AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
HEAD CIRCLE, L.P.
DATED AS OF APRIL 28, 2006
AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
HEAD CIRCLE, L.P,
This Amended And Restated Agreement Of Limited Partnership is being
entered into effective as of the date written below by and between SEMC, Inc.,
as the general partner (the "General Partner"), WNC Holding, LLC, a California
limited liability company as the limited partner (the "Limited Partner"), WNC
Housing, L.P., as the special limited partner (the "Special Limited Partner")
and ▇▇▇▇▇▇▇ ▇▇▇▇▇ as the withdrawing limited partner (the "Original Limited
Partner").
RECITALS
WHEREAS, Head Circle, L.P., a Mississippi limited partnership (the
"Partnership") recorded a certificate of limited partnership with the
Mississippi Secretary of State on September 16, 2004. A partnership agreement
dated September 14, 2004 was entered into by and between the General Partner and
the Original Limited Partner (the "Original Partnership Agreement").
WHEREAS, the Partners desire to enter into this Agreement to provide
for, among other things, (i) the continuation of the Partnership, (ii) the
admission of the Limited Partner and the Special Limited Partner as partners of
the Partnership, (iii) the liquidation of the Original Limited Partner's
Interest in the Partnership, (iv) the payment of Capital Contributions by the
Limited Partner and the Special Limited Partner to the Partnership, (v) the
allocation of Income, Losses, Tax Credits and distributions of Net Operating
Income and other cash funds of the Partnership among the Partners, (vi) the
determination of the respective rights, obligations and interests of the
Partners to each other and to the Partnership, and (vii) certain other matters.
WHEREAS, the Partners desire hereby to amend and restate the Original
Partnership Agreement.
NOW, THEREFORE, in consideration of their mutual agreements herein set
forth, the Partners hereby agree to amend and restate the Original Partnership
Agreement in its entirety to provide as follows:
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ARTICLE I
DEFINITIONS
"Accountant" shall mean ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CPA (▇▇▇▇▇▇, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇, LLP, or such other firm of independent certified public accountants as
may be engaged for the Partnership by the General Partner with the Consent of
the Special Limited Partner. Notwithstanding any provision of this Agreement to
the contrary, the Special Limited Partner shall have the discretion to dismiss
the Accountant for cause if such Accountant fails to provide, or untimely
provides, or inaccurately provides, the information required in Section 14.2 or
14.3 of this Agreement.
"Act" shall mean the laws of the State governing limited partnerships,
as now in effect and as the same may be amended from time to time.
"Actual Tax Credit" shall mean as of any point in time, the total
amount of the LIHTC actually allocated by the Partnership to the Limited Partner
and not subsequently recaptured or disallowed, representing 99.98% of the
LIHTC actually received by the Partnership, as shown on the applicable tax
returns of the Partnership.
"Adjusted Capital Account Deficit" shall mean with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant fiscal period, after giving effect to the following
adjustments:
(a) credit to such Capital Account any amounts which such Partner is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
"Affiliate" shall mean (a) any Person directly or indirectly
controlling, controlled by, or under common control with another Person; (b) any
Person owning or controlling 10% or more of the outstanding voting securities of
such other Person; (c) any officer, director, trustee, or partner of such other
Person; and (d) if such Person is an officer, director, trustee or general
partner, any other Person for which such Person acts in any such capacity.
"Agreement" or "Partnership Agreement" shall mean this Amended and
Restated Agreement of Limited Partnership, as it may be amended from time to
time. Words such as "herein," "hereinafter," "hereof," "hereto," "hereby" and
"hereunder," when used with reference to this Agreement, refers to this
Agreement as a whole, unless the context otherwise requires.
"Apartment Housing" shall mean the Head Circle Apartments located on
approximately 4.8 acres of land at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, as more fully described in Exhibit "A"
attached hereto and incorporated herein by this reference, and the Improvements.
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"Architect of Record" shall mean ▇▇▇▇▇ & ▇▇▇▇▇ Architects, PC. The
General Partner, on behalf of the Partnership, shall enter into a contract with
the Architect of Record to perform certain duties and responsibilities
including, but are not limited to: designing the Improvements; preparing the
construction blueprints; preparing the property specifications manual; contract
administrative services; completing the close-out procedures; inspecting for and
overseeing resolution of the Contractor's final punch list; receive and approve
operations and maintenance manuals; and collect, review, approve and forward to
the Partnership all product, material and construction warranties.
"Asset Management Fee" shall have the meaning set forth in Section
9.2(d) hereof and the Minimum Amount shall be paid monthly to the Limited
Partner.
"Assignee" shall mean a Person who has acquired all or a portion of the
Limited Partner's or the Special Limited Partner's beneficial interest in the
Partnership and who has not been substituted in the stead of the transferor as a
Partner.
"Bankruptcy" or "Bankrupt" shall mean: the making of an assignment for
the benefit of creditors; becoming a party to any liquidation or dissolution
action or proceeding other than as a creditor; the commencement of any
bankruptcy, reorganization, insolvency or other proceeding for the relief of
financially distressed debtors; or the appointment of a receiver, liquidator,
custodian or trustee; or the discounted settlement of substantially all the
debts and obligations of a debtor; and, if any of the same not being dismissed,
stayed or discharged within 90 days, or the entry of an order for relief under
Title 11 of the United States Code. A Partner shall be deemed Bankrupt if any of
the above has occurred to that Partner.
"Break-even Operations" shall mean at such time as the Partnership has
Cash Receipts in excess of Cash Expenses, as determined by the Accountant and
approved by the Special Limited Partner. For purpose of this definition: (a) any
one-time up-front fee paid to the Partnership from any source shall not be
included in Cash Receipts to calculate Break-even Operations; (b) Cash Expenses
shall include the amount of any outstanding Partnership obligations and any
management fee or portion thereof, which is currently deferred and not paid; and
(c) Cash Expenses shall include the amount of any reserve required to be funded
in accordance with Article VIII that is currently deferred and not paid. In
addition, Break-even Operations shall not occur until the Partnership has: (a)
sufficiently funded the tax and insurance reserve in an amount equal to one
year's property insurance premium and the next full installment of real estate
taxes based upon improved land; and (b) deposited into the Operating Deficit
Account an amount equal to one month's mandatory debt service payment and one
month's operating expenses.
"Budget" shall mean the annual operating budget of the Partnership as
more fully described in Section 14.3 of this Agreement.
"Capital Account" shall mean, with respect to each Partner, the account
maintained for such Partner comprised of such Partner's Capital Contribution as
increased by allocations to such Partner of Partnership Income (or items
thereof) and any items in the nature of income or gain which are specially
allocated pursuant to Section 10.3 or Section 10.4 hereof, and decreased by the
amount of any Distributions made to such Partner, and allocations to such
Partner of Partnership Losses (or items thereof) and any items in the nature of
expenses or losses which are specially allocated pursuant to Section 10.3 or
Section 10.4 hereof. In the event of any transfer of an interest in the
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Partnership in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest. The foregoing definition and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Treasury Regulation Section 1.704-1(b), as amended or any successor
thereto, and shall be interpreted and applied in a manner consistent with such
Treasury Regulation.
"Capital Contribution" shall mean the total amount of money, or the
Gross Asset Value of property contributed to the Partnership, if any, by all the
Partners or any class of Partners or any one Partner as the case may be (or by a
predecessor-in-interest of such Partner or Partners), reduced by any such
capital which shall have been returned pursuant to Section 7.3, Section 7.4 or
Section 7.6 of this Agreement. A loan to the Partnership by a Partner shall not
be considered a Capital Contribution.
"Cash Expenses" shall mean all operating obligations of the Partnership
(other than those covered by Insurance) including without limitation, the
payment of the monthly Mortgage payments, the Management Agent fees, the Asset
Management Fee, the funding of reserves in accordance with Article VIII of this
Agreement, advertising costs, utilities, maintenance, repairs, Partner
communications, legal, telephone, any other expenses which may reasonably be
expected to be paid in a subsequent period but which on an accrual basis shall
be allocable equally per month over the calendar year, such as, but not limited
to, Insurance, Real Estate Taxes, Mortgage payments paid other than monthly,
audit, tax or accounting expenses (excluding deductions for cost recovery of
buildings; improvements and personal property and amortization of any financing
fees) and any seasonal expenses (such as snow removal, the use of air
conditioners in the middle of the summer, or heaters in the middle of the
winter) which may reasonably be expected to be paid in a subsequent period. Cash
Expenses payable to Partners or Affiliates of Partners shall be paid after Cash
Expenses payable to third parties. Construction Loan interest and development
costs of any nature whatsoever are not Cash Expenses and shall not be paid from
Cash Receipts. The provisions of Section 6.2 govern the payment of development
costs and construction interest.
"Cash Receipts" shall mean actual cash received on a cash basis by the
Partnership from operating revenues of the Partnership, including without
limitation rental income (but not any subsidy thereof from the General Partner
or an Affiliate thereof), tenant security deposits that have been forfeited by
tenants pursuant to the laws of the State, laundry income paid to the
Partnership, telephone hook-up or service income, cable fees or hook-up costs,
telecommunications or satellite fees or hook-up costs, but excluding
prepayments, security deposits, Capital Contributions, borrowings, the
Construction Loan, the Mortgage Loan, lump-sum payments, any extraordinary
receipt of funds, and any income earned on investment of its funds. Neither the
General Partner nor its Affiliates shall be entitled to payment of any Cash
Receipts for any reason, including but not limited to a separate contract,
agreement, obligation or the like.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
"Completion of Construction" shall mean the date the Partnership
receives the required certificate of occupancy (or the local equivalent) for all
38 apartment units, and by the issuance of the Construction Inspector's
certification, in a form substantially similar to the form attached hereto as
Exhibit D and incorporated herein by this reference, with respect to completion
of all the apartment units in the Apartment Housing. Completion of Construction
further means that the construction shall be completed in good quality, and free
and clear of all mechanic, material and similar liens. In addition to the above,
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Completion of Construction shall occur only when the statutory time period for
the filing of any liens by the Contractor, subcontractors, material suppliers or
any one else entitled to file a lien against the property has lapsed unless such
filed liens, other than the Construction Loan, or Mortgage Loan, have been
bonded over and have been approved by the Special Limited Partner; and the
Special Limited Partner has approved the Completion of Construction.
"Compliance Period" shall mean the period set forth in Section 42
(i)(1) of the Code, as amended, or any successor statute.
"Consent of the Special Limited Partner" shall mean the prior written
consent of the Special Limited Partner.
"Construction Completion, Operating Deficit and Tax Credit Guarantee
Agreement" shall mean that agreement entered into the even date hereof by and
between the Partnership, the Guarantor and the Limited Partner and incorporated
herein by this reference.
"Construction Contract" shall mean the construction contract dated
February 4, 2004 in the amount of $674,395 entered into between the Partnership
and the Contractor pursuant to which the Improvements are being constructed in
accordance with the Plans and Specifications. The Construction Contract shall be
a fixed price agreement (includes materials and labor) at a cost consistent with
the Development Budget. Any modifications to the Construction Contract requires
the Consent of the Special Limited Partner.
"Construction Draw Documents" shall mean those documents as set forth
in Section 14.3(a) of this Agreement.
"Contractor" shall mean Southeastern Management Co., Inc.
(SEMCO-Construction Division) Any substitution of Contractor requires the
Consent of the Special Limited Partner.
"Debt Service Coverage" shall mean for the applicable period the ratio
between the Net Operating Income (excluding Mortgage payments and Asset
Management Fee) and the debt service required to be paid on the Mortgage(s). As
example, a 1.10 Debt Service Coverage means that for every $1.00 of debt service
required to be paid there must be $1.10 of Net Operating Income available. A
worksheet for the calculation of Debt Service Coverage is found in the Report of
Operations attached hereto as Exhibit "H" and incorporated herein by this
reference. For purposes of this definition: (a) any one-time up-front fee paid
to the Partnership from any source shall not be included in Cash Receipts to
calculate Debt Service Coverage; (b) Cash Expenses shall include the amount of
any Management Fee, or portion thereof, which is currently deferred and not
paid; and (c) Cash Expenses shall include the amount of any reserve required to
be funded in accordance with Article VIII that is currently deferred and not
paid.
"Deferred Management Fee" shall have the meaning set forth in Section
9.2(c) hereof.
"Developer" shall mean SEMC, Inc.
"Development Budget" shall mean the agreed upon cost of developing the
Apartment Housing and Improvements, including all construction costs based on
the Construction Contract, the Plans and Specifications, land and soft costs
(which includes, but is not limited to, financing charges, market study,
Development Fee, architect fees, etc.). The final Development Budget is
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referenced in the Development, Construction and Operating Budget Agreement
entered into by and between the Partners on even date herewith, and incorporated
herein by this reference.
"Development Fee" shall mean the fee payable to the Developer for
services incident to the development and construction of the Apartment Housing
in accordance with the Development Fee Agreement between the Partnership and the
Developer dated the even date herewith and incorporated herein by this
reference. Development activities do not include services for the acquisition of
land or syndication activities, or negotiations for permanent financing.
"Distributions" shall mean the total amount of money, or the Gross
Asset Value of property (net of liabilities securing such distributed property
that such Partner is considered to assume or take subject to under Section 752
of the Code), distributed to Partners with respect to their Interests in the
Partnership, but shall not include any payments to the General Partner or its
Affiliates for fees or other compensation as provided in this Agreement or any
guaranteed payment within the meaning of Section 707(c) of the Code, as amended,
or any successor thereto.
"Fair Market Value" shall mean, with respect to any property, real or
personal, the price a ready, willing and able buyer would pay to a ready,
willing and able seller of the property, provided that such value is reasonably
agreed to between the parties in arm's-length negotiations and the parties have
sufficiently adverse interests.
"Financial Interest" shall mean the General Partner's capital interest
in the Partnership to be contributed and maintained pursuant to the requirements
of RD Instruction 1944-E, Section 1944.211(a)(13)(ii) or any amendments thereto.
Such Financial Interest shall not affect the Partners' allocable share of the
Profits, Losses, Tax Credits or Cash Flow From Operations as set forth in this
Agreement.
"First Year Certificate" shall mean the certificate to be filed by the
General Partner with the Secretary of the Treasury as required by Code Section
42(1)(1), as amended, or any successor thereto.
"Force Majeure" shall mean any act of God, strike, lockout, or other
industrial disturbance, act of the public enemy, war, blockage, public riot,
fire, flood, explosion, governmental action, governmental delay or restraint.
"General Partner(s)" shall mean SEMC, Inc., and such other Persons as
are admitted to the Partnership as additional or substitute General Partners
pursuant to this Agreement. If there is more than one General Partner of the
Partnership, the term "General Partner" shall be deemed to collectively refer to
such General Partners or individually may mean any General Partner as the
context dictates.
"Gross Asset Value" shall mean with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed by a Partner
to the Partnership shall be the Fair Market Value of such asset, as determined
by the contributing Partner and the General Partner, provided that, if the
contributing Partner is a General Partner, the determination of the Fair Market
Value of a contributed asset shall be determined by appraisal;
(b) the Gross Asset Values of all Partnership assets shall be adjusted
to equal their respective Fair Market Values, as determined by the General
Partner, as of the following times: (1) the acquisition of an additional
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Interest in the Partnership by any new or existing Partner in exchange for more
than a de minimis Capital Contribution; (2) the distribution by the Partnership
to a Partner of more than a de minimis amount of Partnership property as
consideration for an Interest in the Partnership; and (3) the liquidation of the
Partnership within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to
clauses (1) and (2) above shall be made only with the Consent of the Special
Limited Partner and only if the General Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(c) the Gross Asset Value of any Partnership asset distributed to any
Partner shall be adjusted to equal the Fair Market Value of such asset on the
date of distribution as determined by the distributee and the General Partner,
provided that, if the distributee is a General Partner, the determination of the
Fair Market Value of the distributed asset shall be determined by appraisal; and
(d) the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section
10.3(g) hereof; provided however, that Gross Asset Values shall not be adjusted
pursuant to this Section 1.40(d) to the extent the General Partner determines
that an adjustment pursuant to Section 1.40(b) hereof is necessary or
appropriate in connection with a transaction that would otherwise result in an
adjustment pursuant to this Section 1.40(d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to Section 1.40(a), Section 1.40(b), or Section 1.40(d) hereof, such
Gross Asset Value shall thereafter be adjusted by the depreciation taken into
account with respect to such asset for purposes of computing Income and Losses.
"Guarantor" shall mean ▇▇▇▇▇ ▇▇▇▇▇▇.
"Hazardous Substance" shall mean and include any substance, material or
waste, including, but not limited to, asbestos, petroleum and petroleum products
(including crude oil), that is or becomes designated, classified or regulated as
"toxic" or "hazardous" or a "pollutant" or that is or becomes similarly
designated, classified or regulated, under any federal, state or local law,
regulation or ordinance including, without limitation, Compensation and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, and the
regulations adopted and publications promulgated pursuant thereto.
"Improvements" shall mean the new construction or substantial
rehabilitation of 4 buildings containing 38 apartment units and ancillary and
appurtenant facilities (including those intended for commercial use, if any,)
for elderly use and built in accordance with the Project Documents. It shall
also include all furnishings, equipment and personal property used in connection
with the operation thereof. The total number of apartment units equal
thirty-eight (38) LIHTC units and 0 market units which includes 0 exempt units.
"In-Balance" shall mean, at any time when calculated, when the
cumulative amount of the undisbursed Capital Contributions of the Limited
Partner and Special Limited Partner required to be paid-in through and including
the Completion of Construction are sufficient in the Special Limited Partner's
reasonable judgment to pay all of the following sums: (a) all costs of
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construction to achieve Completion of Construction; and (b) all soft costs in
the development of the Apartment Housing and Improvements, including but not
limited to, architect fees, land acquisition, impact fees and costs of
marketing, maintenance and leasing of the Apartment Housing units; In making a
determination that the financing is In-Balance, the Special Limited Partner will
also consider whether the undisbursed Capital Contributions of the Limited
Partner and Special Limited Partner, the Mortgage and other sources of permanent
financing (but not Cash Receipts) are adequate.
"Incentive Management Fee" shall have the meaning set forth in Section
9.2(e) hereof.
"Income and Loss(es)" shall mean, for each fiscal year or other period,
an amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(a) any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Income or Losses shall be
added to such taxable income or loss;
(b) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Income and Losses shall be subtracted from such taxable
income or loss;
(c) in the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to the provisions of the definition thereof, the amount of
such adjustment shall be taken into account as gain or loss from the disposition
of such asset for purposes of computing Income and Losses;
(d) gain or loss resulting from any disposition of Partnership assets
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(e) in lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account depreciation for such fiscal year or other period,
computed as provided below; and
(f) notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Sections 10.3 or Section 10.4 hereof
shall not otherwise be taken into account in computing Income or Losses.
Depreciation for each fiscal year or other period shall be calculated as
follows: an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period for federal income tax purposes, except that if the Gross Asset Value of
an asset differs from its adjusted basis for federal income tax purposes at the
beginning of such year or other period, depreciation shall be an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
or other period bears to such beginning adjusted tax basis; provided, however,
if the federal income tax depreciation, amortization, or other cost recovery
deduction for such year is zero, depreciation shall be determined with reference
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to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
For purposes of this Agreement, the term Income when used alone shall
include all items of income or revenue contemplated in this Section and the term
Losses when used alone shall include all items of loss or deductions
contemplated in this Section.
"Insurance" shall mean:
(a) during construction, the Partnership will provide and maintain, or
cause the Contractor to provide and maintain, builder's risk insurance in an
amount equal to 100% of the value of the Apartment Housing at the date of
completion; property damage coverage of not less than $1,000,000 per occurrence
and comprehensive general liability insurance with limits against bodily injury
of not less than $1,000,000 per occurrence both with aggregated coverage of
$2,000,000; and worker's compensation insurance within the State statutory
guidelines;
(b) during operations the Partnership will provide and maintain business
interruption coverage covering actual sustained loss for 12 months; worker's
compensation; hazard coverage (including but not limited to fire, or other
casualty loss to any structure or building on the Apartment Housing in an amount
equal to the full replacement value of the damaged property without deducting
for depreciation); and comprehensive general liability coverage against
liability claims for bodily injury or property damage in the minimum amount of
$1,000,000 per occurrence and an aggregate of $2,000,000;
(c) all liability coverage shall include an umbrella liability coverage
in a minimum amount of $4,000,000 per occurrence and an aggregate of $4,000,000;
(d) all Insurance polices shall name the Partnership as the named
insured, the Limited Partner as an additional insured, and WNC & Associates,
Inc. as the certificate holder;
(e) all Insurance policies shall include a provision to notify the
insured, the Limited Partner and the certificate holder prior to cancellation;
(f) hazard coverage must include inflation and building or ordinance
endorsements;
(g) the Insurance Policy or policies shall not have a deductible
provision in excess of $5,000; and
(h) the term "Insurance" specifically excludes co-insurance or
self-insurance.
"Insurance Company" shall mean any insurance company engaged by the
General Partner for the Partnership with the Consent of the Special Limited
Partner which Insurance Company shall have an A rating or better for financial
safety by A.M. Best or Standard & Poor's. Any substitution of Insurance Company
during the term of this Agreement requires the Consent of the Special Limited
Partner.
"Interest" shall mean the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which a Partner may be entitled hereunder and the obligation
of such Partner to comply with the terms of this Agreement.
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"Involuntary Withdrawal" shall mean any Withdrawal of a General Partner
caused by death, adjudication of insanity or incompetence, Bankruptcy, or the
removal of a General Partner pursuant to Section 13.2 hereof.
"Land Acquisition Fee" shall mean the fee payable to the General
Partner in an amount equal to $0 for the General Partner's services in locating,
negotiating and closing on the purchase of the real property upon which the
Improvements are, or will be, erected or rehabilitated.
"LIHTC" shall mean the low-income housing tax credit established by TRA
1986 and which is provided for in Section 42 of the Code, as amended, or any
successor thereto.
"Limited Partner" shall mean WNC Holding, LLC, a California limited
liability company and such other Persons as are admitted to the Partnership as
additional or Substitute Limited Partners pursuant to this Agreement.
"Management Agent" shall mean the property management company which
oversees the property management functions for the Apartment Housing and which
is on-site at the Apartment Housing. The initial Management Agent shall be
Southeastern Management Co., Inc. ("the Agent") Any substitution of the
Management Agent requires the Consent of the Special Limited Partner.
"Management Agreement" shall mean the agreement between the Partnership
and the Management Agent for property management services. The management fee
shall equal an agreed amount per occupied unit as approved by USDA RD. The
General Partner, on behalf of the Partnership, shall insure that neither the
Management Agreement nor any ancillary agreement shall provide for an initial
rent-up fee, a set-up fee, any other similar pre-management fee or recurring fee
for compliance monitoring or the like payable to the Management Agent. The
Management Agreement shall provide that it will be terminable at will by the
Partnership at anytime following the Withdrawal or removal of the General
Partner and, in any event, on any anniversary of the date of execution of the
Management Agreement, without payment or penalty for failure to renew the same.
"Minimum Set-Aside Test" shall mean the 40-60 set-aside test pursuant
to Section 42(g), as amended and any successor thereto, of the Code with respect
to the percentage of apartment units in the Apartment Housing to be occupied by
tenants whose incomes are equal to or less than the required percentage of the
area median gross income. More specifically, the General Partner has agreed that
there will be 12 bedroom units with 634 square feet at 60% or less of the area
median income, as adjusted for family size; 16 bedroom units with 768 square
feet at 60% less of the area median income, as adjusted for family size; and 10
bedroom units with 906 square feet at 60% or less of the area median income, as
adjusted for family size.
"Mortgage" or "Mortgage Loan" shall mean the permanent nonrecourse
financing wherein the Partnership promises to pay: (a) USDA RD 515, or its
successor or assignee, the principal sum of $1,040,119 plus interest on the
principal at 1.00% per annum over a term of 30 years and amortized over 360
months ; and (b) USDA RD 515, or its successor or assignee, the principal sum of
$455,271, plus interest on the principal at 1.00% per annum over a term of 30
years and amortized over 360 months. Where the context admits, the term
"Mortgage" or "Mortgage Loan" shall include any mortgage, deed, deed of trust,
note, regulatory agreement, security agreement, assumption agreement or other
instrument executed in connection with the Mortgage which is binding on the
Partnership; and in case any Mortgage is replaced or supplemented by any
subsequent mortgage or mortgages, the Mortgage shall refer to any such
subsequent mortgage or mortgages provided the substitution or change has
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received the Consent of the Special Limited Partner. Prior to closing the
Mortgage, the General Partner shall provide to the Special Limited Partner a
draft of the Mortgage documents for review and approval and the income and
expense statement for the Partnership showing Cash Receipts and Cash Expenses
for each and every month since issuance of the certificate of occupancy. Based
on the draft Mortgage documents and the income and expense statements, if the
terms of the Mortgage are not as specified above, or the Special Limited Partner
determines that the Debt Service Coverage of the Mortgage Loan(s) requiring an
amortized monthly principal and interest payment falls below 1.10 based on the
operating proforma in the Development, Construction and Operating Budget
Agreement and the current Cash Expenses and Cash Receipts, then the General
Partner shall adjust the principal loan amount and close on a Mortgage which
will produce a 1.10 Debt Service Coverage or greater. The Mortgage funds shall
be used to retire any outstanding hard construction costs including labor and
materials. Notwithstanding, if the interest rate at the time of closing the
Mortgage is less than the amount stated, the General Partner shall not increase
the principal amount of the Mortgage without the Special Limited Partner's
approval even if the Dept Service Coverage remains at or above 1.10.
"Net Operating Income" shall mean the cash available for Distribution
on an annual basis, when Cash Receipts exceed Cash Expenses.
"Nonrecourse Deductions" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(1).
"Nonrecourse Liability" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(3).
"Operating Deficit" shall mean, for the applicable period, insufficient
funds to pay Partnership operating costs when Cash Expenses exceed Cash
Receipts, as determined by the Accountant and approved by the Special Limited
Partner.
"Operating Deficit Guarantee Period" shall mean the period commencing
the date the first apartment unit in the Apartment Housing is available for its
intended use (for properties being rehabilitated with tenants in residence, the
period commences with the signing of this Agreement). The period ends three
years following the achievement of three consecutive months of Breakeven
Operations (for properties being rehabilitated with tenants in residence, the
Operating Deficit Guarantee Period ends following three consecutive months of
Breakeven Operations after completion of all the rehabilitation as approved in
the Plans and Specifications or scope of work). The Operating Deficit Guarantee
Period will not expire unless the Partnership has achieved Completion of
Construction of the Apartment Housing.
"Operating Loans" shall mean loans made by the General Partner to the
Partnership pursuant to Article VI of this Agreement, which loans do not bear
interest and are repayable only as provided in Article XI of this Agreement.
"Original Limited Partner" shall mean ▇▇▇▇▇▇▇ ▇▇▇▇▇.
"Partner(s)" shall collectively mean the General Partner, the Limited
Partner and the Special Limited Partner or individually may mean any Partner as
the context dictates.
"Partner Nonrecourse Debt" shall have the meaning set forth in Section
1.704-2(b)(4) of the Treasury Regulations.
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"Partner Nonrecourse Debt Minimum Gain" shall mean an amount, with
respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
"Partner Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2 (i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
"Partnership" shall mean the limited partnership continued under this
Agreement.
"Partnership Minimum Gain" shall mean the amount determined in
accordance with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
"Permanent Mortgage Commencement" shall mean the first date on which
the following have occurred: the Mortgage shall have closed and funded; and
amortization of the Mortgage shall have commenced.
"Person" shall mean an individual, proprietorship, trust, estate,
partnership, joint venture, association, company, corporation or other entity,
as the circumstances demonstrate.
"Plans and Specifications" shall mean the plans, blueprints and
specifications manual for the construction of the Improvements which are
approved by the local city/county building department with jurisdiction over the
construction of the Improvements and which Plans and Specifications are referred
to in the Construction Contract. The General Partner agrees to assure that the
Contractor completes construction in accordance with the Plans and
Specifications.
Any changes to the Plans and Specifications after approval by the appropriate
government building department shall require the Consent of the Special Limited
Partner. For rehabilitated properties without Plans and Specifications, this
definition shall include any specifications manual and the unit by unit scope of
work approved by the local city or county building department, if applicable,
and the Special Limited Partner.
"Project Documents" shall mean all documents relating to the Mortgage
Loan, Construction Contract, Title Policy and Partnership Agreement. It shall
also include all documents required by any governmental agency having
jurisdiction over the Apartment Housing in connection with the development,
construction and financing of the Apartment Housing, including but not limited
to, the approved Plans and Specifications for the development and construction
of the Apartment Housing.
"Projected Annual Tax Credits" shall mean LIHTC in the amount of
$15,449 for 2006, $61,795 per year for each of the years 2007 through 2015, and
$46,346 for 2016, which the General Partner has projected to be the total amount
of LIHTC which will be allocated to the Limited Partner by the Partnership,
constituting 99.98% of the aggregate amount of LIHTC of $618,070 to be
available to the Partnership.
"Projected Tax Credits" shall mean LIHTC in the aggregate amount of
$618,070.
"Qualified Tenants" shall mean any tenants who have incomes of 60% (or
such smaller percentage as the General Partner shall agree) or less of the area
median gross income, as adjusted for family size, so as to make the Apartment
Housing eligible for LIHTC.
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"RD" shall mean the United States Department of Agriculture, Rural
Development-Minnesota (formerly Farmers Home Administration) or any successor
thereto.
"RD Interest Credit Agreement" shall mean the Multiple Family Housing
Interest Credit and Rental Assistance Agreement (Form RD 1944-7 or any successor
thereof) between the RD and the Partnership whereby RD will provide a monthly
credit subsidy to the Partnership's Mortgage account when the Partnership makes
each monthly payment on the Mortgage.
"RD Loan Agreement" shall mean the Loan Agreement for an RRH Loan to a
Limited Partnership Operating on a Limited Profit Basis (Form RD 1944-34 or any
successor thereof) between the RD and the Partnership made in consideration of
the Mortgage Loan to the Partnership by the RD pursuant to Section 515(b) of the
Housing Act of 1949 to build a low to moderate income apartment complex.
"Real Estate Taxes" shall mean the sum of $14,450 required to be paid
annually by the Partnership to the tax assessor, school district or similar
representative, of the Ruleville, Sunflower County for real estate taxes
assessed against the Apartment Housing. The Real Estate Taxes are payable as
follows: February 2nd of each year in the amount of $14,450.00.
"Rent Restriction Test" shall mean the test pursuant to Section 42 of
the Code whereby the gross rent charged to tenants of the low-income apartment
units in the Apartment Housing cannot exceed 30% of the qualifying income levels
of those units under Section 42.
"Revised Projected Tax Credits" shall have the meaning set forth in
Section 7.4(a) hereof.
"Sale or Refinancing" shall mean any of the following items or
transactions: a sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Partnership, a condemnation of or
casualty at the Apartment Housing or any part thereof, a claim against a title
insurance company, the refinancing of any Mortgage or other indebtedness of the
Partnership and any similar item or transaction; provided, however, that the
payment of Capital Contributions by the Partners shall not be included within
the meaning of the term "Sale or Refinancing."
"Sale or Refinancing Proceeds" shall mean all cash receipts of the
Partnership arising from a Sale or Refinancing (including principal and interest
received on a debt obligation received as consideration in whole or in part, on
a Sale or Refinancing) less the amount paid or to be paid in connection with or
as an expense of such Sale or Refinancing, and with regard to damage recoveries
or insurance or condemnation proceeds, the amount paid or to be paid for
repairs, replacements or renewals resulting from damage to or partial
condemnation of the Apartment Housing.
"Special Limited Partner" shall mean WNC Housing, L.P., a California
limited partnership, and such other Persons as are admitted to the Partnership
as additional or substitute Special Limited Partners pursuant to this Agreement.
"State" shall mean the State of Mississippi.
"State Tax Credit Agency" shall mean the state agency of Mississippi
which has the responsibility and authority to administer the LIHTC program in
Mississippi.
"Substitute Limited Partner" shall mean any Person who is admitted to
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the Partnership as a Limited Partner pursuant to Section 12.5 or acquires the
Interest of the Limited Partner pursuant to Section 7.3 of this Agreement.
"Syndication Fee" shall mean the fee payable to the General Partner in
an amount equal to $10,000 for the General Partner's services in forming the
Partnership, locating and approving the Limited Partner and the Special Limited
Partner as the investors in the Partnership, negotiating and finalizing this
Partnership Agreement and for such other services referenced in Treasury
Regulation Section 1.709-2(B).
"Tax Credit" shall mean any credit permitted under the Code or the law
of any state against the federal or a state income tax liability of any Partner
as a result of activities or expenditures of the Partnership including, without
limitation, LIHTC.
"Tax Credit Compliance Fee" shall mean the fee payable to the General
Partner in accordance with Section 9.2(f) of this Agreement.
"Tax Credit Conditions" shall mean, for the duration of the Compliance
Period, any and all restrictions including, but not limited to: (a) the land use
restriction agreement required by the State Tax Credit Agency to be recorded
against the Apartment Housing; and (b) any applicable federal, state and local
laws, rules and regulations, which must be complied with in order to qualify for
the LIHTC or to avoid an event of recapture in respect of the LIHTC.
"Tax Credit Period" shall mean the ten-year time period referenced in
Code Section 42(f)(1) over which the Projected Tax Credits are allocated to the
Partners. It is the intent of the Partners that the Projected Tax Credits will
be allocated during the Tax Credit Period and not a longer term.
"Title Policy" shall mean the policy of insurance covering the fee
simple title to the Apartment Housing from a company approved by the Special
Limited Partner. The Title Policy shall be an ALTA owners title policy including
the following endorsements: non-imputation, Fairways, access, contiguity,
survey, owner's comprehensive, zoning and subdivision. The Title Policy shall
also insure against rights-of-way, easements, blanket easement or claims of
easements, not shown by public records. The Title Policy shall be in an amount
equal to the Mortgage amount and the Limited Partner's Capital Contribution. If
allowed by the title company, the Title Policy shall name the Limited Partner
and the Special Limited Partner as insured parties, or, if including the Limited
Partner and Special Limited Partner as insured parties is not allowed, the Title
Policy shall reference them "as their interests may appear in the partnership
agreement of the owner."
"TRA 1986" shall mean the Tax Reform Act of 1986.
"Treasury Regulations" shall mean the Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Withdrawing" or "Withdrawal" (including the verb form "Withdraw" and
the adjectival forms "Withdrawing" and "Withdrawn") shall mean, as to a General
Partner, the occurrence of the death, adjudication of insanity or incompetence,
Bankruptcy of such Partner or any of its principals, the withdrawal, removal or
retirement from the Partnership of such Partner for any reason, including any
sale, pledge, encumbering, assignment or other transfer of all or any part of
its General Partner Interest and those situations when a General Partner may no
14
longer continue as a General Partner by reason of any law or pursuant to any
terms of this Agreement.
ARTICLE II
NAME
The name of the Partnership shall be "Head Circle, L.P.."
ARTICLE III
PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE
Section 3.1 Principal Executive Office. The principal executive office
of the Partnership is located at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at
such other place or places within the State as the General Partner may hereafter
designate.
Section 3.2 Agent for Service of Process. The name of the agent for
service of process on the Partnership is ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., whose address is
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
ARTICLE IV
PURPOSE
Section 4.1 Purpose of the Partnership.
The purpose of the Partnership is to acquire, construct, own and
operate the Apartment Housing in order to provide, in part, Tax Credits to the
Partners in accordance with the provisions of the Code and the Treasury
Regulations applicable to LIHTC and to sell the Apartment Housing at the
conclusion of the Compliance Period. The Partnership shall not engage in any
business or activity that is not incident to the attainment of such purpose.
Section 4.2 Authority of the Partnership.
In order to carry out its purpose, the Partnership is empowered and
authorized to do any and all acts and things necessary, appropriate, proper,
advisable or incidental to the furtherance and accomplishment of its purpose,
and for protection and benefit of the Partnership in accordance with the
Partnership Agreement, including but not limited to the following:
(a) acquire ownership of the real property referred to in Exhibit "A"
attached hereto;
(b) construct, renovate, rehabilitate, and own, the Apartment Housing
in accordance with the Project Documents;
(c) provide housing to Qualified Tenants, subject to the Minimum
Set-Aside Test and the Rent Restriction Test and consistent with the
requirements of the Project Documents so long as any Project Documents remain in
force;
(d) maintain and operate the Apartment Housing, including hiring the
15
Management Agent (which Management Agent may be any of the Partners or an
Affiliate thereof) and entering into any agreement for the management of the
Apartment Housing during its rent-up and after its rent-up period in accordance
with this Agreement;
(e) enter into the Mortgage;
(f) rent dwelling units in the Apartment Housing from time to time, in
accordance with the provisions of the Code applicable to LIHTC; and
(g) do any and all other acts and things necessary or proper in
accordance with this Agreement.
ARTICLE V
TERM
The Partnership term commenced upon the filing of the Certificate of
Limited Partnership in the office of, and on the form prescribed by, the
Secretary of State of Mississippi, and shall continue until September 30, 2054
unless terminated earlier in accordance with the provisions of this Agreement or
as otherwise provided by law.
ARTICLE VI
GENERAL PARTNER'S CONTRIBUTIONS AND LOANS
Section 6.1 Capital Contribution of General Partner.
The General Partner shall make a Capital Contribution equal to $23,962
Section 6.2 Construction Obligations.
(a) The General Partner hereby guarantees liens free Completion of
Construction of the Apartment Housing on or before September 1, 2006
("Completion Date"). The General Partner further guarantees that the development
of the Apartment Housing and Improvements will not exceed a total development
cost of $2,010,377 ("Development Budget"), which includes all hard and soft
costs incident to the acquisition, development and construction of the Apartment
Housing in accordance with the Development Budget and the Project Documents. At
the time of Permanent Mortgage Commencement, if the actual hard costs and soft
costs of developing and constructing the Apartment Housing and Improvements
exceed the Development Budget then the General Partner prior to Permanent
Mortgage Commencement shall advance the money to the Partnership to pay the
difference between the aggregated actual hard and soft costs and the Development
Budget. At the time of Permanent Mortgage Commencement, if the remaining sources
of revenue from Capital Contributions and the Mortgage are insufficient, as
determined by the Accountant and Special Limited Partner, to pay any outstanding
hard and soft costs incident to the acquisition, development and construction of
the Apartment Housing, then the General Partner prior to Permanent Mortgage
Commencement shall advance the money to the Partnership to pay the additional
costs.
(b) At any time during construction and prior to Permanent Mortgage
Commencement, if the Special Limited Partner, in good faith, determine that the
actual construction and development costs exceed the Development Budget
(excluding the Development Fee) then the General Partner shall be responsible
16
for and shall be obligated to advance and deposit into the disbursement agent's
account within ten days following notice by the Special Limited Partner, the
difference thereof for payment to the Contractor or other vendors, suppliers, or
subcontractors. In addition, at any time during construction and prior to
Completion of Construction if the Special Limited Partner, in good faith,
determine there are insufficient funds to obtain Completion of Construction or
the funds are not available in accordance with the funding requirements of this
Agreement, then the General Partner shall be responsible for and shall be
obligated to advance and deposit into the disbursement account within ten days
following notice by the Special Limited Partner or Construction Lender, the
amount requested by the Special Limited Partner to pay a current construction
draw or an amount necessary to obtain Completion of Construction.
(c) Any advances by the General Partner pursuant to this Section 6.2
shall not be repayable, shall not change the Interest of any Partner in the
Partnership and shall be considered a guaranteed payment to the Partnership for
cost overruns.
Section 6.3 Operating Obligations.
(a) From the date the first apartment unit in the Apartment Housing is
available for its intended use (for properties being rehabilitated with the
tenants in residence, the period commences with the signing of this Agreement)
until three consecutive months of Breakeven Operations (for properties being
rehabilitated, the Operating Deficit Guarantee Period ends following three
consecutive months of Breakeven Operations after completion of all
rehabilitation as approved in the Plans and Specifications or scope of work),
the General Partner will immediately provide to the Partnership the necessary
funds to pay Operating Deficits, which funds shall not be repayable, shall not
change the Interest of any Partner and shall be considered a guaranteed payment
to the Partnership for cost overruns. For the balance of the Operating Deficit
Guarantee Period the General Partner will immediately provide Operating Loans to
pay any Operating Deficits. The aggregate maximum amount of the Operating
Loan(s) the General Partner will be obligated to lend will be $108,108 which is
equal to one year's operating expenses (including debt and reserves) as agreed
to by the General Partner and the Special Limited Partner. Each Operating Loan
shall be nonrecourse to the Partners, and shall be repayable out of 50% of the
available Net Operating Income or Sale or Refinancing Proceeds in accordance
with Article XI of this Agreement.
(b) The Partnership shall pay the amount of the Development Fee set
forth in Exhibit B to the Development Fee Agreement entered into as of even date
herewith on an annual basis (the "Scheduled Amount"). In the event the Net
Operating Income of the Partnership is insufficient to pay such annual amount,
the General Partner shall contribute to the Partnership the amount by which Net
Operating Income distributable for payment of the Development Fee pursuant to
Section 11.1 is less than the Scheduled Amount, and such amount shall be
includable in the General Partner's Capital Account.
Section 6.4 Other General Partner Loans.
Unless provided elsewhere, after expiration of the Operating Deficit
Guarantee Period, with the Consent of the Special Limited Partner, the General
Partner will loan to the Partnership any sums required by the Partnership and
not otherwise reasonably available to it. Any such loan shall bear simple
interest (not compounded) at the 10-year Treasury money market rate in effect as
of the day of the General Partner loan, or, if lesser, the maximum legal rate.
17
The maturity date and repayment schedule of any such loan shall be as agreed to
by the General Partner and the Special Limited Partner. The terms of any such
loan shall be evidenced by a written instrument. The General Partner shall not
charge a prepayment penalty on any such loan. Any loan in contravention of this
Section shall be deemed an invalid action taken by the General Partner and such
advance will be classified as a General Partner Capital Contribution.
Notwithstanding this provision, the General Partner remains obligated to the
Partnership, Limited Partner and Special Limited Partner as required in
accordance with the State limited partnership act, as amended from time to time.
ARTICLE VII
CAPITAL CONTRIBUTIONS OF LIMITED PARTNER
AND SPECIAL LIMITED PARTNER
Section 7.1 Original Limited Partner.
The Original Limited Partner made a Capital Contribution of $100.
Effective as of the date of this Agreement, the Original Limited Partner's
Interest has been liquidated and the Partnership has reacquired the Original
Limited Partner's Interest in the Partnership. The Original Limited Partner
acknowledges that it has no further interest in the Partnership as a partner as
of the date of this Agreement, and has released all claims, if any, against the
Partnership arising out of its participation as a limited partner.
Section 7.2 Capital Contribution of Limited Partner.
The Limited Partner shall make a Capital Contribution in the amount of
$463,460, as may be adjusted in accordance with Section 7.4 of this Agreement,
in cash on the dates and subject to the conditions hereinafter set forth.
(a) $115,911 (which includes the Special Limited Partner's Capital
Contribution of $46) shall be payable upon the Limited Partner's receipt and
approval of the following documents:
(1) a legal opinion in a form substantially similar to the form
of opinion attached hereto as Exhibit "B" and incorporated herein by
this reference;
(2) a fully executed Certification and Agreement in the form
attached hereto as Exhibit "C" and incorporated herein by this
reference;
(3) a copy of the Title Policy;
(4) Insurance required during construction;
(5) a copy of the recorded grant deed (warranty deed);
(6) an executed commitment from the Mortgage Lender to provide
the Mortgage;
(7) an executed Development, Construction and Operating Budget
Agreement;
(8) an executed Construction Completion, Operating Deficit and
Tax Credit Guarantee Agreement;
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(9) an executed Development Fee Agreement and Development Fee
Guaranty Agreement;
(10) the construction draw disbursement procedure;
(11) all documents and workpapers supporting the 10% carryover
determination; and
(12) payment of $10,000 for costs and expenses incurred in
connection with the Limited Partner's or its Affiliate's underwriting
of the Apartment Housing and Improvements.
Notwithstanding the foregoing, the first Capital Contribution payment
will be paid in installments based upon approved draw requests in accordance
with the Construction Monitoring Agreement.
(b) $115,865 shall be payable upon the Limited Partner's receipt and
approval of the following documents:
(1) a certificate of occupancy (or equivalent evidence of local
occupancy approval if a permanent certificate is not available) on all
the apartment units in the Apartment Housing confirming the apartment
units are being placed in service for their intended purpose;
(2) any documents previously not provided to the Limited Partner
but required pursuant to this Section 7.2 and Sections 14.3(a) and
(b);
(3) a date-down to the Title Policy dated no more than fifteen
days prior to this Capital Contribution payment evidencing no
construction or development related liens;
(4) an audited cost certification together with the Accountant's
work papers verifying that the Partnership has expended the requisite
10% of the reasonably expected cost basis to meet the carryover test
provisions of Section 42 of the Code; and
(5) a determination by the Special Limited Partner that the
construction and financing are In-Balance.
(c) $115,865 shall be payable upon the Limited Partner's receipt and
approval of the following documents:
(1) a completion certification in a form substantially similar to
the form attached hereto as Exhibit "D" and incorporated herein by
this reference, indicating that the Improvements have been completed
in accordance with the Project Documents;
(2) a letter from the Contractor in a form substantially similar
to the form attached hereto as Exhibit "F" and incorporated herein by
this reference stating that all amounts payable to the Contractor have
been paid in full and that the Partnership is not in violation of the
Construction Contract;
(3) Insurance required during operations;
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(4) any documents previously not provided to the Limited Partner
but required pursuant to this Section 7.2 and Sections 14.3(a) and
(b);
(5) a date-down to the Title Policy dated no more than fifteen
days prior to this Capital Contribution payment evidencing no
construction or development related liens; and
(6) a determination by the Special Limited Partner that the
amount of the remaining Capital Contribution, and other financing
funds, are equal to or exceed the difference between the Construction
Loan and Mortgage in order to retire the Construction Loan.
The Limited Partner and Special Limited Partner require receipt and approval of
100% of the initial tenant files as specified in a subsequent Capital
Contribution payment. The time required to collect, review and correct, if
applicable, tenant files can be substantial. Therefore, to expedite the process
the General Partner shall send tenant files to the Special Limited Partner as
soon as the file is complete instead of waiting to send the files all at one
time.
(d) $69,519 shall be payable upon the Limited Partner's receipt and
approval of the following documents:
(1) Mortgage Loan documents signed and the Mortgage funded;
(2) an updated Title Policy dated no more than ten days prior to
the scheduled Capital Contribution confirming that there are no liens,
claims or rights to a lien or judgments filed against the property or
the Apartment Housing during the time period since the issuance of the
Title Policy referenced above in Section 7.2(a);
(3) an as-built survey adhering to the requirements referenced in
Exhibit "I" attached hereto and incorporated herein and a surveyor's
certification as referenced in Exhibit "I";
(4) the current rent roll evidencing a minimum 90% occupancy by
Qualified Tenants for 90 consecutive days immediately prior to funding
and 100% LIHTC qualified units;
(5) copies of all initial tenant files including executed lease
agreement, completed applications, completed questionnaires or
checklist of income and assets, documentation of third party
verification of income and assets, income certification forms (LIHTC
specific), and any other form or document collected by the Management
Agent, or General Partner, verifying each tenant's eligibility
pursuant to the Minimum Set-Aside Test and other applicable guidelines
under Section 42 of the Code. For purposes of this sub-section only,
the Limited Partner requires receipt of all the tenant documents as
described above, and approval of 10% of the initial tenant files.
Approval of the balance of the tenant files is withheld for a
subsequent Capital Contribution payment;
(6) Completion of Construction;
(7) a construction closeout binder, which shall include, but not
be limited to, as-built drawings, all operating manuals, and all
manufacturing warranty agreements. In addition, the Contractor shall
provide the Partnership a one-year warranty on all parts, materials
and work-quality;
20
(8) any documents previously not provided to the Limited Partner
but required pursuant to this Section 7.2 and Sections 14.3(a) and
(b); and
(9) notwithstanding the above conditions to this Capital
Contribution payment, the Limited Partner's payment will be held in
escrow until a copy of all the signed Mortgage documents have been
received by the Limited Partner.
(e) $46,346 shall be payable upon the Investor Member's receipt and
approval of the following documents:
(1) a copy of the recorded declaration of restrictive
covenants/extended use agreement entered into between the Company and
the State Tax Credit Agency;
(2) an audited construction cost certification that includes an
itemization of development, acquisition, and construction or
rehabilitation costs of the Apartment Housing, the Land Acquisition
Fee, the Syndication Fee and the eligible basis and applicable
percentage of each building of the Apartment Housing;
(3) the Accountant's final Tax Credit certification in a form
substantially similar to the form attached hereto as Exhibit "E" and
incorporated herein by this reference;
(4) Debt Service Coverage of 1.15 for 90 consecutive days
immediately prior to funding;
(5) a fully signed Internal Revenue Code Form 8609, or any
successor form;
(6) The first year tax return in which Tax Credits are taken by
the Company, unless the Tax Credits are deferred until the following
year upon approval by the Special Member;
(7) the audited Company financial statements required by Section
14.2 for the year the Apartment Housing is placed-in-service;
(8) the Special Member's approval of the initial tenant file; and
(9) any documents previously not provided to the Investor Member
but required pursuant to this Section 7.2 and Sections 14.3(a) and
(b).
(f) The initial tenant files will be reviewed at the Limited Partner's
expense by an independent third-party. In the event that the independent
third-party and the Special Limited Partner recommend corrections to an initial
tenant file, the General Partner will cause the Management Agent to correct the
tenant file and provide the corrected tenant file to the Limited Partner. The
Limited Partner may withhold all or any portion of a Capital Contribution
payment until it has received all the initial tenant files and the same have
been reviewed, corrected and approved.
Section 7.3 Repurchase of Limited Partner's and Special Limited
Partner's Interest.
Within 60 days after the General Partner receives written demand from the
Limited Partner and/or the Special Limited Partner, the Partnership shall
21
repurchase the Limited Partner's Interest and/or the Special Limited Partner's
Interest in the Partnership by refunding to it in cash the full amount of the
Capital Contribution which the Limited Partner and/or the Special Limited
Partner has theretofore made in the event that, for any reason, the Partnership
shall fail to:
(a) cause the Apartment Housing to be placed in service within six
months of the Completion Date;
(b) achieve 100% occupancy of the Apartment Housing by Qualified
Tenants by April 1, 2007;
(c) obtain Permanent Mortgage Commencement by January 1, 2007;
(d) at any time before the Completion Date, prevent a foreclosure,
abandonment, or restriction to construct the Apartment Housing;
(e) replace a withdrawn Mortgage Loan commitment with a comparable
commitment acceptable to the Special Limited Partner within a reasonable period
of time;
(f) meet both the Minimum Set-Aside Test and the Rent Restriction Test
not later than December 31 of the first year the Partnership elects the LIHTC to
commence in accordance with the Code; or
(g) obtain a carryover allocation, within the meaning of Section 42 of
the Code, from the State Tax Credit Agency on or before the due date.
Section 7.4 Adjustment of Capital Contributions.
(a) The amounts of the Limited Partner's and the Special Limited
Partner's Capital Contributions were determined in part upon the amount of Tax
Credits that were expected to be available to the Partnership at a cost of
75.00% for each dollar of Tax Credit received, and were based on the assumption
that the Partnership would be eligible to claim, in the aggregate, the Projected
Tax Credits. If the anticipated amount of Projected Tax Credits to be allocated
to the Limited Partner and Special Limited Partner as evidenced by IRS Form
8609, Schedule A thereto, or by the tax certification required in accordance
with Section 7.2, provided to the Limited Partner and Special Limited Partner
are less than 99.99% of $617,946 then the new Projected Tax Credit amount, if
applicable, shall be referred to as the "Revised Projected Tax Credits." The
Limited Partner's and Special Limited Partner's Capital Contribution provided
for in Section 7.2 shall be equal to 75.00% times the Projected Tax Credit, or
the Revised Projected Tax Credits, if applicable, anticipated to be allocated to
the Limited Partner and Special Limited Partner. If any Capital Contribution
adjustment referenced in this Section 7.4(a) is a reduction which is greater
than the remaining Capital Contribution to be paid by the Limited Partner, then
the General Partner shall have ninety days from the date the General Partner
receives notice from either the Limited Partner or the Special Limited Partner
to pay the shortfall to the Partner whose Capital Contribution is being
adjusted. The amount paid by the General Partner pursuant to this Section will
be deemed to be a Capital Contribution by the General Partner. Notwithstanding
anything to the contrary in this Agreement, the General Partner's Capital
Contribution required to be paid by this Section shall be disbursed to the
Limited Partner as a return of capital. If the Capital Contribution adjustment
referenced in this Section 7.4(a) is an increase then the Partner whose Capital
22
Contribution is being adjusted shall have ninety days from the date the Limited
Partner and Special Limited Partner have received notice from the General
Partner to pay the increase.
(b) The General Partner is required to use its best efforts to rent
100% of the Apartment Housing's apartment units to Qualified Tenants throughout
the Compliance Period. If at the end of any calendar year during the first five
calendar years following the year in which the Apartment Housing is placed in
service, the Actual Tax Credit for the applicable fiscal year or portion thereof
is or will be less than the Projected Annual Tax Credit, or the Projected Annual
Tax Credit as modified by Section 7.4(a) of this Agreement if applicable (the
"Annual Credit Shortfall"), then the next Capital Contribution owed by the
Limited Partner shall be reduced by the Annual Credit Shortfall amount, and any
portion of such Annual Credit Shortfall in excess of such Capital Contribution
shall be applied to reduce succeeding Capital Contributions of the Limited
Partner. If the Annual Credit Shortfall is greater than the Limited Partner's
remaining Capital Contributions then the General Partner shall pay to the
Limited Partner the excess of the Annual Credit Shortfall over the remaining
Capital Contributions. The General Partner shall have sixty days to pay the
Annual Credit Shortfall from the date the General Partner receives notice from
the Special Limited Partner. The provisions of this Section 7.4(b) shall apply
equally to the Special Limited Partner in proportion to its Capital Contribution
and anticipated annual Tax Credit. The amount paid by the General Partner
pursuant to this Section will be deemed to be a Capital Contribution by the
General Partner. Notwithstanding anything to the contrary in this Agreement, the
General Partner's Capital Contribution required by this Section shall be
disbursed to the Limited Partner as a return of capital.
(c) The General Partner has represented, in part, that the Limited
Partner will receive Projected Annual Tax Credits of $15, 449 in 2006 and
$61,795 in 2007. In the event the 2006 or 2007 Actual Tax Credits are less than
projected then the Limited Partner's Capital Contribution shall be reduced by an
amount equal to 75.00% times the difference between the Projected Annual Tax
Credits for 2006 or 2007 and the Actual Tax Credits for 2006 or 2007. If the
2006 or 2007 Actual Tax Credits are less than projected then the Special Limited
Partner's Capital Contribution shall be reduced following the same equation
referenced in the preceding sentence. If, at the time of determination thereof,
the Capital Contribution adjustment referenced in this Section 7.4(c) is greater
than the balance of the Limited Partner's or Special Limited Partner's Capital
Contribution payment which is then due, if any, then the excess amount shall be
paid by the General Partner to the Limited Partner and/or the Special Limited
Partner within sixty days of the General Partner receiving notice of the
reduction from the Limited Partner and/or the Special Limited Partner. The
amount paid by the General Partner pursuant to this Section will be deemed to be
a Capital Contribution by the General Partner. Notwithstanding anything to the
contrary in this Agreement, the General Partner's Capital Contribution required
by this Section shall be disbursed to the Limited Partner as a return of
capital.
(d) The Partners recognize and acknowledge that the Limited Partner and
the Special Limited Partner are making their Capital Contribution, in part, on
the expectation that the Projected Tax Credits are allocated to the Partners
over the Tax Credit Period. If the Projected Tax Credits are not allocated to
the Partners during the Tax Credit Period then the Limited Partner's and Special
Limited Partner's Capital Contribution shall be reduced by an amount agreed upon
by the Partners, in good faith, to provide the Limited Partner and the Special
Limited Partner with their anticipated internal rate of return. In calculating
the internal rate of return, the Limited Partner and Special Limited Partner
acknowledge that the aggregate amount, and annual flow, of Tax Credits carries
more weight in the calculation than the increase in losses earned by the
Partnership.
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(e) In the event there is: (1) a filing of a tax return by the
Partnership evidencing a reduction in the qualified basis or eligible basis of
the Apartment Housing causing a recapture of Tax Credits previously allocated to
the Limited Partner or an adjustment to Schedule K-1 or a loss of future Tax
Credits; (2) a filing of a tax return by the Partnership evidencing a
disposition of the Apartment Housing prior to the expiration of the Compliance
Period causing a recapture of Tax Credits previously allocated to the Limited
Partner, or an adjustment to Schedule K-1, or a loss of future Tax Credits; (3)
a reduction in the qualified basis or eligible basis of the Apartment Housing
for income tax purposes following an examination or review by the Internal
Revenue Service ("IRS"), whether by settlement, mutual agreement or IRS
decision, resulting in a recapture or reduction of Tax Credits previously
claimed or an adjustment to Schedule K-1; (4) a decision by any court or
administrative body upholding an assessment of deficiency against the
Partnership with respect to any Tax Credit previously claimed or tax losses
previously claimed, in connection with the Apartment Housing, unless the
Partnership shall timely appeal such decision and the collection of such
assessment shall be stayed pending the disposition of such appeal; or (5) a
decision of a court affirming such decision upon such appeal then, in addition
to any other payments to which the Limited Partner and/or the Special Limited
Partner are entitled under the terms of this Section 7.4, the General Partner
shall pay to the Limited Partner and the Special Limited Partner within 60 days
of receiving notice from the Limited Partner and/or the Special Limited Partner
the sum of (A) the amount of the Tax Credit recapture, (B) the cumulative tax
effect of a decrease in loss allocated to the Limited Partner and Special
Limited Partner by the Partnership; (C) any interest and penalties imposed on
the Limited Partner or Special Limited Partner with respect to such recapture;
(D) the cumulative increase of taxable income allocated to the Limited Partner
and Special Limited Partner by the Partnership; (E) an amount equal to the
product of the Tax Credit pricing percentage referenced in Section 7.4(a) and
future Tax Credits unable to be taken due to one of the above actions; and (F)
an amount sufficient to pay any tax liability owed by the Limited Partner or
Special Limited Partner resulting from the receipt of the amounts specified in
(A), (B), (C) and (D).
(f) The increase in the Capital Contribution of the Limited Partner and
the Special Limited Partner pursuant to Section 7.4(a) shall be subject to the
Limited Partner and Special Limited Partner having funds available to pay any
such increase at the time of its notification of such increase. For these
purposes, any funds theretofore previously earmarked by the Limited Partner or
Special Limited Partner to make other investments, or to be held as required
reserves, shall not be considered available for payment hereunder.
Section 7.5 Return of Capital Contribution.
From time to time the Partnership may have cash in excess of the amount required
for the conduct of the affairs of the Partnership, and the General Partner may,
with the Consent of the Special Limited Partner, determine that such cash
should, in whole or in part, be returned to the Partners, pro rata, in reduction
of their Capital Contribution. No such return shall be made unless all
liabilities of the Partnership (except those to Partners on account of amounts
credited to them pursuant to this Agreement) have been paid or there remain
assets of the Partnership sufficient, in the sole discretion of the General
Partner, to pay such liabilities.
Section 7.6 Liability of Limited Partner and Special Limited Partner.
The Limited Partner and Special Limited Partner shall not be liable for
any of the debts, liabilities, contracts or other obligations of the
Partnership. The Limited Partner and Special Limited Partner shall be liable
24
only to make Capital Contributions in the amounts and on the dates specified in
this Agreement and, except as otherwise expressly required hereunder, shall not
be required to lend any funds to the Partnership or, after their respective
Capital Contributions have been paid, to make any further Capital Contribution
to the Partnership.
ARTICLE VIII
WORKING CAPITAL AND RESERVES
Section 8.1 Operating and Maintenance Account.
The General Partner, on behalf of the Partnership, shall establish an
operating and maintenance account and shall deposit thereinto, or provide a
letter of credit, in an amount required by the RD, to be used for initial
operating capital as permitted or required by applicable RD regulations. Said
amount shall be reimbursed, without interest, out of Apartment Housing funds as
shall be authorized in accordance with applicable RD regulations, and if not so
reimbursed within five years of the deposit, any amount remaining unreimbursed
shall be forgiven and shall constitute an ordinary and necessary business
expense of the General Partner as part consideration for the payment of the
Development Fee.
Section 8.2 Reserve for Replacements.
The Partnership shall fund, establish and maintain a reserve account in
an amount required by the RD Loan Agreement which funds shall be used in
accordance with RD Regulation 7 CFR Part 1930-C, or any successor thereof, as
evidenced by the RD Loan Agreement.
Section 8.3 Tax and Insurance Account.
The General Partner, on behalf of the Partnership, shall open a tax and
insurance account ("T & I Account") for the purpose of making the requisite
Insurance premium payments and the real estate tax payments. The annual deposit
to the T & I Account shall equal the total annual Insurance payment and the
total annual real estate tax payment. Said amount shall be deposited monthly in
an amount equal to 1/12th of the annual required amount. Notwithstanding the
foregoing, as part of its obligation to achieve Break-even Operations, the
General Partner shall cause the Partnership to prefund the T & I Account in an
amount equal to one year's property insurance premium and the next full
installment of real estate taxes based on improved land. Any balance remaining
in the account at the time of a sale of the Apartment Housing shall be allocated
and distributed equally between the General Partner and the Limited Partner. The
Partnership is required to pay real estate taxes on February 2 of each year.
Section 8.4 Other Reserves.
The General Partner, on behalf of the Partnership, may establish out of
funds available to the Partnership a reserve account sufficient in its sole
discretion to pay any unforeseen contingencies which might arise in connection
with the furtherance of the Partnership business including, but not limited to,
(a) any rent subsidy required to maintain rent levels in compliance with the Tax
Credit Conditions and applicable RD regulations; and (b) any debt service or
other payments for which other funds are not provided for hereunder or otherwise
expected to be available to the Partnership. The General Partner shall not be
liable for any good-faith estimate which it shall make in connection with
25
establishing or maintaining any such reserves nor shall the General Partner be
required to establish or maintain any such reserves if, in its sole discretion,
such reserves do not appear to be necessary.
ARTICLE IX
MANAGEMENT AND CONTROL
Section 9.1 Power and Authority of General Partner.
Subject to the Consent of the Special Limited Partner or the consent of
the Limited Partner where required by this Agreement, and subject to the other
limitations and restrictions included in this Agreement, the General Partner
shall have complete and exclusive control over the management of the Partnership
business and affairs, and shall have the right, power and authority, on behalf
of the Partnership, and in its name, to exercise all of the rights, powers and
authority of a partner of a partnership without limited partners. If there is
more than one General Partner, all acts, decisions or consents of the General
Partners shall require the concurrence of all of the General Partners. If a
General Partner takes action without the authorization of all the General
Partners then such act, decision, etc. shall not be deemed a valid action taken
by the General Partners pursuant to this Agreement. No intentional act by a
General Partner, or a principal of a General Partner, that violates State or
federal law will be deemed to be within the authority of this Agreement and,
therefore, the General Partner will be deemed to have acted in its individual
capacity and not as an agent of the Partnership. No Limited Partner or Special
Limited Partner (except one who may also be a General Partner, and then only in
its capacity as General Partner within the scope of its authority hereunder)
shall have any right to be active in the management of the Partnership's
business or investments or to exercise any control thereover, nor have the right
to bind the Partnership in any contract, agreement, promise or undertaking, or
to act in any way whatsoever with respect to the control or conduct of the
business of the Partnership, except as otherwise specifically provided in this
Agreement.
Section 9.2 Payments to the General Partners and Others.
(a) The Partnership shall pay to the Developer a Development Fee in the
amount of $124,000 in accordance with the Development Fee Agreement entered into
by and between the Developer and the Partnership on the even date hereof. The
Development Fee Agreement provides, in part, that the Development Fee shall
first be paid from available proceeds in accordance with Section 9.2(b) of this
Agreement and if not paid in full then the balance of the Development Fee will
be paid in accordance with Section 11.1 of this Agreement.
(b) The Partnership shall utilize the proceeds from the Capital
Contributions paid pursuant to Section 7.2 of this Agreement for costs
associated with the development and construction of the Apartment Housing
including, but not limited to, land costs, Land Acquisition Fee, architectural
fees, survey and engineering costs, financing costs, loan fees, Syndication Fee,
building materials and labor. If any Capital Contribution proceeds are remaining
after Completion of Construction and all acquisition, development and
construction costs, excluding the Development Fee, are paid in full, then the
remainder shall: first be paid to the Developer in payment of the Development
Fee; second be paid to the General Partner as a reduction of the General
Partner's Capital Contribution; and any remaining Capital Contribution proceeds
shall be paid to the General Partner as a Partnership oversight fee.
(c) The Partnership shall pay to the Management Agent a property
management fee for the leasing and management of the Apartment Housing in an
26
amount in accordance with the Management Agreement. The term of the Management
Agreement shall not exceed one year, and the execution or renewal of any
Management Agreement shall be subject to the prior Consent of the Special
Limited Partner. If the Management Agent is an Affiliate of the General Partner,
and there is an Operating Deficit following the termination of the Operating
Deficit Guarantee Period or the depletion of the maximum Operating Deficit
amount pursuant to Section 6.3, whichever occurs first, then 40% of the
management fee will be deferred ("Deferred Management Fee"). Deferred Management
Fees, if any, shall be paid to the Management Agent in accordance with Section
11.1 of this Agreement.
(1) The General Partner shall, upon receiving any request of
the Mortgage lender requesting such action, dismiss the Management Agent as the
entity responsible for management of the Apartment Housing under the terms of
the Management Agreement; or, the General Partner shall dismiss the Management
Agent at the request of the Special Limited Partner.
(2) The appointment of any successor Management Agent is
subject to the Consent of the Special Limited Partner, which may only be sought
after the General Partner has provided the Special Limited Partner with accurate
and complete disclosure respecting the proposed Management Agent.
(d) The Partnership shall pay to the Limited Partner an annual Asset
Management Fee commencing in 2007 equal to 15% of the Net Operating Income for
the Limited Partner's services in assisting with the preparation of tax returns
and the reports required in Section 14.2 and Section 14.3 of this Agreement. The
minimum annual Asset Management Fee of 15% shall be payable in monthly equal
installments; provided, however, that if in any year Net Operating Income is
insufficient to pay the full 15%, the unpaid portion thereof shall accrue and be
payable on a cumulative basis in the first year in which there is sufficient Net
Operating Income, as provided in Section 11.1, or sufficient Sale or Refinancing
Proceeds, as provided in Section 11.2. The General Partner shall ensure that any
accrued Asset Management Fee will be reflected in the annual audited financial
statement.
(e) The Partnership shall pay to the General Partner through the
Compliance Period an annual Incentive Management Fee equal to 40% commencing in
2007 for overseeing the marketing, lease-up and continued occupancy of the
Partnership's apartment units, obtaining and monitoring the Mortgage Loan,
maintaining the books and records of the Partnership, selecting and supervising
the Partnership's Accountants, bookkeepers and other Persons required to prepare
and audit the Partnership's financial statements and tax returns, and preparing
and disseminating reports on the status of the Apartment Housing and the
Partnership, all as required by Article XIV of this Agreement. The Partners
acknowledge that the Incentive Management Fee is being paid as an inducement to
the General Partner to operate the Partnership efficiently, to maximize
occupancy and to increase the Net Operating Income. The Incentive Management Fee
shall be payable from Net Operating Income in the manner and priority set forth
in Section 11.1 of this Agreement upon completion and delivery of the annual
audit pursuant to Section 14.2(a) of this Agreement. If the Incentive Management
Fee is not paid in any year it shall not accrue for payment in subsequent years.
(f) The Partnership shall pay to the General Partner through the
Compliance Period an annual Tax Credit Compliance Fee equal to 40% of Net
Operating Income commencing in 2007 for the services of the General Partner in
ensuring compliance by the Partnership and the Apartment Housing with all Tax
Credit rules and regulations. The Tax Credit Compliance Fee shall be payable
from Net Operating Income in the manner and priority set forth in Section 11.1
27
of this Agreement upon completion and delivery of the annual audit pursuant to
Section 14.2(a) of this Agreement. If the Tax Credit Compliance Fee is not paid
in any year it shall not accrue for payment in subsequent years.
Section 9.3 Specific Powers of the General Partner.
Subject to the other provisions of this Agreement, the General Partner,
in the Partnership's name and on its behalf, may:
(a) employ, contract and otherwise deal with, from time to time,
Persons whose services are necessary or appropriate in connection with
management and operation of the Partnership business, including, without
limitation, contractors, agents, brokers, Accountants and Management Agents
(provided that the selection of any Accountant or Management Agent has received
the Consent of the Special Limited Partner) and attorneys, on such terms as the
General Partner shall determine within the scope of this Agreement;
(b) pay as a Partnership expense any and all costs and expenses
associated with the formation, development, organization and operation of the
Partnership, including the expense of annual audits, tax returns and LIHTC
compliance, except that this Section shall not be interpreted to circumvent the
General Partner's obligation under the Operating Deficit Guarantee;
(c) deposit, withdraw, invest, pay, retain and distribute the
Partnership's funds in a manner consistent with the provisions of this
Agreement;
(d) execute the Mortgage; and
(e) execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing.
Section 9.4 Authority Requirements.
During the Compliance Period, the following provisions shall apply.
(a) Each of the provisions of this Agreement shall be subject to, and
the General Partner covenants to act in accordance with, the Tax Credit
Conditions and all applicable federal, state and local laws and regulations.
(b) The Tax Credit Conditions and all such laws and regulations, as
amended or supplemented, shall govern the rights and obligations of the
Partners, their heirs, executors, administrators, successor and assigns, and
they shall control as to any terms in this Agreement which are inconsistent
therewith, and any such inconsistent terms of this Agreement shall be
unenforceable by or against any of the Partners.
(c) Upon any dissolution of the Partnership or any transfer of the
Apartment Housing, no title or right to the possession and control of the
Apartment Housing and no right to collect rent therefrom shall pass to any
Person who is not, or does not become, bound by the Tax Credit Conditions in a
manner that, in the opinion of counsel to the Partnership, would avoid a
recapture of Tax Credits thereof on the part of the former owners.
28
(d) Any conveyance or transfer of title to all or any portion of the
Apartment Housing required or permitted under this Agreement shall in all
respects be subject to the Tax Credit Conditions and all conditions, approvals
or other requirements of the rules and regulations of any authority applicable
thereto.
Section 9.5 Limitations on General Partner's Power and Authority.
Notwithstanding the provisions of this Article IX, the General Partner
shall not:
(a) except as required by Section 9.4, act in contravention of this
Agreement;
(b) act in any manner which would make it impossible to carry on the
ordinary business of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess Partnership property, or assign the Partner's right in
specific Partnership property, for other than the exclusive benefit of the
Partnership;
(e) admit a Person as a General Partner except as provided in this
Agreement;
(f) directly or indirectly transfer control of the General Partner;
(g) admit a Person as a Limited Partner or Special Limited Partner
except as provided in this Agreement;
(h) violate any provision of the Mortgage;
(i) cause the Apartment Housing apartment units to be rented to anyone
other than Qualified Tenants;
(j) violate the Minimum Set-Aside Test or the Rent Restriction Test for
the Apartment Housing;
(k) allow the Insurance to expire;
(l) permit the Apartment Housing to be without utility service;
(m) cause any recapture of the Tax Credits;
(n) permit any creditor who makes a nonrecourse loan to the Partnership
to have, or to acquire at any time as a result of making such loan, any direct
or indirect interest in the profits, income, capital or other property of the
Partnership, other than as a secured creditor;
(o) commingle funds of the Partnership with the funds of another
Person;
(p) fail to cause the Partnership to make the Mortgage payment if the
Partnership fails to pay the same when due, subject to available funds,
29
including funds provided under Section 6.3 or Section 6.4;
(q) fail to cause the Accountant to issue the reports specified in
Section 14.2(a) and (b) of this Agreement;
(r) take any action which requires the Consent of the Special Limited
Partner or the consent of the Limited Partner unless the General Partner has
received said Consent;
(s) allow the Real Estate Taxes to be unpaid if the Partnership fails
to pay the same when due;
(t) pay any real estate commission for the sale or refinancing of the
Apartment Housing;
(u) take any action that would cause termination of the Partnership;
(v) encumber the Apartment Housing, except as provided herein;
(w) execute an assignment for the benefit of creditors; or
(x) permit the Partnership to make any loan to any Person.
Section 9.6 Restrictions on Authority of General Partner.
Without the Consent of the Special Limited Partner the General Partner
shall not:
(a) sell, exchange, lease (except in the normal course of business to
Qualified Tenants) or otherwise dispose of the Apartment Housing;
(b) incur indebtedness in the name of the Partnership other than the
Mortgage;
(c) use Partnership assets, property or Improvements to secure the debt
of any Partners, their Affiliates, or any third party;
(d) engage in any transaction not expressly contemplated by this
Agreement in which the General Partner has an actual or potential conflict of
interest with the Limited Partner or the Special Limited Partner;
(e) contract away the fiduciary duty owed to the Limited Partner and
the Special Limited Partner at common law;
(f) take any action which would cause the Apartment Housing to fail to
qualify, or which would cause a termination or discontinuance of the
qualification of the Apartment Housing, as a "qualified low income housing
project" under Section 42(g)(1) of the Code, as amended, or any successor
thereto, or which would cause the Limited Partner to fail to obtain the
Projected Tax Credits or which would cause the recapture of any LIHTC;
(g) make any expenditure of funds, or commit to make any such
expenditure, other than in response to an emergency, except as provided for in
the annual budget approved by the Special Limited Partner, as provided in
Section 14.3(i) hereof;
30
(h) cause the merger or other reorganization of the Partnership;
(i) dissolve the Partnership;
(j) acquire any real or personal property (tangible or intangible) in
addition to the Apartment Housing the aggregate value of which shall exceed
$10,000 (other than easement or similar rights necessary or appropriate for the
operation of the Apartment Housing);
(k) become personally liable on or in respect of, or guarantee, the
Mortgage or any other indebtedness of the Partnership;
(l) pay any salary, fees or other compensation to a General Partner or
any Affiliate thereof, except as authorized by Section 9.2 and Section 9.9
hereof or specifically provided for in this Agreement;
(m) substitute the Accountant, Construction Inspector, Contractor or
Management Agent, as named herein, or terminate, amend or modify the
Construction Contract or any other Project Document, or grant any material
waiver or consent thereunder;
(n) cause the Partnership to redeem or repurchase all or any portion of
the Interest of a Partner;
(o) cause the Partnership to convert the Apartment Housing to
cooperative or condominium ownership;
(p) cause or permit the Partnership to make loans to the General
Partner or any Affiliate;
(q) bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the
Partnership;
(r) agree or consent to any changes in the Plans and Specifications, to
any change orders, or to any of the terms and provisions of the Construction
Contract;
(s) cause any funds to be paid to the General Partner or its Affiliates
for laundry service, cable hook-up, telephone connection, computer access,
satellite connection, compliance monitoring, initial rental set-up fee or
similar service or fee;
(t) on behalf of the Partnership, file or cause to be filed a voluntary
petition in bankruptcy under the Federal Bankruptcy Code, or file or cause to be
filed a petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or rule;
(u) settle any audit with the Internal Revenue Service concerning the
adjustment or readjustment of any Partnership tax item, extend any statute of
limitations, or initiate or settle any judicial review or action concerning the
amount or character of any Partnership tax item; or
(v) make, amend or revoke any tax election.
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Section 9.7 Duties of General Partner.
The General Partner agrees that it shall at all times:
(a) diligently and faithfully devote such of its time to the business
of the Partnership as may be necessary to properly conduct the affairs of the
Partnership;
(b) file and publish all certificates, statements or other instruments
required by law for the formation and operation of the Partnership as a limited
partnership in all appropriate jurisdictions;
(c) cause the Partnership to carry Insurance from an Insurance Company;
(d) have a fiduciary responsibility for the safekeeping and use of all
funds and assets of the Partnership, whether or not in its immediate possession
or control;
(e) have a fiduciary responsibility to not use or permit another to use
Partnership funds or assets in any manner except for the benefit of the
Partnership;
(f) use its best efforts so that all requirements shall be met which
are reasonably necessary to obtain or achieve (1) compliance with the Minimum
Set-Aside Test, the Rent Restriction Test, and any other requirements necessary
for the Apartment Housing to initially qualify, and to continue to qualify, for
LIHTC; (2) issuance of all necessary certificates of occupancy, including all
governmental approvals required to permit occupancy of all of the apartment
units in the Apartment Housing; (3) compliance with all provisions of the
Project Documents and (4) a reservation and allocation of LIHTC from the State
Tax Credit Agency;
(g) make inspections of the Apartment Housing and assure that the
Apartment Housing is in decent, safe, sanitary and good condition, repair and
working order, ordinary use and obsolescence excepted, and make or cause to be
made from time to time all necessary repairs thereto (including external and
structural repairs) and renewals and replacements thereof;
(h) pay, before the same shall become delinquent and before penalties
accrue thereon all Partnership taxes, assessments and other governmental charges
against the Partnership or its properties, and all of its other liabilities,
except to the extent and so long as the same are being contested in good faith
by appropriate proceedings in such manners as not to cause any material adverse
effect on the Partnership's property, financial condition or business
operations, with adequate reserves provided for such payments;
(i) pay, before the same becomes due or expires, the Insurance premium
and utilities to the Apartment Housing;
(j) permit, and cause the Management Agent to permit, the Special
Limited Partner and its representatives: (1) to have access to the Apartment
Housing and personnel employed by the Partnership and by the Management Agent at
all times during normal business hours after reasonable notice; (2) to examine
all agreements, LIHTC compliance data and Plans and Specifications; and (3) to
make copies thereof;
(k) exercise good faith in all activities relating to the conduct of
the business of the Partnership, including the development, operation and
32
maintenance of the Apartment Housing, and shall take no action with respect to
the business and property of the Partnership which is not reasonably related to
the achievement of the purpose of the Partnership;
(l) make any Capital Contributions, advances or loans required to be
made by the General Partner under the terms of this Agreement;
(m) establish and maintain all reserves required to be established and
maintained under the terms of this Agreement;
(n) cause the Partnership to pay, before the same becomes due, the
Mortgage payment, subject to available funds, including funds provided under
Section 6.3 or Section 6.4;
(o) pay, before the same becomes due the Real Estate Taxes;
(p) cause the Management Agent to manage the Apartment Housing in such
a manner that the Apartment Housing will be eligible to receive LIHTC with
respect to 100% of the apartment units in the Apartment Housing. To that end,
the General Partner agrees, without limitation: (1) to make all elections
requested by the Special Limited Partner under Section 42 of the Code to allow
the Partnership or its Partners to claim the Tax Credit; (2) to file Form 8609
with respect to the Apartment Housing as required, for at least the duration of
the Compliance Period; (3) to operate the Apartment Housing and cause the
Management Agent to manage the Apartment Housing so as to comply with the
requirements of Section 42 of the Code, as amended, or any successor thereto,
including, but not limited to, Section 42(g) and Section 42(i)(3) of the Code,
as amended, or any successors thereto; (4) to make all certifications required
by Section 42(l) of the Code, as amended, or any successor thereto; and (5) to
operate the Apartment Housing and cause the Management Agent to manage the
Apartment Housing so as to comply with all other Tax Credit Conditions;
(q) cause the Accountant to issue the information required in
accordance with Sections 14.2(a) and (b);
(r) perform such other acts as may be expressly required of it under
the terms of this Agreement;
(s) maintain on it's staff during construction and rent-up a trained
and experienced project manager who is responsible for the development and
construction of the Improvements, and responsible for obtaining Completion of
Construction. In lieu of this employee, or if the project manager position
remains vacant for twenty-one days, the General Partner shall retain the
services of a construction management firm, which firm shall be pre-approved by
the Special Limited Partner;
(t) maintain the initial tenant files, as may be corrected by the
Management Agent following the third party review, in a clean, dry, fireproof
location for a minimum period of twenty-one years; and
(u) abide by State law governing the operations of partnerships:
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Section 9.8 Obligations to Repair and Rebuild Apartment Housing.
With the approval of any lender, if such approval is required, any
Insurance proceeds received by the Partnership due to fire or other casualty
affecting the Apartment Housing will be utilized to repair and rebuild the
Apartment Housing in satisfaction of the conditions contained in Section
42(j)(4) of the Code and to the extent required by any lender. Any such proceeds
received in respect of such event occurring after the Compliance Period shall be
so utilized or, if permitted by the Project Documents and with the Consent of
the Special Limited Partner, shall be treated as Sale or Refinancing Proceeds.
Section 9.9 Partnership Expenses.
(a) All of the Partnership's expenses shall be billed directly to and
paid by the Partnership unless otherwise provided in this Agreement.
Reimbursements to the General Partner, or any of its Affiliates, by the
Partnership shall be allowed as provided herein. The General Partner shall not
be reimbursed if the General Partner is obligated to pay the same as an
Operating Deficit during the Operating Deficit Guarantee Period, or by operation
of law in accordance with the State limited partnership act as amended, or in
accordance with this Agreement, or subject to the limitations on the
reimbursement of such expenses set forth herein in which case the General
Partner shall be responsible for payment of the expense. For purposes of this
Section, Cash Expenses shall include fees paid by the Partnership to the General
Partner or any Affiliate of the General Partner permitted by this Agreement and
the actual cost of goods, materials and administrative services used for or by
the Partnership, whether incurred by the General Partner, an Affiliate of the
General Partner or a nonaffiliated Person in performing the foregoing functions.
As used in the preceding sentence, "actual cost of goods and materials" means
the cost of the goods or services must be no greater and preferably less than
the cost of the same goods or services from non-Affiliated vendors, contractors,
or managers in the market area, and actual cost of administrative services means
the pro rata cost of personnel (as if such persons were employees of the
Partnership) associated therewith, but in no event to exceed the amount which
would be charged by nonaffiliated Persons for comparable goods and services.
(b) Reimbursement to the General Partner or any of its Affiliates of
operating cash expenses pursuant to Subsection (a) hereof shall be subject to
the following:
(1) no such reimbursement shall be permitted for services for
which the General Partner or any of its Affiliates is entitled to compensation
by way of a separate fee; and
(2) no such reimbursement shall be made for (A) rent or
depreciation, utilities, capital equipment or other such administrative items,
and (B) salaries, fringe benefits, travel expenses and other administrative
items incurred or allocated to any "controlling person" of the General Partner
or any Affiliate of the General Partner. For the purposes of this Section
9.9(b)(2), "controlling person" includes, but is not limited to, any Person,
however titled, who performs functions for the General Partner or any Affiliate
of the General Partner similar to those of: (i) chairman or member of the board
of directors; (ii) executive management, such as president, vice president or
senior vice president, corporate secretary or treasurer; (iii) senior
management, such as the vice president of an operating division who reports
directly to executive management; or (iv) those holding 5% or more equity
interest in such General Partner or any such Affiliate of the General Partner or
a person having the power to direct or cause the direction of such General
Partner or any such Affiliate of the General Partner, whether through the
ownership of voting securities, by contract or otherwise.
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Section 9.10 General Partner Expenses.
The General Partner or Affiliates of the General Partner shall pay all
Partnership expenses which are not permitted to be reimbursed pursuant to
Section 9.9 and all expenses which are unrelated to the business of the
Partnership.
Section 9.11 Other Business of Partners.
Any Partner may engage independently or with others in other business
ventures wholly unrelated to the Partnership business of every nature and
description, including, without limitation, the acquisition, development,
construction, operation and management of real estate projects and developments
of every type on their own behalf or on behalf of other partnerships, joint
ventures, corporations or other business ventures formed by them or in which
they may have an interest, including, without limitation, business ventures
similar to, related to or in direct or indirect competition with the Apartment
Housing. Neither the Partnership nor any Partner shall have any right by virtue
of this Agreement or the partnership relationship created hereby in or to such
other ventures or activities or to the income or proceeds derived therefrom.
Conversely, no Person shall have any rights to Partnership assets, incomes or
proceeds by virtue of such other ventures or activities of any Partner.
Section 9.12 Covenants, Representations and Warranties.
The General Partner covenants, represents and warrants that the
following are presently true, will be true at the time of each Capital
Contribution payment made by the Limited Partner and will be true during the
term of this Agreement, to the extent then applicable.
(a) The Partnership is a duly organized limited partnership validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of the
Limited Partner and the Special Limited Partner.
(b) The Partnership Agreement and the Project Documents are in full
force and effect and neither the Partnership nor the General Partner is in
breach or violation of any provisions thereof.
(c) Improvements will be completed in a timely and workerlike manner in
accordance with all applicable requirements of all appropriate governmental
entities and the Plans and Specifications of the Apartment Housing.
(d) The Apartment Housing is being operated in accordance with
standards and procedures that are prudent and customary for the operation of
properties similar to the Apartment Housing.
(e) No Partner has or will have any personal liability with respect to
or has or will have personally guaranteed the payment of the Mortgage.
(f) The Partnership is in compliance with all construction and use
codes applicable to the Apartment Housing and is not in violation of any zoning,
environmental or similar regulations applicable to the Apartment Housing.
(g) All appropriate public utilities, including sanitary and storm
sewers, water, gas and electricity, are currently available and will be
35
operating properly for all units in the Apartment Housing at the time of first
occupancy and throughout the term of the Partnership.
(h) All roads necessary for the full utilization of the Improvements
have either been completed or the necessary rights of way therefore have been
acquired by the appropriate governmental authority or have been dedicated to
public use and accepted by said governmental authority.
(i) The Partnership has Insurance written by an Insurance Company.
(j) The Partnership owns the fee simple interest in the Apartment
Housing.
(k) The Construction Contract has been entered into between the
Partnership and the Contractor; no other consideration or fee shall be paid to
the Contractor other than amounts set forth in the Construction Contract.
(l) The General Partner will require the Accountant to depreciate
Partnership items in accordance with Exhibit "G" attached hereto and
incorporated herein by this reference and provide the information required by
Sections 14.2(a) and (b) of this Agreement.
(m) To the best of the General Partner's knowledge: (1) no Hazardous
Substance has been disposed of, or released to or from, or otherwise now exists
in, on, under or around, the Apartment Housing and (2) no aboveground or
underground storage tanks are now or have ever been located on or under the
Apartment Housing. The General Partner will not install or allow to be installed
any aboveground or underground storage tanks on the Apartment Housing. The
General Partner covenants that the Apartment Housing shall be kept free of
Hazardous Substance and shall not be used to generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce or process
Hazardous Substance, except in connection with the normal maintenance and
operation of any portion of the Apartment Housing. The General Partner shall
comply, or cause there to be compliance, with all applicable Federal, state and
local laws, ordinances, rules and regulations with respect to Hazardous
Substance and shall keep, or cause to be kept, the Apartment Housing free and
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The General Partner must promptly notify the Limited Partner and
the Special Limited Partner in writing (3) if it knows, or suspects or believes
there may be any Hazardous Substance in or around any part of the Apartment
Housing, any Improvements constructed on the Apartment Housing, or the soil,
groundwater or soil vapor, (4) if the General Partner or the Partnership may be
subject to any threatened or pending investigation by any governmental agency
under any law, regulation or ordinance pertaining to any Hazardous Substance,
and (5) of any claim made or threatened by any Person, other than a governmental
agency, against the Partnership or General Partner arising out of or resulting
from any Hazardous Substance being present or released in, on or around any part
of the Apartment Housing.
(n) The General Partner has not executed and will not execute any
agreements with provisions contradictory to, or in opposition of, the provisions
of this Agreement.
(o) The Partnership will allocate to the Limited Partner the Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.
(p) No charges, liens or encumbrances exist with respect to the
Apartment Housing other than those which are created or permitted by the Project
Documents or Mortgage or are noted or excepted in the Title Policy.
(q) The Partnership shall retain the Construction Inspector and ensure
that the Architect of Record's responsibilities include, but are not limited to,
36
preparing and overseeing the construction close-out procedures upon completion;
inspecting for and overseeing resolution of the Contractor's final punch list
items; receiving and approving operation and maintenance manuals; collecting,
reviewing, approving and forwarding to the Partnership all warranties, check key
count and key schedules; and confirming turnover of spare parts and materials.
(r) The buildings on the Apartment Housing site constitute or shall
constitute a "qualified low-income housing project" as defined in Section 42(g)
of the Code, and as amplified by the Treasury Regulations thereunder. In this
connection, not later than December 31 of the first year in which the Partners
elect the LIHTC to commence in accordance with the Code, the Apartment Housing
will satisfy the Minimum Set-Aside Test.
(s) All accounts of the Partnership required to be maintained under the
terms of the Project Documents, including without limitation, any reserves in
accordance with Article VIII hereof, are currently funded to required levels,
including levels required by any governmental or lending authority.
(t) The General Partner has not lent or otherwise advanced any funds to
the Partnership other than its Capital Contribution, or Operating Deficit Loan,
if applicable, and the Partnership has no unsatisfied obligation to make any
payments of any kind to the General Partner or any Affiliate thereof.
(u) No event has occurred which constitutes a default under any of the
Project Documents.
(v) No event has occurred which has caused, and the General Partner has
not acted in any manner which will cause (1) the Partnership to be treated for
federal income tax purposes as an association taxable as a corporation, (2) the
Partnership to fail to qualify as a limited partnership under the Act, or (3)
the Limited Partner to be liable for Partnership obligations; provided however,
the General Partner shall not be in breach of this representation if the action
causing the Limited Partner to be liable for the Partnership obligations is
undertaken by the Limited Partner.
(w) No event or proceeding, including, but not limited to, any legal
actions or proceedings before any court, commission, administrative body or
other governmental authority, and acts of any governmental authority having
jurisdiction over the zoning or land use laws applicable to the Apartment
Housing, has occurred the continuing effect of which has: (1) materially or
adversely affected the operation of the Partnership or the Apartment Housing;
(2) materially or adversely affected the ability of the General Partner to
perform its obligations hereunder or under any other agreement with respect to
the Apartment Housing; or (3) prevented the Completion of Construction of the
Improvements in substantial conformity with the Project Documents, other than
legal proceedings which have been bonded against (or as to which other adequate
financial security has been issued) in a manner as to indemnify the Partnership
against loss; provided, however, the foregoing does not apply to matters of
general applicability which would adversely affect the Partnership, the General
Partner, Affiliates of the General Partner or the Apartment Housing only insofar
as they or any of them are part of the general public.
(x) Neither the Partnership nor the General Partner has any
liabilities, contingent or otherwise, which have not been disclosed in writing
to the Limited Partner and the Special Limited Partner and which in the
aggregate affect the ability of the Limited Partner to obtain the anticipated
benefits of its investment in the Partnership.
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(y) Upon signing of the Mortgage Loan and receipt of the Mortgage
Lender's written start order, the General Partner will cause rehabilitation of
the Improvements to commence and thereafter will cause the Contractor to
diligently proceed with rehabilitation of the Improvements according to the
Plans and Specifications so that the Improvements can be completed by the
Completion Date.
(z) The General Partner has contacted the local tax assessor, or
similar representative, and has determined that the Real Estate Taxes are
accurate and correct, and that the Partnership will not be required to pay any
more for real estate taxes, or property taxes, than the amount of Real Estate
Taxes, referenced in this Agreement, except for annual increases imposed on all
real estate within the same county as the Apartment Housing. In the event the
real estate taxes, or property taxes, are actually greater than the Real Estate
Taxes specified in this Agreement and as a result of the higher real estate tax,
or property tax, the Debt Service Coverage falls below 1.10 then the General
Partner will contribute additional capital to lower the principal of the
mortgage and reamortize the Mortgage so that the Debt Service Coverage is at a
sustainable 1.10 as approved by the Special Limited Partner. If the Mortgage
lender will not, or cannot, reamortize the loan as specified in this Section,
and the General Partner cannot obtain another mortgage, then the General Partner
will contribute additional capital as determined by the Special Limited Partner
to the T & I Account in an amount equal to the annual difference between the
actual real estate tax, or property tax, over the Real Estate Taxes specified in
this Agreement times the number of years remaining on the 15-year LIHTC
compliance term. Any payment by the General Partner pursuant to this section
shall be in addition to the General Partner's obligation to fund Operating
Deficits.
(aa) The Partnership will maintain a Debt Service Coverage of not less
than 1.10 and will not close on a permanent loan or refinance a Mortgage loan if
the Debt Service Coverage would fall below 1.10.
(bb) The General Partner will ensure that the Architect of Record will
have a policy of professional liability insurance in an amount not less than one
million dollars, which policy should remain in force for a period of at least
two years after the closing and funding of the Mortgage.
(cc) The General Partner and the Guarantor have and shall maintain an
aggregate net worth equal to at least $2,000,000 computed in accordance with
generally accepted accounting principles.
(dd) The Partnership is in compliance with and will maintain compliance
with the requirements of the federal Fair Housing Act of 1968 (42 U.S.C. 3600 et
seq.) as amended, with respect to the Apartment Housing.
(ee) Neither the General Partner nor its Affiliates will take any
action or agree to any terms or conditions that are contrary to, or in
disagreement with, the tax credit application used to secure the LIHTC, or the
land use restriction agreement required to be recorded against the Apartment
Housing.
The General Partner shall be liable to the Limited Partner for any
costs, damages, loss of profits, diminution in the value of its investment in
the Partnership, or other losses, of every nature and kind whatsoever, direct or
indirect, realized or incurred by the Limited Partner as a result of any
material breach of the representations and warranties set forth in this Section
9.12.
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Section 9.13 Indemnification of the Partnership and the Limited
Partners
The General Partner will indemnify and hold the Partnership and the
Limited Partners harmless from and against any and all losses, damages and
liabilities (including reasonable attorney's fees) which the Partnership or any
Limited Partner may incur by reason of the past, present, or future actions or
omissions of the General Partner or any of its Affiliates that constitute gross
negligence or willful misconduct, fraud, malfeasance, breach of fiduciary duty
or breach of any material provision of this Agreement that has a material
adverse effect on the Apartment Housing, the Partnership, or any Limited
Partner.
ARTICLE X
ALLOCATIONS OF INCOME, LOSSES AND CREDITS
Section 10.1 General.
All items includable in the calculation of Income or Loss not arising
from a Sale or Refinancing, and all Tax Credits, shall be allocated 99.98%
to the Limited Partner, 0.01% to the Special Limited Partner and
0.01% to the General Partner. In determining the Income, Loss or Tax
Credits, the special allocation provisions of Section 10.3 shall not be taken
into account.
Section 10.2 Allocations From Sale or Refinancing.
All Income and Losses arising from a Sale or Refinancing shall be
allocated between the Partners as follows:
(a) As to Income:
(1) first, an amount of Income equal to the aggregate negative
balances (if any) in the Capital Accounts of all Partners having negative
Capital Accounts (prior to taking into account the Sale or Refinancing and the
Distribution of the related Sale or Refinancing Proceeds, but after giving
effect to Distributions of Net Operating Income and allocations of other Income
and Losses pursuant to this Article X up to the date of the Sale or Refinancing)
shall be allocated to such Partners in proportion to their negative Capital
Account balances until all such Capital Accounts shall have zero balances; and
(2) the balance, if any, of such Income shall be allocated to
the Partners in the proportion necessary so that the Partners will receive the
amount to which they are entitled pursuant to Section 11.2 hereof.
(b) Losses shall be allocated 99.98% to the Limited Partner, 0.01% to
the Special Limited Partner and 0.01% to the General Partner.
(c) Notwithstanding the foregoing provisions of Section 10.2(a) and
(b), in no event shall any Losses be allocated to the Limited Partner or the
Special Limited Partner if and to the extent that such allocation would
create or increase an Adjusted Capital Account Deficit for the Limited Partner
or the Special Limited Partner. In the event an allocation of 99.98% or 0.01% of
each item includable in the calculation of Income or Loss not arising from a
Sale or Refinancing, would create or increase an Adjusted Capital Account
Deficit for the Limited Partner or the Special Limited Partner, respectively,
39
then so much of the items of deduction other than projected depreciation shall
be allocated to the General Partner instead of the Limited Partner or the
Special Limited Partner as is necessary to allow the Limited Partner or the
Special Limited Partner to be allocated 99.98% and 0.01%, respectively, of the
items of Income and Apartment Housing depreciation without creating or
increasing an Adjusted Capital Account Deficit for the Limited Partner or the
Special Limited Partner, it being the intent of the parties that the Limited
Partner and the Special Limited Partner always shall be allocated 99.98% and
0.01%, respectively, of the items of Income not arising from a Sale or
Refinancing and 99.98% and 0.01%, respectively, of the Apartment Housing
depreciation.
Section 10.3 Special Allocations.
The following special allocations shall be made in the following order.
(a) Except as otherwise provided in Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provisions of this Article X, if there is
a net decrease in Partnership Minimum Gain during any Partnership fiscal year,
each Partner shall be specially allocated items of Partnership income and gain
for such fiscal year (and, if necessary, subsequent fiscal years) in an amount
equal to such Person's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Section
1.704-2(f)(6) and 1.704-2(j)(2) of the Treasury Regulations. This Section
10.3(a) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(f) of the Treasury Regulations and shall be interpreted
consistently therewith.
(b) Except as otherwise provided in Section 1.704-2(i)(4) of the
Treasury Regulations, notwithstanding any other provision of this Article X, if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
a Partner Nonrecourse Debt during any Partnership fiscal year, each Person who
has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of
the Treasury Regulations, shall be specially allocated items of Partnership
income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Person's share of the net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Treasury Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This Section
10.3(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted
consistently therewith.
(c) In the event any Partner unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to each such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible, provided that an allocation
pursuant to this Section 10.3(c) shall be made if and only to the extent that
such Partner would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 10.3 have been tentatively made as if
this Section 10.3(c) were not in the Agreement.
40
(d) In the event any Partner has a deficit Capital Account at the end
of any Partnership fiscal year which is in excess of the sum of (i) the amount
such Partner is obligated to restore, and (ii) the amount such Partner is deemed
to be obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 10.3(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 10.3 have been tentatively made as if this Section
10.3(d) and Section 10.3(c) hereof were not in the Agreement.
(e) Nonrecourse Deductions for any fiscal year shall be specially
allocated 99.98% to the Limited Partner, 0.01% to the Special Limited Partner
and 0.01% to the General Partner.
(f) Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partner who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i)(1).
(g) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Partner in complete liquidation of
his interest in the Partnership, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Partners in accordance with
their interests in the Partnership in the event that Treasury Regulations
Section 1.704-1 (b)(2)(iv)(m)(2) applies, or to the Partner to whom such
distribution was made in the event that Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) To the extent the Partnership has taxable interest income with
respect to any promissory note pursuant to Section 483 or Section 1271 through
1288 of the Code:
(1) such interest income shall be specially allocated to the
Limited Partner to whom such promissory note relates; and
(2) the amount of such interest income shall be excluded from
the Capital Contributions credited to such Partner's Capital Account in
connection with payments of principal with respect to such promissory note.
(i) To the extent the Partnership has taxable interest income with
respect to deposits of Capital Contribution payments, such interest income shall
be specially allocated to the General Partner.
(j) In the event the adjusted tax basis of any investment tax credit
property that has been placed in service by the Partnership is increased
pursuant to Code Section 50(c), such increase shall be specially allocated among
the Partners (as an item in the nature of income or gain) in the same
proportions as the investment tax credit that is recaptured with respect to such
property is shared among the Partners.
41
(k) Any reduction in the adjusted tax basis (or cost) of Partnership
investment tax credit property pursuant to Code Section 50(c) shall be specially
allocated among the Partners (as an item in the nature of expenses or losses) in
the same proportions as the basis (or cost) of such property is allocated
pursuant to Treasury Regulations Section 1.46-3(f)(2)(i).
(l) Any income, gain, loss or deduction realized as a direct or
indirect result of the issuance of an interest in the Partnership by the
Partnership to a Partner (the "Issuance Items") shall be allocated among the
Partners so that, to the extent possible, the net amount of such Issuance Items,
together with all other allocations under this Agreement to each Partner, shall
be equal to the net amount that would have been allocated to each such Partner
if the Issuance Items had not been realized.
(m) If any Partnership expenditure treated as a deduction on its
federal income tax return is disallowed as a deduction and treated as a
distribution pursuant to Section 731(a) of the Code, there shall be a special
allocation of gross income to the Partner deemed to have received such
distribution equal to the amount of such distribution.
(n) Interest deduction on the Partnership indebtedness referred to in
Section 6.4 shall be allocated 100% to the General Partner.
(o) In the event all or part of the Incentive Management Fee or the Tax
Credit Compliance Fee is disallowed by the Internal Revenue Service, then any
interest or income chargeable to the Partnership for such disallowance shall be
allocated to the General Partner.
(p) If the General Partner provides an Operating Loan to pay an
Operating Deficit, then the Partnership shall allocate Operating Losses to the
General Partner in an amount not to exceed the Operating Loan.
Section 10.4 Curative Allocations.
The allocations set forth in Sections 10.2(c), 10.3(a), 10.3(b),
10.3(c), 10.3(d), 10.3(e), 10.3(f), and 10.3(g) hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of the Treasury
Regulations. It is the intent of the Partners that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section 10.4. Therefore, notwithstanding any other
provision of this Article X (other than the Regulatory Allocations), with the
Consent of the Special Limited Partner, the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss, or deduction
in whatever manner the General Partner, with the Consent of the Special Limited
Partner, determines appropriate so that, after such offsetting allocations are
made, each Partner's Capital Account balance is, to the extent possible, equal
to the Capital Account balance such Partner would have had if the Regulatory
Allocations were not part of the Agreement and all Partnership items were
allocated pursuant to Sections 10.1, 10.2(a), 10.2(b), 10.3(h), 10.3(i),
10.3(j), 10.3(k), 10.3(l), 10.3(m) and 10.5. In exercising its authority under
this Section 10.4, the General Partner shall take into account future Regulatory
Allocations under Section 10.3(a) and 10.3(b) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under Sections
10.3(e) and 10.3(f).
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Section 10.5 Other Allocation Rules.
(a) The basis (or cost) of any Partnership investment tax credit
property shall be allocated among the Partners in accordance with Treasury
Regulations Section 1.46-3(f)(2)(i). All Tax Credits (other than the investment
tax credit) shall be allocated among the Partners in accordance with applicable
law. Consistent with the foregoing, the Partners intend that LIHTC will be
allocated 99.98% to the Limited Partner, 0.01% to the Special Limited Partner
and 0.01% to the General Partner.
(b) In the event Partnership investment tax credit property is disposed
of during any taxable year, profits for such taxable year (and, to the extent
such profits are insufficient, profits for subsequent taxable years) in an
amount equal to the excess, if any, of (1) the reduction in the adjusted tax
basis (or cost) of such property pursuant to Code Section 50(c), over (2) any
increase in the adjusted tax basis of such property pursuant to Code Section
50(c) caused by the disposition of such property, shall be excluded from the
profits allocated pursuant to Section 10.1 and Section 10.2(a) hereof and shall
instead be allocated among the Partners in proportion to their respective shares
of such excess, determined pursuant to Sections 10.3(i) and 10.3(j) hereof. In
the event more than one item of such property is disposed of by the Partnership,
the foregoing sentence shall apply to such items in the order in which they are
disposed of by the Partnership, so the profits equal to the entire amount of
such excess with respect to the first such property disposed of shall be
allocated prior to any allocations with respect to the second such property
disposed of, and so forth.
(c) For purposes of determining the Income, Losses, or any other items
allocable to any period, Income, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partner with the Consent of the Special Limited Partner, using any permissible
method under Code Section 706 and the Treasury Regulations thereunder.
(d) Solely for purposes of determining a Partner's proportionate share
of the "excess nonrecourse liabilities" of the Partnership within the meaning of
Treasury Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are as follows: Limited Partner: 99.98%; Special Limited
Partner: 0.01%; General Partner: 0.01%.
(e) To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the General Partner shall endeavor to treat Distributions as having
been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse
Debt only to the extent that such Distributions would cause or increase an
Adjusted Capital Account Deficit for any Partner who is not a General Partner.
(f) In the event that the deduction of all or a portion of any fee paid
or incurred out of Net Operating Income by the Partnership to a Partner or an
Affiliate of a Partner is disallowed for federal income tax purposes by the
Internal Revenue Service with respect to a taxable year of the Partnership, the
Partnership shall then allocate to such Partner an amount of gross income of the
Partnership for such year equal to the amount of such fee as to which the
deduction is disallowed.
(g) In the event that the General Partner contributes capital to the
Partnership pursuant to Section 6.3(b), operating deductions in an amount equal
to the amount contributed shall be specially allocated to the General Partner.
43
Section 10.6 Tax Allocations: Code Section 704(c).
In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction 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 account of any variation between the
adjusted basis of such property to the Partnership for federal income tax
purposes and its initial Gross Asset Value.
In the event the Gross Asset Value of any Partnership asset is adjusted
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
Any elections or other decisions relating to such allocations shall be
made by the General Partner with the Consent of the Special Limited Partner in
any manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 10.6 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 Person's Capital Account or share of Income, Losses, other
items, or distributions pursuant to any provision of this Agreement.
Section 10.7 Allocation Among Limited Partners.
In the event that the Interest of the Limited Partner hereunder is at
any time held by more than one Limited Partner all items which are specifically
allocated to the Limited Partner for any month pursuant to this Article X shall
be apportioned among such Persons according to the ratio of their respective
profit-sharing interests in the Partnership at the last day of such month.
Section 10.8 Allocation Among General Partners.
In the event that the Interest of the General Partner hereunder is at
any time held by more than one General Partner all items which are specifically
allocated to the General Partner for any month pursuant to this Article X shall
be apportioned among such Persons in such percentages as may from time to time
be determined by agreement among them without amendment to this Agreement or
consent of the Limited Partner or Consent of the Special Limited Partner.
Section 10.9 Modification of Allocations.
The provisions of Articles X and XI and other provisions of this
Agreement are intended to comply with Treasury Regulations Section 1.704 and
shall be interpreted and applied in a manner consistent with such section of the
Treasury Regulations. In the event that the General Partner determines that it
is prudent to modify the manner in which the Capital Accounts of the Partners,
or any debit or credit thereto, are computed in order to comply with such
section of the Treasury Regulations, the General Partner may make such
modification, but only with the Consent of the Special Limited Partner, to the
minimum extent necessary, to effect the plan of allocations and Distributions
provided for elsewhere in this Agreement. Further, the General Partner shall
make any appropriate modifications, but only with the Consent of the Special
Limited Partner, in the event it appears that unanticipated events (e.g., the
existence of a Partnership election pursuant to Code Section 754) might
otherwise cause this Agreement not to comply with Treasury Regulation Section
1.704.
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ARTICLE XI
DISTRIBUTION
Section 11.1 Distribution of Net Operating Income.
Except as otherwise provided, Net Operating Income for each fiscal year
shall be distributed within seventy-five (75) days following each calendar year
and shall be applied in the following order of priority:
(a) to pay the Deferred Management Fee, if any;
(b) to pay the balance of the current Asset Management Fee that was not
paid monthly and then to pay any accrued Asset Management Fees which have not
been paid in full from previous years;
(c) to pay the principal and then interest on the Development Fee not
to exceed the amount set forth in Exhibit B to the Development Fee Agreement;
(d) to pay the Operating Loans, if any, as referenced in Section 6.3 of
this Agreement, limited to 50% of the Net Operating Income remaining after
reduction for the payments made pursuant to subsections (a) through (c) of this
Section 11.1;
(e) to pay the Incentive Management Fee;
(f) to pay the Tax Credit Compliance Fee; and
(g) the balance, 29.99% to the Limited Partner, .01% to the Special
Limited Partner and 70% to the General Partner.
Section 11.2 Distribution of Sale or Refinancing Proceeds.
Sale or Refinancing Proceeds shall be distributed in the following
order:
(a) to the payment of the Mortgage and other matured debts and
liabilities of the Partnership, other than accrued payments, debts or other
liabilities owing to Partners or former Partners;
(b) to any accrued payments, debts or other liabilities owing to the
Partners or former Partners, including, but not limited to, accrued Asset
Management Fees and Operating Loans, to be paid prorata if necessary;
(c) to the establishment of any reserves which the General Partner,
with the Consent of the Special Limited Partner, shall deem reasonably necessary
for contingent, unmatured or unforeseen liabilities or obligations of the
Partnership; and
(d) thereafter, 29.99% to the Limited Partner, 0.01% to the Special
Limited Partner and 70% to the General Partner, provided that the amount
distributed to the Limited Partner pursuant to this paragraph shall not be less
than the aggregate federal and state income tax liability of the Limited Partner
45
with respect to this distribution, and the amount distributable to the General
Partner shall be reduced by the amount of any distribution to the Limited
Partner under this paragraph.
ARTICLE XII
TRANSFERS OF LIMITED PARTNER'S AND SPECIAL LIMITED
PARTNER'S INTERESTS IN THE PARTNERSHIP
Section 12.1 Assignment of Interests.
The Limited Partner and the Special Limited Partner shall have the
right to assign all or any part of their respective Interests to any other
Person, whether or not a Partner, upon satisfaction of the following:
(a) a written instrument setting forth the name and address of the
proposed transferee, the nature and extent of the Interest which is proposed to
be transferred and the terms and conditions upon which the transfer is proposed
to be made, stating that the Assignee accepts and agrees to be bound by all of
the terms and provisions of this Agreement, and providing for the payment of all
reasonable expenses incurred by the Partnership in connection with such
assignment, including but not limited to the cost of preparing any necessary
amendment to this Agreement; and
(b) upon receipt by the General Partner of the Assignee's written
representation that the Partnership Interest is to be acquired by the Assignee
for the Assignee's own account for long-term investment and not with a view
toward resale, fractionalization, division or distribution thereof.
(c) Notwithstanding any provision to the contrary, the Limited Partner
may assign its Interest to an Affiliate or assign its Interest to U.S. Bank
National Association or its successors as collateral to secure a capital
contribution loan without satisfying the conditions of Sections 12.1(a) and (b)
above.
THE LIMITED PARTNER INTEREST AND THE SPECIAL LIMITED PARTNER INTEREST
DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED OR UNDER ANY STATE SECURITIES LAW. THESE INTERESTS MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
Section 12.2 Effective Date of Transfer.
Any assignment of a Limited Partner's Interest or Special Limited
Partner's Interest pursuant to Section 12.1 shall become effective as of the
first day of the calendar month in which the last of the conditions to such
assignment are satisfied.
Section 12.3 Invalid Assignment.
Any purported assignment of an Interest of the Limited Partner or the
Special Limited Partner otherwise than in accordance with Section 12.1 or
Section 12.6 shall be of no effect as between the Partnership and the purported
46
assignee and shall be disregarded by the General Partner in making allocations
and Distributions hereunder.
Section 12.4 Assignee's Rights to Allocations and Distributions.
An Assignee shall be entitled to receive allocations and Distributions
from the Partnership attributable to the Interest acquired by reason of any
permitted assignment from the effective date of transfer as determined in
Section 12.2 above. The Partnership and the General Partner shall be entitled to
treat the assignor of such Partnership Interest as the absolute owner thereof in
all respects, and shall incur no liability for allocations and Distributions
made in good faith to such assignor, until such time as the written instrument
of assignment has been received by the Partnership.
Section 12.5 Substitution of Assignee as Limited Partner or Special
Limited Partner.
(a) An Assignee shall not have the right to become a Substitute Limited
Partner or Substitute Special Limited Partner in place of his assignor unless
the written consent of the General Partner to such substitution shall have been
obtained, which consent, in the General Partner's absolute discretion, may be
withheld; except that an Assignee which is an Affiliate of the Limited Partner
or Special Limited Partner, or U.S. Bank National Association or its successors,
may become a Substitute Limited Partner or Substitute Special Limited Partner
without the consent of the General Partner.
(b) A nonadmitted transferee of the Limited Partner's Interest or the
Special Limited Partner's Interest in the Partnership shall only be entitled to
receive that share of allocations, Distributions and the return of Capital
Contribution to which its transferor would otherwise have been entitled with
respect to the Interest transferred, and shall have no right to obtain any
information on account of the Partnership's transactions, to inspect the
Partnership's books and records or have any other of the rights and privileges
of a Limited Partner or Special Limited Partner, provided, however, that the
Partnership shall, if a transferee and transferor jointly advise the General
Partner in writing of a transfer of an Interest in the Partnership, furnish the
transferee with pertinent tax information at the end of each fiscal year of the
Partnership.
Section 12.6 Death, Bankruptcy, Incompetency, etc. of a Limited
Partner.
Upon the death, dissolution, adjudication of bankruptcy, or
adjudication of incompetency or insanity of the Limited Partner or Special
Limited Partner, such Partner's executors, administrators or legal
representatives shall have all the rights of its predecessor-in-interest for the
purpose of settling or managing such Partner's estate, including such power as
such Partner possessed to constitute a successor as a transferee of its Interest
in the Partnership and to join with such transferee in making the application to
substitute such transferee as a Partner.
ARTICLE XIII
WITHDRAWAL, REMOVAL AND REPLACEMENT OF
GENERAL PARTNER
Section 13.1 Withdrawal of General Partner.
(a) The General Partner may not Withdraw (other than as a result of an
Involuntary Withdrawal) without the Consent of the Special Limited Partner.
Withdrawal shall be conditioned upon the agreement of the Special Limited
47
Partner to be admitted as a successor General Partner, or if the Special Limited
Partner declines to be admitted as a successor General Partner then on the
agreement of one or more Persons who satisfy the requirements of Section 13.5 of
this Agreement to be admitted as successor General Partner(s).
(b) Each General Partner shall indemnify and hold harmless the
Partnership and all Partners from its Withdrawal in violation of Section 13.1(a)
hereof. Each General Partner shall be liable for damages to the Partnership
resulting from its Withdrawal in violation of Section 13.1(a).
Section 13.2 Removal of General Partner.
(a) The Special Limited Partner or the Limited Partner, or both of
them, may remove one or all of the General Partners for cause if any General
Partner, its officers, directors, members or partners have, if applicable, or
the Partnership has:
(1) been subject to Bankruptcy;
(2) committed any fraud, willful misconduct, breach of
fiduciary duty or other negligent conduct in the performance of its duties under
this Agreement;
(3) been convicted of, or entered into a plea of guilty to, a
felony;
(4) been barred from participating in any federal or state
housing program;
(5) made personal use of Partnership funds or properties;
(6) violated the terms of the Mortgage and such violation
prompts any Mortgage lender to issue a letter regarding the violation;
(7) failed to provide any loan, advance, Capital Contribution
or any other payment, as required under this Agreement;
(8) breached any representation, warranty or covenant
contained in this Agreement;
(9) caused the Projected Tax Credits to be allocated to the
Partners for a term longer than the Tax Credit Period unless the provisions of
Section 7.4(e) of this Agreement apply;
(10) failed to provide, or to cause to be provided, the
construction monitoring documents required in Section 14.3(a) of this Agreement;
(11) violated any federal or state tax law which causes a
recapture of LIHTC;
(12) violated the terms of the Construction Loan and such
violation prompts the Construction Lender to issue a letter regarding such
violation;
(13) failed to keep the Development Budget In-Balance;
(14) failed to obtain the consent of a Partner where such
consent is required pursuant to this Agreement;
48
(15) failed to deliver the annual Partnership financial data
as required pursuant to Section 14.2(a) or (b);
(16) failed to maintain the reserve balances as required
pursuant to Article VIII;
(17) failed to place the Apartment Housing in service within
six months of the Completion Date;
(18) failed to achieve 100% occupancy of the Apartment Housing
by March 1, 2007;
(19) failed to obtain Permanent Mortgage Commencement by
September 1, 2007;
(20) failed to renew the Insurance on or before the due date;
(21) failed to pay the Real Estate Taxes on or before the due
date; and
(22) failed during any consecutive 6-month period during the
Compliance Period to rent 85% or more of the total apartment units in the
Apartment Housing to Qualified Tenants; notwithstanding the foregoing, if such
failure is the result of Force Majeure or if such failure is cured within 120
days after the end of the 6-month period, then this removal provision shall not
apply.
(b) Written notice of the removal for cause of the General Partner
("Removal Notice") shall set forth the reasons for removal and shall be served
by the Special Limited Partner or the Limited Partner, or both of them, upon the
General Partner in accordance with Section 17.3 of this Agreement. If Section
13.2(a)(2), (6), (7), (8), (10), (12), (13), (15), (16), (20) or (21) is the
basis for the removal for cause, then the General Partner shall have 30 days
from receipt of the Removal Notice in which to cure the removal condition;
except that in regard to violations of the Mortgage or Construction Loan the
cure period shall be the sooner of 30 days or 10 days prior to the expiration of
the cure period referenced in the loan documents, if any. If the condition for
the removal for cause is not cured within the 30-day cure period then the
General Partner's removal shall become effective upon approval of a majority of
the Partner's Interest (Interest percentage for voting is in accordance with the
percentages shown in Section 10.1 of this Agreement) at a Partner's meeting held
in accordance with Section 17.2 of this Agreement. If the removal for cause is
for a condition referenced in Section 13.2(a)(1), (3), (4), (5), (9), (11),
(14), (17), (18), (19), or (22) then the removal shall become effective upon
approval of a majority of the Partner's Interest (Interest percentage for voting
is in accordance with the percentages shown in Section 10.1 of this Agreement)
at a Partner's meeting held in accordance with Section 17.2 of this Agreement.
Upon the General Partner's removal, the General Partner shall deliver to the
Special Limited Partner within 5 business days of the Partner's meeting
confirming the General Partner's removal all Partnership books and records
including all bank signature cards and an authorization to change the signature
on the signature cards from the General Partner to the Special Limited Partner,
or a successor general partner so nominated by the Limited Partner and Special
Limited Partner. The Partner's recognize and acknowledge that if the General
Partner fails to provide the Partnership books and records upon the General
Partner's removal then the remaining Partners may suffer irreparable injury.
Therefore, in the event the General Partner does not adhere to the provisions of
this Section 13.2(b), and in addition to other rights or remedies which may be
49
provided by law and equity or this Agreement, the Limited Partner and/or Special
Limited Partner shall have the right to specific performance to compel the
General Partner to perform its obligation under this Section and the Limited
Partner and/or Special Limited Partner may bring such action, and other actions
to enforce the removal, by way of temporary and/or permanent injunctive relief
In the event of removal of a General Partner for any reason, if the removed
General Partner or an Affiliate is the guarantor of the Development Fee, as
provided in the Development Fee Guaranty Agreement, any earned but unpaid
Development Fee shall be due and payable upon the effective date of such removal
and shall be deemed paid by the removed General Partner.
Section 13.3 Effects of a Withdrawal.
In the event of a Withdrawal, the entire Interest of the Withdrawing General
Partner shall immediately and automatically terminate on the effective date of
such Withdrawal, and such General Partner shall immediately cease to be a
General Partner, shall have no further right to participate in the management or
operation of the Partnership or the Apartment Housing or to receive any
allocations or Distributions from the Partnership or any other funds or assets
of the Partnership, except as specifically set forth below. In the event of a
Withdrawal, any or all executory contracts, including but not limited to the
Management Agreement, between the Partnership and the Withdrawing General
Partner or its Affiliates may be terminated by the Partnership, with the Consent
of the Special Limited Partner, upon written notice to the party so terminated.
Furthermore, notwithstanding such Withdrawal, the Withdrawing General Partner
shall be and shall remain, liable as a General Partner for all liabilities and
obligations incurred by the Partnership or by the General Partner prior to the
effective date of the Withdrawal, or which may arise upon such Withdrawal. Any
remaining Partner shall have all other rights and remedies against the
Withdrawing General Partner as provided by law or under this Agreement. The
General Partner agrees that in the event of its Withdrawal it will indemnify and
hold the Limited Partner and the Special Limited Partner harmless from and
against all losses, costs and expenses incurred in connection with the
Withdrawal, including, without limitation, all legal fees and other expenses of
the Limited Partner and the Special Limited Partner in connection with the
transaction. The following additional provisions shall apply in the event of a
Withdrawal.
(a) In the event of a Withdrawal which is not an Involuntary
Withdrawal, or is not an Involuntary Withdrawal in accordance with Section
13.2(a), the Withdrawing General Partner shall have no further right to receive
any future allocations or Distributions from the Partnership or any other funds
or assets of the Partnership, nor shall it be entitled to receive or to be paid
by the Partnership any further payments of fees (including fees which have been
earned but are unpaid) or to be repaid any outstanding advances or loans made by
it to the Partnership or to be paid any amount for its former Interest. From and
after the effective date of such Withdrawal, the former rights of the
Withdrawing General Partner to receive or to be paid such allocations,
Distributions, funds, assets, fees or repayments shall be assigned to the other
General Partner or General Partners (which may include the Special Limited
Partner), or if there is no other general partner of the Partnership at that
time, to the Special Limited Partner. Furthermore, if the General Partner or an
Affiliate is the guarantor of the Development Fee, as provided in the
Development Fee Guaranty Agreement, then the General Partner shall pay any
remaining unpaid principal and interest of the Development Fee within 30 days of
the General Partner's Withdrawal.
(b) In the event of an Involuntary Withdrawal, except as provided in
Section 13.3(c) below, the Withdrawing General Partner shall have no further
50
right to receive any future allocations or Distributions from the Partnership or
any other funds or assets of the Partnership, provided that accrued and payable
fees (i.e., fees earned but unpaid as of the date of Withdrawal) owed to the
Withdrawing General Partner, and any outstanding loans of the Withdrawing
General Partner to the Partnership, shall be paid to the Withdrawing General
Partner in the manner and at the times such fees and loans would have been paid
had the Withdrawing General Partner not Withdrawn. The Interest of the General
Partner shall be purchased as follows.
(1) In accordance with this Section 13.3(b) if the removal is
an Involuntary Withdrawal, and if the Partnership is to be continued with one or
more remaining or successor General Partner(s), then the Partnership, with the
Consent of the Special Limited Partner, may, but is not obligated to, purchase
the Interest of the Withdrawing General Partner. The purchase price of such
Interest shall be its Fair Market Value as determined by agreement between the
Withdrawing General Partner and the Special Limited Partner, or, if they cannot
agree, by arbitration in accordance with the then current rules of the American
Arbitration Association. The cost of such arbitration shall be borne equally by
the Withdrawing General Partner and the Partnership. The purchase price shall be
paid by the Partnership by delivering to the General Partner or its
representative the Partnership's non-interest bearing unsecured promissory note
payable, if at all, upon liquidation of the Partnership in accordance with
Article XV. The note shall also provide that the Partnership may prepay all or
any part thereof without penalty.
(2) In accordance with this Section 13.3(b) if the removal is
an Involuntary Withdrawal, and if the Partnership is to be continued with one or
more remaining or successor General Partner(s), and if the Partnership does not
purchase the Interest of the Withdrawing General Partner in Partnership
allocations, Distributions and capital, then the Withdrawing General Partner
shall retain its Interest in such items, but such Interest shall be held as a
non-voting special limited partner. For this sub-section only, the Withdrawing
General Partner's Interest will be the same percentage as shown in Section 10.1
of this Agreement prior to the Withdrawing event. In order to provide a
successor general partner with an Interest, the Special Limited Partner will
assign one-half of its Interest (as shown in Section 10.1 of this Agreement) to
the successor general partner.
(c) Notwithstanding the provisions of Section 13.3(b), if the
Involuntary Withdrawal arises from removal for cause as set forth in Section
13.2(a) hereof, the Withdrawing General Partner shall have no further right to
receive any future allocations or Distributions from the Partnership or any
other funds or assets of the Partnership, nor shall it be entitled to receive
any payment for its Interest, nor shall it be entitled to receive or to be paid
by the Partnership or any Partners or successor partners, any further payments
of fees (including fees which have been earned but remain unpaid) or to be
repaid any outstanding advances or loans made by it to the Partnership.
Furthermore, if the General Partner or an Affiliate is the guarantor of the
Development Fee, as provided in the Development Fee Guaranty Agreement, then any
earned but unpaid Development Fee shall be due and payable upon the effective
date of such removal and shall be deemed paid by the General Partner.
Section 13.4 Successor General Partner.
Upon the occurrence of an event giving rise to a Withdrawal of a
General Partner, any remaining General Partner, or, if there be no remaining
General Partner, the Withdrawing General Partner or its legal representative,
shall promptly notify the Special Limited Partner of such Withdrawal (the
"Withdrawal Notice"). Whether or not the Withdrawal Notice shall have been sent
as provided herein, the Special Limited Partner shall have the right to become a
51
successor General Partner (and to become the successor managing General Partner
if the Withdrawing General Partner was previously the managing General Partner).
In order to effectuate the provisions of this Section 13.4 and the continuance
of the Partnership, the Withdrawal of a General Partner shall not be effective
until the expiration of 120 days from the date on which occurred the event
giving rise to the Withdrawal, unless the Special Limited Partner shall have
elected to become a successor General Partner as provided herein prior to
expiration of such 120-day period, whereupon the Withdrawal of the General
Partner shall be deemed effective upon the notification of all the other
Partners by the Special Limited Partner of such election.
Section 13.5 Admission of Additional or Successor General Partner.
No Person shall be admitted as an additional or successor General
Partner unless (a) such Person shall have agreed to become a General Partner by
a written instrument which shall include the acceptance and adoption of this
Agreement; (b) the Consent of the Special Limited Partner to the admission of
such Person as a substitute General Partner shall have been granted, which
consent may be withheld in the discretion of the Special Limited Partner; and
(c) such Person shall have executed and acknowledged any other instruments which
the Special Limited Partner shall reasonably deem necessary or appropriate to
affect the admission of such Person as a substitute General Partner. If the
foregoing conditions are satisfied, this Agreement shall be amended in
accordance with the provisions of the Act, and all other steps shall be taken
which are reasonably necessary to effect the Withdrawal of the Withdrawing
General Partner and the substitution of the successor General Partner. Nothing
contained herein shall reduce the Limited Partner's Interest or the Special
Limited Partner's Interest in the Partnership.
Section 13.6 Transfer of Interest.
Except as otherwise provided herein, the General Partner may not
Withdraw from the Partnership, or enter into any agreement as the result of
which any Person shall acquire an Interest in the Partnership, without the
Consent of the Special Limited Partner.
Section 13.7 No Goodwill Value.
At no time during continuation of the Partnership shall any value ever
be placed on the Partnership name, or the right to its use, or to the goodwill
appertaining to the Partnership or its business, either as among the Partners or
for the purpose of determining the value of any Interest, nor shall the legal
representatives of any Partner have any right to claim any such value. In the
event of a termination and dissolution of the Partnership as provided in this
Agreement, neither the Partnership name, nor the right to its use, nor the same
goodwill, if any, shall be considered as an asset of the Partnership, and no
valuation shall be put thereon for the purpose of liquidation or distribution,
or for any other purpose whatsoever.
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ARTICLE XIV
BOOKS AND ACCOUNTS, REPORTS,
TAX RETURNS, FISCAL YEAR AND BANKING
Section 14.1 Books and Accounts.
(a) The General Partner shall cause the Partnership to keep and
maintain at its principal executive office full and complete books and records
that shall include each of the following:
(1) a current list of the full name and last known business or
residence address of each Partner set forth in alphabetical order together with
the Capital Contribution and the share in Income and Losses and Tax Credits of
each Partner;
(2) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, together with executed copies of any powers
of attorney pursuant to which any certificate has been executed;
(3) copies of the Partnership's federal, state and local
income tax information returns and reports, if any, for the six most recent
taxable years;
(4) copies of the original of this Agreement and all
amendments thereto;
(5) financial statements of the Partnership for the six most
recent fiscal years;
(6) the Partnership's books and records for at least the
current and past three fiscal years; and
(7) in regard to the first tenants to occupy the apartment
units in the Apartment Housing, copies of all tenant files including completed
applications, completed questionnaires or checklist of income and assets,
documentation of third party verification of income and assets, and income
certification forms (LIHTC specific).
(b) Upon the request of the Limited Partner, the General Partner shall
promptly deliver to the Limited Partner, at the expense of the Partnership, a
copy of the information set forth in Section 14.1(a) above. The Limited Partner
shall have the right upon reasonable request and during normal business hours to
inspect and copy any of the foregoing, or any of the other books and records of
the Partnership or the Apartment Housing, at its own expense.
Section 14.2 Accounting Reports.
(a) By February 20 of each calendar year the General Partner shall
provide to the Limited Partner and the Special Limited Partner the Partnership
tax return, Schedule K(1) and all tax information necessary for the preparation
of their federal and state income tax returns and other tax returns with regard
to the jurisdiction(s) in which the Partnership is formed and in which the
Apartment Housing is located. Moreover, the General Partner shall deliver to the
Limited Partner and the Special Limited Partner a draft copy of the information
requested herein at least ten days prior to the above referenced due date.
53
(b) By March 1 of each calendar year, including the year(s) during
construction of the Apartment Housing, the General Partner shall send to the
Limited Partner and the Special Limited Partner an audited financial statement
for the Partnership, which shall include, but is not limited to: (1) a balance
sheet as of the end of such fiscal year and statements of income, Partners'
equity and changes in cash flow for such fiscal year prepared in accordance with
generally accepted accounting principles; (2) a report of any Distributions made
at any time during the fiscal year, separately identifying Distributions from
Net Operating Income for the fiscal year, Net Operating Income for prior years,
Sale or Refinancing Proceeds, and reserves; (3) a report setting forth the
amount of all fees and other compensation and Distributions and reimbursed
expenses paid by the Partnership for the fiscal year to the General Partner or
Affiliates of the General Partner and the services performed in consideration
therefore, which report shall be verified by the Partnership's Accountants; and
(4) the Accountant's calculation of each pay-out of the Net Operating Income
pursuant to Section 11.1 of this Agreement. Moreover, the General Partner shall
deliver to the Limited Partner and the Special Limited Partner a draft copy of
the information requested herein at least ten days prior to the above referenced
due date.
(c) Within 60 days after the end of each fiscal quarter in which a Sale
or Refinancing of the Apartment Housing occurs, the General Partner shall send
to the Limited Partner and the Special Limited Partner a report as to the nature
of the Sale or Refinancing and as to the Income and Losses for tax purposes and
proceeds arising from the Sale or Refinancing.
Section 14.3 Other Reports.
The General Partner shall provide to the Limited Partner and the
Special Limited Partner the following reports:
(a) during construction, on a regular basis, but in no event less than
once a month, a copy of the Construction Inspector's report and other
construction reports including, but not limited to, (1) the name of each person
performing work on the Improvements or providing materials for the Improvements
if the work performed or materials supplied by a person accounts for five
percent or more of the construction of the Improvements, the work performed or
materials supplied by said person and the code number corresponding to the line
item in the Development Budget which the person will be paid, (2) an original
AIA Document G702, or similar form acceptable to the Special Limited Partner,
(3) if not included in the Construction Inspector's report or the AIA Document
G702, a line item break-down of the Development Budget (which shall include,
description of work to be performed or materials to be supplied; total dollar
amount of the work or materials; dollar amount of work previously completed and
paid or materials supplied and paid; dollar amount of work or materials to be
paid per the current disbursement request; dollar amount of materials stored;
total dollar amount of work completed and stored as of the current disbursement
date; percentage of completion; dollar amount of work or materials needed to
complete the line item; and retainage), (4) a reconciliation of the sources and
uses to determine that the Development Budget is In-Balance and there are
sufficient funds to complete the construction of the Improvements, (5) if not
provided for in the above referenced documents, a line item break-down of all
soft development costs not included in the Construction Contract but part of the
Development Budget; (6) copies of lien releases, or waivers, from the Contractor
and all sub-contractors or material suppliers who were paid the previous month,
and (7) any other document requested by the Special Limited Partner as the
circumstances warrant (collectively the "Construction Draw Documents");
54
(b) during the rent-up phase, and continuing until the later of the end
of the first six-month period during which the Apartment Housing has a sustained
occupancy of 95% or better, and the Special Limited Partner's approval of the
initial tenant files, including any recommended corrections, by the twentieth
day of each month within such period a copy of the previous month's rent roll
(through the last day of the month), a tenant LIHTC compliance worksheet similar
to the monthly initial tenant certification worksheet included in Exhibit "H"
attached hereto and incorporated herein by this reference, an up-to-date income
statement, an up-to-date balance sheet and a copy of the Partnership's bank
statement reflecting all operating accounts and reserve accounts;
(c) a quarterly tax credit compliance report similar to the worksheet
included in Exhibit "H" due on or before April 25 of each year for the first
quarter, July 25 of each year for the second quarter, October 25 of each year
for the third quarter and January 25 of each year for the fourth quarter. In
order to verify the reliability of the information being provided on the
compliance report the Special Limited Partner may request a sampling of tenant
files to be provided. The sampling will include, but not be limited to, copies
of tenant applications, certifications and third party verifications used to
qualify tenants. If any inaccuracies are found to exist on the tax credit
compliance report or any items of noncompliance are discovered then the sampling
will be expanded as determined by the Special Limited Partner;
(d) a quarterly report on operations, in the form attached hereto as
Exhibit "H", due on or before April 25 of each year for the first quarter of
operations, July 25 of each year for the second quarter of operations, October
25 of each year for the third quarter of operations and January 25 of each year
for the fourth quarter of operations that shall include, but not be limited to,
a copy of the Partnership's bank statement showing all operating accounts and
reserve accounts required to be maintained pursuant to Article VIII of this
Agreement, statement of income and expenses, balance sheet, rent roll as of the
end of each calendar quarter of each year, and third party verification of
current utility allowance;
(e) by September 15 of each year, an estimate of LIHTC for that year;
(f) if the Apartment Housing receives a reservation of LIHTC in one
year but will not complete the construction and rent-up until a later year, an
audited cost certification together with the Accountant's work papers verifying
that the Partnership has expended the requisite 10% of the reasonably expected
cost basis to meet the carryover test provisions of Section 42 of the Code. Such
certification shall be provided to the Limited Partner and Special Limited
Partner by the later of December 31 of the year during which the reservation was
received or six months after the date of the carryover allocation if permitted
by the State Tax Credit Agency. Furthermore, if materials and supplies are
purchased to meet the 10% requirement then the General Partner shall provide to
the Limited Partner an opinion of counsel that title to the materials and
supplies pass to the Partnership and that the Partnership bears the risk of loss
of the materials and supplies;
(g) during the Compliance Period, no later than the day any such
certification is filed, copies of any certifications which the Partnership must
furnish to federal, state or local authorities including, but not limited to,
copies of all annual tenant recertifications required under Section 42 of the
Code and the annual owner's sworn statement and the State Tax Credit Agency
Compliance (or annual) report;
(h) by the annual renewal date each and every year, an executed
original or certified copy of each and every Insurance policy or certificate
required by the terms of this Agreement;
55
(i) by the payment date of the real estate property taxes each and
every year verification that the same has been paid in full;
(j) on or before March 15 of each calendar year, a copy of the General
Partner's updated financial statement as of December 31 of the previous year;
(k) on or before November 1 of each calendar year, a copy of the
following year's proposed operating budget. Each such Budget shall contain all
the anticipated Cash Receipts and Cash Expenses of the Partnership. Neither the
General Partner, the Management Agent nor their employees, agents or
representatives shall adopt the Budget until the Consent of the Special Limited
Partner has been obtained;
(l) in the event the Apartment Housing and/or the Partnership are
experiencing financial concerns or operational concerns or maintenance issues
and the Partnership is placed on the Limited Partner's watch list, then the
Special Limited Partner requires the Management Agent to cooperate with the
Special Limited Partner's staff as requested including, but not limited to the
following: (1) being available and responsive for site visits, telephone calls
and correspondence (whether by e-mail, fax, mail or overnight delivery); (2)
providing weekly tenant traffic reports; (3) providing weekly unit or building
or grounds repair reports; (4) providing an up-to-date income statement,
up-to-date balance sheet, copy of previous month's rent roll, and a copy of
Partnership's monthly bank statement; and (5) providing any other documents
deemed relevant by the Special Limited Partner. In addition, the Limited
Partner's investors have the right to ask questions of the Management Agent in
accordance with this Section if the Partnership is placed on the Limited
Partner's watch list; and
(m) notice of the occurrence, or of the likelihood of occurrence, of
any event which has had a material adverse effect upon the Apartment Housing or
the Partnership, including, but not limited to, any breach of any of the
representations and warranties set forth in Section 9.12 of this Agreement, and
any inability of the Partnership to meet its cash obligations as they become
payable, within ten days after the occurrence of such event.
Section 14.4 Late Reports.
If the General Partner does not fulfill its obligations under Section
14.2 within the time periods set forth therein, the General Partner, using its
own funds, shall pay as damages the sum of $100 per day (plus interest at the
rate established by Section 6.4 of this Agreement) to the Limited Partner until
such obligations shall have been fulfilled. If the General Partner does not
fulfill its obligations under Section 14.3 within the time periods set forth
therein, the General Partner, using its own funds, shall pay as damages the sum
of $100 per week (plus interest at the rate established by Section 6.4 of this
Agreement) to the Limited Partner until such obligations shall have been
fulfilled. If the General Partner shall so fail to pay, the General Partner and
its Affiliates shall forthwith cease to be entitled to any fees hereunder (other
than the Development Fee) and/or to the payment of any Net Operating Income or
Sale or Refinancing Proceeds to which the General Partner may otherwise be
entitled hereunder. Payments of fees and Distributions shall be restored only
upon payment of such damages in full.
Section 14.5 Site Visits.
The Limited Partner, at the Limited Partner's expense, has the right,
upon reasonable notice to the General Partner, to conduct a site visit which
56
will include, in part, an inspection of the property, a review of the office and
tenant files and an interview with the property manager. In addition, the
Limited Partner's investors have the right, at its expense, and upon reasonable
notice to conduct a site visit in accordance with this Section.
Section 14.6 Tax Returns.
The General Partner shall cause income tax returns for the Partnership
to be prepared and timely filed with the appropriate federal, state and local
taxing authorities.
Section 14.7 Fiscal Year.
The fiscal year of the Partnership shall be the calendar year or such
other period as may be approved by the Internal Revenue Service for federal
income tax purposes.
Section 14.8 Banking.
All funds of the Partnership shall be deposited in a separate bank
account or accounts as shall be determined by the General Partner with the
Consent of the Special Limited Partner. All withdrawals therefrom shall be made
upon checks signed by the General Partner or by any person authorized to do so
by the General Partner. The General Partner shall provide to any Partner who
requests same the name and address of the financial institution, the account
number and other relevant information regarding any Partnership bank account.
Section 14.9 Certificates and Elections.
(a) The General Partner shall file the First Year Certificate within 90
days following the close of the taxable year during which Completion of
Construction occurs and thereafter shall timely file any certificates which the
Partnership must furnish to federal or state governmental authorities
administering the Tax Credit programs under Section 42 of the Code.
(b) The General Partner, with the Consent of the Special Limited
Partner, may, but is not required to, cause the Partnership to make or revoke
the election referred to in Section 754 of the Code, as amended, or any similar
provisions enacted in lieu thereof.
ARTICLE XV
DISSOLUTION, WINDING UP, TERMINATION
AND LIQUIDATION OF THE PARTNERSHIP
Section 15.1 Dissolution of Partnership.
The Partnership shall be dissolved upon the expiration of its term or
the earlier occurrence of any of the following events.
(a) The effective date of the Withdrawal or removal of the General
Partner, unless (1) at the time there is at least one other General Partner
(which may be the Special Limited Partner if it elects to serve as successor
General Partner under Section 13.4 hereof) who will continue as General Partner,
57
or (2) within 120 days after the occurrence of any such event the Limited
Partner elects to continue the business of the Partnership.
(b) The sale of the Apartment Housing and the receipt in cash of the
full amount of the proceeds of such sale.
Notwithstanding the foregoing, in no event shall the Partnership
terminate prior to the expiration of its term if such termination would result
in a violation of the Mortgage or any other agreement with or rule or regulation
of any Mortgage lender to which the Partnership is subject.
Section 15.2 Return of Capital Contribution upon Dissolution.
Except as provided in Sections 7.3 and 7.4 of this Agreement, which
provide for a reduction or refund of the Limited Partner's Capital Contribution
under certain circumstances, and which shall represent the personal obligations
of the General Partner, as well as the obligations of the Partnership, each
Partner shall look solely to the assets of the Partnership for all Distributions
with respect to the Partnership (including the return of its Capital
Contribution) and shall have no recourse therefore (upon dissolution or
otherwise) against any General Partner. No Partner shall have any right to
demand property other than money upon dissolution and termination of the
Partnership and the Partnership is prohibited from such a distribution of
property absent the Consent of the Special Limited Partner.
Section 15.3 Distribution of Assets.
Upon a dissolution of the Partnership, the General Partner (or, if
there is no General Partner then remaining, such other Person(s) designated as
the liquidator of the Partnership by the Special Limited Partner or by the court
in a judicial dissolution) shall take full account of the Partnership assets and
liabilities and shall liquidate the assets as promptly as is consistent with
obtaining the fair value thereof.
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Partnership pursuant to Section
11.2(a) through and including 11.2(c), the remaining assets of the Partnership
shall be distributed to the Partners in accordance with the positive balances in
their Capital Accounts, after taking into account all allocations under Article
X hereof.
(b) In the event that a General Partner has a deficit balance in its
Capital Account following the liquidation of the Partnership or its Interest, as
determined after taking into account all Capital Account adjustments for the
Partnership taxable year in which such liquidation occurs, such General Partner
shall pay to the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Treasury Regulation Section
1.704-1(b)(2)(ii)(b)(3).
(1) The deficit reduction amount shall be paid by the General
Partner by the end of such taxable year (or, if later, within 90 days after the
date of Liquidation) and shall, upon liquidation of the Partnership, be paid to
creditors of the Partnership or distributed to other Partners in accordance with
their positive Capital Account balances.
(c) With respect to assets distributed in kind to the Partners in
liquidation or otherwise:
(1) unrealized appreciation or unrealized depreciation in the
values of such assets shall be deemed to be Income and Losses realized by the
58
Partnership immediately prior to the liquidation or other Distribution event;
and
(2) such Income and Losses shall be allocated to the Partners
in accordance with Section 10.2 hereof, and any property so distributed shall be
treated as a Distribution of an amount in cash equal to the excess of such Fair
Market Value over the outstanding principal balance of and accrued interest on
any debt by which the property is encumbered.
(d) For the purposes of Section 15.3(c), "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the Fair Market
Value of such assets, taking into account the Fair Market Value of the
associated financing but subject to Section 7701(g) of the Code, and the asset's
Gross Asset Value. Section 15.3(c) is merely intended to provide a rule for
allocating unrealized Income and Losses upon liquidation or other Distribution
event, and nothing contained in Section 15.3(c) or elsewhere in this Agreement
is intended to treat or cause such Distributions to be treated as sales for
value. The Fair Market Value of such assets shall be determined by an
independent appraiser to be selected by the General Partner.
Section 15.4 Deferral of Liquidation.
If at the time of liquidation the General Partner or other liquidator
shall determine that an immediate sale of part or all of the Partnership assets
could cause undue loss to the Partners, the liquidator may, in order to avoid
loss, but only with the Consent of the Special Limited Partner, either defer
liquidation and retain all or a portion of the assets or distribute all or a
portion of the assets to the Partners in kind. In the event that the liquidator
elects to distribute such assets in kind, the assets shall first be assigned a
value (by appraisal by an independent appraiser) and the unrealized appreciation
or depreciation in value of the assets shall be allocated to the Partners'
Capital Accounts, as if such assets had been sold, in the manner described in
Section 10.2, and such assets shall then be distributed to the Partners as
provided herein. In applying the preceding sentence, the Apartment Housing shall
not be assigned a value less than the unamortized principal balance of any loan
secured thereby.
Section 15.5 Liquidation Statement.
Each of the Partners shall be furnished with a statement prepared or
caused to be prepared by the General Partner or other liquidator, which shall
set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon compliance with the distribution plan as outlined in
Sections 15.3 and 15.4, the Limited Partner and Special Limited Partner shall
cease to be such and the General Partner shall execute, acknowledge and cause to
be filed those certificates referenced in Section 15.6.
Section 15.6 Certificates of Dissolution; Certificate of Cancellation
of Certificate of Limited Partnership.
(a) Upon the dissolution of the Partnership, the General Partner shall
cause to be filed in the office of the Secretary of State, and on a form
prescribed by the Secretary of State of Mississippi, a certificate of
dissolution. The certificate of dissolution shall set forth the Partnership's
name, the Secretary of State's file number for the Partnership, the event
causing the Partnership's dissolution and the date of the dissolution.
(b) Upon the completion of the winding up of the Partnership's affairs,
the General Partner shall cause to be filed in the office of, and on a form
59
prescribed by, the Secretary of State of Mississippi, a certificate of
cancellation of the Certificate of Limited Partnership. The certificate of
cancellation of the Certificate of Limited Partnership shall set forth the
Partnership's name, the Secretary of State's file number for the Partnership,
and any other information which the General Partner determines to include
therein.
ARTICLE XVI
AMENDMENTS
This Agreement may be amended by a majority consent of the Interests of
the Partners after a meeting of the Partners pursuant to Section 17.2, which
meeting shall be held after proper notice as provided in Section 17.3 of this
Agreement. For purposes of this Article XVI, a Partner shall grant its consent
to a proposed amendment unless such Partner reasonably determines that the
proposed amendment is adverse to the Partner's Interest.
ARTICLE XVII
MISCELLANEOUS
Section 17.1 Voting Rights.
(a) The Limited Partner shall have no right to vote upon any matters
affecting the Partnership, except as provided in this Agreement. Notwithstanding
the foregoing the Limited Partner's and the Special Limited Partner's vote is
required:
(1) to approve or disapprove the Sale or Refinancing of the
Apartment Housing prior to such Sale or Refinancing;
(2) to remove the General Partner and elect a substitute
General Partner as provided in this Agreement;
(3) to elect a successor General Partner upon the Withdrawal
of the General Partner;
(4) to approve or disapprove the dissolution of the
Partnership;
(5) subject to the provisions of Article XVI hereof, to amend
this Agreement;
(6) to approve or disapprove the refinancing of the Mortgage
prior to such refinancing; or
(7) on any other matter permitted in this Agreement.
(b) On any matter where the Limited Partner has the right to vote,
votes may only be cast at a duly called meeting of the Partnership or through
written action without a meeting.
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(c) The Special Limited Partner shall have the right to consent to
those actions or inactions of the Partnership and/or General Partner as
otherwise set forth in this Agreement, and the General Partner is prohibited
from any action or inaction requiring such consent unless such consent has been
obtained.
Section 17.2 Meeting of Partnership.
Meetings of the Partnership may be noticed either (a) by the General
Partner; or (b) by the Limited Partner; or (c) by the Special Limited Partner.
The notice for a meeting shall specify the purpose of such meeting, and the time
and the place of such meeting (which shall be by telephone conference or at the
principal place of business of the Partnership). Any Partner calling a Partners
meeting shall provide written notice to all Partners. The meeting shall not be
held less than 15 days nor more than 30 days from the Partners' receipt of the
notice. All meetings and actions of the Partnership shall be governed in all
respects, including matters relating to proxies, record dates and actions
without a meeting, by the applicable provisions of the Act, as it shall be
amended from time to time.
Section 17.3 Notices.
Any notice given pursuant to this Agreement may be served personally on
the Partner to be notified, or may be sent by overnight courier, or may be
mailed, first class postage prepaid, or by certified mail, to the following
address, or to such other address as a party may from time to time designate in
writing:
To the General Partner: SEMC, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
To the Limited Partner: WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
To the Special
Limited Partner: WNC Housing, L.P.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Section 17.4 Successors and Assigns.
All the terms and conditions of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Partners.
Section 17.5 RD Regulations.
Notwithstanding any other provisions of this Agreement, the following
will take precedence:
(a) The Partnership is authorized to execute any documents required by
RD in connection with the RD Loan Agreement. The General Partner hereby
61
covenants to act in accordance with the Project Documents. Any incoming General
Partner shall, as a condition of receiving a Partnership interest, agree to be
bound by the Project Documents, and all other documents executed in connection
with the RD Loan Agreement to the same extent and on the same terms as any other
General Partner. Upon any dissolution, no title or right to possession and
control of the Project, and no right to collect the rents therefrom, shall pass
to any Person who is not bound in a manner consistent with Section 515 of the
Housing Act and the rules and regulations thereunder.
(b) In the event that any provision of this Agreement in any way tends
to contradict, modify or in any way change the terms of the Project Documents or
any other agreement related to the Project entered into, or to be entered into,
by or on behalf of the Partnership with RD, the terms of the Project Documents
or such other agreements with RD shall prevail and govern.
(c) Any amendment or revision of this Agreement, transfer of a
Partnership interest or other action requiring approval shall be subject to the
written approval of RD, if such approval is required, and any amendment without
the prior written approval of RD shall be subject to later amendment to comply
with the requirements of RD; provided, however, that no such approval of RD
shall be required for any amendment of this Agreement the sole purpose of which
is to provide for the admission of additional or substituted limited partners so
long as any such additional or substituted limited partner so admitted shall own
in the aggregate less than a 10% limited partner interest in the Partnership.
(d) Any conveyance or transfer of title to all or any portion of the
Project required or permitted under this Agreement shall in all respects be
subject to all conditions, approvals and other requirements of RD rules and
regulations applicable thereto.
(e) The General Partner will at all times maintain the RD required
Financial Interest in the Partnership.
The foregoing paragraphs (a), (b), (c), (d), and (e) will automatically
become void and of no further force and effect with respect to RD at such time
as the Mortgage is no longer being provided by RD.
Section 17.6 Recording of Certificate of Limited Partnership.
If the General Partner should deem it advisable to do so, the
Partnership shall record in the office of the County Recorder of the county in
which the principal place of business of the Partnership is located a certified
copy of the Certificate of Limited Partnership, or any amendment thereto, after
such Certificate or amendment has been filed with the Secretary of State of
Mississippi.
Section 17.7 Amendment of Certificate of Limited Partnership.
(a) The General Partner, or any successor general partner, shall cause
to be filed, within 30 days after the happening of any of the following events,
an amendment to the Certificate of Limited Partnership reflecting the occurrence
of any of the following:
(1) a change in the name of the Partnership;
(2) a change in the street address of the Partnership's
principal executive office;
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(3) a change in the address, or the Withdrawal, of a General
Partner, or a change in the address of the agent for service of process, or
appointment of a new agent for service of process;
(4) the admission of a General Partner and that Partner's
address; or
(5) the discovery by the General Partner of any false or
erroneous material statement contained in the Certificate of Limited Partnership
or any amendment thereto.
(b) The Certificate of Limited Partnership may also be amended in
conformity with this Agreement at any time in any other respect that the General
Partner determines.
(c) The General Partner shall cause the Certificate of Limited
Partnership to be amended, when required or permitted as aforesaid, by filing a
certificate of amendment thereto in the office of, and on a form prescribed by,
the Secretary of State of Mississippi. The certificate of amendment shall set
forth the Partnership's name, the Secretary of State's file number for the
Partnership and the text of the amendment.
(d) In the event of a Withdrawal or Involuntary Withdrawal of the
General Partner, and if such General Partner does not file an amendment to the
Certificate of Limited Partnership as specified in this Section 17.6, then the
Special Limited Partner is hereby granted the specific authority to sign and
file such amendment.
Section 17.8 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument which may sufficiently be evidenced by one
counterpart.
Section 17.9 Captions.
Captions to and headings of the Articles, Sections and subsections of
this Agreement are solely for the conveniences of the Partners, are not a part
of this Agreement, and shall not be used for the interpretation or determination
of the validity of this Agreement or any provision hereof.
Section 17.10 Saving Clause.
If any provision of this Agreement, or the application of such
provision to any Person or circumstance, shall be held invalid, the remainder of
this Agreement, or the application of such provision to Persons or circumstances
other than those as to which it is held invalid, shall not be affected thereby.
Section 17.11 Certain Provisions.
If the operation of any provision of this Agreement would contravene
the provisions of applicable law, or would result in the imposition of general
liability on any Limited Partner or Special Limited Partner, such provisions
shall be void and ineffectual.
63
Section 17.12 Tax Matters Partner.
All the Partners hereby agree that the General Partner shall be the
"Tax Matters Partner" pursuant to the Code and in connection with any review or
examination of the federal income tax returns of the Partnership. At the time of
a review, examination, or otherwise, the Tax Matters Partner shall inform the
IRS that a copy of all correspondence shall be provided to the Limited Partner.
(a) The Tax Matters Partner shall furnish or cause to be furnished to
each Partner notice and information with respect to the following: closing
conference with an examining agent; proposed adjustments, rights of appeal, and
requirements for filing a protest; time and place of any appeals conference;
acceptance by the Internal Revenue Service of any settlement offer; consent to
the extension of the period of limitation with respect to all Partners; filing
of a request for administrative adjustment on behalf of the Partnership; filing
by the Tax Matters Partner or any other Partner of any petition for judicial
review; filing of any appeal with respect to any judicial determination; and a
final judicial redetermination.
(b) If the Tax Matters Partner shall determine to litigate any
administrative determination relating to federal income tax matters, then the
Tax Matters Partner shall obtain the Consent of the Special Limited Partner to
litigate such matter in such court.
(c) In discharging its duties and responsibilities, the Tax Matters
Partner shall act as a fiduciary (1) to the Limited Partner (to the exclusion of
the other Partners) insofar as tax matters related to the Tax Credits are
concerned, and (2) to all of the Partners in other respects.
(d) The Partners consent and agree that in connection with any audit,
review, examination, or otherwise of the Partnership, or if the Tax Matters
Partner withdraws from the Partnership or the Tax Matters Partner becomes
Bankrupt, then the Special Limited Partner may become, in its sole discretion, a
special general partner, and become the Tax Matters Partner. The Limited Partner
will make no claim against the Partnership in respect of any action or omission
by the Tax Matters Partner during such time as the Special Limited Partner acts
as the Tax Matters Partner.
(e) Nothing herein shall be construed as a waiver by the Limited
Partner of any of its rights under Chapter 631 of the Code. The General Partner
shall not enter into any settlement agreement purporting to bind the Limited
Partner without the Limited Partner's consent.
Section 17.13 Expiration of Compliance Period.
(a) Notwithstanding any provision hereof to the contrary (other than
this Section 17.12), the Special Limited Partner shall have the right at any
time after the beginning of the last year of the Compliance Period to require,
by written notice to the General Partner, that the General Partner promptly
submit a written request to the applicable State Tax Credit Agency pursuant to
Section 42(h) of the Code (or any successor provision) that such agency endeavor
to locate within one year from the date of such written request a purchaser for
the Apartment Housing who will continue to operate the Apartment Housing as a
qualified low-income property, at a purchase price that is not less than the
minimum amount set forth in Section 42(h)(6) of the Code (or any successor
provision). In the event that the State Tax Credit Agency obtains an offer
satisfying the conditions of the preceding sentence, the General Partner shall
promptly notify the Special Limited Partner in writing with respect to the terms
and conditions of such offer, and, if the Special Limited Partner notifies the
64
General Partner that such offer should be accepted, the General Partner shall
cause the Partnership promptly to accept such offer and to proceed to sell the
Apartment Housing pursuant to such offer.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Special Limited Partner shall have the right at any time after the
end of the Compliance Period to require, by written notice to the General
Partner (the "Required Sale Notice"), that the General Partner promptly use its
best efforts to obtain a buyer for the Apartment Housing on the most favorable
terms then available. The General Partner shall submit the terms of any proposed
sale to the Special Limited Partner for its approval in the manner set forth in
Section 17.12(a) hereof. If the General Partner shall fail to so obtain a buyer
for the Apartment Housing within six months of receipt of the Required Sale
Notice or if the Consent of the Special Limited Partner in its sole discretion
shall be withheld to any proposed sale, then the Special Limited Partner shall
have the right at any time thereafter to obtain a buyer for the Apartment
Housing on terms acceptable to the Special Limited Partner (but not less
favorable to the Partnership than any proposed sale previously rejected by the
Special Limited Partner). In the event that the Special Limited Partner so
obtains a buyer, it shall notify the General Partner in writing with respect to
the terms and conditions of the proposed sale and the General Partner shall
cause the Partnership promptly to sell the Apartment Housing to such buyer.
(c) A sale of the Apartment Housing prior to the end of the Compliance
Period may only take place if the conditions of Section 42(j)(6) of the Code (or
any successor provision) will be satisfied upon such sale by having the
purchaser of the Apartment Housing post the required bond on behalf of the
Partnership.
Section 17.14 Number and Gender.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the Person or
Persons may require.
Section 17.15 Entire Agreement.
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter hereof and all prior understandings and
agreements between the parties, written or oral, respecting this transaction are
merged in this Agreement.
Section 17.16 Governing Law.
This Agreement and its application shall be governed by the laws of the
State.
Section 17.17 Attorney's Fees.
If a suit or action is instituted in connection with an alleged breach
of any provision of this Agreement, the prevailing party shall be entitled to
recover, in addition to costs, such sums as the court may adjudge reasonable as
attorney's fees, including fees on any appeal.
Section 17.18 Receipt of Correspondence.
The Partners agree that the General Partner shall send to the Limited
Partner and the Special Limited Partner within five days of receipt a copy of
any correspondence relative to the Apartment Housing's noncompliance with the
65
Mortgage, relative to the Apartment Housing's noncompliance with the Tax Credit
rules or regulations, relative to any correspondence from the Mortgage lender
and/or relative to the disposition of the Apartment Housing.
Section 17.19 Security Interest.
As security for the performance of the respective obligations to which
any General Partner may be subject under this Agreement, the Partnership shall
have (and each General Partner hereby grants to the Partnership) a security
interest in their respective Interests of such General Partner and in all funds
distributable to said General Partner to the extent of the amount of such
obligation.
[Signatures begin on the following page]
66
IN WITNESS WHEREOF, this Amended and Restated Agreement of Limited
Partnership of Head Circle, L.P., a Mississippi limited partnership, is made and
entered into as of the 28 day of April, 2006.
GENERAL PARTNER
SEMC, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
President
WITHDRAWING ORIGINAL LIMITED
PARTNER
SOUTHEASTERN MANAGEMENT CO., INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
President
LIMITED PARTNER
WNC HOLDING, LLC
By: WNC & Associates, Inc.
Managing Member
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
SPECIAL LIMITED PARTNER
WNC HOUSING, L.P.
By: WNC & Associates, Inc.,
General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
67
EXHIBIT A TO PARTNERSHIP AGREEMENT
LEGAL DESCRIPTION
Lots 58,59,60,61,62,63,61,65,66,67,68,69,70,73,74,75,76,77 and Westgate
Subdivision #3 to the City of Ruleville, Sunflower County, Mississippi.
According to the plat pf said subdivision of record in Plat Book 69 at page 12
in the office of the Chancery Clerk of Sunflower County, Mississippi, together
with all and singular, the tenements, hereditaments and appurtenances thereunto
belonging or in anywise appertaining.
A-1
EXHIBIT B
FORM OF LEGAL OPINION
_____________, 2006
WNC Holding, LLC
WNC Housing, L.P.
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Head Circle, L.P.
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the investment by WNC Holding, LLC, a California limited liability company
(the "Limited Partner"), and WNC Housing, L.P., a California limited partnership
(the "Special Limited Partner"), in Head Circle, L.P. (the "Partnership"), a
Mississippi limited partnership formed to own, develop, rehabilitate, finance
and operate an apartment complex for low-income persons (the "Apartment
Housing") in Ruleville, Sunflower County, Mississippi. The original limited
partner of the Partnership is ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Original Limited Partner").
The general partner of the Partnership is SEMC, Inc. (the "General Partner").
The developer of the Apartment Housing is SEMC, Inc. ("the Developer"). The
guarantor of certain obligations of the General Partner is ▇▇▇▇▇ ▇▇▇▇▇▇ (the
"Guarantor"). In rendering the opinions stated below, we have examined and
relied upon the following:
(i) [Partnership Organizational Documents];
(ii) [Amended and Restated Agreement of Limited Partnership] (the
"Partnership Agreement");
(iii) [GP Organizational Documents];
(iv) [Developer Organizational Documents];
(v) [Guarantor Organizational Documents];
(vi) the Title Policy, as defined in the Partnership Agreement;
(vii) the Certification and Agreement entered into by the Partnership, the
General Partner, the Original Limited Partner, the Limited Partner, and WNC &
Associates, Inc., attached as Exhibit C to the Partnership Agreement and dated
____;
(viii) the Development Fee Agreement entered into by the Developer and the
Partnership and dated _____, (the "Development Agreement");
(ix) the Development Fee Guaranty Agreement, entered into by the Guarantor
and the Partnership and dated _________;
(x) the Development, Construction and Operating Budget Agreement, entered
into by the General Partner, the Limited Partner, and the Special Limited
Partner and dated _________;
(xi) the Construction Completion, Operating Deficit and Tax Credit Guaranty
Agreement, entered into by the Guarantor, the Partnership, and the Limited
Partner and dated _________;
(xii) the carryover allocation from Mississippi Home Corporation (the
"State Agency") dated _________ awarding $_________ in federal tax credits
annually for each of 10 years; and
(xiv) such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions referred to in this
letter.
B-2
For purposes of rendering the opinions stated below we have assumed that, in
those cases in which we have not been involved directly in the preparation,
execution or the filing of a document, (a) the document reviewed by us is an
original document, or a true and accurate copy of the original document, and has
not been subsequently amended, (b) the signatures on each original document are
genuine, and (c) each party who executed the document had proper authority and
capacity to do so.
Based on the foregoing, we are of the opinion that:
(a) __________________, one of the General Partners, is a
[corporation/partnership] duly formed and validly existing under the laws
of the State of _____________________ and has full power and authority to
enter into and perform its obligations under the Partnership Agreement and
the other agreements referenced above to which it is a party (the "Related
Agreements"). _______________, one of the other General Partners, is a
[corporation/partnership] duly formed and validly existing under the laws
of the State of __________________ and has full power and authority to
enter into and perform its obligations under the Partnership Agreement and
the Related Agreements.
(b) The Partnership is a limited partnership duly formed and validly existing
under the laws of the State of Mississippi and the provisions of the
Partnership Agreement conform with Mississippi law.
(c) The Partnership has full power and authority to own, development
rehabilitate, finance and operate the Apartment Housing and to otherwise
conduct business under the Partnership Agreement.
(d) Execution of the Partnership Agreement by the General Partner has been duly
and validly authorized by or on behalf of the General Partner and, having
been executed and delivered in accordance with its terms, the Partnership
Agreement constitutes the valid and binding agreement of the General
Partner, enforceable in accordance with its terms.
(e) The execution and delivery of the Partnership Agreement and the Related
Agreements by the General Partner do not conflict with and will not result
in a breach of any of the terms, provisions or conditions of any agreement
or instrument known to counsel to which any of the General Partner, the
Partnership, the Developer or the Guarantor is a party or by which any of
them may be bound, or any order, rule, or regulation applicable to any of
such parties of any court or governmental body or administrative agency
having jurisdiction over any of such parties or over the property.
(f) To the best of counsel's knowledge, after due inquiry, there is no
litigation or governmental proceeding pending or threatened against, or
involving the Apartment Housing, the Partnership, or any General Partner,
the Guarantor, or the Developer which would materially adversely affect the
condition (financial or otherwise) or business of the Apartment Housing,
the Partnership or any of the partners of the Partnership.
(g) The Limited Partner and the Special Limited Partner have been admitted to
the Partnership as limited partners of the Partnership under Mississippi
law and are entitled to all of the rights of limited
B-3
partners under the Partnership Agreement. Except as described in the
Partnership Agreement, no person is a partner of or has any legal or
equitable interest in the Partnership, and all former partners of record or
known to counsel have validly withdrawn from the Partnership and have
released any claims against the Partnership arising out of their
participation as partners therein.
(h) Liability of the Limited Partner and the Special Limited Partner for
obligations of the Partnership is limited to the amount of their capital
contributions required by the Partnership Agreement.
(i) Neither the General Partner of the Partnership nor the Limited Partner nor
the Special Limited Partner will have any liability for the Mortgage (as
such term is defined in the Partnership Agreement), and the lender of the
Mortgage Loan will look only to its security in the Apartment Housing for
repayment of the Mortgage Loan.
(j) The Partnership owns a fee simple interest in the Apartment Housing.
(k) To the best of our actual knowledge and belief, after due inquiry, the
Partnership, the General Partner the Developer and the Guarantor have
obtained all consents, permissions, licenses, approvals, or orders required
by all applicable governmental or regulatory agencies for the development,
rehabilitation and operation of the Apartment Housing, and the Apartment
Housing conforms to all applicable Federal, state and local land use,
zoning, health, building and safety laws, ordinances, rules and
regulations.
(l) The Apartment Housing has obtained a carryover allocation of low income
housing tax credits from the State Agency. The final allocation of LIHTC
and ultimate eligibility of the Apartment Housing for such final allocation
are subject to a series of requirements which must be met, performed or
achieved at various times prior to and after such final allocation.
Assuming all such requirements are met, performed or achieved at the time
or times provided by applicable laws and regulations, the Apartment Housing
will qualify for LIHTC.
(m) The Guarantor, if not an individual, was incorporated, duly organized, and
is validly existing and in good standing under the laws of the State of
Mississippi, is qualified to do business in every jurisdiction in which
because of the nature of its activities or properties qualification is
appropriate, and has all requisite power and authority to own and operate
its properties and to carry on its business as now conducted.
(n) Each Guarantor (i) has full power and authority to execute, deliver and
perform its obligations under and (ii) has duly authorized the execution,
delivery and performance of the Development Fee Guaranty Agreement and the
Construction Completion, Operating Deficit and Tax Credit Guaranty
Agreement (collectively, the "Guaranty"). The Guaranty has been duly
executed and delivered by the Guarantor and constitutes the legal, valid
and binding obligation of the Guarantor enforceable in accordance with its
terms except as the enforceability thereof may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting the enforcement of creditor's rights generally and general
principles of equity (regardless of whether enforceability is considered a
proceeding at law or equity).
(o) The Developer was incorporated, duly organized, and is validly existing and
in good standing the laws of the State of Mississippi, is qualified to do
business in every jurisdiction in which because of the nature of its
activities or properties qualification is appropriate, and has all
B-4
requisite power and authority to own and operate its properties and to
carry on its business as now conducted.
(p) The Developer (i) has full power and authority to execute, deliver and
perform its obligations under, and (ii) has duly authorized the execution,
delivery and performance of the Development Agreement. The Development
Agreement has been duly executed and delivered by the Developer and
constitutes the legal, valid and binding obligation of the Developer
enforceable in accordance with its terms except as the enforceability
thereof may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting the enforcement of
creditor's rights generally and general principles of equity (regardless of
whether enforceability is considered a proceeding at law or equity).
I am a member of the Bar of the State of Mississippi and express no opinion as
to the laws applicable in any other jurisdiction. All of the opinions set forth
above are qualified to the extent that the validity of any provision of any
agreement may be subject to or affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally. We do not express any opinion as to the availability of any equitable
or specific remedy upon any breach of any of the covenants, warranties or other
provisions contained in any agreement. We have not examined, and we express no
opinion with respect to, the applicability of, or liability under, any Federal,
state or local law, ordinance or regulation governing or pertaining to
environmental matters, hazardous wastes, toxic substances or the like.
We express no opinion as to any matter except those set forth above. These
opinions are rendered for use by the Limited Partner, its Assignees, the Special
Limited Partner and their legal counsel which may rely on this opinion. This
opinion may not be delivered to or relied upon by any other person or entity
without our express written consent.
Sincerely,
--------------------
[Name]
B-5
EXHIBIT C
CERTIFICATION AND AGREEMENT
CERTIFICATION AND AGREEMENT made as of the date written below by Head
Circle, L.P., a Mississippi limited partnership (the "Partnership"); SEMC, Inc.,
(the "General Partner"); and ▇▇▇▇▇▇▇ ▇▇▇▇▇ (collectively referred to as the
"Original Limited Partner") for the benefit of WNC Holding, LLC, a California
limited liability company (the "Investment Partnership"), and WNC & Associates,
Inc. ("WNC").
WHEREAS, the Partnership proposes to admit the Investment Partnership
as a limited partner thereof pursuant to an Amended and Restated Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement"), in
accordance with which the Investment Partnership will make substantial capital
contributions to the Partnership; and
WHEREAS, the Investment Partnership and WNC have relied upon certain
information and representations described herein in evaluating the merits of
investment by the Investment Partnership in the Partnership;
NOW, THEREFORE, to induce the Investment Partnership to enter into the
Partnership Agreement and become a limited partner of the Partnership, and for
$1.00 and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Partnership, the General Partner and the
Original Limited Partner hereby agree as follows for the benefit of the
Investment Partnership and WNC.
1. Representations, Warranties and Covenants of the Partnership,
the General Partner and the Original Limited Partner
The Partnership, the General Partner and the Original Limited Partner
jointly and severally represent, warrant and certify to the Investment
Partnership and WNC that, with respect to the Partnership, as of the date
hereof:
1.1 The Partnership is duly organized and in good standing as
a limited partnership pursuant to the laws of the state of its formation with
full power and authority to own its apartment housing (the "Apartment Housing")
and conduct its business; the Partnership, the General Partner and the Original
Limited Partner have the power and authority to enter into and perform this
Certification and Agreement; the execution and delivery of this Certification
and Agreement by the Partnership, the General Partner and the Original Limited
Partner have been duly and validly authorized by all necessary action; the
execution and delivery of this Certification and Agreement, the fulfillment of
its terms and consummation of the transactions contemplated hereunder do not and
will not conflict with or result in a violation, breach or termination of or
constitute a default under (or would not result in such a conflict, violation,
breach, termination or default with the giving of notice or passage of time or
both) any other agreement, indenture or instrument by which the Partnership or
any General Partner or Original Limited Partner is bound or any law, regulation,
judgment, decree or order applicable to the Partnership or any General Partner
or Original Limited Partner or any of their respective properties; this
Certification and Agreement constitutes the valid and binding agreement of the
C-6
Partnership, the General Partner and the Original Limited Partner, enforceable
against each of them in accordance with its terms.
1.2 The General Partner has delivered to the Investment
Partnership, WNC or their affiliates all documents and information which would
be material to a prudent investor in deciding whether to invest in the
Partnership. All factual information provided to the Investment Partnership, WNC
or their affiliates either in writing or orally, did not, at the time given, and
does not, on the date hereof, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they are made.
1.3 Each of the representations and warranties contained in
the Partnership Agreement is true and correct as of the date hereof.
1.4 Each of the covenants and agreements of the Partnership
and the General Partner contained in the Partnership Agreement has been duly
performed to the extent that performance of any covenant or agreement is
required on or prior to the date hereof.
1.5 All conditions to admission of the Investment Partnership
as the investment limited partner of the Partnership contained in the
Partnership Agreement have been satisfied.
1.6 No default has occurred and is continuing under the
Partnership Agreement or any of the Project Documents (as such term is defined
in the Partnership Agreement) for the Partnership.
1.7 The Partnership will allocate to the Investment
Partnership the Projected Annual Tax Credits, or the Revised Projected Tax
Credits, if applicable.
1.8 The General Partner agrees to take all actions necessary
to claim the Projected Tax Credit, including, without limitation, the filing of
Form(s) 8609 with the Internal Revenue Service.
1.9 No person or entity other than the Partnership holds any
equity interest in the Apartment Housing.
1.10 The Partnership has the sole responsibility to pay all
maintenance and operating costs, including all taxes levied and all insurance
costs, attributable to the Apartment Housing.
1.11 The Partnership, except to the extent it is protected by
insurance and excluding any risk borne by lenders, bears the sole risk of loss
if the Apartment Housing is destroyed or condemned or there is a diminution in
the value of the Apartment Housing.
1.12 No person or entity except the Partnership has the right
to any proceeds, after payment of all indebtedness, from the sale, refinancing,
or leasing of the Apartment Housing.
C-7
1.13 No General Partner is related in any manner to the
Investment Partnership, nor is any General Partner acting as an agent of the
Investment Partnership.
1.14 No event has occurred which would have a material adverse
change to the Investment Partnership's investment.
2. Miscellaneous
2.1 This Certification and Agreement is made solely for the
benefit of the Investment Partnership and WNC, and their respective successors
and assignees, and no other person shall acquire or have any right under or by
virtue of this Agreement.
2.2 This Certification and Agreement may be executed in
several counterparts, each of which shall be deemed to be an original, all of
which together shall constitute one and the same instrument.
2.3 Capitalized terms used but not defined in this Certification Agreement shall
have the meanings given to them in the Partnership Agreement.
[Signature being on the next page]
C-8
IN WITNESS WHEREOF, this Certification and Agreement is made and entered
into as of the 28 day of April, 2006.
PARTNERSHIP
HEAD CIRCLE, L.P.
By: SEMC, Inc.
General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
GENERAL PARTNER
SEMC, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
ORIGINAL LIMITED PARTNER
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
C-9
EXHIBIT D
FORM OF COMPLETION CERTIFICATE
(to be used when construction [rehabilitation] completed)
COMPLETION CERTIFICATE
The undersigned, an architect duly licensed and registered in the State of
Mississippi, has reviewed the final working plans and detailed specifications
for Head Circle, L.P., a Mississippi limited partnership (the "Partnership") in
connection with the construction of improvements on certain real property
located in Ruleville, Sunflower County, Mississippi (the "Improvements").
The undersigned hereby certifies (i) that the Improvements have been completed
in accordance with the aforesaid plans and specifications, (ii) that a permanent
certificate of occupancy and all other permits required for the continued use
and occupancy of the Improvements have been issued with respect thereto by the
governmental agencies having jurisdiction thereof, (iii) that the Improvements
are in compliance with all requirements and restrictions of all governmental
authorities having jurisdiction over the Improvements, including, without
limitation, all applicable zoning, building, environmental, fire, and health
ordinances, rules and regulations and (iv) that all contractors, subcontractors,
suppliers and workmen who worked on the Improvements have issued lien releases
and have been paid in full except for normal retainages and amounts in dispute.
-----------------------------------
Apartment Housing Architect
Date:
----------------------------
Confirmed by:
-----------------------------------
General Partner
Date:
----------------------------
D-1
EXHIBIT E
[ACCOUNTANT'S CERTIFICATE]
[Accountant's Letterhead]
_______________, 200____
WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
RE: Partnership
Certification as to Amount
of Eligible Tax Credit Base
Gentlemen:
In connection with the acquisition by WNC Holding, LLC (the "Limited Partner")
of a limited partnership interest in Head Circle, L.P., a Mississippi limited
partnership (the "Partnership") which owns a certain parcel of land located in
Ruleville, Sunflower County, Mississippi and improvements thereon (the
"Apartment Housing"), the Limited Partner has requested our certification as to
certain issues including the amount of low-income housing tax credits ("Tax
Credits") available with respect to the Apartment Housing under Section 42 of
the Internal Revenue Code of 1986, as amended (the "Code"). Based upon our
review of [the financial information provided by the Partnership] of the
Partnership we are prepared to file the Federal information tax return of the
Partnership claiming annual Tax Credits in the amount of $_______________, which
amount is based on an eligible basis (as defined in Section 42(d) of the Code)
of the Apartment Housing of $________________, a qualified basis (as defined in
Section 42(c) of the Code) of the Apartment Housing of $_________________ and an
applicable percentage (as defined in Section 42(b) of the Code) of _____%.
Sincerely,
-------------------------
E-1
EXHIBIT F
[CONTRACTOR'S CERTIFICATE]
[Contractor's Letterhead]
_______________, 200____
WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Head Circle, L.P.
Dear Ladies and Gentlemen:
The undersigned Southeastern Management Co., Inc., (hereinafter referred to as
"Contractor"), has furnished or through various contractors, sub-contractors or
material suppliers has contracted to furnish labor, services and/or materials
(hereinafter collectively referred to as the "Work") in connection with the
improvement of certain real property known as __________________ located in
Ruleville, Sunflower County, Mississippi (hereinafter known as the "Apartment
Housing"). Any terms not defined herein shall have the meaning ascribed in the
Amended and Restated Agreement of Limited Partnership of Head Circle, L.P.
Contractor makes the following representations, warranties and covenants
regarding the Work at the Apartment Housing with full knowledge that the Limited
Partner will rely on these representations, warranties and covenants as a
condition to making its Capital Contribution payment to Head Circle, L.P.
o Work on said Apartment Housing has been performed and completed in
accordance with the Plans and Specifications for the Apartment Housing.
o Contractor acknowledges that upon the Partnership's receipt of the Limited
Partner's placed in service Capital Contribution payment, all amounts owed
to Contractor, sub-contractor or material suppliers to complete the Work
will be paid in full.
o Contractor acknowledges Head Circle, L.P. is not in violation of any terms
and conditions of Construction Contract.
o Contractor acknowledges the Construction Contract has been paid in full and
all liens for the Work have been received.
The undersigned has personal knowledge of the matters stated herein and is
authorized and fully qualified to execute this document on behalf of the
Contractor.
(NAME OF COMPANY)
By: ___________________________________
Title: ________________________________
F-1
EXHIBIT G
DEPRECIATION SCHEDULE
Real Property: Use Modified Accelerated Cost Recovery System ("MACRS") 27.5 year
straight-line depreciation using the mid month. Real Property includes buildings
and building improvements.
Personal property: Use 5-year recovery period using mid-year 200% declining
balance, if it relates to residential real estate. Personal property related to
commercial space must use a 7-year recovery period using mid-year 200% declining
balance.
The following costs have a 5-year recovery period:
o Removable appliances (not central climate control system equipment or
water heaters)
o Draperies, blinds and shades, if they would be reusable if removed
o Carpeting, if its removal would not destroy the underlying floor
o Vinyl flooring, if its removal would be easy and not destroy the
underlying floor
o Common area furnishings
o Photocopy equipment
o Calculators, adding machines
o Typewriters
o Computers
o Wall coverings, if their removal would not destroy the underlying wall
o Exit signs
o Security systems (not fire protection system, sprinkler system, smoke
detectors, or fire escapes)
o Outdoor security lighting (not parking lot lighting)
o Fire extinguishers
o Decorative lighting and sconces (not light fixtures for central
lighting)
o Outdoor decorative lighting, such as that lighting signs
o Telephone systems
o Corridor handrails (not bathroom or stairway)
o Raised floors to accommodate wirings in computer rooms
The following costs have a 7-year recovery period with a mid year 200% declining
balance:
o Office furnishings
o Cabinets and shelving
o Bulletin boards
o Conference or meeting room movable partitions
A percentage of the development fee is also allowed in personal property. The
percentage is calculated by taking the ratio of personal property cost,
excluding development fee, to total development costs and multiplying the
development fee by the calculated ratio.
G-1
Land improvements Cost Recovery: Use 15-year recovery period using mid-year 150%
declining balance. The following costs have a 15-year recovery period. Items
allowed in this section are costs attributable to excavation, grading, and
removing soil necessary to the proper setting of buildings. Other costs
allowable in this section are as follows:
o Roads and sidewalks
o Concrete work (curb and gutter)
o Fencing
o Landscaping (including, but not limited to, trees and shrubs) around
the building which would be destroyed if the building were replaced
o Decorative walls which are part of the landscaping
o Parking lot (resurfacing it later is deducted as an expense)
o Initial parking lot striping (restriping it later is deducted as an
expense)
o Street lights and signs
o Signs which identify the property or provide directions
o Parking lot lighting (not outdoor security lighting)
o Playground equipment
o Basketball court and backboard
o Tennis courts
o Swimming pools
o Jogging trails
o Flag pole
o Wastewater treatment plant and lift station to handle raw sewage
o Interest expense capitalized and related to any of the above costs
o The prorata portion of the general contractor/construction company
profit, overhead, and general requirements and conditions allocable to
items with a 15-year cost recovery period
o The prorata portion of the development fee, profit and overhead
allocable to items with a 15-year cost recovery period
Recovery of costs of sanitary sewer system and water utility/distribution
system, including the sewer system outside the buildings: the following costs
have a 20-year recovery period - 150% declining balance mid-year convention.
o Fire hydrants
o Manhole rings and covers
o Watermeter
o Gate valves
o Flushing hydrants
o Cast iron fittings
o Valve boxes
o Air release valves
o Tapping sleeves
o PVC water pipe (outside)
o PVC sewer pipe (outside)
o PVC sewer fittings
G-2
EXHIBIT H
REPORT OF OPERATIONS
QUARTER ENDED: ____________________, 200X
------------------------------------- -----------------------------------
LOCAL PARTNERSHIP:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
GENERAL PARTNER:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Firm Name:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
PROPERTY NAME:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
-----------------------------------
------------------------------------- -----------------------------------
Resident Manager:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
ACCOUNTANT:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Firm:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
------------------------------------- -----------------------------------
------------------------------------ -----------------------------------
MANAGEMENT COMPANY
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
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Contact:
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OCCUPANCY INFORMATION
A. Number of Apartment Units_____ Number of RA Units_____
Number of Section 8 Tenants ____
B. Occupancy for the Quarter has: Increased ____ Decreased_____
Remained the Same _____
C. Number of: Move-Ins ______ Move-Outs __________ % of Occupancy ______
D. Average length of tenant residency: 1-6 months ______ 6-12 months ______
1-3 years ______ Over 4 years_____
H-1
E. Number of Basic rent qualified applicants on waiting list: ________
F. If the apartments are less than 90% occupied, please explain why and
describe what efforts are being made to lease-up remaining units.
___________________________________________________________________________
G. On site manager: Full Time__________ Part Time____________.
If part-time, the number of hours per week_____________.
H-2
OPERATIONAL INFORMATION
Rent Schedule and Increases from Previous Quarter
Number Monthly Rent Rent Increases Effective
of Units Basic / Market Amount Percent Date
1 Bedroom ________ ______________ _______ _______ ________
2 Bedroom ________ ______________ _______ _______ ________
3 Bedroom ________ ______________ _______ _______ ________
PROPOSED MAINTENANCE
Completed Funded by
Type Description or Operations or Amount
Planned Reserves
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Interior Painting
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Exterior Painting
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Siding
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Roofing
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Drainage
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Paving
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Landscaping
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Playground
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Community Room
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Laundry Room
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Common Areas
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Carpet
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Appliances
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Lighting
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Other
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Please describe in detail any major repairs:
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H-3
CONDITION OF PROPERTY
The overall appearance of the building(s) is:
Excellent Good Fair Bad
The overall appearance of the grounds is:
Excellent Good Fair Bad
EXTERIOR CONDITION (Please Check Appropriate Box)
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Type of Condition Excellent Good Fair Problems/Comments
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Signage
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Parking Lots
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Office/Storage
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Equipment
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Community Building
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Laundry Room
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Benches/Playground
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Lawns, Plantings
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Drainage, Erosion
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Carports
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Fences
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Walks/Steps/Guardrails
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Lighting
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Painting
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Walls/Foundation
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Roof/Flashing/Vents
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Gutters/Splashblocks
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Balconies/Patios
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Doors Windows/Screens
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Elevators
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INTERIOR CONDITION
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Stairs
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Flooring
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Doors/Cabinets/Hardware
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Drapes/Blinds
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H-4
Interior Painting
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Refrig/Stoves/Sinks
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Bathroom/Tubs/Showers
Toilets
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H-5
FINANCIAL STATUS
A. Replacement Reserve is: Fully-funded Under-funded Amount
(complete attached schedule)
Tax/Insurance Escrow is: Fully-funded Under-funded Amount
(complete attached schedule)
Property is operating at a: Surplus Deficit Amount
If deficit, General Partner funding? Yes No Amount
Mortgage Payments are: On Schedule Delinquent Amount
Are the taxes current? Yes No
(please provide copy of paid tax ▇▇▇▇)
Is the insurance current? Yes No Renewal Date
(please provide copy of yearly renewal)
B. Please note and explain any significant changes in the following:
Administrative Expense Increase Decrease Amount
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Repairs/Maintenance Expense Increase Decrease Amount
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Utility Expense Increase Decrease Amount
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Taxes/Insurance Expense Increase Decrease Amount
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C. Do you anticipate making a return to owner distribution? Yes No
Explanation:
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D. Please explain in detail any change in the financial condition:
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E. Any insurance claims files? Yes______ No______
If yes, please explain:
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H-6
SCHEDULE OF RESERVES
Replacement Tax & Insurance Other Total
Beginning Balance: ----------- ---------- ------- -------
Deposits:
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
Total Deposits ----------- ---------- ------- -------
Authorized Disbursements: ----------- ---------- ------- -------
Description:
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
Total Disbursements: ----------- ---------- -------- ------
Ending Balance: (1) ----------- ---------- -------- ------
Required Balance: ----------- ---------- -------- ------
Over/under funding: ----------- ---------- -------- ------
(1) Must agree with amount shown on the balance sheet.
Prepared By: Date:
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Firm: Telephone:
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Reminder: Please include the following documents:
1. Completed Report of Operations
2. Balance Sheet
3. Statement of Income & Expenses
4. Rent roll for quarter ending
5. Tax Credit Compliance Report
H-7
INITIAL TENANT CERTIFICATIONS
PARTNERSHIP NAME
Fund:
Property Name:
Address:
Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
[ ] 20/50 [ ] 40/60 Election
[ ] Does the 51% average apply [ ] Y [ ] N
Deeper Set-Aside ______% @ 50% AMI
County:
Management
Company
Contact Person:
Phone #
[ ] Multi-Family
[ ] Elderly
[38] Number of Units
Number of Exempt Units
LIHTC Apartment
Housing#:
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Gross Move-In
Unit First Time Move-In # Of # In Income Income
# Tenant Name Date Bdrms Sq.Ft. Set-Aside Unit Move-In Limits
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BIN # Certificate of Occupancy
Date:
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BIN # Certificate of Occupancy
Date:
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BIN # Certificate of Occupancy
Date:
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H-8
(CONTINUED)
Tenant Income Asset Less Tenant
Income Verifica Verifica Unit Rent Tenant Utility
Qualified tion tion Rent Subsidy Payment Allowance
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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(CONTINUED)
Tenant Tenant Overall
Gross Maximum Rent Tenant
Rent Rent Qualified Eligible
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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YES YES
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H-9
QUARTERLY TAX CREDIT COMPLIANCE REPORT
PROPERTY NAME
Quarter Ending:
Tax Credit Set-Asides Information: Loan/Regulatory Set-Asides:
[ ] 20/50 [ ] 40/60 Election
[ ] Does the 51% average apply [ ] Y [ ] N
Deeper Set-Aside: List Details
Property Address:
County:
Allocation: Management Company:
[ ] Pre-1990 (Rent based on
number of persons) Contact Person:
[ ] Multi-Family [ ] Elected to change
[ ] Elderly # Bdrm Phone #
[ ] Number of Units [ ] Post-1989 (Based on Fax #
[ ] Number of # of Bedroom) Prepared by:
Exempt Units
LIHTC
Apartment
Housing #
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Gross Annual
Unit Tenant Move-In # Of Inc. Set- # In Annual Income
# Name Date Bdrms % Aside Unit Income Limits
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(CONTINUED)
Annual Tenant Less
Recert. Income Income Assets Unit Rent Tenant
Date Qualified Verified Verified Rent Subsidy Payment
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(CONTINUED)
Tenant Tenant Overall
Utility Gross Maximum Rent Tenat
Allow. Rent Rent Qualified Eligible
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H-10
Tenant Tax Credit Compliance Audit
Document Transmittal Checklist
Unit Number Property Name Date
Tenant Name Completed By:
Initial /____/ Annual /____/
Check Box for Type of Certification Management Company
Check Documents This Section For WNC Use Only
Being Sent
Received Review
___ Internal Checklist or ____ ___________________
___ Initial - Rental Application/ ____ ___________________
___ Initial - Questionnaire of ____ ___________________
___ Recertification - Questionnaire of ____ ___________________
___ Recertification - ____ ___________________
___ Income/Assets ____ ___________________
___ Employment Verification ____ ___________________
___ Employment Termination ____ ___________________
___ Military Verification ____ ___________________
___ Verification of Welfare ____ ___________________
___ Verification of Social Security ____ ___________________
___ Verification of Disability ____ ___________________
___ Unemployment Verification ____ ___________________
___ Verification of Unemployment ____ ___________________
___ Verification Workmen's ____ ___________________
___ Retirement/Annuities ____ ___________________
___ Verification of Veterans ____ ___________________
___ Verification of Child Support ____ ___________________
___ Verification of Alimony ____ ___________________
___ Disposed of Assets Last 2 yrs ____ ___________________
___ Real ____ ___________________
___ Investm ____ ___________________
___ Assets Verifications/savings ____ ___________________
___ Trusts/with Current Tax ____ ___________________
___ Lump Sum Settlements ____ ___________________
___ Notarized Affidavit of Support ____ ___________________
___ Certification of Handicap ____ ___________________
___ Notarized Self- ____ ___________________
___ Notarized Statement of no ____ ___________________
___ Tenant Certification ____ ___________________
This Section For WNC Use Only
Yes No
___ ___ Are all required forms
___ ___ Are all required
___ ___ Did the Manager and Tenant sign
___ ___ Third party verification of
___ ___ Third party verification of
___ ___ Are verifications completed for all
___ ___ Did all the members of the household 18 yrs. and over sign all
documents?
___ ___ Is lease completed with a minimum of six
H-9
___ ___ Addendum
___ ___ Tenant Certification
___ ___ Are all members of the household
___ ___ Is utility
___ ___ Is correct income limit
___ ___ Is correct rent limit
For tenants with no
___ ___ Was notarized statement of no income
___ ___ or Were all sources verified (AFDC Unemployment Soc Sec Disability)?
H-10
TAX CREDIT COMPLIANCE MONITORING:
ANNUAL CERTIFICATION
As General Partner of Head Circle, L.P., I hereby certify as to the following:
1. Head Circle, L.P. owns a 38 unit project ("Apartment Housing") in
Ruleville, Sunflower County, Mississippi.
2. An annual income certification (including supporting documentation)
has been received from each tenant. The income certification reflects that the
tenant's income meets the income limitation applicable to the Apartment Housing
pursuant to Section 42(g)(1) of the Internal Revenue Code ("Code").
3. The Apartment Housing satisfies the requirements of the applicable
minimum set aside test as defined in Section 42(g)(1) of the Code.
4. Each unit within the Apartment Housing is rent restricted as defined
in Section 42(g)(2)of the Code.
5. Each unit in the Apartment Housing is available for use by the
general public and not for use on a transient basis.
6. Each building in the Apartment Housing is suitable for occupancy in
accordance with local health, safety, and building codes.
7. During the preceding calendar year, there had been no change in the
eligible basis, as defined in Section 42(d) of the Code, of any building within
the Apartment Housing.
8. All common area facilities included in the eligible basis of the
Apartment Complex are provided to the tenants on a comparable basis without a
separate fee to any tenant in the Apartment Housing.
9. During the preceding calendar year when a unit in the Apartment
Housing became vacant reasonable attempts were made to rent that unit to tenants
whose incomes met the income limitation applicable to the Apartment Housing
pursuant to Section 42(g)(1) of the Code and while that unit was vacant no units
of comparable or smaller size were rented to tenants whose income did not meet
the income limitation applicable to the Apartment Housing pursuant to Section
42(g)(1) of the Code.
10. If the income of a tenant in a unit increased above the limit
allowed in Section 42 (g)(2)(D)(ii), then the next available unit of comparable
or smaller size was rented to tenants whose incomes met the income limitation
applicable to the Apartment Housing pursuant to Section 42(g)(1) of the Code.
IN VERIFICATION OF THE FOREGOING ENCLOSED HEREWITH IS A COPY OF THE ANNUAL
H-11
INCOME CERTIFICATION RECEIVED FROM EACH TENANT IN THE PROJECT. UPON REQUEST I
WILL PROVIDE COPIES OF ALL DOCUMENTATION RECEIVED FROM THE TENANT TO SUPPORT
THAT CERTIFICATION.
I declare under penalty of perjury under the law of the State of
Mississippi that the foregoing is true and correct.
Executed this day of at , .
--- ---------- ------------- ----------------
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
H-12
Calculation of Debt Service Coverage
Month 1 Month 2 Month 3
------------ ------------ ------------
INCOME
Gross Potential Rent
Other Income
Vacancy Loss ------------ ------------ ------------
Adjusted Gross Income ------------ ------------ ------------
OPERATING EXPENSES
Utilities
Maintenance
Management Fee
Administration
Insurance
Real Estate Taxes
Other Expenses ------------ ------------ ------------
Total Operating Expenses ------------ ------------ ------------
Net Operating Income (1)
Accrual adjustments for:
R/E Taxes
Insurance
Tax/ Accounting
Other
Replacement Reserves ------------ ------------ ------------
Income for DSC Calculation ============ ============ ============
H-13
Stabilized Debt Service ------------ ------------ ------------
Debt Service Coverage (2) ------------ ------------ ------------
Please submit this form along with the following supporting documentation:
Monthly Financial Reports (income statement, balance sheet, general ledger, and
rent rolls)
Operating Budget
Copies of bank statements
(1) This number should reconcile easily with the monthly financial
statements.
(2) The ratio between the Income for DSC calculation and Stabilized Debt
Service. As example, a 1.10 DSC means that for every $1.00 of Stabilized Debt
Service required to be paid there must be $1.10 of Net Operating Income
available.
H-14
EXHIBIT I
SURVEY REQUIREMENTS
The Survey shall satisfy the minimum standard detail requirements for
an ALTA/ACSM Land Title Survey, as established by ALTA, ACSM and NSPS in October
of 1999, including optional items 1 through 11 and 13, and shall show the items
listed below:
(a) A scale of measurement.
(b) A North arrow shall be shown.
(c) A legend to explain any symbols or abbreviations appearing on the
survey, and supplementary or exaggerated diagrams shall be provided as
necessary, for clarity.
(d) A point of beginning to form the basis for, or as used in, the legal
description of record of the property unless a lot and block legal description
is utilized. Measured and recorded distances from corners of parcels to the
nearest right of way lines of streets.
(e) The distances to the nearest intersecting street shall be indicated.
Names and widths of streets and highways abutting the property surveyed and
widths of rights of way shall be given. Indicate whether roads and streets are
publicly dedicated; note if not physically open.
(f) Notations of the names of adjoining owners whenever possible.
(g) The boundaries of the Apartment Housing and monuments placed (or
references to monuments found) at all major corners of the boundary of the
premises.
(h) The character of any and all evidence of possession shall be stated and
the location of such evidence shall carefully given in relation to both the
measured boundary lines and those established by the record.
(i) Location and dimensions (including height and ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇) of all
buildings, structures and other improvements situated on the Apartment Housing
(such as signs, parking areas, structures, swimming pools, etc.) the number of
square feet contained within the footprint of each building on the Apartment
Housing, and their locations defined by measurements perpendicular to the
Apartment Housing boundaries.
(j) Show the street address(es) of the improvements.
(k) The location and recording data for all easements (both those burdening
and benefiting the Apartment Housing), encroachments, set back and building
restriction lines, conflicts or protrusions from or onto adjoining property,
streets or alleys. (Fully depict any appurtenant easements, showing all courses
and distances.) Note any easements which cannot be located, and note easements
which appear on the Apartment Housing but which are not subject to any recorded
instrument.
(l) The character and location of all walls, buildings, fences and other
I-1
visible improvements within five feet of each side of the boundary lines shall
be noted.
(m) The location of driveways, alleys, access roads, sidewalks, curbs,
railroad tracks and railroad rights-of-way on or crossing the Apartment Housing.
(n) Observable evidence of cemeteries.
(o) The location of creeks, streams, rivers, lakes, ponds (retention or
otherwise) or other waterways that cross or form a boundary line of the
property, including the location of high and low water marks established by the
U.S. Army Corps of Engineers, where applicable.
(p) Vicinity map showing the Apartment Housing surveyed in reference to
nearby highway(s) or major street intersections(s).
(q) Flood zone designation.
(r) Land area by acreage and square feet.
(s) Identify and show, if possible, setback, height and floor space area
restrictions.
(t) Parking areas and, if striped, the striping and the number of parking
spaces (by category - full size, compact size, handicap reserved).
(u) Indication of access to a public way such as curb cuts, driveways
marked.
(v) Location of all utilities serving the Premises, including without
limitation:
(i) All manholes, catch basins, valve vaults, storm drains or other
surface indications of subterranean uses;
(ii) All wires and cables (including their function) crossing the
surveyed premises, all poles on or within ten feet of the surveyed
premises, and the dimensions of all cross wires or overhangs affecting the
surveyed premises; and
(iii) All utility installations on the surveyed premises based upon
information obtained from independent sources such as utility companies or
utility locating services.
(w) Any wetlands area(s), if known.
(x) The political subdivision, county, state and such other notations as
will accurately locate the property surveyed.
(y) Significant observations not otherwise disclosed.
I-2
SURVEYOR'S CERTIFICATE
I hereby certify to WNC Holding, LLC , their respective successors and/or
assigns that the survey for this plat was made on the ground under my
supervision from a recorded description in deed of record in Book _____, Page
_____, Records of ____________________ County, ____________________, and that
the angular and linear measurements and all other matters shown hereon are
correct. I further certify that this survey made under my supervision on
___________, 200___, correctly shows the total area of the property in acres and
in square feet; the exact dimensions and location of improvements, walkways,
paved areas and parking areas; all other matters on the ground which may
adversely affect title to the subject property; the exact relation of buildings
and other structures to the property lines of the land indicated hereon; the
exact location of visible and recorded easements and other manners of record
affecting the subject property. I further certify that there are no
encroachments of adjoining buildings or structures onto said land nor overlap of
buildings or structures from said land other than as shown; that adequate
ingress and egress to the subject property are provided by
________________________________ and ________________________________, as shown
on the survey, the same being paved, dedicated public rights of way; that the
location of all improvements on the subject property is in accord with all
applicable zoning laws regulating the use of the subject property and with all
applicable laws containing minimum set back provisions and covenants and
restriction of record; that the subject property does not serve any adjoining
property for drainage ingress and egress or for any other purpose; and that the
property is not in flood plain (as shown by Map No. ____________ of
_____________, as dated ____________________); this survey is made in accordance
with "Minimum Angle, Distance and Closure Requirements for Survey Measurements
Which Control Land Boundaries for ALTA/ACSM Land Title Surveys," established by
ALTA, ACSM and NSPS in October 1999.
--------------------- ------------------------------------------
Date Surveyor
[SEAL]
License/Registration No.
-----------------
Job No.
----------------------------------
I-3
LIST OF AGREEMENTS ATTACHED
Development Fee Agreement
Development Fee Guaranty Agreement
Development, Construction and Operating Budget Agreement
Construction Completion, Operating Deficit, and Tax Credit Guaranty Agreement
DEVELOPMENT FEE AGREEMENT
This Development Fee Agreement ("Agreement"), is entered into as of the
date written below by and between SEMC, Inc. ("Developer") and Head Circle,
L.P., a Mississippi limited partnership ("Owner"). Developer and Owner
collectively may be referred to as the "Parties" or individually may be referred
to as a "Party".
RECITALS
A. Owner has acquired the real property located in Ruleville, Sunflower
County, Mississippi, as more particularly described in Exhibit A attached hereto
and incorporated herein (the "Real Property").
B. Owner intends to develop on the Real Property a 38 unit low-income
rental housing complex and other related improvements, which is intended to
qualify for federal low-income housing tax credits (the "Apartment Housing").
C. Prior to the date of this Agreement Developer has performed
substantial development services with respect to the Apartment Housing as
specified in Section 2.3 of this Agreement. Developer has also agreed to oversee
the construction of the Apartment Housing until all construction work is
completed and to provide certain services relating thereto. The Parties
recognize and acknowledge that the Developer is, and has been, an independent
contractor in all services rendered to, and to be rendered to, the Owner
pursuant to this Development Fee Agreement.
D. Owner desires to commit its existing development agreement with
Developer into writing through this Development Fee Agreement for Developer's
services to manage, oversee, and complete development of the Apartment Housing.
Developer desires to commit its existing development agreement with Owner into
writing through this Development Fee Agreement and Developer is willing to
assign all development rights to the Apartment Housing to Owner, to undertake
performance of such development services, and to fulfill all obligations of the
Developer set forth in this Agreement, in consideration of Owner's restated
promise to pay to Developer the fee specified in this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual promises and undertakings in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Owner and Developer agree as follows.
SECTION I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall, when capitalized,
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Construction Documents" means the contract documents between the Owner
and the Construction Lender pertaining to the construction loan for the
construction of the Apartment Housing.
"Construction Loan" means the loan to finance construction of the
Apartment Housing, made to Owner by the Construction Lender.
"Contractor" means Southeastern Management Co., Inc.
"Department" means the Mississippi agency responsible for the
reservation and allocation of Tax Credits.
"Development Fee" means the fee for development services described in
Section 2 of this Agreement.
"Partnership Agreement" shall mean the Amended and Restated Agreement
of Limited Partnership of Head Circle, L.P., a Mississippi limited partnership.
"Tax Credits" means the low-income housing tax credits found in Section
42 of the Code, and all rules, regulations, rulings, notices and other
promulgations thereunder.
SECTION 2
ENGAGEMENT OF DEVELOPER; FEE; SERVICES
2.1 Engagement; Term. Owner hereby confirms the engagement of Developer
to act as developer of the Apartment Housing, and to perform the various
covenants and obligations of the Developer under this Agreement. Developer
hereby confirms and accepts such engagement and agrees to perform fully and
timely each and every one of its obligations under this Agreement. The term of
such engagement shall commence on the date hereof and subject to the pre-payment
provisions of Section 3 shall expire on December 31, 2016.
2.2 Development Fee. In consideration of Developer's prior activities
and Developer's agreement to provide development services during the term of
this Agreement, Owner agrees to pay the Developer a Development Fee in the
amount of $124,000 ("Development Fee"). The Development Fee shall be payable in
accordance with Section 3 of this Agreement.
2.3 Development Services.
(a) Prior Services. Owner acknowledges that Developer has, prior to the
date hereof, performed substantial development services relating to the
Apartment Housing. Such services (the "Prior Services") have included the
following.
(1) Services Rendered Prior to 10% Carryover.
(A) Developer has identified a Contractor and recommended to
the Owner to enter into a construction contract with the
Contractor for the building of the Apartment Housing.
(B) Developer has estimated the cost of construction;
determined the construction period; prepared a monthly-estimated
construction chart reflecting the construction services required
each month; and prepared a preliminary Development Budget.
(C) Developer has reviewed the plans and specifications for
compliance with design criteria and construction contracts.
(D) Developer has identified an architect and recommended to
the Owner to execute an architectural contract for the planning
and design of the Apartment Housing.
(E) Developer has placed its own capital at risk in
anticipation of the Apartment Housing being constructed, leased
and Tax Credits awarded.
(2) Other Prior Services.
(A) Developer has identified and recommended to Owner a
Construction Lender to obtain the Construction Loan.
(B) Developer has negotiated and conferred with an insurance
carrier to provide a builder's risk policy during construction.
(b) Future Services. Developer shall monitor construction of the
Apartment Housing for Owner and shall provide Owner with information requiring
Owner's intervention to resolve construction issues. Owner shall allow Developer
full access to the Apartment Housing during the construction period. Developer
and Developer's agents shall perform their work in a manner that minimizes
interference with the management and operation of the Apartment Housing.
(1) Developer shall exert its best efforts to ensure that the
Contractor performs its obligations under the Construction Documents
in a diligent and timely manner.
(2) Developer shall monitor pre-construction conferences and
review pre-construction documents, including drawings, specifications,
contracts, and schedules.
(3) Developer shall identify construction issues and inform Owner
of the same.
(4) Developer shall review subcontract bids received by the
Contractor and make a recommendation to the Owner.
(5) Developer shall monitor field order and change order
procedures and inform the Owner.
(6) Developer shall attend construction progress meetings at the
Apartment Housing site to monitor construction progress and report to
the Owner the outcome of those meeting.
(7) Developer shall review the Contractor's monthly pay
applications.
(8) Developer shall monitor the Contractor's progress with
respect to the approved Apartment Housing schedule and keep the Owner
informed of all pertinent Apartment Housing issues and construction
progress.
(9) Developer shall advise Owner with respect to relations with
engineers, architects, and other construction professionals.
(10) Developer shall maintain relations with the City of
Ruleville and other governmental authorities having jurisdiction over
development of the Apartment Housing and inform the Owner of any
construction or building issues.
(c) Assignment of Development Rights. Developer hereby assigns to Owner
all rights to the development of the Apartment Housing, including but not
limited to, all tangible and intangible rights arising with respect to the name
Head Circle, L.P., the design of the Apartment Housing, the plans and
specifications for the Apartment Housing and all rights arising under the
agreements with Apartment Housing architects, engineers and other Apartment
Housing design and construction professionals.
SECTION 3
DEVELOPMENT FEE PAYMENTS
3.1 Prior Services Rendered. The Parties acknowledge and agree that
Developer has earned the sum of $5,960 for services rendered prior to the 10%
carryover date, that said amount is reasonable in relation to the work
performed, is fully earned as of that date and said amount shall be paid in any
event notwithstanding the termination of this Agreement. The Parties further
acknowledge and agree that the Owner has accrued the Development Fee of $5,960,
under its method of accounting.
3.2 Payment of Development Fee. The Development Fee shall be paid to
the Developer from capital contribution payments received by the Owner in
accordance with Section 9.2(b) of the Partnership Agreement. If the Development
Fee is not paid in full in accordance with Section 9.2(b) of the Partnership
Agreement then the balance of the Development Fee shall be paid from available
net operating income in accordance with the terms of Section 11.1 of the
Partnership Agreement and Exhibit B attached hereto, but in no event later than
December 31, 2016. Also, if the Development Fee is not paid in full in
accordance with Section 9.2(b) of the Partnership Agreement then Owner shall
provide Developer with a note payable to Developer ("Development Fee Note") in a
principal amount equal to the unpaid balance of the Development Fee and with a
payment schedule as set forth in Exhibit B attached hereto. The Development Fee
Note shall accrue interest at a rate equal to the applicable federal rate in
effect as of the date of the last capital contribution payment referenced in
Section 7.2 of the Partnership Agreement. The Development Fee Note shall be paid
out of Net Operating Income pursuant to Section 11.1 of the Partnership
Agreement, but the Owner shall pay to the Developer any unpaid principal and
accrued interest on the eleventh anniversary of the Completion Date. Amounts due
under this Development Fee Agreement, or a Development Fee Note, may not be
prepaid.
3.3 Accrual of Development Fee. The Development Fee shall be earned no
later than the end of the first year of the tax credit period referenced in
Section 42(f)(1) of the Code. Once any portion of the Development Fee has been
earned, it shall be payable by the Partnership in all events.
SECTION 4
TERMINATION
Neither Party to this Agreement shall have the right to terminate this
Agreement prior to the expiration of the term without cause. Owner may terminate
this Agreement without further liability, for cause, which shall mean any one of
the following:
(a) a material breach by Developer of its obligations under this
Agreement that is not cured within thirty (30) days after notice thereof (or, as
to any non-monetary obligations that is not reasonably capable of cure within 30
days, and provided that cure is commenced within 10 days of notice and
diligently pursued thereafter to completion, within such time as may reasonably
be necessary to complete such cure);
(b) a fraudulent or intentionally incorrect report by Developer to
Owner with respect to the Apartment Housing; or
(c) any intentional misconduct or gross negligence by Developer with
respect to its duties under this Contract.
Upon proper termination of this Agreement by Owner pursuant to this
Section 4, all rights of Developer to receive unearned Development Fees pursuant
to this Agreement with respect to services not yet performed shall terminate.
Developer shall receive the full Development Fee for Prior Services and shall
receive a portion of the Development Fee for Future Services based on the
percentage of Completion of Construction of the Apartment Housing at the time of
termination. Nothing in this Section 4 shall be deemed to prevent Owner from
bringing an action against Developer to recover fully all damages resulting from
any of the causes set forth in paragraphs (a), (b) or (c) above, or to prevent
Owner from contending in any action or proceeding that the Future Services were
not earned by Developer.
SECTION 5
GENERAL PROVISIONS
5.1 Notices. Notices required or permitted to be given under this
Agreement shall be in writing sent by overnight courier or mail, postage
prepaid, to the Parties at the following addresses, or such other address as is
designated in writing by the Party; provided, however, that any written
communication containing such information sent to a Party actually received by a
Party shall constitute notice for all purposes of this Agreement.
If to Developer: SEMC, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to Owner: Head Circle, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
5.2 Interpretation.
(a) Headings. The section headings in this Agreement are included for
convenience only; they do not give full notice of the terms of any portion of
this Agreement and are not relevant to the interpretation of any provision of
this Agreement.
(b) Relationship of the Parties. Neither Party hereto shall be deemed
an agent, partner, joint venturer, or related entity of the other by reason of
this Agreement and as such neither Party may enter into contracts or agreements
which bind the other Party.
(c) Governing Law. The Parties intend that this Agreement shall be
governed by and construed in accordance with the laws of the state of
Mississippi applicable to contracts made and wholly performed within Mississippi
by persons domiciled in Mississippi.
(d) Severability. Any provision of this Agreement that is deemed
invalid or unenforceable shall be ineffective to the extent of such invalidity
or unenforceability, without rendering invalid or unenforceable the remaining
provisions of this Agreement.
5.3 Integration; Amendment. This Agreement constitutes the entire
agreement of the Parties relating to the subject matter hereof. There are no
promises, terms, conditions, obligations, or warranties other than those
contained herein. This Agreement supersedes all prior communications,
representations, or agreements, verbal or written, among the Parties relating to
the subject matter hereof. This Agreement may not be amended except in writing.
5.4 Attorney' Fees. If any suit or action arising out of or related to
this Agreement is brought by any Party to any such document, the prevailing
Party shall be entitled to recover the costs and fees (including without
limitation reasonable attorneys' fees and costs of experts and consultants,
copying, courier and telecommunication costs, and deposition costs and all other
costs of discovery) incurred by such Party in such suit or action, including
without limitation to any post-trial or appellate proceeding.
5.5 Binding Effect. This Agreement shall bind and inure to the benefit
of, and be enforceable by, the Parties hereto and their respective successors,
heirs, and permitted assigns.
5.6 Assignment. Neither Party may assign this Agreement without the
consent of the other Party. No assignment shall relieve any Party of liability
under this Agreement unless agreed in writing to the contrary.
5.7 Third-Party Beneficiary Rights. No person not a Party to this
Agreement is an intended beneficiary of this Agreement, and no person not a
Party to this Agreement shall have any right to enforce any term of this
Agreement. Notwithstanding the foregoing, the Parties acknowledge that WNC
Holding, LLC shall have the right to enforce any term of this Agreement.
5.8 Related Parties. The Parties acknowledge that the Owner and
Developer are related parties under Code Section 267 and that Owner is an
accrual basis taxpayer. As such, the Parties agree and consent that each and
every year during the term of this Agreement that Owner accrues any or all of
the principal and/or interest of the Development Fee that the Developer (whether
or not an accrual basis taxpayer) will include an equal amount in Developer's
income tax return for that year.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all the Parties, notwithstanding that all Parties are not signatories to the
same counterpart.
5.10 Further Assurances. Each Party agrees, at the request of the other
Party, at any time and from time to time after the date hereof, to execute and
deliver all such further documents, and to take and forbear from all such
action, as may be reasonably necessary or appropriate in order more effectively
to perfect the transfers or rights contemplated herein or otherwise to confirm
or carry out the provisions of this Agreement.
5.11 Mandatory Arbitration. Any person enforcing this Agreement may
require that all disputes, claims, counterclaims, and defenses ("Claims")
relating in any way to this Agreement or any transaction of which this Agreement
is a part (the "Transaction"), be settled by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and Title 9 of the U.S. Code. All claims will be subject to the statutes of
limitation applicable if they were litigated.
If arbitration occurs, one neutral arbitrator will decide all issues
unless either Party's Claim is $100,000.00 or more, in which case three neutral
arbitrators will decide all issues. All arbitrators will be active Mississippi
State Bar members in good standing. In addition to all other powers, the
arbitrator(s) shall have the exclusive right to determine all issues of
arbitrability. Judgment on any arbitration award may be entered in any court
with jurisdiction.
If either Party institutes any judicial proceeding relating to the
Transaction, such action shall not be a waiver of the right to submit any Claim
to arbitration. In addition, both Parties have the right before, during, and
after any arbitration to exercise any of the following remedies, in any order or
concurrently: (i) setoff, (ii) self-help repossession, (iii) judicial or
non-judicial foreclosure against real or personal property collateral, (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery, and replevin.
This arbitration clause cannot be modified or waived by either Party
except in a writing that refers to this arbitration clause and is signed by both
Parties.
[Signatures begin on following page]
IN WITNESS WHEREOF, the Parties have caused this Development Fee Agreement
to be executed as of April 28, 2006.
DEVELOPER: SEMC, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
President
OWNER: HEAD CIRCLE, L.P.
By: SEMC, Inc.
General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
President
EXHIBIT A TO DEVELOPMENT AGREEMENT
LEGAL DESCRIPTION
Lots 58,59,60,61,62,63,61,65,66,67,68,69,70,73,74,75,76,77 and Westgate
Subdivision #3 to the City of Ruleville, Sunflower County, Mississippi.
According to the plat pf said subdivision of record in Plat Book 69 at page 12
in the office of the Chancery Clerk of Sunflower County, Mississippi, together
with all and singular, the tenements, hereditaments and appurtenances thereunto
belonging or in anywise appertaining.
A-1
[DEVELOPMENT FEE AGREEMENT]
EXHIBIT B
SCHEDULED AMOUNT
YEAR PAYMENT SCHEDULE
2006 $27,519
2007 $2,000
2008 $2,000
2009 $2,000
2010 $2,000
2011 $2,000
2012 $2,000
2013 $2,000
2014 $2,000
2015 $2,000
2016 $4,481
A-1
DEVELOPMENT FEE GUARANTY AGREEMENT
FOR VALUE RECEIVED, the receipt and sufficiency of which is hereby
acknowledged, and in consideration of the agreement of SEMC, Inc., (the
"Developer") to permit deferral of the $0 due from Head Circle, L.P. a
Mississippi limited partnership ("Debtor") to the Developer, the undersigned
Guarantor(s), hereby unconditionally guarantees the full and prompt payment when
due, whether by acceleration or otherwise of that certain Developer Fee from
Debtor to the Developer, evidenced by the Development Fee Agreement dated the
even date herewith, and incorporated herein by this reference. The foregoing
described debt is referred to hereinafter as the "Liabilities" or "Liability."
The undersigned further agree to pay all expenses paid or incurred by
the Debtor or Developer in endeavoring to collect the Liabilities, or any part
thereof, and in enforcing the Liabilities or this Agreement (including
reasonable attorneys' fees if collected or enforced by law or through an
attorney-at-law). The undersigned hereby represent and warrant that the
extension of credit or other financial accommodations by the Developer to Debtor
will be to the interest and advantage of the undersigned, and acknowledges that
this Agreement is a substantial inducement to the Developer to extend credit to
Debtor and that the Developer would not otherwise extend credit to Debtor.
Debtor or Developer may, from time to time, without notice to or
consent of the undersigned, (a) retain or obtain a security interest in any
property to secure any of the Liabilities or any obligation hereunder, (b)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the undersigned, with respect to any of the Liabilities and (c)
resort to the undersigned for payment of any of the Liabilities, whether or not
the Debtor or Developer shall have resorted to any property securing any of the
Liabilities or any obligation hereunder or shall have preceded against any other
party primarily or secondarily liable on any of the Liabilities.
Debtor and Developer must mutually agree to (a) extend or renew for any
period this Agreement (whether or not longer than the original period) or alter
any of the Liabilities, (b) release or compromise any Liability of the
undersigned hereunder or any Liability of any other party or parties primarily
or secondarily liable on any of the Liabilities, or (c) release, compromise or
subordinate its title or security interest, or any part thereof, if any, in all
or any property now or hereafter securing any of the Liabilities or any
obligation hereunder, and permit any substitution or exchange for any such
property.
The undersigned hereby expressly waives: (a) notice of the existence or
creation of all or any of the Liabilities, (b) notice of any amendment or
modification of any of the instruments or documents evidencing or securing the
Liabilities, (c) presentment, demand, notice of dishonor and protest, (d) all
diligence in collection or protection of or realization upon the Liabilities or
any thereof, any obligation hereunder, or any security for any of the foregoing,
and (e) the right to require the Developer to proceed against Debtor on any of
the Liabilities, though nothing herein shall prevent the Developer from
proceeding against Debtor on any of the Liabilities.
In the event any payment of Debtor to the Developer is held to
constitute a preference under the bankruptcy laws, or if for any other reason
1
the Developer is required to refund such payment or pay the amount thereof to
any other party, such payment by Debtor to the Developer shall not constitute a
release of Guarantor from any Liability hereunder, but Guarantor agrees to pay
such amount to the Developer upon demand and this Guaranty shall continue to be
effective or shall be reinstated, as the case may be, to the extent of any such
payment or payments.
No delay or failure on the part of the Developer in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Developer of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy. No action of the
Developer permitted hereunder shall in any way impair or affect this Agreement.
For the purpose of this Agreement, the Liabilities of Debtor to the Developer
are guaranteed notwithstanding any right or power of Debtor or anyone else to
assert any claim or defense as to the invalidity or unenforceability of any such
obligation, and no such claim or defense shall impair or affect the obligations
of the undersigned hereunder.
Any payment from Guarantor directly to Developer or the Debtor in
accordance with this Agreement shall be classified and booked as a
non-refundable cost overrun payment from Guarantor to Debtor in consideration of
this Agreement and then a payment by Debtor to Developer in consideration of the
Development Fee Agreement, provided that any payments made to the Partnership
under the guarantee of Development Fee payment pursuant to Section 6.3(b) of the
Partnership Agreement shall be included in the Capital Account of the General
Partner.
This Agreement shall be binding upon the undersigned, and upon the
legal representatives, heirs, successors and assigns of the undersigned, and may
be enforced against them by the Debtor or Developer or their legal
representatives, heirs, successors and assigns.
This Agreement has been made and delivered in the state of Mississippi
and shall be construed and governed under Mississippi law.
Whenever possible, each provision of the Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition of
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
Whenever the singular or plural number, masculine or feminine or neuter
is used herein, it shall equally include the other where applicable. In the
event this Agreement is executed by more than one guarantor, this Agreement and
the obligations hereunder are the joint and several obligation of all the
undersigned.
Guarantor consents to the jurisdiction of the courts in the State of
Mississippi and/or to the jurisdiction and venue of any United States District
Court in the State of Mississippi having jurisdiction over any action or
judicial proceeding brought to enforce, construe or interpret this Guaranty.
Guarantor agrees to stipulate in any such proceeding that this Guaranty is to be
considered for all purposes to have been executed and delivered within the
geographical boundaries of the State of Mississippi, even if it was, in fact,
executed and delivered elsewhere.
2
IN WITNESS WHEREOF, the undersigned have hereunto caused this Development
Fee Guaranty Agreement to be executed as of December 6, 2005.
Signed GUARANTOR:
in the presence of:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------- --------------------------
Witness ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
Notary Public
My Commission Expires: Address for Guarantor:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
-------------------------- ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(NOTARY SEAL)
3
DEVELOPMENT, CONSTRUCTION AND
OPERATING BUDGET AGREEMENT
This Development, Construction and Operating Budget Agreement
("Agreement") is entered into as of the date written below by and between Head
Circle, L.P., a Mississippi limited Partnership ("Owner"), SEMC, Inc., ("General
Partner"), WNC Holding, LLC, a California limited liability company ("Limited
Partner") and WNC Housing, L.P., a California limited Partnership ("Special
Limited Partner"). Owner, General Partner, Limited Partner and Special Limited
Partner collectively may be referred to as the "Parties" or individually may be
referred to as a "Party".
RECITALS
A. Owner has acquired 4.8 acres of land in Ruleville, Sunflower County,
Mississippi (the "Real Property").
B. Owner intends to develop on the Real Property a 38 unit low-income
rental housing complex and other related improvements for use, which is
intended to qualify for federal low-income housing tax credits (the "Apartment
Housing").
C. On even date herewith a partnership agreement for Head Circle, L.P.
("Partnership Agreement") was entered into by and between the General Partner,
the Limited Partner and the Special Limited Partner (the Partnership Agreement
is incorporated herein by this reference as if the same were reproduced in full
and any capitalized terms not defined in this Agreement shall have the meaning
as defined in the Partnership Agreement).
D. The Parties recognize and acknowledge that the final construction
cost determination involves substantial negotiations with lenders, contractors
and governmental authorities.
E. The Parties recognize and acknowledge that a final operating budget
involves substantial negotiations with lenders and governmental authorities.
F. Limited Partner's and Special Limited Partner's decision to execute
the Partnership Agreement is based, in part, on their acceptance of the sources
of funds available to develop the Apartment Housing, the cost of construction
to build the Apartment Housing and the operating budget necessary to provide a
positive Debt Service Coverage.
Now therefore, in consideration of the foregoing recitals which are a
part of this Agreement, the mutual promises and undertakings in this Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows.
1. Source of Funds. Attached hereto as Exhibit "A" and incorporated
herein by this reference is the Apartment Housing Source of Funds. The Source of
1
Funds has been specified in the Partnership Agreement as the Construction Loan,
the Mortgage, the Capital Contribution of the General Partner, the Capital
Contribution of the Limited Partner and the Capital Contribution of the Special
Limited Partner. Unless expressly permitted in the Partnership Agreement,
Consent of the Special Limited Partner is required for any change to the Source
of Funds.
2. Development Budget. Attached hereto as Exhibit "B" and incorporated
herein by this reference is the Development Budget in an amount equal to
$2,010,377. Owner acknowledges and represents that the attached Development
Budget includes the total costs and expenses to acquire, develop and construct
the Real Property and the Apartment Housing.
3. Construction Proforma. Attached hereto as Exhibit "C" and
incorporated herein by this reference is the Construction Proforma. Owner
acknowledges and represents that the attached Construction Proforma has been
reviewed by and approved by the Construction Lender, Mortgage lender if
applicable and any governmental authorities if applicable. In accordance with
the Partnership Agreement if the development costs, less the Development Fee,
exceed the sum of the Capital Contributions and the proceeds of the Mortgage
then the General Partner shall be responsible for and shall be obligated to pay
such deficiencies.
4. Time Line. Attached hereto as Exhibit "D" and incorporated herein by
this reference is a construction time line, ▇▇▇▇ chart or similar graph approved
by the Special Limited Partner. The time line will include, at a minimum, a
month-to-month, building-by-building analysis as to when each trade will start
and complete the work for which they have been retained. If at any time during
construction there is, or anticipated to be, a change in the construction
schedule as displayed in the time line then the General Partner shall update the
time line and provide the same to the Limited Partner and Special Limited
Partner.
5. Operating Proforma. Attached hereto as Exhibit "E" and incorporated
herein by this reference is the Operating Proforma. Owner acknowledges and
represents that the attached Operating Proforma has been reviewed by and
approved by the Construction Lender, the Mortgage lender and any governmental
authorities if applicable.
6. Notices. Any notice given pursuant to this Agreement may be served
personally on the Party to be notified, or may be mailed, first class postage
prepaid, to the following address, or to such other address as a Party may from
time to time designate in writing:
To the General Partner: SEMC, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
To the Limited Partner: WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
2
To the Special
Limited Partner: WNC Housing, L.P.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
7. Successors and Assigns. All the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the Parties.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument which may sufficiently be
evidenced by one counterpart.
9. Captions. Captions to and headings of the Sections of this Agreement
are solely for the conveniences of the Parties, are not a part of this
Agreement, and shall not be used for the interpretation or determination of the
validity of this Agreement or any provision hereof.
10. Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
11. Governing Law. This Agreement and its application shall be governed
by the laws of Mississippi.
12. Attorney's Fees. If a suit or action is instituted in connection
with an alleged breach of any provision of this Agreement, the prevailing Party
shall be entitled to recover, in addition to costs, such sums as the court may
adjudge reasonable as attorney's fees, including fees on any appeal.
[Signatures begin on following page]
3
In witness whereof, this Development, Construction and Operating Budget
Agreement is made and entered into as of April 28, 2006.
PARTNERSHIP
HEAD CIRCLE, L.P.
By: SEMC, Inc.
General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
GENERAL PARTNER
SEMC, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
LIMITED PARTNER
WNC HOLDING, LLC
By: WNC & Associates, Inc.,
Managing Member
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
SPECIAL LIMITED PARTNER
WNC HOUSING, L.P.
By: WNC & Associates, Inc.,
General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
4
EXHIBIT A
TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT
SOURCE OF FUNDS
A
EXHIBIT B
TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT
DEVELOPMENT BUDGET
B
EXHIBIT C
TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT
CONSTRUCTION PROFORMA
C
EXHIBIT D
TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT
CONSTRUCTION TIME LINE
D
EXHIBIT E
TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT
OPERATING PROFORMA
E
CONSTRUCTION COMPLETION,
OPERATING DEFICIT AND
TAX CREDIT
GUARANTY AGREEMENT
This Construction Completion, Operating Deficit and Tax Credit Guaranty
Agreement ("Agreement") is entered into this 28th day of April, 2006 by and
between ▇▇▇▇▇ ▇▇▇▇▇▇ ("Guarantor"), Head Circle, L.P. (the "Partnership") and
WNC Holding, LLC ("Limited Partner"). Guarantor, the Partnership and Limited
Partner collectively may be referred to as the "Parties" or individually may be
referred to as a "Party".
RECITALS
WHEREAS, on April 28, 2006 a partnership agreement for Head Circle L.P.
("Partnership Agreement") was entered into by and between SEMC, Inc. as the
general partner ("General Partner") and WNC Holding, LLC as the limited partner
(the Partnership Agreement is incorporated herein by this reference as if the
same were reproduced in full and any capitalized terms not defined in this
Agreement shall have the meaning as defined in the Partnership Agreement).
WHEREAS, pursuant to the terms of the Partnership Agreement the General
Partner: (1) is required to guarantee the completion of construction of a 38
unit low to moderate income housing complex located in Ruleville, Sunflower
County, Mississippi, as more fully described in Exhibit "A" attached hereto and
incorporated herein by this reference, and any and all improvements now or
hereafter to be constructed thereon ("Apartment Housing"); (2) is required to
guarantee the payment of all Operating Deficits incurred by Head Circle
Apartments as a result of the operations of the Apartment Housing; and (3) is
required to guarantee the annual allocation of tax credits to the Limited
Partner.
WHEREAS, the Limited Partner would not have entered into the
Partnership Agreement as a limited partner but for the agreement of Guarantor to
provide the financial funds necessary to obtain Completion of Construction, to
pay Operating Deficits and to pay Tax Credit deficits. Guarantor is an affiliate
of the General Partner and will therefore benefit from the acquisition by the
Limited Partner of a limited partnership interest in the Partnership.
NOW THEREFORE, in consideration of the foregoing and the promises,
covenants and undertakings herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
1
SECTION 1. Guarantor hereby, individually, jointly and severally
guarantees to the Partnership and the Limited Partner, as applicable, the prompt
payment and full performance of the provisions under Section 6.2, Section 6.3,
Section 7.4(a), Section 7.4(b), Section 7.4(c), Section 7.4(e) and Section
9.12(z) of the Partnership Agreement, including all modifications thereof,
pursuant to and in accordance with the terms and conditions set forth in the
Partnership Agreement and in this Agreement.
SECTION 2. Guarantor further agrees to pay all expenses paid or
incurred by the Partnership and/or Limited Partner in endeavoring to collect
Guarantor's obligations, or any part thereof, and in enforcing the provisions of
this Agreement, including reasonable attorneys' fees if collected or enforced by
law or through an attorney-at-law.
SECTION 3. No delay or failure on the part of the Partnership or
Limited Partner in the exercise of any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by the Partnership of any right or
remedy shall preclude other or future exercise thereof or the exercise of any
other right or remedy. No action of the Partnership permitted hereunder shall in
any way impair or affect this Agreement. For the purpose of this Agreement,
Guarantor's obligations are guaranteed notwithstanding any right or power of
anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such third party claim or
defense shall impair or affect the obligations of Guarantors hereunder.
SECTION 4. This Agreement shall be binding upon the Parties, and upon
their legal representatives, heirs, successors and assigns.
SECTION 5. This Agreement has been made and delivered in the state of
Mississippi and shall be construed and governed under Mississippi law.
SECTION 6. Whenever possible, each provision of the Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
SECTION 7. The Parties recognize and acknowledge, and Guarantor agrees
and consents, that if the Partnership does not take legal action to enforce this
Agreement, if and when by the terms of this Agreement it is enforceable, then
the Limited Partner, may on its own behalf and in its own name commence legal
proceedings to enforce the terms of this Agreement.
SECTION 8. Whenever the singular or plural number, masculine or
feminine or neuter is used herein, it shall equally include the other where
applicable.
SECTION 9. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and said counterparts shall constitute
but one and the same instrument which may sufficiently be evidenced by one
counterpart.
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SECTION 10. The Guarantor shall maintain a net worth equal to at least
$2,000,000 computed in accordance with generally accepted accounting principles.
SECTION 11. The Parties consent to the jurisdiction and venue of the
courts of Sunflower County in the State of Mississippi and/or to the
jurisdiction and venue of any United States District Court in the State of
Mississippi having jurisdiction over Sunflower County in any action or judicial
proceeding brought to enforce, construe or interpret this Agreement. The Parties
agree to stipulate in any such proceeding that this Agreement is to be
considered for all purposes to have been executed and delivered within the
geographical boundaries of the State of Mississippi, even if it was, in fact,
executed and delivered elsewhere.
[Signature begin on following page]
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IN WITNESS WHEREOF, this Construction Completion, Operating Deficit and Tax
Credit Guaranty Agreement is made and entered into as of ________________, 2006
GUARANTOR:
▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------
OWNER:
HEAD CIRCLE, L.P.
By: SEMC, Inc.
General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
LIMITED PARTNER:
WNC HOLDING, LLC
By: WNC & Associates, Inc.,
Managing Member
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
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EXHIBIT A TO CONSTRUCTION COMPLETION
AND OPERATING DEFICIT GUARANTY AGREEMENT
LEGAL DESCRIPTION
Lots 58,59,60,61,62,63,61,65,66,67,68,69,70,73,74,75,76,77 and Westgate
Subdivision #3 to the City of Ruleville, Sunflower County, Mississippi.
According to the plat pf said subdivision of record in Plat Book 69 at page 12
in the office of the Chancery Clerk of Sunflower County, Mississippi, together
with all and singular, the tenements, hereditaments and appurtenances thereunto
belonging or in anywise appertaining.
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