Exhibit 10.2
WILSHIRE REAL ESTATE PARTNERSHIP L.P.
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
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ARTICLE I - FORMATION..................................................... 1
Section 1.1 Name..................................................... 1
Section 1.2 Place of Business; Registered Agent...................... 1
Section 1.3 Term..................................................... 1
Section 1.4 Application of the Act................................... 1
ARTICLE II - INTERPRETIVE PROVISIONS...................................... 2
Section 2.1 Certain Definitions...................................... 2
Section 2.2 Rules of Construction.................................... 10
ARTICLE III - BUSINESS PURPOSE............................................ 11
Section 3.1 Business................................................. 11
Section 3.2 Authorized Activities.................................... 11
ARTICLE IV - CAPITAL CONTRIBUTIONS........................................ 11
Section 4.1 Initial Capital Contributions............................ 11
Section 4.2 Additional Partnership Units............................. 12
Section 4.3 No Third Party Beneficiaries............................. 13
Section 4.4 Return of Capital Account; Interest...................... 13
Section 4.5 Preemptive Rights........................................ 13
Section 4.6 REIT Share Purchases..................................... 13
Section 4.7 Limited Liability........................................ 13
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS................................. 14
Section 5.1 General.................................................. 14
Section 5.2 Distributions of Net Cash Flow........................... 14
Section 5.3 Distributions of Capital Proceeds........................ 14
Section 5.4 Amounts Withheld......................................... 14
ARTICLE VI - PARTNERSHIP MANAGEMENT....................................... 14
Section 6.1 Management and Control of Partnership Business........... 14
Section 6.2 No Management by Limited Partners; Limitation of
Liability............................................... 15
Section 6.3 Limitations on Partners.................................. 16
Section 6.4 Business with Affiliates................................. 16
Section 6.5 Compensation; Reimbursement of Expenses.................. 16
Section 6.6 Liability for Acts and Omissions......................... 17
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ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS................... 17
Section 7.1 Books and Records........................................ 17
Section 7.2 Annual Audit and Accounting.............................. 18
Section 7.3 Partnership Funds........................................ 18
Section 7.4 Reports and Notices...................................... 18
Section 7.5 Notification of Changes in Conversion Multiple........... 18
Section 7.6 Tax Matters.............................................. 18
Section 7.7 Withholding.............................................. 19
ARTICLE VIII - TRANSFER OF INTERESTS; ADMISSION OF PARTNERS............... 20
Section 8.1 Transfer by General Partner.............................. 20
Section 8.2 Obligations of a Prior General Partner................... 20
Section 8.3 Additional or Successor General Partner.................. 20
Section 8.4 Restrictions on Transfer and Withdrawal by Limited
Partner................................................. 20
Section 8.5 Substituted Limited Partner.............................. 21
Section 8.6 Timing and Effect of Transfers........................... 22
Section 8.7 Additional Limited Partners.............................. 22
Section 8.8 Amendment of Agreement and Certificate................... 22
ARTICLE IX - REDEMPTION................................................... 23
Section 9.1 Right of Redemption...................................... 23
Section 9.2 Timing of Redemption..................................... 23
Section 9.3 Redemption Price......................................... 23
Section 9.4 Assumption of Redemption Obligation...................... 24
Section 9.5 Further Assurances....................................... 24
Section 9.6 Effect of Redemption..................................... 24
ARTICLE X - DISSOLUTION AND LIQUIDATION................................... 24
Section 10.1 Term and Dissolution.................................... 24
Section 10.2 Liquidation of Partnership Assets....................... 25
Section 10.3 Time for Winding Up..................................... 26
ARTICLE XI - AMENDMENTS AND MEETINGS...................................... 26
Section 11.1 Amendment Procedure..................................... 26
Section 11.2 Meetings and Voting..................................... 27
ARTICLE XII - MISCELLANEOUS PROVISIONS..................................... 27
Section 12.1 Title to Property....................................... 27
Section 12.2 Other Activities of Limited Partners.................... 27
Section 12.3 Power of Attorney....................................... 28
Section 12.4 Further Assurances...................................... 29
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Section 12.5 Titles and Captions...................................... 29
Section 12.6 Applicable Law........................................... 29
Section 12.7 Binding Agreement........................................ 29
Section 12.8 Waiver of Partition...................................... 29
Section 12.9 Counterparts and Effectiveness........................... 29
Section 12.10 Survival of Representations............................. 30
Section 12.11 Entire Agreement........................................ 30
Section 12.12 Securities Law Provisions............................... 30
Section 12.13 Remedies Not Exclusive.................................. 30
EXHIBITS
Exhibit 1 - Schedule of Partners
Exhibit 2 - Redemption Notice
Exhibit 3 - Allocation Provisions
Exhibit 4 - Form of Unit Certificate
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WILSHIRE REAL ESTATE PARTNERSHIP L.P.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement") of Wilshire Real
Estate Partnership L.P. (the "Partnership") is made this day of _______, 1998,
by and among WILSHIRE REAL ESTATE INVESTMENT TRUST INC., a Maryland
corporation, as General Partner and WILSHIRE REAL ESTATE INVESTMENT TRUST, INC.,
a Maryland Corporation and SMALL CAP INVESTMENTS, LLC, an Oregon limited
liability company, as Limited Partners, together with any Persons who or which
become Partners in the Partnership in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements herein contained, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I - FORMATION
Section 1.1 Name. The name of the Partnership is WILSHIRE REAL
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ESTATE PARTNERSHIP L.P.
Section 1.2 Place of Business; Registered Agent. The principal
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office of the Partnership is located at ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇ which office may be changed to such other place as the General Partner may
from time to time designate. The registered agent for the Partnership in the
State of Delaware is Corporation Service Company whose address is ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
Section 1.3 Term. The Partnership shall terminate on December 31,
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2050 unless sooner terminated as provided in this Agreement or by operation of
law.
Section 1.4 Application of the Act. The Partnership is a limited
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partnership subject to the provisions of the Act and the terms and conditions
set forth in this Agreement. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. No Partner has any
interest in any Partnership property, and the Partnership Interest of each
Partner shall be personal property for all purposes.
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ARTICLE II - INTERPRETIVE PROVISIONS
Section 2.1 Certain Definitions. The following terms have the
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definitions hereinafter indicated whenever used in this Agreement with initial
capital letters. In addition, certain terms are defined in Exhibit 3 hereto.
Act: The Delaware Revised Uniform Limited Partnership Act, as it
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may be amended from time to time, and any successor to such statute.
Additional Limited Partner: A person admitted to the Partnership as
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an Additional Limited Partner in accordance with Section 8.7 hereof and who is
shown as such on the books and records of the Partnership.
Affiliate: With respect to any referenced Person, (i) such Person or
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a member of his immediate family; (ii) any Person who directly or indirectly
owns, controls or holds the power to vote ten percent (10%) or more of the
outstanding voting securities of the Person in question; (iii) any Person ten
percent (10%) or more of whose outstanding securities are directly or indirectly
owned, controlled by, or held with power to vote by the Person in question; (iv)
any Person directly or indirectly controlling, controlled by, or under direct
common control with the Person in question; (v) if the Person in question is a
corporation, any executive officer or director of such Person or of any
corporation directly or indirectly controlling such Person; and (vi) if the
Person in question is a partnership, any general partner of such partnership or
any Limited Partner owning or controlling ten percent (10%) or more of either
the capital or profits interest in such partnership. As used herein, "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
Agreement: This Limited Partnership Agreement and all Exhibits
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attached hereto, as the same may he amended or restated and in effect from time
to time.
Assignee: Any Person to whom one or more Partnership Units have been
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Transferred as permitted under this Agreement, but who has not become a
Substituted Limited Partner in accordance with the provisions hereof and who
shall have the rights set forth in Section 8.5(B).
Associate: Either (i) a corporation, partnership or organization
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(other than Seller or Investor) of which such Person is an officer or partner or
is, directly or indirectly, the beneficial owner, if the Associate is a
corporation, of 10% or more of any class of equity securities (by vote or value,
whichever is more restrictive) of such Associate, and if the Associate is a
partnership or organization, of 10% or more in the assets or net profits of the
Associate, in both cases pursuant to Section 856(d)(2)(B) of the Code; (ii) any
trust or estate which such Person has a beneficial interest of 10% or more in
the assets or net profits of such trust or estate pursuant to Section
856(d)(2)(B) of the Code; and (iii) any relative or spouse of such Person who
has the same residence as such Person.
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Bankrupt(cy): Either (i) a referenced Person's making an assignment
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for the benefit of creditors; (ii) the filing by a referenced Person of a
voluntary petition in bankruptcy; (iii) a referenced Person's being adjudged
insolvent or having entered against him an order for relief in any bankruptcy or
insolvency proceeding; (iv) the filing by a referenced Person of an answer
seeking any reorganization, composition, readjustment, liquidation, dissolution
or similar relief under any law or regulation; (v) the filing by a referenced
Person of an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against him in any proceeding of
reorganization, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation; or (vi) a referenced Person's
seeking, consenting to or acquiescing in the appointment of a trustee, receiver
or liquidator for all or substantially all of his property (or court appointment
of such trustee, receiver or liquidator).
Capital Account: The account maintained by the Partnership for each
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Partner described in Exhibit 3 hereto.
Capital Contribution: With respect to each Partner, the total amount
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of cash or cash equivalents, or the Gross Asset Value of Contributed Property
which such Partner contributes or is deemed to contribute to the Partnership
pursuant to the terms of this Agreement, including the Capital Contribution made
by a predecessor holder(s) of the Interest of such Partner.
Capital Proceeds: The net proceeds received by the Partnership (less
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the amount determined by the General Partner as necessary or desired to reinvest
in new Partnership Assets) from, or attributable to, (i) any financing obtained
by the Partnership after payment of the then-outstanding principal balance and
accrued but unpaid interest on liabilities of the Partnership then payable
pursuant to the terms thereof from the proceeds of such financing; (ii) the sale
or condemnation (other than a temporary taking) of all or substantially all of
any Property Interest or the Partnership's interest therein after payment of the
then-outstanding principal balance and accrued but unpaid interest on
liabilities of the Partnership then payable pursuant to the terms thereof; (iii)
the receipt of any proceeds from a policy of title or fire and extended coverage
insurance; and (iv) any reserves previously set aside from Capital Proceeds or
Capital Contributions which are deemed available for distribution by the General
Partner.
Cash Payment: The payment to a Redeeming Party of a cash amount
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determined by multiplying (i) the number of Partnership Units tendered for
redemption by such Redeeming Party pursuant to a validly proffered Redemption
Notice by (ii) the Unit Value on the date the Redemption Notice is received by
the General Partner by (iii) the Conversion Multiple.
Certificate: The Partnership's Certificate of Limited Partnership
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filed in the office of the Delaware Secretary of State, as amended from time to
time, as required by the terms of this Agreement and the Act.
Code: The Internal Revenue Code of 1986, as amended from time to
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time.
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Consent: Either the written consent of a Person or the affirmative
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vote of such Person at a meeting duly called and held pursuant to this
Agreement, as the case may be, to do the act or thing for which the consent is
required or solicited, or the act of granting such consent, as the context may
require. Except as expressly provided otherwise in this Agreement, reference to
a requirement for the "Consent" of a Partner shall require the commercially
reasonable judgment of such Partner in light of the facts and circumstances,
rather than the unfettered discretionary decision of such Partner.
Contributed Property: Each property or other asset (excluding cash)
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contributed or deemed contributed to the Partnership (whether as a result of a
Code Section 708 termination or otherwise).
Contribution Agreement(s): The Contribution Agreement by and among
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the Partnership, the General Partner and a Property Interest Owner, pursuant to
which, among other things, such Property Interest Owner agrees to contribute a
Property Interest and such other assets owned by such Property Interest Owner
and specified in such agreement to the Partnership in consideration for
Partnership Units.
Conversion Multiple: The factor applied for converting Partnership
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Units to REIT Shares, which shall initially be 1.0; provided, however, in the
event that WREIT (i) declares or pays a dividend on its outstanding REIT Shares
in REIT Shares or makes a distribution to all holders of its outstanding REIT
Shares in REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii)
combines its outstanding REIT Shares into a smaller number of REIT Shares, the
Conversion Multiple shall be adjusted by multiplying the Conversion Multiple by
a fraction, the numerator of which shall be the number of REIT Shares issued
and outstanding on the record date (assuming for such purposes that such
dividend, distribution, subdivision or combination has occurred as of such
time), and the denominator of which shall be the actual number of REIT Shares
(determined without the above assumption) issued and outstanding on the Record
Date for such dividend, distribution, subdivision or combination. In addition,
[while Section 6(c) hereof provides that the General Partner shall not directly
or indirectly enter into or conduct any business other than in connection with
the business of the Partnership and the Ownership of its Partnership Interests
therein, if an event were to occur that would significantly affect the economic
relationship between a Partnership Unit and a REIT share, the conversion
multiple shall also be appropriately adjusted.] Any such adjustment to the
conversion multiple shall be determined by the Board of Directors of the General
Partner whose determination as to whether an adjustment is necessary and the
amount of such adjustment shall be conclusive absent manifest error. Any
adjustment to the Conversion Multiple shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.
Depreciation: As defined in Exhibit 3 to this Agreement.
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Fiscal Year: The calendar year or such other twelve (12)-month period
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designated by the General Partner.
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General Partner: Wilshire Real Estate Investment Trust Inc., its
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respective successors who or which become Successor General Partner(s) in
accordance with the terms of this Agreement.
General Partner Interest: A Partnership Interest held by the General
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Partner that is a general partnership interest. A General Partner Interest may
be expressed as a number of Partnership Units.
Gross Asset Value: With respect to any asset, the asset's adjusted
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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
agreed to by the contributing Partner and the Partnership and set forth in the
Contribution Agreement.
(B) The Gross Asset Values of all Partnership Assets shall be adjusted
to equal their respective gross 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 Assets as
consideration for an interest in the Partnership; and (3) the liquidation of the
Partnership within the meaning of 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 if the General Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership.
(C) The Gross Asset Value of any Partnership Asset distributed to any
Partner shall be the gross fair market value of such asset on the date of
distribution; 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 Regulations Section 1.704-1(b)(2)(iv)(m) and Section (C) of Exhibit
3 hereto; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this clause (D) to the extent the General Partner determines that an
adjustment pursuant to clause (B) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this clause (D).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clauses (A), (B), or (D) above, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Partnership profits and losses.
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Gross Receipts: With respect to any Fiscal Year or other accounting
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period designated by the General Partner, the sum of all cash receipts of the
Partnership, including without limitation, all cash receipts earned from
interest and other sums paid with respect to Loans, the rental of commercial
space within the Property Interests and from other business operations of the
Partnership but excluding tenant security deposits until applied to rent or
other charges, but excluding Capital Proceeds and Capital Contributions.
Involuntary Withdrawal: As to any (i) individual, such individual's
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death, incapacity or adjudication of incompetence; (ii) corporation, its
dissolution or revocation of its charter (unless such revocation is promptly
corrected upon notice thereof); (iii) partnership or limited liability company,
the dissolution and commencement of winding up of its affairs; (iv) trust, the
termination of the trust (but not the substitution of trustees); (v) estate, the
distribution by the fiduciary of the estate's complete interest in the
Partnership; and (vi) Partner, the Bankruptcy of such Partner.
IPO: IPO means the first sale of REIT Shares by WREIT pursuant to
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WREIT's first effective registration statement for such REIT Shares filed under
the Securities Act of 1933, as amended.
IRS: The Internal Revenue Service, an agency of the United States
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government.
Limited Partner(s): The Limited Partners and any Person subsequently
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admitted to the Partnership as a Limited Partner.
Loans: Mortgages, mortgage-backed securities, or other debt
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financings owned by the Partnership.
Net Capital Contributions: As to any Partner on any day, the
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Partner's Capital Contributions adjusted as follows:
(A) Increased by the amount of any Partnership liabilities which, in
connection with distributions pursuant to Sections 5.3 and 10.2(A)(3), are
assumed by such Partner or are secured by any Partnership Asset distributed
to such Partner, and
(B) Reduced by the amount of cash and the Gross Asset Value of any
Partnership Asset distributed to such Partner pursuant to Sections 5.3 and
10.2(A)(3) and the amount of any liabilities of such Partner assumed by the
Partnership or which are secured by any property contributed by such
Partner to the Partnership.
In the event any interest in the Partnership is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Net Capital Contribution of the transferor to the extent it relates to the
transferred interest in the Partnership.
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Net Cash Flow: Gross Receipts and any other funds deemed available
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for distribution by the General Partner, including any amounts previously set
aside as reserves or escrows, less Operating and Capital Expenses.
Notice: A writing containing the information required by this
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Agreement to be communicated to a Person and personally delivered to such Person
or sent by recognized air courier capable of giving receipt therefor, freight
prepaid, to such Person at the last known address of such Person as shown on the
books of the Partnership, the date of personal delivery or of the air courier's
receipt, as the case may be, being deemed the date of such Notice; provided,
however, that any written communication containing such information actually
received by a Person shall constitute Notice for all purposes of this Agreement.
Facsimile transmission promptly confirmed by original communication delivered as
herein provided shall be an acceptable means of notice, with the date of receipt
of the facsimile being deemed the date of Notice. Any Partner may change its
address or the address to which copies of Notices should be sent by Notice to
the other Partners.
Operating and Capital Expenses: All expenditures payable by the
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Partnership including, without limitation (i) any and all operating expenses,
management expenses, taxes and insurance; (ii) principal and interest due on
Partnership obligations; (iii) capital expenditures (including loans); (iv)
reimbursement to Partners for advances, if any, pursuant to this Agreement; and
(v) reserves deemed reasonably necessary by the General Partner.
Partners: The General Partner and the Limited Partners as a
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collective group. The term "Partner" shall mean a General Partner or a Limited
Partner. Such terms shall be deemed to include such other Persons who become
Partners pursuant to the terms of this Agreement.
Partnership: The Delaware limited partnership referred to herein as
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Wilshire Real Estate Partnership L.P. as such partnership may from time to time
be constituted.
Partnership Assets: At any particular time, any assets or property
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(tangible or intangible, ▇▇▇▇▇▇ or inchoate, fixed or contingent) held or owned
by the Partnership.
Partnership Interest or Interest: As to any Partner, such Partner's
--------------------------------
ownership interest in the Partnership, representing a Capital Contribution by
either a Limited Partner or a General Partner and including such Partner's right
to distributions under this Agreement, and any other rights or benefits which
such Partner has in the Partnership, together with any and all obligations of
such Person to comply with the terms and provisions of this Agreement. A
Partnership Interest may be expressed as a number of Partnership Units.
Partnership Unit: A fractional, undivided share of the Partnership
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Interests of all Partners issued pursuant to Section 4.1 hereof. As of the date
of this Agreement, the aggregate number of Partnership Units outstanding is
10,001,875. The ownership of Partnership Units may
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be evidenced by the form of non-transferable, non-negotiable certificate for
Partnership Units substantially in the form attached as Exhibit 4.
Percentage Interest: As to any Partner, the percentage in the
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Partnership as initially shown opposite the name of such Partner on Exhibit 1
attached hereto, as determined by dividing the Partnership Units then owned by
such Partner by the total number of Partnership Units then outstanding, as the
same may be adjusted from time to time to reflect the issuance and redemption of
Partnership Units in accordance with this Agreement.
Person: An individual, or a trust, estate, partnership, association,
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company or corporation, as such terms are defined in Code Section 7701.
Property Interest: Any real estate property, mortgage-backed security
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or loan owned by any Property Interest Owner and contributed to the Partnership
pursuant to the Contribution Agreement for such Property Interest.
Property Interest Owner(s): Any Person which owns a Property Interest
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that is being contributed to the Partnership.
Record Date: The date established by the General Partner for
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distribution of Net Cash Flow pursuant to Section 5.2 hereof, which record date
shall be the same as the record date established by WREIT for a distribution to
its shareholders of some or all of its portion of such distribution.
Redeeming Party: A Limited Partner or Assignee (other than the
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General Partner) who tenders Partnership Units for redemption pursuant to a
Redemption Notice.
Redemption Date: The date for redemption of Partnership Units as set
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forth in Section 9.2.
Redemption Effective Date: The first date on which a Redeeming Party
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may elect to redeem Partnership Units, which date shall be twelve (12) months
following the date of this Agreement or twelve (12) months after the
contribution of a Property Interest pursuant to a Contribution Agreement.
Redemption Notice: A Notice to the General Partner by a Redeeming
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Party, substantially in the form attached as Exhibit 2, pursuant to which the
Redeeming Party requests the redemption of Partnership Units in accordance with
Article IX.
Redemption Obligation: The obligation of the Partnership to redeem
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the Partnership Units as set forth in Section 9.1(A).
Redemption Restriction: A restriction on the ability of the
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Partnership to redeem the Partnership Units if, in the opinion of counsel for
the General Partner, such exchange would
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more likely than not (i) affect the Redemption Rights (defined herein), (ii)
adversely affect the Limited Partners' rights to receive cash distributions,
(iii) alter the Operating Partnership's allocations of income or loss, or (iv)
impose on the Limited Partners any obligations to make additional contributions
to the capital of the Operating Partnership.
REIT Share: A share of common stock representing an ownership
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interest in WREIT.
REIT Share Rights: Rights to acquire additional REIT Shares issued to
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all holders of REIT Shares, whether in the form of rights, options, warrants or
convertible or exchangeable securities, to the extent the same have been issued
without additional consideration after the initial acquisition of such REIT
Shares.
Share Payment: The payment to a Redeeming Party of a number of REIT
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Shares determined by multiplying (i) the number of Partnership Units tendered
for redemption by such Redeeming Party pursuant to a validly proffered
Redemption Notice by (ii) the Conversion Multiple. In the event WREIT grants
any REIT Share Rights prior to such conversion and such rights were scheduled to
expire after such time, any Share Payment shall include for the Redeeming Party
his ratable share of such REIT Share Rights.
Subsidiary: With respect to any Person, any corporation or other
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entity of which a majority of (i) the voting power of the voting equity
securities, or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
Substituted Limited Partner: That Person or those Persons admitted to
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the Partnership as substitute Limited Partner(s) in accordance with the
provisions of this Agreement. A Substituted Limited Partner, upon his admission
as such, shall succeed to the rights, privileges and liabilities of his
predecessor in interest as a Limited Partner.
Successor General Partner: Any Person who is admitted to the
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Partnership as substitute General Partner pursuant to this Agreement. A
Successor General Partner, upon its admission as such, shall succeed to the
rights, privileges and liabilities of its predecessor in interest as a General
Partner in accordance with the provisions of the Act.
Tax Matters Partner: The General Partner, or such other Partner who
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becomes Tax Matters Partner pursuant to the terms of this Agreement.
Transfer: With respect to any Partnership Unit(s), a transaction in
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which a Partner purports to assign his Partnership Interest to another Person
and includes any sale, assignment, gift, pledge, mortgage, exchange,
hypothecation, encumbrance or other disposition by law or otherwise; provided,
however, the surrender of any Partnership Interest pursuant to Article IX hereof
shall not constitute a "transfer" for purposes hereof. Any purported Transfer
not made in accordance with the terms of this Agreement shall have no legal
effect and shall be null and void ab initio.
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Unit Value: With respect to any Partnership Unit, the average of the
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daily market price for a REIT Share for the ten (10) consecutive trading days
immediately preceding the date of receipt of a Redemption Notice by the General
Partner. If the REIT Shares are traded on a securities exchange or the NASDAQ
National Market System, the market price for each such trading day shall be the
closing price on such day or, if no sales take place on such day, the average of
the closing bid and asked prices on such day. If the REIT Shares are not traded
on a securities exchange or the NASDAQ National Market System, the market price
for each such trading day shall be determined by the General Partner, subject to
the consent of the Board of Directors of WREIT, using any reasonable method of
valuation. If a Share Payment would include any REIT Share Rights, the value of
such REIT Share Rights shall be determined by the General Partner using any
reasonable method of valuation, taking into account the Unit Value determined
hereunder and the factors used to make such determination and the value of such
REIT Share Rights shall be included in the Unit Value.
Wilshire Realty Services Corporation: a corporation providing
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management services to WREIT or any successor management company selected by the
General Partner from time to time.
WREIT: Wilshire Real Estate Investment Trust Inc., a Maryland
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corporation, and General Partner and owner of a majority of the Units issued to
the Limited Partners. WREIT intends to qualify for its first taxable year
following the IPO, and thereafter, as a real estate investment trust as defined
under Code Section 856.
Section 2.2 Rules of Construction. The following rules of
---------------------------------
construction shall apply to this Agreement:
(A) All section headings in this Agreement are for the convenience of
reference only and are not intended to qualify the meaning of any section.
(B) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders, the
singular shall include the plural, and vice versa, as the context may require.
(C) Each provision of this Agreement shall be considered severable
from the rest, and if any provision of this Agreement or its application to any
Person or circumstances shall be held invalid and contrary to any existing or
future law or unenforceable to any extent, the remainder of this Agreement and
the application of any other provision to any Person or circumstances shall not
be affected thereby and shall be interpreted and enforced to the greatest extent
permitted by law so as to give effect to the original intent of the parties
hereto.
(D) Unless otherwise specifically and expressly limited in the
context, any reference herein to a decision, determination, act, action,
exercise of a right, power or privilege, or other procedure by the General
Partner shall mean and refer to the decision, determination, act, action,
exercise or other procedure by the General Partner in its sole and absolute
discretion;
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provided, however, that any transaction between the Partnership and an Affiliate
or Associate of the General Partner shall require consent of the Board of
Directors of WREIT unless such transaction is required under this Agreement.
Notwithstanding the foregoing, such discretion shall reflect the commercially
reasonable judgment of the General Partner in light of the facts and
circumstances, rather than the unfettered discretionary decision of the General
Partner.
11
ARTICLE III - BUSINESS PURPOSE
Section 3.1 Business. The business of the Partnership shall be (i) to
--------------------
provide mortgage or other financing to borrowers owning real estate; (ii) to
acquire, own, develop, operate and, if and when appropriate, sell, real estate
and interests, both direct and indirect, in real estate; (iii) to conduct any
business that may be lawfully conducted by a limited partnership pursuant to the
Act; (iv) to enter into any partnership, joint venture or other relationship to
engage in any of the foregoing or the ownership of interests in any entity
engaged in any of the foregoing; (v) to make loans or other financial
accommodations; (vi) to do any of the foregoing with respect to any Affiliate or
Subsidiary; and (vii) to do anything necessary or incidental to the foregoing;
provided, however, that following the IPO such business shall be limited so as
to permit WREIT to elect and maintain its status as a real estate investment
trust (unless WREIT elects to no longer qualify as a real estate investment
trust).
Section 3.2 Authorized Activities. In carrying out the purposes of
---------------------------------
the Partnership, but subject to all other provisions of this Agreement, the
Partnership is authorized to engage in any kind of lawful activity, and perform
and carry out contracts of any kind, necessary or advisable in connection with
the accomplishment of the purposes and business of the Partnership described
herein and for the protection and benefit of the Partnership; provided that the
General Partner shall use its best efforts to prevent the Partnership from
taking, or refraining from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of WREIT to qualify and continue to qualify as a real estate
investment trust under the Code; (ii) could subject WREIT, the General Partner
or the Limited Partners to additional taxes under Code Section 857 or 4981;
(iii) ensure that the Partnership will not be classified as a "publicly traded
partnership" for purposes of Code Section 7704; or (iv) could violate any law or
regulation of any governmental body or agency having jurisdiction over WREIT,
the General Partner, the Limited Partners or their securities.
Section 3.3 Representations and Warranties by the Parties.
---------------------------------------------------------
(A) Each Partner that is an individual represents and warrants to each
other Partner that (i) the consummation of the transactions contemplated by this
Agreement to be performed by such Partner will not result in a breach or
violation of, or a default under, any agreement by which such Partner or any of
such Partner's Property Interest is or are bound, or any statute, regulation,
order or other law to which such Partner is subject, (ii) such Partner is not a
"foreign person" within the meaning of Section 1445(f) of the Code, (iii) such
Partner does not own, directly or constructively (determined in accordance with
Section 856(d)(5) of the Code), (a) two percent (2%) or more of the total number
of shares of all classes of stock, of any corporation from which the General
Partner or the Partner, directly or indirectly, derives or is deemed to derive
gross income for income tax purposes (any such corporation or other entity from
which the General Partner, or the Partner, directly or indirectly, derives or is
deemed to derive such gross income hereinafter a "Tenant") or (b) an interest of
two percent (2%) or more in enforceable against, such partner in accordance with
its terms.
12
(B) Each Partner that is not an individual represents and warrants to
each other Partner that (i) all transactions contemplated by this Agreement to
be performed by it have been duly authorized by all necessary action, including
without limitation, that of its general partner(s), committee(s), trustee(s),
beneficiaries, directors and/or shareholder(s), as the case may be, as required
(ii) the consummation of such transactions shall not result in a breach or
violation of, or a default under, its partnership agreement, trust agreement,
charter or by-laws, as the case may be, any agreement by which such Partner or
any of such Partner's properties or any of its partners, beneficiaries, trustees
or shareholders, as the case may be, is or are bound, or any statute,
regulation, order or other law to which such Partner or any of its partners,
trustees, beneficiaries or shareholders, as the case may be, is or are subject,
(iii) such Partner is not a "foreign person" within the meaning of Section
1445(f) of the Code, (iv) such Partner does not own, directly or constructively
(determined in accordance with Section 856(d)(5) of the Code), (a) two percent
(2%) or more of the total combined voting power of all classes of stock entitled
to vote, or two percent (2%) or more of the total number of shares of all
classes of stock, of any Tenant or (b) an interest of two percent (2%) or more
in the assets or net profits of any Tenant and (v) this Agreement is binding
upon, and enforceable against, such Partner in accordance with its terms.
(C) Each Partner represents and warrants that it is an "accredited
investor" as defined in Rule 501 promulgated under the Securities Act. Each
Partner represents, warrants and agrees that it has acquired and continues to
hold its interest in the Partnership for its own account for investment only and
not for the purpose of, or with a view toward, the resale or distribution of all
or any part thereof, nor with a view toward selling or otherwise distributing
such interest or any part thereof at any particular time or under any
predetermined circumstances. Each Partner further represents and warrants that
it is a sophisticated investor, able and accustomed to handling sophisticated
financial matters for itself, particularly real estate investments, and that it
has sufficiently high net worth that it does not anticipate a need for the funds
it has invested in the Partnership in what it understands to be a highly
speculative and illiquid investment.
(D) The representations and warranties contained in Section 3.4(a),
3.4(b) and 3.4(c) hereof shall survive the execution and delivery of this
Agreement by each Partner and the dissolution, liquidation and termination of
the Partnership.
(E) Each Partner hereby acknowledges that no representations as to
potential profit, distributions, cash flows, funds from operations or yield, if
any, in respect of the Partnership or the General Partner have been made by any
Partner or any employee or representative or Affiliate of any Partner, and that
projections and any other information, including, without limitation, financial
and descriptive information and documentation, which may have been in any manner
submitted to such Partner shall not constitute any representation or warranty of
any kind or nature, express or implied.
13
ARTICLE IV - CAPITAL CONTRIBUTIONS
Section 4.1 Initial Capital Contributions.
-----------------------------------------
(A) Simultaneously with the execution of this Agreement, the General
Partner and the Limited Partners shall contribute the consideration set forth on
Exhibit 1. Exhibit 1 sets forth the initial number of Partnership Units owned
by each Partner and the Percentage Interest of each Partner, which Percentage
Interest shall be adjusted from time to time by the General Partner to reflect
the issuance of additional Partnership Units, the redemption of Partnership
Units, additional Capital Contributions and similar events having an effect on a
Partner's Percentage Interest. Except as set forth in Section 4.2 (regarding
issuance of additional Partnership Units) or Section 7.6 (regarding withholding
obligations), no Partner shall be required under any circumstances to contribute
to the capital of the Partnership any amount beyond that sum required pursuant
to this Article IV.
(B) A number of Partnership Units held by the General Partner equal to
one percent (1%) of all outstanding Partnership Units shall be deemed to be the
General Partnership Interest. Anything in the foregoing Section 4.1(A) or
elsewhere in this Agreement notwithstanding, the Partnership Units held by the
General Partner shall, at all times, be deemed to be general partnership units
and shall constitute the General Partner Interest.
Section 4.2 Additional Partnership Units.
----------------------------------------
(A) The General Partner shall be authorized to issue additional
limited partnership interests in the form of Partnership Units for any
Partnership purpose, at any time or from time to time, to any Partner or other
Person (other than the General Partner, except in accordance with Section 4.2(B)
below).
(B) The Partnership also may from time to time issue to WREIT and/or
the General Partner additional Partnership Units or other Partnership Interests
in such classes and having such designations, preferences and relative rights
(including preferences and rights senior to the existing Limited Partners'
Partnership Interests) as shall be determined by the General Partner in
accordance with the Act and governing law. Such units may be issued for less
than fair market value if WREIT has concluded that such issuance is in the best
interest of WREIT and the Partnership. The General Partner and WREIT must
contribute the net proceeds or any future offerings of WREIT shares as
additional capital to the Partnership in exchange for additional units. Except
as provided in Article IX of this Agreement, any such issuance of Partnership
Units or Partnership Interests to WREIT or the General Partner shall be
conditioned upon (i) the undertaking by WREIT of a related issuance of REIT
Shares or other shares of capital stock of WREIT (with such shares having
designations, rights and preferences such that the economic rights of the
holders of such shares are substantially similar to the rights of the additional
Partnership Interests issued to WREIT or the General Partner) and WREIT and/or
the General Partner's making a Capital Contribution in an amount equal to the
net proceeds raised in the issuance of such shares, or (ii) the issuance by
WREIT of REIT Shares under any stock
14
option or bonus plan and WREIT and/or the General Partner's making a Capital
Contribution in an amount equal to the exercise price of the option exercised by
any employee pursuant to such stock option or other bonus plan. In connection
with the issuance of shares by WREIT which are substantially similar to new
issuances of Partnership Units, the General Partner is authorized to modify or
amend the distributions or allocations hereunder solely to the extent necessary
to give effect to the designations, preferences and other rights pertaining to
such Partnership Interests.
(C) Except in accordance with Article IX of this Agreement, WREIT
shall not issue any (i) additional REIT Shares or other capital stock of WREIT,
(ii) rights, options or warrants containing the right to subscribe for or
purchase REIT Shares, or (iii) securities convertible or exchangeable into REIT
Shares (collectively, "Additional REIT Securities") other than to all holders of
REIT Shares, pro rata, unless (x) the Partnership issues to WREIT and/or the
General Partner (i) Partnership Interests (having such terms as correspond to
the terms of such REIT Shares or other shares of capital stock, (ii) rights,
options or warrants containing the right to subscribe for or purchase
Partnership Interests or (iii) securities convertible or exchangeable into
Partnership Interests such that WREIT and/or the General Partner receives an
economic interest in the Partnership substantially similar to the economic
interest in WREIT represented by the Additional REIT Securities; and (y) WREIT
and/or the General Partner contributes the net proceeds from the issuance of the
Additional REIT Securities and from the exercise of any rights contained in any
Additional REIT Securities to the Partnership.
Section 4.3 No Third Party Beneficiaries. The foregoing provisions of
----------------------------------------
this Article IV are not intended to be for the benefit of any creditor of the
Partnership or other Person to whom any debts, liabilities or obligations are
owed by (or who otherwise has any claim against) the Partnership or any of the
Partners (but only to the extent of its right to require the Partnership to
comply with Sections 4.1, 4.2 and 4.6), and no such creditor or other Person
shall obtain any right under any such foregoing provision against the
Partnership or any of the Partners by reason of any debt, liability or
obligation (or otherwise).
Section 4.4 Return of Capital Account; Interest. Except as otherwise
-----------------------------------------------
specifically provided in this Agreement, (i) no Partner shall have any right to
withdraw or reduce its Capital Contributions or Capital Account, or to demand
and receive property other than cash from the Partnership in return for its
Capital Contributions or Capital Account; (ii) no Partner shall have any
priority over any other Partners as to the return of its Capital Contributions
or Capital Account; (iii) any return of Capital Contributions or Capital
Accounts to the Partners shall be solely from the Partnership Assets, and no
Partner shall be personally liable for any such return; and (iv) no interest
shall be paid by the Partnership on Capital Contributions or on balances in
Partners' Capital Accounts.
Section 4.5 Preemptive Rights. No Person shall have any preemptive or
-----------------------------
similar rights with respect to the issuance or sale of additional Partnership
Units.
Section 4.6 REIT Share Purchases. If WREIT acquires additional REIT
--------------------------------
Shares, the Partnership shall purchase from WREIT that number of Partnership
Units determined by
15
dividing the Conversion Multiple to the number of REIT Shares purchased by WREIT
at the Conversion Multiple and on the same terms that WREIT purchased such REIT
Shares.
Section 4.7 Limited Liability. Except as expressly provided in this
-----------------------------
Agreement, no Limited Partner (in its capacity as a Limited Partner) shall be
personally liable for losses, costs, expenses, liabilities or obligations of the
Partnership in excess of its Capital Contribution required under this Article
IV. The foregoing shall not affect any liability a Limited Partner may incur if
such Limited Partner undertakes additional obligations to the Partnership, the
Partners or to third parties in a capacity other than as a Limited Partner.
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS
Section 5.1 General. The profits of the Partnership shall be shared,
-------------------
and the losses of the Partnership shall be borne, by the Partners as provided in
Exhibit 3 hereto.
Section 5.2 Distributions of Net Cash Flow. Distributions of Net Cash
------------------------------------------
Flow shall be made to the Partners of record on the Record Date established by
the General Partner for the distribution, without regard to the length of time
the record holder has been such. Distributions shall be made within 45 days of
the end of each calendar quarter (or, at the election of the General Partner on
a more frequent basis) in such amounts as may be determined by the General
Partner in its sole discretion. Except as otherwise provided herein, Net Cash
Flow will be distributed to the Partners, pro rata in accordance with their
respective Percentage Interests, and the General Partner will use its best
efforts to cause the Partnership to make distributions of Net Cash Flow which
are sufficient to enable WREIT to (i) maintain its status as a real estate
investment trust under Code Section 856, (ii) avoid the imposition of any tax
under Code Section 857, and (iii) avoid the imposition of any excise tax under
Code Section 4981.
Section 5.3 Distributions of Capital Proceeds. Capital Proceeds will
---------------------------------------------
be distributed to the Partners pro rata in accordance with their respective
Percentage Interests.
Section 5.4 Amounts Withheld. All amounts withheld pursuant to the
----------------------------
Code or any provision of state, local or foreign tax law and Section 7.6 of this
Agreement with respect to any allocation, payment or distribution to the
Partnership, any General Partner, Limited Partners or Assignees shall, unless
otherwise determined by the General Partner, be treated as amounts distributed
to such General Partner, any Limited Partner or any Assignee pursuant to Section
5.3 of this Agreement. The General Partner is authorized to withhold from
distributions, or with respect to allocations, to the General Partner, any
Limited Partners and any Assignee and to pay over to any federal, state, local
or foreign government and shall allocate any such amounts to the General
Partner, Limited Partner and Assignee with respect to which such amount was
withheld.
16
ARTICLE VI - PARTNERSHIP MANAGEMENT
Section 6.1 Management and Control of Partnership Business.
----------------------------------------------------------
(A) Except as otherwise expressly provided or limited by the
provisions of this Agreement, the General Partner shall have full, exclusive and
complete discretion to manage the business and affairs of the Partnership, to
make all decisions affecting the business and affairs of the Partnership, and to
take all such action as it deems necessary or appropriate to accomplish the
purposes of the Partnership as set forth herein. If there shall be more than
one (1) General Partner, the vote or determination of the General Partner owning
the largest Percentage Interest shall control. Except as set forth in this
Agreement, the Limited Partners shall not have any authority, right or power to
bind the Partnership, or to manage, or to participate in the management of the
business and affairs of the Partnership in any manner whatsoever. Such
management shall in every respect be the full and complete responsibility of the
General Partner alone as herein provided. Notwithstanding anything contrary in
this Agreement, the General Partner may not be removed by the Limited Partners
with or without cause.
(B) In carrying out the purposes of the Partnership, the General
Partner shall be authorized to take all actions it deems necessary and
appropriate to carry on the business of the Partnership. Each of the Limited
Partners, by execution hereof, agrees that the General Partner is authorized to
execute, deliver and perform any agreement and/or transaction on behalf of the
Partnership. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the General Partner's direct
and indirect shareholders collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including, without limitation other than Sections 3.2(ii) and 5.2, the tax
consequences to Limited Partners, Assignees or substituted Limited Partners) in
deciding whether to cause the Partnership to take (or decline to take) any
actions which the General Partner has undertaken in good faith on behalf of the
Partnership, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions.
(C) The General Partner in its capacity as such shall not directly or
indirectly enter into or conduct any business other than in connection with the
business of the Partnership and the ownership of its Partnership Interests
therein. The General Partner and its Affiliates may acquire Limited Partner
Interests as provided in Section 4.2(B). Upon acquisition of any Limited
Partner Interest, any Affiliate of the General Partner shall have all the rights
of a Limited Partner.
Section 6.2 No Management by Limited Partners; Limitation of
------------------------------------------------------------
Liability.
---------
(A) Except as otherwise expressly provided in this Agreement, the
Limited Partners, in their capacity as limited partners, shall not take part in
the day-to-day management, operation or control of the business and affairs of
the Partnership or have any right, power or authority to act for or on behalf of
or to bind the Partnership or transact any business in the name
17
of the Partnership. The Limited Partners shall have no rights other than those
specifically provided herein or granted by law where consistent with a valid
provision hereof, and any of the approvals rendered or withheld by the Limited
Partners pursuant to this Agreement shall be deemed as consultation or advice to
the General Partner in connection with the business of the Partnership and in
accordance with the Act, and shall not be deemed as participation by the Limited
Partners in the business of the Partnership and are not intended to create any
inference that the Limited Partners should be classified as general partners
under the Act.
(B) The Limited Partners shall have no liability under this Agreement
except to the extent expressly provided herein (including with respect to
withholding under Section 7.6) or under the Act.
(C) The General Partner shall not take any action which would subject
a Limited Partner (in its capacity as Limited Partner) to liability as a general
partner.
Section 6.3 Limitations on Partners. No Partner or Affiliate of a
-----------------------------------
Partner shall have any authority to perform (i) any act in violation of any
applicable law or any regulation under such law; or (ii) any act without Consent
or ratification which is required to be Consented to or ratified pursuant to
this Agreement. No action shall be taken by a Partner if it would cause the
Partnership to be treated as an association taxable as a corporation for federal
income tax purposes.
Section 6.4 Business with Affiliates.
------------------------------------
(A) Subject to Section 2.2(D), the General Partner, in its discretion,
may cause the Partnership to transact business with WREIT, a Partner or their
Affiliates or Subsidiaries for goods or services reasonably required in the
conduct of the Partnership's business.
(B) In furtherance of Section 6.4(A), the Partnership may lend or
contribute to its Subsidiaries on terms and conditions established by the
General Partner. In the case of any amount borrowed by the General Partner from
a financial institution or other lender to be made available to the Partnership,
the loan by the General Partner to the Partnership will be on substantially the
same terms and conditions as are applicable to the General Partner's borrowing
of such funds.
(C) The Partners acknowledge that the WRSC may conduct the day-to-day
management, operation and leasing of the Property Interests, or with respect to
properties underlying loans owned by the Partnership, subject to the terms of
the property management agreement ("Management Agreement") that may be entered
into between WREIT and the Management Company with respect to Property
Interests.
(D) Notwithstanding anything in this Agreement to the contrary, upon
request by WREIT, the General Partner shall cause the Partnership to loan WREIT
such amount that,
18
when added to the distributions to which WREIT and the General Partner are
otherwise entitled hereunder, is reasonably determined by WREIT to be necessary
to enable WREIT to qualify for taxation as a "real estate investment trust" as
defined in the Code. Any such loan shall bear interest at the rate of ___, shall
be prepayable at any time without penalty, and shall be due and payable no later
than the __ anniversary thereof. Nothing in this Section 6.4(D) shall be
construed to require the Partnership to make a loan to any Partner other than
WREIT.
Section 6.5 Compensation; Reimbursement of Expenses. In consideration
---------------------------------------------------
for the General Partner's services to the Partnership in its capacity as General
Partner, and for WREIT's agreements hereunder the Partnership shall pay on
behalf of or reimburse to WREIT or the General Partner (i) all expenses of WREIT
incurred in connection with the management of the business and affairs of the
Partnership, including all executive compensation of employees of the
Partnership or WREIT; and (ii) all general, operating or administrative and
other expenses incurred by WREIT (including amounts payable to WRSC under the
Management Agreement). Except as otherwise set forth in this Agreement, WREIT
shall be fully and entirely reimbursed by the Partnership for any and all direct
and indirect costs and expenses incurred in connection with (a) the organization
and continuation of the Partnership, (b) the preparation and filing of any
periodic reports by WREIT, the Partnership or the General Partner, (c)
compliance by WREIT, the Partnership and the General Partner with laws, rules
and regulations promulgated by any regulatory body and (d) all other general,
operating or administrative costs of WREIT incurred in the ordinary course of
its business on behalf of the Partnership. In addition, WREIT shall be
reimbursed for all expenses incurred by WREIT in connection with (i) the initial
offering and registration of REIT Shares by WREIT, and (ii) any other issuance
of additional Partnership Interests or REIT Shares. With respect to any such
reimbursement, WREIT or the General Partner, as the case may be, shall present
the Partnership with such invoices or allocations as are necessary to
substantiate such costs and expenses.
Section 6.6 Liability for Acts and Omissions.
--------------------------------------------
(A) Neither WREIT, the General Partner, nor its officers, directors,
employees and agents (together, the "Indemnified Parties"), shall be liable,
responsible or accountable in damages or otherwise to the Partnership or any of
the Partners for any act or omission performed or omitted in good faith on
behalf of the Partnership which the Indemnified Party reasonably believed to be
within the scope of the authority granted by this Agreement and in the best
interests of the Partnership, provided such act or omission is in good faith and
with such care as an ordinarily prudent person in a like position would use
under similar circumstances. The Indemnified Parties shall nevertheless be
liable, responsible or accountable for actual fraud, gross negligence or
intentional misconduct.
(B) The Partnership shall indemnify and make advances for expenses to
the Indemnified Parties to the fullest extent permitted under Section 17-108 of
the Act (to the extent of available assets, but without the requirement that any
Partner make additional Capital Contributions for this purpose) against any loss
or damage incurred by the General Partner by
19
reason of any act or omission performed or omitted by it or any Indemnified
Party which is consistent with the first sentence of Section 6.6(A) above.
(C) WREIT shall indemnify and hold harmless the Partnership and the
Partners against any damage or loss incurred by the Partnership or Partners by
reason of its fraud, gross negligence or intentional misconduct with respect to
the Partnership or the Property Interests.
ARTICLE VII - ADMINISTRATIVE, FINANCIAL AND TAX MATTERS
Section 7.1 Books and Records. The General Partner shall maintain at
-----------------------------
the principal office of the Partnership full and accurate books of the
Partnership showing all receipts and expenditures, assets and liabilities,
profits and losses, names and current addresses of Partners, and all other
records necessary for recording the Partnership's business and affairs. All
Partners and their duly authorized representatives shall have the right to
inspect and copy any or all of the Partnership's books and records, including
books and records necessary to enable a Partner to defend any tax audit or
related proceeding, during reasonable hours upon three (3) business days Notice
to the General Partner. The Limited Partners shall have, upon written demand
and at such Limited Partner's expense, the right to receive true and complete
information regarding Partnership matters to the extent required under (and
subject to the limitations of) Delaware law.
Section 7.2 Annual Audit and Accounting. The books and records of the
---------------------------------------
Partnership shall be kept for financial and tax reporting purposes on the
accrual basis of accounting in accordance with generally accepted accounting
principles ("GAAP"). The accounts of the Partnership shall be reviewed or
compiled annually by a nationally recognized accounting firm of independent
public accountants selected by the General Partner (the "Independent
Accountants").
Section 7.3 Partnership Funds. The General Partner shall have
-----------------------------
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in its direct or indirect possession or control.
All funds of the Partnership not otherwise invested shall be deposited in one or
more accounts maintained in such banking institutions or otherwise invested as
the General Partner shall determine, and withdrawals shall be made only in the
regular course of Partnership business on such signatures as the General Partner
may, from time to time, determine.
Section 7.4 Reports and Notices. The General Partner shall provide
-------------------------------
all Partners with the following reports no later than the dates indicated or as
soon thereafter as circumstances permit:
20
(A) By March 31 of each year, IRS Form 1065 and Schedule K-1, or
similar forms as may be required by the IRS, stating each Partner's
allocable share of income, gain, loss, deduction or credit for the prior
Fiscal Year;
(B) Within ninety (90) days after the end of each of the first three
(3) fiscal quarters, as of the last day of the fiscal quarter, a report
containing unaudited financial statements of the Partnership, or of WREIT
if such statements are prepared solely on a consolidated basis with WREIT,
and such other information as may be legally required or determined to be
appropriate by WREIT; and
(C) Within one hundred twenty (120) days after the end of each Fiscal
Year, as of the close of the Fiscal Year, an annual report containing the
financial statements of the Partnership, or of WREIT if such statements are
prepared solely on a consolidated basis with WREIT, presented in accordance
with GAAP by the Independent Accountants.
Section 7.5 Notification of Changes in Conversion Multiple. The
----------------------------------------------------------
Partnership shall notify each Limited Partner in writing of any changes made to
the Conversion Multiple within ten (10) business days of the date such change
becomes effective.
Section 7.6 Tax Matters.
-----------------------
(A) The General Partner shall be designated the Tax Matters Partner of
the Partnership for federal income tax matters pursuant to Code Section
6223(c)(3). The Tax Matters Partner is authorized and required to represent the
Partnership (at the expense of the Partnership) in connection with all
examinations of the affairs of the Partnership by any federal, state or local
tax authorities, including any resulting administrative and judicial
proceedings, and to expend funds of the Partnership for professional services
and costs associated therewith. The Tax Matters Partner shall deliver to the
Limited Partners within ten (10) business days of the receipt thereof a copy of
any notice or other communication with respect to the Partnership received from
the IRS (or other governmental tax authority), or any court, in each case with
respect to any administrative or judicial proceeding involving the Partnership.
The Partners agree to cooperate with each other in connection with the conduct
of all proceedings pursuant to this Section 7.6(A).
(B) The Tax Matters Partner shall receive no compensation for its
services in such capacity. If the Partnership incurs any costs related to any
tax audit, declaration of any tax deficiency or any administrative proceeding or
litigation involving any Partnership tax matter, such amount shall be an expense
of the Partnership and the Tax Matters Partner shall be entitled to full
reimbursement therefor.
(C) The General Partner shall cause to be prepared all federal, state
and local income tax returns required of the Partnership at the Partnership's
expense.
21
(D) Except as set forth herein, the General Partner shall determine
whether to make (and, if necessary, revoke) any tax election available to the
Partnership under the Code or any state tax law; provided however, upon the
request of any Partner the General Partner shall make the election under Code
Section 754 and the Treasury Regulation promulgated thereunder. The Partnership
shall elect to deduct expenses, if any, incurred by it in organizing the
Partnership in accordance with the provisions of Code Section 709.
Section 7.7 Withholding. Each Partner hereby authorizes the
-----------------------
Partnership to withhold from or pay to any taxing authority on behalf of such
Partner any tax that the General Partner determines the Partnership is required
to withhold or pay with respect to any amount distributable or allocable to such
Partner. Any amount paid to any taxing authority which does not constitute a
reduction in the amount otherwise distributable to such Partner pursuant to
Section 5.4 shall be treated as a loan from the Partnership to such Partner,
which loan shall bear interest at the "prime rate" as published from time to
time in The Wall Street Journal plus two (2) percentage points, and shall be
repaid within ten (10) business days after request for repayment from the
General Partner. The obligation to repay any such loan shall be secured by such
Partner's Partnership Interest and each Partner hereby grants the Partnership a
security interest in his Partnership Interest for the purposes set forth in this
Section 7.7, this Section 7.7 intending to serve as a security agreement for
purposes of the Uniform Commercial Code. Each Partner agrees to take such
reasonable actions as the General Partner may request to perfect the security
interest granted hereby. In the event any Partner fails to repay any deemed
loan pursuant to this Section 7.7, the Partnership shall be entitled to avail
itself of any rights and remedies it may have. Furthermore, upon the expiration
of ten (10) business days after demand for payment, the General Partner shall
have the right to make the payment to the Partnership on behalf of the
defaulting Partner and thereupon be subrogated to the rights of the Partnership
with respect to such defaulting Partner.
ARTICLE VIII - TRANSFER OF INTERESTS; ADMISSION OF PARTNERS
Section 8.1 Transfer by General Partner. Subject to Section 8.3
---------------------------------------
below, the General Partner may not voluntarily withdraw or Transfer all or any
portion of its General Partner Interest, except that, subject to compliance with
subsections (A) and (B) of Section 8.3, the General Partner may, without consent
of the Limited Partners other than WREIT, transfer its General Partner Interest
to WREIT.
Section 8.2 Obligations of a Prior General Partner. Upon an
--------------------------------------------------
Involuntary Withdrawal of the General Partner and the subsequent Transfer of the
General Partner Interest, such General Partner shall (i) remain liable for all
obligations and liabilities (other than Partnership liabilities payable solely
from Partnership Assets) incurred by it as General Partner before the effective
date of such event, and (ii) pay all costs associated with the admission of its
Successor General Partner. However, such General Partner who withdraws shall be
free of and held harmless by the Partnership against any obligation or liability
incurred on account of the
22
activities of the Partnership from and after the effective date of such event,
except as provided in this Agreement.
Section 8.3 Additional or Successor General Partner. A successor to
---------------------------------------------------
all of a General Partner's Interest who is proposed to be admitted to the
Partnership as a Successor General Partner shall be admitted as the General
Partner, effective upon the Transfer, with the Consent of the General Partner,
or if there is no remaining General Partner, with the Consent of a majority in
interest of the remaining Partners (measured by the relative number of
Partnership Units owned by each). Any such additional or successor general
partner shall carry on the business of the Partnership without dissolution. In
addition, the following conditions must be satisfied:
(A) The Person shall have accepted and agreed to be bound by all the
terms and provisions of this Agreement, by executing a counterpart thereof
and such other documents or instruments as may be required or appropriate
in order to effect the admission of such Person as a General Partner; and
(B) An amendment to this Agreement evidencing the admission of such
Person as a General Partner shall have been executed by all General
Partners and an amendment to the Certificate shall have been filed for
recordation as required by the Act.
Section 8.4 Restrictions on Transfer and Withdrawal by Limited
--------------------------------------------------------------
Partner.
-------
(A) Subject to the provisions of Section 8.4(D), no Limited Partner
may Transfer all or any portion of his Partnership Interest without first
obtaining the Consent of the General Partner, which Consent may be granted or
withheld in the sole and absolute discretion of the General Partner. Any such
purported transfer undertaken without such Consent shall be considered to be
null and void ab initio and shall not be given effect.
(B) No Limited Partner may withdraw from the Partnership other than as
a result of a permitted Transfer of all of his Partnership Units pursuant to
this Article VIII or pursuant to a redemption of all of his Partnership Units
pursuant to Article IX of this Agreement. Upon the permitted Transfer or
redemption of all of a Limited Partner's Partnership Units, such Limited Partner
shall cease to be a Limited Partner.
(C) Upon the Involuntary Withdrawal of any Limited Partner (which
shall under no circumstance cause the dissolution of the Partnership), the
executor, administrator, trustee, guardian, receiver or conservator of such
Limited Partner's estate shall succeed to those rights of the Limited Partner
prior to such Involuntary Withdrawal for the purpose of settling the affairs of
the Limited Partner subject to the Involuntarily Withdrawal. Any Transfer of
Partnership Units, including Transfers by operation of law, shall be effective
only upon receiving Consent or the General Partner.
23
(D) A Limited Partner may Transfer, with the Consent of the General
Partner, all or a portion of his Partnership Units to (a) a parent or parents,
spouse, natural or adopted descendant or descendants, spouse of such a
descendant, or brother or sister; (b) a corporation controlled by a Person or
Persons named in (a) above; or (c) if the Limited Partner is an entity, its
beneficial owners; and the General Partner shall grant its Consent to any
Transfer pursuant to this Section 8.4(D) unless such Transfer, in the reasonable
judgment of the General Partner, would cause (or have the potential to cause)
WREIT to (i) have more than fifty percent (50%) in value of its outstanding
stock owned, directly or indirectly, by or for not more than five (5) Persons;
(ii) have its outstanding stock held by less than 100 persons (determined
without reference to rules of attribution); (iii) be deemed to be "closely held'
within the meaning of Code Section 856(h); or (iv) own, actually or
constructively, 10% or more of the ownership interests in a tenant of WREIT, in
which case the General Partner shall have the absolute right to refuse to permit
such Transfer, and any purported Transfer in violation of this Section 8.4(D)
shall be null and void ab initio.
(E) No Transfer of any Limited Partner's Partnership Units shall be
made if such Transfer would (i) in the opinion of Partnership counsel, cause the
Partnership be treated as an association taxable as a corporation (rather than a
partnership) for federal income tax purposes; (ii) be effected through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Code Section 7704; (iii) in the
opinion of Partnership counsel, violate the provisions of applicable securities
laws; or (iv) violate the terms of (or result in a default or acceleration
under) any law, rule, regulation, agreement or commitment binding on the
Partnership.
Section 8.5 Substituted Limited Partner.
---------------------------------------
(A) No transferee shall become a Limited Partner in place of his
assignor unless and until the following conditions have been satisfied:
(1) The assignor and transferee file a Notice or other evidence
of Transfer and such other information reasonably required by the General
Partner, including without limitation, names, addresses and telephone
numbers of the assignor and transferee;
(2) The transferee executes, adopts and acknowledges this
Agreement, or a counterpart hereto, and such other documents as may be
reasonably requested by the General Partner, including without limitation,
all documents necessary to comply with applicable tax and/or securities
rules and regulations;
(3) The assignor or transferee pays all costs and fees incurred
or charged by the Partnership to effect the Transfer and substitution; and
24
(4) The assignor or transferee obtains the written Consent of the
General Partner, which may be given or withheld in its sole and absolute
discretion.
(B) If a transferee of a Limited Partner does not become a Limited
Partner pursuant to Section 8.5(A), such transferee shall be an Assignee and
shall not have any rights to require any information on account of the
Partnership's business, to inspect the Partnership's books, to participate in
the management or operation of the Partnership, or to vote or otherwise take
part in the affairs of the Partnership (such Partnership Units being deemed to
have been voted in the same proportion as all other Partnership Units held by
Limited Partners have been voted). Such Assignee shall be entitled, however, to
all the rights of an assignee of a limited partnership interest under the Act.
Any Assignee wishing to Transfer the Partnership Units acquired shall be subject
to the restrictions set forth in this Article VIII.
Section 8.6 Timing and Effect of Transfers. Unless the General
------------------------------------------
Partner agrees otherwise, Transfers under this Article VIII may only be made as
of the first day of a fiscal quarter of the Partnership. Upon any Transfer of a
Partnership Interest in accordance with this Article VIII or redemption of a
Partnership Interest in accordance with Article IX of this Agreement, the
Partnership shall allocate all items of profit and loss between the transferor
Partner and the transferee Partner in accordance with Code Section 706(d). The
transferor Partner shall have the right to receive all distributions as to which
the Record Date precedes the date of Transfer and the transferee Partner shall
have the right to receive all distributions thereafter.
Section 8.7 Additional Limited Partners. Other than in accordance
---------------------------------------
with the transactions specified in the Contribution Agreement, after the initial
execution of this Agreement and the admission to the Partnership of the Limited
Partners, any Person making a Capital Contribution to the Partnership in
accordance herewith shall be admitted as an Additional Limited Partner only (i)
with the Consent of the General Partner, and (ii) upon execution, adoption and
acknowledgment of this Agreement, or a counterpart hereto, and such other
documents as may be reasonably requested by the General Partner, including
without limitation, the power of attorney required under Section 12.3. Upon
satisfaction of the foregoing requirements, such Person shall be admitted as an
Additional Limited Partner effective on the date upon which the name of such
Person is recorded on the books of the Partnership.
Section 8.8 Amendment of Agreement and Certificate. Upon any
--------------------------------------------------
admission of a Person as a Partner to the Partnership, the General Partner shall
take all necessary steps to amend this Agreement to reflect such admission,
including amending Exhibit 1 to reflect the name, address, number of Partnership
Units and percentage interest of such Substituted Limited Partner, and, if
required by the Act, to cause to be filed an amendment to the Certificate.
25
ARTICLE IX - REDEMPTION
Section 9.1 Right of Redemption.
-------------------------------
(A) Subject to any restriction on WREIT (including, but not limited to
those set forth in its charter), the laws governing WREIT or otherwise (a
"Redemption Restriction"), beginning on the Redemption Effective Date, during
the four 30-day periods immediately following the filing with the Securities and
Exchange Commission by WREIT of its annual report on Form 10-K or quarterly
reports on Form 10-Q or during such periods as the Partnership may otherwise
determine, each Redeeming Party shall have the right to cause the Partnership to
redeem all or a portion of the Partnership Units held by such Redeeming Party by
providing the General Partner with a Redemption Notice. A Limited Partner may
not invoke its rights under this Article IX with respect to fewer than 100
Partnership Units or an integral multiple thereof or, if such Limited Partner
holds fewer than 100 Partnership Units, all of the Partnership Units held by
such Limited Partner. Upon the General Partner's receipt of a Redemption Notice
from a Redeeming Party, the Partnership shall be obligated (subject to the
existence of any Redemption Restriction) to redeem the Partnership Units from
such Redeeming Party (the "Redemption Obligation").
(B) Upon receipt of a Redemption Notice from a Redeeming Party, the
General Partner shall either (i) cause the Partnership to redeem the Partnership
Units tendered in the Redemption Notice, (ii) assume the Redemption Obligation,
as set forth in Section 9.4, or (iii) provide written Notice to the Redeeming
Party of any Redemption Restriction.
Section 9.2 Timing of Redemption. The Redemption Obligation (or the
--------------------------------
obligation to provide Notice of a Redemption Restriction if one exists) shall
mature on the date which is seven (7) business days after the receipt by the
General Partner of a Redemption Notice from the Redeeming Party (the "Redemption
Date").
Section 9.3 Redemption Price. On or before the Redemption Date, the
----------------------------
Partnership (or the General Partner if it elects pursuant to Section 9.4) shall
deliver to the Redeeming Party, in the sole and absolute discretion of the
General Partner either (i) a Share Payment or (ii) a Cash Payment. In order to
enable the Partnership to effect a redemption by making a Share Payment pursuant
to this Section 9.3, the General Partner in its sole and absolute discretion may
direct WREIT to issue additional REIT Shares to the Partnership in exchange for
the issuance to WREIT and/or the General Partner of Partnership Units determined
by applying the Conversion Multiple to the number of REIT Shares issued.
Notwithstanding the foregoing provisions of this Article IX, a Redeeming Party
shall not receive a Share Payment in satisfaction of its redemption right if, in
the opinion of counsel for the General Partner, such exchange would more likely
than not (i) affect the Redemption Rights (as defined below), (ii) adversely
affect the Limited Partners' rights to receive cash distributions, (iii) alter
the Operating Partnership's allocations of income or loss, or (iv) impose on the
Limited Partners any obligations to make additional contributions to the capital
of the Operating Partnership. WREIT shall at all times reserve and keep
available out of its authorized but unissued REIT Shares, solely for the purpose
26
of effecting the exchange of Partnership Units for REIT Shares, such number of
REIT shares as shall from time to time be sufficient to effect the conversion of
all outstanding Partnership Units, and the exercise or conversion of all other
rights to acquire REIT Shares.
Section 9.4 Assumption of Redemption Obligation. Upon receipt of a
-----------------------------------------------
Redemption Notice, the General Partner, in its sole and absolute discretion,
shall have the right to assume the Redemption Obligation of the Partnership. In
such case, the General Partner shall be substituted for the Partnership for all
purposes of this Article IX, and, upon acquisition of the Partnership Units
tendered by the Redeeming Party pursuant to the Redemption Notice shall be
treated for all purposes of this Agreement as the owner of such Partnership
Units. In such case, the transaction shall be treated for federal income tax
purposes by the Partnership, the General Partner and the Redeeming Party as a
sale by the Redeeming Party as seller to the General Partner as purchaser.
Section 9.5 Further Assurances. Each party to this Agreement agrees
------------------------------
to execute any documents deemed reasonably necessary by the General Partner to
evidence the issuance of any Share Payment to a Redeeming Party.
Section 9.6 Effect of Redemption. Upon the satisfaction of the
--------------------------------
Redemption Obligation by the Partnership or the General Partner, as the case may
be, the Redeeming Party shall have no further right to receive any Partnership
distributions in respect of the Partnership Units so redeemed. If the Redeeming
Party receives a Cash Payment, the Redeeming Party's Units shall be canceled
upon receipt of the Cash Payment. If the Redeeming Party receives a Share
Payment, the Units will not be canceled, but will be transferred to WREIT.
27
ARTICLE X - DISSOLUTION AND LIQUIDATION
Section 10.1 Term and Dissolution. The Partnership commenced as of the
---------------------------------
date of filing of the Certificate, and shall continue until December 31, 2050,
or until dissolution occurs prior to that date for any one of the following
reasons:
(A) An Involuntary Withdrawal of a sole remaining General Partner
unless, within ninety (90) days after such event of withdrawal, a majority
in interest of the remaining Partners (measured by the relative number of
Partnership Units owned by each) agree in writing to the continuation of
the Partnership and to the appointment of a Successor General Partner;
(B) Entry of a decree of judicial dissolution of the Partnership
under the Act; or
(C) The sale, exchange or other disposition of all or substantially
all of the Partnership Assets.
(D) Merger, bankruptcy or insolvency of the General Partner.
(E) Election to dissolve by a majority of the Limited Partners and
the General Partner.
Section 10.2 Liquidation of Partnership Assets.
-----------------------------------------------
(A) In the event of dissolution pursuant to Section 10.1, the
Partnership shall continue solely for purposes of winding up the affairs of,
achieving a final termination of and satisfaction of the creditors of the
Partnership. The General Partner (or, if there is no General Partner remaining,
any Person elected by a majority in interest of the Limited Partners (the
"Liquidator")) shall be responsible for oversight of the winding up and
dissolution of the Partnership. The Liquidator shall obtain a full accounting
of the assets and liabilities of the Partnership, and such Partnership Assets
shall be liquidated (including, at the discretion of the Liquidator, in
exchange, in whole or in part, for REIT Shares) as promptly as the Liquidator is
able to do so without any undue loss in value, with the proceeds therefrom
applied and distributed in the following order:
(1) First, to the discharge of Partnership debts and liabilities to
creditors other than Partners;
(2) Second, to the discharge of Partnership debts and liabilities to
the Partners; and
28
(3) The balance, if any, to the Partners in accordance with their
positive Capital Account balances as determined after giving effect to all
Capital Account adjustments for such year.
(B) In accordance with Section 10.2(A), the Liquidator shall proceed
without any unnecessary delay to sell and otherwise liquidate the Partnership
Assets; provided, however, that if the Liquidator shall determine that an
immediate sale of part or all of the Partnership Assets would cause undue loss
to the Partners, the Liquidator may defer the liquidation except (i) to the
extent provided by the Act or (ii) as may be necessary to satisfy the debts and
liabilities of the Partnership to Persons other than the Partners.
(C) If, in the sole and absolute discretion of the Liquidator, there
are Partnership Assets that the Liquidator will not be able to liquidate, or if
the liquidation of such assets would result in undue loss to the Partners, the
Liquidator may distribute such Partnership Assets to the Partners in kind, in
lieu of cash, as tenants-in-common in accordance with the provisions of Section
10.2(A). The foregoing notwithstanding, such in-kind distributions shall only be
made if in the Liquidator's good faith judgment that is in the best interest of
the Partners.
(D) Upon the complete liquidation and distribution of the Partnership
Assets, the Partners shall cease to be Partners of the Partnership, and the
Liquidator shall execute, acknowledge and cause to be filed all certificates and
notices required by law to terminate the Partnership. Upon the dissolution of
the Partnership pursuant to Section 10.1, the Liquidator shall cause to be
prepared, and shall furnish to each Partner, a statement setting forth the
assets and liabilities of the Partnership. Promptly following the complete
liquidation and distribution of the Partnership Assets, the Liquidator shall
furnish to each Partner a statement showing the manner in which the Partnership
Assets were liquidated and distributed.
Section 10.3 Time for Winding Up. Anything in this Article X
--------------------------------
notwithstanding, a reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Partnership and the liquidation of the
Partnership Assets in order to minimize any potential for losses as a result of
such process. During the period of winding up, this Agreement shall remain in
full force and effect and shall govern the rights and relationships of the
Partners inter se.
ARTICLE XI - AMENDMENTS AND MEETINGS
Section 11.1 Amendment Procedure.
--------------------------------
(A) Amendments to this Agreement may be proposed by the General
Partner. A proposed amendment will be adopted and become effective only if it
receives the Consent of a majority in interest of the Limited Partners (measured
by the relative number of Partnership Units owned by each); provided, however,
no such amendment shall be adopted if it would (i) convert a Limited Partner's
Interest in the Partnership into a General Partner Interest; (ii) increase the
liability of a Limited Partner under this Agreement; (iii) except as otherwise
permitted in this
29
Agreement, alter the Partners' rights to distributions set forth in Article V;
(iv) alter or modify any aspect of the Partners' rights with respect to
redemption of Partnership Units; (v) cause the early termination of the
Partnership (other than pursuant to the terms hereof); or (vi) amend this
Section 11.1(A), in each case without the Consent of each Partner adversely
affected thereby. In connection with any proposed amendment of this Agreement
requiring Consent, the General Partner shall either call a meeting to solicit
the vote of the Partners or seek the written vote of the Partners to such
amendment. In the case of a request for a written vote, the General Partner
shall be authorized to impose such reasonable time limitations for response, but
in no event less than ten (10) days, with the failure to respond being deemed a
vote consistent with the vote of the General Partner.
(B) Subject to the foregoing, amendments may be made to this
Agreement by the General Partner, without the Consent of any Limited Partner, to
(i) add to the representations, duties or obligations of the General Partner or
surrender any right or power granted to the General Partner herein; (ii) cure
any ambiguity, correct or supplement any provision herein which may be
inconsistent with any other provision herein or make any other provisions with
respect to matters or questions arising hereunder which will not be inconsistent
with any other provision hereof; (iii) reflect the admission, substitution,
termination or withdrawal of Partners in accordance with this Agreement; (iv)
satisfy any requirements, conditions or guidelines contained in any order,
directive, opinion, ruling or regulation of a federal or state agency or court
or contained in federal or state law; (v) to set forth the rights, powers,
duties and preferences of the holders of any additional Partnership Interests
issued pursuant to Section 4.2 hereof; or (vi) to reflect such changes as are
reasonably necessary for WREIT to maintain its status as a REIT. The General
Partner shall notify the Limited Partners whenever it exercises its authority
pursuant to this Section 11.1(B).
(C) Within ten (10) days of the making of any proposal to amend this
Agreement, the General Partner shall give all Partners Notice of such proposal
(along with the text of the proposed amendment and a statement of its purposes).
Section 11.2 Meetings and Voting.
--------------------------------
(A) Meetings of Partners may be called by the General Partner. The
General Partner shall give all Partners Notice of the purpose of such proposed
meeting not less than three (3) days nor more than thirty (30) days prior to the
date of the meeting. Meetings shall be held at a reasonable time and place
selected by the General Partner. Whenever the vote or Consent of Partners is
permitted or required hereunder, such vote or Consent shall be requested by the
General Partner and may be given by the Partners in the same manner as set forth
for a vote with respect to an amendment to this Agreement in Section 11.1(A).
(B) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a Consent setting forth the action to
be taken is signed by the Partners owning Percentage Interests required to vote
in favor of such action, which Consent may be evidenced in one or more
instruments. Consents need not be solicited from any other
30
Partner if the Consent of a sufficient number of Partners has been obtained to
take the action for which such solicitation was required.
(C) Each Limited Partner may authorize any Person(s) to act for him
by proxy on all matters on which a Limited Partner may participate. Every proxy
(i) must be signed by the Limited Partner or his attorney-in-fact; (ii) shall
expire eleven (11) months from the date thereof unless the proxy provides
otherwise; and (iii) shall be revocable at the discretion of the Limited Partner
granting such proxy.
ARTICLE XII - MISCELLANEOUS PROVISIONS
Section 12.1 Title to Property. All property owned by the
------------------------------
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually, shall
have any ownership of such property. The Partnership may hold any of its assets
in its own name or in the name of its nominee, which nominee may be one or more
individuals, corporations, partnerships, trusts or other entities.
Section 12.2 Other Activities of Limited Partners. Except as
-------------------------------------------------
expressly provided otherwise in this Agreement or in any other agreement entered
into by a Limited Partner or any Affiliate of a Limited Partner and the
Partnership, the General Partner or any Subsidiary of the Partnership or the
General Partner, any Affiliate of the General Partner, any Limited Partner or
any Affiliate of any Limited Partner may engage in, or possess an interest in,
other business ventures of every nature and description, independently or with
others, including without limitation, real estate business ventures, whether or
not such other enterprises shall be in competition with any activities of the
Partnership, the General Partner or the Subsidiary, and neither the Partnership,
the General Partner, such Subsidiary nor the other Partners shall have any right
by virtue of this Agreement in and to such independent ventures or to the income
or profits derived therefrom.
Section 12.3 Power of Attorney.
------------------------------
(A) Each Limited Partner hereby irrevocably appoints and empowers the
General Partner (which term shall include the Liquidator, in the event of a
liquidation, for purposes of this Section 12.3) and each of its authorized
officers and attorneys-in-fact with full power of substitution as his true and
lawful agent and attorney-in-fact, with full power and authority in his name,
place and ▇▇▇▇▇ to:
(1) Make, execute, acknowledge, publish and file in the
appropriate public offices (a) any duly approved amendments to the
Certificate pursuant to the Act and to the laws of any state in which
such documents are required to be filed; (b) any certificates,
instruments or documents as may be required by, or may be appropriate
under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; (c) any other
instrument which may
31
be required to be filed by the Partnership under the laws of any state
or by any governmental agency, or which the General Partner deems
advisable to file; (d) any documents which may be required to effect
the continuation of the Partnership, the admission, withdrawal or
substitution of any Partner pursuant to Article VIII of this
Agreement, the dissolution and termination of the Partnership pursuant
to Article X of this Agreement, or the surrender of any rights or the
assumption of any additional responsibilities by the General Partner;
(e) any document which may be required to effect an amendment to this
Agreement to correct any mistake, omission or inconsistency, or to
cure any ambiguity herein, to the extent such amendment is permitted
by Section 11.1(B) of this Agreement; and (f) all instruments
(including this Agreement and amendments and restatements hereof)
relating to the determination of the rights, preferences and
privileges of any class or series of Partnership Units issued pursuant
to Section 4.2(B) of this Agreement; and
(2) Sign, execute, swear to and acknowledge all voting ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole discretion of the General
Partner, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the
Partners hereunder or is consistent with the terms of this Agreement
and/or appropriate or necessary, in the sole discretion of the General
Partner, to effectuate the terms or intent of this Agreement.
(B) Nothing herein contained shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article XI of
this Agreement or as may be otherwise expressly provided for in this Agreement.
(C) The foregoing grant of authority (i) is a special power of
attorney, coupled with an interest, and shall survive the Involuntary Withdrawal
of any Partner and shall extend to such Partner's heirs, successors, assigns and
personal representatives; (ii) may be exercised by the General Partner for each
and every Partner acting as attorney-in-fact for each and every Partner; and
(iii) shall survive the Transfer by a Limited Partner of all or any portion of
its Partnership Interest and shall be fully binding upon such transferee; except
that the power of attorney shall survive such assignment with respect to the
assignor Limited Partner for the sole purpose or enabling the General Partner to
execute, acknowledge and file any instrument necessary to effect the admission
of the transferee as a Substitute Limited Partner. Each Partner hereby agrees
to be bound by any representations made by the General Partner, acting in good
faith pursuant to such power of attorney. Each Partner shall execute and
deliver to the General Partner, within fifteen (15) days after receipt of the
General Partner's request therefor, such further designations, powers of
attorney and other instruments as the General Partner deems necessary to
effectuate this Agreement and the purposes of the Partnership.
32
Section 12.4 Further Assurances. The parties agree to execute and
-------------------------------
deliver all such documents, provide all such information and take or refrain
from taking any action as may be necessary or desirable to achieve the purposes
of this Agreement and the Partnership.
Section 12.5 Titles and Captions. All article or section titles or
--------------------------------
captions in this Agreement are solely for convenience and shall not be deemed to
be part of this Agreement or otherwise define, limit or extend the scope or
intent of any provision hereof.
Section 12.6 Applicable Law. This Agreement, and the application or
---------------------------
interpretation thereof, shall be governed exclusively by its terms and by the
laws of the State of Delaware, without regard to its principles of conflicts of
laws. In the event of a conflict between any provision of this Agreement and
any non-mandatory provision of the Act, the provisions of this Agreement shall
control and take precedence.
Section 12.7 Binding Agreement. This Agreement shall be binding upon
------------------------------
the parties hereto, their heirs, executors, personal representatives, successors
and assigns.
Section 12.8 Waiver of Partition. Each of the parties hereto
--------------------------------
irrevocably waives during the term of the Partnership any right that it may have
to maintain any action for partition with respect to any property of the
Partnership.
Section 12.9 Counterparts and Effectiveness. This Agreement may be
-------------------------------------------
executed in several counterparts, which shall be treated as originals for all
purposes, and all so executed shall constitute one agreement, binding on all of
the parties hereto, notwithstanding that all the parties are not signatory to
the original or the same counterpart. Any such counterpart shall be admissible
into evidence as an original hereof against the Person who executed it. The
execution of this Agreement and delivery thereof by facsimile shall be
sufficient for all purposes, and shall be binding upon any party who so
executes.
Section 12.10 Survival of Representations. All representations and
-----------------------------------------
warranties herein shall survive the dissolution and final liquidation of the
Partnership.
Section 12.11 Entire Agreement. This Agreement (and all Exhibits
------------------------------
hereto) contains the entire understanding among the parties hereto and
supersedes all prior written or oral agreements among them respecting the within
subject matter, unless otherwise provided herein. There are no representations,
agreements, arrangements or understandings, oral or written, among the Partners
hereto relating to the subject matter of this Agreement which are not fully
expressed herein and in said Exhibits.
Section 12.12 Securities Law Provisions. The Partnership Units have
---------------------------------------
not been registered under the Federal or state securities laws of any state and,
therefore, may not be resold unless appropriate Federal and state securities
law; as well as the provisions of Article VIII, have been complied with.
33
Section 12.13 Remedies Not Exclusive. Any remedies herein contained
------------------------------------
for breaches of obligations hereunder shall not be deemed to be exclusive and
shall not impair the right of any party to exercise any other right or remedy,
whether for changes, injunction or otherwise.
[SIGNATURES CONTAINED ON FOLLOWING PAGE]
34
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
General Partner:
WILSHIRE REAL ESTATE INVESTMENT TRUST INC., a
Maryland corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Limited Partner:
WILSHIRE REAL ESTATE INVESTMENT TRUST INC., a
Maryland corporation
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Limited Partner:
SMALL CAP INVESTORS, LLC., an Oregon limited
liability company
By:_______________________________________
Name:_____________________________________
Title:____________________________________
35
WILSHIRE REAL ESTATE PARTNERSHIP L.P.
EXHIBIT 1 TO
LIMITED PARTNERSHIP AGREEMENT
Schedule of Partners
Value of
Contributed Applicable
Name and Address Assets/Cash Number of Units Percentage Interest
General Partner:
Wilshire Real Estate
Investment Trust, Inc.
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ $ 1,468,000 100,000 1.00%
------------ ---------- ------
Limited Partner:
Wilshire Real Estate
Investment Trust, Inc.
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ $146,800,000 9,900,000 98.90%
------------ ---------- -------
Limited Partner:
Small Cap Investors,
LLC
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ $ 15,000 1,875 0.10%
------------ ---------- -------
36
---------------------------------------------------------------------------------
TOTAL $146,815,000 10,001,875 100.00%
============ ========== ======
37
WILSHIRE REAL ESTATE PARTNERSHIP L.P.
EXHIBIT 2 TO
LIMITED PARTNERSHIP AGREEMENT
Redemption Notice
The undersigned hereby irrevocably (i) redeems
_________________ Partnership Units in Wilshire Real Estate Partnership L.P., a
Delaware limited partnership (the "Partnership"), in accordance with the terms
and conditions of the Limited Partnership Agreement of the Partnership (the
"Partnership Agreement") and the provisions regarding the redemption of
Partnership Units contained in Article IX thereof; (ii) surrenders such
Partnership Units and all right, title and interest therein and to the Limited
Partnership Interest represented thereby; (iii) directs that the Cash Payment or
the Share Payment (as determined by the General Partner) deliverable upon
exercise of the redemption rights provided by Article IX of the Partnership
Agreement be delivered to the address specified below, and if REIT Shares are to
be delivered, such REIT Shares be registered or placed in the name(s) and at the
addresses) specified below; and (iv) agrees to be bound by the terms and
conditions of any registration rights agreement applicable to such REIT Shares.
The undersigned hereby certifies that the receipt of Common
Shares in exchange for Partnership Units surrendered hereby will not cause the
undersigned, or any other person to whom the ownership of the undersigned's
Common Shares would be attributed under ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Internal Revenue Code (the "Code") or Section 318 (as modified by Section
856(d)(5) of the Code), to the Beneficially Own or Constructively Own Common
Shares in excess of the Ownership Limit (as such terms are defined in the
Articles of Organization as amended of the General Partner).
Under penalties of perjury, the undersigned declares that the
undersigned is not a "foreign person" as defined in Section 1445(f)(3) of the
Code, and that the undersigned's name, address and social security or employer
identification number are true and correct.
Capitalized terms not otherwise defined herein shall have the
same meaning ascribed thereto in the Limited Partnership Agreement.
Dated:______________________________________
(Signature of Limited Partner)
______________________________________
(Street Address)
______________________________________
(City) (State) (Zip Code)
38
Signature Guaranteed by:
___________________________________________
Issue REIT Shares to:
(name(s))____________________________________
____________________________________________
Taxpayer Identification Number
39
WILSHIRE REAL ESTATE PARTNERSHIP L.P.
EXHIBIT 3 TO
LIMITED PARTNERSHIP AGREEMENT
Allocation Provisions
1. Definitions. The following terms shall have the
-----------
meaning ascribed to
them for purposes of this Exhibit 3.
Adjusted Capital Account Deficit: With respect to any
--------------------------------
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(A) Credit to such Capital Account any amounts which such
Partner is obligated to restore pursuant to any provision of this agreement or
is deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5); and
(B) Debit to such Capital Account the items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit
is intended to comply with the provisions of Regulations Section 1.704-
1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
Capital Account: For each Partner, the separate account
---------------
established with regard to such Partner on the books of the Partnership, which
account shall be credited for (i) the amount of such Partner's Capital
Contributions, (ii) such Partner's distributive share of Profits and any items
in the nature of income or gain which are specially allocated to such Partner
pursuant to Section 2(C) or Section 2(D), and (iii) the amount of any
Partnership liabilities assumed by such Partner or which are secured by any
asset distributed to such Partner, and which shall be debited for (i) the amount
of cash and the Gross Asset Value of any asset distributed to such Partner, (ii)
such Partner's distributive share of Losses and any items in the nature of
expenses or losses which are specially allocated to such Partner pursuant to
Section 2(C) or Section 2(D), and (iii) the amount of any liabilities of such
Partner assumed by the Partnership or which are secured by any asset contributed
by such Partner to the Partnership. The foregoing definition is intended to
comply with Regulations Section 1.704-1(b)(2)(iv). Any transferee of a Partner's
Interest transferred in accordance with this Agreement shall succeed to that
transferor's Capital Account.
In determining the amount of any liability for purposes of the
foregoing paragraph and the definition of "Net Capital Contributions" in Article
II of this Agreement, there
40
shall be taken into account Code Section 752(c) and any other applicable
provisions of the Regulations.
Depreciation: For each Fiscal Year or other period, an
------------
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, 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 the beginning adjusted
tax basis; provided, however, that if the federal income tax depreciation,
amortization or other cost recovery deduction for such year or other period is
zero, Depreciation for such year or other period shall be determined with
reference to such beginning Gross Asset Value using any reasonable method
approved by the General Partner.
Nonrecourse Deductions: The meaning set forth in
----------------------
Regulations Sections 1.704-2(b)(1) and (c). The amount of Nonrecourse Deductions
for a Fiscal Year equals the excess, if any, of the net increase, if any, in the
amount of Partnership Minimum Gain during that Fiscal Year over the aggregate
amount of any distributions during that Fiscal Year of proceeds of a Nonrecourse
Liability that are allocable to an increase in Partnership Minimum Gain,
determined according to the provisions of Regulations Section 1.704-2(c).
Nonrecourse Liability: The meaning set forth in Regulations
---------------------
Section 1.752-1(a)(2).
Partner Minimum Gain: 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 Regulations Section 1.704-2(i).
Partner Nonrecourse Debt: The meaning set forth in
------------------------
Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Deductions: The meaning set forth in
------------------------------
Regulations Section 1.704-2(i). The amount of Partner Nonrecourse Deductions
with respect to a Partner Nonrecourse Debt for a fiscal year equals the excess,
if any, of the net increase, if any, in the amount of Partner Minimum Gain
attributable to such Partner Nonrecourse Debt during that fiscal year over the
aggregate amount of any distributions during that fiscal year to the Partner
that bears the economic risk of loss for such Partner Nonrecourse Debt to the
extent such distributions are from the proceeds of such Partner Nonrecourse Debt
and are allocable to an increase in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(2).
41
Partnership Minimum Gain: The meaning set forth in
------------------------
Regulations Sections 1.704-2(b)(2) and (d).
Profits and Losses: For each Fiscal Year or other
------------------
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(A) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this definition 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 Regulations Section 1.704-1(b)(2)(iv)(i), and
not otherwise taken into account in computing Profits or Losses
pursuant to this definition 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 Clause (B) or (C) of the definition of
Gross Asset Value in Section 2.1 of the Agreement, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;
(D) Gain or loss resulting from any disposition of
Partnership Assets with respect to which gain or loss is recognized
for federal income 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 in accordance with the
definition of Depreciation; and
(F) To the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Sections 734(b) or 743(b) of the
Code is required pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a
Partner's Interest, the amount of such adjustment shall be treated as
an item of gain (if the adjustment increases the
42
basis of the asset) or loss (if the adjustment decreases the basis of
the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Profits or Losses; and
(G) Notwithstanding any other provisions of this definition,
any items which are specially allocated pursuant to Section 2(C) or
Section 2(D) hereof shall not be taken into account in computing
Profits or Losses.
Regulations: The Income Tax Regulations promulgated under
-----------
the Code, as such regulations may be amended from time to time,
including corresponding provisions of succeeding regulations.
2. Allocation of Profit and Loss.
-----------------------------
(A) After giving effect to the special allocations set forth
in Sections 2(B)(1), 2(B)(2) and 2(C) hereof, Profits and Losses in each Fiscal
Year shall be allocated to the Partners, pro rata in accordance with their
respective Percentage Interests.
(B)(1) The Losses allocated pursuant to Section 2(A) hereof
shall not exceed the maximum amount of Losses that can be so allocated without
causing any Limited Partner to have an Adjusted Capital Account Deficit at the
end of any Fiscal Year. In the event some but not all of the Limited Partners
would have Adjusted Capital Account Deficits as a consequence of an allocation
of Losses pursuant to Section 2(A) hereof but for this Section 2(B), the
limitation set forth in this (B) shall be applied on a Limited Partner by
Limited Partner basis so as to allocate the maximum permissible Losses to each
Limited Partner under Regulations Section 1.704-1(b)(2)(ii)(d). All Losses in
excess of the limitations set forth in this Section 2(B) shall be allocated to
the General Partner.
(2) To the extent Losses are allocated to Partners pursuant
to Section 2(B)(1), then Profits shall be allocated to such Partners to the
extent and in proportion to such allocated Losses.
(C) Special Allocations. The following special allocations
shall be made in the following order:
(1) Minimum Gain Chargeback. Notwithstanding any other
provision of the foregoing Sections 2(A) and (B), if there is a net
decrease in Partnership Minimum Gain during any Fiscal Year, then, to
the extent required by Regulations Section 1.704-2(f), each Partner
shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g)(2). The
items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and
43
1.704-2(j). This Section 2(C)(1) is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(2) Partner Minimum Gain Chargeback. Notwithstanding any
other provision of Sections 2(A)-(F) hereof except Section 2(C)(1), if
there is a net decrease in Partner Minimum Gain attributable to a
Partner Nonrecourse Debt during any Fiscal Year, then, to the extent
required by Regulations Section 1.704-2(i)(4), each Partner who has a
share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined
in accordance with Regulations Section 1.704-2(i)(4). The items to be
so allocated shall be determined in accordance with Regulations
Sections 1.704-2(i)(4) and 1.704-2(j). This Section 2(C)(2) is
intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(3) Qualified Income Offset. In the event any Limited
Partner unexpectedly receives any adjustments, allocations, or
distributions described in Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain
(consisting of a pro rata portion of each item of Partnership income,
including gross income, and gain for such year) shall be specially
allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Partner as quickly as possible,
provided that an allocation pursuant to this Section 2(C)(3) 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 Sections 2(A)-(F) hereof have been tentatively made as if this
Section 2(C)(3) were not in the Agreement.
(4) Gross Income Allocation. In the event any Limited
Partner has a deficit Capital Account at the end of any Fiscal Year
that 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
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), such Partner
shall be specially allocated items of Partnership income and gain
(consisting of a pro rata portion of each item of Partnership income,
including gross income, and gain for such year) in the amount of such
excess as quickly as possible, provided that an allocation pursuant to
this Section 2(C)(4) shall be made if and only to the extent that such
Partner
44
would have a deficit Capital Account in excess of such sum
after all other allocations provided for in Sections 2(A)-(F) hereof
have been tentatively made as if Section 2(C)(3) and this Section
2(C)(4) were not in the Agreement.
(5) Nonrecourse Deductions. Nonrecourse Deductions for any
Fiscal Year or other period shall be specially allocated to the
Partners in proportion to their Partnership Interest.
(6) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Fiscal Year or other period 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 Regulations
Section 1.704-2(i)(1).
(7) Section 754 Adjustment. 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
Regulations Sections 1.704-1(b)(2)(iv)(m)(2) or 1.704-
1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall
be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis), and
such gain or loss shall be specially allocated to the Partners in a
manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such Regulations Section.
(D) Curative Allocations. The allocations set forth in
Sections 2(B), 2(C)(1), 2(C)(2), 2(C)(3), 2(C)(4), 2(C)(5), 2(C)(6) and 2(C)(7)
(the "Regulatory Allocations") are intended to comply with certain requirements
------------------------
of the 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 2(D). Therefore,
notwithstanding any other provision of this Section 2 (other than the Regulatory
Allocations), the General Partner shall make such offsetting special allocations
of Partnership income, gain, loss or deduction in whatever manner it 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
2(A). In exercising its discretion under this Section 2(D), the General Partner
shall take into account future Regulatory Allocations under Sections 2(C)(1) and
2(C)(2), that although not yet made, are likely to offset other Regulatory
Allocations previously made under Sections 2(C)(5) and 2(C)(6) hereof.
(E) Other Allocation Rules.
45
(1) For purposes of determining the Profits, Losses or
any other items allocable to any period, Profits, Losses and any such other
items shall be determined on a daily, monthly, or other basis, as determined by
the General Partner using any permissible method under Code Section 706 and the
Regulations thereunder.
(2) Except as otherwise provided in this Agreement,
all items of Partnership income, gain, loss, deduction and any other allocations
not otherwise provided for shall be divided among the Partners in the same
proportions as they share Profits and Losses, as the case may be, for the year.
(3) The Partners are aware of the income tax
consequences of the allocations made by Sections 2(A)-(G) hereof and hereby
agree to be bound by the provisions of Sections 2(A)-(G) hereof in reporting
their shares of Partnership income and loss for income tax purposes.
(4) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Regulations Section 1.752-3(a)(3), the Partners' interests
in Partnership profits shall be equal to their Percentages of Partnership
Interest.
(F) Tax Allocations - Code Section 704(c).
(1) In accordance with Code Section 704(c) and the
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 (computed in accordance
with the definition in Section 2.1 of the Agreement).
(2) 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 Regulations
thereunder.
(3) Any elections or other decisions relating to such
allocations shall be made by the General Partner in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations pursuant to
this Section 2(F) are solely for purposes of federal, state and local taxes and
shall not affect, or in any way be taken into account in computing, any
Partner's Capital Account or share of Profits, Losses, other items, or
distributions pursuant to any provision of this Agreement.
(G) Regulatory Compliance. The foregoing provisions of this
Section 2 relating to the allocation of Profits, Losses and other items for
federal income tax
46
purposes are intended to comply with Treasury Regulations Sections 1.704-1(b)
and 1.704-2, and shall be interpreted and applied in a manner consistent with
such Treasury Regulations.
47
WILSHIRE REAL ESTATE PARTNERSHIP L.P.
EXHIBIT 4 TO
LIMITED PARTNERSHIP AGREEMENT
Form of Unit Certificate
NON-NEGOTIABLE NON-TRANSFERABLE, NON-ASSIGNABLE
The undersigned hereby acknowledges that Units in WILSHIRE REAL ESTATE
LIMITED PARTNERSHIP L.P. (the "Partnership") organized under the Revised Uniform
Limited Partnership Act of the State of Delaware, are registered on the records
of said Partnership in the amount and in the name set forth below:
Certificate Social Security or Taxpayer
Number Name and Address Identification or Number Number of Units
-------------- ---------------- --------------------------- ---------------
This document has been issued solely to evidence that the above number
of units stands in the name of such holder of Units, as of the date appearing
hereon, in the Partnership's Limited Partnership Agreement (the "Partnership
Agreement), pursuant to Article IV of the Partnership Agreement, and does not
grant or carry with it any rights to the income, profits or assets of the
Partnership, such rights being derived solely from the Partnership Agreement.
This document is NON-NEGOTIABLE, NON-TRANSFERABLE and NON-ASSIGNABLE.
Assignment of Units can only be accomplished in accordance with the procedure
set forth in the Partnership Agreement, and such assignment is subject to
certain limitations contained in Articles IV and VIII of the Partnership
Agreement, including a provision that the substitution of any assignee of Units
as a Limited Partner of the Partnership shall be subject to the consent of the
General Partner, which consent may be granted or withheld in its sole and
absolute discretion. Subject to Section 9.4 of the Partnership Agreement,
beginning one year after the Effective Date, a holder of Units has the right to
receive cash or, at the sole and absolute discretion of the General Partner,
Common Shares of the General Partner in exchange for Units as provided in
Article IX of the Partnership Agreement. Subject to certain limited exemptions,
Limited Partners are prohibited from offering, selling, contracting to sell or
otherwise disposing of any Units or Common Shares obtained in exchange of Units
for a period of one year from the Effective Date without the prior written
consent of the Representative. THIS DOCUMENT IS NOT A SECURITY UNDER THE
APPLICABLE PROVISIONS OF THE UNIFORM COMMERCIAL CODE, AND NEGOTIATION, TRANSFER
48
OR ASSIGNMENT OF INTEREST CANNOT BE ACCOMPLISHED BY ANY ATTEMPT TO NEGOTIATE,
TRANSFER OR ASSIGN THIS DOCUMENT. Copies of the Partnership Agreement may be
obtained from the General Partner by contacting WILSHIRE REAL ESTATE LIMITED
PARTNERSHIP, L.P., ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
Secretary. Terms used herein have the meanings ascribed to such terms as in the
Partnership Agreement.
THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR TRANSFERRED ABSENT REGISTRATION THEREUNDER OR
EXEMPTION THEREFROM.
[Additional Legends Required by Blue Sky Laws.]
-------------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, President
Wilshire Real Estate Investment Trust, Inc.
General Partner
49