(vi) The arrangement does not provide for the General Partner or its Affiliates to receive transaction fees, including acquisition, disposition, financing or other similar fees; and
(vii) Such transaction or contract for services is entered into principally for the benefit of the Partnership and in the ordinary course of its business.
(B) Notwithstanding Section 6.04(A) above, the General Partner or an Affiliate thereof shall have the right to:
(iii) receive the amounts described in Section 6.06 and 6.07 without complying with the provisions of Section 6.04(A);
(iv) cause the Partnership to make Investments in accordance with the terms of this Agreement with Alternative Investment Vehicles, Coinvestment Vehicles or Successor Funds, in each case without complying with (x) the provisions of clause (ii) of Section 6.04(A) or (y) the requirement to obtain Advisory Committee Consent pursuant to clause (iv) of Section 6.04(A); and
(v) cause the Partnership to reimburse the General Partner and its Affiliates for (x) tax return preparation services and services related to compliance with the rules
applicable to real estate investment trusts not to exceed $200,000 per year and (y) legal services provided to the Partnership or the Investments by the General Partner in respect of Investments and in an amount not to exceed $100,000 per year, in each case without complying with clauses (i), (ii) or (iv) of Section 6.04(A); provided, that all such services are for the benefit of the Partnership, are not for the general operation of the General Partner’s business as described in Section 6.06(B) and would have been performed by third parties if the General Partner did not have the capability to perform such services itself.
6.05. | Liability for Acts and Omissions. |
(A) No General Partner, member of the Advisory Committee, Investment Committee or Plan Assets Committee or any of their respective Affiliates, shareholders, partners, members, managers, officers, directors, employees, agents and representatives shall have any liability, responsibility or accountability in damages or otherwise to any Partner or the Partnership for, and the Partnership agrees to indemnify, pay, protect and hold harmless the General Partner, each member of the Advisory Committee, Investment Committee and Plan Assets Committee and their respective Affiliates, shareholders, partners, members, managers, officers, directors, employees, agents and representatives (collectively, the “Indemnified Parties”) from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, proceedings, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, all reasonable costs and expenses of attorneys, defense, appeal and settlement of any and all suits, actions or proceedings instituted or threatened against the Indemnified Parties or the Partnership) and all costs of investigation in connection therewith which may be imposed on, incurred by, or asserted against the Indemnified Parties or the Partnership in any way relating to or arising out of, or alleged to relate to or arise out of, any action or inaction on the part of the Partnership, on the part of the Indemnified Parties when acting on behalf of the Partnership (or any of its Investments) or on the part of any brokers or agents when acting on behalf of the Partnership (or any of its Investments); provided, however, that the General Partner shall be liable, responsible and accountable for and shall indemnify, pay, protect and hold harmless the Partnership from and against (but only with respect to the General Partner and Indemnified Parties which are its Affiliates, shareholders, partners, members, managers, officers, directors, employees, agents and representatives), and the Partnership shall not be liable to any Indemnified Party for, any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, proceedings, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, all reasonable costs and expenses of attorneys, defense, appeal and settlement of any and all suits, actions or proceedings instituted or threatened against the Partnership) and all costs of investigation in connection therewith asserted against the Partnership which result from an Indemnified Party’s fraud, gross negligence, willful misconduct, bad faith or material breach of this Agreement or the payment to or receipt by an Indemnified Party of benefits in violation of this Agreement; provided, however, nothing in this provision shall create personal liability on the part of any of the General Partner’s Affiliates or its or their respective shareholders, partners, members, managers, officers, directors, employees, agents or representatives. Notwithstanding the foregoing, such indemnification obligation by the Partnership shall not apply where an officer or director of the General Partner is seeking indemnity based on a claim or action brought against such officer or director by another officer or director of the General Partner. In any action, suit or proceeding against the Partnership or any Indemnified Party relating to or arising, or alleged to relate to or arise, out of any such action or non-action, the Indemnified Parties shall have the right to jointly employ, at the expense of the Partnership, counsel of the Indemnified Parties’ choice, which counsel shall be reasonably satisfactory to the Partnership, in such action, suit or proceeding; provided that if retention of joint counsel by the Indemnified Parties would create a conflict of interest, each group of Indemnified Parties which would not cause such a conflict shall have the right to employ, at the expense of the Partnership, separate
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counsel of the Indemnified Party’s choice, which counsel shall be reasonably satisfactory to the Partnership, in such action, suit or proceeding. The satisfaction of the obligations of the Partnership under this Section 6.05(A) shall be from and limited to the assets of the Partnership (which may include Remaining Capital Commitments) and no Limited Partner shall have any personal liability on account thereof.
(B) The provision of advances from Partnership funds to an Indemnified Party for legal expenses and other costs incurred as a result of any legal action or proceeding is permissible if (i) such suit, action or proceeding relates to or arises out of, or is alleged to relate to or arise out of, any action or inaction on the part of the Indemnified Party in the performance of its duties or provision of its services on behalf of the Partnership (or any of its Investments) or in its capacity as a member of the Advisory Committee, Investment Committee or the Plan Assets Committee; and (ii) the Indemnified Party undertakes to repay any funds advanced pursuant to this Section 6.05(B) in cases in which such Indemnified Party would not be entitled to indemnification under Section 6.05(A); provided, that the Advisory Committee may determine that the Partnership shall not advance funds to the General Partner or its Affiliates for legal expenses and other costs incurred as a result of any legal action or proceeding commenced against the General Partner or its Affiliates by Limited Partners in which the Limited Partners claim gross negligence, willful misconduct, fraud or a material breach of this Agreement by the General Partner or its Affiliates. If advances are permissible under this Section 6.05(B), the Indemnified Party shall furnish the Partnership with an undertaking as set forth in clause (ii) of this paragraph and shall thereafter have the right to bill the Partnership for, or otherwise request the Partnership to pay, at any time and from time to time after such Indemnified Party shall become obligated to make payment therefor, any and all reasonable amounts for which such Indemnified Party believes in good faith that such Indemnified Party is entitled to indemnification under Section 6.05(A) with the approval of the General Partner, or if the General Partner or its Affiliates is the Indemnified Party, the Advisory Committee, which approval shall not be unreasonably withheld. The Partnership shall pay any and all such bills and honor any and all such requests for payment within 60 days after such bill or request is received by the General Partner, and the Partnership’s rights to repayment of such amounts shall be secured by the Indemnified Party’s Interest, if any, or by such other adequate security as the General Partner, or if the General Partner or its Affiliates is the Indemnified Party, the Advisory Committee may determine. In the event that a final determination is made that the Partnership is not so obligated in respect of any amount paid by it to a particular Indemnified Party, such Indemnified Party will refund such amount within 60 days of such final determination, and in the event that a final determination is made that the Partnership is so obligated in respect to any amount not paid by the Partnership to a particular Indemnified Party, the Partnership will pay such amount to such Indemnified Party within 60 days of such final determination, in either case together with interest at the Prime Rate plus two percent from the date paid by the Partnership until repaid by the Indemnified Party or the date it was obligated to be paid by the Partnership until the date actually paid by the Partnership to the Indemnified Party.
(C) All judgments against the Partnership or any Indemnified Party wherein such persons or entities are entitled to indemnification, must first be satisfied from Partnership assets before the General Partner or such other persons or entities are responsible for these obligations.
(D) With respect to the liabilities of the Partnership for which the General Partner is not obligated to indemnify the Partnership, whether for the consummation of Investments, professional and other services rendered to it, loans made to it by Partners or others, injuries to persons or property, indemnity to the Indemnified Parties, contractual obligations, guaranties, endorsements or for other reasons similar or dissimilar to any of the foregoing, and without regard to the manner in which any liability of any nature may be incurred by the person to whom it may be owed, all such liabilities:
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(i) shall be liabilities of the Partnership as an entity, and shall be paid or otherwise satisfied from Partnership assets (and the Partnership shall sell or liquidate all assets and/or make a call for Capital Contributions up to the aggregate Remaining Capital Commitments of the Partners as are necessary to satisfy such liabilities, provided that the reduction in Remaining Capital Commitments resulting from payments in response to such call would not cause an acceleration of any indebtedness pursuant to or a default under any credit facility referred to in Section 8.04); and
(ii) except as provided in paragraph (i) above, shall not in any event be payable in whole or in part by any Partner, or by any director, officer, manager, trustee, employee, agent, shareholder, member, beneficiary or partner of any Partner.
Nothing in this Section 6.05(D) shall be construed so as to impose upon the General Partner, its partners, directors, officers, employees, agents or shareholders any liability in circumstances in which the liability arises from a written document which the General Partner has properly entered into or caused the Partnership to enter into if the written document expressly limits liability thereon to the Partnership or expressly disclaims any liability thereunder on the part of any such person or entity. It is expressly acknowledged that the General Partner may enter into written documents of such a type.
(E) The General Partner may cause the Partnership, at the Partnership’s expense, to purchase insurance to insure the Indemnified Parties against liability hereunder, including, without limitation, for a breach or an alleged breach of their responsibilities hereunder. The General Partner shall send Notice to the Limited Partners thereof, describing the insurance policy and the premiums paid therefor promptly upon the purchase of such insurance. The Partnership shall not incur the costs of that portion of any insurance, other than public liability insurance, which insures any Indemnified Party for any liability as to which such person is prohibited from being indemnified under Section 6.05(A).
(F) If the Indemnified Party is entitled to indemnification from another source or is entitled to recovery by insurance policies, such Indemnified Person shall first seek recovery under any other indemnity or any insurance policies by which such Indemnified Person is indemnified or covered, as the case may be, and shall diligently pursue such other source; provided that (i) such obligation shall not in any manner limit such Indemnified Party’s right to seek indemnification or advances under this Agreement to the extent that the indemnitor with respect to such indemnity or the insurer with respect to such insurance policies fails to provide such indemnity or coverage, as the case may be, within 15 days of request by the Indemnified Party and (ii) such Indemnified Party shall remit to the Partnership any funds it recovers from another source to the extent it has been fully indemnified by the Partnership for all losses it incurred.
6.06. | Partnership Costs and Expenses. |
(A) Except as otherwise provided and subject to any limits in this Agreement, the Partnership will pay for, or reimburse the General Partner for its payment of all Operating Expenses. The Partnership shall only reimburse the General Partner for Operating Expenses to the extent it incurs direct and out-of-pocket expenses.
(B) Notwithstanding the foregoing, the General Partner shall not be reimbursed for any costs and expenses relating to the general operation of the General Partner’s business, including, but not limited to, expenses related to the formation of the partnership (except as provided in Section 6.07(A)), administrative expenses, employment expenses, insurance, office expenses, rent, and, except as otherwise specifically provided in this Agreement, any other costs or expenses.
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(C) In no event shall such payments to the General Partner under this Section 6.06 or Section 6.07 be deemed a distribution to the General Partner of Net Investment Revenues. In no event shall the General Partner be entitled to reimbursement for any costs being reimbursed to an Affiliate of the General Partner or the Partnership pursuant to a written agreement.
6.07. | Organizational Expenses; General Partner Fees; Placement Agent Fees. |
(A) The General Partner and its Affiliates will be reimbursed for Organizational Expenses incurred by the General Partner and its Affiliates; provided, however, that Organizational Expenses chargeable to the Partnership shall not exceed $1,000,000. All Organizational Expenses in excess of $1,000,000 shall be borne by the General Partner.
(B) The General Partner shall be paid an annual investment management fee (the “Investment Management Fee”) by the Partnership pursuant to the terms hereof. The Investment Management Fee shall be paid quarterly in advance and shall accrue in respect of all Limited Partners’ Capital Commitments (regardless of the Closing in which such Limited Partner participates) from the First Closing. The initial installment of the Investment Management Fee shall be paid at the First Closing with subsequent installments to be paid on each three-month anniversary of the First Closing or the first Business Day thereafter. The Investment Management Fee (i) due and payable during the first three 12-month periods during the Commitment Period shall be an amount equal to .71% of each Limited Partner’s Capital Commitment, (ii) due and payable during each 12-month period after the initial three such periods but prior to the expiration of the Commitment Period shall be an amount equal to 1.5% of each Limited Partner’s Capital Commitment and (iii) due and payable during each 12-month period after the expiration of the Commitment Period shall be an amount equal to 1.5% of the aggregate amount of each Limited Partner’s Capital Contributions invested in Investments, less the portion of such Capital Contributions invested in Investments that have been disposed of; provided, that no portion of any installment of the Investment Management Fee shall be refundable once paid; provided, further, that the portions of Capital Commitments transferred to and/or invested in Alternative Investment Vehicles will be included without duplication for purposes of determining the Investment Management Fee payable pursuant to this Section 6.07(B). A Limited Partner participating in a Subsequent Closing shall fund its portion of all prior installments of the Investment Management Fee, plus interest thereon, in accordance with Section 4.09.
(C) Except as otherwise provided in this Agreement, the Partnership will pay, or reimburse the General Partner for, all fees paid after the date of this Agreement to any Placement Agent in respect of the Limited Partners’ Capital Commitments to the Partnership or any Coinvestment Vehicle or similar entity; provided, that such fees chargeable to the Partnership shall not exceed 2.37% of the aggregate Capital Commitments of the Limited Partners. All fees or other amounts owed to Placement Agents in excess of 2.37% of the aggregate Capital Commitments of the Limited Partners shall be borne by the General Partner. A Limited Partner participating in a Subsequent Closing shall fund its portion of all prior installments of fees paid to any Placement Agent, plus interest thereon, in accordance with Section 4.09.
(A) So long as Berkshire Multifamily Value Fund, GP, L.L.C. or any Affiliate thereof (in accordance with Section 7.02) is the General Partner, the General Partner or such Affiliate shall cause each of George D. Krupp, Frank Apeseche and David J. Olney to remain actively involved in the Partnership, and, during the Commitment Period, to devote to the Partnership a substantial majority of their business time and attention (other than time devoted to Alternative Investment Vehicles, Successor
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Funds, Coinvestment Vehicles and to entities acquired by Successor Funds or Alternative Investment Vehicles or in which Successor Funds or Alternative Investment Vehicles hold investments). At any time and time from time, the Partnership may replace any of George D. Krupp, Frank Apeseche and David J. Olney with substitute key persons with the Consent of the Advisory Committee, which Consent it may grant or withhold in its sole discretion.
(B) The sole remedy of the Limited Partners with respect to Section 6.08(A) is as set forth in this Section 6.08(B). During the Commitment Period, in the event that two of the key persons (x) cease to be actively involved in the Partnership or to devote to the Partnership a substantial majority of their business time and attention (other than time devoted to Alternative Investment Vehicles, Successor Funds, Coinvestment Vehicles and to entities acquired by Successor Funds or Alternative Investment Vehicles or in which Successor Funds or Alternative Investment Vehicles hold investments) or (y) are terminated, and, in each case, have not been replaced with substitute key persons in accordance with Section 6.08(A), the Commitment Period will be automatically suspended for 30 Business Days, except with respect to Transactions in Progress as of such time with respect to which the Partnership has a legally binding obligation to complete. The Limited Partners may, by Consent of 75% of the Percentage Interests of the Limited Partners, elect to convert such temporary suspension of the Commitment Period into a termination of the Commitment Period; provided, however, that if the Partners have not elected to terminate the Commitment Period within the 30 Business Day suspension period, the Commitment Period will resume and the Partners will no longer have the right to terminate the Commitment Period under this Section 6.08(B); and provided, further, that the General Partner shall have the right to cure such breach by substituting new individuals acceptable to the Advisory Committee in the Advisory Committee’s sole discretion.
(C) In the event that the Commitment Period has been terminated in accordance with Section 6.08(B), the Partners may, in their sole discretion, by Consent of 75% of the Percentage Interests of the Partners, elect to resume the Commitment Period.
6.09. | Presentation of Opportunities to the Partnership. |
(A) Until the earlier of (i) the expiration of the Commitment Period, (ii) the date on which 80% of the Partners’ aggregate Capital Commitments have been invested or committed for investment (including additional fundings of Investments which require funding over an extended period of time and any amounts to be expended as set forth in a business plan or budget for an Investment approved in the ordinary course of business) or have been drawn to fund Investment Expenses and (iii) the date on which the General Partner on the date hereof or an Affiliate thereof shall cease to be the General Partner (other than in violation of Section 7.02 of this Agreement), the General Partner shall not, and shall cause each of its Affiliates not to, act as a sponsor or the primary source of transactions on behalf of another pooled investment fund with objectives substantially similar to those of the Partnership, other than Alternative Investment Vehicles.
(B) Furthermore, until the earlier of (i) the expiration of the Commitment Period, (ii) the date on which 80% of the Partners’ aggregate Capital Commitments have been invested or committed for investment (and any amounts to be expended as set forth in a business plan or budget for an Investment approved in the ordinary course of business) or have been drawn to fund Investment Expenses and (iii) the date on which the General Partner on the date hereof or an Affiliate thereof shall cease to be the General Partner (other than in violation of Section 7.02 of this Agreement), except as provided in the Section 6.09(A) or 6.09(D), the General Partner and its Affiliates shall pursue a Suitable Investment that is generated by or presented to the General Partner or its Affiliates and that is not
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prohibited by this Agreement only through the Partnership, unless prior approval has been obtained from the Advisory Committee that such investment may be pursued by a Person other than the Partnership.
(C) At any time during the Commitment Period after 80% of the Partners’ Capital Commitments have been invested or committed for investment (including additional fundings of Investments which require funding over an extended period of time and any amounts to be expended as set forth in a business plan or budget for an Investment approved in the ordinary course of business) or have been drawn to fund Investment Expenses, if the General Partner or any Affiliate thereof is acting as a manager or the primary source of transactions on behalf of another pooled investment fund with objectives substantially similar to those of the Partnership (a “Successor Fund”), the General Partner shall have the right to permit the Successor Fund to invest in any real estate-related opportunity, but if such real estate-related opportunity is a Suitable Investment and is not otherwise prohibited pursuant to the terms of this Agreement, the Successor Fund shall only be permitted to invest therein in amounts up to a maximum of the proportion which the capital commitments of such Successor Fund bears to the sum of its capital commitments and the aggregate Capital Commitments hereunder.
(D) Notwithstanding the foregoing or anything to the contrary in this Agreement, BIR will be permitted (x) to complete Transactions in Progress by BIR as of the date of this Agreement and (y) to acquire at all times assets that (i) satisfy the requirements of Section 1031 of the Code for like-kind exchanges for properties held by BIR or (ii) involve less than $8 million of equity capital in any 12-month period if such capital is generated as a result of the refinancing of debt by BIR. The Advisory Committee will receive written disclosure of all investments made by BIR.
6.10. Other Activities. Subject to Sections 6.01, 6.08 and 6.09 above, the Partners and their Affiliates may engage in or possess an interest in other business ventures of every nature and description for their own account, 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; and neither the Partnership 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.
6.11. Miscellaneous Revenues. The General Partner shall, and shall cause its Affiliates to, remit to the Partnership any fees payable by third parties to the General Partner or its Affiliates to the extent such fees relate to Investments or unconsummated transactions pursued by the Partnership (other than Investment Management Fees, property management fees provided in Section 6.04(B)(i), and reimbursement of certain costs that would have otherwise have been paid to third parties); provided, however, that if an Alternative Investment Vehicle, Coinvestment Vehicle, a Successor Fund or any other Person invests or had proposed to invest in an Investment with the Partnership, then the Partnership shall only be entitled to a portion of such fees which is equal to the proportionate amount which the Partnership has or would have invested in the Investment or unconsummated transaction; provided, however, that the General Partner and its Affiliates may elect to retain, and not remit to the Partnership, such fees in which case the amount of any such fees retained by the General Partner or its Affiliates shall be deducted from the next installment of the Investment Management Fee payable by the Partnership to the General Partner to the Partnership pursuant to Section 6.07(B) (with such deduction allocated pro rata among the Limited Partners in proportion to the amounts owing by the Limited Partners to the Partnership under Section 6.07(B)). If any such fees exceed such next installment of the Investment Management Fee, the excess shall be carried forward for offset against future installments of the Investment Management Fee. To the extent any such fees have not been set off against the Investment Management Fee prior to a liquidation of the Partnership pursuant to Section 10.02, such excess fees shall be remitted to the Partnership immediately prior to such liquidation.
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6.12. Investment Committee. The General Partner shall have an investment committee (the “Investment Committee”) that will be responsible for approving all Investments and dispositions of Investments by the Partnership. The Investment Committee need not have responsibility for locating Investments, for negotiating the terms of Investments or dispositions, or for preparing evaluations of Investments or of assets that are the subject of proposed dispositions. The initial members of the Investment Committee will be George Krupp, Frank Apesche, David Olney and Thomas Shuler. The General Partner shall have the right to change the composition of the Investment Committee from time to time, in its sole discretion, and shall provide prompt notice of any such change in composition to the Advisory Committee.
6.13. | General Partner Claw Back. |
(A) Subject to Section 6.13(B), when the Partnership has disposed of all of its Investments, the General Partner will refund to the Partnership the amount, if any, by which the aggregate distributions to the General Partner under Section 5.02 in respect of its carried interest exceed the distributions the General Partner would have received under Section 5.02 in respect of its carried interest if all those distributions to the General Partner had been made immediately after the Company completed the distribution of the proceeds of its liquidation and the amount distributable to the General Partner were calculated on the basis of all Capital Contributions made by Partners, and all distributions made to Partners, during the life of the Partnership, including distributions of the proceeds of the liquidation of the Partnership (i.e., as though all of the Partnership’s Investments had been a single Investment, all Capital Contributions had been made with regard to that Investment, all Investment Revenues had been derived from that Investment and the Cumulative Preferred Return were calculated based on the balance of unreturned Capital Contributions from time to time over the life of that Investment).
(B) Under no circumstances will the sum the General Partner is required to pay to the Partnership under Section 6.13(A) exceed the total amount the General Partner receives under Section 5.02 in respect of its carried interest, less income taxes on such amount which shall be determined at a rate equal to the applicable highest effective marginal federal, state and local personal income tax rates for an individual resident in Boston, Massachusetts and taking into account the character and holding period of items of income and the deductibility of state and local income taxes for federal income tax purposes, notwithstanding that such Person may be a corporation, partnership or limited liability company.
ARTICLE VII
ASSIGNMENTS, WITHDRAWAL AND REMOVAL OF THE GENERAL PARTNER
7.01. Assignment or Withdrawal by the General Partner. The General Partner may not Transfer its Interest as General Partner, in whole or in part, or withdraw from the Partnership, except as permitted by this Article.
7.02. Voluntary Assignment or Withdrawal of the General Partner. The General Partner may not Transfer its Interest as General Partner, except to an Affiliate (provided such Transfer does not cause an acceleration of any Partnership indebtedness or default under any loan or other agreement to which the Partnership is a party), voluntarily withdraw from the Partnership at any time or voluntarily dissolve itself. In addition to the foregoing, the General Partner may not Transfer its Interest to an Affiliate unless the Advisory Committee has consented thereto after receiving representations as to the interests in such Affiliate, such Affiliate meets the requirements for continued qualification of the Partnership as a partnership under the Code, and it gives prompt Notice of such Transfer to all the
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Limited Partners. In the event that the General Partner intends to Transfer its Interest to an Affiliate in accordance with the terms of this Agreement, such Affiliate shall be admitted as a successor General Partner immediately prior to the effective time of the Transfer and such successor General Partner shall continue the business of the Partnership without dissolution. Such Affiliate shall be subject to the provisions of this Section 7.02 and all other provisions of this Agreement applicable to the General Partner.
7.03. Bankruptcy of the General Partner. Upon the Bankruptcy or dissolution of the General Partner, (a) the General Partner or its legal representative shall give Notice to the Limited Partners of such event and shall automatically, with or without delivery of such Notice, become a special Limited Partner with no power, authority or responsibility to bind the Partnership or to make decisions concerning, or manage or control, the affairs of the Partnership, and the recorded certificate of the Partnership shall be amended to reflect such fact, and (b) such Person as may be selected by a majority of the Percentage Interests of the Limited Partners within 90 days of the date of the event that caused the General Partner to become a special Limited Partner shall be admitted to the Partnership as a successor General Partner (effective as of the date of the Bankruptcy or dissolution of the prior General Partner) and such successor shall continue the business of the Partnership without dissolution, in which case the Commitment Period shall terminate. If a successor General Partner selected by a majority of the Percentage Interests of the Limited Partners is not admitted to the Partnership within such 90-day period, the Partnership shall dissolve in accordance with Article X. In the case of a conversion of the General Partner to a special Limited Partner and continuance of the Partnership without dissolution, each of the special Limited Partner and the Advisory Committee shall select one Expert, and such Experts shall jointly select a third Expert, which jointly selected Expert shall determine the Fair Value of the special Limited Partner’s Interest as of the effective date it became a special Limited Partner, taking into account all Profits, Losses, gains, deductions, distributions and other credits and charges (other than fees) to which the special Limited Partner was and would be entitled under this Agreement if all Investments of the Partnership were sold on the effective date of creation of the special Limited Partner for their Fair Value and the proceeds were distributed on such date pursuant to this Agreement. Thereafter, the special Limited Partner shall be entitled to a percentage of all future Profits, Losses, gains, deductions, distributions and other credits and charges of the Partnership equal to the quotient of (x) the Fair Value of the special Limited Partner’s Interest as of the date it was created divided by (y) the amounts which would be available to all Partners as of such date as determined by the Expert using the same assumptions as were used by the Expert in determining the Fair Value of the special Limited Partner’s Interest, but the special Limited Partner shall not be obligated to make any further deposits in the Reserve Account. The Fair Value as determined by the jointly selected Expert shall be final and conclusive on the parties. The fees and expenses of all Experts retained pursuant to this Section 7.03 shall be borne by the Partnership.
7.04. | Removal of the General Partner. |
(A) At any time (i) after the second anniversary of the final Subsequent Closing, the Limited Partners may, by Consent of 75% of the Percentage Interests of the Limited Partners, send Notice to the General Partner that effective no earlier than three months following receipt by the General Partner of such Notice and upon payment to it of an amount equal to the Investment Management Fee it would have been entitled to during the three-month period after the receipt by the General Partner of Notice, assuming for such purposes that the aggregate Net Adjusted Capital Contributions (other than those attributable to Operating Expenses) on the date of removal shall remain constant during such three-month period, it will be removed as the general partner of the Partnership, or (ii) with the Consent of a majority of the Percentage Interests of the Limited Partners, the Limited Partners may, by Notice to the General Partner effective no earlier than 15 days after receipt thereof by the General Partner, remove the General Partner as General Partner of the Partnership for Cause; provided, however, that in each case such
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removal shall not become effective until a successor General Partner is admitted pursuant to the provisions of Section 7.06.
(B) In the event of a removal without Cause, each of the removed General Partner and the Advisory Committee shall select one Expert, and such Experts shall jointly select a third Expert, which jointly selected Expert shall determine the Fair Value of the removed General Partner’s Interest as of the effective date of removal. In the event of a removal for Cause, each of the removed General Partner and the Advisory Committee shall select one Expert, which Experts shall jointly determine the Fair Value of the removed General Partner’s Interest as of the effective date of removal. Furthermore, if Cause is based on the failure of the General Partner or the Limited Partner which is an Affiliate of the General Partner to make a Capital Contribution, the Fair Value of the removed General Partner’s Interest shall be determined after giving effect to the reduction of the General Partner’s Percentage Interest in the same manner as if the second paragraph of Section 4.04(C) applied to the General Partner, provided, that such reduction shall not reduce the determination of the Fair Value of the amounts distributable to the General Partner pursuant to Sections 5.02 in respect of its carried interest. If such Experts are not able to jointly determine such Fair Value, they shall jointly select a third Expert and submit their respective determinations of such Fair Value to the third Expert, and the third Expert shall select as the Fair Value of the General Partner’s Interest the Fair Value as submitted by either the General Partner’s Expert or the Advisory Committee’s Expert. When determining the Fair Value of the General Partner’s Interest as of the effective date of removal, the Experts shall take into account all Profits, Losses, gains, deductions, distributions and other credits and charges (other than fees) to which the General Partner was and would be entitled under this Agreement if all Investments of the Partnership were sold on the effective date of removal of the General Partner for their Fair Value and the proceeds were distributed on such date pursuant to this Agreement, and if the General Partner has been removed for Cause, the Expert or Experts shall determine a reasonable reserve for damages relating to the event which constituted Cause. The Fair Value and reserve for damages as determined by the Expert or Experts shall be final and conclusive on the parties. The fees and expenses of all Experts retained pursuant to this Section 7.04 shall be borne by (x) the Partnership in the event of removal without Cause and (y) by the removed General Partner in the event of removal for Cause.
(C) Promptly upon the disclosure by the Expert or Experts of the Fair Value of the removed General Partner’s Interest and the reserve for damages, if applicable, the removed General Partner shall elect, unless the General Partner has been removed for Cause, in which case a majority of the Percentage Interests of the Limited Partners shall elect, to either (i) require the Partnership to redeem for cash the removed General Partner’s Interest for its Fair Value as determined by the Expert or Experts, or (ii) convert the General Partner’s Interest to that of a special Limited Partner. Any such redemption or conversion and admission of a successor General Partner pursuant to Section 7.06 shall occur within 30 days of the Expert’s or Experts’ disclosure, and the Partnership shall not make any distributions to the Partners until such redemption or conversion has been completed.
(D) If the General Partner has been removed and an election is made to have the Partnership redeem the removed General Partner’s Interest, a majority of the Percentage Interests of the Limited Partners may elect to defer the payment of the Fair Value required to be made to the General Partner for up to six months, measured from the date of the Expert’s or Experts’ disclosure, in which case such payment of the Fair Value shall accrue interest at a per annum rate equal to the greater of (x) 10% or (y) the Prime Rate plus two percent. No distributions shall be made to the Limited Partners until payment in full has been made to the General Partner. Notwithstanding the foregoing, distributions may be made to the Limited Partners prior to payment in full being made to the General Partner in an amount equal to the tax liability (calculated based on the applicable highest marginal federal, state and local corporate income tax rates for a corporation resident in Boston, Massachusetts and taking into account the
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deductibility of state and local income taxes for federal income tax purposes, notwithstanding that such Partner may be a partnership, trust or tax-exempt entity) of the Limited Partners with respect to Profits and Losses allocated to the Limited Partners hereunder from the date of removal of the General Partner until payment in full has been made to the removed General Partner, but in no event shall such distributions to the Limited Partners in the aggregate exceed 40% of the sum of the payments made to the General Partner and the distributions made to the Limited Partners.
(E) If the removed General Partner’s Interest has been converted to that of a special Limited Partner, it shall be entitled to a percentage of all future Profits, Losses, distributions and other credits and charges of the Partnership equal to the quotient of (x) the Fair Value of the General Partner’s Interest as of the date of removal divided by (y) the amounts which would be available for distribution to all Partners as of such date as determined by the Expert using the same assumptions as were used by the Expert in determining the Fair Value of the General Partner’s Interest.
(F) If the General Partner has been removed for Cause, the removed General Partner shall be required to fund a damages reserve account in an amount equal to the damages determined by the Expert or Experts. The removed General Partner shall fund such damages reserve account from (i) the proceeds from the redemption of its Interest if such Interest has been redeemed for Fair Value or (ii) future distributions received from the Partnership if it has been converted to a special Limited Partner. Amounts held in the damages reserve account shall be held for a period of nine months from the date of removal, at which time such funds shall be returned to the removed General Partner, unless at the end of such nine-month period a lawsuit is pending against the removed General Partner relating to the matter which constituted Cause. If such a lawsuit is pending at the end of such period, the funds shall be held in the damages reserve account until such time as such lawsuit has been settled or a final, nonappealable judgment has been issued in connection therewith, at which time all damages determined in such action shall be paid from the damages reserve account to the Partnership and any remaining amounts in the damages reserve account will be returned to the removed General Partner. Notwithstanding the foregoing, the removed General Partner shall remain liable for all damages resulting from its breach or act or omission which constituted Cause and which exceed amounts deposited in the damages reserve account. Furthermore, if the General Partner was removed for Cause, it shall not be entitled to vote with the Limited Partners upon any matter which requires the consent or approval of the Limited Partners under this Agreement or the Act.
7.05. Obligations of a Prior General Partner. In the event that the General Partner Transfers its Interest in accordance with Section 7.02 or 7.04 or has its Interest converted to that of a special Limited Partner pursuant to Section 7.03 or 7.04, it shall have no further obligation or liability as a General Partner to the Partnership pursuant to this Agreement in connection with any obligations or liabilities arising from and after such Transfer or conversion, and all such future obligations and liabilities shall automatically cease and terminate and be of no further force or effect; provided, however, that nothing contained herein shall be deemed to relieve the General Partner of any obligations or liabilities (i) arising prior to such Transfer or conversion or (ii) resulting from a dissolution of the Partnership caused by the act of the General Partner where liability is imposed upon the General Partner by law or by the provisions of this Agreement.
7.06. Successor General Partner. A Person shall be admitted as a General Partner only if the following terms and conditions are satisfied:
(A) except in the case of a permitted Transfer of the General Partner’s Interest to an Affiliate as provided in Section 7.02, the admission of such Person shall have been Consented to by a majority of the Percentage Interests of the Limited Partners;
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(B) the Person shall have accepted and agreed to be bound by all the terms and provisions of this Agreement by executing a counterpart hereof 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;
(C) a certificate evidencing the admission of such Person as a General Partner shall have been filed for recordation;
(D) if the successor General Partner is a corporation, it shall have provided counsel for the Partnership with a certified copy of a resolution of its Board of Directors and, if required, the consent of the shareholders, authorizing it to become a General Partner;
(E) if the successor General Partner is not a corporation but is a partnership, limited liability company or other entity, it shall provide counsel for the Partnership with a certified copy of its organizational documents, together with certified copies of any actions authorizing it to become a General Partner; and
(F) counsel for the Partnership shall have rendered an opinion that none of the actions taken in connection with such Transfer or admission will have an adverse tax effect upon the Partnership, which adverse tax effect can be waived by the Consent of a majority of the Percentage Interests of the Limited Partners.
The former General Partner shall reasonably cooperate to facilitate the substitution of the successor General Partner, even where the General Partner was removed for Cause, and shall be reimbursed for its reasonable costs and expenses relating thereto.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
8.01. Management of the Partnership. Without limiting a Limited Partner’s participation on the Advisory Committee as set forth in this Agreement, no Limited Partner shall take part in the management or control of the business of the Partnership or transact any business in the name of the Partnership. No Limited Partner shall have the power or authority to bind the Partnership or to sign any agreement or document in the name of the Partnership. No Limited Partner shall have any power or authority with respect to the Partnership, except as provided in the Act and insofar as the Consent of the Limited Partners shall be expressly required by this Agreement. The exercise of any of the rights and powers of the Limited Partners pursuant to the Act or the terms of this Agreement, including participation on the Advisory Committee, shall not be deemed taking part in the day-to-day affairs of the Partnership or the exercise of control over Partnership affairs.
8.02. | Limitation on Liability. |
(A) No Limited Partner shall have any liability to contribute money to the Partnership, nor shall any Limited Partner be personally liable for any obligations of the Partnership, except to the extent of its Remaining Capital Commitment as of the date any Capital Contribution is required and as otherwise provided in Sections 4.03, 4.04, 4.09, 5.04 and 8.02(B). No Limited Partner shall be obligated to make loans to the Partnership or to repay to the Partnership, any Partner or any creditor of the Partnership all or any fraction of any amounts distributed to such Partner except as specifically required pursuant to Section 8.02(B).
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(B) In accordance with state law, a limited partner of a partnership may, under certain circumstances, be required to return to the partnership for the benefit of partnership creditors amounts previously distributed to it as a return of capital. It is the intent of the Partners that a distribution to any Partner be deemed a compromise within the meaning of Section 17-502(b) of the Act and not a return or withdrawal of capital, even if such distribution represents, for income tax purposes or otherwise (in full or in part), a distribution of capital, and no Limited Partner shall be obligated to pay any such amount to or for the account of the Partnership or any creditor of the Partnership, except as provided in this Section 8.02. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to make any such payment, such obligation shall be the obligation of such Limited Partner and not of the General Partner.
(A) Each Limited Partner hereby makes, constitutes and appoints the General Partner and/or its authorized officers and agents, successors and assigns, as its true and lawful attorney-in-fact with full power and authority in its name, place and stead to make, complete, execute, sign, acknowledge, deliver, file and record at the appropriate public offices the following documents with respect to the Partnership:
(i) all certificates, other agreements and amendments thereto which the General Partner deems necessary to form, continue or otherwise qualify the Partnership as a limited partnership in each jurisdiction in which the Partnership conducts or may conduct business, and each Limited Partner specifically authorizes the General Partner to execute, sign, acknowledge, deliver, file and record a certificate of limited partnership of the Partnership and amendments thereto (authorized pursuant to the terms hereof) as required by the Act;
(ii) this Agreement, counterparts hereof and amendments hereto authorized pursuant to the terms hereof;
(iii) all instruments which the General Partner deems necessary to effect the admission of a General Partner pursuant to Section 7.06, the admission of a Limited Partner pursuant to Section 4.09 or Article IX, the sale or transfer of the Interest of a Limited Partner by the Partnership pursuant to Section 4.04(B)(ii), or the dissolution and liquidation of the Partnership in accordance with the provisions hereof; and
(iv) all appointments of agents for service of process and attorneys for service of process which the General Partner deems necessary or appropriate in connection with the organization and qualification of the Partnership.
(B) The foregoing power of attorney is hereby declared to be irrevocable and coupled with an interest, and it shall survive the Bankruptcy, death, dissolution or legal disability or cessation to exist of a Limited Partner to the fullest extent permitted by law and shall extend to its heirs, executors, personal representatives, successors and assigns, and the transfer or assignment of all or any part of the Interest of such Limited Partner; provided, however, that if a Limited Partner transfers all or any part of its Interest, the foregoing power of attorney of a transferor Limited Partner shall survive such transfer only until such time as the transferee shall have been admitted to the Partnership as a Substitute Limited Partner and all required documents and instruments shall have been duly executed, filed and recorded to effect such substitution.
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(C) The power of attorney granted to the General Partner shall not apply to Consents of the Limited Partners, the Advisory Committee or the Plan Assets Committee provided for in this Agreement.
(D) Each Limited Partner further agrees to execute any and all documents or instruments referred to in this Section 8.03 if the power of attorney granted hereunder is rendered ineffective by the provisions of the Act or if the General Partner in its reasonable discretion so requests execution by such Limited Partner and the same shall not be inconsistent with the provisions hereof.
8.04. Confirmation of Credit Facilities and Other Borrowings. In connection with credit facilities and other borrowings obtained by the Partnership, including any facility secured as provided in Section 3.02(D), Limited Partners may from time to time be required to, and at the request of the General Partner shall, confirm their Capital Commitments and Remaining Capital Commitment (including the application thereto of any agreements referred to in the second parenthetical in Section 16.10), provide financial information, cause to be delivered opinions of counsel satisfactory to the credit provider or lender regarding, among other matters, authority, due authorization and enforceability of agreements, and to execute other documents, in each case, as may be reasonably required by the credit provider or lender. In addition, under certain circumstances each entity providing funds to a Limited Partner may from time to time be required to, and at the request of the General Partner shall, provide financial information related thereto, cause to be delivered an opinion of counsel satisfactory to the credit provider or lender (regarding, among other matters and those referred to above in this Section, consent to United States jurisdiction) and to execute other documents, including, without limitation, guarantees, as may be reasonably required by the credit provider or lender. Nothing herein shall be construed as requiring a Limited Partner to waive any right it may have under this Agreement.
ARTICLE IX
TRANSFER OF LIMITED PARTNERSHIP INTERESTS
9.01. Transfers. A Limited Partner may not Transfer its Interest in the Partnership or any part thereof except (i) as provided in Section 4.04(B)(ii), or (ii) as permitted in this Article IX, and any such Transfer in violation of this Article IX shall be null and void as against the Partnership.
9.02. | Transfer by Limited Partners. |
(A) A Limited Partner may Transfer its Interest in the Partnership, in whole or in part, by an executed and acknowledged written instrument only if all of the following conditions are satisfied:
(i) the transferor and proposed transferee file a Notice of Transfer with the General Partner which contains the information reasonably required by the General Partner, including (a) the address and social security or taxpayer identification number of the proposed transferee, if applicable, or Form W-8BEN, W-8ECI or other relevant tax withholding form if the transferee is not a U.S. Person for U.S. federal income tax purposes, (b) the circumstances under which the proposed Transfer is to be made, including whether the proposed Transfer would constitute a disregarded transfer for purposes of Regulations § 1.7704-1(e) or corresponding rulings promulgated under the Code and that the proposed Transfer is not being made on an established securities market or a secondary market (or the substantial equivalent thereof) within the definition of a publicly traded partnership under Section 7704 of the Code and (c) the Interests to be Transferred and which Notice shall be signed and certified by the Limited Partner;
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(ii) any reasonable costs incurred by the Partnership in connection with the Transfer are paid by the transferor Limited Partner to the Partnership;
(iii) the Interest being transferred represents a Remaining Capital Commitment of at least $1,000,000; and
(iv) the General Partner Consents in writing to the Transfer, which Consent it may grant or withhold in its sole and absolute discretion; provided, that if the General Partner receives an opinion of counsel satisfactory to the General Partner stating that the Transfer does not violate the Securities Act or applicable state securities laws, that the Transfer will not cause the Partnership to become an investment company under the Investment Company Act, and that such Transfer will not cause a termination of the Partnership under Section 708(b)(1) of the Code and notwithstanding such Transfer, the Partnership shall continue to be treated as a partnership under the Code (including Section 7704 of the Code), and, to the General Partner’s satisfaction, the proposed transferee has the financial capability to meet its obligations hereunder, such Consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the General Partner shall not withhold Consent under Section 9.02(A)(iv) in the event of a transfer from an existing trustee of an ERISA Partner to a successor trustee (a successor trustee to include, for purposes of this Section 9.02(A), a proper holder (which is not a trustee) of the assets of a plan or governmental unit described in Sections 401(a)(24) and 818(a)(6) of the Code, where the assets of the applicable plan are not held in trust), if (i) such transfer is merely in connection with the replacement of the existing trustee with respect to all of the investments of the ERISA Partner held by such existing trustee, (ii) the ERISA Partner would have been qualified to be admitted as a Limited Partner if the successor trustee were the trustee with respect to the ERISA Partner when the ERISA Partner became a Limited Partner, (iii) the ERISA Partner, acting through the successor trustee, would be qualified to be admitted as a Limited Partner at the time of transfer and (iv) the General Partner receives reasonable assurances that the transfer is in accordance with applicable law.
(B) Upon satisfaction of the conditions set forth in Section 9.02(A), any such Transfer shall be recognized by the Partnership as being effective on the first day of the calendar month following either receipt by the Partnership of such Notice of the proposed Transfer or the satisfaction of said conditions, whichever occurs later.
(C) If a permitted transferee of a Limited Partner does not become a Substitute Limited Partner pursuant to Section 9.03, the transferee shall become a mere assignee and shall not have any non-economic rights of a Limited Partner of the Partnership, including, without limitation, the right to require any information on account of the Partnership’s business, inspect the Partnership’s books or vote on the Partnership matters.
(D) Notwithstanding anything contained above, the General Partner shall not consent to any Transfer if such Transfer will cause an acceleration pursuant to or a default under any credit facility referred to in Section 8.04.
9.03. Substitute Limited Partner. A transferee of the whole or any portion of an Interest in the Partnership pursuant to Section 9.02 shall have the right to become a Substitute Limited Partner in place of its transferor only if all of the following conditions are satisfied (provided such Transfer does not cause an acceleration pursuant to or a default under any credit facility referred to in Section 8.04):
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(A) the fully executed and acknowledged written instrument of Transfer has been filed with the Partnership;
(B) | the transferee executes, adopts and acknowledges this Agreement; |
(C) any reasonable costs of Transfer incurred by the Partnership are paid to the Partnership; and
(D) the General Partner shall have Consented in writing to the substitution, which Consent it may grant or withhold in its sole and absolute discretion, and which Consent may be conditioned upon, among other things, delivery of the opinion of counsel, satisfactory to the General Partner, as to the matters referred to in the opinion described in Section 9.02(A)(iv) above as such matters relate to the transferee becoming a Substitute Limited Partner; provided, that if (y) the General Partner receives an opinion of counsel satisfactory to the General Partner, as described above and (z) the proposed Substitute Limited Partner has a net worth or, if the proposed Substitute Limited Partner is a bank, insurance company, pension fund or other similar institutional investor with assets available for investment of not less than 125% of the portion of the transferor Limited Partner’s Remaining Capital Commitment being assumed by the proposed Substitute Limited Partner, such Consent shall not be withheld unreasonably.
9.04. | Involuntary Withdrawal by Limited Partners. |
(A) If an individual Limited Partner does not, by written instrument, designate a Person to become a transferee of his Interest upon his death, then his personal representative shall have all of the rights of a Limited Partner for the purpose of settling or managing his estate, and such power as the decedent possessed to Transfer his Interest in the Partnership to a transferee and to join with such transferee in making application to substitute such transferee as a Substitute Limited Partner.
(B) Upon the Bankruptcy, dissolution or other cessation of existence of a Limited Partner which is a trust, corporation, partnership or other entity, the authorized representative of such entity shall have all the rights of a Limited Partner for the purpose of effecting the orderly winding up and disposition of the business of such entity and such power as such entity possessed to designate a successor as a transferee of its Interest and to join with such transferee in making application to substitute such transferee as a Substitute Limited Partner.
(C) The death, Bankruptcy, dissolution, disability or legal incapacity of a Limited Partner shall not dissolve or terminate the Partnership.
ARTICLE X
DISSOLUTION AND LIQUIDATION; CONTINUATION
10.01. Dissolution. The Partnership shall be dissolved upon the first to occur of any one of the following:
(A) an election to dissolve the Partnership is made by the General Partner with the Consent of a majority of the Percentage Interests of the Limited Partners;
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(B) after the end of the Commitment Period, the reduction to cash of all or substantially all of the Investments (which Investments shall include purchase money security interests) of the Partnership;
(C) subject to the provisions of Article VII and Section 10.03, the Bankruptcy, dissolution, removal or other withdrawal of the General Partner or the sale, transfer or assignment by the General Partner of its Interest in the Partnership;
(D) upon the eighth anniversary of the First Closing, unless extended by the General Partner in its reasonable discretion for up to two consecutive additional one-year periods upon Notice to the Limited Partners and with Advisory Committee Consent;
(E) | as provided in Section 13.02(B); |
(F) at any time after the second anniversary of the final Subsequent Closing, upon the Consent of 75% of the Percentage Interests of the Limited Partners; or
(G) | any other event causing dissolution of the Partnership under the Act. |
10.02. | Liquidation. | |
(A) Upon dissolution of the Partnership, the Liquidator shall wind up the affairs of the Partnership as expeditiously as business circumstances allow and proceed within a reasonable period of time to sell or otherwise liquidate the assets of the Partnership and, after paying or making due provision by the setting up of reserves for all liabilities to creditors of the Partnership, distribute the assets among the Partners in accordance with the provisions for the making of Distributions set forth in this Article X. Notwithstanding the foregoing, in the event that the Liquidator shall, in its absolute discretion, determine that a sale or other disposition of part or all of the Investments would cause undue loss to the Partners or otherwise be impractical, the Liquidator may either defer liquidation of any such Investments and withhold distributions relating thereto for a reasonable time, or distribute part or all of such Investments to the Partners in kind (utilizing the principles of Section 5.05 and the valuation procedures described herein). If the General Partner is not the Liquidator, the Limited Partners shall not be obligated to make any further payment of the Investment Management Fee effective as of the appointment of such Liquidator.
(B) No Partner shall be liable for the return of the Capital Contributions of other Partners, provided that this provision shall not relieve any Partner of any other duty or liability it may have under this Agreement.
(C) Upon liquidation of the Partnership, all of the assets of the Partnership, or the proceeds therefrom, shall be distributed or used as follows and in the following order of priority:
(i) for the payment of the debts and liabilities of the Partnership and the expenses of liquidation;
(ii) to the setting up of any reserves which the Liquidator may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership; and
(iii) | to the Partners in accordance with the priorities of Section 5.02. |
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(D) When the Liquidator has complied with the foregoing liquidation plan, the Partners shall execute, acknowledge and cause to be filed an instrument evidencing the cancellation of the certificate of limited partnership of the Partnership, at which time the Partnership shall be terminated.
10.03. Continuation of Partnership. Notwithstanding the provisions of Section 10.01(C), the occurrence of an event of withdrawal of a General Partner shall not cause a dissolution of the Partnership if the Partnership, in such circumstance, is continued pursuant to the provisions of Article VII hereof or if, within 90 days after the withdrawal, a majority of the Percentage Interests of the Limited Partners admit a successor General Partner to the Partnership (effective as of the date of the withdrawal of the prior General Partner), in which case the business of the Partnership shall be continued without dissolution.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
11.01. Representations and Warranties of the Limited Partners. Each Limited Partner is fully aware that the Partnership and the General Partner are relying upon the exemption from registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder, and upon the truth and accuracy of the following representations by each of the Limited Partners. Each of the Limited Partners hereby represents and warrants, as to itself only as of the date hereof, that (i) its Interest in the Partnership is being acquired for investment and not with a view to the distribution or sale thereof, subject to any requirement of law that its property at all times be within its control; (ii) it has been given the opportunity to ask the General Partner questions relating to the Partnership and has had access to such financial and other information concerning the Partnership as it has considered necessary to make a decision to invest in the Partnership and has availed itself of that opportunity to the full extent desired; (iii) it is able (x) to bear the economic risk of its investment in the Partnership, (y) to retain its Interest for the full term of the Partnership and (z) to afford a full loss of its Capital Commitment; and (iv) if any portion of its Capital Contributions consists, or will consist, of assets of an employee benefit plan as defined in Section 3(3) of ERISA, whether or not such plan is subject to Title I of ERISA or a plan subject to Section 4975 of the Code, determined after giving effect to applicable regulations, rulings, and exemptions thereunder, it has so notified the General Partner in writing. Each of the Limited Partners hereby represents, warrants and covenants that no portion of its Capital Contributions consists, or will consist, of assets of an employee benefit plan (as defined in Section 3(3) of ERISA) subject to ERISA or a plan subject to Section 4975 of the Code, determined after giving effect to applicable regulations, rulings, and exemptions thereunder. Additionally, each Limited Partner hereby represents and warrants that if the Limited Partner, by virtue of the Interest subscribed for hereby, would own more than 10% of the aggregate Percentage Interests of the Partnership, as of the date of the acquisition of the Limited Partner’s Interest, either (i) all the Limited Partner’s outstanding securities (as such term is defined in the Investment Company Act) are beneficially owned by one natural person, or (if the General Partner, in its sole discretion, so permits) such larger number of persons, not to exceed 10, as such Limited Partner shall certify to the Partnership or (ii) the Limited Partner is not an Investment Company as defined in the Investment Company Act, and is not relying on the exemptions provided in Sections 3(c)(1) or 3(c)(7) of the Investment Company Act as a basis for not being an Investment Company.
11.02. Representations and Warranties of the General Partner. The General Partner represents, warrants and covenants to each other Partner that as of the date hereof (or such other date as is set forth below):
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(A) The Partnership is a duly formed and validly existing limited partnership under the laws of the State of Delaware with full power and authority to conduct its business as contemplated in this Agreement.
(B) The General Partner is a duly formed and validly existing limited liability company under the laws of the State of Delaware, with full power and authority to perform its obligations herein.
(C) The managing member of the General Partner has been duly formed and is validly existing under the laws of Delaware, with full power and authority to perform its obligations herein.
(D) All action required to be taken by the General Partner, its managing member and the Partnership, as a condition to the issuance and sale of the Limited Partner Interests being purchased by the Limited Partners has been taken and all necessary consents relating thereto have been obtained; the Interest of each Limited Partner represents a duly and validly issued limited partnership interest in the Partnership; and each Limited Partner is entitled to all the benefits of a Limited Partner under this Agreement and the Act.
(E) This Agreement has been duly authorized, executed and delivered by the General Partner and, upon due authorization, execution and delivery by each Limited Partner, will constitute the valid and legally binding agreement of the General Partner enforceable in accordance with its terms against the General Partner.
(F) As of the date thereof and as of the date hereof, the Private Placement Memorandum for the Partnership, dated February 2005, did not and does not contain any untrue statement of a material fact and did not omit or does not omit to state a material fact necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except that the description therein of this Agreement and the provisions hereof is superseded in its entirety by this Agreement.
(G) Assuming the accuracy of the representation made by each Limited Partner pursuant to the last sentence of Section 11.01, the Partnership is not required to register as an investment company under the Investment Company Act.
(H) Assuming the accuracy of the representations made by each Limited Partner pursuant to Section 11.01 and the Subscription Agreements, the offer and sale of the Limited Partner Interests do not require registration of the Limited Partner Interests under the Securities Act.
(I) The Partnership has not incurred any material liability other than Organizational Expenses and its obligations set forth in this Agreement.
ARTICLE XII
ACCOUNTING AND REPORTS
(A) The General Partner shall maintain at the office of the Partnership full and accurate books of the Partnership (which at all times shall remain the property of the Partnership), in the
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name of the Partnership and separate and apart from the books of the General Partner, the Predecessor Funds and their respective Affiliates, showing all receipts and expenditures, assets and liabilities, profits and losses, and all other books, records and information required by the Act or necessary for recording the Partnership’s business and affairs. The Partnership’s books and records shall be maintained in accordance with generally accepted accounting principles. The Partnership shall initially retain PricewaterhouseCoopers LLP as its independent certified public accountant. The General Partner may not permit the Partnership to retain any other accounting firm as its independent certified public accounting firm without having received the Consent of the Advisory Committee.
(B) Each Limited Partner shall be afforded full and complete access to all records and books of account of the Partnership for a purpose reasonably related to the Limited Partner’s interest as a limited partner during reasonable business hours or such other times as required by legislative authority and, at such hours, shall have the right of inspection and copying of such records and books of account, at its expense. Each Limited Partner shall have the right to audit such records and books of account of the Partnership by an accountant of its choice at its expense for a purpose reasonably related to the Limited Partner’s interest as a limited partner. The General Partner shall reasonably cooperate with any Limited Partner or their agents in connection with any review or audit of the Partnership or its records and books. The General Partner shall retain all records and books relating to the Partnership for a period of at least six years after the termination of the Partnership and shall thereafter destroy such records and books only after giving at least 30-days’ advance written notice to the Limited Partners.
(C) Notwithstanding the provisions of the preceding paragraph and except as set forth in the last sentence of Section 16.14, the General Partner shall have the right to keep confidential from Limited Partners for such period of time as the General Partner deems reasonable, any information which the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or could damage the Partnership or its business or which the Partnership is required by law or by agreement with a third party to keep confidential.
12.02. Tax Matters Partner. The General Partner shall be designated the tax matters partner (in this Section called the “TMP”) as defined in Code § 6231(a)(7) with respect to operations conducted by the Partnership pursuant to this Agreement. The TMP shall comply with the requirements of Code §§ 6221 through 6232 and Regulations promulgated thereunder, and the Partners further agree as follows:
(A) The TMP shall have a continuing obligation to provide the Service with sufficient information so that proper notice can be mailed to all Partners as provided in Section 6223 of the Code, and the Partners shall have a continuing obligation to furnish the TMP with such information (including information specified in Code § 6230(e)) as the TMP may reasonably request for such purposes.
(B) The TMP shall keep each Partner informed of all administrative and/or judicial proceedings for the adjustment of partnership items (as defined in Code § 6231(a)(3) and regulations promulgated thereunder) at the Partnership level. Without limiting the generality of the foregoing sentence, within 15 days of receiving any written or oral notice of the time and place of a meeting or other proceeding from the Service regarding a Partnership proceeding (and in any event, within a reasonable time prior to such meeting or proceeding), the TMP shall furnish a copy of such written communication or notice, or inform the Partners in writing of the substance of any such oral communication.
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(C) If any administrative proceeding contemplated under Code § 6223 has begun, the Partners shall, upon request by the TMP, notify the TMP of their treatment of any Partnership item on their federal income tax return which is or may be inconsistent with the treatment of that item on the Partnership’s return.
(D) Any Partner who enters into a settlement agreement with the Service with respect to Partnership items shall notify the other Partners of such settlement agreement and its terms within 30 days after the date of such settlement.
(E) If the TMP elects not to file suit concerning an administrative adjustment or request for administrative adjustment and another Partner elects to file such a suit, such other Partner shall notify all Partners of such intention and the forum or forums in which such suit shall be filed.
(F) The TMP shall be authorized to extend the statute of limitations, file a request for administrative adjustment, file suit concerning any tax refund or deficiency relating to any Partnership administrative adjustment or enter into any settlement agreement relating to any Partnership item of income, gain, loss, deduction or credit for any Fiscal Year of the Partnership, provided that the TMP shall promptly send Notice to the Limited Partners upon taking any of the foregoing actions. Notwithstanding the foregoing, in respect of any issues raised on a tax audit which primarily affect Partners that are tax-exempt, the General Partner shall consult with such Partners through the course of the tax audit. If the General Partner proposes to settle any such issue, the General Partner will provide notice of the settlement to the tax-exempt Partners within 30 days after it is proposed, and tax-exempt Partners will have 30 days to object to the settlement terms, after which period such Partners will be deemed to have approved of the settlement; provided, however, that if tax-exempt Partners representing at least a majority of the Percentage Interests of such Partners have objected to such terms, the matter will be submitted to arbitration.
(G) The obligations imposed on the TMP and the participation rights afforded the Limited Partners under this Section 12.02 and Code §§ 6221 through 6232 may not be restricted or limited in any fashion by the TMP or any Partner or Partners without the Consent of all the Partners.
(H) The Partnership shall indemnify and reimburse the TMP for all expenses, including legal and accounting fees, claims, liabilities, losses and damages incurred in connection with any administrative or judicial proceeding with respect to the tax liability of the Partners or in connection with any audit of the Partnership’s U.S. federal income tax returns, except to the extent such expenses, claims, liabilities, losses and damages are attributable to the gross negligence or willful misconduct of the TMP. The payment of all such expenses to which the indemnification applies shall be made before any distributions pursuant to Section 5.02. Neither the General Partner, nor any of its Affiliates, nor any other Person shall have any obligation to provide funds for such purpose. The taking of any action and the incurring of any expense by the TMP in connection with any such proceeding, except to the extent required by law, is a matter in the reasonable discretion of the TMP and the provisions on limitations of liability of the General Partner and indemnification set forth in Section 6.05 shall be fully applicable to the TMP in its capacity as such.
12.03. | Reports to Partners. |
(A) The General Partner shall cause to be prepared and furnished to each Limited Partner at the Partnership’s expense with respect to each Fiscal Year of the Partnership:
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(i) a statement as to the more recent of (a) the cost of each Investment or (b) if it has been prepared, an estimate of the Fair Value of each Investment, determined by the General Partner or an Expert (if an appraisal was in fact made by or for the Partnership), and all secured debt and other liabilities accrued with respect to such Investment or otherwise payable by the Partnership;
(ii) the information necessary for the preparation by such Limited Partner of its federal, state and other income tax returns;
(iii) an audited balance sheet, income statement, statements of cash flows and Partners’ Capital Accounts prepared in accordance with generally accepted accounting principles and a copy of the auditor’s letter to management; and
(iv) such other information as the General Partner deems reasonably necessary for the Limited Partners to be advised of the current status of the Partnership and its business.
The General Partner shall use reasonable endeavors to cause the foregoing to be furnished to the Limited Partners within 90 days, and in any event within 120 days, after the close of each Fiscal Year of the Partnership.
(B) The General Partner shall cause to be prepared and furnished to each Limited Partner with respect to each fiscal quarter (other than the Partnership’s last fiscal quarter of each Fiscal Year) an unaudited report prepared in accordance with generally accepted accounting principles, which includes for the quarter and year to date a balance sheet, an income statement, a statement of cash flows and:
(i) a statement showing the computation of fees and distributions to the General Partner and its Affiliates which statement shall separately reflect each type of transaction with or service provided by the General Partner and its Affiliates, the amount paid with respect thereto, and the method or formula used for calculating such payment, other than transactions specifically contemplated by this Agreement;
(ii) | a statement of each Partner’s Capital Account; |
(iii) a Partner’s Capital Account transactions report which shows the details of all Partnership transactions which flow through a Partner’s Capital Account and have occurred since the end of the preceding quarter and preceding Fiscal Year, including all capital calls, cash flows and/or capital distributions, and their effects at the time on each Partner’s IRR;
(iv) a statement reflecting any transactions with the General Partner or any of its Affiliates with respect to the Partnership; and
(v) a statement as to the more recent of (a) the cost of an Investment or (b) if it has been prepared, an estimate of the Fair Value of an Investment, determined by the General Partner or an Expert (if an appraisal was in fact made by or for the Partnership) and all secured debt and other liabilities accrued with respect to such Investment or otherwise payable by the Partnership, provided there has been a material change to the figures provided to the Limited Partners in accordance with Section 12.03(A)(i).
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The General Partner shall use reasonable endeavors to cause the foregoing to be furnished to the Limited Partners within 45 days, and in any event within 60 days, after the close of the relevant fiscal quarter.
(C) The General Partner shall cause to be prepared and furnished to each Limited Partner a statement describing any uncured event of default under any loans to which the Partnership or any of its subpartnerships is subject, within 30 days after the General Partner has knowledge thereof.
(D) The General Partner shall provide such other reports or information as any Limited Partner may reasonably request relating to the General Partner’s reasonable projections as to the Partnership’s unrelated business taxable income. The General Partner shall use its best efforts to provide financial information in substance and format as may be reasonably requested by the Advisory Committee.
(E) Promptly upon the termination of the Commitment Period, the General Partner shall cause to be prepared and furnished to the Advisory Committee a list of all Transactions in Progress by the Partnership.
12.04. Partnership Funds. The General Partner shall have fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership and the General Partner shall not employ such funds in any manner except for the benefit of the Partnership. All funds of the Partnership not otherwise invested shall be deposited in one or more accounts maintained in such banking institution, as the General Partner shall determine in the name of the Partnership and not in the name of the General Partner. All withdrawals from the Partnership’s accounts shall be made upon checks or instructions signed by the General Partner. Partnership funds shall not be commingled with the funds of any other Person nor shall such funds be employed by the General Partner as compensating balances other than in respect of Partnership borrowings.
ARTICLE XIII
CERTAIN ERISA MATTERS
13.01. Operating Company. Unless the General Partner has exercised its discretion to limit investment from benefit plan investors or ERISA Partners under Section 3.02(P), the General Partner shall use its reasonable best efforts to conduct the affairs of the Partnership in compliance with the exception for “real estate-operating companies” or the exception for “venture capital operating companies,” or otherwise with the exception for other “operating companies” provided in the Plan Assets Regulations.
(A) The General Partner shall deliver promptly to each ERISA Partner (with a copy to each other Limited Partner) an opinion of counsel (which counsel shall be Clifford Chance US LLP or such other counsel as shall be reasonably acceptable to at least 65% of the Percentage Interests of the ERISA Partners) with respect to the “initial valuation date” (as defined in 29 CFR § 2510.3-101(d)(5)), which opinion shall state whether the Partnership should have qualified as a “real estate operating company” or a “venture capital operating company” for the period beginning on the date on which the Partnership made the first Investment that caused it to qualify as a “real estate operating company” or a “venture capital operating company” and ending on the last day of the first “annual valuation period” (as so defined). The opinion referred to in the prior sentence (i) may rely, inter alia, upon a certificate of the General Partner as to the exercise of management rights with respect to one or more Investments during
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the appropriate period and as to a description of the Partnership’s Investments and (ii) shall state whether the Partnership has included in a certification to such counsel a statement to the effect that on such “initial valuation date” at least 50% of the Partnership’s assets (other than short-term investments pending long-term commitment or distribution to investors), valued at cost, were invested in real estate investments or venture capital investments, as applicable, as described in the Plan Assets Regulations. Thereafter, the General Partner shall deliver to each ERISA Partner (with a copy to each other Limited Partner) a certificate with respect to each “annual valuation period,” which certificate shall state whether the Partnership should have qualified as a “real estate operating company” or a “venture capital operating company” for the 12-month period following the last day of such “annual valuation period.” Notwithstanding the foregoing, the opinion and certificate described above in this Section 13.02(A) shall not be required if the General Partner has exercised its discretion to limit investment from benefit plan investors or ERISA Partners under Section 3.02(P).
(B) If the opinion or certificate, as applicable, described in Section 13.02(A) is not affirmative, or if the General Partner has exercised its discretion to limit investment from benefit plan investors or ERISA Partners under Section 3.02(P) but the General Partner nevertheless determines that participation by “benefit plan investors” in the Partnership is “significant” for purposes of the Plan Assets Regulations, then the General Partner shall, and it is hereby authorized and empowered to, take the actions described below.
(i) As soon as possible, the General Partner shall form and consult with a special committee (the “Plan Assets Committee”) consisting of the representatives or designees of the two ERISA Partners having the largest Capital Commitments of all ERISA Partners, and the two Limited Partners (other than the General Partner and any of its Affiliates) that are not ERISA Partners, if any, having the largest Capital Commitments of all such Limited Partners that are not ERISA Partners. Each member of the Plan Assets Committee shall have one vote. The Plan Assets Committee shall review the opinion, if any, referred to above, consider the options available to the Partnership for mitigating, preventing or curing any adverse consequences to the Partners that may arise as a result of the failure to receive an affirmative opinion, and shall make non-binding proposals to the General Partner as to which of those options should be pursued.
(ii) The General Partner shall then take such actions as are necessary and appropriate to mitigate, prevent or cure such adverse consequences, taking into account the interests of all Partners and the Partnership as a whole, considering the following alternatives, to the extent practical, in the following order: (a) to the extent practicable, as determined by the General Partner in its discretion, taking the actions proposed by the Plan Assets Committee or substantially equivalent actions; (b) renegotiating the terms of any Investment or otherwise modifying the manner in which the Partnership conducts its business; (c) permitting the transfer of all or a portion of the Interests of any or all of the ERISA Partners; (d) with the Consent of a majority of the Percentage Interests of the ERISA Partners, reducing (on a uniform and pro rata basis unless otherwise Consented by all ERISA Partners) the ERISA Partners’ Capital Contributions to one or more (but less than all) Investments made thereafter; or (e) requiring each ERISA Partner (on a pro rata basis unless otherwise Consented by all ERISA Partners) to do one of the following: (x) transfer all or a portion of its Interest at a price not less than the Fair Value of such Interest or portion thereof, as adjusted to reflect the Fair Value of the Partnership’s assets, or (y) completely or partially withdraw from the Partnership and receive in consideration therefor an amount equal to the Fair Value of the portion of the ERISA Partner’s Interest being withdrawn, on the same terms and conditions as if the ERISA Partner is withdrawing from the Partnership as described below; provided, however, that (I) in making a determination of Fair Value under this provision, each of the General Partner, a majority of the Percentage Interests of
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the ERISA Partners and a majority of the Percentage Interests of the non-ERISA Partners shall select one Expert, and such Experts shall unanimously select a fourth Expert, which unanimously selected Expert shall determine such Fair Value and (II) if an ERISA Partner so proposes, the General Partner shall cooperate with the ERISA Partner in the discovery of a buyer for all or a portion of such ERISA Partner’s Interest.
(iii) If, within 120 days of the formation of the Plan Assets Committee, the General Partner has not delivered to each ERISA Partner an affirmative opinion, then each ERISA Partner may send Notice to the General Partner that it is completely withdrawing from the Partnership; provided that such right of withdrawal shall lapse if an affirmative opinion has been delivered to the withdrawing ERISA Partner prior to the effective date of withdrawal. The withdrawing ERISA Partner shall be entitled to receive in consideration for its Interest an amount equal to the Fair Value of its Interest, with such Fair Value being determined as provided in the prior paragraph, and such amount being payable, in the sole discretion of the General Partner, either (I) in cash 30 days after the determination of such Fair Value or (II) in the form of a promissory note containing the following terms. Such promissory note shall bear interest at a rate equal to the lesser of (a) the highest rate permitted by law or (b) the greater of (1) the rate the Partnership could obtain from a money market fund or (2) that rate necessary to avoid imputation of interest under any applicable provision of the Code. Such promissory note shall be due in full on the earlier of the dissolution and final termination of the Partnership or five years from issuance. Partial payments under such promissory note will be made at the time of distributions to the Partners, in an amount determined as follows:
Amount of Payment | = | 1.5 x A/B x C | |
| | | |
| Where | A | = | Original principal amount of note |
| | B | = | Fair Value of the Partnership as of the effective date of withdrawal |
| | C | = | Total amount of each distribution (including payment on the Promissory Note) |
| | | | | | | |
(iv) Notwithstanding the foregoing, if 50% or more of the Percentage Interests of the ERISA Partners elect to withdraw from the Partnership pursuant to the foregoing, then the General Partner, in its sole discretion, shall have the right to dissolve the Partnership, in which case the amount of payment to be made under any promissory notes issued to a withdrawing ERISA Partner shall be as follows:
Amount of Payment | = | 1.5 x A/B x C |
(v) Any complete or partial withdrawal of the ERISA Partners as provided in this Section 13.02(B) shall occur as of the date that is the earlier of (I) the last day of the Fiscal Year of the Partnership during which the decision to withdraw is made or (II) the last day of the fiscal quarter during which such decision to withdraw is made or of any subsequent fiscal quarter if such day is recommended by counsel, in any such opinion, based on a change in circumstances or law.
(vi) Any distributions in kind made to a withdrawing ERISA Partner shall be made at the option of the General Partner after consultation with the withdrawing ERISA Partner, and shall be made in proportion to the withdrawing ERISA Partner’s Percentage Interest;
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provided that (I) any such distribution shall be subject to Section 5.05, and (II) no distribution of property shall be made to the withdrawing ERISA Partner if the holding thereof would result in a violation of ERISA or other applicable law; and provided, further, that the General Partner, to the extent permitted by applicable law, may require the withdrawing ERISA Partner to give the General Partner its proxy with respect to Securities distributed to it.
ARTICLE XIV
AMENDMENTS AND MEETINGS
14.01. | Amendment Procedure. The amendment procedure is as follows: |
(A) Amendments to this Agreement may be proposed by the General Partner or by 25% of the Percentage Interests of the Limited Partners.
(B) A proposed amendment will be adopted and effective only if it receives the Consent of the General Partner, which Consent it may grant or withhold in its sole and absolute discretion, and the Consent of a majority of the Percentage Interests of the Limited Partners, except that (i) amendments may be adopted solely upon the Consent of the General Partner, after giving Notice to the Limited Partners, to (a) effect changes of an administrative or ministerial nature which do not materially increase the authority of the General Partner or adversely affect the rights of the Limited Partners, (b) delete or add any provision of this Agreement required to be so deleted or added by a state securities commission or similar agency, which addition or deletion is deemed by such commission or agency to be for the benefit or protection of the Limited Partners, and (c) admit one or more additional Limited Partners or Substituted Limited Partners, or withdraw one or more Limited Partners, in accordance with the terms of this Agreement, (ii) an amendment to any provision which by its express terms applies only to ERISA Partners (which shall include the last paragraph of Section 3.02 and Article XIII) shall also require the Consent of 75% or more of the Percentage Interests of the ERISA Partners and (iii) any provision requiring the Consent of a specified percentage of the Percentage Interests of the Limited Partners may only be amended upon the Consent of such specified percentage of the Percentage Interests of the Limited Partners.
(C) In addition to any amendments otherwise authorized herein, and notwithstanding anything to the contrary in Section 14.01 and the appropriate portion of 14.02(B), the General Partner, without the consent of any of the Limited Partners, shall amend the provisions of this Agreement relating to the allocations of Profits or Losses or items thereof (including, without limitation, non-taxable receipts or non-deductible expenditures) or credits among the Partners in a manner having the least possible effect on such provisions if the Partnership is advised at any time by the Partnership’s independent certified public accountants or legal counsel that in their opinion such amendments are necessary to give such provisions a basis on which such allocations would be respected for federal income tax purposes or if necessary so as to cause the Capital Accounts of the Partners at the time of liquidation of the Partnership to be in proportion to the amounts which would be distributed if liquidating proceeds available to be distributed to Partners were distributed in accordance with Sections 4.04(C) (if applicable) and 5.02 rather than Section 10.02(C); provided, however, that no such amendments shall affect the Capital Contribution, cash distribution or fee provisions of this Agreement and provided, further that the General Partner is empowered to amend such provisions only to the extent it is approved in advance by the Advisory Committee. Any such amendment made by the General Partner in reliance upon the advice of the accountants or legal counsel described above shall be deemed to be made in compliance with the fiduciary obligation of the General Partner to the Partnership and the Limited Partners, and no such amendment shall give rise to any claim or cause of action by any Limited Partner.
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(D) The General Partner shall furnish each Limited Partner with a copy of each amendment to this Agreement promptly after its adoption.
14.02. Exceptions. Notwithstanding the provisions of Section 14.01, no Amendment without the Consent of all Partners shall:
(A) expand the purposes of the Partnership as set forth in Section 3.01(A) or amend Sections 3.03(A), 14.01 or 14.02;
(B) increase the liability or increase or decrease the aggregate Capital Contributions required by a Partner, or change, except to the extent permitted pursuant to Section 14.01(C), the rights and interests of a Partner in the Profits, Losses fees or Net Investment Revenues of the Partnership, the voting rights of a Partner or the rights of a Partner respecting continuation or liquidation of the Partnership;
(C) directly or indirectly affect or jeopardize the status of the Partnership as a partnership for federal income tax purposes; or
(D) | amend clause (5)(y) of Section 13.02(B)(ii) or Section 6.05. |
14.03. | Meetings and Voting. | |
(A) Meetings of Partners may be called by the General Partner for any purpose permitted by this Agreement or the Act. The General Partner shall give all Partners Notice of the purpose of such proposed meeting and any votes to be conducted at such meeting not less than 15 nor more than 60 days before the meeting. Meetings shall be held at a time and place reasonably selected by the General Partner. Partners may participate in meetings by conference call provided that all parties can hear and speak with each other. The General Partner shall call a meeting of Partners at least once in every Fiscal Year.
(B) The General Partner shall, where feasible, solicit required Consents of the Limited Partners under this Agreement by written ballot or, if a written ballot is not feasible, at a meeting held pursuant to Section 14.03(A). If Consents are solicited by written ballot, the Limited Partners shall return said ballots to the General Partner within 30 days after receipt.
(C) For any matter on which the Limited Partners vote, in determining whether the requisite Percentage Interests of the Limited Partners has been obtained, the Percentage Interests of any Limited Partners who are Affiliates of the General Partner shall not be included.
ARTICLE XV
ADVISORY COMMITTEE
15.01. Selection of the Advisory Committee. The General Partner shall select an “Advisory Committee,” which shall be a committee consisting of at least three and not more than seven Limited Partners. Each Limited Partner selected to be on the Advisory Committee shall designate an individual (and any replacement thereof) to sit on the Advisory Committee as such Limited Partner’s representative who shall have authority to act on behalf of such Limited Partner. No Limited Partner selected to be a member of the Advisory Committee shall be an Affiliate of the General Partner. Each Limited Partner on the Advisory Committee (and such Limited Partner’s representative) (i) is not acting
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in a fiduciary capacity with respect to the Partnership and the Partners, (ii) is free to consider its own interests in the performance of its duties as a member of the Advisory Committee, (iii) is not obligated to devote any fixed amount of time to the activities of the Advisory Committee and (iv) has only the obligations and responsibilities imposed by this Agreement. Any Limited Partner on the Advisory Committee may resign by giving the General Partner 30 days’ prior written notice and may remove and replace its representative by giving the General Partner TWO days’ notice. Additionally, the Advisory Committee may, by a vote of two-thirds of the Limited Partners on the Advisory Committee, remove a Limited Partner’s representative from the Advisory Committee from time to time. Any vacancy in the Advisory Committee (other than those resulting from a change in a Limited Partner’s representative, which shall be filled by such Limited Partner), or any expansion of the membership of the Advisory Committee within the limit set forth above, shall be promptly filled by the General Partner. The Limited Partners on the Advisory Committee shall not receive any compensation in connection with their membership on the Advisory Committee; provided, however that the Limited Partners on the Advisory Committee shall be reimbursed for the reasonable travel expenses incurred to attend one meeting of the Advisory Committee of the Limited Partner’s choice each Fiscal Year.
15.02. Meetings of and Action by the Advisory Committee. A meeting of the Advisory Committee shall be held in person at least twice in every Fiscal Year at intervals of approximately six months, one of which will be referred to as the “Annual Meeting”, at least one of which in person meetings will be held in Boston, Massachusetts, and additional meetings may be called by the General Partner on not less than 15-days’ notice to all Limited Partners on the Advisory Committee (or such lesser time as is provided in this Agreement) which notice shall include an agenda and a summary of all matters to be considered or discussed at that meeting and shall be so called promptly upon the request of any two members of the Advisory Committee. The General Partner shall designate the date, time and location of each meeting, and shall make reasonable accommodations for conflicts in schedules of Advisory Committee members, a majority of which shall constitute a quorum. Limited Partners on the Advisory Committee may participate by conference call provided that all parties can hear and speak with each other. Except as provided in this Agreement, in all instances where an approval is required by the Advisory Committee, the Advisory Committee shall act by affirmative vote of a majority of the Limited Partners on the Advisory Committee. Except where approval of the Advisory Committee is required, the recommendations of the Advisory Committee shall be advisory only and shall not obligate the General Partner to act in accordance therewith. The General Partner or its designated representative shall be entitled to be present at all meetings of the Advisory Committee although the General Partner shall not be entitled to vote on matters requiring the vote of the Advisory Committee and upon request of the Advisory Committee shall excuse itself from the meeting until recalled.
15.03. Annual Meeting of Advisory Committee. At the Annual Meeting of the Advisory Committee (which meeting shall be held at the earliest time practicable after the close of the Fiscal Year and the preparation and distribution by the General Partner to the Limited Partners on the Advisory Committee of written reports concerning matters to be discussed) and to the extent appropriate at other Advisory Committee meetings, the General Partner and the Advisory Committee shall discuss:
(A) the performance and operations of the Partnership for the preceding Fiscal Year, including, without limitation, fees paid, and services and transactions with Affiliates of the General Partner;
(B) | all matters then requiring the Advisory Committee’s approval; |
(C) | potential new acquisitions and financings of Investments; | |
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(D) | potential dispositions of Investments; and | |
(E) | any other matters reasonably requested by the Advisory Committee. |
15.04. Functions of the Advisory Committee. The Advisory Committee shall have the following functions in addition to those set forth elsewhere in this Agreement:
(A) Except as provided in Section 6.04(B), the Advisory Committee shall promptly review and approve or disapprove in advance any transactions by the Partnership with the General Partner or its Affiliates.
(B) The General Partner shall use its best efforts to provide the members of the Advisory Committee at least 10 Business Days prior to any meeting with written reports of all matters to be discussed at such meeting.
(C) The General Partner shall deliver to the Advisory Committee at the end of each Fiscal Year a report summarizing all the material services, fees and transactions between Affiliates of the General Partner and the Partnership.
(D) The General Partner shall supply the Advisory Committee with all information and data reasonably requested by the Advisory Committee to enable it to be, on a continuing basis, fully informed about the Partnership’s activities, including, on a quarterly basis, a report setting forth the Partnership’s outstanding indebtedness.
(E) Except as otherwise provided in this Agreement, the Advisory Committee will promptly review and approve or disapprove any proposal by the General Partner to offer to any Person other than the Partnership a Suitable Investment.
(F) The Advisory Committee will resolve issues involving conflicts of interest to the extent not otherwise provided for under this Agreement.
(G) The Advisory Committee will promptly review and approve or disapprove any proposal by the General Partner to terminate the Commitment Period in accordance with Section 2.01(S)(a) or (b).
(H) The Advisory Committee will determine, at the request of the General Partner, whether any investment that otherwise would be a Suitable Investment shall not be considered a Suitable Investment.
ARTICLE XVI
MISCELLANEOUS
16.01. Title to Partnership 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 a nominee, which nominee may be one or more individuals, corporations, partnerships, trusts or other entities; provided, however, such nominee shall be at the direction of the Partnership.
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16.02. Validity. Each provision of this Agreement shall be considered separate and, if for any reason, any provision(s) which is not essential to the effectuation of the basic purposes of this Agreement is determined to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not impair the operation of or affect those provisions of this Agreement which are otherwise valid. To the extent legally permissible, the parties shall substitute for the invalid, illegal or unenforceable provision a provision with a substantially similar economic effect and intent.
16.03. 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, excluding the conflict of laws provisions thereof.
16.04. Binding Agreement. This Agreement and all terms, provisions and conditions hereof shall be binding upon the parties hereto, and shall inure to the benefit of the parties hereto and, except as otherwise provided herein, to their respective heirs, executors, personal representatives, successors and lawful assigns.
16.05. Waiver of Action for 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.
16.06. Record of Limited Partners. The General Partner shall maintain at the office of the Partnership a record showing the names and addresses of all the Limited Partners. All Partners and their duly authorized representatives shall have the right to inspect such record for a purpose reasonably related to the applicable Partner’s Interest as a Partner.
16.07. Headings. All section headings in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any section.
16.08. Terminology. 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. All references to Articles, Sections, Schedules, Appendices and Exhibits refer to the Articles, Sections, Schedules, Appendices and Exhibits in or attached to this Agreement except where the context makes clear a reference to another source.
16.09. Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement, binding on all of the parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart.
16.10. Entire Agreement. This Agreement (including the Schedules, Appendices and Exhibits), the Subscription Agreements, and any other written agreements between the General Partner or the Partnership and a Limited Partner (it being acknowledged and agreed that the General Partner or the Partnership may enter into other written agreements with Limited Partners, executed contemporaneously with the admission of such Limited Partners to the Partnership, affecting the terms hereof in order to meet certain requirements of such Limited Partners, and to the extent the terms of any other such written agreement are inconsistent with the terms of this Agreement, the terms of such other written agreement shall prevail over the inconsistent provisions of this Agreement as regards the Limited Partner or Limited Partners who are parties to or otherwise are entitled to the benefits of such other written agreement), contains the entire understanding among the parties hereto and supersede all prior written or oral agreements among them respecting the within subject matter, unless otherwise provided herein.
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16.11. Disclaimer. Subject to the rights of lenders specified in Sections 3.02(C) or (D), the provisions of this Agreement are not intended for the benefit of any creditor or other Person (other than a Partner in such Partner’s capacity as such) to whom any debts, liabilities or obligations are owed by (or who otherwise has any claim against) the Partnership or any of the Partners.
16.12. No Third Party Rights. This Agreement is intended solely for the benefit of the parties hereto and, except as expressly provided to the contrary in this Agreement (including (i) those provisions which are expressly for the benefit of lenders under a credit facility referred to in Section 8.04 and including the authorization given to the General Partner to grant and assign to lenders the security interests and rights described in Sections 3.02(C) and (D) and (ii) those provisions which are for the benefit of the Indemnified Parties), is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto.
16.13. Services to the Partnership. The parties hereto hereby acknowledge and recognize that the Partnership has retained, and may in the future retain, the services of various persons, entities and professionals, including legal counsel, accountants, architects and engineers, for the purposes of representing and providing services to the Partnership in connection with the investigation, consummation and operation of the Investments or otherwise. The parties hereby acknowledge that such persons, entities and professionals may have in the past represented and performed and currently and in the future may represent or perform services for the General Partner or its Affiliates. Accordingly, each party hereto consents to the representation or provision of services by such persons, entities and professionals to the Partnership and waives any right to claim a conflict of interest solely on the grounds of such relationship. Nothing contained herein shall relieve the General Partner of any duty or liability, including without limitation the duty to monitor and direct such persons, entities and professionals for the best interests of the Partnership. Further, this Section shall not apply where there is an actual or potential conflict between the General Partner or any of its Affiliates and the Partnership.
16.14. Confidentiality. Each Limited Partner shall maintain the confidentiality of (i) “Non-Public Information,” (ii) any information subject to a confidentiality agreement binding upon the General Partner or the Partnership of which such Limited Partner has written Notice and (iii) the identity of other Limited Partners and their Affiliates so long as such information has not become otherwise publicly available unless, after reasonable notice to the Partnership by the Limited Partner, otherwise compelled by court order or other legal process or in response to other governmentally imposed reporting or disclosure obligations including, without limitation, any act regarding the freedom of information to which it may be subject; provided, that each Limited Partner may disclose “Non-Public Information” to its Affiliates, officers, employees, agents, professional consultants, regulators and proposed Substitute Limited Partner upon notification to such Affiliate, officer, employee, agent, consultant, regulator or proposed Substitute Limited Partner that such disclosure is made in confidence and shall be kept in confidence. As used in this Section 16.14, “Non-Public Information” means information regarding the Partnership (including information regarding any Person in which the Partnership holds, or contemplates acquiring, any Investment) or the General Partner received by such Limited Partner pursuant to this Agreement, but does not include information that (A) was publicly known at the time such Limited Partner receives such information pursuant to this Agreement, (B) subsequently becomes publicly known through no act or omission by such Limited Partner or (C) is communicated to such Limited Partner by a third party free of any obligation of confidence known to such Limited Partner. The General Partner may not disclose the identities of the Limited Partners, except on a confidential basis to prospective and other Limited Partners in the Partnership, or to lenders, third-party partners, or other financial sources. Notwithstanding the foregoing, the General Partner understands and agrees that certain Limited Partners may from time to time receive a request for the disclosure of information under freedom of information acts or similar statutes that is Non-Public Information, in which case the Limited Partner shall
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(1) promptly notify the Partnership and the General Partner of the existence, terms and circumstances surrounding such a request, (2) consult with the Partnership and the General Partner on the advisability of taking steps to resist or narrow such request, (3) if disclosure of such information is required, furnish only such portion of such information as such Limited Partner is advised by counsel (whether in-house or outside counsel) is legally required to be disclosed, and (4) cooperate with the Partnership and the General Partner in their efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such portion of the information that is required to be disclosed, in the case of this clause (4) as the Limited Partner deems appropriate in its reasonable discretion, taking into account its legal obligations. Notwithstanding any provision of the Agreement to the contrary, the General Partner may withhold disclosure of any Non-Public Information (other than the Agreement or tax reports) to the Limited Partner if the General Partner reasonably determines that the disclosure of such Non-Public Information to the Limited Partner may result in the general public gaining access to such Non-Public Information. If the General Partner withholds information from the Limited Partner, the General Partner will notify the Limited Partner of the general nature and extent of that information and will allow the Limited Partner to view, but not copy or take notes (handwritten or electronically) on, that information on the premises of the General Partner under mutually agreeable circumstances. Each Limited Partner acknowledges that the Partnership derives independent economic value from the Non-Public Information not being generally known and that the Non-Public Information is the subject of reasonable efforts to maintain its secrecy. Each Limited Partner acknowledges the General Partner’s legitimate interest in limiting the disclosure of information which the General Partner believes is confidential and will use reasonable efforts to minimize the adverse impact of disclosure upon the Partnership. Notwithstanding anything herein to the contrary, each Partner (and each employee, representative, or other agent of the Partner) may disclose to any and all persons, without limitation of any kind, the U.S. tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other U.S. tax analyses) that are provided to the Partner relating to such U.S. tax treatment and tax structure.
[Signatures begin on the next page.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
General Partner:
BERKSHIRE MULTIFAMILY VALUE FUND, GP, L.L.C.
By: Berkshire Property Advisors, L.L.C.,
By: /s/ David C. Quade
Limited Partner:
_____________________________________
By: __________________________________ |
| Name: | |
| Title: | |
| | | |
By: __________________________________ |
| Name: | |
| Title: | |
| | | |
[Signature Page to Partnership Agreement]
NYB 1502828.6
SCHEDULE A
CAPITAL COMMITMENTS
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APPENDIX A
Profits, Losses, Tax and Other Allocations
1. Certain Definitions. The following terms have the definitions indicated below whenever used in this Appendix or the Agreement with initial capital letters:
1.1 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 or other period, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such Partner is obligated to restore to the Partnership pursuant to Regulations § 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to Regulations § 1.704-2(g)(1) or Regulations § 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Regulations § 1.704-1(b)(2)(ii)(d)(4), (d)(5), and (d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulations § 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
1.2 Depreciation: For each Fiscal Year, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year, 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 bears to such beginning adjusted tax basis; provided, however, that if the federal income tax depreciation, amortization or other cost recovery deductions for such year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.
1.3 Gross Asset Value: With respect to any asset of the Partnership, such asset’s adjusted basis for federal income tax purposes, except as follows:
(A) the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset at the time of contribution determined by the General Partner using such reasonable method of valuation as it may adopt;
(B) in the discretion of the General Partner, the Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the General Partner, immediately prior to the following events:
(i) a Capital Contribution (other than a de minimis Capital Contribution) to the Partnership by a new or existing Partner as consideration for an Interest;
(ii) the distribution by the Partnership to a retiring or continuing Partner of more than a de minimis amount of Partnership property as consideration for an Interest; and
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(iii) the liquidation of the Partnership within the meaning of Regulations § 1.704-1(b)(2)(ii)(g); and
(iv) the Gross Asset Values of Partnership assets distributed to any Partner shall be the gross fair market values of such assets as reasonably determined by the General Partner as of the date of distribution.
At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Partnership’s assets for purposes of computing Profits and Losses. Gross Asset Values shall be further adjusted to reflect adjustments to Capital Accounts pursuant to Regulations § 1.704-1(b)(2)(iv)(m) to the extent not otherwise reflected in adjustments to Gross Asset Values. Any adjustment to the Gross Asset Values of Partnership property shall require an adjustment to the Partners’ Capital Accounts as described in the definition of “Capital Account.”
1.4 Nonrecourse Deductions: The nonrecourse deductions as defined in Regulations § 1.704-2(b)(1). The amount of Nonrecourse Deductions for a Fiscal Year equals the net increase, if any, in the amount of Partnership Minimum Gain during such Fiscal Year reduced by any distributions during such 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 § 1.704-2(c) and 1.704-2(h).
1.5 | Nonrecourse Liability: A liability as defined in Regulations § 1.704-2(b)(3). |
1.6 Partner Minimum Gain: An amount, with respect to each Partner Nonrecourse Debt, equal to Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations § 1.704-2(i)(3).
1.7 Partner Nonrecourse Debt: A liability as defined in Regulations § 1.704-2(b)(4).
1.8 Partner Nonrecourse Deductions: The partner nonrecourse deductions as defined in Regulations § 1.704-2(i)(2). The amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year equals the net increase, if any, in the amount of Partner Minimum Gain during such Fiscal Year attributable to such Partner Nonrecourse Debt, reduced by any distributions during that Fiscal Year to the Partner that bears the economic risk of loss for such Partner Nonrecourse Debt to the extent that 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 according to the provisions of Regulations § 1.704-2(h) and 1.704-2(i).
1.9 Partnership Minimum Gain: The aggregate gain, if any, that would be realized by the Partnership for purposes of computing Profits and Losses with respect to each Partnership asset if each Partnership asset subject to a Nonrecourse Liability were disposed of for the amount outstanding on the Nonrecourse Liability by the Partnership in a taxable transaction. Partnership Minimum Gain with respect to each Partnership asset shall be further determined in accordance with Regulations § 1.704-2(d) and any subsequent rule or regulation governing the determination of minimum gain. A Partner’s share of Partnership Minimum Gain at the end of any Fiscal Year shall equal the aggregate Nonrecourse Deductions allocated to such Partner (or its predecessors in interest) up to that time, less such Partner’s (and predecessors’) aggregate share of decreases in Partnership Minimum Gain determined in accordance with Regulations § 1.704-2(g).
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2. | Allocations. The following provisions are incorporated in the Agreement. |
2.1 Allocation of Profits and Losses. Except as otherwise provided in this Appendix A, Profits, Losses and, to the extent necessary, individual items thereof shall be allocated among the Partners in a manner such that the Capital Account of each Partner, immediately after making such allocation, is, as nearly as possible, equal proportionately to (i) the distributions that would be made to such Partner pursuant to Section 5.02 if the Partnership were dissolved, its affairs wound up and its assets sold for cash equal to their Gross Asset Value, all Partnership liabilities were satisfied (limited with respect to each Nonrecourse Liability to the Gross Asset Value of the assets securing such liability) and the net assets of the Partnership were distributed in accordance with Section 5.02 to the Partners immediately after making such allocation, minus (ii) such Partner’s share of Partnership Minimum Gain and Partner Minimum Gain, computed immediately prior to the hypothetical sale of assets plus (iii) in the case of any Partner, amounts payable by such Partner to the Partnership pursuant to Section 5.04, minus (iv) in the case of the General Partner, any amounts required to be contributed to the Partnership pursuant to Section 6.13, minus (v) in the case of each Limited Partner, the amount of any contribution required to be made by Section 6.05(D).
2.2 | Mandatory Allocations. |
(A) Minimum Gain Chargeback. Notwithstanding any other provision of this Appendix A, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, then, subject to the exceptions set forth in Regulations § 1.704-2(f)(2), (3), (4) and (5), 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, as determined under Regulations § 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in such section of the Regulations in accordance with Regulations § 1.704-2(f). This Section 2.2(A) is intended to comply with the minimum gain chargeback requirements in Regulations § 1.704-2(f) and shall be interpreted consistently therewith.
(B) Partner Minimum Gain Chargeback. Notwithstanding any other provision of this Appendix A except Section 2.2(A), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year, then, subject to the exceptions set forth in Regulations § 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 § 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 § 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations § 1.704-2(i)(4). This Section 2.2(B) is intended to comply with the minimum gain chargeback requirement in such Section of the Regulations and shall be interpreted consistently therewith.
(C) No Excess Deficit. To the extent that any Partner has or would have, as a result of an allocation of Loss (or item thereof), an Adjusted Capital Account Deficit, such amount of Loss (or item thereof) shall be allocated to the other Partners in accordance with
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Section 2.1, but in a manner which will not produce an Adjusted Capital Account Deficit as to such Partners. To the extent such allocation would result in all Partners having Adjusted Capital Account Deficits, such Loss shall be allocated to the General Partner.
(D) Qualified Income Offset. Notwithstanding any other provision of this Appendix A, except Sections 2.2(A) and 2.2(B), in the event any Partner receives any adjustments, allocations or distributions described in Regulations § 1.704-1(b)(2)(ii)(d)(4), (5), or (6), that cause or increase an Adjusted Capital Account Deficit of such Partner, items of Partnership income and gain 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.
(E) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year attributable to an Investment shall be allocated to the Partners in accordance with their respective Investment Percentage from that Investment for such Fiscal Year.
(F) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations § 1.704-2(i)(1).
(G) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code § 734(b) or 743(b) is required, pursuant to Regulations § 1.704-1(b)(2)(iv)(m), 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 item of 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 Section of the Regulations.
Each Partner hereby agrees to provide the Partnership with all information necessary to give effect to an election made under Code § 754 if the General Partner determines to make such an election; provided, however, that the cost associated with such an election shall be borne by the Partnership as a whole. With respect to such election:
(i) Any change in the amount of the depreciation deducted by the Partnership and any change in the gain or loss of the Partnership, for federal income tax purposes, resulting from an adjustment pursuant to Code § 743(b) shall be allocated entirely to the transferee of the Partnership Interest or portion thereof so transferred. Neither the Capital Contribution obligations of, nor the Partnership Interest of, nor the amount of any cash distributions to, the Partners shall be affected as a result of such election, and except as provided in Regulations § 1.704-1(b)(2)(iv)(m), the making of such election shall have no effect except for federal and (if applicable) state and local income tax purpose,
(ii) Solely for federal and, if applicable, state and local income tax purposes and not for the purpose of maintaining the Partners’ Capital Accounts (except as provided in Regulations § 1.704-1(b)(2)(iv)(m)), the Partnership shall keep a written record for those assets, the bases of which are adjusted as a result of such election, and the amount at which such assets are carried on such record shall be debited (in the case of an increase in basis) or credited (in the case of a decrease in basis) by the amount of such basis adjustment. Any change in the amount of
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the depreciation deducted by the Partnership and any change in the gain or loss of the Partnership, for federal and (if applicable) state and local income tax purposes, attributable to the basis adjustment made as a result of such election shall be debited or credited, as the case may be, on such record.
(H) Curative Allocations. The allocations set forth in Sections 2.2(A) through (F) above (the “Regulatory Allocations”) are intended to comply with certain requirements of Regulations § 1.704-1(b). The Regulatory Allocations shall be taken into account for the purpose of equitably adjusting subsequent allocations of Profits and Losses, and items of income, gain, loss, and deduction among the Partners so that, to the extent possible, the net amount of such allocations of Profits and Losses and other items to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory Allocations had not occurred.
(I) Nonrecourse Debt Distribution. To the extent permitted by Regulations § 1.704-2(h)(3) and 1.704-2(i)(6), the General Partner shall endeavor to treat distributions as having been made from the proceeds of Nonrecourse Liabilities or Partner Nonrecourse Debt only to the extent that such distributions would cause or increase a deficit balance in any Partner’s Capital Account that exceeds the amount such Partner is otherwise obligated to restore (within the meaning of Regulations § 1.704-1(b)(ii)(c)) as of the end of the Partnership’s taxable year in which the distribution occurs.
2.3 | Allocations for Tax Purposes. |
(A) Except as otherwise provided in this Section 2.3, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of Profits or Losses is allocated pursuant to Sections 2.1 and 2.2.
(B) In accordance with Code § 704(b) and 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 federal income tax purposes, be allocated among the Partners so as to take into account any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and the initial Gross Asset Value of such property. If the Gross Asset Value of any Partnership property is adjusted as described in the definition of Gross Asset Value, 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 the Gross Asset Value of such asset in the manner prescribed under Code § 704(b) and 704(c) and the Regulations thereunder. In furtherance of the foregoing, the Partnership shall employ any reasonable method selected by the General Partner.
(C) If the Partnership makes in kind (i.e., non cash) distributions pursuant to Section 5.05, and a Partner elects pursuant to Section 5.05 not to receive an in kind distribution, then, for U.S. federal income tax purposes only, taxable gain and taxable loss resulting from the sale or other disposition by the Partnership of such in kind assets will be specially allocated to such electing Partner so that, to the extent possible, Partners who elect to receive cash or other proceeds from such disposition rather than in kind distributions will be allocated taxable gain and loss equal to the amount of taxable gain and loss they would have been allocated if all Partnership assets were sold for cash and no in kind distributions were made and Partners who receive only in kind distributions will be allocated no taxable gain or loss.
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2.4 Allocations to Transferred Interests. Profits and Losses allocable to an Interest assigned or reissued during a Fiscal Year shall be allocated to each Person who was the holder of such Interest during such Fiscal Year, in proportion to the number of days that each such holder was recognized as the owner of such Interest during such Fiscal Year or by an interim closing of the books or in any other proportion permitted by the Code and selected by the General Partner in accordance with this Agreement, without regard to the results of Partnership operations or the date, amount or recipient of any distributions which may have been made with respect to such Interest.
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EXHIBIT 1
FORM OF SUBSCRIPTION AGREEMENT
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