Common use of Professionals Hired By General Partners Do Not Represent Limited Partners Clause in Contracts

Professionals Hired By General Partners Do Not Represent Limited Partners. The attorneys, accountants and other experts who perform services for the Partnership also perform services for the General Partners and their Affiliates. It is anticipated that such representation will continue in the future. Such professionals, including, Sxxxxxx X. Xxxx & Associates, counsel for the Partnership and the General Partners, do not represent the Limited Partners. Under the Partnership Agreement, each of the Limited Partners acknowledges and agrees that such professionals, including, Sxxxxxx X. Xxxx & Associates, counsel for the Partnership and the General Partners, representing the Partnership and the General Partners and their Affiliates do not represent, and shall not be deemed under applicable codes of professional conduct and responsibility to have represented or be representing, any or all of the Limited Partners in any respect. Such professionals, however, are obligated under those codes not to engage in unethical or improper professional conduct. In the event of a conflict regarding services performed by attorneys, accountants and other experts, with respect to the General Partners and/or the Partnership and Limited Partners, then the Partnership, at Partnership expense, will retain independent counsel, who has not previously represented the Partnership or the General Partners to represent the interests of the Limited Partners solely with respect to the issue of a conflict regarding the services performed by professionals. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS The General Partners are accountable to the Partnership as fiduciaries, and consequently are under a fiduciary duty to exercise good faith and integrity in conducting the Partnership's affairs and to conduct such affairs in the best interest of the Partnership. The California Revised Limited Partnership Act provides that a limited partner may institute legal action on behalf of himself and all other similarly situated limited partners (a class action) to recover damages for a breach by a general partner of its fiduciary duty, or on behalf of the partnership (a partnership derivative action) to recover damages from a general partner or third parties where the general partner has failed or refused to enforce the obligation. Based upon the present state of the law and federal statutes, regulations, rules and relevant judicial and administrative decisions, it appears that (1) the Limited Partners of the Partnership have the right, subject to the provisions of applicable procedural rules and statutes to: (a) bring Partnership class actions, (b) enforce rights of all Limited Partners similarly situated, and (c) bring Partnership derivative actions to enforce rights of the Partnership including, in each case, rights under certain rules and regulations of the Securities and Exchange Commission; and (2) Limited Partners who have suffered losses in connection with the purchase or sale of their Units due to a breach of fiduciary duty by the General Partners in connection with such purchase or sale, including misapplication by the General Partners of the proceeds from the sale of Units, may have a right to recover such losses from the General Partners in an action based on Rule 10b-5 under the Securities and Exchange Act of 1934. In addition, where an employee benefit plan has acquired Units, case law applying the fiduciary duty concepts of ERISA could be viewed to apply to the General Partners. The General Partners will provide quarterly and annual reports of operations and must, on demand, give any Limited Partner or his/her legal representative a copy of the Form 10-K and true and full information concerning the Partnership's affairs. Further, the Partnership's books and records may be inspected or copied by its Limited Partners or their legal representatives at any time during normal business hours. This is a rapidly developing and changing area of the law and this summary, describing in general terms the remedies available to Limited Partners for breaches of fiduciary duty by the General Partners, is based on statutes and judicial and administrative decisions as of the date of this Prospectus. Limited Partners who have questions concerning the duties of the General Partners or who believe that a breach of fiduciary duty by a General Partner has occurred should consult their own counsel. Provision has been made in the Partnership Agreement that the General Partners shall have no liability to the Partnership for loss arising out of any act or omission by the General Partners, provided that the General Partners determine in good faith that their conduct was in the best interest of the Partnership and, provided further, that their conduct did not constitute gross negligence or gross misconduct. As a result, purchasers of Units may have a more limited right of action in certain circumstances than they would in the absence of such a provision in the Partnership Agreement. The Partnership Agreement also provides that, to the extent permitted by law, the Partnership shall indemnify the General Partners against liability and related expenses (including attorneys' fees) incurred in dealings with third parties, provided that the conduct of the General Partners are consistent with the standards described in the preceding paragraph. Notwithstanding the foregoing, neither the General Partners nor their Affiliates shall be indemnified for any liability imposed by judgment (including costs and attorneys fees) arising from or out of a violation of state or federal securities laws associated with the offer and sale of Units offered hereby. However, indemnification will be allowed for settlements and related expenses of lawsuits alleging securities law violations and for expenses incurred in successfully defending such lawsuits provided that (a) a court either approves indemnification of litigation costs if the General Partners are successful in defending the action; or (b) the settlement and indemnification is specifically approved by the court of law which shall have been advised as to the current position of the Securities and Exchange Commission (as to any claim involving allegations that the Securities Act of 1933 was violated) and California Commissioner of Corporations or the applicable state authority (as to any claim involving allegations that the applicable state's securities laws were violated). Any such indemnification shall be recoverable out of the assets of the Partnership and not from Limited Partners. A successful claim for such indemnification would deplete Partnership assets by the amount paid. THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL EXPERIENCE OF REAL ESTATE MORTGAGE PROGRAMS MANAGED BY THE GENERAL PARTNERS AND THEIR AFFILIATES. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR REAL ESTATE MORTGAGE PROGRAMS. Experience and Background of General Partners and Affiliates. The General Partners and their Affiliates have, since 1978, sponsored and managed eight (8) real estate mortgage limited partnerships not including the Partnership. All partnerships have investment objectives similar to the Partnership. Six of these partnerships were offered without registration under the Securities Act of 1933 in reliance upon the intrastate offering exemption from the registration requirements thereunder and/or the exemption for transactions not involving a public offering. Three of these partnerships including the Partnership were registered under Securities Act of 1933. The effect of not registering six of the prior partnerships is that the partners in the respective partnerships have differing rights with respect to the transfer of their interests in the partnerships. When securities are issued without registration under the Securities Act of 1933, either in reliance upon the intrastate exemption or the exemption for transactions not involving a public offering, those securities may not be transferred without registration under, or an exemption from, the Securities Act of 1933. On the other hand, securities issued pursuant to a registration statement under the Securities Act of 1933 generally may be sold without such registration. In general, securities issued pursuant to registration under the Securities Act of 1933 are more freely transferable than those which are issued without registration under the Securities Act of 1933. However, even securities issued pursuant to a registration statement are subject to restrictions on transfer under the securities laws of the states in which they are issued and under the terms of their respective partnership agreements. Not including the initial offering by the Partnership, as of June 30, 1996, the eight previous partnerships had raised aggregate capital contributions of approximately $47,637,000 from approximately 3,098 investors and had total current net assets under management of $43,805,044. As of June 30, 1996, the number of loans made by these partnerships was approximately 1,798 and the number of outstanding Mortgage Investments made by these earlier partnerships was approximately 304 ($38,834,738) which are secured by properties principally located in Northern California. Of these loans, approximately 139 which represents twenty-two percent (22%) of the Partnerships portfolio ($8,673,500) are secured by single family residences, 30, which represents eleven percent (11%) of the Partnerships portfolio ($4,171,500) are secured by multi-family units, 120 which represents fifty-eight percent (58%) of the Partnerships portfolio ($22,391,210) are secured by commercial properties and 15 which represents nine percent (9%) of the Partnerships portfolio ($3,598,428) are secured by unimproved property. Redwood Mortgage Investors VII ("RMI VII") is a California limited partnership of which D. Rxxxxxx Xxxxxxx, Mxxxxxx X. Xxxxxxx and Gymno Corporation are the Co-General Partners. RMI VII was registered under the Securities Act of 1933. As of June 30, 1996, RMI VII had made 221 Mortgage Investments totaling $31,158,361. Of these Mortgage Investments, approximately 71 (thirty-seven percent (37%) of the total principal balance of all Mortgage Investments) are first mortgages, 117 (fifty-nine percent (59%) of the total principal balance of all Mortgage Investments) are second mortgages, 33 (four percent (4%) of the total principal balance of all Mortgage Investments) are third and fourth mortgages. Two are construction loans. The average size of the Mortgage Investment is $140,988. Redwood Mortgage Investors VI ("RMI VI") is a California limited partnership of which D. Rxxxxxx Xxxxxxx, Mxxxxxx X. Xxxxxxx and Gymno Corporation are the Co-General Partners. RMI VI was registered under the Securities Act of 1933. As of December 31, 1995, RMI VI had a total capitalization of $11,040,895 and 774 investors. Redwood Mortgage Investors V ("RMI V") is a California limited partnership of which D. Rxxxxxx Xxxxxxx, Mxxxxxx X. Xxxxxxx and Gymno Corporation are the Co-General Partners. RMI V was qualified under California securities laws and a permit allowing RMI V to offer and sell Units was issued by the Commissioner of Corporations on September 15, 1986. As of June 30, 1996, RMI V had a total capitalization of $4,525,792 and 399 investors. Redwood Mortgage Investors IV ("RMI IV") is a California limited partnership of which D. Rxxxxxx Xxxxxxx, Mxxxxxx X. Xxxxxxx and Gymno Corporation are General Partners. RMI IV was qualified under California securities laws and a permit allowing RMI IV to offer and sell units was issued by the Commissioner of Corporations on October 2, 1984. The Commissioner of Corporations subsequently extended the effectiveness of the RMI IV offering permit until September 18, 1986. As of June 30, 1996, RMI IV had a total capitalization of $8,168,440 and 711 investors. Redwood Mortgage Investors ("RMI") and Redwood Mortgage Investors II ("RMI II") are California limited partnerships of which D. Rxxxxxx Xxxxxxx, Mxxxxxx X. Xxxxxxx and Gymno Corporation are General Partners. Redwood Mortgage Investors III ("RMI III") is also a California limited partnership of which D. Rxxxxxx Xxxxxxx, Mxxxxxx X. Xxxxxxx and Gymno Corporation are General Partners. All three of these partnerships were sold only to a limited number of selected California residents in compliance with applicable federal and state securities laws. As of June 30, 1996, RMI had 30 investors, RMI II had 36 investors and RMI III had 87 investors. The RMI offering terminated on July 31, 1982, at which time it had a total capitalization of approximately $1,090,916. The RMI II offering terminated on June 30, 1983, at which time it had a total capitalization of approximately $1,282,802. The RMI III offering terminated on June 30, 1984, at which time it had a total capitalization of approximately $1,429,624. This Partnership was re-offered in July, 1992, and as of June 30, 1996, additional contributions of $838,800, were received. Corporate Mortgage Investors ("CMI") is a California limited partnership of which D. Rxxxxxx Xxxxxxx and A & B Financial Services, Inc. are the Co-General Partners. The offering period for CMI commenced August 1, 1978, and interests in CMI have been closed. The interest in CMI was offered and sold exclusively to qualified pension and profit sharing plans and other institutional investors. Commencing January 1, 1984, a segregated portfolio was created within CMI, into which all new subscriptions received by CMI were placed. The two (2) Portfolios within CMI were designated Portfolio I and Portfolio II, respectively. As of June 30, 1996, the two portfolios that had been merged had total assets of $1,735,506 and 134 investors. The funds raised by these partnerships have been used to make loans secured solely by deeds of trust. All loans are arranged and serviced by Redwood Mortgage, for which it receives substantial compensation. All of these partnerships will have funds to invest in loans at the same time as this Partnership (See "CONFLICTS OF INTEREST - Interest in Other Partnerships"). Copies of audited financial statements for all prior partnerships are available from the General Partners upon request and may be obtained upon payment of a fee sufficient to cover copying costs. Any investor or prospective investor who would like to receive such information, should contact D. Rxxxxxx Xxxxxxx, a General Partner of the Partnership at 600 Xx Xxxxxx Xxxx, Xxxxx X, Xxxxxxx Xxxx, Xxxxxxxxxx 00000; (000) 000-0000. All of the foregoing Partnerships have achieved their stated goals to date.

Professionals Hired By General Partners Do Not Represent Limited Partners. The attorneys, accountants and other experts who perform services for the Partnership also perform services for the General Partners and their Affiliates. It is anticipated that such representation will continue in the future. Such professionals, including, Sxxxxxx Xxxxxxx X. Xxxx & Associates, counsel for the Partnership and the General Partners, do not represent the Limited Partners. Under the Partnership Agreement, each of the Limited Partners acknowledges and agrees that such professionals, including, Sxxxxxx Xxxxxxx X. Xxxx & Associates, counsel for the Partnership and the General Partners, representing the Partnership and the General Partners and their Affiliates do not represent, and shall not be deemed under applicable codes of professional conduct and responsibility to have represented or be representing, any or all of the Limited Partners in any respect. Such professionals, however, are obligated under those codes not to engage in unethical or improper professional conduct. In the event of a conflict regarding services performed by attorneys, accountants and other experts, with respect to the General Partners and/or the Partnership and Limited Partners, then the Partnership, at Partnership expense, will retain independent counsel, who has not previously represented the Partnership or the General Partners to represent the interests of the Limited Partners solely with respect to the issue of a conflict regarding the services performed by professionals. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS The General Partners are accountable to the Partnership as fiduciaries, and consequently are under a fiduciary duty to exercise good faith and integrity in conducting the Partnership's affairs and to conduct such affairs in the best interest of the Partnership. The California Revised Limited Partnership Act provides that a limited partner may institute legal action on behalf of himself and all other similarly situated limited partners (a class action) to recover damages for a breach by a general partner of its fiduciary duty, or on behalf of the partnership (a partnership derivative action) to recover damages from a general partner or third parties where the general partner has failed or refused to enforce the obligation. Based upon the present state of the law and federal statutes, regulations, rules and relevant judicial and administrative decisions, it appears that (1) the Limited Partners of the Partnership have the right, subject to the provisions of applicable procedural rules and statutes to: (a) bring Partnership class actions, (b) enforce rights of all Limited Partners similarly situated, and (c) bring Partnership derivative actions to enforce rights of the Partnership including, in each case, rights under certain rules and regulations of the Securities and Exchange Commission; and (2) Limited Partners who have suffered losses in connection with the purchase or sale of their Units due to a breach of fiduciary duty by the General Partners in connection with such purchase or sale, including misapplication by the General Partners of the proceeds from the sale of Units, may have a right to recover such losses from the General Partners in an action based on Rule 10b-5 under the Securities and Exchange Act of 1934. In addition, where an employee benefit plan has acquired Units, case law applying the fiduciary duty concepts of ERISA could be viewed to apply to the General Partners. The General Partners will provide quarterly and annual reports of operations and must, on demand, give any Limited Partner or his/her legal representative a copy of the Form 10-K and true and full information concerning the Partnership's affairs. Further, the Partnership's books and records may be inspected or copied by its Limited Partners or their legal representatives at any time during normal business hours. This is a rapidly developing and changing area of the law and this summary, describing in general terms the remedies available to Limited Partners for breaches of fiduciary duty by the General Partners, is based on statutes and judicial and administrative decisions as of the date of this Prospectus. Limited Partners who have questions concerning the duties of the General Partners or who believe that a breach of fiduciary duty by a General Partner has occurred should consult their own counsel. Provision has been made in the Partnership Agreement that the General Partners shall have no liability to the Partnership for loss arising out of any act or omission by the General Partners, provided that the General Partners determine in good faith that their conduct was in the best interest of the Partnership and, provided further, that their conduct did not constitute gross negligence or gross misconduct. As a result, purchasers of Units may have a more limited right of action in certain circumstances than they would in the absence of such a provision in the Partnership Agreement. The Partnership Agreement also provides that, to the extent permitted by law, the Partnership shall indemnify the General Partners against liability and related expenses (including attorneys' fees) incurred in dealings with third parties, provided that the conduct of the General Partners are consistent with the standards described in the preceding paragraph. Notwithstanding the foregoing, neither the General Partners nor their Affiliates shall be indemnified for any liability imposed by judgment (including costs and attorneys fees) arising from or out of a violation of state or federal securities laws associated with the offer and sale of Units offered hereby. However, indemnification will be allowed for settlements and related expenses of lawsuits alleging securities law violations and for expenses incurred in successfully defending such lawsuits provided that (a) a court either approves indemnification of litigation costs if the General Partners are successful in defending the action; or (b) the settlement and indemnification is specifically approved by the court of law which shall have been advised as to the current position of the Securities and Exchange Commission (as to any claim involving allegations that the Securities Act of 1933 was violated) and California Commissioner of Corporations or the applicable state authority (as to any claim involving allegations that the applicable state's securities laws were violated). Any such indemnification shall be recoverable out of the assets of the Partnership and not from Limited Partners. A successful claim for such indemnification would deplete Partnership assets by the amount paid. THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL EXPERIENCE OF REAL ESTATE MORTGAGE PROGRAMS MANAGED BY THE GENERAL PARTNERS AND THEIR AFFILIATES. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR REAL ESTATE MORTGAGE PROGRAMS. Experience and Background of General Partners and Affiliates. The General Partners and their Affiliates have, since 1978, sponsored and managed eight (8) real estate mortgage limited partnerships not including the Partnership. All partnerships have investment objectives similar to the Partnership. Six of these partnerships were offered without registration under the Securities Act of 1933 in reliance upon the intrastate offering exemption from the registration requirements thereunder and/or the exemption for transactions not involving a public offering. Three of these partnerships including the Partnership were registered under Securities Act of 1933. The effect of not registering six of the prior partnerships is that the partners in the respective partnerships have differing rights with respect to the transfer of their interests in the partnerships. When securities are issued without registration under the Securities Act of 1933, either in reliance upon the intrastate exemption or the exemption for transactions not involving a public offering, those securities may not be transferred without registration under, or an exemption from, the Securities Act of 1933. On the other hand, securities issued pursuant to a registration statement under the Securities Act of 1933 generally may be sold without such registration. In general, securities issued pursuant to registration under the Securities Act of 1933 are more freely transferable than those which are issued without registration under the Securities Act of 1933. However, even securities issued pursuant to a registration statement are subject to restrictions on transfer under the securities laws of the states in which they are issued and under the terms of their respective partnership agreements. Not including the initial offering by the Partnership, as of June 30, 1996, the eight previous partnerships had raised aggregate capital contributions of approximately $47,637,000 from approximately 3,098 investors and had total current net assets under management of $43,805,044. As of June 30, 1996, the number of loans made by these partnerships was approximately 1,798 and the number of outstanding Mortgage Investments made by these earlier partnerships was approximately 304 ($38,834,738) which are secured by properties principally located in Northern California. Of these loans, approximately 139 which represents twenty-two percent (22%) of the Partnerships portfolio ($8,673,500) are secured by single family residences, 30, which represents eleven percent (11%) of the Partnerships portfolio ($4,171,500) are secured by multi-family units, 120 which represents fifty-eight percent (58%) of the Partnerships portfolio ($22,391,210) are secured by commercial properties and 15 which represents nine percent (9%) of the Partnerships portfolio ($3,598,428) are secured by unimproved property. Redwood Mortgage Investors VII ("RMI VII") is a California limited partnership of which D. Rxxxxxx Xxxxxxx Xxxxxxx, Mxxxxxx Xxxxxxx X. Xxxxxxx and Gymno Corporation are the Co-General Partners. RMI VII was registered under the Securities Act of 1933. As of June 30, 1996, RMI VII had made 221 Mortgage Investments totaling $31,158,361. Of these Mortgage Investments, approximately 71 (thirty-seven percent (37%) of the total principal balance of all Mortgage Investments) are first mortgages, 117 (fifty-nine percent (59%) of the total principal balance of all Mortgage Investments) are second mortgages, 33 (four percent (4%) of the total principal balance of all Mortgage Investments) are third and fourth mortgages. Two are construction loans. The average size of the Mortgage Investment is $140,988. Redwood Mortgage Investors VI ("RMI VI") is a California limited partnership of which D. Rxxxxxx Xxxxxxx Xxxxxxx, Mxxxxxx Xxxxxxx X. Xxxxxxx and Gymno Corporation are the Co-General Partners. RMI VI was registered under the Securities Act of 1933. As of December 31, 1995, RMI VI had a total capitalization of $11,040,895 and 774 investors. Redwood Mortgage Investors V ("RMI V") is a California limited partnership of which D. Rxxxxxx Xxxxxxx Xxxxxxx, Mxxxxxx Xxxxxxx X. Xxxxxxx and Gymno Corporation are the Co-General Partners. RMI V was qualified under California securities laws and a permit allowing RMI V to offer and sell Units was issued by the Commissioner of Corporations on September 15, 1986. As of June 30, 1996, RMI V had a total capitalization of $4,525,792 and 399 investors. Redwood Mortgage Investors IV ("RMI IV") is a California limited partnership of which D. Rxxxxxx Xxxxxxx Xxxxxxx, Mxxxxxx Xxxxxxx X. Xxxxxxx and Gymno Corporation are General Partners. RMI IV was qualified under California securities laws and a permit allowing RMI IV to offer and sell units was issued by the Commissioner of Corporations on October 2, 1984. The Commissioner of Corporations subsequently extended the effectiveness of the RMI IV offering permit until September 18, 1986. As of June 30, 1996, RMI IV had a total capitalization of $8,168,440 and 711 investors. Redwood Mortgage Investors ("RMI") and Redwood Mortgage Investors II ("RMI II") are California limited partnerships of which D. Rxxxxxx Xxxxxxx Xxxxxxx, Mxxxxxx Xxxxxxx X. Xxxxxxx and Gymno Corporation are General Partners. Redwood Mortgage Investors III ("RMI III") is also a California limited partnership of which D. Rxxxxxx Xxxxxxx Xxxxxxx, Mxxxxxx Xxxxxxx X. Xxxxxxx and Gymno Corporation are General Partners. All three of these partnerships were sold only to a limited number of selected California residents in compliance with applicable federal and state securities laws. As of June 30, 1996, RMI had 30 investors, RMI II had 36 investors and RMI III had 87 investors. The RMI offering terminated on July 31, 1982, at which time it had a total capitalization of approximately $1,090,916. The RMI II offering terminated on June 30, 1983, at which time it had a total capitalization of approximately $1,282,802. The RMI III offering terminated on June 30, 1984, at which time it had a total capitalization of approximately $1,429,624. This Partnership was re-offered in July, 1992, and as of June 30, 1996, additional contributions of $838,800, were received. Corporate Mortgage Investors ("CMI") is a California limited partnership of which D. Rxxxxxx Xxxxxxx Xxxxxxx and A & B Financial Services, Inc. are the Co-General Partners. The offering period for CMI commenced August 1, 1978, and interests in CMI have been closed. The interest in CMI was offered and sold exclusively to qualified pension and profit sharing plans and other institutional investors. Commencing January 1, 1984, a segregated portfolio was created within CMI, into which all new subscriptions received by CMI were placed. The two (2) Portfolios within CMI were designated Portfolio I and Portfolio II, respectively. As of June 30, 1996, the two portfolios that had been merged had total assets of $1,735,506 and 134 investors. The funds raised by these partnerships have been used to make loans secured solely by deeds of trust. All loans are arranged and serviced by Redwood Mortgage, for which it receives substantial compensation. All of these partnerships will have funds to invest in loans at the same time as this Partnership (See "CONFLICTS OF INTEREST - Interest in Other Partnerships"). Copies of audited financial statements for all prior partnerships are available from the General Partners upon request and may be obtained upon payment of a fee sufficient to cover copying costs. Any investor or prospective investor who would like to receive such information, should contact D. Rxxxxxx Xxxxxxx Xxxxxxx, a General Partner of the Partnership at 600 000 Xx Xxxxxx Xxxx, Xxxxx X, Xxxxxxx Xxxx, Xxxxxxxxxx 00000; (000) 000-0000. All of the foregoing Partnerships have achieved their stated goals to date.