by the Trustee (net of any commissions and other expenses of sale) from the sale
or other disposition of the Partnership Units held in the Trust. Any net sales
proceeds in excess of the amount payable to the Purported Record Transferee
shall be immediately paid to the Charitable Beneficiary together with any
distributions thereon. If, prior to the discovery by the Partnership that
Partnership Units have been transferred to the Trustee, such Partnership Units
are sold by a Purported Record Transferee then (i) such Partnership Units shall
be deemed to have been sold on behalf of the Trust and (ii) to the extent that
the Purported Record Transferee received an amount for such Partnership Units
that exceeds the amount that such Purported Record Transferee was entitled to
receive pursuant to this subsection (c)(iv), such excess shall be paid to the
Trustee upon demand. The expenses described in item (2) above shall include any
expenses of administering the Trust, any transfer of Partnership Units thereto
or disposition of Partnership Units thereby, which shall be allocated equitably
among the Partnership Units which are transferred to the Trust.

          (v)  Partnership Units transferred to the Trustee shall be deemed to
have been offered for sale to the Partnership, or its designee, at a price per
Partnership Unit equal to the lesser of (i) the price paid by the Purported
Record Transferee for the Partnership Units in the transaction that resulted in
such transfer to the Trust (or, if the event which resulted in the transfer to
the Trust did not involve a purchase of such Partnership Units at Market Price,
the Market Price of such Partnership Units on the day of the event which
resulted in the transfer of such Partnership Units to the Trust) and (ii) the
Market Price on the date the Partnership, or its designee, accepts such offer.

                                      D-4
<PAGE>
 
     The Partnership shall have the right to accept such offer until the Trustee
     has sold the Partnership Units held in the Trust pursuant to subsection
     (c)(iv).  Upon such a sale to the Partnership, the interest of the
     Charitable Beneficiary in the Partnership Units sold shall terminate and
     the Trustee shall distribute the net proceeds of the sale to the Purported
     Record Transferee and any distributions held by the Trustee with respect to
     such Partnership Units shall thereupon be paid to the Charitable
     Beneficiary.

          (vi) By written notice to the Trustee, the Partnership shall designate
one or more nonprofit organizations to be the Charitable Beneficiary of the
interest in the Trust such that (i) the Partnership Units held in the Trust
would not violate the restrictions set forth in subsection (b)(i) in the hands
of such Charitable Beneficiary and (ii) each Charitable Beneficiary is an
organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of the
Code.

     (d)  Remedies For Breach.  If the General Partner shall at any time 
          -------------------       
determine in good faith that a Transfer or other event has taken place in
violation of subsection (b) or that a Person intends to acquire, has attempted
to acquire or may acquire beneficial ownership (determined without reference to
any rules of attribution) or Constructive Ownership of any Partnership Units of
the Partnership in violation of subsection (b), the General Partner shall take
such action as it deems advisable to refuse to give effect or to prevent such
Transfer, including, but not limited to, causing the Partnership to redeem
Partnership Units, refusing to give effect to such Transfer on the books of the
Partnership or instituting proceedings to enjoin such Transfer; provided,
however, that any Transfers (or, in the case of events other than a Transfer,
ownership or Constructive Ownership) in violation of subsection (b)(i), shall
automatically result in the transfer to a Trust as described in subsection
(b)(ii).

     (e)  Notice of Restricted Transfer.  Any Person who acquires or attempts to
          -----------------------------                                         
acquire or own Partnership Units in violation of subsection (b), or any Person
who is a Purported Beneficial Transferee such that an automatic transfer to a
Trust results under subsection (b)(ii), shall immediately give written notice to
the Partnership of such event and shall provide to the Partnership such other
information as the Partnership may request in order to determine the effect, if
any, of such Transfer or attempted Transfer on such Person's compliance with
subsection (b)(i).

     (f)  Owners Required To Provide Information.  Prior to the Restriction
          --------------------------------------                           
Termination Date each Person who is a beneficial owner or Constructive Owner of
Partnership Units and each Person who is holding Partnership Units for a
beneficial owner or Constructive Owner shall provide to the Partnership such
information that the Partnership may request, in good faith, in order to
determine the Partnership's status as a partnership (as opposed to a
corporation) or the General Partner's status as a REIT for federal income tax
purposes.

     (g)  Remedies Not Limited.  Nothing contained in this Exhibit D shall 
          --------------------        
limit the authority of the General Partner to take such other action as it deems
necessary or advisable to protect the Partnership and the interests of its
Partners by preservation of the Partnership's status as a partnership (as
opposed to a corporation) or the General Partner's status as a REIT for federal
income tax purposes.


                                      D-5
<PAGE>
 
     (h)  Ambiguity. In the case of an ambiguity in the application of any of
          ---------            
the provisions of this Exhibit D, including any definition contained in
subsection (a), the General Partner shall have the power to determine the
application of the provisions of this Exhibit D with respect to any situation
based on the facts known to it. In the event that a provision of this Exhibit D
requires an action by the General Partner and Exhibit D fails to provide
specific guidance with respect to such action, the General Partner shall have
the power to determine the action to be taken so long as such action is not
contrary to the provisions of Exhibit D. Absent a decision to the contrary by
the General Partner (which the General Partner may make in its sole and absolute
discretion), if a Person would have (but for the remedies set forth in
subsection (b)) acquired Constructive Ownership of Partnership Units in
violation of subsection (b)(i), such remedies (as applicable) shall apply first
to the Partnership Units which, but for such remedies, would have been actually
owned by such Person, and second to Partnership Units which, but for such
remedies, would have been Constructively Owned (but not actually owned) by such
Person, pro rata among the Persons who actually own such Partnership Units based
upon the relative number of the Partnership Units held by each such Person.


                                      D-6

<PAGE>

                                                                    EXHIBIT 10.2
 
                         REGISTRATION RIGHTS AGREEMENT

          THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 4, 1998 (this
                                                                             
"Agreement"), is entered into by and among National Golf Properties, Inc., a
- ----------                                                                  
Maryland corporation (the "Company" or the "REIT"), National Golf Operating
                           -------          ----                           
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"),
                                                        ---------------------   
and the unit holders whose names are set forth on the signature pages hereto
(each, a "Unit Holder" and collectively, the "Unit Holders").
          -----------                         ------------   

                                    RECITALS
                                    --------

          WHEREAS, in connection with the offering of 8% Series A Cumulative
Redeemable Preferred Units of the Operating Partnership (the "OP Units"), Belair
                                                              --------          
Capital Fund LLC, a Massachusetts limited liability company (the "Contributor"),
                                                                  -----------   
desires to contribute to the Operating Partnership cash in return for the OP
Units on terms and conditions set forth in the Contribution Agreement, dated
March 4, 1998 (the "Contribution Agreement"), by and among the Company, the
                    ----------------------                                 
Operating Partnership and the Contributor;

          WHEREAS, the Unit Holders will receive the OP Units in exchange for
cash to the Contributor;

          WHEREAS, pursuant to the Partnership Agreement (as defined below), the
OP Units owned by the Unit Holders will be redeemable for cash or exchangeable
for shares of the Company's 8% Series A Cumulative Redeemable Preferred Stock
(the "Preferred Stock") upon the terms and subject to the conditions contained
      ---------------                                                         
therein; and

          WHEREAS, in order to induce the Contributor to enter into the
Contribution Agreement, the Company and the Operating Partnership have agreed to
provide registration rights set forth to the Contributor and any subsequent
holder or holders of the OP Units.

          NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

                                   ARTICLE I
                                  DEFINITIONS
                                  -----------

          SECTION 1.1.  DEFINITIONS.  In addition to the definitions set forth
                        -----------                                           
above, the following terms, as used herein, shall have the following meanings:

          "Affiliate" of any Person means any other Person directly or
           ---------                                                  
indirectly controlling or controlled by or under common control with such
Person.  For the purposes of this definition, "control" when used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE>
 
          "Agreement" means this Registration Rights Agreement, as it may be
           ---------                                                        
amended, supplemented or restated from time to time.

          "Articles of Incorporation" means the Articles of Amendment and
           -------------------------                                     
Restatement of the Company, as the same may be amended, modified or restated
from time to time.

          "Business Day" means any day except a Saturday, Sunday or other day on
           ------------                                                         
which commercial banks in New York, New York or Los Angeles, California are
authorized by law to close.

          "Code" means the Internal Revenue Code of 1986, as amended from time
           ----                                                               
to time or any successor statute thereto, as interpreted by the applicable
regulations thereunder.

          "Commission" means the Securities and Exchange Commission.
           ----------                                               

          "Company" means National Golf Properties, Inc., a Maryland
           -------                                                  
corporation.

          "Contribution Agreement" means the Contribution Agreement, dated March
           ----------------------                                               
4, 1998, by and among the Company, the Operating Partnership and the
Contributor.

          "Contributor" means Belair Capital Fund LLC, a Massachusetts limited
           -----------                                                        
liability company.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended,
           ------------                                                        
and the rules and regulations of the Commission promulgated thereunder.

          "Exchangeable OP Units" means OP Units which may be redeemable for
           ---------------------                                            
cash pursuant to Section 16.4 of the Partnership Agreement or exchangeable for
Preferred Stock or redeemable for cash pursuant to Section 16.7 of the
Partnership Agreement (without regard to any limitations on the exercise of such
exchange rights as a result of the Ownership Limit Provisions, as defined
below).

          "General Partner" means the Company or its successors as general
           ---------------                                                
partner of the Operating Partnership.

          "Holder" means any Unit Holder who is the record or beneficial owner
           ------                                                             
of any Registrable Security or any assignee or transferee of such Registrable
Security (including assignments or transfers of Registrable Securities to such
assignees or transferees as a result of the foreclosure on any loans secured by
such Registrable Securities) unless such Registrable Security is acquired in a
public distribution pursuant to a registration statement under the Securities
Act or pursuant to transactions exempt from registration under the Securities
Act, in each such case where securities sold in such transaction may be resold
without subsequent registration under the Securities Act.

          "Incapacitated" shall have the meaning set forth in the Partnership
           -------------                                                     
Agreement.

                                       2
<PAGE>
 
          "Indemnified Party" shall have the meaning set forth in Section 2.8
           -----------------                                                 
hereof.

          "Indemnifying Party" shall have the meaning set forth in Section 2.8
           ------------------                                                 
hereof.

          "Inspectors" shall have the meaning set forth in Section 2.4(g).
           ----------                                                     

          "Issue Date" means March 4, 1998.
           ----------                      

          "Operating Partnership" means National Golf Properties Partnership,
           ---------------------                                             
L.P., a Delaware limited partnership.

          "OP Units" means 8% Series A Cumulative Redeemable Preferred Units of
           --------                                                            
the Operating Partnership.

          "Ownership Limit Provisions" mean the various provisions of the
           --------------------------                                    
Articles of Incorporation set forth in Article IV thereof restricting the
ownership of Preferred Stock by certain Persons to specified percentages of the
outstanding Preferred Stock.

          "Partnership Agreement" means the Amended and Restated Agreement of
           ---------------------                                             
Limited Partnership of the Operating Partnership dated as of March 4, 1998, as
the same may be amended, modified or restated from time to time.

          "Person" means an individual or a corporation, partnership, limited
           ------                                                            
liability company, association, trust, or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.

          "Piggy-Back Registration" shall have the meaning set forth in Section
           -----------------------                                             
2.2 hereof.

          "Primary Registration" shall have the meaning set forth in Section 2.2
           --------------------                                                 
hereof.

          "Preferred Stock" means the Company's 8% Series A Cumulative
           ---------------                                            
Redeemable Preferred Stock.

          "REIT" means a real estate investment trust under Section 856 through
           ----                                                                
Section 860 of the Code.

          "Registrable Securities" means shares of Preferred Stock at any time
           ----------------------                                             
owned, either of record or beneficially, by any Holder and no matter how
acquired (including, without limitation, shares of Preferred Stock issued or
issuable upon exchange of Exchangeable OP Units or issued or issuable by way of
stock dividend or stock split, or in connection with a merger, consolidation,
combination of shares, recapitalization or other reorganization and any other
securities issued pursuant to any other distribution with respect to the
Preferred Shares or in exchange for or replacement of such Preferred Shares)
until (i) a registration statement covering such securities has been declared
effective by the Commission and such shares have been sold or transferred
pursuant to such effective registration statement, (ii) such shares are
permitted to be distributed in a transaction that would constitute a sale
thereof under the Securities Act pursuant 

                                       3
<PAGE>
 
to Rule 144(k) or are otherwise freely transferable to the public without
registration pursuant to Section 4(1) of the Securities Act (to be confirmed in
a written opinion of counsel to the Company addressed to the Holders) under
circumstances in which all of the applicable conditions of Rule 144 are
satisfied or (iii) such shares have been otherwise transferred pursuant to an
applicable exemption under the Securities Act, new securities for such
securities not bearing a legend restricting further transfer shall have been
delivered by the Company and such securities shall be freely transferable to the
public in a transaction that would constitute a sale thereof without
registration under the Securities Act.

          "Registration Expenses" shall have the meaning set forth in Section
           ---------------------                                             
2.5 hereof.

          "Rule 144" means promulgated under the Securities Act, as such rule
           --------                                                          
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the Company of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.

          "Rule 144A" means Rule 144A promulgated under the Securities Act, as
           ---------                                                          
such rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.

          "Rule 415" means Rule 415 promulgated under the Securities Act, as
           --------                                                         
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.

          "Secondary Registration" shall have the meaning set forth in Section
           ----------------------                                             
2.2 hereof.

          "Securities Act" means the Securities Act of 1933, as amended, and the
           --------------                                                       
rules and regulations of the Commission promulgated thereunder.

          "Selling Holder" means a Holder who is selling Registrable Securities
           --------------                                                      
pursuant to a registration statement under the Securities Act pursuant to this
Agreement.

          "Shelf Registration" shall have the meaning set forth in Section 2.1
           ------------------                                                 
hereof.

          "Shelf Registration Statement" means any registration statement
           ----------------------------                                  
relating to a Shelf Registration that covers any shares of Preferred Stock of
the Company filed with the Commission under the Securities Act, including the
Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.

          "Underwriter" means a securities dealer who purchases any Registrable
           -----------                                                         
Securities as principal and not as part of such dealer's market-making
activities.

                                       4
<PAGE>
 
          "Unit Holder(s)" shall have the meaning set forth in the introductory
           --------------                                                      
paragraphs hereto.

                                   ARTICLE II
                              REGISTRATION RIGHTS
                              -------------------
                                        
          SECTION 2.1.  SHELF REGISTRATION.
                        ------------------ 

          The Company shall prepare and file a "shelf" registration statement
(the "Shelf Registration Statement") with respect to the Registrable Securities
      ----------------------------                                             
covering the resale thereof by the Holders on an appropriate form for an
offering to be made on a continuous or delayed basis pursuant to Rule 415 (the
                                                                              
"Shelf Registration") within 60 days after the date the OP Units are exchanged
- -------------------                                                           
for shares of Preferred Stock and shall use its best efforts to cause the Shelf
Registration Statement to be declared effective within 120 days after the date
of such exchange.  The Company shall use its best efforts to keep such Shelf
Registration Statement continuously effective until the earliest of (A) 24
months following the effective date of the Shelf Registration Statement, (B)
such time as all of the Registrable Securities have been sold pursuant to the
Shelf Registration Statement or Rule 144 and (C) the date on which the
Registrable Securities may be sold without volume restrictions in accordance
with Rule 144.

          SECTION 2.2.  PIGGY-BACK REGISTRATION.
                        ----------------------- 

          (a) If the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account (a
"Primary Registration") or for the account of any of its respective
 --------------------                                              
securityholders (other than (i) any registration statement filed by the Company
under the Securities Act relating to an offering of capital stock for its own
account as a result of the exercise of the exchange rights set forth in Section
8.6 of the Partnership Agreement, and covering the resale by the Holders of the
shares of capital stock received in such exchange, or (ii) a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission) or filed in connection with an exchange offer or offering of
securities solely to the Company's existing securityholders) (a "Secondary
                                                                 ---------
Registration"), then the Company shall promptly give written notice of such
- ------------                                                               
proposed filing to the Holders of Registrable Securities, and such notice shall
offer such Holders the opportunity to register such number of shares of
Registrable Securities as each such Holder may request (a "Piggy-Back
                                                           ----------
Registration").  The Company shall use its commercially reasonable efforts to
- ------------                                                                 
cause the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in a
Piggy-Back Registration to be included on the same terms and conditions as any
similar securities of the Company included therein.

          (b) Withdrawal from Registration.  Any Holder requesting inclusion of
              ----------------------------                                     
Registrable Securities pursuant to this Section 2.2 may, prior to the effective
date of the registration statement relating to such registration, revoke such
request by delivering written notice of such revocation to the Company and the
managing underwriter, if any, at least two days prior to the effective date of
the registration; provided, however, that if the Company, in 
                  --------  ------- 

                                       5
<PAGE>
 
consultation with its financial and legal advisors, determines that such
revocation would materially delay the registration or otherwise require a
recirculation of the prospectus contained in the registration statement, then
such Holder shall have no such right to revoke its request. If the withdrawal of
any Registrable Securities would allow, within the marketing limitations set
forth above, the inclusion in the underwriting of a greater number of shares of
Registrable Securities, then, to the extent practicable and without delaying the
underwriting, the Company shall offer to the Holders an opportunity to include
additional shares of Registrable Securities in the proportions discussed in
Section 2.3 below. Any Registrable Securities excluded or withdrawn from such
underwriting shall also be withdrawn from registration and shall not be
transferred in a public distribution prior to 90 days after the effective date
of the registration statement relating thereto, or such shorter period of time
as the managing underwriter may require.

          (c) Termination or Withdrawal by the Company.  The Company shall have
              ----------------------------------------                         
the right to terminate or withdraw any registration initiated by it under this
Section 2.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.

          SECTION 2.3.  REDUCTION OF OFFERING.  Notwithstanding anything
                        ---------------------                           
contained herein, if the managing Underwriter or Underwriters of an offering
described in Section 2.2 hereof are of the opinion that (i) the size of the
offering that the Holders, the Company and/or such other persons intend to make
or (ii) the kind of securities that the Holders, the Company and/or any other
persons or entities intend to include in such offering are such that the success
of the offering would be materially and adversely affected by inclusion of the
Registrable Securities requested to be included, then (A) if the size of the
offering is the basis of such Underwriter's opinion, the amount of securities to
be offered for the accounts of Holders shall be reduced pro rata (according to
the Registrable Securities proposed for registration) to the extent necessary to
reduce the total amount of securities to be included in such offering to the
amount recommended by such managing Underwriter or Underwriters; provided that
                                                                 --------     
if securities are being offered for the account of other persons or entities as
well as the Company, then (1) in the case of a Primary Registration, the
reduction in the amount of securities requested to be offered shall be made
first pro rata among securities offered for the accounts of Holders and such
other persons or entities, and (2) in the case of a Secondary Registration, the
reduction in the amount of securities requested to be offered shall be made in
accordance with the terms of the registration rights agreement pursuant to which
such Secondary Registration is made, provided that if any such registration
                                     --------                              
rights agreement is silent with respect to reductions in shares being registered
thereunder, then with respect to the Registrable Securities intended to be
offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other persons or entities is reduced and (B) if the combination
of securities to be offered is the basis of such Underwriter's opinion, (x) the
Registrable Securities to be included in such offering shall be reduced as
described in clause (A) above (subject to the proviso in clause (A)) or, (y) if
the actions described in clause (x) would, in the judgment of the managing
Underwriter, be insufficient to substantially eliminate the adverse

                                       6
<PAGE>
 
effect that inclusion of the Registrable Securities requested to be included
would have on such offering, such Registrable Securities will be excluded from
such offering.

          SECTION 2.4.  REGISTRATION PROCEDURES; FILINGS; INFORMATION.  In
                        ---------------------------------------------     
connection with any Shelf Registration Statement under Section 2.1 hereof, the
Company will use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition thereof as expeditiously as possible (and in any event within the
periods referred to in Section 2.1), and in connection with any such request:

          (a) As provided in Section 2.1 hereof, the Company will as
expeditiously as possible prepare and file with the Commission a registration
statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale by the Selling Holders of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof and
which shall comply as to form in all material respects with the requirements of
the applicable form and include or incorporate by reference all financial
statements required by the Commission to be filed therewith, and use its best
efforts to cause such filed registration statement to become and remain
effective.

          (b) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, notify each
Holder of Registrable Securities that a Shelf Registration Statement is being
filed and advise such Holder that an offering of Registrable Securities will be
made in accordance with the method elected (which method may also include an
underwritten offering) by the Holders of a majority of the Registrable
Securities, furnish to each Selling Holder and each Underwriter, if any, of the
Registrable Securities covered by such registration statement or prospectus
copies of such registration statement or prospectus or any amendment or
supplement thereto as proposed to be filed, and thereafter furnish to such
Selling Holder and Underwriter, if any, such number of conformed copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Selling Holder or
Underwriter may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Selling Holder.

          (c) The Company will notify each Holder of Registrable Securities and
counsel for such Holder promptly and, if requested by such Holder or counsel,
confirm such advice in writing promptly (i) when a registration statement has
become effective and when any post-effective amendments and supplements thereto
become effective, (ii) of any request by the Commission or any state securities
authority for post-effective amendments and supplements to a registration
statement has become effective, (iii) of the issuance by the Commission or any
state securities authority of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that purpose,
(iv) if, during the period a registration statement is effective, the
representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any,
relating to such offering cease to be true and correct in all material respects,
(v) of the receipt by the 

                                       7
<PAGE>
 
Company of any notification with respect to the suspension of the qualification
of the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (vi) of any determination by
the Company that a post-effective amendment to a registration statement would be
appropriate.

          (d) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States (where an exemption is not available) as any
Selling Holder or managing Underwriter or Underwriters, if any, reasonably (in
light of such Selling Holder's intended plan of distribution) requests by the
time the registration statement relating thereto is declared effective by the
Commission and (ii) cause such Registrable Securities to be registered with or
approved by such other governmental agencies or authorities, including the
National Association of Securities Dealers ("NASD"), as may be necessary by
                                             ----                          
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition of the Registrable Securities owned
by such Selling Holder; provided that the Company will not be required to (A)
                        --------                                             
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction except as may be required by the Securities
Act.

          (e) The Company will immediately notify each Selling Holder or
Underwriter of such Registrable Securities, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
occurrence of an event requiring the preparation of a supplement or amendment to
such prospectus and shall file with the Commission such amendments and
supplements to such prospectus and deliver copies of the same to the Selling
Holders or Underwriters, as the case may be, so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances then existing, not misleading and promptly make
available to each Selling Holder a reasonable number of copies of any such
supplement or amendment.

          (f) The Company will enter into customary agreements (including an
underwriting agreement or securities sale agreement, if any, in customary form)
containing such representations and warranties to the Holders of such
Registrable Securities and the Underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in similar underwritten
offerings as may be reasonably requested by them and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities.

          (g) The Company will make available for inspection by any Selling
Holder of such Registrable Securities, any Underwriter participating in any
disposition pursuant to such registration statement and any attorney, accountant
or other professional retained by any such Selling Holder or Underwriter
(collectively, the "Inspectors"), all financial and other 

                                       8
<PAGE>
 
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them to
                    -------
exercise their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
Inspectors in connection with such registration statement. Records which the
Company determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such registration statement or (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. Each Selling Holder of such Registrable Securities agrees that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the company or its Affiliates or otherwise
disclosed by it unless and until such is made generally available to the public.
Each Selling Holder of such Registrable Securities further agrees that it will,
upon learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Records deemed
confidential.

          (h) The Company will furnish to each Selling Holder and to each
Underwriter, if any, a signed counterpart, addressed to such Selling Holder or
Underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a
comfort letter or comfort letters from the Company's independent public
accountants (to the extent permitted by the standards of the American Institute
of Certified Public Accountants), each in customary form and covering such
matters of the type customarily covered by opinions or comfort letters, as the
case may be, as the Holders of a majority of the Registrable Securities included
in such offering or the managing Underwriter or Underwriters therefor reasonably
request.

          (i) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of twelve (12) months, beginning within three (3) months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of
the Commission promulgated thereunder (or any successor rule or regulation
hereafter adopted by the Commission).

          (j) The Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed.

          (k) The Company will use its best efforts to obtain CUSIP numbers for
the Preferred Stock not later than the effective date of the Shelf Registration
Statement.

          The Company may require, as a condition precedent to the obligations
of the Company under the Agreement, each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding such Selling Holder, the Registrable Securities held by it and the
intended method of distribution of the Registrable 

                                       9
<PAGE>
 
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration.

          Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 2.4(e)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement and prospectus
covering such Registrable Securities until such Selling Holder's receipt of the
copies of the supplemented or amended prospectus contemplated by Section 2.4(e)
hereof, and, if so directed by the Company, such Selling Holder will deliver to
the Company all copies, other than permanent file copies then in such Selling
Holder's possession, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice.  Each Selling Holder of
Registrable Securities agrees that it will immediately notify the Company at any
time when a prospectus relating to the registration of such Registrable
securities is required to be delivered under the Securities Act of the happening
of an event as a result of which information previously furnished by such
Selling Holder to the Company in writing for inclusion in such prospectus
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.  In the
event the Company shall give such notice, the Company shall extend the period
during which such registration statement shall be maintained effective
(including the period referred to in Section 2.4(a) hereof) by the number of
days during the period from and including the date of the giving of notice
pursuant to Section 2.4(e) hereof to the date when the Company shall make
available to the Selling Holders of Registrable Securities covered by such
registration statement a prospectus supplemented or amended to conform with the
requirements of Section 2.4(e) hereof.

          SECTION 2.5.  REGISTRATION EXPENSES.  In connection with any
                        ---------------------                         
registration statement required to be filed hereunder, the Company shall pay the
following registration expenses incurred in connection with the registration
hereunder (the "Registration Expenses"): (i) all Commission, stock exchange,
                ---------------------                                       
NASD or other registration and filing fees, (ii) fees and expenses of compliance
with securities or blue sky laws and compliance with the rules of the NASD
(including reasonable fees and disbursements of U.S. and local counsel for any
Underwriters and Holders in connection with blue sky qualifications of the
Registrable Securities), (iii) printing expenses of any persons in preparing and
distributing any Shelf Registration Statement, any prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements,
certificates representing the Preferred Stock and any other document relating to
the performance of, and compliance with, this Agreement, (iv) internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange, (vi) reasonable fees and disbursements of counsel for the
Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any special
audits or comfort letters or costs associated with compliance with such special
audits or with the delivery by independent certified public accountants of a
comfort letter or comfort letters requested pursuant to Section 2.4(h) hereof),
(vii) the reasonable fees and expenses of any special experts retained by the
Company in connection with such registration, 

                                       10
<PAGE>
 
and (viii) reasonable fees and expenses of one counsel (who shall be reasonably
acceptable to the Company) for the Selling Holders. Except as expressly provided
in the preceding sentence, the Company shall have no obligation to pay any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, or any out-of-pocket expenses of the Holders (or the
agents who manage their accounts) or any transfer taxes relating to the
registration or sale of the Registrable Securities.

          SECTION 2.6.  INDEMNIFICATION BY THE COMPANY.  The Company agrees to
                        ------------------------------                        
indemnify and hold harmless each Selling Holder of Registrable Securities, its
officers, directors and agents, and each Person, if any, who controls such
Selling Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and all losses, claims, damages,
expenses and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Company by such
Selling Holder or on such Selling Holder's behalf expressly for inclusion
therein.  The Company also agrees to indemnify any Underwriters of the
Registrable Securities, their officers and directors and each Person who
controls such Underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act on substantially the same basis as that of
the indemnification of the Selling Holders provided in this Section 2.6,
provided that the foregoing indemnity with respect to any preliminary prospectus
- --------                                                                        
shall not inure to the benefit of any Underwriter of the Registrable Securities
from whom the person asserting any such losses, claims, damages or liabilities
purchased the Registrable Securities which are the subject thereof if (i) such
person did not receive a copy of the prospectus (or the prospectus as
supplemented) at or prior to the confirmation of the sale of such Registrable
Securities to such person in any case where such delivery is required by the
Securities Act and the untrue statement or omission of a material fact contained
in such preliminary prospectus was corrected in the prospectus (or the
prospectus as supplemented), provided that such Underwriter received prior
notice that such prospectus (or the prospectus as supplemented) corrected such
untrue statement or omission of a material fact; or (ii) such person received a
prospectus at or prior to the confirmation of the sale of such Registrable
Securities to such person during the period when the use of such prospectus has
been suspended in accordance with Section 2.4, provided that such Underwriter
                                               --------                      
received prior notice of such suspension.

          SECTION 2.7.  INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES.
                        ----------------------------------------------------  
Each Selling Holder agrees, severally but not jointly, to indemnify and hold
harmless the Company, its officers, directors and agents and each Person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to such Selling Holder, but only with
respect to information relating to such Selling Holder furnished in writing by
such 

                                       11
<PAGE>
 
Selling Holder or on such Selling Holder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities, or
any amendment or supplement thereto, or any preliminary prospectus. In case any
action or proceeding shall be brought against the Company or its officers,
directors or agents or any such controlling person, in respect of which
indemnity may be sought against such Selling Holder, such Selling Holder shall
have the rights and duties given to the Company, and the Company or its
officers, directors or agents or such controlling person shall have the rights
and duties given to such Selling Holder, by Section 2.6 hereof.

          SECTION 2.8.  CONDUCT OF INDEMNIFICATION PROCEEDINGS.  In case any
                        --------------------------------------              
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Sections 2.6 or 2.7 hereof, such person (an "Indemnified Party") shall promptly
                                             -----------------                 
notify the person against whom such indemnity may be sought (an "Indemnifying
                                                                 ------------
Party") in writing and the Indemnifying Party shall assume the defense thereof,
- -----                                                                          
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all fees and expenses.  In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them.  It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred.  In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by (i) in the case
of Persons indemnified pursuant to Section 2.6 hereof, by the Selling Holders
which owned a majority of the Registrable Securities sold under the applicable
registration statement and (ii) in the case of Persons indemnified pursuant to
Section 2.7 hereof, the Company.  The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment.  Notwithstanding the foregoing sentence,
if at any time an Indemnified Party shall have requested an Indemnifying Party
to reimburse the Indemnified Party for fees and expenses of counsel as
contemplated by the third sentence of this paragraph, the Indemnifying Party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
thirty (30) Business Days after receipt by such Indemnifying Party of the
aforesaid request and (ii) such Indemnifying Party shall not have reimbursed the
Indemnified Party in accordance with such request prior to the date of such
settlement.  No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any pending or threatened
proceeding in which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such 

                                       12
<PAGE>
 
settlement includes an unconditional release of such Indemnified Party from
all liability arising out of such proceeding.

          SECTION 2.9.  CONTRIBUTION.  If the indemnification provided for in
                        ------------                                         
Sections 2.6 or 2.7 hereof is unavailable to an Indemnified Party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Company and the Selling Holders on the one hand and the
Underwriters on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Holders on the one
hand and the Underwriters on the other from the offering of the securities, or
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company and the Selling Holders on the one hand and of the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Company on the one
hand and each Selling Holder on the other, in such proportion as is appropriate
to reflect the relative fault of the Company and of each Selling Holder in
connection with such statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Holders on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Holders bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the prospectus. The relative fault of the Company and
the Selling Holders on the one hand and of the Underwriters on the other shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the Selling
Holders or by the Underwriters. The relative fault of the Company on the one
hand and of each Selling Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or such Selling Holder, and the
Company's and the Selling Holder's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

          The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 2.9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph.  The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in Sections 2.6 and 2.7
hereof shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 2.9, no Underwriter shall be

                                       13
<PAGE>
 
required to contribute any amount in excess of the amount by which the total
price at which the securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Selling Holder's obligations to contribute pursuant to
this Section 2.9 are several in the proportion that the proceeds of the offering
received by such Selling Holder bears to the total proceeds of the offering
received by all the Selling Holders and not joint.

          SECTION 2.10.  PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.  No Person
                         -------------------------------------------            
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents in customary
form and reasonably required under the terms of such underwriting arrangements
and these registration rights provided for in this Article II.

          SECTION 2.11.  RULE 144.  The Company covenants that it will file any
                         --------                                              
reports required to be filed by it under the Securities Act and the Exchange Act
and that it will take such further action as any Holder may reasonably request,
all to the extent required from time to time to enable Holders to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission.  Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.

          SECTION 2.12.  HOLDBACK AGREEMENTS.
                         ------------------- 

          (a) Restrictions on Public Sale by Holder of Registrable Securities.
              ---------------------------------------------------------------  
To the extent not inconsistent with applicable law, upon receipt of written
notice from the Company, each Holder whose securities are included in a
registration statement pursuant to Section 2.2 agrees not to effect any sale or
distribution of the issue being registered or a similar security of the Company,
or any securities convertible into or exchangeable or exercisable for such
securities, including a "broker's transaction" pursuant to Rule 144, but
excluding any private sale made in reliance on Section 4(2) of the Securities
Act, during the 7 days prior to, and during the 90-day period beginning on, the
effective date of such registration statement (except as part of such
registration), if and to the extent requested in writing by the Company in the
case 

                                       14
<PAGE>
 
of a non-underwritten public offering or if and to the extent requested in
writing by the managing Underwriter or Underwriters in the case of an
underwritten public offering.

          (b) If the Company determines in its good faith judgment that the
filing of the Shelf Registration Statement under Section 2.1 hereof or the use
of any related prospectus would require the disclosure of non-public material
information that the Company has a bona fide business purpose for preserving as
confidential or the disclosure of which would impede the Company's ability to
consummate a material transaction, and that the Company is not otherwise
required by applicable securities laws or regulations to disclose, upon written
notice of such determination by the Company, the rights of the Holders to offer,
sell or distribute any Registrable Securities pursuant to the Shelf Registration
Statement or to require the Company to take action with respect to the
registration or sale of any Registrable Securities pursuant to the Shelf
Registration Statement shall be suspended until the earlier of (i) the date upon
which the Company notifies the Holders in writing that suspension of such rights
for the grounds set forth in this Section 2.12(b) is no longer necessary and
(ii) 180 days. The Company agrees to give such notice as promptly as practicable
following the date that such suspension of rights is no longer necessary.

          (c) If all reports required to be filed by the Company pursuant to the
Exchange Act have not been filed by the required date without regard to any
extension, or if the consummation of any business combination by the Company has
occurred or is probable for purposes of Rule 3-05 or Article 11 of Regulation S-
X under the Act, upon written notice thereof by the Company to the Holders, the
rights of the Holders to offer, sell or distribute any Registrable Securities
pursuant to the Shelf Registration Statement or to require the Company to take
action with respect to the registration or sale of any Registrable Securities
pursuant to the Shelf Registration Statement shall be suspended until the date
on which the Company has filed such reports or obtained and filed the financial
information required by Rule 3-05 or Article 11 of Regulation S-X to be included
or incorporated by reference, as applicable, in the Shelf Registration
Statement, and the Company shall notify the Holders as promptly as practicable
when such suspension is no longer required.

                                  ARTICLE III

                                 MISCELLANEOUS
                                 -------------

          SECTION 3.1.  REMEDIES.  In addition to being entitled to exercise all
                        --------                                                
rights provided herein and granted by law, including recovery of damages, the
Holders shall be entitled to specific performance of the rights under this
Agreement.  The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.

          SECTION 3.2.  AMENDMENTS AND WAIVERS.  The provisions of this
                        ----------------------                         
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given without the prior written consent of the
Company and the Holders or any such Holder's 

                                       15
<PAGE>
 
representative if any such Holder is Incapacitated. No failure or delay by any
party to insist upon the strict performance of any covenant, duty, agreement or
condition of this Agreement or to exercise any right or remedy consequent upon
any breach thereof shall constitute a waiver of any such breach or any other
covenant, duty, agreement or condition.

          SECTION 3.3.  NOTICES.  All notices and other communications in
                        -------                                          
connection with this Agreement shall be made in writing by hand delivery,
registered first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:

               (1)  if to any Unit Holder:

                    Belair Capital Fund LLC
                    c/o Eaton Vance Management
                    24 Federal Street
                    Boston, MA  02110
                    Attn:  Alan Dynner
                    Facsimile Number:  (617) 338-8054

                    with a copy to:

                    Peter Blessing, Esq.
                    (6544-4)
                    Shearman & Sterling
                    599 Lexington Avenue
                    New York, NY  10022
                    Facsimile Number:  (212) 848-7179

               (2)  if to the Company or the Operating Partnership:

                    National Golf Properties, Inc.
                    2951 28th Street, Suite 3001
                    Santa Monica, CA 90405
                    Attention: President
                    Facsimile Number:  (310) 664-6170

                    or to such other address as the Company may hereafter
                    specify in writing.

          All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received if
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.

                                       16
<PAGE>
 
          SECTION 3.4.  SUCCESSORS AND ASSIGNS.  Except as expressly provided in
                        ----------------------                                  
this Agreement, the rights and obligations of the Holders under this Agreement
shall not be assignable by any Holder to any Person that is not a Holder.  This
Agreement shall be binding upon the parties hereto and their respective
successors and assigns.

          SECTION 3.5.  COUNTERPARTS; FACSIMILE SIGNATURES.  This Agreement may
                        ----------------------------------                     
be executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto, which may be an original signature or facsimile thereof.

          SECTION 3.6.  GOVERNING LAW.  This Agreement shall be governed by and
                        -------------                                          
construed in accordance with the internal laws of the State of California
without regard to the choice of law provisions thereof.

          SECTION 3.7.  SEVERABILITY.  In the event that any one or more of the
                        ------------                                           
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

          SECTION 3.8.  ENTIRE AGREEMENT.  This Agreement is intended by the
                        ----------------                                    
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Registrable Securities.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

          SECTION 3.9.  HEADINGS.  The headings in this Agreement are for
                        --------                                         
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

          SECTION 3.10. NO THIRD PARTY BENEFICIARIES.  Nothing express or
                        ----------------------------                     
implied herein is intended or shall be construed to confer upon any person or
entity, other than the parties hereto and their respective successors and
assigns, any rights, remedies or other benefits under or by reason of this
Agreement.

                            (Signature Page Follows)

                                       17
<PAGE>
 
          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

                              NATIONAL GOLF PROPERTIES, INC.,

                              a Maryland corporation


                              By:  /s/ James M. Stanich
                                  --------------------------------------
                                  James M. Stanich
                                  President



                              NATIONAL GOLF OPERATING 
                              PARTNERSHIP, L.P.,
                              a Delaware limited partnership

                              By: NATIONAL GOLF PROPERTIES, INC.,
                                  its general partner


                                  By: /s/ James M. Stanich
                                     -----------------------------------
                                     James M. Stanich
                                     President



                              BELAIR CAPITAL FUND LLC

                              By: Eaton Vance Management, as its Manager


                                  By: /s/ Thomas Otis
                                     ----------------------------------
                                     Thomas Otis
                                     Vice President

<PAGE>
 
                                                                    EXHIBIT 10.3

                             CONTRIBUTION AGREEMENT



                                    BETWEEN


                            BELAIR CAPITAL FUND LLC


                                      AND


                   NATIONAL GOLF OPERATING PARTNERSHIP, L.P.
                                      AND
                         NATIONAL GOLF PROPERTIES, INC.



                          Dated:  As of March 4, 1998
<PAGE>
 
                             CONTRIBUTION AGREEMENT
                             ----------------------

     Contribution Agreement (this "AGREEMENT") made as of the 4th day of March,
                                   ---------                                   
1998 ("AGREEMENT DATE"), by and between BELAIR CAPITAL FUND LLC, a Massachusetts
       --------------                                                           
limited liability company (the "CONTRIBUTOR"), and NATIONAL GOLF OPERATING
                                -----------                               
PARTNERSHIP, L.P., a Delaware limited partnership ("OPERATING PARTNERSHIP") and
                                                    ---------------------      
NATIONAL GOLF PROPERTIES, INC., a Maryland corporation ("COMPANY").
                                                         -------   


                                  WITNESSETH:

     WHEREAS, Contributor desires to contribute to Operating Partnership cash in
return for Preference Units in Operating Partnership on the terms and conditions
herein set forth.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:

     1.   DEFINITIONS.  For purposes of this Agreement, the following terms
          -----------                                                      
shall have the meanings set forth below:

     "AGREEMENT" has the meaning set forth in the initial paragraph hereof.
      ---------                                                            

     "AGREEMENT DATE" has the meaning set forth in the initial paragraph hereof.
      --------------                                                            

     "AGREEMENT OF LIMITED PARTNERSHIP" means the Amended and Restated Agreement
      --------------------------------                                          
of Limited Partnership of Operating Partnership, dated as of the date hereof, as
amended from time to time.

     "BYLAWS" means the Bylaws of the Company, as amended from time to.
      ------                                                           

     "BROKER" has the meaning set forth in PARAGRAPH 10.
      ------                                            

     "CLOSING" has the meaning set forth in PARAGRAPH 6(a).
      -------                                              

     "CHARTER" means the Articles of Incorporation of the Company, as amended
      -------                                                                
and restated from time to time including, as amended by the Articles
Supplementary, substantially in the form attached hereto as EXHIBIT E.

     "CODE" means the Internal Revenue Code of 1986, as amended.
      ----                                                      

     "COMPANY" has the meaning set forth in the initial paragraph hereof.
      -------                                                            
<PAGE>
 
     "CONTRIBUTION AMOUNT" means $60,000,000.
      -------------------                    

     "CONTRIBUTOR" has the meaning set forth in the initial paragraph hereof.
      -----------                                                            

     "CONTRIBUTOR'S CLOSING DOCUMENTS" has the meaning set forth in PARAGRAPH
      -------------------------------                                        
6(c).

     "EXCHANGE DATE" means, with respect to any Preferred Unit, the date on
      -------------                                                        
which the exchange of such Preferred Units for Preferred Shares shall occur in
accordance with the Partnership Agreement.

     "ERISA" means the Employee Retirement Income Securities Act of 1974, as
      -----                                                                 
amended.

     "GAAP" means generally accepted accounting principles consistently applied
      ----                                                                     
as in effect as of the date of the financial statements to which such principles
are applied.

     "GOVERNING DOCUMENTS" means, with respect to (i) a limited partnership,
      -------------------                                                   
such limited partnership's certificate of limited partnership and the agreement
of limited partnership, and any amendments or modifications of any of the
foregoing; (ii) a corporation, such corporation's articles or certificate of
incorporation, by-laws and any applicable authorizing resolutions, and any
amendments or modifications of any of the foregoing; (iii) a limited liability
company, such limited liability company's articles or certificate of
organization, by-laws and operating agreement or agreement of limited liability
company, and any amendments or modifications of any of the foregoing.

     "MANAGER" means Eaton Vance Management, a Massachusetts business trust, as
      -------                                                                  
manager of Contributor.

     "OPERATING PARTNERSHIP" has the meaning set forth in the initial paragraph
      ---------------------                                                    
hereof.

     "OPERATING PARTNERSHIP'S CLOSING DOCUMENTS" has the meaning set forth in
      -----------------------------------------                              
PARAGRAPH 6(b).
 
     "PARTNER" has the meaning ascribed to such term in the Agreement of Limited
      -------                                                                   
Partnership.

     "PERSON" means a natural person, partnership (whether general or limited),
      ------                                                                   
trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or representative capacity.

     "PREFERENCE UNITS" means Series A Preferred Units as such term is defined
      ----------------                                                        
in the Agreement of Limited Partnership.
<PAGE>
 
     "PREFERRED SHARES" means shares of Company's 8% Series A Cumulative
      ----------------                                                  
Redeemable Preferred Stock, par value $.01 per share, with the terms and
provisions set forth in EXHIBIT C.

     "PTP" means a "publicly traded partnership" within the meaning of Section
      ---                                                                     
7704 of the Code.

     "SECURITIES ACT" means the Securities Act of 1933, as amended.
      --------------                                               

     "SUBSIDIARY" means with respect to any Person, any corporation,
      ----------                                                    
partnership, limited liability company, joint venture or other entity of which a
majority of (i) voting power of the voting equity securities or (ii) the
outstanding equity interests, is owned, directly or indirectly, by such Person.

     "US$" means United States dollars, lawful money of the United States of
      ---                                                                   
America.

     2.   CONTRIBUTION OF CASH.  Subject to the terms and provisions of this
          --------------------                                              
Agreement, Contributor hereby agrees to contribute to Operating Partnership the
Contribution Amount on the date of the Closing in consideration for 1,200,000
Preference Units in Operating Partnership.  Subject to the terms and provisions
of this Agreement, Operating Partnership hereby agrees to accept the
Contribution Amount and to issue to Contributor 1,200,000 Preference Units in
exchange therefor.

     3.   CONDITIONS TO CLOSING.  (a)  Conditions to Operating Partnership's and
          ---------------------        -----------------------------------------
Company's Obligations.  Operating Partnership's and Company's obligations under
- ---------------------                                                          
this Agreement to accept the Contribution Amount, provide Contributor with
Preference Units and otherwise consummate the transactions contemplated herein
are subject to the satisfaction (or waiver in writing by Operating Partnership
and Company) of the following conditions on or before the Closing:

     (i) Accuracy of Representations and Warranties.  The representations and
         ------------------------------------------                          
 warranties of Contributor contained in this Agreement shall be true and correct
 in all material respects on the date of the Closing with the same effect as
 though made on the date of the Closing.

     (ii) Performance of Agreement.  Contributor shall have performed, in all
          ------------------------                                           
 material respects, all of its covenants, agreements and obligations required by
 this Agreement to be performed or complied with by it prior to or at the
 Closing, including, without limitation, delivery of the Contribution Amount.

     (iii)      Delivery of Closing Documents.  Operating Partnership and
                -----------------------------                            
 Company shall have received the Contributor's Closing Documents.
<PAGE>
 
     In the event that for any reason any of the conditions set forth in this
PARAGRAPH 3(a) or elsewhere in this Agreement are not satisfied or waived by
Operating Partnership and Company at or prior to the Closing, at Operating
Partnership's or Company's option, this Agreement shall be terminated and
Operating Partnership, Company and Contributor shall be released from their
obligations under this Agreement and none of Operating Partnership, Company or
Contributor shall have any further liability hereunder.

     (b)   Conditions to Contributor's Obligations.  Contributor's obligations
           ---------------------------------------                            
under this Agreement to deliver the Contribution Amount and otherwise consummate
the transactions contemplated herein are subject to the satisfaction (or waiver
in writing by Contributor) of the following conditions on or before the Closing:

     (i)   Pending Litigation. Contributor shall have determined in
           ------------------
           Contributor's sole judgement, that there is no pending litigation or
           like proceeding with respect to Operating Partnership or Company
           which, if successfully pursued, would prevent the consummation of the
           transactions contemplated hereby.

     (ii)  Accuracy of Representations and Warranties.  The representations and
           ------------------------------------------                          
           warranties of Operating Partnership and Company contained in this
           Agreement shall be true and correct in all material respects on the
           date of the Closing with the same effect as though made on the date
           of the Closing.

     (iii) Performance of Agreement.  Operating Partnership and Company shall 
           ------------------------                                    
           have performed, in all material respects, all of their respective
           covenants, agreements and obligations required by this Agreement to
           be performed or complied with by it prior to or at the Closing.

     (iv)  Delivery of Closing Documents.  Contributor shall have received the
           -----------------------------                                      
           Operating Partnership's Closing Documents.

     In the event that for any reason any of the conditions set forth in this
PARAGRAPH 3(b) or elsewhere in this Agreement are not satisfied or waived by
Contributor at or prior to the Closing, at Contributor's option, this Agreement
shall be terminated and Contributor, Operating Partnership and Company shall be
released from their obligations under this Agreement and none of Contributor,
Operating Partnership or Company shall have any further liability hereunder.

     4.   COVENANTS.  (a)  On the Exchange Date, Company shall issue Preferred
          ---------                                                           
Shares in Company in a number equal to the number of Preferred Shares into which
the Preference Units are exchangeable pursuant to the terms of the Agreement of
Limited Partnership.  Upon consummation of such exchange in accordance with the
terms of the Agreement of Limited Partnership, and issuance in accordance with
the Charter, the Preferred Shares shall be validly issued, fully paid and non-
assessable pursuant to the Articles Supplementary, substantially in the form
attached as EXHIBIT C.
            --------- 
<PAGE>
 
     (b) Operating Partnership covenants to notify holders of Preference Units
promptly in the event Company or any Subsidiary of Company anticipates or
realizes either that (i) the amount of Operating Partnership's assets
constituting "stock and securities" within the meaning of Section 351(e)(1) of
the Code will equal 10% or more of Operating Partnership's total assets or (ii)
there is a material increase in the amount of Operating Partnership's assets
constituting "stock and securities" if immediately preceding such material
increase the amount of Operating Partnership's assets constituting "stock and
securities" within the meaning of Section 351(e)(1) of the Code equaled 10% or
more of the Operating Partnership's total assets.

     (c) Company agrees that, from and after January 1, 1999, it will notify
holders of Preference Units promptly in the event that Company or any Subsidiary
of Company takes the position that Operating Partnership is, or upon
consummation of an identified event in the then immediate future will be, a PTP.

     (d) Through the end of 1998, Operating Partnership: (i) shall take all
actions reasonably available to it under the Agreement of Limited Partnership as
presently in effect to avoid treatment as a PTP; and (ii) shall not issue, or
enter into binding agreements to issue, any Operating Partnership units to the
extent such issuance would cause it to have more than 60 partners within the
meaning of Treasury Regulation Section 1.7704-1(h)(3) immediately after such
issuance.

     (e) For each taxable year, Company will promptly provide notice to the
holders of the Preference Units in the event Company or any Subsidiary of
Company anticipates or realizes that less than 90% of the gross income of
Operating Partnership for such taxable year will or likely will constitute
"qualifying income" within the meaning of Section 7704(d) of the Code.

     (f) Operating Partnership covenants that it shall deliver to holders of
Preference Units the following:

          (i) as soon as available, but in no event later than ten business days
following the date on which Company files its annual report in respect of a
fiscal year on Form 10-K, or such other applicable form ("Form 10-K"), with the
Securities and Exchange Commission (the "COMMISSION") (or, in the event that
                                         ----------
Operating Partnership is required under rules and regulations promulgated by the
Commission to file with the Commission a Form 10-K separate from Company's Form
10-K, ten business days after the filing of such report by Operating Partnership
with the Commission), a complete copy of Operating Partnership's financial
statements for such fiscal year including a balance sheet, income statement and
cash flow statement for such fiscal year in accordance with GAAP (except with
respect to footnotes); and

          (ii) as soon as available, but in no event later than ten business
days following
<PAGE>
 
the date on which Company files its quarterly report in respect of a fiscal
quarter on Form 10-Q, or such other applicable form ("Form 10-Q"), with the
Commission (or, in the event the Operating Partnership is required under rules
and regulations promulgated by the Commission to file with the Commission a Form
10-Q separate from Company's Form 10-Q, ten business days after the filing of
such report by Operating Partnership with the Commission), a complete copy of
Operating Partnership's unaudited quarterly financial statements for such fiscal
quarter including a balance sheet, income statement and cash flow statement for
such fiscal quarter prepared in accordance with GAAP (except with respect to
footnotes).

     (g) Provided that all other conditions to Operating Partnership's and
Company's obligations set forth in this Agreement have been satisfied or
properly waived, Operating Partnership covenants that it shall record
Contributor as the holder of the Preference Units on its books and records and
shall admit Contributor as a limited partner to Operating Partnership on the
date of the Closing in accordance with the Agreement of Limited Partnership.

     (h) Company or Operating Partnership shall not issue any Preference Units
to any Person other than Contributor and shall not issue any Preferred Shares to
any Person other than a holder of Preference Units upon exchange of such
Preference Units.

     (i) So long as there shall be accrued and unpaid distributions in arrears
with respect to the Preference Units, Company or Operating Partnership shall not
sell, exchange, dispose of or otherwise transfer any property of the Partnership
contributed at the time of the closing of the initial public offering of the
common shares in the Company prior to the end of the fifteenth (15/th/) year
following the Effective Date (as defined in the Agreement of Limited
Partnership) in a manner that requires distributions to be made to Common
Limited Partners pursuant to SECTION 7.1.A(3) of the Agreement of Limited
Partnership, unless (i) all such Common Limited Partners entitled to such
distributions waive their right to receive such distributions in cash or by a
promissory note pursuant to SECTION 7.1.A(3), or (ii) any such distributions in
arrears with respect to the Preference Units are paid in full with the proceeds
of such sale, exchange, disposition or transfer.

     The covenants set forth in this PARAGRAPH 4 shall survive the Closing.

     5.   TRANSACTION COSTS.  Except as otherwise specifically set forth herein,
          -----------------                                                     
each of the parties hereto shall bear its own costs and expenses with respect to
the transaction contemplated hereby.

     6.   CLOSING.  (a)  The closing of the transactions contemplated by this
          -------                                                            
Agreement shall be consummated on March 4, 1998 (the "CLOSING").
                                                      -------   

     (b) At the Closing, Operating Partnership and Company shall deliver to
<PAGE>
 
Contributor the following documents and the following other items (the documents
and other items described in this PARAGRAPH 6(b) being collectively referred to
herein as the "OPERATING PARTNERSHIP CLOSING DOCUMENTS"):
               ---------------------------------------   

     (i) This Agreement duly executed and delivered by Operating Partnership and
Company;

     (ii) The Amended and Restated Agreement of Limited Partnership,
substantially  in the form set forth on EXHIBIT A,  duly executed and delivered
                                        ---------                              
by all persons necessary to make such agreement binding on and enforceable
against all Partners in Operating Partnership;

     (iii)      A Registration Rights Agreement, substantially  in the form set
forth on EXHIBIT B, duly executed and delivered by Company;
         ---------                                         

     (iv) A Certificate of the Secretary of Company, substantially in the form
set forth on EXHIBIT D together with completed exhibits attached thereto,
             ---------                                                   
executed by the secretary of the Company and dated as of the date of the
Closing;

     (v) A copy of Company's Articles Supplementary, substantially in the form
set forth on EXHIBIT C, certified as filed by the State Department of
             ---------                                               
Assessments and Taxation of Maryland;

     (vi) An opinion of counsel to Company and Operating Partnership
substantially in the form set forth on EXHIBIT E;
                                       --------- 

     (vii)      A Cross-Receipt, substantially in the form set forth on EXHIBIT
                                                                        -------
F;
- - 

     (viii)     A global certificate representing the Preference Units

     (ix) A Written Consent of the existing limited partners in the Operating
Partnership, substantially in the form set forth on EXHIBIT G;
                                                    --------- 

     (x) A Written Consent of Operating Partnership consenting to the pledge of
the Preference Units to Merrill Lynch International Bank Limited and Merrill
Lynch Capital Services, Inc., substantially in the form set forth on EXHIBIT H;
                                                                     --------- 
and

     (xi) those closing documents required to be executed by it or as may be
otherwise necessary or appropriate to consummate the transaction contemplated
hereby;

     (c) At the Closing, Contributor shall deliver to Operating Partnership and
Company the following documents and the following other items (the documents and
other items described in this PARAGRAPH 6(c) being collectively referred to
herein as the
<PAGE>
 
"CONTRIBUTOR'S CLOSING DOCUMENTS"):
 -------------------------------   

     (i) counterparts of documents listed in PARAGRAPH 6(b)(i), (ii), (iii), AND
(vii) duly executed and delivered by Contributor.

     (ii) those other closing documents required to be executed by it or as may
be otherwise necessary or appropriate to consummate the transaction contemplated
hereby.

     7.   REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR.  Contributor makes the
          ---------------------------------------------                        
following representations and warranties to Operating Partnership and Company,
all of which (except as otherwise designated) are true and correct in all
material respects on the Agreement Date and shall be true and correct in all
material respects as of the date of the Closing:

     (a) Contributor is duly organized and validly existing under the laws of
the state of its organization and has been duly authorized by all necessary and
appropriate action to enter into this Agreement and to consummate the
transactions contemplated hereby, and the Manager of Contributor executing this
Agreement on behalf of Contributor has been duly authorized by all necessary and
appropriate action on behalf of Contributor.  This Agreement is a valid and
binding obligation of Contributor, enforceable against Contributor in accordance
with its terms, except insofar enforceability may be affected by bankruptcy,
insolvency or similar laws affecting creditor's rights generally and the
availability of any particular equitable remedy.

     (b) Neither the execution nor the delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor fulfillment of or
compliance with the terms and conditions hereof (a) conflict with or will result
in a breach of any of the terms, conditions or provisions of (i) the Governing
Documents of Contributor or its Manager or (ii) any agreement, order, judgement,
decree, arbitration award, statute, regulation or instrument to which
Contributor is a party or by which it or its assets are bound, or (b)
constitutes or will constitute a breach, violation or default under any of the
foregoing.    No consent or approval, authorization, order, regulation or
qualification of any governmental entity or any other person is required for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Contributor.

     (c) Contributor acknowledges that the Preference Units have not been and
will not be registered or qualified under the Securities Act or any state
securities laws and are offered in reliance upon an exemption from registration
under Regulation D of the Securities Act and similar state law exceptions.   The
Preference Units to be received by Contributor hereunder and any Preferred
Shares acquired in exchange therefor shall be held by Contributor for investment
purposes only for its own account, and not with a view to or for sale in
connection with any distribution of the Preference Units or such Preferred
Shares, and Contributor acknowledges that the Preference Units and Preferred
Shares cannot be sold or otherwise disposed of by the holders thereof unless
they are subsequently registered under the Securities Act or pursuant to a
exemption therefrom; and the Preference Units may not be sold, assigned
<PAGE>
 
or otherwise transferred except in compliance with the Agreement of Limited
Partnership. Contributor hereby acknowledges receipt of a copy of the Agreement
of Limited Partnership and represents that it has reviewed same and understands
the provisions thereof which have a bearing on the representations made in this
PARAGRAPH 7(c).

     (d) Contributor has no contract, understanding, agreement or arrangement
with any person or entity to sell, transfer or grant a participation to such
person or entity or any other person or entity, with respect to any or all of
the Preference Units it will receive in accordance with the provisions hereof or
any Preferred Shares to be acquired in exchange therefor.

     (e) Contributor is an "accredited investor" within the meaning of
Regulation D under the Securities Act and has knowledge and experience in
financial and business matters such that it is capable of evaluating the merits
and risks of receiving and owning the Preference Units and Contributor is able
to bear the economic risk of such ownership.

     (f) No part of the funds to be used by Contributor to purchase the
Preference Units constitutes "plan assets", as defined in Department of Labor
Regulation Section 2510.3-101 (29 C.F.R. 2510.3-101), of any "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") or individual retirement account or plan which is
subject to Section 4975 of the Code (collectively, a "Benefit Plan") or of any
account or entity whose underlying assets constitute "plan assets" of a Benefit
Plan by reason of the Benefit Plan's investment in the account or entity.
Contributor is not an employee benefit plan subject to ERISA or Section 4975 of
the Code.

     (g) In making this investment, Contributor is relying upon the advice of
its own personal, legal and tax advisors with respect to the tax and other
aspects of an investment in Operating Partnership.

     (h) There has been made available to Contributor and its respective
advisors the opportunity to ask questions of, and receive answers from,
Operating Partnership and Company concerning the terms and conditions of the
investment in the Preference Units, and to obtain Company's Registration
Statement filed with the Securities and Exchange Commission on Form S-11, the
Agreement of Limited Partnership, and any additional information, to the extent
that any of them possess such information, or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information given to it, or to otherwise make an informed investment decision,
and that Contributor has had an opportunity to consult with counsel and other
advisers about the investment in the Preference Units, and that all material
documents, records and books pertaining to such investment have, on request,
been made available to Contributor and its respective advisors.  Contributor has
reviewed Company's Registration Statement, referenced above, and any other
documents filed by Company since January 1, 1997 in accordance with the
requirements of the Exchange Act
<PAGE>
 
of 1934, including any business plans or strategies of Company or of Operation
Partnership set forth therein.

     (i) None of Contributor or any of its advisors, including Merrill Lynch &
Co., is aware of or has engaged in any form of general solicitation or
advertising with respect to sales of the Preference Units, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio; and
(ii) any seminar or meeting whose attendees were invited by any general
solicitation or general advertising.

     (j) Contributor shall accept an interest in a global certificate
representing the Preference Units with the following legends appearing thereon:

     THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT
     BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
     OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
     DISPOSITION COMPLIES WITH THE PROVISIONS OF THE PARTNERSHIP AGREEMENT (A
     COPY OF WHICH IS ON FILE WITH THE OPERATING PARTNERSHIP). EXCEPT AS
     OTHERWISE PROVIDED IN THE PARTNERSHIP AGREEMENT, NO TRANSFER, SALE,
     ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE PARTNERSHIP
     UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN
     EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
     AMENDED (THE "ACT"), OR (B) IF THE OPERATING PARTNERSHIP HAS BEEN FURNISHED
     WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER OF THE PARTNERSHIP
     UNITS REPRESENTED BY THIS CERTIFICATE OR OTHER EVIDENCE SATISFACTORY TO THE
     OPERATING PARTNERSHIP THAT SUCH TRANSFER, SALE ASSIGNMENT, PLEDGE,
     HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION
     5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER.


     Contributor and Manager of Contributor hereby expressly permit Ballard
Spahr Andrews & Ingersoll, as counsel to Company, and Latham & Watkins, as
counsel to Company and Operating Partnership, to rely upon representations and
warranties set forth above as if such representations and warranties were made
by Contributor and Manager of Contributor directly to Ballard Spahr Andrews &
Ingersoll and Latham & Watkins.

     8.   REPRESENTATIONS AND WARRANTIES OF OPERATING PARTNERSHIP AND COMPANY.
          -------------------------------------------------------------------  
Operating Partnership and Company make the following representations and
warranties to Contributor and Eaton Vance Management, all of which (except as
otherwise designated) are true and correct in all material respects on the
Agreement Date and shall be true and correct
<PAGE>
 
in all material respects as of the date of the Closing:

     (a) Operating Partnership is duly organized and validly existing under the
laws of the state of its organization and is duly registered and qualified to do
business in each jurisdiction where such registration or qualification is
material to the transactions contemplated hereby and has been duly authorized by
all necessary and appropriate action to enter into this Agreement, to issue,
sell and deliver the Preference Units and to consummate the transactions
contemplated herein, and the individuals executing this Agreement on behalf of
Operating Partnership have been duly authorized by all necessary and appropriate
action on behalf of Operating Partnership.  This Agreement is a valid and
binding obligation of Operating Partnership, enforceable against Operating
Partnership in accordance with its terms, except insofar enforceability may be
affected by bankruptcy, insolvency or similar laws affecting creditor's rights
generally and the availability of any particular equitable remedy.

     (b) Company is duly organized and validly existing under the laws of the
state of its organization and is duly registered and qualified to do business in
each jurisdiction where such registration or qualification is material to the
transactions contemplated hereby and has been duly authorized by all necessary
and appropriate action to enter into this Agreement, to issue and deliver, upon
exchange of the Preference Units, the Preferred Shares and to consummate the
transactions contemplated herein, and the individuals executing this Agreement
on behalf of Company have been duly authorized by all necessary and appropriate
action on behalf of Company. This Agreement is a valid and binding obligation of
Company, enforceable against Company in accordance with its terms, except
insofar enforceability may be affected by bankruptcy, insolvency or similar laws
affecting creditor's rights generally and the availability of any particular
equitable remedy. Notwithstanding anything to the contrary in this Agreement,
Company shall not be obligated to issue Preferred Shares in violation of the
provisions on stock ownership limitations set forth in the Charter or the
Agreement of Limited Partnership.

     (c) Neither the execution nor the delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor fulfillment of or
compliance with the terms and conditions hereof (a) conflict with or will result
in a breach of any of the terms, conditions or provisions of (i) the Governing
Documents of Company or Operating Partnership or any of its general partners or
(ii) any agreement, order, judgement, decree, arbitration award, statute,
regulation or instrument to which Company or Operating Partnership is a party or
by which it or its assets are bound, or (b) constitutes or will constitute a
breach, violation or default under any of the foregoing.  No consent or
approval, authorization, order, registration or qualification of any
governmental entity or any other person is required for the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Operating Partnership or Company.

     (d) Immediately following the issuance of the Preference Units pursuant to
this Agreement, less than 8% of Operating Partnership's assets will consist of
"stock and
<PAGE>
 
securities" within the meaning of Section 351(e)(1) of the Code and Operating
Partnership has no plan to increase the amount of its assets constituting "stock
and securities" to an amount equal to or greater than 10% (except for cash
equivalents and assets arising from the temporary investment of stock or debt
issuance proceeds).

     (e) Operating Partnership has not been and is not presently a PTP.

     (f) Neither Company nor any Subsidiary of Company has any present plan or
intention, and neither Company nor any Subsidiary of Company has any actual
knowledge of any present plan or intention of any partner in Operating
Partnership, to take any action or actions that would or likely would result in
Operating Partnership becoming a PTP in the foreseeable future.  Neither Company
nor any Subsidiary of Company has actual knowledge of facts that reasonably
would cause it to expect that Operating Partnership would or likely would become
a PTP in the foreseeable future.  For purposes of the representations set forth
in this PARAGRAPH 8(f), it is understood that neither the Company nor any
Subsidiary of Company shall have any duty of inquiry.

     (g) The Company has properly elected to be taxed as a real estate
investment trust (REIT) in accordance with Sections 856 to 860 of the Code,
currently qualifies for taxation as a REIT and has no plan or intention or
knowledge of facts that likely would cause it to fail to qualify for taxation as
a REIT in the foreseeable future.

     (h) The Preferred Shares issuable upon exchange of the Preference Units in
accordance with the Agreement of Limited Partnership have been duly and validly
reserved for issuance, and upon issuance in accordance with this Agreement, the
Agreement of Limited Partnership and the Charter, shall be duly and validly
issued, fully paid and non-assessable.

     (i) Neither the issuance, sale or delivery of the Preference Units nor,
upon exchange, the issuance and delivery of the Preferred Shares, is subject to
any preemptive right of any Partner of Operating Partnership arising under law
or the Agreement of Limited Partnership or any stockholder of Company arising
under applicable law or the Charter or Bylaws of Company, or to any contractual
right of first refusal or other right in favor of any person.  With the
exception of the Charter, the Agreement of Limited Partnership, existing
registration rights agreements, the Credit Agreement, dated as of April 25,
1997, among the Operating Partnership, the Company, the Lender Parties named
therein and NationsBank of Texas, N.A., the Restated Note Agreement, dated as of
July 1, 1996, with respect to the Operating Partnership's Series A-1, Series A-2
and Series A-3 7.9% Guaranteed Senior Promissory Notes due June 15, 2006 and
Series B 8% Guaranteed Senior Promissory Notes due December 12, 2006, and the
Note Purchase Agreement, dated as of December 15, 1994, and amended as of August
31, 1995, with respect to the Operating Partnership's Series A 8.68% Guaranteed
Senior Promissory Notes due December 15, 2004 and Series B 8.73% Guaranteed
Senior Promissory Notes due June 15, 2005, there are no agreements or
understandings in effect restricting the voting rights, the distribution rights
or any other rights
<PAGE>
 
or privileges of the holders of the Preference Units, or upon exchange, the
Preferred Shares.

     (j) There is no action, suit, proceeding or investigation pending or, to
Operating Partnership's and Company's knowledge, currently threatened against
Operating Partnership or Company that questions the validity of this Agreement
or the right of Operating Partnership or Company to enter into this Agreement,
to consummate the transactions contemplated hereby, or that would reasonably be
expected to, either individually or in the aggregate, have a material adverse
affect on the business, operations, properties or condition (financially or
otherwise) of Operating Partnership or Company, or result in any change in the
current equity ownership of Operating Partnership or Company, nor is Company or
Operating Partnership aware that there is any basis for the foregoing.

     (k) Neither Operating Partnership nor Company is in default or violation of
(i) any law, rule, regulation, order, judgement or decree applicable to it or by
which any of its properties or assets is bound or affected, or (ii) any note,
bond, mortgage, indenture or obligation to which it is a party or by which
Operating Partnership or Company or any property or asset of Company or
Operating Partnership is bound or affected, except for any such conflicts,
defaults or violations that would not reasonably be expected to, individually or
in the aggregate, have a material adverse effect on the business, operations,
properties or condition (financially or otherwise) of Operating Partnership or
Company.

     (l) Operating Partnership and Company hereby consent to any pledge and
release of such pledge of the Preference Units, and to any pledge and release of
such pledge of any Preferred Shares into which such Preference Units are
exchanged, to secure the obligations of Contributor; so long as the pledge and
exercise of remedies thereunder shall be subject in all respects to the
provisions of the Agreement of Limited Partnership.

     (m) 90% or more of Operating Partnership's gross income presently
constitutes "qualifying income" within the meaning of Code Section 7704(d).

     Operating Partnership and Company hereby expressly permit Shearman &
Sterling, as counsel to Contributor and Eaton Vance Management, to rely upon the
representations and warranties set forth in PARAGRAPH 8 as if such
representations and warranties were made by Operating Partnership and Company
directly to Shearman & Sterling.

     9.   SURVIVAL OF REPRESENTATIONS AND WARRANTIES.  The representations and
          ------------------------------------------                          
warranties set forth in PARAGRAPHS 7 and 8 shall survive the Closing.

     10.  BROKERS.  Each party represents and warrants to the other that it has
          -------                                                              
dealt with no broker, finder or other person (collectively, "Broker") with
                                                             ------       
respect to this Agreement or the transactions contemplated hereby and that no
Broker is entitled to a commission as a result of this transaction, except for
Merrill Lynch & Co.  Operating Partnership is responsible for the commission to
Merrill Lynch & Co. pursuant to a separate agreement.   Each of (a)
<PAGE>
 
Operating Partnership and Company, severally and not jointly, on the one hand,
and (b) Contributor on the other hand, agrees to indemnify and hold harmless the
other party against any loss, liability, damage, expense or claim incurred by
reason of any brokerage commission or finder's fee alleged to be payable because
of any act, omission or statement of the indemnifying party. Such indemnity
obligation shall be deemed to include the payment of reasonable attorney's fees
and court costs incurred in defending any such claim. The provisions of this
PARAGRAPH 10 shall survive the Closing.

     11.  COMPLETE AGREEMENT.  This Agreement represents the entire agreement
          ------------------                                                 
between Contributor, Operating Partnership and Company covering everything
agreed upon or understood in this transaction and all other prior agreements,
written or oral, including any prior subscription agreements or letters, are
merged into this Agreement.  There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof in effect between the parties.
No change or addition shall be made to this Agreement except by a written
agreement executed by Contributor, Operating Partnership and Company.

     12.  AUTHORIZED SIGNATORIES.  The persons executing this Agreement for and
          ----------------------                                               
on behalf of Contributor, Operating Partnership and Company each represent that
they have the requisite authority to bind the entities on whose behalf they are
signing.

     13.  PARTIAL INVALIDITY.  If any term, covenant or condition of this
          ------------------                                             
Agreement is held to be invalid or unenforceable in any respect, such invalidity
or unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid or unenforceable provision had
never been contained herein.

     14.  MISCELLANEOUS.  (a)  Governing Law.  This Agreement shall be
          -------------        -------------                          
interpreted and enforced according to the internal laws of the State of New
York.

     (b) Headings; Sections.  All headings and sections of this Agreement are
         ------------------                                                  
inserted for convenience only and do not form part of this Agreement or limit,
expand or otherwise alter the meaning of any provisions hereof.

     (c) Counterparts.  This Agreement may be executed in any number of
         ------------                                                  
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement.  Facsimile signatures shall be
deemed effective execution of this Agreement and may be relied upon as such by
the other party.  In the event facsimile signatures are delivered, originals of
such signatures shall be delivered to the other party within three (3) business
days after execution.

     (d) No Benefit For Third Parties.  The provisions of this Agreement are
         ----------------------------                                       
intended to be for the sole benefit of the parties hereto and their respective
successors and permitted assigns, and none of the provisions of this Agreement
are intended to be, nor shall they be
<PAGE>
 
construed to be, for the benefit of any third party.

     (e) Rights and Obligations.  The rights and obligations of Contributors,
         ----------------------                                              
Operating Partnership and Company shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns in
accordance with the provisions of Article 11 and Section 16.6 of the Agreement
of Limited Partnership.

     (f) Limitation of Liability.  The liability of Contributor hereunder shall
         -----------------------                                               
be limited to the Contribution Amount.

     15.  NOTICES.  All notices and other communications required or permitted
          -------                                                             
to be given hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered, delivered by nationally recognized overnight
courier with proof of delivery thereof, sent by United States registered or
certified mail (postage prepaid, return receipt requested) addressed as
hereinafter provided or via telephonic facsimile transmission with proof of
delivery in the form of a telecopier's transmission confirmation report.  Notice
shall be sent and deemed given when (a) if personally delivered or via
nationally recognized overnight courier, then upon receipt by the receiving
party, or (b) if mailed, then three (3) days after being postmarked, or (c) if
sent via telephonic facsimile transmission, then at the time set forth in the
telecopier's transmission confirmation report.

     Any party listed below may change its address hereunder by notice to the
other party listed below.  Until further notice, notice and other communications
hereunder shall be addressed to the parties listed below as follows:

     If to Contributor:   Belair Capital Fund LLC
                          c/o Eaton Vance Management
                          24 Federal Street
                          Boston, Massachusetts  02110
                          Attention: Mr. Alan Dynner
                          Fax: (617) 338-8054

     If to Operating Partnership
     or Company:          National Golf Properties, Inc.
                          2951 28/th/ Street
                          Suite 3001
                          Santa Monica, CA 90405
                          Attention: Mr. Edward R. Sause
                          Fax: (310) 664-6170

     16.  PRESS RELEASES.  Contributor, Operating Partnership and Company each
          --------------                                                      
agrees
<PAGE>
 
that it will not issue any press release, advertisement or other public
communication with respect to this Agreement or transaction contemplated therein
without the prior consent of the other party hereto, except to the extent such
communication is required by applicable law or by the New York Stock Exchange
Rules. With respect to the initial press release in connection with this
Agreement or the transaction contemplated herein, Operating Partnership and
Company shall deliver a copy of such proposed press release to Contributor prior
to the publication thereof and shall grant Contributor an opportunity to review
the same and shall make reasonable revisions to such proposed press release
requested by Contributor.
<PAGE>
 
     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day first written above.

CONTRIBUTOR:

BELAIR CAPITAL FUND LLC

By: Eaton Vance Management, as its Manager


                               By: /s/ Thomas Otis
                                  -----------------------
                                       Thomas Otis
                                       Vice President  

OPERATING PARTNERSHIP:

NATIONAL GOLF OPERATING PARTNERSHIP, L.P.
                               NATIONAL GOLF PROPERTIES INC., its
                               general partner


                               By: /s/ James M. Stanich
                                  -----------------------
                                       James M. Stanich
                                       President  

  COMPANY:

  NATIONAL GOLF PROPERTIES, INC.

                               By: /s/ James M. Stanich
                                  -----------------------
                                       James M. Stanich
                                       President  


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