AGREEMENT OF LIMITED PARTNERSHIP OF
BEHRINGER HARVARD NORTHWEST HIGHWAY LP
THIS AGREEMENT OF LIMITED PARTNERSHIP (the "AGREEMENT") is made and
entered into effective as of the ___ day of March, 2005, by and among BEHRINGER
HARVARD NORTHWEST HIGHWAY GP, LLC, a Texas limited liability company (the
"GENERAL PARTNER"), BEHRINGER HARVARD SHORT-TERM OPPORTUNITY FUND I LP, a Texas
limited partnership (the "CLASS A LIMITED PARTNER"), and X.X. XXXXXXXXX TRUST, a
Texas trust, and XXXX AND XXXXX XXXXXXX FAMILY TRUST, a Texas trust
(collectively, the "CLASS B LIMITED PARTNERS").
ARTICLE I.
FORMATION, NAME, PRINCIPAL PLACE OF BUSINESS - AGENT
PURPOSES, TERM AND DEFINITIONS
1.0 FORMATION. For and in consideration of the mutual covenants
herein contained, the Partners hereby form a limited partnership (hereinafter
the "PARTNERSHIP") under and pursuant to the Texas Revised Limited Partnership
Act, Tex. Rev. Civ. Stat. Xxx., art 6132a-1 (such Act hereinafter referred to as
"TRLPA"). The Partnership shall be governed by TRLPA. The Certificate of Limited
Partnership of the Partnership has been or shall promptly be filed and recorded
in such office and places as is required by TRLPA.
1.1. NAME. The business of the Partnership shall be conducted under
the name of "Behringer Harvard Northwest Highway LP".
1.2. PARTNERSHIP OFFICE, REGISTERED OFFICE AND REGISTERED AGENT. The
Partnership shall maintain its principal office in the State of Texas at 00000
Xxxxxx Xxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, or at such other place as the
General Partner may from time to time designate. The Registered Office in the
State of Texas is 00000 Xxxxxx Xxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, and the
agent for service of process at such address shall be Xxxxxx X. Xxxxxxx, III.
The Partnership may maintain such different or additional offices as the General
Partner may determine.
1.3. PURPOSES. The nature and business of the Partnership and the
purposes to be conducted and promoted by the Partnership are to engage solely in
the following activities:
(a) To acquire the Property, and to develop, own, maintain,
operate, finance, refinance, and sell or exchange the Project on the Property;
and
(b) To exercise all powers enumerated in TRLPA necessary or
convenient to the conduct, promotion or attainment of the business or purposes
otherwise set forth herein.
1.4. TERM. The Partnership shall continue until December 31, 2055,
unless the business of the Partnership is terminated sooner pursuant to Article
XV below.
1.5. DEFINITIONS. As used in this Agreement, unless the context
clearly requires otherwise, the following words and phrases shall have the
following meanings:
"ADDITIONAL CAPITAL CONTRIBUTIONS" means all amounts paid by the
Partners to the Partnership as additional capital contributions under Section
3.2 of this Agreement, except that, as
provided in Section 3.2, any amounts over $25,000 paid by the Class B Limited
Partners to the Partnership pursuant to Section 3.2 shall not count as
Additional Capital Contributions for purposes of this Agreement.
"ADDITIONAL CAPITAL CONTRIBUTIONS ACCOUNT" means an account
maintained for each Partner equal to (i) all Additional Capital Contributions
made by such Partner to the Partnership pursuant to Section 3.2 of this
Agreement, less (ii) the aggregate distributions made to such Partner pursuant
to Sections 6.1(a) and 6.2(a) of this Agreement.
"ADJUSTMENT DATE" means the close of business on the last day of
any fiscal year of the Partnership.
"AFFILIATE" of a Person means (i) any Person, directly or
indirectly controlling, controlled by or under common control with the specified
Person; (ii) any Person owning or controlling 10% or more of the outstanding
voting securities of such specified Person; (iii) any officer, director,
partner, member or trustee of such specified Person and (iv) if any Person who
is an Affiliate is an officer, director, partner, member or trustee of another
Person, such other Person. The term "control" shall mean the ability, directly
or indirectly, to control the management of an entity.
"AGREEMENT" means this Agreement of Limited Partnership.
"CAPITAL ACCOUNT" means, with respect to each Partner, the
account established and maintained on the books and records of the Partnership
for each Partner pursuant to Section 3.4 below, adjusted as provided for
therein.
"CAPITAL CONTRIBUTION" means the amount of money and the agreed
fair market value of other property or consideration contributed to the capital
of the Partnership by a Partner.
"CLASS A LIMITED PARTNER" means Behringer Harvard Short-Term
Opportunity Fund I LP, a Texas limited partnership, and any other Person who has
been admitted as a Class A Limited Partner in the Partnership pursuant to the
provisions of this Agreement.
"CLASS B LIMITED PARTNERS" means, collectively, X.X. Xxxxxxxxx
Trust, a Texas trust, and Xxxx and Xxxxx Xxxxxxx Family Trust, a Texas trust,
and any other Person who has been admitted as a Class B Limited Partner in the
Partnership pursuant to the provisions of this Agreement.
"CODE" means the Internal Revenue Code of 1986 as it may be
amended or revised from time to time, or any provision of succeeding law.
"CONSTRUCTION LOAN" means the loan contemplated to be obtained
by the Partnership in the amount of approximately $4,550,000, the proceeds of
which will be used to pay a portion of the costs of constructing the Project.
"DISTRIBUTABLE CASH" means all cash, revenues, and funds
received by the Partnership, and any amounts released from Reserves to the
extent the General Partner deems that the amount released is no longer required
to be retained in Reserves, less the sum of the following to the extent paid or
set aside by the Partnership: (a) all principal and interest payments on
indebtedness of the Partnership and all other sums paid to lenders; (b) all cash
expenditures incurred incident to the operation of the Partnership business; (c)
such amounts as may be added to Reserves as the General Partner deems reasonably
necessary to the proper operation of the Partnership's business.
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"EQUITY INVESTORS" means the limited partners in Behringer
Harvard Short-Term Opportunity Fund I LP.
"GENERAL PARTNER" means Behringer Harvard Northwest Highway GP,
LLC, a Delaware limited liability company, and any other Person who has been
admitted as a General Partner in the Partnership pursuant to the provisions of
this Agreement.
"IMPROVEMENTS" shall mean any improvements and related amenities
now located or to be constructed on the Property.
"INITIAL CAPITAL CONTRIBUTIONS" means each Partner's Capital
Contribution pursuant to Section 3.1.
"INITIAL CAPITAL CONTRIBUTION ACCOUNT" means, as to each
Partner, (a) the Initial Capital Contribution made by such Partner pursuant to
Section 3.1 of this Agreement, less (ii) the aggregate distributions made to
such Partner pursuant to Sections 6.1(b) and 6.2(b) of this Agreement.
"IRR" means, as to the Class A Limited Partner, the actual
internal rate of return on the actual investment made by the Class A Limited
Partner in respect of the Partnership (not including any internal "load"
assessed by the Class A Limited Partner with respect to the investments by the
Equity Investors), as calculated by the General Partner on a compounded annual
basis taking into consideration the timing and amount of the investments made by
the Class A Limited Partner in respect of the Partnership as well as the timing
and amount of all distributions received as a result of such investment. For
purposes of calculating the IRR, all Property owned by the Partnership shall be
treated as a single investment and the income from the Property owned by the
Partnership shall be treated as from a single source.
"IRR RETURN" means an amount which, when aggregated with all
other distributions from the Partnership received by the Class A Limited
Partner, results in an IRR to the Class A Limited Partner of twenty-five percent
(25%).
"LIMITED PARTNERS" means the Class A Limited Partner, the Class
B Limited Partners and any other Person who is admitted as a limited partner in
the Partnership pursuant to the provisions of Article VIII.
"MAJORITY IN INTEREST" shall mean Limited Partners owning more
than fifty percent (50%) of the Residual Percentages.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Sections
1.704-2(b)(1) and 1.702-2(c) of the Regulations. Subject to the preceding
sentence, the amount of Nonrecourse Deductions for a Partnership fiscal year
equals the excess, if any, of the net increase, if any, in the amount of
Partnership Minimum Gain during the fiscal year (determined under Section
1.704-2(d) of the Regulations) over the aggregate amount of any distributions
during the fiscal year of proceeds of a Nonrecourse Liability that are allocable
to an increase in Partnership Minimum Gain (determined under Section 1.704-2(h)
of the Regulations).
"NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"OPERATING EXPENSES" means all the cash expenditures made or
required to be made by the Partnership in connection with the operation of the
Partnership in the ordinary course of business,
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including without limitation, cash expenditures made or required to be made by
the Partnership in connection with the construction, development, ownership,
management, improvement, operation, maintenance, financing and upkeep of the
Project, as well as debt service (principal and interest) and capital
expenditures of the Partnership; provided, however, Operating Expenses shall not
include (i) any overhead or general administrative costs or expenses of the
General Partner or salaries or other compensation paid to its employees,
officers, directors or shareholders (unless specifically provided for in this
Agreement); (ii) any expenditures paid from cash Reserves of the Partnership
(provided that to the extent any capital expenditures are made in excess of any
such Reserves established for such capital expenditures, such excess amounts
shall be included as an Operating Expense); and (iii) non-cash items such as
depreciation and amortization.
"PARTIALLY ADJUSTED CAPITAL ACCOUNTS" means, with respect to any
Partner as of an Adjustment Date, the Capital Account of such Partner as of the
beginning of the fiscal year ending on such Adjustment Date (where such Capital
Account does not reflect such Partner's share of either cumulative Partner
Minimum Gain or cumulative Partnership Minimum Gain), after giving effect to all
allocations of items of income, gain, loss or deduction not included in Profits
and Losses and all Capital Contributions and distributions during such period,
but before giving effect to any allocations of Profits or Losses for such period
pursuant to Section 7.1 hereof, increased by (a) such Partner's share of
Partnership Minimum Gain as of the end of such fiscal year, and (b) such
Partner's share of Partner Minimum Gain as of the end of such fiscal year.
"PARTNER" means each of the General Partner and the Limited
Partners, and "Partners" means collectively all of such Partners.
"PARTNER MINIMUM GAIN" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability.
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Section
1.704-2(b)(4) of the Regulations.
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Section 1.704-2(i) of the Regulations. Subject to the foregoing, the amount of
Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a
Partnership fiscal year equals the excess, if any, of the net increase, if any,
in the amount of Partner Minimum Gain attributable to such Partner Nonrecourse
Debt during that fiscal year over the aggregate amount of any distribution
during that fiscal year to the Partner that bears the economic risk of loss for
such Partner Nonrecourse Debt to the extent such distributions are from the
proceeds of such Partner Nonrecourse Debt and are allocable to an increase in
Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined
in accordance with Section 1.704-2(i) of the Regulations.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Section
1.704-2(d) of the Regulations. Subject to the foregoing, Partnership Minimum
Gain shall equal the amount of gain, if any, which would be recognized by the
Partnership with respect to each nonrecourse liability of the Partnership (or
Property Owner) if the Partnership were to transfer the Partnership property (or
the Property Owner were to transfer the Property Owner property) which is
subject to such nonrecourse liability in full satisfaction thereof.
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"PARTNERSHIP VOTE" shall mean a vote of the Partners. A
Partnership Vote may be conducted at a meeting of the General Partner and the
Limited Partners, which meeting may take place by means of telephone conference,
video conference or similar communications equipment by means of which all
Persons participating therein can hear each other. Alternatively, a Partnership
Vote may be conducted by notice sent by the General Partner to the Limited
Partners, which notice shall set forth (a) the matter with respect to which the
Partnership Vote is to be made and (b) the time period within which the General
Partner and the Limited Partners must respond to the notice. Such time period
shall not be less than seven (7) business days or more than fourteen (14)
business days. If the General Partner or any Limited Partner does not respond to
the notice within the time period specified in the notice, such Partner shall be
deemed to have given its written consent in favor of the matter set forth in the
notice. If a written consent or consents setting forth the matter to be
determined is signed by the General Partner and a Majority in Interest of the
Limited Partners, Approval by Partnership Vote shall be deemed to have been
obtained with respect to such matter.
"PERSON" means any individual or entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of such
Person where the context so admits, and, unless the context otherwise requires,
the singular shall include the plural, and the masculine gender shall include
the feminine and the neuter and vice versa.
"PREFERRED RETURN" means, for each Limited Partner, an amount
that accrues at the rate of twelve percent (12%) per annum on all Capital
Contributions from the date such contributions are made to the Partnership until
they are returned to the contributing Limited Partner.
"PRIME RATE" means the "prime rate" as published in The Wall
Street Journal (Eastern Edition) under its "Money Rates" column and specified as
"[t]he base rate on corporate loans at large U.S. commercial banks," or, if no
longer published as such, the rate of interest announced from time to time by
Bank of America, N.A., as its prime rate, base rate or reference rate. If The
Wall Street Journal (Eastern Edition) publishes more than one "Prime Rate" under
its "Money Rates" column, then the Prime Rate shall be the average of such
rates. If The Wall Street Journal (Eastern Edition) is not published on a date
when Prime Rate is to be determined, then Prime Rate shall be the Prime Rate
published on the first date of publication which precedes the date on which the
Prime Rate is to be determined.
"PROFITS" AND "LOSSES" means, for each fiscal year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits and Losses
pursuant to this subsection (a) shall be added to such taxable income or loss;
(b) Any expenditure of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704(b)(2)(iv)(i), and not otherwise taken into account in
computing Profits or Losses pursuant to this subsection (b) shall be subtracted
from such taxable income or loss;
(c) In the event the Gross Asset Value of any of the Partnership
assets is adjusted pursuant to subsections (b) or (c) of the definition of Gross
Asset Value, the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Profits or
Losses;
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(d) Gain or loss resulting from any disposition of Partnership
assets with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account depreciation computed in accordance with
Section 1.704-1(b)(2)(iv)(g) of the Regulations for such fiscal year or other
period; and
(f) Notwithstanding anything contained herein to the contrary,
any items which are specially allocated pursuant to Sections 7.3(a), 7.3(b),
7.3(c), 7.3(d), 7.3(e) and 7.3(f) shall not be taken into account in computing
Profits or Losses.
"PROJECT" means the residential subdivision containing a minimum
of 19 lots to be developed by the Partnership on the Property.
"PROPERTY" means the tract of land (and all rights and
appurtenances incident thereto) described in EXHIBIT A attached hereto and all
Improvements located, or to be constructed, or developed thereon.
"PURCHASE AGREEMENT" means the contract of sale dated January
21, 2005, between Xxxxx X. Xxxxx and X.X. Xxxxxxxxx, as Seller, and HomeAmerica,
Inc. or assigns, as Buyer, covering the Property.
"REGULATIONS" means the federal income tax regulations,
including temporary regulations, promulgated under the Code, as such regulations
may be amended from time to time (including corresponding provisions of
succeeding regulations).
"RESERVES" means funds set aside or amounts allocated to
reserves for working capital, taxes, insurance, debt service or other costs and
expenses incident to the ownership and operation of the Properties. The amount
of funds to be set aside in Reserves shall be determined by the General Partner
in the General Partner's sole discretion.
"RESIDUAL PERCENTAGE" means (a) one tenth of one percent (.1%)
as to the General Partner, (b) seventy-nine and nine-tenths percent (79.9%) as
to the Class A Limited Partner, and (c) twenty percent (20%) as to the Class B
Limited Partners.
"TARGET ACCOUNT" means, with respect to any Partner as of any
Adjustment Date, a balance (which may be positive or negative) equal to the
hypothetical amount that such Partner would receive upon the liquidation of the
Partnership, assuming that (a) all assets of the Partnership were sold for an
amount equal to their respective Gross Asset Values, (b) all liabilities of the
Partnership allocable to those properties became due and were satisfied in
accordance with their terms (limited with respect to each non-recourse
liability, to the Gross Asset Value of the asset securing such liability), and
(c) all net assets of the Partnership were distributed pursuant to Section 6.1
hereof, computed after the Capital Contributions have been made for the period
ending on such Adjustment Date. The General Partner shall determine Gross Asset
Value from year to year or at any point in time as needed.
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ARTICLE II.
PARTNERS
2.1. GENERAL PARTNER. The name and address of the General Partner is
as follows:
NAME ADDRESS
Behringer Harvard Northwest 15601 Dallas Parkway
Highway GP, LLC Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxxxx, III
2.2. LIMITED PARTNERS. The name and address of the Limited Partners
are as follows:
NAME ADDRESS
Behringer Harvard Short-Term Opportunity 00000 Xxxxxx Xxxxxxx
Fund I LP Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxxxx, III
X.X. Xxxxxxxxx Trust 0000 Xxxxxx Xxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx Xxxxxxx
Xxxx and Xxxxx Xxxxxxx Family Trust 0000 Xxxxxx Xxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxxxx
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ARTICLE III.
CAPITAL
3.1. INITIAL CAPITAL CONTRIBUTIONS.
(a) The General Partner has contributed or shall contribute
cash in the amount of $1.00 to the capital of the Partnership.
(b) The Class A Limited Partner has contributed or shall
contribute cash in the amount of $__________ to the capital of the Partnership.
(c) The Class B Limited Partners have contributed or shall
contribute cash in the amount of $25,000.00 each (for an aggregate of
$50,000.00) to the capital of the Partnership.
3.3. ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) If at any time the General Partner determines that the
Partnership requires funds over and above the Initial Capital Contributions and
the proceeds of the Construction Loan to pay development expenses in respect of
the Project or for Operating Expenses (collectively, "CASH NEEDS"), then the
General Partner may send the Limited Partners written notice ("ADDITIONAL
CAPITAL NOTICE") describing the purpose for which the funds are needed and
requesting that the Limited Partners contribute in cash such amounts as are
necessary to satisfy such Cash Needs as an Additional Capital Contribution to
the Partnership. If so requested, the Class A Limited Partner and the Class B
Limited Partners shall each be obligated to make an Additional Capital
Contribution in an amount equal to fifty percent (50%) of the Cash Needs
specified in the Additional Capital Notice. The time for the payment of any
Additional Capital Contribution to the Partnership shall be determined by the
General Partner, but shall in no event be less than ten (10) days after the
delivery of the Additional Capital Notice. Notwithstanding anything contained
herein to the contrary, only the first $25,000 of funds contributed by the Class
B Limited Partners pursuant to this Section 3.2(a) shall be counted as
Additional Capital Contributions, and the Class B Limited Partners' Capital
Account shall be adjusted accordingly. All funds contributed by the Class A
Limited Partner pursuant to this Section 3.2(a) shall be counted as Additional
Capital Contributions.
(b) In addition to, or in lieu of, requesting Additional
Capital Contributions to the Partnership pursuant to Section 3.2(a) above, the
General Partner, or any other Partner upon request by the General Partner, may
lend or advance money to the Partnership to pay Operating Expenses, provided the
financing terms are substantially similar to (or more favorable than) loans
which the Partnership could obtain on a competitive arms-length basis. If the
General Partner is unable to determine whether the financing terms are
competitive on an arms length basis, the General Partner may seek a Partnership
Vote on the issue, or may seek and rely upon the advice of an independent expert
in financing. If any Partner makes any loan or loans to the Partnership or
advances money on its behalf, the amount of any loan or advance shall not be
treated as a Capital Contribution but shall be treated as a debt due from the
Partnership to such Partner.
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3.3 FAILURE TO MAKE CAPITAL CONTRIBUTION.
(a) If any Partner fails to timely contribute all or any
portion of any Initial Capital Contribution or Additional Capital Contribution
required of such Partner, then such Partner shall be considered a "DELINQUENT
PARTNER." The Partnership may, upon notice to a Delinquent Partner, exercise
either one of the following remedies as its sole remedy:
(i) permit the non-Delinquent Partner(s) to advance
that portion of the required Capital Contribution that is in default as a loan
(a "DEFAULT LOAN") with the following results: (A) the sum thus advanced shall
constitute a loan to the Delinquent Partner; (B) such loan and all accrued
unpaid interest thereon shall be due on demand, or if no demand is made, twelve
(12) months after such advance is made; (C) the loan shall bear interest at the
lesser of twelve percent (12%) per annum or the highest rate permitted by
applicable law, from the date made until the date fully repaid compounding
monthly; (D) all Partnership distributions and other payments that otherwise
would be made to the Delinquent Partner (whether before or after dissolution of
the Partnership) under this Agreement (including those under Article 6) shall be
paid to the non-Delinquent Partner until the loan and all interest accrued
thereon is paid in full (with all such payments being applied first to accrued
and unpaid interest and then to principal and being deemed to be a distribution
or payment (as may apply) to the Delinquent Partner, and, in turn, a payment by
the Delinquent Partner with respect to the loan from the non-Delinquent
Partner); and (E) the non-Delinquent Partner may, in addition to the other
rights granted herein, take such action as the non-Delinquent Partner may deem
appropriate to obtain payment of the loan at the expense of the Delinquent
Partner; or
(ii) permit the non-Delinquent Partner to contribute
the Capital Contribution not made by the Delinquent Partner as a Capital
Contribution made by the non-Delinquent Partner, in which case the
non-Delinquent Partner shall have its Residual Percentage increased and the
Delinquent Partner shall have its Residual Percentage decreased in the following
manner: (A) if the Capital Contribution not made by the Delinquent Partner and
made by the non-Delinquent Partner is an Initial Capital Contribution, then (1)
the Residual Percentage of the non-Delinquent Partner immediately following such
Capital Contribution shall be increased by an amount equal to 175% x A/B
(expressed as a percentage), where `A' equals the amount the non-Delinquent
Partner contributed in respect of the Delinquent Partner's required Initial
Capital Contribution, and `B' equals the sum of all unreturned Capital
Contributions previously made to the Partnership after giving effect to the
amounts advanced under this Section 3.3(a)(ii) on behalf of the Delinquent
Partner; and (2) the Residual Percentage of the Delinquent Partner shall be
decreased by the increase of the non-Delinquent Partner's Residual Percentage;
and (B) if the Capital Contribution not made by the Delinquent Partner and made
by the non-Delinquent Partner is an Additional Capital Contribution, then (1)
the Residual Percentage of the non-Delinquent Partner immediately following such
Capital Contribution shall be increased by an amount equal to 125% x A/B
(expressed as a percentage), where `A' equals the amount the non-Delinquent
Partner contributed in respect of the Delinquent Partner's required Additional
Capital Contribution, and `B' equals the sum of all unreturned Capital
Contributions previously made to the Partnership after giving effect to the
amounts advanced under this Section 3.3(a)(ii) on behalf of the Delinquent
Partner; and (2) the Residual Percentage of the Delinquent Partner shall be
decreased by the increase of the non-Delinquent Partner's Residual Percentage.
An example of the operation of this Section 3.3(a)(ii) is attached hereto as
EXHIBIT B.
(b) The exercise by the Partnership of the remedies set
forth in Section 3.3(a) above shall be determined by the non-Delinquent Partners
in their sole discretion and not by the Delinquent Partners.
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(c) With respect to any efforts by the General Partner to
obtain loans to the Partnership from a third party or a Partner (including the
General Partner), the financing terms must be substantially similar to (or more
favorable than) loans which the Partnership could obtain on a competitive
arms-length basis. If the General Partner is unable to determine whether the
financing terms are competitive on an arms-length basis, the General Partner may
seek a Partnership Vote on the issue, or may seek and rely upon the advice of an
independent expert in financing. If any Partner makes any loan or loans to the
Partnership or advances money on its behalf, the amount of any loan or advance
shall not be treated as a Capital Contribution but shall be treated as a debt
due from the Partnership to such Partner.
3.4 CAPITAL ACCOUNTS. The Partnership shall establish and maintain
on its books and records for each Partner a capital account (collectively the
"CAPITAL ACCOUNTS") in accordance with Section 1.704-1(b)(2)(iv) of the
Regulations. Subject to the foregoing, each Partner's Capital Account generally
shall be:
(a) increased by (i) the amount of money contributed by such
Partner to the Partnership, including Partnership liabilities assumed by such
Partner; (ii) the fair market value of property (net of liabilities securing
such property that the Partnership has assumed, or taken subject to, under
Section 752 of the Code), or other consideration contributed by such Partner to
the Partnership; and (iii) allocations to such Partner of Net Profits (and items
thereof, including certain tax exempt income) and income and gain described in
Section 1.704-(b)(2)(iv)(g) of the Regulations; and
(b) decreased by (i) the amount of money distributed to such
Partner by the Partnership, including such Partner's individual liabilities
assumed by the Partnership; (ii) the fair market value of all property
distributed to such Partner by the Partnership (net of liabilities that such
Partner is considered to assume or take subject to under Section 752 of the
Code); and (iii) allocations to such Partner of Net Losses and deductions,
including expenses described in Section 705(a)(2)(B) of the Code which are not
deductible for tax purposes.
3.5 INTEREST ON AND WITHDRAWAL OF CAPITAL CONTRIBUTIONS. Neither the
General Partner nor the Limited Partners shall be entitled to receive any
interest on Capital Contributions, nor shall the General Partner or the Limited
Partners be entitled to withdraw their Capital Contributions from the
Partnership, except pursuant to the terms and conditions of this Agreement.
ARTICLE IV.
MANAGEMENT OF PARTNERSHIP AND DEVELOPMENT OF THE PROJECT
4.1. GENERAL POWERS OF GENERAL PARTNER. The General Partner, acting
alone, shall be authorized and empowered to make all decisions and to act on
behalf of the Partnership and be solely responsible for the operation and
management of the business of the Partnership, with all rights and powers
generally conferred by applicable law or necessary, advisable or consistent in
connection therewith, including without limitation to cause the Partnership to
make all decisions, take all actions as may be necessary for the Partnership to
perform fully, and promptly satisfy and discharge each and every obligation or
responsibility of the Partnership.
4.2 SPECIFIC POWERS OF THE GENERAL PARTNER. By way of illustration
of the General Partner's power and authority pursuant to Section 4.1 and not as
a limitation thereon, the General Partner shall have the unilateral right and
power to take any and all of the following actions on behalf of the Partnership:
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(a) to take actions normal or customary for the owner of
businesses similar to that operated by the Partnership;
(b) to perform any and all acts necessary or appropriate in
connection with the business of the Partnership;
(c) to procure and maintain appropriate insurance covering
the property of the Partnership;
(d) to take and hold all property and assets of the
Partnership, real, personal and mixed, in the name of the Partnership;
(e) to execute and deliver deeds, deeds of trust, notes,
leases, subleases, mortgages, bills of sale, financing statements, security
agreements and any and all other instruments necessary or incidental to the
conduct of the business of the Partnership and the financing thereof;
(f) to coordinate all accounting and clerical functions of
the Partnership and employ and contract such accountants, lawyers, managers,
agents and other management or service personnel as may from time to time be
required to carry on the business of the Partnership;
(g) to sell, lease, sublease, assign, convey, transfer,
exchange, grant easements and servitudes or otherwise dispose of all or any part
of the property and assets of the Partnership;
(h) to borrow money, whether on a secured or unsecured
basis, or to refinance, recast, modify or extend any loan to the Partnership
which is secured by the Properties or other assets of the Partnership (this
provision being intended, without limitation, to enable the General Partner to
take all actions necessary to obtain and refinance, recast, modify or extend the
Construction Loan);
(i) to engage in any kind of activity and to perform and
carry out contracts of any kind necessary to, or in connection with, or
incidental to, the development and operation of the Property as may be lawfully
carried on or performed by a limited partnership under the laws of each state in
which the Partnership is then formed, qualified, or does business;
(j) to file on behalf of the Partnership a voluntarily
bankruptcy petition, or an action seeking or consenting to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar
official for the Partnership or a substantial portion of its assets, or a
petition or answer seeking reorganization, arrangement, composition,
readjustment, liquidation or similar relief under any statute, law or
regulation, or to take any action in furtherance of the foregoing;
(k) to admit any new Partner to the Partnership;
(l) to enter into a merger, to execute appropriate
documents, including without limitation deeds, in connection with any such sale
or merger, and to collect and administer the proceeds of any such merger; and
(m) to adjust, settle or compromise any claim, obligation,
debt, demand, suit or judgment against the Partnership or any Partner in its
capacity as a Partner, or waive any breach of or default in any monetary or
non-monetary obligation owed to the Company,
4.3. LIMITED PARTNER PARTICIPATION IN MANAGEMENT. The Limited
Partners, as limited partners, shall not participate in the operation or
management of the business of the Partnership, or
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transact any business for or in the name of the Partnership, and the Limited
Partners, as the limited partners, shall not have any right or power to sign for
or bind the Partnership in any manner, except as expressly provided under the
provisions of this Agreement. Any rights of the Limited Partners to consent to
and approve of certain matters under the provisions of this Agreement shall not
be deemed a participation in the operation and management of the business of the
Partnership or the exercise of control of the Partnership business. Except as
may be otherwise expressly provided herein, the Limited Partners shall not have
the right to vote on any matter concerning the management and affairs of the
Partnership.
4.3. PAYMENT OF COSTS AND EXPENSES. The Partnership will be
responsible for paying all costs and expenses of forming and continuing the
Partnership, acquiring the Property, and conducting the business of the
Partnership, including, without limitation, accounting costs, legal expenses and
office supplies. In the event any such costs and expenses are incurred and paid
by the General Partner on behalf of the Partnership, then, except as expressly
provided to the contrary in this Agreement, such Partner shall be entitled to be
reimbursed for such payment so long as such cost or expense was reasonably
necessary and is reasonable in amount. The Partnership may use the proceeds of
any revenues of the Partnership to reimburse a Partner for any such costs and
expenses so paid.
4.4. DEVELOPMENT OF PROJECT. The Partnership shall enter into a
Development Agreement with MHC HomeAmerica, Inc., a Texas corporation ("MHC"),
pursuant to which MHC shall be obligated to complete the development of the
Project by having all lots ready for residential construction (i.e., fully
improved, with all streets and utilities in place and ready for the issuance of
building permits) within twelve (12) months after the date of acquisition of the
Property, subject to extension on a day-for-day basis for documented rain
delays.
4.5. REIMBURSEMENT OF EXPENSES. Upon the closing of the Construction
Loan, the Partnership shall reimburse each Partner (or its Affiliate) for all
amounts advanced by such Partner (or its Affiliates) prior to the formation of
the Partnership in connection with the acquisition of the Property, together
with interest thereon at the rate of 12% from the date advanced until repaid.
4.6. FEES PAYABLE BY THE PARTNERSHIP TO PARTNERS AND AFFILIATES
(a) DEVELOPMENT FEE. Pursuant to the Development Agreement,
MHC shall be paid a general/administrative fee in the total amount of $66,000,
which fee shall be payable in twelve (12) equal monthly installments of $5,500
each, commencing upon the date of acquisition of the Property and continuing
until the expiration of twelve (12) months after the date of acquisition of the
Property. In the event all of the lots are completed and conveyed prior to the
expiration of such twelve (12) month period, then the remaining balance of such
fee shall be payable in a lump sum at the closing of the conveyance of the final
lot. Notwithstanding anything contained herein to the contrary, no further
installments of such fee shall be payable if MHC is no longer diligently and
actively pursuing the completion of the Project.
(b) BROKERAGE COMMISSION. Upon the closing of the Purchase
Agreement, Xxxxx Xxxxxxx (an Affiliate of the Class B Limited Partners) shall
receive a brokerage commission in the amount of $242,000 from the Seller of the
Property.
4.7 OTHER COMPENSATION. Except as provided in this Agreement, no
Partner or its Affiliate shall be entitled to any compensation unless approved
by Partnership Vote.
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4.8. PURCHASE AGREEMENT. Concurrently with the execution of this
Agreement, the Class B Limited Partners shall cause HomeAmerica, Inc. to execute
an assignment in form satisfactory to the General Partner, assigning all of its
rights under the Purchase Agreement, specifically including, without limitation,
all xxxxxxx money deposited thereunder, to the Partnership.
4.9. CONSTRUCTION LOAN. In order to fund a portion of the costs of
the acquisition of the Property and the development of the Project, the General
Partner shall use its commercially reasonable efforts to obtain for the
Partnership the Construction Loan. The General Partner shall provide or cause
its Affiliates to provide any guarantees required in connection with the
Construction Loan. Upon the closing of the Construction Loan, the Class A
Limited Partner shall receive a distribution in the amount necessary to reduce
its Capital Account to $2,000,000.
4.10. DEED RESTRICTIONS. The Property will be subject to deed
restrictions to be recorded prior to the conveyance of the first lot, including
(without limitation) a provision that the General Partner or its Affiliates
shall have the right to repurchase, at the original sales price, any lot on
which construction of a residence has not been commenced within twenty-four (24)
months from the date of the original sale of the lot. The repurchase right with
respect to each respective lot shall terminate upon the earlier of (a) the
commencement of construction of a residence on the applicable lot, or (b) the
date on which all of the lots in the Project have been conveyed by the
Partnership to purchasers. At the General Partner's discretion, such period may
be extended subject to the purchasing ability of a specific buyer.
4.11. SALE OF LOTS. The price and other terms and conditions for all
contracts for the sale of lots shall be subject to the prior approval of the
General Partner in its sole discretion, with the exception of the current
offering from Xxxxxxx Custom Builders for eleven (11) designated lots (i.e.,
lots 2, 3, 4, and 11 through 18) at an aggregate price of $4,402,000. Without
limiting the foregoing, the Partnership shall not be obligated to pay any
commissions on lot sales without the prior approval of the General Partner in
each instance. No Partner or its Affiliates shall be entitled to any commissions
for lot sales.
ARTICLE VI.
RIGHTS AND POWERS OF PARTNERS
5.1. LIMITATION OF LIABILITY.
(a) LIMITATION ON LIABILITY OF LIMITED PARTNERS. The Limited
Partners shall not be bound by, or personally liable for, obligations or
liabilities of the Partnership to outside third parties beyond the amount of
their Capital Contributions to the Partnership, and the Limited Partners shall
not be required to contribute any capital to the Partnership for any obligations
to third parties in excess of the Capital Contributions actually made under
Sections 3.1 and 3.2 hereof.
(b) LIMITATION ON LIABILITY OF GENERAL PARTNER. The General
Partner (including its members, officers, directors, agents, employees and
representatives) shall not be liable or responsible in damages or otherwise to
the Partnership or any Partner for any liability or loss relating to the
performance or nonperformance of any act concerning the business of the
Partnership, provided the General Partner was not guilty of gross negligence or
willful misconduct.
5.2. INDEMNIFICATION.
(a) The General Partner (including its members, officers,
directors, agents, employees and representatives) shall be indemnified by the
Partnership to the fullest extent permitted by law, against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
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sustained by it or any of them in connection with the Partnership, provided that
(1) the General Partner has determined, in good faith, that such course of
conduct was in, and not opposed to, the best interests of the Partnership and
such liability or loss was not the result of gross negligence or willful
misconduct, or a material breach of this Agreement on the part of the General
Partner or such person, and (2) any such indemnification will only be
recoverable from the assets of the Partnership and the Limited Partners shall
not have any liability on account thereof. All rights to indemnification
permitted herein and payment of associated expenses shall not be affected by the
dissolution or other cessation of the existence of the General Partner, or the
withdrawal, adjudication of bankruptcy or insolvency of the General Partner.
(b) Expenses incurred in defending a threatened or pending
civil, administrative or criminal action, suit or proceeding against any person
who may be entitled to indemnification pursuant to this Section 6.2 may be paid
by the Partnership in advance of the final disposition of such action, suit or
proceeding, if (1) the legal action relates to the performance of duties or
services by such person on behalf of the Partnership, (2) the legal action is
initiated by a third party who is not a Limited Partner, and (3) such person
undertakes to repay the advanced funds to the Partnership in cases in which it
is not entitled to indemnification under this Section 5.2.
(c) The term "General Partner" as used in this Section 5.2
shall include any additional or substitute general partner and any Affiliate of
a General Partner performing services on behalf of the Partnership.
5.3. DUTY TO PARTNERSHIP. The General Partner shall not be required
to manage the Partnership as the General Partner's sole and exclusive function
and the General Partner may have business interests and may engage in activities
in addition to those relating to the Partnership. The General Partner may engage
in other business interests or activities even if such other business interests
or activities are competitive with the business of the Partnership. Neither the
Partnership nor any Partner shall have any right, by virtue of this Agreement,
to share or participate in such other investments or activities of the General
Partner or to the income or proceeds derived therefrom. The General Partner
shall incur no liability to the Partnership or to any of the Partners as a
result of engaging in any other business or ventures.
5.4. PRESS RELEASES. No public announcement, press release or other
disclosure of the terms of this Agreement, the activities of the Partnership, or
the plans of the Partnership will be made unless same is proposed by the General
Partner and authorized by Approval by Partnership Vote. However, notwithstanding
the preceding sentence, any Partner shall have the right, without obtaining the
consent of any other Partner, (a) to make such disclosures as may, in the
reasonable judgment of such Partner's counsel, be required by applicable law,
and (b) to make customary advertisements for the sale of the lots. The Partners
have agreed that if a Partner breaches the obligation set forth in the first
sentence of this Section 5.4 (the "NON-DISCLOSURE OBLIGATION"), the actual
damages that will be incurred by the other Partners as a result of such breach
would be extremely difficult or impracticable to determine. Therefore, the
Partners agree that if a Partner or any Affiliate of a Partner breaches the
Non-Disclosure Obligation, such Partner shall pay to each of the other Partners
liquidated damages (the "LIQUIDATED DAMAGES") in the amount of Fifty Thousand
Dollars ($50,000) for each such breach, such amount having been agreed upon,
after negotiation, as the Partners' reasonable estimate of the damages that will
be suffered by reason of a breach of the Non-Disclosure Obligation. Any
Liquidated Damages becoming payable pursuant to this Section 5.4 shall be paid
within ten (10) days after the breach of the Non-Disclosure Obligation giving
rise to the Liquidated Damages. If not paid within such ten (10) day period, the
Liquidated Damages shall thereafter bear interest at the lesser of twelve
percent (12%) per annum or the highest rate permitted by applicable law. All
Partnership distributions and other payments that
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otherwise would be made to the Partner that is liable for Liquidated Damages
shall be paid to the other Partners until the Liquidated Damages and all
interest accrued thereon are paid in full (with all such payments being applied
first to accrued and unpaid interest and then to the Liquidated Damages).
ARTICLE VII.
DISTRIBUTIONS/ALLOCATIONS OF PROFITS AND LOSSES
6.1. DISTRIBUTIONS OF DISTRIBUTABLE CASH. Within twenty (20) days
following the end of each month, the Partnership shall distribute Distributable
Cash, if any, in the following order of priority:
(a) First, to the Partners in proportion to their respective
Additional Capital Contribution Account balances until their respective
Additional Capital Contribution Account balances are reduced to zero;
(b) Next, to the Partners in proportion to their respective
Initial Capital Contribution Account balances until their respective Initial
Capital Contribution Account balances are reduced to zero;
(c) Next, to the Class A Limited Partner until the Class A
Limited Partner has received the Preferred Return on its Capital Contributions;
(d) Next, to the Class B Limited Partners until the Class B
Limited Partners have received the Preferred Return on their Capital
Contributions; and
(d) The balance, if any, eighty percent (80%) to the Class A
Limited Partner and twenty percent (20%) to the Class B Limited Partners;
provided, however, that if the Class A Limited Partner has not received
distributions sufficient to provide the IRR Return to the Class A Limited
Partner, then the amount distributed to the Class A Limited Partner shall be
increased, and the amount distributed to the Class B Limited Partners shall be
decreased, by the amount necessary in order to provide the IRR Return to the
Class A Limited Partner.
6.2. TAXES WITHHELD. Unless treated as a Tax Payment Loan (as
hereinafter defined), any amount paid by the Partnership for or with respect to
any Partner on account of any withholding tax or other tax payable with respect
to the income, profits or distributions of the Partnership pursuant to the Code,
the Treasury Regulations, or any state or local statute, regulation or ordinance
requiring such payment (a "WITHHOLDING TAX Act") shall be treated as a
distribution to such Partner for all purposes of this Agreement, consistent with
the character or source of the income, profits or cash which gave rise to the
payment or withholding obligation. To the extent that the amount required to be
remitted by the Partnership under the Withholding Tax Act exceeds the amount
then otherwise distributable to such Partner, the excess shall constitute a loan
from the Partnership to such Partner (a "TAX PAYMENT LOAN") which shall be
payable upon demand and shall bear interest, from the date that the Partnership
makes the payment to the relevant taxing authority, at the Prime Rate plus one
(1) percentage point, compounded monthly. So long as any Tax Payment Loan or the
interest thereon remains unpaid, the Partnership shall make future distributions
due to such Partner under this Agreement by applying the amount of any such
distribution first to the payment of any unpaid interest on all Tax Payment
Loans of such Partner and then to the repayment of the principal of all Tax
Payment Loans of such Partner. The General Partner shall have the authority to
take all actions necessary to enable the Partnership to comply with the
provisions of any Withholding Tax Act applicable to the Partnership and to carry
out the provisions of
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this Section 6.3. Nothing in this Section shall create any obligation on the
General Partner to advance funds to the Partnership or to borrow funds from
third parties in order to make any payments on account of any liability of the
Partnership under a Withholding Tax Act.
ARTICLE IX.
ALLOCATION OF PROFITS AND LOSSES
7.1. ALLOCATION OF PROFITS AND LOSSES. After application of Section
7.3 hereof, Profits and Losses for each fiscal year shall be allocated among the
Partners so as to reduce, proportionately, in the case of any Profits, the
difference between their respective Target Accounts and Partially Adjusted
Capital Accounts for such fiscal year and, in the case of Losses, the difference
between their respective Partially Adjusted Capital Accounts and Target Accounts
for such fiscal year. To the extent that, in the fiscal year in which all or
substantially all of the Partnership's assets are disposed of, or in the fiscal
year in which the Partnership is liquidated, the allocation of Profit or Loss
set forth in the preceding sentence does not cause each Partner's Partially
Adjusted Capital Account balance to equal the balance of its Target Account,
items of income or gain will be reallocated to any Partner with a Partially
Adjusted Capital Account which is less than its Target Account, and items of
loss, deduction or expense will be reallocated to any Partner with a Partially
Adjusted Capital Account that is greater than its Target Account in such manner
as to reduce, to the greatest extent possible, the difference between each
Partner's respective balance in its Target Account and its Partially Adjusted
Capital Account balance.
7.2. LIMITATION ON LOSS ALLOCATIONS. Notwithstanding anything in this
Agreement to the contrary, no Losses or item of deduction shall be allocated to
a Partner if such allocation would cause the Capital Account of such Partner to
have a deficit in excess of the sum of (a) the amount of additional capital such
Partner would be required to contribute to the Partnership if the Partnership
were to dissolve on the last day of the accounting period to which such
allocation relates plus (b) such Partner's distributive share of Partnership
Minimum Gain as of the last day of such accounting period, determined pursuant
to Regulations Section 1.704-2(g)(1), plus (c) such Partner's share of Partner
Minimum Gain as of the last day of such year, determined pursuant to Regulation
Section 1.704-2(i)(5). Any amounts not allocated to a Partner pursuant to the
limitations set forth in this paragraph shall be allocated to the other Partners
to the extent possible without violating the limitations set forth in this
paragraph. For purposes of the foregoing provisions, the balance of a Partner's
Capital Account shall be determined after reducing such Capital Account by (i)
all anticipated allocations of loss or deduction pursuant to Sections 704(e)(2)
and 706(d) of the Code, and Section 1.751-1(b)(2)(ii) of the Regulations, and
(ii) anticipated distributions to such Partner to the extent such anticipated
distributions exceed anticipated increases to such Partner's Capital Account
during or prior to the year of distribution (other than increases which may not
be taken into account pursuant to Section 1.704-1(b)(2)(ii)(d)(6) of the
Regulations).
7.3. SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, in the event there is a net decrease in
Partnership Minimum Gain during a Partnership taxable year, each Partner shall
be allocated (before any other allocation is made pursuant to this Section 7.3)
items of income and gain for such year (and, if necessary, for subsequent years)
equal to that Partner's share of the net decrease in Partnership Minimum Gain.
The determination of a Partner's share of the net decrease in Partnership
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(g). The items to be specially allocated to the Partners in accordance
with this Section 7.3(a) shall be determined in accordance with Regulation
Section 1.704-2(f)(6). This Section 7.3(a) is
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intended to comply with the Minimum Gain chargeback requirement set forth in
Section 1.704-2(f) of the Regulations and shall be interpreted consistently
therewith.
(b) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(i)(4), in the event there is a net decrease in
Partner Minimum Gain during a Partnership taxable year, each Partner who has a
share of that Partner Minimum Gain as of the beginning of the year, to the
extent required by Regulation Section 1.704-2(i)(4), shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) equal to that Partner's share of the net decrease in Partner
Minimum Gain. Allocations pursuant to this subparagraph (b) shall be made in
accordance with Regulation Section 1.704-2(i)(4). This Section 7.3(b) is
intended to comply with the requirement set forth in Regulation Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) QUALIFIED INCOME OFFSET ALLOCATION. In the event any
Partner unexpectedly receives any adjustments, allocations or distributions
described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6) or which would cause the
negative balance in such Partner's Capital Account to exceed the sum of (i) his
obligation to restore a Capital Account deficit upon liquidation of the
Partnership, plus (ii) his share of Partnership Minimum Gain determined pursuant
to Regulation Section 1.704-2(g)(1), plus (iii) such Partner's share of Partner
Minimum Gain determined pursuant to Regulation Section 1.704-2(i)(5), items of
Partnership income and gain shall be specially allocated to such Partner in an
amount and manner sufficient to eliminate such excess negative balance in his
Capital Account as quickly as possible. This Section 7.3(c) is intended to
comply with the alternative test for economic effect set forth in Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(d) GROSS INCOME ALLOCATION. In the event any Partner has a
deficit Capital Account at the end of any Partnership fiscal year which is in
excess of the sum of (i) any amounts such Partner is obligated to restore
pursuant to this Agreement, plus (ii) such Partner's distributive share of
Minimum Gain as of such date, plus such Partner's share of Partner Minimum Gain
determined pursuant to Regulation Section 1.704-2(i)(5), each such Partner shall
be specially allocated items of Partnership income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
Section 7.3(d) shall be made only if and to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 7.3 have been made, except assuming that Section
7.3(c) above and this Section 7.3(d) were not contained in this Agreement.
(e) ALLOCATION OF NONRECOURSE DEDUCTIONS. Nonrecourse
Deductions shall be allocated to the Partners in accordance with their
respective Residual Percentages.
(f) ALLOCATION OF PARTNER NONRECOURSE DEDUCTIONS. Partner
Nonrecourse Deductions shall be allocated as prescribed by the Regulations.
(g) BASIS ADJUSTMENT UNDER SECTION 754. To the extent an
adjustment to the adjusted tax basis of any Partnership assets pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be treated
as an item of gain, if the adjustment increases the basis of the asset, or loss,
if the adjustment decreases such basis, and such gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
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7.4. BUILT-IN GAIN OR LOSS/SECTION 704(C) TAX ALLOCATIONS. In the
event that the Capital Accounts of the Partners are credited with or adjusted to
reflect the Gross Asset Value of the Partnership's property and assets, the
Partners' distributive shares of depreciation, depletion, amortization, and gain
or loss, as computed for tax purposes, with respect to such property, shall be
determined pursuant to Section 704(c) of the Code and the Regulations
thereunder, so as to take account of the variation between the adjusted tax
basis and Gross Asset Value of such property in a manner determined by Approval
by Partnership Vote. Any deductions, income, gain or loss specially allocated
pursuant to this Section 7.4 shall not be taken into account for purposes of
determining Profits or Losses or for purposes of adjusting a Partner's Capital
Account.
7.5. RECAPTURE. Ordinary income arising from the recapture of
depreciation and unrecaptured Section 1250 gain shall be allocated to the
Partners in the manner that is prescribed by the Regulations, or if the
Regulations do not prescribe a manner in which depreciation is to be recaptured,
then depreciation shall be recaptured in the same manner as such depreciation
was allocated to the Partners.
7.6. RETENTION OF SECTION 751 ASSETS. Upon the occurrence of an event
which would otherwise cause a reduction in a Partner's respective interest in
the Partnership's Section 751 assets ("substantially appreciated inventory" and
"unrealized receivables" as defined in Section 751 of the Code), such as the
admission of new Partners or otherwise, no such reduction shall occur with
respect to Partners who were Partners immediately preceding such event and who
continue to be Partners after the occurrence of such event but, rather, each
such Partner shall retain his respective interest in the Partnership's Section
751 assets existing immediately prior to such event.
7.7. PROHIBITION AGAINST RETROACTIVE ALLOCATIONS. Notwithstanding
anything in this Agreement to the contrary, no Partner shall be allocated any
loss, credit or income attributable to a period prior to his admission to the
Partnership. In the event that a Partner Transfers all or a portion of his
Partnership interest, or if there is a reduction in a Partner's Residual
Percentage due to the admission of new Partners or otherwise, each Partner's
distributive share of Partnership items of income, loss, credit, etc., shall be
determined by taking into account each Partner's varying interests in the
Partnership during the Partnership's taxable year. For this purpose, each
Partner's distributive share shall be estimated by taking the pro rata portion
of the distributive share such Partner would have included in his taxable income
had he maintained his Residual Percentage throughout the Partnership year. Such
proration shall be based upon the portion of the year during which such Partner
held the Residual Percentage, except that extraordinary, nonrecurring items
shall be allocated to the persons holding Partnership interests at the time such
extraordinary items occur.
7.8. ALLOCATION OF NONRECOURSE LIABILITIES. The "excess nonrecourse
liabilities" of the Partnership (within the meaning of Section 1.752-3(a)(3) of
the Regulations) shall be allocated to the Partners in accordance with their
respective Residual Percentages.
ARTICLE X.
TRANSFER OF PARTNERSHIP INTERESTS
8.1. PROHIBITION ON DISPOSITION OF GENERAL PARTNER'S INTEREST. Unless
the Partners otherwise agree by Partnership Vote, the General Partner may not,
directly or indirectly, by operation of law or otherwise (a) withdraw or resign
from the Partnership, or (b) sell, assign, transfer, convey or otherwise dispose
of, or pledge, hypothecate or otherwise encumber any or all of its interest in
the Partnership (collectively, "TRANSFER"). In addition, the General Partner
shall not permit the transfer of
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any interest in the General Partner unless the Partners otherwise agree by
Partnership Vote. Any act in violation of this Section 8.1 shall be null and
void as against the Partnership and the Limited Partners, except as otherwise
provided for by law.
8.2. GENERAL PARTNER CEASING TO BE A GENERAL PARTNER. Unless the
Partners by Partnership Vote otherwise agree, a General Partner shall cease to
be a General Partner of the Partnership upon the happening of any of the
following events (hereinafter each referred to as an "EVENT OF WITHDRAWAL"):
(a) Such General Partner makes an assignment for the benefit
of creditors; files a voluntary petition of bankruptcy; is adjudicated as
bankrupt or insolvent or is the subject of an order for relief under the
bankruptcy laws; files a petition or answer seeking for itself any
reorganization, arrangement or similar relief under any statute, law or
regulation; files an answer or other pleading admitting or failing to contest
the material allegations of a petition filed against it in any proceeding of
this nature; or seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of all or any substantial part of its
properties;
(b) The failure to dismiss within one hundred twenty (120)
days after the commencement of any proceeding which attempts to attach or charge
the General Partner's Partnership interest or which seeks reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief against the General Partner under any statute, law or regulation, or if
within ninety (90) days after a court order attaching or charging its
Partnership interest or the appointment without its consent or acquiescence of a
trustee, receiver or liquidator of such General Partner or all or any
substantial part of its properties, the order or appointment is not vacated or
stayed, or within ninety (90) days after the expiration of any such stay, the
order or appointment is not vacated;
(c) In the case of any General Partner who is a natural
person, the death of such General Partner or the entry by a court of competent
jurisdiction adjudicating him incompetent to manage his person or his estate;
(d) In the case of any General Partner acting as a General
Partner by virtue of being a trustee of a trust, the termination of such trust
(but not merely the substitution of a new trustee);
(e) In the case of any General Partner which is a separate
partnership, the dissolution and commencement of winding up the affairs of such
separate partnership;
(f) In the case of any General Partner which is a
corporation, limited partnership or limited liability company, the filing of a
certificate of dissolution or its equivalent for the corporation, limited
partnership or limited liability company, or the revocation of its charter or
authority to do business in the jurisdiction of its formation;
(g) In the case of any General Partner which is an estate,
the distribution by the fiduciary of the estate's entire interest in the
Partnership;
(h) The withdrawal of a General Partner from the Partnership
as provided in Section 8.1 above; or
(i) The transfer by a General Partner of all or any part of
its interest in the Partnership except as approved by Partnership Vote pursuant
to Section 8.1 or as otherwise permitted pursuant to Section 8.7.
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Any person ceasing to be a General Partner (other than as a result of
paragraph (h) and (i) of this Section 8.2) shall automatically become a limited
partner of the Partnership having the same percentage interest in the profits,
losses and distributions of the Partnership that it had while it was a general
partner, and provided further that in the event that the Partners elect to
continue the Partnership pursuant to Section 13.1(b) below, and a new general
partner is admitted to the Partnership to enable the Partnership to continue,
then the General Partner being converted to a limited partner shall transfer a
..01% Residual Percentage to the newly admitted general partner. Such transfer
shall not reduce the Partnership interest of any Partner other than the General
Partner which is being converted to a limited partner.
8.3. GENERAL PROHIBITION AGAINST TRANSFERS OF LIMITED PARTNER'S
INTEREST. A Limited Partner may not sell, assign, transfer, convey or otherwise
dispose of, or pledge, hypothecate or otherwise encumber, any or all of such
Partner's interest in the Partnership except as permitted in Section 8.4. Any
act in violation of this Article shall be null and void as against the
Partnership, except as otherwise provided by law.
8.4. CONDITIONS UPON TRANSFERS BY A LIMITED PARTNER. A Limited
Partner may assign, sell, transfer or otherwise dispose of all or any part of
such Partner's interest in the Partnership, or pledge, hypothecate or otherwise
encumber the whole or any part of its interest in the Partnership, with the
written consent of the General Partner and the approval of the Partners
(including the General Partner) pursuant to a Partnership Vote; provided,
however, that the General Partner's written consent shall not be given unless:
(i) the General Partner is satisfied that the proposed sale,
assignment, transfer or other disposition or encumbrance will not have any
adverse effect upon the Partnership or the Partners under federal income tax
laws then in effect or cause any default in any loan documents of the
Partnership or the Property Owner;
(ii) the General Partner has received, if requested, an
opinion from counsel for the Partnership to the effect that such sale,
assignment, transfer or other disposition will not violate federal or state
securities laws or regulations; and
(iii) the person, firm or entity to acquire such interest
agrees to comply with all terms of this Agreement, including without limitation
Section 8.5 below.
8.5. SUBSTITUTION OF ASSIGNEE. No transferee of the whole or any
portion of a Limited Partner's interest in the Partnership shall have the right
to be admitted to the Partnership and become a Limited Partner unless and until
all of the Partners in their absolute discretion consent and all of the
following conditions are satisfied:
(i) the transferor and transferee execute and acknowledge a
written instrument of assignment, together with such other instruments as the
General Partner may deem necessary or desirable to effect the admission of the
transferee as a substitute Limited Partner; and
(ii) an instrument specifically transferring such interest,
signed by both assignor and assignee, shall be filed with the General Partner,
and until such instrument is so filed, the Partnership shall not recognize any
transfer of interest for the purposes of making payments of profits, income or
any other distribution with respect to such Partnership interest.
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8.6. BUY-SELL AGREEMENT.
(a) In the event all of the lots comprising the Project have
not been sold at the expiration of thirty-six (36) months after the closing of
the Purchase Agreement, then any Partner (the "OFFEROR") may thereafter make an
offer in writing to the other Partners (the "OFFEREE"), which shall state an
amount (the "BUY-SELL VALUE") determined in the sole and absolute discretion of
the Offeror. The Buy-Sell Value shall be the amount that the Offeror chooses to
be the value of the Assets. An offer made pursuant to this Section 8.6 shall
constitute an irrevocable offer by the Offeror to the Offeree either (i) to sell
all, but not less than all, of the Offeror's interests in the Partnership
(including any interests held by, or Transferred to, its Affiliates), or (ii) to
purchase all, but not less than all, of the Offeree's interests in the
Partnership (including any interests held by or Transferred to its Affiliates).
The Offeree shall have fifteen (15) days after receipt of an offer made pursuant
to this Section 8.6 to elect either (i) to sell its interests in the Partnership
at a price equal to the amount the Offeree would have received pursuant to a
liquidation of the Partnership if the Assets had been sold to a third party for
the Buy-Sell Value and the proceeds therefrom had been applied and distributed
in accordance with Section 12.2 (assuming that all allocations resulting from
the sale had been made and no reserves are established); or (ii) to buy the
Offeror's interest in the Partnership at a price equal to the amount the Offeror
would have received pursuant to a liquidation of the Partnership if the Assets
had been sold to a third party for the Buy-Sell Value and the proceeds therefrom
had been applied and distributed in accordance with Section 12.2 (assuming that
all allocations resulting from the sale had been made and no reserves are
established). If the Offeree fails to make such an election within fifteen (15)
days after receipt of an offer under this Section 8.6(a), the Offeree shall be
deemed to have elected to sell its interests in the Partnership. In any case in
which there is more than one purchasing Partner, the purchasing Partners shall
determine the proportions of the interests in the Partnership to be purchased by
each such Partner.
(b) Closing shall occur at the offices of the Partnership no
later than sixty (60) days following the date after the election to purchase has
been made or deemed made. At the closing, the applicable interests in the
Partnership shall be duly conveyed, free of all liens and encumbrances, and the
purchase price shall be paid by wire transfer of immediately available federal
funds. At the election of the purchasing Partner, the applicable interests in
the Partnership to be purchased may be acquired in the name of a nominee
(whether or not such nominee is an Affiliate of the Purchasing Partner),
provided, that the Purchasing Partner shall have designated such nominee by
written notice prior to the date of purchase. It shall be a condition of the
selling Partner's obligation to proceed with any such purchase that the
purchasing Partner shall have obtained releases of any guaranties of
indebtedness of the Partnership executed by the selling Partner or any
Affiliates of (or principals in) such selling Partner. The purchasing Partner,
in addition to paying at the closing the purchase price, shall be obligated to
loan to the Partnership an amount sufficient to discharge at the closing all
outstanding and unpaid obligations of the Partnership to the selling Partner as
of such time.
(c) Upon receipt of the purchase price, the selling Partner
shall execute and deliver all documents reasonably required to transfer the
interest in the Partnership being sold. The selling Partner shall also execute
such resignations and other documents as may be reasonably required by counsel
for the Partnership to accomplish the withdrawal of the selling Partner as a
Partner of the Partnership and the purchasing Partner shall assume all of the
selling Partner's obligations to the Partnership and any of its creditors under
any loans to the Partnership permitted by this Agreement, such assumptions to be
in form reasonably satisfactory to counsel for the selling Partner.
(d) It is expressly agreed that the remedy at law for breach
of any of the obligations set forth in this Section 8.6 is inadequate in view of
(i) the complexities and uncertainties in measuring the actual damages that
would be sustained by reason of the failure of a Partner to comply fully with
each of said obligations, and (ii) the uniqueness of the Partnership business
and Partners' relationship. Accordingly,
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each of the aforesaid obligations shall be, and is hereby expressly made,
enforceable by specific performance.
8.7. AUTHORITY OF GENERAL PARTNER. For purposes of Section 8.6 above,
the General Partner and the Class A Limited Partner shall be treated as one
Partner, and the General Partner shall make all decisions on behalf of the
General Partner and the Class A Limited Partner regarding the initiation of the
buy/sell procedure or any other decision to be made pursuant to Section 8.6. The
Class A Limited Partner hereby irrevocably constitutes and appoints the General
Partner as its attorney-in-fact with full power to bind the Class A Limited
Partner hereunder and execute documents of transfer on its behalf.
8.8. COST AND EXPENSE OF TRANSFER; ALLOCATION OF PROFITS AND LOSSES.
All costs and expenses incurred by the Partnership in connection with any
disposition of a Partner's interest, including any filing, recording and
publishing costs and the fees and disbursements of counsel, shall be paid by the
Partner disposing of such interest. If an interest in the Partnership is
disposed of pursuant to this Article, the selling Partner shall nevertheless be
entitled to a portion of the profits and be charged with a portion of the losses
allocated to such interest or part thereof for the fiscal year of the
Partnership in which such disposition occurs, consistent with Section 7.7 above.
ARTICLE X.
OWNERSHIP OF PARTNERSHIP PROPERTY
All real or personal property, including all improvements placed or
located thereon, acquired by the Partnership shall be owned by and in the name
of the Partnership, such ownership being subject to the other terms and
provisions of this Agreement.
ARTICLE XII.
FISCAL MATTERS
10.1 FISCAL YEAR. The fiscal year of the Partnership shall be the
calendar year.
10.2 RECORDS. Proper books and records shall be kept with reference
to all Partnership transactions, and each Partner shall at all reasonable times
during business hours have access thereto. The books shall be kept in such
manner of accounting as shall properly reflect the actions of the Partnership in
accordance with accounting principles generally accepted within the industry and
consistently applied on such basis as will, in the opinion of the Partnership's
accountants, be most advantageous to the Partnership. The books and records
shall include the designation and identification of any property in which the
Partnership owns a beneficial interest. The books and records of the Partnership
shall be reviewed annually at the expense of the Partnership by an independent
certified public accountant selected by the General Partner, who shall prepare
and deliver to the Partnership, for filing, the appropriate federal Partnership
income tax return(s) before March 31 of each year.
10.3 ACCOUNTS. All funds of the Partnership shall be deposited in its
name in an account or accounts maintained at a bank designated by the General
Partner or with an agent designated by the General Partner. Checks shall be
drawn upon the Partnership account or accounts only for purposes of the
Partnership and shall be signed by the General Partner.
10.4 FEDERAL TAX ELECTIONS. All elections for federal tax purposes,
including but not limited to an election to adjust the basis of the assets of
the Partnership pursuant to Section 754 of the Code, and
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the adoption of accelerated depreciation or cost recovery methods required or
permitted to be made by the Partnership under the Code shall be made by the
General Partner.
10.5 TAX AUDITS. The General Partner shall be designated as the "tax
matters partner" of the Partnership as defined in Sections 6221 ET SEQ, of the
Code and, in the event of an audit of the Partnership by the Internal Revenue
Service ("IRS"), the General Partner, at Partnership expense, shall have the
exclusive right to conduct all negotiations with the IRS on behalf of the
Partnership and the Partners, and the attorneys and accountants selected by the
Partners to conduct such negotiations are hereby specifically authorized by the
Partners to act on their behalf in such negotiations, and each Partner will
execute such further authority as the IRS may require to permit the General
Partner and its selected attorneys and accountants to so represent the Partners;
provided the General Partner shall not consummate any settlement with the IRS
without approval of the Partners by Partnership Vote.
ARTICLE XIII.
AMENDMENT
11.1. AUTHORITY TO AMEND. Except as provided in Section 11.2 below,
this Agreement may only be altered or amended by a written instrument signed by
Partners holding not less than 100% of the Residual Percentages, provided that
no amendment may reduce a Partner's economic interest in the Partnership without
the Partner's prior written consent.
11.2. AMENDMENTS BY GENERAL PARTNER WHICH REQUIRE NO APPROVAL.
Notwithstanding Section 11.1 hereof, the following amendments to this Agreement
may be made by the General Partner, without approval of the Limited Partners:
(a) a clarification which does not change the substance
hereof;
(b) a change in the name of the Partnership;
(c) a change in the name and address of a Partner designated
in Article II pursuant to a request from that Partner;
(d) a modification which is necessary or appropriate, in the
opinion of counsel for the Partnership, to satisfy the requirements of the Code
with respect to partnerships or of any federal or state securities laws or
regulations, provided such amendment does not adversely affect the economic
interests of any Limited Partner without that Limited Partner's consent.
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ARTICLE XV.
DISSOLUTION OF THE PARTNERSHIP
12.1. DISSOLUTION.
(a) It is the intention of the Partners that the Partnership
shall be continued by the Partners, or those remaining, pursuant to the
provisions of this Agreement, notwithstanding the occurrence of any event which
would otherwise result in a dissolution of the Partnership pursuant to the law
of the State of Texas, and no Partner shall be released or relieved of any duty
or obligation hereunder by reason of any such dissolution; provided, however,
that the Partnership shall be terminated, its affairs wound up and its property
and assets distributed on the earlier of:
(i) expiration of the Partnership term as provided
in Section 1.4 hereof;
(ii) the written consent of the General Partner and
the Partners (including the General Partner) holding not less that 100% of the
Residual Percentages;
(iii) an Event of Withdrawal of a General Partner (as
defined in Article VIII hereof) unless at the time of the Event of Withdrawal,
there is at least one (1) other General Partner or the provisions of Section
12.1(b) below are satisfied;
(iv) the sale or other disposition (including
condemnation or casualty loss) of all or substantially all of the property and
assets of the Partnership and receipt of the proceeds from such sale of other
disposition (except under circumstances where (x) all or a portion of the
purchase price is payable after the closing of the sale or other disposition, or
(y) the Partnership retains a material economic or ownership interest in the
entity to which all or substantially all of its assets are transferred); or
(v) dissolution by law or appropriate judicial
decree.
(b) Upon the occurrence of any Event of Withdrawal of a
General Partner at a time when there is no other General Partner, the
Partnership shall be continued if, within a period of ninety (90) days from the
date of such occurrence, all other Partners agree in writing that the
Partnership shall be continued and designate one or more individuals or legal
entities to be admitted to the Partnership as a General Partner, which agreement
shall be effective as of the date of the occurrence of the applicable Event of
Withdrawal. Any such individual or legal entity shall, upon admission to the
Partnership, succeed to all of the rights and powers of a General Partner
hereunder.
(c) Dissolution of the Partnership shall be effective on
December 31, 2055 or the day on which the event occurs giving rise to the
dissolution, but the Partnership shall not terminate until the Partnership's
Certificate of Limited Partnership shall have been canceled and the assets of
the Partnership shall have been distributed as provided below. Notwithstanding
the dissolution of the Partnership, prior to the termination of the Partnership
as aforesaid, the business of the Partnership and the affairs of the Partners
shall continue to be governed by this Agreement.
(d) The bankruptcy, insolvency, dissolution, death or
adjudication of incompetency of a Limited Partner shall not cause the
dissolution of the Partnership. In the event of the bankruptcy, death or
incompetency of a Limited Partner, his executors, administrators or personal
representatives ("Successor") shall have the same rights that such Limited
Partner would have had if he had not died or become bankrupt or incompetent,
except that, in the event of bankruptcy, such Successor shall have no
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right to participate in the management of the Partnership or vote on any
Partnership matter unless such Successor is admitted to the Partnership as a
Limited Partner pursuant to Section 8.5, and the interest of such Limited
Partner in the Partnership shall, until the termination of the Partnership,
otherwise be subject to the terms, provisions and conditions of this Agreement
as if such Limited Partner had not died or become bankrupt or incompetent. In
the event of any other withdrawal of a Limited Partner, the Limited Partner
shall only be entitled to Partnership distributions distributable to him but not
actually paid to him prior to such withdrawal and shall not have any right to
have his Partnership interest purchased or paid for.
(e) Notwithstanding anything in this Agreement to the
contrary, upon a sale of all or substantially all of the assets of the
Partnership in a single transaction (a "SINGLE SALE TRANSACTION") where all or
any portion of the consideration payable to the Partnership is to be received by
the Partnership more than ninety (90) days after the date on which such Single
Sale Transaction occurs, the Partnership shall continue for purposes of
collecting the deferred payments and making distributions to the Partners. In
such event (i) gain recognized and cash distributed in any year as a result of
such Single Sale Transaction shall be allocated and distributed among the
Partners in the same proportion as such gain and cash would have been allocated
and distributed were the entire gain resulting from such Single Sale Transaction
required to be recognized for Federal income tax purposes in the year in which
such Single Sale Transaction occurred; and (ii) income attributable to interest
on deferred payments shall be allocated among, and such interest shall be
distributed to, the Partners as if the deferred payment obligations received by
the Partnership had been distributed to the Partners pursuant to Section 6.2.
12.2. WIND-UP OF AFFAIRS. As expeditiously as possible following the
occurrence of an event giving rise to a termination of the Partnership pursuant
to Section 12.1 above, the General Partner(s) or, if none, all of the Limited
Partners or a liquidator appointed by all of the Limited Partners (the General
Partner, Limited Partners or such liquidator, as the case may be, is referred to
here as the "LIQUIDATOR") shall liquidate the assets of the Partnership, apply
and distribute the proceeds thereof as contemplated by this Agreement and cause
the cancellation of the Partnership's Certificate of Limited Partnership. As
soon as possible after the dissolution of the Partnership, a full account of the
assets and liabilities of the Partnership shall be taken, and a statement shall
be prepared by the independent accountants then acting for the Partnership
setting forth the assets and liabilities of the Partnership. A copy of such
statement shall be furnished to each of the Partners within ninety (90) days
after such dissolution. Thereafter, the Liquidator shall wind up the affairs of
the Partnership and distribute the Partnership assets in the following order of
priority:
(a) to creditors (including Partners who are creditors) in
satisfaction of the liabilities of the Partnership, other than liabilities to
existing and former Partners for distributions from the Partnership;
(b) to the establishment of any reserves which the
Liquidator deems reasonably necessary for any contingencies or unforeseen
liabilities or obligations of the Partnership. Such reserves shall be paid over
by the Liquidator to an escrow agent or shall be held by the Liquidator for the
purpose of disbursing such reserves in payment of any of such contingencies. At
the expiration of such period as the Liquidator deems advisable, the balance
thereof shall be distributed in the manner and order provided in this Section;
(c) to existing and former Partners in satisfaction of any
liabilities to them, if any, for distributions from the Partnership;
(d) to Partners in accordance with Section 6.1 above.
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12.3. NO DEFICIT CAPITAL ACCOUNT OBLIGATION. Notwithstanding anything
else to the contrary in this Agreement, upon a liquidation within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the Regulations, if any Partner has a deficit
Capital Account (after giving effect to all contributions, distributions,
allocations and other Capital Account adjustments for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any Capital Contribution, and the negative balance of
such Partner's Capital Account shall not be considered a debt owed by such
Partner to the Partnership or to any other Person for any purpose whatsoever.
12.4. DISTRIBUTION IN KIND. If any assets of the Partnership are to be
distributed in kind, the net fair market value of such assets as of the date of
dissolution shall be determined by independent appraisal or by agreement of the
Partners. Prior to distribution, such assets shall be deemed to have been sold
for their fair market values and the Capital Accounts of the Partners shall be
adjusted pursuant to the terms of this Agreement to reflect the allocation of
gain or loss which would have resulted from such deemed sale.
12.5. CANCELLATION OF CERTIFICATE. Upon the dissolution and the final
liquidation of the Partnership, there shall be filed for record as provided by
Texas law a Certificate of Cancellation executed by the General Partner.
12.6. RETURN OF CONTRIBUTION NONRECOURSE TO OTHER PARTNERS. Except as
provided by law or as expressly provided in this Agreement, upon dissolution
each Partner shall look solely to the assets of the Partnership for the return
of its Capital Contribution. If the Partnership property remaining after the
payment or discharge of the debts and liabilities of the Partnership is
insufficient to return the cash contribution of one or more Partners, such
Partner or Partners shall have no recourse against any other Partner.
12.7. COMPLIANCE WITH TREASURY REGULATIONS. It is the intent of the
Partners that the allocations provided in Section 7.1 result in distributions
required pursuant to Section 12.2(d) being in accordance with positive Capital
Accounts as provided for in the Treasury Regulations under Code Section 704(b).
However, if after giving hypothetical effect to the allocations required by
Section 7.1, the Capital Accounts of the Partners are in such ratios or balances
that distributions pursuant to Section 12.2(d) would not be in accordance with
the positive Capital Accounts of the Partners as required by the Treasury
Regulations under Code Section 704(b), such failure shall not affect or alter
the distributions required by Section 12.2(d). Rather, the liquidator will have
the authority to make other allocations of Profits and Losses (or items thereof)
among the Partners which, to the extent possible, will result in the Capital
Accounts of each Partners having a balance prior to distribution equal to the
amount of distributions to be received by such Partners pursuant to Section
12.2(d).
ARTICLE XVI.
POWER OF ATTORNEY
13.1. APPOINTMENT OF ATTORNEY.
(a) Each Limited Partner hereby irrevocably constitutes and
appoints the General Partner its true and lawful attorney, in its name, place
and stead, to make, execute, sign acknowledge, swear to (where appropriate), and
file of record:
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(i) any certificate, document or instrument which
may be required to be filed by the Partnership or the Partners under applicable
laws of any jurisdiction(s) to evidence the creation or existence of the
Partnership or the identities of the Partners to the extent that the General
Partner deems such filing(s) to be necessary or required;
(ii) any and all authorized amendments or
modifications of the instruments described in Section 11.1 and 11.2 above;
(iii) all certificates and other instruments which may
be required to effect the dissolution and termination of the Partnership
pursuant to the terms of this Agreement; and
(iv) any and all consents or other instruments deemed
necessary or desirable by the General Partner for the admission of substituted
Limited Partners pursuant to the terms of this Agreement and otherwise approved
pursuant to the terms of this Agreement.
(b) It is expressly understood and intended by each Limited
Partner that the grant of the foregoing power of attorney is coupled with an
interest and is irrevocable, and that the foregoing power of attorney shall not
be affected by the disability, incompetency or incapacity of such Limited
Partner.
(c) The foregoing power of attorney may be exercised by the
General Partner acting for each Limited Partner individually or as
attorney-in-fact acting for all Limited Partners together.
(d) The foregoing power of attorney shall survive the
delivery of an assignment pursuant to Article VIII hereof by a Limited Partner
of the whole or any portion of its interest; except that where a Limited Partner
has assigned its entire interest and the assignee thereof has been approved by
the General Partner for admission to the Partnership as a substituted Limited
Partner, the power of attorney shall survive the delivery of such assignment for
the sole purpose of enabling the General Partner to execute, sign, acknowledge,
swear to (where appropriate) and file of record any certificate, instrument or
document necessary to effect such substitution.
(e) The foregoing power of attorney shall in no way cause a
Limited Partner to be liable in any manner for the acts or omissions of the
General Partner.
13.2. RATIFICATION BY SUBSTITUTED LIMITED PARTNER. Each substituted
Limited Partner, upon admission to the Partnership pursuant to Section 8.5,
shall be deemed to ratify and reaffirm the appointment of the General Partner as
its true and lawful attorney for the purposes and on the same terms as set forth
in Section 13.1 hereof.
ARTICLE XVII.
MISCELLANEOUS PROVISIONS
14.1. NOTICES. Except as may be otherwise specifically provided in
this Agreement, all notices required or permitted hereunder shall be in writing
and shall be deemed to be delivered on the earlier of (i) when delivered in
person, or (ii) when delivered by commercial courier such as Federal Express,
Express Mail or other overnight delivery service where delivery is evidenced by
written receipt, addressed to the appropriate party at the addresses set forth
in Article II, or such other address of the party as may have been changed as
provided herein. Any party may change the address to which notices will be given
by giving notice of such change to the other parties, in accordance with the
provisions of this Section 17.1.
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14.2. GOVERNING LAW. This Agreement shall be construed under and in
accordance with the laws of the State of Texas.
14.3. EXECUTION OF OTHER AGREEMENTS. The parties hereto covenant and
agree that they will execute such other further instruments and documents as are
or may become necessary or convenient to effectuate and carry out the
Partnership created by this Agreement.
14.4. NO ACTION FOR PARTITION. No Partner shall be entitled to bring
an action for partition against the Partnership, and each Partner hereby
irrevocably waives, during the term of the Partnership and during the period of
its liquidation following any dissolution, any right to maintain an action for
partition with respect to any of the assets of the Partnership.
14.5. PARAGRAPH HEADINGS. The headings used in this Agreement are used
for administrative purposes only and do not constitute substantive matter to be
considered in construing the terms of this Agreement.
14.6. BINDING EFFECT AND BENEFIT. This Agreement is binding on, and
shall inure to the benefit of, all of the parties hereto and to their respective
heirs, executors, administrators, legal representatives, and successors and
assigns where permitted by this Agreement.
14.7. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
14.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute a single contract, and each
of such counterparts shall for all purposes be deemed to be an original. This
Agreement may be executed and delivered by fax (telecopier); any original
signatures that are initially delivered by fax shall be physically delivered
with reasonable promptness thereafter. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
14.9. GENDER. Wherever the context so requires, all words herein in
the neuter gender shall be deemed to include the feminine or masculine genders,
and vice versa, all singular words shall include the plural, and all plural
words shall include the singular.
14.10. ENTIRE AGREEMENT. This Agreement, together with all Exhibits
hereto and all other documents referred to herein, constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersedes all prior and contemporaneous agreements, understanding,
inducements or conditions, express or implied, oral or written.
14.11. VALIDITY. In the event that all or any portion of any provision
of this Agreement shall be held to be invalid, the same shall not affect in any
respect whatsoever the validity of the remainder of this Agreement.
14.12. INDULGENCES, ETC. Neither the failure nor any delay on the part
of any party hereto to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or any other right, remedy, power or privilege; nor shall
any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right,
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remedy, power or privilege with respect to any other occurrence. No waiver shall
be effective unless it is in writing and signed by the party asserted to have
granted such waiver.
14.13. REMEDIES. In the event of any breach of this Agreement by any
Partner or default by any Partner in connection with performing any obligation
of such Partner under this Agreement, the Partnership's and the non-defaulting
Partner's rights and remedies contained herein or in any other agreement shall
be cumulative and shall not be exclusive of any other rights or remedies which
the Partnership or the non-defaulting Partner may have at law or in equity.
14.14. INTERPRETATION. No provision of this Agreement is to be
interpreted for or against either party because that party or that party's legal
representative drafted such provision.
14.15. TIME OF ESSENCE. TIME IS OF THE ESSENCE in connection with this
Agreement.
14.16. ALTERNATIVE DISPUTE RESOLUTION. If a dispute, controversy or
claim (whether based upon contract, tort, statute, common law or otherwise)
(collectively a "DISPUTE") arises from or relates directly or indirectly to the
subject matter hereof, and if the Dispute cannot be settled through direct
discussions, the parties hereto shall first endeavor to resolve the Dispute by
participating in a mediation administered by the American Arbitration
Association (the "AAA") under its Commercial Mediation Rules before resorting to
arbitration. Thereafter, any unresolved Dispute shall be resolved among the
parties by binding arbitration administered by the AAA in accordance with its
Commercial Arbitration Rules and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction. The arbitration
proceedings shall be conducted in Dallas, Texas on an expedited basis before a
single neutral arbitrator (or multiple arbitrators if called for by the
Commercial Arbitration Rules, with all references herein to the arbitrator to
include multiple arbitrators). Each arbitrator shall be an attorney with
excellent academic and professional credentials, who (a) is a member of the Bar
of the State of Texas, (b) has been actively engaged in the practice of law for
at least fifteen (15) years, and (c) specializes in commercial transactions,
with substantial experience with limited partnerships that own and operate
significant commercial real estate. Attorneys selected as arbitrators need not
have any special experience or training in arbitration proceedings. Any attorney
who serves as an arbitrator shall be compensated at a rate equal to his or her
current regular hourly billing rate. Upon the request of either party, the
arbitrator's award shall include findings of fact and conclusions of law
provided that such findings may be in summary form and the arbitrator shall
render his or her decision based on applicable law. The prevailing party in the
arbitration proceeding shall be entitled to an award of all reasonable
out-of-pocket costs and expenses (including attorneys' and arbitrators' fees)
related to the entire arbitration proceeding. Upon request of either party, the
arbitrator may require that the subject arbitration proceedings be kept
confidential and no party shall disclose or permit the disclosure of any
information produced or disclosed in the arbitration proceedings until the award
is final. A party shall not be prevented from seeking temporary injunctive
relief before a court of competent jurisdiction in an emergency situation, but
responsibility for resolution of the Dispute shall be appropriately transferred
to the arbitrator upon appointment in accordance with the provisions hereof.
14.17. NOTICE OF INDEMNIFICATION. THE PARTIES TO THIS AGREEMENT HEREBY
ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT CONTAINS CERTAIN INDEMNIFICATION
PROVISIONS PURSUANT TO SECTION 5.2.
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ARTICLE XVIII.
SECURITIES LAW CONSIDERATIONS
15.1. NO REGISTRATION/RESTRICTION ON SALE. THE PARTNERSHIP INTERESTS
HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, NOR HAVE THEY BEEN REGISTERED WITH
THE SECURITIES COMMISSION OF ANY OTHER APPLICABLE STATE, INCLUDING WITHOUT
LIMITATION THE STATE OF TEXAS AND THE STATE OF TEXAS. THE PARTNERSHIP INTERESTS
MAY BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS
AND CONDITIONS OF THIS AGREEMENT AND IN A TRANSACTION WHICH IS EITHER EXEMPT
FROM REGISTRATION UNDER SUCH ACTS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACTS.
15.2. COMPLIANCE WITH SECURITIES LAWS. The Limited Partners
acknowledge and confirm that their Limited Partnership interests have not been
registered under any federal or state securities laws by virtue of exemptions
from the registration provisions thereof and consequently cannot be sold except
pursuant to appropriate registration or exemption from registration as
applicable. No transfer or assignment of all or any part of a Limited
Partnership interest (except a transfer upon the death, incapacity or bankruptcy
of a Limited Partner to his personal representative and beneficiaries),
including, without limitation, any transfer of a right to distributions, profits
and/or losses to a person who does not become a Partner, may be made unless the
Partnership is provided with an opinion of counsel acceptable to the General
Partner (both as to the identity of the counsel and the substance of the
opinion) to the effect that such offer or assignment (a) may be effected without
registration under the Securities Act of 1933, as amended, or the Investment
Company Act of 1940, as amended, and (b) does not violate any applicable federal
or state securities laws (including any investment suitability standards)
applicable to the Partnership or the General Partner.
15.3. ACCESS TO INFORMATION. Each of the Limited Partners represents
to the General Partner and the Partnership that before determining to enter into
this Agreement and to invest in the Partnership, each Limited Partner made an
independent investigation into the Partnership and the General Partner and that
it received whatever information it deemed necessary or relevant in order to
decide whether to enter into this Agreement or invest in the Partnership. Each
Limited Partner acknowledges that the financial materials provided to the
Limited Partners are only estimates of expected future operations based on
assumptions about future markets and there is no assurance that such projections
will be realized.
15.4. LIMITATIONS OF FEES. Reference is made to that certain Amended
and Restated Agreement of Limited Partnership of Behringer Harvard Short-Term
Opportunity Fund I LP dated as of September 15, 2003 (together with all
amendments thereto, the "BH FUND AGREEMENT") in respect of BH Fund. BH Fund owns
interests in the General Partner and the Class A Limited Partner.
Notwithstanding anything contained in this Agreement to the contrary, if any fee
paid by the Partnership to any general partner in BH Fund or any Affiliate of
any such general partner (each a "BH FUND GENERAL PARTNER PARTY") results in BH
Fund paying, through its interest in the Partnership, fees in excess of those
fees permitted to be paid to such BH Fund General Partner Party under the terms
of the BH Fund Agreement, then such BH Fund General Partner Party shall
reimburse directly to BH Fund its allocable share of such fee to the extent
necessary to comply with the terms of the BH Fund Agreement. In the event that a
BH Fund General Partner Party receives from the Partnership a fee whose
retention by such BH Fund General Partner Party is, under the terms of the BH
Fund Agreement, contingent upon the happening of future events, such BH Fund
General Partner Party shall hold BH Fund's allocable share of such fee until
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the applicable contingencies are resolved, and shall thereafter dispose of BH
Fund's allocable share of such fee in accordance with the BH Fund Agreement. It
is understood and agreed that the limitations and provisions set forth in this
Section 15.4 are for the sole benefit of BH Fund, and, accordingly, no other
party shall be entitled to a refund of fees paid by the Partnership under this
Agreement or any other benefit set forth in this Section 15.4. Furthermore, it
is understood and agreed that the limitations and other provisions set forth in
this Section 15.4 shall not be applicable at such time as BH Fund no longer owns
a direct or indirect interest in the Partnership.
15.5. AMENDMENTS TO AGREEMENT. Notwithstanding anything contained
herein to the contrary, in the event that legal counsel for BH Fund reasonably
determines that an amendment to this Agreement is necessary or advisable in
order for this Agreement to comply with applicable securities laws, the limited
partnership agreement of BH Fund, or NASAA Guidelines (as such term is defined
in the ST Agreement), then each Partner shall, within ten (10) days after
request from BH Fund, execute such an amendment; provided, however, that no such
amendment may reduce a Partner's economic interest in the Partnership without
the Partner's prior written consent.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership as of the date first above written.
GENERAL PARTNER:
BEHRINGER HARVARD NORTHWEST HIGHWAY GP,
LLC, a Texas limited liability company
By:________________________________________
Name:______________________________________
Its:_______________________________________
LIMITED PARTNERS:
BEHRINGER HARVARD SHORT-TERM OPPORTUNITY
FUND I, LP, a Texas limited partnership
By:________________________________________
Xxxxxx X. Xxxxxxxxx, its General Partner
By: Behringer Harvard Advisors II LP, a
Texas limited partnership, its General
Partner
By: Harvard Property Trust, LLC
Its General Partner
By:_______________________________
Xxxxxx X. Xxxxxxxxx, President
X.X. XXXXXXXXX TRUST, a Texas trust
By:_____________________________________
Xxxxx Xxxxxxx, Trustee
XXXX AND XXXXX XXXXXXX FAMILY TRUST, a
Texas trust
By:_____________________________________
Xxxx Xxxxxxx, Trustee
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EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
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EXHIBIT B
DILUTION EXAMPLE
For purposes of example, assume that the Capital Contributions made to the
Partnership total $2,000,000. General Partner (owning a residual percentage of
..1%) has contributed $2,000; the Class A Limited Partner (owning a residual
percentage of 79.9%) has contributed $1,598,000; and the Class B Limited
Partners (owning a residual percentage of 20%) have contributed $400,000. Assume
that the General Partner sends an Additional Capital Notice for $400,000 to the
Partners, and that in response thereto the Class A Limited Partner makes an
Additional Capital Contribution of $200,000, and the Class B Limited Partners
fail to make their Additional Capital Contribution of $200,000. If the Class A
Limited Partner contributes said $200,000 as an Additional Capital Contribution
(thus making the total Capital Contributions equal $2,400,000), then the
following adjustments to the Residual Percentages would be made:
(1) The Residual Percentage of the Class A Limited Partner would be
increased by 14.5775% (being 175% of 8.33%, which is $200,000 divided by
$2,400,000, expressed as a percentage). The Residual Percentage of the Class A
Limited Partner would thus be adjusted to 94.4775%.
(2) The Residual Percentage of the Class B Limited Partners would be
decreased by 14.5775%, and thus would be adjusted to 5.4225%.
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