▇▇▇▇▇▇ VILLA LIMITED PARTNERSHIP
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
This Second Amended and Restated Agreement of Limited Partnership is made
and entered into as of the 1st day of August, 1997, by and among the undersigned
parties.
WHEREAS ▇▇▇▇▇ ▇. ▇▇▇▇, an individual resident of the State of Arkansas,
as the partner, and ▇▇▇▇▇▇ ▇. ▇▇▇▇ also an individual resident of the State of
Arkansas, as limited partner, entered into a limited partnership agreement dated
November 15, 1993 pursuant to the Arkansas Revised Limited Partnership Act, to
form ▇▇▇▇▇▇ Villa Limited Partnership the "Partnership"), which Agreement was
filed in the of Secretary of State of the State of Arkansas on November 22, 1993
and which agreement was amended by an Amended Limited Partnership Agreement
dated July 14, 1994, which was filed on July 14, 1994; and which agreement was
again amended by an Amended and Restated Agreement of Limited Partnership dated
April 29, 1996, and filed of record on June 4, 1996;
AS the Partnership has been formed to develop, construct, own, maintain
and operate a 21-unit multifamily housing development in Hughes, Arkansas, 40%
of such dwelling units being set aside for rental to persons with incomes of not
more than 60% of the median income for the area in which the Apartment
Development is located ("Eligible Occupants") and the Apartment Development will
be eligible for an annual Tax Credit of approximately 4.00% of the Apartment
Development's estimated Qualified Basis, as provided in Section 42(g) of the
Internal Revenue Code of 1986 (the "Code"), to be known as ▇▇▇▇▇▇ Villa (the
"Housing Development"); and
WHEREAS the Partnership has received a construction loan for the Housing
Development in the principal amount of $768,015; and
WHEREAS the Partnership has received a written commitment for a permanent
mortgage loan in the amount of $384,000 for a term of 30 years at an interest
rate of 6% to be provided by Arkansas Development Finance Authority and a second
permanent mortgage loan in the amount of $384,015 for a term of 50 years at an
effective interest rate of 1% to be provided by Rural Housing Community
Development Service ("RHCDS") of the United States Department of Agriculture.
The Apartment Development is expected to be eligible for a low-income housing
credit pursuant to Section 42 of the Internal Revenue Code of 1986 (the "Tax
Credit") as well as certain interest credits and rental assistance payments; and
WHEREAS the Partnership anticipates that the Housing Development will
qualify for the low-income housing tax credit provided for in Section 42 of the
Code (the "Tax Credit") and it is anticipated that the annual Tax Credit
available to the Partnership (the "Projected Tax Credit") will be (i) $4,451 for
1996; (ii) $39,560 each for years 1997 to 2005; and (iii) $35,109 of the year
2006. The state housing finance agency which has jurisdiction over the
allocation of Tax Credit for the Apartment Development (the "State Agency") has
received an application for Tax Credit for the Apartment Development in an
annual amount of $39,560. The Limited Partner will be allocated 99% of the Tax
Credit, or $39,164. The Tax Credit that will be allocated after the Apartment
Development is placed in service will not exceed $39,560 per year; and
WHEREAS the parties entered into an Amended and Restated Agreement and
Certificate of Limited Partnership to (i) continue the Partnership, (ii) admit
Landau, an Arkansas corporation (the "Investment Corporation"), to the
Partnership as a limited partner pursuant to the conditions set forth herein
relating to its Capital Contribution and qualification of the Housing
Development for the Tax Credit, which is the essence of this Agreement, (iii)
effect the withdrawal of the Initial Limited Partner from the Partnership, (iv)
reallocate certain Interests in the Partnership, (v) restate all of the
provisions governing the Partnership, and (vi) cause the Partnership and its
General Partner to become contractually bound to furnish certain information to,
and cooperate with the Investment Corporation. This Second Amended and Restated
Agreement of Limited Partnership will be filed with the office of the Secretary
of State of the State of Arkansas.
The parties now desire to enter into this Second Amended and Restated
Agreement of Limited Partnership to (i) modify Section 10.06(b) of Amended and
Restated Agreement; (ii) delete Section 4.01(v) of Amended and Restated
Agreement; (iii) accept revised Exhibit C - Legal Opinion to delete provision
(g); (iv) to remove terminology AInvestment Partner/Partnership@; (v) to modify
Section 6.07(a) and (b); and (vi) to modify 4.01(dd). All other terms and
provisions of the Amended and Restated Agreement which are not specifically
stated herein are incorporated herein by this reference.
NOW, THEREFORE, in consideration of the foregoing, of mutual promises of
the parties hereto and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
to continue the Partnership pursuant to the Act, as set forth in this Agreement,
which reads in its entirety as herein provided.
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TABLE OF CONTENTS
Page
ARTICLE I DEFINED TERMS.................................... 5
ARTICLE II CONTINUATION OF THE PARTNERSHIP
2.01 Continuation........................................ 17
2.02 Name................................................ 17
2.03 Principal Executive Offices......................... 17
2.04 Term................................................ 17
2.05 Agent for Service of Process........................ 17
2.06 Filing of Certificate............................... 17
ARTICLE III PURPOSE AND BUSINESS OF THE PARTNERSHIP
3.01 Purpose of the Partnership.......................... 18
3.02 Authority of the Partnership........................ 18
3.03 Certain RHCDS Requirements.......................... 19
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE GENERAL PARTNER
4.01 Representations, Warranties and Covenants Relating to
the Apartment Development and the Partnership....... 20
4.02 No Duty to Investigate.............................. 30
ARTICLE V PARTNERSHIP INTERESTS AND CAPITAL CONTRIBUTIONS
5.01 Original Partners' Partnership Interests............ 30
5.02 Capital Contribution of the Investment Partnership.. 30
5.03 Withholding of Capital Contribution Upon Default.... 34
5.04 Return of Partners' Capital Contributions........... 35
ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL
PARTNER
6.01 Management of the Partnership...................... 36
6.02 Limitations Upon the Authority of the General
Partner............................................ 36
6.03 Delegation of Authority............................ 39
6.04 General Partner or Affiliates Dealing with the
Partnership........................................ 39
6.05 Other Activities................................... 40
6.06 Liability for Acts and Omissions................... 40
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TABLE OF CONTENTS (continued)
6.07 Indemnities........................................ 41
6.08 Payment of Development Costs and Excess Development
Costs.............................................. 42
6.09 Annual Priority Distributions, Operating Deficit Loans
and Tax Credit Reduction Amount Reimbursement...... 43
6.10 Other Loans to the Partnership..................... 44
6.11 Withholding of Fce Payments........................ 44
6.12 Cost Savings....................................... 45
6.13 Property Management Agent.......................... 45
6.14 Reports to Investment Corporation.................. 46
6.15 Rent Increases..................................... 48
ARTICLE VII CHANGES IN GENERAL PARTNER
7.01 Withdrawal of a General Partner.................... 48
7.02 Effect of Bankruptcy or Legal Disability of a General
Partner............................................ 49
7.03 Removal of General Partner......................... 50
7.04 Admission of a Successor or Additional General
Partner............................................ 52
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
8.01 No Management Powers............................... 53
8.02 Limitation on liability of Limited Partner......... 54
8.03 Other Activities................................... 55
ARTICLE IX TRANSFERS OF AND RESTRICTIONS ON TRANSFERS OF
RIGHTS OF LIMITED PARTNER
9.01 Purchase for Investment............................ 55
9.02 Restrictions on Transfer of Limited Partner's
Interests.......................................... 56
9.03 Admission of Substitute Limited Partner............ 56
ARTICLE X PROFITS, LOSSES, CREDITS AND DISTRIBUTIONS
10.01 Capital Accounts................................... 57
10.02 Determination of Profits, Losses and Credits....... 58
10.03 Allocation of Profits, Losses and Credits.......... 60
10.04 Allocations in Case of Transfer of Interests....... 62
10.05 Authority of General Partner to vary Allocations
to Preserve and Protect Partners' Intent........... 62
10.06 Distributions of Net Cash Flow..................... 63
10.07 Distribution of Sale and Refinancing Proceeds...... 64
10.08 Liquidation Proceeds............................... 65
10.09 Tax Matters Partner................................ 66
10.10 Tax Accounting..................................... 67
4
TABLE OF CONTENTS (continued)
ARTICLE XI DISSOLUTION AND LIQUIDATION
11.01 Dissolution of the Partnership....................68
11.02 Winding Up and Distribution.......................68
ARTICLE XII BOOKS AND RECORDS, ACCOUNTING, TAX ELECTIONS, ETC.
12.01 Books and Records.................................69
12.02 Bank Accounts.....................................69
12.03 Accountants.......................................70
12.04 Reports to Partners...............................70
12.05 Fiscal Year and Accounting Method.................72
ARTICLE XIII GENERAL PROVISIONS
13.01 Arbitration .....................................72
13.02 Amendments........................................72
13.03 Burden and Benefit................................72
13.04 Applicable Law....................................73
13.05 Counterparts......................................73
13.06 Severability of Provisions ......................73
13.07 Entire Agreement..................................73
13.08 Use 0f Singular and Plural........................73
13.09 Notices to the Investment Partnership.............73
5
ARTICLE I
DEFINED TERMS
In addition to the abbreviations employed in the preamble to this
Agreement, the following defined terms used in this Agreement shall have the
meanings specified below:
"Accountants" means such firm of independent certified public
accountants as may be engaged by the General Partner with the consent of the
Investment Corporation to prepare the Partnership income tax returns and
financial statements.
"Act" means the Revised Limited Partnership Act of the State, as amended
from time to time during the term of the Partnership.
"Actual Credit" means, at any time, the amount of the Tax Credit properly
reportable by the Partnership in a calendar year for federal income tax
purposes.
"ADFA" means Arkansas Development Finance Authority, the construction
lender and a permanent finance lender.
"Affiliate" means any Person who (i) directly or indirectly controls,
is controlled by, or is under common control with another Person referred to
herein, (ii) owns or controls 10% or more of the outstanding voting securities
of such other Person, or (iii) is an officer, partner, or trustee of such other
Person.
"Agreement" means this Amended and Restated Agreement and Certificate
of Limited Partnership, as amended from time to time.
"Apartment Development" means the land and the 21-unit multifamily rental
housing development and other improvements to be constructed, owned and operated
thereon by the Partnership, to be known as ▇▇▇▇▇▇ Villa.
"Applicable Percentage" shall have the meaning ascribed to it in
Section 42(b) of the Code.
"Bankruptcy" or "Bankrupt" as to any Person means (i) the filing of a
petition for relief as to any such Person as debtor or bankrupt under the
Bankruptcy Act of 1898 or the Bankruptcy Code of 1978 or like provision of law
(except if such petition is contested by such Person and has been dismissed
within 60 days), (ii) insolvency of such Person as finally determined by a court
proceeding, (iii) filing by such Person of a petition or application to
accomplish the same or for the appointment of a receiver or a trustee for such
6
Person or a substantial part of his assets, or (iv) commencement of any
proceedings relating to such Person under any other reorganization, arrangement,
insolvency, adjustment of debt or liquidation law of any jurisdiction, whether
now in existence or hereinafter in effect, either by such Person or by another,
provided that if such proceeding is commenced by another, such Person indicates
his approval of such proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such Person and has not been finally dismissed within
60 days.
"Breakeven Operations" means the receipt by the Partnership during a
period of 24 consecutive calendar months after Final Closing of an amount of
monthly rental income (solely from leases of dwelling units which meet the Rent
Restriction Test and are occupied by Qualifying Individuals) which equals or
exceeds all operating expenses incurred during such period including, but not
limited to, maintenance expenses, management fees provided for in Article VI,
required debt service payments, taxes, other assessments, insurance premiums and
the required funding of any replacement reserve.
"Capital Account" shall have the meaning ascribed to it in Section
10.01.
"Capital Contribution" means the total amount of money or other
property contributed to or for the benefit of the Partnership by each Partner
pursuant to the terms of this Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Interest of such Partner.
"Capital Contribution Period" means the period commencing with the
payment of amounts required under Section 5.02(a)(i) and ending with the payment
of amounts required under Section 5.02(a)(iv).
"Certificate" means any certificate of limited partnership or any other
instrument or document which is required under the Act or this Agreement to be
signed and sworn to by any Partners of the Partnership and filed in the
appropriate public offices within the State to perfect or maintain the
Partnership as a limited partnership under the Act, or to protect the limited
liability of the Limited Partner as a limited partner under the Act, or to
indicate the admission of the Investment Partnership as a limited partner of the
Partnership.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any provisions of succeeding law.
"Compliance Period" means the 15-year period under Section 42(i) of the
Code with respect to which the 40-60 Set-Aside Test and the Rent Restriction
7
Test apply to each building of the Apartment Development, beginning with the
first full calendar year of the Credit Period.
"Consent" means the written consent of a Person to do the act or thing
for which the consent is solicited, or the act of granting such consent, as the
context may require. All communications relating to a consent under this
Agreement shall be in such form as to constitute a Notice.
"Construction Contract" means the construction contract (including all
exhibits and attachments thereto) entered into between the Partnership and the
Contractor, pursuant to which the Apartment Development is being constructed, or
any amendment or modification or substitution thereof.
"Construction Lender" means Arkansas Development Finance Authority in
its capacity as lender of the Construction Loan, or its successors or assigns in
such capacity, or any successor lender of the Construction Loan.
"Construction Loan" means the construction loan made at Initial Closing
by the Construction Lender in the principal amount of $768,030, to bear interest
at the stated rate per annum, evidenced by a promissory note given by the
Partnership to the Construction Lender and secured by a Mortgage and any related
loan agreements, security agreements and financing statements.
"Contractor" means Champion Builders, Inc., which is the general
contractor for the construction of the Apartment Development.
"Counsel for the Partnership" means Wright, Chaney, ▇▇▇▇▇ & ▇▇▇▇▇▇,
P.A..
"Credit Period" means, beginning with the calendar year in which the
Apartment Development (or any building thereof, as applicable under Section
42(g) of the Code) is placed in service, or if so elected, the following year,
the 10-year period in which the Tax Credit is made available to the Partnership
from the Apartment Development or any building therein pursuant to Section 42 of
the Code.
"Developer" means ▇▇▇▇▇ ▇. ▇▇▇▇.
"Development Agreement" means the agreement among the Partnership, the
Developer and Landau for the payment by the Partnership of Development Fees in
consideration of costs incurred and development services rendered by the
Developer to the Partnership In developing the Apartment Development, the
provisions of which are herein incorporated by reference and deemed to be a part
hereof.
8
"Development Fees" shall mean the fees payable to the Developer as provided
in the Development Agreement.
"Eligible Basis" means the adjusted basis of the Apartment Development as
determined by Section 42(d) of the Code.
"Excess Development Costs" means all costs in excess of the proceeds of the
Construction Loan or the Mortgage Loan which are or will be incurred to (i)
complete construction and development of the Apartment Development and (ii)
achieve Initial Closing and Final Closing including, without limitation, (A)
Construction Loan and/or Mortgage Loan discounts or extension fees, (B)interest,
taxes, property insurance or title insurance premiums not payable from
Construction Loan proceeds, (C) construction cost overruns and the cost of any
change orders which are not funded from Construction Loan or Mortgage Loan
proceeds, (D) escrow deposits and/or any other amounts necessary for local
taxes, utilities, insurance premiums and other purposes which are conditions to
the Final Closing, (E) Operating Deficits incurred by the Partnership prior to
Final Closing, and (F) loan assessment fee, or other such fee or fees, as may be
assessed by the RHCDS and which are not payable out of Construction Loan or
Mortgage Loan proceeds, or revenues and rents of the Partnership available at
Final Closing.
"Final Closing" means the date of the making of the Mortgage Loan.
"40/60 Set-Aside Test" means the minimum set-aside test established by
Section 42 of the Code, whereby at least 40% of the dwelling units in the
Apartment Development (or any building thereof, as applicable under Section
42(g) of the Code) must be occupied by individuals with incomes of 60% or less
of area median income, as adjusted for family size.
"General Partner" or "General Partners" means any general partner or,
collectively, all general partners signatory hereto, as the case may be, who, if
there shall be more than one general partner, shall be jointly and severally
liable for all liabilities and obligations imposed hereunder or by the Act on
any General Partner or General Partners.
"GP Questionnaire" means a document so entitled provided to the General
Partner by the Investment Corporation.
"Gross Rent" shall have the meaning ascribed to it by Section 42(g) of the
Code (including, without limitation, any rent surcharges or other charges by
RHCDS and any required utility allowance).
9
"Initial Closing" means the date upon which the Construction Loan is closed
and the first disbursement of proceeds of the Construction Loan, approved by the
RHCDS, is made to the Partnership.
"Initial Limited Partner" means ▇▇▇▇▇▇ ▇. ▇▇▇▇.
"Installment" means an installment of the Investment Partnership's Capital
Contribution paid or payable to the Partnership pursuant to Section 5.02(b).
"Investment Corporation" means Landau, an Arkansas corporation, which is a
limited partner of the Partnership.
"Land" means the tract of land in Hughes, Arkansas, upon which the
Apartment Development will be located.
"Legal Disability", "Legally Disabled or similar terms refer to the death,
adjudication of incompetency (which term shall include, but not be limited to,
insanity), or dissolution of any Person, not including Bankruptcy.
"Limited Partner" means the Investment Partnership or a Substitute Limited
Partner in such Person's capacity as a limited partner of the Partnership under
the Act.
"Liquidation Proceeds" means the gross proceeds to the Partnership
resulting from the liquidation of Partnership assets.
"Liquidator" means the General Partner or, if there are none at the time in
question, such other Person who may be appointed in accordance with applicable
law and who shall be responsible for taking all action necessary or appropriate
to wind up the affairs of, and distribute the assets of, the Partnership upon
its dissolution.
"Loan Agreement" means RHCDS Form 1944-34 or any other loan agreement
governing the RHCDS's control over certain aspects of the Apartment Development.
"Management Agent" means the management and rental agent for the Apartment
Development.
"Managing General Partner" means, if there shall be more than one General
Partner signatory hereto, the Person who executes this Agreement at the place
(if any) marked "Managing General Partner" on the signature page and named as
such in the preamble to this Agreement, so long as the Person remains a General
Partner, and in such case the term General Partner shall refer to the Managing
General Partner in any provisions hereof pertaining to the power, authority,
duties, administration or management functions of the General Partner to the
10
extent the Act permits any general partner to delegate a general partner's power
of management, and the Managing General Partner shall (acting for and on behalf
of the General Partner and the Partnership, in extension and not in limitation
of rights and powers given by the Act) have the right, power and authority to
manage the Partnership business and, to the extent permitted by the Act, perform
all management and administrative functions set forth herein; provided, however,
that any General Partner signatory hereto shall be jointly and severally liable
for any and all obligations under the Act and liabilities imposed upon the
General Partner.
"Mortgage" means, as the context may require, any mortgage constituting a
lien on the Apartment Development given by the Partnership (i) at the Initial
Closing in favor of the Construction Lender or (ii) at the Final Closing in
favor of the RHCDS, to secure the Construction Loan and the Mortgage Loan,
respectively.
"Mortgage Loan" means the nonrecourse mortgage loans in the total principal
amount of $768,030 to be made to the Partnership by ADFA and RHCDS at Final
Closing, which will be evidenced by a nonrecourse promissory note given by the
Partnership to the ADFA and RHCDS and secured by a Mortgage and other related
security documents and financing statements, including the Loan Agreement.
"Net Cash Flow" means a net amount equal to (i) all cash received by the
Partnership in any year from the Apartment Development (other than Liquidation
Proceeds, Sale or Refinancing Proceeds, loan proceeds, Capital Contributions, or
similar receipts not derived from operations) less (ii) RHCDS approved operating
expenses of the Partnership in such year, required repayments of the Mortgage
Loan in such year, required funding in such year of any replacement reserve, and
any other deposits or escrows required by the RHCDS, which net amount is
allowable for distribution in such year, or in some cases, the following year,
pursuant to RHCDS rules, as a "return to owner." Net Cash Flow is estimated to
be available in an annual amount of $2,329, based upon RHCDS Form 1930-7 as
approved by RHCDS.
"New Allocation" means any allocation pursuant to Section l0.05(a).
"Notice" means a writing containing the information required by this
Agreement to be communicated to a Person and sent by registered or certified
mail, postage prepaid, return receipt requested, or recognized national
overnight delivery service, to such Person at the last known address of such
Person, the date of registry thereof or the date of the certified receipt
therefore being deemed the date of such Notice, and complies with the provisions
of Section 13.09; provided, however, that any written communication or
11
electronically transmitted facsimile containing such information sent to such
Person actually received by such Person shall constitute Notice for all purposes
of this Agreement.
"Operation Deficit" means the amount by which (a) the sum of (i) rentals
received by the Partnership under leases approved by RHCDS and (ii) any proceeds
available from the Working Capital Loan is exceeded by (b) the sum of all the
operating expenses incurred, including, but not limited to, maintenance
expenses, management fees provided for in Article VI, required debt service
payments, taxes, other assessments, insurance premiums, and the required funding
of any replacement reserve, together with any State Agency fees, expenditures
for Partnership accounting in excess of those approved by RHCDS, and, to the
extent allowed by this Agreement, related Partnership obligations or
expenditures.
"Operation Deficit Loan" shall have the meaning ascribed to it in Section
6.09.
"Partner" means any General Partner or any Limited Partner.
"Partner Nonrecourse Liability" means any Partnership liability (a) that is
considered nonrecourse under Treasury Regulation Section 1.1001-2 or for which
the creditor's right to repayment is limited to one or more assets of the
Partnership and (b) for which no Partner or Related Person bears the economic
risk of loss under Treasury Regulation Section 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" means the amount of partner
nonrecourse debt minimum gain and the net increase or decrease in partner
nonrecourse debt minimum gain determined in a manner consistent with Treasury
Regulation Sections 1.704-2(d) and 1.704-2(g)(3).
"Partnership" means ▇▇▇▇▇▇ Villa Limited Partnership.
"Partnership Interest" means the ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which such Partner may be entitled as provided in this
Agreement and in the Act, and subject to the obligations of such Partner to
comply with all the terms and provisions of this Agreement and the Act.
"Partnership Minimum Gain" means the amount determined by computing, with
respect to each Partnership Nonrecourse Liability, the amount of gain, if any,
that would be realized by the Partnership if it disposed of (in a taxable
transaction) the property subject to such liability in full satisfaction of such
liability, and by then aggregating the amounts so computed. Such computations
shall be made in a manner consistent with Treasury Regulation Section
1.704-2(d).
12
"Partnership Nonrecourse Liability" means any Partnership liability (or
portion thereof for which no Partner or Related Person bears the economic risk
of loss as defined in Treasury Regulation Section 1.752-2.
"Percentage Interest" means the percentage interest of each Partner as set
forth in Sections 5.01 and 5.02.
"Person" means any individual, partnership, corporation, trust or other
entity.
"Profits. Losses and Credits" shall have the meaning ascribed to it in
Section 10.02(a).
"Project Documents" means and includes the documents set forth on Exhibit B
attached hereto, the Consultation and Development Agreements, the completed and
signed General Partner Questionnaire, the Certificate (including amendments
thereto), all documents evidencing or securing the Construction Loan and the
Mortgage Loan, the Property Management Contracts, the Construction Contract and
all other instruments delivered to or required by the Construction Lender or the
RHCDS and all other documents relating to the Apartment Development and by which
the Partnership is bound, as amended or supplemented from time to time.
"Projected Credit" means for any given year the amount of Tax Credit set
forth on Exhibit A hereto.
"Property Management Contract" means the agreement between the Partnership
and the Management Agent providing for the management of the Apartment
Development and permitting payment of fees therefor under this Agreement, and
the management plan approved by the RHCDS.
"Qualified Basis" means the portion of the Eligible Basis attributable to
low-income dwelling units pursuant to Section 42(c) of the Code.
"Qualified Income Offset Item" means (1) an allocation of loss or deduction
that, as of the end of each year, reasonably is expected to be made (a) pursuant
to Section 704(e)(2) of the Code to a donee of an interest in the Partnership,
(b)pursuant to Section 706(d) of the Code as the result of a change in any
Partner's interest in the Partnership, or (c) pursuant to Regulation Section
1.751-1 (b)(2)(ii) as the result of a distribution by the Partnership of
unrealized receivables or inventory items and (2) a distribution that, as of the
end of such year, reasonably is expected to be made to the Partner to the extent
13
it exceeds offsetting increases to such Partner's Capital Account which
reasonably are expected to occur during or prior to the Partnership taxable year
in which such distribution reasonably is expected to occur.
"Qualifying Individuals" means all those persons occupying a dwelling unit
in the Apartment Development, under a lease having an initial duration of at
least one year, the aggregate income of which persons is less than the income
limitation applicable to such household under Section 42 of the Code, and which
occupancy or terms thereof do not otherwise cause a unit to fail to be treated
as a low-income unit under Section 42 of the Code.
"Related Person" means a person related to a partner within the meaning of
Treasury Regulation Section 1.752-4(b).
"Rent Restriction Test" means the test pursuant to Section 42(g) of the
Code whereby the Gross Rent applicable to each of the dwelling units in the
Apartment Development cannot exceed 30% of the qualifying tenant income levels
designated for such dwelling units.
"Repurchase Event" means an event pursuant to which the General Partner
will be required, at the direction of the Investment Partnership, to repurchase
the Interest of the Investment Partnership in the Partnership as provided in
Section 5.05.
"RHCDS" means Rural Housing Community Development Service of the United
States of America.
"Sale or Refinancing Proceeds" means the gross proceeds to the Partnership
resulting from any sale or refinancing of the Apartment Development (including
any "guaranteed third-party equity loans" made pursuant to the Department of
Housing and Urban Development Reform Act of 1989) and/or any other capital event
except a liquidation, calculated prior to any distributions provided for in
Section 10.07. For purposes of this definition, capital event means the sale by
the Partnership of all or substantially all of its assets, the refinancing of
any mortgage of the Partnership, an event covered by property or liability
insurance, a property condemnation, or any other transaction affecting the
Partnership which is not in the ordinary course of its business, excluding any
Repurchase Event and the receipt of Capital Contributions.
"Special Tax Counsel" means the tax attorneys retained to advise the
Investment Corporation with respect to federal income tax matters.
"State" means the State of Arkansas.
14
"State Agency" means the Arkansas Development Finance Authority or any
successor agency or department charged with the administration of the Tax Credit
for the State.
"Substantial Completion" means the occurrence of all of the following: (i)
receipt by the Partnership of all necessary certificates of occupancy and use
permits for 100% of the dwelling units in the Apartment Development, (ii)
substantial completion of construction and development of the Apartment
Development as determined by the RHCDS and the Investment Partnership in
accordance with the plans and specifications approved by the RHCDS, and (iii)
release of all liens against the Apartment Development, except the Mortgage.
"Substitute Limited Partner" means any Person admitted to the Partnership as
a limited partner pursuant to Section 9.03.
"Tax Credit" means the low-income housing tax credit available to the
Partnership pursuant to Section 42 of the Code.
"Tax Credit Recapture" means a recapture of Tax Credit pursuant to Section
426) of the Code or any other disallowance of Tax Credit previously allocated to
the Partners, whether such recapture or disallowance is the result of a
determination by the Accountants or of an adjustment made by the Internal
Revenue Service to the Partnership tax return.
"Tax Credit Reduction Amount" ("TCRA") occurs in any calendar year in which
the Tax Credit allocated to the Investment Partnership, less any Tax Credit
Recapture, is less than 99% of the Projected Credit for such year, as determined
by the accountants of the Investment Partnership. The TCRA is the sum of 99% of
(a) the cumulative Projected Credit amount minus the cumulative annual Actual
Credit and (b) the cumulative Tax Credit Recapture Amount. The TCRA shall be
repaid to the Investment Partnership as follows: During the Capital Contribution
Period any TCRA shall be (i) subtracted from any payments otherwise due the
Partnership by the Investment Partnership as set forth in Section 5.02(b), or
(ii) after the Capital Contribution Period shall be returned to the Investment
Partnership by the Partnership as a priority distribution of Net Cash Flow
pursuant to Section 10.06.
"Tax Credit Shortfall" means the cumulative TCRA amount, which sum (to the
extent not previously subtracted, returned or reimbursed as a Tax Credit
Reduction Amount pursuant to Sections 5.03(c), 6.09(d) or 10.06 shall accumulate
with interest at an annual rate of 10%.
"Tax Matters Partner" means the Partner named by the Partnership in Section
10.09 to manage audits of the Partnership by the Internal Revenue Service
15
pursuant to the audit procedure under the Code and applicable Treasury
Regulations.
"Working Capital Loan" means the loan required by the RHCDS of the General
Partner for initial working capital for the Apartment Development, usually in an
amount equal to 2% of the total cost of the Apartment Development as determined
by RHCDS, which loan shall be repaid solely out of any funds which the RHCDS
designates as a return of such loan or as set forth in Section 10.07 or Section
10.08.
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ARTICLE II
CONTINUATION OF PARTNERSHIP
2.01. Continuation. The undersigned hereby continue the Partnership as a
limited partnership under the Act.
2.02. Name. The name of the Partnership is ▇▇▇▇▇▇ Villa Limited
Partnership.
2.03. Principal Executive Offices. The principal executive office of the
Partnership shall be ▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The
Partnership may change the location of its principal executive office to such
other place or places as may hereafter be determined by the General Partner. The
General Partner shall promptly notify all other Partners of any change in the
principal executive office. The Partnership may maintain such other offices at
such other place or places as the General Partner may from time to time deem
advisable.
2.04. Term. The term of the Partnership commenced as of November 22, 1993,
and shall continue until December 31, 2045, unless the Partnership is sooner
dissolved in accordance with the provisions of this Agreement.
2.05. Agent for Service of Process. The name of the agent for service of
process is ▇▇▇▇▇ ▇. ▇▇▇▇, an individual resident of the State of Arkansas,
whose office address is as set forth in Section 2.03.
2.06. Filing of Certificate. Within five days after the execution of this
Agreement by the parties hereto, the General Partner shall take all actions
necessary to assure the prompt filing of this Agreement or an amendment of the
Certificate stating that the Investment Partnership has been admitted as a
limited partner and the Initial Limited Partner has withdrawn, and any other
Certificate required by the Act. All fees for filing shall be paid out of the
assets of the General Partner. The General Partner shall take all other
necessary action required by law to perfect and maintain the Partnership as a
limited partnership under the Act, and shall register the Partnership under any
assumed or fictitious name statute or similar law in force and effect in the
state, and, if necessary, any other state or jurisdiction where the Partnership
may be doing business.
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ARTICLE III
PURPOSE AND BUSINESS OF THE PARTNERSHIP
3.01. Purpose of the Partnership. The Partnership has been organized
exclusively to develop the Apartment Development primarily so as to allocate to
the Partners (i) tax losses and Tax Credit in the amount of the Projected
Credit, (ii) Net Cash Flow in the maximum amount allowable for distribution
under RHCDS rules, and (iii) Sale or Refinancing Proceeds or Liquidation
Proceeds in the maximum obtainable amount.
3.02. Authority of the Partnership. The Partnership is empowered and
authorized to do any and all acts and things necessary, appropriate, proper,
advisable, incidental to or convenient for the furtherance and accomplishment of
its purpose as contemplated by the Act and all the specific provisions of this
Agreement, and for the protection and benefit of its Partners, including but not
limited to, the following:
(a) acquire ownership of the Land on which the Apartment Development is to
be located;
(b) provide rental housing pursuant to Section 515 of the Housing Act of
1949, as amended, until such time as the Mortgage Loan is no longer in force,
subject to the 40-60 Set-Aside Test and the Rent Restriction Test, and in
accordance with other applicable federal, state and local regulations;
(c) construct, operate, maintain, improve, buy, own, sell, convey, assign,
mortgage, rent or lease any real estate and any personal property necessary to
the ownership, operation and final disposition of the Apartment Development;
(d) borrow money and issue evidences of indebtedness and secure any such
indebtedness by mortgage, pledge, or other lien, provided, however, that the
Mortgage Loan and any evidences of indebtedness thereof and any documents
amending, modifying or replacing it shall have the legal effect that, subject to
Section 6.09, no Partner or Related Person shall have any personal liability
whatsoever for the repayment of, or otherwise bear the economic risk of loss
with respect to, the principal of or interest on the Mortgage Loan or other such
indebtedness, and that the sole recourse of any lender with respect to the
principal thereof, interest thereon or any other obligation thereunder shall be
to the assets of the Partnership securing the Mortgage Loan;
(e) maintain accounts in any financial institution whose accounts are
insured by the Federal Deposit Insurance Corporation or the Federal Savings and
Loan Insurance Corporation or any successor;
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(f) bring or defend actions at law or in equity; and
(g) deal with the General Partner, Affiliates of the General Partner and
the Investment Partnership and its Affiliates as herein provided.
3.03. Certain RHCDS Requirements. Until such time as the Mortgage Loan
is no longer held by the RHCDS, the following provisions of this Agreement shall
take precedence over any other provisions of this Agreement:
(a) The Partnership shall execute any documents required by the RHCDS under
Section 515 of the Housing Act of 1949.
(b) Notwithstanding any provisions in this Agreement to the contrary, so
long as the Partnership has a loan made or insured by the United States of
America acting through the RHCDS, membership in the Partnership will not be
changed by either admission or voluntary withdrawal of any General Partner nor
shall the General Partner maintain less than a 5% financial interest in the
Partnership as required by RHCDS regulations, nor cause or permit voluntary
dissolution of the Partnership, nor alter, amend or repeal this Agreement
(except as necessary or advisable to comply with requirements of the Code or
regulations thereunder relating to Tax Credits or allocations of benefit to
Partners) without the prior written consent of the RHCDS. Furthermore, after
payment of the debts and liabilities of the Partnership, not less than 5% of the
remaining assets from the sale or refinancing of any project of the Partnership
shall be distributed to the General Partner as provided in Section 10.07.
(c) The Partnership is authorized to execute all documents required by the
RHCDS with respect to the Mortgage Loan, construction, development, and
operation of the Apartment Development subject to the Loan Agreement and all
other agreements with the RHCDS. Any incoming General Partner, as a condition to
receiving interests in the Partnership, shall, by execution of a counterpart
hereof, agree to be bound by such documents in the same manner and on the same
terms as the other Partners. Upon the Partnership's dissolution, title or right
to possession and control of the Apartment Development and the right to collect
the rents therefrom, shall not pass to any Person not bound by such RHCDS
documents in the same manner as the Partnership and any General Partner. If
there is any inconsistency between this Agreement and such RHCDS documents and
regulations, the RHCDS documents and regulations shall prevail.
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ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE GENERAL PARTNER
4.01. Representations, Warranties and Covenants Relating to the Apartment
Development and the Partnership. The General Partner hereby represents, warrants
and covenants to (i) the Partnership and to the Partners to induce investment in
the Partnership, and to (ii) Special Tax Counsel to the Investment Partnership
to induce it to issue its opinion to the Investment Partnership with respect to
the allocation of the Tax Credit to the Investment Partnership and other
benefits attributable to the Partnership, that:
(a) this Agreement has been duly and validly amended and restated as set
forth herein and constitutes a valid and binding agreement of the General
Partner;
(b) the General Partner has (i) undertaken and shall continue to take all
acts necessary for the Partnership to operate as a limited partnership in the
State, including, without limitation, the filing of all Certificates and the
payment of all fees, taxes and other sums; (ii) will continue to do all things
necessary to maintain its status as a limited partnership in good standing and
had, has and shall continue to have full power and authority to acquire the Land
and to develop, construct, operate and maintain the Apartment Development in
accordance with the terms of this Agreement; and (iii) has taken and shall
continue to take all action under the laws of the State and any other applicable
jurisdiction that is necessary to protect the limited liability of the Limited
Partner and to enable the Partnership to engage in its business;
(c) the execution of this Agreement, the assumption of the obligations
set forth in this Agreement, and the consummation of the transactions
contemplated by this Agreement do not violate any federal, state, county,
municipal or other governmental statutes, laws or ordinances, or any rules,
regulations or orders of any governmental agencies or authorities, or any
provision of law, any order, judgment or decree of any court binding upon the
Partnership or the General Partner or Affiliates thereof, any indenture,
agreement, or other instrument to which the Partnership or the General Partner
or Affiliates thereof are a party or by which the Partnership or General Partner
or Affiliates thereof or the Apartment Development is affected, and is not in
conflict with, and will not result in a breach of or constitute a default under,
any such indenture, agreement, or other instrument or result in creating or
imposing any lien, charge, or encumbrance of any nature whatsoever upon the
Apartment Development;
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(d) the Investment Partnership has acquired a valid and unencumbered
limited partnership interest in the Partnership as of the date hereof; no person
or entity other than the Partners hold any equity interest in or has any lien on
the Apartment Development; no person or entity except the Partnership has the
right to any proceeds, after payment of all indebtedness, of the sale,
refinancing or leasing of the Apartment Development; and no approval of any
government agency or any other Person is required in order to carry out the
provisions of this Agreement except as specifically herein contemplated;
(e) neither the Partnership nor the General Partner has previously
dealt with, and is not under any commitment to, any real estate broker, rental
agent, finder, syndicator, intermediary or broker-dealer with respect to the
Partnership Interest hereby acquired by the Investment Partnership and in the
Apartment Development or any portion thereof, and has not previously dealt with,
and is not under any commitment to, any consultant or lobbyist in connection
with obtaining the Mortgage Loan, rental assistance payments, or reservation or
allocation of the Tax Credit or any other applicable form of government subsidy
or financial assistance, except as previously disclosed in writing to the
Investment Partnership;
(f) the General Partner hereby transfers and assigns to the Partnership
all right, title and interest in (i) all contracts with developers, architects,
contractors and supervising architects and other Persons with respect to the
development of the Apartment Development, (ii) all plans, specifications and
working drawings heretofore prepared or obtained in connection with the
Apartment Development and all governmental approvals obtained, including
planning, zoning and building permits and any and all commitments with respect
to the Construction Loan, the Mortgage Loan and the Tax Credit, and (iii) any
other work product related to the Apartment Development;
(g) the General Partner has heretofore made to the Partnership a Capital
Contribution in the amount of $40,422, which loan the Partnership shall repay to
the General Partner when permitted by the RHCDS.
(h) the General Partner will at all times maintain an aggregate net worth
at the greater of (i) $500,000 (net of home equity), or (ii) as necessary
(together with any other requirements) to assure that all provisions of the Code
(as from time to time amended or interpreted by the Internal Revenue Service,
any other agency of the federal government, or the courts) are met which are
necessary to assure that the Partnership is classified as a partnership for
federal income tax purposes; if the General Partner is a sole corporate general
partner, it will have and maintain a net worth (computed to the satisfaction of
Special Tax Counsel) equal to the greater of (iii) 10% of the Capital
21
Contribution of the Limited Partner and (iv) 10% of the aggregate capital
contribution of all limited partners in all other limited partnerships of which
such General Partner is a sole corporate general partner; the General Partner
shall not act in any manner which will cause the Partnership to be treated for
federal income tax purposes as an association taxable as a corporation;
(i) no event of bankruptcy has occurred with respect to the General Partner
or an Affiliate thereof;
(j) any General Partner which is a corporation has been duly organized, is
validly existing and in good standing under the laws of its state of
incorporation and, if different, the state in which the Apartment Development is
located, and has all requisite corporate power and authority to be a General
Partner and to perform its duties and obligations as contemplated by this
Agreement and the Project Documents; neither the execution and delivery by such
corporation or any corporate Affiliate of a General Partner of this Agreement or
any of the Project Documents nor the performance of any of the actions of any
such corporation contemplated hereby or thereby has constituted or will
constitute a violation of (i) the articles or certificate of incorporation or
by-laws of any such corporation, (ii) any agreements by which any such
corporation is bound or to which any of its property or assets is subject, or
(iii) any law, regulation or court decree;
(k) there is no default under any agreement, contract, lease or other
commitment affecting the General Partner, the Partnership, their Affiliates or
the Apartment Development, and there is no claim, demand, litigation, proceeding
or governmental investigation pending or threatened against the General Partner,
the Apartment Development or the Partnership, or related to the business or
assets of the Partnership or of the Apartment Development, which action, claim,
demand, litigation, proceeding or governmental investigation could result in any
judgment, order, decree, or settlement except as heretofore disclosed in writing
to the Investment Partnership, and the General Partner has provided or shall
provide the Investment Partnership with true and correct copies of any papers
relevant to any such impending dispute, arbitration or legal action;
(l) at the time of commencement of construction, at the Initial Closing and
as of the date hereof, the Land was and is properly zoned for the Apartment
Development; all consents, permissions and licenses required by appropriate
governmental entities have been obtained; the Apartment Development conformed
and conforms to all applicable federal, state and local land use, zoning,
environmental and other governmental laws and regulations; and all appropriate
22
public utilities, including sanitary and storm sewers, water, telephone, gas and
electricity, are currently available and, upon the date the first dwelling unit
is occupied, will be operating properly for all dwelling units in the Apartment
Development;
(m) the Construction Contract has been entered into between the Partnership
and the Contractor, and no consideration or fee shall be paid to the Contractor
in its capacity as the Contractor other than as provided in the Construction
Contract;
(n) at Initial Closing, a builder's risk insurance policy, as required by
the Construction Loan in favor of the Partnership, will be in full force and
effect; at the time of initial occupancy of the Apartment Development, fire and
extended coverage insurance for the full replacement value of the Apartment
Development (excluding the value of the Land, site utilities, landscaping and
foundations) and worker's compensation and public liability insurance, all in
favor of the Partnership, will be in full force and effect and will be kept in
full force and effect during the term of the Partnership; all such policies
shall be in amounts and with insurers satisfactory to the RHCDS; and at all
times during the term of the Partnership, the Partnership will maintain at least
$1,000,000 of liability insurance covering the Land and the Apartment
Development;
(o) at Initial Closing, good and marketable fee simple title to the
Apartment Development was held by the Partnership; the Partnership shall
purchase an owner's title insurance policy naming itself as insured issued by a
financially sound institution acceptable to the RHCDS and the Investment
Partnership (initially in the amount of the land value, to be increased from
time to time during the construction period up to the amount of the total
replacement value of the Apartment Development, including all Capital
Contributions set forth in Sections 5.01 and 5.02, together with such
affirmative endorsements deemed necessary or appropriate by the RHCDS or the
Investment Partnership); such title policy shall remain in full force and
effect, subject only to such casements, covenants and restrictions and other
exceptions which are set forth in such policy and which do not interfere with
the purpose of the Partnership or have a material adverse effect on the value of
the Apartment Development and which are otherwise acceptable to the RHCDS and
the Investment Partnership; any proceeds paid on an owner's title insurance
shall be distributed 99% to the Investment Partnership and 1% to the General
Partner;
(p) the construction and development of the Apartment Development has begun
and shall be completed in a timely and workmanlike manner in accordance with (i)
all applicable requirements of the Construction Loan and the Mortgage Loan, (ii)
all applicable requirements of the RHCDS and any other appropriate governmental
entities, and (iii) the plans and specifications of the Apartment Development as
from time to time have been or shall be hereafter approved by the RHCDS and any
23
other governmental entities, if required, and Consented to by the Investment
Partnership, if a change order pursuant to which any change shall be made may
affect adversely the nature of the business of the Partnership, the Gross Rent
of the Apartment Development, the Projected Credit, and/or the marketability of
the Apartment Development to Qualifying Individuals;
(q) all of (i) the fixtures, maintenance supplies, tools, equipment and
the like now and to be owned by the Partnership or to be appurtenant to, or to
be used in the operation of the Apartment Development, as well as (ii) the
rents, revenues and profits earned from the operation of the Apartment
Development, are and will be free and clear of all security interests and
encumbrances, except for the Construction Loan and the Mortgage Loan;
(r) the Partnership has the sole responsibility to pay all maintenance
and operating costs, including all taxes levied and all insurance costs,
attributable to the Apartment Development; the Partnership, except to the extent
it is protected by insurance and excluding any risk borne by lenders, bears the
sole risk of loss if the Apartment Development is destroyed or condemned or
there is a diminution in the value of the Apartment Development;
(s) the General Partner has provided or shall provide the Investment
Partnership with true and correct copies of any papers relevant to the
Construction Loan and the Mortgage Loan commitments and all documents evidencing
or securing the Construction Loan and the Mortgage Loan, including, if requested
by the Investment Partnership, a complete set of plans, drawings, specifications
and any change orders for the Apartment Development;
(t) neither the General Partner nor any Related Person to the General
Partner nor the Partnership has entered, or shall enter, into any agreement or
contract for the payment or offset of any Construction Loan or Mortgage Loan
discounts, additional interest, yield maintenance or other interest charges or
financing fees, or any agreement to incur any financial responsibility with
respect to the Apartment Development or providing for any guarantee of payment
of any such interest charges or financing fees relating thereto, other than
those specifically Consented to by the Investment Partnership; in no event will
the General Partner or the Partnership enter into any such agreement or
guarantee of any kind whatsoever (such as an escrow arrangement or letter of
credit arrangement) which would subject the Partnership or any of its Partners
or Related Persons to personal liability or economic risk of loss as to the
Mortgage Loan principal or interest, nor will any General Partner or Related
24
Person (or Affiliate thereof) make any loan which shall be personally
enforceable against a Partner by the RHCDS or any other lender;
(u) the Partnership shall enter into an Interest Credit Agreement with
ADFA and RHCDS having the effect of reducing the Partnership's monthly loan
payments on the Mortgage Loan to an amount which would be payable if such loan
were bearing interest at a specified percentage rate, the sole recourse of the
mortgagee thereunder with respect to the principal thereof, interest thereon or
any other obligation thereunder shall be to the assets of the Partnership
securing the Mortgage Loan, and at Final Closing the nonrecourse promissory note
given by the Partnership to the ADFA and RHCDS and permanent mortgage loan in
the amount of $384,000 for a term of 30 years at an interest rate of 6% to be
provided by ADFA and a second permanent finance loan in the amount of $384,015
for a term of 50 years at an effective interest rate of 1% to be provided by
RHCDS and shall contain similar nonrecourse provisions;
(v) the Partnership will undertake all acts, filings and other requirements
necessary to qualify the Apartment Development for the Tax Credit; all
information contained in any applications, certifications, and any related
correspondence to the State Agency for reservation and/or allocation of the Tax
Credit is complete and correct in all material respects, and copies thereof have
been furnished to Landau; and the Apartment Development will have an Eligible
Basis of at least $989,521. The Investment Partnership anticipates the Tax
Credit that will be allocated to the Partnership after the Apartment Development
is placed in service will not exceed $39,560, which amount is the basis of the
Projected Tax Credit set forth on Exhibit A attached hereto;
(w) no right of first refusal pursuant to Section 42(i)(7) of the Code or
extended use periods for low-income occupancy pursuant to Section 42(h)(6) of
the Code shall apply to the Apartment Development or any building thereof,
except for the 15-year extended use period previously disclosed in writing to
and hereby approved by the Investment Partnership;
(x) the Apartment Development is a qualified low-income housing project and
each building thereof is a qualified low-income building pursuant to Section 42
of the Code; such Apartment Development and buildings thereof will at all times
satisfy the Rent Restriction Test, the 40-60 Set-Aside Test, and all other
requirements of any federal, state or local law necessary to remain qualified
for Tax Credits;
(y) the Apartment Development shall be managed in all respects (i) in
accordance with all applicable provisions of the Housing Act of 1949 and the
rules and regulations of the RHCDS and any other appropriate governmental agency
including, without limitation, any Section 42 monitoring plan established by the
25
State Agency in accordance with Proposed Treasury Regulation Section 1.42-5 and
any successor regulation thereto under the Code, (ii) so that no less than 80%
of the gross income from the Apartment Development in every year will be rental
income from dwelling units in the Apartment Development used to provide living
accommodations not on a transient basis, and (iii) so that, if the aggregate
income of the occupants in any dwelling unit of the Apartment Development rises
above 140% of the income limitation applicable to such occupants under Section
42 of the Code, the next available dwelling unit of the Apartment Development
will be rented to a low-income tenant pursuant to Section 42(g) of the Code,
taking all acts necessary so that all dwelling units are rented to persons
classified as Qualifying Individuals;
(z) the General Partner shall, during and after the period in which the
General Partner is a Partner, provide the Accountants with such funds and
information, and sign such documents as are necessary for the Partnership to
make accurate and complete submissions of federal and state income tax returns
no later than March 10 annually;
(aa) the Partnership will use such method of depreciation and make such
elections on IRS Form 8609, which, in the opinion of accountants for the
Investment Partnership, shall be advantageous to the Investment Partnership;
(bb) there are no restrictions on the sale or refinancing of the Apartment
Development, other than the restrictions referred to in this Article IV or which
are the result of applicable provisions of the Housing Act of 1949 and the rules
and regulations of the RHCDS and Section 42(h) of the Code;
(cc) upon written request by any limited partner of the Investment
Partnership, the General Partner will, upon reasonable notice and during regular
business hours, (i) allow such limited partner to visually inspect the Apartment
Development, (ii) answer any questions such limited partner may have concerning
the Apartment Development, (iii) provide such limited partner with annual
financial statements with regard to the Apartment Development's operations as
are then available, including all financial statements and/or annual reports
previously filed with the RHCDS and (iv) if notified by the Investment
Partnership that less than five similar property investments shall have been
made by the Investment Partnership (including the Apartment Development), the
General Partner will furnish to the Investment Partnership automatically and
without request, for forwarding to investors in the Investment Partnership, such
annual financial statements of the Apartment Development operations;
26
(dd) the General Partner shall furnish to counsel for the Investment
Partnership promptly as and when requested, in connection with the rendering of
any legal opinion concerning federal income tax, partnership law and securities
law matters relating to the Investment Partnership, copies of such documents as
are requested by such counsel and/or additional copies;
(ee) insofar as is reasonably ascertainable by the
Investment Partnership with any information necessary to make the information
provided by the General Partner complete and accurate in all material respects,
or omitted to provide a material fact concerning the Apartment Development or
the Tax Credit allocable to it; and the Investment Partnership is entitled to
rely on the completeness and accuracy of all such information furnished for any
and all purposes;
(ff) all representations, warranties, covenants and obligations in this
Agreement made by the General Partner, if requested by the Investment
Partnership, shall be re-affirmed in any separate writing deemed necessary by it
to carry out the purposes of this Agreement; and
(gg) all general operating accounts and reserve accounts of the
Partnership, including but not limited to reserves for replacements, real estate
taxes, and hazard, liability and mortgage insurance premiums, if any, which are
required to be funded, have been and will continue to be funded to required
levels.
(hh) Certain Partnership Obligations. The Amended Limited Partnership
Agreement will provide, among other obligations, that the Partnership will do
the following:
1. insure the Apartment Development under an all-risk policy in amounts
required by RHCDS, but not less than the full replacement cost of the property,
without deductibles. The Investment Partnership shall be named as a loss payee
on such policy behind ADFA and RHCDS.
2. insure the Partnership under a single limit personal injury and property
damage liability policy in an amount of not less than $3,000,000, with a
deductible of no more than $10,000. The Investment Partnership shall be named as
an additional insured on such policy.
3. maintain reserve required by RHCDS, and these funds are to be deposited
with Landau.
4. operate the Apartment Development in the ordinary course of business and
in such a manner that the Apartment Development will be eligible to receive a
Tax Credit as provided herein and remain in compliance with respect to 100% of
the units in the Apartment Development.
27
5. enter into an extended use restriction agreement with the State Agency,
cause same to be recorded and comply with the Partnership's obligations
thereunder.
6. pay a Reporting Fee of $500.00 per annum to the Limited Partner due on
the day the Limited Partner receives the annual partnership reports (K-1, Income
Statement, Balance Sheet).
(jj) Certain General Partner Obligations. The General Partner will
assume each of the following obligations and will execute the Amended Limited
Partnership Agreement and carry out its terms and provisions, which will
incorporate, among others, the following provisions:
1. Cause the partnership to perform the obligations it will assume pursuant
to Section 10 hereof.
2. Pay, if the General Partner is the developer, without right of
reimbursement or credit to its capital account, all costs in excess of those
paid by mortgage loan proceeds and Partnership funds of completing construction
of the Apartment Development in accordance with approved plans and
specifications, placing same in service, achieving Final Closing of the RHCDS
loan ad 100% rent up, and Tax Credit qualification of the Apartment Development.
If the General Partner is not the developer, the General Partner shall
unconditionally guarantee the obligations of the developer to pay all such
costs.
3. Take all steps necessary to (i) cause the Apartment Development to
become and remain eligible for a Tax Credit in an annual amount at least equal
to the Projected Tax Credit; (ii) obtain a reservation of the Tax Credit and
carryover allocation agreement, if required, from the State Agency; and (iii)
with the property management agent, use its best efforts to rent units in the
Apartment Development solely to persons classified as Eligible Occupants for the
Tax Credit, consulting with Landau, RHCDS, and ADFA prior to any ineligible
rental if at any time market conditions are deemed to necessitate rental to a
non-Eligible Occupant.
4. Fund operating deficits up to the amount of your working capital reserve
plus $20,000 for a period of 2 years from final closing. If, after the 2 year
period mentioned above, operating deficits occur for three consecutive months,
the General Partner is obligated to seek appropriate RHCDS assistance for the
Apartment to remedy and rectify the shortfalls.
5. Reimburse the Limited Partner, upon its request, in the amount of 100%
of its paid-in Capital Contribution, including the amount advanced upon the
28
signing of this Agreement, if (i) the Apartment Development has not achieved
Final Closing of the RHCDS loan by November 15, 1996, or occupancy of 95% of its
units by Eligible Occupants by March 15, 1997, or if the State Agency has not
allocated or provided a final allocation of the Tax Credit by December 31, 1996;
or (ii) any financing commitment of RHCDS or another interested governmental
agency shall disapprove the Landau as a limited partner, or (iii) the Apartment
Development shall fail to remain qualified for the Tax Credit under the
set-aside test or tent restriction test applicable to the Apartment Development
during the ten-year Tax Credit period, provided that, at the Limited Partner's
election, the General Partner may be given a period of time in which to remedy
any of the above conditions, during which the period any Capital Contribution
payment due from the Investment Partnership may be withheld.
6. Ensure that good and marketable fee simple title to the Apartment
Development, subject only to such liens and encumbrances which are acceptable to
the RHCDS, ADFA and the Limited Partner, is held by the Partnership, and to
arrange for the purchase by the Partnership of an owner's title insurance policy
in an amount equal to the principal amount of all permanent mortgage loans plus
the Capital Contributions, but not less than the appraised value of the
Apartment Development.
7. Obtain an opinion of local counsel to the Partnership substantially as
provided in Exhibit "C" of the Amended Limited Partnership Agreement, containing
such matters as may be required by special tax counsel to the Partnership
necessary to confirm the ability of the partnership to utilize the Tax Credit as
represented by the General Partner in accordance with the Amended Limited
Partnership Agreement.
8. Represent other facts regarding the Partnership or the Apartment
Development which may be reasonably required by special tax counsel to the
Partnership to render an opinion as to tax consequences.
9. If a carryover allocation agreement with the State Agency is required,
obtain a certification of cost incurred in the year of Tax Credit reservation
from the partnership's CPA, certifying that at least 10% of the estimated
eligible cost of the Apartment Development was incurred in such year, with a
breakdown of such costs and apply for said carryover agreement prior to any
deadline date set by the State Agency.
10. Provide to the Limited Partner, prior to submission to the State
Agency, for review and approval, a final eligible basis cost certification for
the Apartment Development.
11. Provide, among other items, customary general partner representations
and warranties, including representations and warranties with respect to the
29
status of the Partnership, its right and authority to enter into this
transaction, the status of the construction of the improvements and the accuracy
of the assumptions used in the financial forecasts.
(kk) Reporting Requirements. During the Partnership term, the
Partnership shall furnish to Landau monthly operating statements, reports, and
project worksheets of the Apartment Development and Partnership, as submitted to
the RHCDS, together with necessary reports certifying Tax Credit occupancy and
other financial, tax and accounting data requested by Landau. An annual CPA
compilation report of the Partnership's books and tax returns for each calendar
year are to be provided to Landau by the last day of February following each
said year.
4.02. No Duty to Investigate. The Investment Partnership may rely on the
representations contained and referenced in this Agreement without further duty
of inquiry as to their accuracy and validity.
ARTICLE V
PARTNERSHIP INTERESTS AND CAPITAL CONTRIBUTIONS
5.01. Original Partners' Partnership Interests
(a) The General Partner and the General Partner's principal address,
Capital Contribution (prior to the return of Capital set forth in Section
5.02(b)(i)) and Percentage Interest in Profits, Losses and Credits are as
follows:
▇▇▇▇▇ ▇. ▇▇▇▇ $40,422 1%
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) The fair market value of the property transferred and assigned to
the Partnership as represented in Section 4.01(fl shall be deemed to be zero, in
consideration of the Development Services Fee, and shall not represent a Capital
Contribution.
(c) The Initial Limited Partner hereby withdraws from the Partnership
as a limited partner.
5.02. Capital Contribution of the Investment Partnership
(a) The Investment Partnership, as entering Limited Partner, its
principal offices or places of business, its Capital Contribution and its
Percentage Interest in Profits, Losses and Credits are as follows:
30
Landau $215,000.00 99%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
P. O. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(b) In reliance upon the representations, warranties and covenants of
the General Partner in Article IV, the Investment Partnership shall be obligated
to make its Capital Contribution to the Partnership in installments (the
"Installments"), which shall be payable by the Investment Partnership solely
from capital contributions of limited partners of the Investment Partnership, as
follows:
(i) $55.000 ($40,422 of which, being such amount as shall
reduce the General Partner's Capital to 1%, shall constitute a
return of Capital to the General Partner) upon the signing of
this Agreement and receipt of the basic project documents
marked with an asterisk as noted on attached Schedule B, the
following amount, which will be refunded upon written request
of Landau if the obligations of the General Partner hereunder
and in the Amended Limited Partnership Agreement shall not be
timely fulfilled or if any of t he conditions for payment set
forth in clause (ii) hereof shall not be timely satisfied:
$55,000
(ii) Upon the latest to occur of (a) execution by the General
Partner, the Investment Partnership and the original limited
partner of an Amended Limited Partnership Agreement and filing
of an amendment of the Partnership's certificate of limited
partnership stating that the Investment Partnership is a
limited partner and the original limited partner has
withdrawn; (b) receipt by Landau of the following: (i) copies
of the Project documents set forth in Exhibit B; (ii) a legal
opinion of the partnership's counsel substantially in the form
of Exhibit C of the Amended Limited Partnership Agreement;
(iii) copies of a reservation of Tax Credit in the amount of
the Projected Tax Credit issued by the State Agency and a
carryover allocation agreement if the reservation shall have
been made in a prior year; (iv) an owner's title insurance
policy complying with the requirements of this Agreement; or
(c) Initial Closing: $50,000
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(iii) Upon the later to occur of
(A) Final Closing of the RHCDS loan, (B) October 1, 1996, and
(C) Letter from General Partner requesting payment:
$60,000
(iv) Upon the latest to occur of (A) receipt by Landau of
copies of Tenant Certifications evidencing occupancy of 100%
of the Apartment Development's units by Eligible Occupants,
and (B) January 2, 1997:
$35,000
(v) Upon the latest to occur of (A) receipt by the Investment
Partnership of copies of (i) a complete federal tax return of
the Partnership for the calendar year in which the Apartment
Development shall have been placed in service, (ii) IRS form
8609 for the Apartment Development and (iii) a schedule of
final costs certified to the State Agency; (B) four
consecutive months of breakeven operations; or (C) March 1,
1997: $15,000
provided, however, that as a condition precedent to the Investment
Partnership's obligation to pay any Installment (except for the first)
(A) all prior Installments shall have become due and all of
the representations, warranties and covenants of the General
Partner shall be true and correct as of the date of payment of
such Installment,
(B) the General Partner shall have distributed Net Cash Flow
to all Partners pursuant to Section 10.06,
(C) the General Partner shall have provided Landau with all
information required to be provided to it under Section
6.14(a), and
(D) the General Partner shall have provided Landau, by no
later than March 10 of any year, the Partnership's income tax
returns, and supporting documents, for the Investment
Partnership's approval pursuant to Sections 12.03 and 12.04;
if the General Partner does not provide these returns by
February 15, the next Installment of Capital Contribution due
to the Partnership by the Investment Partnership may be
delayed by the same number of days as the number of days the
32
Partnership tax return is received by the Investment
Partnership after February 15.
(c) Prior to the time any Installment shall become due, if so
requested by the Investment Partnership, the General Partner shall give the
Investment Partnership Notice certifying that as of such date no condition
exists which would, pursuant to Section 5.03, entitle the Investment Partnership
to withhold the payment of an Installment.
(d) In the event the Actual Credit is less than the Projected Credit
by reason of a reduction in (i) Eligible Basis, due to the actions of the RHCDS
or as determined by the Investment Partnership's independent accountants, or
(ii) the Applicable Percentage and/or maximum qualified basis set forth on IRS
Form 8609, Part I lines 2 and 3). or (iii) the original qualified basis (as
determined on IRS Form 8609 Part II line 2A, as filed), the Capital Contribution
due from the Investment Partnership and the Projected Credit shall both be
reduced by a percentage equal to the percentage by which the Actual Credit is
less than the Projected Credit. Any such reduction of Capital Contribution shall
be made by proportionately reducing all unpaid Installments set forth in Section
5.02.
(e) Notwithstanding anything to the contrary contained herein, if
Final Closing and/or admission of the Investment Partnership has not occurred by
February 1, 1997, or the Credit Period has not been elected to have commenced as
of January 1, 1997, or the occupancy requirement of Section 5 .02(b)(iv)(A) has
not been met by April 1, 1997, at the sole election of the Investment
Partnership all Installments shall be due and payable by the Investment
Partnership on a semi-annual basis commencing with the latest of the date of
Final Closing and/or admission of the Investment Partnership, or January 1st of
the first year of the Credit Period, or the date that the occupancy requirement
has been met.
(f) If the Investment Partnership shall default in paying an
Installment, then upon either the agreement of the General Partner and the
Investment Partnership or the final decision of a commercial arbitrator pursuant
to Section 13.01, determining that such Installment is required to be made under
the terms of this Agreement and specifying the date by which the Investment
Partnership shall pay such Installment and said Installment shall not be paid in
full by bank wire transfer or certified bank check on such specified date, the
Interest of the Investment Partnership shall terminate on such specified date
and its Partnership Interest shall be assigned to a designee of the General
Partner; such termination shall be the sole remedy of the Partnership, General
Partner and Developer with respect to the default of the Investment Partnership.
Notwithstanding the foregoing, the Investment Partnership shall retain that
33
percentage interest in the Partnership which is equal to the ratio of its
Capital Contribution made to the total Capital Contributions set forth in
Section 5.02(a).
(g) Without the Consent of all of the Partners, no additional Persons
may be admitted as additional limited partners and Capital Contributions may be
accepted only as and to the extent expressly provided for in this Article V and
Section 9.03(d).
5.03. Withholding of Capital Contribution Upon Default
(a) In the event: (i) the General Partner, or any successor General
Partner, shall not have complied with any material provision of this Agreement
(including, without limitation, the representations, warranties and covenants of
the General Partner set forth in Article IV and the obligations of the General
Partner under Article VI and Article XII of this Agreement), or (ii) any
commitment of the RHCDS to provide financing, or any agreement entered into by
the Partnership to provide financing related to the completion of construction
of the Apartment Development, shall have terminated prior to its respective
termination date and not been reinstated in a timely manner as determined solely
by counsel for the Investment Partnership, or (iii) the Construction Lender
shall not make a disbursement under the Construction Loan and such disbursement
is not made or the Construction Lender is not replaced within 60 days, or (iv)
less than 60% of the dwelling units in the Apartment Development remain
qualified under the 40-60 Set-Aside Test during the Compliance Period, or (v)
foreclosure proceedings shall have been commenced by the Construction Lender or
the RHCDS against the Apartment Development, or (vi) any required RHCDS
approvals to the admission of the Investment Partnership into the Partnership
and the execution of the Partnership Agreement have not been obtained within 90
days of such admission, then the Partnership and the General Partner shall be in
default of this Agreement and the Investment Partnership, at its sole election,
may withhold payment of any one substantially cured, or (ii) there is a final
arbitration decision under Section 13.01 to the effect that (A) the General
Partner and/or the Partnership have substantially cured the default giving rise
to the withholding under this Section 5.03 or (B) the General Partner and/or the
Partnership were not in fact in default hereunder. Any interest earned thereon,
except in the case of clause (ii)(B) above, shall be paid to the Investment
Partnership.
(c) In the event that any Tax Credit Reduction Amount shall be
determined by accountants for the Investment Partnership during the Capital
Contribution Period, the Investment Partnership shall adjust any Installment
otherwise payable to the Partnership by an amount equal to the Tax Credit
Reduction Amount so determined, dollar-for-dollar.
34
5.04. Return of Partners' Capital Contributions
(a) Except as provided in this Agreement, no Partner shall be entitled
to demand and receive a return of his Capital Contribution.
(b) If (i) the RHCDS or the Construction Lender shall fail to provide
any required approvals to the admission of the Investment Partnership as a
Partner hereunder within 180 days of its admission to the Partnership; or (ii)
an event of default described in Section 5.03(a)(ii) or (iii) has occurred, or
(iii) Final Closing has not occurred by February 1, 1995 (or such later date as
may be Consented to by the Investment Partnership), or (iv) the Apartment
Development has not achieved occupancy under RHCDS-approved leases of 88% of its
dwelling units by August 1, 1995, or (v) the State Agency has not provided an
IRS Form 8609 or a written certificate of a carryover allocation of the Tax
Credit by or as of December 31, 1993, or (vi) the Apartment Development fails to
become or remain qualified under the 40-60 Set-Aside Test or Rent Restriction
Test during the Credit Period; or (vii) the Tax Credit available to the
Partnership cannot legally be allocated to the Investment Partnership as
required by this Agreement due to a failure of the General Partner or the
Accountants to comply with the requirements of Section 42 of the Code by the
later of Final Closing or issuance of IRS Form 8609 with costs certified to the
State Agency, then a "Repurchase Event" shall exist and the General Partner
shall, within 15 days of the occurrence thereof, send to the Investment
Partnership Notice of such Repurchase Event and of the General Partner's
obligation to purchase the Partnership Interest of the Investment Partnership
hereunder (which shall not be an obligation of the Partnership) and return to
the Investment Partnership its Capital Contribution. Thereafter, upon the sole
election of the Investment Partnership, the General Partner, within 30 days of
the mailing date of Notice by the Investment Partnership of such election, shall
acquire the entire Partnership Interest of the Investment Partnership by making
payment to the Investment Partnership, in cash, of an amount equal to the
aggregate paid-in portion of its Capital Contribution (not including any Capital
Contribution of a prior Partner), whereupon the Partnership Interest of the
Investment Partnership shall terminate and the General Partner shall indemnify
and hold harmless the Investment Partnership from any losses, damages or
liabilities to which the Investment Partnership, as a result of its
participation hereunder, may be subject.
35
ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
6.01. Management of the Partnership
(a) Except as otherwise set forth in this Agreement, the General
Partner, within the authority granted under this Agreement, shall have full,
complete and exclusive discretion to manage and control the business of the
Partnership for the purpose herein stated, shall make all decisions affecting
the business of the Partnership and shall manage and control the affairs of the
Partnership in good faith to the best of the ability of the General Partner and
use best efforts to carry out the purpose of the Partnership as set forth in
Section 3.01. In so doing, the General Partner shall take all actions necessary
or appropriate to protect the interests of the Limited Partner and of the
Partnership. The General Partner shall devote such time as is necessary to the
affairs of the Partnership.
(b) If there be more than one General Partner, the administrative
affairs of the Partnership shall be managed by the Managing General Partner. In
furtherance and not in limitation of the foregoing sentence, the Managing
General Partner is hereby specifically authorized and empowered to execute and
deliver, on behalf of the Partnership, the Construction Contract, Construction
Loan or Mortgage Loan and to execute any and all other instruments and documents
and amendments thereto as shall be required in connection therewith, including
any mortgage, note, contract, building loan agreement, bank resolution and
signature card. No Person dealing with the Partnership shall be required to
determine the Managing Partner's authority to make any undertaking on behalf of
the Partnership, or to determine any facts or circumstances bearing upon the
existence of such authority, and all decisions made for and on behalf of the
Partnership by the Managing General Partner pursuant to and within the scope of
the authority herein given shall be binding upon the Partnership. The Managing
General Partner shall be the Tax Matters Partner referred to in Section 10.09.
6.02. Limitations Upon the Authority of the General Partner
(a) The General Partner shall not have any authority to directly or
indirectly:
(i) perform any act in violation of any applicable law or
regulation thereunder; or
(ii) perform any act in violation of the provisions of the
Construction Loan or Mortgage Loan, or any other RHCDS
documents executed by or on behalf of the Partnership, or the
Construction Contract; or
36
(iii) do any act required to be Consented to or ratified in
writing by the Limited Partner hereunder or under the Act
unless the right to do so is expressly otherwise given in this
Agreement; or
(iv) rent apartments in the Apartment Development so that the
Apartment Development would not meet the requirements of the
Rent Restriction Test or 40-60 Set-Aside Test; or
(v) borrow from the Partnership or commingle Partnership funds
with the funds of any Person; or
(vi) borrow on the general credit of the Partnership;
or
(vii) perform any act which would make it impossible to carry
on the ordinary business of the Partnership; or
(viii) confess a judgment against the Partnership; or
(ix) change or reorganize the Partnership into any other
legal form; or
(x) require the Limited Partner to make any contribution to
the capital of the Partnership not provided for herein; or
(xi) permit the Partnership to acquire property in exchange
for an Interest in the Partnership; or
(xii) permit the Partnership to grant the General Partner an
exclusive right to sell the Partnership's property; or
(xiii) engage in activities directly competitive with those
of the Partnership; or
(xiv) permit the Partnership to directly or indirectly pay the
General Partner a commission or fee in connection with the
reinvestment or distribution of Sale or Refinancing Proceeds
or Liquidation Proceeds except as provided for herein; or
(xv) receive any rebates or give-ups or participate in any
37
reciprocal business arrangements in circumvention of this
Agreement; or
(xvi) charge or receive any fees for management services
except as expressly provided herein.
(b) The General Partner shall not, without the Consent of the
Investment Partnership, directly or indirectly,
(i) terminate the Partnership for federal income tax purposes or dissolve
or wind up the Partnership; or
(ii) permit the Partnership to acquire any property from another
partnership in which a General Partner or Affiliate thereof has an Interest; or
(iii) incur any indebtedness by the Partnership other than in the ordinary
course of its business as described herein; or
(iv) make application for or accept any increase in the Construction Loan
or the Mortgage Loan or materially modify the Mortgage Loan if such increase or
modification may affect the Gross Rent of the Apartment Development and/or its
marketability to Qualifying Individuals; or
(v) change the nature of the Partnership's business, including, without
limitation, acquiring any real property on behalf of the Partnership in addition
to the Apartment Development or constructing any new or replacement capital
improvements on the Apartment Development or on any land owned by the
Partnership; or
(vi) sell, exchange, lease, mortgage, pledge or otherwise transfer all or
substantially all of the assets of the Partnership, or any portion of the Land
owned by the Partnership; or
(vii) possess Partnership property or assign any rights in specific
Partnership property for other than Partnership purposes; or
38
(viii) place any liens or restrictions or other title exceptions on the
Apartment Development; or
(ix) permit a General Partner to withdraw from the Partnership, or to admit
a new or substitute general partner or limited partner; or
(x) make any material amendment to the Certificate or this Agreement,
unless required by law;
provided, however, that in the judgment of counsel to the Investment
Partnership, the giving of any such Consent shall be permitted by the Act as the
exercise of a power not constituting participation in the control of the
business so as to convert the limited partner Interest of the Investment
Partnership into a general partner Interest for any purpose or to any extent.
The General Partner shall, at the request of the Investment
Partnership, perform all acts necessary to obtain an equity takeout loan
pursuant to Section 515(t) of the U.S. Housing Act of 1949 as amended.
6.03. Delegation of Authority
Subject to the Act, the General Partner may delegate all or any of the
powers of the General Partner, rights and obligations hereunder, and may
appoint, employ, contract or otherwise deal with any Person for the transaction
of the business of the Partnership, which Person may, under supervision of the
General Partner, perform any acts or services for the Partnership as the General
Partner may approve, provided that management fees and/or expenses are not
increased thereby, nor the Limited Partner's shares of Net Cash Flow, Sale or
Refinancing Proceeds, or Liquidation Proceeds decreased thereby.
6.04. General Partner or Affiliates Dealing with the Partnership
(a) The General Partner or any Affiliate may act as Developer and/or
Management Agent of the Apartment Development on such terms and conditions
permitted hereby and by applicable RHCDS regulations, and may receive
compensation at the rates so approved, including, without limitation, the
Development Services Fce.
(b) The General Partner, or any Affiliate thereof, shall have the
right to contract or otherwise deal with the Partnership for the sale of goods
or services to the Partnership in addition to those set forth herein if (i)
compensation paid or promised for such goods or services is reasonable (i.e., at
39
fair market value) and is paid only for goods or services actually furnished to
the Partnership, (ii) the goods or services to be furnished are reasonable for
and necessary to the Partnership, (iii) the fees, terms and conditions of such
transaction are at least as favorable to the Partnership as would be obtainable
in an arm's-length transaction, (iv) the purpose of the Partnership is advanced,
(v) any contract covering such transactions is in writing and terminable without
penalty on 60 days Notice, (vi) any payment made to the General Partner or any
Affiliate for such goods or services shall have been fully disclosed to all
Partners in the required by Section 1204 and reports circumvented the provisions
of this Section 6.04 or Section 6.03, and (vii) any other required Consent
(including the Consent of the RHCDS) is obtained. The General Partner hereby
Consents and agrees that NCPPS or any Affiliate shall also have the right to
contract or otherwise deal with the Partnership for the sale of goods or
services.
(c) Notwithstanding the provisions of this Section 6.04, the General
Partner or any Affiliate thereof shall not:
(i) receive any insurance brokerage fee or write any insurance policy
covering the Apartment Development or the Partnership; or
(ii) compensate on behalf of the Partnership any agent, attorney,
accountant or other independent consultant or contractor that also is employed
on a full-time basis by the General Partner or any Affiliate thereof without the
Consent of the Investment Partnership.
6.05. Other Activities
The General Partner and any Affiliate may engage in or possess
interests in other business ventures of every kind and description for their own
account, including, without limitation, serving as general partner of other
partnerships which own, either directly or through interests in other
partnerships, government-assisted housing projects similar to the Apartment
Development. Neither the Partnership nor any of the Partners shall have any
rights by virtue of this Agreement in or to such other business ventures or to
the income or profits derived therefrom.
40
6.06. Liability for Acts and Omissions
The General Partner shall not be liable, responsible or accountable in
damages or otherwise to any of the Partners for any act or omission performed or
omitted in good faith on behalf of the Partnership and in a manner reasonably
believed to be within the scope of the authority granted to the General Partner
by this Agreement and in the best interest of the Partnership, except for
negligence, misconduct, fraud or any breach of fiduciary duty with respect to
such acts or omissions. Any loss or damage incurred by the General Partner by
reason of any act or omission performed or omitted by the General Partner in
good faith on behalf of the Partnership and in a manner reasonably believed by
the General Partner to be within the scope of the authority granted to the
General Partner by this Agreement and in the best interests of the Partnership
(but not, in any event, any loss or damage incurred by the General Partner by
reason of negligence, misconduct, fraud or any breach of fiduciary duty with
respect to such acts or omissions) shall be paid from Partnership assets to the
extent available (but the Limited Partner shall not have any personal liability
to the General Partner under any circumstances on account of any such loss or
damage incurred by the General Partner or on account of the payment thereafter.
6.07. Indemnities
(a) The General Partner hereby indemnifies and holds the Partnership,
the Investment Partnership and the partners thereof, First Sterling, and any
Affiliates, agents and assignees thereof, free and harmless from any injury,
diminution in value of the Partnership Interest of the Investment Partnership,
loss or damage (including, but not limited to, reasonable attorneys' fees, court
costs, and amounts paid in settlement of any claims which have been mutually
agreed to by the General Partner and the party against whom such claim has been
made, resulting from the claims of any Person with respect to any liability
arising under the Securities Act of 1933 or the Securities Exchange Act of 1934
or the securities laws or regulations of any state or other jurisdiction), with
respect to claims based upon alleged fraud, deceit or untrue statement of a
material fact made by the General Partner or omission by the General Partner to
state a material fact required to be stated or necessary to make the statements
not misleading, with respect to or based upon information furnished or
statements made by the General Partner to the Investment Partnership, or their
agents, in connection with the acquisition by the Investment Partnership from or
through them of a Partnership Interest or the offer or sale of limited partner
interests in the Investment Partnership (it being understood that, except as set
forth above, the General Partner shall not be liable for any matters relating to
federal or state securities laws applicable to the Investment Partnership).
41
(b) The General Partner hereby indemnifies and holds harmless the
Partnership, the Investment Partnership, and their Affiliates, agents and
assignees from any and all claims (to the extent that any such claim arises out
of the General Partner's action or failure to act) of any real estate broker,
rental agent, finder, syndicator or other intermediary with respect to the
acquisition of the Apartment Development or any Interest in the Partnership and
shall assume the defense of any judicial action that might arise in connection
with any such claims, provided that the Investment Partnership shall have the
right to assume the defense of any claim or counterclaim against itself.
(c) The General Partner hereby indemnifies and holds the Investment
Partnership and Special Tax Counsel harmless from all claims, damages and losses
arising any way out of breach of the representations, warranties and covenants
contained herein or from any claim arising in any way out of the operation or
ownership of the Apartment Development.
(d) In the event the provisions of this Section or any portion thereof
or the application thereof to any Person or circumstances shall to any extent be
invalid or unenforceable, the parties hereto hereby agree that a right to
receive contribution shall exist on the part of the party or parties who
otherwise would have been an indemnified party under the aforesaid provisions
(hereinafter collectively referred to as the "contribution recipient") in the
amount of 90% of any and all losses, claims, damages, expenses or liabilities to
which a contribution recipient may become liable. The parties hereby agree
further that, in such event, and upon the incurring by a contribution recipient
of any such loss, claim, damage, expense or liability, and the giving by such
contribution recipient of written notice thereof to the party or parties who
otherwise would have been an indemnifying party under the aforesaid provisions
(hereinafter collectively referred to as "contributor"), the contributor shall
promptly pay to such contribution recipient an amount equal to 90% of any such
loss, claim, damage, expense or liability incurred by such contribution
recipient as aforesaid.
6.08. Payment of Development Costs and Excess Development Costs
(a) The General Partner shall be responsible, without limitation, and
without right of reimbursement by the Partnership (except as may be required by
Section 10.07(h) or a return of Capital Contribution to the General Partner
pursuant to Section 5.02(b)(i)), for:
(i) achieving Initial Closing, Substantial Completion and
Final Closing of the Apartment Development, as set forth in
this Agreement, and providing any funds necessary to achieve
42
such closings and completion, including without limitation any
Excess Development Costs; and
(ii) fulfilling all actions and providing any funds required
of the Partnership to assure that the Apartment Development
becomes qualified for Tax Credit under Section 42 of the Code,
substantially in the amount of the Projected Credit. Any such
additional payments made pursuant to this Section shall not be
included in the cost of assets of the Partnership or credited
to the Capital Account of the General Partner unless the
accountants for the Investment Partnership shall otherwise
advise.
6.09. Annual Priority Distributions, Operating Deficit Loans and Tax
Credit Reduction Amount Reimbursement
(a) The General Partner will pay to the Investment Partnership the
amount of the annual priority distribution specified in Section 10.06(a), no
later than 45 days after the close of any fiscal year after the first year of
operations, without regard to the sufficiency of Net Cash Flow to provide for
such distribution in such year; such payments, to the extent Net Cash Flow is
insufficient for their provision, shall constitute a loan by the General
Partner, which shall be repaid in the same manner as an Operating Deficit Loan.
(b) The General Partner shall pay all Operating Deficits during a
period ending the later of the date of termination of the Capital Contribution
Period or the last day of the period of Breakeven Operations, which payments
shall constitute a loan to the Partnership (the "Operating Deficit Loan"),
subject to all requirements and restrictions of the RHCDS; the Operating Deficit
Loan shall bear no interest, and shall be repaid only as set forth in Section
10.07, provided, however, that such obligation shall be limited to the total
amount of Capital Contributions minus the amount of the Consultation Fee, and
provided further that with respect to any particular taxable year (i) such
obligation shall be limited to the payment of an amount equal to the interest
portion only of such debt service; (ii) such obligation shall not be enforceable
at any time by any party, including the RHCDS, except the Partnership and the
Limited Partner; (iii) the General Partner shall, to the maximum extent provided
by law, have discretion in applying the proceeds of any such loan first to other
debts and obligations of the Partnership and second to the Mortgage Loan; and
(iv) such application shall not constitute a guarantee of the Mortgage Loan.
43
(c) Notwithstanding the foregoing, the General Partner hereby agrees
to request assistance from the RHCDS and to notify NCPPS in the event that at
any time after six months following Substantial Completion, Operating Deficits
shall have continued for a period of three consecutive months.
(d) The General Partner shall reimburse the Partnership for any TCRA
not subtracted from any installment of Capital Contribution or returned from Net
Cash Flow during the first five full years of Projected Credit.
6.10. Other Loans to the Partnership
If additional funds are required by the Partnership for any
purpose relating to the business of the Partnership or for any of its
obligations, expenses, costs or expenditures (other than additional Capital
Contributions or Operating Deficit Loans required by Sections 6.08 and 6.09),
the Partnership may borrow such funds as are needed and approved by the RHCDS
from any Partner or other Person or organization, including the General Partner,
for such period of time and on such terms as the General Partner and the RHCDS
may agree at the rate of interest then prevailing for comparable loans,
provided, however, that no such additional loans shall be secured by any
mortgage or other encumbrance on the property of the Partnership, except in the
case of the hypothecation of personal property purchased by the Partnership and
not included in the security agreements executed by the Partnership at the time
of Initial Closing or Final Closing, and otherwise in accordance with this
Agreement. Loans made under this Section shall be repaid as provided in Section
10.07(d).
6.11. Withholding of Fee Payments
In the event of a default described in Section 5.03, the
Partnership, at the sole election of the Investment Partnership, shall withhold
payment of any installment of the Development Services Fee. Any installment so
withheld shall be promptly released to the Developer upon a determination or
final arbitration decision pursuant to Section 5.03(b) that such default has
been substantially cured. Any interest earned thereon shall be paid pursuant to
Section 5.03(b).
44
6.12. Cost Savings
Any cost savings realized during the construction of the
Apartment Development, including any net interim income, which result in any
undrawn amounts under the Construction Lean shall be applied in the following
priority and to the following extent, subject to the approval of the RHCDS:
(a) to enhance the Apartment Development through additional
construction;
(b) to reimburse the General Partner or the Partnership for any Excess
Development Costs for which funds were previously advanced by them; and
(c) to reduce the amount of the Mortgage Loan.
6.13. Property Management Agent
(a) The Partnership, with the approval of the RHCDS, shall initially
engage such Management Agent as the General Partner may select to manage the
operation of the Apartment Development during the rent-up period and all times
thereafter. The Management Agent shall be paid a management fee in an amount
subject to the approval of the RHCDS. The Management Agreement for the Apartment
Development shall be in a form acceptable to the RHCDS. Southland Management
Corp. hereby is approved by the parties hereto as the Management Agent.
(b) The General Partner
(i) may, upon receiving any required approval or order of the
RHCDS, dismiss the Management Agent as the entity responsible
for the Apartment Development under the terms of the
Management Agreement;
(ii) shall, at the request of the Investment Partnership,
remove a Management Agent for (A) any conflict of interest, if
Affiliated, or (B) failure to produce Tax Credit in the amount
of the specified percentage of the Projected Credit set forth
in the definition of "Tax Credit Reduction Amount" in Article
I, or (C) failure to produce Net Cash Flow sufficient to
provide for repayment of the annual priority distribution due
to the Investment Partnership in any year;
(iii) shall, after consulting with the Investment Partnership,
remove a Management Agent Affiliated with a Bankrupt, Legally
45
Disabled, withdrawn, or removed General Partner, or in the
event that the Management Agent is Bankrupt or Legally
Disabled; and
(iv) shall remove the Management Agent for intentional
misconduct or failure to exercise reasonable care in the
discharge of its duties and obligations as Management Agent,
including, without limitation, any action
or failure to take any action which:
(A) violates in any material respect any provision of the Management
Agreement and any provision of the Construction Loan or Mortgage Loan; or
(B) falls to cure substantial building code violations in the
Apartment Development within six months after Notice from the applicable
governmental agency or department, or violates any other provision of law
applicable to the Apartment Development; or
(C) violates in any material respect any provision of this Agreement,
including, without limitation, (i) permitting occupancy of dwelling units by
persons not classified as Qualifying Individuals, or (ii) failing to produce
reports required by Section 6.14.
All Partners shall give such Consents, take such actions and execute
such documents as shall be legally necessary and sufficient to effectuate all of
the foregoing provisions of this Section 6. 13.
(c) Upon the removal of the Management Agent as the entity responsible
for the management of the Apartment Development pursuant to Section 6.13, a
substitute Management Agent which is not an Affiliate of the General Partner
shall be promptly designated by the General Partner to act hereunder and the
Partnership shall enter into a Management Agreement with the substitute
Management Agent with the approval of the RHCDS and the Investment Partnership.
6.14. Reports to Investment Corporation
(a) The General Partner shall furnish or shall cause to be furnished
to Landau
(i) on a Quarterly basis, and as a condition to the payment
of each Installment, a copy of the most recent
46
(A) RHCDS Form 1944-29 (Project Worksheet for Interest Credit and
Rental Assistance),
(B) RHCDS Form 1930-6 (Monthly Report), and
(C)RHCDS Form 1944-8 (Tenant Certification) for tenant households
currently or last in occupancy of each of the dwelling units of the Apartment
Development;
(ii) concurrently with their timely submission to the RHCDS,
copies of any and all financial reports that may be requested
by the RHCDS and/or any other governmental agencies having
jurisdiction with regard to the Partnership or the Apartment
Development including, but not limited to, RHCDS Form 1930-7
(Statement of Budget and Cash Flow) and RHCDS Form 1930-8
(Year-End Report and Analysis);
(iii) a set of photographs of the Apartment Development with
the date taken noted thereon that reasonably depicts its
condition as of the date taken; and
(iv) any other information as from time to time is requested
by NCPPS or is material with respect to the financial and
physical conditions of the Apartment Development, and/or the
financial and administrative affairs of the Partnership
including, but not limited to, copies of correspondence with
the State Agency, certificates of occupancy, insurance
policies and/or insurance certificates as applicable to the
Apartment Development, service contracts, any income
statements which compare actual and budgeted expenses for the
quarter and for the current "year-to-date" annual itemized
lists of all rent delinquencies, statements of receipts and
disbursements, schedules of accounts receivable and payable
and reconciled bank statements so long as these statements
are required by RHCDS.
47
(b) At least 21 days prior to Final Closing, any documents to be
executed by the Partnership at Final Closing providing for a modification in the
terms of the Mortgage Loan, or evidencing any material change as to the
Apartment Development or its financing or regulation, shall be submitted by the
General Partner to the Investment Partnership for its approval, if such
modification or change may affect the purpose of the Partnership and/or the
ability of the Investment Partnership to receive the Tax Credit in the amount of
the Projected Credit. The General Partner shall provide copies of all documents
executed and/or delivered at Final Closing to the Investment Partnership
promptly after Final Closing.
(c) The General Partner shall, within 10 days after receipt thereof,
forward to the Investment Partnership a copy of any notice received by the
General Partner or the Partnership of any default with respect to any material
instrument to which the Partnership is a party or which affects the assets of
the Partnership, and/or notice of the commencement of any foreclosure or similar
proceedings, and shall report to the Investment Partnership any other
significant developments affecting the Partnership, its business or assets, as
soon as practicable following the occurrence of any such event.
(d) In no event shall the failure of the Investment Partnership to
disapprove any document or report provided to it or to NCPPS be deemed to
constitute its Consent or the Consent of the Investment Partnership to any
violation of or change in any provision of this Agreement or to any violation of
any regulation of the RHCDS or of any applicable law.
6.15 Rent Increases The Investment Partnership at any time
shall have the right to require the General Partner to use best efforts to apply
to the RHCDS for increases in authorized rents.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.01. Withdrawal of a General Partner
(a) The General Partner may withdraw from the Partnership or sell,
transfer or assign the General Partner's Partnership Interest only after (i)
Consent of the Investment Partnership; (ii) Consent by all necessary parties as
provided in Section 7.04 of any new General Partner to be substituted therefor
or to receive all or part of a withdrawing General Partner's Partnership
Interest; (iii) counsel for the Investment Partnership shall have delivered to
48
the Partnership its opinion that any substitute General Partner, either
separately or together with any non-withdrawing General Partner, has sufficient
net worth and meets all other published requirements of the Code and the
Internal Revenue Service necessary to assure that the Partnership will continue
to be classified as a partnership and (iv) counsel for the Investment
Partnership each shall have rendered an opinion that none of the actions taken
in connection with such withdrawal will cause the termination or dissolution of
the Partnership or will cause it to be classified other than as a partnership
for federal income tax purposes or be in violation of the Act.
(b) The withdrawal of a General Partner without the Consent of the
Investment Partnership shall have the same effect as a removal of a General
Partner under Section 7.03. A General Partner who shall voluntarily withdraw as
General Partner of the Partnership without meeting the conditions for withdrawal
set forth in Section 7.01 (a) shall be deemed to be in breach of this Agreement,
shall be liable for any damages to the Partnership at law or in equity, and
shall forfeit his entire Partnership Interest, including without limitation any
residual share of Sale or Refinancing Proceeds or Liquidation Proceeds.
(c) In the event of a withdrawal or removal of a General Partner, or
sale, transfer or assignment of the Partnership Interest of any General Partner,
or conversion under Section 7.02 of such Interest to a limited partnership
interest, the General Partner shall remain liable for all obligations and
liabilities (including, but not limited to, Operating Deficits and Excess
Development Costs) incurred as General Partner before such withdrawal, removal,
sale, transfer, assignment or conversion shall have become effective under this
Agreement, whether or not any such obligations or liabilities were known or had
matured, but shall be free of any obligation or liability incurred on account of
the activities of the Partnership from and after the time such withdrawal,
removal, sale, transfer, assignment or conversion shall have become effective.
7.02. Effect of Bankruptcy or Legal Disability of a General Partner
(a) Upon the Bankruptcy or Legal Disability of a General Partner, the
business of the Partnership shall be continued by any other General Partner,
provided, however, that if a Bankrupt or Legally Disabled General Partner is
then a sole General Partner or if any event occurs with respect to a sole
General Partner which causes a termination of the Partnership under the Act, the
Partnership shall be terminated unless reconstituted pursuant to Section 11.01
and the Partners appoint at least one successor General Partner satisfactory to
the RHCDS and as herein provided.
49
(b) Upon the Bankruptcy or Legal Disability of a General Partner, such
General Partner shall immediately cease to be a General Partner and his
Partnership Interest shall, without further action, be converted to a limited
partner interest, provided, however, that if such Bankrupt or Legally Disabled
General Partner is the sole remaining General Partner, or the remaining General
Partner has less than a combined 1% Percentage Interest in the Partnership, the
converted Partnership Interest of such replaced General Partner shall be ratably
reduced and transferred to the remaining General Partner to the minimum extent
necessary to insure that any remaining or substitute General Partner (i) hold a
combined 1% Percentage Interest, and (ii) will receive Net Cash Flow pursuant to
Section 10.06 and a distribution of Sale or Refinancing proceeds pursuant to
Section 10.07 or Liquidation Proceeds pursuant to Section 10.08, in such amounts
as the Investment Partnership, in its sole discretion, deems necessary to ensure
that at least one General Partner of suitable quality may be obtained in order
to achieve the purpose of the Partnership.
(c) If, at the time of the Bankruptcy or Legal Disability of a General
Partner, the Bankrupt or Legally Disabled General Partner was not the sole
General Partner of the Partnership, any remaining General Partner shall
immediately (i) give Notice to the Limited Partner of such Bankruptcy or Legal
Disability, (ii) make, execute and file such amendments hereto or documents or
instruments as are deemed necessary to reflect the conversion of the Partnership
Interest of the Bankrupt or Legally Disabled General Partner and the General
Partner having ceased to be a general partner. Any remaining General Partner is
hereby granted an irrevocable power of attorney to execute any or all documents
on behalf of the Partners and the Partnership and to file such documents as may
be required to effectuate the provisions of this Article VII.
7.03. Removal of General Partner
(a) The Investment Partnership, subject to the approval of the RHCDS
if required, shall have the right to remove any General Partner for intentional
misconduct, gross negligence or breach of fiduciary obligation to a Limited
Partner under the Act or hereunder, provided that any such conduct results in,
or is likely to result in, a material detriment to or an impairment of the
Apartment Development, other assets of the Partnership, or the rights or
benefits of the Investment Partnership, or upon the occurrence of any of the
following:
(i) allocation to the Investment Partnership of Tax Credit
substantially less than the amount of the Projected Credit;
50
(ii) commencement of foreclosure proceedings against the
Apartment Development;
(iii) violation in a material respect of any provisions of the
Construction Loan or Mortgage Loan, or any material provisions
of the RHCDS or other governmental regulations, agreements or
law applicable to the Apartment Development, and such
violation shall continue for a period of 30 days after the
giving of written Notice thereof;
(iv) failure in a material way to assure the continued
accuracy of the General Partner's representations and
warranties under this Agreement or violation of any material
provision of this Agreement, including, without limitation,
(A) a violation of Partnership purposes or authority as set
forth in Sections 3.01 or 3.02, (B) violation of any
obligations of the General Partner under Article VI of this
Agreement (including, without limitation, (i) failure to pay
Excess Development Costs, make Operating Deficit Loans, or
provide the annual priority distribution as required under
Sections 6.08 or 6.09, or (ii) failure to remove the
Management Agent if so required under Section 6.13, (C)
failure to furnish tax returns to the Investment Partnership
for its approval prior to February 15 of any year pursuant to
Section 12.03 and 12.04, (D) termination of the Partnership
for federal income tax purposes without the Consent of the
Investment Partnership (E) treatment of the Partnership for
federal income tax purposes as an association taxable as a
corporation or
(v) in the written opinion of counsel for the Investment
Partnership, the General Partner fails to meet the General
Partner's representations and warranties set forth in Section
4.01(h) (evidenced by a Notice to the General Partner to such
effect and based upon current financial
statements of the General Partner, which shall be promptly
furnished to the Investment Partnership at any time upon
request).
(b) The Investment Partnership shall give Notice to all Partners of
its determination that the General Partner or any specific General Partner shall
be removed. The General Partner named in such Notice shall have 30 days after
receipt of such Notice to cure any default or other reason for such removal,
while remaining as General Partner (including, only in the event of a default
under subsection (a) above, the admission of a successor or additional General
Partner in compliance with Section 7.04). If at the end of 30 days such default
has not been cured to the satisfaction of the Investment Partnership, such
General Partner shall cease to be General Partner and the powers and authorities
conferred on such General Partner under this Agreement shall cease, and the
Partnership Interests of any such General Partner shall be transferred to an
un-Affiliated designee of the Investment Partnership, which designee shall
(after the removal of any General Partner) become a General Partner, or, at its
sole election, may nominate another person or organization to become a new
General Partner of the Partnership and upon its admission to the Partnership
pursuant to Section 7.04, such Person shall become a General Partner.
(c) Except in the event of a default under subsection (a)(v) above,
the Partnership Interest of any removed General Partner shall without further
action be terminated, and all of its rights to unpaid Development Services Fees
(if any), Net Cash Flow, Sale or Refinancing Proceeds or Liquidation Proceeds
shall be forfeited.
51
(d) The Investment Partnership hereby is granted an irrevocable power
of attorney, coupled with an interest, to execute any and all documents on
behalf of the Partners and the Partnership as shall be legally necessary and
sufficient to effect all of the foregoing provisions of this Section 7.03. An
election by the Investment Partnership to remove any General Partner hereunder
shall not limit or restrict the availability and use of any other remedy which
the Investment Partnership or any other Partner might have in connection with
any General Partner's undertakings and responsibilities under this Agreement,
and they are understood by the parties hereto to be permitted by the Act as the
exercise of powers not constituting participation in the control of the business
so as to convert the limited partner interest of the Investment Partnership into
a general partner interest for any purpose or to any extent.
7.04. Admission of a Successor or Additional General Partner
The General Partner may, at any time, designate additional Person(s)
to be General Partner(s), whose Partnership Interests shall be such as are
agreed upon by the General Partner and such additional Persons, provided that
the Partnership Interests of the Limited Partner shall not be affected thereby
and subject to the following conditions:
(a) Except in the case of the removal of any General Partner, the
admission of such Person shall have been Consented to by the General Partner or
the General Partner's successors and the Investment Partnership and, if
required, by the RHCDS;
(b) any such successor or additional General Partner shall have
accepted and agreed to be bound by (i) all the terms and provisions of this
Agreement by executing a counterpart hereof and (ii) all the terms and
provisions of the Construction Loan or Mortgage Loan by executing a counterpart
thereof;
(c) as evidence of the admission of any additional or successor
General Partner, this Agreement shall have been duly amended and (if required by
the Act, filed) and all other actions required by this Agreement or deemed
necessary by Counsel in connection therewith shall have been performed;
(d) if any successor or additional General Partner is a corporation,
it shall have provided the Partnership evidence satisfactory to Counsel of its
authority to become a General Partner, to do business in the State and to be
bound by the terms and provisions of this Agreement; and
52
(e) counsel for any incoming General Partner shall have rendered an
opinion that the admission of the successor or additional Person is in
conformity with the Act and that none of the actions taken in connection with
the admission of the successor or additional General Partner will cause the
termination or dissolution of the Partnership or will cause it to be classified
other than as a partnership for federal income tax purposes.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
8.01. No Management Powers
No Limited Partner shall take part in the management or control of the
business of the Partnership nor transact any business in its name. Except as
otherwise expressly provided either in this Agreement or in the Act, no Limited
Partner shall have the power or authority to bind the Partnership or to sign any
agreement or document in the name of the Partnership. No Limited Partner shall
have any power or authority with respect to the Partnership except insofar as
the Consent of the Limited Partner shall be expressly required and except as
otherwise expressly provided either in this Agreement or in the Act, provided,
however, that if and to the extent permitted by the Act, the Investment
Partnership, in its capacity as a limited partner under the Act and without
being treated under the Act as a general partner for any purpose or to any
extent, shall have and may exercise the following powers:
(1) be a contractor for, or agent, or employee of the
Partnership or the General Partner;
(2) consult with and advise a General Partner with respect to
the business of the Partnership;
(3) act as surety for the Partnership or guarantee or assume
one or more specific obligations
of the Partnership;
(4) take any action required or permitted by law to bring or
pursue a derivative action in the right of the Partnership;
(5) request or attend a meeting of Partners;
(6) propose, approve or disapprove, by voting, Consenting or
otherwise, one or more of the following matters:
(i) the dissolution and winding up of the Partnership;
53
(ii) the sale, exchange, lease, mortgage, pledge, or other
transfer of all or substantially all of the assets of the
Partnership;
(iii) the occurrence of indebtedness by the Partnership other
than in the ordinary course of its business;
(iv) a change in the nature of the business;
(v) the removal of a General Partner or Limited Partner;
(vi) the admission of a General Partner or Limited Partner;
(vii) a transaction involving an actual or potential conflict
of interest between any General Partner and the Partnership
or the Limited Partner; or
(viii) an amendment to this Agreement or any Certificate of
Limited Partnership; or
(7) wind up the Partnership pursuant to Article XII.
8.02. Limitation on LiabilIty of Limited Partner
(a) The liability of the Limited Partner shall be limited to his
Capital Contribution as and when payable under the provisions of this Agreement.
Except as expressly provided by the Act, no Limited Partner or any limited or
general partner of a Limited Partner shall have any other liability to
contribute money to, or in respect of any debts, contracts or other liabilities
or obligations of, the Partnership, nor shall any Limited Partner or any limited
or general partner of a Limited Partner be personally liable for any debts,
contracts or other liabilities or obligations of the Partnership. No Limited
Partner shall be obligated to make loans to the Partnership.
(b) Notwithstanding anything to the contrary contained herein, except
as expressly provided by the Act, the partners, general or limited, of the
Investment Partnership shall have no personal liability to any of the parties to
this Agreement with regard to the representations and covenants extended, or
their obligations undertaken, by the Investment Partnership under this
Agreement, In the event the Investment Partnership shall be in default under any
of the terms of this Agreement, the sole recourse of any party hereto for any
indebtedness due hereunder, or for any damages resulting from any such default
54
by the Investment Partnership, shall be against the assets of the Investment
Partnership allocated to and remaining for investment in the Partnership,
provided, however, that under no circumstances shall the liability of the
Investment Partnership for any such default be in excess of the amount of
Capital Contribution payable by the Investment Partnership to the Partnership
under the terms of this Agreement at the time of such default.
8.03. Other Activities
The Limited Partners may engage in or possess interests in other
business ventures of every kind and description for their own accounts,
including without limitation serving as general or limited partner of other
partnerships which own, either directly or through interests in other
partnerships, governmental housing projects similar to the Apartment
Development. Neither the Partnership nor any of the Partners shall have any
right by virtue of this Agreement in or to such other business ventures or to
the income or profits derived therefrom.
ARTICLE IX
TRANSFERS OF AND RESTRICTIONS ON TRANSFERS
OF INTERESTS OF LIMITED PARTNERSHIP
9.01. Purchase for Investment
(a) The Limited Partner hereby represents and warrants to the General
Partner and to the Partnership that the acquisition of its Partnership Interest
is made as principal for investment purposes only and not with a view to the
resale or distribution thereof, except insofar as the Securities Act of 1933,
55
Regulation D thereunder, and any applicable securities law of any state or other
jurisdiction, permit such acquisition to be made for the account of others or
with a view to the resale or distribution of such Interests.
(b) The Limited Partner agrees that it will not sell, assign or
otherwise transfer an Interest or any fraction thereof to any Person who does
not represent, warrant and agree that their acquisition of such interests or any
portion shall be made for investment purposes only and not with a view to resale
and distribution.
9.02. Restrictions on Transfer of Limited Partner's Interests
(a) Under no circumstances will any offer, sale, transfer, assignment,
hypothecation or pledge of the Limited Partner Interest be permitted unless the
General Partner and the Investment Partnership shall have Consented in their
sole discretion and given notice thereof.
(b) A Limited Partner whose Partnership Interest is being
transferred shall pay such reasonable expenses as may be incurred by the
Partnership in connection with such transfer.
(c) Any Person who is the assignee of a Limited Partner's Partnership
Interest, but does not become a Substitute Limited Partner, and desires to make
a further assignment of such Partnership Interest, shall be subject to all the
provisions of this Article IX to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of his Interest.
9.03. Admission of Substitute Limited Partner
(a) Subject to the other provisions of this Article IX, an assignee of
the Interest of a Limited Partner (which shall be understood to include any
purchaser, transferee, donee, or other recipient of any disposition of such
Interest) shall be deemed admitted as a Substitute Limited Partner of the
Partnership only upon the satisfactory completion of the following:
(i) Consent of the General Partner (which may be withheld in
the General Partner's sole discretion) and the Consent of the
RHCDS, if required, shall have been given, which Consent may
be evidenced by the execution by the General Partner of an
amended Certificate (if required by the Act) evidencing the
admission of such Person as a Limited Partner;
(ii) the assignee shall have accepted and agreed to be bound
by the terms and provisions of this Agreement by executing a
counterpart thereof or an appropriate amendment hereto, and
such other documents or instruments as the General Partner may
require in order to effect the admission of such Person as a
Limited Partner;
(iii) the assignee shall have complied with Section 9.01(b);
(iv) if the assignee is a corporation, the assignee shall have
provided the General Partner with evidence satisfactory to
counsel for the Partnership of its corporate authority to
become a Limited Partner hereunder; and
56
(v) the assignee or the assignor shall have reimbursed the
Partnership for all reasonable expenses, including all
reasonable legal fees and recording charges, incurred by the
Partnership in connection with such assignment.
(b) For the purpose of allocation of Profits, Losses and
Credits, and for the purpose of distributing cash of the Partnership, a
Substitute Limited Partner shall be treated as having become, and as appearing
in, the records of the Partnership as a Partner as of the effective date of an
amendment or counterpart to this Agreement.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by promptly preparing the documentation
required by this Section and promptly making any official filings, recordings
and publications.
(d) Notwithstanding anything to the contrary contained herein, at any
time prior to Final Closing the Investment Partnership may assign its rights and
obligations as a Limited Partner to another similarly structured investment
limited partnership of which First Sterling Capital Resources, Inc. or an
Affiliate is the general partner without the Consent of the General Partner,
subject only to the Consent if required by the RHCDS.
ARTICLE X
PROFITS, LOSSES, CREDITS AND DISTRIBUTIONS
10.01 Capital Accounts
A Capital Account shall be maintained for each Partner, consisting of
the aggregate of (a) the amount of cash such partner has contributed to the
Partnership, (b) the fair market value of any property such Partner has
contributed to the Partnership net of liabilities assumed by the Partnership or
to which such property is subject and (c) the amount of profits and tax-exempt
income allocated to such Partner, less the aggregate of (w) the amount of losses
allocated to such Partner, (x) the amount of cash distributed to such Partner,
(y) the fair market value of any property distributed to such Partner net of
liabilities assumed by such Partner or to which such property is subject, and
(z) such Partner's share of any other expenditures which are not deductible by
the Partnership for federal income tax purposes or which are not allowable as
additions to the basis of Partnership property, and subject to such other
adjustments as may be required under the Code.
57
10.02. Determination of Profits, Losses and Credits
(a) Profits, Losses and Credits for all purposes of this Agreement
shall be determined in accordance with the provisions of Treasury Regulation
Section 1.704-1(b), utilizing the accounting method followed by the Partnership
for federal income tax purposes, except that any adjustments made pursuant to
Section 754 of the Code shall not be taken into account. Every item of income,
gain, loss, deduction, credit or tax preference entering into the computation of
Profits, Losses and Credits or applicable to the period during which such
Profits, Losses and Credits were realized, shall be considered allocated to each
Partner in the same proportion as Profits, Losses and Credits are allocated to
such Partner. Profits, losses and credits for tax purposes shall be allocated in
the same manner as Profits, Losses and Credits as set forth in this Article X,
except as provided in Section 10.02(i).
(b) Subject to the provisions of Section 10.02(c) and Section 10.04,
each Limited Partner shall be entitled to receive its share of all Profits,
Losses and Credits at the close of business on the last day of each year.
(c) For the year during which a Limited Partner is admitted to the
Partnership, there shall be allocated to each Limited Partner a share of the
Profits, Losses and Credits and Net Cash Flow beginning with the first day of
the month in which the Limited Partner is admitted to the Partnership.
(d) If there is a determination that Section 483 or Sections 1271
through 1288 (relating to imputed interest with respect to deferred payment
sales of property) or Section 7872 of the Code is applicable to any loan between
a Partner and the Partnership, any income or deduction of the Partnership
attributable to interest on such loan (whether stated or unstated) shall be
allocated solely to such Partner.
(e) If the deduction of all or a portion of any fee paid or accrued
from earnings of the Partnership to a Partner or an Affiliate of a Partner is
disallowed for federal income tax purposes by the Internal Revenue Service with
respect to a taxable year of the Partnership, the Partnership shall then
allocate to such Partner an amount of gross income of the Partnership for such
year equal to the amount of such fee with respect to which the deduction is
disallowed.
(f) If any Partner's Partnership Interest is reduced but not
eliminated because of the admission of new Partners or otherwise, or if any
Partner is treated as receiving any items of property described in Section
751(a) of the Code, the Partner's interest in such items of Section 751(a)
58
property shall not be reduced, but shall be retained by the Partner so long as
the Partner has a Partnership Interest and so long as the Partnership has an
interest in such property.
(g) Notwithstanding any other provision of this Agreement, no
allocation of loss or deduction (or item thereof shall be made to a Partner if
such allocation would cause the deficit Capital Account balance of such Partner
(excluding the portion of such deficit balances that must be restored to the
Partnership upon liquidation) to exceed such Partner's share of Partnership
Minimum Gain and Partner Nonrecourse Debt Minimum Gain determined at the end of
the Partnership taxable year to which the allocation relates. For purposes of
this Section, a Partner's capital account shall be deemed to be reduced by
Qualified Income Offset Items.
(h) In the event any Partner unexpectedly receives any adjustments,
allocation or distributions described in Treasury Regulation Section 1.704-1
(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be
specially allocated to each such Partner in an amount and manner sufficient to
eliminate (to the extent required by the Regulations under Code Section 704(b))
the deficit balance in each such Partner's Capital Account as quicKly as
possible. For purposes of this Section, a Partner's Capital Account shall be
deemed to be reduced by Qualified Income Offset Items.
(i) Notwithstanding the foregoing provisions of this Article X,
income, gain, loss and deduction with respect to property which has a variation
between its basis computed in accordance with Treasury Regulation Section
1.704-1(b) and its basis computed for federal income tax purposes shall be
shared among the Partners so as to take account of such variation in a manner
consistent with the principles of Section 704(c) of the Code and Treasury
Regulation Section 1.704-l(b)(2)(iv)(g).
6) Tax credits under Section 42 of the Code shall be allocated among
the Partners in the same manner as the deductions attributable to the
expenditures creating the tax credit are allocated among the Partners in
accordance with Treasury Regulation section 1.704-1 (b)(4)(ii).
10.03. Allocation of Profits, Losses and Credits
(a) Subject to Sections 10.02 and 10.03(b) through 10.03(h) all
Profits, Losses and Credits shall be allocated 1% to the General Partner and 99%
to the Investment Partnership.
(b) Gains recognized by the Partnership upon the sale, exchange or
other disposition of all or any substantial portion of the property owned by the
Partnership shall be allocated as follows: (i) first, that portion of gains
(including any gains treated as ordinary income for federal income tax purposes)
59
which is equal in amount to such Partners' negative Capital Accounts shall be
allocated to the Partners with negative Capital Account balances, in proportion
to such balances, and (ii) second, gain in excess of the amount allocated under
(i) shall be allocated to the Partners in an amount necessary to increase their
Capital Accounts as nearly as possible to the amount of cash each Partner would
receive under Section 10.07 solely in its capacity as a Partner if the aggregate
balance of all Capital Accounts were cash available for distribution under such
Section.
(c) Losses recognized by the Partnership upon the sale, exchange or
other disposition of all or any substantial portion of the property owned by the
Partnership shall be allocated (i) first, to the extent and in such proportions
as shall be necessary such that, after giving effect thereto, the respective
balances in all Partners' Capital Accounts are proportionate to the Partners'
Interests in the Partnership; (ii) second, to the Partners until each Partner's
Capital Account equals his Capital Contribution to the Partnership; (iii) third,
to the Partners to the extent of and in proportion to each Partner's Capital
Account (after the adjustment in clause (ii)); and (iv) fourth, any remaining
loss to the Partners in accordance with the manner in which they bear the
economic risk of loss.
(d) Any portion of the gains treated as ordinary income for federal
income tax purposes under Sections 1245 and 1250 of the Code shall be allocated
on a dollar for dollar basis to those Partners to whom the items of Partnership
deduction or loss giving rise to the amount recaptured had been previously
allocated.
(e) If (i) the Partnership incurs recourse obligations or Partner
Nonrecourse Debt (including, without limitation, Operating Deficit Loans and the
Working Capital Loan made pursuant to Section 6.09) or (ii) the Partnership
incurs losses from extraordinary events which are not recovered from insurance
or otherwise (collectively, "Recourse Obligations") in respect of any
Partnership taxable year, then the calculation and allocation of profits and
losses shall be adjusted as follows: first, an amount of deductions attributable
to the Recourse Obligations shall be allocated to the General Partner with
respect to such obligations in the ratio in which the General Partner bears the
economic risk of loss, and second, the balance of such deductions shall be
allocated as provided in Section l0.03(a).
(f) If the General Partner shall make any payment to the Investment
Partnership pursuant to Section 6.09(a) in respect of any Partnership taxable
year, then the calculation and allocation of profits and losses shall be
adjusted as follows: first, an amount of deductions attributable to such payment
60
shall be allocated to the General Partner, and second, the balance of such
deductions shall be allocated as provided in Section 10.03(a).
(g) If there is a net decrease in Partnership Minimum Gain during a
Partnership taxable year, each Partner will be allocated items of income and
gain for such year (and, if necessary, subsequent years) in the proportion to,
and to the extent of, an amount equal to such Partner's share of the net
decrease in Partnership Minimum Gain during the year. A Partner is not subject
to this Partnership Minimum Gain chargeback to the extent that any of the
exceptions provided in Treasury Regulation Section 1. 704-2(fl(2)-(5) apply.
Such allocations shall be made in a manner consistent with the requirements of
Treasury Regulation Section 1.704-2(fl under Section 704 of the Code.
(h) If there is a net decrease in Partner Nonrecourse Debt Minimum
Gain during a Partnership taxable year, then each Partner with a share of the
minimum gain attributable to such debt at the beginning of such year will be
allocated items of income and gain for such year (and, if necessary, subsequent
years) in proportion to, and to the extent of, an amount equal to such Partner's
share of the net decrease in Partner Nonrecourse Debt Minimum Gain during the
year. A Partner is not subject to this Partner Nonrecourse Debt Minimum Gain
chargeback to the extent that any of the exceptions provided in Treasury
Regulation Section 1.704-2(i) (4) applied consistently with Treasury Regulation
Section 1. 704-2(fl(2)-(5) apply. Such allocations shall be made in a manner
consistent with the requirements of Treasury Regulation Section 1. 704-2(i)(4)
under Section 704 of the Code.
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10.04. Allocations in Case of Transfer of Interests
(a) In any year in which a Limited Partner sells, assigns or transfers
all or any portion of an Interest to any Person who, during such year, is
admitted as a Substitute Limited Partner, the share of all Profits, Losses and
Credits allocable to, and of all Net Cash Flow and Sale and Refinancing Proceeds
and Liquidating Proceeds distributable under Sections 10.06, 10.07 and 10.08, to
any such Substitute Limited Partner that is attributable to the Interest sold,
assigned or transferred, shall be allocated and distributed to the assignee from
and after the first day of the calendar month following the month in which the
assignee executes this Agreement as a Substitute Limited Partner, provided,
however, that the assignor and the assignee may by agreement make special
provisions for the allocation of items of Profits, Losses and Credits as may
from time to time be permitted under the Code, and for the distribution of Net
Cash Flow, Sale and Refinancing Proceeds and Liquidating Proceeds distributable
under Sections 10.06, 10.07 and 10.08, but such allocation shall be binding as
to the Partnership only after it shall have received Notice thereof from the
assignor and assignee.
(b) In any year in which, pursuant to Article VI, the Interest of a
General Partner shall terminate, the Profits, Losses and Credits allocable to
and the Net Cash Flow, Sale and Refinancing Proceeds and Liquidating Proceeds
distributable under Sections 10.06, 10.07 and 10.08, as applicable, shall be
allocated and distributed to the successor General Partner from and after the
first day of the calendar month following the month in which the termination of
the Interest of the predecessor General Partner occurred, provided, however,
that the terminating General Partner and any successor or remaining General
Partner may, by agreement, make such provisions for the allocation of Profits,
Losses and Credits and for the distribution of Net Cash Flow, Sale or
Refinancing Proceeds and Liquidation Proceeds as are permitted by the Code.
10.05. Authority of General Partner to Vary Allocations to Preserve
and Protect Partners' Intent
(a) It is the intent of the Partners that each Partner's distributive
share of income, gain, loss, deduction or credit (or item thereof shall be
determined and allocated in accordance with this Article X and Article V to the
fullest extent permitted by Section 704(b) of the Code. To preserve and protect
the determinations and allocations provided for in this Article X, the General
Partner is hereby authorized and directed to allocate Profits, Losses and
Credits (or items thereof) arising in any year differently from that otherwise
provided for in this Article X to the extent that allocating Profits, Losses and
Credits (or items thereof) in the manner provided for in Article X in the
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opinion of Special Tax Counsel or the Accountants would cause the determinations
and allocations of each Partner's allocable share of Profits, Losses and Credits
(or items thereof) not to be permitted by Section 704(b) of the Code and
Treasury Regulations promulgated thereunder. Any allocation made pursuant to
this Section 10.05 shall be deemed to be a complete substitute for any
allocation otherwise provided for in this Article X and no formal amendment of
this Agreement or approval of any Partner shall be required. In making any New
Allocation under Section 10.05(a), the General Partner is to act only in
reliance upon the advice of the Accountants or Special Tax Counsel that, under
Section 704(b) of the Code and the Treasury Regulations thereunder, (i) the New
Allocation is necessary, and (ii) the New Allocation is the minimum modification
of the allocations otherwise provided for in this Article X necessary in order
to assure that, either in the then current year or in any preceding year, each
Partner's allocable share of Profits, Losses and Credits (or item thereof) is
determined and allocated in accordance with this Article X to the fullest extent
permitted by Section 704(b) of the Code and the Treasury Regulations thereunder.
(c) If the General Partner determines under Section 10.05(a) to make
any New Allocation in a manner less favorable to the Limited Partner than is
otherwise provided for in this Article X, then the General Partner is authorized
and directed, only after having received the Consent of the Investment
Partnership and insofar as they are advised by the Accountants or Special Tax
Counsel that it is permitted by Section 704(b) of the Code, to allocate Profits,
Losses and Credits (or items thereof) arising in later years in such manner so
as to bring the allocations of Profits, Losses and Credits (or items thereof) to
the Limited Partner as nearly as possible to the allocations thereof otherwise
contemplated by this Article X.
(d) New Allocations made by the General Partner under Section 10.05(a)
in reliance upon the advice of the Accountants and allocations made by the
General Partner under Section 10.05(c) in reliance upon the advice of the
Accountants or Special Tax Counsel shall be deemed to be made pursuant to the
fiduciary obligation of the General Partner to the Partnership and the Limited
Partner, and no such allocation shall give rise to any claim or cause of action
by the Limited Partner.
10.06. Distributions of Net Cash Flow
All Net Cash Flow of the Partnership for each calendar year
shall be distributed to all Partners simultaneously, but in the following order
of priority:
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(a) to the General Partner, an annual management incentive fee in the
amount of $1,000, provided, however, that no such fee shall be paid in the event
that any provision of Section 12.04 has not been met; and
(b) the balance, 50%, to the General Partner
and 50% to the Limited Partner.
10.07. Distribution of Sale and Refinancing Proceeds
Except as may be required under Section 10.08, Sale and
Refinancing Proceeds shall be distributed and applied in the following order of
priority:
(a) to the payment of all debts and liabilities of the Partnership
(including amounts due pursuant to the Mortgage Loan and all expenses of the
Partnership incident to any such sale or refinancing), excluding (i) debts and
liabilities of the Partnership to Partners or any Affiliates, and (ii) all
unpaid fees owing to the General Partner or Affiliates of the General Partner
under this Agreement;
(b) to the setting up of any reserves which the Liquidator (or
the General Partner, with the Consent of the Investment Partnership, if the
distribution is not pursuant to the liquidation of the Partnership) deems
reasonably necessary for contingent, unmatured or unforeseen liabilities or
obligations of the Partnership;
(c) pursuant to RHCDS Instruction 1944-E, Section 1944.21 1(a)(12)
(ii), the balance of any remaining sum 5% to the General Partner;
(d) to the repayment of any unrepaid debts and liabilities owed to the
Partners or any Affiliates by the Partnership for Partnership obligations,
including any Operating Deficit Loans and other loans made pursuant to Sections
6.09 and 6.10, and any amounts not distributed to the Investment Partnership
pursuant to Section 10.06(a);
(e) to the Investment Partnership, any cumulative Tax Credit
Shortfall due to it, to the extent not previously returned under Section
10.07(e);
(f) to the payment of a refinancing and disposition fee in the amount
of 5% of the Sale and Refinancing Proceeds, payable 50% to the General Partner
and 50% to Landau.
(g) the balance of any remaining sum 50% to the General Partner and
50% to the Investment Partnership.
Notwithstanding anything in this Section 10.07 to the
contrary, Sale and Refinancing Proceeds resulting from an event covered by
64
property or liability insurance shall first be applied, to the extent required,
to repair or restore the damage or destruction resulting from the event, with
the balance, if any, subject to the provisions of the Mortgage or the
requirements of the RHCDS. The amount so applied shall not be considered when
calculating the refinancing and disposition fee under subsection (e) of this
Section 10.07.
10.08. Liquidation Proceeds
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Partnership, Liquidation
Proceeds shall be distributed to the Partners in accordance with the positive
balances in their Capital Accounts after taking into account all Capital Account
adjustments for the Partnership taxable year, including adjustments to Capital
Accounts pursuant to Sections 10.03 and 10.08(b). If a General Partner has a
negative balance in his Capital Account following the liquidation of the
Partnership or liquidation of his interest in the Partnership after taking into
account all Capital Account adjustments for the Partnership taxable year in
which the liquidation occurs, such General Partner shall pay to the Partnership
in cash an amount equal to the negative balance in his Capital Account. Such
payment shall be made by the end of such taxable year (or, if later, within 90
days after the date of such liquidation) and shall, upon liquidation of the
Partnership, be paid to recourse creditors of the Partnership or distributed to
other Partners in accordance with the positive balances in their Capital
Accounts.
(b) With respect to assets distributed in kind to the Partners in
liquidation or otherwise, (i) any unrealized appreciation or unrealized
depreciation in the values of such assets shall be deemed to be Profits, Losses
and Credits realized by the Partnership immediately prior to the liquidation or
other distribution event and (ii) such Profits, Losses and Credits shall be
allocated to the Partners in accordance with subsections (b) and (c) of Section
10.03; any property so distributed shall be treated as a distribution of an
amount in cash equal to the excess of such fair market value over the
outstanding principal balance of and accrued interest on any debt by which the
property is encumbered. For the purposes of this Section 10.08(b), "unrealized
appreciation" or "unrealized depreciation" shall mean the difference between the
fair market value of such assets, taking into account the fair market value of
the associated financing (but subject to Section 7701(g) of the Code), and the
Partnership's adjusted basis for such assets as determined under Regulation
Section 1.704-1(b). This Section 10.08(b) is intended to provide a rule for
allocating unrealized gains and losses upon liquidation or other distributions
to be treated as sales for value, and nothing contained in this Section 10.08(b)
or elsewhere herein is intended to treat or cause such distributions to be
65
treated as sales for value. The fair market value of such assets shall be
determined by an appraiser to be selected by the General Partner and the
Investment Partnership.
10.09. Tax Matters Partner
(a) The sole General Partner or, if there is more than one General
Partner, the Managing General Partner, hereby is designated as Tax Matters
Partner of the Partnership, and shall engage in such undertakings as are
required of the Tax Matters Partner of the Partnership, as provided in
regulations pursuant to Section 6231 of the Code. Each Partner, by the execution
of this Agreement, Consents to such designation of the Tax Matters Partner and
agrees to execute, certify, acknowledge, deliver, swear to, file and record at
the appropriate public offices such documents as may be necessary or appropriate
to evidence such Consent.
(b) The Tax Matters Partner is hereby authorized, but not required,
subject to its fiduciary obligations to the Limited Partner:
(i) to enter into any settlement with the Internal Revenue
Service or the Secretary of the Treasury with respect to any
tax audit or judicial review, provided that the Tax Matters
Partner first receives the written consent of the Investment
Partnership to such settlement;
(ii) if 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, without the prior written Consent of the
Investment Partnership, with the Tax Court, the District Court
of the United States or the United States Claims Court;
(iii) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment with
said Secretary at any time and, if any part of such request is
not allowed by said Secretary, to file a petition for judicial
review with respect to such request;
66
(v) to enter into an agreement with the Internal Revenue
Service 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
(vi) to take any other action on behalf of the Partners or the
Partnership in connection with any administrative or judicial
tax proceeding to the extent permitted by applicable law or
regulations.
The Tax Matters Partner, however, shall take none of the above
actions without Notice to and the Consent of the Investment Partnership and
shall furnish the Investment Partnership copies of all relevant documents.
(c) The Partnership shall reimburse the Tax Matters Partner for all
expenses, including legal and accounting fees, claims, liabilities, losses and
damages, incurred in connection with any administrative or judicial proceeding
with respect to the tax liability of the Partners. The payment of all such
expenses shall be made as a priority distribution of Net Cash Flow or pursuant
to Section 10.07(d). Neither the General Partner, nor any Affiliate thereof, nor
any other Person shall have any obligation to provide funds for such purpose.
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 discretion of the Tax Matters Partner and the
provisions on limitations of liability of the General Partner and
indemnification set forth in Section 6.06 shall be fully applicable to the Tax
Matters Partner in his capacity as such.
10.10. Tax Accounting
In the event of a transfer of all or any part of the Interest
of a General Partner or of a Limited Partner (or the interest of any partner of
the Investment Partnership), the Partnership shall elect, if requested by the
Investment Partnership, pursuant to Sections 734, 743 and 754 of the Code (or
any corresponding provision of succeeding law), to adjust the basis of the
Partnership property if, in the opinion of the Investment Partnership, based
upon the advice of the Accountants, such election would be most advantageous to
the Investment Partnership. Each Partner agrees to furnish the Partnership with
all information necessary to give effect to such election. The Partnership,
67
however, shall take none of the above actions without prior Notice to and the
written Consent of the Investment Partnership and shall furnish the Investment
Partnership with copies of all relevant documents.
ARTICLE XI
DISSOLUTION AND LIQUIDATION
11.01. Dissolution of the Partnership
The Partnership shall be dissolved upon the earlier of (a) the
expiration of the term of the Partnership or (b) the election of the Investment
Partnership pursuant to the Act, or (c) upon the happening of any of the
following:
(i) the withdrawal, Bankruptcy or Legal Disability of a
General Partner who is, at that time, the sole General
Partner, unless the Partnership is reconstituted by agreement
of all their remaining partners within a 90-day period; or
(ii) any other event causing the dissolution of the
Partnership under the Act unless the Partnership is
reconstituted by agreement of all its remaining Partners
within a 90-day period.
11.02. Winding Up and Distribution
(a) Upon the dissolution of the Partnership pursuant to Section 11.01,
(i) a certificate of cancellation shall be filed in such offices within the
State as may be required or appropriate and (ii) the Partnership business shall
be wound up and its assets liquidated as provided in this Section 11.02 and the
net proceeds of such liquidation shall be distributed in accordance with Section
10.08.
(b) The Liquidator shall file all certificates and Notices of the
dissolution of the Partnership required by law. The Liquidator shall proceed
without any unnecessary delay to sell and otherwise liquidate the Partnership's
property and assets, provided, however, that if the Liquidator shall determine
that an immediate sale of part or all of the Partnership property would cause
undue loss to the Partners, then to avoid such loss, the Liquidator may, except
to the extent provided by the Act, defer the liquidation as may be necessary to
satisfy the debts and liabilities of the Partnership to Persons other than the
Partners. Upon the complete liquidation and distribution of the Partnership
assets, the Partners shall cease to be Partners of the Partnership, and the
68
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership.
(c) Upon the dissolution of the Partnership pursuant to Section 11.01,
the Accountants shall promptly prepare, and the Liquidator shall furnish to each
Partner, a statement setting forth the assets and liabilities of the Partnership
upon its dissolution. Promptly following the complete liquidation and
distribution of the Partnership property and assets, the Accountants shall
prepare, and the Liquidator shall furnish to each Partner, a statement showing
the manner in which the Partnership assets were liquidated and distributed.
ARTICLE XII
BOOKS AND RECORDS, ACCOUNTING, TAX ELECTIONS, ETC.
12.01. Books and Records
The books and records of the Partnership shall be maintained
on an accrual basis in accordance with sound federal income tax accounting
principles. The General Partner shall comply with all document retention
requirements of the State Agency, the RHCDS and the IRS relating to Qualifying
Individuals or any other aspect of the Apartment Development. These and all
other records of the Partnership, including information relating to the status
of the Apartment Development and information with respect to the sale by the
General Partner or any Affiliate of goods or services to the Partnership, shall
be kept at the principal office of the Partnership and shall be available for
examination there by any Partner, or his duly authorized representative, or any
limited partner of the Investment Partnership, at any and all reasonable times.
Any Partner, or his duly authorized representative, upon paying the costs of
collection, duplication and mailing, shall be entitled to a copy of the name and
address of each Limited Partner.
12.02. Bank Accounts
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking institutions as the
General Partner shall determine, and withdrawals shall be made only in the
regular course of Partnership business on such signature or signatures as the
General Partner may, from time to time, determine. No funds of the Partnership
shall be deposited in any financial institution in which any Partner is an
officer, director or holder of any proprietary interest.
(b) The General Partner shall have fiduciary responsibility
for the safekeeping and use of all funds and assets of the Partnership, whether
or not in the immediate possession or control of the General Partner. The funds
69
of the Partnership shall not be commingled with the funds of any other Person,
and the General Partner shall not employ, nor permit any other Person to employ,
such funds in any manner except for the benefit of the Partnership.
12.03. Accountants
The Accountants shall be such firm of certified public
accountants as shall be designated by the General Partner. The Accountants shall
annually prepare for execution by the General Partner all tax returns of the
Partnership with all supporting schedules and shall annually review or audit the
books of the Partnership as required by the RHCDS. The Accountants shall prepare
RHCDS Forms 1930-7 and 1930-8 together with any related financial statements
including a copy of all adjustments, reconciling the financial statements
submitted to the RHCDS to the tax return. The Investment Partnership expressly
reserves the right to direct the General Partner to remove the Accountants if in
its sole discretion there has been evidence of malfeasance on the part of the
Accountants.
12.04. Reports to Partners
(a) In addition to the reporting requirements set forth in Section
6.14, by March 10 of every year, the General Partner shall furnish to the
Investment Partnership:
(i) a copy of the Partnership's federal income tax returns,
including all schedules, for the Investment Partnership's
approval prior to filing, making such elections on IRS form
8609 as directed by any accountants for the Investment
Partnership;
(ii) copies of paid tax bills and paid bills for insurance
premiums;
(iii) a statement describing all transactions during the year
between the Partnership and the General Partner and Investment
Partnership which shall include a schedule showing all amounts
payable or paid during such year to the aforementioned
parties;
(iv) a copy of the Accountants' detailed depreciation schedule
as of December 31;
(v) a reconciliation of Partners' capital accounts as of
December 31 which details the Capital Contribution and
distributions to General and Limited Partners;
70
(vi) a schedule of amounts due to/from General and Limited
Partners as of December 31;
(vii) a reconciliation of the reserve account as of December
31; and
(viii) an annual financial statement of each corporate General
Partner, if any, prepared by an accountant, with (1) a balance
sheet prepared on a "classified basis", (2) income statement
prepared on a "classified basis", (3) statement of cash flow,
(4) notes to financial statements, (5) and a balance sheet
prepared on a "classified basis" of every other limited
partnership of which the corporate General Partner is a
partner; and
The General Partner shall also mail:
(ix) by March 10 of every year, to all Persons who were
Partners at any time during the Partnership's prior fiscal
year, all tax information regarding the Partnership and its
operations during the prior fiscal year which are reasonably
necessary to the Partners for the preparation of their tax
returns, together with a report of the Accountants containing
financial statements as furnished to the RHCDS certified by
the General Partner, and a report of the General Partner with
respect to the Partnership and its operations during the prior
fiscal year, including a statement of cash flow (i.e. a
reconciliation of the balance sheet and income statement) and
a calculation of the cash flow available to the Partners; and
(x) by November 1 of every year, beginning with the calendar
year first above written, to all Persons who are or have been
Partners at any time during the Partnership's current fiscal
year, preliminary tax information regarding the Partnership
and its operations during the current fiscal year, to the
extent that the tax credits and results of operations are
expected to be more than ten percent different from the
preceding year or as projected.
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(b) Any expense for such returns or reports shall be paid out of the
assets of the General Partner, to the extent not included in the RHCDS-approved
budget.
(c) All Partners shall have the right and power to examine and copy,
at any and all reasonable times, the books, records and accounts of the
Partnership.
(d) Any Partner shall have the right to object to the Accountant's
reports by giving Notice to the other Partners within 15 days after any such
report is received by such Partner, setting forth in reasonable detail the
objections of such Partner and the basis for such objections.
12.05. Fiscal Year and Accounting Method
The fiscal year of the Partnership shall be the calendar year.
All Partnership accounts shall be determined on the accrual basis.
ARTICLE XIII
GENERAL PROVISIONS
13.01. Arbitration. Any dispute, controversy or claim arising
out of or in connection with or relating to this Agreement or any breach or
alleged breach hereof shall, upon the request of any party involved, be
submitted to and settled by arbitration in the State pursuant to the Commercial
Arbitration Rules then in effect of the American Arbitration Association (or at
any other place or under any other form of arbitration rules mutually acceptable
to the parties so involved). Any award rendered shall be final and conclusive
upon the parties and a judgment thereon may be entered in the highest court of
the forum, state or federal, having jurisdiction. The expenses of the
arbitration shall be borne equally by the parties to the arbitration, provided
that each party shall pay for and bear the cost of its own experts, evidence and
counsel's fees, except that in the discretion of the arbitrators any award may
include the cost of a party's counsel if the arbitrator expressly determines
that the party against whom such award is entered has caused the dispute,
controversy or claim to be submitted to arbitration as a dilatory tactic.
13.02. Amendments. No modification shall be made to this
Agreement except by written amendment signed by all Partners, provided, however,
that in the case of a scrivener s error acknowledged as such by the General
Partner or Counsel for the Partnership and by the Investment Partnership, this
Agreement shall be amended to correct such error, and if required as a result
thereof under the Act, the amendment shall be promptly filed or recorded.
72
13.03. Burden and Benefit. The covenants and agreements
contained herein shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and (to the extent permitted hereunder)
assigns of the respective parties hereto.
13.04. Applicable Law. This Agreement shall be construed
and enforced in accordance with the laws of the State.
13.05. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties shall not have signed the same counterpart.
13.06. Severability of Provisions. Each provision of this
Agreement shall be considered severable and if for any reason any provision
which is not essential to the effectuation of the basic purposes of this
Agreement is determined to be invalid and contrary to any existing or future
law, such invalidity shall not impair the operation of or affect those
provisions of this Agreement which are valid.
13.07. Entire Agreement. This Agreement sets forth all (and is
intended by all parties to be an integration of all) the representations,
promises, agreements and understandings among the parties hereto with respect to
the Partnership, the Partnership business and the property of the Partnership,
and there are no representation s, promises, agreements or understandings, oral
or written, express or implied, among them other than as set forth or
incorporated herein.
13.08. Use of Singular and Plural. All uses of singular and
plural herein, generally, shall be deemed to read as the context may require.
13.09. Notices to the Investment Partnership. Any Notice required by
the provisions of this Agreement to be given to the Investment Partnership
shall be addressed as follows:
Landau
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
P. O. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
73
IN WITNESS WHEREOF, the parties have affixed their signatures
and seals to this Agreement as of the date first written above.
GENERAL PARTNER:
WITNESS:
____________________ _________________________
▇▇▇▇▇ ▇. ▇▇▇▇
LIMITED PARTNER:
LANDAU
WITNESS:
By _______________________
IT'S AUTHORIZED AGENT
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EXHIBIT A
▇▇▇▇▇▇ VILLA LIMITED PARTNERSHIP
PROJECTED CREDIT
1996 4,451
1997 39,560
1998 39,560
1999 39,560
2000 39,560
2001 39,560
2002 39,560
2003 39,560
2004 39,560
2005 39,560
2006 35,109
TOTAL $395,600
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EXHIBIT B
PROJECT DOCUMENTS (For 515 Projects - New Construction)
STAGE 1: PRIOR TO CONSTRUCTION CLOSING
TAX All Tax Credit documents with state agency:
application, reservation,
carryover allocation
B1 Estimate and Certificate of Actual Cost (form
#1924-13), fully executed.
B2 Statement of Budget and Cash Flow (form #1930-7),
executed by RHCDS.
B3-B4 Obligation of Funds (signed by RHCDS - form
#1944-51; if prior to obligation,
RHCDS form AD 622).
B6 Utility Allowances (RHCDS Instruction #1944-E
Exhibit A-5).
B7 Identification number of partnership (federal I.D.
number).
B8-B9 Construction contract and architect's contract
(executed by RHCDS).
B10-B14 Name/address/telephone number of partnership s
accounting and law firms,
managing agent, RHCDS district loan officer, and
construction lender.
B15 Original partnership agreement and all amendments
showing filing date.
B16 Liability/casualty policies or (prior to
construction) binders.
B19-B20 Construction Loan commitment and RHCDS Closing
Instructions.
B2 1 RHCDS Loan Agreement (form #1944-34).
B22 Option to purchase.
4NY-F6 Registrant Information Form (from #RI-l) and GP
Questionnaire (on forms
provided).
B23 For Individual General Partner: Current statement
of financial condition which
should include a breakout of current assets and liabilities
and a statement signed by the General Partner(s)
reasonably similar to "I certify that the above statement
contained herein as a true and accurate
statement of my financial condition as of the date states
herein."
For Corporate General Partner: Current financial statement of
the general partners prepared by an accountant with (i)
balance sheet prepared on a classified" basis, (ii)
income statement prepared on a "classified" basis,
(iii) statement of cash flow, (iv) notes to financial
statements, and a list of all other limited partnerships in
which the corporate general partner is a general partner
with a balance sheet of each prepared by an accountant on a
"classified" basis showing capital contributions, including
complete information on any contingent liabilities.
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▇▇▇ ▇▇▇▇▇ Previous Participation Certificate (form #1944-37 -
fully executed).
B25 Resume or biographical sketch of G.P. (for a corporate G.P.,
Please include articles of incorporation and corporate bylaws,
certificate of good standing, latest
annual financial statement, prepared by an accountant with (i)
balance sheet prepared on a "classified" basis, (ii) income
statement prepared on a "classified" basis, (iii) statement
of cash flow, (iv) notes on financial statements, or, for a
partnership as G.P., all filed agreements and amendments).
F6a Market study or survey (as submitted to RHCDS).
F6a Community Profile (on form provided).
STAGE 2: CONSTRUCTION CLOSING
B40 Fully executed promissory note.
B4 1 Recorded mortgage or deed of trust.
B42 Fully executed side agreements.
B43 Evidence of recent construction draw or
Architect's certification that construction
has begun.
B45 Owner's title insurance binder.
B47 Deed (recorded).
B49 Property management contract (executed by RHCDS).
STAGE 3: FINAL CLOSING
B50 Fully executed promissory note.
B5 1 Recorded mortgage or deed of trust.
B52 Fully executed side agreements.
B58 Owner's title insurance policy.
B59 Certificate of Occupancy or equivalent (as
applicable for locality).
B60 Certificate of Actual Cost (form #1924-13) with
accountant's certification attached
or all Partial Payment Requests and Statement of
Deposits and Withdrawals from RHCDS (if there is
not an identity of interest and 1924-13 is not
available).
STAGE 4: INITIAL RENT-UP
F4 RHCDS Tenant Certifications (as they become
available).
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TAX IRS Form 8609 and extended use agreement.
PHOTOS Photos of landscaped project (include negatives).
PARTNERSHIP DOCUMENTS
- Recorded Limited Partnership Agreement
- Development and Administration Agreement
- Consultation Agreement
- Legal Opinion
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