AGREEMENT OF LIMITED PARTNERSHIP AMREIT MONTHLY INCOME & GROWTH FUND III, LTD. A Texas Limited Partnership
Exhibit
3.2
AGREEMENT OF LIMITED
PARTNERSHIP
AMREIT MONTHLY INCOME & GROWTH FUND III, LTD.
A Texas Limited Partnership
TABLE OF CONTENTS
Page | ||||||
ARTICLE I |
NAME, PURPOSE, PLACE OF BUSINESS AND TERM OF PARTNERSHIP | 1 | ||||
1.1. |
Name | 1 | ||||
1.2. |
Purpose | 1 | ||||
1.3. |
Place of Business and Agent | 1 | ||||
1.4. |
Term | 1 | ||||
ARTICLE II |
DEFINITIONS | 1 | ||||
ARTICLE III |
LIMITED PARTNERS | 6 | ||||
3.1. |
Initial Limited Partner | 6 | ||||
3.2. |
No Management by Limited Partners | 6 | ||||
3.3. |
Access to Records | 6 | ||||
3.4. |
Liability | 7 | ||||
3.5. |
No Withdrawal or Dissolution | 7 | ||||
3.6. |
Consent | 7 | ||||
3.7. |
Power of Attorney | 7 | ||||
ARTICLE IV |
CAPITAL CONTRIBUTIONS, ACCOUNTS AND WITHDRAWALS | 8 | ||||
4.1. |
Initial Capital Contributions | 8 | ||||
4.2. |
Limited Partner Capital Contributions | 8 | ||||
4.3. |
No Interest on Capital Contributions | 9 | ||||
4.4. |
Liability Limited to Capital | 9 | ||||
ARTICLE V |
DUTIES AND POWERS OF PARTNERS, PARTNERSHIP EXPENSES | 10 | ||||
5.1. |
General Partner | 10 | ||||
5.2. |
General Authority and Powers of General Partner | 10 | ||||
5.3. |
Limitations on Authority and Powers of General Partner | 10 | ||||
5.4. |
Loans to the Partnership | 11 | ||||
5.5. |
Liability | 12 | ||||
5.6. |
Outside Activities of the General Partner | 12 | ||||
5.7. |
Indemnification and Liability of General Partner | 12 | ||||
5.8. |
Partnership Expenses | 13 | ||||
5.9. |
Compensation | 13 | ||||
5.10. |
Liquidation of the Partnership | 14 | ||||
5.11. |
Joint Ventures | 14 | ||||
ARTICLE VI |
DISTRIBUTIONS | 15 | ||||
6.1. |
Share of Distributions | 15 | ||||
6.2. |
Allocation of Distributions Among Limited Partners | 16 | ||||
6.3. |
Liquidation or Dissolution | 16 |
TABLE OF CONTENTS
(Cont’d)
Page | ||||||
6.4. |
Amount and Time of Distributions | 16 | ||||
ARTICLE VII |
PROFITS AND LOSSES | 17 | ||||
7.1. |
Capital Account | 17 | ||||
7.2. |
Deficit Capital Account Balances | 17 | ||||
7.3. |
Allocations | 18 | ||||
7.4. |
Taxable Gain On Exchange | 20 | ||||
7.5. |
Depreciation Recapture | 20 | ||||
7.6. |
Allocation Between Assignor And Assignee | 20 | ||||
7.7. |
Express Consent to Allocations | 20 | ||||
7.8. |
Adjustments to Gain and Loss | 20 | ||||
7.9. |
Tax Allocations: Code Section 704(c) | 21 | ||||
7.10. |
General Provisions Relating to Distributions, Net Profit and Net Loss Allocations | 21 | ||||
7.11. |
Adjustments To Allocations | 22 | ||||
7.12. |
Fractions Rule | 22 | ||||
ARTICLE VIII |
TERMINATION AND DISSOLUTION OF THE PARTNERSHIP | 22 | ||||
8.1. |
No Termination by Admission or Incapacity of Limited Partners | 22 | ||||
8.2. |
Termination of the Partnership | 23 | ||||
8.3. |
Continuation of Partnership Upon Certain Events | 23 | ||||
8.4. |
Dissolution and Liquidation | 24 | ||||
ARTICLE IX |
WITHDRAWAL AND TRANSFER BY PARTNERS | 25 | ||||
9.1. |
Voluntary Withdrawal or Assignment by the General Partner | 25 | ||||
9.2. |
Involuntary Withdrawal and Transfer of a General Partner’s Interest | 25 | ||||
9.3. |
Transfer by Limited Partners | 26 | ||||
9.4. |
Put Right | 28 | ||||
ARTICLE X |
BOOKS, RECORDS AND ACCOUNTING | 29 | ||||
10.1. |
Books and Records | 29 | ||||
10.2. |
Accounting Method; Audits and Reports | 30 | ||||
10.3. |
Bank Accounts | 31 | ||||
ARTICLE XI |
SPECIAL TAX MATTERS | 31 | ||||
11.1. |
Tax Elections | 31 | ||||
11.2. |
Tax Audit Expenses | 31 | ||||
ARTICLE XII |
AMENDMENTS AND MEETINGS | 31 | ||||
12.1. |
General | 31 | ||||
12.2. |
Alternative to Meetings | 32 | ||||
12.3. |
Amendments on Admission or Withdrawal of Partners and Clarification Amendments | 32 |
ii
TABLE OF CONTENTS
(Cont’d)
Page | ||||||
ARTICLE XIII |
MISCELLANEOUS | 33 | ||||
13.1. |
Notices | 33 | ||||
13.2. |
Further Assurances | 33 | ||||
13.3. |
Representations of the Partners | 33 | ||||
13.4. |
Survival of Representations and Agreements | 34 | ||||
13.5. |
Agreement in Counterparts | 34 | ||||
13.6. |
Captions and Context | 34 | ||||
13.7. |
Construction | 34 | ||||
13.8. |
Governing Law; Successors | 34 | ||||
13.9. |
Binding Effect | 34 | ||||
13.10. |
Validity of Agreement | 34 | ||||
13.11. |
Creditors Not Benefited | 34 |
iii
AMREIT MONTHLY INCOME & GROWTH FUND III, LTD.
A Texas Limited Partnership
AGREEMENT OF LIMITED PARTNERSHIP
AMREIT MONTHLY INCOME & GROWTH FUND III, LTD., a Texas limited partnership, (the
“Partnership”) is hereby formed as a limited partnership under the laws of the state of Texas
pursuant to this Agreement of Limited Partnership entered into by and between, AmREIT Monthly
Income & Growth III Corporation, a Texas corporation, as the General Partner (the “General
Partner”) and AmREIT, the Initial Limited Partner. The Certificate of Limited Partnership of the
Partnership shall be promptly recorded with the Secretary of State for the State of Texas as
required by the Texas Revised Limited Partnership Act.
ARTICLE I
NAME, PURPOSE, PLACE OF BUSINESS AND TERM OF PARTNERSHIP
1.1. Name. The name of the Partnership is “AMREIT MONTHLY INCOME & GROWTH FUND III,
LTD.”
1.2. Purpose. The purpose of the Partnership shall be to acquire, develop, own,
operate, improve, lease, sell, manage and hold for investment real property and to make and/or
invest in loans for the acquisition, development or construction of real property, either alone or
in association with others, and to conduct any other activity in connection therewith permitted by
law, any of which will be permitted regardless of whether any Partner or Affiliate has a direct or
indirect interest in the activity.
1.3. Place of Business and Agent. The principal place of business and office of the
Partnership shall be at c/o X. Xxxx Xxxxxx, 0 Xxxxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000 or
such other location as may hereafter be determined by the General Partner on prior notice to the
Limited Partners. X. Xxxx Xxxxxx, whose address is 0 Xxxxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx
00000, is the agent for service of process of the Partnership.
1.4. Term. The term of the Partnership commenced as of the date of filing of the
original Certificate and shall continue until December 31, 2025, or until sooner dissolved or
terminated as provided in this Agreement.
ARTICLE II
DEFINITIONS
As used herein the following terms shall have the following meanings:
“Act” shall mean the Texas Revised Limited Partnership Act, as amended.
1
“Adjusted Capital” shall mean with respect to each Partner a weighted average of such
Partner’s Unreturned Invested Capital for all prior years. For example, if a Partner subscribes for
2 Units and receives no return of capital in year 1, a return of capital in year 2 of $5,000, a
return of capital in year 3 of $5,000, a return of capital in year 4 of $10,000, a return of
capital in year 5 of $2,500 and no return of capital in years 6 and 7, the Partner’s Adjusted
Capital for year 1 will be $50,000, for year 2 will be $47,500, for year 3 will be $45,000, for
year 4 will be $41,250, for year 5 will be $38,500, for year 6 will be $36,667 and for year 7 will
be $35,357.
“Adjusted Capital Account” shall mean the Capital Account maintained for each Partner which
is determined as of the end of each Partnership Fiscal Year, or other appropriate occasion, (i)
increased by any amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or Regulations Section 1.704-l(b)(2)(ii)(c) or is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(l) and 1.704-2(i)(5) and
(ii) decreased by the items described in Regulations Sections 1.704-l(b)(2)(ii)(d)(4),
1.704-l(b)(2)(ii)(d)(5), and 1.704-l(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital
Account is intended to comply with the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
“Adjusted Capital Account Deficit” shall mean, with respect to a Partner, the deficit
balance, if any, in that Partner’s Adjusted Capital Account.
“Affiliate” shall mean, when used with reference to a specified Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with another Person,
(ii) any Person owning or controlling ten percent or more of the outstanding voting securities of
such other Person, (iii) any officer, director, member, manager or partner of such Person or any
Person specified in (i) or (ii) above, and (iv) any company in which any officer or director of
such Person is an officer, director, member, manager or partner; provided, however, that for
purposes of this definition the term “Affiliate” will not be deemed to include any Person
providing legal, accounting or other professional services to the Partnership or General Partner.
“Agreement” shall mean this Agreement of Limited Partnership and any amendments hereto.
“Applicable Percentage” shall mean with respect to a particular year the annual distribution
percentage, targeted to begin at 7.5% per annum.
“Capital Account” shall have the meaning assigned to such term in Section 7.1 hereof.
“Capital Account Balance” shall mean with respect to a Partner, the balance in that Partner’s
Capital Account.
“Capital Account Deficit” shall mean with respect to a Partner, the deficit balance, if any,
in that Partner’s Capital Account.
“Capital Contribution” shall mean, with respect to any Partner, the amount which such Partner
contributes or is deemed to contribute to the capital of the Partnership in accordance with the
provisions of this Agreement, including without limitation any initial Capital Contribution and any
additional Capital Contributions made by the Partner to the Partnership
2
“Certificate” shall mean the Certificate of Limited Partnership of the Partnership to be
filed with the Secretary of State for the State of Texas,
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Consent” shall mean the consent of a Person to do the act or thing for which the consent is
solicited, or the act of granting such consent, as the context may require. The Consent of the
Limited Partners will be deemed to have been obtained if (i) not less than 45 days prior to the
proposed date for taking the action for which such Consent is required, written Notification shall
have been provided by the General Partner to the Limited Partners identified in the Partnership’s
records in the manner provided in this Agreement, and if (ii) upon expiration of the 45 days from
the date of Notification the Limited Partners shall have not objected in writing to the proposed
action.
“Event of Bankruptcy” shall mean with respect to any Person: (i) the entry of an “order for
relief, as defined in Title 11 of the United States Code (“Bankruptcy Code”), in either a
voluntary case when instituted by such Person or in an involuntary case when instituted against
such Person if such Person may be a debtor under the chapter of the Bankruptcy Code under which
such case is commenced and which case shall not be dismissed or closed within 90 days of such
commencement; or a comparable action against or by such Person under any other Federal, state or
foreign law related to bankruptcy or insolvency; or (ii) the filing by such Person of a petition
or answer or consent seeking debtor relief under any other applicable federal, state or foreign
law; or (iii) the entry of an order or decree appointing, or consent by such Person to the
appointment of, a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of such Person or of all or a substantial part of the property of such Person or
ordering the winding up or liquidation of the affairs of such Person; or (iv) the making by such
Person of any assignment for the benefit of creditors or the admission by such Person of his or
its inability to pay his or its debts generally as they come due, or the taking of any corporate
or other action by such Person in furtherance of any such action; provided, in any event that the
debtor’s Partnership Interest in the Partnership must be subject to the bankruptcy or liquidation
proceedings and not exempt from creditors.
“Event of Dissolution” shall mean the liquidation, dissolution, removal, or the occurrence of
an Event of Bankruptcy with respect to a Partner or any successor.
“General Partner” shall mean the Person or Persons designated as General Partner in the
introductory paragraph hereof and any successor Person named as a General Partner according to the
terms of this Agreement.
“General Partner Investment” shall have the meaning assigned to such term in Section 4.2(a)
hereof.
“GP Excess Distributions” shall have the meaning assigned to such term in Section 6. l(b)(2)
hereof.
“Initial Limited Partner” shall mean AmREIT, whose address is set forth above in Section 1.3.
3
“Invested Capital” means the gross purchase price for his or her Unit(s) originally paid by a
Limited Partner.
“Joint Ventures” shall have the meaning assigned to such term in Section 5.11 hereof.
“Limited Partners” shall mean the Persons identified as Limited Partners on the signature
pages to this Agreement and/or each Person admitted to the Partnership as a Limited Partner upon
executing a Subscription Agreement and contributing capital to the Partnership in exchange for
Units, the General Partner with respect to Units purchase by the General Partner and such
successor or additional Persons admitted to the Partnership as Limited Partners according to the
terms of this Agreement.
“LP Excess Distributions” shall mean cumulative distributions received by Limited Partners
pursuant to Sections 6.1(a) and 6.1(b)(l) and (3) in excess of such Limited Partner’s Invested
Capital.
“Majority in Interest” shall mean a majority of the Units held by all Limited Partners.
“Net Cash Flow” shall mean cash funds from operations of the Partnership, interest, other
investment income, and net profits generated on the disposition of properties, but excluding (i)
Capital Contributions (ii) funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership property and debt service, if any, capital
improvements and replacements, without deduction for depreciation or amortization and (iii) cash
reserves (a) required by any loan agreements or similar arrangements to which the Partnership is
subject, and (b) necessary to satisfy contingencies reasonably anticipated for, or associated
with, the Partnership’s business.
“Net Profits” and “Net Losses” shall mean the profits or losses, as the case may be, of the
Partnership for federal income tax purposes for each Partnership Fiscal Year determined in
accordance with the Code, the Regulations and the accounting method followed by the Partnership
for such purposes.
“Nonrecourse Deduction” has the meaning assigned to it in Regulations Section 1.704-2(c).
“Notification” or “Notice” shall mean a writing containing the information required by this
Agreement to be communicated to any Person in the manner provided in Section 13.1 hereof;
provided, however, that any communication containing such information sent or delivered to such
Person and actually received by such Person constitutes Notification for all purposes under this
Agreement.
“Offering” means that certain offering by the Partnership of an initial 2,000 Units (at an
offering price of $25,000,00 per Unit) pursuant to the Private Offering Memorandum.
“Operating Period” means the period commencing on the Final Closing Date (as defined in the
Private Offering Memorandum) and continuing until the sixth anniversary thereof.
4
“Partner” shall mean either the General Partner or a Limited Partner and “Partners” shall
mean the General Partner and the Limited Partners, collectively.
“Partner Nonrecourse Debt” has the meaning assigned to it in Regulations Section
1.704-2(b)(4).
“Partner Nonrecourse Debt Minimum Gain” has the meaning assigned to it in Regulations Section
1.704-2(i)(2) and (3).
“Partner Nonrecourse Deductions” has the meaning assigned to it in Regulations Section
1.704-2(i)(2).
“Partnership” shall mean the limited partnership formed pursuant to the execution of this
Agreement and the filing of the Certificate
“Partnership Fiscal Year” shall mean the calendar year, unless otherwise determined by the
Partnership’s tax advisors and approved by the General Partner upon notice to the Limited
Partners.
“Partnership Interest,” “Interest” or “Interest of a Partner” shall mean the particular
Partner’s interest in the Partnership including, without limitation, the Partner’s Units and
interest in the Partnership’s Net Profits, Net Losses, income, gains, losses, deductions and
distributions.
“Partnership Minimum Gain” shall have the meaning set forth in Regulations Section
1.704-2(b)(2) and the amount of Partnership Minimum Gain, as well as any net increase or decrease
in Partnership Minimum Gain, for a Partnership Fiscal Year shall be determined in accordance with
the rules of Regulations Section 1.704-2(d).
“Person” shall mean an individual, trust, estate, partnership, joint venture, company,
corporation or other entity.
“Private Offering Memorandum” means that certain Private Offering Memorandum dated April 19,
2005, pursuant to which the Partnership shall engage in the Offering.
“Project” shall mean any real property, including any interest therein, which is developed
and/or owned by the Partnership.
“Put Partner” shall have the meaning assigned to such term in Section 9.4 hereof.
“Regulations” shall have the meaning assigned to such term in Section 7.1 hereof.
“Representative” shall mean the executor, administrator, guardian, trustee, or other personal
representative of a Partner.
“Requested Redemption Date” shall have the meaning assigned to such term in Section 9.4
hereof.
5
“Retirement Trusts” shall have the meaning assigned to such term in Section 4.2(d)
hereof.
“Subscription Agreements” shall mean the subscription agreements executed by the Limited
Partners for Units.
“Substitute Limited Partner” shall mean a Limited Partner admitted to the Partnership
pursuant to Section 9.3.
“Unit” shall mean an interest in the Partnership as a Limited Partner, which is acquired
either by means of a Capital Contribution, in cash, to the Partnership or by transfer. A qualified
person may acquire more than one Unit and/or a fraction of a Unit upon approval of the General
Partner.
“Unreturned Invested Capital” means each Partner’s Invested Capital less cumulative
distributions to date made to the Partner, which constitute a return of capital.
ARTICLE III
LIMITED PARTNERS
3.1. Initial Limited Partner. Upon the admission of additional Limited Partners, the
Interest of the Initial Limited Partner shall be repurchased in full, and it is recognized and
acknowledged that the capital of $200 contributed by the Initial Limited Partner will be returned
at that time.
3.2. No Management by Limited Partners. Limited Partners as such shall take no part
in, or at any time interfere in any manner with, the management, conduct, or control of the
Partnership’s business and operations and shall have no right or authority to act or bind the
Partnership in any manner whatsoever. Except as expressly provided for in this Agreement, the
Limited Partners do not have the right to vote on or consent to any matter, nor is their vote or
consent required for any action by the Partnership or the General Partner.
3.3. Access to Records. Every Limited Partner shall, at reasonable business hours,
have access to the records of the Partnership subject to Article X and at its expense may inspect
and copy any of them; provided that the Limited Partner exercising such right (including, without
limitation, any right to access or receive the Limited Partner List) shall not unreasonably
interfere with or disrupt Partnership business. With respect to access of the list of Limited
Partners, the Partnership shall prepare and make available the Limited Partner List, as defined
below, upon request as follows:
(a) An alphabetical list of the names, addresses, and business telephone numbers of the
Limited Partners of the Partnership along with the number of Units held by each of them (the
“Limited Partner List”) shall be maintained as a part of the books and records of the Partnership
and shall be available for inspection by any Limited Partner or its designated agent at the home
office of the Partnership upon the request of the Limited Partner;
6
(b) The Limited Partner List shall be updated at least quarterly to reflect changes in
the information contained therein;
(c) A copy of the Limited Partner List shall be mailed to any Limited Partner requesting the
Limited Partner List within ten days of the request (subject to Subsection (e) hereof). The copy
of the Limited Partner List shall be printed in alphabetical order, on white paper, and in a
readily readable type size (in no event smaller than 10-point type). A reasonable charge for
postage and copy work may be charged by the Partnership;
(d) The purposes for which a Limited Partner may request a copy of the Limited Partner List
must be for matters relating to the Limited Partner’s voting rights under the Partnership Agreement
and the exercise of the Limited Partner’s rights under applicable proxy laws, and may not be for
commercial purposes; and
(e) The General Partner may require the Limited Partner requesting the Limited Partner List to
represent that the list is not requested for a commercial purpose unrelated to the Limited
Partner’s interest in the Partnership.
3.4. Liability. The Limited Partners shall be liable with respect to the Partnership
only to the extent of the amount of the contributions to capital made by such Limited Partners as
provided in Section 4.2. The Units shall be nonassessable.
3.5. No Withdrawal or Dissolution. No Limited Partner shall at any time withdraw from
the Partnership except as provided in this Agreement. No Limited Partner shall have the right to
have the Partnership dissolved or to have his contribution to the capital of the Partnership
returned except as provided in this Agreement. The death, incompetency, disability, dissolution,
termination, or bankruptcy of a Limited Partner shall not dissolve or terminate the Partnership.
3.6. Consent. To the fullest extent permitted by law, each of the Limited Partners
hereby consents to the exercise by the General Partner of all the rights and powers conferred on
the General Partner by this Agreement and the Act.
3.7. Power of Attorney. Each of the Limited Partners, by the execution of this
Agreement, does hereby irrevocably constitute and appoint the General Partner, with full power of
substitution, as his or its true and lawful attorney-in-fact and agent, with full power and
authority in the Limited Partner’s name, place and stead, to execute, acknowledge, swear to,
deliver, file and record in the appropriate public offices (i) all certificates and other
instruments (including counterparts of this Agreement and amendments hereto) that the General
Partner deems appropriate to form, qualify or continue the Partnership as a limited partnership, or
a partnership in which the Limited Partners have limited liability, in all jurisdictions in which
the Partnership may conduct business or own properties, (ii) all instruments that the General
Partner deems appropriate to reflect any amendment, change or modification of this Agreement in
accordance with the terms hereof (including, without limitation, one or more amendments to this
Agreement to reflect any assignments or issuances of Interests in the Partnership), (iii) all
conveyances and other instruments that the General Partner deems appropriate to reflect the
dissolution and termination of the Partnership pursuant to the terms of this Agreement and (iv)
instruments relating to the admission of any Partner pursuant to Article IX. The power of
7
attorney granted herein is hereby declared irrevocable and, being a power coupled with an
interest, shall survive the death, incompetency, disability, bankruptcy, dissolution or other
termination of any Partner and shall extend to such Partner’s heirs, successors and assigns. Each
Partner hereby agrees to be bound by any representations, covenants, or agreements made by the
General Partner acting in good faith pursuant to such power of attorney, and each Partner hereby
waives any and all defenses that may be available to contest, negate or disaffirm any action of
the General Partner taken in good faith under such power of attorney. Each Partner hereby agrees
to execute and deliver to the General Partner, within fifteen (15) days after receipt of the
General Partner’s written request therefor, such other and further statements of interest and
holding, designations, powers of attorney and other instruments as the General Partner deems
necessary to effectuate this Agreement and the purposes of this Partnership. If a Limited Partner
assigns his interest in the Partnership, as provided in Article IX, the foregoing power of
attorney shall survive the delivery of the instruments effecting such assignment for the purpose
of enabling the General Partner to sign, swear to, execute and acknowledge and file any and all
amendments to this Agreement or the Certificate and other instruments and documents necessary to
effectuate the substitution of the assignee as a Limited Partner.
ARTICLE IV
CAPITAL CONTRIBUTIONS, ACCOUNTS AND WITHDRAWALS
4.1. Initial Capital Contributions.
(a) General Partner’s Capital Contribution. The General Partner shall
contribute $1,000 to the capital of the Partnership for its Interest in the Partnership as a
General Partner.
(b) Initial Limited Partner’s Capital Contribution. The Initial Limited Partner shall
contribute $200 to the capital of the Partnership for its Interest in the Partnership as Limited
Partner.
4.2. Limited Partner Capital Contributions.
(a) Capital Contributions. There shall be available for subscription by prospective
Limited Partners an aggregate initial amount of up to two thousand (2,000) Units, each Unit
requiring such initial Capital Contribution as may be determined by the General Partner, but in no
event less than $25,000 per whole Unit (the foregoing shall not be deemed to limit the General
Partner’s ability to issue fractional Units for less than $25,000). Following the sale of the
initial two thousand (2,000) Units, the General Partner shall have the right, in its sole
discretion, to cause the Partnership to issue and sell up to an additional two thousand (2,000)
Units subject to the same terms and conditions. The General Partner shall purchase at least 35.75
Units (net of sales commissions and marketing support costs) in exchange for cash in the amount of
at least $800,000 (the “General Partner Investment”), which Capital Contribution shall be made in
cash in full prior to or contemporaneously with the first Capital Contribution by a Limited Partner
pursuant to this Section 4.2(a). Each Limited Partner (other than the Initial Limited Partner)
shall make a Capital Contribution by submitting to the registered broker dealer designated by the
General Partner the executed Subscription Agreement, as well as any other
8
documents required by the Private Offering Memorandum, together with a check payable to the
applicable account established by the Partnership in the amount of $25,000 for each Unit to which
the Subscription Agreement relates (or the pro rata amount of the Unit purchase price for
fractional Units). The Initial Limited Partner (prior to its redemption pursuant to Section 3.1),
all subscribers for Units whose subscriptions are accepted by the General Partner and the General
Partner (with respect to any Units purchased or otherwise held by the General Partner) are
collectively referred to as the “Limited Partners.”
(b) Requirements for Limited Partner Status. A Limited Partner shall be admitted to
the Partnership not later than the first day of the month following his purchase of Units, provided
that his Capital Contribution has been received by the 20th day of the preceding month.
(c) Additional Capital Contributions. The Limited Partners shall not be obligated
to make any additional Capital Contributions to the capital of the Partnership.
(d) Admission of Retirement Trusts as Limited Partners. The General Partner shall
establish a fixed maximum percentage of Units permitted to be held by an “employee benefit plan,”
as described in Section 3(3) of ERISA, or an “individual retirement account,” as described in
Section 408 of the Code (each, a “Retirement Trust”) or other tax exempt entities and prohibit
transfers of Units pursuant to Sections 9.3(a)(2) and/or 9.3(b) in connection therewith, in order
to permit the Units to fall within the insignificant investment exclusion from the definition of
plan assets contained in Section 2510,3-101(f) of Title 29 of the Code of Federal Regulations.
4.3. No Interest on Capital Contributions. No interest shall be paid by the
Partnership to any Partner on any Capital Contribution.
4.4. Liability Limited to Capital. The liability of Limited Partners shall be limited
to the amount of Capital Contributions, which Limited Partners actually make or are required to
make in accordance with the provisions of Section 4.2 of this Agreement. Limited Partners shall not
have any further personal liability to contribute money to the Partnership with respect to the
liabilities or obligations of the Partnership, nor shall the Limited Partners be personally liable
for any obligations of the Partnership. However, if any distribution or distributions constituting
a return of capital shall have been made to a Limited Partner, then such Limited Partner may, to
the extent provided by the Act, be obligated to repay all or part of any such distributions. Any
repayment of distributions shall be made to the Partnership within 30 days after the General
Partner shall have delivered to such Limited Partner written Notice asserting such repayment,
together with a statement of the amount chargeable to such Limited Partner to be repaid and an
explanation of the reasons for such repayment.
9
ARTICLE V
DUTIES AND POWERS OF PARTNERS, PARTNERSHIP EXPENSES
5.1. General Partner. The General Partner is AmREIT Monthly Income & Growth III
Corporation, a Texas corporation, whose address is 0 Xxxxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx
00000.
5.2. General Authority and Powers of General Partner. Subject to the terms and
conditions of this Agreement, the General Partner shall have complete authority over and exclusive
control and management of the business and affairs of the Partnership and shall devote such time to
the Partnership as may be reasonably required for the achievement of its purposes, in addition to
all other responsibilities of the General Partner. Without limiting the foregoing, the General
Partner is empowered to spend Partnership funds on non-refundable options, fees to third parties or
Affiliates to investigate, study and evaluate possible land acquisition and development candidates
and other similar expenditures which may be totally written off if the Partnership is unable to
acquire and develop a property, to contract for the purchase or development of commercial real
estate assets and to dispose and liquidate the assets. In connection with such management, the
General Partner may, subject to this Article V, employ on behalf of the Partnership any other
Persons to perform services for the Partnership, including Persons employed by, affiliated with, or
related to any Partner.
5.3. Limitations on Authority and Powers of General Partner.
(a) Notwithstanding any other provision of this Agreement to the contrary, the General
Partner shall not, without the prior vote or written Consent of a Majority in Interest of the
Limited Partners, do any of the following:
1. amend this Agreement except:
A. to admit a Substitute Limited Partner or additional Limited Partners pursuant to Section
4.2 and 9.3;
B. to reflect the withdrawal of a Limited Partner;
C. to make a clarification to the Agreement or in connection with the performance of ministerial acts; provided that, such amendment does not change the intent
of the Agreement or materially impair a Limited Partner’s Interest or rights in the Partnership;
D. to change the name or location of the principal place of business, registered agent or registered office of the Partnership, provided that notice of such
change is provided in writing to the Limited Partners;
E. to reflect the disposition of any Limited Partner’s Interest; or
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F. as otherwise expressly permitted in this Agreement, including
without limitation, Section 12.1;
2. confess a judgment against the Partnership in an amount exceeding $100,000;
3. possess any property or assign the rights of the Partnership in specific property,
including a Project, for other than a Partnership purpose;
4. except as provided in Sections 9.1 or 9.2, resign as the General Partner, transfer its
General Partner Interest or admit a Person as a substitute General Partner; or
5. incur indebtedness on behalf of the Partnership in an amount greater than 75% of the
aggregate market value of the Projects, which market values shall be determined by the General
Partner based on a capitalization rate approval applied to the net operating income of the
Projects.
(b) Notwithstanding any other provision in this Agreement to the contrary, the General Partner
shall not, without the express vote or prior written Consent of each Limited Partner adversely
affected by such action, do any of the following:
1. perform any act in contravention of this Agreement which would make it impossible to carry
on the business of the Partnership;
2. perform any act which would subject the Limited Partners to liability as general partners
in any jurisdiction; or
3. amend this Agreement to (i) convert the interest of a Limited Partner into that of a
general partner; (ii) adversely affect the limited liability of a Limited Partner; (iii) alter
the interests of the Partners in distributions, except to the extent that distributions are altered
solely as a result of the issuance of Units pursuant to Article IV; or (iv) change the status of
the Partnership such that the Partnership is no longer a partnership for federal income tax
purposes.
(c) Notwithstanding any other provision of this Agreement to the contrary, the General Partner
shall not vote its limited partner interest in matters which effect the General Partner or the
economic interest of the General Partner.
(d) Notwithstanding any other provision of this Agreement to the contrary, under no
circumstances shall the General Partner merge or otherwise consolidate the Partnership into any
Affiliate of the General Partner or solicit a vote of the Limited Partners to allow it to pursue
such a merger or consolidation.
5.4. Loans to the Partnership. In the event that additional funds are required by the
Partnership for any valid purpose relating to the business of the Partnership, or for any of its
obligations, expenses, or costs, including operating deficits, the Partnership may borrow such
funds as are needed from any Person (including, without limitation, a Partner) on terms and
conditions agreeable between the Partnership and the lender; provided that if such loan is from a
11
General Partner or an Affiliate thereof, the loan must be approved by Consent of a Majority in
Interest of the Limited Partners and the simple rate of interest shall not exceed the then
prevailing regional prime interest rate at the Bank of America plus one percent, but in no event
to exceed the interest rate that would be charged to the General Partner by said bank. No
financing charges, fees, penalties or similar provisions will be included in any General Partner
loan to the Partnership unless the General Partner must itself borrow such funds, in which event
any financing charges, fees or penalties to the Partnership shall be no greater than those imposed
on the General Partner by the lending institution.
5.5. Liability. The General Partner, its Affiliates, employees and agents shall not
be liable, responsible or accountable in damages or otherwise to any Partner for any act or
omission performed or omitted by the General Partner or its duly authorized Affiliates, employees
or agents in good faith on behalf of the Partnership and in a manner reasonably believed to be
within the scope of the authority granted by this Agreement and in the best interests of the
Partnership, except for gross negligence or intentional misconduct.
5.6. Outside Activities of the General Partner. The General Partner, during the term
of this Partnership, may engage in and possess an interest for its own account in other business
ventures of every nature and description, independently or with others, including, but not limited
to, the ownership, financing, leasing, operation, management, syndication, brokerage, investment in
and development of real estate; and neither the Partnership nor any Partner, by virtue of this
Agreement shall have any right in and to said independent ventures or any income or profits derived
therefrom. With respect to activities permitted by the preceding sentence, the General Partner may
engage in such ownership, businesses and activities in direct competition with the Partnership
without having or incurring any obligation to offer any such interest in such properties, business
or activities to the Partnership or the Limited Partners, and no other provision of this Agreement
shall be deemed to prohibit the General Partner from conducting such businesses and activities.
The General Partner shall not be required under this Agreement to devote its financial capabilities
or means, personnel and other resources exclusively for the benefit or exclusively on behalf of the
Partnership or on activities in which the Partnership is participating or will participate, but
rather shall only be required to devote so much of such resources as may be necessary to promote in
good faith the business of the Partnership and to exercise its responsibilities in a fiduciary
manner. Neither the General Partner nor any Affiliate of the General Partner shall have any
obligation to allow the Partnership or the Limited Partners to invest in any property of the
General Partner or any Affiliate of the General Partner.
5.7. Indemnification and Liability of General Partner.
(a) The Partnership shall indemnify each of the General Partner and its Affiliates against any
claim or liability incurred or imposed upon such General Partner or such Affiliates relative to the
Partnership provided such General Partner or Affiliate has determined, in good faith, that the
course of conduct which causes the loss or liability was in the best interests of the Partnership,
and such General Partner or Affiliate was not guilty of gross negligence or willful or wanton
misconduct. The General Partner or Affiliates shall not be liable to the Partnership or any Partner
by reason of any act or omission of such General Partner or Affiliate provided the General Partner
has determined, in good faith, that the course of conduct which caused the loss or liability was in
the best interests of the Partnership, and such General Partner
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or Affiliate was not guilty of gross negligence or willful or wanton misconduct. Solely for the
purposes of this Section 5.7 but for all such purposes, the term “Affiliate” shall mean only those
Affiliates that furnish services to the Partnership within the scope of the General Partner’s
authority.
(b) No General Partner or Affiliate or any broker-dealer selling Units shall be indemnified
for any liability imposed by judgment, or costs associated therewith, including attorneys’ fees,
arising from or out of a violation of state or federal securities laws. The General Partner and
such Affiliates, and such broker-dealers shall be indemnified for settlements and related expenses
of lawsuits alleging securities law violations and for expenses incurred in successfully defending
such lawsuits, if a court or a Majority in Interest of the Limited Partners either
1. approves the settlement and finds that indemnification of the settlement and related costs
should be made, or
2. approves indemnification of litigation costs if a successful defense is made.
Any indemnification pursuant to this Section, or otherwise, shall be recoverable only from
the assets of the Partnership and not from any of the Limited Partners.
5.8. Partnership Expenses. All of the Partnership’s expenses will be paid by the
Partnership. Reimbursements to the General Partner or any Affiliate shall not exceed such
Person’s actual cost for the service, goods or materials used for or by the Partnership.
5.9. Compensation. Compensatory arrangements between the Partnership and the General
Partner and its Affiliates shall be subject to the following:
(a) Asset Management Fees. The General Partner or its Affiliates may provide asset
management services in exchange for fees equal to 1% of the equity under management.
(b) Development and Acquisition Fees. The General Partner or its Affiliates may
provide customary development and acquisition services for Projects in exchange for development and
acquisition fees equal to up to 6% of the total costs of Projects developed or acquired by the
Partnership.
(c) Property Leasing Commissions. The General Partner or its Affiliates may provide
leasing services in connection with Projects in exchange for commissions equal to up to 2% of base
rent on a lease renewal and up to 6% of base rent on an initial lease.
(d) Property Management Fees. The General Partner or its Affiliates may provide
property management services in connection with the Projects in exchange for fees equal to 4% of
gross rents on multi-tenant or multi-pad properties.
(e) Brokerage Commissions. The General Partner or its Affiliates may provide real
estate brokerage services in connection with Projects in exchange for commissions
13
equal to up to 4% of the sales price on individually brokered transactions and up to 6% of the
sales price on co-brokered transactions; provided, however, that no such brokerage commission
shall be payable to the General Partner or its Affiliates in connection with the sale of a Project
that the Partnership developed to AmREIT or any of its Affiliates.
(f) Financing. The General Partner or an Affiliate may, but is not obligated to,
provide Project or investment financing to the Partnership at rates not in excess of then
prevailing market rates available from unrelated institutional lenders.
(g) Reimbursements. The General Partner and/or its Affiliates shall be reimbursed
by the Partnership for their actual costs in performing acquisition, development, management and
administrative functions for the Partnership
(h) Other. The General Partner and/or its Affiliates may receive additional
compensation for any additional services performed on behalf of the Partnership so long as such
services are provided on terms and conditions no less favorable to the Partnership than can be
obtained from independent third parties for comparable services in the same location. Such
services may include, but are not limited to, leasing coordination fees, construction management
fees, including in connection with renovation and remodeling, and tax appeal fees.
5.10. Liquidation of the Partnership. The General Partner shall use commercially
reasonable efforts to have the Project and all other Partnership property listed for sale on or
before the last day of the Operating Period. If, by such date, the General Partner has not taken
such action and is not diligently pursuing such action, the General Partner shall forfeit the
General Partner Investment.
5.11. Joint Ventures. Subject to the provisions below, the General Partner may choose
to acquire properties in joint ventures or other
co-ownership arrangements with third party
developers and real estate investors, including the General Partner, its Affiliates and entities
owned or managed by Affiliates with the purpose of acquiring and/or improving properties (“Joint
Ventures”). The General Partner and/or its Affiliates may provide services to the Joint Venture,
including, but not limited to, acquisition, development, management, leasing and/or real estate
disposition services.
(a) Notwithstanding the foregoing, the Partnership shall not enter into a Joint Venture
unless:
1. The Partnership has the right either to approve significant decisions of the Joint
Venture or to control operations of the Joint Venture, subject to the right of the Joint Venture
partner to approve sales or refinancing;
2. The total compensation paid by the Partnership and the Joint Venture to the General Partner
and its Affiliates in connection with a Joint Venture would be permissible under this Agreement if
the Partnership owned 100% of the Joint Venture;
3. There is no duplication of Joint Venture costs and expenses and the costs and expenses of
the Partnership relating to the Joint Venture business, including organization and syndication
expenses, acquisition and development costs; and
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4. Any purchase, sale or financing transactions between the Joint Venture partner and the
General Partner or its Affiliates are on terms which are commercially reasonable and comparable to
those relating to transactions between unrelated parties.
(b) If the Partnership enters into a Joint Venture with the General Partner, an Affiliate or
an entity owned or managed by an Affiliate, the General Partner or the managing member, largest
shareholder, general partner or other controlling or majority owner of the Affiliate or such other
entity (a “Controlling Person”) may contribute capital to the Joint Venture on the same terms and
conditions as the Partnership. Allocable profits in a Joint Venture shall be calculated based on
the sum of net sale proceeds from the sale of a property (after repayment of debt) plus reserves
less capital contributions of each joint venturer plus actual origination and carrying costs of
the additional financing incurred in connection with such property. Distributions will be
pro rata to the joint venturers based on their aggregate capital contributions.
(c) The General Partner or an Affiliate may form another partnership or other entity with
essentially the same investment objectives as the Partnership and such entity may acquire
properties through joint venture or other arrangements. Such other entities may have as investors
Controlling Persons as defined above or other former and current investors in programs sponsored by
Affiliates. The terms and conditions upon which persons become investors in such other entities may
differ from those of the Partnership. The Partnership will not acquire properties jointly with
other entities unless the ownership is in the form of a partnership, limited liability company,
joint venture or other co-ownership arrangement.
ARTICLE VI
DISTRIBUTIONS
6.1. Share of Distributions.
(a) Partnership distributions during the Operating Period are targeted to be made to the
Partners as follows:
1. Distributions from Net Cash Flow will be made 1% to the General Partner and 99% to the
Limited Partners. Distributions will be paid monthly to each Partner, to the extent Net Cash Flow
is available, in a target amount equal to the Applicable Percentage per annum uncompounded on such
Partner’s Unreturned Invested Capital;
(b) Partnership distributions after the Operating Period shall be made to the Partners as
follows:
1. First, distributions will be made 1% to the General Partner and 99% to the Limited Partners
until such time as the Limited Partners have received cumulative distributions from all sources
(including monthly cash distributions made during the operating stage of the Partnership) equal to
100% of their Unreturned Invested Capital plus an amount equal to 10% per annum uncompounded on
their Adjusted Capital;
2. Second, distributions will be made 100% to the General Partner until such time as the
General Partner has received cumulative distributions from all sources
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(other than with respect to its Units) in excess of cumulative distributions to date which
constitute a return of capital contributed pursuant to Section 4.1 (“GP Excess Distributions”)
equal to 40% of all LP Excess Distributions made to Limited Partners pursuant to the provisions of
this Section 6.1; and
3. Thereafter, distributions will be made 60% to the Limited Partners and 40% to the
General Partner.
(c) In making distributions pursuant to the foregoing, no distinction shall be made by
reason of the source of such funds.
6.2. Allocation of Distributions Among Limited Partners. Distributions shall be
allocated among the Limited Partners in proportion to the number of Units owned by them. Such
allocations shall be made without regard to Capital Account Balances.
6.3. Liquidation or Dissolution.
(a) In the event the Partnership is liquidated or dissolved, the assets of the Partnership
shall be distributed to the Partners in accordance with Section 8.4(d), but only after the payment
of Partnership debts and the establishment of reasonable reserves for anticipated contingencies, if
any.
(b) No Partner with a negative balance in such Partner’s Capital Account Balance, at any time,
including following the distribution of liquidation proceeds shall be required to restore such
balance to the Partnership except as may be required under the Act.
(c) Any Limited Partner who has a separate written obligation approved by the General Partner
to make additional Capital Contributions to the Partnership which has not been paid at the date of
liquidation shall pay such amount to the Partnership within ninety (90) days of the liquidation of
the Partnership, or such obligation may be offset against any distributions to be made to such
Limited Partner.
6.4. Amount and Time of Distributions. Distributions pursuant to this Article VI will
be made at such times and in such amounts as the General Partner may, in its sole discretion,
determine. The General Partner shall endeavor to distribute each Partnership Fiscal Year to each
Limited Partner an amount at least equal to the Applicable Percentage per annum uncompounded on
such Limited Partner’s Unreturned Invested Capital. The Partnership may be restricted from making
distributions under the terms of notes, mortgages or other debt obligations which it may obtain
from lenders in connection with Partnership loans. Distributions may also be restricted or
suspended whenever the General Partner, in its sole discretion, determines that such action is in
the best interests of the Partnership. All distributions are subject to the payment of Partnership
expenses, including maintenance of reasonable operating reserves. Notwithstanding anything herein
to the contrary, in each fiscal year of the Partnership, the General Partner may, in its sole
discretion, distribute to the Partners such amounts as the General Partner, in its sole discretion,
determines are necessary to enable the Partners to pay the Federal income taxes on their
distributive shares of the Partnership’s taxable income (including separately stated items). The
General Partner shall not incur any liability as a result of its determination to distribute Net
Cash Flow, even though such distribution may result in the Partnership’s retaining insufficient
funds
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for the operation of its business, provided its determination was made in good faith and not as a
result of its gross negligence or willful misconduct.
ARTICLE VII
PROFITS AND LOSSES
7.1. Capital Account. A separate capital account shall be maintained for each
Partner (a “Capital Account”). Each Partner’s Capital Account shall be increased by (1) the amount
of money contributed by it to the Partnership, (2) the fair market value of any property
contributed by it to the Partnership (net of any liabilities securing such contributed property
that the Partnership is considered to assume or take subject to under Section 752 of the Code), and
(3) allocations to it of income or gain (or items thereof), including income and gain exempt from
tax, and income and gain described in paragraph (b)(2)(iv)(g) of Treasury Regulations (the
“Regulations”) Section 1.704-1, but excluding income and gain described in Regulations Section
1.704-l(b)(4)(i); and shall be decreased by (4) the amount of money distributed to it by the
Partnership, (5) the fair market value of property distributed to it by the Partnership (net of
liabilities securing such distributed property that such Partner is considered to assume or take
subject to under Section 752 of the Code), (6) allocations to it of expenditures of the Partnership
of the type described in Code Section 705(a)(2)(B), and (7) allocations of deduction and loss,
including items of loss and deduction described in Regulations Section 1.704-1(b)(2)(iv)(g), but
excluding items described in (6) above and loss or deduction described in Regulations Sections
1.704-1(b)(4)(i) or 1.704-l(b)(4)(iii). For purposes of this Agreement, a Partner who has more
than one interest in the Partnership shall have a single Capital Account that reflects all such
interests, regardless of the class of interests owned by such Partner, and regardless of the time
or manner in which such interests were acquired. All items of income exempt from federal income
tax, and expenditures not deductible in computing federal income tax shall be allocated among the
Partners in accordance with their allocable share of income, gain, deduction or losses (as the case
may be). If the book values of Partnership assets are adjusted, the Capital Accounts of all
Partners shall be adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership recognized gain or loss equal to the amount of such aggregate net adjustment. Subject
to Section 8.4, if any assets of the Partnership are to be distributed in kind, such assets shall
be distributed on the basis of their fair market value as determined by independent appraisal after
the Partners’ Capital Accounts have been adjusted to reflect the manner in which any unrealized
gain and loss with respect to such assets (that have not been reflected in their Capital Accounts
previously) would be allocated among the Partners if there were a taxable disposition of the
property for its fair market value. It is the intent of the Partnership that the Capital Accounts
of all Partners be determined and maintained in accordance with the principles of Regulations
Section 1.704-1 at all times throughout the full term of the Partnership, and this Section 7.1
shall be so interpreted and applied.
7.2. Deficit Capital Account Balances. Upon liquidation of the Partnership or the
liquidation of a Partner’s interest in the Partnership, no Partner with a deficit balance in its
Capital Account shall have the obligation to restore such deficit balance by making an additional
contribution to the capital of the Partnership, except as may be required under the Act.
17
7.3. Allocations.
(a) Allocations Of Net Income And Net Loss. After giving effect to the special
allocations set forth in Sections 7.3(b), (c), (d), (e), (f), (g), (h), (i), and (j), Net Profit
and Net Loss will be allocated 99% to the Limited Partners, pro rata among them in proportion to
the number of Units held by each Limited Partner as compared to the aggregate Units held by all
Limited Partners, and 1% to the General Partner
(b) Partnership Minimum Gain Chargeback. Notwithstanding any other provision of
this Section 7.3, if there is a net decrease in Partnership Minimum Gain during any taxable year or
other period for which allocations are made, prior to any other allocation under this Agreement,
each Partner will be specially allocated items of Partnership income and gain for that period (and,
if necessary, subsequent periods) in proportion to, and to the extent of, an amount equal to such
Partner’s share of the net decrease in Partnership Minimum Gain during such year determined in
accordance with Regulations Section 1.704-2(g)(2). The items to be allocated will be determined
in accordance with Regulations Section 1.704-2(g). This Section 7.3(b) is intended to comply with
the partnership minimum gain chargeback requirements of the Regulations, will be interpreted
consistently with the Regulations and will be subject to all exceptions provided therein.
(c) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 7.3 (other than Section 7.3(b) which shall be applied first), if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain with respect to a Partner Nonrecourse Debt
during any taxable year or other period for which allocations are made, any Partner with a share of
such Partner Nonrecourse Debt Minimum Gain (determined under Regulations Section 1.704-2(i)(5)) as
of the beginning of the year will be specially allocated items of Partnership income and gain for
that period (and, if necessary, subsequent periods) in an amount equal to such Partner’s share of
the net decrease in the Partner Nonrecourse Debt Minimum Gain during such year determined in
accordance with Regulations Section 1.704- 2(g)(2). The items to be so allocated will be
determined in accordance with Regulations Section 1.704-2(g). This Section 7.3(c) is intended to
comply with the partner nonrecourse debt minimum gain chargeback requirements of the Regulations,
will be interpreted consistently with the Regulations and will be subject to all exceptions
provided therein.
(d) Qualified Income Offset. A Partner who unexpectedly receives any adjustment,
allocation or distribution described in Regulations Sections 1.704-l(b)(2)(ii)(d)(4), (5) or (6)
will be specially allocated items of Partnership income and gain in an amount and manner sufficient
to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of
the Partner as quickly as possible.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any taxable year or other
period for which allocations are made will be allocated 1% to the General Partner and 99% to the
Limited Partners, pro rata among them in proportion to the number of Units held by each Limited
Partner as compared to the aggregate Units held by all Limited Partners.
(f) Partner Nonrecourse Deductions. Notwithstanding anything to the contrary in
this Agreement, any Partner Nonrecourse Deductions for any taxable year or other
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period for which allocations are made will be allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which the Partner
Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i).
(g) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax
basis of any Partnership asset under Code Sections 734(b) or 743(b) is required to be taken into
account in determining Capital Accounts under Regulations Section 1.704-l(b)(2)(iv)(m), the amount
of the adjustment to the Capital Accounts will be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases the basis), and the gain or
loss will be specially allocated to the Partners in a manner consistent with the manner in which
their Capital Accounts are required to be adjusted under Regulations Section 1.704-l(b)(2)(iv)(m).
(h) Interest in Partnership. Notwithstanding any other provision of this Agreement
except Section 7.12, no allocation of Net Profit, Net Loss or item of income, gain, loss or
deduction will be made to a Partner if the allocation would not have “economic effect” under
Regulations Section 1.704-l(b)(2)(ii) or otherwise would not be in accordance with the Partner’s
interest in the Partnership within the meaning of Regulations Section 1.704-l(b)(3) or
1.704-l(b)(4)(iv). The General Partner will have the authority to reallocate any item in
accordance with this Section 7,3(h). Notwithstanding the authority granted to make such
allocations as may be appropriate to accomplish the purposes of this Section 7.3(h), no allocation
under this Section 7.3(h) will affect or otherwise alter the amount of any distribution to which a
Partner would otherwise be entitled pursuant to any provision of this Agreement.
(i) Return Allocation. Subject to Section 7.12, (i) to the extent any amount is
distributed pursuant to Sections 6.1(b)(2) or (3), after giving effect to all preceding special
allocations in Sections 7.3(b), (c), (d), (e), (f), (g) and (h), all or a portion of the remaining
items of Partnership income or gain for the fiscal year, if any, will be specially allocated to the
Partners in proportion to the cumulative distributions each Partner has received pursuant to
Sections 6.1(b)(2) or (3) from the formation of the Partnership to a date 75 days after the end of
such fiscal year until the aggregate amounts of income or gain allocated to each such Partner
pursuant to this Section 7.3(i) for the fiscal year in question and all prior years is equal to the
cumulative amount of such distributions pursuant to Sections 6.1(b)(2) or (3) received by such
Partner, and (ii) to the extent any amount would be distributable pursuant to Section 8.4(d) (as
determined by the General Partner) upon the happening of an event
specified in Section 8.2
(regardless of whether or not such event has actually occurred), which absent the occurrence of
such event would otherwise be distributable pursuant to any of Sections 6.1(b)(2) or (3), after
giving effect to all preceding special allocations in Sections 7.3(b), (c), (d), (e), (f), (g) and
(h), all or a portion of the remaining items of Partnership income or gain for the fiscal year, if
any, in the General Partner’s discretion may be specially allocated to the General Partner until
the General Partner has been allocated income and gain in an amount up to the amount necessary to
produce final Capital Account balances of the Partners that will permit liquidating distributions
under Section 8.4(d) to be made in a manner identical to the order of priorities set forth in
Section 6. l(b).
(j) Curative Allocations. The allocations set forth in subsection (b), (c),
(d), (e), (f) and (g) (the “Regulatory Allocations”) are intended to comply with certain
requirements
19
of Regulations Sections 1.704-l(b) and 1.704-2. The Regulatory Allocations may effect results
which would not be consistent with the manner in which the Partners intend to divide Partnership
distributions. Accordingly, the General Partner is authorized to divide other allocations of Net
Profits, Net Losses, and other items among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions would be divided among
the Partners under Section 8.4. In general, the reallocation will be accomplished by specially
allocating other Net Profits, Net Losses and items of income, gain, loss and deduction, to the
extent they exist, among the Partners so that the net amount of the Regulatory Allocations and the
special allocations to each Partner is zero. The General Partner will have discretion to
accomplish this result in any reasonable manner that is consistent with Code Section 704 and the
related Regulations.
7.4. Taxable Gain On Exchange. Any taxable gain incurred by the Partnership as a
result of receiving taxable “boot” in an otherwise tax-deferred exchange of a Partnership property
shall be allocated to the Partners receiving said funds and other consideration as said allocation
is provided in Code Section 704(a) and 704(b), but only to the extent that the total gain so
allocated does not exceed the amount of gain that would be allocated to the Partner had the
property been sold outright for all cash by the Partnership for the net amount credited to the
Partnership in the exchange. Any such excess shall be allocated to the remaining Partners in the
same ratio that total gain would have been allocated had the property been sold outright for all
cash by the Partnership for the net amount credited to the Partnership in the exchange.
7.5. Depreciation Recapture. To the extent possible, if taxable gain to be allocated
includes income resulting from the sale or disposition of Partnership property which is treated as
ordinary income (or un-recaptured Code Section 1250 gain) for income tax purposes, such gain so
treated as ordinary income (or un-recaptured Code Section 1250 gain) shall be allocated to and
reported by each Partner in proportion to allocations received by that Partner of the items that
gave rise to such ordinary income (or Code Section 1250 gain) recapture, and the Partnership shall
keep records of such allocations.
7.6. Allocation Between Assignor And Assignee. The initial Capital Account Balance for
a transferee of Units pursuant to this Agreement shall be that of the transferor on the date the
transfer is effective hereunder. The portion of the income, gain, losses, credits and deductions of
the Partnership for any fiscal year of the Partnership during which a Partner transfers its
interest in the Partnership pursuant to this Agreement is allocable to the transferor and the
transferee on the basis of the number of days during the relevant fiscal year that each is the
owner thereof, using a reasonable daily proration method.
7.7. Express Consent to Allocations. The allocations which are to be made pursuant to
this Agreement, including allocations of distributions, are expressly consented to by each Partner
and each Partner hereby agrees to file its tax returns consistent therewith.
7.8. Adjustments to Gain and Loss. For purposes of computing gain or loss on the
disposition of Partnership property, or for purposes of determining the cost recovery,
depreciation or amortization deduction with respect to any asset, the Partnership shall use such
property’s book value, as determined in accordance with
Regulations Section 1.704-1(b).
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Consequently, such property’s book value shall be equal to its adjusted basis for federal income
tax purposes, except as follows:
(a) The initial book value of the property shall be the fair market value net of encumbrances
on such property.
(b) The book values of all Partnership properties may be adjusted to equal their respective
gross fair market values, as determined by the General Partner, as of the following times: (i) the
acquisition of an additional interest in the Partnership by any new or existing Partner in exchange
for more than a capital contribution of $1,000.00; (ii) the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership property other than money; (iii) the
termination of the Partnership for federal income tax purposes pursuant to Code Section
708(b)(l)(B); and (iv) the liquidation of any Partner’s Interest, or portion thereof (other than
a de minimis amount) in the Partnership.
(c) If the book value of property has been determined pursuant to subsection 7.8(a) or 7.8(b),
such book value shall thereafter be adjusted by depreciation or amortization, if any, taken into
account with respect to such property for purposes of computing income, gain or loss.
7.9.
Tax Allocations: Code Section 704(c). In accordance with Code Section 704(c) and
the Regulations, income, gain, loss and deductions with respect to any property contributed to the
capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to
take into account any variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial book value (computed in accordance with Section 7.8).
If the book value of any Partnership property is adjusted pursuant to Section 7.8, subsequent
allocations of income, gain, loss and deductions with respect to such asset shall take into
account any variation between the adjusted basis of such property for federal income tax purposes
and its book value in the same manner as under Code Section 704(c) and the Regulations.
Any elections or other decisions relating to such allocations shall be made by the General
Partner in any manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 7.9 are solely for purposes of federal, state and local taxes
and shall not affect, or in any way be taken into account in computing, any Partner’s Capital
Account Balance.
7.10.
General Provisions Relating to Distributions, Net Profit and Net Loss
Allocations.
(a) For each taxable year of the Partnership, all Net Profit and Net Loss of the Partnership
shall be allocated at and as of the end of the taxable year. The General Partner shall distribute
to each Partner a report of the allocations of Net Profit and Net Loss within seventy-five (75)
days after the end of such taxable year (or later if due to a delay beyond the control of the
General Partner).
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(b) Net Profit and Net Loss shall be allocated, and all distributions shall be distributed, as
the case may be, to the Persons shown on the records of the Partnership to have been Partners as of
the last day of the taxable year for which the allocation or distribution is to be made or if such
distribution is to be made in connection with the dissolution of the Partnership, as of the date
such distribution is made pursuant to Section 8.4(d). Notwithstanding the foregoing, if a
Partner transfers all or any portion of his or her Partnership Interest to any Person who, during
such taxable year, is admitted as a Substitute Limited Partner, the Net Profit and Net Loss shall
be allocated between the transferor and the transferee on the basis of the number of days of the
taxable year in which each was a Partner or assignee of record, as the case may be.
(c) The methods set forth hereinabove by which Net Profit, Net Loss, and the distributions are
allocated, apportioned and paid are hereby expressly consented to by each Partner as an express
material condition to becoming a Partner.
7.11. Adjustments To Allocations. Anything herein to the contrary notwithstanding,
except and subject to Section 7.12, in the event the General Partner in its sole discretion, based
on advice from the Partnership’s tax advisor, determines that for any Partnership tax year an
allocation of Net Profit, Net Loss, gain, loss, deduction or credit is likely not to be in
compliance with the Code or Regulations promulgated thereunder, the General Partner may, without
limiting the authority of the General Partner otherwise under this Article VII, amend this
Agreement, and each Limited Partner hereby consents to any such amendment, to reallocate such item
so as to comply with the Code or Regulations in such manner as it determines, in its sole judgment,
to least change the original allocation.
7.12. Fractions Rule. The Partners intend that the foregoing allocation provisions
of this Article VII shall be made in such a manner as to have “substantial economic effect”
pursuant to Regulations Section 1.704-1(b), and enable each Limited Partner which is a qualified
organization under Section 514 of the Code (“Qualified Organization”) to meet the requirements of
Section 514(c)(9)(E) of the Code. To the extent such foregoing allocation provisions do not have
“substantial economic effect,” or cause a Limited Partner which is a Qualified Organization to be
unable to meet the requirements of Section 514(c)(9)(E) of the Code, such provisions shall be
amended by the General Partner if and to the extent necessary to produce such result; provided,
however, that no such adjustment that has a material adverse effect upon any Partner shall be made
without the General Partner having received from counsel an opinion that such adjustments are
necessary for a Limited Partner which is a Qualified Organization to comply with the requirements
of Section 514(c)(9)(E) of the Code. This Section 7.12 shall control notwithstanding any other
provision of this Agreement or the reallocation or adjustment of taxable income, taxable loss or
items thereof by the Internal Revenue Service or any other taxing authority.
ARTICLE VIII
TERMINATION AND DISSOLUTION OF THE PARTNERSHIP
8.1. No Termination by Admission or Incapacity of Limited Partners. Neither the
admission to the Partnership of any additional Limited Partner, nor the transfer of an Interest
nor any Event of Dissolution with respect to any of the Limited Partners will affect the
Partnership’s
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existence in any manner whatsoever. If an Event of Dissolution shall occur with respect to
a Limited Partner, his Representative shall have the same rights for the purpose of settling his
estate or business and shall be subject to the same limitations, conditions, and liabilities as
applied to the Limited Partner; provided, however, that upon the death, dissolution or
incapacity of a Limited Partner, the successor-in-interest to such Limited Partner shall have the
right to become a Substitute Limited Partner as provided in Section 9.3 of this Agreement.
8.2. Termination of the Partnership. The Partnership shall be dissolved upon the
happening of any of the following events, whichever shall first occur:
(a) an Event of Dissolution with respect to any General Partner, unless the Partnership is
continued in accordance with the provisions of Section 8.3 of this Agreement;
(b) the sale, exchange, condemnation or other disposition of all or
substantially all of the assets of the Partnership, unless such sale, exchange or other disposition
is financed by the Partnership in the form of an installment sale or by any other form of seller
financing, or unless the General Partner and a Majority in Interest of the Limited Partners Consent
to the Partnership taking advantage of the provisions of Sections 1031 or 1033 of the Code and
acquiring replacement property thereunder; or
(c) upon the expiration of the term provided for in Section 1.4 of this Agreement.
8.3. Continuation of Partnership Upon Certain Events.
(a) Upon the occurrence of any event or events provided in Section 8.2(a) of this Agreement
with respect to less than all the General Partner(s) (if there is then more than one General
Partner), the remaining General Partner(s) shall immediately send Notice of such event to the
Limited Partners, and such remaining General Partner(s) may then elect, within 30 days after the
occurrence of such event, to continue the business of the Partnership in accordance with the terms
of this Agreement; provided, however, that counsel to the Partnership determines that such
continuation would not result in the Partnership being classified for federal income tax purposes
as an association taxable as a corporation and not as a partnership. If the remaining General
Partner does not so elect, the Limited Partners may Consent, within sixty (60) days after receipt
of Notice of such event, to reconstitute the Partnership and continue its business in accordance
with the terms of this Agreement and with the new General Partner or the remaining General Partner
selected by the Limited Partners.
(b) Upon the occurrence of any event or events provided in Section 8.2(a) of this Agreement
with respect to a sole General Partner, the Limited Partners shall have the right to continue the
business of the Partnership in accordance with the terms of this Agreement upon the selection, by a
Majority in Interest of the Limited Partners within ninety (90) days of such occurrence, of a
substitute General Partner and upon such substitute General Partner executing this Agreement and an
amendment to the Certificate and agreeing to be bound by all of the terms and provisions hereof;
provided, however, that counsel to the Partnership determines that such continuation would
not result in the Partnership being classified for federal income tax purposes as an association
taxable as a corporation and not as a partnership.
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8.4.
Dissolution and Liquidation.
(a) Upon the termination of the Partnership, and absent any continuation of the Partnership
pursuant to Section 8.3, the Partnership’s affairs shall be wound up and the Partnership shall be
dissolved as soon as practicable thereafter by the General Partner or its designee, or, if there is
no General Partner then remaining, by such other person designated by a Majority in Interest of the
Limited Partners (the “Liquidator”). In winding up the affairs of the Partnership, the Liquidator
shall proceed to liquidate the assets of the Partnership in such manner as it shall determine,
allowing a reasonable time thereafter to minimize losses attendant upon a liquidation.
(b) Upon the liquidation of the Partnership’s assets, the proceeds, if any, from such
liquidation shall be applied and distributed first to the payment of the expenses or other charges
incurred in connection with such liquidation; second, to the payment of all debts and liabilities
of the Partnership including, without limitation, compensation owing to the General Partner or an
Affiliate pursuant to Section 5.9; third, to the establishment of such reserves which the
Liquidator shall deem reasonably necessary to provide for contingent and unforeseen liabilities or
obligations of the Partnership; and fourth, to the Partners in the manner and order provided in
subsection (d) below.
(c) The General Partner shall not be personally liable for the repayment of the Capital
Contributions made by the Limited Partners or any portion thereof. Any repayment will be made
solely from the assets of the Partnership available for such repayment. The General Partner shall
not be liable to the Partnership on account of a Capital Account Deficit of any Partner;
provided, however, that the General Partner shall not be relieved of any obligation to pay
liabilities to third parties incurred in its capacity as General Partner.
(d) Distributions in connection with the dissolution of the Partnership shall be made in
accordance with the Partners’ respective positive Capital Accounts after they have been adjusted to
reflect the allocations of Net Profits, Net Losses, income, gain, losses and deductions as set
forth in Section 7.3. In the event that all or any part of the Partnership’s property is itself
distributed to the Partners on dissolution and termination of the Partnership without a sale of
such property having occurred, an independent appraisal of the fair market value of each such asset
as of a date reasonably close to the date of the Partnership’s liquidation shall be obtained by the
Liquidator at the expense of the Partnership. Any unrealized appreciation or depreciation with
respect to such assets shall be allocated among the Partners in accordance with Section 7.3,
assuming the assets were sold for their appraised value. Distribution of any such asset in kind to
a Partner shall be considered a distribution of an amount equal to the asset’s appraised fair
market value.
(e) Final Capital Account Balances. The parties intend that the allocation
provisions of Section 7.3 shall produce final Capital Account balances of the Partners that will
permit liquidating distributions under Section 8.4(d) to be made in a manner identical to the order
of priorities set forth in Section 6.1(b). To the extent that the allocation provisions of
Section 7.3 would fail to produce such final Capital Account balances, (a) such provisions shall be
amended by the General Partner if and to the extent necessary to produce such result, and (b)
profits and losses of the Partnership for prior open years (or items of gross income, gain, loss
and
24
deduction of the Partnership for such years) shall be reallocated by the General Partner among the
Partners to the extent it is not possible to achieve such result with allocations of items of
income (including gross income and gain), deduction and loss for the current year and future years.
This Section 8.4(e) shall control notwithstanding any other provision of this Agreement, other than
Section 7.12 and the reallocation or adjustment of taxable income, taxable loss or items thereof by
the Internal Revenue Service or any other taxing authority.
ARTICLE IX
WITHDRAWAL AND TRANSFER BY PARTNERS
9.1. Voluntary_Withdrawal or Assignment by the General Partner. The General Partner
shall not resign, retire or withdraw as a general partner from the Partnership, or at any time
assign, transfer, or otherwise dispose of all or any part of its Partnership Interest, unless; (i)
any remaining General Partner and a Majority in Interest of the Limited Partners shall have
Consented; (ii) such General Partner shall have provided an additional or successor General
Partner satisfactory to a Majority in Interest of the Limited Partners; and (iii) the Partnership
shall have received advice of its counsel to the effect that such resignation, withdrawal,
assignment or transfer would not subject the Partnership to federal income taxation as an
association taxable as a corporation and not as a partnership, and would not cause a termination of
the Partnership for federal income tax purposes.
9.2. Involuntary Withdrawal and Transfer of a General Partner’s Interest.
(a) The General Partner may be removed, with or without cause by an affirmative vote or
written consent of the Limited Partners owning at least a majority of the Units then outstanding
(not counting any Units then owned by the General Partner). Limited Partners owning at least a
majority of the Units then outstanding (not counting any Units then owned by the General Partner)
shall provide Notice to the General Partner of such removal which such Notice shall include (1) the
Limited Partners voting for removal and the Limited Partners voting against removal, (2) the reason
for such removal and (3) whether or not such removal was for cause. For the purposes of the
foregoing, “cause” shall mean (i) the bankruptcy of the General Partner pursuant to an Event of
Bankruptcy, (ii) the incapacity of the General Partner, (iii) the commission by the General Partner
of an intentional material breach of this Agreement, or (iv) conduct of the General Partner
constituting gross negligence or willful or wanton misconduct harmful to the Partnership.
(b) In the event that the Limited Partners vote to remove the General Partner, the General
Partner shall have an additional thirty (30) business days from the date of the notice of removal
from the Limited Partners in which to cure or otherwise resolve the matter(s) resulting in the
notice to remove to the reasonable satisfaction of the Limited Partners holding a majority of the
Units then outstanding (not counting any Units then owned by the General Partner). The Limited
Partners shall not unreasonably withhold approval of the cure accomplished by the General
Partner. In the event that the General Partner is removed, it hereby agrees to convert its General
Partner’s Capital Contribution into that of a Limited Partner having no voting rights but whose
Interest is unchanged in all other respects. The removed General Partner shall be removed from
and indemnified against Partnership liabilities including without
25
limitation liabilities the General Partner has guaranteed. Further, if removed other than for
cause, the General Partner’s Interest must be purchased by the Partnership and/or any successor
General Partner for fair market value, which will be determined by the median of three independent
appraisals of the General Partner Interest.
(c) In the event of the dissolution and liquidation or removal of the General Partner and the
Partnership being continued in accordance with Section 8.3, the successor of the said General
Partner shall not be entitled to any distributions due the former General Partner under this
Agreement. The Limited Partners hereby agree to such a transfer and specifically authorize that
the power of attorney provided for in their Subscription Agreements with the Partnership be
utilized, if need be, on their behalf to effectuate fully the legal conversion or transfer, as the
case may be, of the dissolved or removed General Partner’s Interest hereunder.
9.3. Transfer by Limited Partners.
(a) Subject to Section 9.4 hereof, no Limited Partner may at any time sell, transfer, or
assign all or any portion of its Interest in the Partnership, unless:
1. such Limited Partner and the purchaser, transferee or assignee execute, acknowledge and
deliver to the General Partner such instruments of transfer and assignment with respect to such
transaction as may be reasonably requested by the General Partner to assure the payment of any
unpaid amounts due from the Limited Partner hereunder;
2. such Limited Partner obtains the prior written Consent of the General Partner, the granting
of which shall be within the sole discretion of the General Partner which such General Partner
Consent will not be given unless (i) the General Partner determines, in its sole discretion, that
the Partnership (A) would be able to satisfy any of the secondary market safe harbors contained in
Regulations Section 1.7704-1 (or any other applicable safe harbor from publicly traded partnership
status which may be adopted by the Internal Revenue Service) for the Partnership’s taxable year in
which such transfer otherwise would be effective and (B) would not be treated as an association
taxable as a corporation as a result of such transfer or assignment, or (ii) the Partnership has
received an opinion of counsel satisfactory to the General Partner or a favorable Internal Revenue
Service ruling that any such transfer will not result in the Partnership’s being classified as a
publicly traded partnership for federal income tax purposes; and
3. such Limited Partner pays the Partnership the actual costs reasonably incurred by
it in effecting the transfer or assignment, which shall not be less than $150 per transaction.
In connection with Section 9.3(a)(2), the Limited Partners agree to provide all information
with respect to a proposed transfer that the General Partner deems necessary or desirable in order
to make such determination, including but not limited to, information as to whether the transfer
occurred on a secondary market (or the substantial equivalent thereof).
(b) Notwithstanding anything contained in this Agreement to the contrary, no purchaser,
transferee or assignee of an Interest in the Partnership shall have any right to become a
Substitute Limited Partner unless the General Partner consents in writing to such substitution.
26
Further, notwithstanding anything contained in this Agreement to the contrary, no sale, transfer,
assignment or substitution by a Limited Partner shall be effective as against the Partnership (and
any such purported sale, transfer, assignment or substitution shall be void ab initio) if it (i)
would result in the Partnership being treated as an association taxable as a corporation (and any
such purported sale, transfer, assignment or substitution shall be void ab initio) or would
otherwise cause the Partnership to fail to satisfy any of the applicable safe harbors from
publicly traded partnership status which may be adopted by the Internal Revenue Service, (ii)
would violate any applicable federal or state securities, real estate syndication or comparable
laws or (iii) would cause the Units to fail to fall within the insignificant investment exclusion
from the definition of plan assets contained in Section 2510.3-101(f) of Title 29 of the Code of
Federal Regulations.
(c) No sale, transfer, assignment or substitution by a Limited Partner, which has otherwise
been consented to by the General Partner, shall be effective as against the Partnership until the
purchaser, transferee, assignee or Substitute Limited Partner, and all the Partners perform all
such acts which the General Partner deems necessary or appropriate to constitute such purchaser,
transferee or assignee as a Substitute Limited Partner and to preserve the limited liability status
of the Limited Partners in the Partnership after the completion of such sale, transfer, assignment
or substitution under the laws of each jurisdiction in which the Partnership is doing business. The
Limited Partners agree upon request of the General Partner to execute such certificates or other
documents and perform such other acts as may be reasonably requested by the General Partner in this
regard.
(d) Any sale, transfer or assignment of an Interest in the Partnership or substitution of a
Limited Partner made in compliance with this Section 9.3 shall be effective as of the day of the
month in which the execution of such instruments, certificates, or other documents and the
performance of such other acts by the Partner is completed as provided in subsections (a) and (c)
of this Section 9.3, or in which any required written Consent thereto is given by the General
Partner pursuant to subsections (a) and (b) of this Section 9.3, whichever is later.
(e) The Net Profits and Net Losses attributable to an assigned Interest in the Partnership
shall be allocated among the assignor and assignee of such Interest as of the effective date of the
assignment thereof, in accordance with Section 7.6 hereof.
(f) Upon the death, dissolution or incapacity of a Limited Partner, the successor-in-interest
to the Limited Partner shall have the right to become a Substitute Limited Partner upon written
notice to the Partnership within ninety (90) days after the appointment of such Limited Partner’s
Representative, but not later than one hundred eighty (180) days after the death or certified
incapacity of the Limited Partner, and upon such successor executing this Agreement or an amendment
hereto, the certificate and such other documents as the General Partner may request. If such
right is not exercised, the Representative of the deceased or incapacitated Limited Partner shall
have only the rights to distributions and allocations as the Limited Partner would have had.
(g) Notwithstanding anything contained in this Agreement to the contrary, the General Partner
may require, as a condition to any transfer or assignment, a prior written notice of assignment of
Units in form and substance satisfactory to legal counsel, signed by both the
27
transferor and transferee, and a determination by counsel in form and substance satisfactory to
the Partnership that (i) registration is not required under the Securities Act of 1933, as
amended; (ii) such assignment or transfer does not violate any applicable federal or state
securities, real estate syndication or comparable laws; (iii) such assignment or transfer would
not cause a termination of the Partnership for federal income tax purposes; (iv) such assignment
or transfer is not effectuated through an “established securities market” or a “secondary market
(or the substantial equivalent thereof)” within the meaning of Section 7704(b) of the Code; (v)
such assignment or transfer would not result in the Partnership being treated as a publicly traded
partnership within the meaning of Section 7704 of the Code; and (vi) such assignment or transfer
would not violate any loan documents or other agreements to which the Partnership is a party or by
which the Partnership is bound.
9.4.
Put Right. At any time after April 19, 2008 and prior to April 19, 2012, any
Partner who has held Units for at least three years (the “Put Partner”) shall have the right to
request that the Partnership redeem all of such Units. Such request shall be made in writing, state
a requested date for the redemption (the “Requested Redemption Date”) and be delivered to the
General Partner at least 60 calendar days in advance of the Requested Redemption Date. The General
Partner shall determine whether the Partnership has sufficient funds to grant the request, which
determination shall be made prior to the Requested Redemption Date in the sole discretion of the
General Partner. If the General Partner determines that sufficient funds are available, the request
shall be granted, and the Partnership shall transfer and deliver to the Put Partner no sooner than
the Requested Redemption Date, but no later than 60 calendar days thereafter, 92% of the Unreturned
Invested Capital of the Put Partner with respect to the redeemed Units determined as of the date of
redemption; provided that the sum of the percentage interests in Partnership capital or profits
transferred during the taxable year of the Partnership does not exceed 10% of the total interests
in partnership capital or profits as determined in the sole discretion of the General Partner.
Notwithstanding the foregoing, at no time during any 12-month period, may the number of Units
redeemed by the Partnership exceed 2% of the number of Units outstanding at the beginning of such
12-month period unless such redemption is otherwise deemed to be a disregarded transfer for
purposes of determining whether the Partnership is a publicly traded partnership pursuant to
Regulations Section 1.7704-1 as determined in the sole discretion of the General Partner. If the
General Partner determines that sufficient funds are not available, or if the requested redemption
would cause the number of Units redeemed by the Partnership to exceed 2% of the number of Units
outstanding at the beginning of such 12-month period, the Partnership shall either (i) decline to
perform the requested redemption or (ii) perform the requested redemption solely to the extent such
redemption does not violate the provisions of Section 9.3 or this Section 9.4, to be decided in the
sole discretion of the General Partner.
Each Put Partner covenants and agrees with the Partnership and the General Partner that all
Units delivered in connection with the exercise of the put right under this Section 9.4 shall be
delivered to the Partnership or the General Partner, respectively, free and clear of all liens,
encumbrances, liabilities, claims or charges of any kind and, notwithstanding anything contained
herein to the contrary, neither the Partnership nor the General Partner shall be under any
obligation to acquire any Put Partner’s Units, (1) to the extent that any such Units are subject to
any liens, encumbrances, liabilities, claims or charges of any kind or (2) in the event that any
such Put Partner shall fail to give the General Partner adequate assurances that such Units are not
28
subject to any such liens, encumbrances, liabilities, claims or charges of any kind or shall fail
to agree to fully indemnify the General Partner from any such liens, encumbrances, liabilities,
claims or charges of any kind as well as any costs and expenses relating to the Put Partner’s
Units or the exercise of the put right. Each Put Partner further agrees that, in the event any
state or local transfer tax is payable as a result of the transfer of its Units to the Partnership
or General Partner, respectively, each such Put Partner shall assume and pay such transfer tax.
ARTICLE X
BOOKS, RECORDS AND ACCOUNTING
10.1.
Books and Records.
(a) The Partnership shall keep and maintain the following records in its principal office or
make them available in that office within five business days after the date of receipt of a
written request under subsection (d) below:
1. a current list that states:
A. the name and mailing address of each partner, separately identifying in alphabetical order
the General Partner and the Limited Partners;
B. the last known street address of the business or residence of the General Partner; and
C. the percentage or other interest in the Partnership owned by each Partner.
2. copies of the Partnership’s federal, state, and local information or income tax returns for
each of the Partnership’s six most recent tax years;
3. copies of the Agreement and the Certificate, and all amendments thereof;
4. unless contained in this Agreement, a written statement of:
A. the amount of the cash contribution and a description and
statement of the agreed value of any other contribution made by each Partner, and the amount of the
cash contribution and a description and statement of the agreed value of any other contribution
that the Partner has agreed to make in the future as an additional contribution;
B. events requiring the Partnership to be dissolved and its affairs wound up;
C. the date on which each Partner in the Partnership became a Partner; and
D. books and records of account of the Limited Partners.
29
(b) The Partnership shall maintain its records in written form or in another form
capable of conversion into written form within a reasonable time.
(c) The Partnership shall keep in its registered office in Texas, and make available to
Partners on reasonable request, the street address of its principal United States office in which
the records required by this section are maintained or will be available.
(d) A Partner or an assignee of a Partnership Interest, on written request stating the
purpose, may examine and copy, in person or by the Partner’s or assignee’s representative, at any
reasonable time, for any proper purpose, and at the Partner’s expense, records required to be kept
under this section and other information regarding the business, affairs, and financial condition
of the Partnership as is just and reasonable for the person to examine and copy.
(e) On the written request by any Partner or an assignee of a Partnership Interest made to the
person and address designated in this Agreement or, if there is no designation, to the General
Partner at the Partnership’s principal United States office, the Partnership shall provide to the
requesting Partner or assignee without charge, true copies of:
1. this Agreement and all amendments or restatements;
2. the Certificate, and all amendments or restatements; and
3. any of the tax returns described in Subdivision (2) of Subsection (a) above.
10.2.
Accounting Method; Audits and Reports.
(a) The Partnership shall adopt the cash method of accounting unless the General Partner
determines, in the interest of the Partnership, that a different method should be adopted.
(b) At all times during the existence of the Partnership, the General Partner shall keep or
cause to be kept full and true books of account in which shall be entered fully and accurately each
transaction of the Partnership. The General Partner shall deliver to the Limited Partners within
ninety (90) days after the end of each Partnership Fiscal Year unaudited annual financial
statements of the Partnership. Such financial statements may be prepared by the General Partner
or its Affiliates or, by an independent certified accountant with an affirmative vote or written
consent of the Limited Partners owning at least 30% of the then outstanding Units (not counting any
Units then owned by the General Partner). If such financial statements are prepared by an
independent certified public accountant, the Partnership will bear 100% of the cost of such
services. In addition, the General Partner shall deliver within ninety (90) days after the end of
each Partnership Fiscal Year so-called “Information Returns” showing the actual Profits or losses
and the allocation thereof to each Partner for the Partnership’s preceding Partnership Fiscal Year.
30
(c) The General Partner shall deliver to the Limited Partners periodically, but not less
than annually, operating reports and financial or other pertinent information, as is determined
appropriate by the General Partner.
10.3. Bank Accounts. The General Partner shall maintain on behalf of the Partnership
a bank account or accounts with such depositories as it shall determine, in which all monies
received by or on behalf of the Partnership shall be deposited. All withdrawals from such accounts
shall be made upon the signature of such person or persons as the General Partner may from time to
time designate.
ARTICLE XI
SPECIAL TAX MATTERS
11.1.
Tax Elections. All elections required or permitted to be made by the Partnership
under the Code shall be made by the General Partner in the manner as will, in its opinion, be most
advantageous to the Partners. Notwithstanding the provisions of this Article XI, if any Partner
transfers all or part of his/her Interest in this Partnership, any basis adjustment attributable to
such transfer, whether made under Section 754 of the Code or otherwise, shall be allocated solely
to the transferee of such Interest. No Partner shall take or refuse to take any action which
would cause the Partnership to lose the benefits of any tax election made or to be made. The
General Partner shall designate the “Tax Matters Partner” and the “Notice Partner” for the
Partnership within the meaning of the Code. For all purposes with respect to the Code, the General
Partner appoints itself the “Tax Matters Partner” and the “Notice Partner,” as applicable, to serve
in such capacity until its resignation or replacement is appointed.
11.2.
Tax Audit Expenses. In the event the Partnership is audited by the Internal
Revenue Service, the Partnership shall pay all of the costs incurred in defending the Partnership’s
tax position, including the cost of third party professionals engaged to assist in preparing for
and representing the Partnership in such an audit. In the event the Partnership does not have
funds available to pay such costs; the General Partner may advance such sums or may loan sufficient
funds to the Partnership to cover such costs, in accordance with Section 5.4 herein. The General
Partner shall be solely responsible for determining when and to what extent to compromise, defend,
or otherwise pursue the Partnership’s position with respect to the treatment of any item of
Partnership income, expense, deduction, or allocation with respect to such an audit.
ARTICLE XII
AMENDMENTS AND MEETINGS
12.1.
General. The General Partner may, at any time, propose an amendment to this
Agreement and shall notify all Partners thereof in writing, together with a statement of the
purpose(s) of the amendment and such other matters as the General Partner deems material to the
consideration of such amendment. If such proposal does not affect the rights of the Limited
Partners, such proposal shall be considered adopted and this Agreement deemed amended by an
affirmative vote or written consent of the Limited Partners owning at least a majority of the
Units then outstanding (not counting any Units then owned by the General Partner). At any time,
31
Limited Partners holding not less than 25% of the issued and outstanding Units may propose an
amendment to this Agreement, or a meeting of Limited Partners to consider any other proposal for
which the Limited Partners may vote hereunder, including the sale of all or substantially all of
the assets of the Partnership. Upon the request in writing to the General Partner of any person
entitled to call a meeting, or in the event a proposal of the General Partner affects the rights
of Limited Partners, or in the event of objection by ten percent (10%) of Limited Partners by
interest to such a proposal, the General Partner shall call a special meeting of all Partners to
consider the proposal at the time requested by the person requesting the meeting, which shall not
be less than fifteen (15) nor more than sixty (60) days of receipt of such request. Written notice
of the meeting shall be given to all Partners, either personally or by certified or registered
mail, not less than ten (10) nor more than sixty (60) days before the meeting, but in any case,
where a meeting is duly called by request of Limited Partners, not more than ten (10) days after
receipt of such request. Included in the notice shall be a detailed statement of the action
proposed, including a verbatim statement of the wording of any resolution or amendment proposed.
The notice shall provide that Limited Partners may vote in person or by proxy. The affirmative
vote of a Majority in Interest, of the Limited Partners shall decide the matter. In any event,
however, no such amendment shall affect the allocation of economic interest to the Partners or
alter the allocation of Partnership management responsibilities and control without the approval
of the General Partner and a two-thirds majority in interest of the Limited Partners, except as
otherwise provided in this Agreement and no such amendment shall affect the rights or obligations
of the General Partner without the approval of the General Partner.
12.2.
Alternative to Meetings. As an alternative to voting at meetings of the
Partnership pursuant to this and other Articles of this Agreement, the Limited Partners may
Consent to and approve by written action any matter that the Limited Partners may Consent to and
approve by vote at a meeting. In order to Consent to and approve the matter, the same percentage
of Limited Partners, by interest, must sign the written action as is required by vote at a
meeting; provided, however, that written notice is given to all Partners at least fifteen (15)
days before solicitation of signatures is begun.
12.3. Amendments on Admission or Withdrawal of Partners and Clarification
Amendments.
(a) If this Agreement and the Certificate are to be amended as a result of adding or
substituting a Limited Partner, such amendments shall be signed by the General Partner, and by the
Persons to be substituted or added, or their attorneys-in-fact, and, if Limited Partners are to be
substituted, by the assigning Limited Partners or their attorneys-in-fact. No other Limited
Partner’s signature will be necessary to amend this Agreement or the Certificate pursuant to this
Section 12.3(a) unless the signatures of Limited Partners or their attorneys-in-fact are expressly
required by this Agreement.
(b) If this Agreement and the Certificate shall be amended to reflect the designation of an
additional or successor General Partner such amendment shall be signed by the remaining General
Partner(s), and by such additional or successor General Partner, and by the Limited Partners or
their attorneys-in-fact, if expressly required by this Agreement.
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(c) This Agreement shall be amended to reflect the withdrawal or removal of a General Partner
and if the business of the Partnership is continued, such amendment shall be signed by the
withdrawing or removed General Partner, the remaining or successor General Partner(s), and by the
Limited Partners or their attorneys-in-fact, if expressly required by this Agreement.
(d) This Agreement may be amended by the General Partner without the approval of the Limited
Partners to cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provisions herein, or to make any other provisions with respect to
matters or questions arising under this Agreement which will not be inconsistent with the
provisions of this Agreement. Any amendment to this Agreement pursuant to this Section 12.3(d)
shall be signed by the General Partner but shall not require the signature of any Limited Partner
unless expressly required by this Agreement.
(e) This Agreement may further be amended by the General Partner and without the approval of
the Limited Partners to add to the representations, duties or obligations of the General Partner or
surrender any right or power granted to the General Partner herein, for the benefit of the Limited
Partners. Any amendment to this Agreement pursuant to this Section 12.3(e) shall be signed by the
General Partner but shall not require the signature of any Limited Partner unless expressly
required by this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1.
Notices. All Notices, demands, or other communications hereunder shall be in
writing and shall be deemed to have been given when the same are (a) deposited in the United States
mail and sent by certified or registered mail, postage prepaid, return receipt requested, or (b)
delivered, in each case to the parties at the addresses set forth below or at such other addresses
as such parties may designate by written notice to the Partnership
(a) if to the Partnership or the General Partner, at the principal office of the Partnership;
and
(b) if to the Limited Partners, at the addresses set forth in their respective Subscription
Agreements or any written notice of change of address received by the General Partner.
13.2.
Further Assurances. The Partners will execute and deliver such further
instruments and do such further acts or forbear from such action and things, as may be required to
carry out the intent and purpose of this Agreement.
13.3.
Representations of the Partners. Each Partner represents and warrants to the
Partnership and every other Partner that (a) he is fully aware of, and is capable of bearing, the
risks relating to an investment in the Partnership, (b) he understands his Interest in the
Partnership has not been registered under the Securities Act of 1933, as amended, or the securities
law of any jurisdiction in reliance upon exemptions contained in those laws, and (c) he has
acquired his Interest in the Partnership for his own account, with the intention of holding the
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Interest for investment and without any intention of participating directly or indirectly in any
redistribution or resale of any portion of the Interest in violation of the Securities Act of
1933, as amended, or any applicable law.
13.4. Survival of Representations and Agreements. All representations and agreements
herein shall survive until the dissolution and final liquidation of the Partnership, except to the
extent that a representation or agreement expressly provides otherwise.
13.5. Agreement in Counterparts. This Agreement may be executed in counterparts and
all so executed shall constitute one agreement binding on all parties hereto notwithstanding that
all the parties hereto are not signatories to the original or to the same counterpart.
13.6. Captions and Context. Captions contained in this Agreement are inserted only as
a matter of convenience and in no way define, limit, extend or describe the scope of this Agreement
or the intent of any provisions hereof. The use of a masculine pronoun shall be deemed
interchangeable with a feminine or neuter pronoun as the content would require; likewise singular
nouns shall be interchangeable with plural as the content requires.
13.7. Construction. The title of the Articles and Sections in this Agreement have been
inserted as a matter of convenience of reference only and do not affect the meaning or construction
of any of the provisions in this Agreement.
13.8.
Governing Law; Successors. This Agreement and the rights and obligations of
the Partners shall be governed by and construed in accordance with the internal laws of the State
of Texas. Except as otherwise expressly provided in this Agreement, all provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by or against, the
heirs, successors, legal representatives and assigns of the parties hereto.
13.9. Binding Effect. Subject to Section 13.11, this Agreement will inure to the
benefit of and will be binding upon the Partners, their legal representatives, transferees, heirs,
administrators, successors and assigns.
13.10. Validity of Agreement. The invalidity of any portion of this Agreement shall
not affect the validity of the remainder hereof. Should any portion of this Agreement be declared
invalid and unenforceable, then such provisions shall automatically be struck from this Agreement
and replaced with a provision as close in meaning to the original provision as possible while
remaining valid and enforceable.
13.11.
Creditors Not Benefited. Nothing in this Agreement (including specifically Sections
4.4, 5.4, 6.3 and 11.2) is intended to benefit any creditor of (i) the Partnership or (ii) a
Partner. No creditor of the Partnership or a Partner will be entitled to require the General
Partner to solicit or accept any loan or additional capital contribution for the Partnership or to
enforce any right which the Partnership or any Partner may have against a Partner, whether arising
under this Agreement or otherwise.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement to be effective as of the 19th day of April, 2005.
General Partner: | ||||
AMREIT MONTHLY INCOME & GROWTH III CORPORATION | ||||
By: | /s/ Xxxx X. Xxxxx | |||
Name: | Xxxx X. Xxxxx | |||
Title: | Vice President | |||
Initial Limited Partner: | ||||
AMREIT | ||||
By: | /s/ X. Xxxx Xxxxxx | |||
Name: | X. Xxxx Xxxxxx | |||
Title: | President |