R/M Salinas L.P. Limited Partnership Agreement dated August 1, 1995
between Rodde McNellis/Salinas, a California
general partnership and Registrant.
R/M SALINAS L.P.
LIMITED PARTNERSHIP AGREEMENT
LIMITED PARTNERSHIP AGREEMENT
OF
R/M SALINAS L.P.
TABLE OF CONTENTS
Page
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ARTICLE 1 - THE PARTNERSHIP
Section 1.1 Reconstitution ......................... 2
Section 1.2 Name ................................... 2
Section 1.3 Principal Executive Office ............. 3
Section 1.4 Purposes ............................... 3
Section 1.5 Purposes Limited ....................... 4
Section 1.6 No Payments of Individual
Obligations ............................ 5
Section 1.7 Statutory Compliance ................... 5
Section 1.8 Title to Property ...................... 5
Section 1.9 Duration ............................... 5
ARTICLE 2 - THE PARTNERS
Section 2.1 Identification ......................... 5
Section 2.2 [Intentionally Omitted.] ............... 5
Section 2.3 Competition ............................ 5
Section 2.4 Limits on Developer's Activities ....... 6
Section 2.5 Other Conflicts ........................ 6
Section 2.6 Reimbursement and Fees ................. 6
Section 2.7 Indemnification of NEPP by the
Partnership ............................ 7
Section 2.8 Indemnification by NEPP ................ 7
Section 2.9 Limitation on Liability of Partners .... 8
Section 2.10 Payments to Developer and Affiliates ... 9
Section 2.11 Liability of Limited Partner ........... 9
ARTICLE 3 - CAPITAL
Section 3.1 Capital Accounts and Adjusted Capital
Accounts ............................... 9
Section 3.2 Capital Contributions .................. 11
Section 3.3 No Further Capital Contributions ....... 12
Section 3.4 Capital Contributions - General ........ 12
Section 3.5 Interests .............................. 12
ARTICLE 4 - LOANS
ARTICLE 5 - CASH DISTRIBUTIONS
Section 5.1 Definitions ............................ 13
Section 5.2 Senior Payments and Junior Payments .... 16
Section 5.3 Operating Cash Flow .................... 18
Section 5.4 Extraordinary Cash Flow ................ 20
Section 5.5 Distributions in Liquidation ........... 21
Section 5.6 Guaranteed Senior Invested
Capital Payment Distribution ........... 21
Section 5.7 In-Kind Distribution ................... 22
ARTICLE 6 - OPERATING DEFICITS
Section 6.1 Operating Deficits ..................... 22
Section 6.2 Default Contributions .................. 23
Section 6.3 Adjustment of Interests ................ 24
Section 6.4 Effect of Adjustment on Cash and
Tax Allocations ........................ 24
Section 6.5 No Increase of Percentage Interest ..... 25
ARTICLE 7 - TAX ALLOCATIONS
Section 7.1 Definition of Net Profit and Net Loss .. 25
Section 7.2 Allocation of Net Profit, Gross Income
and Net Loss ........................... 26
Section 7.3 Tax Allocations; Code Section 704(c) ... 30
Section 7.4 Allocations Upon Transfer or
Change of Interests .................... 31
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ARTICLE 8 - ACCOUNTING AND RECORDS
Section 8.1 Books and Records ...................... 31
Section 8.2 Reports ................................ 32
Section 8.3 Tax Returns ............................ 32
Section 8.4 Depreciation ........................... 33
Section 8.5 Special Basis Adjustment ............... 33
Section 8.6 Tax Matters Partner .................... 33
Section 8.7 Fiscal Year ............................ 33
Section 8.8 Bank Accounts .......................... 33
ARTICLE 9 - MANAGEMENT AND OPERATIONS
Section 9.1 Management ............................. 34
Section 9.2 Standard of Care ....................... 36
Section 9.3 Insurance .............................. 37
ARTICLE 10 - REPRESENTATIONS AND WARRANTIES
Section 10.1 Developer .............................. 37
Section 10.2 NEPP ................................... 39
Section 10.3 Brokers ................................ 40
ARTICLE 11 - TRANSFER OF INTERESTS
Section 11.1 Restrictions on Transfer ............... 40
Section 11.2 Right of First Refusal ................. 41
Section 11.3 Permitted Transfers .................... 42
Section 11.4 General Transfer Provisions ............ 43
Section 11.5 Tax Allocations and Cash
Distributions .......................... 43
Section 11.6 Compliance ............................. 44
Section 11.7 Waiver of Partition .................... 44
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ARTICLE 12 - BUY/SELL
Section 12.1 Buy/Sell Events ........................ 44
Section 12.2 Rights Arising from a Buy/Sell
Event .................................. 45
Section 12.3 Determination of Fair Market
Value .................................. 45
Section 12.4 Appraisal Fees ......................... 46
Section 12.5 Determination of Purchase Price ........ 46
Section 12.6 Electing Partner's Option .............. 47
Section 12.7 Closing of Purchase and Sale ........... 47
Section 12.8 Payment ................................ 47
Section 12.9 Liabilities ............................ 47
Section 12.10 Failure to Exercise Option ............. 48
ARTICLE 13 - EXIT RIGHTS
ARTICLE 14 - TERMINATION OF THE PARTNERSHIP
Section 14.1 Events of Dissolution .................. 48
Section 14.2 Effect of Dissolution .................. 49
Section 14.3 Sale of Assets by Liquidating Trustee .. 49
ARTICLE 15 - MISCELLANEOUS
Section 15.1 Notices ................................ 50
Section 15.2 Successors and Assigns ................. 51
Section 15.3 No Oral Modifications; Amendments ...... 51
Section 15.4 Captions ............................... 51
Section 15.5 Terms .................................. 51
Section 15.6 Invalidity ............................. 51
Section 15.7 Counterparts ........................... 51
Section 15.8 Further Assurances ..................... 51
Section 15.9 Complete Agreement ..................... 51
Section 15.10 Attorneys' Fees ........................ 52
Section 15.11 Governing Law .......................... 52
Section 15.12 No Third Party Beneficiary ............. 52
Section 15.13 Exhibits and Glossary .................. 52
Section 15.14 Estoppels .............................. 52
Section 15.15 References to this Agreement ........... 52
Section 15.16 Reliance on Authority of Person
Signing Agreement ...................... 52
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Section 15.17 Consents and Approvals ................. 53
Section 15.18 Construction of Agreement .............. 53
EXHIBITS
A Legal Description of Land
B Property Management Agreement
A Glossary of Defined Terms used in this Agreement is attached.
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R/M SALINAS L.P.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT ("Partnership Agreement" or
"Agreement") of R/M Salinas L.P., a California limited partnership (the
"Partnership"), is dated as of August 1, 1995, between Rodde McNellis/Salinas, a
California general partnership ("Developer" or the "Limited Partner"), and New
England Pension Properties V; A Real Estate Limited Partnership, a Massachusetts
limited partnership ("NEPP" or the "General Partner"). Developer and NEPP are
sometimes hereinafter referred to collectively as the "Partners" and
individually as a "Partner."
WHEREAS, R/M Salinas Venture (the "Original Partnership") was formed
pursuant to that certain R/M Salinas Venture Joint Venture Agreement entered
into by and between Developer and NEPP dated February 1, 1989, as amended by
that First Amendment to Joint Venture Agreement of R/M Salinas Venture dated
June 5, 1989, as amended by that Second Amendment to Joint Venture Agreement of
R/M Salinas Venture dated July 20, 1990 (as so amended, the "Original
Agreement");
WHEREAS, the Partners have agreed to convert the Original Partnership
into a California limited partnership as of the date of filing, with the
California Secretary of State, of a Certificate of Limited Partnership (Form
LP-1) for the Partnership; and
WHEREAS, the parties hereto now desire to amend and completely restate
the Original Agreement in its entirety on the terms and conditions hereinafter
set forth to provide for (i) the revised ownership Interests of the Partners;
(ii) the conversion of the Original Partnership from a California general
partnership into a California limited partnership; and (iii) such other changes
to the Original Agreement as the Partners deem appropriate.
NOW, THEREFORE, in consideration of the foregoing, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual agreements set forth in this
Agreement and intending to be legally bound, the parties hereby agree to
continue the Partnership as a California limited partnership in accordance with
the California
Revised Limited Partnership Act (the "Act") and do hereby agree as follows:
ARTICLE I
THE PARTNERSHIP
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Section 1.1 Reconstitution. The Partners hereby reconstitute the
--------------
Original Partnership as a California limited partnership in accordance with the
provisions of the Act. The Partners hereby make and execute this Agreement,
effective as of the date first above written, so as to set forth the rights,
duties, obligations and limitations on the liabilities of the Partners,
including, without limitation, the rights of the Partners with respect to the
assets and profits of the Partnership, which the Partners shall be entitled to
receive by reason of being a general or limited partner of the Partnership. In
furtherance of the foregoing provisions of this Section 1.1, the Partners hereby
acknowledge that (i) the interest of Developer as a general partner in the
Original Partnership is hereby converted into an interest as a limited partner
in the Partnership, and (ii) Developer is hereby entitled to exercise all of the
rights, powers, and privileges, which may hereafter exist with respect to a
limited partner of the Partnership. Each of the Partners hereby consents to the
conversion described above in this Section 1.1 and acknowledges that the
Partnership shall not dissolve or terminate as a result of such conversion; on
the contrary, the business of the Partnership shall continue without any
interruption and without any break in continuity.
Concurrently with the execution of this agreement, the General Partner
shall execute one (1) or more copies of a Certificate of Limited Partnership for
the Partnership pursuant to the provisions of Section 15621 of the California
Corporations Code, which shall be duly filed in the Office of the California
Secretary of State and certified copies of which may, in the sole discretion of
the General Partner, be recorded in any county.
Section 1.2 Name. The name of the Partnership is hereby changed to "R/M
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Salinas L.P." or if that name is not available, any other name the General
Partner may select that is in compliance with the Act. In furtherance of the
foregoing name change, the Partners hereby authorize the General Partner to
execute and deliver (with acknowledgment, verification, and/or affidavit, if
required) any and all documents required to
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effectuate such name change including, without limitation, a Cancellation of
Statement of Partnership and Statement of Abandonment of Use of Fictitious
Business Name for the Original Partnership.
Section 1.3 Principal Executive Office. The principal executive office
--------------------------
of the Partnership shall be located at 601 California Street, Suite 601, San
Francisco, California 94108 or at such other place within or without the State
of California as may be selected by NEPP. The Partnership shall at all times
maintain an office in California for purposes of Section 15614 of the Act.
Section 1.4 Purposes. The sole purposes of the Partnership shall be to
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acquire, own and hold for production of income, improve, develop, operate,
manage, lease, sell, dispose and otherwise deal with the Project. In furtherance
of these purposes, but subject to all other provisions of this Agreement, the
Partnership is hereby authorized:
- to acquire by purchase, lease or otherwise, any real or
personal property, including the Land (and to enter into
options and agreements so to acquire such real or personal
property), which may be necessary, convenient or incidental
to the accomplishment of the purposes of the Partnership;
- to construct, operate, maintain, finance, improve, own,
sell, convey, assign, mortgage or lease any real estate and
any personal property necessary, convenient or incidental to
the accomplishment of the purposes of the Partnership;
- to borrow money and issue evidences of indebtedness in
furtherance of any or all of the purposes of the
Partnership, and to secure the same by mortgage, pledge or
other lien on the Project and/or any other assets of the
Partnership;
- to borrow money on the general credit of the Partnership for
use in the Partnership business and to execute documents in
connection therewith;
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- to enter into, perform and carry out contracts of any kind,
including contracts with an Affiliate of a Partner,
necessary to, in connection with or incidental to, the
accomplishment of the purposes of the Partnership;
- to enter into any kind of activity and to perform and carry
out contracts of any kind necessary to, or in connection
with, or incidental to the accomplishment of the purposes of
the Partnership, so long as said activities and contracts
may be lawfully carried on or performed by a partnership
under applicable laws;
- to enter into, on behalf of the Partnership, easements,
rights of way, utility or other agreements necessary for the
development of the Project or any portion thereof or to
permit access over, through, and across the Project or any
portion thereof (to serve adjoining properties, for
vehicular and pedestrian access, utility installations
maintenance and other purposes);
- to prepay in whole or in part, refinance, recast, increase,
modify, or extend any mortgage affecting the Project or
other indebtedness of the Partnership and, in connection
therewith, to execute any extensions, renewals or
modifications of such other mortgages and indebtedness; and
- to take or cause to be taken all actions and to perform or
cause to be performed all functions necessary or appropriate
to promote the business of the Partnership and to realize
and carry out its purposes.
Section 1.5 Purposes Limited. The Partnership shall be a partnership
----------------
only for the purposes specified in Section 1.4. Except as otherwise provided in
this Agreement, the Partnership shall not engage in any other activity or
business and no Partner shall have any authority to hold itself out as a general
agent of another Partner in any other business or activity.
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Section 1.6 No Payments of Individual Obligations. The Partners shall
-------------------------------------
use the Partnership's credit and assets solely for the benefit of the
Partnership. No asset of the Partnership shall be transferred or encumbered for
or in payment of any individual obligation of a Partner.
Section 1.7 Statutory Compliance. The Partnership shall exist under and
--------------------
be governed by, and this Agreement shall be construed in accordance with, the
applicable laws of the State of California. The Partners shall make all filings
and disclosures required by, and shall otherwise comply with, all such laws.
The Partners shall execute and file in the appropriate records a
certificate of limited partnership, and such documents and instruments as may be
necessary or appropriate with respect to the continuation of, and conduct of
business by, the Partnership as a California limited partnership.
Section 1.8 Title to Property. All real and personal property owned by
-----------------
the Partnership shall be owned by the Partnership as an entity and, insofar as
permitted by applicable law, no Partner shall have any ownership interest in
such property in its individual name or right and each Partner's interest in the
Partnership shall be personal property for all purposes.
Section 1.9 Duration. The term of the Partnership commenced on February
--------
1, 1989 and the Partnership shall dissolve on February 1, 2049 unless sooner
dissolved or terminated pursuant to statute or any provision of this Agreement.
ARTICLE 2
THE PARTNERS
------------
Section 2.1 Identification. Developer and NEPP shall be the Partners of
--------------
the Partnership. No other person may become a Partner except pursuant to a
transfer specifically permitted under and effected in compliance with this
Agreement.
Section 2.2 [Intentionally omitted.]
Section 2.3 Competition. Developer agrees that none of its Affiliates
-----------
(either individually, collectively or with others) shall, without the prior
written consent of NEPP, conduct any real estate development business (as a
developer, investor or lender)
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which competes with the Project or any portion thereof in any location which is
five or fewer miles from the Project during the term of this Agreement.
Section 2.4 Limits on Developer's Activities. Developer, which shall
--------------------------------
not include the general partners of Developer, shall not engage, invest or
otherwise participate in any activity, investment or undertaking other than this
Partnership.
Section 2.5 Other Conflicts. NEPP, Affiliates of NEPP and Affiliates of
---------------
Developer (but not Developer itself) may conduct any business or activity
whatsoever (including the acquisition, development, leasing and operation and/or
sale of real property) without any accountability to the Partnership or to any
Partner even if such business or activity competes with the business of the
Partnership. Each Partner understands that NEPP, Affiliates of NEPP and
Affiliates of Developer may be interested, directly or indirectly, in various
other businesses and undertakings not including the Partnership.
Further, each Partner understands and acknowledges that the conduct of
the business of the Partnership may involve business dealings with such other
businesses or undertakings of NEPP, Affiliates of Developer and Affiliates of
NEPP. The creation of the Partnership and the assumption by each of the Partners
of its duties hereunder shall be without prejudice to the respective rights of
NEPP, Affiliates of Developer and Affiliates of NEPP to maintain such other
interests and activities and to receive and enjoy profits or compensation
therefrom, and each Partner waives any rights it might otherwise have to share
or participate in such other interests or activities of NEPP, Affiliates of
Developer and Affiliates of NEPP. However, each Partner shall give notice to the
other Partner of its interest, or of the interest of any of its Affiliates, in
any other business which it proposes to enter into with the Partnership, and
such business or undertaking with the Partnership must be approved by the
non-interested Partner. Notwithstanding anything to the contrary, Developer
shall not engage in or have any business dealings with any other Person or
Entity, except as required for its administrative operation.
Section 2.6 Reimbursement and Fees. NEPP shall be entitled to
----------------------
reimbursement for its reasonable out-of-pocket expenses paid to third parties
(other than Affiliates) incurred in connection with the performance of its
obligations hereunder. If NEPP or an Affiliate of NEPP shall at any time provide
property management services to the Partnership, NEPP or such Affiliate shall be
-6-
entitled to property management fees and leasing commissions at rates
competitive with those which would be paid to an unaffiliated property manager
providing comparable services to a project of the type and size of the Project,
in the geographic area in which the Project is located; provided, however, that
in no event shall fees paid for property management services exceed 5.0% of
gross revenues from the Project.
Section 2.7 Indemnification of NEPP by the Partnership. NEPP shall
------------------------------------------
perform its duties under this Agreement with ordinary prudence and in a manner
characteristic of businesspersons in similar circumstances. However, NEPP shall
have no liability whatsoever to the Partnership or to any other Partner for loss
caused by any act or by the failure to do any act if the loss suffered arises
out of a mistake in judgment of NEPP, or if NEPP, in good faith, had determined
that the action or lack of action giving rise to the loss was in the best
interests of the Partnership or if the action or lack of action giving rise to
the loss was based on the advice of counsel; provided, however, that such
-------- -------
exculpation from liability shall not apply to any liability for loss caused by
any act or by the failure to do any act which arises out of the gross
negligence, willful neglect or willful misconduct of NEPP.
The Partnership, its receiver or liquidating trustee, shall indemnify,
hold harmless and pay all judgments and claims against NEPP arising from any
actions or decisions performed or made by it in connection with the business of
the Partnership, provided such actions or decisions are within the scope of the
--------
purposes of the Partnership and NEPP complied with the immediately preceding
paragraph. This indemnification shall include, without limitation, payment of
attorneys' and accountants' fees incurred in connection with the defense of any
claim or proceeding based on any such action or decision, which attorneys' and
accountants' fees shall be paid as incurred; and liabilities under Federal and
state securities laws, to the extent permitted by law.
Section 2.8 Indemnification by NEPP. Subject to Section 2.7, NEPP shall
-----------------------
indemnify and hold harmless Developer from and against all claims, demands,
actions and rights of action which shall or may arise by virtue of anything done
or omitted to be done by NEPP (directly or through or by agents, employees or
other representatives) outside the scope of, or in breach of the terms of this
Agreement, including without limitation Section 9.1.
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If the Developer desires to make a claim against NEPP under this
Section, it shall notify NEPP of the claim, demand, action or right of action
which is the basis of such claim, and shall give NEPP a reasonable opportunity
to participate in the defense thereof. Failure to give such notice shall not
affect NEPP's obligations hereunder, except to the extent of any actual
prejudice resulting therefrom. Any cash distributions of NEPP under Article 5
shall be charged for any amounts NEPP is required to pay pursuant to this
Section 2.8.
Section 2.9 Limitation on Liability of Partners. Except as hereinafter
-----------------------------------
provided, no Partner shall have personal liability for the payment of any sums
owing by such Partner to the Partnership or any other Partner under the terms of
this Agreement, or for the performance of any other covenant or agreement of
such Partner contained herein; rather, the Partnership and each other Partner
shall look solely to the Interest of such Partner or to such other specific
remedies as may be provided for herein, for satisfaction of each and every of
such payments and obligations, and shall never seek, obtain or enforce any
deficiency judgment or other judgment or mandatory order of any nature the
effect of which would be to compel such Partner to pay any sum of money to any
party in respect of any obligation arising under the terms of this Agreement and
owed to the Partnership or any other Partner (including, without limitation, any
subrogation right or remedy obtained by payment by a Partner of all or any
portion of any indebtedness of the Partnership).
Except as otherwise provided in this Section 2.9, each Partner hereby
waives and relinquishes any right to have any recourse or pursue any remedy
whatsoever, other than the foregoing specified remedy, against the following:
- the Partnership, the Partners (or any partner, general or
limited, present or future subscriber to the capital stock,
stockholder, officer or director of any of the Partners); or
- any corporation, partnership (or any partner thereof), individual
or entity to which any interest in the Project shall have been
transferred.
The foregoing provisions shall not limit the right of any Partner to
name the Partnership or the other Partners a party defendant in any action or
suit in the exercise of the sole remedy permitted hereunder, so long as no
judgment obtained by such Partner shall be enforced other than as provided
above.
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Notwithstanding the foregoing, each Partner shall be personally liable
to the other for any of their respective representations set forth in Sections
10.1 and 10.2 proving to be false or misleading when made.
Section 2.10 Payments to Developer and Affiliates. The Partnership has
------------------------------------
entered into a Property Management Agreement with respect to the Project
pursuant to which the Developer or an Affiliate of the Developer (the "Property
Manager") shall provide management services for the Project. The form of such
Property Management Agreement is attached hereto as Exhibit B.
---------
Section 2.11 Liability of Limited Partner. Notwithstanding the
----------------------------
foregoing, with respect to third parties the Developer shall be entitled to all
of the protections afforded limited partners by the Act.
ARTICLE 3
CAPITAL
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Section 3.1 Capital Accounts and Adjusted Capital Accounts.
----------------------------------------------
(a) A separate capital account ("Capital Account") shall be maintained
for each Partner and adjusted in accordance with Treasury Regulations under
Section 704(b) of the Code. To the extent consistent with such Regulations, the
adjustments to such accounts shall include the following:
(i) There shall be credited to each Partner's Capital Account the
amount of any cash (which shall not include imputed or actual interest on
any deferred contributions) actually contributed by such Partner to the
capital of the Partnership (or deemed contributed pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(c)), the fair market value of any
property contributed by such Partner to the capital of the Partnership (net
of any liabilities secured by such property that the Partnership is
considered to assume or to take subject to under Code Section 752) and such
Partner's share of the [Gross Income and] Net Profits (and all items
thereof) of the Partnership. There shall be charged against each Partner's
Capital Account the amount of all cash distributions to such Partner by the
Partnership (or deemed distributed pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(c)), the fair market value of any property distributed to
such Partner by the
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Partnership (net of any liability secured by such property that the Partner
is considered to assume or take subject to under Code Section 752) and such
Partner's share of the Net Losses (and all items thereof) of the
Partnership.
(ii) If the Partnership at any time distributes any of its assets
in-kind to any Partner, the Capital Account of each Partner shall be
adjusted to account for that Partner's allocable share (as determined under
Article 7 below) of the Net Profit or Net Loss that would have been
realized by the Partnership had it sold the assets that were distributed at
their respective fair market values immediately prior to their
distribution.
(iii) Any adjustments to the tax basis (or Book Value) of Partnership
property under Code Sections 732, 734 or 743, will be reflected as
adjustments to the Capital Accounts of the Partners, only in the manner and
to the extent provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m).
(b) An adjusted capital account ("Adjusted Capital Account") shall also
be maintained for each Partner, which shall be equal to such Partner's Capital
Account balance increased by (i) the Partner's Share of Partnership Minimum Gain
and (ii) the Partner's Share of Partner Nonrecourse Debt Minimum Gain.
(c) For purposes of Section 7.2(i) and (j) only, below, a Partner's
Adjusted Capital Account shall be reduced by the net adjustments, allocations
and distributions described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6) which, as of the end of the Partnership's
taxable year are reasonably expected to be made to such Partner, and shall be
increased by the sum of (i) any amount which the Partner is required to restore
to the Partnership upon liquidation of his or its interest in the Partnership
(or which is so treated pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(c)) pursuant to the terms of this Agreement or under state law
and (ii) that portion of any indebtedness of the Partnership (other than Partner
Nonrecourse Debt) with respect to which the Partner bears the Economic Risk of
Loss that such indebtedness would not be repaid out of the Partnership's assets
if all of the Partnership's assets were sold at their respective Book Values as
of the end of the Fiscal Year or other period and the proceeds from the sales
together with any amounts described in clause (i) above were used to pay the
Partnership's liabilities.
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(d) As of January 1, 1995, the respective Capital Account balances of
the Partners were as follows:
NEPP $8,381,563
Developer $ 0
----------
Section 3.2 Capital Contributions.
---------------------
(a) Upon its admission to the Original Partnership, NEPP agreed to
contribute to the Partnership capital in the amount of $9,500,000, all of which
was contributed by NEPP. $6,500,000 of such amount constitutes "Senior Capital,"
$3,000,000 of such amount constitutes "Junior Capital." NEPP subsequently agreed
to contribute up to an additional $1,850,000 of Junior Capital to the capital of
the Partnership, of which $1,450,840 has been contributed as of the date hereof.
NEPP shall contribute the balance of the Junior Capital to the capital of the
Partnership at such times as NEPP shall determine in its sole discretion.
(b) Upon formation of the Original Partnership, Developer contributed
or caused to be contributed to the Partnership its interest in the Project, and
assigned or caused to be assigned to the Partnership the following:
- all rights of Developer and its Affiliates in any plans,
specifications, working drawings, designs, models and other
similar architectural or engineering materials prepared for the
Project (or any portion thereof);
- all rights or benefits of Developer and its Affiliates in and to
all prior discussions with governmental bodies, entities and
agencies with respect to the Project (or any portion thereof);
- all agreements for utility services for the Project (or any
portion thereof);
- all right, title and interest of Developer or its Affiliate in
and to (i) that certain promissory note from Nielsen Properties
Ltd., ("Nielsen") in favor of Developer in the original principal
amount of $250,000, (ii) that certain deed of trust from Nielsen
to Developer encumbering the Property, and (iii) that certain
Ground Lease by and between Nielsen as Landlord and Developer as
Tenant, relating to the Property, all
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dated January 23, 1988 (collectively, the "Nielsen Documents");
- at the option of NEPP, any additional notes, indebtedness, rights
and agreements from Nielsen to Developer;
- all right, title and interest of Developer and its Affiliates to
continue the negotiations, discussions and business arrangements
with respect to the Project (or any portion thereof);
- all representations, warranties, guarantees, covenants, etc.,
relating to the Project (or any portion thereof) to which
Developer is presently or may become entitled; and
- all other rights, licenses and permits related to the Project (or
any portion thereof).
The agreed-upon net fair market value of the interests contributed by Developer
is zero.
Section 3.3 No Further Capital Contributions. The Partners shall not be
--------------------------------
required to contribute additional capital or loan any funds to the Partnership,
except as expressly provided in this Article 3, Article 5 and Article 6.
Section 3.4 Capital Contributions - General. Except as specifically
-------------------------------
provided herein, no interest shall be paid on any capital contribution to the
Partnership by any Partner. Except as specifically provided herein, no Partner
may contribute capital to, or withdraw capital from, the Partnership. To the
extent any cash which any Partner is entitled to receive pursuant to Article 5
or any other provision of this Agreement would constitute a return of capital,
each of the Partners consents to the withdrawal of such capital. Under
circumstances requiring a return of any capital, no Partner shall have the right
to receive property other than cash.
Section 3.5 Interests. The respective Interests of the Partners shall
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be:
NEPP 63%
Developer 37%
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The provisions of this Section shall not give a Partner an interest in
any amount credited to the Capital Account of any other Partner.
ARTICLE 4
LOANS
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[Intentionally omitted.]
ARTICLE 5
CASH DISTRIBUTIONS
------------------
5.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the meanings set forth below:
"Senior Invested Capital" means an amount equal to the aggregate amount
-----------------------
of Senior Capital which NEPP has contributed to the capital of the Partnership
pursuant to Section 3.2 hereof decreased (but not below zero) by the aggregate
amount of proceeds distributed to NEPP pursuant to clause FIRST of Section 5.3
and clause FIRST of Section 5.4 (to the extent such distributions are in respect
of payment of Senior Capital) and clause SECOND of Section 5.4 (other than
distributions in respect of the Guaranteed Senior Invested Capital Payment
Distribution).
"Junior Invested Capital" means an amount equal to the aggregate amount
-----------------------
of Junior Capital which NEPP has contributed to the capital of the Partnership
pursuant to Section 3.2 hereof, increased by (i) any additional capital
contributions of NEPP (other than Deficit Contributions made pursuant to Section
6.1 and Default Contributions made pursuant to Section 6.2) and (ii) by the
amount of any payments under the Ground Lease which the Partnership sets off
against payments owed NEPP under the Nielsen Note, and decreased (but not below
zero) by the amount of proceeds distributed to NEPP pursuant to clause FOURTH of
Section 5.4.
"Project Expenses" means all expenditures, expenses and charges
----------------
relating to the ownership, operation, construction, development, maintenance,
and upkeep of the Project, or any portion thereof, and the operations of the
Partnership (excluding Senior Payments and Junior Payments) including, without
limitation, the following:
-13-
- all taxes, assessments, ground rents and other similar
governmental and quasi-governmental charges levied or imposed on
the Project or any portion thereof;
- insurance premiums;
- maintenance and security expenses;
- marketing, advertising and other promotional expenses;
- utility costs;
- legal, accounting and other professional fees and expenses;
- architects, engineers and surveyors' fees;
- cost of roads and utilities built and installed on the Land, or
any portion thereof;
- other costs associated with the zoning, subdivision and
improvement of the Land, or any portion thereof, into building
lots, whether incurred on or off the site;
- development and management fees;
- payments of principal, interest and other amounts due or accrued
under any loans; and
- any and all other costs and expenses specified in an Annual
Business Plan.
Depreciation (cost recovery) and amortization or any other non-cash
items taken into account in determining Net Profits or Losses shall
not be Project Expenses.
"Operating Revenues" means as to any particular Fiscal Year or portion
------------------
thereof, the total cash receipts of the Partnership other than (i) Extraordinary
----- ----
Cash Flow and liquidation proceeds subject to Section 5.5, (ii) any properly
unapplied advance rentals of the Partnership in connection with the leasing of
the Project (which shall be Operating Revenues when applied), and (iii) any
unforfeited security deposits of Project tenants.
-14-
"Operating Cash Flow" means as to any particular Fiscal Year or portion
-------------------
thereof, Operating Revenues less the sum of the following:
----
- Project Expenses paid and accrued during such period; and
- a provision for a reasonable working capital reserve and a
reserve for future Project Expenses in an amount reasonably
determined by NEPP (the "Working Capital Fund"), and a reasonable
reserve for replacement of Partnership assets subject to
depreciation ("Reserve for Replacements") in an amount determined
by NEPP in its reasonable discretion which Reserve for
Replacements shall be released when no longer necessary as
determined by NEPP in its reasonable discretion.
"Capital Transaction" means the sale, exchange, condemnation (or
-------------------
similar eminent domain taking or disposition in lieu thereof), destruction by
casualty, refinancing or disposition of the Project or any portion thereof.
"Extraordinary Cash Flow" means the cash proceeds (including any
-----------------------
applicable insurance proceeds) realized by the Partnership as a result of a
Capital Transaction plus cash interest payments received on such proceeds, net
----
of any expenses, costs or liabilities incurred by the Partnership in effecting
or obtaining any such Capital Transaction or the proceeds thereof (including,
without limitation, attorneys' and accountants' fees, court costs, brokerage
fees, commissions, recording fees, transfer taxes, and the like), which shall be
paid out of such proceeds to the extent available, and decreased by the sum of
---------
the following:
- the amount of such proceeds used, set aside or committed by the
Partnership for restoration and repair of the Project;
- the amount of such proceeds used for the payment of indebtedness
of the Partnership then due and payable, including, without
limitation, indebtedness of the Partnership to the Partners and
their Affiliates; and
- provision for the Working Capital Fund and the Reserve for
Replacements, to the extent not funded from Operating Revenues,
in an amount determined by NEPP in its reasonable discretion.
-15-
Section 5.2 Senior Payments and Junior Payments.
-----------------------------------
(a) Senior Payments.
---------------
(i) Each month for 24 months, beginning on the first day of the
first month following the date of the first investment of
Senior Capital by NEPP, the Partnership shall make a
guaranteed senior return payment ("Guaranteed Senior Return
Payment") to NEPP at the rate of 10.5% per annum on the
daily balances of the Senior Invested Capital.
(ii) Each month for 95 months beginning on the first day of the
25th month following the date of the first investment of
Senior Capital by NEPP, the Partnership shall make in equal
installments a guaranteed Senior Invested Capital reduction
payment ("Guaranteed Senior Invested Capital Reduction
Payment") to NEPP in an amount sufficient to completely
repay the Senior Invested Capital, together with a return at
the rate of 10.5% per annum, over a 27-year term; provided,
however, the remaining Senior Invested Capital shall be paid
in full on the first day of the 120th month following the
date of the first investment of Senior Capital by NEPP.
(iii) Guaranteed Senior Return Payments, Guaranteed Senior
Invested Capital Reduction Payments and repayment of the
Senior Invested Capital shall be made from current or
accumulated Operating Cash Flow, Extraordinary Cash Flow,
and distributions in liquidation as provided in Sections
5.3, 5.4 and 5.5, respectively, and to the extent that any
such payments cannot be made from such sources when due,
they shall be funded out of the proceeds of Deficit
Contributions and Default Contributions as provided in
Article 6. All payments made pursuant to this Section 5.2(a)
are sometimes referred to as "Senior Payments."
(iv) The Guaranteed Senior Return Payments and that portion of
the Guaranteed Senior Invested Capital Reduction Payments
representing the return on the Senior Invested Capital are
sometimes hereinafter collectively referred to as the
"Guaranteed
-16-
Senior Payments". It is intended that the Guaranteed Senior
Payments described in this Section 5.2(a) shall constitute
guaranteed payments within the meaning of Code Section
707(c), that they shall be deducted as an expense of the
Partnership (unless the Partners agree that such expense
should be amortized) and shall not directly reduce the
Capital Account of NEPP.
(b) Junior Payments.
---------------
(i) The Partnership shall make a monthly junior priority return
payment ("Junior Priority Return Payment") to NEPP at the
rate of 10.5% per annum, compounded monthly on the daily
balance of the Junior Invested Capital of NEPP. Junior
Priority Return Payments shall be made monthly in arrears
commencing on the first day of the first month following the
initial investment of Junior Capital, and ending on the date
on which the Junior Invested Capital of NEPP shall have been
reduced to zero. Junior Priority Return Payments shall be
made from Operating Cash Flow, Extraordinary Cash Flow and
distributions in liquidation as provided in Sections 5.3,
5.4 and 5.5, respectively, and to the extent that any such
payments cannot be made from such sources when due, they
shall be deferred and bear an additional return at the rate
of 10.5% per annum, compounded monthly and shall be paid out
of the first available Operating Cash Flow or Extraordinary
Cash Flow pursuant to clause SECOND of Section 5.3 or clause
THIRD of Section 5.4, respectively. The total amount of
unpaid Junior Priority Return Payments so deferred together
with the additional return thereon described in the
preceding sentence is referred to as the "Accrued Junior
Priority Return."
(ii) Once the Accrued Junior Priority Return reaches $1,000,000,
the sum of all Junior Priority Return Payments and the
return on the Accrued Junior Priority Return shall be paid
currently and shall not be deferred further. Any payments
required to be paid under this Section 5.2(b)(ii) shall,
-17-
if necessary, be funded from the unfunded portion of NEPP's
Junior Capital; provided, however, that NEPP may elect not
to contribute Junior Capital to pay the Junior Priority
Return Payments and pay the return on the Accrued Junior
Priority Return, in which event the $1,000,000 limit set
forth in the preceding sentence shall be increased, and
NEPP's obligation to fund Junior Capital shall be decreased,
by the amount which NEPP so elects not to fund.
(iii) All Junior Priority Return Payments and Accrued Junior
Priority Return together with any outstanding Junior
Invested Capital shall be paid no later than February 1,
2004. All payments made pursuant to this Section 5.2(b) are
sometimes hereinafter collectively referred to as "Junior
Payments."
(iv) Junior Payments shall not be considered guaranteed payments
within the meaning of Code Section 707(c).
Section 5.3 Operating Cash Flow. Operating Cash Flow shall be
-------------------
determined for each Fiscal Year, or fraction thereof, and shall be distributed
by the Partnership in the following order of priority:
FIRST: to NEPP in payment of its Senior Payments then payable;
-----
SECOND: to NEPP in payment of its Junior Payments then payable;
------
THIRD: to each Partner in payment of any current and accrued Default
----- Preferred Returns;
FOURTH: to each Partner as a return of its Default Contributions;
------
FIFTH: to each Partner in payment of any current and accrued Deficit
----- Preferred Returns; and
SIXTH: to the Partners in accordance with their Interests.
-----
-18-
Distributions made pursuant to the third through fifth priorities shall
be made proportionately to the amount due and owing to each Partner pursuant to
each such priority if there is insufficient Operating Cash Flow to pay all sums
due under such priority.
Distributions of Operating Cash Flow shall be made monthly on a cash
basis within 30 days after the last day of each month. Following the end of each
Fiscal Year, and at any time or from time to time during any Fiscal Year if
requested by either Partner (and after determination of the actual amount of
Operating Cash Flow for such Fiscal Year, or the portion thereof which then
shall have elapsed, as applicable), the above provisional distributions of
Operating Cash Flow to the Partners with respect to such Fiscal Year or portion
thereof shall be recomputed on the basis of the actual amount of Operating Cash
Flow, on a cash basis. If the above provisional distributions with respect to
such Fiscal Year or portion thereof are greater than the distributions thus
recomputed for such Fiscal Year or portion thereof, then the Partners shall
recontribute to the Partnership in reverse order of the priorities set forth
above the amounts received by the Partners for such Fiscal Year or portion
thereof until all distributions of Operating Cash Flow for such Fiscal Year or
portion thereof shall be in conformance with this Section 5.3.
Furthermore, if an Operating Deficit is projected to exist for all or a
portion of the then Fiscal Year, and distributions of Operating Cash Flow
theretofore have been made with respect to such Fiscal Year, then the Partners
shall recontribute to the Partnership such distributions in reverse order of the
priorities set forth in this Section 5.3, until there has been recontributed to
the Partnership that aggregate amount which is equal to the lesser of the total
of such distributions previously made with respect to such Fiscal Year, or the
amount of such projected Operating Deficit for such Fiscal Year. Any amounts so
recontributed shall be characterized in the same manner as they were originally
distributed so that, following such recontribution, subsequent distributions to
the Partners pursuant to any clause of this Section shall be made in the same
manner as if the original distributions were never made (except that, any
distributions in respect of the Accrued Junior Priority Return made to NEPP
which are entitled to earn interest, shall not earn such interest during the
period from the date of distribution of such amount to NEPP through the date of
its recontribution by NEPP pursuant to this sentence). For example, to the
extent NEPP is required to recontribute distributions made pursuant to clause
-19-
FIRST of this Section, the amount of NEPP's Senior Payments represented by such
distributions shall be deemed not to have been made for purpose of calculating
the Senior Payments payable to NEPP.
Any amounts previously set aside in the Working Capital Fund or the
Reserve for Replacements, to the extent funded from Operating Revenues, shall be
additions to Operating Cash Flow when and to the extent NEPP no longer regards
such reserves as reasonably necessary to the efficient conduct of the affairs of
the Partnership.
Section 5.4 Extraordinary Cash Flow. Extraordinary Cash Flow shall be
-----------------------
distributed by the Partnership in the following order of priority:
FIRST: to NEPP in payment of its Senior Payments then payable;
-----
SECOND: to NEPP as a return of its Senior Invested Capital, along
------ with the applicable Guaranteed Senior Invested Capital
Payment Distribution payable pursuant to Section 5.6;
THIRD: to NEPP in payment of its Junior Payments then payable;
-----
FOURTH: to NEPP as a return of its Junior Invested Capital;
------
FIFTH: to each Partner in payment on any current and accrued Default
----- Preferred Returns;
SIXTH: to each Partner as a return of its Default Contributions;
-----
SEVENTH: to each Partner in payment of any current and accrued Deficit
------- Preferred Returns;
EIGHTH: to each Partner as a return of its Deficit Contributions; and
------
NINTH: to the Partners in accordance with their Interests.
-----
Distributions made pursuant to the first through ninth priorities shall
be made proportionately to the amount due and owing to each Partner pursuant to
each such priority if there is
-20-
insufficient Extraordinary Cash Flow to pay all sums due under such priority.
Section 5.5 Distributions in Liquidation. Notwithstanding the
----------------------------
provisions of Sections 5.3 and 5.4, distributions in connection with the
liquidation and winding up of the Partnership (including distributions of
Operating Cash Flow and Extraordinary Cash Flow) pursuant to and in accordance
with Article 13 shall be made in the following order of priority, after payment
of the reasonable expenses incurred in dissolution and termination and of any
additional expenses of the type deductible in computing Operating Cash Flow or
Extraordinary Cash Flow:
FIRST: in accordance with the first through fourth priorities of
----- Section 5.4, but not in excess of an amount that would reduce
NEPP's Capital Account to less than zero.
SECOND: to the Partners in proportion to the positive balance in each
------ such Partner's Capital Account (after Capital Accounts have been
adjusted for the allocation of Net Profit and Net Loss, and items
thereof, for the Fiscal Year in which such liquidation occurs).
Section 5.6 Guaranteed Senior Invested Capital Payment Distribution. If
-------------------------------------------------------
any portion of the unpaid Senior Invested Capital (except the Senior Invested
Capital portion of the Guaranteed Senior Invested Capital Reduction Payments) is
paid prior to the 120th month following the date of the first investment of
Senior Capital by NEPP (the "Repayment Date"), for any reason, the Partnership
shall distribute to NEPP an amount (the "Guaranteed Senior Invested Capital
Payment Distribution") equal to:
1. the present value, computed on a monthly basis as of the date of
payment of such Senior Invested Capital, at the rate then charged by New England
Mutual Life Insurance Company or other similar lenders on loans having a term
similar to the period from the date of payment of such Senior Invested Capital
to the Repayment Date, of:
a. the sum of an amount equal to the Senior Payments from the date
of payment of such Senior Invested Capital to, but not including,
the Repayment Date, times a factor equal to the amount of Senior
-21-
Invested Capital so paid, divided by the amount of Senior
Invested Capital then outstanding (the "Payment Factor");
plus
----
b. the amount of Senior Payments due on the Repayment Date pursuant
to Section 5.2(a) (assuming all Senior Payments due prior to the
Repayment Date were made when due), times the Payment Factor;
less
----
2. the amount of Senior Invested Capital so paid.
If the foregoing is determined to be unenforceable in whole or in part, NEPP
may, at its option, pursue any other legal or equitable right or remedy now or
hereafter available to NEPP.
Section 5.7 In-Kind Distribution. Assets of the Partnership (other than
--------------------
cash) shall not be distributed in kind to the Partners without the prior
approval of both Partners. If any assets of the Partnership are distributed to
the Partners in kind, such assets shall be valued on the basis of the fair
market value thereof on the date of distribution, and any Partner entitled to
any interest in such assets shall receive such interest as a tenant-in-common
with all other Partners so entitled. The fair market value of such assets shall
be determined by an independent appraiser selected by NEPP and Developer.
ARTICLE 6
OPERATING DEFICITS
------------------
Section 6.1 Operating Deficits. If, at any time, Project Expenses (plus
------------------
the amount of any Senior Payments and Junior Payments then due) exceed Operating
Revenues, Extraordinary Cash Flow and other funds available to the Partnership,
including the uncontributed balance of Junior Capital (an "Operating Deficit"),
then funds shall be withdrawn from the Working Capital Fund as required and if
available. If Operating Deficits cannot be so funded, or if it reasonably
appears that the Partnership will be unable to meet in a timely manner any of
its obligations as they mature, then NEPP shall notify Developer, which notice
shall explain the need for such funds, and shall include a reasonably
-22-
detailed breakdown of the expenses that caused the need and a statement of the
amount needed and the bank account into which the needed funds are to be
deposited.
Within 10 business days after such notice is given, each Partner shall
contribute to the Partnership its proportionate share (as to each Partner, a
"Deficit Contribution") of the amount needed. The Partners' proportionate shares
shall be determined by reference to their respective Interests at the end of the
month in which the contribution is to be made.
All Deficit Contributions shall be deposited into an escrow account
with such bank as is selected by NEPP, with the funds in such escrow account to
be disbursed to the Partnership only after all Partners have deposited their
respective Deficit Contributions into such escrow account.
Each Partner shall be entitled to a "Deficit Preferred Return" equal to
a cumulative return, calculated at the Deficit Equity Rate and compounded
monthly, on the daily balance of its Deficit Contributions.
Section 6.2 Default Contributions. If a Partner fails to make its
---------------------
Deficit Contribution within the time specified in Section 6.1 (such Partner
hereafter being called a "Non-Contributing Partner") and the other Partner has
deposited the amount of its required Deficit Contribution in escrow (a
"Contributing Partner"), the Contributing Partner shall have the right to
release its Deficit Contribution from escrow and contribute it, together with
the amount of the Deficit Contribution which the Non-Contributing Partner failed
to make, to the Partnership, in which case the Interests of the Partners shall
be adjusted as provided in Section 6.3. The amount so contributed by the
Contributing Partner (a "Default Contribution") shall not be considered a
Deficit Contribution. Each Partner shall be entitled to a "Default Preferred
Return" equal to a cumulative return, calculated at 10.5% per annum and
compounded monthly, on the daily balance of its Default Contributions.
If the Contributing Partner does not elect to have its Deficit
Contribution removed from escrow and contributed to the Partnership within 15
days after the deadline for making Deficit Contributions, the Contributing
Partner shall withdraw its Deficit Contribution from escrow (with respect to
that particular notice and call for such a contribution).
-23-
Section 6.3 Adjustment of Interests. If the Contributing Partner shall
-----------------------
have made a Default Contribution in accordance with Section 6.2, the Interest of
each Partner shall thereupon be recalculated as of the effective date of the
contribution, with the Interest of the Non-Contributing Partner being decreased
and the Interest of the Contributing Partner being increased by an amount
(stated as a percentage) equal to the amount of the Deficit Contribution the
Non-Contributing Partner failed to make divided by $2,500,000 (the "Adjustment
Percentage").
For example, if (i) there were an Operating Deficit of $625,000,
requiring a Deficit Contribution by NEPP of $393,750 (63% pro rata share) and by
Developer of $231,250 (37% pro rata share), (ii) NEPP made its Deficit
Contribution and Developer failed so to do, and (iii) NEPP withdrew its Deficit
Contribution from escrow and made a Default Contribution of $625,000, the
Adjustment Percentage would be 9.25%, i.e.,
$ 231,250
------------- = 9.25%
$2,500,000
Thus, if immediately before such contribution the Interest of NEPP were 63% and
the Interest of Developer were 37%, then the Interest of Developer as the
Non-Contributing Partner immediately after giving effect to the above would be
27.75% and that of NEPP as the Contributing Partner would be 72.25%.
Section 6.4 Effect of Adjustment on Cash and Tax Allocations. If the
------------------------------------------------
Interest of a Partner is adjusted during a Fiscal Year pursuant to Section 6.3,
the Partnership's books shall be closed as of the date immediately preceding the
effective date of the contribution described in such section. For the period
ended on such date, Operating Cash Flow and Net Profits and Losses shall be
distributed and allocated pursuant to the provisions of Sections 5.3 and
7.2(b)(i), respectively, according to the Interests in effect prior to such
date, and Operating Cash Flow and Net Profits and Losses for the balance of such
Fiscal Year shall be distributed and allocated pursuant to the provisions of
Sections 5.3 and 7.2(b)(i), respectively, according to the Interests of such
Partners, as so adjusted. Extraordinary Cash Flow and Net Profits or Losses
arising from a Capital Transaction shall be distributed and allocated pursuant
to the provisions of Sections 5.4 and 7.2(b)(ii), respectively, according to the
Interests of the Partners in effect as of the date of the Capital Transaction in
question.
-24-
Section 6.5 No Increase of Percentage Interest. Except as otherwise
----------------------------------
provided in this Article 6, no amounts contributed or loaned by any Partner to
the Partnership shall increase such Partner's Interest.
ARTICLE 7
TAX ALLOCATIONS
---------------
Section 7.1 Definition of Net Profit and Net Loss. (a) "Net Profit" and
-------------------------------------
"Net Loss" shall mean, for each Fiscal Year or other period, an amount equal to
the Partnership's taxable income or loss for such Fiscal Year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(i) any income of the Partnership that is exempt from federal income
tax or not otherwise taken into account in computing Net Profit or Net Loss
pursuant to this Section 7.1 shall be added to such taxable income or loss;
(ii) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under
Code Section 704(b) and not otherwise taken into account in computing Net
Profit or Net Loss pursuant to this Section 7.1, shall be subtracted from
such taxable income or loss;
(iii) gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Book Value of
such property rather than its adjusted tax basis;
(iv) in lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing taxable income or loss,
there shall be taken into account depreciation on the assets' respective
Book Values for such Fiscal Year or other period determined in accordance
with Treasury Regulations under Code Section 704(b); and
(v) the amount of any Gross Income allocated to the Partners pursuant
to Section 7.2(a) and Sections 7.2(e), (f)
-25-
and (i), below, and pursuant to Section 7.2(k), below, to the extent such
allocation of Gross Income under Section 7.2(k) is a reversal of an
allocation pursuant to Section 7.2(j), below, shall not be included as
income or revenue.
(b) Definition of Net Profits or Net Losses From Capital Transactions.
-----------------------------------------------------------------
"Net Profits or Net Losses from Capital Transactions" shall mean for each Fiscal
Year or other period, the Net Profit or Net Loss for such Fiscal Year or other
period calculated solely by reference to gains and losses from Capital
Transactions.
(c) Definition of Net Profits or Net Losses From Operations. "Net
-------------------------------------------------------
Profits or Net Losses from Operations" shall mean for each Fiscal Year or other
period, the Net Profit or Net Loss for such Fiscal Year or other period
calculated without regard to Net Profits and Net Losses from Capital
Transactions.
(d) Definition of Gross Income. "Gross Income" shall mean, for each
--------------------------
Fiscal Year or other period, an amount equal to the Partnership's gross income
as determined for federal income tax purposes for such Fiscal Year or period but
computed with the adjustments specified in Section 7.1(a)(i) and (iii), above.
(e) Definition of Gross Income from Operations. "Gross Income from
------------------------------------------
Operations" shall mean for each Fiscal Year or other period, the Gross Income
for such year calculated without regard to Gross Income attributable to Capital
Transactions.
Section 7.2 Allocation of Net Profit, Gross Income and Net Loss. The
---------------------------------------------------
Partners hereby agree that, effective as of August 1, 1995, the Net Profit,
Gross Income and Net Loss of the Partnership shall be allocated among them in
accordance with this Section 7.2.
(a) Gross Income from Operations. Except as otherwise provided in this
----------------------------
Article 7, Gross Income from Operations, if any, of the Partnership (and each
item thereof) for each Fiscal Year or other period, in an amount equal to the
total amount distributed to Developer pursuant to Section 5.3 with respect to
such Fiscal Year or other period, shall be allocated to Developer if and to the
extent that such distribution creates or increases a deficit in the Developer's
Capital Account.
(b) Net Profits From Operations and Capital Transactions. Except as
----------------------------------------------------
otherwise provided in this Article 7, Net Profit, if any, of the Partnership
(and each item thereof) for each Fiscal
-26-
Year or other period shall be allocated among the Partners as follows:
(i) All Net Profit from Operations of the Partnership shall be
allocated to NEPP.
(ii) Net Profit from Capital Transactions shall:
(x) first be allocated to the Partners in proportion to the
negative balances, if any, in their Adjusted Capital Accounts (after
adjusting such Adjusted Capital Accounts for allocations of any Gross
Income, Net Loss or Net Profit from Operations of the Partnership for
the Fiscal Year or other period) until such negative balances are
increased to zero, and
(y) thereafter, be allocated to the Partners in such proportions
and in such amounts as would result in the Adjusted Capital Account
balance of each Partner equaling, as nearly as possible, such
Partner's share of the then Partnership Capital determined by
calculating the amount the Partner would receive if an amount equal to
the Partnership Capital were distributed to the Partners in accordance
with the provisions of Section 5.4 hereof, other than clause FIRST
thereof.
(c) Net Losses From Operations and Capital Transactions. Except as
---------------------------------------------------
otherwise provided in this Article 7, Net Loss, if any, of the Partnership (and
each item thereof) for each Fiscal Year or other period shall be allocated as
follows:
(i) All Net Loss from Operations of the Partnership shall be allocated
to NEPP.
(ii) Net Loss from Capital Transactions shall:
(x) first be allocated to those Partners with positive
balances in their Adjusted Capital Accounts in amounts equal to
their respective Adjusted Capital Account balances; provided,
however, that if the amount of Net Loss to be allocated is less
than the sum of the Adjusted Capital Account balances of all
Partners having positive Adjusted Capital Account balances, then
the Net Loss shall be allocated to the Partners in such
proportions and in such amounts as would
-27-
result in the Adjusted Capital Account balance of each Partner
equaling, as nearly as possible, such Partner's share of the then
Partnership Capital determined by calculating the amount the
Partner would receive if an amount equal to the Partnership
Capital were distributed to the Partners in accordance with the
provisions of Section 5.4 hereof, other than clause FIRST
thereof; and
(y) thereafter, one hundred percent (100%) to NEPP.
(d) Liquidation. Subject to the provisions of Sections 7.2(e) through
-----------
(j), Net Profit and Net Loss incurred in the Fiscal Year in which the
Partnership is liquidated shall be allocated in accordance with the provisions
of Sections 7.2(b)(ii) and 7.2(c)(ii) without regard to whether such Net Profit
and Net Loss arises from a Capital Transaction, and Sections 7.2(a), 7.2(b)(i)
and 7.2(c)(i) shall not apply.
(e) Minimum Gain Chargeback. Notwithstanding any other provision of
-----------------------
this Agreement to the contrary, if in any Fiscal Year or other period there is a
net decrease in the amount of Partnership Minimum Gain, then each Partner shall
first be allocated items of Gross Income for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of the net decrease
in Partnership Minimum Gain determined as set forth in the definition of
Partnership Minimum Gain; provided, however, that no such allocation of Gross
Income to a Partner shall occur in the following circumstances:
(i) If the net decrease in Partnership Minimum Gain is caused by
a modification of a Nonrecourse Liability and the Partner bears the
Economic Risk of Loss with respect to such modified liability;
(ii) If the net decrease in Partnership Minimum Gain is
attributable to a repayment of a Nonrecourse Liability with amounts
contributed to the capital of the Partnership by the Partner; and
(iii) If the allocation of Gross Income would cause a "distortion
in the economic arrangement among the Partners" and the Partnership
receives a waiver of the requirement that Gross Income be so allocated
from the Commissioner of the
-28-
Internal Revenue Service pursuant to Treasury Regulation Section
1.704-2(f)(4).
(f) Minimum Gain Chargeback for Partner Nonrecourse Debt.
----------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary other than
Section 7.2(e), above, if in any year there is a net decrease in the amount of
Partner Nonrecourse Debt Minimum Gain, then each Partner shall first be
allocated items of Gross Income for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's net decrease in Partner Nonrecourse
Debt Minimum Gain with respect to liabilities for which the Partner bears the
Economic Risk of Loss; provided, however, that no such allocation of Gross
Income to a Partner shall occur in the following circumstances:
(i) If the net decrease in Partner Nonrecourse Debt Minimum Gain
is caused by a modification of a Partner Nonrecourse Debt and the
Partner bears the Economic Risk of Loss with respect to such modified
liability;
(ii) If the net decrease in Partner Nonrecourse Debt Minimum Gain
is attributable to a repayment of a Partner Nonrecourse Debt with
amounts contributed to the capital of the Partnership by the Partner;
(iii) In any circumstance described in clause (iii) of Section
7.2(e) hereof; and
(iv) If the net decrease in Partner Nonrecourse Debt Minimum Gain
is caused by a modification of a Partner Nonrecourse Debt that causes
it to become a Nonrecourse Liability.
(g) Nonrecourse Deductions. All Nonrecourse Deductions of the
----------------------
Partnership for any Fiscal Year or other period shall be allocated among the
Partners in the same manner and proportions as are Net Losses from Operations of
the Partnership.
(h) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
------------------------------
shall be allocated to the Partner who bears the Economic Risk of Loss with
respect to the Partner Nonrecourse Debt.
(i) Qualified Income Offset. Notwithstanding any of the provisions
-----------------------
above (except Sections 7.2(e) and (f) which shall be applied first), if in any
Fiscal Year or other period a Partner
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receives an adjustment, allocation or distribution described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), Gross Income (and items
thereof) shall first be allocated to Partners with negative Adjusted Capital
Account balances (adjusted in accordance with Section 3.1(c) hereof), in
proportion to such negative balances, until such balances are increased to zero.
(j) Limit on Loss Allocations. Notwithstanding the provisions of
-------------------------
Section 7.2(c), Net Loss (or items thereof) shall not be allocated to a Partner
if such allocation would cause or increase a negative balance in such Partner's
Adjusted Capital Account (adjusted in accordance with Section 3.1(c) hereof) and
shall be reallocated to the other Partner or Partners, subject to the
limitations of this Section 7.2(j).
(k) Reversal of Mandatory Allocations. In the event that any Net Profit
---------------------------------
or Net Loss, or items thereof, of the Partnership are allocated pursuant to
Sections 7.2(i) or (j), subsequent Net Profit or Net Loss (or items thereof)
will first be allocated (subject to Sections 7.2(e) through (j)) to the Partners
in a manner which will result in each Partner having a Capital Account balance
equal to that which would have resulted had the original allocation of Net
Profit or Loss or items thereof pursuant to Sections 7.2(i) and (j) not
occurred.
(l) Priority. For purposes of the allocations pursuant to this Article
--------
7 and except as otherwise provided, Sections 7.2(a) (Gross Income from
Operations) shall apply first, then Sections 7.2(b)(i) and 7.2(c)(i) (Net Profit
or Loss from Operations), and thereafter Sections 7.2(b)(ii) and 7.2(c)(ii) (Net
Profit or Loss from Capital Transactions). The allocation of Net Profit and Net
Loss from Capital Transactions shall be made before adjusting Capital Account
balances to reflect the distribution of proceeds from such Capital Transactions.
(m) Compliance with Code. The foregoing provisions of this Agreement
--------------------
relating to the allocation of Net Profit and Net Loss are intended to comply
with Treasury Regulations under Section 704(b) of the Code and shall be
interpreted and applied in a manner consistent with such regulations.
Section 7.3 Tax Allocations; Code Section 704(c). In accordance with
------------------------------------
Code Sections 704(b) and 704(c) and the Treasury Regulations thereunder,
depreciation, amortization, gain and loss, as determined for tax purposes, with
respect to any property whose Book Value differs from its adjusted basis for
federal income tax
-30-
purposes shall, for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its Book Value.
Any elections or other decisions relating to such allocations shall be
made by the Partners in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 7.3 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Net Profit, Net Loss, other items, or distributions pursuant to any provision
of this Agreement.
Section 7.4 Allocations Upon Transfer or Change of Interests. Upon a
------------------------------------------------
transfer of all or a portion of a Partner's Interest, Gross Income, Net Profits
and Net Losses shall be allocated among the Partners in accordance with the
provisions of Section 11.5.
ARTICLE 8
ACCOUNTING AND RECORDS
----------------------
Section 8.1 Books and Records. NEPP shall keep or cause to be kept, at
-----------------
Partnership expense, at the Partnership's principal office, separate books of
account for the Partnership which shall show a true and accurate record of all
costs and expenses incurred, all charges made, all credits made and received and
all income derived in connection with the operation of the Partnership business
in accordance with generally accepted accounting principles consistently applied
and sufficient to obtain an unqualified opinion from the Accountants as to the
Partnership's financial position and results of operations. The Partnership
shall use the accrual method of accounting in preparation of its annual reports
and for tax purposes and shall keep its books accordingly. The expenses
chargeable to the Partnership shall include only those which are reasonable and
necessary for the ordinary and efficient operation of the Partnership business
and the performance of the obligations of the Partnership under any leases or
other agreements relating to the Project or the business of the Partnership.
-31-
Each Partner shall, at its sole expense, have the right, at any time
without notice to the other, to examine, copy and audit the Partnership's books
and records during normal business hours.
All books, records (including bills and invoices), reports and returns
of the Partnership required by this Article 8 shall be maintained in a manner
and form consistent with NEPP's methods and procedures of reporting investment
transactions.
Section 8.2 Reports. With respect to each Fiscal Year of the
-------
Partnership, NEPP shall cause a general accounting to be made by the Accountants
at the expense of the Partnership. The accounting shall be performed in
accordance with generally accepted auditing standards, and shall cover all of
the assets, properties, liabilities and net worth of the Partnership as well as
its dealings, transactions and operations during such Fiscal Year, together with
all other matters customarily included in such accountings.
Within 90 days after the end of each Fiscal Year, NEPP shall cause to
be furnished to Developer financial statements for the Partnership, prepared on
an accrual basis and otherwise in accordance with generally accepted accounting
principles consistently applied, which shall contain a balance sheet as of the
end of the Fiscal Year, statements of profit and loss, and Operating Cash Flow,
changes in the Capital Accounts and a statement of changes in financial position
for the Fiscal Year then ended. Such financial statements shall disclose and/or
footnote, in sufficient detail, all items of taxable income, gain, loss, or
accounts which vary from the reporting of such items for financial accounting
purposes. Any exceptions to the financial statements rendered must be made by a
Partner within one year from its receipt and, if no exception is made within
that time, the statements shall be considered to be correct.
Within 30 days after the receipt of any periodic report from a property
manager for the Project, NEPP shall furnish a copy of such report to the
Developer. Within 30 days of NEPP's approval of any Annual Management Plan, NEPP
shall furnish a copy of such Plan to the Developer. Notwithstanding the
foregoing, so long as the property manager is the Property Manager, NEPP shall
not be required to furnish the Developer with any such reports or Plans.
Section 8.3 Tax Returns. At Partnership expense, NEPP shall cause the
-----------
Accountants to prepare all income and other tax returns of the Partnership (on
an accrual basis) and cause the same to be
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filed in a timely manner. NEPP shall furnish to Developer a copy of each such
return before it has been filed, together with any schedules or other
information which each Partner may require in connection with such Partners' own
tax affairs. Each of the Partners shall, in its respective income tax return and
other statements filed with the Internal Revenue Service or other taxing
authority, report taxable income in accordance with the provisions of this
Agreement.
Section 8.4 Depreciation. The Partnership shall, to the extent
------------
permitted by the Code, utilize the Accelerated Cost Recovery System (as defined
in the Code) on a straight-line basis.
Section 8.5 Special Basis Adjustment. In connection with any assignment
------------------------
or transfer of an Interest permitted by the terms of this Agreement, NEPP shall
cause the Partnership, at the written request of the transferor, the transferee
or the successor to such Interest, on behalf of the Partnership and at the time
and in the manner provided in Treasury Regulation Section 1.754-1(b) (or any
like statute or regulation then in effect), to make an election to adjust the
basis of the Partnership's property in the manner provided in Sections 734(b)
and 743(b) of the Code (or any like statute or regulation then in effect), and
such transferee shall pay all costs incurred by the Partnership in connection
therewith, including, without limitation, reasonable attorneys' and accountants'
fees.
Section 8.6 Tax Matters Partner. NEPP shall be the party designated to
-------------------
receive all notices from the Internal Revenue Service ("IRS") which pertain to
the tax affairs of the Partnership and NEPP shall be entitled to require that
any IRS examinations or audits shall take place at the offices of NEPP. NEPP
shall be the "Tax Matters Partner" of the Partnership pursuant to the Code,
provided that, in such capacity, NEPP shall have no authority to enter into any
settlement of any Partnership tax matter if such settlement would have a
material adverse effect on Developer, unless Developer shall have previously
approved such settlement, which approval may not be unreasonably withheld.
Section 8.7 Fiscal Year. The Fiscal Year of the Partnership shall be
-----------
the calendar year, unless otherwise determined by NEPP. As used in this
Agreement, a fiscal year shall include any partial fiscal year at the beginning
and end of the Partnership term.
Section 8.8 Bank Accounts. NEPP shall have fiduciary responsibility for
-------------
the safekeeping and use of all funds and assets
-33-
of the Partnership, whether or not in its immediate possession or control. The
funds of the Partnership shall not be commingled with the funds of any other
person and NEPP shall not employ, or permit any other person to employ, such
funds in any manner except for the benefit of the Partnership.
The bank accounts of the Partnership shall be maintained in such
banking institutions as are determined by NEPP and withdrawals shall be made
only in the regular course of Partnership business and as otherwise authorized
in this Agreement on such signature or signatures as NEPP may determine.
ARTICLE 9
MANAGEMENT AND OPERATIONS
-------------------------
Section 9.1 Management. NEPP acting alone, and without the consent or
----------
approval of Developer, shall have the sole authority to manage the business and
operations of the Partnership. Without limiting in any way the foregoing, NEPP
acting alone, shall have the sole authority to make all decisions respecting the
conduct of the Partnership and its business, without the consent or approval of
Developer, including without limitation, the following:
- acquiring, by purchase, lease, or otherwise, any real property in
addition to the Land, or constructing any new capital
improvements on the Land or replacing an existing capital
improvement following completion of construction thereof;
- giving or granting any options, rights of first refusal, deeds of
trust, mortgages, pledges, ground leases, security interests or
otherwise encumbering the Project or any portion thereof;
- consummating leases in the Project or any portion thereof, on
such terms as NEPP may approve;
- obtaining, increasing, modifying, consolidating or extending any
loan, line of credit or other obligation, whether secured or
unsecured, affecting the Project or the Partnership or making
draws under any such loan, line of credit or other obligation;
-34-
- consenting to any rezoning or subdivision of the Land or any
other material change in the legal status thereof;
- selling, conveying or refinancing the Project or any portion
thereof;
- causing or permitting the Partnership to extend credit to or to
make any loans or become a surety, guarantor, endorser or
accommodation endorser for any person, firm or corporation or
entering into any contracts with respect to the operation or
management of the business of the Partnership or the Project (or
any portion thereof);
- initiating, defending, adjusting, settling or compromising any
claim, action, suit or judgment by or against the Partnership;
- releasing, compromising, assigning or transferring any claims,
rights or benefits of the Partnership;
- confessing a judgment against the Partnership or submitting a
Partnership claim to arbitration;
- distributing any cash or property of the Partnership, or
establishing any reserve, other than as provided in this
Agreement;
- filing on behalf of the Partnership any Federal or state income
tax or information returns, or changing the elections or choices
of methods of reporting income or loss for Federal or state
income tax purposes provided for in Article 8;
- spending money or entering into any contract or agreement (or
series thereof) of any nature whatsoever with respect to the
Partnership or the Project (or any portion thereof);
- assigning the rights of the Partnership in any of its property;
- selecting attorneys or Accountants for the Partnership;
- advertising or marketing the Project;
-35-
- granting easements or other property rights by documents that are
frequently recorded, except easements for utilities serving the
Project exclusively;
- giving any approval under any management, construction or other
contract to which the Partnership is a party;
- approving or changing or amending the plans or specifications or
budget for any building or structure being constructed by the
Partnership; or
- entering into any amendment, modification, revision, supplement
or rescission with respect to any of the foregoing.
NEPP shall devote itself to the business of the Partnership to the
extent it reasonably determines necessary for the efficient carrying on thereof,
without compensation therefor except as specifically provided in this Agreement;
provided, however, that all of the Partners agree and acknowledge that (a) NEPP
shall not be required, nor is it expected, to devote itself to the business of
the Partnership on a full-time basis, and (b) the Project shall be managed and
maintained by the Property Manager pursuant to the Management Agreement (or by
another person who may serve as property manager, in the event the Property
Management Agreement is terminated), and NEPP may rely on the Property Manager
(or such other property manager) to manage and maintain the Project in a prudent
and reasonable manner and shall have no liability to the Partnership or the
Partners with respect to any matter delegated to the Property Manager (or such
other property manager) which is of the type customarily performed by property
managers. NEPP shall be permitted to delegate to a third party such other of its
duties and obligations under this Agreement as it may determine in its
reasonable discretion.
With respect to all of its obligations, powers, and responsibilities
under this Agreement, NEPP is authorized, in the name and on behalf of the
Partnership, to execute, deliver, and perform the terms, covenants and
obligations of, such notes and other evidences of indebtedness, contracts,
agreements, assignments, deeds, leases, loan agreements, mortgages, and other
security instruments and agreements as it deems proper, all on such terms and
conditions as it deems proper.
Section 9.2 Standard of Care. NEPP shall use reasonable good faith
----------------
efforts to perform its duties under this Agreement,
-36-
including, without limitation, employing necessary personnel, on and off-site,
in connection with the business of the Partnership, and shall at all times act
in a fiduciary manner towards the Partnership and Developer.
Section 9.3 Insurance. NEPP shall procure and maintain, or cause to be
---------
procured and maintained, at the expense of the Partnership, insurance sufficient
to enable the Partnership to comply with applicable laws, regulations and
requirements, including without limitation, obligations imposed on the Project
by the any documents relating to any loans, and any and all other agreements and
instruments by which the Project is bound, such additional insurance as may be
customary for projects of a similar type in the geographic area in which the
Project is located, and such additional insurance as NEPP reasonably determines
to be appropriate for the Project.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 10.1 Developer. As of the date hereof each of the statements in
---------
this Section 10.1 shall be a true, accurate and full disclosure of all facts
relevant to the matters contained therein, and such warranties and
representations shall survive the execution of this Agreement. As of the date
hereof, Developer hereby represents and warrants that:
- Developer is a duly organized and validly existing California
general partnership and has the requisite power and authority to
enter into and carry out the terms of this Agreement.
- All partnership action required to be taken by Developer to
consummate this Agreement has been taken by Developer (and its
partners) and no further approval of any board, court, or other
body is necessary in order to permit Developer to consummate this
Agreement.
- To the best of its knowledge, neither the execution and delivery
of this Agreement, nor the performance of or the compliance with,
this Agreement has resulted (or will result) in any violation of,
or will be in conflict with, or invalidate, cancel, or make
inoperative, or interfere with, or constitute a default under, or
result
-37-
in the creation of any lien, encumbrance or any other charge upon
the Project pursuant to any charter, bylaw, partnership
agreement, trust agreement, mortgage, deed of trust, indenture,
contract, agreement, permit, judgment, decree, or order to which
Developer is a party or by which the Project (or any portion
thereof) is bound, and there is no default and no event or
omission has occurred which, but for the passing of time or the
giving of notice, or both, would constitute a default on the part
of Developer under this Agreement.
- To the best of its knowledge, there is no action, proceeding or
investigation, pending or threatened (nor any basis therefor)
which questions, directly or indirectly, the validity or
enforceability of this Agreement as to Developer or which would
materially and adversely affect the Project.
- To the best of its knowledge, the Project complies in all
material respects with all applicable laws, rules, ordinances,
regulations and orders of governmental authorities having
jurisdiction. Without limiting the generality of the foregoing,
to the best of Developer's knowledge, which is based solely on a
report dated May, 1995, prepared by E2C, Inc., no release of oil
or petroleum or chemical liquids or solids, liquid or gaseous
products or hazardous waste has occurred on the Land.
- Developer has received no notice of any lien having arisen
against the Project or existing under Federal or state tax or
other laws, other than liens for current real property taxes and
assessments.
- Except as previously disclosed in writing to NEPP, at the date
hereof, there are no outstanding contracts made by Developer nor
has there been any other labor or materials supplied at
Developer's request for any improvements heretofore commenced or
constructed on the Land (or any portion thereof) which have not
been fully paid for, except as previously disclosed in writing to
NEPP.
- To the best of Developer's knowledge, no representation, warranty
or covenant of Developer in this Agreement (except for the first
two representations of this
-38-
Section 10.1, which shall not be limited to Developer's best
knowledge, but shall be absolute), or in any document or
certificate furnished or to be furnished to NEPP pursuant hereto
contains or will contain any untrue statement of material fact or
omits or will omit to state any material fact necessary to make
the statements or facts contained therein not misleading. All
such representations, warranties or statements of Developer are
based, to the best of Developer's knowledge, upon current,
accurate and complete information as of the time of their making,
and there have been, to the best of Developer's knowledge, no
changes in such information subsequent thereto.
Section 10.2 NEPP. As of the date hereof each of the statements in this
----
Section 10.2 shall be a true, accurate and full disclosure of all facts relevant
to the matter contained therein, and such warranties and representations shall
survive the execution of this Agreement. As of the date hereof, NEPP hereby
represents and warrants that:
- NEPP is a duly organized limited partnership validly existing
under the laws of the Commonwealth of Massachusetts and has the
requisite power and authority to enter into and carry out the
terms of this Agreement;
- All partnership action required to be taken by NEPP to consummate
this Agreement has been taken and that no further approval of any
board, court, or other body is necessary in order to permit NEPP
to consummate this Agreement.
- To the best of its knowledge, neither the execution and delivery
of this Agreement nor the performance of nor the compliance with
this Agreement, has resulted (or will result in) any violation
of, or will be in conflict with, or invalidate, cancel, or make
inoperative, or interfere with, or constitute a default under, or
result in the creation of any lien, encumbrance or any other
charge upon the Project pursuant to any charter, bylaw, venture
agreement, partnership agreement, trust agreement, mortgage, deed
of trust, indenture, contract, agreement, permit, judgment,
decree, or order, to which NEPP is a party and there is no
default and no event or omission has occurred which, but for the
passing of time
-39-
or the giving of notice, or both, would constitute a default on
the part of NEPP under this Agreement.
- To the best of NEPP's knowledge, there is no action, proceeding
or investigation, pending or threatened (nor any basis therefor),
which questions, directly or indirectly, the validity or
enforceability of this Agreement as to NEPP.
- To the best of NEPP's knowledge, no representation, warranty or
covenant of NEPP in this Agreement (except for the first two
representations of this Section 10.2, which shall not be limited
to NEPP's knowledge, but shall be absolute), or in any document
or certificate furnished or to be furnished to Developer pursuant
hereto contains or will contain any untrue statement of material
fact or omits or will omit to state any material fact necessary
to make the statements or facts contained therein not misleading.
All such representations, warranties or statements of NEPP are
based, to the best of NEPP's knowledge, upon current, accurate
and complete information as of the time of their making, and
there have been, to the best of NEPP's knowledge, no changes in
such information subsequent thereto.
Section 10.3 Brokers. Each party represents to the other that they have
-------
not retained or been approached by any broker, finder, agent or the like in
connection with this transaction or the negotiations thereof. Each party shall
indemnify and hold the other party hereto harmless from and against all loss,
liabilities, claims, damages and expenses, including court costs and reasonable
attorneys' fees, arising out of any claim for brokerage or other commissions
relative to this Agreement or the transactions contemplated hereby insofar as
any such claim arises by reason of services alleged to have been rendered to or
at the insistence of such indemnifying party.
ARTICLE 11
TRANSFER OF INTERESTS
---------------------
Section 11.1 Restrictions on Transfer. Except as expressly provided for
------------------------
in this Agreement, no Partner may, without the consent of the other Partner,
sell, convey, transfer, assign,
-40-
mortgage, pledge, hypothecate or otherwise encumber in any way ("transfer") all
or any portion of its Partnership Interest or any interest it may have in any
property of the Partnership, or withdraw or retire from the Partnership. Any
such attempted transfer, withdrawal or retirement not permitted hereunder shall
be null and void. A transfer of an interest in Developer shall be deemed a
transfer for the purpose of this Section 11.1, but any transfer of any interest
in NEPP and any transfer of any interest in any of the partners of NEPP shall
not be deemed to be a transfer prohibited hereby.
Section 11.2 Right of First Refusal. If a Partner consents to a
----------------------
proposed transfer or the prohibitions contained in Section 11.1 are determined
by a court of competent jurisdiction to be unenforceable, then a Partner (the
"Selling Partner") desiring to transfer its Interest shall nevertheless notify
("Offering Notice") the other of its intention to do so. The Offering Notice
shall specify the nature of the transfer, the consideration to be received
therefor, the identity of the proposed purchaser (or lender, as the case may
be), and the terms upon which it intends to undertake such transfer. The
non-Selling Partner shall have the right to elect to purchase from the Selling
Partner all (but not less than all) of the Interest referred to in the Offering
Notice at the same price and on the same terms as specified in the Offering
Notice for a period of 30 days after the giving of the Offering Notice (or make
the loan, if the same involves an encumbrance, hypothecation or mortgage, upon
the same terms on which said loan was to be made therefor) by delivering in
writing to the Selling Partner an offer to purchase that portion of the Interest
of the Selling Partner (or to make the loan) covered by the Offering Notice.
Within 45 days thereafter, the purchase by the non-Selling Partner of said
Interest shall be consummated on the terms and conditions set forth in the
Offering Notice of the Selling Partner (or if the same involves a mortgage,
encumbrance or other hypothecation, the loan shall be consummated upon the terms
and conditions of the loan set forth in the Offering Notice).
If within the 30-day period during which the non-Selling Partner has
the right to elect to purchase the Selling Partner's Interest (or to elect to
make the loan specified therein), it does not make such election, then the
Selling Partner, within 120 days after the expiration of said 30-day period, or
within the time scheduled for closing by the purchasing person, firm or
corporation, whichever is later, may undertake and complete the transfer to any
Person the identity of which was disclosed in the
-41-
Offering Notice. The transfer shall not be undertaken at a lower price or upon
more favorable terms than specified in the Offering Notice. If the Selling
Partner does not then consummate the original proposed transfer within 150 days
after the date of the Offering Notice, or within the time scheduled for closing
by the purchasing person, firm or corporation, whichever is later, then all
restrictions of this Section 11.2 shall apply as though no Offering Notice had
been given.
Section 11.3 Permitted Transfers. NEPP or its successors, without the
-------------------
consent of Developer or being subject to Section 11.2, may:
- transfer all of its Interest to its successors by merger or
consolidation or to any Affiliate of NEPP or to any Entity
managed or advised by Copley Real Estate Advisors, Inc.;
- transfer to any Person any portion of its allocable interest in
the items of loss, deduction and credit of the Partnership (on
the condition that NEPP never shall have less than 1% interest in
such items); and
- assign its rights to all cash distributions and other issues,
profits, proceeds and avails payable to it under this Agreement
in connection with any loans or financing arrangements obtained
by it from time to time.
Developer or its successors, without the approval of NEPP or being
subject to Section 11.2, may transfer all of its Interest to any Person which at
all times shall be at least 51% owned and shall be controlled by Robert K. Rodde
and/or John E. McNellis, such that if a partnership, Robert K. Rodde and/or John
E. McNellis shall be a general partner owning at least 51% general partnership
interest in such Person, if a corporation, Robert K. Rodde and/or John E.
McNellis shall have all authority and right to manage and control the affairs of
such Person and shall own at least 51% of the authorized, issued and outstanding
capital stock of such Person or if a trust, Robert K. Rodde and/or John E.
McNellis shall be the only voting trustee(s). For purposes of this paragraph,
"Robert K. Rodde" and "John E. McNellis" shall include their respective estates.
Any such permitted transferee shall receive and hold such Partnership
Interest or portion thereof subject to the terms of this Agreement and the
obligations of the transferor Partner, and
-42-
there shall be no further transfer of such Partnership Interest or portion
thereof except to a trust, person or entity to whom such permitted transferee
could have transferred his Partnership Interest in accordance with this Section
11.3 had such permitted transferee originally been named as a Partner or as a
partner in Developer, or otherwise in accordance with the other terms of this
Agreement.
Section 11.4 General Transfer Provisions. All transfers shall be by
---------------------------
instrument in form and substance satisfactory to counsel for the Partnership and
shall contain an expression by the assignee of its intention to accept the
assignment and to accept and adopt all of the terms and provisions of this
Agreement, as the same may have been amended, and shall provide for the payment
by the assignor of all reasonable expenses incurred by the Partnership in
connection with such assignment, including, without limitation, the necessary
amendments to this Agreement to reflect such transfer. The transferor shall
execute and acknowledge all such instruments, in form and substance reasonably
satisfactory to the Partnership's counsel, as may be necessary or desirable to
effectuate such transfer.
In no event shall the Partnership dissolve or terminate upon the
admission of any Partner to the Partnership or upon any permitted assignment of
an Interest in the Partnership by any Partner. Each Partner hereby waives its
right to dissolve, liquidate or terminate the Partnership in such event.
Upon completion of a transfer in compliance with this Agreement, the
transferor shall be released from all future obligations arising under this
Agreement after the date of such transfer provided the assignee of such
--------
transferor assumes all such obligations of the transferor. However, the
transferor shall remain liable for its obligations under this Agreement
occurring on or prior to the date of such transfer.
Section 11.5 Tax Allocations and Cash Distributions. If an Interest is
--------------------------------------
transferred, the Net Profit or Loss allocable, and cash distributable, to the
holder of such Interest for the then Fiscal Year shall be allocated and
distributed based on a method consistent with Section 706(d) of the Code.
However, if such parties agree that such Net Profit or Loss and cash are to be
allocated and distributed based upon an interim closing of the Partnership
books, and such parties agree to pay all expenses incurred by the Partnership in
connection therewith and so notify the non-transferring Partner, then all such
Net Profit or Loss and
-43-
cash shall be allocated and distributed between the transferor and transferee
based upon an interim closing of the Partnership's books and records. In no
event, however, shall Extraordinary Cash Flow or Net Profit or Loss arising from
a Capital Transaction be distributed and allocated to any Partner other than the
Partners owning Interests as of the date of the Capital Transaction in question.
Section 11.6 Compliance. Notwithstanding anything to the contrary in
----------
this Agreement, at law or in equity, no Partner shall transfer or otherwise deal
with any Interest in a way that would cause a default under any material
agreement to which the Partnership is a party or by which it is bound.
Section 11.7 Waiver of Partition. Neither Partner shall, either
-------------------
directly or indirectly, take any action to require partition or appraisement of
the Partnership or of any of its assets or properties or cause the sale of any
Partnership property, and notwithstanding any provisions of applicable law to
the contrary, each Partner (and its legal representatives, successors or
assigns) hereby irrevocably waives any and all right to maintain any action for
partition or to compel any sale with respect to its Interest, or with respect to
any assets or properties of the Partnership, except as expressly provided in
this Agreement.
ARTICLE 12
BUY/SELL
--------
Section 12.1 Buy/Sell Events. For purposes of this Article 12, each of
---------------
the following shall constitute a "Buy/Sell Event":
- if within 10 days after notice from a Partner specifying a
material default or defaults of another Partner in its covenants,
agreements or obligations contained herein, including, without
limitation, a transfer other than as permitted by Article 11, the
notified Partner has not commenced diligently to correct the
default or defaults so specified or has not thereafter pursued
such correction to completion but in any event within 90 days of
said notice;
-44-
- if an Event of Bankruptcy with respect to a Partner occurs which
is not discharged or stayed within a period of 90 days of its
occurrence; or
- the Incapacity of NEPP; or
- NEPP becomes the owner of 80% or more of the Interests.
Section 12.2 Rights Arising from a Buy/Sell Event. When a Buy/Sell
------------------------------------
Event occurs with respect to a Partner (the "Defaulting Partner"), the other
Partner (the "Electing Partner") shall have the right, but not the obligation,
to implement the Buy/Sell procedures set forth in this Article 12, by giving
written notice within 180 days of the Buy/Sell Event ("Election Notice") thereof
to the Defaulting Partner. The failure of a Partner to so elect by Election
Notice shall preclude election by such Partner thereafter with respect to such
Buy/Sell Event, providing the Defaulting Partner has given the other Partner
written notice of the Buy/Sell Event within 10 days after the occurrence of such
Buy/Sell Event.
Section 12.3 Determination of Fair Market Value. Upon the giving of an
----------------------------------
Election Notice, the "Fair Market Value" of the assets of the Partnership shall
be determined as set forth in this Section 12.3.
The Partners shall attempt in good faith to agree upon the Fair Market
Value of the assets of the Partnership. If within 30 days after the Election
Notice is given, the Partners fail so to agree, the Electing Partner and the
Defaulting Partner shall each select one appraiser, each of whom shall be a
member of the American Institute of Real Estate Appraisers, within 15 days after
the expiration of such thirty-day period and each shall notify the other of the
appraiser selected by it. If a Partner fails to select an appraiser, the
appraiser selected shall act alone.
The appraiser or appraisers shall value the assets of the Partnership
within 60 days of their selection. If one appraiser acts, the Fair Market Value
shall be the amount determined by such appraiser. If two appraisers act, the
Fair Market Value shall be the average of the amounts so determined, so long as
neither appraisal exceeds the other by 5% or more of the higher of the two
appraisals. If, however, the appraisals do vary by 5% or more, then the two
appraisers shall appoint a third appraiser within 30 days. If they fail to do
so, then either Partner may request the American Arbitration Association or any
successor organization
-45-
thereto to appoint a third appraiser. If a third appraiser has not been
appointed by the American Arbitration Association within 60 days of a Partners'
request for it to do so, then either Partner may apply to any court having
jurisdiction to appoint the third appraiser.
The third appraiser, whether appointed by the original appraisers, the
American Arbitration Association or a court, shall value the assets of the
Partnership within 30 days after its selection or appointment.
If the third appraisal exceeds the first two appraisals, the Fair
Market Value shall be the higher of the first two appraisals; if the third
appraisal is less than the first two appraisals, the Fair Market Value shall be
the lower of the first two appraisals. In all other cases, the Fair Market Value
shall be equal to the third appraisal.
This provision for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, and the
determination of Fair Market Value hereunder shall be final and binding upon the
parties.
When determining the Fair Market Value, the appraiser(s) shall (i)
estimate the fairest price estimated in terms of money which the Partnership
could obtain if its assets were exposed for sale in the open market allowing a
reasonable time to find a purchaser who buys with knowledge of the uses which
such assets in their then condition are adapted and for which such assets are
capable of being used at the time the Buy/Sell Event occurred and (ii) deduct
from such price the reasonable estimated costs of consummating such a sale,
including without limitation brokerage commissions. The appraiser(s) shall also
take into consideration whether or not any debt to which the assets of the
Partnership are subject is prepayable or callable.
Section 12.4 Appraisal Fees. Each Partner shall pay the fees and
--------------
expenses of the appraiser selected by it. The fees and expenses of the third
appraiser shall be paid one-half by each Partner. If only one appraiser is used,
the fees and expenses of such appraiser shall be paid one-half by each Partner.
Section 12.5 Determination of Purchase Price. Within 15 days after the
-------------------------------
determination of the Fair Market Value of the assets of the Partnership, the
Accountants shall determine all liabilities of the Partnership and the amount of
cash which would
-46-
be distributed to each Partner pursuant to the provisions of each of clauses
FIRST through FIFTH of Section 5.3 if the assets of the Partnership had been
sold for the Fair Market Value as of the date of the Buy/Sell Event and shall
give each Partner written notice ("Accountant's Notice") thereof. The
determination by the Accountant of such amounts shall be conclusive. For
purposes of this Agreement, the amount so determined by the Accountant to be
distributable to a Partner pursuant to clause FIFTH of Section 5.3 of this
Agreement shall be referred to as the "Distributable Cash".
Section 12.6 Electing Partner's Option. For a period of 30 days after
-------------------------
the Electing Partner receives the Accountant's Notice, the Electing Partner
shall have the option to purchase, for cash, the Interest of the Defaulting
Partner for 90% of the Distributable Cash and 100% of the aggregate amount, if
any, which would be distributable to the Defaulting Partner under clauses FIRST
through FOURTH of Section 5.3 if the assets of the Partnership had been sold for
the Fair Market Value as of the date of the Buy/Sell Event (the "Purchase
Price"), by notice to the Defaulting Partner. If this option is not so
exercised, then it shall terminate and be of no further force or effect.
Section 12.7 Closing of Purchase and Sale. The closing of a purchase
----------------------------
pursuant to this Article 12 shall be held at the principal office of the
Partnership 30 days after the Electing Partner exercises its option under
Section 12.6. The Defaulting Partner (the seller) shall transfer to the Electing
Partner (the buyer or its designee) the entire Interest of the Defaulting
Partner in the Partnership free and clear of all liens, security interests and
competing claims, and shall deliver to the Electing Partner or its designee such
instruments of transfer, releases and such evidence of due authorization,
execution and delivery and of the absence of any liens, security interests or
competing claims as the Electing Partner shall reasonably request.
Section 12.8 Payment. At the closing, the Electing Partner or its
-------
designee shall pay the Purchase Price by delivery at the closing of a certified
or bank cashier's check payable to the order of the Defaulting Partner in the
amount of the Purchase Price determined pursuant to Section 12.6.
Section 12.9 Liabilities. The purchase of the Interest of a Defaulting
-----------
Partner pursuant to this Article 12 shall release the Defaulting Partner (and
the purchasing Partner shall indemnify and hold harmless the Defaulting Partner)
from all liabilities and
-47-
claimed liabilities of the Partnership except for liabilities not taken into
account in the determination of Purchase Price and tort liabilities not taken
into account in the determination of Purchase Price to the extent such tort
liabilities are not covered by insurance for events occurring prior to the
Defaulting Partner's withdrawal from the Partnership.
Section 12.10 Failure to Exercise Option. If an Electing Partner fails
--------------------------
to exercise the option herein granted to it, then the Electing Partner, within
30 days after such option expires and terminates, may dissolve the Partnership
by notifying the Defaulting Partner.
ARTICLE 13
EXIT RIGHTS
-----------
[Intentionally omitted.]
ARTICLE 14
TERMINATION OF THE PARTNERSHIP
------------------------------
Section 14.1 Events of Dissolution. The Partnership shall dissolve upon
---------------------
the first to occur of the following events:
- the expiration of the term of the Partnership as provided in
Section 1.9;
- upon an election by an Electing Partner pursuant to Section
12.10;
- the sale or other disposition (including, without limitation,
taking by eminent domain) of all or substantially all of the
assets of the Partnership unless such sale or other disposition
involves any deferred payment of the consideration for such sale
or disposition, in which case the Partnership shall not dissolve
until the last day of the calendar year during which the
Partnership shall receive the balance of such deferred payment;
- the occurrence of an Event of Bankruptcy of the Partnership,
which is not discharged or stayed within 90 days of occurrence;
-48-
- the issuance of a decree of dissolution by a court of competent
jurisdiction; or
- upon notice by NEPP to Developer on or after January 1, 1997 of
its intent to dissolve the Partnership.
Section 14.2 Effect of Dissolution. Upon dissolution of the Partnership
---------------------
pursuant to Section 14.1, the Partnership shall not terminate but shall continue
solely for the purposes of liquidating all of the assets owned by the
Partnership (until all such assets have been sold or liquidated) and collecting
the proceeds from such sales and all receivables of the Partnership unless the
same have been written off as uncollectible. Upon dissolution, the Partnership
shall engage in no further business thereafter other than that necessary to
cause the Project to be operated on an interim basis and for the Partnership to
collect its receivables, liquidate its assets and pay or discharge its
liabilities.
Section 14.3 Sale of Assets by Liquidating Trustee. Upon dissolution of
-------------------------------------
the Partnership, NEPP shall, as "Liquidating Trustee", proceed diligently to
wind up the affairs of the Partnership and distribute its assets. NEPP shall be
permitted to appoint another person to serve as Liquidating Trustee, or another
person to succeed any subsequently selected successor, whenever the person
originally selected or any such subsequently selected successor, as the case may
be, fails for any reason to carry out such purpose. The Liquidating Trustee may
be an individual, corporation or general or limited partnership.
The Liquidating Trustee shall promptly after dissolution obtain an
appraisal of the assets of the Partnership by a member of the American Institute
of Real Estate Appraisers selected by the Liquidating Trustee. All of the assets
of the Partnership, if any, other than cash, shall be offered (either as an
entirety or on an asset-by-asset basis) promptly for sale, upon such terms as
the Liquidating Trustee shall determine using the above appraisal as a guide.
The decision to accept or reject an offer to purchase assets of the Partnership
shall be made solely by the Liquidating Trustee.
In winding up the affairs of the Partnership, the Liquidating Trustee
shall pay the liabilities of the Partnership in such order of priority as
provided by law. If at the time of dissolution the completion of all buildings
then under construction on the Land has not occurred, the Liquidating Trustee,
in winding up the
-49-
affairs of the Partnership, shall have the authority, but not the obligation, to
complete the construction of the buildings.
All distributions of cash in winding up the affairs of the Partnership
shall be made in accordance with the provisions of Section 5.5.
ARTICLE 15
MISCELLANEOUS
-------------
Section 15.1 Notices. All notices required or permitted by this
-------
Agreement shall be in writing and may be delivered in person to either party or
may be sent by registered or certified mail, with postage prepaid, return
receipt requested, or may be transmitted by telegraph, telecopy, overnight
courier, personal delivery or other commercially reasonable means, and addressed
in the case of NEPP to:
c/o Copley Advisors, Inc.
399 Boylston Street
Boston, Massachusetts 02116
Attention: General Counsel
Re: R/M Salinas L.P.
and in the case of Developer to:
Rodde McNellis/Salinas
c/o Rodde McNellis
601 California Street
Suite 601
San Francisco, California 94108
Attention: Robert K. Rodde
or to such other address as shall from time to time be supplied in writing by
any party to the other. Notice sent by registered or certified mail, postage
prepaid, with return receipt requested, addressed as above provided, shall be
deemed given four days after deposit of same in the United States mail. If any
notice is telegraphed the same shall be deemed served or delivered 48 hours
after the transmission thereof. Any notice or other document sent or delivered
in any other manner shall be effective only if and when received.
-50-
Section 15.2 Successors and Assigns. Subject to the restrictions on
----------------------
transfer set forth herein, this Agreement shall bind and inure to the benefit of
the parties hereto and their respective legal representative, successors and
assigns.
Section 15.3 No Oral Modifications; Amendments. No oral amendment of
---------------------------------
this Agreement shall be binding on the Partners. Any modification or amendment
of this Agreement must be in writing signed by all of the Partners.
Section 15.4 Captions. Any article, section or paragraph titles or
--------
captions contained in this Agreement and the table of contents are for
convenience of reference only and shall not be deemed a part of this Agreement.
Section 15.5 Terms. Common nouns and pronouns shall be deemed to refer
-----
to the masculine, feminine, neuter, singular and plural, as the identity of the
Person or Entity may in the context require. Any references to the Code, the Act
or other statutes or laws shall include all amendments, modifications or
replacements of the specific sections and provisions concerned.
Section 15.6 Invalidity. If any provision of this Agreement shall be
----------
held invalid, it shall not affect in any respect whatsoever the validity of the
remainder of this Agreement.
Section 15.7 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument, binding on the
Partners, and the signature of any party to any counterpart shall be deemed a
signature to, and may be appended to, any other counterpart.
Section 15.8 Further Assurances. The parties hereto agree that they
------------------
will cooperate with each other and will execute and deliver, or cause to be
delivered, all such other instruments, and will take all such other actions, as
either party hereto may reasonably request from time to time in order to
effectuate the provisions and purposes hereof.
Section 15.9 Complete Agreement. This Agreement constitutes the
------------------
complete and exclusive statement of the agreement between the Partners. It
supersedes all prior written and oral statements and no representation,
statement, condition or warranty not contained in this Agreement shall be
binding on the Partners or have any force or effect whatsoever.
-51-
Section 15.10 Attorneys' Fees. If any proceeding is brought by one
---------------
Partner against the other to enforce, or for breach of, any of the provisions in
this Agreement, the prevailing Partner shall be entitled in such proceeding to
recover reasonable attorneys' fees together with the costs of such proceeding
therein incurred, including attorneys' fees and costs in enforcing any judgment.
Section 15.11 Governing Law. This Agreement shall be construed and
-------------
enforced in accordance with the laws of the State of California.
Section 15.12 No Third Party Beneficiary. Any agreement to pay any
--------------------------
amount and any assumption of liability herein contained, express or implied,
shall be only for the benefit of the Partners and their respective heirs,
successors and assigns, and such agreements and assumption shall not inure to
the benefit of the obligees of any indebtedness or any other party, whomsoever,
it being the intention of the Partners that no one shall be deemed to be a third
party beneficiary of this Agreement.
Section 15.13 Exhibits and Glossary. Each of the Exhibits and the
---------------------
Glossary attached hereto are hereby incorporated herein and made a part hereof
for all purposes, and references herein thereto shall be deemed to include this
reference and incorporation.
Section 15.14 Estoppels. Each Partner shall, upon not less than 15
---------
days' written notice from the other Partner, execute and deliver to the other
Partner a statement certifying that this Agreement is unmodified and in full
force and effect (or, if modified, the nature of the modification) and whether
or not there are, to such Partner's knowledge, any uncured defaults on the part
of the other Partner, specifying such defaults if any are claimed. Any such
statement may be relied upon by third parties.
Section 15.15 References to this Agreement. Numbered or lettered
----------------------------
articles, sections and subsections herein contained refer to articles, sections
and subsections of this Agreement unless otherwise expressly stated. The words
"herein," "hereof," "hereunder," "hereby," "this Agreement" and other similar
references shall be construed to mean and include this Partnership Agreement and
all amendments thereof and supplements thereto unless the context shall clearly
indicate or require otherwise.
Section 15.16 Reliance on Authority of Person Signing Agreement. If a
-------------------------------------------------
Partner is a trust (with or without disclosed
-52-
beneficiaries), general partnership, limited partnership, joint venture,
corporation, or any entity other than a natural person, the Partnership and the
Partners shall:
- not be required to determine the authority of the person signing
this Agreement to make any commitment or undertaking on behalf of
such entity or to determine any fact or circumstance bearing upon
the existence of the authority of such entity or to determine any
fact or circumstance bearing upon the existence of the authority
of such person;
- not be required to see to the application or distribution of
proceeds paid or credited to persons signing this Agreement on
behalf of such entity;
- be entitled to rely on the authority of the person signing this
Agreement with respect to the voting of the Interest of such
entity and with respect to the giving of consent on behalf of
such entity in connection with any matter for which consent is
permitted or required under this Agreement; and
- be entitled to rely upon the authority of any general partner,
joint venturer, co- or successor trustee, or president or vice
president, as the case may be, of any such entity the same as if
such person were the person originally signing this Agreement on
behalf of such entity.
Section 15.17 Consents and Approvals. Whenever the consent or approval
----------------------
of a Partner is required by this Agreement, such Partner shall have the right to
give or withhold such consent or approval in its sole discretion, unless
otherwise specified.
Section 15.18 Construction of Agreement. The terms and provisions of
-------------------------
this Agreement shall be interpreted and construed without regard to, and the
parties hereby expressly waive and disclaim, any rule of law to the effect that
ambiguous or conflicting terms or provisions contained in this Agreement shall
be interpreted or construed against the party which prepared this Agreement.
-53-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
NEW ENGLAND PENSION PROPERTIES V;
A REAL ESTATE LIMITED PARTNERSHIP
By: FIFTH COPLEY CORP.,
a Massachusetts corporation,
its managing general partner
By:
---------------------------------
DEVELOPER:
RODDE MCNELLIS/SALINAS, a California
general partnership
By:
---------------------------------
John E. McNellis, general partner
By:
---------------------------------
Robert K. Rodde, general partner
-54-
EXHIBIT A
LEGAL DESCRIPTION OF LAND
-------------------------
Certain real property situate, lying and being in Lot 14 of the Rancho
Santa Rita in the County of Monterey, State of California, being a part of that
certain 9.807 acre tract of land designated as Parcel "A" and of that certain 15
acre tract of land designated as Parcel "B" in that certain deed from Dominie B.
Mazza, et ux to John Nielsen, et ux, dated November 21, 1929 and recorded in
Volume 217 of Official Records at Page 391, Monterey County Records, said part
being particularly described as follows, to-wit:
Beginning at a steel bar standing in the southerly boundary of said 15 acre
tract of land at the intersection thereof with the casterly line of California
State Highway U.S. 101 as widened to 100 feet by deed dated March 11, 1931 from
John Nielsen, et ux to State of California and recorded in Volume 294 of
Official Records at Page 354, Monterey County Records, and running thence from
said place of beginning along said highway line,
(1) N. 8(degrees) 37' 20" W., 746.76 feet; thence tangentially
(2) curving to the right on a circular arc of 4950 feet radius through an angle
of 0(degrees) 29' 34" for a distance of 42.57 feet to a 6" X 6" concrete
monument; thence leave said highway line and running along the northerly
boundary of said 9.807 acre tract of land.
(3) S. 89(degrees) 56' 40" R., 677.91 feet to a 1 1/2 diameter iron pipe;
thence leave last mentioned boundary and running
(4) S. 10(degrees) 27' 20" W., 931.3 feet to a 1 1/2" diameter iron pipe
standing in the southerly boundary of said 15 acre tract of land; thence
along last mentioned boundary
(5) N. 70(degrees) 48' W., 413.77 feet to the place of beginning.
Course all true.
A.P. NO. 253-161-17
A-1
EXHIBIT B
[Property Management Agreement]
B-1
GLOSSARY OF DEFINED TERMS
R/M SALINAS L.P.
LIMITED PARTNERSHIP AGREEMENT
Capitalized terms used in this Limited Partnership Agreement of R/M
Salinas L.P. shall have the meanings ascribed to them below:
Accountants means Kenneth Leventhal & Company or such firm of
-----------
independent, certified public accountants as may be selected by NEPP.
Accountant's Notice shall have the meaning set forth in Section 12.5.
-------------------
Accrued Junior Priority Return shall have the meaning set forth in
------------------------------
Section 5.2(b).
Act means the California Revised Limited Partnership Act, as set forth
---
in Title 2, Chapter 3 of the California Corporations Code, as amended.
Adjusted Capital Account shall have the meaning set forth in Section
------------------------
3.1(b).
Adjustment Percentage shall have the meaning set forth in Section 6.3.
---------------------
Affiliate means a Person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with the person in question and any officer, director, trustee, employee,
stockholder (10% or more) or partner of any Person referred to in the preceding
clause. For purposes of this definition, the term "control" means the ownership
of 10% or more of the beneficial interest or the voting power of the appropriate
Entity. Notwithstanding the foregoing, a person shall not be considered an
affiliate of NEPP or Developer solely by reason of the fact that such person is
engaged in one or more real estate projects with NEPP or Developer on a joint
venture basis.
Agreement shall have the meaning set forth in the Preamble.
---------
C-1
Book Value means, with respect to any asset, the asset's adjusted basis
----------
for federal income tax purposes, except as follows:
(i) the initial Book Value of any asset contributed (or deemed
contributed) to the Partnership shall be such asset's gross fair
market value at the time of such contribution;
(ii) the Book Value of all Partnership assets shall be adjusted to
equal their respective gross fair market values at the times specified
in Treasury Regulation Section 1.704-1(b)(2)(iv)(f) if the Partnership
so elects;
(iii) if the adjusted basis of any asset acquired by the Partnership
is determined by reference to the adjusted basis of any other asset of
the Partnership, the Book Value of the acquired asset shall be
determined by reference to the Book Value of the other asset rather
than its adjusted basis; and
(iv) if the Book Value of an asset has been determined pursuant to
clause (i), (ii) or (iii), such Book Value shall thereafter be
adjusted in the same manner as would the asset's adjusted basis for
federal income tax purposes except that depreciation deductions shall
be computed in accordance with Section 7.1(a)(iv).
Buy/Sell Event shall have the meaning set forth in Section 12.1.
--------------
Capital Account shall have the meaning set forth in Section 3.1(a).
---------------
Capital Transaction shall have the meaning set forth in Section 5.1.
-------------------
Code means the Internal Revenue Code of 1986, as amended from time to
----
time, and all published rules, rulings and regulations thereunder at the time of
reference thereto.
Contributing Partner shall have the meaning set forth in Section 6.2.
--------------------
Default Contribution shall have the meaning as set forth in Section
--------------------
6.2.
Default Preferred Return shall have the meaning as set forth in Section
------------------------
6.2.
C-2
Defaulting Partner shall have the meaning set forth in Section 12.2.
------------------
Deficit Contribution shall have the meaning set forth in Section 6.1.
--------------------
Deficit Equity Rate means the annaul rate of interest announced from
-------------------
time to time by Wells Fargo Bank, N.A. as its "prime" or "base" rate to
commercial borrowers with the highest credit rating, for short-term, unsecured
loans.
Deficit Preferred Return shall have the meaning set forth in Section
------------------------
6.1.
Developer or the Limited Partner shall have the meaning set forth in
--------- ---------------
the Recital.
Distributable Cash shall have the meaning set forth in Section 12.5.
------------------
Economic Risk of Loss means the risk as determined under Treasury
---------------------
Regulation Section 1.752-2 that a partner or person related to a partner will
suffer an economic loss as a result of the failure of the Partnership to repay a
liability.
Electing Partner shall have the meaning set forth in Section 12.2.
----------------
Election Notice shall have the meaning set forth in Section 12.2.
---------------
Entity means any general partnership, limited partnership, corporation,
------
joint venture, trust, business trust, cooperative or association.
Event of Bankruptcy means, as to the Partnership or a Partner, (1)
-------------------
filing a voluntary petition in bankruptcy or for reorganization or for the
adoption of an arrangement under the Federal Bankruptcy Code (as now or in the
future amended) or an admission seeking the relief therein provided; (2) making
a general assignment for the benefit of its creditors; (3) consenting to the
appointment of a receiver for all or a substantial part of its property; (4) in
the case of the filing of an involuntary petition in bankruptcy, an entry of an
order for relief; (5) the entry of a court order appointing a receiver or
trustee for all or a substantial part of its property without its
C-3
consent; or (6) the assumption of custody or sequestration by a court of
competent jurisdiction of all or substantially all of its property.
Extraordinary Cash Flow shall have the meaning set forth in Section
-----------------------
5.1.
Fair Market Value shall have the meaning set forth in Section 12.3.
-----------------
Fiscal Year shall have the meaning set forth in Section 8.7.
-----------
Guaranteed Senior Invested Capital Payment Distribution shall have the
-------------------------------------------------------
meaning set forth in Section 5.6.
Guaranteed Senior Invested Capital Reduction Payment shall have the
----------------------------------------------------
meaning set forth in Section 5.2(a).
Guaranteed Senior Payments shall have the meaning set forth in Section
--------------------------
5.2(a).
Guaranteed Senior Return Payment shall have the meaning set forth in
--------------------------------
Section 5.2(a).
Gross Income shall have the meaning set forth in Section 7.1.
------------
Ground Lease means that ground lease between Nielsen as landlord and
------------
the Partnership, as successor in interest to the Original Partnership, as
tenant, dated January 23, 1988 and relating to the Property.
Improvements means the buildings and other improvements constructed on
------------
the Land by the Partnership.
Incapacity means for a Partner or an Entity which is the general
----------
partner of a Partner, the dissolution, liquidation or termination (but not
including a termination under Section 708(b)(1)(B) or Section 708(b)(2)(A) of
the Code) of such Partner or Entity.
Indemnitor shall have the meaning set forth in Section 2.8.
----------
Interest means the entire ownership interest (which may be segmented
--------
into and/or expressed as a percentage of various rights and/or liabilities) of a
Partner in the Partnership at any particular time, including the right of such
Partner to any and
C-4
all benefits to which a Partner may be entitled as provided in this Agreement
and in the Act, together with the obligations of such Partner to comply with all
the terms and provisions of this Agreement and of the Act.
IRS means the Internal Revenue Service.
---
Junior Capital shall have the meaning set forth in Section 3.2.
--------------
Junior Invested Capital shall have the meaning set forth in Section
-----------------------
5.1.
Junior Payments shall have the meaning set forth in Section 5.2(b).
---------------
Junior Priority Return Payment shall have the meaning set forth in
------------------------------
Section 5.2(b).
Land means the approximately 10.4-acre parcel of land located in the
----
City of Salinas, County of Monterey, California, as more particularly described
in Exhibit A to this Agreement.
---------
Liquidating Trustee shall have the meaning set forth in Section 14.3.
-------------------
NEPP or the General Partner shall have the meaning set forth in the
---- ---------------
Recital.
Net Profit and Net Loss shall have the meanings set forth in Section
---------- --------
7.1.
Nielsen shall have the meaning set forth in Section 3.2.
-------
Nielsen Documents shall have the meaning set forth in Section 3.2.
-----------------
Nielsen Note means that promissory note from Nielsen to NEPP dated
------------
August 1, 1995 in the original principal amount of $1,750,000.
Non-Contributing Partner shall have the meaning set forth in Section
------------------------
6.2.
Nonrecourse Deductions for a Fiscal Year (or other period) means
----------------------
deductions funded by Nonrecourse Liabilities (as determined under Treasury
Regulation Section 1.704-2(c)) for such year and
C-5
are generally equal to the excess, if any, of (i) the net increase in
Partnership Minimum Gain during such year over (ii) the sum of (A) the aggregate
distributions of proceeds from Nonrecourse Liabilities attributable to increases
in Partnership Minimum Gain during such year and (B) increases in Partnership
Minimum Gain during such year attributable to conversions of liabilities into
Nonrecourse Liabilities.
Nonrecourse Liability means any liability of a partnership (or portion
---------------------
thereof) to the extent that no partner bears the Economic Risk of Loss
associated with the liability.
Offering Notice shall have the meaning set forth in Section 11.2.
---------------
Operating Cash Flow shall have the meaning set forth in Section 5.1.
-------------------
Operating Deficit shall have the meaning set forth in Section 6.1.
-----------------
Operating Revenues shall have the meaning set forth in Section 5.1.
------------------
Original Agreement shall have the meaning set forth in the Recital.
------------------
Original Partnership shall have the meaning set forth in the Recital.
--------------------
Partner means NEPP and Developer, and such successors, assigns or
-------
additional partners as may be admitted to the Partnership, from time to time,
pursuant to the terms of this Agreement.
Partner Nonrecourse Debt means any partnership liability to the extent
------------------------
that the liability is nonrecourse for purposes of Treasury Regulation Section
1.1001-2 and a partner bears the Economic Risk of Loss associated with the
liability.
Partner Nonrecourse Debt Minimum Gain means the amount that would
-------------------------------------
result if Partnership Minimum Gain were computed with respect to Partner
Nonrecourse Debt rather than Nonrecourse Liabilities.
C-6
Partner Nonrecourse Deductions means deductions funded from Partner
------------------------------
Nonrecourse Debt (as determined under Treasury Regulation Section 1.704-2(i)(2))
computed for a Fiscal Year (or other period) in a manner similar to that used in
computing Nonrecourse Deductions but with reference to Partner Nonrecourse Debt
Minimum Gain rather than Partnership Minimum Gain.
Partner's Share of Partner Nonrecourse Debt Minimum Gain means an
--------------------------------------------------------
amount of Partner Nonrecourse Debt Minimum Gain computed for each Partner in a
manner similar to that used in computing a Partner's Share of Partnership
Minimum Gain but with reference to Partner Nonrecourse Debt with respect to
which the Partner bears the Economic Risk of Loss rather than to Nonrecourse
Liabilities.
Partner's Share of Partnership Minimum Gain means an amount of
-------------------------------------------
Partnership Minimum Gain computed for each Partner under Treasury Regulation
Section 1.704-2(g) and generally equal to the excess of (i) the sum of (A) the
aggregate amount of Nonrecourse Deductions previously allocated to the Partner,
(B) the aggregate amount of proceeds of Nonrecourse Liabilities attributable to
increases in Partnership Minimum Gain previously distributed to the Partner and
(C) increases in Partnership Minimum Gain during such Fiscal Year attributable
to conversions of liabilities into Nonrecourse Liabilities over (ii) the
Partner's aggregate proportionate share of previous decreases in Partnership
Minimum Gain. A Partner's proportionate share of the decrease in Partnership
Minimum Gain for a Fiscal Year shall be based upon the ratio that such Partner's
Share of Minimum gain for the preceding year bore to the aggregate amount of
Partnership Minimum Gain for such preceding Fiscal Year.
Partnership means the limited partnership governed by this Agreement as
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said limited partnership may from time to time be constituted and amended.
Partnership Agreement shall have the meaning set forth in the Recital.
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Partnership Capital means an amount equal to the sum of all of the
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Partners' Capital Account balances determined immediately prior to the
allocation to the Partners pursuant to Sections 7.2(b)(ii)(y) or 7.2(c)(ii)(x)
of any Net Profit or Net Loss from a Capital Transaction increased by the
aggregate amount of Net Profit to be allocated to the Partners pursuant to
Section 7.2(b)(ii)(y) as a result of such Capital Transaction or decreased by
the aggregate amount of Net Loss to be allocated to the
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Partners pursuant to Section 7.2(c)(ii)(x) as a result of such Capital
Transaction.
Partnership Minimum Gain means the amount determined by computing with
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respect to each Nonrecourse Liability of the Partnership, the amount of Gross
Income, if any, that would be realized by the Partnership if it disposed of the
property securing such liability in full satisfaction thereof, and by then
aggregating the amounts so computed. For purposes of determining the amount of
such Gross Income with respect to a liability, the Book Value of the asset
securing the liability shall be allocated among all the liabilities that the
asset secures in the manner set forth in Treasury Regulation Section
1.704-2(d)(2).
Payment Factor shall have the meaning set forth in Section 5.6.
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Person means any individual or Entity, and the heirs, executors,
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administrators, legal representatives, successors and assigns of such Person
where the context so admits; and, unless the context otherwise requires, the
singular shall include the plural, and the masculine gender shall include the
feminine and the neuter and vice versa.
Project means the Land, together with the streets, sewers, curbs,
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gutters, utility service connections, and other land development infrastructure
and improvements constructed or to be constructed on or related to the Land
(including related off-site improvements).
Project Expenses shall have the meaning set forth in Section 5.1.
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Property Manager shall have the meaning set forth in Section 2.10.
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Purchase Price shall have the meaning set forth in Section 12.6.
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Reserve for Replacements shall have the meaning set forth in Section
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5.1.
Selling Partner shall have the meaning set forth in Section 11.2.
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Senior Capital shall have the meaning set forth in Section 3.2.
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Senior Invested Capital shall have the meaning set forth in Section
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5.1.
Senior Payments shall have the meaning set forth in Section 5.2.
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Tax Matters Partner shall have the meaning set forth in Section 8.6.
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Transfer shall have the meaning set forth in Section 11.1.
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Working Capital Fund shall have the meaning set forth in Section 5.1.
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