AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
KETTLE RIVER TOWNHOMES LIMITED PARTNERSHIP
DATED AS OF DECEMBER 14, 2004
TABLE OF CONTENTS
Page
Article I. DEFINITIONS.........................................................2
Article II. NAME..............................................................16
Article III. PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE.....................16
Section 3.1 Principal Executive Office..............................16
Section 3.2 Agent for Service of Process............................16
Article IV. PURPOSE...........................................................17
Section 4.1 Purpose of the Partnership..............................17
Section 4.2 Authority of the Partnership............................17
Article V. TERM...............................................................17
Article VI. GENERAL PARTNER'S CONTRIBUTIONS AND LOANS.........................18
Section 6.1 Capital Contribution of General Partner.................18
Section 6.2 Construction Obligations................................18
Section 6.3 Operating Obligations...................................18
Section 6.4 Other General Partner Loans.............................19
Article VII. CAPITAL CONTRIBUTIONS OF LIMITED PARTNER AND SPECIAL LIMITED
PARTNER.......................................................................19
Section 7.1 Original Limited Partners...............................19
Section 7.2 Capital Contribution of Limited Partner and Special
Limited Partner.........................................19
Section 7.3 Repurchase of Limited Partner's and Special Limited
Partner's Interests.....................................23
Section 7.4 Adjustment of Capital Contributions.....................23
Section 7.5 Return of Capital Contribution..........................25
Section 7.6 Liability of Limited Partner and Special Limited
Partner.................................................26
Article VIII. WORKING CAPITAL AND RESERVES....................................26
Section 8.1 Replacement and Reserve Account.........................26
Section 8.2 Operating and Maintenance Account.......................26
Section 8.3 Tax and Insurance Account...............................26
Section 8.4 Intentionally omitted...................................27
Section 8.5 Other Reserves..........................................27
Article IX. MANAGEMENT AND CONTROL............................................27
Section 9.1 Power and Authority of General Partner..................27
Section 9.2 Payments to the General Partners and Others.............28
Section 9.3 Specific Powers of the General Partner..................29
Section 9.4 Authority Requirements..................................30
Section 9.5 Limitations on General Partner's Power and Authority....30
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Section 9.6 Restrictions on Authority of General Partner............32
Section 9.7 Duties of General Partner...............................33
Section 9.8 Obligations to Repair and Rebuild Apartment Housing.....35
Section 9.9 Partnership Expenses....................................36
Section 9.10 General Partner Expenses................................36
Section 9.11 Other Business of Partners..............................37
Section 9.12 Covenants, Representations and Warranties...............37
Section 9.13 Intentionally omitted...................................41
Section 9.14 Option to Acquire.......................................41
Section 9.15 Right of First Refusal..................................42
Article X. ALLOCATIONS OF INCOME, LOSSES AND CREDITS..........................43
Section 10.1 General.................................................43
Section 10.2 Allocations From Sale or Refinancing....................43
Section 10.3 Special Allocations.....................................44
Section 10.4 Curative Allocations....................................46
Section 10.5 Other Allocation Rules..................................47
Section 10.6 Tax Allocations: Code Section 704(c)....................48
Section 10.7 Allocation Among Limited Partners.......................48
Section 10.8 Allocation Among General Partners.......................48
Section 10.9 Modification of Allocations.............................49
Article XI. DISTRIBUTION......................................................49
Section 11.1 Distribution of Net Operating Income....................49
Section 11.2 Distribution of Sale or Refinancing Proceeds............49
Article XII. TRANSFERS OF LIMITED PARTNER'S AND SPECIAL LIMITED PARTNER'S
INTERESTS IN THE PARTNERSHIP..................................................50
Section 12.1 Assignment of Interests.................................50
Section 12.2 Effective Date of Transfer..............................51
Section 12.3 Invalid Assignment......................................51
Section 12.4 Assignee's Rights to Allocations and Distributions......51
Section 12.5 Substitution of Assignee as Limited Partner or Special
Limited Partner.........................................51
Section 12.6 Death, Bankruptcy, Incompetency, etc., of a Limited
Partner.................................................52
Article XIII. WITHDRAWAL, REMOVAL AND REPLACEMENT OF GENERAL PARTNER..........52
Section 13.1 Withdrawal of General Partner...........................52
Section 13.2 Removal of General Partner..............................52
Section 13.3 Effects of a Withdrawal.................................54
Section 13.4 Successor General Partner...............................56
Section 13.5 Admission of Additional or Successor General Partner....56
Section 13.6 Transfer of Interest....................................57
Section 13.7 No Goodwill Value.......................................57
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Article XIV. BOOKS AND ACCOUNTS, REPORTS, TAX RETURNS, FISCAL YEAR AND
BANKING.......................................................................57
Section 14.1 Books and Accounts......................................57
Section 14.2 Accounting Reports......................................58
Section 14.3 Other Reports...........................................59
Section 14.4 Late Reports............................................61
Section 14.5 Site Visits.............................................61
Section 14.6 Tax Returns.............................................61
Section 14.7 Fiscal Year.............................................61
Section 14.8 Banking.................................................62
Section 14.9 Certificates and Elections..............................62
Article XV. DISSOLUTION, WINDING UP, TERMINATION AND LIQUIDATION OF THE
PARTNERSHIP...................................................................62
Section 15.1 Dissolution of Partnership..............................62
Section 15.2 Return of Capital Contribution upon Dissolution.........62
Section 15.3 Distribution of Assets..................................63
Section 15.4 Deferral of Liquidation.................................64
Section 15.5 Liquidation Statement...................................64
Section 15.6 Certificates of Dissolution; Certificate of Cancellation
of Certificate of Limited Partnership...................64
Article XVI. AMENDMENTS.......................................................65
Article XVII. MISCELLANEOUS...................................................65
Section 17.1 Voting Rights...........................................65
Section 17.2 Meeting of Partnership..................................66
Section 17.3 Notices.................................................66
Section 17.4 Successors and Assigns..................................66
Section 17.5 Recording of Certificate of Limited Partnership.........67
Section 17.6 Amendment of Certificate of Limited Partnership.........67
Section 17.7 Counterparts............................................67
Section 17.8 Captions................................................68
Section 17.9 Saving Clause...........................................68
Section 17.10 Certain Provisions......................................68
Section 17.11 Tax Matters Partner.....................................68
Section 17.12 Expiration of Compliance Period.........................69
Section 17.13 Number and Gender.......................................70
Section 17.14 Entire Agreement........................................70
Section 17.15 Governing Law...........................................70
Section 17.16 Attorney's Fees.........................................70
Section 17.17 Receipt of Correspondence...............................70
Section 17.18 Security Interest and Right of Set-Off..................70
Article XVIII. USDA RURAL DEVELOPMENT REGULATIONS.............................70
EXHIBIT A Legal Description
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EXHIBIT B Form of Legal Opinion
EXHIBIT C Certification and Agreement
EXHIBIT D Form of Completion Certificate
EXHIBIT E Accountant's Certificate
EXHIBIT F Contractor's Certificate
EXHIBIT G Depreciation Schedule
EXHIBIT H Report of Operations
EXHIBIT I Survey of Requirements
[List of Agreements Attached]
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AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
KETTLE RIVER TOWNHOMES limited partnership
This Amended and Restated Agreement of Limited Partnership is being entered
into effective as of the date written below by and between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
CO., INC. ("CGC"), a Minnesota corporation, ▇.▇. ▇▇▇▇▇▇▇ CO., INC. ("MFC"), a
Minnesota corporation, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ CO., INC. ("RBC"), a Minnesota
corporation, collectively as the general partners (the "General Partner"), WNC
HOLDING, LLC, a California limited corporation, as the limited partner (the
"Limited Partner"), WNC HOUSING, L.P., a California limited partnership, as the
special limited partner (the "Special Limited Partner"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as the withdrawing limited partners (the
"Original Limited Partners").
RECITALS
WHEREAS, KETTLE RIVER TOWNHOMES LIMITED PARTNERSHIP, a Minnesota limited
partnership (the "Partnership") recorded a certificate of limited partnership
with the Minnesota Secretary of State on April 6, 2004. An agreement of limited
partnership dated March 29, 2004 was entered into by and between the General
Partner and the Original Limited Partners (the " Partnership Agreement").
WHEREAS, the Partners desire to enter into this Agreement to provide for,
among other things, (i) the continuation of the Partnership, (ii) the admission
of the Limited Partner and the Special Limited Partner as partners of the
Partnership, (iii) the liquidation of the Original Limited Partners' Interest in
the Partnership, (iv) the payment of Capital Contributions by the Limited
Partner and the Special Limited Partner to the Partnership, (v) the allocation
of Income, Losses, Tax Credits and distributions of Net Operating Income and
other cash funds of the Partnership among the Partners, (vi) the determination
of the respective rights, obligations and interests of the Partners to each
other and to the Partnership, and (vii) certain other matters.
WHEREAS, the Partners desire hereby to amend and restate the Partnership
Agreement.
NOW, THEREFORE, in consideration of their mutual agreements herein set
forth, the Partners hereby agree to amend and restate the Original Partnership
Agreement in its entirety to provide as follows:
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ARTICLE I.
DEFINITIONS
"Accountant" shall mean ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, Ltd., or such other firm
of independent certified public accountants as may be engaged for the
Partnership by the General Partner with the Consent of the Special Limited
Partner. Notwithstanding any provision of this Agreement to the contrary, the
Special Limited Partner shall have the discretion to dismiss the Accountant for
cause if such Accountant fails to provide, or untimely provides, or inaccurately
provides, the information required in Section 14.2 or Section 14.3 of this
Agreement.
"Act" shall mean the laws of the State governing limited partnerships, as
now in effect and as the same may be amended from time to time.
"Actual Tax Credit" shall mean as of any point in time, the total amount of
the LIHTC actually allocated by the Partnership to the Limited Partner and not
subsequently recaptured or disallowed, representing 99.98% of the LIHTC actually
received by the Partnership, as shown on the applicable tax returns of the
Partnership.
"Adjusted Capital Account Deficit" shall mean with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant fiscal period, after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such Partner is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(b) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
"Affiliate" shall mean (a) any Person directly or indirectly controlling,
controlled by, or under common control with another Person; (b) any Person
owning or controlling 10% or more of the outstanding voting securities of such
other Person; (c) any officer, director, trustee, or partner of such other
Person; and (d) if such Person is an officer, director, trustee or general
partner, any other Person for which such Person acts in any such capacity.
"Agreement" or "Partnership Agreement" shall mean this Amended and Restated
Agreement of Limited Partnership, as it may be amended from time to time. Words
such as "herein," "hereinafter," "hereof," "hereto," "hereby" and "hereunder,"
when used with reference to this Agreement, refers to this Agreement as a whole,
unless the context otherwise requires.
"Apartment Housing" shall collectively mean the Kettle River Townhomes
located on approximately 0.85 acres of land at ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, as more fully described in Exhibit A attached hereto and
incorporated herein by this reference, and the Improvements.
"Architect of Record" shall mean JSSH Architects, Inc. The General Partner,
on behalf of the Partnership, shall enter into a contract with the Architect of
Record to perform certain duties and responsibilities including, but not limited
to: designing the Improvements; preparing the construction blueprints, preparing
the property specifications manual; contracting for administrative services;
completing the close-out procedures; inspecting for and overseeing resolution of
the Contractor's final punch list; receiving and approving operations and
maintenance manuals; and collecting, reviewing, approving and forwarding to the
Partnership all product, material and construction warranties.
"Asset Management Fee" shall have the meaning set forth in Section 9.2(d)
hereof.
"Assignee" shall mean a Person who has acquired all or a portion of the
Limited Partner's or the Special Limited Partner's beneficial interest in the
Partnership and who has not been substituted in the stead of the transferor as a
Partner.
"Bankruptcy" or "Bankrupt" shall mean the making of an assignment for the
benefit of creditors, becoming a party to any liquidation or dissolution action
or proceeding other than as a creditor, the commencement of any bankruptcy,
reorganization, insolvency or other proceeding for the relief of financially
distressed debtors, the appointment of a receiver, liquidator, custodian or
trustee, or the discounted settlement of substantially all the debts and
obligations of a debtor; and, if any of the same occur involuntarily, the same
not being dismissed, stayed or discharged within 90 days; or the entry of an
order for relief under Title 11 of the United States Code. A Partner shall be
deemed Bankrupt if any of the above has occurred to that Partner.
"Breakeven Operations" shall mean at such time as the Partnership has Cash
Receipts in excess of Cash Expenses, as determined by the Accountant and
approved by the Special Limited Partner. For purposes of this definition; (a)
any one-time up-front fee paid to the Partnership from any source shall not be
included in Cash Receipts to calculate Breakeven Operations; (b) Cash Expenses
shall include the amount of any outstanding Partnership obligations and any
management fee or portion thereof which is currently deferred and not paid; and
(c) Cash Expenses shall include the amount of any reserve required to be funded
in accordance with Article VIII that is currently deferred and not paid.
"Budget" shall mean the annual operating budget of the Partnership as more
fully described in Section 14.3 of this Agreement.
"Capital Account" shall mean, with respect to each Partner, the account
maintained for such Partner comprised of such Partner's Capital Contribution as
increased by allocations to such Partner of Partnership Income (or items
thereof) and any items in the nature of income or gain which are specially
allocated pursuant to Section 10.3 or Section 10.4 hereof, and decreased by the
amount of any Distributions made to such Partner, and allocations to such
Partner of Partnership Losses (or items thereof) and any items in the nature of
expenses or losses which are specially allocated pursuant to Section 10.3 or
Section 10.4 hereof. In the event of any transfer of an interest in the
Partnership in accordance with the terms of this Agreement, the transferee shall
3
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest. The foregoing definition and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Treasury Regulations Section 1.704-1(b), as amended or any successor
thereto, and shall be interpreted and applied in a manner consistent with such
Treasury Regulations.
"Capital Contribution" shall mean the total amount of money, or the Gross
Asset Value of property contributed to the Partnership, if any, by all the
Partners or any class of Partners or any one Partner as the case may be (or by a
predecessor-in-interest of such Partner or Partners), reduced by any such
capital which shall have been returned pursuant to Section 7.3, Section 7.4, or
Section 7.5 of this Agreement. A loan to the Partnership by a Partner shall not
be considered a Capital Contribution.
"Cash Expenses" shall mean all operating obligations of the Partnership
(other than those covered by Insurance) including without limitation, the
payment of the monthly Mortgage payments, the Management Agent fees, the monthly
Asset Management Fee, the funding of reserves in accordance with Article VIII of
this Agreement, advertising and promotion, utilities, maintenance, repairs,
Partner communications, legal, telephone, any other expenses which may
reasonably be expected to be paid in a subsequent period but which on an accrual
basis is allocable to the period in question, including, but not limited to,
Insurance, Real Estate Taxes and audit, tax or accounting expenses (excluding
deductions for cost recovery of buildings; improvements and personal property
and amortization of any financing fees) and any seasonal expenses (such as snow
removal, the use of air conditioners in the middle of the summer, or heaters in
the middle of the winter) which may reasonably be expected to be paid in a
subsequent period shall be allocated equally per month over the calendar year.
Cash Expenses payable to Partners or Affiliates of Partners shall be paid after
Cash Expenses payable to third parties. Interest during the construction loan
period for any loan and development costs of any nature whatsoever are not Cash
Expenses and shall not be paid from Cash Receipts. The provisions of Section 6.2
govern the payment of development costs and construction interest.
"Cash Receipts" shall mean actual cash received on a cash basis by the
Partnership from operating revenues of the Partnership, including without
limitation rental income (but not any subsidy thereof from the General Partner
or an Affiliate thereof), tenant security deposits that have been forfeited by
tenants pursuant to the laws of the State, laundry income, paid to the
Partnership, telephone hook-up or service income, cable fees or hook-up costs,
telecommunications or satellite fees or hook-up costs, but excluding
prepayments, security deposits, Capital Contributions, borrowings, the
Construction Loan, the Mortgage Loan, lump-sum payments, any extraordinary
receipt of funds, and any income earned on investment of its funds. Neither the
General Partner nor its Affiliates shall be entitled to payment of any Cash
Receipts for any reason, including but not limited to a separate contract,
agreement, obligation or the like.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
"Completion of Construction" shall mean the date the Partnership receives
the required certificate of occupancy (or the local equivalent) for all
4
twelve (12) apartment units, and by the issuance of the Construction Inspector's
certification, in a form substantially similar to the form attached hereto as
Exhibit D and incorporated herein by this reference, with respect to completion
of all the apartment units in the Apartment Housing. Completion of Construction
further means that the construction shall be completed in good quality, and free
and clear of all mechanic, material and similar liens. In addition to the above,
Completion of Construction shall occur only when the statutory time period for
the filing of any liens by the Contractor, subcontractors, material suppliers or
any one else entitled to file a lien against the property has lapsed unless such
filed liens, other than the Subordinate Loan, or Mortgage Loan, have been bonded
over and have been approved by the Special Limited Partner; and the Special
Limited Partner has approved the Completion of Construction.
"Completion Date" shall mean November 1, 2005.
"Compliance Period" shall mean the period set forth in Section 42(i)(1) of
the Code, as amended, or any successor statute.
"Consent of the Special Limited Partner" shall mean the prior written
consent of the Special Limited Partner.
"Construction Completion, Operating Deficit and Tax Credit Guaranty
Agreement" shall mean that agreement entered into as of even date herewith, by
and between the Partnership, the Guarantor and the Limited Partner and
incorporated herein by this reference.
"Construction Contract" shall mean the construction contract dated October
8, 2004, in the amount of $914,159.00, entered into between the Partnership and
the Contractor pursuant to which the Improvements are being constructed in
accordance with the Plans and Specifications. The Construction Contract shall be
a fixed price agreement (includes materials and labor) at a cost consistent with
the Development Budget. Any modifications to the Construction Contract require
the Consent of the Special Limited Partner.
"Construction Draw Documents" shall mean those documents as set forth in
Section 14.3 (a) of this Agreement.
"Construction Lenders" shall mean Anchor Bank.
"Construction Loan" shall mean the loan obtained from Anchor. Bank in the
principal amount of $825,000, at an interest rate equal to the average weekly
yield of actively trading United States Treasury Securities, adjusted to a
constant maturity of One (1) year as published weekly by the Federal Reserve
Board, rounded to the highest one-eighth (1/8) of one percent (1%), plus three
and one-quarter percent (3.25%). This rate shall be adjusted very one year on
the anniversary of the closing. Where the context admits, the term "Construction
Loan" shall include any deed, deed of trust, note, security agreement,
assumption agreement or other instrument executed by, or on behalf of, the
Partnership or General Partner in connection with the Construction Loan as
required by the Construction Lender.
Construction Inspector" shall mean that person identified in the
Disbursement Agreement entered as of even date herewith.
5
"Contractor" shall mean Voronyak Builders, Inc. Any substitution of
Contractor requires the Consent of the Special Limited Partner.
"Debt Service Coverage" shall mean for the applicable period the ratio
between the Net Operating Income (excluding Mortgage payments and the Asset
Management Fee) and the debt service required to be paid on the Mortgage(s). As
example, a 1.10 Debt Service Coverage means that for every $1.00 of debt service
required to be paid there must be $1.10 of Net Operating Income available. A
worksheet for the calculation of Debt Service Coverage is found in the Report of
Operations attached hereto as Exhibit H and incorporated herein by this
reference. For purposes of this definition: (a) any one-time up-front fee paid
to the Partnership from any source shall not be included in Cash Receipts to
calculate Debt Service Coverage; (b) Cash Expenses shall include the amount of
any Management Fee, or portion thereof, which is currently deferred and not
paid; and (c) Cash Expenses shall include the amount of any reserve required to
be funded in accordance with Article VIII that is currently deferred and not
paid.
"Deferred Management Fee" shall have the meaning set forth in Section
9.2(c) hereof.
"Developer" shall mean CEPCO Development, Inc.
"Development Budget" shall mean the agreed upon cost of developing the
Apartment Housing and Improvements, including all construction costs based on
the Construction Contract, the Plans and Specifications, land and soft costs
(which includes, but is not limited to, financing charges, market study,
Development Fee, architect fees, etc.) The final Development Budget is
referenced in the Development, Construction and Operating Budget Agreement
entered into by and between the Partners on even date herewith, and incorporated
herein by this reference.
"Development Fee" shall mean the fee payable to the Developer for services
incident to the development and construction of the Apartment Housing in
accordance with the Development Fee Agreement between the Partnership and the
Developer dated the even date herewith and incorporated herein by this
reference. Development activities do not include services for the acquisition of
land or syndication activities, or negotiations for permanent financing.
"Disbursement Agreement" shall mean that certain construction loan
disbursement agreement executed in connection with the Construction/Mortgage
Loan for the oversight and monitoring of the construction of the Improvements.
"Distributions" shall mean the total amount of money, or the Gross Asset
Value of property (net of liabilities securing such distributed property that
such Partner is considered to assume or take subject to under Section 752 of the
Code), distributed to Partners with respect to their Interests in the
Partnership, but shall not include any payments to the General Partner or its
Affiliates for fees or other compensation as provided in this Agreement or any
guaranteed payment within the meaning of Section 707(c) of the Code, as amended,
or any successor thereto.
"Fair Market Value" shall mean, with respect to any property, real or
personal, the price a ready, willing and able buyer would pay to a ready,
6
willing and able seller of the property, provided that such value is reasonably
agreed to between the parties in arm's-length negotiations and the parties have
sufficiently adverse interests.
"Financial Interest" shall mean the General Partners' capital interest in
the Partnership to be contributed and maintained pursuant to the requirements of
RD Instruction 1944-E, Section 1944.211(a)(13)(ii) or any amendments thereto.
Such Financial Interest shall not affect the Partners' allocable share of
Profits, Losses, Tax Credits or Net Operating Income as set forth in this
Agreement.
"First Year Certificate" shall mean the certificate to be filed by the
General Partner with the Secretary of the Treasury as required by Code Section
42(1)(1), as amended, or any successor thereto.
"Force Majeure" shall mean any act of God, strike, lockout, or other
industrial disturbance, act of the public enemy, war, blockage, public riot,
fire, flood, explosion, governmental action, governmental delay or restraint.
"General Partner(s)" shall mean collectively, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.,
▇.▇. ▇▇▇▇▇▇▇ Co., Inc., and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc. and such other Persons
as are admitted to the Partnership as additional or substitute General Partners
pursuant to this Agreement. If there is more than one General Partner of the
Partnership, the term "General Partner" shall be deemed to collectively refer to
such General Partners or individually may mean any General Partner as the
context dictates.
"General Partner Interests" shall mean .00475% to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co.,
Inc., .00475% to ▇.▇. ▇▇▇▇▇▇▇ Co., Inc., and .0005% to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co.,
Inc.
"Gross Asset Value" shall mean with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed by a Partner to
the Partnership shall be the Fair Market Value of such asset, as determined by
the contributing Partner and the General Partner, provided that, if the
contributing Partner is a General Partner, the determination of the Fair Market
Value of a contributed asset shall be determined by appraisal;
(b) the Gross Asset Values of all Partnership assets shall be adjusted to
equal their respective Fair Market Values, as determined by the General Partner,
as of the following times: (1) the acquisition of an additional Interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (2) the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership property as
consideration for an Interest in the Partnership; and (3) the liquidation of the
Partnership within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to
clauses (1) and (2) above shall be made only with the Consent of the Special
Limited Partner and only if the General Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
7
(c) the Gross Asset Value of any Partnership asset distributed to any
Partner shall be adjusted to equal the Fair Market Value of such asset on the
date of distribution as determined by the distributee and the General Partner,
provided that, if the distributee is a General Partner, the determination of the
Fair Market Value of the distributed asset shall be determined by appraisal; and
(d) the Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section
10.3(g) hereof; provided however, that Gross Asset Values shall not be adjusted
pursuant to this definition to the extent the General Partner determines that an
adjustment pursuant to Section (b) hereof is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to Section (d) of this definition.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to this definition, such Gross Asset Value shall thereafter be adjusted
by the depreciation taken into account with respect to such asset for purposes
of computing Income and Losses.
"Guarantor" shall mean ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, an individual, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
an individual and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, an individual.
"Hazardous Substance" shall mean and include any substance, material or
waste, including, but not limited to, asbestos, petroleum and petroleum products
(including crude oil), that is or becomes designated, classified or regulated as
"toxic" or "hazardous" or a "pollutant" or that is or becomes similarly
designated, classified or regulated, under any federal, state or local law,
regulation or ordinance including, without limitation, Compensation and
Liability Act of 1980, as amended, the Hazardous Materials Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, and the
regulations adopted and publications promulgated pursuant thereto.
"Improvements" shall mean the construction of one (1) building with (2) two
stories, containing twelve (12) apartment units and ancillary and appurtenant
facilities (including those intended for commercial use, if any) for family use
and built in accordance with the Project Documents. It shall also include all
furnishings, equipment and personal property used in connection with the
operation thereof. The total number of apartment units equal twelve (12) LIHTC
units.
"In-Balance" shall mean, at any time when calculated, when the cumulative
amount of the undisbursed Mortgage Loan, Subordinate Loan and the undisbursed
Capital Contributions of the Limited Partner and Special Limited Partner
required to be paid-in through and including the Completion of Construction are
sufficient in the Special Limited Partner's reasonable judgment to pay all of
the following sums: (a) all costs of construction to achieve Completion of
Construction; (b) all soft costs in the development of the Apartment Housing and
Improvements, including but not limited to, architect fees, land acquisition,
impact fees and costs of marketing, maintenance and leasing of the Apartment
Housing units; and (c) all interest and all other sums accruing or payable under
the Mortgage Loan documents and/or Construction Loan Documents.
8
"Incentive Management Fee" shall have the meaning set forth in Section
9.2(e) hereof.
"Income and Loss(es)" shall mean, for each fiscal year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
(a) any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Income or Losses shall be
added to such taxable income or loss;
(b) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Income and Losses shall be subtracted from such taxable
income or loss;
(c) in the event the Gross Asset Value of any Partnership asset is adjusted
pursuant to the provisions of the definition thereof, the amount of such
adjustment shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Income and Losses;
(d) gain or loss resulting from any disposition of Partnership assets with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(e) in lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account depreciation for such fiscal year or other period,
computed as provided below; and
(f) notwithstanding any other provision of this definition, any items which
are specially allocated pursuant to Section 10.3 or Section 10.4 hereof shall
not otherwise be taken into account in computing Income or Losses.
Depreciation for each fiscal year or other period shall be calculated as
follows: an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period for federal income tax purposes, except that if the Gross Asset Value of
an asset differs from its adjusted basis for federal income tax purposes at the
beginning of such year or other period, depreciation shall be an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
or other period bears to such beginning adjusted tax basis; provided, however,
if the federal income tax depreciation, amortization, or other cost recovery
deduction for such year is zero, depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
9
For purposes of this Agreement, the term Income when used alone shall
include all items of income or revenue contemplated in this Section and the term
Losses when used alone shall include all items of loss or deductions
contemplated in this Section.
"Insurance" shall mean:
(a) during construction, the Partnership will provide and maintain, or
cause the Contractor to provide and maintain, builder's risk insurance in an
amount equal to 100% of the value of the Apartment Housing at the date of
completion; property damage coverage of not less than $1,000,000 per occurrence
and comprehensive general liability insurance with limits against bodily injury
of not less than $1,000,000 per occurrence, both with aggregate coverage of
$2,000,000; and worker's compensation insurance, within the State statutory
guidelines;
(b) during operations the Partnership will provide and maintain business
interruption coverage covering actual sustained loss for 12 months; worker's
compensation; hazard coverage (including but not limited to fire, or other
casualty loss to any structure or building on the Apartment Housing in an amount
equal to the full replacement value of the damaged property without deducting
for depreciation); and comprehensive general liability coverage against
liability claims for bodily injury or property damage in the minimum amount of
$1,000,000 per occurrence and an aggregate of $2,000,000;
(c) all liability coverage shall include an umbrella liability coverage in
a minimum amount of $4,000,000 per occurrence and an aggregate of $4,000,000;
(d) all Insurance polices shall name the Partnership as the named insured,
the Limited Partner as an additional insured, and WNC & Associates, Inc. as the
certificate holder;
(e) all Insurance policies shall include a provision to notify the insured,
the Limited Partner and the certificate holder prior to cancellation;
(f) hazard coverage must include inflation and building or ordinance
endorsements;
(g) the Insurance Policy or Policies shall not have a deductible provision
in excess of $5,000; and
(h) the term "Insurance" specifically excludes co-insurance or
self-insurance.
"Insurance Company" shall mean any insurance company engaged by the General
Partner for the Partnership. The Special Limited Partner shall have the
discretion to review and approve the engagement of the Insurance Company on an
annual basis.
"Interest" shall mean the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which a Partner may be entitled hereunder and the obligation
of such Partner to comply with the terms of this Agreement.
10
"Involuntary Withdrawal" shall mean any Withdrawal of a General Partner
caused by death, adjudication of insanity or incompetence, Bankruptcy, or the
removal of a General Partner pursuant to Section 13.2 hereof.
"Land Acquisition Fee" shall mean the fee payable to the General Partner in
an amount equal to $2,000 for the General Partner's services in locating,
negotiating and closing on the purchase of the real property upon which the
Improvements are, or will be, erected or rehabilitated.
"LIHTC" shall mean the low-income housing tax credit established by TRA
1986 and which is provided for in Section 42 of the Code, as amended, or any
successor thereto.
"Limited Partner" shall mean WNC Holding, LLC, a California limited
liability corporation, and such other Persons as are admitted to the Partnership
as additional or Substitute Limited Partners pursuant to this Agreement.
"Management Agent" shall mean the property management company which
oversees the property management functions for the Apartment Housing and which
is on-site at the Apartment Housing. The initial Management Agent shall be CEPCO
Management, Inc. Any substitution of the Management Agent requires the Consent
of the Special Limited Partner.
"Management Agreement" shall mean the agreement between the Partnership and
the Management Agent for property management services. The management fee shall
equal $55.65 per occupied unit per month. The General Partner, on behalf of the
Partnership, shall insure that neither the Management Agreement nor any
ancillary agreement shall provide for an initial rent-up fee, a set-up fee, any
other similar pre-management fee or recurring fee for compliance monitoring or
the like payable to the Management Agent, General Partner, or Developer. The
Management Agreement shall provide that it will be terminable at will by the
Partnership at anytime following the Withdrawal or removal of the General
Partner and, in any event, on any anniversary of the date of execution of the
Management Agreement, without payment or penalty for failure to renew the same.
"Minimum Set-Aside Test" shall mean the 40-60 set-aside test pursuant to
Section 42(g), as amended and any successor thereto, of the Code with respect to
the percentage of apartment units in the Apartment Housing to be occupied by
tenants whose incomes are equal to or less than the required percentage of the
area median gross income.
"Mortgage" or "Mortgage Loan" shall mean the permanent/construction
nonrecourse financing wherein the Partnership promises to pay: (a) U.S.
Department of Agriculture, Rural Development, or its successor or assignee, the
principal sum of $798,000, plus interest on the principal at 7% per annum with a
maturity date of December 15, 2034 and amortized over 600 months; an RD Interest
Credit Agreement has been entered into in connection with the above referenced
loan thereby reducing the effective interest rate to 1% per annum, and (b)
Greater Minnesota Housing Fund (the "GMHF"), the principal sum of One Hundred
Eighty Thousand and No/100 Dollars ($180,000.00) (the "Principal Amount") with
simple interest at the rate of one percent (1%) per annum on the unpaid balance
thereof on the Maturity Date (as hereinafter defined). Where the context admits,
the term "Mortgage" or "Mortgage Loan" shall include any mortgage, deed, deed of
11
trust, note, regulatory agreement, security agreement, assumption agreement
or other instrument executed in connection with the Mortgage which is binding on
the Partnership; and in case any Mortgage is replaced or supplemented by any
subsequent mortgage or mortgages, the Mortgage shall refer to any such
subsequent mortgage or mortgages provided the substitution or change has
received the Consent of the Special Limited Partner. Prior to closing the
Mortgage, the General Partner shall provide to the Special Limited Partner a
draft of the Mortgage documents for review and approval and the income and
expense statements for the Partnership showing Cash Receipts and Cash Expenses
for each and every month since issuance of the certificate of occupancy. Based
on the draft Mortgage documents and the income and expense statements, if the
terms of the Mortgage are not as specified above or the Special Limited Partner
determines that the Debt Service Coverage of those Mortgage Loans requiring an
amortized monthly principal and interest payment falls below 1.10 based on then
current Cash Expenses and Cash Receipts then the General Partner shall adjust
the principal loan amount and close on a Mortgage which will produce a 1.10 Debt
Service Coverage. The Mortgage funds shall be used to retire the Anchor Bank
Construction Loan and as construction and permanent financing for the Apartment
Housing. Notwithstanding the foregoing, if the interest rate at the time of
closing the Mortgage is less than the amount stated, the General Partner shall
not increase the principal amount of the Mortgage even if the Debt Service
Coverage remains at or above 1.10.
"Net Operating Income" shall mean the cash available for Distribution on an
annual basis, when Cash Receipts exceed Cash Expenses.
"Nonrecourse Deductions" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(1).
"Nonrecourse Liability" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(3).
"Operating and Maintenance Account" shall mean the operating and
maintenance account established pursuant to Section 8.2 hereof.
"Operating Deficit" shall mean, for the applicable period, insufficient
funds to pay Partnership operating costs when Cash Expenses exceed the sum of
the Cash Receipts and the Operating and Maintenance Account, as determined by
the Accountant and approved by the Special Limited Partner.
"Operating Deficit Guarantee Period" shall mean the period commencing the
date the first apartment unit in the Apartment Housing is available for its
intended use and ending three years following the achievement of three
consecutive months of Breakeven Operations. The Operating Deficit Guarantee
Period will not expire unless the Partnership has achieved Completion of
Construction of the Apartment Housing.
"Operating Loans" shall mean loans made by the General Partner to the
Partnership pursuant to Article VI of this Agreement, which loans are repayable
only as provided in Article XI of this Agreement.
12
"Original Limited Partners" shall mean collectively, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
"Partner(s)" shall collectively mean the General Partner, the Limited
Partner and the Special Limited Partner or individually may mean any Partner as
the context dictates.
"Partner Nonrecourse Debt" shall have the meaning set forth in Section
1.704-2(b)(4) of the Treasury Regulations.
"Partner Nonrecourse Debt Minimum Gain" shall mean an amount, with respect
to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that
would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
"Partner Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2 (i)(1) and 1.704-2(i)(2) of the Treasury Regulations.
"Partnership" shall mean the limited partnership continued under this
Agreement.
"Partnership Minimum Gain" shall mean the amount determined in accordance
with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
"Permanent Mortgage Commencement" shall mean the first date on which all of
the following have occurred: (a) the Anchor Bank Construction Loan shall have
been repaid in full; (b) the Mortgage Loan shall have closed and funded; and (c)
amortization of the Mortgage shall have commenced.
"Person" shall mean an individual, proprietorship, trust, estate,
partnership, joint venture, association, company, corporation or other entity,
as the circumstances demonstrate.
"Plans and Specifications" shall mean the plans, blueprints and
specifications manual for the construction of the Improvements which are
approved by the local city/county building department with jurisdiction over the
construction of the Improvements and which Plans and Specifications are referred
to in the Construction Contract. The General Partner agrees to assure that the
Contractor completes construction in accordance with the Plans and
Specifications. Any changes to the Plans and Specifications after approval by
the appropriate government building department shall require the Consent of the
Special Limited Partner.
"Project Documents" shall mean all documents relating to the Subordinate
Loan, Mortgage Loan, Construction Contract, Title Policy and Partnership
Agreement. It shall also include all documents required by any governmental
agency having jurisdiction over the Apartment Housing in connection with the
development, construction and financing of the Apartment Housing, including but
not limited to, the approved Plans and Specifications for the development and
construction of the Apartment Housing.
"Projected Annual Tax Credits" shall mean LIHTC in the amount of $38,244
for 2006, $40,257 for each of the years 2007 through 2015, and $2,013 for 2016,
which the General Partner has projected to be the total amount of LIHTC which
13
will be allocated to the Limited Partner by the Partnership, constituting 99.98%
of the aggregate amount of LIHTC of $402,652 to be available to the Partnership.
"Projected Tax Credits" shall mean LIHTC in the aggregate amount of
$402,652.
"Qualified Tenants" shall mean any tenants who have incomes of 60% (or such
smaller percentage as the General Partner shall agree) or less of the area
median gross income, as adjusted for family size, so as to make the Apartment
Housing eligible for LIHTC.
"RD" shall mean the United States Department of Agriculture, Rural
Development-Minnesota (formerly Farmers Home Administration) or any successor
thereto.
"RD Interest Credit Agreement" shall mean the Interest Credit and Rental
Assistance Agreements between the RD and the Partnership whereby RD will provide
a monthly credit subsidy to the Partnership's Mortgage account when the
Partnership makes each month payment on the Mortgage.
"RD Loan Agreement" shall mean the Loan Agreements for the RRH loans to the
Partnership in connection with the Mortgage Loan pursuant to Section 515(b) of
the Housing Act of 1949.
"Real Estate Taxes" shall mean the sum of $11,000 required to be paid
annually by the Partnership to the tax assessor, school district or similar
representative, of Sandstone/Pine County for real estate taxes assessed against
the Apartment Housing. The Real Estate Taxes are payable as follows: 50% on May
15th and 50% on October 15th of each year. The Project is also within a Tax
Increment Financing District, which is anticipated to reduce the real estate
taxes due annually to approximately $1,100.
"Rent Restriction Test" shall mean the test pursuant to Section 42 of the
Code whereby the gross rent charged to tenants of the low-income apartment units
in the Apartment Housing cannot exceed 30% of the qualifying income levels of
those units under Section 42.
"Revised Projected Tax Credits" shall have the meaning set forth in Section
7.4(a) hereof.
"Sale or Refinancing" shall mean any of the following items or
transactions: a sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Partnership, a condemnation of or
casualty at the Apartment Housing or any part thereof, a claim against a title
insurance company, the refinancing of any Mortgage or other indebtedness of the
Partnership and any similar item or transaction; provided, however, that the
payment of Capital Contributions by the Partners shall not be included within
the meaning of the term "Sale or Refinancing."
"Sale or Refinancing Proceeds" shall mean all cash receipts of the
Partnership arising from a Sale or Refinancing (including principal and interest
received on a debt obligation received as consideration in whole or in part, on
a Sale or Refinancing) less the amount paid or to be paid in connection with
or as an expense of such Sale or Refinancing, and with egard to damage
recoveries or insurance or condemnation proceeds, the amount paid or to be paid
14
for repairs, replacements or renewals resulting from damage to or partial
condemnation of the Apartment Housing.
"Special Limited Partner" shall mean WNC Housing, L.P., a California
limited partnership, and such other Persons as are admitted to the Partnership
as additional or substitute Special Limited Partners pursuant to this Agreement.
"State" shall mean the State of Minnesota.
"State Tax Credit Agency" shall mean the state agency of Minnesota which
has the responsibility and authority to administer the LIHTC program in
Minnesota.
"Substitute Limited Partner" shall mean any Person who is admitted to the
Partnership as a Limited Partner pursuant to Section 12.5 or acquires the
Interest of the Limited Partner pursuant to Section 7.3 of this Agreement.
"Syndication Fee" shall mean the fee payable to the General Partner in an
amount equal to $18,000 for the General Partner's services in forming the
Partnership, locating and approving the Limited Partner and the Special Limited
Partner as the investors in the Partnership, negotiating and finalizing this
Partnership Agreement and for such other services referenced in Treasury
Regulations Section 1.709-2(B).
"Tax Credit" shall mean any credit permitted under the Code or the law of
any state against the federal or a state income tax liability of any Partner as
a result of activities or expenditures of the Partnership including, without
limitation, LIHTC.
"Tax Credit Compliance Fee" shall mean the fee payable to the General
Partner in accordance with Section 9.2(f) of this Agreement.
"Tax Credit Conditions" shall mean, for the duration of the Compliance
Period, any and all restrictions including, but not limited to: (a) the land use
restriction agreement required by the State Tax Credit Agency to be recorded
against the Apartment Housing; and (b) any applicable federal, state and local
laws, rules and regulations, which must be complied with in order to qualify for
the LIHTC or to avoid an event of recapture in respect of the LIHTC.
"Tax Credit Period" shall mean the 10-year time period referenced in Code
Section 42(f)(1) over which the Projected Tax Credits are allocated to the
Partners. It is the intent of the Partners that the Projected Tax Credits will
be allocated during the Tax Credit Period and not a longer term.
"Title Policy" shall mean the policy of insurance covering the fee simple
title to the Apartment Housing from a company approved by the Special Limited
Partner. The Title Policy shall be an ALTA owners title policy including the
following endorsements: non-imputation, Fairways, access, contiguity, survey,
owner's comprehensive, zoning and subdivision, if available. The Title Policy
shall also insure against rights-of-way, easements, blanket easement or claims
of easements, not shown by public records. During construction of the
improvements the Title Policy shall be in an amount equal to the Construction
Loan, the Greater Minnesota Housing Fund Loan and the Limited Partner's Capital
15
Contribution. Upon Permanent Mortgage Commencement, the Title Policy shall
be in an amount equal to the aggregate Mortgage amount and the Limited Partner's
Capital Contribution. If allowed by the title company, the Title Policy shall
name the Limited Partner and the Special Limited Partner as insured parties, or,
if including the Limited Partner and Special Limited Partner as insured parties
is not allowed, the Title Policy shall reference them "as their interests may
appear in the partnership agreement of the owner."
"TRA 1986" shall mean the Tax Reform Act of 1986.
"Treasury Regulations" shall mean the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Withdrawing" or "Withdrawal" (including the verb form "Withdraw" and the
adjectival forms "Withdrawing" and "Withdrawn") shall mean, as to a General
Partner, the occurrence of the death, adjudication of insanity or incompetence,
Bankruptcy of such Partner or any of its principals, the withdrawal, removal or
retirement from the Partnership of such Partner for any reason, including any
sale, pledge, encumbering, assignment or other transfer of all or any part of
its General Partner Interest and those situations when a General Partner may no
longer continue as a General Partner by reason of any law or pursuant to any
terms of this Agreement.
ARTICLE II.
NAME
The name of the Partnership shall be "Kettle River Townhomes Limited
Partnership."
ARTICLE III.
PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE
Section 3.1 Principal Executive Office.
The principal executive office of the Partnership is located at ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, or at such other place or places within the
State as the General Partner may hereafter designate.
Section 3.2 Agent for Service of Process.
The name of the agent for service of process on the Partnership is ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, whose address is ▇▇-▇▇▇▇ ▇▇▇. ▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
16
ARTICLE IV.
PURPOSE
Section 4.1 Purpose of the Partnership.
The purpose of the Partnership is to acquire, construct, own and operate
the Apartment Housing in order to provide, in part, Tax Credits to the Partners
in accordance with the provisions of the Code and the Treasury Regulations
applicable to LIHTC and to sell the Apartment Housing at the conclusion of the
Compliance Period. The Partnership shall not engage in any business or activity
that is not incident to the attainment of such purpose.
Section 4.2 Authority of the Partnership.
In order to carry out its purpose, the Partnership is empowered and
authorized to do any and all acts and things necessary, appropriate, proper,
advisable or incidental to the furtherance and accomplishment of its purpose,
and for protection and benefit of the Partnership in accordance with the
Partnership Agreement, including but not limited to the following:
(a) acquire ownership of the real property referred to in Exhibit A
attached hereto;
(b) construct, renovate, rehabilitate, and own the Apartment Housing in
accordance with the Project Documents;
(c) provide housing to Qualified Tenants, subject to the Minimum Set-Aside
Test and the Rent Restriction Test and consistent with the requirements of the
Project Documents so long as any Project Documents remain in force;
(d) maintain and operate the Apartment Housing, including hiring the
Management Agent (which Management Agent may be any of the Partners or an
Affiliate thereof) and entering into any agreement for the management of the
Apartment Housing during its rent-up and after its rent-up period in accordance
with this Agreement;
(e) enter into the Construction Loan and Mortgage;
(f) rent dwelling units in the Apartment Housing from time to time, in
accordance with the provisions of the Code applicable to LIHTC; and
(g) do any and all other acts and things necessary or proper in accordance
with this Agreement.
ARTICLE V.
TERM
The Partnership term commenced upon the filing of the Certificate of
Limited Partnership in the office of, and on the form prescribed by, the
Secretary of State of Minnesota, and shall continue until December 31,
2053, unless terminated earlier in accordance with the provisions of this
Agreement or as otherwise provided by law.
17
ARTICLE VI.
GENERAL PARTNER'S CONTRIBUTIONS AND LOANS
Section 6.1 Capital Contribution of General Partner.
The General Partner shall make a Capital Contribution equal to $100.
Section 6.2 Construction Obligations.
The General Partner hereby guarantees lien free Completion of Construction
of the Apartment Housing on or before the Completion Date ("Completion Date").
The General Partner further guarantees that the development of the Apartment
Housing and Improvements will not exceed a total development cost of $1,273,920
("Development Budget"), which includes all hard and soft costs incident to the
acquisition, development and construction of the Apartment Housing in accordance
with the Development Budget and the Project Documents. If the actual hard costs
and soft costs of developing and constructing the Apartment Housing and
Improvements exceed the Development Budget then the General Partner shall
advance the money to the Partnership to pay the additional costs.
Notwithstanding the foregoing, at any time during construction and prior to
Permanent Mortgage Commencement, if the Special Limited Partner or the
Construction Lender, in good faith, determines that the actual construction and
development costs exceed the line item costs (excluding the Development Fee)
referenced in the Development, Construction and Operating Budget Agreement then
the General Partner shall be responsible for and shall be obligated to advance
and deposit into the Construction Lender's construction account, or similar
disbursement agent's account, the difference thereof for payment to the
Contractor or other vendors, suppliers, or subcontractors. In addition, at any
time prior to Completion of Construction, if the Special Limited Partner or
Construction Lender, in good faith, determines that there are insufficient funds
to achieve Completion of Construction or the funds are not available in
accordance with the funding requirements of the Construction Lender or this
Agreement, the General Partner shall advance and deposit into the Construction
Lender's construction account, or similar disbursement account, the amount
requested by the Special Limited Partner or Construction Lender to pay a current
construction draw or an amount necessary to achieve Completion of Construction.
Said advance shall be made and documented with an approved draw request within
30 days of receiving written notice from the Special Limited Partner. Any
advances by the General Partner pursuant to this Section shall not be repayable,
shall not change the Interest of any Partner in the Partnership and shall be
considered a guaranteed payment to the Partnership for cost overruns.
Section 6.3 Operating Obligations.
(a) From the date the first apartment unit in the Apartment Housing is
available for its intended use until 3 consecutive months of Breakeven
Operations, the General Partner will immediately provide to the Partnership the
necessary funds to pay Operating Deficits, which funds shall not be repayable,
shall not change the Interest of any Partner and shall be considered a
guaranteed payment to the Partnership for cost overruns. For the balance of the
Operating Deficit Guarantee Period the General Partner will immediately
provide Operating Loans to pay any Operating Deficits. The aggregate maximum
amount of the Operating Loan(s) the General Partner will be obligated to lend
18
will be $76,000, which is equal to one year's operating expenses (including
debt and reserves) as agreed to by the General Partner and the Special Limited
Partner. Each Operating Loan shall be nonrecourse to the Partners, and shall be
repayable out of 50% of the available Net Operating Income or Sale or
Refinancing Proceeds in accordance with Article XI of this Agreement.
(b) The Partnership shall pay the amount of the Development Fee set forth
in Exhibit B to the Development Fee Agreement entered into as of even date
herewith on an annual basis (the "Scheduled Amount").
Section 6.4 Other General Partner Loans.
Unless provided elsewhere, after expiration of the Operating Deficit
Guarantee Period, with the Consent of the Special Limited Partner, the General
Partner may loan to the Partnership any sums required by the Partnership and not
otherwise reasonably available to it. Any such loan shall bear simple interest
(not compounded) at the 10-year Treasury money market rate in effect as of the
day of the General Partner loan, or, if lesser, the maximum legal rate. The
maturity date and repayment schedule of any such loan shall be as agreed to by
the General Partner and the Special Limited Partner. The terms of any such loan
shall be evidenced by a written instrument. The General Partner shall not charge
a prepayment penalty on any such loan. Any loan in contravention of this Section
shall be deemed an invalid action taken by the General Partner and such advance
will be classified as a General Partner Capital Contribution. Notwithstanding
this provision, the General Partner remains obligated to the Partnership,
Limited Partner and Special Limited Partner as required in accordance with the
State limited partnership act, as amended from time to time.
ARTICLE VII.
CAPITAL CONTRIBUTIONS OF LIMITED PARTNER
AND SPECIAL LIMITED PARTNER
Section 7.1 Original Limited Partners.
The Original Limited Partners made a Capital Contribution of $1.00.
Effective as of the date of this Agreement, the Original Limited Partners'
Interest has been liquidated and the Partnership has reacquired the Original
Limited Partners' Interest in the Partnership. The Original Limited Partners
acknowledges that it has no further interest in the Partnership as a partner as
of the date of this Agreement and has released all claims, if any, against the
Partnership arising out of its participation as a limited partner.
Section 7.2 Capital Contribution of Limited Partner and Special Limited
Partner.
The Limited Partner and the Special Limited Partner shall make a Capital
Contribution in the aggregate amount of $295,920, as may be adjusted in
accordance with Section 7.4 of this Agreement, in cash on the dates and subject
to the conditions hereinafter set forth.
(a) $266,330 (which includes the Special Limited Partner's Capital
Contribution of $30) shall be payable upon the Limited Partner's receipt and
approval of the following documents:
19
(1) a legal opinion in a form substantially similar to the form of opinion
attached hereto as Exhibit B and incorporated herein by this reference;
(2) a fully executed Certification and Agreement in the form attached
hereto as Exhibit C and incorporated herein by this reference;
(3) a copy of the Title Policy;
(4) Insurance required during construction;
(5) a copy of the recorded grant deed (warranty deed);
(6) an executed Disbursement Agreement;
(7) an executed commitment from the Mortgage lender to provide the
Mortgage;
(8) an executed Development, Construction and Operating Budget Agreement;
(9) an executed Construction Completion, Operating Deficit and Tax Credit
Guaranty Agreement;
(10) an executed Development Fee Agreement and Development Fee Guaranty
Agreement;
(11) a fully executed Construction Agreement;
(12) an audited cost certification together with the Accountant's work
papers verifying that the Partnership has expended the requisite 10% of
reasonably expected cost basis to meet the carryover test provisions of Code
Section 42;
(13) payment of $18,000 for costs and expenses incurred in connection with
the Limited Partner's or its Affiliate's underwriting of the Apartment Housing
and Improvements.
Notwithstanding the foregoing, the first Capital Contribution payment will
be paid in installments based upon approved draw requests in accordance with the
Construction Monitoring Agreement.
(b) $29,589 shall be payable upon the Limited Partner's receipt and
approval of the following documents:
(1) a certificate of occupancy (or equivalent evidence of local occupancy
approval if a permanent certificate is not available) on all the apartment units
in the Apartment Housing confirming the apartment units are being placed in
service for their intended purpose;
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(2) a completion certification in a form substantially similar to the form
attached hereto as Exhibit D and incorporated herein by this reference,
indicating that the Improvements have been completed in accordance with the
Project Documents;
(3) a letter from the Contractor in a form substantially similar to the
form attached hereto as Exhibit F and incorporated herein by this reference
stating that all amounts payable to the Contractor have been paid in full and
that the Partnership is not in violation of the Construction Contract;
(4) Insurance required during operations;
(5) A determination by the Special Limited Partner that the amount of the
remaining Capital Contributions and other financing funds are equal to or exceed
the difference between the Construction Loan and Mortgage in order to retire the
Construction Loan.
(6) Mortgage Loan documents signed and the Mortgage funded;
(7) an updated Title Policy dated no more than 10 days prior to the
scheduled Capital Contribution confirming that there are no liens, claims or
rights to a lien or judgments filed against the property or the Apartment
Housing during the time period since the issuance of the Title Policy referenced
above in Section 7.2(a);
(8) an as-built survey adhering to the requirements referenced in Exhibit I
attached hereto and incorporated herein and a surveyor's certification as
referenced in Exhibit I;
(9) the current rent roll evidencing a minimum 92% occupancy by Qualified
Tenants for 90 consecutive days immediately prior to funding and 100% LIHTC
qualified units;
(10) copies of all initial tenant files including executed lease
agreements, completed applications, completed questionnaires or checklist of
income and assets, documentation of third party verification of income and
assets, income certification forms (LIHTC specific) and any other form or
document collected by the Management Agent, or General Partner, verifying each
tenant's eligibility pursuant to the Minimum Set-Aside Test and other applicable
guidelines under Section 42 of the Code;
The Limited Partner and Special Limited Partner require receipt and
approval of 100% of the initial tenant files as specified in a subsequent
Capital Contribution payment. The time required to collect, review and correct,
if applicable, tenant files can be substantial. Therefore, to expedite the
process, the General Partner shall send tenant files to the Special Limited
Partner as soon as the file is complete instead of waiting to send the files all
at one time.
(11) Completion of Construction;
(12) a construction closeout binder, which shall include, but not be
limited to, as-built drawings, all operating manuals, and all manufacturing
warranty agreements. In addition, the Contractor shall provide the Partnership a
one-year warranty on all parts, materials and work-quality;
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(13) a copy of the recorded declaration of restrictive covenants/extended
use agreement entered into between the Partnership and the State Tax Credit
Agency;
(14) an audited construction cost certification that includes an
itemization of development, acquisition, and construction or rehabilitation
costs of the Apartment Housing, the Land Acquisition Fee, the Syndication Fee
and the eligible basis and applicable percentage of each building of the
Apartment Housing;
(15) the Accountant's final Tax Credit certification in a form
substantially similar to the form attached hereto as Exhibit E and incorporated
herein by this reference;
(16) Debt Service Coverage of 1.10 for 90 consecutive days immediately
prior to funding;
(17) a fully signed Internal Revenue Code Form 8609, or any successor form;
(18) the first year tax return in which Tax Credits are taken by the
Partnership, unless the Tax Credits are deferred until the following year and
such deferral has been approved by the Special Limited Partner;
(19) the audited Partnership financial statements required by Section 14.2
for the year the Apartment Housing is placed-in-service ; and
(20) Any documents previously not provided to the Limited Partner but
required pursuant to this Section 7.2 and Sections 14.3(a) and (b).
Notwithstanding the above conditions to this Capital Contribution payment,
the Limited Partner's payment will be held in escrow until copies of all the
signed Mortgage documents have been received by the Limited Partner.
(21) The Special Limited Partner's approval of the initial tenant files and
any documents previously not provided to the Limited Partner but required
pursuant to this Section 7.2 and Sections 14.3(a) and (b). The initial tenant
files will be reviewed at the Limited Partner's expense by an independent
third-party. In the event that the independent third-party and the Special
Limited Partner recommend corrections to an initial tenant file, the General
Partner will cause the Management Agent to correct the tenant file and provide
the corrected tenant file to the Limited Partner. The Limited Partner may
withhold all or any portion of a Capital Contribution payment until it has
received all the initial tenant files and the same have been reviewed,
corrected, and approved.
Section 7.3 Repurchase of Limited Partner's and Special Limited Partner's
Interests.
Within 60 days after the General Partner receives written demand from the
Limited Partner and/or the Special Limited Partner, the Partnership shall
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repurchase the Limited Partner's Interest and/or the Special Limited Partner's
Interest in the Partnership by refunding to it in cash the full amount of the
Capital Contribution which the Limited Partner and/or the Special Limited
Partner has theretofore made in the event that, for any reason, the Partnership
shall fail to:
(a) cause the Apartment Housing to be placed in service within 6 months of
the Completion Date;
(b) achieve 100% occupancy of the Apartment Housing by Qualified Tenants by
March 1, 2006;
(c) obtain Permanent Mortgage Commencement by June 1, 2006;
(d) at any time before the Completion Date, prevent a foreclosure, or
abandonment of the Apartment Housing or fail to lift any order restricting
construction of the Apartment Housing;
(e) prior to completion of the Improvements, prevent the Construction
Lender from sending a notice of default under the Mortgage Loan;
(f) replace a withdrawn Mortgage Loan commitment with a comparable
commitment acceptable to the Special Limited Partner within a reasonable period
of time;
(g) meet both the Minimum Set-Aside Test and the Rent Restriction Test not
later than December 31 of the first year the Partnership elects the LIHTC to
commence in accordance with the Code; or
(h) obtain a carryover allocation, within the meaning of Section 42 of the
Code, from the State Tax Credit Agency on or before the due date.
Section 7.4 Adjustment of Capital Contributions.
(a) The amounts of the Limited Partner's and the Special Limited Partner's
Capital Contributions were determined in part upon the amount of Tax Credits
that were expected to be available to the Partnership at a cost of $0.735 for
each dollar of Tax Credit received, and were based on the assumption that the
Partnership would be eligible to claim, in the aggregate, the Projected Tax
Credits. If the anticipated amount of Projected Tax Credits to be allocated to
the Limited Partner and Special Limited Partner as evidenced by IRS Form 8609,
Schedule A thereto, or by the tax certification required in accordance with
Section 7.2, provided to the Limited Partner and Special Limited Partner are
different than 99.99% of $402,652 then the new Projected Tax Credit amount, if
applicable, shall be referred to as the "Revised Projected Tax Credits." The
Limited Partner's and Special Limited Partner's Capital Contribution provided
for in Section 7.2 shall be equal to 73.5% times the Projected Tax Credits or
the Revised Projected Tax Credits, if applicable, anticipated to be allocated
to the Limited Partner and Special Limited Partner. If any Capital
Contribution adjustment referenced in this Section 7.4(a) is a reduction which
is greater than the remaining Capital Contribution to be paid by the Limited
Partner, then the General Partner shall have 90 days from the date the General
Partner receives notice from either the Limited Partner or the Special Limited
Partner to pay the shortfall to the Partner whose Capital Contribution is being
adjusted. The amount paid by the General Partner pursuant to this Section will
23
be deemed to be a Capital Contribution by the General Partner. Notwithstanding
anything to the contrary in this Agreement, the General Partner's Capital
Contribution required to be paid by this Section shall be disbursed to the
Limited Partner as a return of capital. If the Capital Contribution adjustment
referenced in this Section 7.4(a) is an increase then the Partner whose Capital
Contribution is being adjusted shall have 90 days from the date the Limited
Partner and Special Limited Partner have received notice from the General
Partner to pay the increase.
(b) The General Partner is required to use its best efforts to rent 100% of
the Apartment Housing's apartment units to Qualified Tenants throughout the
Compliance Period. If, at the end of any calendar year during the first 5
calendar years following the year in which the Apartment Housing is placed in
service, the Actual Tax Credit for the applicable fiscal year or portion thereof
is or will be less than the Projected Annual Tax Credit, or the Projected Annual
Tax Credit as modified by Section 7.4(a) of this Agreement if applicable (the
"Annual Credit Shortfall"), then the next Capital Contribution owed by the
Limited Partner shall be reduced by the Annual Credit Shortfall amount, and any
portion of such Annual Credit Shortfall in excess of such Capital Contribution
shall be applied to reduce succeeding Capital Contributions of the Limited
Partner. If the Annual Credit Shortfall is greater than the Limited Partner's
remaining Capital Contributions, then the General Partner shall pay to the
Limited Partner the excess of the Annual Credit Shortfall over the remaining
Capital Contributions. The General Partner shall have 60 days to pay the Annual
Credit Shortfall from the date the General Partner receives notice from the
Special Limited Partner. The provisions of this Section 7.4(b) shall apply
equally to the Special Limited Partner in proportion to its Capital Contribution
and anticipated annual Tax Credit. The amount paid by the General Partner
pursuant to this Section will be deemed to be a Capital Contribution by the
General Partner. Notwithstanding anything to the contrary in this Agreement, the
General Partner's Capital Contribution required by this Section shall be
disbursed to the Limited Partner as a return of capital.
(c) The General Partner has represented, in part, that the Limited Partner
will receive Projected Annual Tax Credits of $38,244 in 2006 and $40,257 in
2007. In the event the 2006 or 2007 Actual Tax Credits are less than projected
then the Limited Partner's Capital Contribution shall be reduced by an amount
equal to 73.5% times the difference between the Projected Annual Tax Credits for
2006 or 2007 and the Actual Tax Credits for 2006 or 2007. If the 2006 or 2007
Actual Tax Credits are less than projected then the Special Limited Partner's
Capital Contribution shall be reduced following the same equation referenced in
the preceding sentence. If, at the time of determination thereof, the Capital
Contribution adjustment referenced in this Section 7.4(c) is greater than the
balance of the Limited Partner's or Special Limited Partner's Capital
Contribution payment which is then due, if any, then the excess amount shall be
paid by the General Partner to the Limited Partner and/or the Special Limited
Partner within 60 days of the General Partner receiving notice of the reduction
from the Limited Partner and/or the Special Limited Partner. The amount paid by
the General Partner pursuant to this Section will be deemed to be a Capital
Contribution by the General Partner. Notwithstanding anything to the contrary in
this Agreement, the General Partner's Capital Contribution required by this
Section shall be disbursed to the Limited Partner as a return of capital.
(d) Intentionally omitted.
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(e) In the event there is: (1) a filing of a tax return by the Partnership
evidencing a reduction in the qualified basis or eligible basis of the Apartment
Housing causing a recapture of Tax Credits previously allocated to the Limited
Partner or an adjustment to Schedule K-1 or a loss of future Tax Credits; (2) a
filing of a tax return by the Partnership evidencing a disposition of the
Apartment Housing prior to the expiration of the Compliance Period causing a
recapture of Tax Credits previously allocated to the Limited Partner, or an
adjustment to Schedule K-1, or a loss of future Tax Credits; (3) a reduction in
the qualified basis or eligible basis of the Apartment Housing for income tax
purposes following an examination or review by the Internal Revenue Service
("IRS") resulting in a recapture or reduction of Tax Credits previously claimed
or an adjustment to Schedule K-1; (4) a decision by any court or administrative
body upholding an assessment of deficiency against the Partnership with respect
to any Tax Credit previously claimed or tax losses previously claimed, in
connection with the Apartment Housing, unless the Partnership shall timely
appeal such decision and the collection of such assessment shall be stayed
pending the disposition of such appeal; or (5) a decision of a court affirming
such decision upon such appeal then, in addition to any other payments to which
the Limited Partner and/or the Special Limited Partner are entitled under the
terms of this Section 7.4, the General Partner shall pay to the Limited Partner
and the Special Limited Partner within 60 days of receiving notice from the
Limited Partner and/or the Special Limited Partner the sum of (A) the amount of
the Tax Credit recapture, (B) the cumulative tax effect of a decrease in loss
allocated to the Limited Partner and Special Limited Partner by the Partnership;
(C) any interest and penalties imposed on the Limited Partner or Special Limited
Partner with respect to such recapture; (D) the cumulative increase of taxable
income allocated to the Limited Partner and Special Limited Partner by the
Partnership; (E) an amount equal to the product of the Tax Credit pricing
percentage referenced in Section 7.4(a) and future Tax Credits unable to be
taken due to one of the above actions; and (F) an amount sufficient to pay any
tax liability owed by the Limited Partner or Special Limited Partner resulting
from the receipt of the amounts specified in (A), (B), (C) and (D). The amount
paid by the General Partner pursuant to this Section will be deemed to be a
Capital Contribution by the General Partner. Notwithstanding anything to the
contrary in this Agreement, the General Partner's Capital Contribution required
by this Section shall be disbursed to the Limited Partner as a return of
Capital.
(f) The increase in the Capital Contribution of the Limited Partner and the
Special Limited Partner pursuant to Section 7.4(a) shall be subject to the
Limited Partner and Special Limited Partner having funds available to pay any
such increase at the time of its notification of such increase. For these
purposes, any funds theretofore previously earmarked by the Limited Partner or
Special Limited Partner to make other investments, or to be held as required
reserves, shall not be considered available for payment hereunder.
Section 7.5 Return of Capital Contribution.
From time to time the Partnership may have cash in excess of the amount
required for the conduct of the affairs of the Partnership, and the General
Partner may, with the Consent of the Special Limited Partner, determine
that such cash should, in whole or in part, be returned to the Partners, pro
rata, in reduction of their Capital Contribution. No such return shall be made
unless all liabilities of the Partnership (except those to Partners on account
of amounts credited to them pursuant to this Agreement) have been paid or there
remain assets of the Partnership sufficient, in the sole discretion of the
General Partner, to pay such liabilities.
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Section 7.6 Liability of Limited Partner and Special Limited Partner.
The Limited Partner and Special Limited Partner shall not be liable for any
of the debts, liabilities, contracts or other obligations of the Partnership.
The Limited Partner and Special Limited Partner shall be liable only to make
Capital Contributions in the amounts and on the dates specified in this
Agreement and, except as otherwise expressly required hereunder, shall not be
required to lend any funds to the Partnership or, after their respective Capital
Contributions have been paid, to make any further Capital Contribution to the
Partnership.
ARTICLE VIII.
WORKING CAPITAL AND RESERVES
Section 8.1 Replacement and Reserve Account.
The General Partner, on behalf of the Partnership, shall open a Replacement
and Reserve Account with a financial banking institution and shall deposit
thereinto an annual amount equal to $833 per residential unit per year for the
purpose of capital improvements. Said deposit shall be made monthly in equal
installments. The Replacement and Reserve Account shall require the joint
signature of the Special Limited Partner and RD for any withdrawals. Any balance
remaining in the account at the time of a sale of the Apartment Housing shall be
allocated and distributed 75% to the General Partner and 25% to the Limited
Partner.
Section 8.2 Operating and Maintenance Account.
The General Partner, on behalf of the Partnership, shall establish an
Operating and Maintenance Account and shall deposit thereinto an amount equal to
$21,472 or such greater amount as may be required by RD in connection with the
Mortgage Loan. Said amount shall be disbursed in accordance with applicable RD
regulations. Withdrawals from such account shall be made only with the consent
of RD. To the extent that the Partnership has achieved financial stability
between the operational years of two and five, as such financial stability is
defined under the RD regulations, and there is a balance equal to or great than
$21,472, then the amount of $21,472 shall be allocated and distributed to the
General Partner.
Section 8.3 Tax and Insurance Account.
The General Partner, on behalf of the Partnership, shall open a tax and
insurance account (the "T & I Account") for the purpose of making the requisite
Insurance premium payments and the real estate tax payments. A deposit equal to
six months of taxes shall be deposited upon the execution of this Agreement.
Thereafter, the annual deposit to the T & I Account shall equal the total annual
Insurance payment and the total annual real estate tax payment. Said amount
shall be deposited monthly in an amount equal to 1/12th of the annual required
amount. Notwithstanding the foregoing, as part of its obligation to achieve
Breakeven Operations, the General Partner shall cause the Partnership to prefund
the T & I Account in an amount equal to one year's property insurance premium
and the next full installment of real estate taxes based on improved land. The T
& I Account shall require the joint signature of the Special Limited Partner for
any withdrawals. Any balance remaining in the account at the time of a sale of
the Apartment Housing shall be allocated and distributed 75% to the General
26
Partner and 25% to the Limited Partner. The Partnership is required to pay real
estate taxes on May 15th and October 15th of each year.
Section 8.4 Intentionally omitted.
Section 8.5 Other Reserves.
The General Partner, on behalf of the Partnership, may establish out of
funds available to the Partnership a reserve account sufficient in its sole
discretion to pay any unforeseen contingencies which might arise in connection
with the furtherance of the Partnership business including, but not limited to,
(a) any rent subsidy required to maintain rent levels in compliance with the Tax
Credit Conditions and applicable RD regulations; and (b) any debt service or
other payments for which other funds are not provided for hereunder or otherwise
expected to be available to the Partnership. The General Partner shall not be
liable for any good-faith estimate which it shall make in connection with
establishing or maintaining any such reserves nor shall the General Partner be
required to establish or maintain any such reserves if, in its sole discretion,
such reserves do not appear to be necessary.
ARTICLE IX.
MANAGEMENT AND CONTROL
Section 9.1 Power and Authority of General Partner.
Subject to the Consent of the Special Limited Partner or the consent of the
Limited Partner where required by this Agreement, and subject to the other
limitations and restrictions included in this Agreement, the General Partner
shall have complete and exclusive control over the management of the Partnership
business and affairs, and shall have the right, power and authority, on behalf
of the Partnership, and in its name, to exercise all of the rights, powers and
authority of a partner of a partnership without limited partners. If there is
more than one General Partner, all acts, decisions or consents of the General
Partners shall require a majority of the General Partners. If a General Partner
takes action without the authorization of all the General Partners then such
act, decision, etc. shall not be deemed a valid action taken by the General
Partners pursuant to this Agreement. No Limited Partner or Special Limited
Partner (except one who may also be a General Partner, and then only in its
capacity as General Partner within the scope of its authority hereunder) shall
have any right to be active in the management of the Partnership's business or
investments or to exercise any control thereover, nor have the right to bind the
Partnership in any contract, agreement, promise or undertaking, or to act in any
way whatsoever with respect to the control or conduct of the business of the
Partnership, except as otherwise specifically provided in this Agreement.
Section 9.2 Payments to the General Partners and Others.
(a) The Partnership shall pay to the Developer a Development Fee in the
amount of $168,498 in accordance with the Development Fee Agreement entered into
by and between the Developer and the Partnership on even date herewith. The
Development Fee Agreement provides, in part, that the Development Fee shall
27
first be paid from available proceeds in accordance with Section 9.2(b) of this
Agreement and if not paid in full then the balance of the Development Fee will
be paid in accordance with Section 11.1 of this Agreement.
(b) The Partnership shall utilize the proceeds from the Capital
Contributions paid pursuant to Section 7.2 of this Agreement for costs
associated with the development and construction of the Apartment Housing
including, but not limited to, land costs, Land Acquisition Fee, architectural
fees, survey and engineering costs, financing costs, loan fees, Syndication Fee,
building materials and labor. If any Capital Contribution proceeds are remaining
after Completion of Construction and all acquisition, development and
construction costs, excluding the Development Fee, are paid in full and the
Construction Loan has been retired, then the remainder shall: first be paid to
the Developer in payment of the Development Fee; second be paid to the General
Partner as a reduction of the General Partner's Capital Contribution; and any
remaining Capital Contribution proceeds shall be paid to the General Partner as
a Partnership oversight fee.
(c) The Partnership shall pay to the Management Agent a property management
fee for the leasing and management of the Apartment Housing in an amount in
accordance with the Management Agreement. The term of the Management Agreement
shall not exceed 1 year, and the execution or renewal of any Management
Agreement shall be subject to the prior Consent of the Special Limited Partner.
If the Management Agent is an Affiliate of the General Partner and there is an
Operating Deficit following the termination of the Operating Deficit Guarantee
Period or the depletion of the maximum Operating Deficit amount pursuant to
Section 6.3, whichever occurs first, then 30% of the management fee will be
deferred ("Deferred Management Fees"). Deferred Management Fees, if any, shall
be paid to the Management Agent in accordance with Section 11.1 of this
Agreement.
(1) The General Partner shall, upon receiving any request of the Mortgage
lender requesting such action, dismiss the Management Agent as the entity
responsible for management of the Apartment Housing under the terms of the
Management Agreement; or, the General Partner shall dismiss the Management Agent
at the request of the Special Limited Partner.
(2) The appointment of any successor Management Agent is subject to the
Consent of the Special Limited Partner, which may only be sought after the
General Partner has provided the Special Limited Partner with accurate and
complete disclosure respecting the proposed Management Agent.
(d) The Partnership shall pay to the Limited Partner an annual Asset
Management Fee commencing in 2006 equal to 10% of Net Operating Income but in no
event less than $750 (the "Minimum Amount") for the Limited Partner's services
in assisting with the preparation of tax returns and the reports required in
Section 14.2 and Section 14.3 of this Agreement. Notwithstanding the
foregoing, the Asset Management fee paid in 2006 will be prorated based upon the
number of months of operations. The Asset Management Fee will be payable within
75 days following each calendar year and shall be payable from Net Operating
Income in the manner and priority set forth in Section 11.1 of this Agreement;
provided, however, provided, however, that if in any year Net Operating Income
is insufficient to pay the full $750, the unpaid portion thereof shall accrue
and be payable on a cumulative basis in the first year in which there is
28
sufficient Net Operating Income, as provided in Section 11.1, or sufficient Sale
or Refinancing Proceeds, as provided in Section 11.2. The General Partner shall
ensure that any accrued Asset Management Fee will be reflected in the annual
audited financial statement.
(e) The Partnership shall pay to the General Partner through the Compliance
Period an annual Incentive Management Fee equal to 35% of Net Operating Income
commencing in 2006 for overseeing the marketing, lease-up and continued
occupancy of the Partnership's apartment units, obtaining and monitoring the
Mortgage Loan, maintaining the books and records of the Partnership, selecting
and supervising the Partnership's Accountants, bookkeepers and other Persons
required to prepare and audit the Partnership's financial statements and tax
returns, and preparing and disseminating reports on the status of the Apartment
Housing and the Partnership, all as required by Article XIV of this Agreement.
The Partners acknowledge that the Incentive Management Fee is being paid as an
inducement to the General Partner to operate the Partnership efficiently, to
maximize occupancy and to increase the Net Operating Income. The Incentive
Management Fee shall be payable from Net Operating Income in the manner and
priority set forth in Section 11.1 of this Agreement upon completion and
delivery of the annual audit pursuant to Section 14.2(a) of this Agreement. If
the Incentive Management Fee is not paid in any year it shall not accrue for
payment in subsequent years.
(f) The Partnership shall pay to the General Partner through the Compliance
Period an annual Tax Credit Compliance Fee equal to 35% of Net Operating Income
commencing in 2006 for the services of the General Partner in ensuring
compliance by the Partnership and the Apartment Housing with all Tax Credit
rules and regulations. The Tax Credit Compliance Fee shall be payable from Net
Operating Income in the manner and priority set forth in Section 11.1 of this
Agreement upon completion and delivery of the annual audit pursuant to Section
14.2(a) of this Agreement. If the Tax Credit Compliance Fee is not paid in any
year it shall not accrue for payment in subsequent years.
Section 9.3 Specific Powers of the General Partner.
Subject to the other provisions of this Agreement, the General Partner, in
the Partnership's name and on its behalf, may:
(a) employ, contract and otherwise deal with, from time to time, Persons
whose services are necessary or appropriate in connection with management and
operation of the Partnership business, including, without limitation,
contractors, agents, brokers, Accountants and Management Agents (provided that
the selection of any Accountant or Management Agent has received the Consent of
the Special Limited Partner) and attorneys, on such terms as the General Partner
shall determine within the scope of this Agreement;
(b) pay as a Partnership expense any and all costs and expenses associated
with the formation, development, organization and operation of the Partnership,
including the expense of annual audits, tax returns and LIHTC compliance;
(c) deposit, withdraw, invest, pay, retain and distribute the Partnership's
funds in a manner consistent with the provisions of this Agreement;
(d) execute the Construction Loan and the Mortgage; and
29
(e) execute, acknowledge and deliver any and all instruments to effectuate
any of the foregoing.
Section 9.4 Authority Requirements.
During the Compliance Period, the following provisions shall apply.
(a) Each of the provisions of this Agreement shall be subject to, and the
General Partner covenants to act in accordance with, the Tax Credit Conditions
and all applicable federal, state and local laws and regulations.
(b) The Tax Credit Conditions and all such laws and regulations, as amended
or supplemented, shall govern the rights and obligations of the Partners, their
heirs, executors, administrators, successor and assigns, and they shall control
as to any terms in this Agreement which are inconsistent therewith, and any such
inconsistent terms of this Agreement shall be unenforceable by or against any of
the Partners.
(c) Upon any dissolution of the Partnership or any transfer of the
Apartment Housing, no title or right to the possession and control of the
Apartment Housing and no right to collect rent therefrom shall pass to any
Person who is not, or does not become, bound by the Tax Credit Conditions in a
manner that, in the opinion of counsel to the Partnership, would avoid a
recapture of Tax Credits thereof on the part of the former owners.
(d) Any conveyance or transfer of title to all or any portion of the
Apartment Housing required or permitted under this Agreement shall in all
respects be subject to the Tax Credit Conditions and all conditions, approvals
or other requirements of the rules and regulations of any authority applicable
thereto.
Section 9.5 Limitations on General Partner's Power and Authority.
Notwithstanding the provisions of this Article IX, the General Partner
shall not:
(a) except as required by Section 9.4, act in contravention of this
Agreement;
(b) act in any manner which would make it impossible to carry on the
ordinary business of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess Partnership property, or assign the Partner's right in specific
Partnership property, for other than the exclusive benefit of the Partnership;
(e) admit a Person as a General Partner except as provided in this
Agreement;
(f) directly or indirectly transfer control of the General Partner;
(g) admit a Person as a Limited Partner or Special Limited Partner except
as provided in this Agreement;
30
(h) violate any provision of the Mortgage;
(i) cause the Apartment Housing apartment units to be rented to anyone
other than Qualified Tenants;
(j) violate the Minimum Set-Aside Test or the Rent Restriction Test for the
Apartment Housing;
(k) allow the Insurance to expire;
(l) permit the Apartment Housing to be without utility service;
(m) cause any recapture of the Tax Credits;
(n) permit any creditor who makes a nonrecourse loan to the Partnership to
have, or to acquire at any time as a result of making such loan, any direct or
indirect interest in the profits, income, capital or other property of the
Partnership, other than as a secured creditor;
(o) commingle funds of the Partnership with the funds of another Person; or
(p) fail to cause the Partnership to make the Mortgage payment if the
Partnership fails to pay the same when due, subject to available funds,
including funds provided under Section 6.3 or Section 6.4;
(q) fail to cause the Accountant to issue the reports specified in Sections
14.2(a) and (b) of this Agreement;
(r) take any action which requires the Consent of the Special Limited
Partner or the consent of the Limited Partner unless the General Partner has
received said Consent;
(s) allow the Real Estate Taxes to be unpaid if the Partnership fails to
pay the same when due; or
(t) pay any real estate commission for the sale or refinancing of the
Apartment Housing;
(u) take any action that would cause a termination of the Partnership;
(v) encumber the Apartment Housing, except as provided herein;
(w) execute an assignment for the benefit of creditors; or
(x) permit the Partnership to make loans to any Person.
Section 9.6 Restrictions on Authority of General Partner.
Without the Consent of the Special Limited Partner the General Partner
shall not:
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(a) sell, exchange, lease (except in the normal course of business to
Qualified Tenants) or otherwise dispose of the Apartment Housing;
(b) incur indebtedness in the name of the Partnership other than the
Construction Loan and Mortgage, including, but not limited to, refinancing,
prepaying, or modifying the Construction Loan or Mortgage;
(c) use Partnership assets, property or Improvements to secure the debt of
any Partners, their Affiliates, or any third party;
(d) engage in any transaction not expressly contemplated by this Agreement
in which the General Partner has an actual or potential conflict of interest
with the Limited Partner or the Special Limited Partner;
(e) contract away the fiduciary duty owed to the Limited Partner and the
Special Limited Partner at common law;
(f) take any action which would cause the Apartment Housing to fail to
qualify, or which would cause a termination or discontinuance of the
qualification of the Apartment Housing, as a "qualified low income housing
project" under Section 42(g)(1) of the Code, as amended, or any successor
thereto, or which would cause the Limited Partner to fail to obtain the
Projected Tax Credits or which would cause the recapture of any LIHTC;
(g) make any expenditure of funds, or commit to make any such expenditure,
other than in response to an emergency, except as provided for in the annual
budget approved by the Special Limited Partner, as provided in Section 14.3(i)
hereof;
(h) cause the merger or other reorganization of the Partnership;
(i) dissolve the Partnership, or sell or dispose of all or substantially
all of the Partnership's assets;
(j) acquire any real or personal property (tangible or intangible) in
addition to the Apartment Housing the aggregate value of which shall exceed
$10,000 (other than easement or similar rights necessary or appropriate for the
operation of the Apartment Housing);
(k) become personally liable on or in respect of, or guarantee, the
Mortgage or any other indebtedness of the Partnership or any Person;
(l) loan any money on behalf of the Partnership or pay any salary, fees or
other compensation to a General Partner or any Affiliate thereof, except as
authorized by Section 9.2 and Section 9.9 hereof or specifically provided for in
this Agreement;
(m) substitute the Accountant, Construction Inspector, Contractor or
Management Agent, as named herein, or terminate, amend or modify the
Construction Contract or any other Project Document, or grant any material
waiver or consent thereunder;
32
(n) change the nature of the business of the Partnership or cause the
Partnership to redeem or repurchase all or any portion of the Interest of a
Partner;
(o) cause the Partnership to convert the Apartment Housing to cooperative
or condominium ownership;
(p) cause or permit the Partnership to make loans to the General Partner or
any Affiliate;
(q) bring or defend, pay, collect, compromise, arbitrate, resort to legal
action or otherwise adjust claims or demands of or against the Partnership in an
amount that exceeds $5,000;
(r) reduce the amount of a construction budget line item in excess of
$5,000 (other than the construction contingency) to provide funds for an overage
in another construction budget line item, agree or consent to any changes in the
Plans and Specifications, to any change orders, or to any of the terms and
provisions of the Construction Contract;
(s) cause any funds to be paid to the General Partner or its Affiliates for
laundry service, cable hook-up, telephone connection, computer access, satellite
connection, compliance monitoring, initial rental set-up fee or similar service
or fee;
(t) on behalf of the Partnership, file or cause to be filed a voluntary
petition in bankruptcy under the Federal Bankruptcy Code, or file or cause to be
filed a petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or rule;
(u) settle any audit with the Internal Revenue Service concerning the
adjustment or readjustment of any Partnership tax item, extend any statute of
limitations, or initiate or settle any judicial review or action concerning the
amount or character of any Partnership tax item; or
(v) make, amend or revoke any tax election.
Section 9.7 Duties of General Partner.
The General Partner agrees that it shall at all times:
(a) diligently and faithfully devote such of its time to the business of
the Partnership as may be necessary to properly conduct the affairs of the
Partnership;
(b) file and publish all certificates, statements or other instruments
required by law for the formation and operation of the Partnership as a limited
partnership in all appropriate jurisdictions;
(c) cause the Partnership to carry Insurance from an Insurance Company;
(d) have a fiduciary responsibility for the safekeeping and use of all
funds and assets of the Partnership, whether or not in its immediate possession
or control;
33
(e) have a fiduciary responsibility to not use or permit another to use
Partnership funds or assets in any manner except for the benefit of the
Partnership;
(f) use its best efforts so that all requirements shall be met which are
reasonably necessary to obtain or achieve (1) compliance with the Minimum
Set-Aside Test, the Rent Restriction Test, and any other requirements necessary
for the Apartment Housing to initially qualify, and to continue to qualify, for
LIHTC; (2) issuance of all necessary certificates of occupancy, including all
governmental approvals required to permit occupancy of all of the apartment
units in the Apartment Housing; (3) compliance with all provisions of the
Project Documents and (4) a reservation and allocation of LIHTC from the State
Tax Credit Agency;
(g) make inspections of the Apartment Housing and assure that the Apartment
Housing is in decent, safe, sanitary and good condition, repair and working
order, ordinary use and obsolescence excepted, and make or cause to be made from
time to time all necessary repairs thereto (including external and structural
repairs) and renewals and replacements thereof;
(h) pay, before the same shall become delinquent and before penalties
accrue thereon all Partnership taxes, assessments and other governmental charges
against the Partnership or its properties, and all of its other liabilities,
except to the extent and so long as the same are being contested in good faith
by appropriate proceedings in such manners as not to cause any material adverse
effect on the Partnership's property, financial condition or business
operations, with adequate reserves provided for such payments;
(i) pay, before the same becomes due or expires, the Insurance premium and
utilities for the Apartment Housing;
(j) permit, and cause the Management Agent to permit, the Special Limited
Partner and its representatives: (1) to have access to the Apartment Housing and
personnel employed by the Partnership and by the Management Agent at all times
during normal business hours after reasonable notice; (2) to examine all
agreements, LIHTC compliance data and Plans and Specifications; and (3) to make
copies thereof;
(k) exercise good faith in all activities relating to the conduct of the
business of the Partnership, including the development, operation and
maintenance of the Apartment Housing, and shall take no action with respect to
the business and property of the Partnership which is not reasonably related to
the achievement of the purpose of the Partnership;
(l) make any Capital Contributions, advances or loans required to be made
by the General Partner under the terms of this Agreement;
(m) establish and maintain all reserves required to be established and
maintained under the terms of this Agreement;
(n) cause the Partnership to pay, before the same becomes due, the Mortgage
payment, subject to available funds, including funds provided under Section 6.3
or Section 6.4;
(o) pay, before the same becomes due, the Real Estate Taxes;
34
(p) cause the Management Agent to manage the Apartment Housing in such a
manner that the Apartment Housing will be eligible to receive LIHTC with respect
to 100% of the apartment units in the Apartment Housing. To that end, the
General Partner agrees, without limitation: (1) to make all elections requested
by the Special Limited Partner under Section 42 of the Code to allow the
Partnership or its Partners to claim the Tax Credit; (2) to file Form 8609 with
respect to the Apartment Housing as required, for at least the duration of the
Compliance Period; (3) to operate the Apartment Housing and cause the Management
Agent to manage the Apartment Housing so as to comply with the requirements of
Section 42 of the Code, as amended, or any successor thereto, including, but not
limited to, Section 42(g) and Section 42(i)(3) of the Code, as amended, or any
successors thereto; (4) to make all certifications required by Section 42(l) of
the Code, as amended, or any successor thereto; and (5) to operate the Apartment
Housing and cause the Management Agent to manage the Apartment Housing so as to
comply with all other Tax Credit Conditions;
(q) cause the Accountant to issue the information required in accordance
with Sections 14.2(a) and (b);
(r) perform such other acts as may be expressly required of it under the
terms of this Agreement;
(s) maintain on its staff during construction and rent-up a trained and
experienced project manager who is responsible for the development and
construction of the Improvements, and responsible for obtaining Completion of
Construction. In lieu of this employee, or if the project manager position
remains vacant for 21 days, the General Partner shall retain the services of a
construction management firm, which firm shall be pre-approved by the Special
Limited Partner; and
(t) [intentionally omitted].
Section 9.8 Obligations to Repair and Rebuild Apartment Housing.
With the approval of any lender, if such approval is required, any
Insurance proceeds received by the Partnership due to fire or other casualty
affecting the Apartment Housing will be utilized to repair and rebuild the
Apartment Housing in satisfaction of the conditions contained in Section
42(j)(4) of the Code and to the extent required by any lender. Any such proceeds
received in respect of such event occurring after the Compliance Period shall be
so utilized or, if permitted by the Project Documents and with the Consent of
the Special Limited Partner, shall be treated as Sale or Refinancing Proceeds.
Section 9.9 Partnership Expenses.
(a) All of the Partnership's expenses shall be billed directly to and paid
by the Partnership to the extent practicable. Reimbursements to the General
Partner, or any of its Affiliates, by the Partnership shall be allowed only from
the Partnership's Cash Expenses. The General Partner shall not be reimbursed if
the General Partner is obligated to pay the same as an Operating Deficit during
the Operating Deficit Guarantee Period, or by operation of law in accordance
with the State limited partnership act as amended, or subject to the limitations
on the reimbursement of such expenses set forth herein in which case the General
Partner shall be responsible for payment of the expense. For purposes of this
35
Section, Cash Expenses shall include fees paid by the Partnership to the General
Partner or any Affiliate of the General Partner permitted by this Agreement and
the actual cost of goods, materials and administrative services used for or by
the Partnership, whether incurred by the General Partner, an Affiliate of the
General Partner or a nonaffiliated Person in performing the foregoing functions.
As used in the preceding sentence, "actual cost of goods and materials" means
the cost of the goods or services must be no greater and preferably less than
the cost of the same goods or services from non-Affiliated vendors, contractors,
or managers in the market area, and actual cost of administrative services means
the pro rata cost of personnel (as if such persons were employees of the
Partnership) associated therewith, but in no event to exceed the amount which
would be charged by nonaffiliated Persons for comparable goods and services.
(b) Reimbursement to the General Partner or any of its Affiliates of
operating cash expenses pursuant to Subsection (a) hereof shall be subject to
the following:
(1) no such reimbursement shall be permitted for services for which the
General Partner or any of its Affiliates is entitled to compensation by way of a
separate fee; and
(2) no such reimbursement shall be made for (A) rent or depreciation,
utilities, capital equipment or other such administrative items, and (B)
salaries, fringe benefits, travel expenses and other administrative items
incurred or allocated to any "controlling person" of the General Partner or any
Affiliate of the General Partner. For the purposes of this Section 9.9(b)(2),
"controlling person" includes, but is not limited to, any Person, however
titled, who performs functions for the General Partner or any Affiliate of the
General Partner similar to those of: (i) chairman or member of the board of
directors; (ii) executive management, such as president, vice president or
senior vice president, corporate secretary or treasurer; (iii) senior
management, such as the vice president of an operating division who reports
directly to executive management; or (iv) those holding 5% or more equity
interest in such General Partner or any such Affiliate of the General Partner or
a person having the power to direct or cause the direction of such General
Partner or any such Affiliate of the General Partner, whether through the
ownership of voting securities, by contract or otherwise.
Section 9.10. General Partner Expenses.
The General Partner or Affiliates of the General Partner shall pay all
Partnership expenses which are not permitted to be reimbursed pursuant to
Section 9.9 and all expenses which are unrelated to the business of the
Partnership.
Section 9.11 Other Business of Partners.
Any Partner may engage independently or with others in other business
ventures wholly unrelated to the Partnership business of every nature and
description, including, without limitation, the acquisition, development,
construction, operation and management of real estate projects and developments
of every type on their own behalf or on behalf of other partnerships, joint
ventures, corporations or other business ventures formed by them or in which
they may have an interest, including, without limitation, business ventures
similar to, related to or in direct or indirect competition with the Apartment
36
Housing. Neither the Partnership nor any Partner shall have any right by virtue
of this Agreement or the partnership relationship created hereby in or to such
other ventures or activities or to the income or proceeds derived therefrom.
Conversely, no Person shall have any rights to Partnership assets, incomes or
proceeds by virtue of such other ventures or activities of any Partner.
Section 9.12 Covenants, Representations and Warranties.
The General Partner covenants, represents and warrants that the following
are presently true, will be true at the time of each Capital Contribution
payment made by the Limited Partner and will be true during the term of this
Agreement, to the extent then applicable.
(a) The Partnership is a duly organized limited partnership validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of the
Limited Partner and the Special Limited Partner.
(b) The Partnership Agreement and the Project Documents are in full force
and effect and neither the Partnership nor the General Partner is in breach or
violation of any provisions thereof.
(c) Improvements will be completed in a timely and worker-like manner in
accordance with all applicable requirements of all appropriate governmental
entities and the Plans and Specifications of the Apartment Housing.
(d) The Apartment Housing is being operated in accordance with standards
and procedures that are prudent and customary for the operation of properties
similar to the Apartment Housing.
(e) All conditions to the funding of the Subordinate Loan and Mortgage Loan
have been met.
(f) No Partner has or will have any personal liability with respect to or
has or will have personally guaranteed the payment of the Mortgage.
(g) The Partnership is in compliance with all construction and use codes
applicable to the Apartment Housing and is not in violation of any zoning,
environmental or similar regulations applicable to the Apartment Housing.
(h) All appropriate public utilities, including sanitary and storm sewers,
water, gas and electricity, are currently available and will be operating
properly for all units in the Apartment Housing at the time of first occupancy
and throughout the term of the Partnership.
(i) All roads necessary for the full utilization of the Improvements have
either been completed or the necessary rights of way therefore have been
acquired by the appropriate governmental authority or have been dedicated to
public use and accepted by said governmental authority.
(j) The Partnership has Insurance written by an Insurance Company.
37
(k) The Partnership owns the fee simple interest in the Apartment Housing.
(l) The Construction Contract has been entered into between the Partnership
and the Contractor; no other consideration or fee shall be paid to the
Contractor other than amounts set forth in the Construction Contract.
(m) The General Partner will require the Accountant to depreciate
Partnership items in accordance with Exhibit G attached hereto and incorporated
herein by this reference and provide the information required by Sections
14.2(a) and (b) of this Agreement.
(n) To the best of the General Partner's knowledge: (1) no Hazardous
Substance has been disposed of, or released to or from, or otherwise now exists
in, on, under or around, the Apartment Housing and (2) no aboveground or
underground storage tanks are now or have ever been located on or under the
Apartment Housing. The General Partner will not install or allow to be installed
any aboveground or underground storage tanks on the Apartment Housing. The
General Partner covenants that the Apartment Housing shall be kept free of
Hazardous Substance and shall not be used to generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce or process
Hazardous Substance, except in connection with the normal maintenance and
operation of any portion of the Apartment Housing. The General Partner shall
comply, or cause there to be compliance, with all applicable Federal, state and
local laws, ordinances, rules and regulations with respect to Hazardous
Substance and shall keep, or cause to be kept, the Apartment Housing free and
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The General Partner must promptly notify the Limited Partner and
the Special Limited Partner in writing (3) if it knows, or suspects or believes
there may be any Hazardous Substance in or around any part of the Apartment
Housing, any Improvements constructed on the Apartment Housing, or the soil,
groundwater or soil vapor, (4) if the General Partner or the Partnership may be
subject to any threatened or pending investigation by any governmental agency
under any law, regulation or ordinance pertaining to any Hazardous Substance,
and (5) of any claim made or threatened by any Person, other than a governmental
agency, against the Partnership or General Partner arising out of or resulting
from any Hazardous Substance being present or released in, on or around any part
of the Apartment Housing.
(o) The General Partner has not executed and will not execute any
agreements with provisions contradictory to, or in opposition of the provisions
of this Agreement.
(p) The Partnership will allocate to the Limited Partner the Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.
(q) No charges, liens or encumbrances exist with respect to the Apartment
Housing other than those which are created or permitted by the Project Documents
or Mortgage or are noted or excepted in the Title Policy.
(r) The Partnership shall receive copies of reports prepared by the
Construction Inspector pursuant to the Disbursement Agreement and ensure that
the Architect of Record's responsibilities include, but are not limited to,
preparing and overseeing the construction close-out procedures upon completion;
inspecting for and overseeing resolution of the Contractor's final punch list
items; receiving and approving operation and maintenance manuals; collecting,
38
reviewing, approving and forwarding to the Partnership all warranties, check key
count and key schedules; and confirming turnover of spare parts and materials.
(s) The buildings on the Apartment Housing site constitute or shall
constitute a "qualified low-income housing project" as defined in Section 42(g)
of the Code, and as amplified by the Treasury Regulations thereunder. In this
connection, not later than December 31 of the first year in which the Partners
elect the LIHTC to commence in accordance with the Code, the Apartment Housing
will satisfy the Minimum Set-Aside Test.
(t) All accounts of the Partnership required to be maintained under the
terms of the Project Documents, including, without limitation, any reserves in
accordance with Article VIII hereof, are currently funded to required levels,
including levels required by any governmental or lending authority.
(u) The General Partner has not lent or otherwise advanced any funds to the
Partnership other than its Capital Contribution, or Operating Deficit Loan, if
applicable, and the Partnership has no unsatisfied obligation to make any
payments of any kind to the General Partner or any Affiliate thereof.
(v) No event has occurred which constitutes a default under any of the
Project Documents.
(w) No event has occurred which has caused, and the General Partner has not
acted in any manner which will cause (1) the Partnership to be treated for
federal income tax purposes as an association taxable as a corporation, (2) the
Partnership to fail to qualify as a limited partnership under the Act, or (3)
the Limited Partner to be liable for Partnership obligations; provided however,
the General Partner shall not be in breach of this representation if the action
causing the Limited Partner to be liable for the Partnership obligations is
undertaken by the Limited Partner.
(x) No event or proceeding, including, but not limited to, any legal
actions or proceedings before any court, commission, administrative body or
other governmental authority, and acts of any governmental authority having
jurisdiction over the zoning or land use laws applicable to the Apartment
Housing, has occurred the continuing effect of which has: (1) materially or
adversely affected the operation of the Partnership or the Apartment Housing;
(2) materially or adversely affected the ability of the General Partner to
perform its obligations hereunder or under any other agreement with respect to
the Apartment Housing; or (3) prevented the Completion of Construction of the
Improvements in substantial conformity with the Project Documents, other than
legal proceedings which have been bonded against (or as to which other
adequate financial security has been issued) in a manner as to indemnify the
Partnership against loss; provided, however, the foregoing does not apply to
matters of general applicability which would adversely affect the Partnership,
the General Partner, Affiliates of the General Partner or the Apartment Housing
only insofar as they or any of them are part of the general public.
(y) Neither the Partnership nor the General Partner has any liabilities,
contingent or otherwise, which have not been disclosed in writing to the Limited
Partner and the Special Limited Partner and which in the aggregate affect the
39
ability of the Limited Partner to obtain the anticipated benefits of its
investment in the Partnership.
(z) The General Partner will cause construction of the Improvements to
commence and thereafter will cause the Contractor to diligently proceed with
construction of the Improvements according to the Plans and Specifications so
that the Improvements can be completed by the Completion Date.
(aa) The General Partner has contacted the local tax assessor, or similar
representative, and has determined that the Real Estate Taxes are accurate and
correct, and that the Partnership will not be required to pay any more for real
estate taxes, or property taxes, than the amount of Real Estate Taxes,
referenced in this Agreement, except for annual increases imposed on all real
estate within the same county as the Apartment Housing. In the event the actual
real estate taxes, or property taxes, are greater than the Real Estate Taxes
specified in this Agreement and as a result of the higher real estate tax, or
property tax, the Debt Service Coverage falls below 1.10 then the General
Partner will reamortize the Mortgage so that the Debt Service Coverage is at a
sustainable 1.10, as approved by the Special Limited Partner. If the Mortgage
lender will not or cannot reamortize the loan as specified in this Section, and
the General Partner cannot obtain another mortgage, then the General Partner
will establish and fund the T & I Account as provided in Section 8.2. Payment by
the General Partner pursuant to this section is in addition to the General
Partner's obligation to fund Operating Deficits.
(bb) The Partnership will maintain a Debt Service Coverage of not less than
1.10 and will not close on a permanent loan or refinance a Mortgage loan if the
Debt Service Coverage would fall below 1.10.
(cc) The General Partner will ensure that the Architect of Record will have
a policy of professional liability insurance in an amount not less than
$1,000,000, which policy should remain in force for a period of at least 2 years
after the closing and funding of the Mortgage.
(dd) The General Partner and the Guarantor have and shall maintain an
aggregate net worth equal to at least $1,200,000 computed in accordance with
generally accepted accounting principles.
(ee) The Partnership is in compliance with and will maintain compliance
with the requirements of the federal Fair Housing Act of 1968 (42 U.S.C. 3600 et
seq.) as amended, with respect to the Apartment Housing.
(ff) Neither the General Partner nor its Affiliates will take any action or
agree to any terms or conditions that are contrary to, or in disagreement with,
the tax credit application used to secure the LIHTC, or the land use restriction
agreement required to be recorded against the Apartment Housing.
(gg) [intentionally omitted].
The General Partner shall be liable to the Limited Partner for any costs,
damages, loss of profits, diminution in the value of its investment in the
40
Partnership, or other losses, of every nature and kind whatsoever, direct or
indirect, realized or incurred by the Limited Partner as a result of any
material breach of the representations and warranties set forth in this Section
9.12.
Section 9.13 Intentionally omitted.
Section 9.14 Option to Acquire.
After expiration of the Compliance Period, the General Partner may give
notice (the "GP Notice") to the Limited Partner that it desires to purchase the
entire Interest of each of the Limited Partner and the Special Limited Partner
in the Partnership. Upon receipt by the Limited Partner and the Special Limited
Partner, the following events shall occur:
(a)The purchase price of the Interests shall be determined. The purchase
price shall be the greater of (i) the aggregate of the Fair Market Value of the
Interest of the Limited Partner and the Fair Market Value of the Interest of the
Special Limited Partner or (ii) the "Tax Amount" as hereinafter defined.
Notwithstanding the preceding, the purchase price shall be no less than the
principal amount of all outstanding indebtedness secured by the Apartment
Housing.
(b) The Limited Partner and the Special Limited Partner shall negotiate
with the General Partner for a period of 30 days after the GP Notice is received
to agree upon the Fair Market Value of their respective Interests. In the event
an agreement is not reached within such 30 day period, then the General Partner
or the Special Limited Partner may request that Fair Market Value be determined
in accordance with the process set forth below by sending notice (the "Appraisal
Notice") of same to the other party within 15 days of the expiration of the 30
day period. If an Appraisal Notice is not sent by either party within such 15
day period, then the General Partner's option shall expire.
(c) If the respective Fair Market Value of the Interests of the Limited
Partner and the Special Limited Partner are not agreed upon as provided above
and either the General Partner or the Special Limited Partner issues to the
other Person an Appraisal Notice, then the Fair Market Value of such Interests
shall be determined by an appraisal. The appraisal shall be conducted by an
independent appraiser satisfactory to the General Partner and the Special
Limited Partner or, in the event that a single independent appraiser cannot be
agreed upon within 30 days following the date of the Appraisal Notice, the
General Partner and the Special Limited Partner shall each select an independent
appraiser and the appraisers so selected shall select a third independent
appraiser. All appraisers so designated shall be experienced in accounting,
business or real estate appraisal. The appraiser or appraisers shall determine
the Fair Market Value of the Interest of each of the Limited Partner and the
Special Limited Partner. The decision of the appraisers (if more than one) shall
be made by the majority of such appraisers. The appraiser or appraisers
shall render a written report setting forth the Fair Market Value of such
Interests, which decision shall be rendered as expeditiously as possible by the
appraiser or appraisers and which decision shall be final and binding upon the
parties. The reasonable fees and expenses of the appraiser or appraisers shall
be paid one-half by the General Partner and one-half by the Limited Partner.
(d) The "Tax Amount" shall mean the dollar amount computed in the following
fashion:
41
(i) The Limited Partner and the Special Limited Partner shall be deemed to
have gain in an amount equal to the difference between their respective basis in
the Apartment Housing and an amount equal to the total forgiveness of debt which
would be realized by the Limited Partner and the Special Limited Partner
computed as if the Limited Partner and the Special Limited Partner abandoned
their Interests in the Partnership on the date of the GP Notice. The Tax Amount
shall equal the deemed gain as computed above by a tax rate(s) applied to such
gain. The tax rate shall be the highest individual rate stated in the Code
applicable to the type of income (and if there is more than one rate applicable
because of more than one type of income, the different rates shall be applied to
the appropriate portions of such income). The Limited Partner shall cooperate to
expeditiously determine the Tax Amount.
(e) Following determination of the purchase price, the General Partner
shall have 30 days thereafter to determine whether the General Partner will
purchase the Interests of the Limited Partner and the Special Limited Partner at
the purchase price so determined. The General Partner shall exercise such right
by written notice to the Limited Partner and the Special Limited Partner within
such 30 day period, and if such right is not so exercised, the option shall
lapse in its entirety.
(f) If the General Partner determines to proceed with the purchase, the
purchase price shall be paid in cash, within 90 days following the giving of the
notice required by Section 9.13 and, in addition, interest shall be paid on the
purchase price from the date of the GP Notice, payable with the purchase price,
and calculated at the rate of interest set forth in Section 6.3 hereof.
Section 9.15 Right of First Refusal.
If the Limited Partner and the Special Limited Partner are desirous of
selling their Interests in the Partnership then they must first offer their
Interests to the General Partner. For these purposes, the term "sell" shall
include any transfer, conveyance, assignment, hypothecation or pledge of all or
any portion of such Interests. Before the Limited Partner and the Special
Limited Partner sell or unconditionally agree to sell their Interests, they
shall offer to sell their Interests to the General Partner (the "Offer") on the
terms and at the price specified in Section 9.13 of this Agreement. The Offer
shall contain the name of the proposed purchaser, the proposed sale price, the
terms of the payment and any other material terms and conditions on which the
sale is to be consummated. The General Partner shall have 30 days from receipt
of the Offer (the "Offer Period") in which to accept or reject the Offer. If the
General Partner gives timely notice of acceptance of the Offer, the Limited
Partner and the Special Limited Partner shall be obligated to sell their
Interests and the General Partner shall be obligated to purchase the Interests
on the terms and conditions set forth in the Offer. If the General Partner
does not give timely notice of acceptance of the Offer, then the Limited Partner
and the Special Limited Partner may sell their Interests to the party identified
in the Offer on the terms and conditions set forth in the Offer.
42
ARTICLE X.
ALLOCATIONS OF INCOME, LOSSES AND CREDITS
Section 10.1 General.
All items includable in the calculation of Income or Loss not arising from
a Sale or Refinancing, and all Tax Credits, shall be allocated 99.98% to the
Limited Partner, 0.01% to the Special Limited Partner and 0.01% to the General
Partner. In allocating Tax Credits, the special allocation provisions of Section
10.3 shall not be taken into account.
Section 10.2 Allocations From Sale or Refinancing.
All Income and Losses arising from a Sale or Refinancing shall be allocated
between the Partners as follows:
(a) As to Income:
(1) first, an amount of Income equal to the aggregate negative balances (if
any) in the Capital Accounts of all Partners having negative Capital Accounts
(prior to taking into account the Sale or Refinancing and the Distribution of
the related Sale or Refinancing Proceeds, but after giving effect to
Distributions of Net Operating Income and allocations of other Income and Losses
pursuant to this Article X up to the date of the Sale or Refinancing) shall be
allocated to such Partners in proportion to their negative Capital Account
balances until all such Capital Accounts shall have zero balances; and
(2) the balance, if any, of such Income shall be allocated to the Partners
in the proportion necessary so that the Partners will receive the amount to
which they are entitled pursuant to Section 11.2 hereof.
(b) Losses shall be allocated 99.98% to the Limited Partner, 0.01% to the
Special Limited Partner and 0.01% to the General Partner.
(c) Notwithstanding the foregoing provisions of Section 10.2(a) and (b), in
no event shall any Losses be allocated to the Limited Partner or the Special
Limited Partner if and to the extent that such allocation would create or
increase an Adjusted Capital Account Deficit for the Limited Partner or the
Special Limited Partner. In the event an allocation of 99.98% or 0.01% of each
item includable in the calculation of Income or Loss not arising from a Sale or
Refinancing, would create or increase an Adjusted Capital Account Deficit for
the Limited Partner or the Special Limited Partner, respectively, then so much
of the items of deduction other than projected depreciation shall be allocated
to the General Partner instead of the Limited Partner or the Special Limited
Partner as is necessary to allow the Limited Partner or the Special Limited
Partner to be allocated 99.98% and 0.01%, respectively, of the items of Income
and Apartment Housing depreciation without creating or increasing an Adjusted
Capital Account Deficit for the Limited Partner or the Special Limited Partner,
it being the intent of the parties that the Limited Partner and the Special
Limited Partner always shall be allocated 99.98% and 0.01%, respectively, of the
items of Income not arising from a Sale or Refinancing and 99.98% and 0.01%,
respectively, of the Apartment Housing depreciation.
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Section 10.3 Special Allocations.
The following special allocations shall be made in the following order.
(a) Except as otherwise provided in Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provisions of this Article X, if there is
a net decrease in Partnership Minimum Gain during any Partnership fiscal year,
each Partner shall be specially allocated items of Partnership income and gain
for such fiscal year (and, if necessary, subsequent fiscal years) in an amount
equal to such Person's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Section
1.704-2(f)(6) and 1.704-2(j)(2) of the Treasury Regulations. This Section
10.3(a) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(f) of the Treasury Regulations and shall be interpreted
consistently therewith.
(b) Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury
Regulations, notwithstanding any other provision of this Article X, if there is
a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a
Partner Nonrecourse Debt during any Partnership fiscal year, each Person who has
a share of the Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of
the Treasury Regulations, shall be specially allocated items of Partnership
income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Person's share of the net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Treasury Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Treasury Regulations. This Section
10.3(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Treasury Regulations and shall be interpreted
consistently therewith.
(c) In the event any Partner unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to each such Partner in an amount and manner sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Partner as quickly as possible, provided that an allocation
pursuant to this Section 10.3(c) shall be made if and only to the extent that
such Partner would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 10.3 have been tentatively made as if
this Section 10.3(c) were not in the Agreement.
(d) In the event any Partner has a deficit Capital Account at the end of
any Partnership fiscal year which is in excess of the sum of (i) the amount such
Partner is obligated to restore, and (ii) the amount such Partner is deemed to
be obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
44
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 10.3(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 10.3 have been tentatively made as if this Sections
10.3(d) and Section 10.3(c) hereof were not in the Agreement.
(e) Nonrecourse Deductions for any fiscal year shall be specially allocated
99.98% to the Limited Partner, 0.01% to the Special Limited Partner and 0.01% to
the General Partner.
(f) Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partner who bears the economic risk of loss with
respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i)(1).
(g) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Partner in complete liquidation of
his interest in the Partnership, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Partners in accordance with
their interests in the Partnership in the event that Treasury Regulations
Section 1.704-1 (b)(2)(iv)(m)(2) applies, or to the Partner to whom such
distribution was made in the event that Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) To the extent the Partnership has taxable interest income with respect
to any promissory note pursuant to Section 483 or Section 1271 through 1288 of
the Code:
(1) such interest income shall be specially allocated to the Limited
Partner to whom such promissory note relates; and
(2) the amount of such interest income shall be excluded from the Capital
Contributions credited to such Partner's Capital Account in connection with
payments of principal with respect to such promissory note.
(i) To the extent the Partnership has taxable interest income with respect
to deposits of Capital Contribution payments, such interest income shall be
specially allocated to the General Partner.
(j) In the event the adjusted tax basis of any investment tax credit
property that has been placed in service by the Partnership is increased
pursuant to Code Section 50(c), such increase shall be specially allocated among
the Partners (as an item in the nature of income or gain) in the same
proportions as the investment tax credit that is recaptured with respect to such
property is shared among the Partners.
45
(k) Any reduction in the adjusted tax basis (or cost) of Partnership
investment tax credit property pursuant to Code Section 50(c) shall be specially
allocated among the Partners (as an item in the nature of expenses or losses) in
the same proportions as the basis (or cost) of such property is allocated
pursuant to Treasury Regulations Section 1.46-3(f)(2)(i).
(l) Any income, gain, loss or deduction realized as a direct or indirect
result of the issuance of an interest in the Partnership by the Partnership to a
Partner (the "Issuance Items") shall be allocated among the Partners so that, to
the extent possible, the net amount of such Issuance Items, together with all
other allocations under this Agreement to each Partner, shall be equal to the
net amount that would have been allocated to each such Partner if the Issuance
Items had not been realized.
(m) If any Partnership expenditure treated as a deduction on its federal
income tax return is disallowed as a deduction and treated as a distribution
pursuant to Section 731(a) of the Code, there shall be a special allocation of
gross income to the Partner deemed to have received such distribution equal to
the amount of such distribution.
(n) Interest deduction on the Partnership indebtedness referred to in
Section 6.4 shall be allocated 100% to the General Partner.
(o) In the event all or part of the Incentive Management Fee or the Tax
Credit Compliance Fee is disallowed by the Internal Revenue Service, then any
interest or income chargeable to the Partnership for such disallowance shall be
allocated to the General Partner.
(p) If the General Partner provides an Operating Loan to pay an Operating
Deficit, then the Partnership shall allocate Operating Losses to the General
Partner in an amount not to exceed the Operating Loan.
Section 10.4 Curative Allocations.
The allocations set forth in Section 10.2(c), Section 10.3(a), Section
10.3(b), Section 10.3(c), Section 10.3(d), Section 10.3(e), Section 10.3(f), and
Section 10.3(g) hereof (the "Regulatory Allocations") are intended to comply
with certain requirements of the Treasury Regulations. It is the intent of the
Partners that, to the extent possible, all Regulatory Allocations shall be
offset either with other Regulatory Allocations or with special allocations of
other items of Partnership income, gain, loss, or deduction pursuant to this
Section 10.4. Therefore, notwithstanding any other provision of this Article X
(other than the Regulatory Allocations), with the Consent of the Special Limited
Partner, the General Partner shall make such offsetting special allocations of
Partnership income, gain, loss, or deduction in whatever manner the General
Partner, with the Consent of the Special Limited Partner, determines appropriate
so that, after such offsetting allocations are made, each Partner's Capital
Account balance is, to the extent possible, equal to the Capital Account balance
such Partner would have had if the Regulatory Allocations were not part of the
Agreement and all Partnership items were allocated pursuant to Section 10.1,
Section 10.2(a), Section 10.2(b), Section 10.3(h), Section 10.3(i), Section
10.3(j), Section 10.3(k), Section 10.3(l), Section 10.3(m) and Section 10.5. In
exercising its authority under this Section 10.4, the General Partner shall
take into account future Regulatory Allocations under Section 10.3(a) and
46
Section 10.3(b) that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Section 10.3(e) and Section
10.3(f).
Section 10.5 Other Allocation Rules.
(a) The basis (or cost) of any Partnership investment tax credit property
shall be allocated among the Partners in accordance with Treasury Regulations
Section 1.46-3(f)(2)(i). All Tax Credits (other than the investment tax credit)
shall be allocated among the Partners in accordance with applicable law.
Consistent with the foregoing, the Partners intend that LIHTC will be allocated
99.98% to the Limited Partner, 0.01% to the Special Limited Partner and 0.01% to
the General Partner.
(b) In the event Partnership investment tax credit property is disposed of
during any taxable year, profits for such taxable year (and, to the extent such
profits are insufficient, profits for subsequent taxable years) in an amount
equal to the excess, if any, of (1) the reduction in the adjusted tax basis (or
cost) of such property pursuant to Code Section 50(c), over (2) any increase in
the adjusted tax basis of such property pursuant to Code Section 50(c) caused by
the disposition of such property, shall be excluded from the profits allocated
pursuant to Section 10.1 and Section 10.2(a) hereof and shall instead be
allocated among the Partners in proportion to their respective shares of such
excess, determined pursuant to Section 10.3(i) and Section 10.3(j) hereof. In
the event more than one item of such property is disposed of by the Partnership,
the foregoing sentence shall apply to such items in the order in which they are
disposed of by the Partnership, so the profits equal to the entire amount of
such excess with respect to the first such property disposed of shall be
allocated prior to any allocations with respect to the second such property
disposed of, and so forth.
(c) For purposes of determining the Income, Losses, or any other items
allocable to any period, Income, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the General
Partner with the Consent of the Special Limited Partner, using any permissible
method under Code Section 706 and the Treasury Regulations thereunder.
(d) Solely for purposes of determining a Partner's proportionate share of
the "excess nonrecourse liabilities" of the Partnership within the meaning of
Treasury Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are as follows: Limited Partner - 99.98%; Special Limited
Partner - 0.01%; General Partner - 0.01%.
(e) To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the General Partner shall endeavor to treat Distributions as having
been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse
Debt only to the extent that such Distributions would cause or increase an
Adjusted Capital Account Deficit for any Partner who is not a General Partner.
(f) In the event that the deduction of all or a portion of any fee paid or
incurred out of Net Operating Income by the Partnership to a Partner or an
Affiliate of a Partner is disallowed for federal income tax purposes by the
Internal Revenue Service with respect to a taxable year of the Partnership, the
47
Partnership shall then allocate to such Partner an amount of gross income of the
Partnership for such year equal to the amount of such fee as to which the
deduction is disallowed.
(g) In the event that the General Partner contributes capital to the
Partnership pursuant to Section 6.3(b), operating deductions in an amount equal
to the amount contributed shall be specially allocated to the General Partner.
Section 10.6 Tax Allocations: Code Section 704(c).
In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for federal income tax
purposes and its initial Gross Asset Value.
In the event the Gross Asset Value of any Partnership asset is adjusted,
subsequent allocations of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its Gross Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the General Partner with the Consent of the Special Limited Partner in any
manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this Section 10.6 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into account
in computing, any Person's Capital Account or share of Income, Losses, other
items, or distributions pursuant to any provision of this Agreement.
Section 10.7 Allocation Among Limited Partners.
In the event that the Interest of the Limited Partner hereunder is at any
time held by more than one Limited Partner all items which are specifically
allocated to the Limited Partner for any month pursuant to this Article X shall
be apportioned among such Persons according to the ratio of their respective
profit-sharing interests in the Partnership at the last day of such month.
Section 10.8 Allocation Among General Partners.
In the event that the Interest of the General Partner hereunder is at any
time held by more than one General Partner all items which are specifically
allocated to the General Partner for any month pursuant to this Article X shall
be apportioned among such Persons in such percentages as may from time to time
be determined by agreement among them without amendment to this Agreement or
consent of the Limited Partner or Consent of the Special Limited Partner.
Section 10.9 Modification of Allocations.
The provisions of Article X and Article XI and other provisions of this
Agreement are intended to comply with Treasury Regulations Section 1.704 and
shall be interpreted and applied in a manner consistent with such section of the
Treasury Regulations. In the event that the General Partner determines that it
48
is prudent to modify the manner in which the Capital Accounts of the Partners,
or any debit or credit thereto, are computed in order to comply with such
section of the Treasury Regulations, the General Partner may make such
modification, but only with the Consent of the Special Limited Partner, to the
minimum extent necessary, to effect the plan of allocations and Distributions
provided for elsewhere in this Agreement. Further, the General Partner shall
make any appropriate modifications, but only with the Consent of the Special
Limited Partner, in the event it appears that unanticipated events (e.g., the
existence of a Partnership election pursuant to Code Section 754) might
otherwise cause this Agreement not to comply with Treasury Regulation Section
1.704.
ARTICLE XI.
DISTRIBUTION
Section 11.1 Distribution of Net Operating Income.
Except as otherwise provided, Net Operating Income for each fiscal year
shall be distributed within 75 days following each calendar year and shall be
applied in the following order of priority:
(a) to pay the Deferred Management Fee, if any;
(b) to pay the balance of the current Asset Management Fee that was not
paid monthly and then to pay any accrued Asset Management Fees which have not
been paid in full from previous years;
(c) to pay the principal and then interest on the Development Fee not to
exceed the amount set forth in Exhibit B to the Development Fee Agreement;
(d) to pay the Operating Loans, if any, as referenced in Section 6.3 of
this Agreement, limited to 50% of the Net Operating Income remaining after
reduction for the payments made pursuant to subsections (a) through (c) of this
Section 11.1;
(e) to pay the Incentive Management Fee; (f) to pay the Tax Credit
Compliance Fee; and
(g) the balance, 24.99% to the Limited Partner, 0.01% to the Special
Limited Partner and 75% to the General Partner.
Section 11.2 Distribution of Sale or Refinancing Proceeds.
Sale or Refinancing Proceeds shall be distributed in the following order:
(a) to the payment of the Mortgage and other matured debts and liabilities
of the Partnership, other than accrued payments, debts or other liabilities
owing to Partners or former Partners;
49
(b) to any accrued payments, debts or other liabilities owing to the
Partners or former Partners, including, but not limited to, accrued Asset
Management Fees and Operating Loans, to be paid pro rata if necessary;
(c) to the establishment of any reserves which the General Partner, with
the Consent of the Special Limited Partner, shall deem reasonably necessary for
contingent, unmatured or unforeseen liabilities or obligations of the
Partnership; and
(d) thereafter, 24.99% to the Limited Partner, 0.01% to the Special Limited
Partner and 75% to the General Partner.
ARTICLE XII.
TRANSFERS OF LIMITED PARTNER'S AND
SPECIAL LIMITED PARTNER'S INTERESTS IN THE PARTNERSHIP
Section 12.1 Assignment of Interests.
The Limited Partner and the Special Limited Partner shall have the right to
assign all or any part of their respective Interests to any other Person,
whether or not a Partner, upon satisfaction of the following:
(a) a written instrument setting forth the name and address of the proposed
transferee, the nature and extent of the Interest which is proposed to be
transferred and the terms and conditions upon which the transfer is proposed to
be made, stating that the Assignee accepts and agrees to be bound by all of the
terms and provisions of this Agreement, and providing for the payment of all
reasonable expenses incurred by the Partnership in connection with such
assignment, including but not limited to the cost of preparing any necessary
amendment to this Agreement; and
(b) upon receipt by the General Partner of the Assignee's written
representation that the Partnership Interest is to be acquired by the Assignee
for the Assignee's own account for long-term investment and not with a view
toward resale, fractionalization, division or distribution thereof.
(c) Notwithstanding any provision to the contrary, the Limited Partner may
assign its Interest to an Affiliate or assign its Interest to U.S. Bank National
Association or its successors as collateral to secure a capital contribution
loan without satisfying the conditions of Section 12.1(a) and (b) above.
THE LIMITED PARTNER INTEREST AND THE SPECIAL LIMITED PARTNER INTEREST DESCRIBED
HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED OR
UNDER ANY STATE SECURITIES LAW. THESE INTERESTS MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS REGISTERED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS
OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
50
Section 12.2 Effective Date of Transfer.
Any assignment of a Limited Partner's Interest or Special Limited Partner's
Interest pursuant to Section 12.1 shall become effective as of the first day of
the calendar month in which the last of the conditions to such assignment are
satisfied.
Section 12.3 Invalid Assignment.
Any purported assignment of an Interest of the Limited Partner or the
Special Limited Partner otherwise than in accordance with Section 12.1 or
Section 12.6 shall be of no effect as between the Partnership and the purported
assignee and shall be disregarded by the General Partner in making allocations
and Distributions hereunder.
Section 12.4 Assignee's Rights to Allocations and Distributions.
An Assignee shall be entitled to receive allocations and Distributions from
the Partnership attributable to the Interest acquired by reason of any permitted
assignment from the effective date of transfer as determined in Section 12.2
above. The Partnership and the General Partner shall be entitled to treat the
assignor of such Partnership Interest as the absolute owner thereof in all
respects, and shall incur no liability for allocations and Distributions made in
good faith to such assignor, until such time as the written instrument of
assignment has been received by the Partnership.
Section 12.5 Substitution of Assignee as Limited Partner or Special Limited
Partner.
(a) An Assignee shall not have the right to become a Substitute Limited
Partner or Substitute Special Limited Partner in place of his assignor unless
the written consent of the General Partner to such substitution shall have been
obtained, which consent, in the General Partner's absolute discretion, may be
withheld; except that an Assignee which is an Affiliate of the Limited Partner
or Special Limited Partner, or U.S. Bank National Association or its successors,
may become a Substitute Limited Partner or Substitute Special Limited Partner
without the consent of the General Partner.
(b) A nonadmitted transferee of the Limited Partner's Interest or the
Special Limited Partner's Interest in the Partnership shall only be entitled to
receive that share of allocations, Distributions and the return of Capital
Contribution to which its transferor would otherwise have been entitled with
respect to the Interest transferred, and shall have no right to obtain any
information on account of the Partnership's transactions, to inspect the
Partnership's books and records or have any other of the rights and privileges
of a Limited Partner or Special Limited Partner, provided, however, that the
Partnership shall, if a transferee and transferor jointly advise the General
Partner in writing of a transfer of an Interest in the Partnership, furnish the
transferee with pertinent tax information at the end of each fiscal year of the
Partnership.
Section 12.6 Death, Bankruptcy, Incompetency, etc., of a Limited Partner.
Upon the death, dissolution, adjudication of bankruptcy, or adjudication of
incompetency or insanity of the Limited Partner or Special Limited Partner, such
51
Partner's executors, administrators or legal representatives shall have all the
rights of its predecessor-in-interest for the purpose of settling or managing
such Partner's estate, including such power as such Partner possessed to
constitute a successor as a transferee of its Interest in the Partnership and to
join with such transferee in making the application to substitute such
transferee as a Partner.
ARTICLE XIII.
WITHDRAWAL, REMOVAL AND REPLACEMENT OF
GENERAL PARTNER
Section 13.1 Withdrawal of General Partner.
(a) The General Partner may not Withdraw (other than as a result of an
Involuntary Withdrawal) without the Consent of the Special Limited Partner.
Withdrawal shall be conditioned upon the agreement of the Special Limited
Partner to be admitted as a successor General Partner, or if the Special Limited
Partner declines to be admitted as a successor General Partner then on the
agreement of one or more Persons who satisfy the requirements of Section 13.5 of
this Agreement to be admitted as successor General Partner(s).
(b) Each General Partner shall indemnify and hold harmless the Partnership
and all Partners from its Withdrawal in violation of Section 13.1(a) hereof.
Each General Partner shall be liable for damages to the Partnership resulting
from its Withdrawal in violation of Section 13.1(a).
Section 13.2 Removal of General Partner.
(a) The Special Limited Partner or the Limited Partner, or both of them,
may remove one or all of the General Partners for cause if any General Partner
has, its officers, directors, members, or partners have, if applicable, or the
Partnership has:
(1) been subject to Bankruptcy;
(2) committed any fraud, willful misconduct, breach of fiduciary duty or
other negligent conduct in the performance of its duties under this Agreement;
(3) been convicted of, or entered into a plea of guilty to, a felony;
(4) been barred from participating in any federal or state housing program;
(5) made personal use of Partnership funds or properties;
(6) violated the terms of the Mortgage and such violation prompts any
Mortgage lender to issue a letter regarding the violation;
(7) failed to provide any loan, advance, Capital Contribution or any other
payment to the Partnership, the Limited Partner or the Special Limited Partner
as required under this Agreement;
52
(8) breached any representation, warranty or covenant contained in this
Agreement;
(9) caused the Projected Tax Credits to be allocated to the Partners for a
term longer than the Tax Credit Period unless the provisions of Section 7.4(d)
of this Agreement apply;
(10) failed to provide, or to cause to be provided, the construction
monitoring documents required in Section 14.3(a) of this Agreement;
(11) violated any federal or state tax law which causes a recapture of
LIHTC;
(12) violated the terms of the Construction Loan and/or Mortgage Loan and
such violation prompts the Construction Lender and/or Mortgage Lender to issue a
letter regarding such violation;
(13) failed to ensure that the Development Budget is In-Balance;
(14) failed to obtain the consent of a Partner where such consent is
required pursuant to this Agreement;
(15) failed to deliver the annual Partnership financial data as required
pursuant to Section 14.2(a) or (b).
(16) failed to maintain the reserve balances as required pursuant to
Article VIII;
(17) failed to place the Apartment Housing in service within 6 months of
the Completion Date;
(18) failed to achieve 100% occupancy of the Apartment Housing by April 1,
2006;
(19) failed to obtain Permanent Mortgage Commencement by August 1, 2006;
(20) failed to renew the Insurance on or before the due date;
(21) failed to pay the Real Estate Taxes on or before the due date;
(22) failed during any consecutive 6-month period during the Compliance
Period to rent 83% or more of the total apartment units in the Apartment Housing
to Qualified Tenants; notwithstanding the foregoing, if such failure is the
result of Force Majeure or if such failure is cured within 120 days after the
end of the 6-month period, then this removal provision shall not apply; or
(23) [intentionally omitted].
53
(b) Written notice of the removal for cause of the General Partner
("Removal Notice") shall set forth the reasons for removal and shall be served
by the Special Limited Partner or the Limited Partner, or both of them, upon the
General Partner in accordance with Section 17.3 of this Agreement. If Section
13.2(a)(2), (6), (7), (8), (12), (13), (15), (16), (20) or (21) is the basis for
the removal for cause, then the General Partner shall have 30 days from receipt
of the Removal Notice in which to cure the removal condition; except that in
regard to the Mortgage or Construction Loan the cure period shall be the sooner
of 30 days or 10 days prior to the expiration of the cure period referenced in
the loan documents, if any. If the condition for the removal for cause is not
cured within the 30-day cure period then the General Partner's removal shall
become effective upon approval of a majority of the Partner's Interest (as
specified in Section 10.1 of this Agreement) at a Partner's meeting held in
accordance with Section 17.2 of this Agreement. If the removal for cause is for
a condition referenced in Section 13.2(a)(1), (3), (4), (5), (9), (10), (11),
(14), (17), (18), (19), or (22) then the removal shall become effective upon
approval of a majority of the Partner's Interest (as specified in Section 10.1
of this Agreement) at a Partner's meeting held in accordance with Section 17.2
of this Agreement. Upon the General Partner's removal, the General Partner shall
deliver to the Special Limited Partner within 5 business days of the Partner's
meeting confirming the General Partner's removal all Partnership books and
records including all bank signature cards and an authorization to change the
signature on the signature cards from the General Partner to the Special Limited
Partner, or a successor general partner so nominated by the Limited Partner and
Special Limited Partner. The Partner's recognize and acknowledge that if the
General Partner fails to provide the Partnership books and records upon the
General Partner's removal then the remaining Partners may suffer irreparable
injury. Therefore, in the event the General Partner does not adhere to the
provisions of this Section 13.2(b), and in addition to other rights or remedies
which may be provided by law and equity or this Agreement, the Limited Partner
and/or Special Limited Partner shall have the right to specific performance to
compel the General Partner to perform its obligation under this Section and the
Limited Partner and/or Special Limited Partner may bring such action, and other
actions to enforce the removal, by way of temporary and/or permanent injunctive
relief In the event of removal of a General Partner for any reason, any earned
but unpaid portion f the Development Fee shall be due and payable upon the
effective date of such removal and shall be deemed paid by the removed General
Partner.
Section 13.3 Effects of a Withdrawal.
In the event of a Withdrawal, the entire Interest of the Withdrawing
General Partner shall immediately and automatically terminate on the effective
date of such Withdrawal, and such General Partner shall immediately cease to be
a General Partner, shall have no further right to participate in the management
or operation of the Partnership or the Apartment Housing or to receive any
allocations or Distributions from the Partnership or any other funds or assets
of the Partnership, except as specifically set forth below. In the event of a
Withdrawal, any or all executory contracts, including but not limited to the
Management Agreement, between the Partnership and the Withdrawing General
Partner or its Affiliates may be terminated by the Partnership, with the Consent
of the Special Limited Partner, upon written notice to the party so
terminated. Furthermore, notwithstanding such Withdrawal, the Withdrawing
General Partner shall be and shall remain, liable as a General Partner for all
liabilities and obligations incurred by the Partnership or by the General
Partner prior to the effective date of the Withdrawal, or which may arise upon
such Withdrawal. Any remaining Partner shall have all other rights and remedies
54
against the Withdrawing General Partner as provided by law or under this
Agreement. The General Partner agrees that in the event of its Withdrawal it
will indemnify and hold the Limited Partner and the Special Limited Partner
harmless from and against all losses, costs and expenses incurred in connection
with the Withdrawal, including, without limitation, all legal fees and other
expenses of the Limited Partner and the Special Limited Partner in connection
with the transaction. The following additional provisions shall apply in the
event of a Withdrawal.
(a) In the event of a Withdrawal which is not an Involuntary Withdrawal, or
is not an Involuntary Withdrawal in accordance with Section 13.2(a), the
Withdrawing General Partner shall have no further right to receive any future
allocations or Distributions from the Partnership or any other funds or assets
of the Partnership, nor shall it be entitled to receive or to be paid by the
Partnership any further payments of fees (including fees which have been earned
but are unpaid) or to be repaid any outstanding advances or loans made by it to
the Partnership or to be paid any amount for its former Interest. From and after
the effective date of such Withdrawal, the former rights of the Withdrawing
General Partner to receive or to be paid such allocations, Distributions, funds,
assets, fees or repayments shall be assigned to the other General Partner or
General Partners (which may include the Special Limited Partner), or if there is
no other general partner of the Partnership at that time, to the Special Limited
Partner. Furthermore, if the General Partner or an Affiliate is the guarantor of
the Development Fee, as provided pursuant to the Development Fee Guaranty
Agreement, then the General Partner shall pay any remaining unpaid principal and
interest of the Development Fee within 30 days of the General Partner's removal.
(b) In the event of an Involuntary Withdrawal, except as provided in
Section 13.3(c) below, the Withdrawing General Partner shall have no further
right to receive any future allocations or Distributions from the Partnership or
any other funds or assets of the Partnership, provided that accrued and payable
fees (i.e., fees earned but unpaid as of the date of Withdrawal) owed to the
Withdrawing General Partner, and any outstanding loans of the Withdrawing
General Partner to the Partnership, shall be paid to the Withdrawing General
Partner in the manner and at the times such fees and loans would have been paid
had the Withdrawing General Partner not Withdrawn. The Interest of the General
Partner shall be purchased as follows.
(1) If the Involuntary Withdrawal does not arise from removal for cause
under Section 13.2(a) hereof, and if the Partnership is to be continued with one
or more remaining or successor General Partner(s), the Partnership, with the
Consent of the Special Limited Partner, may, but is not obligated to, purchase
the Interest of the Withdrawing General Partner. The purchase price of such
Interest shall be its Fair Market Value as determined by agreement between the
Withdrawing General Partner and the Special Limited Partner, or, if they cannot
agree, by arbitration in accordance with the then current rules of the American
Arbitration Association. The cost of such arbitration shall be borne equally by
the Withdrawing General Partner and the Partnership. The purchase price shall be
paid by the Partnership by delivering to the General Partner or its
representative the Partnership's non-interest bearing unsecured promissory note
payable, if at all, upon liquidation of the Partnership in accordance with
Article XV. The note shall also provide that the Partnership may prepay all or
any part thereof without penalty.
55
(2) If the Involuntary Withdrawal does not arise from removal for cause
under Section 13.2(a) hereof, and if the Partnership is to be continued with one
or more remaining or successor General Partner(s), and if the Partnership does
not purchase the Interest of the Withdrawing General Partner in Partnership
allocations, Distributions and capital, then the Withdrawing General Partner
shall retain its Interest in such items, but such Interest shall be held as a
special limited partner.
(c) Notwithstanding the provisions of Section 13.3(b), if the Involuntary
Withdrawal arises from removal for cause as set forth in Section 13.2(a) hereof,
the Withdrawn General Partner shall have no further right to receive any future
allocations or Distributions from the Partnership or any other funds or assets
of the Partnership, nor shall it be entitled to receive any payment for its
Interest, nor shall it be entitled to receive or to be paid by the Partnership
or any Partners or successor partners, any further payments of fees (including
fees which have been earned but remain unpaid) or to be repaid any outstanding
advances or loans made by it to the Partnership. Furthermore, if the General
Partner or an Affiliate is the guarantor of the Development Fee, as provided in
the Development Fee Guaranty Agreement, then the General Partner shall pay any
remaining unpaid principal and interest of the Development Fee within 30 days of
the General Partner's removal.
Section 13.4 Successor General Partner.
Upon the occurrence of an event giving rise to a Withdrawal of a General
Partner, any remaining General Partner, or, if there be no remaining General
Partner, the Withdrawing General Partner or its legal representative, shall
promptly notify the Special Limited Partner of such Withdrawal (the "Withdrawal
Notice"). Whether or not the Withdrawal Notice shall have been sent as provided
herein, the Special Limited Partner shall have the right to become a successor
General Partner (and to become the successor managing General Partner if the
Withdrawing General Partner was previously the managing General Partner). In
order to effectuate the provisions of this Section 13.4 and the continuance of
the Partnership, the Withdrawal of a General Partner shall not be effective
until the expiration of 120 days from the date on which occurred the event
giving rise to the Withdrawal, unless the Special Limited Partner shall have
elected to become a successor General Partner as provided herein prior to
expiration of such 120-day period, whereupon the Withdrawal of the General
Partner shall be deemed effective upon the notification of all the other
Partners by the Special Limited Partner of such election.
Section 13.5 Admission of Additional or Successor General Partner.
No Person shall be admitted as an additional or successor General Partner
unless (a) such Person shall have agreed to become a General Partner by a
written instrument which shall include the acceptance and adoption of this
Agreement; (b) the Consent of the Special Limited Partner to the admission of
such Person as a substitute General Partner shall have been granted, which
consent may be withheld in the discretion of the Special Limited Partner; and
(c) such Person shall have executed and acknowledged any other instruments
which the Special Limited Partner shall reasonably deem necessary or appropriate
to effect the admission of such Person as a substitute General Partner. If the
foregoing conditions are satisfied, this Agreement shall be amended in
accordance with the provisions of the Act, and all other steps shall be taken
56
which are reasonably necessary to effect the Withdrawal of the Withdrawing
General Partner and the substitution of the successor General Partner. Nothing
contained herein shall reduce the Limited Partner's Interest or the Special
Limited Partner's Interest in the Partnership.
Section 13.6 Transfer of Interest.
Except as otherwise provided herein, the General Partner may not Withdraw
from the Partnership, or enter into any agreement as the result of which any
Person shall acquire an Interest in the Partnership, without the Consent of the
Special Limited Partner.
Section 13.7 No Goodwill Value.
At no time during continuation of the Partnership shall any value ever
be placed on the Partnership name, or the right to its use, or to the goodwill
appertaining to the Partnership or its business, either as among the Partners or
for the purpose of determining the value of any Interest, nor shall the legal
representatives of any Partner have any right to claim any such value. In the
event of a termination and dissolution of the Partnership as provided in this
Agreement, neither the Partnership name, nor the right to its use, nor the same
goodwill, if any, shall be considered as an asset of the Partnership, and no
valuation shall be put thereon for the purpose of liquidation or distribution,
or for any other purpose whatsoever.
ARTICLE XIV.
BOOKS AND ACCOUNTS, REPORTS,
TAX RETURNS, FISCAL YEAR AND BANKING
Section 14.1 Books and Accounts.
(a) The General Partner shall cause the Partnership to keep and maintain at
its principal executive office full and complete books and records that shall
include each of the following:
(1) a current list of the full name and last known business or residence
address of each Partner set forth in alphabetical order together with the
Capital Contribution and the share in Income and Losses and Tax Credits of each
Partner;
(2) a copy of the Certificate of Limited Partnership and all certificates
of amendment thereto, together with executed copies of any powers of attorney
pursuant to which any certificate has been executed;
(3) copies of the Partnership's federal, state and local income tax
information returns and reports, if any, for the 6 most recent taxable years;
(4) copies of the original of this Agreement and all amendments thereto;
(5) financial statements of the Partnership for the 6 most recent fiscal
years;
57
(6) the Partnership's books and records for at least the current and past 3
fiscal years; and
(7) in regard to the first tenants to occupy the apartment units in the
Apartment Housing, copies of all tenant files including completed applications,
completed questionnaires or checklist of income and assets, documentation of
third party verification of income and assets, and income certification forms
(LIHTC specific).
(b) Upon the request of the Limited Partner, the General Partner shall
promptly deliver to the Limited Partner, at the expense of the Partnership, a
copy of the information set forth in Section 14.1(a) above. The Limited Partner
shall have the right upon reasonable request and during normal business hours to
inspect and copy any of the foregoing, or any of the other books and records of
the Partnership or the Apartment Housing, at its own expense.
Section 14.2 Accounting Reports.
(a) By February 20 of each calendar year the General Partner shall provide
to the Limited Partner and the Special Limited Partner the Partnership tax
return, Schedule K(1), and all tax information necessary for the preparation of
their federal and state income tax returns and other tax returns with regard to
the jurisdiction(s) in which the Partnership is formed and in which the
Apartment Housing is located. Moreover, the General Partner shall deliver to the
Limited Partner and the Special Limited Partner a draft copy of the information
requested herein at least 10 days prior to the above referenced due date.
(b) By March 1 of each calendar year, including the year(s) during
construction of the Apartment Housing, the General Partner shall send to the
Limited Partner and the Special Limited Partner an audited financial statement
for the Partnership, which shall include, but not limited to: (1) a balance
sheet as of the end of such fiscal year and statements of income, Partners'
equity and changes in cash flow for such fiscal year prepared in accordance with
generally accepted accounting principles; (2) a report of any Distributions made
at any time during the fiscal year, separately identifying Distributions from
Net Operating Income for the fiscal year, Net Operating Income for prior years,
Sale or Refinancing Proceeds, and reserves; (3) a report setting forth the
amount of all fees and other compensation and Distributions and reimbursed
expenses paid by the Partnership for the fiscal year to the General Partner or
Affiliates of the General Partner and the services performed in consideration
therefor, which report shall be verified by the Partnership's Accountants; and
(4) the Accountant's calculation of each pay-out of the Net Operating Income
pursuant to Section 11.1 of this Agreement. Moreover, the General Partner shall
deliver to the Limited Partner and the Special Limited Partner a draft copy of
the information requested herein at least 10 days prior to the above referenced
due date.
(c) Within 60 days after the end of each fiscal quarter in which a Sale or
Refinancing of the Apartment Housing occurs, the General Partner shall send to
the Limited Partner and the Special Limited Partner a report as to the nature of
the Sale or Refinancing and as to the Income and Losses for tax purposes and
proceeds arising from the Sale or Refinancing.
58
Section 14.3 Other Reports.
The General Partner shall provide to the Limited Partner and the Special
Limited Partner the following reports:
(a) during construction, on a regular basis, but in no event less than once
a month, a copy of the Construction Inspector's report and other construction
reports including, but not limited to, (1) the name of each person performing
work on the Improvements or providing materials for the Improvements, if the
work performed or materials supplied by a person accounts for 5% or more of the
construction of the Improvements, the work performed or materials supplied by
said person and the code number corresponding to the line item in the
Development Budget which the person will be paid, (2) an original AIA Document
G702, or similar form acceptable to the Special Limited Partner, (3) if not
included in the Construction Inspector's report or the AIA Document G702, a line
item break-down of the Development Budget (which shall include, description of
work to be performed or materials to be supplied; total dollar amount of the
work or materials; dollar amount of work previously completed and paid or
materials supplied and paid; dollar amount of work or materials to be paid per
the current disbursement request; dollar amount of materials stored; total
dollar amount of work completed and stored as of the current disbursement date;
percentage of completion; dollar amount of work or materials needed to complete
the line item; and retainage), (4) a reconciliation of the sources and uses to
determine that the Development Budget is In-Balance and there are sufficient
funds to complete the construction of the Improvements, and (5) if not provided
for in the above referenced documents, a line item break down of all soft
development costs not included in the Construction Contract but part of the
Development Budget; (6) copies of lien releases, or waivers, from the Contractor
and all sub-contractors or material suppliers who were paid the previous month;
and (7) any other document requested by the Special Limited Partner as the
circumstances warrant (collectively the "Construction Draw Documents");
(b) during the rent-up phase, and continuing until the later of the end of
the first 6-month period during which the Apartment Housing has a sustained
occupancy of 95% or better or the Special Limited Partner's approval of the
initial tenant files, including any recommended corrections, by the 20th day of
each month within such period a copy of the previous month's rent roll (through
the last day of the month), a tenant LIHTC compliance worksheet similar to the
monthly initial tenant certification worksheet included in Exhibit H attached
hereto and incorporated herein by this reference; an up to date income
statement, an up to date balance sheet and a copy of the Partnership's bank
statement reflecting all operating accounts and reserve accounts;
(c) a quarterly tax credit compliance report similar to the worksheet
included in Exhibit H due on or before April 30 of each year for the first
quarter, July 31 of each year for the second quarter, October 31 of each year
for the third quarter and January 31 of each year for the fourth quarter. In
order to verify the reliability of the information being provided on the
compliance report the Special Limited Partner may request a sampling of tenant
files to be provided. The sampling will include, but not be limited to, copies
of tenant applications, certifications and third party verifications used to
qualify tenants. If any inaccuracies are found to exist on the tax credit
compliance report or any items of noncompliance are discovered then the sampling
will be expanded as determined by the Special Limited Partner;
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(d) a quarterly report on operations, in the form attached hereto as
Exhibit H, due on or before April 25 of each year for the first quarter of
operations, July 25 of each year for the second quarter of operations, October
25 of each year for the third quarter of operations and January 25 of each year
for the fourth quarter of operations that shall include, but not be limited to,
a copy of the Partnership's bank statement showing all operating accounts and
reserve accounts required to be maintained pursuant to Article VIII of this
Agreement, statement of income and expenses, balance sheet, rent roll as of the
end of each calendar quarter of each year, and third party verification of
current utility allowance;
(e) by September 15 of each year, an estimate of LIHTC and taxable income
or loss to be allocated to the Limited Partner for that year;
(f) if the Apartment Housing receives a reservation of LIHTC in 1 year but
will not complete the construction and rent-up until a later year, an audited
cost certification together with the Accountant's work papers verifying that the
Partnership has expended the requisite 10% of the reasonably expected cost basis
to meet the carryover test provisions of Section 42 of the Code. Such
certification shall be provided to the Limited Partner and Special Limited
Partner by the later of December 31 of the year during which the reservation was
received or 6 months after the date of the carryover allocation if permitted by
the State Tax Credit Agency. Furthermore, if materials and supplies are
purchased to meet the 10% requirement then the General Partner shall provide to
the Limited Partner an opinion of counsel that title to the materials and
supplies pass to the Partnership and that the Partnership bears the risk of loss
of the materials and supplies;
(g) during the Compliance Period, no later than the day any such
certification is filed, copies of any certifications which the Partnership must
furnish to federal, state, or local authorities including, but not limited to,
copies of all annual tenant recertifications required under Section 42 of the
Code, the annual owner's sworn statement, and the State Tax Credit Agency
Compliance (or annual) report;
(h) by the annual renewal date each and every year, an executed original or
certified copy of each and every Insurance policy or certificate required by the
terms of this Agreement;
(i) by the payment date of the real estate property taxes each and every
year verification that the same has been paid in full;
(j) on or before March 15 of each calendar year, a copy of the General
Partner's updated financial statement as of December 31 of the previous year;
(k) on or before November 1 of each calendar year, a copy of the following
year's proposed operating budget. Each such Budget shall contain all the
anticipated Cash Expenses of the Partnership. Neither the General Partner, the
Management Agent nor their employees, agents or representatives shall adopt the
Budget until the Consent of the Special Limited Partner has been obtained;
(l) in the event the Apartment Housing and/or the Partnership is
experiencing financial or operational concerns or maintenance issues and is
placed on the Limited Partner's watch list, the Special Limited Partner requires
the Management Agent to cooperate with the Special Limited Partner's staff as
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requested including, but not limited to, the following: (1) being available and
responsive for site visits, telephone calls and correspondence (whether by
e-mail, fax, mail, or overnight delivery); (2) providing monitoring report
consisting of weekly tenant traffic and unit or building or grounds repair
update reports, an up-to-date income statement, up-to-date balance sheet,
previous month's rent roll, and a copy of the Partnership's monthly bank
statement; and (3) providing any other documents deemed relevant by the Special
Limited Partner; and
(m) notice of the occurrence, or of the likelihood of occurrence, of any
event which has had a material adverse effect upon the Apartment Housing or the
Partnership, including, but not limited to, any breach of any of the
representations and warranties set forth in Section 9.12 of this Agreement, and
any inability of the Partnership to meet its cash obligations as they become
payable, within 10 days after the occurrence of such event.
Section 14.4 Late Reports.
If the General Partner does not fulfill its obligations under Section 14.2
within the time periods set forth therein, the General Partner, using its own
funds, shall pay as damages the sum of $100 per week (plus interest at the rate
established by Section 6.4 of this Agreement) to the Limited Partner until such
obligations shall have been fulfilled. If the General Partner does not fulfill
its obligations under Section 14.3 within the time periods set forth therein,
the General Partner, using its own funds, shall pay as damages the sum of $100
per week (plus interest at the rate established by Section 6.4 of this
Agreement) to the Limited Partner until such obligations shall have been
fulfilled. If the General Partner shall so fail to pay, the General Partner and
its Affiliates shall forthwith cease to be entitled to any fees hereunder (other
than the Development Fee) and/or to the payment of any Net Operating Income or
Sale or Refinancing Proceeds to which the General Partner may otherwise be
entitled hereunder. Payments of fees and Distributions shall be restored only
upon payment of such damages in full.
Section 14.5 Site Visits.
The Limited Partner, at the Limited Partner's expense, has the right, upon
reasonable notice to the General Partner, to conduct a site visit which will
include, in part, an inspection of the property, a review of the office and
tenant files and an interview with the property manager.
Section 14.6 Tax Returns.
The General Partner shall cause income tax returns for the Partnership to
be prepared and timely filed with the appropriate federal, state and local
taxing authorities.
Section 14.7 Fiscal Year.
The fiscal year of the Partnership shall be the calendar year or such other
period as may be approved by the Internal Revenue Service for federal income tax
purposes.
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Section 14.8 Banking.
All funds of the Partnership shall be deposited in a separate bank account
or accounts as shall be determined by the General Partner with the Consent of
the Special Limited Partner. All withdrawals therefrom shall be made upon checks
signed by the General Partner or by any person authorized to do so by the
General Partner. The General Partner shall provide to any Partner who requests
same the name and address of the financial institution, the account number and
other relevant information regarding any Partnership bank account.
Section 14.9 Certificates and Elections.
(a) The General Partner shall file the First Year Certificate within 90
days following the close of the taxable year during which Completion of
Construction occurs and thereafter shall timely file any certificates which the
Partnership must furnish to federal or state governmental authorities
administering the Tax Credit programs under Section 42 of the Code.
(b) The General Partner, with the Consent of the Special Limited Partner,
may, but is not required to, cause the Partnership to make or revoke the
election referred to in Section 754 of the Code, as amended, or any similar
provisions enacted in lieu thereof.
ARTICLE XV.
DISSOLUTION, WINDING UP, TERMINATION
AND LIQUIDATION OF THE PARTNERSHIP
Section 15.1 Dissolution of Partnership.
The Partnership shall be dissolved upon the expiration of its term or the
earlier occurrence of any of the following events.
(a) The effective date of the Withdrawal or removal of the General Partner,
unless (1) at the time there is at least one other General Partner (which may be
the Special Limited Partner if it elects to serve as successor General Partner
under Section 13.4 hereof) who will continue as General Partner, or (2) within
120 days after the occurrence of any such event the Limited Partner elects to
continue the business of the Partnership.
(b) The sale of the Apartment Housing and the receipt in cash of the full
amount of the proceeds of such sale.
Notwithstanding the foregoing, in no event shall the Partnership terminate
prior to the expiration of its term if such termination would result in a
violation of the Mortgage or any other agreement with or rule or regulation of
any Mortgage lender to which the Partnership is subject.
Section 15.2 Return of Capital Contribution upon Dissolution.
Except as provided in Section 7.3 and Section 7.4 of this Agreement, which
provide for a reduction or refund of the Limited Partner's Capital Contribution
under certain circumstances, and which shall represent the personal
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obligations of the General Partner, as well as the obligations of the
Partnership, each Partner shall look solely to the assets of the Partnership for
all Distributions with respect to the Partnership (including the return of its
Capital Contribution) and shall have no recourse therefor (upon dissolution or
otherwise) against any General Partner. No Partner shall have any right to
demand property other than money upon dissolution and termination of the
Partnership, and the Partnership is prohibited from such a distribution of
property absent the Consent of the Special Limited Partner.
Section 15.3 Distribution of Assets.
Upon a dissolution of the Partnership, the General Partner (or, if there is
no General Partner then remaining, such other Person(s) designated as the
liquidator of the Partnership by the Special Limited Partner or by the court in
a judicial dissolution) shall take full account of the Partnership assets and
liabilities and shall liquidate the assets as promptly as is consistent with
obtaining the fair value thereof.
(a) Upon dissolution and termination, after payment of, or adequate
provision for, the debts and obligations of the Partnership pursuant to Sections
11.2(a) through and including 11.2(c), the remaining assets of the Partnership
shall be distributed to the Partners in accordance with the positive balances in
their Capital Accounts, after taking into account all allocations under Article
X hereof.
(b) In the event that a General Partner has a deficit balance in its
Capital Account following the liquidation of the Partnership or its Interest, as
determined after taking into account all Capital Account adjustments for the
Partnership taxable year in which such liquidation occurs, such General Partner
shall pay to the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(3).
(1) The deficit reduction amount shall be paid by the General Partner by
the end of such taxable year (or, if later, within 90 days after the date of
Liquidation) and shall, upon liquidation of the Partnership, be paid to
creditors of the Partnership or distributed to other Partners in accordance with
their positive Capital Account balances.
(c) With respect to assets distributed in kind to the Partners in
liquidation or otherwise:
(1) unrealized appreciation or unrealized depreciation in the values of
such assets shall be deemed to be Income and Losses realized by the Partnership
immediately prior to the liquidation or other Distribution event; and
(2) such Income and Losses shall be allocated to the Partners in accordance
with Section 10.2 hereof, and any property so distributed shall be treated as a
Distribution of an amount in cash equal to the excess of such Fair Market Value
over the outstanding principal balance of and accrued interest on any debt by
which the property is encumbered.
(d) For the purposes of Section 15.3(c), "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the Fair Market
Value of such assets, taking into account the Fair Market Value of the
associated financing but subject to Section 7701(g) of the Code, and the asset's
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Gross Asset Value. Section 15.3(c) is merely intended to provide a rule for
allocating unrealized Income and Losses upon liquidation or other Distribution
event, and nothing contained in Section 15.3(c) or elsewhere in this Agreement
is intended to treat or cause such Distributions to be treated as sales for
value. The Fair Market Value of such assets shall be determined by an
independent appraiser to be selected by the General Partner.
Section 15.4 Deferral of Liquidation.
If at the time of liquidation the General Partner or other liquidator shall
determine that an immediate sale of part or all of the Partnership assets could
cause undue loss to the Partners, the liquidator may, in order to avoid loss,
but only with the Consent of the Special Limited Partner, either defer
liquidation and retain all or a portion of the assets or distribute all or a
portion of the assets to the Partners in kind. In the event that the liquidator
elects to distribute such assets in kind, the assets shall first be assigned a
value (by appraisal by an independent appraiser) and the unrealized appreciation
or depreciation in value of the assets shall be allocated to the Partners'
Capital Accounts, as if such assets had been sold, in the manner described in
Section 10.2, and such assets shall then be distributed to the Partners as
provided herein. In applying the preceding sentence, the Apartment Housing shall
not be assigned a value less than the unamortized principal balance of any loan
secured thereby.
Section 15.5 Liquidation Statement.
Each of the Partners shall be furnished with a statement prepared or caused
to be prepared by the General Partner or other liquidator, which shall set forth
the assets and liabilities of the Partnership as of the date of complete
liquidation. Upon compliance with the distribution plan as outlined in Sections
15.3 and Section 15.4, the Limited Partner and Special Limited Partner shall
cease to be such and the General Partner shall execute, acknowledge and cause to
be filed those certificates referenced in Section 15.6.
Section 15.6 Certificates of Dissolution; Certificate of Cancellation of
Certificate of Limited Partnership.
(a) Upon the dissolution of the Partnership, the General Partner shall
cause to be filed in the office of the Secretary of State, and on a form
prescribed by the Secretary of State of Minnesota, a certificate of dissolution.
The certificate of dissolution shall set forth the Partnership's name, the
Secretary of State's file number for the Partnership, the event causing the
Partnership's dissolution and the date of the dissolution.
(b) Upon the completion of the winding up of the Partnership's affairs, the
General Partner shall cause to be filed in the office of, and on a form
prescribed by, the Secretary of State of Minnesota a certificate of cancellation
of the Certificate of Limited Partnership. The certificate of cancellation of
the Certificate of Limited Partnership shall set forth the Partnership's name,
the Secretary of State's file number for the Partnership, and any other
information which the General Partner determines to include therein.
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ARTICLE XVI.
AMENDMENTS
This Agreement may be amended by a majority consent of the Interests of the
Partners after a meeting of the Partners pursuant to Section 17.2, which meeting
shall be held after proper notice as provided in Section 17.3 of this Agreement.
For purposes of this Article XVI, a Partner shall grant its consent to a
proposed amendment unless such Partner reasonably determines that the proposed
amendment is adverse to the Partner's Interest.
ARTICLE XVII.
MISCELLANEOUS
Section 17.1 Voting Rights.
(a) The Limited Partner shall have no right to vote upon any matters
affecting the Partnership, except as provided in this Agreement. Notwithstanding
the foregoing, the Limited Partner's and Special Limited Partner's vote is
required:
(1) to approve or disapprove the Sale or Refinancing of the Apartment
Housing prior to such Sale or Refinancing;
(2) to remove the General Partner and elect a substitute General Partner as
provided in this Agreement;
(3) to elect a successor General Partner upon the Withdrawal of the General
Partner;
(4) to approve or disapprove the dissolution of the Partnership;
(5) subject to the provisions of Article XVI hereof, to amend this
Agreement;
(6) to approve or disapprove the refinancing of the Mortgage prior to such
refinancing; or
(7) on any other matter permitted in this Agreement.
(b) On any matter where the Limited Partner has the right to vote, votes
may only be cast at a duly called meeting of the Partnership or through written
action without a meeting.
(c) The Special Limited Partner shall have the right to consent to those
actions or inactions of the Partnership and/or General Partner as otherwise set
forth in this Agreement, and the General Partner is prohibited from any action
or inaction requiring such consent unless such consent has been obtained.
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Section 17.2 Meeting of Partnership.
Meetings of the Partnership may be noticed either (a) at any time by the
General Partner; or (b) by the Limited Partner or the Special Limited Partner.
The notice for a meeting shall specify the purpose of such meeting, and the time
and the place of such meeting (which shall be by telephone conference or at the
principal place of business of the Partnership). Any Partner calling a Partners
meeting shall provide written notice to all Partners. The meeting shall not be
held less than 15 days nor more than 30 days from the Partners' receipt of the
notice. All meetings and actions of the Partnership shall be governed in all
respects, including matters relating to proxies, record dates and actions
without a meeting, by the applicable provisions of the Act, as it shall be
amended from time to time.
Section 17.3 Notices.
Any notice given pursuant to this Agreement may be served personally on the
Partner to be notified, or may be sent by overnight courier, or may be mailed,
first class postage prepaid, or by certified mail, to the following address, or
to such other address as a party may from time to time designate in writing:
To the General Partner: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
▇▇ - ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇ Co., Inc. ▇▇ -
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
▇▇ - ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
To the Limited Partner: WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
To the Special Limited Partner: WNC Housing, L.P.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Section 17.4 Successors and Assigns.
All the terms and conditions of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Partners.
66
Section 17.5 Recording of Certificate of Limited Partnership.
If the General Partner should deem it advisable to do so, the Partnership
shall record in the office of the County Recorder of the county in which the
principal place of business of the Partnership is located a certified copy of
the Certificate of Limited Partnership, or any amendment thereto, after such
Certificate or amendment has been filed with the Secretary of State of
Minnesota.
Section 17.6 Amendment of Certificate of Limited Partnership.
(a) The General Partner, or any successor general partner, shall cause to
be filed, within 30 days after the happening of any of the following events, an
amendment to the Certificate of Limited Partnership reflecting the occurrence of
any of the following:
(1) a change in the name of the Partnership;
(2) a change in the street address of the Partnership's principal executive
office;
(3) a change in the address, or the Withdrawal, of a General Partner, or a
change in the address of the agent for service of process, or appointment of a
new agent for service of process;
(4) the admission of a General Partner and that Partner's address; or
(5) the discovery by the General Partner of any false or erroneous material
statement contained in the Certificate of Limited Partnership or any amendment
thereto.
(b) The Certificate of Limited Partnership may also be amended in
conformity with this Agreement at any time in any other respect that the General
Partner determines.
(c) The General Partner shall cause the Certificate of Limited Partnership
to be amended, when required or permitted as aforesaid, by filing a certificate
of amendment thereto in the office of, and on a form prescribed by, the
Secretary of State of Minnesota. The certificate of amendment shall set forth
the Partnership's name, the Secretary of State's file number for the Partnership
and the text of the amendment.
(d) In the event of a Withdrawal or Involuntary Withdrawal of the General
Partner, and if such General Partner does not file an amendment to the
Certificate of Limited Partnership as specified in this Section 17.6, then the
Special Limited Partner is hereby granted the specific authority to sign and
file such amendment.
Section 17.7 Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one and
the same instrument which may sufficiently be evidenced by one counterpart.
67
Section 17.8 Captions.
Captions to and headings of the Articles, sections and subsections of this
Agreement are solely for the conveniences of the Partners, are not a part of
this Agreement, and shall not be used for the interpretation or determination of
the validity of this Agreement or any provision hereof.
Section 17.9 Saving Clause.
If any provision of this Agreement, or the application of such provision to
any Person or circumstance, shall be held invalid, the remainder of this
Agreement, or the application of such provision to Persons or circumstances
other than those as to which it is held invalid, shall not be affected thereby.
Section 17.10 Certain Provisions.
If the operation of any provision of this Agreement would contravene
the provisions of applicable law, or would result in the imposition of general
liability on any Limited Partner or Special Limited Partner, such provisions
shall be void and ineffectual.
Section 17.11 Tax Matters Partner.
All the Partners hereby agree that the General Partner shall be the "Tax
Matters Partner" pursuant to the Code and in connection with any review or
examination of the federal income tax returns of the Partnership. At the time of
a review, examination, or otherwise, the Tax Matters Partner shall inform the
IRS that a copy of all correspondence shall be provided to the Limited Partner.
(a) The Tax Matters Partner shall furnish or cause to be furnished to each
Partner notice and information with respect to the following: closing conference
with an examining agent; proposed adjustments, rights of appeal, and
requirements for filing a protest; time and place of any appeals conference;
acceptance by the Internal Revenue Service of any settlement offer; consent to
the extension of the period of limitation with respect to all Partners; filing
of a request for administrative adjustment on behalf of the Partnership; filing
by the Tax Matters Partner or any other Partner of any petition for judicial
review; filing of any appeal with respect to any judicial determination; and a
final judicial redetermination.
(b) If the Tax Matters Partner shall determine to litigate any
administrative determination relating to federal income tax matters, then the
Tax Matters Partner shall obtain the Consent of the Special Limited Partner to
litigate such matter in such court.
(c) In discharging its duties and responsibilities, the Tax Matters Partner
shall act as a fiduciary (1) to the Limited Partner (to the exclusion of the
other Partners) insofar as tax matters related to the Tax Credits are concerned,
and (2) to all of the Partners in other respects.
(d) The Partners consent and agree that in connection with any audit,
review, examination, or otherwise of the Partnership, or if the Tax Matters
Partner withdraws from the Partnership or the Tax Matters Partner becomes
Bankrupt, then the Special Limited Partner may become, in its sole discretion,
68
a special general partner, and become the Tax Matters Partner. The Limited
Partner will make no claim against the Partnership in respect of any action or
omission by the Tax Matters Partner during such time as the Special Limited
Partner acts as the Tax Matters Partner.
(e) Nothing herein shall be construed as a waiver by the Limited Partner of
any of its rights under Chapter 631 of the Code. The General Partner shall not
enter into any settlement agreement purporting to bind the Limited Partner
without the Limited Partner's consent.
Section 17.12 Expiration of Compliance Period.
(a) Notwithstanding any provision hereof to the contrary (other than this
Section 17.12), the Special Limited Partner shall have the right at any time
after the beginning of the last year of the Compliance Period to require, by
written notice to the General Partner, that the General Partner promptly submit
a written request to the applicable State Tax Credit Agency pursuant to Section
42(h) of the Code (or any successor provision) that such agency endeavor to
locate within 1 year from the date of such written request a purchaser for the
Apartment Housing who will continue to operate the Apartment Housing as a
qualified low-income property, at a purchase price that is not less than the
minimum amount set forth in Section 42(h)(6) of the Code (or any successor
provision). In the event that the State Tax Credit Agency obtains an offer
satisfying the conditions of the preceding sentence, the General Partner shall
promptly notify the Special Limited Partner in writing with respect to the terms
and conditions of such offer, and, if the Special Limited Partner notifies the
General Partner that such offer should be accepted, the General Partner shall
cause the Partnership promptly to accept such offer and to proceed to sell the
Apartment Housing pursuant to such offer.
(b) Notwithstanding any other provision of this Agreement to the contrary,
the Special Limited Partner shall have the right at any time after the end of
the Compliance Period to require, by written notice to the General Partner (the
"Required Sale Notice"), that the General Partner promptly use its best efforts
to obtain a buyer for the Apartment Housing on the most favorable terms then
available. The General Partner shall submit the terms of any proposed sale to
the Special Limited Partner for its approval in the manner set forth in Section
17.2(a) hereof. If the General Partner shall fail to so obtain a buyer for the
Apartment Housing within 6 months of receipt of the Required Sale Notice or if
the Consent of the Special Limited Partner in its sole discretion shall be
withheld to any proposed sale, then the Special Limited Partner shall have the
right at any time thereafter to obtain a buyer for the Apartment Housing on
terms acceptable to the Special Limited Partner (but not less favorable to the
Partnership than any proposed sale previously rejected by the Special Limited
Partner). In the event that the Special Limited Partner so obtains a buyer, it
shall notify the General Partner in writing with respect to the terms and
conditions of the proposed sale and the General Partner shall cause the
Partnership promptly to sell the Apartment Housing to such buyer.
(c) A sale of the Apartment Housing prior to the end of the Compliance
Period may only take place if the conditions of Section 42(j)(6) of the Code (or
any successor provision) will be satisfied upon such sale by having the
purchaser of the Apartment Housing post the required bond on behalf of the
Partnership.
69
Section 17.13 Number and Gender.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the Person or
Persons may require.
Section 17.14 Entire Agreement.
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter hereof and all prior understandings and
agreements between the parties, written or oral, respecting this transaction are
merged in this Agreement.
Section 17.15 Governing Law.
This Agreement and its application shall be governed by the laws of the
State.
Section 17.16 Attorney's Fees.
If a suit or action is instituted in connection with an alleged breach of
any provision of this Agreement, the prevailing party shall be entitled to
recover, in addition to costs, such sums as the court may adjudge reasonable as
attorney's fees, including fees on any appeal.
Section 17.17 Receipt of Correspondence.
The Partners agree that the General Partner shall send to the Limited
Partner and the Special Limited Partner within 5 days of receipt a copy of any
correspondence relative to the Apartment Housing's noncompliance with the
Mortgage, relative to the Apartment Housing's noncompliance with the Tax Credit
rules or regulations, relative to any correspondence from the Mortgage lender
and/or relative to the disposition of the Apartment Housing.
Section 17.18 Security Interest and Right of Set-Off.
As security for the performance of the respective obligations to which any
General Partner may be subject under this Agreement, the Partnership shall have
(and each General Partner hereby grants to the Partnership) a security interest
in their respective Interests of such General Partner and in all funds
distributable to said General Partner to the extent of the amount of such
obligation.
ARTICLE XVIII.
USDA RURAL DEVELOPMENT REGULATIONS
For as long as the Apartment Housing continues to be a "Rural Rental
Housing Project" all terms of this Agreement and all operations of the
Partnership are subject to the regulations of RD, and all Partners admitted to
the Partnership shall be approved by RD.
The Partnership is authorized to execute any documents required by RD in
connection with the RD Loan Agreement. The General Partner hereby covenants to
act in accordance with the Project Documents. Any incoming General Partner
70
shall, as a condition of receiving a Partnership interest, agree to be
bound by the Project Documents, and all of the other documents executed in
connection with the RD Loan Agreement to the same extent and on the same terms
as any other General Partner. Upon any dissolution, no title or right to
possession and control of the Apartment Housing, and no right to collect the
rents therefrom, shall pass to any Person who is not bound in a manner
consistent with Section 515 of the Housing Act and the rules and regulations
thereunder.
For so long as any of the RD commitments are in effect, (a) each of the
provisions of this Agreement shall be subject to the General Partner's covenant
to act in accordance with the Project Documents; (b) the Project Documents shall
govern the rights and obligations of the Partners, their heirs, executors,
administrators, successors and assigns to the extent expressly provided therein;
(c) upon any dissolution of the Partnership or any transfer of the Apartment
Housing, no title or right to the possession and control for the Apartment
Housing and no right to collect rent therefrom shall pass to any Person who is
not, or does not become, bound by the Project Documents and other RD documents
in a manner satisfactory to RD; and (d) the affairs of the Partnership shall be
subject to RD regulation and no action shall be taken which would require the
Consent or approval of RD unless the same is first obtained. No new Partner
shall be admitted to the Partnership and no Partner may withdraw from the
partnership or be substituted for a Partner without the consent of RD (if such
Consent is then required). The General Partner shall at all times hold and
maintain the required RD Financial Interest. No amendment to this Agreement
relating to matters governed by RD shall remain effective unless Consent of RD
to such amendment is obtained.
Any conveyance or transfer of title to all or any portion of the Apartment
Housing or Partnership assets required or permitted under this Agreement, and
any voluntary dissolution or termination of the Partnership, all in all respects
be subject to all conditions, approvals and other requirements of the RD rules
and regulations applicable thereto.
[Signatures begin on the following page]
71
IN WITNESS WHEREOF, this Amended and Restated Agreement of Limited
Partnership of Kettle River Townhomes Limited Partnership, a Minnesota limited
partnership, is made and entered into as of the 14th day of December, 2004.
GENERAL PARTNER:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
▇.▇. ▇▇▇▇▇▇▇ Co., Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
WITHDRAWING ORIGINAL LIMITED
PARTNERS:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
LIMITED PARTNER:
WNC Holding, LLC
By: WNC & Associates, Inc.,
Managing Member
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
SPECIAL LIMITED PARTNER:
WNC Housing, L.P.
By: WNC & Associates, Inc.,
General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
EXHIBIT A
LEGAL DESCRIPTION
▇▇▇▇ ▇, ▇, ▇, ▇ ▇▇▇ ▇▇, ▇▇▇▇▇ 2, Sandstone Townsite Company's Third Addition to
the Village of Sandstone and together with that part of vacated alley accruing
thereto, Pine County, Minnesota.
Exhibit A
EXHIBIT B
FORM OF LEGAL OPINION
_____________, 200_
WNC Holding, LLC.
WNC Housing, L.P.
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Kettle River Townhomes Limited Partnership
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in
connection with the investment by WNC Holding LLC, a California limited
liability corporation (the "Limited Partner"), and WNC Housing, L.P., a
California limited partnership (the "Special Limited Partner"), in Kettle River
Townhomes Limited Partnership (the "Partnership"), a Minnesota limited
partnership formed to own, develop, construct, finance and operate an apartment
complex for low-income persons (the "Apartment Housing") in Sandstone, Pine
County, Minnesota. The original limited partners of the Partnership are ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the "Original Limited
Partners"). The general partners of the Partnership are ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co.,
Inc., ▇.▇. ▇▇▇▇▇▇▇ Co., Inc. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc. (the "General
Partners"). The developer of the Apartment Housing is CEPCO Development, Inc.
(the "Developer"). The guarantors of certain obligations of the General Partner
are ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (collectively, the
"Guarantor").
In rendering the opinions stated below, we have examined and relied upon
the following:
(i) [Partnership Organizational Documents];
(ii) [Amended and Restated Agreement of Limited Partnership] (the
"Partnership Agreement");
(iii) [GP Organizational Documents];
(iv) [Developer Organizational Documents];
(v) [Guarantor Organizational Documents];
(vi) the Title Policy, as defined in the Partnership Agreement;
(vii) the Certification and Agreement entered into by the Partnership, the
General Partners, the Original Limited Partners, the Limited Partner, and WNC &
Associates, Inc., attached as Exhibit C to the Partnership Agreement and dated
____;
Exhibit B
(viii) the Development Fee Agreement entered into by the Developer and the
Partnership and dated _____, (the "Development Agreement");
(ix) the Development Fee Guaranty Agreement, entered into by the Guarantor
and the Partnership and dated _________;
(x) the Development, Construction, and Operating Budget Agreement, entered
into by the General Partner, the Limited Partner, and the Special Limited
Partner and dated _________;
(xi) the Construction Completion, Operating Deficit, and Tax Credit
Guaranty Agreement, entered into by the Guarantor, the Partnership, and the
Limited Partner and dated _________;
(xii) the Disbursement Agreement, entered into by the Partnership, the
General Partner, [Construction Lender name], and [Disbursement Agent name] and
dated _________;
(xiv) the [reservation letter/carryover allocation] from __________________
(the "State Agency") dated _________, 200___ awarding $_____________ in federal
tax credits annually for each of 10 years; and
(xv) such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinions referred to in this
letter.
For purposes of rendering the opinions stated below we have assumed that,
in those cases in which we have not been involved directly in the preparation,
execution or the filing of a document, (a) the document reviewed by us is an
original document, or a true and accurate copy of the original document, and has
not been subsequently amended, (b) the signatures on each original document are
genuine, and (c) each party, other than the Partnership, the General Partner,
the Developer and the Guarantor, who executed the document had proper authority
and capacity to do so.
Based on the foregoing, we are of the opinion that:
(a) _________________, one of the General Partners, is a corporation duly
formed and validly existing under the laws of the State of _____________________
and has full power and authority to enter into and perform its obligations under
the Partnership Agreement and the other agreements referenced above to which it
or the Partnership is a party (the "Related Agreements"). _______________, one
of the other General Partners, is a corporation duly formed and validly existing
under the laws of the State of __________________ and has full power and
authority to enter into and perform its obligations under the Partnership
Agreement and the Related Agreements.
(b) The Partnership is a limited partnership duly formed and validly
existing under the laws of the State of Minnesota.
Exhibit B
(c) The Partnership has full power and authority to own, develop,
construct, finance and operate the Apartment Housing and to otherwise conduct
business under the Partnership Agreement and the Related Agreements.
(d) Execution of the Partnership Agreement and the Related Agreements by
the General Partners and the Partnership, as applicable, has been duly and
validly authorized by or on behalf of the General Partners and the Partnership,
as applicable, and, having been executed and delivered in accordance with its
terms, each of the Partnership Agreement and the Related Agreements constitutes
the valid and binding agreement of the General Partners and the Partnership, as
applicable, enforceable in accordance with its terms.
(e) The execution and delivery of the Partnership Agreement and the Related
Agreements by the General Partners do not conflict with and will not result in a
breach of any of the terms, provisions or conditions of any agreement or
instrument known to counsel to which any of the General Partners, the
Partnership, the Developer or the Guarantor is a party or by which any of them
may be bound, or any order, rule, or regulation applicable to any of such
parties of any court or governmental body or administrative agency having
jurisdiction over any of such parties or over the property.
(f) To the best of counsel's knowledge, after due inquiry, there is no
litigation or governmental proceeding pending or threatened against, or
involving the Apartment Housing, the Partnership, or any General Partner, the
Guarantor, or the Developer which would materially adversely affect the
condition (financial or otherwise) or business of the Apartment Housing, the
Partnership or any of the partners of the Partnership.
(g) The Limited Partner and the Special Limited Partner have been admitted
to the Partnership as limited partners of the Partnership under Minnesota law
and are entitled to all of the rights of limited partners under the Partnership
Agreement. Except as described in the Partnership Agreement, no person is a
partner of or has any legal or equitable interest in the Partnership, and all
former partners of record or known to counsel have validly withdrawn from the
Partnership and have released any claims against the Partnership arising out of
their participation as partners therein.
(h) Liability of the Limited Partner and the Special Limited Partner for
obligations of the Partnership is limited to the amount of their capital
contributions required by the Partnership Agreement.
(i) Neither the General Partners of the Partnership nor the Limited Partner
nor the Special Limited Partner will have any liability for the Mortgage (as
such term is defined in the Partnership Agreement), and the lender of the
Mortgage Loan will look only to its security in the Apartment Housing for
repayment of the Mortgage Loan.
(j) The Partnership owns a fee simple interest in the Apartment Housing.
(k) To the best of our actual knowledge and belief, after due inquiry, the
Partnership, the General Partners, the Developer and the Guarantor have obtained
all consents, permissions, licenses, approvals, or orders required by all
applicable governmental or regulatory agencies for the development, construction
and operation of the Apartment Housing, and the Apartment Housing conforms to
Exhibit B
all applicable Federal, state and local land use, zoning, health, building and
safety laws, ordinances, rules and regulations.
(l) The Apartment Housing has obtained a carryover allocation of low
housing tax credits ("LIHTC") from the State Agency. The final allocation of
LIHTC and ultimate eligibility of the Apartment Housing for such final
allocation are subject to a series of requirements which must be met, performed
or achieved at various times prior to and after such final allocation. Assuming
all such requirements are met, performed or achieved at the time or times
provided by applicable laws and regulations, the Apartment Housing will qualify
for LIHTC.
(m) The Guarantor, if not an individual, was incorporated, duly organized,
and is validly existing and in good standing under the laws of the State of
Minnesota, is qualified to do business in every jurisdiction in which because of
the nature of its activities or properties qualification is appropriate, and has
all requisite power and authority to own and operate its properties and to carry
on its business as now conducted.
(n) Each Guarantor (i) has full power and authority to execute, deliver and
perform its obligations under and (ii) has duly authorized the execution,
delivery and performance of the Development Fee Guaranty Agreement and the
Construction Completion, Operating Deficit and Tax Credit Guaranty Agreement
(collectively, the "Guaranty"). The Guaranty has been duly executed and
delivered by the Guarantor and constitutes the legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms except as
the enforceability thereof may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting the
enforcement of creditor's rights generally and general principles of equity
(regardless of whether enforceability is considered a proceeding at law or
equity).
(o) The Developer was incorporated, duly organized, and is validly existing
and in good standing the laws of the State of Minnesota, is qualified to do
business in every jurisdiction in which because of the nature of its activities
or properties qualification is appropriate, and has all requisite power and
authority to own and operate its properties and to carry on its business as now
conducted.
(p) The Developer (i) has full power and authority to execute, deliver and
perform its obligations under, and (ii) has duly authorized the execution,
delivery and performance of the Development Agreement. The Development Agreement
has been duly executed and delivered by the Developer and constitutes the legal,
valid and binding obligation of the Developer enforceable in accordance with its
terms except as the enforceability thereof may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting the enforcement of creditor's rights generally and general principles
of equity (regardless of whether enforceability is considered a proceeding at
law or equity).
I am a member of the Bar of the State of Minnesota and express no opinion
as to the laws applicable in any other jurisdiction. All of the opinions set
forth above are qualified to the extent that the validity of any provision of
any agreement may be subject to or affected by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. We do not express any opinion as to the availability of any
equitable or specific remedy upon any breach of any of the covenants, warranties
Exhibit B
or other provisions contained in any agreement. We have not examined, and we
express no opinion with respect to, the applicability of, or liability under,
any Federal, state or local law, ordinance or regulation governing or pertaining
to environmental matters, hazardous wastes, toxic substances or the like.
We express no opinion as to any matter except those set forth above. These
opinions are rendered for use by the Limited Partner, its Assignees, the Special
Limited Partner and their legal counsel which may rely on this opinion. This
opinion may not be delivered to or relied upon by any other person or entity
without our express written consent.
Sincerely,
___________________________
[Name]
Exhibit B
EXHIBIT C
CERTIFICATION AND AGREEMENT
CERTIFICATION AND AGREEMENT made as of the date written below by Kettle
River Townhomes Limited Partnership, a Minnesota limited partnership (the
"Partnership"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., ▇.▇. ▇▇▇▇▇▇▇ Co., Inc. and ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇ Co., Inc. (collectively referred to as the "General Partner"); and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (collectively referred
to as the "Original Limited Partners") for the benefit of WNC Holding, LLC, a
California limited liability corporation (the "Investment Partnership"), and WNC
& Associates, Inc. ("WNC").
WHEREAS, the Partnership proposes to admit the Investment Partnership as a
limited partner thereof pursuant to an Amended and Restated Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement"), in accordance with
which the Investment Partnership will make substantial capital contributions to
the Partnership; and
WHEREAS, the Investment Partnership and WNC have relied upon certain
information and representations described herein in evaluating the merits of
investment by the Investment Partnership in the Partnership;
NOW, THEREFORE, to induce the Investment Partnership to enter into the
Partnership Agreement and become a limited partner of the Partnership, and for
$1.00 and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Partnership, the General Partner and the
Original Limited Partners hereby agree as follows for the benefit of the
Investment Partnership and WNC.
1. Representations, Warranties and Covenants of the Partnership, the General
Partner and the Original Limited Partners.
The Partnership, the General Partner and the Original Limited Partners
jointly and severally represent, warrant and certify to the Investment
Partnership and WNC that, with respect to the Partnership, as of the date
hereof:
1.1 The Partnership is duly organized and in good standing as a limited
partnership pursuant to the laws of the state of its formation with full power
and authority to own its apartment housing (the "Apartment Housing") and conduct
its business; the Partnership, the General Partner and the Original Limited
Partners have the power and authority to enter into and perform this
Certification and Agreement; the execution and delivery of this Certification
and Agreement by the Partnership, the General Partner and the Original Limited
Partners have been duly and validly authorized by all necessary action; the
execution and delivery of this Certification and Agreement, the fulfillment of
its terms and consummation of the transactions contemplated hereunder do not and
will not conflict with or result in a violation, breach or termination of or
constitute a default under (or would not result in such a conflict, violation,
breach, termination or default with the giving of notice or passage of time or
both) any other agreement, indenture or instrument by which the Partnership or
any General Partner or Original Limited Partners is bound or any law,
regulation, judgment, decree or order applicable to the Partnership or any
General Partner or Original Limited Partners or any of their respective
Exhibit C
properties; this Certification and Agreement constitutes the valid and binding
agreement of the Partnership, the General Partner and the Original Limited
Partners, enforceable against each of them in accordance with its terms.
1.2 The General Partner has delivered to the Investment Partnership, WNC or
their affiliates all documents and information which would be material to a
prudent investor in deciding whether to invest in the Partnership. All factual
information provided to the Investment Partnership, WNC or their affiliates
either in writing or orally, did not, at the time given, and does not, on the
date hereof, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they are made.
1.3 Each of the representations and warranties contained in the Partnership
Agreement is true and correct as of the date hereof.
1.4 Each of the covenants and agreements of the Partnership and the General
Partner contained in the Partnership Agreement has been duly performed to the
extent that performance of any covenant or agreement is required on or prior to
the date hereof.
1.5 All conditions to admission of the Investment Partnership as the
investment limited partner of the Partnership contained in the Partnership
Agreement have been satisfied.
1.6 No default has occurred and is continuing under the Partnership
Agreement or any of the Project Documents (as such term is defined in the
Partnership Agreement) for the Partnership.
1.7 The Partnership will allocate to the Investment Partnership the
Projected Annual Tax Credits, or the Revised Projected Tax Credits, if
applicable.
1.8 The General Partner agrees to take all actions necessary to claim the
Projected Tax Credit, including, without limitation, the filing of Form(s) 8609
with the Internal Revenue Service.
1.9 No person or entity other than the Partnership holds any equity
interest in the Apartment Housing.
1.10 The Partnership has the sole responsibility to pay all maintenance and
operating costs, including all taxes levied and all insurance costs,
attributable to the Apartment Housing.
1.11 The Partnership, except to the extent it is protected by insurance and
excluding any risk borne by lenders, bears the sole risk of loss if the
Apartment Housing is destroyed or condemned or there is a diminution in the
value of the Apartment Housing.
1.12 No person or entity except the Partnership has the right to any
proceeds, after payment of all indebtedness, from the sale, refinancing, or
leasing of the Apartment Housing.
1.13 No General Partner is related in any manner to the Investment
Partnership, nor is any General Partner acting as an agent of the Investment
Partnership.
Exhibit C
1.14 No event has occurred which would have a material adverse change on
the Investment Partnership's investment.
2. Miscellaneous.
2.1 This Certification and Agreement is made solely for the benefit of the
Investment Partnership and WNC, and their respective successors and assignees,
and no other person shall acquire or have any right under or by virtue of this
Agreement.
2.2 This Certification and Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, all of which
together shall constitute one and the same instrument.
2.3 Capitalized terms used but not defined in this Certification and
Agreement shall have the meanings given to them in the Partnership Agreement.
IN WITNESS WHEREOF, this Certification and Agreement is made and entered
into as of the 14th day of December, 2004.
PARTNERSHIP:
Kettle River Townhomes Limited Partnership
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
By: ▇.▇. ▇▇▇▇▇▇▇ Co., Inc.
General Partner
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
Exhibit C
GENERAL PARTNER:
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
By: ▇.▇. ▇▇▇▇▇▇▇ Co., Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
ORIGINAL LIMITED PARTNERS:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Exhibit C
EXHIBIT D
FORM OF COMPLETION CERTIFICATE
(to be used when construction completed)
COMPLETION CERTIFICATE
The undersigned, an architect duly licensed and registered in the State of
Minnesota, has reviewed the final working plans and detailed specifications for
Kettle River Townhomes Limited Partnership, a Minnesota limited partnership (the
"Partnership") in connection with the construction of improvements on certain
real property located in Sandstone, Pine County, Minnesota (the "Improvements").
The undersigned hereby certifies (i) that the Improvements have been
completed in accordance with the aforesaid plans and specifications, (ii) that a
permanent certificate of occupancy and all other permits required for the
continued use and occupancy of the Improvements have been issued with respect
thereto by the governmental agencies having jurisdiction thereof, (iii) that the
Improvements are in compliance with all requirements and restrictions of all
governmental authorities having jurisdiction over the Improvements, including,
without limitation, all applicable zoning, building, environmental, fire, and
health ordinances, rules and regulations and (iv) that all contractors,
subcontractors, suppliers and workmen who worked on the Improvements have issued
lien releases and have been paid in full except for normal retainages and
amounts in dispute.
____________________________
APARTMENT HOUSING ARCHITECT
Date: ___________________
Confirmed by:
____________________________
GENERAL PARTNER
Date: ___________________
Exhibit D
EXHIBIT E
ACCOUNTANT'S CERTIFICATE
[Accountant's Letterhead]
_______________, 200__
WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re:Kettle River Townhomes Limited Partnership
Certification as to Amount of Eligible Tax Credit Base
Ladies and Gentlemen:
In connection with the acquisition by WNC Holding, LLC (the "Limited
Partner") of a limited partnership interest in Kettle River Townhomes Limited
Partnership, a Minnesota limited partnership (the "Partnership"), which owns a
certain parcel of land located in Sandstone, Pine County, Minnesota and
improvements thereon (the "Apartment Housing"), the Limited Partner has
requested our certification as to certain issues including the amount of
low-income housing tax credits ("Tax Credits") available with respect to the
Apartment Housing under Section 42 of the Internal Revenue Code of 1986, as
amended (the "Code"). Based upon our review of [the financial information
provided by the Partnership] of the Partnership, we are prepared to file the
Federal information tax return of the Partnership claiming annual Tax Credits in
the amount of $[amount], which amount is based on an eligible basis (as defined
in Section 42(d) of the Code) of the Apartment Housing of $[amount], a qualified
basis (as defined in Section 42(c) of the Code) of the Apartment Housing of
$[amount] and an applicable percentage (as defined in Section 42(b) of the Code)
of [percent]%.
Sincerely,
____________________________
Exhibit E
EXHIBIT F
CONTRACTOR'S CERTIFICATE
[Contractor's Letterhead]
_______________, 200_
WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Kettle River Townhomes Limited Partnership
Ladies and Gentlemen:
The undersigned Voronyak Builders, Inc. (hereinafter referred to as
"Contractor"), has furnished or through various contractors, sub-contractors, or
material suppliers has contracted to furnish labor, services and/or materials to
satisfy the Construction Contract (hereinafter collectively referred to as the
"Work") in connection with the improvement of certain real property known as
Kettle River Townhomes located in Sandstone, Pine County, Minnesota (hereinafter
known as the "Apartment Housing"). Any terms not defined herein shall have the
meaning ascribed in the Amended and Restated Agreement of Limited Partnership of
Kettle River Townhomes Limited Partnership.
Contractor makes the following representations, warranties and
covenants regarding the Work at the Apartment Housing with full knowledge that
the Limited Partner will rely on these representations, warranties and covenants
as a condition to making its Capital Contribution payment to Kettle River
Townhomes Limited Partnership:
o Work on said Apartment Housing has been performed and completed in
accordance with the Plans and Specifications for the Apartment
Housing.
o Contractor acknowledges that upon the Partnership's receipt of the
Limited Partner's placed in service Capital Contribution payment
all amounts owed to Contractor, sub-contractor or material
suppliers to complete the Work will be paid in full.
o Contractor acknowledges Kettle River Townhomes Limited Partnership
is not in violation of any terms and conditions of the
Construction Contract.
o Contractor acknowledges that the Construction Contract has been
paid in full and all liens for the Work have been released.
The undersigned has personal knowledge of the matters stated herein and
is authorized and fully qualified to execute this document on behalf of the
Contractor.
Exhibit F
VORONYAK BUILDERS, INC.
By:_____________________________
Name: ____________________
Title: ____________________
Exhibit F
EXHIBIT G
DEPRECIATION SCHEDULE
Real Property: Use Modified Accelerated Cost Recovery System ("MACRS")
27.5 year straight-line depreciation using the mid-month. Real property
includes buildings and building improvements.
Personal Property: Use 5-year recovery period using mid-year 200% declining
balance, if it relates to residential real estate. Personal property related to
commercial space must use a 7-year recovery period using mid-year 200% declining
balance.
The following costs have a 5-year recovery period:
o Removable appliances (not central climate control system equipment or
water heaters)
o Draperies, blinds and shades, if they would be reusable if removed
o Carpeting, if its removal would not destroy the underlying floor
o Vinyl flooring, if its removal would be easy and not destroy the
underlying floor
o Common area furnishings
o Photocopy equipment
o Calculators, adding machines
o Typewriters
o Computers
o Wall coverings, if their removal would not destroy the underlying wall
o Exit signs
o Security systems (not fire protection system, sprinkler system, smoke
detectors, or fire escapes)
o Outdoor security lighting (not parking lot lighting)
o Fire extinguishers
o Decorative lighting and sconces (not light fixtures for central
lighting)
o Outdoor decorative lighting, such as that lighting signs
o Telephone systems
o Corridor handrails (not bathroom or stairway)
o Raised floors to accommodate wiring in computer rooms
The following costs have a 7-year recovery period with a mid-year 200% declining
balance:
o Office furnishings
o Cabinets and shelving
o Bulletin boards
o Conference or meeting room movable partitions
A percentage of the development fee is also allowed in personal property. The
percentage is calculated by taking the ratio of personal property cost,
excluding development fee, to total development costs and multiplying the
development fee by the calculated ratio.
Land improvements Cost Recovery: Use 15-year recovery period using mid-year 150%
declining balance. The following costs have a 15-year recovery period. Items
Exhibit G
allowed in this section are costs attributable to excavation, grading, and
removing soil necessary to the proper setting of buildings. Other costs
allowable in this section are as follows:
o Roads and sidewalks
o Concrete work (curb and gutter)
o Fencing
o Landscaping (including, but not limited to, trees and shrubs) around
the building which would be destroyed if the building were replaced
o Decorative walls which are part of the landscaping
o Parking lot (resurfacing it later is deducted as an expense)
o Initial parking lot striping (restriping it later is deducted as an
expense)
o Street lights and signs
o Signs which identify the property or provide directions
o Parking lot lighting (not outdoor security lighting)
o Playground equipment
o Basketball court and backboard
o Tennis courts
o Swimming pools
o Jogging trails
o Flag pole
o Wastewater treatment plant and lift station to handle raw sewage
o Interest expense capitalized and related to any of the above costs
o The pro rata portion of the general contractor/construction company
profit, overhead, and general requirements and conditions allocable to
items with a 15-year cost recovery period
o The pro rata portion of the development fee, profit and overhead
allocable to items with a 15-year cost recovery period
Recovery of costs of sanitary sewer system and water utility/distribution
system, including the sewer system outside the buildings: the following costs
have a 20-year recovery period - 150% declining balance mid-year convention.
o Fire hydrants
o Manhole rings and covers
o Watermeter
o Gate valves
o Flushing hydrants
o Cast iron fittings
o Valve boxes
o Air release valves
o Tapping sleeves
o PVC water pipe (outside)
o PVC sewer pipe (outside)
o PVC sewer fittings
Exhibit G
EXHIBIT H
REPORT OF OPERATIONS
Exhibit H
REPORT OF OPERATIONS
QUARTER ENDED: _______________________________
------------------------------------- -----------------------------------
LOCAL PARTNERSHIP:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
GENERAL PARTNER:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Firm Name:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
PROPERTY NAME:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
-----------------------------------
------------------------------------- -----------------------------------
Resident Manager:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
ACCOUNTANT:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Firm:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
------------------------------------- -----------------------------------
------------------------------------ -----------------------------------
MANAGEMENT COMPANY
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Address:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
City, State, Zip:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Phone:
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Contact:
------------------------------------- -----------------------------------
-------------------------------------------------------------------------------
OCCUPANCY INFORMATION
A. Number of Units_____ Number of RA Units_____ Number of Section 8 Tenants ____
B. Occupancy for the Quarter has: Increased ____ Decreased_____
Remained the Same _____
C. Number of: Move-Ins ______ Move-Outs __________ % of Occupancy ______
D. Average length of tenant residency: 1-6 months ______ 6-12 months ______
1-3 years ______ Over 4 years_____
E. Number of Basic rent qualified applicants on waiting list: ________
F. If the apartments are less than 90% occupied, please explain why and
describe what efforts are being made to lease-up remaining units.
___________________________________________________________________________
G. On site manager: Full Time__________ Part Time____________.
If part-time, the number of hours per week_____________.
1
OPERATIONAL INFORMATION
Rent Schedule and Increases from Previous Quarter
Number Monthly Rent Rent Increases Effective
of Units Basic / Market Amount Percent Date
1 Bedroom ________ ______________ _______ _______ ________
2 Bedroom ________ ______________ _______ _______ ________
3 Bedroom ________ ______________ _______ _______ ________
PROPOSED MAINTENANCE
Completed Funded by
Type Description or Operations or Amount
Planned Reserves
------------------------------------------------------------------------------
Interior Painting
------------------------------------------------------------------------------
Exterior Painting
------------------------------------------------------------------------------
Siding
------------------------------------------------------------------------------
Roofing
------------------------------------------------------------------------------
Drainage
------------------------------------------------------------------------------
Paving
------------------------------------------------------------------------------
Landscaping
------------------------------------------------------------------------------
Playground
------------------------------------------------------------------------------
Community Room
------------------------------------------------------------------------------
Laundry Room
------------------------------------------------------------------------------
Common Areas
------------------------------------------------------------------------------
Carpet
------------------------------------------------------------------------------
Appliances
------------------------------------------------------------------------------
Lighting
------------------------------------------------------------------------------
Other
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Please describe in detail any major repairs:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2
CONDITION OF PROPERTY
The overall appearance of the building(s) is:
Excellent Good Fair Bad
The overall appearance of the grounds is:
Excellent Good Fair Bad
EXTERIOR CONDITION (Please Check Appropriate Box)
------------------------------------------------------------------------------
Type of Condition Excellent Good Fair Problems/Comments
------------------------------------------------------------------------------
Signage
-------------------------------------------------------------------------------
Parking Lots
-------------------------------------------------------------------------------
Office/Storage
-------------------------------------------------------------------------------
Equipment
-------------------------------------------------------------------------------
Community Building
-------------------------------------------------------------------------------
Laundry Room
-------------------------------------------------------------------------------
Benches/Playground
-------------------------------------------------------------------------------
Lawns, Plantings
-------------------------------------------------------------------------------
Drainage, Erosion
-------------------------------------------------------------------------------
Carports
-------------------------------------------------------------------------------
Fences
-------------------------------------------------------------------------------
Walks/Steps/Guardrails
-------------------------------------------------------------------------------
Lighting
-------------------------------------------------------------------------------
Painting
-------------------------------------------------------------------------------
Walls/Foundation
-------------------------------------------------------------------------------
Roof/Flashing/Vents
-------------------------------------------------------------------------------
Gutters/Splashblocks
-------------------------------------------------------------------------------
Balconies/Patios
-------------------------------------------------------------------------------
Doors Windows/Screens
-------------------------------------------------------------------------------
Elevators
-------------------------------------------------------------------------------
INTERIOR CONDITION
-------------------------------------------------------------------------------
Stairs
-------------------------------------------------------------------------------
Flooring
-------------------------------------------------------------------------------
Doors/Cabinets/Hardware
-------------------------------------------------------------------------------
Drapes/Blinds
-------------------------------------------------------------------------------
Interior Painting
-------------------------------------------------------------------------------
Refrig/Stoves/Sinks
-------------------------------------------------------------------------------
Bathroom/Tubs/Showers
Toilets
-------------------------------------------------------------------------------
3
FINANCIAL STATUS
A. Replacement Reserve is: Fully-funded Under-funded Amount
(complete attached schedule)
Tax/Insurance Escrow is: Fully-funded Under-funded Amount
(complete attached schedule)
Property is operating at a: Surplus Deficit Amount
If deficit, General Partner funding? Yes No Amount
Mortgage Payments are: On Schedule Delinquent Amount
Are the taxes current? Yes No
(please provide copy of paid tax ▇▇▇▇)
Is the insurance current? Yes No Renewal Date
(please provide copy of yearly renewal)
B. Please note and explain any significant changes in the following:
Administrative Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Repairs/Maintenance Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Utility Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
Taxes/Insurance Expense Increase Decrease Amount
------------------------------------------------------------------------
------------------------------------------------------------------------
C. Do you anticipate making a return to owner distribution? Yes No
Explanation:
------------------------------------------------------------------------
------------------------------------------------------------------------
D. Please explain in detail any change in the financial condition:
------------------------------------------------------------------------
------------------------------------------------------------------------
E. Any insurance claims files? Yes______ No______
If yes, please explain:
------------------------------------------------------------------------
------------------------------------------------------------------------
4
SCHEDULE OF RESERVES
Replacement Tax & Insurance Other Total
Beginning Balance: ----------- ---------- ------- -------
Deposits:
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
---------- ----------- ---------- ------- -------
Total Deposits ----------- ---------- ------- -------
Authorized Disbursements: ----------- ---------- ------- -------
Description:
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
--------- ----------- ---------- ------- -------
Total Disbursements: ----------- ---------- -------- ------
Ending Balance: (1) ----------- ---------- -------- ------
Required Balance: ----------- ---------- -------- ------
Over/under funding: ----------- ---------- -------- ------
Prepared By: Date:
-------------------------------------------------------------------------------
Firm: Telephone:
-------------------------------------------------------------------------------
Reminder: Please include the following documents:
1. Completed Report of Operations
2. Balance Sheet
3. Statement of Income & Expenses
4. Rent roll for quarter ending
5. Tax Credit Compliance Report
5
EXHIBIT I
SURVEY REQUIREMENTS
The Survey shall satisfy the minimum standard detail requirements for
an ALTA/ACSM Land Title Survey, as established by ALTA, ACSM and NSPS in October
of 1999, including optional items 1 through 11 and 13, and shall show the items
listed below:
(a) A scale of measurement.
(b) A North arrow shall be shown.
(c) A legend to explain any symbols or abbreviations appearing on the
survey, and supplementary or exaggerated diagrams shall be provided as
necessary, for clarity.
(d) A point of beginning to form the basis for, or as used in, the legal
description of record of the property unless a lot and block legal description
is utilized. Measured and recorded distances from corners of parcels to the
nearest right of way lines of streets.
(e) The distances to the nearest intersecting street shall be indicated.
Names and widths of streets and highways abutting the property surveyed and
widths of rights of way shall be given. Indicate whether roads and streets are
publicly dedicated; note if not physically open.
(f) Notations of the names of adjoining owners whenever possible.
(g) The boundaries of the Apartment Housing and monuments placed (or
references to monuments found) at all major corners of the boundary of the
premises.
(h) The character of any and all evidence of possession shall be stated and
the location of such evidence shall carefully given in relation to both the
measured boundary lines and those established by the record.
(i) Location and dimensions (including height and gross floor area)of all
buildings, structures and other improvements situated on the Apartment Housing
(such as signs, parking areas, structures, swimming pools, etc.) the number of
square feet contained within the footprint of each building on the Apartment
Housing, and their locations defined by measurements perpendicular to the
Apartment Housing boundaries.
(j) Show the street address(es) of the improvements.
(k) The location and recording data for all easements (both those burdening
and benefiting the Apartment Housing), encroachments, set back and building
restriction lines, conflicts or protrusions from or onto adjoining property,
streets or alleys. (Fully depict any appurtenant easements, showing all courses
and distances.) Note any easements which cannot be located, and note easements
which appear on the Apartment Housing but which are not subject to any recorded
instrument.
(l) The character and location of all walls, buildings, fences and other
visible improvements within 5 feet of each side of the boundary lines shall be
noted.
Exhibit I
(m) The location of driveways, alleys, access roads, sidewalks, curbs,
railroad tracks and railroad rights-of-way on or crossing the Apartment Housing.
(n) Observable evidence of cemeteries.
(o) The location of creeks, streams, rivers, lakes, ponds (retention or
otherwise) or other waterways that cross or form a boundary line of the
property, including the location of high and low water marks established by the
U.S. Army Corps of Engineers, where applicable.
(p) Vicinity map showing the Apartment Housing surveyed in reference to
nearby highway(s)or major street intersections(s).
(q) Flood zone designation.
(r) Land area by acreage and square feet.
(s) Identify and show, if possible, setback, height and floor space area
restrictions.
(t) Parking areas and, if striped, the striping and the number of parking
spaces (by category - full size, compact size, handicap reserved).
(u) Indication of access to a public way such as curb cuts, driveways
marked.
(v) Location of all utilities serving the Premises, including without
limitation:
(i) All manholes, catch basins, valve vaults, storm drains or other surface
indications of subterranean uses;
(ii) All wires and cables (including their function) crossing the surveyed
premises, all poles on or within ten feet of the surveyed premises, and the
dimensions of all cross wires or overhangs affecting the surveyed premises; and
(iii) All utility installations on the surveyed premises based upon
information obtained from independent sources such as utility companies or
utility locating services.
(w) Any wetlands area(s), if known.
(x) The political subdivision, county, state and such other notations as
will accurately locate the property surveyed.
(y) Significant observations not otherwise disclosed.
Exhibit I
SURVEYOR'S CERTIFICATE
I hereby certify to Kettle River Townhomes Limited Partnership, its
respective successors and/or assigns that the survey for this plat was made on
the ground under my supervision from a recorded description in deed of record in
Book ___, Page ___, Records of ___________ County, ___________, and that the
angular and linear measurements and all other matters shown hereon are correct.
I further certify that this survey made under my supervision on ___________
200__, correctly shows the total area of the property in acres and in square
feet; the exact dimensions and location of improvements, walkways, paved areas
and parking areas; all other matters on the ground which may adversely affect
title to the subject property; the exact relation of buildings and other
structures to the property lines of the land indicated hereon; the exact
location of visible and recorded easements and other manners of record affecting
the subject property. I further certify that there are no encroachments of
adjoining buildings or structures onto said land nor overlap of buildings or
structures from said land other than as shown; that adequate ingress and egress
to the subject property are provided by ___________ and ___________, as shown on
the survey, the same being paved, dedicated public right; of way; that the
location of all improvements on the subject property is in accord with all
applicable zoning laws regulating the use of the subject property and with all
applicable laws containing minimum set back provisions and covenants and
restriction of record; that the subject property does not serve any adjoining
property for drainage ingress and egress or for any other purpose; and that the
property is not in flood plain (as shown by Map No. ____ of ____, as dated
___________); this survey is made in accordance with 'Minimum Angle, Distance
and Closure Requirements for Survey Measurements Which Control Land Boundaries
for ALTA/ACSM Land Title Surveys," established by ALTA, ACSM and NSPS in October
1999.
____________________ __________________________________________
Date Surveyor
[SEAL]
License/Registration No.: _______________
Job No.: ________________________________
Exhibit I
LIST OF AGREEMENTS ATTACHED
Development Fee Agreement
Development Fee Guaranty Agreement
Development, Construction, and Operating Budget Agreement
Construction Completion, Operating Deficit, and Tax Credit Guaranty Agreement
Construction Monitoring Agreement
DEVELOPMENT FEE AGREEMENT
This Development Fee Agreement ("Agreement"), is entered into as of the
date written below by and between CEPCO Development, Inc., (the "Developer") and
Kettle River Townhomes Limited Partnership, a Minnesota limited partnership
("Owner"). Developer and Owner collectively may be referred to as the "Parties"
or individually may be referred to as a "Party."
RECITALS
A. Owner has acquired the real property located in Sandstone, Pine County,
Minnesota, as more particularly described in Exhibit A attached hereto and
incorporated herein (the "Real Property").
B. Owner intends to develop on the Real Property a twelve (12) unit
low-income rental housing complex and other related improvements, which is
intended to qualify for federal low-income housing tax credits (the "Apartment
Housing").
C. Prior to the date of this Agreement, Developer has performed substantial
development services with respect to the Apartment Housing as specified in
Section 2.3 of this Agreement. Developer has also agreed to oversee the
construction of the Apartment Housing until all construction work is completed
and to provide certain services relating thereto. The Parties recognize and
acknowledge that the Developer is, and has been, an independent contractor in
all services rendered to, and to be rendered to, the Owner pursuant to this
Development Fee Agreement.
D. Owner desires to commit its existing development agreement with
Developer into writing through this Development Fee Agreement for Developer's
services to manage, oversee, and complete development of the Apartment Housing.
Developer desires to commit its existing development agreement with Owner into
writing through this Development Fee Agreement and Developer is willing to
assign all development rights to the Apartment Housing to Owner, to undertake
performance of such development services, and to fulfill all obligations of the
Developer set forth in this Agreement, in consideration of Owner's restated
promise to pay to Developer the fee specified in this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
promises and undertakings in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Owner and Developer agree as follows.
SECTION 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall, when capitalized,
have the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Construction Documents" means the contract documents between the Owner and
the Mortgage Lender pertaining to the construction and permanent loans for the
construction of the Apartment Housing.
"Contractor" means Voronyak Builders, Inc..
"Department" means the Minnesota agency responsible for the reservation and
allocation of Tax Credits.
"Development Fee" means the fee for development services described in
Section 2 of this Agreement.
"Mortgage Lender" means U.S. Department of Agriculture, which has committed
to make two loans to provide construction and permanent financing for the
Apartment Housing.
"Mortgage Loan" means the loans providing construction and permanent
financing for the Apartment Housing, made to Owner by the Mortgage Lender.
"Partnership Agreement" shall mean the Amended and Restated Agreement of
Limited Partnership of Kettle River Townhomes Limited Partnership, a Minnesota
limited partnership.
"Tax Credits" means the low-income housing tax credits found in Section 42
of the Code, and all rules, regulations, rulings, notices and other
promulgations thereunder.
SECTION 2
ENGAGEMENT OF DEVELOPER; FEE; SERVICES
2.1 Engagement; Term. Owner hereby confirms the engagement of Developer to
act as developer of the Apartment Housing, and to perform the various covenants
and obligations of the Developer under this Agreement. Developer hereby confirms
and accepts such engagement and agrees to perform fully and timely each and
every one of its obligations under this Agreement. The term of such engagement
shall commence on the date hereof and subject to the pre-payment provisions of
Section 3 shall expire on December 31, 2016.
2.2 Development Fee. In consideration of Developer's prior activities and
Developer's agreement to provide development services during the term of this
Agreement, Owner agrees to pay the Developer a Development Fee in the amount of
$166,000 ("Development Fee"). The Development Fee shall be payable in accordance
with Section 3 of this Agreement.
2.3 Development Services.
(a) Prior Services. Owner acknowledges that Developer has, prior to the
date hereof, performed substantial development services relating to the
Apartment Housing. Such services (the "Prior Services") have included the
following.
(1) Services Rendered Prior to October 1, 2004.
(A) Developer has identified a Contractor and recommended to the Owner to
enter into a construction contract with the Contractor for the building of the
Apartment Housing.
(B) Developer has estimated the cost of construction; determined the
construction period; prepared a monthly-estimated construction chart reflecting
the construction services required each month; and prepared a preliminary
Development Budget.
(C) Developer has reviewed the plans and specifications for compliance with
design criteria and construction contracts.
(D) Developer has identified an architect and recommended to the Owner to
execute an architectural contract for the planning and design of the Apartment
Housing.
(E) Developer has placed its own capital at risk in anticipation of the
Apartment Housing being constructed, leased and Tax Credits awarded.
(2) Other Prior Services.
(A) Developer has negotiated and conferred with an insurance carrier to
provide a builder's risk policy during construction.
(b) Future Services. Developer shall monitor construction of the Apartment
Housing for Owner and shall provide Owner with information requiring Owner's
intervention to resolve construction issues. Owner shall allow Developer full
access to the Apartment Housing during the construction period. Developer and
Developer's agents shall perform their work in a manner that minimizes
interference with the management and operation of the Apartment Housing.
(1) Developer shall exert its best efforts to ensure that the Contractor
performs its obligations under the Construction Documents in a diligent and
timely manner.
(2) Developer shall monitor pre-construction conferences and review
pre-construction documents, including drawings, specifications, contracts, and
schedules.
(3) Developer shall identify construction issues and inform Owner of the
same.
(4) Developer shall review subcontract bids received by the Contractor and
make a recommendation to the Owner.
(5) Developer shall monitor field order and change order procedures and
inform the Owner.
(6) Developer shall attend construction progress meetings at the Apartment
Housing site to monitor construction progress and report to the Owner the
outcome of those meetings.
(7) Developer shall review the Contractor's monthly pay applications.
(8) Developer shall monitor the Contractor's progress with respect to the
approved Apartment Housing schedule and keep the Owner informed of all pertinent
Apartment Housing issues and construction progress.
(9) Developer shall advise Owner with respect to relations with engineers,
architects, and other construction professionals.
(10) Developer shall maintain relations with the City of Sandstone and
other governmental authorities having jurisdiction over development of the
Apartment Housing and inform the Owner of any construction or building issues.
(c) Assignment of Development Rights. Developer hereby assigns to Owner all
rights to the development of the Apartment Housing, including but not limited
to, all tangible and intangible rights arising with respect to the name "Kettle
River Townhomes Limited Partnership," the design of the Apartment Housing, the
plans and specifications for the Apartment Housing and all rights arising under
the agreements with Apartment Housing architects, engineers and other Apartment
Housing design and construction professionals.
SECTION 3
DEVELOPMENT FEE PAYMENTS
3.1 Prior Services Rendered. The Parties acknowledge and agree that
Developer has earned the sum of $0 for services rendered prior to October 1,
2004, that said amount is reasonable in relation to the work performed, is fully
earned as of that date and said amount shall be paid in any event
notwithstanding the termination of this Agreement. The Parties further
acknowledge and agree that the Owner has accrued the Development Fee of $0,
under its method of accounting.
3.2 Payment of Development Fee. The Development Fee shall be paid to the
Developer from capital contribution payments received by the Owner in accordance
with Section 9.2(b) of the Partnership Agreement. If the Development Fee is not
paid in full in accordance with Section 9.2(b) of the Partnership Agreement then
the balance of the Development Fee shall be paid from available net operating
income in accordance with the terms of Section 11.1 of the Partnership Agreement
and Exhibit B attached hereto, but in no event later than December 31, 2015.
Also, if the Development Fee is not paid in full in accordance with Section
9.2(b) of the Partnership Agreement then Owner shall provide Developer with a
note payable to Developer ("Development Fee Note") in a principal amount equal
to the unpaid balance of the Development Fee and with a payment schedule as set
forth in Exhibit B attached hereto. The Development Fee Note shall accrue
interest at a rate equal to the applicable federal rate in effect as of the date
of the last capital contribution payment referenced in Section 7.2 of the
Partnership Agreement. The Development Fee Note shall be paid out of Net
Operating Income pursuant to Section 11.1 of the Partnership Agreement, but the
Owner shall pay to the Developer any unpaid principal and accrued interest on
the eleventh anniversary of the Completion Date. Amounts due under this
Development Fee Agreement, or a Development Fee Note, may not be prepaid.
3.3 Accrual of Development Fee. The Development Fee shall be earned no
later than the end of the first year of the tax credit period referenced in
Section 42(f)(1) of the Code. Once any portion of the Development Fee has been
earned, it shall be payable by the Partnership in all events.
SECTION 4
TERMINATION
Neither Party to this Agreement shall have the right to terminate this
Agreement prior to the expiration of the term without cause. Owner may terminate
this Agreement without further liability, for cause, which shall mean any one of
the following:
(a) a material breach by Developer of its obligations under this Agreement
that is not cured within 30 days after notice thereof (or, as to any
non-monetary obligations that is not reasonably capable of cure within 30 days,
and provided that cure is commenced within 10 days of notice and diligently
pursued thereafter to completion, within such time as may reasonably be
necessary to complete such cure);
(b) a fraudulent or intentionally incorrect report by Developer to Owner
with respect to the Apartment Housing; or
(c) any intentional misconduct or gross negligence by Developer with
respect to its duties under this Contract.
Upon proper termination of this Agreement by Owner pursuant to this Section
4, all rights of Developer to receive unearned Development Fees pursuant to this
Agreement with respect to services not yet performed shall terminate. Developer
shall receive the full Development Fee for Prior Services and shall receive a
portion of the Development Fee for Future Services based on the percentage of
Completion of Construction of the Apartment Housing at the time of termination.
Nothing in this Section 4 shall be deemed to prevent Owner from bringing an
action against Developer to recover fully all damages resulting from any of the
causes set forth in paragraphs (a), (b) or (c) above, or to prevent Owner from
contending in any action or proceeding that the Future Services were not earned
by Developer.
SECTION 5
GENERAL PROVISIONS
5.1 Notices. Notices required or permitted to be given under this Agreement
shall be in writing sent by overnight courier or mail, postage prepaid, to the
Parties at the following addresses, or such other address as is designated in
writing by the Party, provided, however, that any written communication
containing such information sent to a Party actually received by a Party shall
constitute notice for all purposes of this Agreement.
If to Developer: CEPCO Development, Inc.
▇▇-▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Owner: Kettle River Townhomes Limited Partnership
▇▇-▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
5.2 Interpretation.
(a) Headings. The section headings in this Agreement are included for
convenience only; they do not give full notice of the terms of any portion of
this Agreement and are not relevant to the interpretation of any provision of
this Agreement.
(b) Relationship of the Parties. Neither Party hereto shall be deemed an
agent, partner, joint venturer, or related entity of the other by reason of this
Agreement and as such neither Party may enter into contracts or agreements which
bind the other Party.
(c) Governing Law. The Parties intend that this Agreement shall be governed
by and construed in accordance with the laws of the state of Minnesota
applicable to contracts made and wholly performed within Minnesota by persons
domiciled in Minnesota.
(d) Severability. Any provision of this Agreement that is deemed invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without rendering invalid or unenforceable the remaining
provisions of this Agreement.
5.3 Integration; Amendment. This Agreement constitutes the entire agreement
of the Parties relating to the subject matter hereof. There are no promises,
terms, conditions, obligations, or warranties other than those contained herein.
This Agreement supersedes all prior communications, representations, or
agreements, verbal or written, among the Parties relating to the subject matter
hereof. This Agreement may not be amended except in writing.
5.4 Attorneys' Fees. If any suit or action arising out of or related to
this Agreement is brought by any Party to any such document, the prevailing
Party shall be entitled to recover the costs and fees (including without
limitation reasonable attorneys' fees and costs of experts and consultants,
copying, courier and telecommunication costs, and deposition costs and all other
costs of discovery) incurred by such Party in such suit or action, including
without limitation to any post-trial or appellate proceeding.
5.5 Binding Effect. This Agreement shall bind and inure to the benefit of,
and be enforceable by, the Parties hereto and their respective successors,
heirs, and permitted assigns.
5.6 Assignment. Neither Party may assign this Agreement without the consent
of the other Party. No assignment shall relieve any Party of liability under
this Agreement unless agreed in writing to the contrary.
5.7 Third-Party Beneficiary Rights. No person not a Party to this Agreement
is an intended beneficiary of this Agreement, and no person not a Party to this
Agreement shall have any right to enforce any term of this Agreement.
Notwithstanding the foregoing, the Parties acknowledge that WNC Holding, LLC and
its assignees shall have the right to enforce any term of this Agreement.
5.8 Related Parties. The Parties acknowledge that the Owner and Developer
are related parties under Code Section 267 and that Owner is an accrual basis
taxpayer. As such, the Parties agree and consent that each and every year during
the term of this Agreement that Owner accrues any or all of the principal and/or
interest of the Development Fee that the Developer (whether or not an accrual
basis taxpayer) will include an equal amount in Developer's income tax return
for that year.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all the Parties, notwithstanding that all Parties are not signatories to the
same counterpart.
5.10 Further Assurances. Each Party agrees, at the request of the other
Party, at any time and from time to time after the date hereof, to execute and
deliver all such further documents, and to take and forbear from all such
action, as may be reasonably necessary or appropriate in order more effectively
to perfect the transfers or rights contemplated herein or otherwise to confirm
or carry out the provisions of this Agreement.
5.11 Mandatory Arbitration. Any person enforcing this Agreement may require
that all disputes, claims, counterclaims, and defenses ("Claims") relating in
any way to this Agreement or any transaction of which this Agreement is a part
(the "Transaction"), be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and Title 9
of the U.S. Code. All claims will be subject to the statutes of limitation
applicable if they were litigated.
If arbitration occurs, one neutral arbitrator will decide all issues unless
either Party's Claim is $100,000 or more, in which case three neutral
arbitrators will decide all issues. All arbitrators will be active Minnesota
State Bar members in good standing. In addition to all other powers, the
arbitrator(s) shall have the exclusive right to determine all issues of
arbitrability. Judgment on any arbitration award may be entered in any court
with jurisdiction.
If either Party institutes any judicial proceeding relating to the
Transaction, such action shall not be a waiver of the right to submit any Claim
to arbitration. In addition, both Parties have the right before, during, and
after any arbitration to exercise any of the following remedies, in any order or
concurrently: (i) setoff, (ii) self-help repossession, (iii) judicial or
non-judicial foreclosure against real or personal property collateral, (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery, and replevin.
This arbitration clause cannot be modified or waived by either Party except
in a writing that refers to this arbitration clause and is signed by both
Parties.
[Signatures begin on the following page]
IN WITNESS WHEREOF, the Parties have caused this Development Fee Agreement
to be executed as of ___________________, 200__.
DEVELOPER:
CEPCO Development, Inc.
By: _______________________________
OWNER:
Kettle River Townhomes Limited Partnership
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _______________________________
Name: ____________________
Title: ____________________
▇.▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _______________________________
Name: ____________________
Title: ____________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _______________________________
Name: ____________________
Title: ____________________
[Development Fee Agreement]
Exhibit A
Legal Description
▇▇▇▇ ▇, ▇, ▇, ▇ ▇▇▇ ▇▇, ▇▇▇▇▇ 2, Sandstone Townsite Company's Third Addition to
the Village of Sandstone and together with that part of vacated alley accruing
thereto, Pine County, Minnesota.
[Development Fee Agreement]
Exhibit B
Scheduled Amount
Year Payment Schedule
---- ----------------
2005 $138,411
2006 $ 29,589
DEVELOPMENT FEE GUARANTY AGREEMENT
FOR VALUE RECEIVED, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the agreement of CEPCO Development, Inc.,
(the "Developer") to permit deferral of the $166,000 due from Kettle River
Townhomes Limited Partnership, a Minnesota limited partnership ("Debtor") to the
Developer, the undersigned Guarantor(s), hereby unconditionally guarantees the
full and prompt payment when due, whether by acceleration or otherwise of that
certain Developer Fee from Debtor to the Developer, evidenced by the Development
Fee Agreement dated the even date herewith, and incorporated herein by this
reference. The foregoing described debt is referred to hereinafter as the
"Liabilities" or "Liability."
The undersigned further agree to pay all expenses paid or incurred by
the Debtor or Developer in endeavoring to collect the Liabilities, or any part
thereof, and in enforcing the Liabilities or this Agreement (including
reasonable attorneys' fees if collected or enforced by law or through an
attorney-at-law). The undersigned hereby represent and warrant that the
extension of credit or other financial accommodations by the Developer to Debtor
will be to the interest and advantage of the undersigned, and acknowledge that
this Agreement is a substantial inducement to the Developer to extend credit to
Debtor and that the Developer would not otherwise extend credit to Debtor.
Debtor or Developer may, from time to time, without notice to or
consent of the undersigned, (a) retain or obtain a security interest in any
property to secure any of the Liabilities or any obligation hereunder, (b)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the undersigned, with respect to any of the Liabilities and (c)
resort to the undersigned for payment of any of the Liabilities, whether or not
the Debtor or Developer shall have resorted to any property securing any of the
Liabilities or any obligation hereunder or shall have preceded against any other
party primarily or secondarily liable on any of the Liabilities.
Debtor and Developer must mutually agree to (a) extend or renew for any
period this Agreement (whether or not longer than the original period) or alter
any of the Liabilities, (b) release or compromise any Liability of the
undersigned hereunder or any Liability of any other party or parties primarily
or secondarily liable on any of the Liabilities, or (c) release, compromise or
subordinate its title or security interest, or any part thereof, if any, in all
or any property now or hereafter securing any of the Liabilities or any
obligation hereunder, and permit any substitution or exchange for any such
property,
The undersigned hereby expressly waives: (a) notice of the existence or
creation of all or any of the Liabilities, (b) notice of any amendment or
modification of any of the instruments or documents evidencing or securing the
Liabilities, (c) presentment, demand, notice of dishonor and protest, (d) all
diligence in collection or protection of or realization upon the Liabilities or
any thereof, any obligation hereunder, or any security for any of the foregoing,
and (e) the right to require the Developer to proceed against Debtor on any of
the Liabilities, though nothing herein shall prevent the Developer from
proceeding against Debtor on any of the Liabilities.
In the event any payment of Debtor to the Developer is held to
constitute a preference under the bankruptcy laws, or if for any other reason
the Developer is required to refund such payment or pay the amount thereof to
any other party, such payment by Debtor to the Developer shall not constitute a
release of Guarantor from any Liability hereunder, but Guarantor agrees to pay
such amount to the Developer upon demand and this Guaranty shall continue to be
effective or shall be reinstated, as the case may be, to the extent of any such
payment or payments.
No delay or failure on the part of the Developer in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Developer of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy. No action of the
Developer permitted hereunder shall in any way impair or affect this Agreement.
For the purpose of this Agreement, the Liabilities of Debtor to the Developer
are guaranteed notwithstanding any right or power of Debtor or anyone else to
assert any claim or defense as to the invalidity or unenforceability of any such
obligation, and no such claim or defense shall impair or affect the obligations
of the undersigned hereunder.
Any payment from Guarantor directly to Developer or the Debtor in
accordance with this Agreement shall be classified and booked as a
non-refundable cost overrun payment from Guarantor to Debtor in consideration of
this Agreement and then a payment by Debtor to Developer in consideration of the
Development Fee Agreement, provided that any payments made to the Partnership
under the guarantee of Development Fee payment pursuant to Section 6.3(b) of the
Partnership Agreement shall be included in the Capital Account of the General
Partner.
This Agreement shall be binding upon the undersigned, and upon the
legal representatives, heirs, successors and assigns of the undersigned, and may
be enforced against them by the Debtor or Developer or their legal
representatives, heirs, successors and assigns.
This Agreement has been made and delivered in the State of Minnesota
and shall be construed and governed under Minnesota law.
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
of invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
Whenever the singular or plural number, masculine or feminine or neuter
is used herein, it shall equally include the other where applicable. In the
event this Agreement is executed by more than one guarantor, this Agreement and
the obligations hereunder are the joint and several obligation of all the
undersigned.
Guarantor consents to the jurisdiction of the courts in the State of
Minnesota and/or to the jurisdiction and venue of any United States District
Court in the State of Minnesota having jurisdiction over any action or judicial
proceeding brought to enforce, construe or interpret this Guaranty. Guarantor
agrees to stipulate in any such proceeding that this Guaranty is to be
considered for all purposes to have been executed and delivered within the
geographical boundaries of the State of Minnesota, even if it was, in fact,
executed and delivered elsewhere.
IN WITNESS WHEREOF, the undersigned have hereunto caused this Development
Fee Guaranty Agreement to be executed as of ______________________, 2004.
WITNESS: GUARANTOR:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________ ______________________
Address for Guarantor:
▇▇-▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
______________________
Notary Public
My Commission Expires: ____________________
______________________
(NOTARY SEAL)
WITNESS: GUARANTOR:
▇.▇. ▇▇▇▇▇▇▇
______________________ ______________________
Address for Guarantor:
▇▇-▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
______________________
Notary Public
My Commission Expires: ____________________
______________________
(NOTARY SEAL)
WITNESS: GUARANTOR:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________ ______________________
Address for Guarantor:
▇▇-▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
______________________
Notary Public
My Commission Expires: ____________________
______________________
(NOTARY SEAL)
DEVELOPMENT, CONSTRUCTION, AND
OPERATING BUDGET AGREEMENT
This Development, Construction, and Operating Budget Agreement
("Agreement") is entered into as of the date written below by and between Kettle
River Townhomes Limited Partnership, a Minnesota limited partnership ("Owner"),
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., a Minnesota corporation, ▇.▇. ▇▇▇▇▇▇▇ Co., Inc., a
Minnesota corporation, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., a Minnesota corporation
("General Partner"), WNC Holding, LLC, a California limited liability
corporation (the "Limited Partner"), and WNC Housing, L.P., a California limited
partnership (the "Special Limited Partner"). Owner, General Partner, Limited
Partner and Special Limited Partner collectively may be referred to as the
"Parties" or individually may be referred to as a "Party."
RECITALS
A. Owner has acquired 1.2 acres of land in Sandstone, Pine County,
Minnesota (the "Real Property").
B. Owner intends to develop on the Real Property a twelve (12) unit
low-income rental housing complex and other related improvements for family use,
which is intended to qualify for federal low-income housing tax credits (the
"Apartment Housing").
C. On even date herewith, an amended and restated partnership agreement
for Kettle River Townhomes Limited Partnership ("Partnership Agreement") was
entered into by and between the General Partner, the Limited Partner, and the
Special Limited Partner (the Partnership Agreement is incorporated herein by
this reference as if the same were reproduced in full and any capitalized terms
not defined in this Agreement shall have the meaning as defined in the
Partnership Agreement).
D. The Parties recognize and acknowledge that the final construction
cost determination involves substantial negotiations with lenders, contractors
and governmental authorities.
E. The Parties recognize and acknowledge that a final operating budget
involves substantial negotiations with lenders and governmental authorities.
F. Limited Partner's and Special Limited Partner's decision to execute
the Partnership Agreement is based, in part, on their acceptance of the sources
of funds available to develop the Apartment Housing, the cost of construction to
build the Apartment Housing and the operating budget necessary to provide a
positive Debt Service Coverage.
Now therefore, in consideration of the foregoing recitals which are a
part of this Agreement, the mutual promises and undertakings in this Agreement,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows.
1. Source of Funds. Attached hereto as Exhibit A and incorporated
herein by this reference is the Apartment Housing Source of Funds. The Source of
Funds has been specified in the Partnership Agreement as the Subordinate Loan,
the Mortgage, the Capital Contribution of the General Partner, the Capital
Contribution of the Limited Partner and the Capital Contribution of the Special
Limited Partner. Unless expressly permitted in the Partnership Agreement,
Consent of the Special Limited Partner is required for any change to the Source
of Funds.
2. Development Budget. Attached hereto as Exhibit B and incorporated
herein by this reference is the Development Budget in an amount equal to
$1,273,920. Owner acknowledges and represents that the attached Development
Budget includes the total costs and expenses to acquire, develop and construct
the Real Property and the Apartment Housing.
3. Construction Proforma. Attached hereto as Exhibit C and incorporated
herein by this reference is the Construction Proforma. Owner acknowledges and
represents that the attached Construction Proforma has been reviewed by and
approved by the Construction Lender, Mortgage lender if applicable and any
governmental authorities if applicable. In accordance with the Partnership
Agreement, if the development costs, less the Development Fee, exceed the sum of
the Capital Contributions and the proceeds of the Mortgage, then the General
Partner shall be responsible for and shall be obligated to pay such
deficiencies.
4. Time Line. Attached hereto as Exhibit D and incorporated herein by
this reference is a construction time line, ▇▇▇▇ chart or similar graph approved
by the Special Limited Partner. The time line will include, at a minimum, a
month-to-month, building-by-building analysis as to when each trade will start
and complete the work for which they have been retained. If at any time during
construction there is, or anticipated to be, a change in the construction
schedule as displayed in the time line then the General Partner shall update the
time line and provide the same to the Limited Partner and Special Limited
Partner.
5. Operating Proforma. Attached hereto as Exhibit E and incorporated
herein by this reference is the Operating Proforma. Owner acknowledges and
represents that the attached Operating Proforma has been reviewed by and
approved by the Construction Lender, the Mortgage lender and any governmental
authorities if applicable.
6. Notices. Any notice given pursuant to this Agreement may be served
personally on the Party to be notified, or may be mailed, first class postage
prepaid, to the following address, or to such other address as a Party may from
time to time designate in writing:
To the General Partner: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
▇▇ - ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇▇ Co., Inc. ▇▇ -
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
▇▇ - ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
To the Limited Partner: WNC Holding, LLC
c/o WNC & Associates, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
To the Special Limited Partner: WNC Housing, L.P.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
6. Successors and Assigns. All the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the successors and
assigns of the Parties.
7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and said counterparts
shall constitute but one and the same instrument which may sufficiently be
evidenced by one counterpart.
8. Captions. Captions to and headings of the sections of this Agreement
are solely for the conveniences of the Parties, are not a part of this
Agreement, and shall not be used for the interpretation or determination of the
validity of this Agreement or any provision hereof.
9. Saving Clause. If any provision of this Agreement, or the
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
10. Governing Law. This Agreement and its application shall be governed
by the laws of Minnesota.
11. Attorney's Fees. If a suit or action is instituted in connection
with an alleged breach of any provision of this Agreement, the prevailing Party
shall be entitled to recover, in addition to costs, such sums as the court may
adjudge reasonable as attorney's fees, including fees on any appeal.
[Signatures begin on the following page]
In witness whereof, this Development, Construction, and Operating Budget
Agreement is made and entered into as of _______________, 200__.
PARTNERSHIP:
Kettle River Townhomes Limited Partnership
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _________________________________
Name: ____________________
Title: ____________________
By: ▇.▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _________________________________
Name: ____________________
Title: ____________________
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _________________________________
Name: ____________________
Title: ____________________
GENERAL PARTNERS:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
By: _________________________________
Name: ____________________
Title: ____________________
▇.▇. ▇▇▇▇▇▇▇ Co., Inc.
By: _________________________________
Name: ____________________
Title: ____________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc.
By: _________________________________
Name: ____________________
Title: ____________________
LIMITED PARTNER:
WNC Holding, LLC
By: WNC & Associates, Inc.,
Managing Member
By: _________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
SPECIAL LIMITED PARTNER:
WNC Housing, L.P.
By: WNC & Associates, Inc.,
General Partner
By: ______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
[Development, Construction, and Operating Budget Agreement]
Exhibit A
Source of Funds
[Development, Construction, and Operating Budget Agreement]
Exhibit B
Development Budget
[Development, Construction, and Operating Budget Agreement]
Exhibit C
Construction Proforma
[Development, Construction, and Operating Budget Agreement]
Exhibit D
Construction Time Line
[To be attached by Developer]
[Development, Construction, and Operating Budget Agreement]
Exhibit E
Operating Proforma
CONSTRUCTION COMPLETION, OPERATING DEFICIT, AND
TAX CREDIT GUARANTY AGREEMENT
This Construction Completion, Operating Deficit, and Tax Credit
Guaranty Agreement ("Agreement") is entered into this __ day of ____, 200_, by
and between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(collectively, "Guarantor"), Kettle River Townhomes Limited Partnership (the
"Partnership") and WNC Holding, LLC ("Limited Partner"). Guarantor, the
Partnership and Limited Partner collectively may be referred to as the "Parties"
or individually may be referred to as a "Party."
RECITALS
WHEREAS, on even date herewith, a partnership agreement for the
Partnership (the "Partnership Agreement") was entered into by and between
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., ▇.▇. ▇▇▇▇▇▇▇ Co., Inc. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co.,
Inc. as the general partners ("General Partner") and the Limited Partner (the
Partnership Agreement is incorporated herein by this reference as if the same
were reproduced in full and any capitalized terms not defined in this Agreement
shall have the meaning as defined in the Partnership Agreement).
WHEREAS, pursuant to the terms of the Partnership Agreement, the
General Partner: (1) is required to guarantee the completion of construction of
a twelve (12) unit low to moderate income housing complex located in Sandstone,
Pine County, Minnesota, as more fully described in Exhibit A attached hereto and
incorporated herein by this reference, and any and all improvements now or
hereafter to be constructed thereon ("Apartment Housing"); (2) is required to
guarantee the payment of all Operating Deficits incurred by the Partnership as a
result of the operations of the Apartment Housing; and (3) is required to
guarantee the annual allocation of tax credits to the Limited Partner.
WHEREAS, the Limited Partner would not have entered into the
Partnership Agreement as a limited partner but for the agreement of Guarantor to
provide the financial funds necessary to obtain Completion of Construction, to
pay Operating Deficits and to pay Tax Credit deficits. Guarantor is an affiliate
of the General Partner and will therefore benefit from the acquisition by the
Limited Partner of a limited partnership interest in the Partnership.
NOW THEREFORE, in consideration of the foregoing and the promises,
covenants and undertakings herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto agree as follows:
SECTION 1. Guarantor hereby individually, jointly and severally
guarantees to the Partnership and the Limited Partner, as applicable, the prompt
payment and full performance of the provisions under Section 6.2, Section 6.3,
Section 7.4(a), Section 7.4(b), Section 7.4(c), Section 7.4(e), and Section 9.12
of the Partnership Agreement, including all modifications thereof, pursuant to
and in accordance with the terms and conditions set forth in the Partnership
Agreement and in this Agreement.
SECTION 2. Guarantor further agrees to pay all expenses paid or
incurred by the Partnership and/or Limited Partner in endeavoring to collect
Guarantor's obligations, or any part thereof, and in enforcing the provisions of
this Agreement, including reasonable attorneys' fees if collected or enforced by
law or through an attorney-at-law.
SECTION 3. No delay or failure on the part of the Partnership or
Limited Partner in the exercise of any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by the Partnership of any right or
remedy shall preclude other or future exercise thereof or the exercise of any
other right or remedy. No action of the Partnership permitted hereunder shall in
any way impair or affect this Agreement. For the purpose of this Agreement,
Guarantor's obligations are guaranteed notwithstanding any right or power of
anyone else to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such third party claim or
defense shall impair or affect the obligations of Guarantors hereunder.
SECTION 4. This Agreement shall be binding upon the Parties, and upon
their legal representatives, heirs, successors and assigns.
SECTION 5. This Agreement has been made and delivered in the State of
Minnesota and shall be construed and governed under Minnesota law.
SECTION 6. Whenever possible, each provision of the Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
SECTION 7. The Parties recognize and acknowledge, and Guarantor agrees
and consents, that if the Partnership does not take legal action to enforce this
Agreement, if and when by the terms of this Agreement it is enforceable, then
the Limited Partner, may on its own behalf and in its own name commence legal
proceedings to enforce the terms of this Agreement.
SECTION 8. Whenever the singular or plural number, masculine or
feminine or neuter is used herein, it shall equally include the other where
applicable.
SECTION 9. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, and said counterparts shall
constitute but one and the same instrument which may sufficiently be evidenced
by one counterpart.
SECTION 10. The Parties consent to the jurisdiction and venue of the
courts of Pine County in the State of Minnesota and/or to the jurisdiction and
venue of any United States District Court in the State of Minnesota having
jurisdiction over Pine County in any action or judicial proceeding brought to
enforce, construe or interpret this Agreement. The Parties agree to stipulate in
any such proceeding that this Agreement is to be considered for all purposes to
have been executed and delivered within the geographical boundaries of the State
of Minnesota, even if it was, in fact, executed and delivered elsewhere.
IN WITNESS WHEREOF, this Construction, Operating Deficit, and Tax Credit
Guaranty Agreement is made and entered into as of this __________ day of
____________________, 2004.
GUARANTOR:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
_________________________
Notary Public:
_________________________
My Commission Expires: ____________________
_________________________
(NOTARY SEAL)
GUARANTOR:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
_________________________
Notary Public:
_________________________
My Commission Expires: ____________________
_________________________
(NOTARY SEAL)
GUARANTOR:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
_________________________
Notary Public:
_________________________
My Commission Expires: ____________________
_________________________
(NOTARY SEAL)
PARTNERSHIP:
KETTLE RIVER TOWNHOMES LIMITED PARTNERSHIP
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _________________________________
Name: ____________________
Title: ____________________
By: ▇.▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _________________________________
Name: ____________________
Title: ____________________
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Co., Inc., general partner
By: _________________________________
Name: ____________________
Title: ____________________
LIMITED PARTNER:
WNC Holding, LLC
By: WNC & Associates, Inc., its Managing Member
By: WNC & Associates, Inc.,
General Partner
By: ____________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
[Construction Completion, Operating Deficit, and Tax Credit Guaranty Agreement]
Exhibit A
Legal Description
▇▇▇▇ ▇, ▇, ▇, ▇ ▇▇▇ ▇▇, ▇▇▇▇▇ 2, Sandstone Townsite Company's Third Addition to
the Village of Sandstone and together with that part of vacated alley accruing
thereto, Pine County, Minnesota.