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): April 14, 1997
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
(Exact name of registrant as specified in its charter)
California 0-21897 33-0707612
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3158 Redhill Avenue, Suite 120, Costa Mesa, California 92626
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 662-5565
N/A
Former name or former address, if changed since last report)
144.edg
<PAGE>
Item 2. Acquisition or Disposition of Assets
WNC Housing Tax Credit Fund V, L.P., Series 4 ("SERIES 4") has acquired
a Local Limited Partnership Interest in D. Hilltop Apartments, Ltd., a Texas
limited partnership ("HILLTOP" or the "Local Limited Partnership"). HILLTOP owns
The Hilltop Apartments (the "Apartment Complex") in Palestine, Texas.
The following tables contain information concerning the Apartment
Complex and the Local Limited Partnership identified herein:
<TABLE>
LOCAL
LIMITED YEAR
ESTIMATED PERMANENT PARTNERSHIP'S CREDITS
PROJECT CONSTRUC- ESTIMATED MORTGAGE ANTICIPATED TO BE
LOCAL NAME AND TION DEVELOPMENT COST NUMBER OF BASIC LOAN AGGREGATE FIRST
LIMITED NUMBER OF LOCATION OF COMPLETION (INCLUDING APARTMENT MONTHLY PRINCIPAL TAX CREDITS AVAIL-
PARTNERSHIP BUILDINGS PROPERTY DATE LAND COST) UNITS RENTS AMOUNT (1) ABLE
<S> <C> <C> <C> <C> <C> <C>
HILLTOP The Palestine December $596,919 8 1BR units $262 $473,450 $221,880 1997
Hilltop (Anderson 1996 16 2BR units $320 RD(3)
Apartments County),
Texas
4
buildings
(2)
<FN>
(1) Low Income Housing Credits are available over a 10-year period. For the
year in which the credit first becomes available, SERIES 3 will receive
only that percentage of the annual credit which corresponds to the
number of months during which SERIES 3 was a limited partner of the
Local Limited Partnership, and during which the Apartment Complex was
completed and in service.
(2) Rehabilitation property.
(3) RD provides mortgage loans under the RD Section 515 Mortgage Loan
Program. This mortgage loan will be a 50-year loan and will bear
annual interest at a market rate prior to reduction of the interest
rate by a mortgage interest subsidy to an annual rate of 10%, with
principal and interest payable monthly based on a 50-year
amortization schedule.
</FN>
</TABLE>
Palestine (population 18,100) is in eastern Texas at the intersection
of U. S. Highways 287, 79 and 84, approximately 100 miles southeast of Dallas.
The major employers for Palestine residents are Texas Department of Corrections,
Memorial Hospital and Murray Corp (air conditioning compressors).
<TABLE>
SHARING ESTIMATED
RATIOS: SERIES 3' ACQUISITION
ALLOCATIONS s FEES PAYABLE
LOCAL LOCAL SHARING (4) AND CAPITAL TO FUND
LIMITED GENERAL PROPERTY DEVELOPMENT RATIOS: SALE OR CONTRI-BUTIONMANAGER
PARTNERSHIP PARTNER MANAGER (1) FEE (2) CASH FLOW REFINANCING (6)
(3) PROCEEDS (5)
<S> <C> <C> <C> <C> <C>
HILLTOP Donald W. Sowell Wilmic $72,330 WNC:1st 99/1 $120,814 $12,100
Ventures, Inc. $400 50/50
LGP: 2nd
$800
The
balance:
99/1
<FN>
(1) The maximum annual management fee payable to the property manager generally
is determined pursuant to lender regulations. The Local General Partner is
authorized to employ either itself or one of its affiliates, or a third party,
as property manager for leasing and management of the Apartment Complex so long
as the fee therefor does not exceed the amount authorized and approved by the
lender for the Apartment Complex.
(2) The Local Limited Partnership will pay its Local General Partner a
development fee in the amount set forth, for services incident to the
development and construction of the Apartment Complex, which services include:
negotiating the financing commitments for the Apartment Complex; securing
necessary approvals and permits for the development and construction of the
Apartment Complex; and obtaining allocations of Low Income Housing Credits. This
payment will be made in installments after receipt of each installment of the
capital contributions made by SERIES 4.
2
<PAGE>
(3) Reflects the amount of the net cash flow from operations, if any, to be
distributed to SERIES 4 ("WNC") and the Local General Partner ("LGP") of the
Local Limited Partnership for each year of operations. Generally, to the extent
that the specific dollar amounts which are to be paid to WNC are not paid
annually, they will accrue and be paid from sale or refinancing proceeds as an
obligation of the Local Limited Partnership.
(4) Subject to certain special allocations, reflects the respective percentage
interests in profits, losses and Low Income Housing Credits of SERIES 4 and the
Local General Partner.
(5) Reflects the percentage interests of SERIES 4 and the Local General Partner
in any net cash proceeds from sale or refinancing of the Apartment Complex,
after payment of the mortgage loan and other Local Limited Partnership
obligations (see, e.g., note 3), and the following, in the order set forth: the
capital contributions of SERIES 4; and the capital contribution of the Local
General Partner.
(6) SERIES 4 will make its capital contributions to the Local Limited
Partnership in stages, with each contribution due when certain conditions
regarding construction or operations of the Apartment Complex have been
fulfilled.
</FN>
</TABLE>
3
<PAGE>
Item 7. Financial Statements and Exhibits
a. Financial Statements of Businesses Acquired.
Inapplicable.
b. Proforma Financial Information
Proforma Financial Information will be filed upon
availability.
c. Exhibits
10.1 Amended and Restated Agreement of Limited Partnership
of D. Hilltop Apartments, Ltd.
4
<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.
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
Date: April 23, 1997 By: WNC & Associates, Inc.,
General Partner
By: /s/ JOHN B. LESTER, JR.
John B. Lester, Jr.,
President
5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.1 Amended and Restated Agreement of Limited Partnership of
D. Hilltop Apartments, Ltd.
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
D. HILLTOP APARTMENTS, LTD.
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS ......................................... 1
1.1 "Accountant" ................................... 1
1.2 "Act" .......................................... 1
1.3 "Actual Tax Credit"............................. 1
1.4 "Adjusted Capital Account Deficit" ............. 1
1.5 "Affiliate" .................................... 2
1.6 "Agreement" or "Partnership Agreement".......... 2
1.7 "Assignee" ..................................... 2
1.8 "Capital Account" .............................. 2
1.9 "Capital Contribution" ......................... 3
1.10 "Cash Flow From Operations" .................... 3
1.11 "Code" ......................................... 3
1.12 "Completion of Construction".................... 3
1.13 "Compliance Period"............................. 4
1.14 "Construction Contract"......................... 4
1.15 "Construction Loan" ............................ 4
1.16 "Contractor" ................................... 4
1.17 "Debt Service Coverage"......................... 4
1.18 "Development Fee" .............................. 5
1.19 "Distributions" ................................ 5
1.20 "Equity Loan" .................................. 5
1.21 "Event of Bankruptcy" .......................... 6
1.22 "Fair Market Value" ............................ 6
1.23 "Financial Interest" ........................... 6
1.24 "First Year Certificate" ....................... 6
1.25 "FmHA" ......................................... 6
1.26 "FmHA Interest Credit Agreement" ............... 6
1.27 "FmHA Loan Agreement" .......................... 6
1.28 "General Partner" .............................. 7
1.29 "Gross Asset Value" ............................ 7
1.30 "Hazardous Substance"........................... 8
1.31 "Income and Losses"............................. 8
1.32 "Insurance"..................................... 9
1.33 "Insurance Company"............................. 10
1.34 "Interest" ..................................... 10
1.35 "LIHC" ......................................... 10
1.36 "Limited Partner" .............................. 10
1.37 "Liquidation" .................................. 10
1.38 "Minimum Set-Aside Test" ....................... 10
1.39 "Mortgage" or "Mortgage Loan" .................. 10
1.40 "Mortgage Note" ................................ 11
1.41 "Nonrecourse Deductions"........................ 11
1.42 "Nonrecourse Liability"......................... 11
1.43 "Operating Deficit" ............................ 11
1.44 "Operating Deficit Guarantee Period"............ 11
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<PAGE>
1.45 "Original Limited Partner" ..................... 11
1.46 "Partner" ...................................... 11
1.47 "Partner Nonrecourse Debt" ..................... 11
1.48 "Partner Nonrecourse Debt Minimum Gain" ........ 11
1.49 "Partner Nonrecourse Deductions" ............... 11
1.50 "Partnership" .................................. 12
1.51 "Partnership Administration Fee" ............... 12
1.52 "Partnership Minimum Gain" ..................... 12
1.53 "Permanent Mortgage Commencement" .............. 12
1.54 "Person" ....................................... 12
1.55 "Project" ...................................... 12
1.56 "Project Documents" ............................ 12
1.57 "Projected Tax Credits" ........................ 13
1.58 "Qualified Income Offset Item" ................. 13
1.59 "Qualified Tenants" ............................ 13
1.60 "Refinancing" .................................. 13
1.61 "Rent Restriction Test" ........................ 13
1.62 "Sale" ......................................... 13
1.63 "Sale or Refinancing Proceeds" ................. 13
1.64 "State" ........................................ 14
1.65 "State Tax Credit Agency" ...................... 14
1.66 "Substitute Limited Partner" ................... 14
1.67 "Tax Credit" ................................... 14
1.68 "Tax Credit Conditions"......................... 14
1.69 "TRA 1986" ..................................... 14
1.70 "Treasury Regulations" ......................... 14
II. NAME ................................................ 14
III. PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE ........ 14
3.1 Principal Executive Office ..................... 14
3.2 Agent for Service of Process ................... 15
IV. PURPOSE ............................................. 15
V. TERM ................................................ 15
VI. GENERAL PARTNER'S CONTRIBUTIONS AND LOANS ........... 15
6.1 Capital Contribution of General Partner ........ 15
6.2 Construction and Operating Obligations ......... 15
6.3 General Partner Loans .......................... 16
VII. LIMITED PARTNER'S CAPITAL CONTRIBUTIONS ............. 17
7.1 Original Limited Partner ....................... 17
7.2 Capital Contribution of Limited Partner ........ 17
7.3 Repurchase of Limited Partner's Interest ....... 19
7.4 Reduction of Capital Contribution............... 20
7.5 Return of Capital Contribution ................. 21
7.6 Liability of Limited Partner ................... 21
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<PAGE>
VIII. WORKING CAPITAL AND RESERVES ....................... 22
8.1 Operation and Maintenance Reserve............... 22
8.2 Reserve for Replacements........................ 22
8.3 Other Reserves.................................. 22
IX. MANAGEMENT AND CONTROL .............................. 22
9.1 Power and Authority of General Partner ......... 22
9.2 Payments to the General Partners and Others .... 23
9.3 Specific Powers of the General Partner ......... 25
9.4 Authority Requirements.......................... 25
9.5 Limitations on General Partner's
Power and Authority ............................ 26
9.6 Restrictions on Authority of General Partner.... 27
9.7 Duties of General Partner ...................... 28
9.8 Partnership Expenses ........................... 28
9.9 General Partner Expenses ....................... 30
9.10 Other Business of Partners ..................... 30
9.11 Covenants, Representations and Warranties....... 30
X. ALLOCATIONS OF INCOME, LOSSES AND CREDITS ........... 33
10.1 General ........................................ 33
10.2 Allocations From Sale or Refinancing............ 33
10.3 Special Allocations............................. 35
10.4 Curative Allocations............................ 38
10.5 Other Allocation Rules.......................... 38
10.6 Tax Allocations: Code Section 704(c)........... 39
10.7 Allocation Among Limited Partners
and Assignees .................................. 39
10.8 Allocation Among General Partners .............. 40
10.9 Modification of Allocations .................... 40
XI. DISTRIBUTION ........................................ 40
11.1 Distribution of Cash Flow From Operations ...... 40
11.2 Distribution Upon Sale or Refinancing .......... 41
XII. VOLUNTARY TRANSFERS OF LIMITED PARTNER'S INTEREST
IN THE PARTNERSHIP................................... 41
12.1 Assignment of Limited Partner's Interest ....... 41
12.2 Effective Date of Transfer ..................... 42
12.3 Invalid Assignment ............................. 42
12.4 Assignee's Rights to Allocations and
Distributions .................................. 42
12.5 Substitution of Assignee as Limited Partner .... 43
12.6 Death, Bankruptcy, Incompetency, etc.
of a Limited Partner ........................... 43
12.7 Assignment ..................................... 43
iii
<PAGE>
XIII. RESIGNATION, REMOVAL AND REPLACEMENT OF GENERAL
PARTNER ............................................ 44
13.1 Resignation of General Partner ................. 44
13.2 Removal of General Partner ..................... 44
13.3 Admission of Substitute General Partner ........ 45
13.4 Continuing Liability ........................... 46
13.5 Transfer of Interest ........................... 46
13.6 Payment to General Partner Upon Resignation,
Death or Insanity .............................. 46
XIV. BOOKS AND ACCOUNTS, REPORTS, TAX RETURNS,
FISCAL YEAR AND BANKING ............................. 48
14.1 Books and Accounts ............................. 48
14.2 Accounting Reports ............................. 49
14.3 Other Reports .................................. 50
14.4 Late Reports ................................... 51
14.5 Annual Site Visits ............................. 52
14.6 Tax Returns .................................... 52
14.7 Fiscal Year .................................... 52
14.8 Banking ........................................ 52
14.9 Certificates and Elections ..................... 52
XV. DISSOLUTION, WINDING UP, TERMINATION AND
LIQUIDATION OF THE PARTNERSHIP ...................... 53
15.1 Dissolution of Partnership ..................... 53
15.2 Return of Capital Contribution upon
Dissolution .................................... 53
15.3 Distributions of Assets ........................ 54
15.4 Deferral of Liquidation......................... 55
15.5 Liquidation Statement .......................... 55
15.6 Certificates of Dissolution; Certificate of
Cancellation of Certificate of Limited
Partnership ................................... 56
XVI. AMENDMENTS .......................................... 56
XVII. MISCELLANEOUS ...................................... 57
17.1 Voting Rights ................................. 57
17.2 Meeting of Partnership ........................ 57
17.3 Notices ....................................... 58
17.4 Successors and Assigns ........................ 58
17.5 FmHA Regulations .............................. 58
17.6 Recording of Certificate of Limited
Partnership. .................................. 59
iv
<PAGE>
17.7 Amendment of Certificate of Limited
Partnership ................................... 59
17.8 Counterparts .................................. 60
17.9 Captions ...................................... 60
17.10 Certain Provisions ............................ 60
17.11 Saving Clause ................................. 60
17.12 Number and Gender ............................. 61
17.13 Entire Agreement .............................. 61
17.14 Governing Law ................................. 61
17.15 Attorney's Fees ............................... 61
17.16 Receipt of FmHA Correspondence ................ 61
17.17 Security Interest and Right of Set-Off ........ 61
EXHIBIT A - Legal Description...................... A-1
EXHIBIT B - Form of Opinion of Counsel............. B-1 - B-4
EXHIBIT C - Certification and Agreement............ C-1 - C-4
EXHIBIT D - General Partner Certification.......... D-1 - D-3
EXHIBIT E - Report of Operations................... E-1 - E-9
v
<PAGE>
AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
D. HILLTOP APARTMENTS, LTD.
D. HILLTOP APARTMENTS, LTD., a Texas limited partnership (the
"Partnership") recorded a certificate of limited partnership with the Texas
Secretary of State on July 25, 1994. A partnership agreement dated July 1, 1994
was entered into by and between DONALD W. SOWELL as the general partner (the
"General Partner") and BEATRICE W. SOWELL as the limited partner (the "Original
Limited Partner").
Effective as of the date written below, WNC HOUSING TAX CREDIT FUND V,
L.P., SERIES 4, a California limited partnership (the "Limited Partner") has
been admitted to the Partnership as successor limited partner and the Original
Limited Partner has liquidated its interest in the Partnership. The Limited
Partner and the General Partner desire hereby to amend and restate the Limited
Partnership Agreement of the Partnership dated July 1, 1994.
NOW, THEREFORE, in consideration of their mutual agreements herein set
forth, the Partners hereby agree to amend and restate the Agreement of Limited
Partnership of D. HILLTOP APARTMENTS, LTD. in its entirety to provide as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 "Accountant" shall mean H.D. Morris Co., Inc., or such
other firm of independent certified public accountants as may be engaged by the
General Partner with the consent of the Limited Partner to prepare the
Partnership income tax returns.
Section 1.2 "Act" shall mean the Revised Limited Partnership Act of the
State.
Section 1.3 "Actual Tax Credit" shall mean as of any point in time, the
total amount of the LIHC actually allocated by the Partnership to the Limited
Partner, representing ninety-nine percent (99%) of the LIHCs actually received
by the Partnership, as shown on the applicable tax return of the Partnership.
Section 1.4 "Adjusted Capital Account Deficit" shall mean 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:
1
<PAGE>
(a) Credit to such Capital Account any amounts which such Partner is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Sections
1.704-2(b)(2)(ii)(d)(4), 1.704-2(b)(2)(ii)(d)(5) and 1.704-2(b)(2)(ii)(d)(6) of
the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
Section 1.5 "Affiliate" shall mean (i) any Person directly or
indirectly controlling, controlled by, or under common control with another
Person; (ii) any Person owning or controlling 10% or more of the outstanding
voting securities of such other Person; (iii) any officer, director, trustee, or
partner of such other Person; and (iv) if such Person is an officer, director,
trustee or general partner, any company for which such Person acts in any such
capacity.
Section 1.6 "Agreement" or "Partnership Agreement" shall mean this
Amended and Restated Agreement of Limited Partnership, as it may be amended from
time to time.
Section 1.7 "Assignee" shall mean a Person who has acquired all or a
portion of the Limited Partner's beneficial interest in the Partnership and has
not become a substitute Limited Partner.
Section 1.8 "Capital Account" shall mean, with respect to each Partner,
the account maintained for such Partner comprised of such Partner's Capital
Contribution as increased by allocations of Partnership Income (or items
thereof) and any items in the nature of income or gain which are specially
allocated pursuant to Article X hereof, and decreased by the amount of any
Distributions made to such Partner, and allocations of Partnership Losses (or
items thereof) and any items in the nature of expenses or losses which are
specially allocated pursuant to Article X hereof.
In the event of any transfer of an interest in the Partnership 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, provided that if the transfer of any interest causes a termination of
the Partnership pursuant to Code Section 708(b)(1)(B), the Capital Accounts of
all Partners, including the transferee, shall be redetermined as of the date of
such termination. In such event, the Capital Account of each Partner shall be
2
<PAGE>
equal to the net fair market value of its interest as of such date. Subsequent
to such redetermination, allocations of Income and Loss with respect to assets
held by the Partnership on the date of such redetermination shall be governed by
the principles set forth in Code Section 704(c) and the Treasury Regulations.
The foregoing definition and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704, and shall be interpreted and applied in a
manner consistent with such Treasury Regulation.
Section 1.9 "Capital Contribution" shall mean the total amount of
money, or the initial Gross Asset Value of property (net of liabilities securing
such contributed property that the Partnership is considered to assume or take
subject to under Section 752 of the Code), contributed to the Partnership, if
any, by all the Partners or any class of Partners or any one Partner as the case
may be (or by a predecessor-in-interest of such Partner or Partners), reduced by
any of such capital which shall have been returned pursuant to Section 7.3, 7.4
or 7.5 of this Agreement. A loan to the Partnership by a Partner shall not be
considered as a Capital Contribution.
Section 1.10 "Cash Flow From Operations" shall mean gross receipts (not
including Capital Contributions, Sale or Refinancing Proceeds or proceeds of
Partnership borrowings) from Partnership operations, determined on a cash basis,
less debt payments, capital expenditures to the extent not paid from borrowings
or reserves, other reserves pursuant to Section 8.3 and operating expenses
associated with rental and maintenance of the Project; but excluding deductions
for cost recovery of buildings, improvements and personal property amortization
of any financing fees.
Section 1.11 "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute.
Section 1.12 "Completion of Construction" shall mean the completion of
construction of the Project substantially in accordance with the Project
Documents in order to obtain the required certificates of occupancy (or the
local equivalent) for all (24) twenty-four units as evidenced by the issuance of
the certificate of occupancy by the inspecting architect, the FmHA of the
governmental agency having jurisdiction over the Project of by the issuance of
the inspecting architect's certification. The construction shall be completed in
good workmanlike manner, free and clear of all mechanics, materialmen's or
similar liens and the Project shall be equipped with all necessary and
appropriate fixtures, equipment and articles of personal property including
refrigerators and ranges.
3
<PAGE>
Section 1.13 "Compliance Period" shall mean the period set forth in
Section 42 (i)(1) of the Code, as amended, or any successor statute.
Section 1.14 "Construction Contract" shall mean the construction
contract in the amount of $354,700 entered into between the Partnership and
the Contractor pursuant to which the Project is being Constructed.
Section 1.15 "Construction Loan" shall mean the loan obtained by the
Partnership from Midland Mortgage Investment Corporation in the principal amount
$371,450 at 8.75% per annum for term of six months to provide funds for the
acquisitions, renovation, and/or construction and development of the Project.
Section 1.16 "Contractor" shall mean D.W. & S. Construction, Inc.,
which is the general construction contractor of the Project.
Section 1.17 "Debt Service Coverage" shall mean the ratio between the
net operating income and the debt service required to be paid on the
Mortgage(s); as example, a 1.15 Debt Service Coverage means that for every $1.00
of debt service required to be paid there must be $1.15 of net operating income
available. For purposes of this definition net operating income is the actual
receipt on a cash basis by the Partnership of revenues from operations of the
Partnership, including, without limitation, rental income (but not any subsidy
thereof from the General Partner or an Affiliate thereof), but excluding
prepayments, security deposits and interest thereon, less all cash operating
obligations of the Partnership (other than those covered by insurance) in
accordance with the applicable budget adopted by the Partnership in accordance
with Section 14.3(j) of this Agreement (the "Budget"), including, without
limitation, the payment of Management Agent fees (which shall be deemed to
include that portion of such fees which is deferred and not currently paid) and
the funding of reserves in accordance with Article VIII of this Agreement, and a
reserve for all taxes or payments in lieu of taxes and any other expenses which
may reasonably be expected to be paid in a subsequent period but which on an
accrual basis are allocable to the period in question, such as insurance
premiums, audit, tax or accounting expenses. Without limiting the generality of
the foregoing, the Partnership's gross revenues for purposes of this Section
shall not include Capital Contributions, borrowings, any lump-sum payment or any
other extraordinary receipt of funds thereby, or interest or any other income
earned on investment of its funds, and unless otherwise provided in a Budget,
the cash operating obligations of the Partnership shall be deemed to include
real estate taxes for the period at the fully assessed rate. A worksheet for the
4
<PAGE>
calculation of Debt Service Coverage is found in the Report of Operations
exhibit attached to this Agreement and incorporated herein by this reference.
Section 1.18 "Development Fee" shall mean the fee payable to the
General Partner or an Affiliate of the General Partner pursuant to Section
9.2(a) for services incident to the development and construction of the Project,
which services shall include, but not be limited to, the negotiations for the
payment of any fees and for the permanent financing commitments for the Project;
the securing of all necessary approvals and permits for the development and
construction of the Project; the selection and negotiation of contracts with the
marketing consultant, engineer, architect, general contractor and other
professionals, and the supervision of such parties; the payment of the market
study or market evaluation report or payment of other depreciable items for tax
purposes; the advancing of risk capital to pay for the payment of
pre-development activities; and the preparation and submission of the LIHC
application.
Section 1.19 "Distributions" shall mean the total amount of money, or
the Gross Asset Value of property (net of liabilities securing such distributed
property that such Partner is considered to assume or take subject to under
Section 752 of the Code), distributed to Partners with respect to their
interests in the Partnership, but shall not include any payments to the General
Partner or its Affiliates for fees or other compensation as provided in this
Agreement or any guaranteed payment within the meaning of Section 707(c) of the
Code, as amended, or any successor thereto.
Section 1.20 "Equity Loan" shall mean any loan secured by Partnership
property (excluding a Mortgage Loan, Refinancing or a Supplemental Loan) for
purpose of providing a return of, or a return on, the Partner's Capital
Contribution as provided for in FmHA Regulations Section 1965.201 et seq., 42
U.S.C. Section 1485 (Equity Takeout Incentive Loan), as amended from time to
time, or other loans approved by the FmHA and Limited Partner. The Equity Loan
will not supersede the Mortgage Loan but will be an additional indebtedness on
Partnership property. All Equity Loans must be approved by the FmHA and Limited
Partner prior to funding of the Equity Loan. The Equity Loan funds shall be
distributed as follows: (a) first, payment of pre-approved expenses (which must
be commercially reasonable and substantiated) paid to non-Affiliated third
parties (unless the Partners consent to the use an Affiliated party) for
packaging the Equity Takeout Loan application and for locating and closing the
Equity Takeout Loan; (b) second, to the Limited Partner in an amount equal to
its Capital Contribution; (c) third, to the General Partner in an amount equal
to its Capital Contribution; (d) thereafter, 50% to the Limited Partner and 50%
to the General Partner.
5
<PAGE>
Section 1.21 "Event of Bankruptcy" shall mean the adjudication of
bankruptcy or insolvency by a court of competent jurisdiction; the making of an
assignment for the benefit of creditors; or the filing of a petition to
accomplish any of the foregoing, unless such petition is dismissed within 60
days thereafter; or a like event.
Section 1.22 "Fair Market Value" shall mean, with respect to any
property, real or personal, the price a ready, willing and able buyer would pay
to a ready, willing and able seller of the property, provided that such value is
reasonably agreed to between the parties in arm's-length negotiations and the
parties have sufficiently adverse interests.
Section 1.23 "Financial Interest" shall mean the General Partner's
capital interest in the Partnership to be contributed and maintained pursuant to
the requirements of FmHA Instruction 1944-E, Section 1944.211(a)(13)(ii) or any
amendments thereto. Such Financial Interest shall not affect the Partners'
allocable share of the Profits, Losses, Tax Credits or Cash Flow From Operations
as set forth in this Agreement.
Section 1.24 "First Year Certificate" shall mean the certificate to be
filed by the General Partner with the Secretary of the Treasury within 90 days
following the close of the first taxable year of the Project as required by Code
Section 42(1)(1), as amended, or any successor thereto.
Section 1.25 "FmHA" shall mean the Rural Economic and Community
Development Services and any successor thereto.
Section 1.26 "FmHA Interest Credit Agreement" shall mean the Multiple
Family Housing Interest Credit and Rental Assistance Agreement (Form FmHA 1944-7
or any successor thereof) between the FmHA and the Partnership whereby the FmHA
will provide a monthly credit subsidy to the Partnership's Mortgage account when
the Partnership makes each monthly payment on the Mortgage.
Section 1.27 "FmHA Loan Agreement" shall mean the Loan Agreement for an
RRH Loan to a Limited Partnership Operating on a Limited Profit Basis (Form FmHA
1944-34 or any successor thereof) between the FmHA and the Partnership made in
consideration of the Mortgage Loan to the Partnership by the FmHA pursuant to
Section 515(b) of the Housing Act of 1949 to build a low to moderate income
apartment complex.
Section 1.28 "General Partner" shall mean DONALD W. SOWELL and such
other Persons as are admitted to the Partnership as additional or substitute
General Partners pursuant to this Agreement.
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Section 1.29 "Gross Asset Value" shall mean 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, provided that,
if the contributing Partner is a General Partner, the determination of the fair
market value of a contributed asset shall be determined 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, as of the following times: (i) the acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (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; and (iii) the liquidation of
the Partnership within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g): provided, however, that the adjustments pursuant to
clauses (i) and (ii) above shall be made only if the General Partner reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership;
(c) The Gross Asset Value of any Partnership asset distributed to any
Partner shall be adjusted to equal 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 a General Partner, the
determination of the fair market value of the distributed asset shall be
determined by appraisal; and
(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 Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section
10.3(g) hereof; provided however, that Gross Asset Values shall not be adjusted
pursuant to this Section 1.29(d) to the extent the General Partners determines
that an adjustment pursuant to Section 1.29(b) hereof is necessary or
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this Section 1.29(d).
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If the Gross Asset Value of an asset has been determined or adjusted pursuant to
Section 1.29(a), Section 1.29(b), or Section 1.29(d) hereof, such Gross Asset
Value shall thereafter be adjusted by the depreciation taken into account with
respect to such asset for purposes of computing Income and Losses.
Section 1.30 "Hazardous Substance" shall mean and include any
substance, material or waste, including asbestos, petroleum and petroleum
products (including crude oil), that is or becomes designated, classified or
regulated as "toxic" or "hazardous" or a "pollutant" or that is or becomes
similarly designated, classified or regulated, under any federal, state or local
law, regulation or ordinance including, without limitation, Compensation and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, and the
regulations adopted and publications promulgated pursuant thereto.
Section 1.31 "Income and Losses" shall mean, for each taxable year or
other period, an amount equal to the Partnership's taxable income or loss for
such year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Income or Losses pursuant
to this definition shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Income and Losses pursuant to this definition, shall be subtracted
from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraphs (ii) or (iii) of the definition thereof, the
amount of such adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Income and Losses;
(iv) Gain or loss resulting from any disposition of Partnership assets
with respect to which gain or loss is recognized for federal income 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;
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(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account depreciation for such fiscal year or other period,
computed as provided below; and
(vi) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Sections 10.3, 10.4, or 10.5 hereof
shall not otherwise be taken into account in computing Income or Losses.
Depreciation for each fiscal year or other period shall be calculated as
follows: an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period for federal income tax purposes, 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.
Section 1.32 "Insurance" shall mean casualty coverage, including but
not limited to, fire or other casualty loss to any structure or building on the
Project in an amount equal to the full replacement value of the damaged property
without deduction for depreciation; shall include comprehensive general
liability coverage against liability claims for bodily injury or property damage
arising out of Project operations in an amount equal to $1,000,000; and shall
include an umbrella liability coverage in an amount equal to $1,000,000 to
protect against claims in excess of the limits of the other primary policies
required herein. All Insurance policies shall provide that they are not subject
to cancellation without 30 days prior written notice to the Limited Partner and
shall not contain any co-insurance provisions.
Section 1.33 "Insurance Company" shall mean any insurance company
engaged by the General Partner for the Partnership with the Consent of the
Limited Partner which Insurance Company shall have an A rating or better for
financial safety by A.M. Best or Standard & Poor's.
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Section 1.34 "Interest" shall mean the entire interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled hereunder and the
obligation of such Partner to comply with the terms of this Agreement.
Section 1.35 "LIHC" shall mean the low-income housing tax credit
established by TRA 1986 and which is provided for in Section 42 of the Code, as
amended, or any successor thereto.
Section 1.36 "Limited Partner" shall mean WNC HOUSING TAX CREDIT FUND
V, L.P., SERIES 4, a California limited partnership, and such other Persons as
are admitted to the Partnership as additional or substitute Limited Partners
pursuant to this Agreement.
Section 1.37 "Liquidation" shall mean with respect to the Partnership
the orderly sale and liquidation of the Project and other Partnership property
following the first to occur of (a) the date upon which the Partnership is
terminated under Section 708(b)(1) of the Code unless continued by a vote of the
Partners, (b) the date upon which the Partnership ceases to be a going concern
(even though it may continue in existence for the purpose of winding up its
affairs, paying its debts and distributing any remaining balance to its
Partners), or (c) the date this Agreement terminates pursuant to its terms; and
means, with respect to a Partner at a time when the Partnership is not in
Liquidation, the liquidation of such Partner's interest in the Partnership under
Treasury Regulation 1.761-1(d), as amended, or any successor thereto.
Section 1.38 "Minimum Set-Aside Test" shall mean the 40-60 set-aside
test pursuant to Section 42(g), as amended, of the Code with respect to the
percentage of apartment units in the Project to be occupied by tenants whose
incomes are less than the required percentage of the area median gross income.
Section 1.39 "Mortgage" or "Mortgage Loan" shall mean the permanent
financing of the Project to replace the Construction Loan to be provided
pursuant to the FmHA Loan Agreement and the FmHA Interest Credit Agreement, and
evidenced by the Mortgage Note.
Section 1.40 "Mortgage Note" shall mean the Multiple Family Housing
Promissory Note (Form FmHA 1944-52 or any successor thereof) whereby the
Partnership promises to pay to the FmHA the principal sum of $473,450, plus
interest on the principal at the effective rate of one percent per annum over a
term of fifty years on the first day of each month.
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Section 1.41 "Nonrecourse Deductions" shall have the meaning given it
in Treasury Regulations Section 1.704-2(b)(1).
Section 1.42 "Nonrecourse Liability" shall have the meaning given it in
Treasury Regulations Section 1.704-2(b)(3).
Section 1.43 "Operating Deficit" for any fiscal year shall mean the
total amount by which the sum of the Partnership's operating expenses (defined
solely as the expenses incurred in connection with the operation and maintenance
of the Project), debt service on the Mortgage Loan and other Partnership debt
and net additions to Partnership reserves required or permitted to be maintained
under this Agreement for such fiscal year, exceeds the cash revenues received in
respect of the operation of the Project for such fiscal year and available
reserves.
Section 1.44 "Operating Deficit Guarantee Period" shall mean the period
commencing with the date of this Agreement and ending four years following
Completion of Construction.
Section 1.45 "Original Limited Partner" shall mean BEATRICE W. SOWELL.
Section 1.46 "Partner" shall mean either the General Partner or the
Limited Partner.
Section 1.47 "Partner Nonrecourse Debt" shall mean the definition set
forth in Section 1.704-2(b)(4) of the Treasury Regulations.
Section 1.48 "Partner Nonrecourse Debt Minimum Gain" shall mean 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 (as defined in Section 1.704-2 (b)(3) of the Treasury
Regulations), determined in accordance with Section 1.704-2(i)(3) of the
Treasury Regulations.
Section 1.49 "Partner Nonrecourse Deductions" shall mean the definition
set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Treasury
Regulations.
Section 1.50 "Partnership" shall mean the limited partnership continued
under this Agreement.
Section 1.51 "Partnership Administration Fee" shall mean the fee
payable to the General Partner pursuant to Section 9.2 for services incident to
the administration of the business and affairs of the Partnership, which
services shall include, but not be limited to, maintaining the books and records
of the Partnership, selecting and supervising the Partnership's accountants,
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bookkeepers and other Persons required to prepare and audit the Partnership's
financial statements and tax returns, and preparing and disseminating reports on
the status of the Project and the Partnership, all as required by Article XIV of
this Agreement.
Section 1.52 "Partnership Minimum Gain" shall mean the amount
determined by computing, with respect to each nonrecourse liability of the
Partnership, the amount of gain, if any, that would be realized by the
Partnership if a reduction occurs in the amount by which the nonrecourse
liability exceeds the adjusted basis in the Project encumbered by the
nonrecourse liability. Such computation shall be made in a manner consistent
with Treasury Regulation Sections 1.704-2(b)(2) and 1.704-2(d).
Section 1.53 "Permanent Mortgage Commencement" shall mean the first day
on which all of the following have occurred: (a) the Construction Loan shall
have been repaid in full; (b) the principal amount, interest and maturity date
of the Mortgage and the Mortgage Note shall have been finally determined; and
(c) amortization of the Mortgage shall have commenced.
Section 1.54 "Person" shall mean an individual, proprietorship, trust,
estate, partnership, joint venture, association, company, corporation or other
entity.
Section 1.55 "Project" shall mean the approximately 2.554 acres of land
in Palestine, Anderson County, Texas, as more fully described in Exhibit "A"
attached hereto and incorporated herein by this reference, and any and all
improvements now or hereafter to be constructed thereon, specifically including
a twenty-four (24) unit low to moderate income housing complex for family.
Section 1.56 "Project Documents" shall mean and include all documents
delivered to or required by the construction lender and/or FmHA in connection
with the development, construction and financing of the Project, including but
not limited to, the construction loan agreement, construction contract, FmHA
Loan Agreement and FmHA Interest Credit Agreement and the approved plans and
specifications for the development and construction of the Project.
Section 1.57 "Projected Annual Tax Credits" shall mean LIHC in the
amount of $21,966 per year for each of the years 1997 through 2006 which the
General Partner has projected to be the total amount of LIHC which will be
allocated to the Limited Partner by the Partnership, constituting ninety-nine
percent (99%) of the aggregate amount of LIHC of $221,880 to be available to the
Partnership; provided, however, that if the Actual Tax Credit for 1997 is
greater (or less than) $21,966 the Projected Annual Tax Credit for the year 2006
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shall be reduced (increased) by an amount equal to the amount by which the
Actual Credit for 1997 exceeds (is less than) $21,966.
Section 1.58 "Qualified Income Offset Item" shall have the meaning set
forth in Treasury Regulation Section 1.704-1(b)(2)(ii)(d), or any successor
provision.
Section 1.59 "Qualified Tenants" shall mean any tenants who have
incomes of 60% or less of the area median gross income, as adjusted for family
size, so as to make the Project eligible for LIHC.
Section 1.60 "Refinancing" shall mean the refinancing of the Project so
as to retire the Mortgage Note and create a new permanent lender who shall hold
a first deed of trust on the Project. No Refinancing shall be permitted without
approval from the Limited Partner.
Section 1.61 "Rent Restriction Test" shall mean the test pursuant to
Section 42 of the Code whereby the gross rent charged to tenants of the
low-income apartment units in the Project must not exceed 30% of the applicable
income standards.
Section 1.62 "Sale" shall mean and include the sale, exchange,
condemnation or similar eminent domain taking, casualty or other disposition of
all or any portion of the Project which is not in the ordinary course of
business, and the sale of easements, rights of way or similar interests in the
Project or any other similar items which in accordance with the accounting
methods used by the Partnership are attributable to capital; provided, however,
that "Sale" shall not refer to any transaction to the extent gain or loss is not
recognized, or is elected not to be recognized, under any applicable section of
the Code.
Section 1.63 "Sale or Refinancing Proceeds" shall mean the net cash
(including both principal and interest) realized by the Partnership from a Sale
or Refinancing, after retirement of applicable Mortgage debt, payment of all
expenses related to the transaction, other than the sales preparation fee which
may be payable to the General Partner or its Affiliates pursuant to Section 9.2,
and payment of or provision for other Partnership debts and obligations.
Section 1.64 "State" shall mean the State of Texas.
Section 1.65 "State Tax Credit Agency" shall mean the allocation by the
appropriate state agency of LIHC with respect to the Project.
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Section 1.66 "Substitute Limited Partner" shall mean any Person who is
admitted to the Partnership as a Limited Partner pursuant to Section 12.5 or
acquires the Interest of the Limited Partner pursuant to Section 7.3 of this
Agreement.
Section 1.67 "Tax Credit" shall mean any credit permitted under the
Code or the law of any state against the federal or a state income tax liability
of any Partner as a result of activities or expenditures of the Partnership
including, without limitation, LIHC.
Section 1.68 "Tax Credit Conditions" shall mean, for the duration of
the Compliance Period, any and all restrictions including, but not limited to,
applicable federal, state and local laws, rules and regulations, which must be
complied with in order to qualify for the Tax Credits or to avoid an event of
recapture in respect of the Tax Credits.
Section 1.69 "TRA 1986" shall mean the Tax Reform Act of 1986.
Section 1.70 "Treasury Regulations" shall mean the Income Tax
Regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
ARTICLE II
NAME
The name of the Partnership shall be "D. HILLTOP APARTMENTS, LTD."
ARTICLE III
PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE
Section 3.1 Principal Executive Office. The principal executive office
of the Partnership is located at 509 Ellen Powell Drive, Prairie View, Texas
77446, or at such other place or places within the State as the General Partner
may hereafter designate.
Section 3.2 Agent for Service of Process. The name of the agent for
service of process on the Partnership is Donald W. Sowell, whose address is 509
Ellen Powell Drive, Prairie View, Texas 77446.
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ARTICLE IV
PURPOSE
The purpose of the Partnership is to acquire, construct, own and
operate the Project in order to provide, in part, Tax Credits to the Partners in
accordance with the provisions of the Code and the Treasury Regulations
applicable to LIHC, the rules and regulations of FmHA relating to rural rental
housing projects financed or subsidized by FmHA and to sell the Project after
the 15-year Tax Credit compliance period. The Partnership shall not engage in
any business or activity which is not incident to the attainment of such
purpose.
ARTICLE V
TERM
The Partnership term commenced upon the filing of the Certificate of
Limited Partnership in the office of, and on the form prescribed by, the
Secretary of State of the State, and shall continue until December 31, 2050
unless terminated earlier in accordance with the provisions of this Agreement or
as otherwise provided by law.
ARTICLE VI
GENERAL PARTNER'S CONTRIBUTIONS AND LOANS
Section 6.1 Capital Contribution of General Partner. The General
Partner shall make a Capital Contribution in the amount of $14,645.
Section 6.2 Construction and Operating Obligations.
(a) The General Partner shall cause Completion of Construction in
accordance with the Project Documents, and shall equip the Project or cause the
same to be equipped with all necessary and appropriate fixtures, equipment and
articles of personal property, including refrigerators and ranges. If costs and
expenses necessary to effect Completion of Construction exceed the sum of the
Capital Contributions and the proceeds of the Mortgage Note, the General Partner
shall be responsible for and shall be obligated to pay such deficiencies and
shall, to the extent permitted under the Project Documents and any applicable
regulations or requirements of the FmHA, be reimbursed at or prior to Permanent
Mortgage Commencement only out of the proceeds designated in this sentence
available from time to time after payment of all costs described in this
sentence. Any such advances not reimbursed through Permanent Mortgage
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Commencement shall not be reimbursable or otherwise change the Interest of any
Partner in the Partnership but shall be borne by the General Partner as a
Capital Contribution. In the event the General Partner shall fail to fund any
such deficiency as required by this Section 6.2(a), any amounts otherwise
payable to the General Partner or any of its Affiliates as a Development Fee
pursuant to Section 9.2 or any other fee pursuant to this Agreement, shall be
applied by the Partnership to meet such obligation of the General Partner. Any
such application of funds as described in the immediately preceding sentence
shall constitute a payment of the obligation of the fee which such funds have
been earmarked to pay, and the obligation of the General Partner to advance such
amount under this Section 6.2(a) shall be satisfied to the extent of such
application.
(b) During the Operating Deficit Guarantee Period, the General Partner,
as required from time to time, shall provide Operating Loans in amounts
necessary to cover any Operating Deficits. Each Operating Loan shall be
nonrecourse to the Partners and shall be repayable out of 50% of the available
Cash Flow From Operations or Sale or Refinancing Proceeds in accordance with
Article XI of this Agreement. In the event the General Partner shall fail to
make any Operating Loans required by this Section 6.2(b), the Partnership shall
withhold those funds otherwise payable to the General Partner or its Affiliates
pursuant to Section 9.2 ("General Partner Funds") and utilize the withheld funds
to meet the obligations of the General Partner pursuant to this Section 6.2(b);
any such use of General Partner Funds will be deemed an Operating Loan of the
General Partner repayable to the General Partner as aforesaid. Such use of
General Partner Funds shall also constitute payment and satisfaction of amounts
payable to the General Partner or Affiliates thereof pursuant to Section 9.2,
and the obligation of the Partnership to make such payments to the General
Partner or its Affiliates pursuant to Section 9.2 shall therefore be deemed
satisfied.
Section 6.3 General Partner Loans. With the prior consent of the
Limited Partner, and if approved by the FmHA in accordance with FmHA rules and
regulations, the General Partner may loan to the Partnership any sums required
by the Partnership and not otherwise reasonably available to it, at a rate of
interest not to exceed the lesser of 2% per annum above the then prevailing
prime or reference rate charged by Bank of America N.T. & S.A., Main Office, San
Francisco, California, or the maximum legal rate. The amount and maturity date
of any such loan and the rate of interest thereon shall be evidenced by a
written instrument. The General Partner shall not charge a prepayment penalty on
any such loan.
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ARTICLE VII
LIMITED PARTNER'S CAPITAL CONTRIBUTIONS
Section 7.1 Original Limited Partner. The Original Limited Partner made
a Capital Contribution of $100. Effective as of the date of this Agreement, the
Original Limited Partner's Interest has been liquidated and the Partnership has
reacquired the Original Limited Partner's Interest in the Partnership.
Section 7.2 Capital Contribution of Limited Partner. The Limited
Partner shall make a total Capital Contribution in the amount of $120,814 in
cash on the dates and subject to the conditions hereinafter set forth:
(a) The obligation of the Limited Partner to pay the
aforesaid Capital Contribution shall be subject to the satisfaction of the
following conditions:
(1) prior to the initial payment of the Capital Contribution
only, the issuance to the Limited Partner of an opinion of the Partnership's
legal counsel, in a form substantially similar to the form of opinion attached
hereto as Exhibit "B" and incorporated herein by this reference;
(2) prior to the initial payment of the Capital Contribution
only, the General Partner shall deliver to the Limited Partner a fully executed
Certificate and Agreement in the form attached hereto as Exhibit "C" and
incorporated herein by this reference;
(3) prior to the initial payment of the Capital Contribution
only, the Limited Partner shall obtain from the General Partner, with respect to
the Project, Form FmHA 1924-13 (Estimate and Certificate of Actual Cost) and
Form FmHA 1930-7 (Statement of Budget, Income and Expenses) a construction pro
forma reflecting payment of the construction expenses and an operation pro forma
reflecting income and expenses;
(4) prior to the due date of each installment of such Capital
Contribution except the first payment, the issuance to the Limited Partner of a
certificate signed by or on behalf of the General Partner in the form attached
hereto as Exhibit "D" and incorporated herein by this reference, dated not more
than five days prior to such due date, to the effect that all of the
representations and warranties set forth in Section 9.11 are accurate;
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(5) not later than the Capital Contribution payment referenced
in Section 7.2(b)(5), the General Partner shall deliver to the Limited Partner
the following: (A) Certificate of Occupancy on all the apartment units in the
Project; (B) copy of the recorded grant deed (warranty deed); (C) copy of the
policy of title insurance issued at Permanent Mortgage Commencement; (D) an
audited construction cost certification with an itemized cost breakdown; (E)
copies of all Mortgage Loan agreements; (F) copies of all Mortgage Notes; and
(G) copy of the Declaration of Restrictive Covenants/Extended Use Agreement
entered into between the Partnership and the State Tax Credit Agency responsible
for allocating the LIHC; and
(6) not later than the Capital Contribution payment referenced
in Section 7.2(b)(5), the General Partner shall deliver to the Limited Partner
Internal Revenue Code Form 8609, or any successor form.
(b) Provided the conditions of Section 7.2(a) of this Partnership
Agreement have been met, the Limited Partner shall make the following Capital
Contributions:
(1) The first payment shall equal $24,163 and will be payable
upon verification of Tax Credit reservation, receipt of a commitment for
permanent financing, commencement of construction and admittance of the Limited
Partner into the Partnership, provided the conditions of Section 7.2(a) of this
Agreement have been met;
(2) The second payment shall equal $24,163 and will be payable
upon 50% Completion of Construction as evidenced by the inspecting architect's
certification and the construction draw requests, provided the conditions of
Section 7.2(a) of this Agreement have been met;
(3) The third payment shall equal $24,163 and will be payable
upon Completion of Construction as evidenced by the inspecting architect's
certification or the issuance of a certificate of occupancy and receipt of a
letter from the Contractor stating that all amounts payable to the Contractor
have been paid in full and that the Partnership is not in violation of the
Construction Contract, provided the conditions of Section 7.2(a) of this
Agreement have been met;
(4) The fourth payment shall equal $24,163 and will be payable
the date the Project maintains a debt coverage ratio of 1.15 for 60 consecutive
days, delivery to the Limited Partner of all income verification data insuring
that 100% of the units in the Project qualify under Section 42 of the Code and
delivery to the Limited Partner of the final Mortgage closing documents,
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provided the conditions of Section 7.2(a) of this Agreement have been met; and
(5) The final payment shall equal $24,162 and will be payable
after the above conditions have been met and delivery of the Accountant's final
tax return in which Tax Credits are taken and Internal Revenue Form 8609,
provided the conditions of Section 7.2(a) of this Agreement have been met.
Section 7.3 Repurchase of Limited Partner's Interest. Within 60 days
after receipt of written demand therefor from the Limited Partner, the
Partnership shall repurchase the Limited Partner's interest in the Partnership
by refunding to it in cash the full amount of the Capital Contribution which the
Limited Partner has theretofore made in the event that, for any reason, the
Partnership shall fail to:
(a) receive an allocation of LIHC;
(b) cause the Project to be placed in service by December 31,
1996;
(c) achieve 90% occupancy of the Project by Qualified Tenants by
January 1997;
(d) obtain the closing of the permanent Mortgage Loan by December
31, 1996;
(e) meet both the Minimum Set-Aside Test and the Rent Restriction Test
not later than December 31 of the first year the Partners elect the LIHC to
commence in accordance with the Code;
(f) continue to meet both the Minimum Set-Aside Test and the Rent
Restriction Test during the period when the Limited Partner is required to make
its Capital Contribution to the Partnership;
(g) obtain the 1994 Tax Credit carry over allocation; and
(h) obtain the approval of FmHA, if required, to the amendment of
the Limited Partnership Agreement reflected in this Agreement.
Section 7.4 Reduction of Capital Contribution.
(a) As evidenced by IRS Form 8609 and the audited construction cost
certification, if the Limited Partner's 99% interest in the Tax Credit is less
than $219,661 then the Capital Contribution provided for in Section 7.2 shall be
reduced by the amount which will make the total Capital Contribution to be paid
by the Limited Partner to the Partnership equal to 55% of the total Tax Credits
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allocated to the Limited Partner. In the event there is a reduction in the
Capital Contribution pursuant to this Section 7.4, Projected Tax Credits shall
thereafter be referred to as the "Revised Projected Tax Credits."
(b) If the Capital Contribution of the Limited Partner is to be reduced
pursuant to this Section 7.4 during the period when the Limited Partner is
required to make its Capital Contribution, then the amount of the reduction
shall be applied to the next Capital Contribution owed by the Limited Partner.
If the Capital Contribution reduction referenced in this Section 7.4 is greater
than the balance of the Limited Partner's Capital Contribution payments
("Reduction Shortfall") then the amount of the Reduction Shortfall shall be paid
by the General Partner to the Limited Partner within ninety days of the General
Partner receiving notice of the Reduction Shortfall from the Limited Partner.
(c) The General Partner will use its best efforts to rent 100% of the
Project's apartment units to Qualified Tenants over the fifteen (15) year LIHC
life. If at any time the Accountants determine that the Actual Tax Credit for
any fiscal year or portion thereof is less than the Projected Tax Credit, or the
Revised Projected Tax Credit, if applicable, pertaining to such fiscal year or
portion thereof, then the Capital Contribution of the Limited Partner shall be
reduced by an amount equal to the difference between (A) Projected Tax Credits,
or the Revised Projected Tax Credits, if applicable, and (B) the Actual Tax
Credit. Any reduction in Capital Contribution shall first be applied to reduce
the Limited Partner's next Capital Contribution, and any portion of such
reduction in excess of such Capital Contribution shall be applied to reduce
succeeding Capital Contributions of the Limited Partner. If no further Capital
Contribution payments are due and owing from the Limited Partner, then the
entire amount of such reduction shall be repaid by the Partnership to the
Limited Partner promptly after demand is made therefore. During the first five
calendar years of Partnership operations, the General Partner is obligated to
provide such funds to the Partnership as shall be necessary to cause the
aforesaid payment to be made by the Partnership to the Limited Partner.
(d) In the event that, for any reason, at any time after the first five
calendar years of Partnership operations, if the amount of the Actual Tax Credit
shall be less than the Projected Tax Credit (or the Revised Projected Tax
Credit, if applicable) (the "Credit Shortfall") then there shall be a
corresponding reduction in the General Partner's Cash Flow From Operations in an
amount equal to the Credit Shortfall and said amount shall be paid to the
Limited Partner. In the event there is not sufficient funds to pay the full
Credit Shortfall to the Limited Partner at the time of the next Distribution of
Cash Flow From Operations then the Limited Partner shall be treated as having
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made a constructive advance to the Partnership with respect to such year (a
"Credit Shortfall Loan"), which shall be deemed to have been made on January 1
of such year. Credit Shortfall Loans shall be deemed to bear simple interest
(not compounded) from the respective dates on which such principal advances are
deemed to have been made under this Section 7.4(d) at 7% per annum. Credit
Shortfall Loans shall be repaid in the next year in which sufficient moneys are
available from the General Partner's Cash Flow From Operations. In the event a
Sale or Refinancing of the Project occurs prior to repayment in full of the
Credit Shortfall Loan then the excess will be paid in accordance with Section
11.2(c).
Section 7.5 Return of Capital Contribution. From time to time the
Partnership may have cash in excess of the amount required for the conduct of
the affairs of the Partnership, and the General Partner may, in its sole
discretion, determine that such cash should, in whole or in part, be returned to
the Limited Partner in reduction of its Capital Contribution. Any Distribution
to the Limited Partner pursuant to this Section 7.5, or pursuant to Section 7.4,
shall be deemed to have been consented to by the Limited Partner. No such return
shall be made:
(a) Until this Agreement has been amended to reflect such reduction of
capital; and
(b) Unless all liabilities of the Partnership (except those to Partners
on account of amounts credited to them pursuant to this Agreement) have been
paid or there remain assets of the Partnership sufficient, in the sole
discretion of the General Partner, to pay such liabilities.
Section 7.6 Liability of Limited Partner. The Limited Partner shall not
be liable for any of the debts, liabilities, contracts or other obligations of
the Partnership. The Limited Partner shall be liable only to make its Capital
Contribution in the amounts and on the dates specified in this Agreement and
shall not be required to lend any funds to the Partnership or, after its Capital
Contribution has been paid, to make any further Capital Contribution to the
Partnership.
ARTICLE VIII
WORKING CAPITAL AND RESERVES
Section 8.1 Operation and Maintenance Reserve. The General Partner
shall deposit in the Partnership's general fund account, or provide a letter of
credit, in an amount required by the FmHA, to be used for initial operating
capital as permitted or required by applicable FmHA regulations. Said amount
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shall be reimbursed, without interest, out of Project funds as shall be
authorized in accordance with applicable FmHA regulations, and if not so
reimbursed within five years of the deposit, any amount remaining unreimbursed
shall be forgiven and shall constitute an ordinary and necessary business
expense of the General Partner as part consideration for the payment of the
Development Fee.
Section 8.2 Reserve for Replacements. The General Partner shall fund,
establish and maintain a reserve account in an amount required by the FmHA Loan
Agreement which funds shall be used in accordance with FmHA Regulation 7 CFR
Part 1930-C, or any successor thereof, as evidenced by the FmHA Loan Agreement.
Section 8.3 Other Reserves. The General Partner shall establish out of
funds available to the Partnership a reserve account sufficient in its sole
discretion to pay any unforeseen contingencies which might arise in connection
with the furtherance of the Partnership business including, but not limited to,
(a) any rent subsidy required to maintain rent levels in compliance with the
Code and applicable FmHA regulations; and (b) any real estate taxes, insurance,
debt service or other payments for which other funds are not provided for
hereunder or otherwise expected to be available to the Partnership. The General
Partner shall not be liable for any good-faith estimate which it shall make in
connection with establishing or maintaining any such reserves nor shall the
General Partner be required to establish or maintain any such reserves if, in
its sole discretion, such reserves do not appear to be necessary.
ARTICLE IX
MANAGEMENT AND CONTROL
Section 9.1 Power and Authority of General Partner. The General Partner
shall have complete and exclusive control over the management of the Partnership
business and affairs, and shall have the right, power and authority, on behalf
of the Partnership, and in its name, to exercise all of the rights, powers and
authority of a partner of a partnership without limited partners. If there is
more than one General Partner, all acts, decisions or consents of the General
Partners shall require the concurrence of all of the General Partners. No
actions taken without the authorization of all the General Partners shall be
deemed valid actions taken by the General Partners pursuant to this Agreement.
If any General Partner should violate this Agreement, he shall indemnify and
hold the other General Partners harmless against all obligations and liabilities
arising or resulting from or incidental to said violation. No Limited Partner
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(except one who may also be a General Partner, and then only in its capacity as
General Partner within the scope of its authority hereunder) shall have any
right to be active in the management of the Partnership's business or
investments or to exercise any control thereover, nor have the right to bind the
Partnership in any contract, agreement, promise or undertaking, or to act in any
way whatsoever with respect to the control or conduct of the business of the
Partnership, except as otherwise specifically provided in this Agreement.
Section 9.2 Payments to the General Partners and Others.
(a) The Partnership shall pay to the General Partner or an Affiliate of
the General Partner, a Development Fee in the amount of $72,330, which includes
interest on the unpaid portion thereof.
(b) The Partnership shall retain the sum of $48,484 from the proceeds
established in Section 7.2(b) of this Agreement to be used for supplemental
development costs including, but not limited to, land costs, architectural fees,
survey and engineering costs, financing cost, loan fees, building materials and
labor, but only to the extent of the difference between the Construction Loan
and the Mortgage. If any funds in this Section 9.2(b) are remaining after
Completion of Construction and all construction costs are paid in full and the
Construction Loan retired, then the remainder shall first be paid to the General
Partner as payment toward any unpaid Development Fee and the balance, if any,
shall be paid to the General Partner as a reduction of the General Partner's
Capital Contribution.
(c) The Partnership shall pay to an independent third party, the
General Partner or an Affiliate of the General Partner a property management fee
for the leasing and management of the Project ("Management Agent") so long as
such fee does not exceed the amount authorized and approved by FmHA for the
Project.
(i) The General Partner may, upon receiving any required
approval of the Mortgage lender, dismiss the Management Agent as the entity
responsible for the Project under the terms of the property management
agreement; and, at the request of the Limited Partner, shall remove the
Management Agent in the event that the Management Agent experiences an Event of
Bankruptcy, is dissolved, or makes an assignment for the benefit of its
creditors, or for any intentional misconduct by the Management Agent or failure
to exercise reasonable care in the discharge of its duties and obligations as
Management Agent, including without limitation, for any action or failure to
take any action which:
(A) violates in any material respect any provision
of the property management agreement or
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(B) violates in any material respect any provision
of this Agreement or provision of applicable law.
(d) The Partnership shall pay to the Limited Partner a fee (the
"Reporting Fee") commencing in 1997 for its services in connection with the
Partnership's accounting matters relating to the Limited Partner and assisting
with the preparation of tax returns and the reports required in Sections 14.2
and 14.3 in the annual amount of $400. The Reporting Fee shall be payable within
seventy-five (75) days following each calendar year and shall be payable from
Cash Flow From Operations in the manner and priority set forth in Section 11.1;
provided, however, that if in any fiscal year commencing in 1997, Cash Flow From
Operations is insufficient to pay the full amount of the Reporting Fee, the
unpaid portion thereof shall accrue and be payable on a cumulative basis in the
first year in which there is sufficient Cash Flow From Operations or from the
proceeds of a Sale or Refinancing, as provided in Section 11.2(c).
(e) The Partnership shall pay to the General Partner a Partnership
Administration Fee equal to $800 for each fiscal year of the Partnership
commencing in 1997 for services incident to the administration of the business
and affairs of the Partnership, which services shall include, but not be limited
to, maintaining the books and records of the Partnership, selecting and
supervising the Partnership's accountants, bookkeepers and other Persons
required to prepare and audit the Partnership's financial statements and tax
returns, and preparing and disseminating reports on the status of the Project
and the Partnership, all as required by Article XIV of this Agreement. The
Partnership Administration Fee shall be payable within seventy-five (75) days
following each calendar year and shall be payable from Cash Flow From Operations
in the manner and priority set forth in Section 11.1. If the Partnership
Administration Fee is not paid in any year it shall not accrue for payment in
subsequent years.
Section 9.3 Specific Powers of the General Partner. Subject to other
provisions of this Agreement, the General Partner shall have the following
powers:
(a) In the Partnership's name and behalf, the General Partner may
acquire (including by fee or real estate contract), hold, sell, transfer,
assign, lease or otherwise deal with any real, personal or mixed property,
interest therein or appurtenance thereto.
(b) In the Partnership's name and behalf, the General Partner may
employ, contract and otherwise deal with, from time to time, Persons whose
services are necessary or appropriate in connection with management and
operation of the Partnership business, including, without limitation,
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contractors, agents, brokers, accountants and attorneys, on such terms as the
General Partner shall determine.
(c) In the Partnership's name and behalf, the General Partner may bring
or defend, pay, collect, compromise, arbitrate, resort to legal action or
otherwise adjust claims or demands of or against the Partnership.
(d) In the Partnership's name and behalf, the General Partner may pay
as a Partnership expense any and all costs and expenses associated with the
formation, development, organization and operation of the Partnership, including
the expense of annual audits, tax returns and FmHA, LIHC compliance.
(e) In the Partnership's name and behalf, the General Partner may
deposit, withdraw, invest, pay, retain and distribute the Partnership's funds in
a manner consistent with the provisions of this Agreement.
(f) The General Partner may require in any or all Partnership contracts
that the General Partner shall not have any personal liability thereunder but
that the Person contracting with the Partnership shall look solely to the
Partnership and its assets for satisfaction.
(g) In the Partnership's name and behalf, the General Partner may
execute, acknowledge and deliver any and all instruments to effectuate any of
the foregoing.
Section 9.4 Authority Requirements. During the Compliance Period, the
following provisions shall apply:
(a) Each of the provisions of this Agreement shall be subject to, and
the General Partner covenants to act in accordance with, the Tax Credit
Conditions and all applicable federal, state and local laws and regulations;
(b) The Tax Credit Conditions and all such laws and regulations, as
amended or supplemented, shall govern the rights and obligations of the
Partners, their heirs, executors, administrators, successor and assigns, and
they shall control as to any terms in this Agreement which are inconsistent
therewith, and any such inconsistent terms of this Agreement shall be
unenforceable by or against any of the Partners;
(c) Upon any dissolution of the Partnership or any transfer of the
Project, no title or right to the possession and control of the Project and no
right to collect rent therefrom shall pass to any Person who is not, or does not
become, bound by the Tax Credit Conditions in a manner that, in the opinion of
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counsel to the Partnership, would not avoid a recapture thereof on the part of
the former owners; and
(d) Any conveyance or transfer of title to all or any portion of the
Project required or permitted under this Agreement shall in all respects be
subject to the Tax Credit Conditions and all conditions, approvals or other
requirements of the rules and regulations of any authority applicable thereto.
Section 9.5 Limitations on General Partner's Power and Authority.
Notwithstanding the foregoing provisions of this Article IX, the General Partner
shall not:
(a) Except as required by Section 9.4, act in contravention of
this Agreement;
(b) Act in any manner which would make it impossible to carry
on the ordinary business of the Partnership;
(c) Confess a judgment against the Partnership;
(d) Possess Partnership property, or assign the Partner's right
in specific Partnership property, for other than the exclusive benefit of the
Partnership;
(e) Admit a Person as a General Partner except as provided in
this Agreement;
(f) Admit a Person as a Limited Partner except as provided in this
Agreement;
(g) Violate the Mortgage Loan or Mortgage Note;
(h) Cause the Project apartment units to be rented to anyone
other than Qualified Tenants;
(i) Violate the Minimum Set-Aside Test for the Project;
(j) Cause any recapture of the Tax Credits;
(k) Permit any creditor who makes a nonrecourse loan to the Partnership
to have, or to acquire at any time as a result of making such loan, any direct
or indirect interest in the profits, income, capital or other property of the
Partnership, other than as a secured creditor; or
(l) Commingle funds of the Partnership with the funds of another
Person; provided, however, that the General Partner may establish a master
fiduciary account pursuant to which separate subtrust accounts are established
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for the benefit of affiliated limited partnerships, provided that Partnership
funds are protected from claims of such other partnerships and/or their
creditors.
Section 9.6 Restrictions on Authority of General Partner. Without the
prior approval of the Limited Partner the General Partner shall not:
(a) Sell, exchange, lease or otherwise dispose of all or a
substantial part of the assets of the Partnership;
(b) Incur indebtedness other than the Mortgage Loan in the name
of the Partnership, other than in the ordinary course of the Partnership's
business;
(c) Engage in any transaction not expressly contemplated by
this Agreement in which the General Partner has an actual or potential conflict
of interest with the Limited Partner;
(d) Admit a General Partner, or elect to continue the Partnership's
business after a General Partner ceases to be a General Partner (other than by
removal) where there is no remaining or surviving General Partner;
(e) Contract away the fiduciary duty owed to the Limited Partner
at common law; or
(f) Take any action which would cause the Project to fail to qualify,
or which would cause a termination or discontinuance of the qualification of the
Project, as a "qualified low income housing project" under Section 42(g)(1) of
the Code, as amended, or any successor thereto, or which would cause the Limited
Partner to fail to obtain the Projected Tax Credits or which would cause the
recapture of any LIHC.
Section 9.7 Duties of General Partner. The General Partner agrees that
it shall at all times:
(a) Use its best efforts to rent 100% of the apartments to Qualified
Tenants during the Project's "compliance period" for purposes of Code Section
42.
(b) Diligently and faithfully devote such of its time to the
business of the Partnership as may be necessary to properly conduct the affairs
of the Partnership;
(c) File and publish all certificates, statements or other instruments
required by law for the formation and operation of the Partnership as a limited
partnership in all appropriate jurisdictions;
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(d) Cause the Partnership to carry adequate public liability insurance,
comprehensive casualty insurance for not less than the full insurable value of
the Project and such other insurance as is generally maintained for properties
similar to the Project;
(e) Have a fiduciary responsibility for the safekeeping and use of all
funds and assets of the Partnership, whether or not in its immediate possession
or control and not employ or permit another to employ such funds or assets in
any manner except for the benefit of the Partnership;
(f) Comply with all FmHA, Code and state rules and regulations for
rural rental housing, LIHC; and
(g) Perform such other acts as may be expressly required of it under
the terms of this Agreement.
Section 9.8 Partnership Expenses.
(a) All of the Partnership's expenses shall be billed directly to and
paid by the Partnership to the extent practicable. Reimbursements to the General
Partner or any of its Affiliates by the Partnership shall be allowed only for
the Partnership's operating cash expenses and only subject to the limitations on
the reimbursement of such expenses set forth herein. As used in this Section 9.8
the term "operating cash expenses" shall mean, with respect to any fiscal
period, the amount of cash disbursed by the Partnership in that period in the
ordinary course of business for the payment of its operating expenses, such as
expenses for advertising and promotion, management, utilities, repair and
maintenance, insurance, Partner communications, legal, accounting, statistical
and bookkeeping services, use of computing or accounting equipment, travel and
telephone expenses, salaries and direct expenses of Partnership employees while
engaged in Partnership business, and any other operational and administrative
expenses necessary for the prudent operation of the Partnership. Without
limiting the generality of the foregoing, "operating cash expenses" shall
include fees paid by the Partnership to the General Partner or any Affiliate of
the General Partner permitted by this Agreement and the actual cost of goods,
materials and administrative services used for or by the Partnership, whether
incurred by the General Partner, an Affiliate of the General Partner or a
nonaffiliated Person in performing the foregoing functions. As used in the
preceding sentence, "actual cost of goods and materials" means the actual cost
of goods and materials used for or by the Partnership and obtained from entities
not affiliated with the General Partner, or goods and materials obtained from
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the General Partner or an Affiliate at competitive rates, provided the same does
not violate FmHA rules and regulations, Actual cost of administrative services
means the pro rata cost of personnel (as if such persons were employees of the
Partnership) associated therewith, but in no event to exceed the amount which
would be charged by nonaffiliated Persons for comparable goods and services.
(b) Reimbursement to the General Partner or any of its Affiliates of
operating cash expenses pursuant to Subsection (a) hereof shall be subject to
the following:
(i) No such reimbursement shall be permitted for services for
which the General Partner or any of its Affiliates is entitled to compensation
by way of a separate fee; and
(ii) No such reimbursement shall be made for (a) rent or
depreciation, utilities, capital equipment or other such administrative items,
and (b) salaries, fringe benefits, travel expenses and other administrative
items incurred or allocated to any "controlling person" of the General Partner
or any Affiliate of the General Partner. For the purposes of this Section
9.7(b)(ii), "controlling person" includes, but is not limited to, any Person,
however titled, who performs functions for the General Partner or any Affiliate
of the General Partner similar to those of: 1) chairman or member of the board
of directors; (2) executive management, such as president, vice president or
senior vice president, corporate secretary or treasurer; (3) senior management,
such as the vice president of an operating division who reports directly to
executive management; or (4) those holding 5% or more equity interest in such
General Partner or any such Affiliate of the General Partner or a person having
the power to direct or cause the direction of such General Partner or any such
Affiliate of the General Partner, whether through the ownership of voting
securities, by contract or otherwise.
Section 9.9 General Partner Expenses. The General Partner or Affiliates
of the General Partner shall pay all Partnership expenses which are not
permitted to be reimbursed pursuant to Section 9.8 and all other expenses which
are unrelated to the business of the Partnership.
Section 9.10 Other Business of Partners. Any Partner may engage
independently or with others in other business ventures of every nature and
description, including, without limitation, the acquisition, development,
construction, operation and management of real estate projects and developments
of every type on their own behalf or on behalf of other partnerships, joint
ventures, corporations or other business ventures formed by them or in which
they may have an interest, including, without limitation, business ventures
similar to, related to or in direct or indirect competition with the Project
except if prohibited under a non-competition agreement. Neither the Partnership
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nor any Partner shall have any right by virtue of this Agreement or the
partnership relationship created hereby in or to such other ventures or
activities or to the income or proceeds derived therefrom.
Section 9.11 Covenants, Representations and Warranties. The General
Partner covenants, represents and warrants that the following are presently true
and will be true during the term of this Agreement, to the extent then
applicable:
(a) The Partnership is a duly organized limited partnership validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of its
Limited Partners.
(b) This Partnership Agreement and the Project Documents are in full
force and effect and neither the Partnership nor the General Partner is in
material breach or violation of any provisions thereof or of any FmHA
regulation.
(c) Existing improvements, if any, on the Project have been completed
substantially in conformity with the Project Documents, and the Project is being
operated in accordance with standards and procedures which are prudent and
customary for the operation of properties similar to the Project.
(d) Additional construction on the Project, if any, shall be completed
substantially in conformity with the Project Documents and any other
requirements necessary to obtain Completion of Construction.
(e) The Project is being operated in accordance with standards and
procedures which are prudent and customary for the operation of properties
similar to the Project.
(f) No Partner has any personal liability with respect to or has
personally guaranteed the payment of the permanent Mortgage.
(g) The Partnership is in material compliance with all construction and
use codes applicable to the Project and is not in violation of any zoning,
environmental or similar regulations applicable to the Project.
(h) All appropriate public utilities, including sanitary and storm
sewers, water, gas and electricity, are currently available and will be
operating properly for all units in the Project at the time of first occupancy
and throughout the term of the Partnership.
(i) The Project has obtained, or will obtain before Permanent Mortgage
Commencement, and will maintain throughout the term of this Partnership
Insurance written by an Insurance Company.
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(j) The Partnership owns the fee simple interest in the Project,
subject only to liens (except those with respect to which an adequate bond or
other financial security has been issued) which, in the aggregate, do not exceed
$10,000 and the Mortgage Loan.
(k) The Construction Contract has been entered into between the
Partnership and the Contractor; no other consideration or fee shall be paid to
the Contractor other than amounts set forth in the Construction Contract.
(l) Except as otherwise disclosed to the Limited Partner in writing
prior to the execution of this Agreement, to the best of the General Partner's
knowledge: (1) no Hazardous Substance has been disposed of, or released to or
from, or otherwise now exists in, on, under or around, the Project and (2) no
aboveground or underground storage tanks are now or have ever been located on or
under the Project. The General Partner will not install or allow to be installed
any aboveground or underground storage tanks on the Project. The General Partner
covenants that the Project shall be kept free of Hazardous Materials and shall
not be used to generate, manufacture, refine, transport, treat, store, handle,
dispose of, transfer, produce or process Hazardous Materials, except in
connection with the normal maintenance and operation of any portion of the
Project. The General Partner shall comply, or cause there to be compliance, with
all applicable Federal, state and local laws, ordinances, rules and regulations
with respect to Hazardous Materials and shall keep, or cause to be kept, the
Project free and clear of any liens imposed pursuant to such laws, ordinances,
rules and regulations. The General Partner must promptly notify the Limited
Partner in writing (3) if it knows, or suspects or believes there may be any
Hazardous Substance in or around any part of the Project, any Improvements
constructed on the Project, or the soil, groundwater or soil vapor, (4) if the
General Partner or the Partnership may be subject to any threatened or pending
investigation by any governmental agency under any law, regulation or ordinance
pertaining to any Hazardous Substance, and (5) of any claim made or threatened
by any Person, other than a governmental agency, against the Partnership or
General Partner arising out of or resulting from any Hazardous Substance being
present or released in, on or around any part of the Project.
(m) As of the date hereof, at funding of the Construction Loan and upon
Permanent Mortgage Commencement, fire and extended coverage insurance for the
full replacement value of the Project (excluding the value of the land, site
utilities, landscaping and foundations) and worker's compensation and public
liability insurance, all in favor of the Partnership, is and will be in full
force and effect and will be kept in full force and effect during the term of
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the Partnership; all such policies shall be amounts and with insurers
satisfactory to the permanent lender and shall be paid out of Partnership
assets.
(n) The Partnership will allocate to the Limited Partner the Projected
Annual Tax Credits.
(o) No charges or encumbrances exist with respect to the Project other
than those which are created or permitted by the Project Documents or are noted
or excepted in the title policy for the Project.
(p) The buildings on the Project site shall constitute a "qualified
low-income housing project" as defined in Section 42(g) of the Code, and as
amplified by the Treasury Regulations thereunder. In this connection, not later
than December 31 of the first year in which the Partners elect the LIHC to
commence in accordance the Code.
(q) No event or proceeding, including, but not limited to, any (A)
legal actions or proceedings before any court, commission, administrative body
or other governmental authority, and (B) acts of any governmental authority
having jurisdiction over the zoning or land use laws applicable to the Project,
has occurred the continuing effect of which has: (i) materially or adversely
affected the operation of the Partnership or the Project (except to the extent
that funds are available to the Partnership to correct or cure such event or
proceeding); (ii) materially or adversely affected the ability of the General
Partner to perform its obligations hereunder or under any other agreement with
respect to the Project; or (iii) prevented the completion of construction of the
improvements in substantial conformity with the Project Documents, other than
legal proceedings which have been bonded against (or as to which other adequate
financial security has been issued) in a manner as to indemnify the Partnership
against loss; provided that the foregoing does not apply to matters of general
applicability which would adversely affect the Partnership, the General Partner,
Affiliates of the General Partner or the Project only insofar as they or any of
them are part of the general public.
(r) Neither the Partnership nor the General Partner has any
liabilities, contingent or otherwise, which have not been disclosed in writing
to the Limited Partner and which in the aggregate do not affect the ability of
the Limited Partner to obtain the anticipated benefits of its investment in the
Partnership.
(s) The General Partner has and shall maintain a net worth equal to at
least $500,000.
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The General Partner shall be liable to the Limited Partner for any
costs, damages, loss of profits, diminution in the value of its investment in
the Partnership, or other losses, of every nature and kind whatsoever, direct or
indirect, realized or incurred by the Limited Partner as a result of any
material breach of the representations and warranties set forth in this Section
9.10.
ARTICLE X
ALLOCATIONS OF INCOME, LOSSES AND CREDITS
Section 10.1 General. All items includable in the calculation of Income
or Loss not arising from a Sale or Refinancing, and all Tax Credits, shall be
allocated 99% to the Limited Partner and 1% to the General Partner.
Section 10.2 Allocations From Sale or Refinancing. All Income and
Losses arising from a Sale or Refinancing shall be allocated between the
Partners as follows:
(a) As to Income:
(1) First, an amount of Income equal to the aggregate negative
balances (if any) in the Capital Accounts of all Partners having negative
Capital Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of Sale or Refinancing Proceeds, but after giving effect to
Distributions of Cash Flow From Operations and allocations of Income and Losses
pursuant to Section 10.1 for the year) shall be allocated to such Partners in
proportion to their negative Capital Account balances until all such Capital
Accounts shall have zero balances; and
(2) Second, an amount of Income sufficient to increase the
Partner's positive Capital Account balance to an amount equal to its Capital
Contribution, determined prior to taking into account the Distribution of Sale
or Refinancing Proceeds from the Sale or Refinancing but after giving effect to
allocations pursuant to Section 10.2(a) resulting from the Sale or Refinancing;
and
(3) the balance, if any, of such Income shall be allocated 99%
to the Limited Partner and 1% to the General Partner.
(b) As to Losses:
(1) an amount of Losses equal to the aggregate positive
balances (if any) in the Capital Accounts of all Partners having positive
Capital Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of Sale or Refinancing Proceeds, but after giving effect to
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Distributions of Cash Flow From Operations and allocations of Income and Losses
pursuant to Section 10.1 for the year) shall be allocated to such Partners in
proportion to their positive Capital Account balances until all such Capital
Accounts shall have zero balances; and
(2) the balance of any such Losses shall be allocated 99% to
the Limited Partner and 1% to the General Partner.
(c) Notwithstanding the foregoing provisions of Section 10.2(a) and
(b), in no event shall any Losses be allocated to a Limited Partner if and to
the extent that such allocation would create or increase an Adjusted Capital
Account Deficit for such Limited Partner. In the event an allocation of 99% of
each item includable in the calculation of Income or Loss not arising from a
Sale or Refinancing, would create or increase an Adjusted Capital Account
Deficit for the Limited Partner, then so much of the items of deduction other
than projected depreciation shall be allocated to the General Partner instead of
the Limited Partner as is necessary to allow the Limited Partner to be allocated
99% of the items of income and Project depreciation without creating or
increasing an Adjusted Capital Account Deficit for the Limited Partner, it being
the intent of the parties that the Limited Partner always be allocated 99% of
the items of Income not arising from a Sale or Refinancing and 99% of the
Project depreciation.
Section 10.3 Special Allocations. The following special allocations
shall be made in the following order:
(a) Except as otherwise provided in Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provisions of this Article X, if there is
a net decrease in Partnership Minimum Gain during any Partnership fiscal year,
each Partner shall be specially allocated items of Partnership Income and gain
for such fiscal year (and, if necessary, subsequent fiscal years) in an amount
equal to such Person's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Treasury 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 and pursuant
thereto. The items to be so allocated shall be determined in accordance with
Section 1.704-2(f)(6) and 1.704-2(j)(2) of the Treasury Regulations. This
Section 10.3(a) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(f) of the Treasury Regulations and shall be
interpreted consistently therewith.
(b) Except as otherwise provided in Section 1.704-2(i)(4) of the
Treasury Regulations, notwithstanding any other provision of this Article X, if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
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a Partner Nonrecourse Debt during any Partnership fiscal year, each Person who
has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of
the Treasury Regulations, shall be specially allocated items of Partnership
Income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Person's share of the net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Treasury 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 Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This Section
10.3(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted
consistently therewith.
(c) In the event any Partner unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6), items of Partnership Income and gain shall be specially
allocated to each such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible, provided that an allocation
pursuant to this Section 10.3(c) shall be made if and only to the extent that
such Partner would have Adjusted Capital Account Deficit after all other
allocations provided for in this Section 10.3 have been tentatively made as if
this Section 10.3(c) were not in the Agreement.
(d) In the event any Partner has a deficit Capital Account at the end
of any Partnership fiscal year which is in excess of the sum of (i) the amount
such Partner is obligated to restore, and (ii) the amount such Partner is deemed
to be obligated to restore pursuant to the penultimate sentences of Treasury
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 10.3(d) 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 for in this Section 10.3 have been tentatively made as if this Section
10.3(d) and Section 10.3(c) hereof were not in the Agreement.
(e) Nonrecourse Deductions for any fiscal year shall be specially
allocated 99% to the Limited Partner and 1% to the General Partner.
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(f) Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the General Partner or Limited Partner 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 Treasury
Regulations Section 1.704-2(i)(1).
(g) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 743(b) is required, pursuant to
Treasury 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 General Partner and the Limited
Partner in accordance with their interests in the Partnership in the event that
Treasury Regulations Section 1.704-1 (b)(2)(iv)(m)(2) applies, or to the Partner
to whom such distribution was made in the event that Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) To the extent the Partnership has taxable interest income with
respect to any promissory note pursuant to Section 483 or Section 1271 through
1288 of the Code:
(a) Such interest income shall be specially allocated to the
Limited Partner to whom such promissory note relates; and
(b) The amount of such interest income shall be excluded from
the Capital Contributions credited to such Partner's Capital Account in
connection with payments of principal with respect to such promissory note.
(i) In the event the adjusted tax basis of any Code Section 38 property
that has been placed in service by the Partnership is increased pursuant to Code
Section 50(c), such increase shall be specially allocated among the Partners (as
an item in the nature of income or gain) in the same proportions as the
investment tax credit that is recaptured with respect to such property is shared
among the Partners.
(j) Any reduction in the adjusted tax basis (or cost) of Partnership
Code Section 38 property pursuant to Code Section 50(c) shall be specially
allocated among the Partners (as an item in the nature of expenses or losses) in
the same proportions as the basis (or cost) of such property is allocated
pursuant to Treasury Regulations Section 1.46-3(f)(2)(i).
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(k) Any Income, Loss, or deduction realized as a direct or indirect
result of the issuance of an Interest in the Partnership by the Partnership to a
Partner (the "Issuance Items") shall be allocated amount the Partners so that,
to the extent possible, the net amount of such Issuance Items, together with all
other allocations under this Agreement to each Partner, shall be equal to the
net amount that would have been allocated to each such Partner if the issuance
items had not been realized.
(l) If any Partnership expenditure treated as a deduction on its
federal income tax return is disallowed as a deduction and treated as a
distribution pursuant to Section 731(a) of the Code, there shall be a special
allocation of gross income to the Partner deemed to have received such
distribution equal to the amount of such distribution.
(m) The allocation to the General Partner of each material item of
Partnership income, loss, deduction or credit will not be less than 1% of each
such item at all times during the existence of the Partnership.
(n) Interest deduction on the Partnership indebtedness referred to in
Section 6.3 shall be allocated 100% to the General Partner.
Section 10.4 Curative Allocations. The allocations set forth in
Sections 10.3(a), 10.3(b), 10.3(c), 10.3(d), 10.3(e), 10.3(f), and 10.3(g)
hereof (the "Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Partners that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Partnership Income, gain, Loss, or deduction pursuant to this Section 10.4.
Therefore, notwithstanding any other provision of the Article X (other than the
Regulatory Allocations), the General Partner shall make such offsetting special
allocations of Partnership Income, gain, Loss, or deduction in whatever manner
the General Partner determines appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Partner would have had if
the Regulatory Allocations were not part of the Agreement and all Partnership
items were allocated pursuant to Sections 10.3(h), 10.3(i), 10.3(j), 10.3(k) and
10.5. In exercising its discretion under Section 10.4, the General Partner shall
take into account future Regulatory Allocations under Section 10.3(a) and
10.3(b) that, although not yet made, are likely to offset other Regulatory
Allocations previously made under Sections 10.3(e) and 10.3(f).
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Section 10.5 Other Allocation Rules.
(a) The basis (or cost) of any Partnership Code Section 38 property
shall be allocated among the Partners in accordance with Treasury Regulations
Section 1.46-3 (f)(2)(i). All Tax Credits (other than the investment tax credit)
shall be allocated among the Partners in accordance with applicable law.
Consistent with the foregoing, the Partners intend that LIHTC will be allocated
99% to the Limited Partner and 1% to the General Partner.
(b) In the event Partnership Code Section 38 property is disposed of
during any taxable year, profits for such taxable year (and, to the extent such
profits are insufficient, profits for subsequent taxable years) in an amount
equal to the excess, if any, of (i) the reduction in the adjusted tax basis (or
cost) of such property pursuant to Code Section 50(c), over (ii) any increase in
the adjusted tax basis of such property pursuant to Code Section 50(c) caused by
the disposition of such property, shall be excluded from the profits allocated
pursuant to Section 10.1 hereof and shall instead be allocated among the
Partners in proportion to their respective shares of such excess, determined
pursuant to Section 10.3(i) and 10.3(j) hereof. In the event more than one item
of such property is disposed of by the Partnership, the foregoing sentence shall
apply to such items in the order in which they are disposed of by the
Partnership, so the profits equal to the entire amount of such excess with
respect to the first such property disposed of shall be allocated prior to any
allocations with respect to the second such property disposed of, and so forth.
(c) For purposes of determining the Income, Losses, or any other items
allocable to any period, Income, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partners using any permissible method under Code Section 706 and the Treasury
Regulations thereunder.
Section 10.6 Tax Allocations: Code Section 704(c). In accordance with
Code Section 704(c) and the Treasury Regulations thereunder, Income, Loss, and
deduction with respect to any property contributed to the capital of the
Partnership shall, solely for tax purposes, be allocated among the Partners so
as to take account of any variation between the adjusted basis of such property
to the Partnership for federal income tax purposes and its initial Gross Asset
Value (computed in accordance with this Agreement).
In the event the Gross Asset Value of any Partnership asset is adjusted pursuant
hereto, subsequent allocations of Income, gain, Loss, and deduction with respect
to such asset shall take account of any variation between the adjusted basis of
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such asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made by
the General Partner in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 10.6 are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Person's Capital Account or
share of Income, Losses, other items, or distributions pursuant to any provision
of this Agreement.
Section 10.7 Allocation Among Limited Partners and Assignees. In the
event that the Interest of the Limited Partner hereunder is at any time held by
more than one Limited Partner or Assignee all tax items which are specifically
allocated to the Limited Partner for any month pursuant to this Article X shall
be apportioned among such Persons according to the ratio of their respective
profit-sharing interests in the Partnership at the last day of such month.
Section 10.8 Allocation Among General Partners. In the event that the
Interest of the General Partner hereunder is at any time held by more than one
General Partner all tax items which are specifically allocated to the General
Partner for any month pursuant to this Article X shall be apportioned among such
Persons in such percentages as may from time to time be determined by agreement
among them without amendment to this Agreement or consent of the Limited
Partner.
Section 10.9 Modification of Allocations. The provisions of Articles X
and XI and other provisions of this Agreement are intended to comply with
Treasury Regulation Section 1.704 and shall be interpreted and applied in a
manner consistent with such section of the Treasury Regulations. In the event
that the General Partner determines, in its sole discretion, that it is prudent
to modify the manner in which the Capital Accounts of the Partners and
Assignees, or any debit or credit thereto, are computed in order to comply with
such section of the Treasury Regulations, the General Partner may make such
modification, to the minimum extent necessary, to effect the plan of allocations
and Distributions provided for elsewhere in this Agreement. Further, the General
Partner shall make any appropriate modifications in the event it appears that
unanticipated events (e.g., the existence of a Partnership election pursuant to
Code Section 754) might otherwise cause this Agreement not to comply with
Treasury Regulation Section 1.704.
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ARTICLE XI
DISTRIBUTION
Section 11.1 Distribution of Cash Flow From Operations.
Cash Flow From Operations for each fiscal year shall be distributed
within seventy-five (75) days following each calendar year and shall be applied
in the following order of priority:
(a) To the payment of the current Reporting Fee and then to
the payment of any accrued Reporting Fees which have not been paid in full from
previous years;
(b) To the payment of the Partnership Administration Fee; and
(c) The balance thereof, if any, shall be distributed annually
99% to the Limited Partner and 1% to the General Partner.
Section 11.2 Distribution Upon Sale or Refinancing. Provided the
Distribution is not determined to be a liquidating distribution pursuant to
Treasury Regulation 1.704-1(b)(2)(ii)(g), funds available for distribution upon
Sale or Refinancing shall be distributed in the following order:
(a) To the payment of the Mortgage Note and other matured debts
and liabilities of the Partnership, if applicable;
(b) To the payment of any other priority debt in accordance with
State law;
(c) To any accrued payments or loan repayments owing to the
Partners, to be paid prorata if necessary;
(d) To the establishment of any reserves which the General
Partner shall deem reasonably necessary for contingent, unmatured or unforeseen
liabilities or obligations of the Partnership;
(e) To the Limited Partner in an amount equal to its Capital
Contribution;
(f) To the General Partner in an amount equal to its Capital
Contribution; and
(g) Thereafter, 50% to the Limited Partner and 50% to the General
Partner.
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ARTICLE XII
VOLUNTARY TRANSFERS OF LIMITED
PARTNER'S INTEREST IN THE PARTNERSHIP
Section 12.1 Assignment of Limited Partner's Interest. The Limited
Partner shall not have the right to assign all or any part of its interest in
the Partnership to any other Person, whether or not a Partner, except:
(a) By a written instrument in form and substance satisfactory to the
General Partner and its counsel, setting forth the name and address of the
proposed transferee, the nature and extent of the interest which is proposed to
be transferred and the terms and conditions upon which the transfer is proposed
to be made, stating that the Assignee accepts and agrees to be bound by all of
the terms and provisions of this Agreement, and providing for the payment of all
reasonable expenses incurred by the Partnership in connection with such
assignment, including but not limited to the cost of preparing any necessary or
appropriate amendment to this Agreement;
(b) Upon consent of the General Partner to such assignment, which
shall not be unreasonably withheld;
(c) Upon receipt by the General Partner of an opinion of counsel
acceptable to the General Partner that such assignment complies with all
applicable federal and state securities laws; and
(d) Upon receipt by the General Partner of the Assignee's written
representation that the Partnership interest is to be acquired by him for his
own account for long-term investment and not with a view toward resale,
fractionalization, division or distribution thereof.
THE LIMITED PARTNERSHIP INTEREST DESCRIBED HEREIN HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED OR UNDER ANY STATE
SECURITIES LAW. THE INTEREST MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
Section 12.2 Effective Date of Transfer. Any assignment of a Limited
Partner's interest pursuant to Section 12.1 shall become effective as of the
last day of the calendar month in which the last of the conditions in Section
12.1 to such assignment are satisfied.
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Section 12.3 Invalid Assignment. Any purported assignment of an
interest of a Limited Partner otherwise than in accordance with Section 12.1 or
Section 12.6 shall be of no effect as between the Partnership and the purported
assignee and shall be disregarded by the General Partner in making allocations
and Distributions hereunder.
Section 12.4 Assignee's Rights to Allocations and Distributions. An
Assignee shall be entitled to receive allocations of Partnership tax items and
Distributions from the Partnership attributable to the Partnership interest
acquired by reason of any permitted assignment from and after the first day of
the calendar month following the month which ends with the effective date of the
transfer of such interest as provided in Section 12.2. The Partnership and the
General Partner shall be entitled to treat the assignor of such Partnership
interest as the absolute owner thereof in all respects, and shall incur no
liability for allocations of Partnership items and Distributions made in good
faith to such assignor, until such time as the written instrument of assignment
has been received by the Partnership.
Section 12.5 Substitution of Assignee as Limited Partner.
(a) An Assignee shall not have the right to become a substitute Limited
Partner in place of his assignor unless the written consent of the General
Partner to such substitution shall have been obtained, which consent, in the
General Partner's absolute discretion, may be withheld. No consent or other
action of any non-assigning Limited Partner shall be required for the admission
to the Partnership of any substitute Limited Partner.
(b) A nonadmitted Assignee of a Limited Partner's interest in the
Partnership under an assignment complying with Section 12.1 shall only be
entitled to receive that share of allocations, Distributions and the return of
Capital Contribution to which its transferor would otherwise be entitled with
respect to the interest transferred, and shall have no right to obtain any
information on account of the Partnership's transactions, to inspect the
Partnership's books and records or have any other of the rights and privileges
of a Limited Partner, provided, however, that the Partnership shall, if an
Assignee and assignor jointly advise the General Partner in writing of a
transfer of an interest in the Partnership complying with Section 12.1, furnish
the Assignee with pertinent tax information at the end of each fiscal year of
the Partnership.
(c) The General Partner may elect to treat an Assignee of a Partnership
interest who has not become a substitute Limited Partner as a substitute Limited
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Partner in the place of its Assignor should it deem in its absolute discretion
that such treatment is in the best interest of the Partnership.
Section 12.6 Death, Bankruptcy, Incompetency, etc. of a Limited
Partner. Upon the death, dissolution, adjudication of bankruptcy, insanity or
adjudication of incompetency of a Limited Partner, such Partner's executors,
administrators or legal representatives shall have all the rights of a Limited
Partner for the purpose of settling or managing such Partner's estate, including
such power as such Partner possessed to assign his Interest as a Partner.
However, such executors, administrators or legal representatives will not have
the right to become substitute Limited Partners in the place of their
predecessor-in-interest unless the General Partner consents in accordance with
Section 12.5(a).
Section 12.7 Assignment. For purposes of this Article XII, "assign" and
"assignment" shall mean any grant, vesting, conveyance, or transfer whatsoever
of any interest whatsoever (including without limitations security interests),
whether by operation of law or consensually, gratuitously or for considerations.
ARTICLE XIII
RESIGNATION, REMOVAL AND REPLACEMENT OF
GENERAL PARTNER
Section 13.1 Resignation of General Partner. The General Partner may
resign only with the prior written approval of the Limited Partner and, if
required by applicable FmHA regulations, the FmHA. The Consent of the Limited
Partner shall be conditioned upon the agreement of one or more successor General
Partners who satisfy the requirements of Section 13.3 of this Agreement to be
admitted as substitute General Partner(s).
Section 13.2 Removal of General Partner.
(a) Subject to the limitations imposed on the Project and the
Partnership by applicable FmHA regulations, the Limited Partner may remove the
General Partner:
(1) For cause if such General Partner has:
(A) Been subject to an Event of Bankruptcy;
(B) Committed any fraud, willful misconduct,
breach of fiduciary duty or other grossly negligent conduct in the performance
of its duties under this Agreement;
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(C) Convicted of, or entering into a plea of
guilty to a felony;
(D) Made personal use of Partnership funds or
properties;
(E) Violated the terms of the FmHA loan
Agreement, the FmHA Interest Credit Agreement or any FmHA rule or regulation
applicable to the Partnership Mortgage Note, and such violation prompts the
FmHA to issue a default letter or acceleration notice to the Partnership
or General Partner and such conduct caused the Partnership to suffer an
uninsurable loss;
(F) Breached any representation, warranty or
covenant contained in this Agreement or failed to perform any action which may
be required by this Agreement and such conduct caused the Partnership to suffer
an uninsurable loss;
(G) Violated any federal or state tax law which
causes a recapture of LIHC; or
(H) Failed during any six-month period
during the first 15 years of Project operations to cause at least 85% of the
total apartment units in the Project to qualify for LIHC, unless such failure
is the result of fire, flood, earthquake or other act of God or unless such
failure is cured within 120 days after the end of the six-month period.
(b) Written notice of the removal for cause of the General Partner
shall be served upon the General Partner either by certified or by registered
mail, return receipt requested, or by personal service. Such notice shall set
forth the reasons for the removal, if any, and the date upon which the removal
is to become effective.
(c) Upon receipt of such the notice of removal for cause, the General
Partner shall cause an accounting to be prepared covering the transactions of
the Partnership from the end of the previous fiscal year through the date of
receipt of such notice, and thereafter it shall not sell or dispose of
Partnership assets in the ordinary course of business of the Partnership or
otherwise unless such sale or disposition is subject to a contract entered into
by and binding upon the Partnership prior to the date upon which such notice was
received by the General Partner. If possible, the accounting shall be completed
by the effective date of the removal and shall be in sufficient detail to
accurately and fully reflect the earnings or losses for the period and the
financial condition of the Partnership. The expenses of the accounting shall be
borne by the General Partner.
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(d) The removal of the General Partner for cause shall become effective
upon the date set forth in the notice. Such General Partner shall (i) cease to
be a Partner of, or have any further interest in, the Partnership as of the
effective date of the removal; (ii) be entitled to receive as its sole
compensation for its interest in the Partnership an amount equal to its Capital
Account balance as of the effective date of the removal, payable upon the
dissolution and termination of the Partnership after all of the Partners have
been distributed the positive balances in their Capital Accounts; and (iii)
remain liable to restore any deficit balance in its Capital Account as of the
date of its removal as provided in Section 15.3(b) of this Agreement.
Section 13.3 Admission of Substitute General Partner. No Person shall
be admitted as a substitute General Partner unless (i) such Person shall have
agreed to become a substitute General Partner by a written instrument which
shall include the acceptance and adoption of this Agreement; (ii) the Limited
Partner and, if required by FmHA regulations applicable to the Partnership, FmHA
shall have consented in writing to the admission of such Person as a substitute
General Partner; (iii) such Person shall acquire and agree to maintain the
Financial Interest in the Partnership, if any, required by applicable FmHA
regulations; (iv) such Person, if a corporation, shall satisfy the "safe harbor"
guidelines established by Revenue Procedure 89-12, 1989-7 I.R.B. or any
successor Revenue Procedure; and (v) such Person shall have executed and
acknowledged any other instruments which the withdrawing General Partner shall
reasonably deem necessary or appropriate to affect the admission of such Person
as a substitute General Partner. If the foregoing conditions are satisfied, this
Agreement shall be amended in accordance with the provisions of the Act, and all
other steps shall be taken which are reasonably necessary to effect the
withdrawal of the withdrawing General Partner and the substitution of the
substitute General Partner. Nothing contained herein shall reduce the Limited
Partner's interest in the Partnership.
Section 13.4 Continuing Liability. In the event a General Partner is
removed or otherwise withdraws from the Partnership or sells, transfers or
assigns its entire interest pursuant to this Article XIII, such General Partner
shall be, and shall remain, liable for all obligations and liabilities incurred
as General Partner prior to the effective date of such event to the extent the
time for performance thereof has accrued by such date, but shall otherwise be
free of any obligation or liability incurred as General Partner.
Section 13.5 Transfer of Interest. Except as otherwise provided herein,
the General Partner may not assign, transfer, mortgage or sell any portion of
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its interest in the Partnership, or enter into any agreement as the result of
which any Person shall become interested in the Partnership, without the consent
of the Limited Partner. A transferee of the General Partner's interest in the
Partnership shall not become a General Partner unless admitted in accordance
with Section 13.3.
Section 13.6 Payment to General Partner Upon Resignation, Death or
Insanity.
(a) Upon the resignation of the General Partner pursuant to Section
13.1, or the death or insanity of the General Partner if an individual, or
dissolution of the General Partner if a corporation, partnership, trust or other
form of legal entity, and if the business of the Partnership is to be continued
with one or more successor or additional General Partner(s), the Partnership
shall have the right, with the approval of the Limited Partner and FmHA, if
required, but not the obligation, to liquidate such General Partner's
Partnership Interest upon payment to such General Partner of the Fair Market
Value of such Interest as determined by two independent appraisers. If the
Partnership does not liquidate the General Partner's Partnership Interest
pursuant to the previous sentence, then the General Partner shall retain the
same Interest in the Income, Losses, Tax Credits, Distributions and Capital of
the Partnership as it previously held under this Agreement, but such Interest
shall be held as a special limited partner; and the General Partner shall not be
personally liable for Partnership debts incurred after such General Partner's
general partner Interest is liquidated. The resigning General Partner or its
representative as the case may be shall choose one appraiser and the successor
or continuing General Partner(s) shall choose one appraiser. If such appraisers
cannot agree upon the Fair Market Value of the General Partner's Partnership
Interest within 30 days after liquidation of the General Partner's Interest, the
two appraisers so chosen shall jointly choose a third appraiser. The Fair Market
Value of the General Partner's Partnership Interest shall be the appraisal
submitted by the third appraiser whose determination shall be final and binding.
Each of the parties shall compensate its own appraiser and the compensation of
the third appraiser shall be borne equally by such parties. If the continuing or
successor General Partner(s) fail to choose an appraiser, the Fair Market Value
of the General Partner's Partnership Interest shall be determined by the
appraiser chosen by the resigning General Partner or its representative as the
case may be. If the General Partner fails to choose an appraiser, the Fair
Market Value of the General Partner's Partnership Interest shall be determined
by the appraiser chosen by the continuing or successor General Partner(s).
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(b) The purchase price of the General Partner's Partnership Interest
upon resignation, dissolution, death or insanity, as determined pursuant to
Section 13.6(a), shall be paid by the Partnership by delivering to the General
Partner or its representative as the case may be the Partnership's unsecured
promissory note bearing interest at a rate which is equal to the lesser of 2%
per annum in excess of the then prevailing prime or reference rate charged by
Bank of America N.T. & S.A., Main Office, San Francisco, California, or the
maximum legal rate. Said note shall be payable upon Liquidation in accordance
with state law priority. The note shall also provide that the Partnership may
prepay all or any part thereof without penalty. Notwithstanding the foregoing:
if such note is delivered following the resignation of the General Partner then
(i) such note shall not bear interest and (ii) the principal payable to the
resigned General Partner shall be limited in amount and date of payment to
Distributions which such resigned General Partner would have received under this
Agreement had the General Partner not resigned.
ARTICLE XIV
BOOKS AND ACCOUNTS, REPORTS,
TAX RETURNS, FISCAL YEAR AND BANKING
Section 14.1 Books and Accounts.
(a) The General Partner shall cause the Partnership to keep and
maintain at its principal executive office full and complete books and records
which shall include each of the following:
(1) a current list of the full name and last known business or
residence address of each Partner set forth in alphabetical order together with
the Capital Contribution and the share in profits and losses of each Partner;
(2) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, together with executed copies of any powers
of attorney pursuant to which any certificate has been executed;
(3) copies of the Partnership's federal, state and local
income tax information returns and reports, if any, for the six most recent
taxable years;
(4) copies of the original of this Agreement and all
amendments thereto;
(5) financial statements of the Partnership for the six most
recent fiscal years; and
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(6) the Partnership's books and records for at least the
current and past three fiscal years.
(b) Upon the request of the Limited Partner, the General Partner shall
promptly deliver to the Limited Partner, at the expense of the Partnership, a
copy of the information set forth in Section 14.1(a)(1), (2) or (4) above. The
Limited Partner shall have the right upon reasonable request and during normal
business hours to inspect and copy any of the foregoing or any of the other
books and records of the Partnership or the Project at its own expense, and,
upon reasonable request, to obtain from the General Partner copies of the
Partnership's federal, state and local income tax or information returns,
promptly after such returns become available.
Section 14.2 Accounting Reports.
(a) By March 1 of each calendar year the General Partner shall provide
to each Person who was a Limited Partner at any time during the fiscal year
ending during that calendar year all tax information necessary for the
preparation of his federal and state income tax returns and other tax returns
with regard to the jurisdiction(s) in which the Partnership is formed and in
which the Project is located.
(b) By March 1 of each calendar year the General Partner shall send to
each Person who was a Limited Partner at any time during such fiscal year: (i) a
balance sheet as of the end of such fiscal year and statements of income,
Partners, equity and changes in financial position of such fiscal year prepared
in accordance with generally accepted accounting principles and accompanied by
an auditor's report containing an opinion of the Partnership's accountants; (ii)
a report (which need not be audited) of any Distributions made to Persons who
were Limited Partners at any time during the fiscal year, separately identifying
Distributions from Cash Flow From Operations for the fiscal year, Cash Flow From
Operations for prior years, Sale or Refinancing Proceeds and reserves; (iii) a
report setting forth the amount of all fees and other compensation and
Distributions and reimbursed expenses paid by the Partnership for the fiscal
year to the General Partner or Affiliates of the General Partner and the
services performed in consideration therefor, which report shall be verified by
the Partnership's accountants, with the method of verification to include, at a
minimum, a review of the time records of individual employees, the costs of
whose services were reimbursed, and a review of the specific nature of the work
performed by each such employee, all in accordance with generally accepted
auditing standards and, accordingly, including such tests of the accounting
records and such other auditing procedures as the accountants consider
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appropriate in the circumstances; (iv) a copy of the Project's rent roll for the
most recent calendar quarter; (v) a statement signed by the General Partner
indicating the number of apartment units which are occupied by Qualified
Tenants; and (vi) a report of the significant activities of the Partnership
during the quarter.
(c) Within 60 days after the end of each fiscal quarter in which a Sale
or Refinancing of the Project occurs, the General Partner shall send to each
Person who was a Limited Partner at the time of the Sale or Refinancing a report
as to the nature of the Sale or Refinancing and as to the profits and losses for
tax purposes and Sale or Refinancing Proceeds arising from the Sale or
Refinancing.
(d) By March 1 of each calendar year of the Partnership, the General
Partner shall provide to each person who was a Limited Partner at any time
during such fiscal year an audited report of the Project's financial affairs
provided the FmHA requires an audit of the Project pursuant to FmHA regulations.
Section 14.3 Other Reports. The General Partner shall also provide to
the Limited Partner:
(a) During the period of construction, a copy of the initial
construction schedule and any updates to the construction schedule, and by the
tenth day of each month a copy of the previous month's Construction Loan draw
request and the inspecting architect's application and certification of payment
(AIA Document G702, or similar form acceptable to the Limited Partner);
(b) During the rent-up phase, and for a term equal to six months of
sustained occupancy of 95% or better, a copy of the previous month's rent roll
(through the last day of the month) and a copy of the tenant tax credit
compliance worksheet similar to the form in Exhibit "E" attached hereto. Upon
request the General Partner will provide to the Limited Partner the information
collected by the property management company, or General Partner, verifying the
tenant's eligibility for LIHC purposes. The Limited Partner will ask for
information on approximately 10% of the tenants unless the circumstances warrant
a more thorough review;
(c) A quarterly tax credit compliance report similar to the worksheet
included in Exhibit "E" due on or before April 30 of each year for the first
quarter, July 31 of each year for the second quarter, October 31 of each year
for the third quarter and January 31 of each year for the fourth quarter. In
order to verify the reliability of the information being provided on the
compliance report the Limited Partner may request a small sampling of tenant
files to be provided. The sampling will include, but not be limited to, copies
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of tenant applications, certifications and third party verifications used to
qualify tenants. If any inaccuracies are found to exist on the tax credit
compliance report or any items of noncompliance are discovered then the sampling
will be expanded as determined by the Limited Partner.
(d) By September 15 of each year, an estimate of LIHC for that year;
(e) If the Project receives a reservation of LIHCs in one year but
cannot complete the construction and rent-up until the next year, the General
Partner will provide to the Limited Partner an audited cost certification (and
backup documents) verifying the Partnership has expended the requisite 10% of
the reasonably expected cost basis to meet the carryover test provisions of the
Code;
(f) During the Compliance Period, copies of any certifications which
the Partnership must furnish to federal or state governmental authorities
administering the Tax Credit programs under Section 42 of the Code including,
but not limited to, copies of all annual tenant recertification;
(g) A quarterly report on operations, in the form attached hereto as
Exhibit "E", due on or before April 30 of each year for the first quarter of
operations, July 31 of each year for the second quarter of operations, October
31 of each year for the third quarter of operations and January 31 of each year
for the fourth quarter of operations which shall include, but is not limited to,
an unaudited income statement showing all activity in the reserve accounts
required to be maintained pursuant to Section VIII of this Agreement, statement
of income and expenses, balance sheet, rent roll as of the end of each calendar
quarter of each year, and third party verification of current utility allowance;
(h) By the annual renewal date of each and every year, an executed
original or certified copy of each and every Insurance policy or certificate
required by the terms of this Agreement;
(i) On or before March 15th of each calendar year, the General Partner
shall send to the Limited Partner the General Partner's updated financial
statement as of December 31 of the previous year;
(j) On or before November 1 of each calendar year, a copy of the
following year's proposed operating budget. Each such budget shall contain an
amount required for reserves in accordance with Article VIII and for the payment
of real estate taxes, insurance, debt service and other payments; and
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(k) Notice of the occurrence, or of the likelihood of occurrence, of
any event which has had or is likely to have a material adverse effect upon the
Project or the Partnership, including, but not limited to, any breach of any of
the representations and warranties set forth in Section 9.10 of this Agreement,
and any inability of the Partnership to meet its cash obligations as they become
payable, within ten days after the occurrence of such event.
Section 14.4 Late Reports. If the General Partner does not cause the
Partnership to fulfill its obligations under Sections 14.2 and 14.3 within the
time periods set forth therein, the General Partner shall pay as damages the sum
of $100.00 per week (plus interest) to the Limited Partner until such
obligations shall have been fulfilled. Such damages shall be paid forthwith by
the General Partner, and failure to so pay shall constitute a material default
of the General Partner hereunder. In addition, if the General Partner shall so
fail to pay, the General partner and its Affiliates shall forthwith cease to be
entitled to the annual Partnership Management Fee and to the payment of any Cash
Flow From Operations to which the General Partner may otherwise be entitled
hereunder. Such payments of the annual Partnership Administration Fee and Cash
Flow From Operations shall be suspended, and shall be restored only upon payment
of such damages in full, and any amount of such damages not so paid shall be
deducted against suspended payments of the annual Partnership Administration Fee
and Cash Flow From Operations otherwise due to the General Partner under Section
11.1.
Section 14.5 Annual Site Visits. On an annual basis a representative of
the Limited Partner, at the Limited Partner's expense, will conduct a site visit
which will include, in part, an examination of the grounds, a review of the
office and tenant files and an interview with the property manager.
Section 14.6 Tax Returns. The General Partner shall cause income tax
returns for the Partnership to be prepared and timely filed with the appropriate
federal, state and local taxing authorities. The General Partner shall be the
tax matters partner for purposes of Section 6231(a)(7) of the Code.
Section 14.7 Fiscal Year. The fiscal year of the Partnership shall be
the calendar year or such other period as may be approved by the Internal
Revenue Service for federal income tax purposes.
Section 14.8 Banking. All funds of the Partnership shall be deposited
in a separate bank account or accounts as shall be determined by the General
Partner in accordance with FmHA rules and regulations. All withdrawals therefrom
shall be made upon checks signed by the General Partner or by any person
authorized to do so by the General Partner. The General Partner shall provide to
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any Partner who requests same the name and address of the financial institution,
the account number and other relevant information regarding any Partnership bank
account.
Section 14.9 Certificates and Elections.
(a) The General Partner shall file the First Year Certificate within 90
days following the close of the taxable year during which Completion of
Construction occurs and thereafter shall timely file any certificates which the
Partnership must furnish to federal or state governmental authorities
administering the Tax Credit programs under Section 42 of the Code.
(b) The General Partner may, but is not required to, cause the
Partnership to make or revoke the election referred to in Section 754 of the
Code, as amended, or any similar provisions enacted in lieu thereof.
ARTICLE XV
DISSOLUTION, WINDING UP, TERMINATION
AND LIQUIDATION OF THE PARTNERSHIP
Section 15.1 Dissolution of Partnership. The Partnership shall be
dissolved upon the expiration of its term or the earlier occurrence of any of
the following events:
(a) The retirement, removal, Event of Bankruptcy, dissolution, death or
insanity of the General Partner, unless (i) at the time there is at least one
other General Partner who will continue as General Partner, or (ii) within 120
days after the occurrence of any such event all of the Partners elect to
continue the business of the Partnership;
(b) The Sale of the Project and the receipt in cash of the full
amount of the proceeds of such Sale;
(c) The written election to do so of the Limited Partner; or
(d) The Partnership becomes subject to an Event of Bankruptcy.
Notwithstanding the foregoing, however, in no event shall the
Partnership terminate prior to the expiration of its term if such termination
would result in a violation of the FmHA Loan Agreement, the FmHA Interest Credit
Agreement or any other agreement with or rule or regulation of FmHA to which the
Partnership is subject.
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Section 15.2 Return of Capital Contribution upon Dissolution. Except as
provided in Sections 7.3 and 7.4 of this Agreement, which provide for a
reduction or refund of the Limited Partner's Capital Contribution under certain
circumstances, and which shall represent the personal obligation of the General
Partner, as well as the obligation of the Partnership, each holder of a
Partnership interest shall look solely to the assets of the Partnership for all
Distributions with respect to the Partnership (including the return of its
Capital Contribution) and shall have no recourse therefor (upon dissolution or
otherwise) against the General Partner or any Limited Partner. No Partner shall
have any right to demand or receive property other than money upon dissolution
and termination of the Partnership.
Section 15.3 Distributions of Assets. Upon a dissolution of the
Partnership, the General Partner (or, if there is no General Partner then
remaining, such other Person(s) designated as the liquidator of the Partnership
by the Limited Partner or by the court in a judicial dissolution) shall take
full account of the Partnership assets and liabilities and shall liquidate the
assets as promptly as is consistent with obtaining the fair value thereof.
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Partnership pursuant to Section
11.2(a) through and including 11.2(d), the remaining assets of the Partnership
(or the proceeds of sales or other dispositions in liquidation of the
Partnership assets, as may be determined by the General Partner or other
liquidator) shall be distributed to the Partners in accordance with the positive
balances in their Capital Accounts. In order to make a final determination of
the Capital Account of each Partner:
(1) the allocations pursuant to Section 11.2(e),
Section 11.2(f) and Section 11.2(g) shall be made, but not distributed; and
(2) the Income and Losses of the Partnership upon
Liquidation or dissolution and winding up shall then be allocated among the
Partners as set forth in Section 10.2.
(b) In the event that a General Partner has a deficit balance in its
Capital Account following the Liquidation of the Partnership or its interest, as
determined after taking into account all Capital Account adjustments for the
Partnership taxable year in which such Liquidation occurs, such General Partner
shall pay to the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Treasury Regulation Section
1.704-1(b)(2)(ii)(b)(3).
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(1) The deficit reduction amount shall be paid by the General
Partner by the end of such taxable year (or, if later, within 90 days after the
date of Liquidation) and shall, upon Liquidation of the Partnership, be paid to
creditors of the Partnership or distributed to other Partners in accordance with
their positive Capital Account balances.
(c) With respect to assets distributed in kind to the Partners in
Liquidation or otherwise:
(1) unrealized appreciation or unrealized depreciation in the
values of such assets shall be deemed to be Income and Losses realized by the
Partnership immediately prior to the Liquidation or other Distribution event;
and
(2) such Income and Losses shall be allocated to the Partners
in accordance with Section 10.2 hereof, and any property so distributed shall be
treated as a Distribution of an amount in cash equal to the excess of such Fair
Market Value over the outstanding principal balance of and accrued interest on
any debt by which the property is encumbered.
(d) For the purposes of Section 15.3(c), "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the Fair Market
Value of such assets, taking into account the Fair Market Value of the
associated financing but subject to Section 7701(g) of the Code, and the asset's
Gross Asset Value. Section 15.3(c) is merely intended to provide a rule for
allocating unrealized Income and Losses upon Liquidation or other Distribution
event, and nothing contained in Section 15.3(c) or elsewhere in this Agreement
is intended to treat or cause such Distributions to be treated as sales for
value. The Fair Market Value of such assets shall be determined by an
independent appraiser to be selected by the General Partner.
Section 15.4 Deferral of Liquidation. If at the time of Liquidation the
General Partner or other liquidator shall determine that an immediate sale of
part or all of the Partnership assets could cause undue loss to the Partners,
the liquidator may, in order to avoid loss, either defer Liquidation and retain
all or a portion of the assets or distribute all or a portion of the assets to
the Partners in kind. In the event that the liquidator elects to distribute such
assets in kind, the assets shall first be assigned a value (by appraisal by an
independent appraiser) and the unrealized appreciation or depreciation in value
of the assets shall be allocated to the Partners, Capital Accounts, as if such
assets had been sold, in the matter described in Section 10.2, and such assets
shall then be distributed to the Partners as provided herein. In applying the
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preceding sentence, the Project shall not be assigned a value less than the
unamortized principal balance of any loan secured thereby.
Section 15.5 Liquidation Statement. Each of the Partners shall be
furnished with a statement prepared or caused to be prepared by the General
Partner or other liquidator, which shall set forth the assets and liabilities of
the Partnership as of the date of complete Liquidation. Upon compliance with the
distribution plan as outlined in Sections 15.3 and 15.4, the Limited Partner
shall cease to be such and the General Partner shall execute, acknowledge and
cause to be filed those certificates referenced in Section 15.6.
Section 15.6 Certificates of Dissolution; Certificate of
Cancellation of Certificate of Limited Partnership.
(a) Upon the dissolution of the Partnership, the General Partner shall
cause to be filed in the office of, and on a form prescribed by the Secretary of
State of the State, a certificate of dissolution. The certificate of dissolution
shall set forth the Partnership's name, the Secretary of State's file number for
the Partnership, the event causing the Partnership's dissolution and the date of
the dissolution.
(b) Upon the completion of the winding up of the Partnership's affairs,
the General Partner shall cause to be filed in the office of, and on a form
prescribed by, the Secretary of State of the State, a certificate of
cancellation of the Certificate of Limited Partnership. The certificate of
cancellation of the Certificate of Limited Partnership shall set forth the
Partnership's name, the Secretary of State's file number for the Partnership,
and any other information which the General Partner determines to include
therein.
ARTICLE XVI
AMENDMENTS
Subject to FmHA's consent and approval, if required under the FmHA Loan
Agreement or applicable FmHA regulations, this Agreement may be amended at any
time by the Limited Partner; provided, however, that this Agreement may be
amended to add a substitute Limited Partner only as set forth in Article XII of
this Agreement; and provided, further, that, this Agreement may be amended from
time to time by the General Partner, without the consent of the Limited Partner,
to add to the representations, duties or obligations of the General Partner or
its Affiliates or surrender any right or power granted to the General Partner or
Affiliates herein which may be inconsistent with any other provision herein.
Notwithstanding the foregoing, no amendment shall change the Partnership to a
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general partnership; extend the term of the Partnership beyond the date provided
for in this Agreement; modify the limited liability of the Limited Partner;
allow the Limited Partner to take control of the Partnership's business within
the meaning of the Act; reduce or defer the realization of any Partner's
interest in Income, Losses, Tax Credits, Distributions, or compensation
hereunder, or increase any Partner's obligations hereunder, without the consent
of the Partner so affected; or change the provisions of this Article XVI.
ARTICLE XVII
MISCELLANEOUS
Section 17.1 Voting Rights.
(a) The Limited Partner shall have no right to vote upon any matters
affecting the Partnership, except as provided in this Agreement. Notwithstanding
the foregoing, the Limited Partner may, without the concurrence of the General
Partner:
(1) Approve, but not initiate, the Sale or Refinancing of
the Project;
(2) Remove the General Partner for cause pursuant to
this Agreement and elect a substitute General Partner;
(3) Approve, but not initiate, the dissolution of the
Partnership; or
(4) Subject to the provisions of Article XVI hereof,
amend this Agreement.
(b) On any matter where the Limited Partner has the right to vote,
votes may only be cast at a duly called meeting of the Partnership or through
written action without a meeting.
Section 17.2 Meeting of Partnership. Meetings of the Partnership may be
called either: at any time by the General Partner; or upon the General Partner's
receipt of a written request from the Limited Partner setting forth the purpose
of such meeting. Within ten days after receipt of the Limited Partner's written
request for a meeting, the General Partner shall provide all Partners with
written notice of the meeting (which shall be at the principal place of business
of the Partnership or such other location referenced in the notice) to be held
not less than 15 days nor more than 30 days after receipt of such written
request from the Limited Partner, which notice shall specify the time and place
of such meeting and the purpose or purposes thereof. If the General Partner
fails to provide the written notice of the meeting within ten days after receipt
of the Limited Partner's request to hold a meeting, then the Limited Partner may
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provide the written notice of the meeting to all the Partners, which notice
shall specify the time and place of such meeting and the purpose or purposes
thereof. All meetings and actions of the Limited Partner shall be governed in
all respects, including matters relating to notice, quorum, adjournment,
proxies, record dates and actions without a meeting, by the applicable
provisions of the Act, as shall be amended from time to time.
Section 17.3 Notices. Any notice given pursuant to this Agreement may
be served personally on the Partner to be notified, or may be mailed, first
class postage prepaid, to the following address, or to such other address as a
party may from time to time designate in writing:
To the General Partner: DONALD W. SOWELL
509 Ellen Powell Drive
Prairie View, TX 77446
To the Limited Partner: WNC HOUSING TAX CREDIT FUND
V, L.P., SERIES 4
3158 Redhill Ave., Suite 120
Costa Mesa, CA 92626-3416
Section 17.4 Successors and Assigns. All the terms and conditions of
this Agreement shall be binding upon the successors and assigns of the Partners,
but shall not inure to the benefit of the successors or assigns of the Partners
except as otherwise expressly provided in this Agreement.
Section 17.5 FmHA Regulations. Notwithstanding any other provisions of
this Agreement, the following will take precedence:
(a) The Partnership is authorized to execute any documents required by
FmHA in connection with the FmHA Loan Agreement. The General Partner hereby
covenants to act in accordance with the Project Documents. Any incoming General
Partner shall, as a condition of receiving a Partnership interest, agree to be
bound by the Project Documents, and all other documents executed in connection
with the FmHA Loan Agreement to the same extent and on the same terms as any
other General Partner. Upon any dissolution, no title or right to possession and
control of the Project, and no right to collect the rents therefrom, shall pass
to any Person who is not bound in a manner consistent with Section 515 of the
Housing Act and the rules and regulations thereunder.
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(b) In the event that any provision of this Agreement in any way tends
to contradict, modify or in any way change the terms of the Project Documents or
any other agreement related to the Project entered into, or to be entered into,
by or on behalf of the Partnership with FmHA, the terms of the Project Documents
or such other agreements with FmHA shall prevail and govern.
(c) Any amendment or revision of this Agreement, transfer of a
Partnership interest or other action requiring approval shall be subject to the
written approval of FmHA, if such approval is required, and any amendment
without the prior written approval of FmHA shall be subject to later amendment
to comply with the requirements of FmHA; provided, however, that no such
approval of FmHA shall be required for any amendment of this Agreement the sole
purpose of which is to provide for the admission of additional or substituted
limited partners so long as any such additional or substituted limited partner
so admitted shall own in the aggregate less than a 10% limited partner interest
in the Partnership.
(d) Any conveyance or transfer of title to all or any portion of the
Project required or permitted under this Agreement shall in all respects be
subject to all conditions, approvals and other requirements of FmHA rules and
regulations applicable thereto.
(e) The General Partner will at all times maintain the FmHA required
Financial Interest in the Partnership.
The foregoing paragraphs (a), (b), (c), (d), and (e) will automatically
become void and of no further force and effect with respect to FmHA at such time
as the Mortgage is no longer being provided by FmHA.
Section 17.6 Recording of Certificate of Limited Partnership. If the
General Partner should deem it advisable to do so, the Partnership shall record
in the office of the County Recorder of the county in which the principal place
of business of the Partnership is located a certified copy of the Certificate of
Limited Partnership, or any amendment thereto, after such Certificate or
amendment has been filed with the Secretary of State of the State.
Section 17.7 Amendment of Certificate of Limited Partnership.
(a) The General Partner shall cause to be filed, within 30 days after
the happening of any of the following events, an amendment to the Certificate of
Limited Partnership reflecting the occurrence thereof:
(1) A change in the name of the Partnership.
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(2) A change in the street address of the Partnership's
principal executive office.
(3) A change in the address, or the withdrawal, of a General
Partner, or a change in the address of the agent for service of process, unless
a corporate agent is designated, or appointment of a new agent for service of
process.
(4) The admission of a General Partner and that Partner's
address.
(5) The discovery by the General Partner of any false or
erroneous material statement contained in the Certificate or any amendment
thereto.
(b) The Certificate of Limited Partnership may also be amended in
conformity with this Agreement at any time in any other respect that the General
Partner determines.
(c) The General Partner shall cause the Certificate of Limited
Partnership to be amended, when required or permitted as aforesaid, by filing a
certificate of amendment thereto in the office of, and on a form prescribed by,
the Secretary of State of the State. The certificate of amendment shall set
forth the Partnership's name, the Secretary of State's file number for the
Partnership and the text of the amendment.
Section 17.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and said
counterparts shall constitute but one and the same instrument which may
sufficiently be evidenced by one counterpart.
Section 17.9 Captions. Captions to and headings of the Articles,
Sections and subsections of this Agreement are solely for the conveniences of
the parties, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
Section 17.10 Certain Provisions. If the operation of any provision of
this Agreement would contravene the provisions of applicable law, or would
result in the imposition of general liability on any Limited Partner, such
provisions shall be void and ineffectual.
Section 17.11 Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
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to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Section 17.12 Number and Gender. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the Person or Persons may require.
Section 17.13 Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof and
all prior understandings and agreements between the parties, written or oral,
respecting this transaction are merged in this Agreement.
Section 17.14 Governing Law. This Agreement and its application
shall be governed by the laws of the State.
Section 17.15 Attorney's Fees. If a suit or action is instituted in
connection with an alleged breach of any provision of this Agreement, the
prevailing party shall be entitled to recover, in addition to costs, such sums
as the court may adjudge reasonable as attorney's fees, including fees on any
appeal.
Section 17.16 Receipt of FmHA Correspondence. By their signatures
below, the Partners agree that the FmHA and the General Partner shall send to
the Limited Partner a copy of any correspondence relative to the Project's
noncompliance with the Mortgage Note and FmHA rules and regulations, relative to
the acceleration of the Mortgage Note and relative to the disposition of the
Project.
Section 17.17 Security Interest and Right of Set-Off. As security for
the performance of the respective obligations to which it may be subject under
this Agreement, the Partnership shall have (and each Partner hereby grants to
the Partnership) a security interest in all funds distributable to said Partner
to the extent of the amount of such obligation. Each Partner, by the execution
of this Agreement, irrevocably constitutes and appoints each of the other
Partners, with full power of substitution in the premises, his true and lawful
attorney-in-fact with full power and authority in his name, place and stead to
execute, acknowledge, deliver, swear to, file and record at the appropriate
public offices all financing statements, continuation statements or other
documents and amendments thereto which such other Partner deems appropriate to
perfect or continue the perfection of the aforesaid security interest. The
appointment of each such attorney-in-fact shall be deemed to be a power coupled
with an interest, in recognition of the fact that each of the Partners under
this Agreement will be relying upon its power to act as contemplated by this
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Agreement in any such filing, and shall survive and shall not be affected by the
subsequent bankruptcy, death, adjudication of incompetence or insanity,
disability, incapacity or dissolution of any Person hereby giving the power nor
by the transfer or assignment of all or any part of the interest in the
Partnership of any such Person.
IN WITNESS WHEREOF, this Amended and Restated Agreement of Limited
Partnership of D. HILLTOP APARTMENTS, LTD., a Texas limited partnership, is made
and entered into as of the 14th day of April 1997.
GENERAL PARTNER
/s/ Donald W. Sowell
DONALD W. SOWELL
WITHDRAWING ORIGINAL LIMITED PARTNER
/s/ Beatrice W. Sowell
BEATRICE W. SOWELL
LIMITED PARTNER
WNC HOUSING TAX CREDIT FUND V,
L.P., SERIES 4
a California limited partnership
By: WNC & ASSOCIATES, INC.
General Partner
By: /s/ John B. Lester, Jr.
John B. Lester, Jr.
President
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EXHIBIT A TO PARTNERSHIP AGREEMENT
LEGAL DESCRIPTION
All that certain tract or parcel of land, a part of the S.G. Wells Survey,
Abstract No. 65, Anderson County, Texas, also being a part of that certain
called 80.54 acre tract conveyed to James R. Paxton et al by Palestine
Industrial Foundation, Inc., August 2, 1977, recorded in Volume 866, Page 397 of
the Deed Records of Anderson County, Texas, and being more completely described
as follows, to wit:
BEGINNING at a 1/2" Iron Rod for corner at the Northeast corner of Lot 1 of
Bill Richbourg's Addition as Recorded in Envelope No. 159-A of the Plat Records
of Anderson County, Texas, in the West Right-of-Way of State Highway Loop No.
256.
THENCE S 86-9-41 W with the North line of Lot 1 and 2 at Bill Richbourg's
Addition and the North line of Academy Apartments a distance of 752.67 feet to a
1/2" Iron Rod for corner;
THENCE N 3-50-19 W a distance of 260.00 feet to a 1/2" Iron Rod for corner;
THENCE N 86-9-41 E a distance of 289.34 feet to a 1/2" Iron Rod for corner;
THENCE S 28-13-35 E a distance of 345.46 feet to a 1/2" Iron Rod for corner
in the West R.O.W. line of State Highway Loop No. 256;
THENCE S 28-13-35 E with the West R.O.W. line of State Highway Loop No. 256
a distance of 65.88 feet to the place of beginning, containing 2.554 acres of
land.
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EXHIBIT B TO PARTNERSHIP AGREEMENT
FORM OF LEGAL OPINION
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4
WNC & Associates, Inc.
3158 Redhill Avenue, Suite 120
Costa Mesa, California 92626
RE: D. HILLTOP APARTMENTS, LTD.
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the investment by WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4, a
California limited partnership (the "Limited Partner") in D. HILLTOP APARTMENTS,
LTD. (the "Partnership"), a Texas limited partnership formed to own, develop,
(construct/rehabilitate) finance and operate an apartment complex for low-income
persons (the "Apartment Complex") in Palestine, Anderson County, Texas. The
general partner(s) of the Partnership (is/are) DONALD W.
SOWELL (the "General Partner(s)").
In rendering the opinions stated below, we have examined and relied upon the
following:
(i) [Certificate of Limited Partnership];
(ii) [Agreement of Limited Partnership] (the "Partnership
Agreement");
(iii) A preliminary reservation letter from [State
Allocating Agency] (the "State Agency") dated
_________, 199___ conditionally awarding
$_______________ in Federal tax credits annually for
each of ten years and $_______________ in California
tax credits annually for each of four years for the
Apartment Complex; and
(iv) Such other documents, records and instruments as
we have deemed necessary in order to enable us to
render the opinions referred to in this letter.
B-1
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For purposes of rendering the opinions stated below we have assumed that, in
those cases in which we have not been involved directly in the preparation,
execution or the filing of a document, that (a) the document reviewed by us is
an original document, or a true and accurate copy of the original document, and
has not been subsequently amended, (b) the signatures on each original document
are genuine, and (c) each party who executed the document had proper authority
and capacity.
Based on the foregoing we are of the opinion that:
(a) ________________________, one of the General Partners, is a
[corporate/partnership] duly formed and validly existing under the laws of the
State of _____________________ and has full power and authority to enter into
and perform its obligations under the Partnership Agreement.
_____________________, one of the other General Partners, is a
[corporation/partnership] duly formed and validly existing under the laws of the
State of __________________ and has full power and authority to enter into and
perform its obligations under the Partnership Agreement.
(b) The Partnership is and after the [filing or execution] of the
Amended [Partnership Agreement] [Certificate] will continue to be a limited
partnership duly formed and validly existing under the laws of the State of
Texas.
(c) The Partnership is and after the filing of the Amended [Partnership
Agreement] [Certificate] will continue to be validly existing under and subject
to the laws of Texas with full power and authority to own, develop,
[construct/rehabilitate], finance and operate the Apartment Complex and to
otherwise conduct business under the Partnership Agreement.
(d) Execution of the Partnership Agreement by the General Partner(s)
has been duly and validly authorized by or on behalf of the General Partner(s)
and, having been executed and delivered in accordance with its terms, the
Partnership Agreement constitutes the valid and binding agreement of the General
Partner(s), enforceable in accordance with its terms.
(e) The execution and delivery of the Amended and Restated Agreement of
Limited Partnership by the General Partners does not conflict with and will not
result in a breach of any of the terms, provisions or conditions of any
agreement or instrument known to counsel to which any of the General Partners or
the Partnership is a party or by which any of them may be bound, or any order,
rule, or regulation to be applicable to any of such parties of any court or
B-2
<PAGE>
governmental body or administrative agency having jurisdiction over any of such
parties or over the property.
(f) To the best of counsel's knowledge, after due inquiry, there is no
litigation or governmental proceeding pending or threatened against, or
involving the Project, the Partnership or any General Partner which would
materially adversely affect the condition (financial or otherwise) or business
of the Project, the Partnership or any of the Partners of the Partnership prior
to or following execution and filing of the Amended and Restated Agreement of
Limited Partnership, or the Limited Partner or the Special Limited Partner.
(g) Upon the execution and delivery of the Amended and Restated
Agreement of Limited Partnership providing for the admission of the Limited
Partner as substitute limited partner [and the filing] the Limited Partner will
be the limited partners of the Partnership entitled to all of the rights of
limited partners under the Amended and Restated Agreement of Limited
Partnership. Except as described in the Amended and Restated Agreement of
Limited Partnership, no person is a partner of or has any legal or equitable
interest in the Partnership, and all former partners of record or known to
counsel have validly withdrawn from the Partnership and have released any claims
against the Partnership arising out of their participation as partners therein.
(h) Liability of the Limited Partner for obligations of the Partnership
is limited to the amount of the Limited Partner's capital contributions required
by the Partnership Agreement.
(i) Neither the General Partner(s) of the Partnership nor the Limited
Partner will have any liability for the Mortgage Note or the Mortgage Loan
represented thereby (as those terms are defined in the Amended and Restated
Agreement of Limited Partnership), and the lender of the Mortgage Loan will look
only to its security in the Project for repayment of the Mortgage Loan.
(j) The Partnership owns a fee simple interest in the Project.
(k) To the best of our actual knowledge and belief, after due inquiry,
the Partnership has obtained all consents, permissions, licenses, approvals, or
orders required by all applicable governmental or regulatory agencies for the
development, [construction/rehabilitation] and operation of the Project, and the
Project conforms to all applicable Federal, state and local land use, zoning,
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<PAGE>
health, building and safety laws, ordinances, rules and regulations.
(l) The Project has obtained a preliminary reservation of low income
housing tax credits ("LIHTC") from the State Agency. The final allocation of the
LIHTC and ultimately eligibility of the Project for such final allocation are
subject to a series of requirements which must be met, performed or achieved at
various times prior to and after such final allocation. Assuming all such
requirements are met, performed or achieved at the time or times provided by
applicable laws and regulations, the Project will qualify for LIHTC.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to the applicability
of, or liability under, any Federal, state or local law, ordinance or regulation
governing or pertaining to environmental matters, hazardous wastes, toxic
substances or the like.
We express no opinion as to any matter except those set forth above. These
opinions are rendered for use by the Limited Partner and its legal counsel. We
understand that WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 4's legal counsel
will rely on this opinion in connection with federal income tax opinions to be
rendered by that firm. This opinion may not be delivered to or relied upon by
any other person or entity without our express written consent.
Sincerely,
- --------------------
B-4
<PAGE>
EXHIBIT C TO THE PARTNERSHIP AGREEMENT
CERTIFICATION AND AGREEMENT
CERTIFICATION AND AGREEMENT made as of the date written below by D.
HILLTOP APARTMENTS, LTD., a Texas limited partnership (the "Partnership");
DONALD W. SOWELL (the "General Partner"); and BEATRICE W. SOWELL (the "Original
Limited Partner") for the benefit of WNC HOUSING TAX CREDIT FUND V, L.P., SERIES
4, a California limited partnership (the "Investment Partnership"), and WNC &
ASSOCIATES, INC. ("WNC").
WHEREAS, the Partnership proposes to admit the Investment Partnership
as a limited partner thereof pursuant to an Amended and Restated Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement"), in
accordance with which the Investment Partnership will make substantial capital
contributions to the Partnership; and
WHEREAS, the Investment Partnership and WNC have relied upon certain
information and representations described herein in evaluating the merits of
investment by the Investment Partnership in the Partnership;
NOW, THEREFORE, to induce the Investment Partnership to enter into the
Partnership Agreement and become a limited partner of the Partnership, and for
$1.00 and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Partnership, the General Partner and the
Original Limited Partner hereby agree as follows for the benefit of the
Investment Partnership and WNC.
1. Representations, Warranties and Covenants of the
Partnership, the General Partners and the Original Limited
Partners
The Partnership, the General Partner and the Original Limited Partner
jointly and severally represent, warrant and certify to the Investment
Partnership and WNC that, with respect to the Partnership, as of the date
hereof:
1.1 The Partnership is duly organized and in good standing as
a limited partnership pursuant to the laws of the state of its formation with
full power and authority to own its apartment complex (the "Apartment Complex")
and conduct its business; the Partnership, the General Partner and the Original
Limited Partner have the power and authority to enter into and perform this
Certification and Agreement; the execution and delivery of this Certification
C-1
<PAGE>
and Agreement by the Partnership, the General Partner and the Original Limited
Partner have been duly and validly authorized by all necessary action; the
execution and delivery of this Certification and Agreement, the fulfillment of
its terms and consummation of the transactions contemplated hereunder do not and
will not conflict with or result in a violation, breach or termination of or
constitute a default under (or would not result in such a conflict, violation,
breach, termination or default with the giving of notice or passage of time or
both) any other agreement, indenture or instrument by which the Partnership or
any General Partner or Original Limited Partner is bound or any law, regulation,
judgment, decree or order applicable to the Partnership or any General Partner
or Original Limited Partner or any of their respective properties; this
Certification and Agreement constitutes the valid and binding agreement of the
Partnership, the General Partner and the Original Limited Partner, enforceable
against each of them in accordance with its terms.
1.2 The General Partner has delivered to the Investment
Partnership, WNC or their affiliates all documents and information which would
be material to a prudent investor in deciding whether to invest in the
Partnership. All factual information provided to the Investment Partnership, WNC
or their affiliates either in writing or orally, did not, at the time given, and
does not, on the date hereof, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they are made.
1.3 Each of the representations and warranties contained in
the Partnership Agreement is true and correct as of the date hereof.
1.4 Each of the covenants and agreements of the Partnership
and the General Partner contained in the Partnership Agreement has been duly
performed to the extent that performance of any covenant or agreement is
required on or prior to the date hereof.
1.5 All conditions to admission of the Investment Partnership
as the investment limited partner of the Partnership contained in the
Partnership Agreement have been satisfied.
1.6 No default has occurred and is continuing under the
Partnership Agreement or any of the Project Documents (as such term is defined
in the Partnership Agreement) for the Partnership.
1.7 The Partnership will allocate to the Limited Partner the
Projected Annual Tax Credits.
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<PAGE>
1.8 The General Partner agrees to take all actions necessary
to claim the Projected Tax Credit, including, without limitation, the filing of
Form(s) 8609 with the Internal Revenue Service.
1.9 No person or entity other than the Partnership holds
any equity interest in the Apartment Complex.
1.10 The Partnership has the sole responsibility to pay all
maintenance and operating costs, including all taxes levied and all insurance
costs, attributable to the Apartment Complex.
1.11 The Partnership, except to the extent it is protected by
insurance and excluding any risk borne by lenders, bears the sole risk of loss
if the Apartment Complex is destroyed or condemned or there is a diminution in
the value of the Apartment Complex.
1.12 No person or entity except the Partnership has the right
to any proceeds, after payment of all indebtedness, from the sale, refinancing,
or leasing of the Apartment Complex.
1.13 No General Partner is related in any manner to the
Investment Partnership, nor is any General Partner acting as an agent of the
Investment Partnership.
2. Miscellaneous
2.1 This Certification and Agreement is made solely for the
benefit of the Partnership, the General Partner, the Original Limited Partner
and WNC, and the Investment Partnership and their respective successors and
assignees, and no other person shall acquire or have any right under or by
virtue of this Agreement.
2.2 This Certification and Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, all of
which together shall constitute one and the same instrument.
C-3
<PAGE>
2.3 Capitalized terms used but not defined in this
Certification Agreement shall have the meanings given to them in the Partnership
Agreement.
IN WITNESS WHEREOF, this Certificate and Agreement is made and
entered into as of the ______ day of April, 1997.
PARTNERSHIP
D. HILLTOP APARTMENTS, LTD.
By: _______________________
DONALD W. SOWELL,
General Partner
GENERAL PARTNER
By: _______________________
DONALD W. SOWELL
ORIGINAL LIMITED PARTNER
By: _______________________
BEATRICE W. SOWELL
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<PAGE>
EXHIBIT D TO THE PARTNERSHIP AGREEMENT
GENERAL PARTNER CERTIFICATION
This General Partner Certification is being issued to WNC HOUSING TAX
CREDIT FUND V, L.P., SERIES 4 ("WNC") by DONALD W. SOWELL, General Partner of D.
HILLTOP APARTMENTS, LTD., a Texas limited partnership ("Partnership") in
accordance with Section 7.2 of the Amended and Restated Agreement of Limited
Partnership of the Partnership.
WHEREAS, WNC is scheduled to make a Capital Contribution to the
Partnership, however, the Partnership Agreement requires the General Partner of
the Partnership issue this Certification prior to WNC's payment; and
WHEREAS, WNC shall rely on this Certification in evaluating the
continued merits of its investment in the Partnership;
NOW, THEREFORE, to induce WNC to make its scheduled Capital
Contribution to the Partnership, the General Partner represents and warrants to
WNC that the following are true and correct as of the date written below:
(a) The Partnership is a duly organized limited partnership validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of its
Limited Partners.
(b) This Partnership Agreement and the Project Documents are in full
force and effect and neither the Partnership nor the General Partner is in
material breach or violation of any provisions thereof or of any FmHA
regulation.
(c) Existing improvements, if any, on the Project have been completed
substantially in conformity with the Project Documents, and the Project is being
operated in accordance with standards and procedures which are prudent and
customary for the operation of properties similar to the Project.
(d) Additional construction on the Project, if any, shall be completed
substantially in conformity with the Project Documents and any other
requirements necessary to obtain Completion of Construction.
(e) The Project is being operated in accordance with standards and
procedures which are prudent and customary for the operation of properties
similar to the Project.
D-1
<PAGE>
(f) No Partner has any personal liability with respect to or has
personally guaranteed the payment of the permanent Mortgage.
(g) The Partnership is in material compliance with all construction and
use codes applicable to the Project and is not in violation of any zoning,
environmental or similar regulations applicable to the Project.
(h) All appropriate public utilities, including sanitary and storm
sewers, water, gas and electricity, are currently available and will be
operating properly for all units in the Project at the time of first occupancy
and throughout the term of the Partnership.
(i) The Project has obtained, or will obtain before Permanent Mortgage
Commencement, and will maintain throughout the term of this Partnership
Insurance written by an Insurance Company.
(j) The Partnership owns the fee simple interest in the Project,
subject only to liens (except those with respect to which an adequate bond or
other financial security has been issued) which, in the aggregate, do not exceed
$10,000 and the Mortgage Loan.
(k) The Construction Contract has been entered into between the
Partnership and the Contractor; no other consideration or fee shall be paid to
the Contractor other than amounts set forth in the Construction Contract.
(l) Except as otherwise disclosed to the Limited Partner in writing
prior to the execution of this Agreement, to the best of the General Partner's
knowledge: (1) no Hazardous Substance has been disposed of, or released to or
from, or otherwise now exists in, on, under or around, the Project and (2) no
aboveground or underground storage tanks are now or have ever been located on or
under the Project. The General Partner will not install or allow to be installed
any aboveground or underground storage tanks on the Project. The General Partner
covenants that the Project shall be kept free of Hazardous Materials and shall
not be used to generate, manufacture, refine, transport, treat, store, handle,
dispose of, transfer, produce or process Hazardous Materials, except in
connection with the normal maintenance and operation of any portion of the
Project. The General Partner shall comply, or cause there to be compliance, with
all applicable Federal, state and local laws, ordinances, rules and regulations
with respect to Hazardous Materials and shall keep, or cause to be kept, the
Project free and clear of any liens imposed pursuant to such laws, ordinances,
rules and regulations. The General Partner must promptly notify the Limited
Partner in writing (3) if it knows, or suspects or believes there may be any
Hazardous Substance in or around any part of the Project, any Improvements
D-2
<PAGE>
constructed on the Project, or the soil, groundwater or soil vapor, (4) if the
General Partner or the Partnership may be subject to any threatened or pending
investigation by any governmental agency under any law, regulation or ordinance
pertaining to any Hazardous Substance, and (5) of any claim made or threatened
by any Person, other than a governmental agency, against the Partnership or
General Partner arising out of or resulting from any Hazardous Substance being
present or released in, on or around any part of the Project.
(m) As of the date hereof, at funding of the Construction Loan and upon
Permanent Mortgage Commencement, fire and extended coverage insurance for the
full replacement value of the Project (excluding the value of the land, site
utilities, landscaping and foundations) and worker's compensation and public
liability insurance, all in favor of the Partnership, is and will be in full
force and effect and will be kept in full force and effect during the term of
the Partnership; all such policies shall be amounts and with insurers
satisfactory to the permanent lender and shall be paid out of Partnership
assets.
(n) The Partnership will allocate to the Limited Partner the Projected
Annual Tax Credits.
(o) No charges or encumbrances exist with respect to the Project other
than those which are created or permitted by the Project Documents or are noted
or excepted in the title policy for the Project.
(p) The buildings on the Project site shall constitute a "qualified
low-income housing project" as defined in Section 42(g) of the Code, and as
amplified by the Treasury Regulations thereunder. In this connection, not later
than December 31 of the first year in which the Partners elect the LIHC to
commence in accordance the Code.
(q) No event or proceeding, including, but not limited to, any (A)
legal actions or proceedings before any court, commission, administrative body
or other governmental authority, and (B) acts of any governmental authority
having jurisdiction over the zoning or land use laws applicable to the Project,
has occurred the continuing effect of which has: (i) materially or adversely
affected the operation of the Partnership or the Project (except to the extent
that funds are available to the Partnership to correct or cure such event or
proceeding); (ii) materially or adversely affected the ability of the General
Partner to perform its obligations hereunder or under any other agreement with
respect to the Project; or (iii) prevented the completion of construction of the
improvements in substantial conformity with the Project Documents, other than
D-3
<PAGE>
legal proceedings which have been bonded against (or as to which other adequate
financial security has been issued) in a manner as to indemnify the Partnership
against loss; provided that the foregoing does not apply to matters of general
applicability which would adversely affect the Partnership, the General Partner,
Affiliates of the General Partner or the Project only insofar as they or any of
them are part of the general public.
(r) Neither the Partnership nor the General Partner has any
liabilities, contingent or otherwise, which have not been disclosed in writing
to the Limited Partner and which in the aggregate do not affect the ability of
the Limited Partner to obtain the anticipated benefits of its investment in the
Partnership.
(s) The General Partner has and shall maintain a net worth equal to at
least $500,000.
Capitalized terms used but not defined in this General Partner
Certification shall have the meanings given to them in the Partnership
Agreement.
IN WITNESS WHEREOF, the undersigned have set their hands to this
General Partner Certification this day of April, 1997.
DONALD W. SOWELL
General Partner
D-4
<PAGE>
EXHIBIT E TO THE PARTNERSHIP
REPORT OF OPERATIONS
QUARTER ENDED:
LOCAL PARTNERSHIP: D. HILLTOP APARTMENTS, LTD.
GENERAL PARTNER: DONALD W. SOWELL
ADDRESS: 509 Powell Drive
CITY, STATE, ZIP: Prairie View, Texas 77446
PHONE:
PROPERTY NAME:
ADDRESS:
CITY, STATE, ZIP:
RESIDENT MNGR:
PHONE:
ACCOUNTANT:
FIRM:
ADDRESS:
CITY, STATE, ZIP:
PHONE:
MANAGEMENT COMPANY:
ADDRESS:
CITY, STATE, ZIP:
PHONE:
CONTACT:
OCCUPANCY INFORMATION
A. No. of Units: twenty-four (24) No. of Vacancies:
B. Occupancy for the quarter has: Increased/Decreased/Remained the Same
(Circle One)
C. Number of: Move-Ins Move-Outs
D. Average length of tenant residency:1-6 mos. 6-12 mos. 1-3 yrs.
Over 4 yrs.
E. Number of basic rent qualified applicants on waiting list:
F. If the apartment complex is less than 90% occupied, please explain
why, and describe what efforts are being made to
lease-up the remaining units.
G. On site manager: Full Time _______ Part-Time ________.
If part-time, the number of hours per week _________________.
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OPERATIONAL INFORMATION
Rent Schedule and Increases From Previous Quarter
Monthly Rent Increases Effective
No. of Units Rent Amount Percent Date
1 Bdrm.
2 Bdrm.
3 Bdrm.
Provide copy of rent roll through the last day of the calendar quarter. On an
annual basis provide the annual income recertification received from each
tenant.
PROPOSED MAINTENANCE
FUNDED BY
COMPLETED OR OPERATIONS
TYPE DESCRIPTION PLANNED OR RESERVES AMOUNT
INTERIOR PAINTING
EXTERIOR PAINTING
SIDING
ROOFING
DRAINAGE
PAVING
LANDSCAPING
PLAYGROUND
COMMUNITY ROOM
LAUNDRY ROOM
COMMON AREAS
CARPET
APPLIANCES
LIGHTING
OTHER
Please describe in detail any major repairs or replacements of property.
E-2
<PAGE>
CONDITION OF PROPERTY
(Check One Box For Each)
Excellent Good Fair Problem
LANDSCAPE CONDITION
COMMON AREA - CLEAN
PARKING LOT CONDITION
SIDEWALKS
PROPERTY ENTRANCE
SIGN CONDITION
EXTERIOR PAINTING AND CAULKING
ROOF
WINDOWS
DOORS
SCREENS
GUTTERS & DOWNSPOUTS
MAILBOXES
DUMPSTER, ODOR
LAUNDRY ROOM
OUTSIDE NIGHT LIGHTING
SMOKE ALARM
HEATING & AIR CONDITIONING UNITS
WATER HEATERS
APPLIANCES
PEST CONTROL
CURB APPEAL
OTHER
Comments:
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<PAGE>
FINANCIAL STATUS
A. Replacement Reserves are: Fully-funded ___ Under-funded ___ Balance ___
If Underfunded, by how much:
Tax/Insurance Escrows are: Fully-funded___ Under-funded___Balance ____
If Under-funded, by how much:
Property is operating at a: Surplus ___ Deficit ___ Amt. $ ___
Property Taxes paid?
(please provide copy of paid tax bill) yes no
Property Insurance paid?
(please provide copy of yearly renewal) yes no
Mortgage Payments are: On Schedule Delinquent Amt. $
B. Please note and explain any significant changes in the following:
Admin. Expenses Increase Decrease Amount$
Repairs/Maint. Increase Decrease Amount$
Utilities Increase Decrease Amount$
Taxes/Insurance Increase Decrease Amount$
C. Do you anticipate making a return to owner distribution? Yes No
Explanation:
D. Please explain in detail any change in the financial condition:
E. Any insurance claims filed? Yes _____ No _____
If yes, please explain:
Prepared By: Date:
Firm: Telephone:
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<PAGE>
D. HILLTOP APARTMENTS, LTD.
STATEMENT OF INCOME AND EXPENSES
QUARTER ENDED: _______________
Previous Current Budget
Quarter Quarter YTD Amount Various
INCOME
Net Rental Income
Other Income
TOTAL INCOME
Renting Expense
Admin. Expense
Operating Expense
Maintenance Expense
Depreciation
Taxes & Insurance
Interest Expense
Other
Transfer to Replacement
Reserve account
TOTAL EXPENSES
NET INCOME (LOSS)
NOTE: Please be sure to include Depreciation and Interest.
Prepared by: Date:
Firm: Telephone:
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<PAGE>
D. HILLTOP APARTMENTS, LTD.
UNAUDITED BALANCE SHEET
QUARTER ENDED: ______________
ASSETS
Unrestricted Cash
Restricted Reserves
Buildings, personal property
net of accumulated depreciation
Land
Capital Contributions Receivable
Other
TOTAL
LIABILITIES
Mortgage Payable
Accounts Payable
Operating Deficit Loan
Working Capital Loan
Other
PARTNERS' EQUITY
Limited Partner Equity Paid
Limited Partner Equity Receivable
General Partner Equity
Other Equity
Cumulative Losses
TOTAL LIABILITIES AND NET WORTH
DISTRIBUTIONS TO GENERAL PARTNER OR ANY AFFILIATE
Fees or Compensation
Reimbursed Expenses
Partnership Cash Distributions
*Depreciation should be computed over the term approved by the Limited Partner
for the building improvements, and the applicable Federal tax lives and rates
for personal property.
Prepared by: Date:
Firm: Telephone:
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<TABLE>
TAX CREDIT COMPLIANCE REPORT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DATE 1 2 3 4 5 6 7 8 9 10
Person Person(s) Person(s) Person(s) Person(s) Person(s) Person(s) Person(s) Person(s)
Person(s )
HUD/FmHA VERY LOW:
QUALIFYING INCOME:
MONTHLY INCOME:
MAX GROSS RENT:
UNIT LEASED TO # ANNUAL HUD/FmHA LESS # TENANT + UTIL- = TENANT SUBSIDY
IN INCOME GROSS THAN BR RENTAL ITIES GROSS
INCOME 40% PAYMENT AND RENT
RA
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========== ----------------------------------------------------------------------------------------------------------- ============
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========== =================================== ========== ============= =============== =========== =========== ===================
</TABLE>
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<PAGE>
TAX CREDIT COMPLIANCE MONITORING:
ANNUAL CERTIFICATION
As General Partner of D. HILLTOP APARTMENTS, LTD., I hereby certify as to
the following:
1. D. HILLTOP APARTMENTS, LTD. owns a twenty-four (24) unit project
("Project") in Palestine, Anderson County, Texas.
2. An annual income certification (including supporting documentation)
has been received from each tenant. The income certification reflects that the
tenant's income meets the income limitation applicable to the Project pursuant
to Section 42(g)(1) of the Internal Revenue Code ("Code").
3. The Project satisfies the requirements of the applicable minimum set
aside test as defined in Section 42(g)(1) of the Code.
4. Each unit within the Project is rent restricted as defined in Section
42(g)(2)of the Code.
5. Each unit in the Project is available for use by the general public and
not for use on a transient basis.
6. Each building in the Project is suitable for occupancy in accordance
with local health, safety, and building codes.
7. During the preceding calendar year, there had been no change in the
eligible basis, as defined in Section 42(d) of the Code, of any building within
the Project.
8. All common area facilities included in the eligible basis of the
Apartment Complex are provided to the tenants on a comparable basis without a
separate fee to any tenant in the Project.
9. During the preceding calendar year when a unit in the Project became
vacant reasonable attempts were made to rent that unit to tenants whose incomes
met the income limitation applicable to the Project pursuant to Section 42(g)(1)
of the Code and while that unit was vacant no units of comparable or smaller
size were rented to tenants whose income did not meet the income limitation
applicable to the Project pursuant to Section 42(g)(1) of the Code.
10. If the income of a tenant in a unit increased above the limit allowed
in Section 42(g)(2)(D)(ii), then the next available unit of comparable or
smaller size was rented to tenants whose incomes met the income limitation
applicable to the Project pursuant to Section 42(g)(1) of the Code.
IN VERIFICATION OF THE FOREGOING ENCLOSED HEREWITH IS A COPY OF THE ANNUAL
INCOME CERTIFICATION RECEIVED FROM EACH TENANT IN THE PROJECT. UPON REQUEST I
WILL PROVIDE COPIES OF ALL DOCUMENTATION RECEIVED FROM THE TENANT TO SUPPORT
THAT CERTIFICATION.
I declare under penalty of perjury under the law of the State of Texas
that the foregoing is true and correct.
E-8
