MURFREESBORO VILLAS LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership is made and entered into as of the
29th day of July, 1997, by and among the undersigned parties.
WHEREAS the Murfreesboro Industrial Development Corporation, by and
through its President,with its principal place of business in Murfreesboro,
Arkansas, as the general partner, and Landau, an Arkansas corporation, as
limited partner, hereby enter into a limited partnership agreement pursuant to
the Arkansas Revised Limited Partnership Act, to form Murfreesboro Villas
Limited Partnership the "Partnership"), and
AS the Partnership has been formed to develop, construct, own, maintain
and operate a 24-unit multifamily residential complex in Murfreesboro, Arkansas,
40% of such dwelling units being set aside for rental to persons with incomes of
not more than 60% of the median income for the area in which the Apartment
Development is located ("Eligible Occupants") and the Apartment Development will
be eligible for an annual Tax Credit of approximately 9.00% of the Apartment
Development's estimated Qualified Basis, as provided in Section 42(g) of the
Internal Revenue Code of 1986 (the "Code"), to be known as Murfreesboro Villas
(the "Housing Development"); and
WHEREAS the Partnership has received a construction loan for the Housing
Development in the principal amount of $632,019.00; and
WHEREAS the Partnership has received a written commitment for two
permanent mortgage loans: one in the amount of $232,019.00 (final amount to be
determined at closing) for a term of 15 years at an interest rate of 8.50% to be
provided by Diamond State Bank and a second permanent mortgage loan in the
amount of $400,000 for a term of 35 years to be provided by Arkansas Development
Finance Authority/HOME. The Apartment Development is expected to be eligible for
a low-income housing credit pursuant to Section 42 of the Internal Revenue Code
of 1986 (the "Tax Credit") as well as certain interest credits and rental
assistance payments. The remainder of the construction financing will be raised
through the sale of tax credits by Partnership; and
WHEREAS the Partnership anticipates that the Housing Development will
qualify for the low-income housing tax credit provided for in Section 42 of the
Code (the "Tax Credit") and it is anticipated that the annual Tax Credit
available to the Partnership (the "Projected Tax Credit") will be (i) $93,064.17
for 1998; (ii) $111,677.00 each for years 1999 to 2007; and (iii) $18,612.83 of
the year 2008. (Final amounts will be determined at closing). The state housing
finance agency which has jurisdiction over the allocation of Tax Credit for the
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Apartment Development (the "State Agency") has received an application for Tax
Credit for the Apartment Development in an annual amount of $111,677.00. The
Limited Partner will be allocated 99% of the Tax Credit, or $110,560.23. The Tax
Credit that will be allocated after the Apartment Development is placed in
service will not exceed $111,677.00 per year; and
NOW, THEREFORE, in consideration of the foregoing, of mutual promises of
the parties hereto and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
to this Partnership pursuant to the Act, as set forth in this Agreement, which
reads in its entirety as herein provided.
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TABLE OF CONTENTS
Page
ARTICLE I DEFINED TERMS................................... 6
ARTICLE II CONTINUATION OF THE PARTNERSHIP...................16
2.01 Continuation.......................................16
2.02 Name...............................................16
2.03 Principal Executive Offices........................16
2.04 Term...............................................16
2.05 Agent for Service of Process.......................16
2.06 Filing of Certificate..............................16
ARTICLE III PURPOSE AND BUSINESS OF THE PARTNERSHIP..........17
3.01 Purpose of the Partnership.........................17
3.02 Authority of the Partnership.......................17
3.03 Certain ADFA/HOME Requirements.....................18
3.04 Certain Partnership Obligations....................19
3.05 Tax Credit Data/Rental Analysis....................19
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF
THE GENERAL PARTNER.........................20
4.01 Representations, Warranties and Covenants Relating to
the Apartment Development and the Partnership......20
4.02 No Duty to Investigate.............................29
ARTICLE V PARTNERSHIP INTERESTS AND CAPITAL CONTRIBUTIONS...30
5.01 Original Partners' Partnership Interests...........30
5.02 Capital Contribution of the Investment Partnership.30
5.03 Withholding of Capital Contribution Upon Default...31
5.04 Return of Partners' Capital Contributions..........31
ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL
PARTNER...........................................32
6.01 Management of the Partnership......................32
6.02 Limitations Upon the Authority of the General
Partner............................................33
6.03 Delegation of Authority............................36
6.04 General Partner or Affiliates Dealing with the
Partnership........................................36
6.05 Other Activities...................................37
6.06 Liability for Acts and Omissions...................37
6.07 Indemnities........................................38
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6.08 Payment of Development Costs and
Consultation Fees..................................39
6.09 Tax Credit Reduction Amount........................40
6.10 Other Loans to the Partnership.....................40
6.11 Withholding of Fee Payments........................40
6.12 Cost Savings.......................................41
6.13 Property Management ...............................41
6.14 Reports to Investment Corporation..................41
6.15 Rent Increases.....................................42
ARTICLE VII CHANGES IN GENERAL PARTNER..........................42
7.01 Withdrawal of a General Partner....................42
7.02 Effect of Bankruptcy or Legal Disability of a General
Partner............................................43
7.03 Removal of General Partner.........................44
7.04 Admission of a Successor or Additional General
Partner............................................46
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER..........47
8.01 No Management Powers...............................47
8.02 Limitation on liability of Limited Partner.........48
8.03 Other Activities...................................49
ARTICLE IX TRANSFERS OF AND RESTRICTIONS ON TRANSFERS OF
RIGHTS OF LIMITED PARTNER............................49
9.01 Purchase for Investment............................49
9.02 Restrictions on Transfer of Limited Partner's
Interests..........................................49
9.03 Admission of Substitute Limited Partner............50
ARTICLE X PROFITS, LOSSES, CREDITS AND DISTRIBUTIONS............51
10.01 Capital Accounts...................................51
10.02 Determination of Profits, Losses and Credits.......51
10.03 Allocation of Profits, Losses and Credits..........53
10.04 Allocations in Case of Transfer of Interests.......55
10.05 Authority of General Partner to vary Allocations
to Preserve and Protect Partners' Intent...........56
10.06 Distributions of Net Cash Flow.....................57
10.07 Distribution of Sale and Refinancing Proceeds......57
10.08 Liquidation Proceeds...............................58
10.09 Tax Matters Partner................................58
10.10 Tax Accounting.....................................60
ARTICLE XI DISSOLUTION AND LIQUIDATION..........................61
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11.01 Dissolution of the Partnership......................61
11.02 Winding Up and Distribution.........................61
ARTICLE XII BOOKS AND RECORDS, ACCOUNTING, TAX ELECTIONS, ETC.62
12.01 Books and Records...................................62
12.02 Bank Accounts.......................................62
12.03 Accountants.........................................63
12.04 Reports to Partners.................................63
12.05 Fiscal Year and Accounting Method...................65
ARTICLE XIII GENERAL PROVISIONS..................................65
13.01 Arbitration .......................................65
13.02 Amendments..........................................65
13.03 Burden and Benefit..................................66
13.04 Applicable Law......................................66
13.05 Counterparts........................................66
13.06 Severability of Provisions ........................66
13.07 Entire Agreement....................................66
13.08 Use of Singular and Plural..........................66
13.09 Notices to the Investment Corporation...............67
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ARTICLE I
DEFINED TERMS
In addition to the abbreviations employed in the preamble to this
Agreement, the following defined terms used in this Agreement shall have the
meanings specified below:
"Accountants" means such firm of independent certified public
accountants as may be engaged by the General Partner with the consent of the
Investment Corporation to prepare the Partnership income tax returns and
financial statements.
"Act" means the Revised Limited Partnership Act of the State, as amended
from time to time during the term of the Partnership.
"Actual Credit" means, at any time, the amount of the Tax Credit properly
reportable by the Partnership in a calendar year for federal income tax
purposes.
"ADFA/HOME" means Arkansas Development Finance Authority, HOME
programs, the construction lender and a permanent finance lender.
"Affiliate" means any Person who (i) directly or indirectly controls,
is controlled by, or is under common control with another Person referred to
herein, (ii) owns or controls 10% or more of the outstanding voting securities
of such other Person, or (iii) is an officer, partner, or trustee of such other
Person.
"Agreement" means this Agreement and Certificate of Limited
Partnership, as amended from time to time.
"Apartment Development" means the land and the 24-unit multifamily rental
housing development and other improvements to be constructed, owned and operated
thereon by the Partnership, to be known as Murfreesboro Villas.
"Applicable Percentage" shall have the meaning ascribed to it in
Section 42(b) of the Code.
"Bankruptcy" or "Bankrupt" as to any Person means (i) the filing of a
petition for relief as to any such Person as debtor or bankrupt under the
Bankruptcy Act or like provision of law (except if such petition is contested by
such Person and has been dismissed within 60 days), (ii) insolvency of such
Person as finally determined by a
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court proceeding, (iii) filing by such Person of a petition or application
to accomplish the same or for the appointment of a receiver or a trustee for
such Person or a substantial part of his assets, or (iv) commencement of any
proceedings relating to such Person under any other reorganization, arrangement,
insolvency, adjustment of debt or liquidation law of any jurisdiction, whether
now in existence or hereinafter in effect, either by such Person or by another,
provided that if such proceeding is commenced by another, such Person indicates
his approval of such proceeding, consents thereto or acquiesces therein, or such
proceeding is contested by such Person and has not been finally dismissed within
60 days.
"Breakeven Operations" means the receipt by the Partnership during a
period of 24 consecutive calendar months after Final Closing of an amount of
monthly rental income (solely from leases of dwelling units which meet the Rent
Restriction Test and are occupied by Qualifying Individuals) which equals or
exceeds all operating expenses incurred during such period including, but not
limited to, maintenance expenses, management fees provided for in Article VI,
required debt service payments, taxes, other assessments, insurance premiums and
the required funding of any replacement reserve.
"Capital Account" shall have the meaning ascribed to it in Section
10.01.
"Capital Contribution" means the total amount of money or other
property contributed to or for the benefit of the Partnership by each Partner
pursuant to the terms of this Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Interest of such Partner.
"Capital Contribution Period" means the period commencing with the
payment of amounts required under Section 5.02(a)(i) and ending with the payment
of amounts required under Section 5.02(a)(iv).
"Certificate" means any certificate of limited partnership or any other
instrument or document which is required under the Act or this Agreement to be
signed and sworn to by any Partners of the Partnership and filed in the
appropriate public offices within the State to perfect or maintain the
Partnership as a limited partnership under the Act, or to protect the limited
liability of the Limited Partner as a limited partner under the Act, or to
indicate the admission of the Investment Corporation as a limited partner of the
Partnership.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any provisions of succeeding law.
"Compliance Period" means the 15-year period under Section 42(i) of the
Code with respect to which the 40-60 Set-Aside Test and the Rent Restriction
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Test apply to each building of the Apartment Development, beginning with the
first full calendar year of the Credit Period.
"Consent" means the written consent of a Person to do the act or thing
for which the consent is solicited, or the act of granting such consent, as the
context may require. All communications relating to a consent under this
Agreement shall be in such form as to constitute a Notice.
"Construction Contract" means the construction contract (including all
exhibits and attachments thereto) entered into between the Partnership and the
Contractor, pursuant to which the Apartment Development is being constructed, or
any amendment or modification or substitution thereof.
"Construction Lender" means Arkansas Development Finance Authority/HOME
and Diamond State Bank in its capacity as lender of the Construction Loan, or
its successors or assigns in such capacity, or any successor lender of the
Construction Loan.
"Construction Loan" means the construction loan made at Initial Closing
by the Construction Lender in the principal amount of $632,019.00, to bear
interest at the stated rate per annum, evidenced by a promissory note given by
the Partnership to the Construction Lender and secured by a Mortgage and any
related loan agreements, security agreements and financing statements.
"Contractor" means ▇▇▇▇ Builders, Inc., which is the general contractor
for the construction of the Apartment Development.
"Counsel for the Partnership" means Wright, Chaney, ▇▇▇▇▇ & ▇▇▇▇▇▇, P.A.
"Credit Period" means, beginning with the calendar year in which the
Apartment Development (or any building thereof, as applicable under Section
42(g) of the Code) is placed in service, or if so elected, the following year,
the 10-year period in which the Tax Credit is made available to the Partnership
from the Apartment Development or any building therein pursuant to Section 42 of
the Code.
"Developer" means ▇▇▇▇▇ ▇. ▇▇▇▇.
"Development Agreement" means the agreement among the Partnership, the
Developer and Landau for the payment by the Partnership of Development Fees in
consideration of costs incurred and development services rendered by the
Developer to the Partnership In developing the Apartment Development, the
provisions of which are herein incorporated by reference and deemed to be a part
hereof.
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"Development Fees" shall mean the fees payable to the Developer as provided
in the Development Agreement.
"Eligible Basis" means the adjusted basis of the Apartment Development as
determined by Section 42(d) of the Code.
"Excess Development Costs" means all costs in excess of the proceeds of the
Construction Loan or the Mortgage Loan which are or will be incurred to (i)
complete construction and development of the Apartment Development and (ii)
achieve Initial Closing and Final Closing including, without limitation, (A)
Construction Loan and/or Mortgage Loan discounts or extension fees, (B)
interest, taxes, property insurance or title insurance premiums not payable from
Construction Loan proceeds, (C) construction cost overruns and the cost of any
change orders which are not funded from Construction Loan or Mortgage Loan
proceeds, (D) escrow deposits and/or any other amounts necessary for local
taxes, utilities, insurance premiums and other purposes which are conditions to
the Final Closing, (E) Operating Deficits incurred by the Partnership prior to
Final Closing, and (F) loan assessment fee, or other such fee or fees, as may be
assessed by the ADFA/HOME and which are not payable out of Construction Loan or
Mortgage Loan proceeds, or revenues and rents of the Partnership available at
Final Closing.
"Final Closing" means the date of the making of the Mortgage Loan.
"40/60 Set-Aside Test" means the minimum set-aside test established by
Section 42 of the Code, whereby at least 40% of the dwelling units in the
Apartment Development (or any building thereof, as applicable under Section
42(g) of the Code) must be occupied by individuals with incomes of 60% or less
of area median income, as adjusted for family size.
"General Partner" or "General Partners" means any general partner or,
collectively, all general partners signatory hereto, as the case may be, who, if
there shall be more than one general partner, shall be jointly and severally
liable for all liabilities and obligations imposed hereunder or by the Act on
any General Partner or General Partners.
"GP Questionnaire" means a document so entitled provided to the General
Partner by the Investment Corporation.
"Gross Rent" shall have the meaning ascribed to it by Section 42(g) of the
Code (including, without limitation, any rent surcharges or other charges by
ADFA/HOME and any required utility allowance).
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"Initial Closing" means the date upon which the Construction Loan is closed
and the first disbursement of proceeds of the Construction Loan, approved by the
ADFA/HOME, is made to the Partnership.
"Installment" means an installment of the Investment Partnership's Capital
Contribution paid or payable to the Partnership pursuant to Section 5.02(b).
"Investment Corporation" means Landau, an Arkansas corporation, which is a
limited partner of the Partnership.
"Land" means the tract of land in Murfreesboro, Arkansas, upon which the
Apartment Development will be located.
"Legal Disability", "Legally Disabled or similar terms refer to the death,
adjudication of incompetency (which term shall include, but not be limited to,
insanity), or dissolution of any Person, not including Bankruptcy.
"Limited Partner" means the Investment Corporation or a Substitute Limited
Partner in such Person's capacity as a limited partner of the Partnership under
the Act.
"Liquidation Proceeds" means the gross proceeds to the Partnership
resulting from the liquidation of Partnership assets.
"Liquidator" means the General Partner or, if there are none at the time in
question, such other Person who may be appointed in accordance with applicable
law and who shall be responsible for taking all action necessary or appropriate
to wind up the affairs of, and distribute the assets of, the Partnership upon
its dissolution.
"Loan Agreement" means ADFA/HOME loan agreement governing the ADFA/HOME's
control over certain aspects of the Apartment Development.
"Management Agent" means the management and rental agent for the Apartment
Development.
"Managing General Partner" means, if there shall be more than one General
Partner signatory hereto, the Person who executes this Agreement at the place
(if any) marked "Managing General Partner" on the signature page and named as
such in the preamble to this Agreement, so long as the Person remains a General
Partner, and in such case the term General Partner shall refer to the Managing
General Partner in any provisions hereof pertaining to the power, authority,
duties, administration or management functions of the General Partner to the
extent the Act permits any general partner to delegate a general partner's power
of management, and the Managing General Partner shall (acting for and on behalf
10
of the General Partner and the Partnership, in extension and not in limitation
of rights and powers given by the Act) have the right, power and authority to
manage the Partnership business and, to the extent permitted by the Act, perform
all management and administrative functions set forth herein; provided, however,
that any General Partner signatory hereto shall be jointly and severally liable
for any and all obligations under the Act and liabilities imposed upon the
General Partner.
"Mortgage" means, as the context may require, any mortgage constituting a
lien on the Apartment Development given by the Partnership (i) at the Initial
Closing in favor of the Construction Lender or (ii) at the Final Closing in
favor of the ADFA/HOME and Diamond State Bank, to secure the Construction Loan
and the Mortgage Loan, respectively.
"Mortgage Loan" means the nonrecourse mortgage loans in the total principal
amount of $632,019.00 to be made to the Partnership by ADFA/HOME and Diamond
State Bank at Final Closing, which will be evidenced by a nonrecourse promissory
note given by the Partnership to the ADFA/HOME and Diamond State Bank and
secured by a Mortgage and other related security documents and financing
statements, including the Loan Agreement.
"Net Cash Flow" means a net amount equal to (i) all cash received by the
Partnership in any year from the Apartment Development (other than Liquidation
Proceeds, Sale or Refinancing Proceeds, loan proceeds, Capital Contributions, or
similar receipts not derived from operations) less (ii) ADFA/HOME approved
operating expenses of the Partnership in such year, required repayments of the
Mortgage Loan in such year, required funding in such year of any replacement
reserve, and any other deposits or escrows required by the ADFA/HOME, which net
amount is allowable for distribution in such year, or in some cases, the
following year, pursuant to ADFA/HOME rules, as a "return to owner."
"New Allocation" means any allocation pursuant to Section l0.05(a).
"Notice" means a writing containing the information required by this
Agreement to be communicated to a Person and sent by registered or certified
mail, postage prepaid, return receipt requested, or recognized national
overnight delivery service, to such Person at the last known address of such
Person, the date of registry thereof or the date of the certified receipt
therefore being deemed the date of such Notice, and complies with the
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provisions of Section 13.09; provided, however, that any written communication
or electronically transmitted facsimile containing such information sent to such
Person actually received by such Person shall constitute Notice for all purposes
of this Agreement.
"Operation Deficit" means the amount by which (a) the sum of (i) rentals
received by the Partnership under leases approved by ADFA/HOME and (ii) any
proceeds available from the Working Capital Loan is exceeded by (b) the sum of
all the operating expenses incurred, including, but not limited to, maintenance
expenses, management fees provided for in Article VI, required debt service
payments, taxes, other assessments, insurance premiums, and the required funding
of any replacement reserve, together with any State Agency fees, expenditures
for Partnership accounting in excess of those approved by ADFA/HOME, and, to the
extent allowed by this Agreement, related Partnership obligations or
expenditures.
"Operation Deficit Loan" shall have the meaning ascribed to it in Section
6.09.
"Partner" means any General Partner or any Limited Partner.
"Partner Nonrecourse Liability" means any Partnership liability (a) that is
considered nonrecourse under Treasury Regulation Section 1.1001-2 or for which
the creditor's right to repayment is limited to one or more assets of the
Partnership and (b) for which no Partner or Related Person bears the economic
risk of loss under Treasury Regulation Section 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" means the amount of partner
nonrecourse debt minimum gain and the net increase or decrease in partner
nonrecourse debt minimum gain determined in a manner consistent with Treasury
Regulation Sections 1.704-2(d) and 1.704-2(g)(3).
"Partnership" means Murfreesboro Villas Limited Partnership.
"Partnership Interest" means the ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which such Partner may be entitled as provided in this
Agreement and in the Act, and subject to the obligations of such Partner to
comply with all the terms and provisions of this Agreement and the Act.
"Partnership Minimum Gain" means the amount determined by computing, with
respect to each Partnership Nonrecourse Liability, the amount of gain, if any,
that would be realized by the Partnership if it disposed of (in a taxable
transaction) the property subject to such liability in full satisfaction of such
liability, and by then aggregating the amounts so computed. Such computations
shall be made in a manner consistent with Treasury Regulation Section
1.704-2(d).
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"Partnership Nonrecourse Liability" means any Partnership liability (or
portion thereof) for which no Partner or Related Person bears the economic risk
of loss as defined in Treasury Regulation Section 1.752-2.
"Percentage Interest" means the percentage interest of each Partner as set
forth in Sections 5.01 and 5.02.
"Person" means any individual, partnership, corporation, trust or other
entity.
"Profits. Losses and Credits" shall have the meaning ascribed to it in
Section 10.02(a).
"Project Documents" means and includes the documents set forth on Exhibit B
attached hereto, the Consultation and Development Agreements, the completed and
signed General Partner Questionnaire, the Certificate (including amendments
thereto), all documents evidencing or securing the Construction Loan and the
Mortgage Loan, the Property Management Contracts, the Construction Contract and
all other instruments delivered to or required by the Construction Lender or
ADFA/HOME and all other documents relating to the Apartment Development and by
which the Partnership is bound, as amended or supplemented from time to time.
"Projected Credit" means for any given year the amount of Tax Credit set
forth on Exhibit A hereto.
"Property Management Contract" means the agreement between the Partnership
and the Management Agent providing for the management of the Apartment
Development and permitting payment of fees therefor under this Agreement, and
the management plan approved by ADFA/HOME.
"Qualified Basis" means the portion of the Eligible Basis attributable to
low-income dwelling units pursuant to Section 42(c) of the Code.
"Qualified Income Offset Item" means (1) an allocation of loss or deduction
that, as of the end of each year, reasonably is expected to be made (a) pursuant
to Section 704(e)(2) of the Code to a donee of an interest in the Partnership,
(b)pursuant to Section 706(d) of the Code as the result of a change in any
Partner's interest in the Partnership, or (c) pursuant to Regulation Section
1.751-1 (b)(2)(ii) as the result of a distribution by the Partnership of
unrealized receivables or inventory items and (2) a distribution that, as of the
end of such year, reasonably is expected to be made to the Partner to the extent
it exceeds offsetting increases to such Partner's Capital Account which
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reasonably are expected to occur during or prior to the Partnership taxable year
in which such distribution reasonably is expected to occur.
"Qualifying Individuals" means all those persons occupying a dwelling unit
in the Apartment Development, under a lease having an initial duration of at
least one year, the aggregate income of which persons is less than the income
limitation applicable to such household under Section 42 of the Code, and which
occupancy or terms thereof do not otherwise cause a unit to fail to be treated
as a low-income unit under Section 42 of the Code.
"Related Person" means a person related to a partner within the meaning of
Treasury Regulation Section 1.752-4(b).
"Rent Restriction Test" means the test pursuant to Section 42(g) of the
Code whereby the Gross Rent applicable to each of the dwelling units in the
Apartment Development cannot exceed 30% of the qualifying tenant income levels
designated for such dwelling units.
"Repurchase Event" means an event pursuant to which the General Partner
will be required, at the direction of the Investment Corporation, to repurchase
the Interest of the Investment Corporation in the Partnership as provided in
Section 5.05.
"Sale or Refinancing Proceeds" means the gross proceeds to the Partnership
resulting from any sale or refinancing of the Apartment Development (including
any "guaranteed third-party equity loans" made pursuant to the Department of
Housing and Urban Development Reform Act of 1989) and/or any other capital event
except a liquidation, calculated prior to any distributions provided for in
Section 10.07. For purposes of this definition, capital event means the sale by
the Partnership of all or substantially all of its assets, the refinancing of
any mortgage of the Partnership, an event covered by property or liability
insurance, a property condemnation, or any other transaction affecting the
Partnership which is not in the ordinary course of its business, excluding any
Repurchase Event and the receipt of Capital Contributions.
"Special Tax Counsel" means the tax attorneys retained to advise the
Investment Corporation with respect to federal income tax matters.
"State" means the State of Arkansas.
"State Agency" means the Arkansas Development Finance Authority or any
successor agency or department charged with the administration of the Tax Credit
for the State.
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"Substantial Completion" means the occurrence of all of the following: (i)
receipt by the Partnership of all necessary certificates of occupancy and use
permits for 100% of the dwelling units in the Apartment Development, (ii)
substantial completion of construction and development of the Apartment
Development as determined by the ADFA/HOME and the Investment Corporation in
accordance with the plans and specifications approved by the ADFA/HOME, and
(iii) release of all liens against the Apartment Development, except the
Mortgage.
"Substitute Limited Partner" means any Person admitted to the Partnership as
a limited partner pursuant to Section 9.03.
"Tax Credit" means the low-income housing tax credit available to the
Partnership pursuant to Section 42 of the Code.
"Tax Credit Recapture" means a recapture of Tax Credit pursuant to Section
426) of the Code or any other disallowance of Tax Credit previously allocated to
the Partners, whether such recapture or disallowance is the result of a
determination by the Accountants or of an adjustment made by the Internal
Revenue Service to the Partnership tax return.
"Tax Credit Reduction Amount" ("TCRA") occurs in any calendar year in which
the Tax Credit allocated to the Investment Corporation, less any Tax Credit
Recapture, is less than 99% of the Projected Credit for such year, as determined
by the accountants of the Investment Corporation. The TCRA is the sum of 99% of
(a) the cumulative Projected Credit amount minus the cumulative annual Actual
Credit and (b) the cumulative Tax Credit Recapture Amount. The TCRA shall be
repaid to the Investment Corporation as follows: During the Capital Contribution
Period any TCRA shall be (i) subtracted from any payments otherwise due the
Partnership by the Investment Corporation as set forth in Section 5.02(b), or
(ii) after the Capital Contribution Period shall be returned to the Investment
Corporation by the Partnership as a priority distribution of Net Cash Flow
pursuant to Section 10.06.
"Tax Credit Shortfall" means the cumulative TCRA amount, which sum (to the
extent not previously subtracted, returned or reimbursed as a Tax Credit
Reduction Amount pursuant to Sections 5.03(c), 6.09(d) or 10.06 shall accumulate
with interest at an annual rate of 10%.
"Tax Matters Partner" means the Partner named by the Partnership in Section
10.09 to manage audits of the Partnership by the Internal Revenue Service
pursuant to the audit procedure under the Code and applicable Treasury
Regulations.
"Working Capital Loan" means the loan required by the ADFA/HOME of the
General Partner for initial working capital for the Apartment Development,
usually in an amount equal to 2%
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of the total cost of the Apartment Development as determined by ADFA/HOME, which
loan shall be repaid solely out of any funds which the ADFA/HOME designates as a
return of such loan or as set forth in Section 10.07 or Section 10.08.
ARTICLE II
CONTINUATION OF PARTNERSHIP
2.01. Continuation. The undersigned hereby continue the Partnership as a
limited partnership under the Act.
2.02. Name. The name of the Partnership is Murfreesboro Villas Limited
Partnership.
2.03. Principal Executive Offices. The principal executive office of the
Partnership shall be P. O. ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. The Partnership may
change the location of its principal executive office to such other place or
places as may hereafter be determined by the General Partner. The General
Partner shall promptly notify all other Partners of any change in the principal
executive office. The Partnership may maintain such other offices at such other
place or places as the General Partner may from time to time deem advisable.
2.04. Term. The term of the Partnership commenced as of April 18, 1997, and
shall continue until December 31, 2013, pursuant to the terms of Section 10.07
hereinafter, unless the Partnership is sooner dissolved in accordance with the
provisions of this Agreement.
2.05. Agent for Service of Process. The name of the agent for service of
process is ▇▇▇▇▇▇ ▇▇▇▇▇▇, an individual resident of the State of Arkansas, whose
office address is as set forth in Section 2.03.
2.06. Filing of Certificate. Within five days after the execution of this
Agreement by the parties hereto, the General Partner shall take all actions
necessary to assure the prompt filing of this Agreement, and any other
Certificate required by the Act. All fees for filing shall be paid out of the
assets of the General Partner. The General Partner shall take all other
necessary action required by law to perfect and maintain the Partnership as a
limited partnership under the Act, and shall register the Partnership under any
assumed or fictitious name statute or similar law in force and effect in the
state, and, if necessary, any other state or jurisdiction where the Partnership
may be doing business.
16
ARTICLE III
PURPOSE AND BUSINESS OF THE PARTNERSHIP
3.01. Purpose of the Partnership. The Partnership has been organized
exclusively to develop the Apartment Development primarily so as to allocate to
the Partners (i) tax losses and Tax Credit in the amount of the Projected
Credit, (ii) Net Cash Flow in the maximum amount allowable for distribution
under ADFA/HOME rules, and (iii) Sale or Refinancing Proceeds or Liquidation
Proceeds in the maximum obtainable amount.
3.02. Authority of the Partnership. The Partnership is empowered and
authorized to do any and all acts and things necessary, appropriate, proper,
advisable, incidental to or convenient for the furtherance and accomplishment of
its purpose as contemplated by the Act and all the specific provisions of this
Agreement, and for the protection and benefit of its Partners, including but not
limited to, the following:
(a) acquire ownership of the Land on which the Apartment Development is to
be located;
(b) provide rental housing pursuant to Section 515 of the Housing Act of
1949, as amended, until such time as the Mortgage Loan is no longer in force,
subject to the 40-60 Set-Aside Test and the Rent Restriction Test, and in
accordance with other applicable federal, state and local regulations;
(c) construct, operate, maintain, improve, buy, own, sell, convey, assign,
mortgage, rent or lease any real estate and any personal property necessary to
the ownership, operation and final disposition of the Apartment Development;
(d) borrow money and issue evidences of indebtedness and secure any such
indebtedness by mortgage, pledge, or other lien, provided, however, that the
Mortgage Loan and any evidences of indebtedness thereof and any documents
amending, modifying or replacing it shall have the legal effect that, subject to
Section 6.09, no Partner or Related Person shall have any personal liability
whatsoever for the repayment of, or otherwise bear the economic risk of loss
with respect to, the principal of or interest on the Mortgage Loan or other such
indebtedness, and that the sole recourse of any lender with respect to the
principal thereof, interest thereon or any other obligation thereunder shall be
to the assets of the Partnership securing the Mortgage Loan;
(e) maintain accounts in any financial institution whose accounts are
insured by the Federal Deposit Insurance Corporation;
17
(f) bring or defend actions at law or in equity; and
(g) deal with the General Partner, Affiliates of the General Partner and
the Investment Corporation and its Affiliates as herein provided.
3.03. Certain ADFA/HOME Requirements. Until such time as the Mortgage Loan
is no longer held by ADFA/HOME, the following provisions of this Agreement shall
take precedence over any other provisions of this Agreement:
(a) The Partnership shall execute any documents required by the ADFA/HOME
under its regulations.
(b) Notwithstanding any provisions in this Agreement to the contrary, so
long as the Partnership has a loan made or insured by the United States of
America acting through the ADFA/HOME, membership in the Partnership will not be
changed by either admission or voluntary withdrawal of any General Partner nor
shall the General Partner maintain less than a 5% financial interest in the
Partnership as required by ADFA/HOME regulations, nor cause or permit voluntary
dissolution of the Partnership, nor alter, amend or repeal this Agreement
(except as necessary or advisable to comply with requirements of the Code or
regulations thereunder relating to Tax Credits or allocations of benefit to
Partners) without the prior written consent of the ADFA/HOME. Furthermore, after
payment of the debts and liabilities of the Partnership, not less than 5% of the
remaining assets from the sale or refinancing of any project of the Partnership
shall be distributed to the General Partner as provided in Section 10.07.
(c) The Partnership is authorized to execute all documents required by the
ADFA/HOME with respect to the Mortgage Loan, construction, development, and
operation of the Apartment Development subject to the Loan Agreement and all
other agreements with the ADFA/HOME. Any incoming General Partner, as a
condition to receiving interests in the Partnership, shall, by execution of a
counterpart hereof, agree to be bound by such documents in the same manner and
on the same terms as the other Partners. Upon the Partnership's dissolution,
title or right to possession and control of the Apartment Development and the
right to collect the rents therefrom, shall not pass to any Person not bound by
such ADFA/HOME documents in the same manner as the Partnership and any General
Partner. If there is any inconsistency between this Agreement and such ADFA/HOME
documents and regulations, the ADFA/HOME documents and regulations shall
prevail.
3.04. Certain Partnership Obligations. The Amended Limited Partnership
Agreement will provide, among other obligations, that the Partnership will do
the following:
18
(a) insure the Apartment Development under an all-risk policy in
amounts required by ADFA/HOME, but not less than the full replacement cost of
the property, with a deductible of no more than $1,000.00. Diamond State Bank
will be named as loss payee. ADFA/HOME will be named as second loss payee, and
the Partnership shall be named as third payee.
(b) insure the Partnership under a single limit personal injury and
property damage liability policy in an amount of not less than $3,000,000, with
a deductible of no more than $10,000. The Investment Corporation shall be named
as an additional insured on such policy.
(c) maintain reserve required by ADFA/HOME, and these funds are to be
deposited with Diamond State Bank.
(d) operate the Apartment Development in the ordinary course of business
and in such a manner that the Apartment Development will be eligible to receive
a Tax Credit as provided herein and remain in compliance with respect to 100% of
the units in the Apartment Development.
(e) enter into an extended use restriction agreement with the State Agency,
cause same to be recorded and comply with the Partnership's obligations
thereunder.
(f) pay a Reporting Fee of $2,000.00 per annum to the Limited Partner due
on the day the Limited Partner receives the annual partnership reports (K-1,
Income Statement, Balance Sheet).
3.05. Tax Credit Data/Rental Analysis. Except for units receiving
rental assistance, (if applicable) any amounts by which tenant-paid rents exceed
the Allowed Rent will result in direct General Partner subsidies to the tenant,
pursuant to Section 4 of the Code. All leases will specify or utilize addenda
specifying that tenants must initially qualify under the annually adjusted Tax
Credit income limits (HUD ▇▇▇▇▇ low@ income times 1.2). (Tenant incomes can rise
to 140% of this initial income limit and indefinitely above so long as the next
available vacant unti is rented to a newly qualified tenant. In addition, a
vacant unit will remain qualified for the Tax Credit so long as the last
household in that unit was qualified). Note that unmarried full-time students
cannot normally qualify for Tax Credit.
19
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE GENERAL PARTNER
4.01. Representations, Warranties and Covenants Relating to the Apartment
Development and the Partnership. The General Partner hereby represents, warrants
and covenants to (i) the Partnership and to the Partners to induce investment in
the Partnership, and to (ii) Special Tax Counsel to the Investment Corporation
to induce it to issue its opinion to the Investment Corporation with respect to
the allocation of the Tax Credit to the Investment Corporation and other
benefits attributable to the Partnership, that:
(a) this Agreement has been duly and validly amended and restated as set
forth herein and constitutes a valid and binding agreement of the General
Partner;
(b) the General Partner has (i) undertaken and shall continue to take all
acts necessary for the Partnership to operate as a limited partnership in the
State, including, without limitation, the filing of all Certificates and the
payment of all fees, taxes and other sums; (ii) will continue to do all things
necessary to maintain its status as a limited partnership in good standing and
had, has and shall continue to have full power and authority to acquire the Land
and to develop, construct, operate and maintain the Apartment Development in
accordance with the terms of this Agreement; and (iii) has taken and shall
continue to take all action under the laws of the State and any other applicable
jurisdiction that is necessary to protect the limited liability of the Limited
Partner and to enable the Partnership to engage in its business;
(c) the execution of this Agreement, the assumption of the obligations
set forth in this Agreement, and the consummation of the transactions
contemplated by this Agreement do not violate any federal, state, county,
municipal or other governmental statutes, laws or ordinances, or any rules,
regulations or orders of any governmental agencies or authorities, or any
provision of law, any order, judgment or decree of any court binding upon the
Partnership or the General Partner or Affiliates thereof, any indenture,
agreement, or other instrument to which the Partnership or the General Partner
or Affiliates thereof are a party or by which the Partnership or General Partner
or Affiliates thereof or the Apartment Development is affected, and is not in
conflict with, and will not result in a breach of or constitute a default under,
any such indenture, agreement, or other instrument or result in creating or
imposing any lien, charge, or encumbrance of any nature whatsoever upon the
Apartment Development;
20
(d) the Investment Corporation has acquired a valid and unencumbered
limited partnership interest in the Partnership as of the date hereof; no person
or entity other than the Partners hold any equity interest in or has any lien on
the Apartment Development; no person or entity except the Partnership has the
right to any proceeds, after payment of all indebtedness, of the sale,
refinancing or leasing of the Apartment Development; and no approval of any
government agency or any other Person is required in order to carry out the
provisions of this Agreement except as specifically herein contemplated;
(e) neither the Partnership nor the General Partner has previously dealt
with, and is not under any commitment to, any real estate broker, rental agent,
finder, syndicator, intermediary or broker-dealer with respect to the
Partnership Interest hereby acquired by the Investment Corporation and in the
Apartment Development or any portion thereof, and has not previously dealt with,
and is not under any commitment to, any consultant or lobbyist in connection
with obtaining the Mortgage Loan, rental assistance payments, or reservation or
allocation of the Tax Credit or any other applicable form of government subsidy
or financial assistance, except as previously disclosed in writing to the
Investment Corporation;
(f) the General Partner hereby transfers and assigns to the Partnership all
right, title and interest in (i) all contracts with developers, architects,
contractors and supervising architects and other Persons with respect to the
development of the Apartment Development, (ii) all plans, specifications and
working drawings heretofore prepared or obtained in connection with the
Apartment Development and all governmental approvals obtained, including
planning, zoning and building permits and any and all commitments with respect
to the Construction Loan, the Mortgage Loan and the Tax Credit, and (iii) any
other work product related to the Apartment Development;
(g) the General Partner has heretofore made to the Partnership a Capital
Contribution in the amount of $5,560.00 which loan the Partnership shall repay
to the General Partner when Landau makes its capital contribution.
(h) the General Partner will at all times maintain an aggregate net worth
as necessary (together with any other requirements) to assure that all
provisions of the Code (as from time to time amended or interpreted by the
Internal Revenue Service, any other agency of the federal government, or the
courts) are met which are necessary to assure that the Partnership is classified
as a partnership for federal income tax purposes; if the General Partner is a
sole corporate general partner, it will have and maintain a net worth (computed
to the satisfaction of Special Tax Counsel) equal to the greater of (iii) 10% of
21
the Capital Contribution of the Limited Partner and (iv) 10% of the aggregate
capital contribution of all limited partners in all other limited partnerships
of which such General Partner is a sole corporate general partner; the General
Partner shall not act in any manner which will cause the Partnership to be
treated for federal income tax purposes as an association taxable as a
corporation;
(i) no event of bankruptcy has occurred with respect to the General Partner
or an Affiliate thereof;
(j) any General Partner which is a corporation has been duly organized, is
validly existing and in good standing under the laws of its state of
incorporation and, if different, the state in which the Apartment Development is
located, and has all requisite corporate power and authority to be a General
Partner and to perform its duties and obligations as contemplated by this
Agreement and the Project Documents; neither the execution and delivery by such
corporation or any corporate Affiliate of a General Partner of this Agreement or
any of the Project Documents nor the performance of any of the actions of any
such corporation contemplated hereby or thereby has constituted or will
constitute a violation of (i) the articles or certificate of incorporation or
by-laws of any such corporation, (ii) any agreements by which any such
corporation is bound or to which any of its property or assets is subject, or
(iii) any law, regulation or court decree;
(k) there is no default under any agreement, contract, lease or other
commitment affecting the General Partner, the Partnership, their Affiliates or
the Apartment Development, and there is no claim, demand, litigation, proceeding
or governmental investigation pending or threatened against the General Partner,
the Apartment Development or the Partnership, or related to the business or
assets of the Partnership or of the Apartment Development, which action, claim,
demand, litigation, proceeding or governmental investigation could result in any
judgment, order, decree, or settlement except as heretofore disclosed in writing
to the Investment Corporation, and the General Partner has provided or shall
provide the Investment Corporation with true and correct copies of any papers
relevant to any such impending dispute, arbitration or legal action;
(l) at the time of commencement of construction, at the Initial Closing and
as of the date hereof, the Land was and is properly zoned for the Apartment
Development; all consents, permissions and licenses required by appropriate
governmental entities have been obtained; the Apartment Development conformed
and conforms to all applicable federal, state and local land
22
use, zoning, environmental and other governmental laws and regulations; and all
appropriate public utilities, including sanitary and storm sewers, water,
telephone, gas and electricity, are currently available and, upon the date the
first dwelling unit is occupied, will be operating properly for all dwelling
units in the Apartment Development;
(m) the Construction Contract has been entered into between the Partnership
and the Contractor, and no consideration or fee shall be paid to the Contractor
in its capacity as the Contractor other than as provided in the Construction
Contract;
(n) at Initial Closing, a builder's risk insurance policy, as required by
the Construction Loan in favor of the Investment Corporation, will be in full
force and effect; at the time of initial occupancy of the Apartment Development,
fire and extended coverage insurance for the full replacement value of the
Apartment Development (excluding the value of the Land, site utilities,
landscaping and foundations) and worker's compensation and public liability
insurance, all in favor of the Partnership, will be in full force and effect and
will be kept in full force and effect during the term of the Partnership; all
such policies shall be in amounts and with insurers satisfactory to the
ADFA/HOME; and at all times during the term of the Partnership, the Partnership
will maintain at least $1,000,000 of liability insurance covering the Land and
the Apartment Development;
(o) at Initial Closing, good and marketable fee simple title to the
Apartment Development was held by the Partnership; the Partnership shall
purchase an owner's title insurance policy naming itself as insured issued by a
financially sound institution acceptable to the ADFA/HOME and the Investment
Corporation (initially in the amount of the land value, to be increased from
time to time during the construction period up to the amount of the total
replacement value of the Apartment Development, including all Capital
Contributions set forth in Sections 5.01 and 5.02, together with such
affirmative endorsements deemed necessary or appropriate by the ADFA/HOME or the
Investment Corporation); such title policy shall remain in full force and
effect, subject only to such casements, covenants and restrictions and other
exceptions which are set forth in such policy and which do not interfere with
the purpose of the Partnership or have a material adverse effect on the value of
the Apartment Development and which are otherwise acceptable to the ADFA/HOME
and the Investment Corporation; any proceeds paid on an owner's title insurance
shall be distributed 99% to the Investment Corporation and 1% to the General
Partner;
(p) the construction and development of the Apartment Development has begun
and shall be completed in a timely and workmanlike manner in accordance with (i)
all applicable requirements of the Construction Loan and the Mortgage Loan, (ii)
all applicable requirements of the ADFA/HOME and any other appropriate
governmental entities, and (iii) the plans and specifications of the Apartment
Development as from time to time have been or shall be hereafter approved by the
ADFA/HOME and any other governmental entities, if required, and Consented to by
23
the Investment Corporation, if a change order pursuant to which any change shall
be made may affect adversely the nature of the business of the Partnership, the
Gross Rent of the Apartment Development, the Projected Credit, and/or the
marketability of the Apartment Development to Qualifying Individuals;
(q) all of (i) the fixtures, maintenance supplies, tools, equipment and
the like now and to be owned by the Partnership or to be appurtenant to, or to
be used in the operation of the Apartment Development, as well as (ii) the
rents, revenues and profits earned from the operation of the Apartment
Development, are and will be free and clear of all security interests and
encumbrances, except for the Construction Loan and the Mortgage Loan;
(r) the Partnership has the sole responsibility to pay all maintenance
and operating costs, including all taxes levied and all insurance costs,
attributable to the Apartment Development; the Partnership, except to the extent
it is protected by insurance and excluding any risk borne by lenders, bears the
sole risk of loss if the Apartment Development is destroyed or condemned or
there is a diminution in the value of the Apartment Development;
(s) the General Partner has provided or shall provide the Investment
Corporation with true and correct copies of any papers relevant to the
Construction Loan and the Mortgage Loan commitments and all documents evidencing
or securing the Construction Loan and the Mortgage Loan, including, if requested
by the Investment Corporation, a complete set of plans, drawings, specifications
and any change orders for the Apartment Development;
(t) neither the General Partner nor any Related Person to the General
Partner nor the Partnership has entered, or shall enter, into any agreement or
contract for the payment or offset of any Construction Loan or Mortgage Loan
discounts, additional interest, yield maintenance or other interest charges or
financing fees, or any agreement to incur any financial responsibility with
respect to the Apartment Development or providing for any guarantee of payment
of any such interest charges or financing fees relating thereto, other than
those specifically Consented to by the Investment Corporation; in no event will
the General Partner or the Partnership enter into any such agreement or
guarantee of any kind whatsoever (such as an escrow arrangement or letter of
credit arrangement) which would subject the Partnership or any of its Partners
or Related Persons to personal liability or economic risk of loss as to the
Mortgage Loan principal or interest, nor will any General Partner or Related
Person (or Affiliate thereof) make any loan which shall be personally
enforceable against a Partner by the ADFA/HOME or any other lender;
24
(u) the Partnership shall enter into an Interest Credit Agreement with
ADFA and Horizon Bank having the effect of reducing the Partnership's monthly
loan payments on the Mortgage Loan to an amount which would be payable if such
loan were bearing interest at a specified percentage rate, the sole recourse of
the mortgagee thereunder with respect to the principal thereof, interest thereon
or any other obligation thereunder shall be to the assets of the Partnership
securing the Mortgage Loan, and at Final Closing the nonrecourse promissory note
given by the Partnership to the ADFA and Diamond State Bank and permanent
mortgage loan in the amount of $232,019.00 for a term of 15 years at an interest
rate of 9% to be provided by Diamond State Bank and a second permanent finance
loan in the amount of $400,000 for a term of 35 years at an effective interest
rate of 1% to be provided by ADFA/HOME and shall contain similar nonrecourse
provisions;
(v) the Partnership will undertake all acts, filings and other requirements
necessary to qualify the Apartment Development for the Tax Credit; all
information contained in any applications, certifications, and any related
correspondence to the State Agency for reservation and/or allocation of the Tax
Credit is complete and correct in all material respects, and copies thereof have
been furnished to Landau; and the Apartment Development will have a Qualified
Basis of at least $1,240,856.00 (subject to final determination at closing). The
Investment Corporation anticipates the Tax Credit that will be allocated to the
Partnership after the Apartment Development is placed in service will not exceed
$111,677.00 per year, which amount is the basis of the Projected Tax Credit set
forth on Exhibit A attached hereto;
(w) no right of first refusal pursuant to Section 42(i)(7) of the Code or
extended use periods for low-income occupancy pursuant to Section 42(h)(6) of
the Code shall apply to the Apartment Development or any building thereof,
except for the 15-year extended use period previously disclosed in writing to
and hereby approved by the Investment Corporation;
(x) the Apartment Development is a qualified low-income housing project and
each building thereof is a qualified low-income building pursuant to Section 42
of the Code; such Apartment Development and buildings thereof will at all times
satisfy the Rent Restriction Test, the 40-60 Set-Aside Test, and all other
requirements of any federal, state or local law necessary to remain qualified
for Tax Credits;
(y) the Apartment Development shall be managed in all respects (i) in
accordance with all applicable provisions of the Housing Act of 1949 and the
rules and regulations of the ADFA/HOME and any other appropriate governmental
25
agency including, without limitation, any Section 42 monitoring plan established
by the State Agency in accordance with Proposed Treasury Regulation Section
1.42-5 and any successor regulation thereto under the Code, (ii) so that no less
than 80% of the gross income from the Apartment Development in every year will
be rental income from dwelling units in the Apartment Development used to
provide living accommodations not on a transient basis, and (iii) so that, if
the aggregate income of the occupants in any dwelling unit of the Apartment
Development rises above 140% of the income limitation applicable to such
occupants under Section 42 of the Code, the next available dwelling unit of the
Apartment Development will be rented to a low-income tenant pursuant to Section
42(g) of the Code, taking all acts necessary so that all dwelling units are
rented to persons classified as Qualifying Individuals;
(z) the General Partner shall, during and after the period in which the
General Partner is a Partner, provide the Accountants with such funds and
information, and sign such documents as are necessary for the Partnership to
make accurate and complete submissions of federal and state income tax returns
no later than March 10 annually;
(aa) the Partnership will use such method of depreciation and make such
elections on IRS Form 8609, which, in the opinion of accountants for the
Investment Corporation, shall be advantageous to the Investment Corporation;
(bb) there are no restrictions on the sale or refinancing of the Apartment
Development, other than the restrictions referred to in this Article IV or which
are the result of applicable provisions of the Housing Act of 1949 and the rules
and regulations of the ADFA/HOME and Section 42(h) of the Code;
(cc) upon written request by any limited partner of the Investment
Corporation, the General Partner will, upon reasonable notice and during regular
business hours, (i) allow such limited partner to visually inspect the Apartment
Development, (ii) answer any questions such limited partner may have concerning
the Apartment Development, and (iii) provide such limited partner with annual
financial statements with regard to the Apartment Development's operations as
are then available, including all financial statements and/or annual reports
previously filed with the ADFA/HOME.
(dd) the General Partner shall furnish to counsel for the Investment
Corporation promptly as and when requested, in connection with the rendering of
any legal opinion concerning federal income tax, partnership law and securities
26
law matters relating to the Investment Corporation, copies of such documents as
are requested by such counsel and/or additional copies;
(ee) insofar as is reasonably ascertainable by the
Investment Corporation with any information necessary to make the information
provided by the General Partner complete and accurate in all material respects,
or omitted to provide a material fact concerning the Apartment Development or
the Tax Credit allocable to it; and the Investment Corporation is entitled to
rely on the completeness and accuracy of all such information furnished for any
and all purposes;
(ff) all representations, warranties, covenants and obligations in this
Agreement made by the General Partner, if requested by the Investment
Corporation, shall be re-affirmed in any separate writing deemed necessary by it
to carry out the purposes of this Agreement; and
(gg) all general operating accounts and reserve accounts of the
Partnership, including but not limited to reserves for replacements, real estate
taxes, and hazard, liability and mortgage insurance premiums, if any, which are
required to be funded, have been and will continue to be funded to required
levels.
(hh) Cause the partnership to perform the obligations it will assume
pursuant to Section 10 hereof.
(ii) Pay, if the General Partner is the developer, without right of
reimbursement or credit to its capital account, all costs in excess of those
paid by mortgage loan proceeds and Partnership funds of completing construction
of the Apartment Development in accordance with approved plans and
specifications, placing same in service, achieving Final Closing of the
ADFA/HOME loan and 100% rent up, and Tax Credit qualification of the Apartment
Development. If the General Partner is not the developer, the General Partner
shall unconditionally guarantee the obligations of the developer to pay all such
costs.
(jj) Take all steps necessary to (i) cause the Apartment Development to
become and remain eligible for a Tax Credit in an annual amount at least equal
to the Projected Tax Credit; (ii) obtain a reservation of the Tax Credit and
carryover allocation agreement, if required, from the State Agency; and (iii)
with the property management agent, use its best efforts to rent units in the
Apartment Development solely to persons classified as Eligible Occupants for the
Tax Credit, consulting with Landau and ADFA/HOME prior to any ineligible rental
if at any time market conditions are deemed to necessitate rental to a
non-Eligible Occupant.
27
(kk) Fund operating deficits up to the amount of your working capital
reserve plus $10,000 for a period of 2 years from final closing. If, after the 2
year period mentioned above, operating deficits occur for three consecutive
months, the General Partner is obligated to seek appropriate ADFA/HOME
assistance for the Apartment to remedy and rectify the shortfalls.
(ll) Reimburse the Limited Partner, upon its request, in the amount of
100% of its paid-in Capital Contribution, including the amount advanced upon the
signing of this Agreement, if (i) the Apartment Development has not achieved
Final Closing of the ADFA/HOME loan and Diamond State Bank loan by March 1,
1998, or occupancy of 100% of its units by Eligible Occupants by May 1, 1998, or
if the State Agency has not allocated or provided a final allocation of the Tax
Credit by December 31, 1998; or (ii) any financing commitment of ADFA/HOME or
another interested governmental agency shall disapprove the Landau as a limited
partner, or (iii) the Apartment Development shall fail to remain qualified for
the Tax Credit under the set-aside test or tent restriction test applicable to
the Apartment Development during the ten-year Tax Credit period, provided that,
at the Limited Partner's election, the General Partner may be given a period of
time in which to remedy any of the above conditions, during which the period any
Capital Contribution payment due from the Investment Corporation may be
withheld.
(mm) Ensure that good and marketable fee simple title to the Apartment
Development, subject only to such liens and encumbrances which are acceptable to
the ADFA/HOME and Diamond State Bank is held by the Partnership, and to arrange
for the purchase by the Partnership of an owner's title insurance policy in an
amount equal to the principal amount of all permanent mortgage loans plus the
Capital Contributions, but not less than the appraised value of the Apartment
Development.
(nn) Obtain an opinion of local counsel to the Partnership
substantially as provided in Exhibit "C" of the Amended Limited Partnership
Agreement, containing such matters as may be required by special tax counsel to
the Partnership necessary to confirm the ability of the partnership to utilize
the Tax Credit as represented by the General Partner in accordance with the
Amended Limited Partnership Agreement.
(oo) Represent other facts regarding the Partnership or the Apartment
Development which may be reasonably required by special tax counsel to the
Partnership to render an opinion as to tax consequences.
(pp) If a carryover allocation agreement with the State Agency is
required, obtain a certification of cost incurred in the year of Tax Credit
reservation from the partnership's CPA, certifying that at least 10% of the
28
estimated eligible cost of the Apartment Development was incurred in such year,
with a breakdown of such costs and apply for said carryover agreement prior to
any deadline date set by the State Agency.
(qq) Provide to the Limited Partner, prior to submission to the State
Agency, for review and approval, a final eligible basis cost certification for
the Apartment Development.
(rr) Provide, among other items, customary general partner representations
and warranties, including representations and warranties with respect to the
status of the Partnership, its right and authority to enter into this
transaction, the status of the construction of the improvements and the accuracy
of the assumptions used in the financial forecasts.
(ss) Reporting Requirements. During the Partnership term, the Partnership
shall furnish to Landau monthly operating statements, reports, and project
worksheets of the Apartment Development and Partnership, as submitted to the
ADFA/HOME, together with necessary reports certifying Tax Credit occupancy and
other financial, tax and accounting data requested by Landau. An annual CPA
compilation report of the Partnership's books and tax returns for each calendar
year are to be provided to Landau by the last day of February following each
said year.
(tt) Obtain from the proposed General Partners an opinion of counsel that
Murfreesboro Industrial Development Corporation is authorized to serve as
General Parner in the Limited Partnership Agreement and that Murfreesboro
Industrial Development Corporation will be bound by all the terms, covenants and
conditions in said agreement.
4.02. No Duty to Investigate. The Investment Corporation may rely on the
representations contained and referenced in this Agreement without further duty
of inquiry as to their accuracy and validity.
29
ARTICLE V
PARTNERSHIP INTERESTS AND CAPITAL CONTRIBUTIONS
5.01. Original Partners' Partnership Interests
(a) The General Partner and the General Partner's principal address,
Capital Contribution (prior to the return of Capital set forth in Section
5.02(b)(i)) and Percentage Interest in Profits, Losses and Credits are as
follows:
Murfreesboro Industrial $5,560.00 1%
Development Corporation
Murfreesboro, AR
(b) The fair market value of the property transferred and assigned to
the Partnership as represented in Section 4.01(fl shall be deemed to be zero, in
consideration of the Development Services Fee, and shall not represent a Capital
Contribution.
5.02. Capital Contribution of the Investment Corporation
Landau's contribution of capital will be $647,727.00(which represents
$0.58 for each tax credit dollar) payable in installments as set forth in
"Exhibit A" attached hereto.
The Capital Contribution amount has been based upon the Projected Tax
Credit amount it is anticipated will be allocated to the Partnership. If the
actual Tax Credit allocation by the State Agency, as subsequently adjusted by
the State Agency, the Internal Revenue Service or the accountants for the
Partnership (the AMaximum Tax Credit Allowance@), is more or less than the
Projected Tax Credit, the Capital Contribution amount set forth in the first
paragraph of this Section, will be adjusted to an amount which is equal to the
product of (i) the Original Capital Contribution multiplied by (ii) a fraction,
the numerator of which is the Maximum (allocated and approved) Tax Credit
Allocation and the Denominator of which is the Projected Tax Credit.
If the Apartment Development has not achieved Final Closing of the
ADFA/HOME loan and the Diamond State Bank loan by March 1, 1998, or the ten-year
Tax Credit period has not been elected to have commenced as of March 1, 1998, or
the Apartment Development has not achieved 100% occupancy by Eligible Occupants
by May 1, 1998, the Capital Contribution shall be adjusted or rescheduled to
compensate for any difference in Tax Credit allocated to the Partnership for
year 1998 from that set forth in the last paragraph of Section 2 hereof due to a
change in the date of such Final Closing or commencement of the Tax Credit
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Period. If construction is delayed by ADFA/HOME, and is beyond the General
Partner's control, the aforementioned dates will be adjusted accordingly.
5.03. Withholding of Capital Contribution Upon Default
(a) In the event: (i) the General Partner, or any successor General
Partner, shall not have complied with any material provision of this Agreement
(including, without limitation, the representations, warranties and covenants of
the General Partner set forth in Article IV and the obligations of the General
Partner under Article VI and Article XII of this Agreement), or (ii) any
commitment of the ADFA/HOME to provide financing, or any agreement entered into
by the Partnership to provide financing related to the completion of
construction of the Apartment Development, shall have terminated prior to its
respective termination date and not been reinstated in a timely manner as
determined solely by counsel for the Investment Corporation, or (iii) the
Construction Lender shall not make a disbursement under the Construction Loan
and such disbursement is not made or the Construction Lender is not replaced
within 60 days, or (iv) less than 60% of the dwelling units in the Apartment
Development remain qualified under the 40-60 Set-Aside Test during the
Compliance Period, or (v) foreclosure proceedings shall have been commenced by
the Construction Lender or the ADFA/HOME against the Apartment Development, or
(vi) any required ADFA/HOME approvals to the admission of the Investment
Corporation into the Partnership and the execution of the Partnership Agreement
have not been obtained within 90 days of such admission, then the Partnership
and the General Partner shall be in default of this Agreement and the Investment
Corporation, at its sole election, may withhold payment of any one substantially
cured, or (ii) there is a final arbitration decision under Section 13.01 to the
effect that (A) the General Partner and/or the Partnership have substantially
cured the default giving rise to the withholding under this Section 5.03 or (B)
the General Partner and/or the Partnership were not in fact in default
hereunder. Any interest earned thereon, except in the case of clause (ii)(B)
above, shall be paid to the Investment Corporation.
(c) In the event that any Tax Credit Reduction Amount shall be
determined by accountants for the Investment Corporation during the Capital
Contribution Period, the Investment Corporation shall adjust any Installment
otherwise payable to the Partnership by an amount equal to the Tax Credit
Reduction Amount so determined, dollar-for-dollar.
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5.04. Return of Partners' Capital Contributions
(a) Except as provided in this Agreement, no Partner shall be entitled
to demand and receive a return of his Capital Contribution.
(b) If (i) the ADFA/HOME or the Construction Lender shall fail to
provide any required approvals to the admission of the Investment Corporation as
a Partner hereunder within 180 days of its admission to the Partnership; or (ii)
an event of default described in Section 5.03(a)(ii) or (iii) has occurred, or
(iii) Final Closing has not occurred by March 1, 1998 (or such later date as may
be Consented to by the Investment Corporation), or (iv) the Apartment
Development has not achieved occupancy under ADFA/HOME-approved leases of 100%
of its dwelling units by May 1, 1998, or (v) the State Agency has not provided
an IRS Form 8609 or a written certificate of a carryover allocation of the Tax
Credit by or as of December 31, 1998, or (vi) the Apartment Development fails to
become or remain qualified under the 40-60 Set-Aside Test or Rent Restriction
Test during the Credit Period; or (vii) the Tax Credit available to the
Partnership cannot legally be allocated to the Investment Corporation as
required by this Agreement due to a failure of the General Partner or the
Accountants to comply with the requirements of Section 42 of the Code by the
later of Final Closing or issuance of IRS Form 8609 with costs certified to the
State Agency, then a "Repurchase Event" shall exist and the General Partner
shall, within 15 days of the occurrence thereof, send to the Investment
Corporation Notice of such Repurchase Event and of the General Partner's
obligation to purchase the Partnership Interest of the Investment Corporation
hereunder (which shall not be an obligation of the Partnership) and return to
the Investment Corporation its Capital Contribution. Thereafter, upon the sole
election of the Investment Corporation, the General Partner, within 30 days of
the mailing date of Notice by the Investment Corporation of such election, shall
acquire the entire Partnership Interest of the Investment Corporation by making
payment to the Investment Corporation, in cash, of an amount equal to the
aggregate paid-in portion of its Capital Contribution (not including any Capital
Contribution of a prior Partner), whereupon the Partnership Interest of the
Investment Partnership shall terminate and the General Partner shall indemnify
and hold harmless the Investment Corporation from any losses, damages or
liabilities to which the Investment Partnership, as a result of its
participation hereunder, may be subject.
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ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
6.01. Management of the Partnership
(a) Except as otherwise set forth in this Agreement, the General
Partner, within the authority granted under this Agreement, shall have full,
complete and exclusive discretion to manage and control the business of the
Partnership for the purpose herein stated, shall make all decisions affecting
the business of the Partnership and shall manage and control the affairs of the
Partnership in good faith to the best of the ability of the General Partner and
use best efforts to carry out the purpose of the Partnership as set forth in
Section 3.01. In so doing, the General Partner shall take all actions necessary
or appropriate to protect the interests of the Limited Partner and of the
Partnership. The General Partner shall devote such time as is necessary to the
affairs of the Partnership.
(b) If there be more than one General Partner, the administrative
affairs of the Partnership shall be managed by the Managing General Partner. In
furtherance and not in limitation of the foregoing sentence, the Managing
General Partner is hereby specifically authorized and empowered to execute and
deliver, on behalf of the Partnership, the Construction Contract, Construction
Loan or Mortgage Loan and to execute any and all other instruments and documents
and amendments thereto as shall be required in connection therewith, including
any mortgage, note, contract, building loan agreement, bank resolution and
signature card. No Person dealing with the Partnership shall be required to
determine the Managing Partner's authority to make any undertaking on behalf of
the Partnership, or to determine any facts or circumstances bearing upon the
existence of such authority, and all decisions made for and on behalf of the
Partnership by the Managing General Partner pursuant to and within the scope of
the authority herein given shall be binding upon the Partnership. The Managing
General Partner shall be the Tax Matters Partner referred to in Section 10.09.
6.02. Limitations Upon the Authority of the General Partner
(a) The General Partner shall not have any authority to directly or
indirectly:
(i) perform any act in violation of any applicable law or
regulation thereunder; or
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(ii) perform any act in violation of the provisions of the
Construction Loan or Mortgage Loan, or any other ADFA/HOME
documents executed by or on behalf of the Partnership, or the
Construction Contract; or
(iii) do any act required to be Consented to or ratified in
writing by the Limited Partner hereunder or under the Act
unless the right to do so is expressly otherwise given in this
Agreement; or
(iv) rent apartments in the Apartment Development so that the
Apartment Development would not meet the requirements of the
Rent Restriction Test or 40-60 Set-Aside Test; or
(v) borrow from the Partnership or commingle Partnership funds
with the funds of any Person; or
(vi) borrow on the general credit of the Partnership;
or
(vii) perform any act which would make it impossible to carry
on the ordinary business of the Partnership; or
(viii) confess a judgment against the Partnership; or
(ix) change or reorganize the Partnership into any other
legal form; or
(x) require the Limited Partner to make any contribution to
the capital of the Partnership not provided for herein; or
(xi) permit the Partnership to acquire property in exchange
for an Interest in the Partnership; or
(xii) permit the Partnership to grant the General Partner an
exclusive right to sell the Partnership's property; or
(xiii) engage in activities directly competitive with those
of the Partnership; or
(xiv) permit the Partnership to directly or indirectly pay the
General Partner a commission or fee in connection with the
reinvestment or distribution of Sale or Refinancing Proceeds
or Liquidation Proceeds except as provided for herein; or
34
(xv) receive any rebates or give-ups or participate in any
reciprocal business arrangements in circumvention of this
Agreement; or
(xvi) charge or receive any fees for management services
except as expressly provided herein.
(b) The General Partner shall not, without the Consent of the
Investment Corporation, directly or indirectly:
(i) terminate the Partnership for federal income tax purposes
or dissolve or wind up the Partnership; or
(ii) permit the Partnership to acquire any property from
another partnership in which a General Partner or Affiliate
thereof has an Interest; or
(iii) incur any indebtedness by the Partnership other than in
the ordinary course of its business as described herein; or
(iv) make application for or accept any increase in the
Construction Loan or the Mortgage Loan or materially modify
the Mortgage Loan if such increase or modification may affect
the Gross Rent of the Apartment Development and/or its
marketability to Qualifying Individuals; or
(v) change the nature of the Partnership's business,
including, without limitation, acquiring any real property on
behalf of the Partnership in addition to the Apartment
Development or constructing any new or replacement capital
improvements on the Apartment Development or on any
land owned by the Partnership; or
(vi) sell, exchange, lease, mortgage, pledge or otherwise
transfer all or substantially all of the assets of the
Partnership, or any portion of the Land owned by the
Partnership; or
(vii) possess Partnership property or assign any rights in
specific Partnership property for other than Partnership
purposes; or
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(viii) place any liens or restrictions or other title
exceptions on the Apartment Development; or
(ix) permit a General Partner to withdraw from the
Partnership, or to admit a new or substitute general partner
or limited partner; or
(x) make any material amendment to the Certificate or this
Agreement, unless required by law;
provided, however, that in the judgment of counsel to the Investment
Corporation, the giving of any such Consent shall be permitted by the Act as the
exercise of a power not constituting participation in the control of the
business so as to convert the limited partner Interest of the Investment
Corporation into a general partner Interest for any purpose or to any extent.
The General Partner shall, at the request of the Investment
Corporation, perform all acts necessary to obtain an equity takeout loan
pursuant to Section 515(t) of the U.S. Housing Act of 1949 as amended.
6.03. Delegation of Authority
Subject to the Act, the General Partner may delegate all or any of the
powers of the General Partner, rights and obligations hereunder, and may
appoint, employ, contract or otherwise deal with any Person for the transaction
of the business of the Partnership, which Person may, under supervision of the
General Partner, perform any acts or services for the Partnership as the General
Partner may approve, provided that management fees and/or expenses are not
increased thereby, nor the Limited Partner's shares of Net Cash Flow, Sale or
Refinancing Proceeds, or Liquidation Proceeds decreased thereby.
6.04. General Partner or Affiliates Dealing with the Partnership
(a) The General Partner or any Affiliate may act as Developer and/or
Management Agent of the Apartment Development on such terms and conditions
permitted hereby and by applicable ADFA/HOME regulations, and may receive
compensation at the rates so approved, including, without limitation, the
Development Services Fee.
(b) The General Partner, or any Affiliate thereof, shall have the right to
contract or otherwise deal with the Partnership for the sale of goods or
services to the Partnership in addition to those set forth herein if (i)
36
compensation paid or promised for such goods or services is reasonable (i.e., at
fair market value) and is paid only for goods or services actually furnished to
the Partnership, (ii) the goods or services to be furnished are reasonable for
and necessary to the Partnership, (iii) the fees, terms and conditions of such
transaction are at least as favorable to the Partnership as would be obtainable
in an arm's-length transaction, (iv) the purpose of the Partnership is advanced,
(v) any contract covering such transactions is in writing and terminable without
penalty on 60 days Notice, (vi) any payment made to the General Partner or any
Affiliate for such goods or services shall have been fully disclosed to all
Partners in the required by Section 1204 and reports circumvented the provisions
of this Section 6.04 or Section 6.03, and (vii) any other required Consent
(including the Consent of the ADFA/HOME) is obtained. The General Partner hereby
Consents and agrees that NCPPS or any Affiliate shall also have the right to
contract or otherwise deal with the Partnership for the sale of goods or
services.
(c) Notwithstanding the provisions of this Section 6.04, the General
Partner or any Affiliate thereof shall not:
(i) receive any insurance brokerage fee or write any insurance policy
covering the Apartment Development or the Partnership; or
(ii) compensate on behalf of the Partnership any agent, attorney,
accountant or other independent consultant or contractor that also is employed
on a full-time basis by the General Partner or any Affiliate thereof without the
Consent of the Investment Corporation.
6.05. Other Activities
The General Partner and any Affiliate may engage in or possess interests
in other business ventures of every kind and description for their own account,
including, without limitation, serving as general partner of other partnerships
which own, either directly or through interests in other partnerships,
government-assisted housing projects similar to the Apartment Development.
Neither the Partnership nor any of the Partners shall have any rights by virtue
of this Agreement in or to such other business ventures or to the income or
profits derived therefrom.
6.06. Liability for Acts and Omissions
The General Partner shall not be liable, responsible or accountable in
damages or otherwise to any of the Partners for any act or omission performed or
omitted in good faith on behalf of the Partnership and in a manner reasonably
believed to be within the scope of the authority granted to the General Partner
37
by this Agreement and in the best interest of the Partnership, except for
negligence, misconduct, fraud or any breach of fiduciary duty with respect to
such acts or omissions. Any loss or damage incurred by the General Partner by
reason of any act or omission performed or omitted by the General Partner in
good faith on behalf of the Partnership and in a manner reasonably believed by
the General Partner to be within the scope of the authority granted to the
General Partner by this Agreement and in the best interests of the Partnership
(but not, in any event, any loss or damage incurred by the General Partner by
reason of negligence, misconduct, fraud or any breach of fiduciary duty with
respect to such acts or omissions) shall be paid from Partnership assets to the
extent available (but the Limited Partner shall not have any personal liability
to the General Partner under any circumstances on account of any such loss or
damage incurred by the General Partner or on account of the payment thereafter.
6.07. Indemnities
(a) The General Partner hereby indemnifies and holds the Partnership,
Special Tax Counsel, the Investment Corporation and any Affiliates, agents and
assignees thereof, free and harmless from any injury, diminution in value of the
Partnership Interest of the Investment Corporation, loss or damage (including,
but not limited to, reasonable attorneys' fees, court costs, and amounts paid in
settlement of any claims which have been mutually agreed to by the General
Partner and the party against whom such claim has been made, resulting from the
claims of any Person with respect to any liability arising under the Securities
Act of 1933 or the Securities Exchange Act of 1934 or the securities laws or
regulations of any state or other jurisdiction), with respect to claims based
upon alleged fraud, deceit or untrue statement of a material fact made by the
General Partner or omission by the General Partner to state a material fact
required to be stated or necessary to make the statements not misleading, with
respect to or based upon information furnished or statements made by the General
Partner to the Investment Corporation in connection with the acquisition by the
Investment Corporation from or through them of a Partnership Interest or the
offer or sale of limited partner interests in the Investment Corporation (it
being understood that, except as set forth above, the General Partner shall not
be liable for any matters relating to federal or state securities laws
applicable to the Investment Corporation).
(b) The General Partner hereby indemnifies and holds harmless the
Partnership, the Investment Corporation, NCPPS, the Coordinating Broker-Dealer,
and/or Landau and their Affiliates, agents and assignees from any and all claims
(to the extent that any such claim arises out of the General Partner's action or
failure to act) of any real estate broker, rental agent, finder, syndicator or
38
other intermediary with respect to the acquisition of the Apartment Development
or any Interest in the Partnership and shall assume the defense of any judicial
action that might arise in connection with any such claims, provided that the
Investment Corporation shall have the right to assume the defense of any claim
or counterclaim against itself.
(c) The General Partner hereby indemnifies and holds the Investment
Corporation and Special Tax Counsel harmless from all claims, damages and losses
arising any way out of breach of the representations, warranties and covenants
contained herein or from any claim arising in any way out of the operation or
ownership of the Apartment Development.
(d) In the event the provisions of this Section or any portion thereof or
the application thereof to any Person or circumstances shall to any extent be
invalid or unenforceable, the parties hereto hereby agree that a right to
receive contribution shall exist on the part of the party or parties who
otherwise would have been an indemnified party under the aforesaid provisions
(hereinafter collectively referred to as the "contribution recipient") in the
amount of 90% of any and all losses, claims, damages, expenses or liabilities to
which a contribution recipient may become liable. The parties hereby agree
further that, in such event, and upon the incurring by a contribution recipient
of any such loss, claim, damage, expense or liability, and the giving by such
contribution recipient of written notice thereof to the party or parties who
otherwise would have been an indemnifying party under the aforesaid provisions
(hereinafter collectively referred to as "contributor"), the contributor shall
promptly pay to such contribution recipient an amount equal to 90% of any such
loss, claim, damage, expense or liability incurred by such contribution
recipient as aforesaid.
6.08. Payment of Development Costs and Consultation Fees
The Capital Contribution of $647,727.00 will be used by the Partnership
(i) first, to pay $185,946.00, (17% of total development costs as directed by
ADFA/HOME) as a Development Fee to the developer designated by the General
Partner, (and approved by Landau) pursuant to a Development Agreement between
the Partnership and the developer, (ii) next, to pay construction costs in
excess of mortgage loan proceeds the maximum amount of such excess construction
costs to be as determined by Landau from documentation furnished to Landau by
the General Partners, (iii) next, to return capital to the General Partner if,
and to the extent that, Landau shall determine that such a return of capital is
necessary to avoid a reallocation of depreciation or Tax Credit under the
applicable provisions of Section 704 (b) of the Internal Revenue Code, (iv)
39
Landau, pursuant to the terms of the LPA, will offer advise to the Partnership
and the developer in connection with achieving the timely construction,
development and occupancy of the apartment development within regulatory
guidelines. The allocation of the Capital Contribution between the Development
Fee and return of capital to the General Partner may be adjusted by Landau to
protect the allocation of 99% of the Tax Credit to Landau.
6.09. Tax Credit Reduction Amount
If in any year after the Apartment Development is placed in service the
actual Tax Credit allocated to the Landau is less than 99% of the Maximum Tax
Credit Allocation attributable to such year, Landau will be entitled to recoup
an amount equal to such deficiency from the General Partner. If in any such year
a Tax Credit recapture event shall occur, as provided in Section 42(j)(1) of the
Internal Revenue Code, Landau will be entitled to recoup an amount equal to 100%
of the amount by which the income taxes of the Landau shall have been increased
by reason of the Tax Credit recapture event. The Tax Credit deficiency and the
credit recapture amount are hereafter collectively referred to as the TCRA. The
aggregate TCRA recoupable by the Landau during the Partnership term shall not
exceed 100% of the amount of its total Capital Contribution.
The TCRA shall first be withheld from any unpaid portion of the
Landau=s Capital Contribution. Any TCRA not recouped by Landau from its Capital
Contribution shall accrue with interest at 10% per annum and will be repaid as
provided in Section 7 hereof.
6.10. Other Loans to the Partnership
If additional funds are required by the Partnership for any purpose
relating to the business of the Partnership or for any of its obligations,
expenses, costs or expenditures (other than additional Capital Contributions or
Operating Deficit Loans required by Sections 6.08 and 6.09), the Partnership may
borrow such funds as are needed and approved by the ADFA/HOME from any Partner
or other Person or organization, including the General Partner, for such period
of time and on such terms as the General Partner and the ADFA/HOME may agree at
the rate of interest then prevailing for comparable loans, provided, however,
that no such additional loans shall be secured by any mortgage or other
encumbrance on the property of the Partnership, except in the case of the
hypothecation of personal property purchased by the Partnership and not included
in the security agreements executed by the Partnership at the time of Initial
Closing or Final Closing, and otherwise in accordance with this Agreement. Loans
made under this Section shall be repaid as provided in Section 10.07(d).
40
6.11. Withholding of Fee Payments
In the event of a default described in Section 5.03, the Partnership, at
the sole election of the Investment Corporation, shall withhold payment of any
installment of the Development Services Fee. Any installment so withheld shall
be promptly released to the Developer upon a determination or final arbitration
decision pursuant to Section 5.03(b) that such default has been substantially
cured. Any interest earned thereon shall be paid pursuant to Section 5.03(b).
6.12. Cost Savings
Any cost savings realized during the construction of the Apartment
Development, including any net interim income, which result in any undrawn
amounts under the Construction Lean shall be applied in the following priority
and to the following extent, subject to the approval of the ADFA/HOME:
(a) to enhance the Apartment Development through additional
construction;
(b) to reimburse the General Partner or the Partnership for any
Excess Development Costs for which funds were previously advanced by them; and
(c) to reduce the amount of the Mortgage Loan.
6.13. Property Management
The Apartment Development will be managed by an agent designated by the
General Partner (which may be an affiliate of the General Partner) approved by
Landau and any governmental agency having jurisdiction. Management fees shall be
competitive, but shall not exceed ADFA/HOME regulations. Landau understands that
▇▇▇▇ Property Management in Arkadelphia has been contracted to perform this
service. The property management company can be changed within 60 days prior
written notice and an agreement between the General Partner and Landau.
6.14. Reports to Investment Corporation
During the Partnership term, the Partnership shall furnish to Landau
monthly operating statements, reports, and project worksheets of the Apartment
Development and Partnership, as submitted to ADFA/HOME, together with necessary
reports certifying Tax Credit occupancy and other financial, tax and accounting
data requested by Landau. An annual CPA compilation report of the Partnership's
41
books and tax returns for each calendar year are to be provided to Landau by the
last day of February following each said year.
6.15 Rent Increases.
The Investment Corporation at any time shall have the right to require
the General Partner to use best efforts to apply to the ADFA/HOME for increases
in authorized rents.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.01. Withdrawal of a General Partner
(a) The General Partner may withdraw from the Partnership or sell,
transfer or assign the General Partner's Partnership Interest only after (i)
Consent of the Investment Corporation; (ii) Consent by all necessary parties as
provided in Section 7.04 of any new General Partner to be substituted therefor
or to receive all or part of a withdrawing General Partner's Partnership
Interest; (iii) counsel for the Investment Corporation shall have delivered to
the Partnership its opinion that any substitute General Partner, either
separately or together with any non-withdrawing General Partner, has sufficient
net worth and meets all other published requirements of the Code and the
Internal Revenue Service necessary to assure that the Partnership will continue
to be classified as a partnership and (iv) counsel for the Investment
Corporation each shall have rendered an opinion that none of the actions taken
in connection with such withdrawal will cause the termination or dissolution of
the Partnership or will cause it to be classified other than as a partnership
for federal income tax purposes or be in violation of the Act.
(b) The withdrawal of a General Partner without the Consent of the
Investment Corporation shall have the same effect as a removal of a General
Partner under Section 7.03. A General Partner who shall voluntarily withdraw as
General Partner of the Partnership without meeting the conditions for withdrawal
set forth in Section 7.01 (a) shall be deemed to be in breach of this Agreement,
shall be liable for any damages to the Partnership at law or in equity, and
shall forfeit his entire Partnership Interest, including without limitation any
residual share of Sale or Refinancing Proceeds or Liquidation Proceeds.
42
(c) In the event of a withdrawal or removal of a General Partner, or sale,
transfer or assignment of the Partnership Interest of any General Partner, or
conversion under Section 7.02 of such Interest to a limited partnership
interest, the General Partner shall remain liable for all obligations and
liabilities (including, but not limited to, Operating Deficits and Excess
Development Costs) incurred as General Partner before such withdrawal, removal,
sale, transfer, assignment or conversion shall have become effective under this
Agreement, whether or not any such obligations or liabilities were known or had
matured, but shall be free of any obligation or liability incurred on account of
the activities of the Partnership from and after the time such withdrawal,
removal, sale, transfer, assignment or conversion shall have become effective.
7.02. Effect of Bankruptcy or Legal Disability of a General Partner
(a) Upon the Bankruptcy or Legal Disability of a General Partner, the
business of the Partnership shall be continued by any other General Partner,
provided, however, that if a Bankrupt or Legally Disabled General Partner is
then a sole General Partner or if any event occurs with respect to a sole
General Partner which causes a termination of the Partnership under the Act, the
Partnership shall be terminated unless reconstituted pursuant to Section 11.01
and the Partners appoint at least one successor General Partner satisfactory to
the ADFA/HOME and as herein provided.
(b) Upon the Bankruptcy or Legal Disability of a General Partner, such
General Partner shall immediately cease to be a General Partner and his
Partnership Interest shall, without further action, be converted to a limited
partner interest, provided, however, that if such Bankrupt or Legally Disabled
General Partner is the sole remaining General Partner, or the remaining General
Partner has less than a combined 1% Percentage Interest in the Partnership, the
converted Partnership Interest of such replaced General Partner shall be ratably
reduced and transferred to the remaining General Partner to the minimum extent
necessary to insure that any remaining or substitute General Partner (i) hold a
combined 1% Percentage Interest, and (ii) will receive Net Cash Flow pursuant to
Section 10.06 and a distribution of Sale or Refinancing proceeds pursuant to
Section 10.07 or Liquidation Proceeds pursuant to Section 10.08, in such amounts
as the Investment Corporation, in its sole discretion, deems necessary to ensure
that at least one General Partner of suitable quality may be obtained in order
to achieve the purpose of the Partnership.
(c) If, at the time of the Bankruptcy or Legal Disability of a General
Partner, the Bankrupt or Legally Disabled General Partner was not the sole
General Partner of the Partnership, any remaining General Partner shall
immediately (i) give Notice to the Limited Partner of such Bankruptcy or Legal
Disability, (ii) make, execute and file such amendments
43
hereto or documents or instruments as are deemed necessary to reflect the
conversion of the Partnership Interest of the Bankrupt or Legally Disabled
General Partner and the General Partner having ceased to be a general partner.
Any remaining General Partner is hereby granted an irrevocable power of attorney
to execute any or all documents on behalf of the Partners and the Partnership
and to file such documents as may be required to effectuate the provisions of
this Article VII.
7.03. Removal of General Partner
(a) The Investment Corporation, subject to the approval of the ADFA/HOME if
required, shall have the right to remove any General Partner for intentional
misconduct, gross negligence or breach of fiduciary obligation to a Limited
Partner under the Act or hereunder, provided that any such conduct results in,
or is likely to result in, a material detriment to or an impairment of the
Apartment Development, other assets of the Partnership, or the rights or
benefits of the Investment Corporation, or upon the occurrence of any of the
following:
(i) allocation to the Investment Corporation of Tax Credit
substantially less than the amount of the Projected Credit;
(ii) commencement of foreclosure proceedings against the
Apartment Development;
(iii) violation in a material respect of any provisions of the
Construction Loan or Mortgage Loan, or any material provisions
of the ADFA/HOME or other governmental regulations, agreements
or law applicable to the Apartment Development, and such
violation shall continue for a period of 30 days after the
giving of written Notice thereof;
(iv) failure in a material way to assure the continued
accuracy of the General Partner's representations and
warranties under this Agreement or violation of any material
provision of this Agreement, including, without limitation,
(A) a violation of Partnership purposes or authority as set
forth in Sections 3.01 or 3.02, (B) violation of any
obligations of the General Partner under Article VI of this
Agreement (including, without limitation, (i) failure to pay
Excess Development Costs, make Operating Deficit Loans, or
44
provide the annual priority distribution as required under
Sections 6.08 or 6.09, or (ii) failure to remove the
Management Agent if so required under Section 6.13, (C)
failure to furnish tax returns to the Investment Corporation
for its approval prior to February 15 of any year pursuant to
Section 12.03 and 12.04, (D) termination of the Partnership
for federal income tax purposes without the Consent of the
Investment Corporation, (E) treatment of the Partnership for
federal income tax purposes as an association, taxable as a
corporation; or
(v) in the written opinion of counsel for the Investment
Corporation, the General Partner fails to meet the General
Partner's representations and warranties set forth in Section
4.01(h) (evidenced by a Notice to the General Partner to such
effect and based upon current financial statements of the
General Partner, which shall be promptly furnished to the
Investment Corporation at any time upon request).
(b) The Investment Corporation shall give Notice to all Partners of its
determination that the General Partner or any specific General Partner shall be
removed. The General Partner named in such Notice shall have 30 days after
receipt of such Notice to cure any default or other reason for such removal,
while remaining as General Partner (including, only in the event of a default
under subsection (a) above, the admission of a successor or additional General
Partner in compliance with Section 7.04). If at the end of 30 days such default
has not been cured to the satisfaction of the Investment Corporation, such
General Partner shall cease to be General Partner and the powers and authorities
conferred on such General Partner under this Agreement shall cease, and the
Partnership Interests of any such General Partner shall be transferred to an
un-Affiliated designee of the Investment Corporation, which designee shall
(after the removal of any General Partner) become a General Partner, or, at its
sole election, may nominate another person or organization to become a new
General Partner of the Partnership and upon its admission to the Partnership
pursuant to Section 7.04, such Person shall become a General Partner.
(c) Except in the event of a default under subsection (a)(v) above, the
Partnership Interest of any removed General Partner shall without further action
be terminated, and all of its rights to unpaid Development Services Fees (if
any), Net Cash Flow, Sale or Refinancing Proceeds or Liquidation Proceeds shall
be forfeited.
45
(d) The Investment Corporation hereby is granted an irrevocable power of
attorney, coupled with an interest, to execute any and all documents on behalf
of the Partners and the Partnership as shall be legally necessary and sufficient
to effect all of the foregoing provisions of this Section 7.03. An election by
the Investment Corporation to remove any General Partner hereunder shall not
limit or restrict the availability and use of any other remedy which the
Investment Corporation or any other Partner might have in connection with any
General Partner's undertakings and responsibilities under this Agreement, and
they are understood by the parties hereto to be permitted by the Act as the
exercise of powers not constituting participation in the control of the business
so as to convert the limited partner interest of the Investment Corporation into
a general partner interest for any purpose or to any extent.
7.04. Admission of a Successor or Additional General Partner
The General Partner may, at any time, designate additional Person(s) to be
General Partner(s), whose Partnership Interests shall be such as are agreed upon
by the General Partner and such additional Persons, provided that the
Partnership Interests of the Limited Partner shall not be affected thereby and
subject to the following conditions:
(a) Except in the case of the removal of any General Partner, the admission
of such Person shall have been Consented to by the General Partner or the
General Partner's successors and the Investment Corporation and, if required, by
the ADFA/HOME;
(b) any such successor or additional General Partner shall have accepted
and agreed to be bound by (i) all the terms and provisions of this Agreement by
executing a counterpart hereof and (ii) all the terms and provisions of the
Construction Loan or Mortgage Loan by executing a counterpart thereof;
(c) as evidence of the admission of any additional or successor General
Partner, this Agreement shall have been duly amended and (if required by the
Act, filed) and all other actions required by this Agreement or deemed necessary
by Counsel in connection therewith shall have been performed;
(d) if any successor or additional General Partner is a corporation, it
shall have provided the Partnership evidence satisfactory to Counsel of its
authority to become a General Partner, to do business in the State and to be
bound by the terms and provisions of this Agreement; and
(e) counsel for any incoming General Partner shall have rendered an opinion
that the admission of the successor or additional Person is in conformity with
the Act and that none of
46
the actions taken in connection with the admission of the successor or
additional General Partner will cause the termination or dissolution of the
Partnership or will cause it to be classified other than as a partnership for
federal income tax purposes.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
8.01. No Management Powers
No Limited Partner shall take part in the management or control of the
business of the Partnership nor transact any business in its name. Except as
otherwise expressly provided either in this Agreement or in the Act, no Limited
Partner shall have the power or authority to bind the Partnership or to sign any
agreement or document in the name of the Partnership. No Limited Partner shall
have any power or authority with respect to the Partnership except insofar as
the Consent of the Limited Partner shall be expressly required and except as
otherwise expressly provided either in this Agreement or in the Act, provided,
however, that if and to the extent permitted by the Act, the Investment
Corporation, in its capacity as a limited partner under the Act and without
being treated under the Act as a general partner for any purpose or to any
extent, shall have and may exercise the following powers:
(1) be a contractor for, or agent, or employee of the Partnership or the
General Partner;
(2) consult with and advise a General Partner with respect to the business
of the Partnership;
(3) act as surety for the Partnership or guarantee or assume one or more
specific obligations of the Partnership;
(4) take any action required or permitted by law to bring or pursue a
derivative action in the right of the Partnership;
(5) request or attend a meeting of Partners;
(6) propose, approve or disapprove, by voting, Consenting or otherwise, one
or more of the following matters:
(i) the dissolution and winding up of the Partnership;
(ii) the sale, exchange, lease, mortgage, pledge, or other
transfer of all or substantially all of the assets of the
Partnership;
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(iii) the occurrence of indebtedness by the Partnership other
than in the ordinary course of its business;
(iv) a change in the nature of the business;
(v) the removal of a General Partner or Limited Partner;
(vi) the admission of a General Partner or Limited Partner;
(vii) a transaction involving an actual or potential conflict
of interest between any General Partner and the Partnership
or the Limited Partner; or
(viii) an amendment to this Agreement or any Certificate of
Limited Partnership; or
(7) wind up the Partnership pursuant to Article XII.
8.02. Limitation on liability of Limited Partner
(a) The liability of the Limited Partner shall be limited to his Capital
Contribution as and when payable under the provisions of this Agreement. Except
as expressly provided by the Act, no Limited Partner or any limited or general
partner of a Limited Partner shall have any other liability to contribute money
to, or in respect of any debts, contracts or other liabilities or obligations
of, the Partnership, nor shall any Limited Partner or any limited or general
partner of a Limited Partner be personally liable for any debts, contracts or
other liabilities or obligations of the Partnership. No Limited Partner shall be
obligated to make loans to the Partnership.
(b) Notwithstanding anything to the contrary contained herein, except as
expressly provided by the Act, the partners, general or limited, of the
Investment Corporation shall have no personal liability to any of the parties to
this Agreement with regard to the representations and covenants extended, or
their obligations undertaken, by the Investment Corporation under this
Agreement, In the event the Investment Corporation shall be in default under any
of the terms of this Agreement, the sole recourse of any party hereto for any
indebtedness due hereunder, or for any damages resulting from any such default
by the Investment Corporation, shall be against the assets of the Investment
Corporation allocated to and remaining for
48
investment in the Partnership, provided, however, that under no circumstances
shall the liability of the Investment Corporation for any such default be in
excess of the amount of Capital Contribution payable by the Investment
Corporation to the Partnership under the terms of this Agreement at the time of
such default.
8.03. Other Activities
The Limited Partners may engage in or possess interests in other
business ventures of every kind and description for their own accounts,
including without limitation serving as general or limited partner of other
partnerships which own, either directly or through interests in other
partnerships, governmental housing projects similar to the Apartment
Development. Neither the Partnership nor any of the Partners shall have any
right by virtue of this Agreement in or to such other business ventures or to
the income or profits derived therefrom.
ARTICLE IX
TRANSFERS OF AND RESTRICTIONS ON TRANSFERS
OF INTERESTS OF LIMITED PARTNERSHIP
9.01. Purchase for Investment
(a) The Limited Partner hereby represents and warrants to the General
Partner and to the Partnership that the acquisition of its Partnership Interest
is made as principal for investment purposes only and not with a view to the
resale or distribution thereof, except insofar as the Securities Act of 1933,
Regulation D thereunder, and any applicable securities law of any state or other
jurisdiction, permit such acquisition to be made for the account of others or
with a view to the resale or distribution of such Interests.
(b) The Limited Partner agrees that it will not sell, assign or otherwise
transfer an Interest or any fraction thereof to any Person who does not
represent, warrant and agree that their acquisition of such interests or any
portion shall be made for investment purposes only and not with a view to resale
and distribution.
9.02. Restrictions on Transfer of Limited Partner's Interests
(a) Under no circumstances will any offer, sale, transfer, assignment,
hypothecation or pledge of the Limited Partner Interest be permitted unless the
General Partner and the Investment Corporation shall have Consented in their
sole discretion and given notice thereof.
49
(b) A Limited Partner whose Partnership Interest is being transferred shall
pay such reasonable expenses as may be incurred by the Partnership in connection
with such transfer.
(c) Any Person who is the assignee of a Limited Partner's Partnership
Interest, but does not become a Substitute Limited Partner, and desires to make
a further assignment of such Partnership Interest, shall be subject to all the
provisions of this Article IX to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of his Interest.
9.03. Admission of Substitute Limited Partner
(a) Subject to the other provisions of this Article IX, an assignee of the
Interest of a Limited Partner (which shall be understood to include any
purchaser, transferee, donee, or other recipient of any disposition of such
Interest) shall be deemed admitted as a Substitute Limited Partner of the
Partnership only upon the satisfactory completion of the following:
(i) Consent of the General Partner (which may be withheld in
the General Partner's sole discretion) and the Consent of the
ADFA/HOME, if required, shall have been given, which Consent
may be evidenced by the execution by the General Partner of an
amended Certificate (if required by the Act) evidencing the
admission of such Person as a Limited Partner;
(ii) the assignee shall have accepted and agreed to be bound
by the terms and provisions of this Agreement by executing a
counterpart thereof or an appropriate amendment hereto, and
such other documents or instruments as the General Partner may
require in order to effect the admission of such Person as a
Limited Partner;
(iii) the assignee shall have complied with Section 9.01(b);
(iv) if the assignee is a corporation, the assignee shall have
provided the General Partner with evidence satisfactory to
counsel for the Partnership of its corporate authority to
become a Limited Partner hereunder; and
(v) the assignee or the assignor shall have reimbursed the
Partnership for all reasonable expenses, including all
50
reasonable legal fees and recording charges, incurred by the
Partnership in connection with such assignment.
(b) For the purpose of allocation of Profits, Losses and Credits, and for
the purpose of distributing cash of the Partnership, a Substitute Limited
Partner shall be treated as having become, and as appearing in, the records of
the Partnership as a Partner as of the effective date of an amendment or
counterpart to this Agreement.
(c) The General Partner shall cooperate with the Person seeking to become a
Substitute Limited Partner by promptly preparing the documentation required by
this Section and promptly making any official filings, recordings and
publications.
ARTICLE X
PROFITS, LOSSES, CREDITS AND DISTRIBUTIONS
10.01 Capital Accounts
A Capital Account shall be maintained for each Partner, consisting of the
aggregate of (a) the amount of cash such partner has contributed to the
Partnership, (b) the fair market value of any property such Partner has
contributed to the Partnership net of liabilities assumed by the Partnership or
to which such property is subject and (c) the amount of profits and tax-exempt
income allocated to such Partner, less the aggregate of (w) the amount of losses
allocated to such Partner, (x) the amount of cash distributed to such Partner,
(y) the fair market value of any property distributed to such Partner net of
liabilities assumed by such Partner or to which such property is subject, and
(z) such Partner's share of any other expenditures which are not deductible by
the Partnership for federal income tax purposes or which are not allowable as
additions to the basis of Partnership property, and subject to such other
adjustments as may be required under the Code.
10.02. Determination of Profits, Losses and Credits
(a) Profits, Losses and Credits for all purposes of this Agreement shall be
determined in accordance with the provisions of Treasury Regulation Section
1.704-1(b), utilizing the accounting method followed by the Partnership for
federal income tax purposes, except that any adjustments made pursuant to
Section 754 of the Code shall not be taken into account. Every item of income,
gain, loss, deduction, credit or tax preference entering into the computation of
Profits, Losses and Credits or applicable to the period during which such
Profits, Losses and
51
Credits were realized, shall be considered allocated to each Partner in the same
proportion as Profits, Losses and Credits are allocated to such Partner.
Profits, losses and credits for tax purposes shall be allocated in the same
manner as Profits, Losses and Credits as set forth in this Article X, except as
provided in Section 10.02(i).
(b) Subject to the provisions of Section 10.02(c) and Section 10.04, each
Limited Partner shall be entitled to receive its share of all Profits, Losses
and Credits at the close of business on the last day of each year.
(c) For the year during which a Limited Partner is admitted to the
Partnership, there shall be allocated to each Limited Partner a share of the
Profits, Losses and Credits and Net Cash Flow beginning with the first day of
the month in which the Limited Partner is admitted to the Partnership.
(d) If there is a determination that Section 483 or Sections 1271 through
1288 (relating to imputed interest with respect to deferred payment sales of
property) or Section 7872 of the Code is applicable to any loan between a
Partner and the Partnership, any income or deduction of the Partnership
attributable to interest on such loan (whether stated or unstated) shall be
allocated solely to such Partner.
(e) If the deduction of all or a portion of any fee paid or accrued from
earnings of the Partnership to a Partner or an Affiliate of a Partner is
disallowed for federal income tax purposes by the Internal Revenue Service with
respect to a taxable year of the Partnership, the Partnership shall then
allocate to such Partner an amount of gross income of the Partnership for such
year equal to the amount of such fee with respect to which the deduction is
disallowed.
(f) If any Partner's Partnership Interest is reduced but not eliminated
because of the admission of new Partners or otherwise, or if any Partner is
treated as receiving any items of property described in Section 751(a) of the
Code, the Partner's interest in such items of Section 751(a) property shall not
be reduced, but shall be retained by the Partner so long as the Partner has a
Partnership Interest and so long as the Partnership has an interest in such
property.
(g) Notwithstanding any other provision of this Agreement, no allocation of
loss or deduction (or item thereof shall be made to a Partner if such allocation
would cause the deficit Capital Account balance of such Partner (excluding the
portion of such deficit balances that must be restored to the Partnership upon
liquidation) to exceed such Partner's share of Partnership Minimum Gain and
Partner Nonrecourse Debt Minimum Gain determined at the end of the Partnership
52
taxable year to which the allocation relates. For purposes of this Section, a
Partner's capital account shall be deemed to be reduced by Qualified Income
Offset Items.
(h) In the event any Partner unexpectedly receives any adjustments,
allocation or distributions described in Treasury Regulation Section 1.704-1
(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be
specially allocated to each such Partner in an amount and manner sufficient to
eliminate (to the extent required by the Regulations under Code Section 704(b))
the deficit balance in each such Partner's Capital Account as quickly as
possible. For purposes of this Section, a Partner's Capital Account shall be
deemed to be reduced by Qualified Income Offset Items.
(i) Notwithstanding the foregoing provisions of this Article X, income,
gain, loss and deduction with respect to property which has a variation between
its basis computed in accordance with Treasury Regulation Section 1.704-1(b) and
its basis computed for federal income tax purposes shall be shared among the
Partners so as to take account of such variation in a manner consistent with the
principles of Section 704(c) of the Code and Treasury Regulation Section
1.704-l(b)(2)(iv)(g).
(6) Tax credits under Section 42 of the Code shall be allocated among the
Partners in the same manner as the deductions attributable to the expenditures
creating the tax credit are allocated among the Partners in accordance with
Treasury Regulation section 1.704-1 (b)(4)(ii).
10.03. Allocation of Profits, Losses and Credits
(a) Subject to Sections 10.02 and 10.03(b) through 10.03(h) all Profits,
Losses and Credits shall be allocated 1% to the General Partner and 99% to the
Investment Corporation.
(b) Gains recognized by the Partnership upon the sale, exchange or other
disposition of all or any substantial portion of the property owned by the
Partnership shall be allocated as follows: (i) first, that portion of gains
(including any gains treated as ordinary income for federal income tax purposes)
which is equal in amount to such Partners' negative Capital Accounts shall be
allocated to the Partners with negative Capital Account balances, in proportion
to such balances, and (ii) second, gain in excess of the amount allocated under
(i) shall be allocated to the Partners in an amount necessary to increase their
Capital Accounts as nearly as possible to the amount of cash each Partner would
receive under Section 10.07 solely in its capacity as a Partner if the aggregate
balance of all Capital Accounts were cash available for distribution under such
Section.
53
(c) Losses recognized by the Partnership upon the sale, exchange or other
disposition of all or any substantial portion of the property owned by the
Partnership shall be allocated (i) first, to the extent and in such proportions
as shall be necessary such that, after giving effect thereto, the respective
balances in all Partners' Capital Accounts are proportionate to the Partners'
Interests in the Partnership; (ii) second, to the Partners until each Partner's
Capital Account equals his Capital Contribution to the Partnership; (iii) third,
to the Partners to the extent of and in proportion to each Partner's Capital
Account (after the adjustment in clause (ii)); and (iv) fourth, any remaining
loss to the Partners in accordance with the manner in which they bear the
economic risk of loss.
(d) Any portion of the gains treated as ordinary income for federal income
tax purposes under Sections 1245 and 1250 of the Code shall be allocated on a
dollar for dollar basis to those Partners to whom the items of Partnership
deduction or loss giving rise to the amount recaptured had been previously
allocated.
(e) If (i) the Partnership incurs recourse obligations or Partner
Nonrecourse Debt (including, without limitation, Operating Deficit Loans and the
Working Capital Loan made pursuant to Section 6.09) or (ii) the Partnership
incurs losses from extraordinary events which are not recovered from insurance
or otherwise (collectively, "Recourse Obligations") in respect of any
Partnership taxable year, then the calculation and allocation of profits and
losses shall be adjusted as follows: first, an amount of deductions attributable
to the Recourse Obligations shall be allocated to the General Partner with
respect to such obligations in the ratio in which the General Partner bears the
economic risk of loss, and second, the balance of such deductions shall be
allocated as provided in Section l0.03(a).
(f) If the General Partner shall make any payment to the Investment
Corporation pursuant to Section 6.09(a) in respect of any Partnership taxable
year, then the calculation and allocation of profits and losses shall be
adjusted as follows: first, an amount of deductions attributable to such payment
shall be allocated to the General Partner, and second, the balance of such
deductions shall be allocated as provided in Section 10.03(a).
(g) If there is a net decrease in Partnership Minimum Gain during a
Partnership taxable year, each Partner will be allocated items of income and
gain for such year (and, if necessary, subsequent years) in the proportion to,
and to the extent of, an amount equal to such Partner's share of the net
decrease in Partnership Minimum Gain during the year. A Partner
54
is not subject to this Partnership Minimum Gain chargeback to the extent that
any of the exceptions provided in Treasury Regulation Section 1. 704-2(fl(2)-(5)
apply. Such allocations shall be made in a manner consistent with the
requirements of Treasury Regulation Section 1.704-2(f) under Section 704 of the
Code.
(h) If there is a net decrease in Partner Nonrecourse Debt Minimum Gain
during a Partnership taxable year, then each Partner with a share of the minimum
gain attributable to such debt at the beginning of such year will be allocated
items of income and gain for such year (and, if necessary, subsequent years) in
proportion to, and to the extent of, an amount equal to such Partner's share of
the net decrease in Partner Nonrecourse Debt Minimum Gain during the year. A
Partner is not subject to this Partner Nonrecourse Debt Minimum Gain chargeback
to the extent that any of the exceptions provided in Treasury Regulation Section
1.704-2(i) (4) applied consistently with Treasury Regulation Section 1.
704-2(fl(2)-(5) apply. Such allocations shall be made in a manner consistent
with the requirements of Treasury Regulation Section 1. 704-2(i)(4) under
Section 704 of the Code.
10.04. Allocations in Case of Transfer of Interests
(a) In any year in which a Limited Partner sells, assigns or transfers all
or any portion of an Interest to any Person who, during such year, is admitted
as a Substitute Limited Partner, the share of all Profits, Losses and Credits
allocable to, and of all Net Cash Flow and Sale and Refinancing Proceeds and
Liquidating Proceeds distributable under Sections 10.06, 10.07 and 10.08, to any
such Substitute Limited Partner that is attributable to the Interest sold,
assigned or transferred, shall be allocated and distributed to the assignee from
and after the first day of the calendar month following the month in which the
assignee executes this Agreement as a Substitute Limited Partner, provided,
however, that the assignor and the assignee may by agreement make special
provisions for the allocation of items of Profits, Losses and Credits as may
from time to time be permitted under the Code, and for the distribution of Net
Cash Flow, Sale and Refinancing Proceeds and Liquidating Proceeds distributable
under Sections 10.06, 10.07 and 10.08, but such allocation shall be binding as
to the Partnership only after it shall have received Notice thereof from the
assignor and assignee.
(b) In any year in which, pursuant to Article VI, the Interest of a General
Partner shall terminate, the Profits, Losses and Credits allocable to and the
Net Cash Flow, Sale and Refinancing Proceeds and Liquidating Proceeds
distributable under Sections 10.06, 10.07 and 10.08, as applicable, shall be
allocated and distributed to the successor General Partner from and after the
first day of the calendar month following the month in which the termination of
the Interest of the predecessor General Partner occurred, provided, however,
55
that the terminating General Partner and any successor or remaining General
Partner may, by agreement, make such provisions for the allocation of Profits,
Losses and Credits and for the distribution of Net Cash Flow, Sale or
Refinancing Proceeds and Liquidation Proceeds as are permitted by the Code.
10.05. Authority of General Partner to Vary Allocations to Preserve and
Protect Partners' Intent
(a) It is the intent of the Partners that each Partner's distributive share
of income, gain, loss, deduction or credit (or item thereof shall be determined
and allocated in accordance with this Article X and Article V to the fullest
extent permitted by Section 704(b) of the Code. To preserve and protect the
determinations and allocations provided for in this Article X, the General
Partner is hereby authorized and directed to allocate Profits, Losses and
Credits (or items thereof) arising in any year differently from that otherwise
provided for in this Article X to the extent that allocating Profits, Losses and
Credits (or items thereof) in the manner provided for in Article X in the
opinion of Special Tax Counsel or the Accountants would cause the determinations
and allocations of each Partner's allocable share of Profits, Losses and Credits
(or items thereof) not to be permitted by Section 704(b) of the Code and
Treasury Regulations promulgated thereunder. Any allocation made pursuant to
this Section 10.05 shall be deemed to be a complete substitute for any
allocation otherwise provided for in this Article X and no formal amendment of
this Agreement or approval of any Partner shall be required. In making any New
Allocation under Section 10.05(a), the General Partner is to act only in
reliance upon the advice of the Accountants or Special Tax Counsel that, under
Section 704(b) of the Code and the Treasury Regulations thereunder, (i) the New
Allocation is necessary, and (ii) the New Allocation is the minimum modification
of the allocations otherwise provided for in this Article X necessary in order
to assure that, either in the then current year or in any preceding year, each
Partner's allocable share of Profits, Losses and Credits (or item thereof) is
determined and allocated in accordance with this Article X to the fullest extent
permitted by Section 704(b) of the Code and the Treasury Regulations thereunder.
(c) If the General Partner determines under Section 10.05(a) to make
any New Allocation in a manner less favorable to the Limited Partner than is
otherwise provided for in this Article X, then the General Partner is authorized
and directed, only after having received the Consent of the Investment
Corporation and insofar as they are advised by the Accountants or Special Tax
Counsel that it is permitted by Section 704(b) of the Code, to allocate Profits,
Losses and Credits (or items thereof) arising in later years in such manner so
56
as to bring the allocations of Profits, Losses and Credits (or items
thereof) to the Limited Partner as nearly as possible to the allocations thereof
otherwise contemplated by this Article X.
(d) New Allocations made by the General Partner under Section 10.05(a)
in reliance upon the advice of the Accountants and allocations made by the
General Partner under Section 10.05(c) in reliance upon the advice of the
Accountants or Special Tax Counsel shall be deemed to be made pursuant to the
fiduciary obligation of the General Partner to the Partnership and the Limited
Partner, and no such allocation shall give rise to any claim or cause of action
by the Limited Partner.
10.06. Distributions of Net Cash Flow
All Net Cash Flow of the Partnership for each calendar year shall be
distributed to all Partners simultaneously, but in the following order of
priority:
(a) to the General Partner, an annual management incentive fee in the
amount of $1,000, provided, however, that no such fee shall be paid in the event
that any provision of Section 12.04 has not been met; and
(b) the balance, 50% to the General Partner and 50% to the Limited Partner.
10.07. Distribution of Sale and Refinancing Proceeds
The net proceeds of a sale or refinancing including any third-party
equity loans provided pursuant to the U. S. Department of Housing and Urban
Development Reform Act of 1989, will be distributed in the following order of
priority: (i) first, payment of TCRA plus accrued interest to the Limited
Partner (this amount will be unconditionally guaranteed by the General Partner);
(ii) next, payment of a disposition fee of $2,000.00 to Landau; (iii) next,
payment of operating deficit loans made by and fees due Partners or affiliates ,
any such payments to be made in the proportion which the amount of such fees or
the principal amount of any such loans bears to the aggregate loans and fees
referred to in this clause; (iv) next, the remainder to be distributed according
to the following distribution, 99% to the General Partner and 1% to Landau.
10.08. Liquidation Proceeds
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Partnership, Liquidation
Proceeds shall be distributed to the Partners in accordance with the positive
balances in their Capital Accounts after taking into account all Capital Account
57
adjustments for the Partnership taxable year, including adjustments to
Capital Accounts pursuant to Sections 10.03 and 10.08(b). If a General Partner
has a negative balance in his Capital Account following the liquidation of the
Partnership or liquidation of his interest in the Partnership after taking into
account all Capital Account adjustments for the Partnership taxable year in
which the liquidation occurs, such General Partner shall pay to the Partnership
in cash an amount equal to the negative balance in his Capital Account. Such
payment shall be made by the end of such taxable year (or, if later, within 90
days after the date of such liquidation) and shall, upon liquidation of the
Partnership, be paid to recourse creditors of the Partnership or distributed to
other Partners in accordance with the positive balances in their Capital
Accounts.
(b) With respect to assets distributed in kind to the Partners in
liquidation or otherwise, (i) any unrealized appreciation or unrealized
depreciation in the values of such assets shall be deemed to be Profits, Losses
and Credits realized by the Partnership immediately prior to the liquidation or
other distribution event and (ii) such Profits, Losses and Credits shall be
allocated to the Partners in accordance with subsections (b) and (c) of Section
10.03; any property so distributed shall be treated as a distribution of an
amount in cash equal to the excess of such fair market value over the
outstanding principal balance of and accrued interest on any debt by which the
property is encumbered. For the purposes of this Section 10.08(b), "unrealized
appreciation" or "unrealized depreciation" shall mean the difference between the
fair market value of such assets, taking into account the fair market value of
the associated financing (but subject to Section 7701(g) of the Code), and the
Partnership's adjusted basis for such assets as determined under Regulation
Section 1.704-1(b). This Section 10.08(b) is intended to provide a rule for
allocating unrealized gains and losses upon liquidation or other distributions
to be treated as sales for value, and nothing contained in this Section 10.08(b)
or elsewhere herein is intended to treat or cause such distributions to be
treated as sales for value. The fair market value of such assets shall be
determined by an appraiser to be selected by the General Partner and the
Investment Corporation.
10.09. Tax Matters Partner
(a) The sole General Partner or, if there is more than one General Partner,
the Managing General Partner, hereby is designated as Tax Matters Partner of the
Partnership, and shall engage in such undertakings as are required of the Tax
Matters Partner of the Partnership, as provided in regulations pursuant to
Section 6231 of the Code. Each Partner, by the execution of this Agreement,
Consents to such designation of the Tax Matters Partner and agrees to execute,
certify, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents as may be necessary or appropriate to evidence
such Consent.
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(b) The Tax Matters Partner is hereby authorized, but not required,
subject to its fiduciary obligations to the Limited Partner:
(i) to enter into any settlement with the Internal Revenue
Service or the Secretary of the Treasury with respect to any
tax audit or judicial review, provided that the Tax Matters
Partner first receives the written consent of the Investment
Corporation to such settlement;
(ii) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into
account by a Partner for tax purposes (a "final adjustment")
is mailed to the Tax Matters Partner, to seek judicial review
of such final adjustment, including the filing of a petition
for readjustment, without the prior written Consent of the
Investment Corporation, with the Tax Court, the District Court
of the United States or the United States Claims Court;
(iii) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment with
said Secretary at any time and, if any part of such request is
not allowed by said Secretary, to file a petition for judicial
review with respect to such request;
(v) to enter into an agreement with the Internal Revenue
Service to extend the period for assessing any tax which is
attributable to any item required to be taken into account by
a Partner for tax purposes, or an item affected by such item;
and
(vi) to take any other action on behalf of the Partners or the
Partnership in connection with any administrative or judicial
tax proceeding to the extent permitted by applicable law or
regulations.
59
The Tax Matters Partner, however, shall take none of the above actions
without Notice to and the Consent of the Investment Corporation and shall
furnish the Investment Corporation copies of all relevant documents.
(c) The Partnership shall reimburse the Tax Matters Partner for all
expenses, including legal and accounting fees, claims, liabilities, losses and
damages, incurred in connection with any administrative or judicial proceeding
with respect to the tax liability of the Partners. The payment of all such
expenses shall be made as a priority distribution of Net Cash Flow or pursuant
to Section 10.07(d). Neither the General Partner, nor any Affiliate thereof, nor
any other Person shall have any obligation to provide funds for such purpose.
The taking of any action and the incurring of any expense by the Tax Matters
Partner in connection with any such proceeding, except to the extent required by
law, is a matter in the sole discretion of the Tax Matters Partner and the
provisions on limitations of liability of the General Partner and
indemnification set forth in Section 6.06 shall be fully applicable to the Tax
Matters Partner in his capacity as such.
10.10. Tax Accounting
In the event of a transfer of all or any part of the Interest of a General
Partner or of a Limited Partner (or the interest of any partner of the
Investment Corporation), the Partnership shall elect, if requested by the
Investment Corporation, pursuant to Sections 734, 743 and 754 of the Code (or
any corresponding provision of succeeding law), to adjust the basis of the
Partnership property if, in the opinion of the Investment Corporation, based
upon the advice of the Accountants, such election would be most advantageous to
the Investment Corporation. Each Partner agrees to furnish the Partnership with
all information necessary to give effect to such election. The Partnership,
however, shall take none of the above actions without prior Notice to and the
written Consent of the Investment Corporation and shall furnish the Investment
Corporation with copies of all relevant documents.
ARTICLE XI
DISSOLUTION AND LIQUIDATION
11.01. Dissolution of the Partnership
The Partnership shall be dissolved upon the earlier of (a) the
expiration of the term of the Partnership, or (b) the end of the Acompliance
period@, or (c) the election of the Investment Corporation pursuant to the Act,
or (d) upon the happening of any of the following:
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(i) the withdrawal, Bankruptcy or Legal Disability of a
General Partner who is, at that time, the sole General
Partner, unless the Partnership is reconstituted by agreement
of all their remaining partners within a 90-day period; or
(ii) any other event causing the dissolution of the
Partnership under the Act unless the Partnership is
reconstituted by agreement of all its remaining Partners
within a 90-day period.
11.02. Winding Up and Distribution
(a) Upon the dissolution of the Partnership pursuant to Section 11.01,
(i) a certificate of cancellation shall be filed in such offices within the
State as may be required or appropriate and (ii) the Partnership business shall
be wound up and its assets liquidated as provided in this Section 11.02 and the
net proceeds of such liquidation shall be distributed in accordance with Section
10.08.
(b) The Liquidator shall file all certificates and Notices of the
dissolution of the Partnership required by law. The Liquidator shall proceed
without any unnecessary delay to sell and otherwise liquidate the Partnership's
property and assets, provided, however, that if the Liquidator shall determine
that an immediate sale of part or all of the Partnership property would cause
undue loss to the Partners, then to avoid such loss, the Liquidator may, except
to the extent provided by the Act, defer the liquidation as may be necessary to
satisfy the debts and liabilities of the Partnership to Persons other than the
Partners. Upon the complete liquidation and distribution of the Partnership
assets, the Partners shall cease to be Partners of the Partnership, and the
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership.
(c) Upon the dissolution of the Partnership pursuant to Section 11.01,
the Accountants shall promptly prepare, and the Liquidator shall furnish to each
Partner, a statement setting forth the assets and liabilities of the Partnership
upon its dissolution. Promptly following the complete liquidation and
distribution of the Partnership property and assets, the Accountants shall
prepare, and the Liquidator shall furnish to each Partner, a statement showing
the manner in which the Partnership assets were liquidated and distributed.
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ARTICLE XII
BOOKS AND RECORDS, ACCOUNTING, TAX ELECTIONS, ETC.
12.01. Books and Records
The books and records of the Partnership shall be maintained on an accrual
basis in accordance with sound federal income tax accounting principles. The
General Partner shall comply with all document retention requirements of the
State Agency, the ADFA/HOME and the IRS relating to Qualifying Individuals or
any other aspect of the Apartment Development. These and all other records of
the Partnership, including information relating to the status of the Apartment
Development and information with respect to the sale by the General Partner or
any Affiliate of goods or services to the Partnership, shall be kept at the
principal office of the Partnership and shall be available for examination there
by any Partner, or his duly authorized representative, or any limited partner of
the Investment Corporation, at any and all reasonable times. Any Partner, or his
duly authorized representative, upon paying the costs of collection, duplication
and mailing, shall be entitled to a copy of the name and address of each Limited
Partner.
12.02. Bank Accounts
(a) All funds of the Partnership not otherwise invested shall be deposited
in Horizon Bank, and withdrawals shall be made only in the regular course of
Partnership business on such signature or signatures as the General Partner may,
from time to time, determine. No funds of the Partnership shall be deposited in
any financial institution in which any Partner is an officer, director or holder
of any proprietary interest.
(b) The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in the immediate possession or control of the General Partner. The funds of the
Partnership shall not be commingled with the funds of any other Person, and the
General Partner shall not employ, nor permit any other Person to employ, such
funds in any manner except for the benefit of the Partnership.
12.03. Accountants
The Accountants shall be such firm of certified public accountants as
shall be designated by the General Partner. The Accountants shall annually
prepare for execution by the General Partner all tax returns of the Partnership
with all supporting schedules and shall annually review or audit the books of
the Partnership as required by the ADFA/HOME. The Accountants shall
62
prepare ADFA/HOME Forms 1930-7 and 1930-8 together with any related
financial statements including a copy of all adjustments, reconciling the
financial statements submitted to the ADFA/HOME to the tax return. The
Investment Corporation expressly reserves the right to direct the General
Partner to remove the Accountants if in its sole discretion there has been
evidence of malfeasance on the part of the Accountants.
12.04. Reports to Partners
(a) In addition to the reporting requirements set forth in Section 6.14,
by March 10 of every year, the General Partner shall furnish to the Investment
Corporation:
(i) a copy of the Partnership's federal income tax returns,
including all schedules, for the Investment Corporation's
approval prior to filing, making such elections on IRS form
8609 as directed by any accountants for the Investment
Corporation;
(ii) copies of paid tax bills and paid bills for insurance
premiums;
(iii) a statement describing all transactions during the year
between the Partnership and the General Partner and Investment
Corporation which shall include a schedule showing all amounts
payable or paid during such year to the aforementioned
parties;
(iv) a copy of the Accountants' detailed depreciation schedule
as of December 31;
(v) a reconciliation of Partners' capital accounts as of
December 31 which details the Capital Contribution and
distributions to General and Limited Partners;
(vi) a schedule of amounts due to/from General and Limited
Partners as of December 31;
(vii) a reconciliation of the reserve account as of December
31; and
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(viii) an annual financial statement of each corporate General
Partner, if any, prepared by an accountant, with (1) a balance
sheet prepared on a "classified basis", (2) income statement
prepared on a "classified basis", (3) statement of cash flow,
(4) notes to financial statements, (5) and a balance
sheet prepared on a "classified basis" of every other limited
partnership of which the corporate General Partner is a
partner; and
The General Partner shall also mail:
(ix) by March 10 of every year, to all Persons who were
Partners at any time during the Partnership's prior fiscal
year, all tax information regarding the Partnership and its
operations during the prior fiscal year which are reasonably
necessary to the Partners for the preparation of their tax
returns, together with a report of the Accountants containing
financial statements as furnished to the ADFA/HOME certified
by the General Partner, and a report of the General Partner
with respect to the Partnership and its operations during the
prior fiscal year, including a statement of cash flow (i.e. a
reconciliation of the balance sheet and income statement) and
a calculation of the cash flow available to the Partners; and
(x) by November 1 of every year, beginning with the calendar
year first above written, to all Persons who are or have been
Partners at any time during the Partnership's current fiscal
year, preliminary tax information regarding the Partnership
and its operations during the current fiscal year, to the
extent that the tax credits and results of operations are
expected to be more than ten percent different from the
preceding year or as projected.
(b) Any expense for such returns or reports shall be paid out of the
assets of the General Partner, to the extent not included in the
ADFA/HOME-approved budget.
(c) All Partners shall have the right and power to examine and copy, at
any and all reasonable times, the books, records and accounts of the
Partnership.
(d) Any Partner shall have the right to object to the Accountant's reports
by giving Notice to the other Partners within 15 days after any such report is
received by such Partner, setting forth in reasonable detail the objections of
such Partner and the basis for such objections.
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12.05. Fiscal Year and Accounting Method
The fiscal year of the Partnership shall be the calendar year. All
Partnership accounts shall be determined on the accrual basis.
ARTICLE XIII
GENERAL PROVISIONS
13.01. Arbitration. Any dispute, controversy or claim arising out of or
in connection with or relating to this Agreement or any breach or alleged breach
hereof shall, upon the request of any party involved, be submitted to and
settled by arbitration in the State pursuant to the Commercial Arbitration Rules
then in effect of the American Arbitration Association (or at any other place or
under any other form of arbitration rules mutually acceptable to the parties so
involved). Any award rendered shall be final and conclusive upon the parties and
a judgment thereon may be entered in the highest court of the forum, state or
federal, having jurisdiction. The expenses of the arbitration shall be borne
equally by the parties to the arbitration, provided that each party shall pay
for and bear the cost of its own experts, evidence and counsel's fees, except
that in the discretion of the arbitrators any award may include the cost of a
party's counsel if the arbitrator expressly determines that the party against
whom such award is entered has caused the dispute, controversy or claim to be
submitted to arbitration as a dilatory tactic.
13.02. Amendments. No modification shall be made to this Agreement except
by written amendment signed by all Partners, provided, however, that in the case
of a scrivener s error acknowledged as such by the General Partner or Counsel
for the Partnership and by the Investment Corporation, this Agreement shall be
amended to correct such error, and if required as a result thereof under the
Act, the amendment shall be promptly filed or recorded.
13.03. Burden and Benefit. The covenants and agreements contained
herein shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and (to the extent permitted hereunder) assigns of
the respective parties hereto.
13.04. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State.
13.05. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
65
which together shall constitute one agreement binding on all parties
hereto, notwithstanding that all the parties shall not have signed the same
counterpart.
13.06. Severability of Provisions. Each provision of this Agreement shall
be considered severable and if for any reason any provision which is not
essential to the effectuation of the basic purposes of this Agreement is
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those provisions of this
Agreement which are valid.
13.07. Entire Agreement. This Agreement sets forth all (and is intended by
all parties to be an integration of all) the representations, promises,
agreements and understandings among the parties hereto with respect to the
Partnership, the Partnership business and the property of the Partnership, and
there are no representation s, promises, agreements or understandings, oral or
written, express or implied, among them other than as set forth or incorporated
herein.
13.08. Use of Singular and Plural. All uses of singular and plural herein,
generally, shall be deemed to read as the context may require.
13.09. Notices to the Investment Corporation. Any Notice required by the
provisions of this Agreement to be given to the Investment Corporation shall be
addressed as follows:
Landau
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
P. ▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
IN WITNESS WHEREOF, the parties have affixed their signatures and seals to
this Agreement as of the date first written above.
GENERAL PARTNER:
WITNESS: MURFREESBORO INDUSTRIAL
DEVELOPMENT CORPORATION
BY:
ITS PRESIDENT
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LIMITED PARTNER:
LANDAU
WITNESS:
By
IT'S AUTHORIZED AGENT
67
EXHIBIT A
MURFREESBORO VILLAS LIMITED PARTNERSHIP
PROJECTED CREDIT
1998 93,064.17
1999 111,677.00
2000 111,677.00
2001 111,677.00
2002 111,677.00
2003 111,677.00
2004 111,677.00
2005 111,677.00
2006 111,677.00
2007 111,677.00
2008 18,612.83
TOTAL 1,116,770.00
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EXHIBIT B
PROJECT DOCUMENTS (For 515 Projects - New Construction)
STAGE 1: PRIOR TO CONSTRUCTION CLOSING
TAX All Tax Credit documents with state agency:
application, reservation,
carryover allocation
B1 Estimate and Certificate of Actual Cost (form
#1924-13), fully executed.
B2 Statement of Budget and Cash Flow executed by
ADFA/HOME.
B3-B4 Obligation of Funds (signed by ADFA/HOME).
B6 Utility Allowances.
B7 Identification number of partnership (federal I.D. number).
B8-B9 Construction contract and architect's contract
(executed by ADFA/HOME).
B10-B14 Name/address/telephone number of partnership's
accounting and law firms,
managing agent, ADFA/HOME district loan officer,
and construction lender.
B15 Original partnership agreement and all amendments
showing filing date.
B16 Liability/casualty policies or (prior to
construction) binders.
B19-B20 Construction Loan commitment and ADFA/HOME Closing
Instructions.
B2 1 ADFA/HOME Loan Agreement.
B22 Option to purchase.
4NY-F6 Registrant Information Form and GP Questionnaire.
B23 For Individual General Partner: Current statement
of financial condition which should include a breakout of
current assets and liabilities and a statement signed by the
General Partner(s) reasonably similar to "I
certify that the above statement contained herein as a true
and accurate statement of my financial condition as of
the date states herein."
For Corporate General Partner: Current financial statement
of the general partners prepared by an accountant with (i)
balance sheet prepared on a
classified" basis, (ii) income statement prepared on a
"classified" basis, (iii) statement of cash flow, (iv)
notes to financial statements, and a list of all other
limited partnerships in which the corporate
general partner is a general partner
with a balance sheet of each prepared by an accountant on a
"classified" basis showing capital contributions, including
complete information on any contingent liabilities.
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B24 ADFA/HOME Previous Participation Certificate.
B25 Resume or biographical sketch of G.P. (for a
corporate G.P., please include articles of
incorporation and corporate bylaws, certificate of
good standing, latest annual financial statement,
prepared by an accountant with (i) balance sheet
prepared on a "classified" basis, (ii) income
statement prepared on a "classified" basis, (iii)
statement of cash flow, (iv) notes on financial
statements, or, for a partnership as G.P., all filed
agreements and amendments).
F6a Market study or survey (as submitted to
ADFA/HOME).
F6a Community Profile (on form provided).
STAGE 2: CONSTRUCTION CLOSING
B40 Fully executed promissory note.
B4 1 Recorded mortgage or deed of trust.
B42 Fully executed side agreements.
B43 Evidence of recent construction draw or Architect's
certification that construction has begun.
B45 Owner's title insurance binder.
B47 Deed (recorded).
B49 Property management contract (executed by ADFA/HOME).
STAGE 3: FINAL CLOSING
B50 Fully executed promissory note.
B5 1 Recorded mortgage or deed of trust.
B52 Fully executed side agreements.
B58 Owner's title insurance policy.
B59 Certificate of Occupancy or equivalent (as applicable for
locality).
B60 Certificate of Actual Cost with accountant's certification
attached or all Partial Payment Requests and Statement of
Deposits and Withdrawals from ADFA/HOME (if there Is not an
identity of interest and 1924-13 is not available).
STAGE 4: INITIAL RENT-UP
F4 ADFA/HOME Tenant Certifications (as they become available).
TAX IRS Form 8609 and extended use agreement.
PHOTOS Photos of landscaped project (include negatives).
PARTNERSHIP DOCUMENTS
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- Recorded Limited Partnership Agreement
- Development and Administration Agreement
- Consultation Agreement
- Legal Opinion
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April 13, 1998
E-MAIL
▇▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
EXHIBIT C: FORM OF LEGAL OPINION
Landau
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Murfreesboro Villas Limited Partnership
Gentlemen:
We represent Murfreesboro Villas Limited Partnership, an Arkansas limited
partnership (the "Partnership") in which Landau (the "Investment Corporation")
has acquired certain limited partnership interests as set forth in the Agreement
of Limited Partnership of the Murfreesboro Villas Limited Partnership dated as
of August 1, 1997 (the "Partnership Agreement").
Based upon our review of the (i) Partnership Agreement, (ii) Title Insurance
Policy No. 822-489872 issued by Guaranty Abstract & Title Company (the "Title
Policy"), (iii) the documents evidencing the obligation of Arkansas Development
Finance Authority("ADFA/HOME") and Diamond State Bank to provide loans totaling
$632,019.00 to the Partnership (the "Mortgage Loan") to be secured by the
Partnership's property located in Murfreesboro, Arkansas under development as a
24-unit apartment development known as Murfreesboro Villas (the "Apartment
Development"), and (iv) such other documents or instruments as we deem
appropriate, it is our opinion that:
(a) The Partnership is a validly organized and existing limited
partnership under the laws of the State of Arkansas, with full power and
authority to own its properties and other assets and to transact the business in
which it is engaged and is duly
72
▇▇▇▇▇▇ ▇.▇. May 2, 1997
qualified to do business in all states in which it is transacting business;
(b) the Partnership Agreement is a valid and binding agreement,
enforceable in accordance with its terms, has not been amended except as
otherwise noted herein, and has been duly executed by the General Partner and
each Limited Partner of the Partnership;
(c) the Partnership Agreement has been filed with the
Secretary of State of the State of Arkansas as of August 1, 1997;
(d) the General Partner of the Partnership has undertaken all acts,
including, without limitation, the filing of all certificates and the payment of
all fees, taxes and other sums necessary to operate the Partnership as a limited
partnership in the State;
(e) Under the Revised Limited Partnership Act of the State of Arkansas,
limited partners have no personal liability for the debts or obligations of the
Partnership other than for the Capital Contributions agreed to be made by them
pursuant to the Partnership Agreement and their respective shares of
undistributed profits of the Partnership, except that pursuant to the Act (i)
any participation in or control of the business of the Partnership by them may
result in such liability, (ii) any limited partner may be held liable to the
Partnership at any time thereafter for the amount of any returned Capital
Contribution, and (iii) limited partners may be liable for the return of
distributions made to them by the Partnership under applicable federal
bankruptcy statutes and state fraudulent conveyance statutes;
(f) based upon our review of all documents in the chain of title, the
Partnership has fee simple, good and marketable legal title to the Apartment
Development, subject only to the Mortgage and such other liens, charges,
easements, restrictions and encumbrances as are set forth in the Title Policy,
which stated exceptions to title do not interfere with the use of the Apartment
Development for its intended purpose or have a material adverse effect on the
value of the Apartment Development and are acceptable to the ADFA/HOME;
(g) no General or Limited Partner or Related Persons have, or will
have, any personal liability or otherwise bear the economic risk of loss for the
payment of principal or interest on the Mortgage Loan;
73
(h) the Mortgage Loan from Diamond State Bank will be amortized over a
15-year period, bearing interest at the rate of 9.0% per annum and the Mortgage
Loan from ADFA/HOME will be amortized over 35 years at an effective interest
rate of 1.0%;
(i) the Partnership, as owner of the Apartment Development, is
estimated to receive, based upon the State Agency=s receipt of an application
for Tax Credit in the annual amount of $111,677.00, a Tax Credit in the total
amount of $1,116,770.00 (with final amount to be determined at closing);
(j) to the best of our knowledge, we are not aware of any action, suit,
proceeding or investigation now pending or threatened against the Partnership or
the General Partner in any court or by or before the ADFA/HOME or other any
governmental instrumentality or before any arbitration tribunal, the outcome of
which might materially and adversely affect the operations, business, properties
or other assets or condition (financial or otherwise) of the Partnership or the
General Partner; and
(k) to the best of our knowledge, we are not aware of any violation of
the representations, warranties and covenants of the General Partner as set
forth in the Partnership Agreement, and to the best of our knowledge, all such
representations, warranties and covenants are true and correct.
This opinion is delivered in connection with the acquisition by the
Investment Corporation of a limited partner interest in the Partnership and is
based only upon the foregoing premises and is subject to the accuracy of the
documents and statements upon which we have relied and to the limited scope and
extent of our investigation.
We have acted as counsel to the Partnership in connection with the
organization of the Partnership and the closing of the Mortgage Loan with the
ADFA/HOME and Diamond State Bank.
All capitalized terms used but not defined herein shall have the same
meaning as defined in the Partnership Agreement.
The foregoing opinion is given for the benefit of and may be relied
upon by you and your counsel (including Special Tax Counsel) only, and may not
be relied upon by any other party.
Very truly yours,
WRIGHT, CHANEY, ▇▇▇▇▇ & ▇▇▇▇▇▇, P.A.
K. ▇▇▇▇▇▇ ▇▇▇▇▇▇
KLD/ch
75