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EXHIBIT 10.2
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HANOVER CAPITAL MORTGAGE HOLDINGS, L.P.
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TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINED TERMS.................................................................................................... 1
1.1 Definitions.................................................................................... 1
ARTICLE 2
ORGANIZATIONAL MATTERS.......................................................................................... 13
2.1 Organization.................................................................................. 13
2.2 Name. ........................................................................................ 14
2.3 Resident Agent; Principal Office.............................................................. 14
2.4 Power of Attorney............................................................................. 14
2.5 Term.......................................................................................... 15
2.6 Number of Partners............................................................................ 15
ARTICLE 3
PURPOSE......................................................................................................... 15
3.1 Purpose and Business.......................................................................... 15
3.2 Powers........................................................................................ 15
3.3 Partnership Only for Purposes Specified....................................................... 15
3.4 Representations and Warranties by the Parties................................................. 16
ARTICLE 4
CAPITAL CONTRIBUTIONS........................................................................................... 17
4.1 Capital Contributions of the Partners......................................................... 17
4.2 Loans by Third Parties........................................................................ 17
4.3 Additional Funding and Capital Contributions.................................................. 17
4.4 Stock Option Plan............................................................................. 19
4.5 Earn-Out of Original Limited Partners......................................................... 19
4.6 Other Contribution Provisions................................................................. 20
ARTICLE 5
DISTRIBUTIONS................................................................................................... 20
5.1 Requirement and Characterization of Distributions............................................. 20
5.2 Distributions in Kind......................................................................... 20
5.3 Distributions Upon Liquidation................................................................ 20
5.4 Distributions to Reflect Issuance of Additional Partnership Interests......................... 20
ARTICLE 6
ALLOCATIONS..................................................................................................... 21
6.1 Timing and Amount of Allocations of Net Income and Net Loss................................... 21
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6.2 General Allocations........................................................................... 21
6.3 Additional Allocation Provisions.............................................................. 21
6.4 Tax Allocations............................................................................... 23
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS........................................................................... 24
7.1 Management.................................................................................... 24
7.2 Certificate of Limited Partnership............................................................ 27
7.3 Restrictions on General Partner's Authority................................................... 27
7.4 Reimbursement of the General Partner.......................................................... 29
7.5 Outside Activities of the General Partner..................................................... 30
7.6 Contracts with Affiliates..................................................................... 30
7.7 Indemnification............................................................................... 31
7.8 Liability of the General Partner.............................................................. 32
7.9 Other Matters Concerning the General Partner.................................................. 33
7.10 Title to Partnership Assets................................................................... 34
7.11 Reliance by Third Parties..................................................................... 34
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS...................................................................... 34
8.1 Limitation of Liability....................................................................... 34
8.2 Management of Business........................................................................ 34
8.3 Outside Activities of Limited Partners........................................................ 34
8.4 Return of Capital............................................................................. 35
8.5 Rights of Limited Partners Relating to the Partnership........................................ 35
8.6 Redemption Rights............................................................................. 36
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS.......................................................................... 37
9.1 Records and Accounting........................................................................ 37
9.2 Fiscal Year................................................................................... 38
9.3 Reports....................................................................................... 38
ARTICLE 10
TAX MATTERS..................................................................................................... 38
10.1 Preparation of Tax Returns.................................................................... 38
10.2 Tax Elections................................................................................. 38
10.3 Tax Matters Partner........................................................................... 38
10.4 Organizational Expenses....................................................................... 40
10.5 Withholding................................................................................... 40
ARTICLE 11
TRANSFERS AND WITHDRAWALS....................................................................................... 40
11.1 Transfer...................................................................................... 40
11.2 Transfer of General Partner's Partnership Interest............................................ 41
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11.3 Limited Partners' Rights to Transfer.......................................................... 41
11.4 Substituted Limited Partners.................................................................. 42
11.5 Assignees..................................................................................... 43
11.6 General Provisions............................................................................ 43
ARTICLE 12
ADMISSION OF PARTNERS........................................................................................... 45
12.1 Admission of Successor General Partner........................................................ 45
12.2 Admission of Additional Limited Partners...................................................... 45
12.3 Amendment of Agreement and Certificate of Limited Partnership................................. 45
ARTICLE 13
DISSOLUTION AND LIQUIDATION..................................................................................... 46
13.1 Dissolution................................................................................... 46
13.2 Winding Up.................................................................................... 46
13.3 Compliance with Timing Requirements of Regulations............................................ 47
13.4 Deemed Distribution and Recontribution........................................................ 48
13.5 Rights of Limited Partners.................................................................... 48
13.6 Notice of Dissolution......................................................................... 48
13.7 Cancellation of Certificate of Limited Partnership............................................ 48
13.8 Reasonable Time for Winding-Up................................................................ 48
13.9 Waiver of Partition........................................................................... 48
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS.................................................................... 48
14.1 Amendments.................................................................................... 48
14.2 Action by the Partners........................................................................ 49
ARTICLE 15
GENERAL PROVISIONS.............................................................................................. 49
15.1 Addresses and Notice.......................................................................... 49
15.2 Titles and Captions........................................................................... 49
15.3 Pronouns and Plurals.......................................................................... 50
15.4 Further Action................................................................................ 50
15.5 Binding Effect................................................................................ 50
15.6 Creditors..................................................................................... 50
15.7 Waiver........................................................................................ 50
15.8 Counterparts.................................................................................. 50
15.9 Applicable Law................................................................................ 50
15.10 Invalidity of Provisions...................................................................... 50
15.11 Limitation to Preserve REIT Status............................................................ 50
15.12 Entire Agreement.............................................................................. 51
15.13 No Rights as Stockholders..................................................................... 51
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EXHIBITS
Exhibit A - Partners, Contributions and Partnership Interests
Exhibit B - Notice of Redemption
Exhibit C - Constructive Ownership Definition
Exhibit D - Form of Partnership Unit Certificate
Exhibit E - Schedule of REIT Shares Actually or Constructively Owned by
Limited Partners Other Than Those Acquired Pursuant to an
Exchange
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HANOVER CAPITAL MORTGAGE HOLDINGS, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of _________, 1997, is entered into by and among Hanover Capital
Mortgage Holdings, Inc., a Maryland corporation (the "Company"), as the General
Partner, and the Persons whose names are set forth on Exhibit A attached hereto,
as the Limited Partners, together with any other Persons who become Partners in
the Partnership as provided herein.
RECITALS
WHEREAS, the limited partnership was formed on June ___, 1997
and an original agreement of limited partnership was entered into between the
Company, as general partner, and Xxxx X. Xxxxxxxx, Xxxxx X. Xxxxxxx, Xxxxxx X.
Xxxxxxxxx and Xxxx X. Xxxxxxx, as limited partners (the "Original Limited
Partners");
WHEREAS, the Company proposes to effect a public offering of
its common stock, to cause the Partnership to acquire the HCP Preferred,
Mortgage Assets and other assets, to cause the Partnership to enter into certain
transactions, and to contribute the remaining net proceeds from the public
offering to the Partnership;
WHEREAS, the Partnership will issue Partnership Interests to
the Company and other persons in accordance with the foregoing transactions;
WHEREAS, upon the completion of the foregoing transactions,
the Partnership shall return the original capital contributions made by the
Company and the Original Limited Partners and any ongoing interest in the
Partnership of the Company and the Original Limited Partners shall be based on
their respective contributions as contemplated below; and
WHEREAS, by virtue of their respective execution of this
Agreement the Company and the Original Limited Partners hereby consent to the
amendment and restatement of the original agreement of limited partnership;
NOW, THEREFORE, BE IT RESOLVED, that for good and adequate
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINED TERMS
. 1.1 DEFINITIONS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement:
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
"Additional Funds" shall have the meaning set forth in
Section 4.3.A.
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"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"Adjusted Capital Account Balance" means, with respect to any
Partner, the balance in such Partner's Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments: (i)
decrease such balance by any amounts which such Partner is obligated to restore
pursuant to this Agreement or is deemed to be obligated to restore pursuant to
Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of
Regulations Sections 1.704-2(i)(5) and 1.704-2(g)(1); and (ii) increase such
balance by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),
(5) and (6).
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant fiscal year, after giving effect to the following
adjustments: (i) decrease such deficit by any amounts which such Partner is
obligated to restore pursuant to this Agreement or is deemed to be obligated to
restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the penultimate
sentence of each of Regulations Sections 1.704-2(i)(5) and 1.704-2(g)(1); and
(ii) increase such deficit by the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted
Capital Account Deficit is intended to comply with the provisions of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjustment Date" means, with respect to any Capital
Contribution, the close of business on the Business Day last preceding the date
of the Capital Contribution, provided, that if such Capital Contribution is
being made by the General Partner in respect of the proceeds from the issuance
of REIT Shares (or the issuance of the General Partner's securities exercisable
for, convertible into or exchangeable for REIT Shares), then the Adjustment Date
shall be as of the close of business on the Business Day last preceding the date
of the issuance of such securities.
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by or under common control with
such Person.
"Agreed Value" means (i) in the case of any Contributed
Property set forth in Exhibit A and as of the time of its contribution to the
Partnership, the Agreed Value of such property as set forth in Exhibit A; (ii)
in the case of any Contributed Property not set forth in Exhibit A and as of the
time of its contribution to the Partnership, the fair market value of such
property or other consideration as determined by the General Partner, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed as determined under Section 752
of the Code and the Regulations thereunder; and (iii) in the case of any
property distributed to a Partner by the Partnership, the fair market value of
such property as determined by the General Partner at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of the
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"Agreement" means this Amended and Restated Agreement of
Limited Partnership, as it may be amended, modified, supplemented or restated
from time to time.
"Appraisal" means with respect to any assets, the opinion of
an independent third party experienced in the valuation of similar assets,
selected by the General Partner in good faith; such opinion may be in the form
of an opinion by such independent third party that the value for such asset as
set by the General Partner is fair, from a financial point of view, to the
Partnership.
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"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5.
"Available Cash" means, with respect to any period for which
such calculation is being made,
(i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the
case may be) for such period,
(b) Depreciation and all other noncash charges
deducted in determining Net Income or Net Loss for such
period,
(c) the amount of any reduction in reserves of the
Partnership referred to in clause (ii)(f) below (including,
without limitation, reductions resulting because the General
Partner determines such amounts are no longer necessary),
(d) the excess of the net proceeds from the sale,
exchange, disposition, or refinancing of Partnership property
for such period over the gain (or loss, as the case may be)
recognized from any such sale, exchange, disposition, or
refinancing during such period(excluding Terminating Capital
Transactions), and
(e) all other cash received by the Partnership for
such period that was not included in determining Net Income or
Net Loss for such period;
(ii) less the sum of:
(a) all principal debt payments made during such
period by the Partnership,
(b) capital expenditures made by the Partnership
during such period (including but not limited to the costs of
acquiring Mortgage Assets),
(c) investments in any entity (including loans made
thereto) to the extent that such investments are not otherwise
described in clauses (ii)(a) or (b),
(d) all other expenditures and payments not deducted
in determining Net Income or Net Loss for such period,
(e) any amount included in determining Net Income or
Net Loss for such period that was not received by the
Partnership during such period,
(f) the amount of any increase in reserves
established during such period which the General Partner
determines are necessary or appropriate in its sole and
absolute discretion, and
(g) the amount of any working capital accounts and
other cash or similar balances which the General Partner
determines to be necessary or appropriate in its sole and
absolute discretion.
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Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
"Average Spread" means, for any period, (i) the average Fair
Market Value of an IPO Share minus (ii) the IPO Price.
"Board of Directors" means the Board of Directors of the
General Partner.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to be closed.
"Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Partner in accordance with the following
provisions:
a) To each Partner's Capital Account there shall be added such
Partner's Capital Contributions, such Partner's share of Net Income and any
items in the nature of income or gain which are specially allocated pursuant to
Section 6.3, and the amount of any Partnership liabilities assumed by such
Partner or which are secured by any property distributed to such Partner.
b) From each Partner's Capital Account there shall be
subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Net Losses and any items in the nature of
expenses or losses which are specially allocated pursuant to Section 6.3 hereof,
and the amount of any liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such Partner to the
Partnership.
c) In the event any interest in the Partnership is transferred
in accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred interest.
d) In determining the amount of any liability for purposes of
subsections (a) and (b) hereof, there shall be taken into account Code section
752(c) and any other applicable provisions of the Code and Regulations.
e) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the General
Partner shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed in order to comply with
such Regulations, the General Partner may make such modification, provided that
it is not likely to have a material effect on the amounts distributable to any
Person pursuant to Article 13 of this Agreement upon the dissolution of the
Partnership. The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the Partnership by such Partner.
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"Cash Amount" means, with respect to any Partnership Units
subject to a Redemption, an amount of cash equal to the Deemed Partnership
Interest Value attributable to such Partnership Units.
"Certificate" means the Certificate of Limited Partnership
relating to the Partnership filed in the office of the Secretary of State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Charter" means the Articles of Incorporation of the General
Partner filed with the Maryland State Department of Assessments and Taxation on
June 10, 1997, as amended or restated from time to time.
"CMO" means an adjustable or fixed rate debt obligation that
is collateralized by Mortgage Loans and/or mortgage certificates.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time or any successor statute thereto, as interpreted by the
applicable regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Company" means Hanover Capital Mortgage Holdings, Inc., a
Maryland corporation.
"Consent" means the consent to, approval of, or vote on a
proposed action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a
Majority in Interest of the Limited Partners other than the Company, which
Consent shall be obtained prior to the taking of any action for which it is
required by this Agreement and may be given or withheld by a Majority in
Interest of the Limited Partners, unless otherwise expressly provided herein, in
their sole and absolute discretion.
"Consent of the Partners" means the Consent of Partners
holding Percentage Interests that in the aggregate are equal to or greater than
66-2/3% of the aggregate Percentage Interests of all Partners, which Consent
shall be obtained prior to the taking of any action for which it is required by
this Agreement and may be given or withheld by such Partners, in their sole and
absolute discretion.
"Constructively Own" means ownership under the constructive
ownership rules described in Exhibit C.
"Contributed Property" means each property or other asset
(excluding cash), in such form as may be permitted by the Act, contributed or
deemed contributed to the Partnership (or, to the extent provided in applicable
regulations, deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code).
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services; (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar instruments guaranteeing
payment or other performance of obligations by such Person; (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof; and (iv) lease
obligations of such Person which, in accordance with generally accepted
accounting principles, should be capitalized.
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"Deemed Partnership Interest Value" means, as of any date with
respect to any class of Partnership Interests, the Deemed Value of the
Partnership Interests of such class multiplied by the applicable Partner's
Percentage Interest of such class.
"Deemed Value of the Partnership Interests" means, as of any
date with respect to any class of Partnership Interests, (i) the total number of
shares of capital stock of the General Partner corresponding to such class of
Partnership Interests (as provided for in Sections 4.1 and 4.3.C) issued and
outstanding as of the close of business on such date (excluding any treasury
shares) multiplied by the Fair Market Value of a share of such capital stock on
such date; (ii) divided by the Percentage Interest of the General Partner in
such class of Partnership Interests on such date.
"Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
"Earn-Out Adjustment" means an amount equal to $2,500,000.
"Earn-Out Measuring Date" means each September 30 beginning
with September 30, 1998 and ending with September 30, 2002.
"Earn-Out Units" means (i) the number of Partnership Units
that would have been issued to the Original Limited Partners in exchange for the
HCP Preferred as of the Effective Date had the HCP Preferred had an Agreed Value
as of the Effective Date of $12,500,000 minus (ii) the number of Partnership
Units issued to the Original Limited Partners in exchange for the HCP Preferred
as of the Effective Date (subject to appropriate adjustment for stock dividends
and distributions, stock splits and subdivisions, reverse stock splits and
combinations, recapitalizations, distributions of rights, warrants or options,
and distributions of evidences of indebtedness or assets relating to assets not
received by the General Partner pursuant to a pro rata distribution by the
Partnership and transactions having like effect). Any Earn-Out Units that are
issued shall be of the same class as the Partnership Interests initially issued
to the General Partner and the Original Limited Partners hereunder.
"Effective Date" means the date of closing of the initial
public offering of REIT Shares upon which date contributions set forth on
Exhibit A shall become effective.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time (or any corresponding provisions of
succeeding laws).
"Fair Market Value" means, with respect to any share of
capital stock or Other Security of the General Partner, the average of the daily
market price for the ten (10) consecutive trading days immediately preceding the
date with respect to which "Fair Market Value" must be determined hereunder or,
if such date is not a Business Day, the immediately preceding Business Day. The
market price for each such trading day shall be: (i) if such shares or Other
Securities are listed or admitted to trading on any securities exchange or the
Nasdaq National Market, the closing price, regular way, on such day, or if no
such sale takes place on such day, the average of the closing bid and asked
prices on such day, (ii) if such shares or Other Securities are not listed or
admitted to trading on any securities exchange or the Nasdaq National Market,
the last reported sale price on such day or, if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the General Partner, or (iii) if such
shares or Other Securities are not listed or admitted to trading on any
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securities exchange or the Nasdaq National Market and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 10 days prior to the date in
question) for which prices have been so reported; provided that, if there are no
bid and asked prices reported during the 10 days prior to the date in question,
the Fair Market Value of such shares or Other Securities shall be determined by
the General Partner acting on the basis of such quotations and other information
as it considers appropriate. In the event the REIT Shares Amount for any shares
includes rights that a holder of such shares would be entitled to receive, then
the Fair Market Value of such rights shall be determined by the General Partner
acting on the basis of such quotations and other information as it considers
appropriate; and provided further that, in connection with determining the
Deemed Value of the Partnership Interests for purposes of determining the number
of additional Partnership Units issuable upon a Capital Contribution funded by
an underwritten public offering of shares of capital stock of the General
Partner, the Fair Market Value of such shares shall be the public offering price
per share of such class of capital stock sold.
"Funding Debt" means the incurrence of any Debt by or on
behalf of the General Partner for the purpose of providing funds to the
Partnership.
"General Partner" means the Company or its successors as
general partner of the Partnership.
"General Partner Interest" means a Partnership Interest held
by the General Partner. A General Partner Interest may be expressed as a number
of Partnership Units.
"General Partner Loan" shall have the meaning set forth in
Section 4.3.B.
"General Partner Payment" shall have the meaning set forth in
Section 15.11.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross fair market value
of such asset, as determined by the contributing Partner and the General Partner
(as set forth on Exhibit A attached hereto, as such exhibit may be amended from
time to time); provided that, if the contributing Partner is the General Partner
then, except with respect to the General Partner's initial Capital Contribution
which shall be determined as set forth on Exhibit A, or capital contributions of
cash, REIT Shares or other shares of capital stock of the General Partner, the
determination of the fair market value of the contributed asset shall be
determined by (i) the price paid by the General Partner if the asset is acquired
by the General Partner contemporaneously with its contribution to the
Partnership, or (ii) by Appraisal if otherwise acquired by the General Partner.
(b) As of the times listed below, the Gross Asset Values
of all Partnership assets shall be adjusted to equal their respective gross fair
market values, as determined by the General Partner using such reasonable method
of valuation as it may adopt, provided, however, that for such purpose, the net
value of all of the Partnership assets, in the aggregate, shall be equal to the
Deemed Value of the Partnership Interests of all classes of Partnership
Interests then outstanding, regardless of the method of valuation adopted by the
General Partner:
(i) the acquisition of an additional interest in the
Partnership by a new or existing Partner in exchange for more
than a de minimis Capital Contribution, if the General Partner
reasonably determines that such adjustment is necessary or
appropriate to reflect the relative economic interests of the
Partners in the Partnership;
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(ii) the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership cash
or property as consideration for an interest in the
Partnership if the General Partner reasonably determines that
such adjustment is necessary or appropriate to reflect the
relative economic interests of the Partners in the
Partnership;
(iii) the liquidation of the Partnership within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and
(iv) at such other times as the General Partner
shall reasonably determine necessary or advisable in order to
comply with Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset
distributed to a Partner shall be the gross fair market value of such asset on
the date of distribution as determined by the distributee and the General
Partner, or if the distributee and the General Partner cannot agree on such a
determination, by Appraisal.
(d) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
subparagraph (d) to the extent that the General Partner reasonably determines
that an adjustment pursuant to subparagraph (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (d).
(e) If the Gross Asset Value of a Partnership asset has
been determined or adjusted pursuant to subparagraph (a), (b) or (d), such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Income and Net Losses.
"HCP" means Hanover Capital Partners Ltd., a New York
corporation.
"HCP Preferred" means the shares of Series A Preferred Stock,
$.01 par value per share, of HCP contributed to the Partnership as of the
Effective Date by Xxxx X. Xxxxxxxx, Xxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxxxxx and
Xxxx X. Xxxxxxx.
"Holder" means either the Partner or Assignee owning a
Partnership Unit.
"Immediate Family" means, with respect to any natural Person,
(i) such Person's estate, current or former spouse, descendants (by blood or
adoption), parents, parents-in-law, siblings and descendants of siblings (by
blood or adoption) and (ii) any trust or estate, all of the beneficiaries of
which consist of such Person and/or Persons included in (i).
"Incapacity" or "Incapacitated" means, (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating him or her incompetent to manage his or her
Person or his or her estate; (ii) as to any corporation which is a Partner, the
filing of a certificate of dissolution, or its equivalent, for the corporation
or the revocation of its charter; (iii) as to any partnership which is a
Partner, the dissolution and commencement of winding up of the partnership; (iv)
as to any estate which is a Partner, the distribution by the fiduciary of the
estate's entire interest in the Partnership; (v) as to any trustee of a trust
which is a Partner, the termination of the trust (but not the substitution of a
new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences
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a voluntary proceeding seeking liquidation, reorganization or other relief under
any bankruptcy, insolvency or other similar law now or hereafter in effect, (b)
the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable
order for relief under any bankruptcy, insolvency or similar law now or
hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect has not been dismissed within 120 days after the
commencement thereof, (g) the appointment without the Partner's consent or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within 90 days of such appointment, or (h) an appointment referred to in clause
(g) is not vacated within 90 days after the expiration of any such stay.
"Indemnitee" means (i) any Person subject to a claim or demand
or made or threatened to be made a party to, or involved or threatened to be
involved in, an action, suit or proceeding by reason of his or her status as (A)
the General Partner or (B) a director, officer, employee or agent of the
Partnership, the General Partner or any Subsidiary of the Partnership or the
General Partner and (ii) such other Persons (including Affiliates of the General
Partner or the Partnership) as the General Partner may designate from time to
time, in its sole and absolute discretion.
"IPO Share" means a REIT Share issued by the Company in its
initial underwritten public offering.
"IPO Price" means the initial public offering price of a Unit
in the Offering.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Limited Partner" means any Person named as a Limited Partner
in Exhibit A attached hereto, as such exhibit may be amended from time to time,
or any Substituted Limited Partner or Additional Limited Partner, in such
Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of
a Limited Partner representing a fractional part of the Partnership Interests of
all Limited Partners and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partnership Interest may be expressed as
a number of Partnership Units.
"Liquidating Events" shall have the meaning set forth in
Section 13.1.
"Liquidator" shall have the meaning set forth in
Section 13.2.A.
"Majority in Interest of the Limited Partners" means Limited
Partners (other than the General Partner and any Limited Partner fifty percent
(50%) or more of whose equity is owned, directly or indirectly, by the General
Partner) holding Percentage Interests that in the aggregate are greater than
fifty percent (50%) of the aggregate Percentage Interests of all Limited
Partners (other than the General Partner and any Limited Partner fifty percent
(50%) or more of whose equity is owned, directly or indirectly, by the General
Partner).
"Majority in Interest of Partners" means Partners holding
Percentage Interests that are greater than fifty percent (50%) of the aggregate
Percentage Interests of all Partners.
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"Mortgage Assets" means Mortgage Loans (including interests in
real property acquired upon or in lieu of foreclosure thereof) and
Mortgage-Backed Securities.
"Mortgage-Backed Securities" means (i) Pass-Through
Certificates, (ii) CMOs and (iii) REMICs.
"Mortgage Loans" means both conforming and non-conforming
single family, multifamily and commercial mortgage loans and deeds of trust.
"Net Income" or "Net Loss" means for each fiscal year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such fiscal year, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments: (a) Any income of the
Partnership that is exempt from federal income tax and not otherwise taken into
account in computing Net Income or Net Loss pursuant to this definition of Net
Income or Net Loss shall be added to such taxable income or loss; (b) Any
expenditures of the Partnership described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Net Income or Net Loss pursuant to this definition of Net Income or Net Loss,
shall be subtracted from such taxable income or loss; (c) In the event the Gross
Asset Value of any Partnership asset is adjusted pursuant to subparagraph (b) or
subparagraph (c) of the definition of Gross Asset Value, the amount of such
adjustment shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Net Income or Net Loss; (d) Gain or loss
resulting from any disposition of property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed by reference to the
Gross Asset Value of the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value; (e) In lieu of
the depreciation, amortization, and other cost recovery deductions taken into
account in computing such taxable income or loss, there shall be taken into
account Depreciation for such fiscal year; (f) To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or Code Section 743(b) is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts
as a result of a distribution other than in liquidation of a Partner's interest
in the Partnership, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of the asset
and shall be taken into account for purposes of computing Net Income or Net
Loss; and (g) Notwithstanding any other provision of this definition of Net
Income or Net Loss, any items which are specially allocated pursuant to Section
6.3 hereof shall not be taken into account in computing Net Income or Net Loss.
The amounts of the items of Partnership income, gain, loss, or deduction
available to be specially allocated pursuant to Section 6.3 hereof shall be
determined by applying rules analogous to those set forth in this definition of
Net Income or Net Loss.
"Nonrecourse Deductions" shall have the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" shall have the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption
substantially in the form of Exhibit B to this Agreement.
"Original Limited Partners" means the Limited Partners of the
Partnership, listed on Exhibit A hereto, as of the Effective Date.
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"Other Securities" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase REIT Shares or other shares of capital stock of the General Partner,
excluding grants under any Stock Option Plan, or (ii) any Debt issued by the
General Partner that provides any of the rights described in clause (i).
"Partner" means a General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" shall have the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" shall have the meaning set
forth in Regulations Section 1.704-2(i)(2), and the amount of Partner
Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the
Act and governed by this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the
Partnership of either a Limited Partner or the General Partner and includes any
and all benefits to which the holder of such a Partnership Interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. There may be
one or more classes of Partnership Interests as provided in Section 4.3. A
Partnership Interest may be expressed as a number of Partnership Units. Unless
otherwise expressly provided for by the General Partner at the time of the
original issuance of any Partnership Interests, all Partnership Interests
(whether of a Limited Partner or a General Partner) shall be of the same class.
"Partnership Minimum Gain" shall have the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by
the General Partner for the distribution of Available Cash pursuant to Section
5.1 hereof which record date shall be the same as the record date established by
the General Partner for a distribution to its stockholders of some or all of its
portion of such distribution.
"Partnership Unit" means, with respect to any class of
Partnership Interest, a fractional, undivided share of such class of Partnership
Interest issued pursuant to Sections 4.1 and 4.3. The ownership of Partnership
Units may be evidenced by a certificate for units substantially in the form of
Exhibit D hereto or as the General Partner may determine with respect to any
class of Partnership Units issued from time to time under Section 4.1 and 4.3.
"Partnership Year" means the fiscal year of the Partnership,
which shall be the calendar year.
"Pass-Through Certificate" means securities (or interests
therein) evidencing undivided ownership interests in a pool of Mortgage Loans,
the holders of which receive a "pass-through" of the
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principal and interest paid in connection with the underlying Mortgage Loans in
accordance with their respective undivided interests in the pool.
"Percentage Interest" means, as to a Partner holding a class
of Partnership Interests, its interest in the Partnership as determined by
dividing the Partnership Units of such class owned by such Partner by the total
number of Partnership Units of such class then outstanding as specified in
Exhibit A attached hereto, as such exhibit may be amended from time to time. If
the Partnership issues more than one class of Partnership Interest, the interest
in the Partnership among the classes of Partnership Interests shall be
determined as set forth in the amendment to the Partnership Agreement setting
forth the rights and privileges of such additional classes of Partnership
Interest, if any, as contemplated by Section 4.3.C hereof.
"Person" means an individual or a corporation, partnership,
limited liability company, trust, unincorporated organization, association or
other entity.
"Pro Rata Portion" means, with respect to any Original Limited
Partner (or his or her representatives, successors or assigns, as the case may
be), a fraction (i) the numerator of which is the number of Partnership Units
initially issued to such Original Limited Partner in exchange for his or her
portion of the HCP Preferred and (ii) the denominator of which is the total
number of Partnership Units initially issued to the Original Limited Partners in
exchange for the HCP Preferred.
"Qualified REIT Subsidiary" means any Subsidiary of the
General Partner that is a "qualified REIT subsidiary" within the meaning of
Section 856(i) of the Code.
"Qualified Transferee" means an "Accredited Investor" as
defined in Rule 501 promulgated under the Securities Act.
"Redemption" shall have the meaning set forth in
Section 8.6.A.
"Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" shall have the meaning set forth in
Section 6.3.A(viii) of this Agreement.
"REIT" means a real estate investment trust under Sections 856
through 860 of the Code.
"REIT Requirements" shall have the meaning set forth in
Section 5.1.
"REIT Share" means a share of common stock, par value $.01 per
share, of the General Partner.
"REIT Shares Amount" means, as of any date, an aggregate
number of REIT Shares equal to the number of Tendered Units, or in the case of
Section 11.2.B, all Units, as adjusted pursuant to Section 7.5 (in the event the
General Partner acquires material assets, other than on behalf of the
Partnership) and for stock dividends and distributions, stock splits and
subdivisions, reverse stock splits and combinations, recapitalizations,
distributions of rights, warrants or options, and distributions of evidences of
indebtedness or assets relating to assets not received by the General Partner
pursuant to a pro rata distribution by the Partnership; provided, however, that
under no circumstances shall the REIT Shares Amount with respect to any Tendered
Units be a number of REIT Shares having an aggregate Fair Market Value that is
less than the Deemed Partnership Interest Value represented by such Tendered
Units (as of the Specified Redemption Date or other applicable valuation date).
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"REMIC" means, as the context may require, (i) a real estate
mortgage investment conduit as defined in Section 860D of the Code or (ii) any
regular or residual interest in a REMIC within the meaning of Section 860G(a)(1)
or Section 860G(a)(2), respectively, of the Code.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder. Any reference herein to a specific section, rule or form
thereunder shall be deemed to include a reference to any corresponding successor
to such section, rule or form.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder. Any reference herein to a specific section,
rule or form thereunder shall be deemed to include a reference to any
corresponding successor to such section, rule or form.
"Specified Redemption Date" means the day of receipt by the
General Partner of a Notice of Redemption.
"Stock Option Plan" means any stock option plan of the General
Partner.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Subsidiary Partnership" means any partnership that is a
Subsidiary of the Partnership.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4.
"Surviving Partnership" shall have the meaning set forth in
Section 11.2.C.
"Tax Items" shall have the meaning set forth in Section 6.4.A.
"Tendered Units" shall have the meaning set forth in
Section 8.6.A.
"Tendering Partner" shall have the meaning set forth in
Section 8.6.A.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Total Return per Unit" means, as of any Earn-Out Measuring
Date, (i) two times the Average Spread for the 30 day period that ends on such
Earn-Out Measuring Date, plus (ii) the sum of all distributions that have been
made by the Company with respect to an IPO Share through and including such
Earn-Out Measuring Date.
ARTICLE 2
ORGANIZATIONAL MATTERS
2.1 ORGANIZATION. The Partnership is a limited partnership
formed pursuant to the provisions of the Act and upon the terms and conditions
set forth in this Agreement. Except as expressly provided herein, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
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2.2 NAME. The name of the Partnership is Hanover Capital
Mortgage Holdings, L.P. The Partnership's business may be conducted under any
other name or names deemed advisable by the General Partner, including the name
of the General Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The General Partner in its sole and
absolute discretion may change the name of the Partnership at any time and from
time to time and shall notify the Limited Partners of such change in the next
regular communication to the Limited Partners.
2.3 RESIDENT AGENT; PRINCIPAL OFFICE. The name and
address of the resident agent of the Partnership in the State of Delaware
is Corporation Service Company, 0000 Xxxxxx Xxxx, Xxxxxxxxxx, Xxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000. The address of the principal office of the Partnership
in the State of Delaware is c/o Corporation Service Company, 0000 Xxxxxx Xxxx,
Xxxxxxxxxx, Xxx Xxxxxx Xxxxxx, Xxxxxxxx 00000. The principal office of the
Partnership is located at 000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, XX 00000 or
such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
. 2.4 POWER OF ATTORNEY
A. Each Limited Partner and each Assignee constitutes
and appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to: (1) execute,
swear to, acknowledge, deliver, file and record in the appropriate public
offices (a) all certificates, documents and other instruments (including,
without limitation, this Agreement and the Certificate and all amendments or
restatements thereof) that the General Partner or the Liquidator deems
appropriate or necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a partnership in
which the Limited Partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the Partnership may conduct business or own
property; (b) all instruments that the General Partner or any Liquidator deems
appropriate or necessary to reflect any amendment, change, modification or
restatement of this Agreement made in accordance with its terms; (c) all
conveyances and other instruments or documents that the General Partner or any
Liquidator deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to, or other events described in, Articles 11, 12 and 13
hereof or the Capital Contribution of any Partner; and (e) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges of Partnership Interests; and (2) execute, swear to,
acknowledge and file all ballots, consents, approvals, waivers, certificates and
other instruments appropriate or necessary, in the sole and absolute discretion
of the General Partner or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is made or
given by the Partners hereunder or is appropriate or necessary, in the sole
discretion of the General Partner or any Liquidator, to effectuate the terms or
intent of this Agreement. Nothing contained herein shall be construed as
authorizing the General Partner or any Liquidator to amend this Agreement except
in accordance with Article 14 hereof or as may be otherwise expressly provided
for in this Agreement.
B. The foregoing power of attorney is hereby declared
to be irrevocable and a power coupled with an interest, in recognition of the
fact that each of the Partners will be relying upon the power of the General
Partner and any Liquidator to act as contemplated by this Agreement in any
filing or other action by it on behalf of the Partnership, and it shall survive
and not be affected by the subsequent Incapacity of any Limited Partner or
Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby
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agrees to be bound by any representation made by the General Partner or any
Liquidator, acting in good faith pursuant to such power of attorney; and each
such Limited Partner or Assignee hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the General Partner or
any Liquidator, taken in good faith under such power of attorney. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or any
Liquidator, within 15 days after receipt of the General Partner's or
Liquidator's request therefor, such further designation, powers of attorney and
other instruments as the General Partner or the Liquidator, as the case may be,
deems necessary to effectuate this Agreement and the purposes of the
Partnership.
2.5 TERM. The term of the Partnership commenced on June ___,
1997 and shall continue until December 31, 2096 unless it is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.
2.6 NUMBER OF PARTNERS. The Partnership shall not at any time
have more than 100 partners (including as partners those persons indirectly
owning an interest in the Partnership through a partnership, limited liability
company, S corporation or grantor trust (such entity, a "flow through entity"),
but only if substantially all of the value of such person's interest in the flow
through entity is attributable to the flow through entity's interest (direct or
indirect) in the Partnership).
ARTICLE 3
PURPOSE
3.1 PURPOSE AND BUSINESS. The purpose and nature of the
business to be conducted by the Partnership is (i) to conduct any business that
may be lawfully conducted by a limited partnership organized pursuant to the
Act, including but not limited to directly and indirectly purchasing,
originating, holding, financing, hedging, selling and securitizing Mortgage
Assets, provided, however, that such business shall be conducted in such a
manner as to permit the General Partner at all times to be classified as a REIT
for federal income tax purposes, unless the General Partner ceases to qualify as
a REIT for reasons other than the conduct of the business of the Partnership,
(ii) to own interests (directly and indirectly) in HCP, any Subsidiaries of HCP
and any partnerships, joint ventures and other similar arrangements organized to
engage in any of the foregoing, and (iii) to do anything necessary or incidental
to the foregoing. In connection with the foregoing, and without limiting the
General Partner's right in its sole discretion to cease qualifying as a REIT,
the Partners acknowledge that the General Partner's current intent to operate
and qualify as a REIT inures to the benefit of all the Partners and not solely
the General Partner.
3.2 POWERS. The Partnership is empowered to do any and all
acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership,
including, without limitation, full power and authority, directly or through its
ownership interest in other entities, to enter into, perform and carry out
contracts of any kind, borrow money and issue evidences of indebtedness, whether
or not secured, in connection with the purchase, origination, holding,
financing, hedging, sale and securitization of Mortgage Assets; provided,
however, that the Partnership shall not take, or refrain from taking, any action
which, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the General Partner to
continue to qualify as a REIT, (ii) could subject the General Partner to any
taxes under Section 857 or Section 4981 of the Code, or (iii) could violate any
law or regulation of any governmental body or agency having jurisdiction over
the General Partner or its securities, unless any such action (or inaction)
under (i), (ii) or (iii) shall have been specifically consented to by the
General Partner in writing.
3.3 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED. The Partnership
shall be a partnership only for the purposes specified in Section 3.1 hereof,
and this Agreement shall not be deemed to create a partnership among the
Partners with respect to any activities whatsoever other than the activities
within the purposes of the Partnership as specified in Section 3.1 hereof.
Except as otherwise provided in
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this Agreement, no Partner shall have any authority to act for, bind, commit or
assume any obligation or responsibility on behalf of the Partnership, its
properties or any other Partner. No Partner, in its capacity as a Partner under
this Agreement, shall be responsible or liable for any indebtedness or
obligation of another Partner, nor shall the Partnership be responsible or
liable for any indebtedness or obligation of any Partner, incurred either before
or after the execution and delivery of this Agreement by such Partner, except as
to those responsibilities, liabilities, indebtedness or obligations incurred
pursuant to and as limited by the terms of this Agreement and the Act.
. 3.4 REPRESENTATIONS AND WARRANTIES BY THE PARTIES
A. Each Partner represents and warrants to each
other Partner that (i) such Partner has, if not an individual, the power and
authority or, if an individual, the legal capacity to enter into this Agreement
and perform such Partner's obligations hereunder, (ii) the consummation of the
transactions contemplated by this Agreement to be performed by such Partner will
not result in a breach or violation of, or a default under, any agreement by
which such Partner or any of such Partner's property is or are bound, or any
statute, regulation, order or other law to which such Partner is subject, (iii)
such Partner is neither a "foreign person" within the meaning of Section 1445(f)
of the Code nor a "foreign partner" within the meaning of Section 1446(e) of the
Code, and (iv) this Agreement has been duly executed and delivered by such
Partner and is binding upon, and enforceable against, such Partner in accordance
with its terms.
B. Each Partner that is not an individual
represents and warrants to each other Partner that (i) its execution and
delivery of this Agreement and all transactions contemplated by this Agreement
to be performed by it have been duly authorized by all necessary action,
including without limitation, that of its general partner(s), committee(s),
trustee(s), beneficiaries, directors and/or stockholder(s), as the case may be,
as required, (ii) the consummation of such transactions shall not result in a
breach or violation of, or a default under, its certificate of limited
partnership, partnership agreement, trust agreement, limited liability company
operating agreement, charter or by-laws, as the case may be, any agreement by
which such Partner or any of such Partner's properties or any of its partners,
beneficiaries, trustees or stockholders, as the case may be, is or are bound, or
any statute, regulation, order or other law to which such Partner or any of its
partners, trustees, beneficiaries or stockholders, as the case may be, is or are
subject, (iii) such Partner is neither a "foreign person" within the meaning of
Section 1445(f) of the Code nor a "foreign partner" within the meaning of
Section 1446(e) of the Code, and (iv) this Agreement has been duly executed and
delivered by such Partner and is binding upon, and enforceable against, such
Partner in accordance with its terms.
C. Each Partner represents, warrants and agrees
that it has acquired and continues to hold its interest in the Partnership for
its own account for investment only and not for the purpose of, or with a view
toward, the resale or distribution of all or any part thereof, nor with a view
toward selling or otherwise distributing such interest or any part thereof at
any particular time or under any predetermined circumstances. Each Partner
further represents and warrants that it is a sophisticated investor, able and
accustomed to handling sophisticated financial matters for itself, particularly
real estate investments, and that it has a sufficiently high net worth that it
does not anticipate a need for the funds it has invested in the Partnership in
what it understands to be a highly speculative and illiquid investment.
D. Each Partner further represents, warrants
and agrees as follows:
(i) Except as provided in Exhibit E, it
does not actually own or Constructively Own any stock in the General Partner.
(ii) Upon request of the General Partner,
it will disclose to the General Partner the amount of REIT Shares or other
shares of capital stock of the General Partner that it actually owns or
Constructively Owns.
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(iii) It understands that if, for any
reason, (a) the representations, warranties or agreements set forth in
Subparagraph D(i) or (ii) of this Section 3.4 are violated, or (b) the
Partnership's actual or Constructive Ownership of the REIT Shares or other
shares of capital stock of the General Partner violates the limitations set
forth in the Charter, then (1) some or all of the Redemption rights of such
Partner may become non-exercisable, and (2) some or all of the REIT Shares owned
by such Partner may be automatically transferred to a trust for the benefit of a
charitable beneficiary, as provided in the Charter.
E. The representations and warranties contained
in Sections 3.4.A, 3.4.B, 3.4.C and 3.4.D hereof shall survive the execution and
delivery of this Agreement by each Partner and the dissolution and winding up of
the Partnership.
F. Each Partner hereby acknowledges that no
representations as to potential profit, cash flows, funds from operations or
yield, if any, in respect of the Partnership or the General Partner have been
made by any Partner or any employee or representative or Affiliate of any
Partner, and that projections and any other information, including, without
limitation, financial and descriptive information and documentation, which may
have been in any manner submitted to such Partner shall not constitute any
representation or warranty of any kind or nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS. At the time of
their respective execution of this Agreement, the Partners shall make Capital
Contributions as set forth in Exhibit A to this Agreement. The Partners shall
own Partnership Units of the class and in the amounts set forth in Exhibit A and
shall have a Percentage Interest in the Partnership as set forth in Exhibit A,
which Percentage Interest shall be adjusted in Exhibit A from time to time by
the General Partner to the extent necessary to accurately reflect exchanges,
redemptions, Capital Contributions, the issuance of additional Partnership Units
or similar events having an effect on a Partner's Percentage Interest. Except as
required by law or as otherwise provided in Sections 4.3, 4.4 and 10.5, no
Partner shall be required or permitted to make any additional Capital
Contributions or loans to the Partnership. Unless otherwise specified by the
General Partner at the time of the creation of any class of Partnership
Interests, the corresponding class of capital stock for any Partnership Units
issued shall be REIT Shares.
4.2 LOANS BY THIRD PARTIES. Subject to Section 4.3, the
Partnership may incur Debt, or enter into other similar credit, guarantee,
financing or refinancing arrangements for any purpose (including, without
limitation, in connection with any further acquisitions of Mortgage Assets) with
any Person that is not the General Partner upon such terms as the General
Partner determines appropriate; provided that, the Partnership shall not incur
any Debt that is recourse to the General Partner, except to the extent otherwise
agreed to by the General Partner in its sole discretion.
. 4.3 ADDITIONAL FUNDING AND CAPITAL CONTRIBUTIONS
A. General. The General Partner may, at any time and
from time to time, determine that the Partnership requires additional funds
("Additional Funds") for the acquisition of additional Mortgage Assets or for
such other Partnership purposes as the General Partner may determine. Additional
Funds may be raised by the Partnership, at the election of the General Partner,
in any manner provided in, and in accordance with, the terms of this Section
4.3. No Person shall have any preemptive, preferential or similar right or
rights to subscribe for or acquire any Partnership Interest, except as set forth
in this Section 4.3.
B. General Partner Loans. The General Partner may
enter into a Funding Debt, including, without limitation, a Funding Debt that is
convertible into REIT Shares, and lend the
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Additional Funds to the Partnership (a "General Partner Loan"); provided,
however, that the General Partner shall not be obligated to lend the net
proceeds of any Funding Debt to the Partnership in a manner that would be
inconsistent with the General Partner's ability to remain qualified as a REIT.
If the General Partner enters into such a Funding Debt, the General Partner Loan
will consist of the net proceeds from such Funding Debt and will be on
comparable terms and conditions, including interest rate, repayment schedule and
costs and expenses, as shall be applicable with respect to or incurred in
connection with such Funding Debt.
C. Issuance of Additional Partnership Interests. The
General Partner may raise all or any portion of the Additional Funds by
accepting additional Capital Contributions, including, without limitation, the
issuance of Partnership Units for interests in Mortgage Assets. In connection
with any such additional Capital Contributions (of cash or property), the
General Partner is hereby authorized to cause the Partnership from time to time
to issue to Partners (including the General Partner) or other Persons
(including, without limitation, in connection with the contribution of property
to the Partnership) additional Partnership Units or other Partnership Interests
in one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers, and duties, including rights, powers, and duties senior to then
existing Limited Partnership Interests, all as shall be determined by the
General Partner in its sole and absolute discretion subject to Delaware law, and
as set forth by amendment to this Agreement, including without limitation, (i)
the allocations of items of Partnership income, gain, loss, deduction, and
credit to such class or series of Partnership Interests; (ii) the right of each
such class or series of Partnership Interests to share in Partnership
distributions; (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; and (iv) the
right to vote, including, without limitation, the limited partner approval
rights set forth in Section 11.2.A hereof; provided that no such additional
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless either (a) the additional Partnership Interests are issued in
connection with the grant, award, or issuance of shares of the General Partner
pursuant to Section 4.3.D below, which shares have designations, preferences,
and other rights (except voting rights) such that the economic interests
attributable to such shares are substantially similar to the designations,
preferences and other rights of the additional Partnership Interests issued to
the General Partner in accordance with this Section 4.3.C, or (b) the additional
Partnership Interests are issued to all Partners holding Partnership Interests
in the same class in proportion to their respective Percentage Interests in such
class. In the event that the Partnership issues additional Partnership Interests
pursuant to this Section 4.3.C, the General Partner shall make such revisions to
this Agreement (including but not limited to the revisions described in Section
5.4, Section 6.2.B, and Section 8.6) as it determines are necessary to reflect
the issuance of such additional Partnership Interests.
D. Issuance of REIT Shares or Other Securities by the
General Partner. The General Partner shall not issue any additional REIT Shares
(other than REIT Shares issued pursuant to Section 8.6 hereof or pursuant to a
dividend or distribution (including any stock split) of REIT Shares to all of
its stockholders), other shares of capital stock of the General Partner or Other
Securities unless the General Partner shall make a Capital Contribution of the
net proceeds from the issuance of such additional REIT Shares, other shares of
capital stock or Other Securities, as the case may be, and from the exercise of
the rights contained in such additional Other Securities, as the case may be.
The General Partner's Capital Account shall be increased by the amount of cash
so contributed.
E. Percentage Interest Adjustments in the Case of
Capital Contributions for Partnership Units. Upon the acceptance of additional
Capital Contributions in exchange for Partnership Units of a particular class of
Partnership Interest, the Percentage Interest related thereto shall be equal to
a fraction, the numerator of which is equal to the amount of cash and the Agreed
Value of the property contributed in respect of such class of Partnership
Interest as of the Business Day immediately preceding the date on which the
additional Capital Contributions are made (an "Adjustment Date") and the
denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests of such class (computed as of the Business Day immediately
preceding the Adjustment Date) and (ii) the aggregate amount of additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
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respect of such class of Partnership Interests. The Percentage Interest of each
other Partner holding Partnership Interests of such class not making a full pro
rata Capital Contribution shall be adjusted to equal a fraction, the numerator
of which is equal to the sum of (i) the Deemed Partnership Interest Value of
such Limited Partner of such class (computed as of the Business Day immediately
preceding the Adjustment Date) and (ii) the amount of additional Capital
Contributions made by such Partner to the Partnership in respect of such class
of Partnership Interests as of such Adjustment Date, and the denominator of
which is equal to the sum of (i) the Deemed Value of the Partnership Interests
of such class (computed as of the Business Day immediately preceding the
Adjustment Date), plus (ii) the aggregate amount of additional Capital
Contributions contributed to the Partnership on such Adjustment Date in respect
of such class. Notwithstanding the foregoing, solely for purposes of calculating
a Partner's Percentage Interest pursuant to this Section 4.3.E, cash Capital
Contributions by the General Partner will be deemed to equal the cash
contributed by the General Partner plus, in the case of cash contributions
funded by an offering of any capital stock of the General Partner, the offering
costs attributable to the cash contributed to the Partnership. The General
Partner shall promptly give each Partner written notice of its Percentage
Interest, as adjusted.
4.4 STOCK OPTION PLAN. If at any time or from time to
time the General Partner sells or issues REIT Shares pursuant to any Stock
Option Plan, the General Partner shall contribute any proceeds therefrom to the
Partnership as an additional Capital Contribution and shall receive an amount of
additional Partnership Units equal to the number of REIT Shares so sold or
issued. The General Partner's Capital Account shall be increased by the amount
of cash so contributed.
4.5 EARN-OUT OF ORIGINAL LIMITED PARTNERS. The parties
hereto acknowledge that the Agreed Value of the HCP Preferred as set forth in
Exhibit A is not determinable with absolute certainty and was arrived at based
upon discussions between the Original Limited Partners and the underwriters for
the Company's initial public offering. To account for the possibility that the
HCP Preferred may have a value that is greater than its Agreed Value as set
forth in Exhibit A, the Original Limited Partners shall be entitled to receive
the Earn-Out Units as provided, and subject to the conditions set forth, in this
Section 4.5.
A. If the Total Return per Unit as of any Earn-Out
Measuring Date equals at least a 20% annualized return on the IPO Price through
such Earn-Out Measuring Date, the Partnership shall issue to each Original
Limited Partner his or her Pro Rata Portion of the lesser of (i) one-third of
the total number of Earn-Out Units or (ii) the number of Earn-Out Units that
have not theretofore been issued pursuant to this Section 4.5.
B. If the Total Return per Unit as of any Earn-Out
Measuring Date is equal to or greater than the IPO Price, the Partnership shall
issue to each Original Limited Partner his or her Pro Rata Portion of the number
of Earn-Out Units that have not theretofore been issued pursuant to this Section
4.5.
C. It is intended that each Earn-Out Unit that is
issued will represent a fractional, undivided share of the class of Partnership
Interest in which it is included in the capital and profits of the Partnership.
Accordingly, from and after the time that any Earn-Out Units are issued, the
General Partner shall make such special allocations pursuant to Section
6.3.A(ix) as are necessary to cause the Adjusted Capital Account Balances of the
Partners holding Partnership Units of the class that includes the Earn-Out Units
to be in the same proportions as their Percentage Interests with respect to such
class.
D. Appropriate adjustments shall be made in applying
this Section 4.5 for stock dividends and distributions, stock splits and
subdivisions, reverse stock splits and combinations, recapitalizations,
distributions of rights, warrants or options, distributions of evidences of
indebtedness or assets relating to assets not received by the General Partner
pursuant to a pro rata distribution by the Partnership and transactions having
like effect. Any Earn-Out Units that are issued shall be of the same class as
the Partnership Interests initially issued to the General Partner and the
Original Limited Partners
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hereunder. The Original Limited Partners shall have all of the rights and
obligations hereunder with respect to any Earn-Out Units that are issued to them
as they have with respect to the Partnership Units initially issued to them. The
rights of the Original Limited Partners to receive Earn-Out Units, and any such
Earn-Out Units that are issued, shall be assignable in accordance with the
provisions of Articles 11 and 12.
E. If the Partnership terminates before the last
Earn-Out Measuring Date without having issued all of the Earn-Out Units, and if
the Partnership would otherwise have been required to issue Earn-Out Units
hereunder as of any Earn-Out Measuring Date after such termination, the Company
shall issue to the Original Limited Partners, subject to the ownership
limitations set forth in the Charter, the REIT Shares Amount (determined as of
such Earn-Out Measuring Date) allocable to any Earn-Out Units that would
thereafter have been issued as of such Earn-Out Measuring Date.
4.6 OTHER CONTRIBUTION PROVISIONS. In the event that any
Partner is admitted to the Partnership and is given a Capital Account in
exchange for services rendered to the Partnership, such transaction shall be
treated by the Partnership and the affected Partner as if the Partnership had
compensated such Partner in cash, and the Partner had contributed such cash to
the capital of the Partnership.
ARTICLE 5
DISTRIBUTIONS
5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS. The
General Partner shall cause the Partnership to distribute quarterly all, or such
portion as the General Partner may in its discretion determine, of Available
Cash generated by the Partnership during such quarter to the Partners who are
Partners on the Partnership Record Date with respect to such quarter, (1) first,
with respect to any Partnership Interests that are entitled to any preference in
distribution, in accordance with the rights of such class of Partnership
Interests (and within such class, pro rata in proportion to the respective
Percentage Interests on such Partnership Record Date), and, (2) second, with
respect to Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class in accordance with the terms of such
class (and within each such class, pro rata in proportion with the respective
Percentage Interests on such Partnership Record Date). Unless otherwise
expressly provided for herein or in an agreement at the time a new class of
Partnership Interests is created in accordance with Article 4 hereof, no
Partnership Interest shall be entitled to a distribution in preference to any
other Partnership Interest. The General Partner shall take such reasonable
efforts, as determined by it in its sole and absolute discretion and consistent
with its qualification as a REIT, to cause the Partnership to distribute
sufficient amounts to enable the General Partner to pay stockholder dividends
that will (a) satisfy the requirements for qualifying as a REIT under the Code
and Regulations ("REIT Requirements"), and (b) avoid any federal income or
excise tax liability of the General Partner.
5.2 DISTRIBUTION IN KIND. No right is given to any Partner to
demand and receive property other than cash. The General Partner may determine,
in its sole and absolute discretion, to make a distribution in kind to the
Partners of Partnership assets, and such assets shall be distributed in such a
fashion as to ensure that the fair market value is distributed and allocated in
accordance with Articles 5, 6 and 10.
5.3 DISTRIBUTION UPON LIQUIDATION. Proceeds from a Terminating
Capital Transaction shall be distributed to the Partners in accordance with
Section 13.2.
5.4 DISTRIBUTION TO REFLECT ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS. In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Section 4.3.C or 4.4 hereof, the General Partner shall make such revisions to
this Article 5 as it determines are necessary to reflect the issuance of such
additional Partnership Interests.
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ARTICLE 6
ALLOCATIONS
6.1 TIMING AND AMOUNT OF ALLOCATIONS OF NET INCOME AND
NET LOSS
Net Income and Net Loss of the Partnership shall be determined
and allocated with respect to each fiscal year of the Partnership as of the end
of each such year. Subject to the other provisions of this Article 6, an
allocation to a Partner of a share of Net Income or Net Loss shall be treated as
an allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Income or Net Loss.
6.2 GENERAL ALLOCATIONS.
A. Except as otherwise provided in this
Article 6, Net Income and Net Loss shall be allocated to each of the Partners
holding the same class of Partnership Interests in accordance with their
respective Percentage Interest of such class.
B. In the event that the Partnership issues
additional Partnership Interests to the General Partner or any Additional
Limited Partner pursuant to Section 4.3 or 4.4 hereof, the General Partner shall
make such revisions to this Section 6.2 as it determines are necessary to
reflect the terms of the issuance of such additional Partnership Interests,
including making preferential allocations to certain classes of Partnership
Interests.
6.3 ADDITIONAL ALLOCATION PROVISIONS
Notwithstanding the foregoing provisions of this Article 6,
the following provisions of this Section 6.3 shall be applied for any period
before any allocations are made for such period pursuant to Section 6.2:
A. (i) Minimum Gain Chargeback. Except as
otherwise provided in Regulations Section 1.704-2(f), notwithstanding the
provisions of Section 6.2 of the Agreement, or any other provision of this
Article 6, if there is a net decrease in Partnership Minimum Gain during any
fiscal year, each Partner shall be specially allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Partner's share of the net decrease in Partnership Minimum Gain,
as determined under Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be allocated
shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and
1.704-2(j)(2). This Section 6.3.A(i) is intended to qualify as a "minimum gain
chargeback" within the meaning of Regulation Section 1.704-2(f) which shall be
controlling in the event of a conflict between such Regulation and this Section
6.3.A(i).
(ii) Partner Minimum Gain Chargeback.
Except as otherwise provided in Regulations Section 1.704-2(i)(4), and
notwithstanding the provisions of Section 6.2 of the Agreement, or any other
provision of this Article 6 (except Section 6.3.A(i)), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any fiscal year, each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts
required to be allocated to each General Partner and Limited Partner pursuant
thereto. The items to be so allocated shall be determined in accordance with
Regulations
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Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.A(ii) is intended to
qualify as a "chargeback of partner nonrecourse debt minimum gain" within the
meaning of Regulation Section 1.704-2(i) which shall be controlling in the event
of a conflict between such Regulation and this Section 6.3.A(ii).
(iii) Nonrecourse Deductions and Partner
Nonrecourse Deductions. Any Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partners in accordance with their Percentage
Interests. Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partner(s) who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable, in accordance with Regulations Sections
1.704-2(b)(4) and 1.704-2(i).
(iv) Qualified Income Offset. If any
Partner unexpectedly receives an adjustment, allocation or distribution
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which
causes such Partner to have an (or increases the amount of such Partner's)
Adjusted Capital Account Deficit, items of Partnership income and gain shall be
allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to the
Partner in an amount and manner sufficient to eliminate, to the extent required
by such Regulations, the Adjusted Capital Account Deficit of the Partner as
quickly as possible provided that an allocation pursuant to this Section
6.3.A(iv) shall be made if and only to the extent that such Partner would have
an Adjusted Capital Account Deficit after all other allocations provided in this
Article 6 have been tentatively made as if this Section 6.3.A(iv) were not in
the Agreement. It is intended that this Section 6.3.A(iv) qualify and be
construed as a "qualified income offset" within the meaning of Regulations
1.704-1(b)(2)(ii)(d), which shall be controlling in the event of a conflict
between such Regulations and this Section 6.3.A(iv).
(v) Gross Income Allocation. In the
event any Partner has a deficit Capital Account at the end of any fiscal year
which is in excess of the sum of (1) the amount (if any) such Partner is
obligated to restore to the Partnership, and (2) the amount such Partner is
deemed to be obligated to restore pursuant to Regulations Section
1.704-1(b)(2)(ii)(c) or the penultimate sentences of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated
items of Partnership income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 6.3.A(v) shall be
made if and only to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations provided in this
Article 6 have been tentatively made as if this Section 6.3.A(v) and Section
6.3.A(iv) were not in the Agreement.
(vi) Limitation on Allocation of Net
Loss. To the extent any allocation of Net Loss would cause or increase an
Adjusted Capital Account Deficit as to any Partner, such allocation of Net Loss
shall be reallocated among the other Partners in accordance with their
respective Percentage Interests, subject to the limitations of this Section
6.3.A(vi).
(vii) Section 754 Adjustment. To the
extent an adjustment to the adjusted tax basis of any Partnership asset pursuant
to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Partner in complete liquidation of
his interest in the Partnership, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Partners in accordance with
their interests in the Partnership in the event that Regulations Section 1.704-
1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such distribution was made
in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocation. The allocations
set forth in Sections 6.3.A(i), (ii), (iii), (iv), (v), (vi) and (vii) (the
"Regulatory Allocations") are intended to comply with certain regulatory
requirements, including the requirements of Regulations Sections 1.704-1(b) and
1.704-2. Notwithstanding the provisions of Sections 6.1 and 6.2, the Regulatory
Allocations shall be taken
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into account in allocating other items of income, gain, loss and deduction among
the Partners so that, to the extent possible, the net amount of such allocations
of other items and the Regulatory Allocations to each Partner shall be equal to
the net amount that would have been allocated to each such Partner if the
Regulatory Allocations had not occurred.
(ix) Earn-Out Adjustment. From and after
the time that any Earn-Out Units are issued, the General Partner shall make such
special allocations as are necessary to cause the Adjusted Capital Account
Balances of the Partners holding Partnership Units of the class that includes
the Earn-Out Units to be in the same proportions as their Percentage Interests
with respect to such class. To the extent possible consistent with applicable
federal income tax principles and the Company's continued qualification as a
REIT, any such special allocations of items of income and gain to the Original
Limited Partners shall consist first of adjustments to the Gross Asset Value of
the HCP Preferred in amounts at least equal to the portion of the Earn-Out
Adjustment allocable to the Earn-Out Units that have been issued. Any further
special allocations pursuant to this Section 6.3.A(ix) shall be made in such
manner as the General Partner reasonably and in good faith determines will give
effect to the intentions expressed in Section 4.5.C with the least adverse tax
consequence to the Partners.
B. For purposes of determining a Partner's
proportional share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Regulations Section 1.752-3(a)(3), each Partner's interest
in Partnership profits shall be such Partner's Percentage Interest.
. 6.4 TAX ALLOCATIONS
A. Except as otherwise provided in this
Section 6.4, for income tax purposes each item of income, gain, loss and
deduction (collectively, "Tax Items") shall be allocated among the Partners in
the same manner as its correlative item of "book" income, gain, loss or
deduction is allocated pursuant to Sections 6.2 and 6.3.
B. Notwithstanding Section 6.4.A, Tax Items
with respect to Partnership property that is contributed to the Partnership by a
Partner shall be shared among the Partners for income tax purposes pursuant to
Regulations promulgated under Section 704(c) of the Code, so as to take into
account the variation, if any, between the basis of the property to the
Partnership and its initial Gross Asset Value. With respect to Partnership
property that is initially contributed to the Partnership upon its formation
pursuant to Section 4.1, such variation between basis and initial Gross Asset
Value shall be taken into account under the "traditional method" as described in
Regulations Section 1.704-3(b). With respect to properties subsequently
contributed to the Partnership, the Partnership shall account for such variation
under any method approved under Section 704(c) of the Code and the applicable
regulations as chosen by the General Partner. In the event the Gross Asset Value
of any Partnership asset is adjusted pursuant to subparagraph (b) of the
definition of Gross Asset Value (provided in Article 1 of this Agreement),
subsequent allocations of Tax Items with respect to such asset shall take
account of the variation, if any, between the adjusted basis of such asset and
its Gross Asset Value in the same manner as under Section 704(c) of the Code and
the applicable regulations consistent with the requirements of Regulations
Section 1.704-1(b)(2)(iv)(g) using any method approved under 704(c) of the Code
and the applicable regulations as chosen by the General Partner; provided,
however, that allocations of Tax Items corresponding to adjustments in the Gross
Asset Value of the HCP Preferred that are specially allocated pursuant to
Section 6.3.A(ix) shall be taken into account under the "traditional method" as
described in Regulations Section 1.704-3(b).
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ARTICLE 7
MANAGEMENT AND OPERATION OF BUSINESS
7.1 MANAGEMENT
A. Except as otherwise expressly provided in
this Agreement, all management powers over the business and affairs of the
Partnership are exclusively vested in the General Partner, and no Limited
Partner shall have any right to participate in or exercise control or management
power over the business and affairs of the Partnership. The General Partner may
not be removed by the Limited Partners with or without cause, except with the
consent of the General Partner. In addition to the powers now or hereafter
granted a general partner of a limited partnership under the Act and other
applicable law or which are granted to the General Partner under any other
provision of this Agreement, the General Partner, subject to the other
provisions hereof including Section 7.3, shall have full power and authority to
do all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(1) the making of any expenditures, the
lending or borrowing of money
(including, without limitation, making
prepayments on loans, borrowing money to
fund operations through reverse
repurchase agreements and other forms of
financings, and borrowing money to
permit the Partnership to make
distributions to its Partners in such
amounts as will permit the General
Partner (so long as the General Partner
has determined to qualify as a REIT) to
avoid the payment of any federal income
tax (including, for this purpose, any
excise tax pursuant to Section 4981 of
the Code) and to make distributions to
its stockholders sufficient to permit
the General Partner to maintain REIT
status), the assumption or guarantee of,
or other contracting for, indebtedness
and other liabilities, the issuance of
evidences of indebtedness (including the
securing of same by pledge or other lien
or encumbrance on all or any of the
Partnership's assets) and the incurring
of any obligations it deems necessary
for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other
filings, or rendering of periodic or
other reports to governmental or other
agencies having jurisdiction over the
business or assets of the Partnership;
(3) the purchase, origination, holding,
financing, sale or securitization
(including, without limitation, by
issuing or causing the issuance of CMOs
and REMICs) of any Mortgage Assets or
other assets of the Partnership, or the
merger or other combination of the
Partnership with or into another entity;
(4) the pledge, hypothecation or other
encumbrance of all or any assets of the
Partnership for any purpose consistent
with the terms of this Agreement and on
any terms it sees fit, including,
without limitation, the financing of the
conduct or the operations of the General
Partner or the Partnership, the lending
of funds to other Persons (including,
without limitation, the General Partner
(if necessary to permit the financing or
capitalization of a subsidiary of the
General Partner or the Partnership) and
any Subsidiaries of the Partnership) and
the repayment of obligations of the
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Partnership, any of its Subsidiaries and
any other Person in which it has an
equity investment;
(5) the negotiation, execution, and
performance of any contracts,
conveyances or other documents,
instruments, agreements or other
writings that the General Partner
considers useful or necessary to the
conduct of the Partnership's operations
or the implementation of the General
Partner's powers under this Agreement;
(6) the distribution of Partnership cash or
other Partnership assets in accordance
with this Agreement;
(7) the selection and dismissal of employees
of the Partnership (including, without
limitation, employees having titles such
as "president," "vice president,"
"secretary" and "treasurer"), and
agents, outside attorneys, accountants,
consultants and contractors of the
Partnership, the determination of their
compensation and other terms of
employment or hiring, including waivers
of conflicts of interest and the payment
of their expenses and compensation out
of the Partnership's assets;
(8) the maintenance of such insurance for
the benefit of the Partnership and the
Partners as it deems necessary or
appropriate;
(9) the formation of, or acquisition of an
interest in, and the contribution of
property to, any further limited or
general partnerships, joint ventures or
other relationships that it deems
desirable (including, without
limitation, the acquisition of interests
in, and the contributions of property to
HCP, any Subsidiary of HCP or the
Partnership, and any other Person in
which it has an equity investment from
time to time); provided that, as long as
the General Partner has determined to
continue to qualify as a REIT, the
Partnership may not engage in any such
formation, acquisition or contribution
that would cause the General Partner to
fail to qualify as a REIT;
(10) the control of any matters affecting the
rights and obligations of the
Partnership, including the conduct of
litigation and the incurring of legal
expense and the settlement of claims and
litigation, and the indemnification of
any Person against liabilities and
contingencies to the extent permitted by
law;
(11) the undertaking of any action in
connection with the Partnership's direct
or indirect investment in any Person
(including, without limitation,
contributing or loaning Partnership
funds to, incurring indebtedness on
behalf of, or guarantying the
obligations of any such Persons);
(12) subject to the other provisions in this
Agreement, the determination of the fair
market value of any Partnership property
distributed in kind using such
reasonable method of valuation as it may
adopt, provided that such methods are
otherwise consistent with requirements
of this Agreement;
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(13) the engagement in hedging activities to
the extent consistent with the Company's
continued qualification as a REIT,
including, without limitation, mandatory
and optional forward selling of Mortgage
Loans and Mortgage-Backed Securities,
interest rate caps and floors and the
buying and selling of futures and
options on futures;
(14) holding, managing, investing and
reinvesting cash and other assets of the
Partnership;
(15) the collection and receipt of revenues
and income of the Partnership;
(16) the exercise, directly or indirectly
through any attorney-in-fact acting
under a general or limited power of
attorney, of any right, including the
right to vote, appurtenant to any asset
or investment held by the Partnership;
(17) the exercise of any of the powers of the
General Partner enumerated in this
Agreement on behalf of or in connection
with any Subsidiary of the Partnership
or any other Person in which the
Partnership has a direct or indirect
interest, or jointly with any such
Subsidiary or other Person;
(18) the exercise of any of the powers of the
General Partner enumerated in this
Agreement on behalf of any Person in
which the Partnership does not have an
interest, pursuant to contractual or
other arrangements with such Person;
(19) the deposit, investment and reinvestment
of Company cash in such accounts and
funds as the General Partner shall
determine to be appropriate pending the
distribution of such cash or the use of
such cash for Company purposes; and
(20) the making, execution and delivery of
any and all purchase and sale
agreements, loan or other financing
agreements (including, without
limitation, reverse repurchase
agreements), deeds and leases
(including, without limitation, to
property acquired upon or in lieu of the
foreclosure of Mortgage Assets), notes,
employment and consulting agreements,
management agreements, security
agreements, conveyances, contracts
(including, without limitation, hedging
contracts), guarantees, warranties,
indemnities, waivers, releases, legal
instruments, certificates or other
writings necessary or appropriate in the
judgment of the General Partner for the
accomplishment of any of the powers of
the General Partner enumerated in this
Agreement, including, without
limitation, in connection with the
purchase, origination, holding,
financing, hedging, sale or
securitization (including, without
limitation, by issuing or causing the
issuance of CMOs and REMICs) of any
Mortgage Assets or other assets of the
Partnership.
B. Each of the Limited Partners agrees that the
General Partner is authorized to execute, deliver and perform the
above-mentioned agreements and transactions on behalf of the Partnership without
any further act, approval or vote of the partners, notwithstanding any other
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provisions of this Agreement (except as provided in Section 7.3), the Act or any
applicable law, rule or regulation. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. At all times from and after the date hereof,
the General Partner may cause the Partnership to obtain and maintain liability
insurance for the Indemnities hereunder.
D. At all times from and after the date hereof,
the General Partner may cause the Partnership to establish and maintain working
capital and other reserves in such amounts as the General Partner, in it sole
and absolute discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this
Agreement, the General Partner may, but shall be under no obligation to, take
into account the tax consequences to any Partner (including the General Partner)
of any action taken by the General Partner. The General Partner and the
Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner pursuant
to its authority under this Agreement.
F. Except as otherwise provided herein, to the
extent the duties of the General Partner require expenditures of funds to be
paid to third parties, the General Partner shall not have any obligations
hereunder except to the extent that Partnership funds are reasonably available
to it for the performance of such duties, and nothing herein contained shall be
deemed to authorize or require the General Partner, in its capacity as such, to
expend its individual funds for payment to third parties or to undertake any
individual liability or obligation on behalf of the Partnership.
7.2 CERTIFICATE OF LIMITED PARTNERSHIP. To the extent
that such action is determined by the General Partner to be reasonable and
necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate and do all the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware and to
maintain the Partnership's qualification to do business as a foreign limited
partnership in each other state, the District of Columbia or other jurisdiction,
in which the Partnership may elect to do business or own property. Subject to
the terms of Section 8.5.A(4) hereof, the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate or any
amendment thereto to any Limited Partner. The General Partner shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware, and any
other state, or the District of Columbia or other jurisdiction, in which the
Partnership may elect to do business or own property.
7.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY
A. The General Partner may not take any action
in contravention of this Agreement, including, without limitation:
(1) take any action that would make it
impossible to carry on the ordinary
business of the Partnership, except as
otherwise provided in this Agreement;
(2) possess Partnership property, or assign
any rights in specific Partnership
property, for other than a Partnership
purpose except as otherwise provided in
this Agreement;
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(3) admit a Person as a Partner, except as
otherwise provided in this Agreement;
(4) perform any act that would subject a
Limited Partner to liability as a
general partner in any jurisdiction or
any other liability except as provided
herein or under the Act; or
(5) enter into any contract, mortgage, loan
or other agreement or transaction that
prohibits or restricts, or has the
effect of prohibiting or restricting,
the ability of a Limited Partner to
exercise its rights to a Redemption in
full, except with the written consent of
such Limited Partner.
B. The General Partner shall not, without the
prior Consent of the Partners, undertake, on behalf of the Partnership, any of
the following actions or enter into any transaction which would have the effect
of such transactions:
(1) make a general assignment for the
benefit of creditors or appoint or
acquiesce in the appointment of a
custodian, receiver or trustee for all
or any part of the assets of the
Partnership;
(2) institute any proceeding for bankruptcy
on behalf of the Partnership; or
(3) confess a judgment against the
Partnership.
C. If the aggregate Limited Partnership
Interests of all Limited Partners (other than the Company) represents 2% or more
of the aggregate Partnership Interests, the General Partner shall not, without
the prior Consent of the Limited Partners, undertake, on behalf of the
Partnership, any action or enter into any transaction (other than a merger or
consolidation of the Partnership with or into any other Person or the sale of
all or substantially all of the assets and properties which would have the
effect of dissolving the Partnership.
D. Notwithstanding Sections 7.3.B and 7.3.C
hereof, but subject to Section 7.3.E hereof, the General Partner shall have the
power, without the Consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General
Partner or surrender any right or power
granted to the General Partner or any
Affiliate of the General Partner for the
benefit of the Limited Partners;
(2) to reflect the issuance of additional
Partnership Interests pursuant to
Sections 4.3.C and 4.4 or the admission,
substitution, termination, or withdrawal
of Partners in accordance with this
Agreement;
(3) to reflect a change that is of an
inconsequential nature and does not
adversely affect the Limited Partners in
any material respect, or to cure any
ambiguity in, correct or supplement any
provision in, or make other changes with
respect to matters arising under, this
Agreement that will not be inconsistent
with law or with the provisions of this
Agreement;
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(4) to satisfy any requirements, conditions,
or guidelines contained in any order,
directive, opinion, ruling or regulation
of a federal or state agency or
contained in federal or state law;
(5) to reflect such changes as are
reasonably necessary for the General
Partner to maintain its status as a
REIT, including changes which may be
necessitated due to a change in
applicable law (or an authoritative
interpretation thereof) or a ruling of
the IRS; and
(6) to modify, as set forth in the
definition of "Capital Account," the
manner in which Capital Accounts are
computed.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.D is taken.
E. Without the Consent of the Limited Partners,
(i) except as provided in Section 7.3.D, this Agreement shall not be amended,
modified or terminated other than to reflect the admission, substitution,
termination or withdrawal of partners pursuant to Article 12 hereof, (ii) the
General Partner shall not approve or acquiesce to the transfer of the
Partnership Interest of the General Partner to any Person other than the
Partnership or admit into the Partnership any Additional or Substitute General
Partners, (iii) notwithstanding Sections 7.3.B, 7.3.C and 7.3.D hereof, Section
11.2 of this Agreement shall not be amended, and no action in contravention of
Section 11.2 hereof shall be taken, and (iv) the General Partner shall not make
any election or other filing with any taxing or governmental authority
(including but not limited to an election or filing pursuant to Treasury
Regulations Section 301.7701-3) that would cause the Partnership to be
classified as an association taxable as a corporation for federal income tax
purposes. In addition, notwithstanding Sections 7.3.B, 7.3.C and 7.3.D hereof,
this Agreement shall not be amended, and no action may be taken by the General
Partner, without the Consent of each Partner adversely affected if such
amendment or action would (a) convert a Limited Partner's interest in the
Partnership into a general partner's interest (except as the result of the
General Partner acquiring such interest), (b) modify the limited liability of a
Limited Partner, (c) alter rights of the Partner to receive distributions
pursuant to Article 5 or Section 13.2.A(4), or the allocations specified in
Article 6 (except as permitted pursuant to Section 4.3 and Section 7.3.D(2)
hereof), (d) alter or modify the rights to a Redemption or the REIT Shares
Amount as set forth in Section 8.6, and related definitions hereof or (e) amend
this Section 7.3.E. Further, no amendment may alter the restrictions on the
General Partner's authority set forth elsewhere in this Section 7.3 without the
Consent specified in such section.
7.4 REIMBURSEMENT OF THE GENERAL PARTNER
A. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles 5 and 6
regarding distributions, payments and allocations to which it may be entitled),
the General Partner shall not be compensated for its services as general partner
of the Partnership.
B. Subject to Section 15.11, the General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership of interests in and operation of,
or for the benefit of, the Partnership. The Limited Partners acknowledge that
the General Partner's sole business is the ownership of interests in and
operation of the Partnership and that such expenses are incurred for the benefit
of the Partnership; provided that, the General Partner shall not be reimbursed
for expenses it incurs relating to the organization of the Partnership and the
General Partner or the initial public offering or subsequent public offerings of
REIT shares, other shares of capital stock or Funding Debt by the General
Partner, but shall be reimbursed for expenses it incurs with respect to any
other issuance of additional Partnership Interests pursuant to the provisions
hereof. Such reimbursements shall be in addition to any reimbursement to the
General Partner as a result of indemnification pursuant to Section 7.7 hereof.
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C. If and to the extent any reimbursements to the
General Partner pursuant to this Section 7.4 constitute gross income of the
General Partner (as opposed to the repayment of advances made by the General
Partner on behalf of the Partnership), such amounts shall constitute guaranteed
payments within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners, and shall not be
treated as distributions for purposes of computing the Partners' Capital
Accounts.
7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER
A. Except in connection with a transaction authorized
in Section 11.2 hereof, without the Consent of the Limited Partners, the General
Partner shall not, directly or indirectly, enter into or conduct any business,
other than in connection with the ownership, acquisition and disposition of
Partnership Interests as a General Partner and the management of the business
and affairs of the Partnership, its operation as a public reporting company with
a class (or classes) of securities registered under the Securities Exchange Act,
its operation as a REIT and such activities as are incidental to the same.
Without the Consent of the Limited Partners, the General Partner shall not,
directly or indirectly, (i) participate in any activity other than those of the
Partnership, HCP and their Subsidiaries or (ii) acquire any interest in any real
or personal property other than its interests in the Partnership, HCP and their
Subsidiaries (and the properties of such entities) and its interests in such
bank accounts, similar instruments or other short-term investments as it deems
necessary to carry out its responsibilities contemplated under this Agreement
and the Charter. Any Limited Partner Interests acquired by the General Partner,
whether pursuant to exercise by a Limited Partner of its right of Redemption, or
otherwise, shall be automatically converted into a General Partner Interest
comprised of an identical number of Partnership Units of the same class. If, at
any time, the General Partner acquires material assets (other than on behalf of
the Partnership) the definition of "REIT Shares Amount" shall be adjusted, as
reasonably agreed to by the General Partner and the other Limited Partners, to
reflect the relative Fair Market Value of a share of capital stock of the
General Partner relative to the Deemed Partnership Interest Value of the related
Partnership Unit. The General Partner's interests in the Partnership, HCP and
their Subsidiaries (and the properties of such entities) and its interests in
such bank accounts, similar instruments or short-term investments as the General
Partner deems necessary to carry out its responsibilities contemplated under
this Agreement and the Charter are interests which the General Partner is
permitted to acquire and hold for purposes of this Section 7.5.A.
B. In the event the General Partner exercises its
rights under the Charter to purchase REIT Shares, then the General Partner shall
cause the Partnership to purchase from it a number of Partnership Units of the
appropriate class as determined based on the REIT Shares Amount equal to the
number of REIT Shares so purchased on the same terms that the General Partner
purchased such REIT Shares.
7.6 CONTRACTS WITH AFFILIATES
A. The Partnership may lend, contribute to and
otherwise engage in transactions with Persons in which it has an equity
investment, and such Persons may borrow funds from the Partnership, on terms and
conditions established in the sole and absolute discretion of the General
Partner. The foregoing authority shall not create any right or benefit in favor
of any Person.
B. Except as provided in Section 7.5.A, the
Partnership may transfer assets to, acquire assets from and contract for the
provision of services with joint ventures, other partnerships, corporations or
other business entities in which it owns or thereby acquires an interest upon
such terms and subject to such conditions consistent with this Agreement and
applicable law.
C. The General Partner, in its sole and absolute
discretion and without the approval of the Limited Partners, may propose and
adopt on behalf of the Partnership employee benefit
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plans funded by the Partnership for the benefit of employees of the General
Partner, the Partnership, HCP and any of their respective Subsidiaries and
Affiliates in respect of services performed, directly or indirectly, for the
benefit of the Partnership, the General Partner or any of such Subsidiaries and
Affiliates. The General Partner also is expressly authorized to cause the
Partnership to issue to it Partnership Units corresponding to REIT Shares issued
by the General Partner pursuant to its Stock Option Plan or any similar or
successor plan and to repurchase such Partnership Units from the General Partner
to the extent necessary to permit the General Partner to repurchase such REIT
Shares in accordance with such plan.
7.7 INDEMNIFICATION
A. The Partnership shall indemnify an Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7.A. The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
any entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership.
B. Reasonable expenses incurred by an Indemnitee who
is a party to a proceeding may be paid or reimbursed by the Partnership in
advance of the final disposition of the proceeding upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership as authorized in Subparagraph A of this Section 7.7 has been
met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay
the amount if it shall ultimately be determined that the standard of conduct has
not been met.
C. The indemnification provided by this Section 7.7
shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity.
D. The Partnership may purchase and maintain
insurance, on behalf of the Indemnitees and such other Persons as the General
Partner shall determine, against any liability that may be asserted against or
expenses that may be incurred by any such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.7, the Partnership
shall be deemed to have requested an Indemnitee to serve as fiduciary of an
employee benefit plan whenever the performance
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by it of its duties to the Partnership also imposes duties on, or otherwise
involves services by, it to the plan or participants or beneficiaries of the
plan; excise taxes assessed on an Indemnitee with respect to an employee benefit
plan pursuant to applicable law shall constitute fines within the meaning of
Section 7.7; and actions taken or omitted by the Indemnitee with respect to an
employee benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Partnership.
F. In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification provisions set
forth in this Agreement.
G. An Indemnitee shall not be denied indemnification
in whole or in part under this Section 7.7 because the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons. Any amendment, modification or repeal of this Section 7.7 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the Partnership's liability to any Indemnitee under this Section
7.7 as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
I. If and to the extent any reimbursements to the
General Partner pursuant to this Section 7.7 constitute gross income of the
General Partner (as opposed to the repayment of advances made by the General
Partner on behalf of the Partnership) such amounts shall constitute guaranteed
payments within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners, and shall not be
treated as distributions for purposes of computing the Partners' Capital
Accounts.
J. Any indemnification hereunder is subject to, and
limited by, the provisions of Section 17-108 of the Act.
K. In the event the Partnership is made a party to
any litigation or otherwise incurs any loss or expense as a result of or in
connection with any Partner's personal obligations or liabilities unrelated to
Partnership business, such Partner shall indemnify and reimburse the Partnership
for all such loss and expense incurred, including legal fees, and the
Partnership Interest of such Partner may be charged therefor. The liability of a
Partner under this Section 7.7.K shall not be limited to such Partner's
Partnership Interest, but shall be enforceable against such Partner personally.
7.8 LIABILITY OF THE GENERAL PARTNER
A. Notwithstanding anything to the contrary set forth
in this Agreement, none of the General Partner and any of its officers,
directors, agents and employees shall be liable or accountable in damages or
otherwise to the Partnership, any Partners or any Assignees, or their successors
or assigns, for losses sustained, liabilities incurred or benefits not derived
as a result of errors in judgment or mistakes of fact or law or any act or
omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that
the General Partner is acting for the benefit of the Partnership, the Limited
Partners and the General Partner's stockholders collectively, that the General
Partner is under no obligation to give priority to the separate interests of the
Limited Partners or the General Partner's stockholders (including, without
limitation, the tax consequences to Limited Partners or Assignees or to
stockholders) in deciding whether to cause the Partnership to take
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(or decline to take) any actions and that the General Partner shall not be
liable to the Partnership or to any Limited Partner for monetary damages for
losses sustained, liabilities incurred, or benefits not derived by Limited
Partners in connection with such decisions, provided that the General Partner
has acted in good faith.
C. Subject to its obligations and duties as General
Partner set forth in Section 7.1.A hereof, the General Partner may exercise any
of the powers granted to it by this Agreement and perform any of the duties
imposed upon it hereunder either directly or by or through its agents. The
General Partner shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective only and shall not in
any way affect the limitations on the liability of the General Partner and any
of its officers, directors, agents and employees to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture, or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties.
B. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisers selected by it, and any act taken or omitted to
be taken in reliance upon the opinion of such Persons as to matters which such
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
C. The General Partner shall have the right, in
respect of any of its powers or obligations hereunder, to act through any of its
duly authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the General Partner
hereunder.
D. Notwithstanding any other provisions of this
Agreement or any non-mandatory provision of the Act, any action of the General
Partner on behalf of the Partnership or any decision of the General Partner to
refrain from acting on behalf of the Partnership, undertaken in the good faith
belief that such action or omission is necessary or advisable in order (i) to
protect the ability of the General Partner to continue to qualify as a REIT or
(ii) to avoid the General Partner incurring any taxes under Section 857 or
Section 4981 of the Code, is expressly authorized under this Agreement and is
deemed approved by all of the Limited Partners.
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7.10 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partners,
individually or collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Title to any or all of the
Partnership assets may be held in the name of the Partnership, the General
Partner or one or more nominees, as the General Partner may determine, including
Affiliates of the General Partner. The General Partner hereby declares and
warrants that any Partnership assets for which legal title is held in the name
of the General Partner or any nominee or Affiliate of the General Partner shall
be deemed held by the General Partner or such nominee or Affiliate for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
7.11 RELIANCE BY THIRD PARTIES. Notwithstanding anything to
the contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies which may
be available against such Person to contest, negate or disaffirm any action of
the General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (ii) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership and (iii) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
8.1 LIMITATION OF LIABILITY. The Limited Partners shall have
no liability under this Agreement except as expressly provided in this Agreement
or under the Act.
8.2 MANAGEMENT OF BUSINESS. No Limited Partner or Assignee
(other than the General Partner, any of its Affiliates or any officer, director,
employee, general partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such), in its
capacity as such, shall take part in the operations, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
general partner, agent or trustee of the General Partner, the Partnership or any
of their Subsidiaries and Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.
8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS. Subject to any
agreements entered into by a Limited Partner or its Affiliates with the General
Partner, the Partnership, HCP or a Subsidiary, any Limited Partner and any
officer, director, employee, agent, trustee, Affiliate or stockholder of any
Limited Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities in direct competition
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with the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person, other than the
Limited Partners benefiting from the business conducted by the General Partner,
and such other Person shall have no obligation pursuant to this Agreement to
offer any interest in any such business ventures to the Partnership, any Limited
Partner or any such other Person, even if such opportunity is of a character
which, if presented to the Partnership, any Limited Partner or such other
Person, could be taken by such other Person.
8.4 RETURN OF CAPITAL. Except pursuant to the rights of
Redemption set forth in Section 8.6, no Limited Partner shall be entitled to the
withdrawal or return of his or her Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. No Limited Partner or Assignee shall have
priority over any other Limited Partner or Assignee either as to the return of
Capital Contributions, or as otherwise expressly provided in this Agreement, as
to profits, losses, distributions or credits.
8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE
PARTNERSHIP
A. In addition to other rights provided by this
Agreement or by the Act, and except as limited by Section 8.5.C hereof, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at the Partnership's
expense:
(1) to obtain a copy of the most recent
annual and quarterly reports filed with
the Securities and Exchange Commission
by the General Partner pursuant to the
Securities Exchange Act, and each
communication sent to the stockholders
of the General Partner;
(2) to obtain a copy of the Partnership's
federal, state and local income tax
returns for each Partnership Year;
(3) to obtain a current list of the name and
last known business, residence or
mailing address of each Partner;
(4) to obtain a copy of this Agreement and
the Certificate and all amendments
thereto, together with executed copies
of all powers of attorney pursuant to
which this Agreement, the Certificate
and all amendments thereto have been
executed; and
(5) to obtain true and full information
regarding the amount of cash and a
description and statement of any other
property or services contributed by each
Partner and which each Partner has
agreed to contribute in the future, and
the date on which each became a Partner.
B. The Partnership shall notify each Limited
Partner in writing of any adjustment made in the calculation of the REIT Shares
Amount within 10 Business Days of the date such change becomes effective.
C. Notwithstanding any other provision of this
Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner
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in good faith believes is not in the best interests of the Partnership or (ii)
the Partnership or the General Partner is required by law or by agreements with
unaffiliated third parties to keep confidential.
8.6 REDEMPTION RIGHTS
A. On or after the date one year after the Effective
Date, each Limited Partner shall have the right (subject to the terms and
conditions set forth herein) to require the Partnership to redeem all or a
portion of the Partnership Units held by such Limited Partner (such Partnership
Units being hereafter referred to as "Tendered Units") in exchange for the Cash
Amount (a "Redemption"), provided that the terms of such Partnership Units do
not provide that such Partnership Units are not entitled to a right of
Redemption. Unless otherwise expressly provided in this Agreement or a separate
agreement entered into between the Partnership and the holders of such
Partnership Units, all Partnership Units shall be entitled to a right of
Redemption hereunder. Any Redemption shall be exercised pursuant to a Notice of
Redemption delivered to the General Partner by the Limited Partner who is
exercising the right (the "Tendering Partner"). The Cash Amount shall be
delivered as a certified check payable to the Tendering Partner within 10 days
of the Specified Redemption Date in accordance with the instructions set forth
in the Notice of Redemption.
B. Notwithstanding Section 8.6.A above, if a Limited
Partner has delivered to the General Partner a Notice of Redemption then the
General Partner may, in its sole and absolute discretion (subject to the
limitations on ownership and transfer of REIT Shares set forth in Article Ninth
of the Charter), elect to acquire some or all of the Tendered Units from the
Tendering Partner in exchange for the REIT Shares Amount (as of the Specified
Redemption Date) and, if the General Partner so elects, the Tendering Partner
shall sell the Tendered Units to the General Partner in exchange for the REIT
Shares Amount. In such event, the Tendering Partner shall have no right to cause
the Partnership to redeem such Tendered Units. The General Partner shall
promptly give such Tendering Partner written notice of its election, and the
Tendering Partner may elect to withdraw its redemption request at any time prior
to the acceptance of the Cash Amount or REIT Shares Amount by such Tendering
Partner.
C. The REIT Shares Amount, if applicable, shall be
delivered as duly authorized, validly issued, fully paid and nonassessable REIT
Shares and, if applicable, free of any pledge, lien, encumbrance or restriction,
other than those provided in the Charter, the Bylaws of the General Partner, the
Securities Act, relevant state securities or blue sky laws and any applicable
registration rights agreement with respect to such REIT Shares entered into by
the Tendering Partner. The REIT Shares Amount shall be registered in the name
and otherwise delivered as set forth in the Notice of Redemption.
Notwithstanding any delay in such delivery (but subject to Section 8.6.E), the
Tendering Partner shall be deemed the owner of such REIT Shares for all
purposes, including without limitation, rights to vote or consent, and receive
dividends, as of the Specified Redemption Date.
D. Each Limited Partner covenants and agrees with the
General Partner that all Tendered Units shall be delivered to the General
Partner free and clear of all liens, claims and encumbrances whatsoever and
should any such liens, claims and/or encumbrances exist or arise with respect to
such Tendered Units, the General Partner shall be under no obligation to acquire
the same. Each Limited Partner further agrees that, in the event any state or
local property transfer tax is payable as a result of the transfer of its
Tendered Units to the General Partner (or its designee), such Limited Partner
shall assume and pay such transfer tax.
E. Notwithstanding the provisions of Section 8.6.A,
8.6.B, 8.6.C or any other provision of this Agreement, a Limited Partner (i)
shall not be entitled to effect a Redemption for cash or an exchange for REIT
Shares to the extent the ownership or right to acquire REIT Shares pursuant to
such exchange by such Partner on the Specified Redemption Date would cause such
Partner or any other Person, or, in the opinion of counsel selected by the
General Partner, may cause such Partner or any other Person, to violate the
restrictions on ownership and transfer of REIT Shares set forth in Article Ninth
of the Charter and (ii) shall have no rights under this Agreement to acquire
REIT Shares which would otherwise
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be prohibited under the Charter. To the extent any attempted Redemption or
exchange for REIT Shares would be in violation of this Section 8.6.E, the
General Partner shall cause such REIT Shares to be issued to a charitable trust
as provided in Article Ninth of the Charter or, if such issuance to a charitable
trust would not prevent a violation of this Section 8.6.E, such Redemption or
exchange shall be null and void ab initio and such Limited Partner shall not
acquire any rights or economic interest in the cash otherwise payable upon such
redemption or the REIT Shares otherwise issuable upon such exchange.
F. Notwithstanding anything herein to the
contrary (but subject to Section 8.6.E), with respect to any Redemption or
exchange for REIT Shares pursuant to this Section 8.6:
(1) All Partnership Units acquired by the
General Partner pursuant thereto shall
automatically, and without further
action required, be converted into and
deemed to be General Partner Interests
comprised of the same number and class
of Partnership Units.
(2) Without the consent of the General
Partner, no Limited Partner may effect a
Redemption for less than 500 Partnership
Units or, if the Limited Partner holds
less than 500 Partnership Units, all of
the Partnership Units held by such
Limited Partner.
(3) Without the consent of the General
Partner, each Limited Partner may not
effect a Redemption during the period
after the Partnership Record Date with
respect to a distribution and before the
record date established by the General
Partner for a distribution to its
stockholders of some or all of its
portion of such distribution.
(4) Each Tendering Partner shall continue to
own all Partnership Units subject to any
Redemption or exchange for REIT Shares,
and be treated as a Limited Partner with
respect to such Partnership Units for
all purposes of this Agreement, until
such Partnership Units are transferred
to the General Partner and paid for or
exchanged on the Specified Redemption
Date. Until a Specified Redemption Date,
the Tendering Partner shall have no
rights as a stockholder of the General
Partner with respect to such Tendering
Partner's Partnership Units.
G. In the event that the Partnership issues
additional Partnership Interests to any Additional Limited Partner pursuant to
Section 4.3.C hereof, the General Partner shall make such revisions to this
Section 8.6 as it determines are necessary to reflect the issuance of such
additional Partnership Interests.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
9.1 RECORDS AND ACCOUNTING. The General Partner shall keep or
cause to be kept at the principal office of the Partnership appropriate books
and records with respect to the Partnership's business, including without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micrographics or any other information
storage device, provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles.
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9.2 FISCAL YEAR. The fiscal year of the Partnership shall
be the calendar year.
9.3 REPORTS
A. As soon as practicable, but in no event later than
105 days after the close of each Partnership Year, or such earlier date as they
are filed with the Securities and Exchange Commission if applicable, the General
Partner shall cause to be mailed to each Limited Partner as of the close of the
Partnership Year an annual report containing financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, for such Partnership Year,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than
45 days after the close of each calendar quarter (except the last calendar
quarter of each year), or such earlier date as they are filed with the
Securities and Exchange Commission, the General Partner shall cause to be mailed
to each Limited Partner as of the last day of the calendar quarter, a report
containing unaudited financial statements of the Partnership, or of the General
Partner, if such statements are prepared solely on a consolidated basis with the
General Partner, presented in accordance with the applicable law or regulation,
or as the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
10.1 PREPARATION OF TAX RETURNS. The General Partner shall
arrange for the preparation and timely filing of all returns of Partnership
income, gains, deductions, losses and other items required of the Partnership
for federal and state income tax purposes and shall use all reasonable efforts
to furnish, within 90 days of the close of each taxable year, the tax
information reasonably required by Limited Partners for federal and state income
tax reporting purposes.
10.2 TAX ELECTIONS. Except as otherwise provided herein,
the General Partner shall, in its sole and absolute discretion, determine
whether to make any available election pursuant to the Code, including the
election under Section 754 of the Code. The General Partner shall have the right
to seek to revoke any such election (including without limitation, any election
under Section 754 of the Code) upon the General Partner's determination in its
sole and absolute discretion that such revocation is in the best interests of
the Partners.
10.3 TAX MATTERS PARTNER
A. The General Partner shall be the "tax
matters partner" of the Partnership for federal income tax purposes. Pursuant to
Section 6223(c) of the Code, upon receipt of notice from the IRS of the
beginning of an administrative proceeding with respect to the Partnership, the
tax matters partner shall furnish the IRS with the name, address and profit
interest of each of the Limited Partners and Assignees; provided, however, that
such information is provided to the Partnership by the Limited Partners and
Assignees.
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B. The tax matters partner is authorized, but
not required:
(1) to enter into any settlement with the
IRS with respect to any administrative
or judicial proceedings for the
adjustment of Partnership items required
to be taken into account by a Partner
for income tax purposes (such
administrative proceedings being
referred to as a "tax audit" and such
judicial proceedings being referred to
as "judicial review"), and in the
settlement agreement the tax matters
partner may expressly state that such
agreement shall bind all Partners,
except that such settlement agreement
shall not bind any Partner (i) who
(within the time prescribed pursuant to
the Code and Regulations) files a
statement with the IRS providing that
the tax matters partner shall not have
the authority to enter into a settlement
agreement on behalf of such Partner or
(ii) who is a "notice partner" (as
defined in Section 6231 of the Code) or
a member of a "notice group" (as defined
in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final
administrative adjustment at the
Partnership level of any item required
to be taken into account by a Partner
for tax purposes (a "final adjustment")
is mailed to the tax matters partner, to
seek judicial review of such final
adjustment, including the filing of a
petition for readjustment with the Tax
Court or the United States Claims Court,
or the filing of a complaint for refund
with the District Court of the United
States for the district in which the
Partnership's principal place of
business is located;
(3) to intervene in any action brought by
any other Partner for judicial review of
a final adjustment;
(4) to file a request for an administrative
adjustment with the IRS at any time and,
if any part of such request is not
allowed by the IRS, to file an
appropriate pleading (petition or
complaint) for judicial review with
respect to such request;
(5) to enter into an agreement with the IRS
to extend the period for assessing any
tax which is attributable to any item
required to be taken into account by a
Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of
the Partners of the Partnership in
connection with any tax audit or
judicial review proceeding to the extent
permitted by applicable law or
regulations. The taking of any action
and the incurring of any expense by the
tax matters partner in connection with
any such proceeding, except to the
extent required by law, is a matter in
the sole and absolute discretion of the
tax matters partner and the provisions
relating to indemnification of the
General Partner set forth in Section 7.7
of this Agreement shall be fully
applicable to the tax matters partner in
its capacity as such.
C. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such
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(including legal and accounting fees) shall be borne by the Partnership. Nothing
herein shall be construed to restrict the Partnership from engaging an
accounting firm to assist the tax matters partner in discharging its duties
hereunder, so long as the compensation paid by the Partnership for such services
is reasonable.
10.4 ORGANIZATIONAL EXPENSES. The Partnership shall
elect to deduct expenses, if any, incurred by it in organizing the Partnership
ratably over a 60-month period as provided in Section 709 of the Code.
10.5 WITHHOLDING. Each Limited Partner hereby authorizes
the Partnership to withhold from or pay on behalf of or with respect to such
Limited Partner any amount of federal, state, local, or foreign taxes that the
General Partner determines that the Partnership is required to withhold or pay
with respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Sections 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to a Limited
Partner shall constitute a loan by the Partnership to such Limited Partner,
which loan shall be repaid by such Limited Partner within 15 days after notice
from the General Partner that such payment must be made unless (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (ii) the General Partner determines, in its sole
and absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i)
or (ii) shall be treated as having been distributed to such Limited Partner.
Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's Partnership Interest
to secure such Limited Partner's obligation to pay to the Partnership any
amounts required to be paid pursuant to this Section 10.5. In the event that a
Limited Partner fails to pay any amounts owed to the Partnership pursuant to
this Section 10.5 when due, the General Partner may, in its sole and absolute
discretion, elect to make the payment to the Partnership on behalf of such
defaulting Limited Partner, and in such event shall be deemed to have loaned
such amount to such defaulting Limited Partner and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner
(including, without limitation, the right to receive distributions and the
holding of a security interest in such Limited Partner's Partnership Interest).
Any amounts payable by a Limited Partner hereunder shall bear interest at the
base rate on corporate loans at large United States money center commercial
banks, as published from time to time in the Wall Street Journal, plus two
percentage points (but not higher than the maximum lawful rate) from the date
such amount is due (i.e., 15 days after demand) until such amount is paid in
full. Each Limited Partner shall take such actions as the Partnership or the
General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
11.1 TRANSFER.
A. The term "transfer," when used in this
Article 11 with respect to a Partnership Interest, shall be deemed to refer to a
transaction by which the General Partner purports to assign its General Partner
Interest to another Person or by which a Limited Partner purports to assign its
Limited Partnership Interest to another Person, and includes a sale, assignment,
gift (outright or in trust), pledge, encumbrance, hypothecation, mortgage,
exchange or any other disposition by law or otherwise. The term "transfer" when
used in this Article 11 does not include any Redemption or exchange for REIT
Shares pursuant to Section 8.6. No part of the interest of a Limited Partner
shall be subject to the claims of any creditor, any spouse for alimony or
support, or to legal process, and may not be voluntarily or involuntarily
alienated or encumbered, except as may be specifically provided for in this
Agreement or applicable law.
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B. No Partnership Interest shall be
transferred, in whole or in part, except in accordance with the terms and
conditions set forth in this Article 11. Any transfer or purported transfer of a
Partnership Interest not made in accordance with this Article 11 shall be null
and void.
11.2 TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST.
The General Partner shall not withdraw from the Partnership and shall not
transfer all or any portion of its interest in the Partnership (whether by sale,
statutory merger or consolidation, liquidation or otherwise) without the Consent
of the Limited Partners, which may be given or withheld by each Limited Partner
in its sole and absolute discretion, and only upon the admission of a successor
General Partner pursuant to Section 12.1. Upon any transfer of a Partnership
Interest in accordance with the provisions of this Section 11.2, the transferee
shall become a substitute General Partner for all purposes herein, and shall be
vested with the powers and rights of the transferor General Partner, and shall
be liable for all obligations and responsible for all duties of the General
Partner, once such transferee has executed such instruments as may be necessary
to effectuate such admission and to confirm the agreement of such transferee to
be bound by all the terms and provisions of this Agreement with respect to the
Partnership Interest so acquired. It is a condition to any transfer otherwise
permitted hereunder that the transferee assumes, by operation of law or express
agreement, all of the obligations of the transferor General Partner under this
Agreement with respect to such transferred Partnership Interest, and no such
transfer (other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor General Partner are assumed by a
successor corporation by operation of law) shall relieve the transferor General
Partner of its obligations under this Agreement without the Consent of the
Partners, in their reasonable discretion. In the event the General Partner
withdraws from the Partnership, in violation of this Agreement or otherwise, or
otherwise dissolves or terminates, or upon the Incapacity of the General
Partner, all of the remaining Partners may elect to continue the Partnership
business by selecting a substitute General Partner in accordance with the Act.
Notwithstanding the foregoing, the General Partner shall be entitled to engage
in any merger, consolidation or other combination with or into another Person,
sale of all or substantially all of its assets or any reclassification,
recapitalization or change of its outstanding equity interests, all as it shall
determine in its sole discretion.
11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.
A. No Limited Partner shall transfer all or any
portion of its Partnership Interest to any transferee without the consent of the
General Partner (which the General Partner may withhold in its sole and absolute
discretion) and the satisfaction of the conditions set forth below in this
Section 11.3.A; provided, however, that, notwithstanding any other provision of
this Agreement, any Limited Partner may, without the consent of the General
Partner or the satisfaction of any of the conditions set forth below in this
Section 11.3.A, (i) exercise its rights of Redemption under Section 8.6 and (ii)
at any time transfer all or any portion of its Partnership Interest to an
Affiliate, another Limited Partner or an Immediate Family member of a Limited
Partner, subject to the provisions of Section 11.6. Subject to the foregoing
proviso:
(a) General Partner Right of First Refusal.
The transferring Partner shall give
written notice of the proposed transfer
to the General Partner, which notice
shall state (i) the identity of the
proposed transferee, and (ii) the amount
and type of consideration proposed to be
received for the transferred Partnership
Units. The General Partner shall have 10
days upon which to give the transferring
Partner notice of its election to
acquire the Partnership Units on the
proposed terms. If it so elects, it
shall purchase the Partnership Units on
such terms within 10 days after giving
notice of such election. If it does not
so elect, the transferring Partner may
transfer such Partnership Units to a
third party, on economic terms no more
favorable to the transferee than the
proposed terms, subject to the other
conditions of this Section 11.3.
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(b) Qualified Transferee. Any transfer of a
Partnership Interest shall be made only
to Qualified Transferees.
It is a condition to any transfer otherwise permitted
hereunder that the transferee assumes by operation of law or express agreement
all of the obligations of the transferor Limited Partner under this Agreement
with respect to such transferred Partnership Interest and no such transfer
(other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor Partner of its
obligations under this Agreement without the approval of the General Partner, in
its reasonable discretion. Notwithstanding the foregoing, any transferee of any
transferred Partnership Interest shall be subject to any and all ownership
limitations contained in the Charter and the representations in Section 3.4.D.
Any transferee, whether or not admitted as a Substituted Limited Partner, shall
take subject to the obligations of the transferor hereunder. Unless admitted as
a Substitute Limited Partner, no transferee, whether by a voluntary transfer, by
operation of law or otherwise, shall have rights hereunder, other than the
rights of an Assignee as provided in Section 11.5.
B. If a Limited Partner is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator, or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners, for the purpose of settling or managing the estate, and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of his or its interest in the Partnership. The Incapacity of a Limited Partner,
in and of itself, shall not dissolve or terminate the Partnership.
C. The General Partner may prohibit any
transfer otherwise permitted under Section 11.3 by a Limited Partner of his or
her Partnership Units if, in the opinion of legal counsel to the Partnership,
such transfer would require the filing of a registration statement under the
Securities Act by the Partnership or would otherwise violate any federal or
state securities laws or regulations applicable to the Partnership or the
Partnership Unit.
D. No transfer by a Limited Partner of his or
her Partnership Units (including any Redemption or exchange for REIT Shares
pursuant to Section 8.6) may be made to any person if such transfer is
effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of Section 7704 of
the Code.
E. No transfer of any Partnership Units may be
made to a lender to the Partnership or any Person who is related (within the
meaning of Section 1.752-4(b) of the Regulations) to any lender to the
Partnership whose loan constitutes a Nonrecourse Liability, without the consent
of the General Partner, in its sole and absolute discretion; provided that, as a
condition to such consent, the lender will be required to enter into an
arrangement with the Partnership and the General Partner to redeem or exchange
for the REIT Shares Amount any Partnership Units in which a security interest is
held simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
11.4 SUBSTITUTED LIMITED PARTNERS
A. No Limited Partner shall have the right to
substitute a transferee as a Limited Partner in his or her place; provided,
however, that a Person to whom an interest of a Limited Partner may be
transferred without the consent of the General Partner pursuant to Section 11.3
shall be admitted to the Partnership as a Substituted Limited Partner upon his
or her request therefor subject to Section 11.6. The General Partner shall,
however, have the right to consent to the admission of a permitted transferee of
the interest of a Limited Partner, other than a transferee in a transfer
permitted by Section 11.3 hereof without the consent of the General Partner, as
a Substituted Limited Partner, pursuant to this Section 11.4, which consent may
be given or withheld by the General Partner in its sole and absolute discretion.
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The General Partner's failure or refusal to permit a transferee of any such
interests to become a Substituted Limited Partner shall not give rise to any
cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a
Substituted Limited Partner in accordance with this Article 11 shall have all
the rights and powers and be subject to all the restrictions and liabilities of
a Limited Partner under this Agreement. The admission of any transferee as a
Substituted Limited Partner shall be subject to the transferee executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement (including without limitation, the provisions of Section 2.4
and such other documents or instruments as may be required to effect the
admission, each in form and substance satisfactory to the General Partner) and
the acknowledgment by such transferee that each of the representations and
warranties set forth in Section 3.4 hereof are true and correct with respect to
such transferee as of the date of the transfer of the Partnership Interest to
such transferee.
C. Upon the admission of a Substituted Limited
Partner, the General Partner shall amend Exhibit A to reflect the name, address,
number of Partnership Units, and Percentage Interest of such Substituted Limited
Partner and to eliminate or adjust, if necessary, the name, address and interest
of the predecessor of such Substituted Limited Partner.
11.5 ASSIGNEES. If the General Partner, in its sole and
absolute discretion, does not consent to the admission of any permitted
transferee under Section 11.3 as a Substituted Limited Partner, as described in
Section 11.4, such transferee shall be considered an Assignee for purposes of
this Agreement. An Assignee shall be entitled to all the rights of an assignee
of a limited partnership interest under the Act, including the right to receive
distributions from the Partnership and the share of Net Income, Net Losses, gain
and loss attributable to the Partnership Units assigned to such transferee, the
rights to transfer the Partnership Units provided in this Article 11, and the
right of Redemption provided in Section 8.6, but shall not be deemed to be a
holder of Partnership Units for any other purpose under this Agreement, and
shall not be entitled to effect a Consent with respect to such Partnership Units
on any matter presented to the Limited Partners for approval (such Consent
remaining with the transferor Limited Partner). In the event any such transferee
desires to make a further assignment of any such Partnership Units, such
transferee shall be subject to all the provisions of this Article 11 to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of Partnership Units.
11.6 GENERAL PROVISIONS.
A. No Limited Partner may voluntarily withdraw from
the Partnership other than as a result of (i) a permitted transfer of all of
such Limited Partner's Partnership Units in accordance with this Article 11 or
(ii) pursuant to the exercise of its right of Redemption of all of such Limited
Partner's Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of such
Limited Partner's Partnership Units in a transfer permitted pursuant to this
Article 11 or pursuant to the exercise of its rights of Redemption of all of
such Limited Partner's Partnership Units under Section 8.6 shall cease to be a
Limited Partner.
C. Transfers pursuant to this Article 11 may only be
made on the first day of a fiscal quarter of the Partnership, unless the General
Partner otherwise agrees.
D. If any Partnership Interest is transferred,
assigned or redeemed during any quarterly segment of the Partnership's fiscal
year in compliance with the provisions of this Article 11 or transferred or
redeemed pursuant to Section 8.6, on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such Partnership Interest for such fiscal year shall be
divided and allocated between the transferor Partner and the transferee Partner
by taking into account their varying interests during the fiscal year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method. Except as otherwise required by
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Section 706(d) of the Code, solely for purposes of making such allocations, each
of such items for the calendar month in which the transfer, assignment or
redemption occurs shall be allocated to the Person who is a Partner as of
midnight on the last day of said month and none of such items for the calendar
month in which a redemption occurs will be allocated to the redeeming Partner.
All distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such transfer, assignment or redemption shall be made
to the transferor Partner, and all distributions of Available Cash thereafter,
in the case of a transfer or assignment other than a redemption, shall be made
to the transferee Partner.
E. In addition to any other restrictions on transfer
herein contained, including without limitation the provisions of this Article 11
and Section 2.6, in no event may any transfer or assignment of a Partnership
Interest by any Partner (including by way of a Redemption) be made (i) to any
person or entity who lacks the legal right, power or capacity to own a
Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest; (iv) if in the opinion of legal counsel to the Partnership
such transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the Redemption or exchange for REIT
Shares of all Partnership Units held by all Limited Partners or pursuant to a
Termination Transaction expressly permitted under Section 11.2); (v) if in the
opinion of counsel to the Partnership such transfer would cause the Partnership
to cease to be classified as a partnership for federal or state income tax
purposes (except as a result of the Redemption or exchange for REIT Shares of
all Partnership Units held by all Limited Partners); (vi) if such transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in Section 3(14)
of ERISA) or a "disqualified person" (as defined in Section 4975(c) of the
Code); (vii) if such transfer would, in the opinion of counsel to the
Partnership, cause any portion of the assets of the Partnership to constitute
assets of any employee benefit plan pursuant to Department of Labor Regulations
Section 2510.2-101; (viii) if such transfer requires the registration of such
Partnership Interest pursuant to any applicable federal or state securities
laws; (ix) if such transfer is effectuated through an "established securities
market" or a "secondary market" (or the substantial equivalent thereof) within
the meaning of Section 7704 of the Code or such transfer causes the Partnership
to become a "Publicly Traded Partnership," as such term is defined in Sections
469(k)(2) or 7704(b) of the Code; (x) if such transfer subjects the Partnership
to be regulated under the Investment Company Act of 1940, the Investment
Advisors Act of 1940 or ERISA, each as amended; (xi) if the transferee or
assignee of such Partnership Interest is unable to make the representations set
forth in Section 3.4.D or such transfer could otherwise adversely affect the
ability of the General Partner to remain qualified as a REIT; or (xii) if in the
opinion of legal counsel for the Partnership such transfer would adversely
affect the ability of the General Partner to continue to qualify as a REIT or
subject the General Partner to any additional taxes under Section 857 or Section
4981 of the Code.
F. The General Partner shall monitor the transfers of
interests in the Partnership to determine (i) if such interests are being traded
on an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code, and (ii)
whether additional transfers of interests would result in the Partnership being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other guidance subsequently published by
the IRS setting forth safe harbors under which interests will not be treated as
"readily tradable on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code) (the "Safe Harbors"). The
General Partner shall take all steps reasonably necessary or appropriate to
prevent any trading of interests or any recognition by the Partnership of
transfers made on such markets and, except as otherwise provided herein, to
insure that at least one of the Safe Harbors is met.
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ARTICLE 12
ADMISSION OF PARTNERS
12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER. A successor
to all of the General Partner's General Partner Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission. In the case
of such admission on any day other than the first day of a Partnership Year, all
items attributable to the General Partner Interest for such Partnership Year
shall be allocated between the transferring General Partner and such successor
as provided in Article 11 hereof.
12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS.
A. After the admission to the Partnership of the
initial Limited Partners on the date hereof, a Person who makes a Capital
Contribution to the Partnership in accordance with this Agreement shall be
admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance in form
satisfactory to the General Partner of all of the terms and conditions of this
Agreement, including, without limitation, the power of attorney granted in
Section 2.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this
Section 12.2, no Person shall be admitted as an Additional Limited Partner
without the consent of the General Partner, which consent may be given or
withheld in the General Partner's sole and absolute discretion. The admission of
any Person as an Additional Limited Partner shall become effective on the date
upon which the name of such Person is recorded on the books and records of the
Partnership, following the receipt of the Capital Contribution in respect of
such Limited Partner, the documents set forth in Paragraph A of this Section
12.2 hereof and the consent of the General Partner to such admission. If any
Additional Limited Partner is admitted to the Partnership on first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items allocable among Partners and Assignees for such Partnership Year shall be
allocated among such Limited Partner and all other Partners and Assignees by
taking into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using the interim closing books
method. Solely for purposes of making such allocations, each of such items for
the calendar month in which an admission of an Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such admission shall be
made solely to Partners and Assignees other than the Additional Limited Partner
(other than in its capacity as an Assignee) and except as otherwise agreed to by
the Additional Limited Partners and the General Partner, and all distributions
of Available Cash thereafter shall be made to all Partners and Assignees
including such Additional Limited Partner.
12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP. For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
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ARTICLE 13
DISSOLUTION AND LIQUIDATION
13.1 DISSOLUTION. The Partnership shall not be dissolved
by the admission of Substituted Limited Partners or Additional Limited Partners
or by the admission of a successor General Partner in accordance with the terms
of this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner (selected as described in Section 13.1.B below) shall continue
the business of the Partnership. The Partnership shall dissolve, and its affairs
shall be wound up, upon the first to occur of any of the following ("Liquidating
Events"):
A. the expiration of its term as provided in
Section 2.5 hereof;
B. an event of withdrawal of the General
Partner, as defined in the Act, unless, within 90 days after the withdrawal, a
majority in Interest of the Limited Partners agree in writing, in their sole and
absolute discretion, to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a substitute General
Partner;
C. subject to the provisions of Section 7.3.C
hereof, an election to dissolve the Partnership made by the General Partner;
D. entry of a decree of judicial dissolution of
the Partnership pursuant to the provisions of the Act;
E. the sale of all or substantially all of the
assets and properties of the Partnership;
F. the Incapacity of the General Partner,
unless a Majority in Interest of the Limited Partners, in their sole and
absolute discretion, agree in writing to continue the business of the
Partnership and to the appointment, effective as of a date prior to the date of
such Incapacity, of a substitute General Partner; or
G. the Redemption or exchange for REIT Shares
of all Partnership Units (other than those of the General Partner).
13.2 WINDING UP.
A. Upon the occurrence of a Liquidating Event,
the Partnership shall continue solely for the purposes of winding up its affairs
in an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a Majority in Interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and assets and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include shares of stock of the General Partner) shall be applied and
distributed in the following order:
(1) First, to the payment and discharge of
all of the Partnership's debts and
liabilities to creditors other than the
Partners;
(2) Second, to the payment and discharge of
all of the Partnership's debts and
liabilities to the General Partner;
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(3) Third, to the payment and discharge of
all of the Partnership's debts and
liabilities to the other Partners; and
(4) The balance, if any, to the General
Partner and Limited Partners in
accordance with their positive Capital
Account balances, determined after
taking into account all Capital Account
adjustments for the Partnership taxable
year during which the liquidation occurs
(other than those made as a result of
the liquidating distribution set forth
in this Section 13.2.A(4)).
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4.
B. Notwithstanding the provisions of
Section 13.2.A hereof which require liquidation of the assets of the
Partnership, but subject to the order of priorities set forth therein, if prior
to or upon dissolution of the Partnership the Liquidator determines that an
immediate sale of part or all of the Partnership's assets would be impractical
or would cause undue loss to the Partners, the Liquidator may, in its sole and
absolute discretion, defer for a reasonable time the liquidation of any assets
except those necessary to satisfy liabilities of the Partnership (including to
those Partners as creditors) and/or distribute to the Partners, in lieu of cash,
as tenants in common and in accordance with the provisions of Section 13.2.A
hereof, undivided interests in such Partnership assets as the Liquidator deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good faith judgment of the Liquidator, such distributions in kind are
in the best interest of the Partners and would not subject them to liabilities
relating to the distributed properties, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS.
In the event the Partnership is "liquidated" within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this
Article 13 to the General Partner and Limited Partners who have positive Capital
Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any
Partner has a deficit balance in his or her Capital Account (after giving effect
to all contributions, distributions and allocations for the taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever. In
the discretion of the Liquidator or the General Partner, a pro rata portion of
the distributions that would otherwise be made to the General Partner and
Limited Partners pursuant to this Article 13 may be:
A. distributed to a trust established for the
benefit of the General Partner and Limited Partners for the purposes of
liquidating Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of the
Partnership or of the General Partner arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the General
Partner and Limited Partners from time to time, in the reasonable discretion of
the Liquidator or the General Partner, in the same proportions and the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant to this
Agreement; or
B. withheld to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, provided that
such withheld amounts shall be distributed to the General Partner and Limited
Partners as soon as practicable.
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13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION.
Notwithstanding any other provision of this Article 13, in the event the
Partnership is liquidated within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's property
shall not be liquidated, the Partnership's liabilities shall not be paid or
discharged, and the Partnership's affairs shall not be wound up. Instead, the
Partnership shall be deemed to have distributed the Partnership property in kind
to the General Partner and Limited Partners, who shall be deemed for federal and
state income tax purposes (and only federal and state income tax purposes) to
have assumed and taken such property subject to all Partnership liabilities, all
in accordance with their respective Capital Accounts. Immediately thereafter,
the General Partner and Limited Partners shall be deemed to have recontributed
the Partnership property in kind to the Partnership, which shall be deemed for
federal and state income tax purposes to have assumed and taken such property
subject to all such liabilities.
13.5 RIGHTS OF LIMITED PARTNERS. Except as otherwise
provided in this Agreement, each Limited Partner shall look solely to the assets
of the Partnership for the return of his Capital Contribution and shall have no
right or power to demand or receive property from the General Partner. No
Limited Partner shall have priority over any other Limited Partner as to the
return of his Capital Contributions, distributions or allocations.
13.6 NOTICE OF DISSOLUTION. In the event a Liquidating
Event occurs or an event occurs that would, but for provisions of Section 13.1,
result in a dissolution of the Partnership, the General Partner shall, within 30
days thereafter, provide written notice thereof to each of the Partners and to
all other parties with whom the Partnership regularly conducts business (as
determined in the discretion of the General Partner) and shall publish notice
thereof in a newspaper of general circulation in each place in which the
Partnership regularly conducts business (as determined in the discretion of the
General Partner).
13.7 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP.
Upon the completion of the liquidation of the Partnership cash and property as
provided in Section 13.2 hereof, the Partnership shall be terminated and the
Certificate and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be cancelled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
13.8 REASONABLE TIME FOR WINDING-UP. A reasonable time
shall be allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
13.9 WAIVER OF PARTITION. Each Partner hereby waives any
right to partition of the Partnership property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
14.1 AMENDMENTS.
A. The actions requiring consent or approval of the
Partners or of the Limited Partners pursuant to this Agreement, including
Section 7.3, or otherwise pursuant to applicable law, are subject to the
procedures in this Article 14.
B. Amendments to this Agreement requiring the consent
or approval of Limited Partners may be proposed by the General Partner or by any
Limited Partner. Following such proposal, the General Partner shall submit any
proposed amendment to the Partners or the Limited Partners, as applicable. The
General Partner shall seek the written consent or approval of the Partners or of
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the Limited Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written consent, the General Partner may require a
response within a reasonable specified time, but not less than 15 days, and
failure to respond in such time period shall constitute a consent which is
consistent with the General Partner's recommendation (if so recommended) with
respect to the proposal; provided that an action shall become effective at such
time as requisite consents are received even if prior to such specified time.
14.2 ACTION BY THE PARTNERS.
A. Meetings of the Partners may be called by the
General Partner and shall be called upon the receipt by the General Partner of a
written request by Limited Partners holding twenty-five percent (25%) or more of
the Partnership Interests held by Limited Partners. The call shall state the
nature of the business to be transacted. Notice of any such meeting shall be
given to all Partners not less than seven days nor more than 30 days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote of the Percentage Interests of the Partners, or the
Consent of the Partners or Consent of the Limited Partners is permitted or
required under this Agreement, such vote or Consent may be given at a meeting of
Partners or may be given in accordance with the procedure prescribed in Section
14.1 hereof.
B. Any action required or permitted to be taken at a
meeting of the Partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by the percentage as is expressly
required by this Agreement for the action in question. Such consent may be in
one instrument or in several instruments, and shall have the same force and
effect as a vote of the Percentage Interests of the Partners (expressly required
by this Agreement). Such consent shall be filed with the General Partner. An
action so taken shall be deemed to have been taken at a meeting held on the
effective date so certified.
C. Each Limited Partner may authorize any Person or
Persons to act for him by proxy on all matters in which a Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner or
his attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
D. Each meeting of Partners shall be conducted by the
General Partner or such other Person as the General Partner may appoint pursuant
to such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate.
ARTICLE 15
GENERAL PROVISIONS
15.1 ADDRESSES AND NOTICE. Any notice, demand, request or
report required or permitted to be given or made to a Partner or Assignee under
this Agreement shall be in writing and shall be deemed given or made when
delivered in person or when sent by certified first class United States mail,
nationally recognized overnight delivery service or facsimile transmission to
the Partner or Assignee at the address set forth in Exhibit A or such other
address as the Partners shall notify the General Partner in writing.
15.2 TITLES AND CAPTIONS. All article or section titles
or captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
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15.3 PRONOUNS AND PLURALS. Whenever the context may
require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
15.4 FURTHER ACTION. The parties shall execute and deliver
all documents, provide all information and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement.
15.5 BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
15.6 CREDITORS. Other than as expressly set forth herein
with respect to Indemnitees, none of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of the Partnership.
15.7 WAIVER. No failure or delay by any party to insist
upon the strict performance of any covenant, duty, agreement or condition of
this Agreement or to exercise any right or remedy consequent upon any breach
thereof shall constitute waiver of any such breach or any other covenant, duty,
agreement or condition.
15.8 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
15.9 APPLICATION LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
15.10 INVALIDITY OF PROVISIONS. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
15.11 LIMITATION TO PRESERVE REIT STATUS. To the extent
that any amount paid or credited to the General Partner or its officers,
directors, employees or agents pursuant to Section 7.4 or Section 7.7 would
constitute gross income to the General Partner for purposes of Sections
856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then,
notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
(1) (i) an amount equal to the excess, if any, of (a) 5%
of the General Partner's total gross income (but not
including the amount of any General Partner Payments)
for the fiscal year which is described in subsections
(A) through (H) of Section 856(c)(2) of the Code over
(b) the amount of gross income (within the meaning of
Section 856(c)(2) of the Code) derived by the General
Partner from sources other than those described in
subsections (A) through (H) of Section 856(c)(2) of
the Code (but not including the amount of any General
Partner Payments); or
(ii) an amount equal to the excess, if any, of (a) 25% of
the General Partner's total gross income (but not
including the amount of any General Partner Payments)
for the fiscal year which is described in subsections
(A) through (I) of Section 856(c)(3) of the Code
over (b) the amount of gross income (within the
meaning of Section 856(c)(3) of the Code) derived by
the General Partner from sources other than those
described in subsections (A) through (I) of Section
856(c)(3) of
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the Code (but not including the amount of any
General Partner Payments); provided, however, that
General Partner Payments in excess of the amounts
set forth in subparagraphs (i) and (ii) above may be
made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that
the receipt of such excess amounts would not
adversely affect the General Partner's ability to
qualify as a REIT. To the extent General Partner
Payments may not be made in a year due to the
foregoing limitations, such General Partner Payments
shall carry over and be treated as arising in the
following year, provided, however, that such amounts
shall not carry over for more than five years, and
if not paid within such five year period, shall
expire; provided further, that (i) as General
Partner Payments are made, such payments shall be
applied first to carry over amounts outstanding, if
any, and (ii) with respect to carry over amounts for
more than one Partnership Year, such payments shall
be applied to the earliest Partnership Year first.
15.2 ENTIRE AGREEMENT.. This Agreement contains the entire
understanding and agreement among the Partners with respect to the subject
matter hereof and supersedes any other prior written or oral understandings or
agreements among them with respect thereto.
15.13 NO RIGHTS AS STOCKHOLDERS. Nothing contained in this
Agreement shall be construed as conferring upon the holders of Partnership Units
any rights whatsoever as stockholders of the General Partner, including without
limitation any right to receive dividends or other distributions made to
stockholders of the General Partner or to vote or to consent or to receive
notice as stockholders in respect of any meeting of stockholders for the
election of directors of the General Partner or any other matter.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
Hanover Capital Mortgage Holdings, Inc.,
a Maryland corporation
By:
-------------------------------------
President and Chief Executive Officer
LIMITED PARTNERS:
-------------------------------
Xxxx X. Xxxxxxxx
-------------------------------
Xxxxx X. Xxxxxxx
-------------------------------
Xxxxxx X. Xxxxxxxxx
-------------------------------
Xxxx X. Xxxxxxx
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EXHIBIT A
PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
A-1
---
59
EXHIBIT B
NOTICE OF REDEMPTION
The undersigned hereby [irrevocably] (i) exchanges
____________ Limited Partnership Units in Hanover Capital Mortgage Holdings,
L.P. in accordance with the terms of the Amended and Restated Agreement of
Limited Partnership of Hanover Capital Mortgage Holdings, L.P. dated as of
__________, as amended, and the rights of Redemption referred to therein, (ii)
surrenders such Limited Partnership Units and all right, title and interest
therein, and (iii) directs that the cash (or, if applicable, REIT Shares)
deliverable upon Redemption or exchange be delivered to the address specified
below, and if applicable, that such REIT Shares be registered or placed in the
name(s) and at the address(es) specified below.
Dated:
------------------------
Name of Limited Partner:
----------------------------
------------------------------------
(Signature of Limited Partner)
------------------------------------
(Street Address)
------------------------------------
Signature Guaranteed by:
------------------------------------
Issue REIT Shares in the name of:
Please insert social security or identifying number:
Address (if different than above):
B-1
---
60
EXHIBIT C
CONSTRUCTIVE OWNERSHIP DEFINITION
The term "Constructively Owns" means ownership determined
through the application of the constructive ownership rules of Section 318 of
the Code, as modified by Section 856(d)(5) of the Code. Generally, these rules
provide the following:
a. an individual is considered as owning the Ownership Interest that is
owned, actually or constructively, by or for his spouse, his children, his
grandchildren, and his parents;
b. an Ownership Interest that is owned, actually or constructively, by
or for a partnership or estate is considered as owned proportionately by its
partners or beneficiaries;
c. an Ownership Interest that is owned, actually or constructively, by
or for a trust is considered as owned by its beneficiaries in proportion to the
actuarial interest of such beneficiaries (provided, however, that in the case of
a "grantor trust" the Ownership Interest will be considered as owned by the
grantors);
d. if 10 percent or more in value of the stock in a corporation is
owned, actually or constructively, by or for any person, such person shall be
considered as owning the Ownership Interest that is owned, actually or
constructively, by or for such corporation in that proportion which the value of
the stock which such person so owns bears to the value of all the stock in such
corporation;
e. an Ownership Interest that is owned, actually or constructively, by
or for a partner of a partnership or a beneficiary of an estate or trust shall
be considered as owned by the partnership, estate, or trust (or, in the case of
a grantor trust, the grantors);
f. if 10 percent or more in value of the stock in a corporation is
owned, actually or constructively, by or for any person, such corporation shall
be considered as owning the Ownership Interest that is owned, actually or
constructively, by or for such person;
g. if any person has an option to acquire an Ownership Interest
(including an option to acquire an option or any one of a series of such
options), such Ownership Interest shall be considered as owned by such person;
h. an Ownership Interest that is constructively owned by a person by
reason of the application of the rules described in paragraphs (a) through (g)
above shall, for purposes of applying paragraphs (a) through (g), be considered
as actually owned by such person, provided, however, that (i) an Ownership
Interest constructively owned by an individual by reason of paragraph (a) shall
not be considered as owned by him for purposes of again applying paragraph (a)
in order to make another the constructive owner of such Ownership Interest, (ii)
an Ownership Interest constructively owned by a partnership, estate, trust, or
corporation by reason of the application of paragraphs (e) or (f) shall not be
considered as owned by it for purposes of applying paragraphs (b), (c), or (d)
in order to make another the constructive owner of such Ownership Interest,
(iii) if an Ownership Interest may be considered as owned by an individual under
paragraphs (a) or (g), it shall be considered as owned by him under paragraph
(g), and (iv) for purposes of the above described rules, an S corporation shall
be treated as a partnership and any stockholder of the S corporation shall be
treated as a partner of such partnership except that this rule shall not apply
for purposes of determining whether stock in the S corporation is constructively
owned by any person.
i. For purposes of the above summary of the constructive ownership
rules, the term "Ownership Interest" means the ownership of stock with respect
to a corporation and, with respect to any other type of entity, the ownership of
an interest in either its assets or net profits.
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C-2
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EXHIBIT D
FORM OF PARTNERSHIP UNIT CERTIFICATE
CERTIFICATE FOR PARTNERSHIP UNITS OF
HANOVER CAPITAL MORTGAGE HOLDINGS, L.P.
No. _______________ _________________ UNITS
Hanover Capital Mortgage Holdings, Inc., as the General
Partner of Hanover Capital Mortgage Holdings, L.P., a Delaware limited
partnership (the "Operating Partnership"), hereby certifies that
_________________________ is a Limited Partner of the Operating Partnership
whose Partnership Interests therein, as set forth in the Amended and Restated
Agreement of Limited Partnership of Hanover Capital Mortgage Holdings, L.P.,
dated as of ______________, 1997 (as it may be amended, modified or supplemented
from time to time in accordance with its terms) (the "Partnership Agreement"),
under which the Operating Partnership is existing (copies of which are on file
at the Operating Partnership's principal office at 000 Xxxxxxxxx Xxxxx, Xxxxx
000, Xxxxxx, XX 00000, represent ______________ units of limited partnership
interest in the Operating Partnership (the "Partnership Units").
THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE OR
INSTRUMENT MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE
PARTNERSHIP AGREEMENT (A COPY OF WHICH IS ON FILE WITH THE OPERATING
PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN THE PARTNERSHIP AGREEMENT, NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR (B) IF THE PARTNERSHIP HAS BEEN FURNISHED WITH
A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER OF THE PARTNERSHIP UNITS
REPRESENTED BY THIS CERTIFICATE THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER.
DATED: ______________, 1997.
___________________________________________
General Partner of Hanover Capital Mortgage
Holdings, L.P.
ATTEST:
By: _______________________ By: ________________________
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EXHIBIT E
SCHEDULE OF REIT SHARES
ACTUALLY OR CONSTRUCTIVELY OWNED BY LIMITED PARTNERS
OTHER THAN THOSE ACQUIRED PURSUANT TO AN EXCHANGE