As filed with the Securities and Exchange Commission on February 20, 2003
Registration No. 333-91322
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2 to
FORM S-11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ABIC REALTY FUND I, L.P.
(Name of registrant)
9520 NORTH MAY AVENUE ABIC REALTY CORPORATION
SUITE 330 9520 NORTH MAY AVENUE SUITE 330
OKLAHOMA CITY, OKLAHOMA 73120 OKLAHOMA CITY, OKLAHOMA 73120
(405) 302-6434 (405) 302-6434
(Address, including the zip code & (Name, address, including zip code
telephone number, including area code of and telephone number, including area
Registrant's principle executive office) code of agent for service)
--------------------
Copy to:
ALICE A. WATERS
ATTORNEY AT LAW
109 E. FRANKLIN STREET
WAXAHACHIE, TEXAS 75165
(972) 938-9090
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(C) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
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<Caption>
CALCULATION OF REGISTRATION FEE
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Title of each Amount Proposed Maximum Proposed Amount of
Class of Securities to be Offering Price Maximum Aggregate Registration
To be Registered Registered Per Unit Offering Price Fee
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Units of Limited $40,000,000 100% $40,000,000 $3,680.00
Partnership Interest
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall hereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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</Table>
4,000,000 UNITS (MAXIMUM) ABIC REALTY FUND I, L.P. 10,000 UNITS (MINIMUM)
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Units of Limited Partnerships Interest - At a purchase price of $10.00 per unit
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ABIC Realty Fund I, L.P. is a Texas limited partnership formed to
acquire and operate commercial real estate properties. The partnership is
offering for sale a minimum of 10,000 up to a maximum of 4,000,000 units of
limited partnership interest at a purchase price of $10.00 per unit. The minimum
purchase is 200 units ($2,000). The participating broker-dealers as a group must
sell a minimum of 10,000 units if any are sold. The broker-dealers are required
to use only their best efforts to sell the 4,000,000 units. Neither the general
partner nor its affiliates will acquire units. Proceeds of the offering will be
held in an interest-bearing escrow account at BancFirst, Oklahoma City,
Oklahoma, until subscriptions for at least $100,000 (10,000 units) have been
received and accepted by ABIC Realty Corporation, the general partner. If a
subscription is not accepted, such funds will be returned within 15 days. If
10,000 units have not been sold within 180 days after the effective date of this
offering, the offering will be terminated and subscribers' funds will be
refunded within 15 days, along with each investor's pro rata share of interest
earned on the escrow account, after any escrow fees have been deducted. If
subscriptions for at least 10,000 units are received and accepted before the end
of the 180-day period, the offering will continue until and terminate upon the
earlier of (I) May 31, 2004, or (ii) the date on which all $40,000,000 in units
of ABIC Realty Fund I, L.P. have been sold.
INVESTING IN UNITS INVOLVES RISKS INCLUDING THE FOLLOWING, WHICH WE BELIEVE ARE
THE MOST SIGNIFICANT:
* In order to comply with certain Internal Revenue Service requirements
allowing income from the partnership to be treated as passive income at the
partner level, future transferability of the units has been restricted,
with limited exceptions, to no more than two percent (2%) of capital and
profits in any given year. Accordingly, the liquidity of the units is
restricted.
* The partnership is subject to various conflicts of interest with the
general partner. The general partner and/or its affiliates will receive
substantial compensation in connection with the purchase and sale of
partnership properties and the management of the partnership, including
acquisition fees, property supervision and management fees, and
participations in proceeds from the sale of properties.
* The partnership does not own any properties, and the general partner has
not yet identified any properties in which there is a reasonable
probability the partnership will invest. Accordingly, investors will not
have the opportunity to evaluate the properties that the partnership will
acquire and must rely totally upon the general partner with respect to the
acquisition of properties.
* Limited partners have no authority to participate in the management of the
partnership. Limited partners' voting rights are limited to electing a new
general partner upon the occurrence of an event of withdrawal, as defined
in the partnership agreement.
* The general partner, which will be making all investment decisions for the
partnership, has no prior experience managing a public real estate
partnership, or any similar limited partnership, nor does it have
experience managing other real estate investments. Michael R. Marshall is
the sole officer, director and shareholder of the general partner and the
sole member of management of the partnership. Mr. Marshall was previously
involved with certain investment corporations which are currently following
liquidation plans and were placed in bankruptcy
* The general partner may change its investment policies and strategies
without the consent of the limited partners.
* The partnership may borrow funds to increase working capital reserves or
other cash resources to be used for operating purposes in amounts up to 40%
of the total purchase price of partnership properties.
* If the partnership raises only the minimum $100,000, the partnership will
have fewer investments, which will result in increased risks to the limited
partners.
* The limited partners' tax liabilities may be greater than their cash
distributions.
* The limited partners may be subject to taxation upon the sale of a unit.
* The initial partnership capital is $1,100 and the initial capital of the
general partner is $300,000.
FOR A DISCUSSION OF THE RISK FACTORS CONCERNING THIS INVESTMENT, SEE "RISK
FACTORS" AT PAGE 10.
THE PARTNERSHIP IS NOT A MUTUAL FUNDS OR ANY OTHER TYPE OF INVESTMENT COMPANY
AND IS NOT REGISTERED OR SUBJECT TO REGULATION UNDER THE INVESTMENT COMPANY ACT
OF 1940.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROSPECTIVE INVESTORS SHOULD READ THIS ENTIRE PROSPECTUS.
<Table>
<Caption>
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PRICE TO BROKER COMMISSIONS PROCEEDS TO
PUBLIC & EXPENSES(1) PARTNERSHIP
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PER UNIT $ 10.00 $ 0.75 $ 9.25
TOTAL MINIMUM $ 100,000.00 $ 7,500.00 $ 92,500.00
TOTAL MAXIMUM $ 40,000,000.00 $ 3,000,000.00 $ 37,000,000.00
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(1) The partnership will pay selling commissions in the amount of 7.5% of
the gross offering proceeds to broker-dealers who participate in the
offering. The general partner may pay the broker-dealers due diligence
and non-accountable expenses up to 1% of the gross offering proceeds.
THE DATE OF THIS PROSPECTUS IS __________, 2003
WHO SHOULD INVEST - SUITABILITY STANDARDS
Investment in the partnership is suitable only for persons who can
afford to risk their entire investment and do not need liquidity in an
investment. It may be difficult to resell units because of the restrictions on
transferability contained in the partnership agreement and because no public
market for the units currently exists or is anticipated to develop. In addition,
it is contemplated that properties to be purchased by the partnership will be
held for several to twenty years. The units, therefore, should be purchased only
by persons who have adequate financial means and should not be purchased by
persons who might need to sell them immediately or will need to sell them
quickly in the future. In addition, investors should be aware that all
management and investment decisions will be made by the general partner, and
persons who are not comfortable with relying solely on another to manage his or
her investment should not become limited partners.
If the investor is an individual (including an individual beneficiary
of a purchasing IRA), or if the investor is a fiduciary (such as a trustee of a
trust or corporate pension or profit sharing plan, or other tax-exempt
organization, or a custodian under a Uniform Gifts to Minors Act), such
individual or fiduciary, as the case may be, must represent that he meets
certain requirements, as set forth in the subscription agreement, including the
following:
(i) that such individual (or in the case of fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the
funds to purchase units) may not invest more than 10% of the investors
net worth (excluding home, furnishings, and automobiles); and
(ii) that such individual (or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the
funds to purchase the units) has a minimum annual gross income of
$45,000 and a net worth (excluding home, furnishings and automobiles)
of not less than $45,000; or
(iii) that such individual (or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the
funds to purchase the units) has a net worth (excluding home,
furnishings and automobiles) of not less than $150,000.
Transferees will also be required to comply with applicable standards,
except for intra-family transfers and transfers made by gift, inheritance or
family dissolution.
The minimum purchase is 200 units ($2,000.00). No transfers will be
permitted of less than the minimum purchase, nor may a limited partner transfer,
fractionalize or subdivide such units so as to retain less than such minimum
number thereof. For purposes of satisfying the minimum investment requirement
forIndividual Retirement Accounts ("IRAs"), unless otherwise prohibited by state
law, a husband and wife may jointly contribute funds from their separate IRAs,
provided that each such contribution is made in increments of at least $1,000.
It should be noted, however, that an investment in the partnership will not, in
itself, create an IRA for any investor and that, in order to create an IRA, an
investor must comply with all applicable provisions of the Code. After an
investor has purchased the minimum investment, any additional investments must
be made in increments of at least $1,000.00.
Various states may have suitability standards for individual investors
and subsequent transferees different from those set by the partnership.
By executing the subscription agreement and subscription agreement
signature page (collectively, the "subscription agreement"), an investor
represents to the General Partner that he meets the foregoing applicable
suitability standards.
2
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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WHO SHOULD INVEST - SUITABILITY STANDARDS......................................2
SUMMARY OF THE OFFERING........................................................6
RISK FACTORS..................................................................10
Investment Risks.....................................................10
Real Estate Risks....................................................12
Federal Income Tax Risks.............................................14
Risks Relating to Retirement Plan Investors..........................17
ESTIMATED USE OF PROCEEDS.....................................................19
DESCRIPTION OF THE UNITS......................................................20
Units................................................................20
Summary of Distributions.............................................20
Summary of Allocations...............................................21
COMPENSATION OF THE GENERAL PARTNER...........................................22
CONFLICTS OF INTEREST.........................................................24
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER...............................25
MANAGEMENT....................................................................25
The General Partner..................................................25
Management...........................................................27
Changes In Management................................................27
INVESTMENT OBJECTIVES AND CRITERIA............................................28
General..............................................................28
Acquisition and Investment Policies..................................28
Terms of Leases and Lessee Creditworthiness..........................30
Borrowing Policies...................................................30
Disposition Policies.................................................30
Other Policies.......................................................31
REAL PROPERTY INVESTMENTS.....................................................31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................................31
INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA
CONSIDERATIONS................................................................32
Plan Assets - Generally..............................................33
Plan Assets - Current Law............................................33
Exemptions Under Plan Asset Regulations..............................34
Plan Asset Consequences - Prohibited Transaction Excise Tax..........35
Annual Valuation.....................................................36
</Table>
3
<Table>
FEDERAL INCOME TAX CONSEQUENCES..............................................37
Tax Opinion.........................................................38
Partnership Status..................................................39
Publicly Traded Partnerships .......................................40
General Principals of Partnership Taxation..........................41
Anti-Abuse Rules....................................................42
Basis Limitations...................................................42
Passive Loss Limitations............................................43
At Risk Limitations.................................................43
Allocations of Profit Loss..........................................44
Risk of Taxable Income without Cash Distributions...................45
Investment by Qualified Plans and Other Tax-Exempt Entities.........46
Investment by Charitable Remainder Trusts...........................47
Depreciation........................................................47
Syndication and Organizational Expenses.............................48
Deductibility of Acquisition and Advisory Fees and Property
Management and Leasing Fees........................................48
Activities Not Engaged in for Profit................................50
Characterization of Leases..........................................50
Property Held Primarily for Sale....................................50
Sales of Partnership Properties.....................................51
Sales of Limited Partnership Units..................................51
Dissolution and Liquidation of the Partnership......................52
Capital Gains and Losses............................................52
Election for Basis Adjustments......................................52
Alternative Minimum Tax.............................................52
Penalties...........................................................53
Tax Shelter Registration............................................53
Audits..............................................................54
Foreign Investors as Limited Partners...............................54
Tax Legislation and Regulatory Proposals............................55
State and Local Taxes...............................................55
SUMMARY OF PARTNERSHIP AGREEMENT.............................................55
Powers of the General Partner.......................................56
Liabilities of the Limited Partners.................................56
Other Activities of the General Partner.............................56
Rights and Obligations of Limited Partners; Nonassessability
of Units...........................................................56
Annual Audits.......................................................56
Transferability of Units............................................56
Withdrawal of General Partner.......................................57
Partnership Borrowing...............................................57
Dissolution and Termination.........................................58
DISTRIBUTIONS AND ALLOCATIONS................................................58
Distributions of Net Cash from Operations...........................58
Return of Unused Capital Contributions..............................60
Partnership Allocations.............................................60
</Table>
4
<Table>
REPORTS TO INVESTORS.........................................................61
PLAN OF DISTRIBUTION.........................................................62
SUPPLEMENTAL SALES MATERIAL..................................................62
LEGAL MATTERS................................................................63
EXPERTS......................................................................63
ADDITIONAL INFORMATION.......................................................63
GLOSSARY.....................................................................63
FINANCIAL STATEMENTS.........................................................66
EXHIBIT A - FORM OF LIMITED PARTNERSHIP AGREEMENT OF ABIC REALTY
FUND I, L.P...............................................................A-1
EXHIBIT B - FORM OF SUBSCRIPTION AGREEMENT AND SIGNATURE PAGE...............B-1
</Table>
5
SUMMARY OF THE OFFERING
THIS SECTION IS INTENDED TO HIGHLIGHT THE MATERIAL INFORMATION IN THIS
PROSPECTUS. POTENTIAL INVESTORS SHOULD READ AND EVALUATE THE FULL TEXT OF THE
PROSPECTUS IN ORDER TO EVALUATE IN INVESTMENT IN THE PARTNERSHIP.
ABIC REALTY FUND I, L.P. ABIC Realty Fund I, L.P. is a Texas limited
partnership whose principal place of business and
registered office is located at the office of the
general partner, 9520 North May Avenue, Suite 330,
Oklahoma City, Oklahoma 73120. The telephone number
is (405) 302-6434. ABIC Realty Fund I, L.P. is
referred to in this Prospectus as the "partnership."
The partnership has been formed to acquire and
operate commercial real estate properties, all to be
acquired on an all-cash basis. The partnership
expects all real estate properties acquired will be
located in growing population urban and suburban
areas of the southern and southwestern United States.
GENERAL PARTNER: ABIC Realty Corporation, a Texas corporation, is the
general partner and will make all investment and
operating decisions for the partnership.
SECURITIES OFFERED: A minimum of 10,000 units (the "minimum offering") up
to a maximum of 4,000,000 units (the "maximum
offering") in the partnership are being offered at
$10 per unit. The minimum purchase by an investor is
200 units ($2,000).
TERMS OF THE OFFERING: The offering of units of ABIC Realty Fund I, L.P.
will commence upon the date of this prospectus. The
subscription proceeds from the offering will be held
in an interest -bearing escrow account at BancFirst,
Oklahoma City, Oklahoma, until subscriptions for at
least $100,000 (10,000 Units) have been received and
accepted by the General Partner. If a subscription is
rejected, such funds will be returned within 15 days.
If 10,000 Units have not been sold within 180 days of
the effective date of this offering, the offering
will be terminated and subscribers' funds will be
refunded within 15 days, along with each investor's
pro rata share of interest on the escrow account,
after any escrow fees have been deducted. If
subscriptions for at least 10,000 units are received
and accepted within 180 days of the effective date,
the offering will continue until and terminate upon
the earlier of (i) May 31, 2004 or (ii) the date on
which all $40,000,000 in Units of ABIC Realty Fund I,
L.P. have been sold. Neither the general partner nor
its affiliates will acquire units.
REAL ESTATE PROPERTIES
TO BE ACQUIRED: The partnership plans to acquire, on an all-cash
basis, and operate commercial real estate properties
which have an operating history, including, without
limitation, office buildings, shopping centers,
business industrial parks and other commercial and
industrial properties. The partnership may also
acquire newly constructed properties, or properties
which have been recently constructed and have limited
or no operating histories. As of the date of this
prospectus, the partnership has neither purchased nor
contracted to purchase any properties, nor has the
general partner identified any properties in which
there is a reasonable probability that the
partnership will invest. The partnership expects all
properties acquired will be located in growing
population urban and suburban areas of the southern
and southwestern United States.
6
BUSINESS OBJECTIVES: The partnership's business objectives are to purchase
and operate a portfolio of income producing real
estate properties that: (i) pay quarterly cash
distributions to its investors at an increasing rate
over time, that for taxable investors may be
partially free from current taxation as a result of
depreciation deductions; and (ii) increase in value
over time. No assurance can be given that these
business objectives will be attained.
ESTIMATED USE OF
PROCEEDS OF OFFERING: It is anticipated that approximately 86.5% of the
proceeds of this offering will be invested in
properties.
FUTURE CASH DISTRIBUTIONS
TO PARTNERS: Holders of units will be entitled to receive periodic
preferential cash distributions of operating cash
flow (the "preferred return") and will be entitled to
receive a preferential cash return on the sale of the
partnership properties. The preferred return is not
guaranteed and may only be paid if funds are
available.
Distributions of Net Cash from Operations will be
distributed first to limited partners holding units
until they have received their 7% preferred return.
Although there can be no assurance that Net Cash From
Operations will be sufficient to make additional
distributions, any remaining Net Cash Flow from
Operations will be distributed to the general partner
until it has received, aggregating all prior periods'
distributions, distributions totaling 25% of the
preferred return paid to the limited partners,
aggregating all prior periods distributions.
Thereafter distributions of Net Cash from Operations
shall be 80% to limited partners on a per unit basis
and 20% to the general partner. If, in any year, Net
Cash from Operations is insufficient to pay the
limited partners their full 7% preferred return, the
unpaid portion shall accrue and be payable in future
periods prior to the general partner receiving any
distributions.
Distributions of Non-Liquidating Net Sale Proceeds
and Liquidating Distributions will, in the event
there are any unpaid accrued preferred returns, first
be applied toward any unpaid accrued preferred
returns and then to the general partner until it has
received, aggregating all prior periods'
distributions, an amount equal to 25% of the limited
partners' preferred return. After all preferred
returns have been paid, distributions will then be
made to the limited partners in an amount equal to
their net capital contributions, and then to the
general partner in an amount equal to its capital
contribution. Thereafter, in the case of
Non-Liquidating Net Sale Proceeds, distributions will
be 80% to limited partners and 20% to the general
partner. In the case of Liquidating Distributions,
the distributions will be in accordance with Capital
Accounts after Gain on Sale in excess of depreciation
deductions has been allocated 80% to limited partners
and 20% to the general partner and gain equal to
prior period depreciation deductions has been
allocated to the respective limited partner that was
allocated the deduction.
7
NO ASSURANCE CAN BE MADE AS TO THE TIMING OR AMOUNT
OF CASH DISTRIBUTIONS TO THE PARTNERS, INCLUDING THE
PREFERRED RETURN.
RISK FACTORS: Investment in the units involves various risks
including the following:
In order to comply with certain Internal Revenue
Service requirements allowing income from the
partnership to be treated as passive income at the
partner level, future transferability of the units
has been restricted, with limited exceptions, to no
more than two percent (2%) of capital and profits in
any given year. Accordingly, the liquidity of the
units is restricted.
Limited partners have no authority to participate in
the management of the partnership. Limited partners'
voting rights are limited to electing a new general
partner upon the occurrence of an event of
withdrawal, as defined in the partnership agreement.
The limited partners must rely on the general
partner, who will have full responsibility for the
management of the partnership.
The general partner was recently organized and has no
operating history.
The net worth of the general partner is approximately
$300,000. The net worth of the general partner may be
relevant to evaluating the abilities of the general
partner to fulfill its financial obligations and
responsibilities to the partnership.
The number of properties that the partnership will
acquire and diversification of its investments will
be reduced to the extent that less than the maximum
offering amount is raised. Lack of diversification of
the partnership's investments may increase the risks
associated with an investment in the units.
Limited partners' tax liabilities may be greater than
their cash distributions.
The limited partners may be subject to taxation upon
the sale of a unit.
The general partner and/or its affiliates will
receive substantial compensation in connection with
the purchase and sale of partnership properties and
the management of the partnership, including
acquisition fees, property supervision and management
fees, and participations in proceeds from the sale of
properties.
The partnership will be subject to market risks
associated with investments in real estate, which
means that both the amounts of cash the partnership
will receive from the lessees of the partnership
properties, and the future value of the properties
cannot be predicted. Accordingly, the extent to which
investors will receive cash distributions and realize
potential appreciation on real estate investments
will be dependent upon fluctuating market conditions.
The partnership does not own any real property and
the genera partner has not identified any properties
in which there is a reasonable probability that the
8
partnership will invest. Accordingly, investors will
not have the opportunity to evaluate the properties
that the partnership will acquire and must rely
totally upon the ability of the general partner with
respect to the acquisition of properties.
The partnership may borrow funds to increase working
capital reserves or other cash resources to be used
for operating purposes in amounts up to 40% of the
total purchase price of partnership properties.
Partnership borrowing could reduce future cash
distribution and/or subject certain properties to
possible adverse consequences in the event of any
failure by the partnership to make required payments.
SEE THE "RISK FACTORS" SECTION OF THIS PROSPECTUS FOR
FURTHER DISCUSSION OF THE RISK FACTORS RELATING TO AN
INVESTMENT IN THE UNITS, AT PAGE 10.
CONFLICTS OF INTEREST
OF GENERAL PARTNER: Michael R. Marshall is the sole shareholder of the
general partner. The general partner will be paid
substantial fees in connection with partnership
activities. Fees payable to the general partner or
its Affiliates in connection with partnership
transactions involving the purchase, management and
sale of partnership properties are not the result of
arm's-length negotiations and will be payable
regardless of the quality of the property acquired or
the services provided to the partnership. There could
be conflicts of interest between the loss of
management fees upon the sale of a property and the
brokerage fee which may be received, and between the
receipt of a brokerage fee and the desirability of
selling a property at a specific time. The
partnership will not purchase any properties from the
general partner or its affiliates or sell any
properties to the general partner or its Affiliates;
however, the partnership may borrow funds from the
general partner at an interest rate not to exceed the
prime rate plus 2%. The partnership may borrow from
the general partner for any purpose up to $500,000.
GENERAL PARTNER FEES
AND REIMBURSEMENTS: The general partner will receive compensation and
fees for services and/or reimbursement of cost and
expenses relating to this offering and in connection
with the investment and management of the
partnership's assets which are not the result of
arm's-length negotiations. The most significant items
are:
OFFERING AND ORGANIZATIONAL COSTS: The partnership
will pay the general partner 6% of the gross offering
proceeds to reimburse registration, legal,
accounting, printing, marketing and other
out-of-pocket fees as well as allocated general,
administrative and overhead expenses borne by the
general partner for costs and services in connection
with the offering and the organization of the
partnership.
ACQUISITION AND ADVISORY FEE: The partnership will
pay the general partner a fee of 3% of gross offering
proceeds in connection with the selection, valuation
and acquisition of properties, in addition to
reimbursement of actual costs and expenses for the
acquisition of properties. These fees shall be
payable ratably on a monthly basis as properties are
acquired.
9
PROPERTY SUPERVISION FEE: The partnership will pay to
the general partner an ongoing property supervision
fee in the amount of 2% annually of the amount of
funds invested in properties, payable on a monthly
basis.
PROPERTY MANAGEMENT AND LEASING SERVICE: The general
partner generally will utilize independent third
party property management and leasing companies and
shall cause the partnership to employ a property
management and leasing company (which may, when
necessary, be an Affiliate of the general partner) to
perform professional property management and leasing
services for the partnership. In the event the
property management and leasing company is an
Affiliate of the general partner, the compensation
payable to such Affiliate shall not exceed fees which
would be charged by persons who are not affiliated
with the general partner rendering comparable
services in the same geographic area.
PARTNERSHIP MANAGEMENT AND INVESTOR ADMINISTRATION: A
partnership management fee shall be paid monthly to
the general partner in an amount equal to 1/12th of
1% of the aggregate amount of limited partner
subscriptions. An investor administration fee shall
be paid monthly at 1/12th of 1% of the aggregate
amount of limited partner subscriptions.
REAL ESTATE SALES COMMISSIONS: In connection with the
sales of partnership properties, the general partner
generally will utilize independent third-party real
estate companies. If the sales agent is affiliated
with the general partner, commissions shall not
exceed fees which would be charged by persons who are
not affiliated with the general partner rendering
comparable services in the same geographic area.
The general partner may receive other items of
incidental expense reimbursement during the term of
the partnership.
PARTNERSHIP TERM: The partnership will continue in existence until
December 31, 2030 or until all the partnership
properties have been sold. The partnership will be
liquidated upon the ultimate disposition of the
partnership properties, which the general partner
currently anticipates will occur a minimum of ten to
twenty years after acquisition of the last
partnership property is completed.
RISK FACTORS
THE PURCHASE OF UNITS INVOLVES A NUMBER OF RISK FACTORS. INVESTORS
SHOULD CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS ALL OF THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE INVESTING IN THE UNITS:
INVESTMENT RISKS
THE UNITS WILL HAVE LIMITED TRANSFERABILITY AND LIMITED LIQUIDITY. The
units will not be listed on any exchange, and it is not anticipated that a
public trading market will develop for the units. Accordingly, the units are
expected to have limited liquidity. Certain state regulatory agencies may impose
certain
10
restrictions relating to the number of units which may be transferred by a
limited partner, and may require that the suitability standards for initial
purchasers of the units be applied to assignees as a condition to their
substitution as limited partners. The partnership agreement limits
transferability by providing that any transfer shall be deemed void and shall
not be recognized by the partnership unless it meets the safe harbor trading
limitations that prevent a partnership from being classified as a "publicly
traded partnership." In general, those safe harbors allow that no more than two
percent (2%) of a partnership's capital and profits interests can change hands
in any taxable year. (See Federal Income Tax Consequences - Publicly Traded
Partnerships) Because of the fact that the classification of the partnership as
a "publicly traded partnership" may decrease the value of the units, the general
partner intends to exercise fully its rights to prohibit transfers of units
which could cause the partnership to be classified as a "publicly traded
partnership." The partnership has no redemption plan for limited partners who
want to redeem their units.
THE LIMITED PARTNERS WILL RELY ON THE GENERAL PARTNER TO MANAGE THE
PARTNERSHIP. All decisions with respect to all aspects of the management of the
partnership and the selection and disposition of partnership properties will be
made exclusively by the general partner. The limited partners will have no right
or power to take part in the management of the partnership.
THE GENERAL PARTNER AND/OR ITS AFFILIATES WILL RECEIVE SUBSTANTIAL
COMPENSATION. The general partner and/or its Affiliates will perform services
for the partnership in connection with the sale of units, the selection and
acquisition of partnership properties, the ongoing supervision and leasing of
partnership properties, and ultimately in the sale of the properties, and will
receive substantial compensation from the partnership in consideration for these
services. The amount of such compensation has not been determined in
arm's-length negotiations.
THERE MAY BE CONFLICTS OF INTEREST BETWEEN THE GENERAL PARTNER AND THE
LIMITED PARTNERS. The general partner will receive substantial fees in
connection with partnership activities regardless of its performance. Certain of
such fees are based on the amount of funds invested in partnership properties,
which could give the general partner incentive to keep certain properties that
might be in the best interest of the limited partners to sell. All of the
outstanding common stock of the general partner is owned by Michael R. Marshall,
which gives Mr. Marshall complete control of the general partner, and therefore,
the management of the partnership.
THE LIMITED PARTNERS HAVE VOTING RIGHTS ONLY IN CERTAIN SITUATIONS. The
partnership is a limited partnership formed under the laws of the State of
Texas, and accordingly, the rights of the limited partners are limited to rights
provided either under Texas law or contained in the partnership agreement. In
this regard, the limited partners' rights under the partnership agreement are to
elect, by 66 2/3 percent, a new general partner when the existing general
partner must be replaced.
THE GENERAL PARTNER HAS A LIMITED NET WORTH. The general partner has
represented that it has a net worth of approximately $300,000. The net worth of
the general partner may be relevant in evaluating the ability of the general
partner to fulfill its obligations and responsibilities to the partnership.
THE GENERAL PARTNER AND THE PARTNERSHIP HAVE NO OPERATING HISTORY. ABIC
Realty Corporation was organized in February 2000 and has no operating history.
Similarly, the partnership was formed in May 2002 and has not commenced
operations.
THE GENERAL PARTNER HAS NO EXPERIENCE MANAGING PUBLIC REAL ESTATE
PARTNERSHIPS. The general partner has no experience in managing a public
reporting real estate limited partnership, or any similar limited partnership,
nor does it have experience managing other real estate investments. Michael R.
Marshall, the president of the general partner, was previously involved with
certain investment corporations that are currently following liquidation plans
and were placed in bankruptcy.
11
THE PARTNERSHIP WILL PURCHASE FEWER PROPERTIES IF LESS THAN THE
MAXIMUM NUMBER OF UNITS ARE SOLD. To the extent that less than the maximum
offering amount is raised, the diversification of the partnership's investments
will be decreased and the extent to which the partnership's profitability will
be affected by any one of its investments will increase.
THE OFFERING PRICE WAS ARBITRARILY ESTABLISHED. The selling price of
the units offered hereby was determined arbitrarily by the general partner and
bears no relationship to any established criteria for valuing issued or
outstanding units of limited partnership interest or other ownership interests
at the present time. The price was selected merely for ease in accounting.
A LIMITED PARTNER MAY LOSE HIS CAPITAL CONTRIBUTION AS WELL AS HIS
SHARE OF UNDISTRIBUTED PROFITS AND ASSETS. A limited partner's liability, in
general, will be limited to the amount he agrees to contribute to the capital of
the partnership plus his share of any undistributed profits and assets, in the
event there is insufficient cast for distribution.
THERE CAN BE NO ASSURANCE OF CASH DISTRIBUTIONS TO LIMITED PARTNERS.
There is no assurance as to when or whether sufficient cash will be available
for distribution to the limited partners from either Net Cash From Operations or
Sale Proceeds. The partnership bears all expenses incurred in its operations,
which are deducted from cash funds generated by operations prior to computing
the amount of Net Cash From Operations to be distributed to the limited partners
and general partner. In addition, the general partner, in its discretion, may
retain any portion of such funds for working capital purposes of the
partnership. There can be no assurance as to the ability of the partnership to
realize gains on the resale of its properties, and, in any event, distribution
of such proceeds should not be expected to occur during the early years of
partnership operations. Sales of properties developed by the partnership
generally will not occur until after completion of the purchase, development
and/or construction of the properties and a period of ownership of several years
thereafter. Further, receipt of the full proceeds of such sales may be extended
over a substantial period of time following the sales.
REAL ESTATE RISKS
THE FINANCIAL PERFORMANCE OF LEASED PROPERTIES MAY FLUCTUATE.
Partnership properties will include leased industrial and commercial properties,
and the partnership will be subject to economic problems incident to the
ownership and operation of these types of properties, including (i) changes in
the general economic climate resulting in increased operating costs; (ii)
changes in local conditions such as an oversupply of space or reduction in
demand for real estate; (iii) competition from other available space; and (iv)
changes in laws and governmental regulations governing real estate usage, zoning
and taxes. The fluctuations in net income of the partnership may primarily be
due to tenant turnover, resulting in increased vacancies and the requirement to
expend funds for tenant refurbishments, and increases in administrative and
other operating expenses. Because of the cyclical nature of the real estate
market, such decreases in net income of the partnership could occur at any time.
There are no assurances that partnership properties will not experience
substantial fluctuating financial performance.
THE GENERAL PARTNER HAS NOT IDENTIFIED ANY PROPERTIES IN WHICH IT
INTENDS TO INVEST. This offering is commonly referred to as a "blind pool"
offering in that the general partner will not pre-identify any properties in
which there is a reasonable probability that the partnership will invest.
Investors must rely upon the ability of the general partner with respect to the
investment in and management of the unspecified properties and will not have an
opportunity to evaluate for themselves the relevant economic, financial and
12
other information regarding the specific properties in which the proceeds of
this offering will be invested. Accordingly, the risk of investing in the units
may be increased. While the partnership is required to obtain an independent
appraisal for each property purchased reflecting an appraised value at least
equal to the purchase price paid for such property, it should be noted that
appraisals are merely estimates of value and should not be relied upon as
precise measures of true worth or realizable value. In addition, potential
investors should realize that the general partner may rely solely on its own
analysis in deciding whether to purchase a property and is not required to rely
on the independent appraisal in any way in formulating such a decision. No
assurance can be given that the partnership will be successful in obtaining
suitable investments or that, if investments are made, the objectives of the
partnership will be achieved.
DELAYS IN INVESTMENTS MAY DELAY DISTRIBUTIONS TO THE LIMITED PARTNERS.
Delays that may take place in the selection, acquisition and development of
properties could adversely affect the return to a limited partner as a result of
corresponding delays in the commencement of distributions to limited partners
and in the availability of income tax deductions for depreciation and
amortization.
THE PARTNERSHIP MAY NOT BE ABLE TO SELL PARTNERSHIP PROPERTIES AT A
PROFIT. The partnership generally will hold the various partnership properties
until such time as the general partner determines that the sale or other
disposition appears to be advantageous to achieve the partnership's investment
objectives or until it appears that such objectives will not be met. The general
partner intends to sell its properties within several to twenty years after
their acquisition. However, the general partner may exercise its discretion as
to whether and when to sell a property, and the partnership will have no
obligation to sell properties at any particular time. It is impossible to
predict with any certainty the various market conditions affecting real estate
investments which will exist at any particular time in the future. Due to the
uncertainty of market conditions, which may affect the future disposition of
partnership properties, there are no assurances that the partnership will be
able to sell its properties at a profit in the future. Accordingly, the timing
of liquidation of the partnership and the extent to which limited partners will
receive cash distributions and realize potential appreciation on real estate
investments will be dependent upon fluctuating market conditions.
COMPETITION FOR INVESTMENTS MAY INCREASE COSTS TO THE PARTNERSHIP. The
partnership will experience competition for real property investments from
individuals, corporations and bank and insurance company investment accounts, as
well as other real estate investment partnerships, real estate investment trusts
and other entities engaged in real estate investment activities. Competition for
investments may have the effect of increasing costs and reducing returns to
limited partners.
THE BUSINESS OF THE PARTNERSHIP MAY SUFFER IN THE EVENT OF ECONOMIC AND
REGULATORY CHANGES. Real estate investments are relatively illiquid compared to
other financial assets, and this illiquidity will limit the ability of the
partnership to quickly change its portfolio. Sales of partnership properties
will be subject to factors such as changes in general economic or local
conditions, changes in supply of or demand for similar or competing properties
in an area, changes in interest rates, availability of permanent mortgage funds,
and changes in tax, real estate, environmental and zoning laws, all of which may
render the sale of a property difficult or unattractive. Periods of high
interest rates and tight money supply may make the sale of properties more
difficult. For these reasons, no assurance of profitable operation or
realization of gains from the sales of partnership properties can be given.
CERTAIN ENVIRONMENTAL LAWS CREATE POTENTIAL FOR LIABILITY AND
RESTRICTIONS ON PROPERTY USE. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the cost of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which property
may be used or businesses may be
13
operated, and these restrictions may require expenditures. Environmental laws
provide for sanctions in the event of noncompliance and may be enforced by
governmental agencies or, in certain circumstances, by private parties. In
connection with the acquisition and ownership of the partnership properties, the
partnership may be potentially liable for such costs. The cost of defending
against claims of liability, of compliance with environmental regulatory
requirements or of remediating any contaminated property could materially
adversely affect the business, assets or results of operations of the
partnership and, consequently, amounts available for distribution to the limited
partners.
FEDERAL INCOME TAX RISKS
AN INVESTMENT IN UNITS INVOLVES CERTAIN MATERIAL INCOME TAX RISKS. EACH
PROSPECTIVE PURCHASER OF UNITS IS URGED TO CONSULT WITH HIS OWN TAX ADVISOR WITH
RESPECT TO THE FEDERAL (AS WELL AS STATE AND FOREIGN) TAX CONSEQUENCES OF AN
INVESTMENT IN UNITS. THE PARTNERSHIP WILL NOT SEEK ANY RULINGS FROM THE INTERNAL
REVENUE SERVICE (THE "IRS") REGARDING ANY OF THE TAX ISSUES DISCUSSED HEREIN.
LOSS OF PARTNERSHIP TAX STATUS COULD RESULT IN REDUCED CASH
DISTRIBUTIONS. The ability to obtain the income tax attributes anticipated from
an investment in units of the partnership depends upon the classification of the
partnership as a partnership for federal income tax purposes and not as an
association taxable as a corporation. The partnership intends to be classified
as a partnership for federal income tax purposes. However, if the partnership
were to be classified as a "publicly traded partnership" it might be taxable as
an association taxable as corporation. In that case, its net income would be
taxable, all items of income, gain, loss, deduction and credit would be
reflected only on its tax returns and would not be passed through to the limited
partners, and distributions to the limited partners would be treated as ordinary
dividend income to the extent of earnings and profits of the partnership. In
such event, cash distributions to limited partners would be reduced. The
distributions would be considered dividends, and, under current law, would be
taxable and, most likely, the tax liability of limited partners with respect to
those distributions would be increased.
POTENTIAL PUBLICLY TRADED PARTNERSHIP CLASSIFICATION WOULD BE
DETRIMENTAL TO THE PARTNERSHIP. If a secondary trading market develops for the
units and trading of units exceeds a certain level, the IRS may determine that
the partnership is a "publicly traded partnership" and, hence, taxed as a
corporation. As discussed in the previous paragraph, such a determination would
have a very detrimental impact on the partnership. If such a determination were
made by the IRS, taxation as a corporation might be avoided if 90% of the
partnership's income is '"qualifying income" such as rents, interest and
dividends. However, even if taxation as a corporation were avoided because 90%
of the partnership's income is "qualifying income", the income will be
considered portfolio income and, hence, would not be available to offset passive
losses. The IRS has promulgated regulations that set forth safe harbor
provisions which allow for a minimal level of public trading on the secondary
market without classification as a "publicly traded partnership". Due to the
complex nature of such safe harbor provisions and the lack of interpretive
guidance with respect to such provisions, and because any determination in this
regard will necessarily be based upon future facts not yet in existence at this
time, no assurances can be given that the partnership will not, at some time in
the future, be treated as a publicly traded partnership.
TAX LIABILITIES MAY BE GREATER THAN CASH DISTRIBUTIONS. The limited
partners must report their pro rata share of the partnership's taxable net
income regardless of whether cash distributions are made. It is possible that
the general partner will determine that cash from operations or from the sale of
a partnership property is necessary for the operations of partnership property.
If that is the case, limited partners will be liable for income tax on that net
income or gain but may not receive cash distributions equal to that liability.
TAXATION ON DISPOSITION OF UNITS. In the event of a sale or other
disposition of a unit (other than through gift or inheritance), the limited
partners will recognize taxable income (or loss) equal to the difference between
the consideration received and the basis in the unit. It is possible that a
limited partner could recognize income when the consideration received is less
than or equal to the capital contribution.
14
IRS COULD CHALLENGE ALLOCATIONS OF PROFIT AND LOSS. Counsel has opined
that income, gain, loss, deduction and credit will be allocated among the
partners substantially in accordance with the allocation provisions of the
partnership agreement. However, it is possible that the IRS will successfully
challenge the allocations in the partnership agreement and reallocate items of
income, gain, loss, deduction and credit. The regulations related to allocation
of items of taxable gain and loss are complex and the determination of whether
the allocations adopted by the partnership will be respected is dependent upon
circumstances in the future which cannot be predicted or controlled by the
partnership. If the IRS were to challenge the allocation, it is likely that the
limited partners would be allocated more taxable income or less loss, be
required to file amended returns and pay more tax with penalties and interest.
POTENTIAL DEALER STATUS COULD ELIMINATE CAPITAL GAINS TREATMENT. In the
event the partnership were deemed for tax purposes to be a "dealer" (one who
holds property primarily for sale to customers in the ordinary course of
business) with respect to one or more partnership properties, any gain
recognized upon a sale of such real property would be taxable as ordinary income
and would constitute Unrelated Business Taxable Income ("UBTI") to limited
partners who are tax-exempt entities. The issue of dealer status is dependent
upon partnership intentions and actions at the time a property is sold or held
for sale. For example, if the partnership determined to convert a property into
condominiums and then sell individual condominium, the condominiums would be
deemed to be held for sale. Therefore, it is impossible to predict whether the
partnership will be considered to hold any or all of its properties primarily
for sale to customers in the ordinary course of business at the time it disposes
of properties. The risks to tax-exempt entities from UBTI is discussed infra in
this Federal Income Tax Risks section under the heading UNRELATED BUSINESS
TAXABLE INCOME ("UBTI") IS TAXABLE TO TAX EXEMPT ENTITIES.
POSSIBILITY OF DISALLOWANCE OF DEDUCTIBILITY OF FEES AND EXPENSES PAID
BY THE PARTNERSHIP. Disallowance by the IRS of any material portion of the fees
and expenses payable by the partnership would result in an increase in the
taxable income of the partnership allocable to its partners with no associated
increase in Net Cash From Operations. Since the appropriate classification of
fees and expenses paid by the partnership into proper categories and the
determination of whether certain fees and expenses are ordinary and necessary
and reasonable in amount depends upon facts relating to and existing at the
times the services are to be rendered to the partnership, it is impossible to
predict the probable outcome if the IRS were to challenge the deductibility or
timing of deduction or amortization of those fees and expenses.
RE-CHARACTERIZATION OF SALE-LEASEBACK TRANSACTIONS AS FINANCING
TRANSACTIONS COULD HAVE ADVERSE TAX CONSEQUENCES. In the event that the
partnership enters into any acquisition and leaseback to seller which is
characterized as a financing, the partnership would likely lose depreciation and
cost recovery deductions with respect to the property purchased and income
generated from such property would be deemed portfolio income, which could not
be offset by passive losses. The partnership will not seek an advance ruling
from the IRS or obtain an opinion of counsel that it will be treated as the
owner of any properties in sale-leaseback transactions for federal income tax
purposes. Accordingly, no assurance can be given that any such transaction would
not be re-characterized as a financing transaction for federal income tax
purposes.
APPLICABILITY OF ANTI-ABUSE RULES COULD HAVE ADVERSE TAX CONSEQUENCES.
In December 1994, the IRS adopted regulations setting forth "anti-abuse" rules
under Code provisions applicable to partnerships which rules authorize the
Commissioner of Internal Revenue to recast transactions involving the use of
partnerships to either reflect the underlying economic arrangement or to prevent
the use of a partnership to circumvent the intended purpose of a provision of
the Code. In this regard, the general partner is unaware of any facts or
circumstances which would cause the IRS to exercise its authority to recast any
transaction
15
entered into by the partnership; however, the applicability of such rules to the
partnership's activities is very uncertain, and no assurance can be given that
the Commissioner would not, in the future, attempt to recast or restructure
certain of the partnership's activities or transactions.
AUDIT OF PARTNERSHIP COULD RESULT ININCREASED TAX, INTEREST AND
PENALTIES. The IRS may audit the federal income tax returns of the partnership.
Any audit of the partnership could also result in an audit of a limited
partner's own tax return causing adjustments of items unrelated to an investment
in the partnership, as well as an adjustment to various partnership items. In
the event of any such adjustments, a limited partner might incur attorneys'
fees, court costs and other expenses contesting protested deficiencies asserted
by the IRS, in addition to interest on the underpayment and certain penalties
from the date the tax originally was due. In addition, in the event of an audit,
the tax treatment of all partnership items would be determined at the
partnership level in a single proceeding rather than in separate proceedings
with each partner, and the general partner is primarily responsible for
contesting federal income tax adjustments proposed by the IRS. In this
connection, the general partner may extend the statute of limitations as to all
partners, and in certain circumstances, may bind the limited partners to a
settlement with the IRS.
CLASSIFICATION OF THE PARTNERSHIP AS A "TAX SHELTER" COULD RESULT IN
INCREASED PENALTIES FOR UNDERSTATEMENT OF TAX. Code Section 6662 provides that a
twenty (20%) percent penalty is imposed on any portion of an underpayment of tax
attributable to a "substantial understatement of income tax" due to a reporting
position for which the taxpayer had no substantial authority. If the partnership
is classified as a "tax shelter", the taxpayer must also reasonably believe that
the income tax treatment was more likely than not proper in order to avoid the
twenty (20%) percent penalty.
IF THE IRS WERE TO DETERMINE THAT THE PARTNERSHIP'S ACTIVITIES WERE NOT
ENTERED INTO FOR PROFIT INVESTORS WOULD BE UNABLE TO DEDUCT ANY LOSSES
ATTRIBUTABLE TO PARTNERSHIP OPERATION. It is not projected that the partnership
will generate operating losses or that on liquidation, properties will be sold
at a loss. However, under certain economic conditions it is conceivable that
such looses could occur. Code Section 183 limits the deduction of losses
attributable to activities not engaged in for profit. The partnership agreement
and prospectus set forth the partnership's investment objectives and the general
partner represents that he will operate the partnership in a business-like
manner in accordance with those objectives and other provisions of the
partnership agreement. Notwithstanding the express intention of the partnership
to be profitable, it is possible that the IRS would determine that the
partnership activities were not entered into for profit. In that case, any
losses could not be deducted on partners' individual returns.
INVESTMENT IN THE PARTNERSHIP WILL MOST LIKELY BE CONSIDERED A "PASSIVE
ACTIVITY" AND, THEREFORE, DEDUCTIONS OF ANY PARTNERSHIP LOSSES WILL BE LIMITED.
Losses from passive activities may be deducted only against income from other
passive activities. Passive activities are generally defined to be any
activities in which a taxpayer does not materially participate. Partnership
losses will be deductible only to the extent of income and gains from passive
activities. Any passive losses that are not deducted in any year may be used to
offset passive income in future years or in the year that the passive activity
is disposed of. Any such losses can not be allowed to offset salaries and other
earned income, active business income or portfolio income such as dividends,
interest, royalties, annuities and gains from property held for investment.
Accordingly, in the event the partnership does generate tax losses, a limited
partner may not recognize any immediate benefit.
INVESTMENT IN THE PARTNERSHIP MAY IMPOSE AND REQUIRE WITHHOLDING. The
state in which a limited partner is a resident may impose an income tax upon his
share of taxable income of the partnership. Further, states in which the
partnership will own partnership properties may impose income taxes upon a
limited partner's share of the partnership's taxable income allocable to any
partnership property located in that state. In addition, many states have
implemented or are implementing programs to require partnerships to withhold and
pay state
16
income taxes owed by non-resident partners relating to income producing
properties located in their states. These withholding requirements may exist
regardless of whether the limited partner will actually owe state tax. In such
cases, the limited partner would have to file a state income tax return to
recover the withheld tax. Accordingly, the partnership may be required to
withhold state taxes from cash distributions otherwise payable to limited
partners. In the event the partnership is required to withhold state taxes from
cash distributions otherwise payable to limited partners, the amount of the Net
Cash From Operations otherwise payable to such limited partners may be reduced.
In addition, such collection and filing requirements at the state level may
result in increases in the partnership's administrative expenses, which would
have the effect of reducing cash available for distribution to the limited
partners. Prospective limited partners are urged to consult with their own tax
advisors with respect to the impact of applicable state and local taxes and
state tax withholding requirements on an investment in the partnership.
FUTURE LEGISLATIVE OR REGULATORY ACTION MAY ADVERSELY IMPACT THE
PARTNERSHIP. In recent years, numerous legislative, judicial and administrative
changes have been made in the provisions of the federal income tax laws
applicable to investments similar to an investment in units in the partnership.
Those changes have included restrictions on the transferability of limited
partnership interests, restrictions on deduction of losses, increasing the scope
of the alternative minimum tax, implementation of audit programs targeting
limited partnerships, increased penalties on disputed tax deficiencies and
registration of investment limited partnerships deemed to be tax shelters. There
is no guarantee that during the life of the partnership, new legislative,
judicial and administrative changes will not occur that will adversely affect
the taxation of a limited partner. Any such changes could have an adverse effect
on an investment in units in the partnership or on the market value or the
resale potential of partnership properties. President Bush has recently proposed
that dividends payable to individuals be tax-free. If that proposal is enacted,
the advantages of investing in a partnership rather than a corporation could be
significantly reduced, if not eliminated. Each investor is urged to consult with
his own tax advisor with respect to the status of legislative, regulatory or
administrative developments, and proposals and their potential effect on an
investment in the units. It should also be noted that the Tax Opinion assumes
that no legislation will be enacted which will be applicable to an investment in
units in the partnership.
RISKS RELATING TO RETIREMENT PLAN INVESTORS
THERE ARE SPECIAL CONSIDERATIONS THAT APPLY TO PENSION OR PROFIT
SHARING TRUSTS OR IRAS INVESTING IN UNITS. IF YOU ARE INVESTING THE ASSETS OF A
PENSION, PROFIT SHARING, SECTION 401(K), KEOGH OR OTHER QUALIFIED RETIREMENT
PLAN OR THE ASSETS OF AN IRA IN UNITS, YOU SHOULD SATISFY YOURSELF THAT:
o YOUR INVESTMENT IS CONSISTENT WITH YOUR FIDUCIARY OBLIGATIONS
UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA")ERISA AND THE CODE;
o YOUR INVESTMENT IS MADE IN ACCORDANCE WITH THE DOCUMENTS AND
INSTRUMENTS GOVERNING YOUR PLAN OR IRA, INCLUDING YOUR PLAN'S
INVESTMENT POLICY;
o YOUR INVESTMENT WILL NOT IMPAIR THE LIQUIDITY OF THE PLAN OR IRA;
o YOUR INVESTMENT WILL NOT PRODUCE "UNRELATED BUSINESS TAXABLE
INCOME" FOR THE PLAN OR IRA;
o YOU WILL BE ABLE TO VALUE THE ASSETS OR THE PLAN ANNUALLY IN
ACCORDANCE WITH ERISA REQUIREMENTS; AND
o YOUR INVESTMENT WILL NOT CONSTITUTE A PROHIBITED TRANSACTION
UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE.
17
FOR A MORE COMPLETE DISCUSSION OF THE FOREGOING ISSUES AND OTHER RISKS
ASSOCIATED WITH AN INVESTMENT IN UNITS BY RETIREMENT PLANS, SEE "INVESTMENT BY
TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS" SECTION OF THIS PROSPECTUS ON PAGE
32.
PARTNERSHIP PROPERTIES COULD BE DEEMED TO BE "PLAN ASSETS", IN WHICH
CASE THE GENERAL PARTNER WOULD MOST LIKELY ELECT TO TERMINATE THE PARTNERSHIP.
If partnership properties are deemed to be assets of a qualified plan or IRA
investing as a limited partner ("Plan Assets"), operations will be severely
limited. The general partner would be considered a plan fiduciary and
contemplated transactions described herein may be deemed to be "prohibited
transactions" subject to excise taxation under the Code. Additionally, if the
assets of the partnership were deemed to be Plan Assets, the standards of
prudence and other provisions of ERISA would extend to the general partner with
respect to investments made by the partnership. The partnership has not
requested an opinion of counsel regarding whether or not the assets of the
partnership would constitute Plan Assets under ERISA nor has it obtained or
sought any rulings from the U.S. Department of Labor regarding classification of
the partnership's assets as Plan Assets. However, existing U.S. Department of
Labor Regulations defining Plan Assets for purposes of ERISA contain exemptions
that would exempt partnership assets from being deemed to be Plan Assets. While
it is the partnership's intent that an investment by a Qualified Plan in units
should not be deemed an investment in the assets of the partnership, no
representations or warranties of any kind can be made regarding the consequences
of an investment in units by a Qualified Plan or IRA in this regard. Plan
fiduciaries are urged to consult with and rely upon their own advisors with
respect to ERISA issues which, if decided adversely to the partnership, could
result in prohibited transactions, the imposition of excise taxation and the
imposition of co-fiduciary liability under the provisions of ERISA in the event
of actions undertaken by the partnership which are deemed to be non-prudent
investments or "prohibited transactions."
In the event the partnership's assets are deemed to constitute Plan
Assets or certain transactions of the partnership constitute "prohibited
transactions" under ERISA or the Code and no exemption for such transactions is
obtainable by the partnership, the general partner has the right, but not the
obligation (upon notice to all limited partners, but without the consent of any
limited partner), to (i) terminate the offering of units, (ii) compel a
termination and dissolution of the partnership or (iii) restructure the
partnership's activities to the extent necessary to comply with any exception in
the Department of Labor Regulations or any prohibited transaction exemption
granted by the Department of Labor or any condition which the Department of
Labor might impose as a condition to granting a prohibited transaction
exemption.
THE PARTNERSHIP MAY NOT GENERATE SUFFICIENT LIQUIDITY TO SATISFY
INDIVIDUAL RETIREMENT ACCOUNT ("IRA") MINIMUM DISTRIBUTION REQUIREMENTS. Any
potential investor who intends to purchase units in his IRA and any trustee of
an IRA or other fiduciary of a Retirement Plan considering an investment in
units should consider particularly the limited liquidity of an investment in the
units as it relates to applicable minimum distribution requirements under the
Code. If the units are still held and the partnership properties have not yet
been sold at such time as mandatory distributions are required to commence to an
IRA beneficiary or Qualified Plan participant, applicable provisions of the Code
and Regulations may require that a distribution in kind of the units be made to
the IRA beneficiary or Qualified Plan participant. Any such distribution in kind
of units must be included in the taxable income of the IRA beneficiary or
Qualified Plan participant for the year in which the units are received at the
fair market value of the units without any corresponding cash distributions with
which to pay the income tax liability arising out of any such distribution.
18
IF PARTNERSHIP GENERATES UNRELATED BUSINESS TAXABLE INCOME ("UBTI") IT
WILL BE TAXABLE TO TAX-EXEMPT ENTITIES. The partnership will not incur
indebtedness to acquire partnership properties. Accordingly, it is not intended
or anticipated that the partnership will generate income derived from an
unrelated trade or business, which is generally referred to as "UBTI."
Notwithstanding the foregoing, the general partner has limited authority to
borrow funds equal to 40% of the total purchase price of partnership properties
which are deemed necessary for partnership operating purposes in the event of
unforeseen or unexpected circumstances in which the working capital reserves and
other case resources available to the partnership are insufficient for the
maintenance and repair of properties or for the protection or replacement of the
partnership's assets, or to finance improvements of its properties to protect
capital previously invested in a property, to protect the value of the
partnership's investment in a property, or to make a property more attractive
for sale or lease. In the event that it does become necessary to borrow funds
and the IRS determined that those borrowings constituted "acquisition
indebtedness" or the IRS determined that the partnership properties were held
primarily for sale to customers in the ordinary course of business, the income
related thereto would be UBTI.
ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the estimated use
of the gross proceeds of this offering. Many of the amounts set forth below
represent the best estimate of the general partner since they cannot be
precisely calculated at this time. The percentage of the gross offering proceeds
available for investment in partnership properties is estimated to be
approximately 86.5%.
ABIC REALTY FUND I, L.P.
<Table>
<Caption>
MINIMUM OFFERING MAXIMUM OFFERING
---------------------- ----------------------
Amount Percent Amount Percent
------------ ------- ------------ -------
Gross offering proceeds $ 100,000 100% $ 40,000,000 100%
Less public offering expenses:
Selling commissions(1) 7,500 7.5% 3,000,000 7.5%
Organization and
offering expenses(2) 6,000 6% 2,400,000 6%
Amount available for investment:(3) 86,500 86.5% 34,600,000 86.5%
</Table>
- ----------
(1) The partnership will pay selling commissions in the amount of 7.5% of
the gross offering proceeds to licensed soliciting broker-dealers that
are members of the National Association of Securities Dealers, Inc. who
are hereafter engaged by the partnership. The general partner may also
pay broker-dealers participating in this offering for expenses incurred
for due diligence purposes and non-accountable expenses up to 1% of the
gross offering proceeds.
(2) The partnership will pay to the general partner 6% of the gross
offering proceeds to reimburse registration, legal, accounting,
printing, marketing and other out of pocket fees as well as general,
administrative and overhead expenses relating to the offering and
organization of the partnership borne by the general partner.
(3) Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the offering and,
thereafter, the working capital reserves of the partnership, may be
invested in short-term, highly-liquid investments including government
obligations, bank certificates of deposit, short-term debt obligations
and interest-bearing accounts.
19
DESCRIPTION OF THE UNITS
UNITS
Each unit shall have a purchase price of $10.00 per unit, and, when
issued, will be fully paid and non-assessable. Holders of units will become
limited partners of the partnership and will be entitled to receive annual
distributions of Net Cash From Operations and Non-Liquidating Sale Proceeds
generated by the partnership following the payment of certain fees and expenses.
SUMMARY OF DISTRIBUTIONS
Following is a summary of the partnership's allocation of current cash
flow distributions and the net proceeds from the sale or exchange of partnership
properties:
CASH DISTRIBUTIONS. Distributions of Net Cash From Operations (defined
generally as the Partnership's Net Cash Flow from Operations less any reserves
and after payment of property supervision, management, leasing fees and all
costs of properties and partnership operations) will be distributed as follows:
1. Distributions of Net Cash from Operations will be distributed,
first, to limited partners holding units until they have
received their 7% preferred return.
2. Although there can be no assurance that Net Cash From
Operations will be sufficient to make additional
distributions, any remaining Net Cash Flow from Operations
will be distributed to the general partner until it has
received, aggregating all prior periods distributions,
distributions totaling 25% of the preferred return paid to the
limited partners, aggregating all prior periods distributions.
Thereafter distributions of Net Cash from Operations shall be
80% to limited partners on a per unit basis and 20% to the
general partner. If, in any year, Net Cash from Operations is
insufficient to pay the limited partners their full 7%
preferred return, the unpaid portion shall accrue and be
payable in future periods prior to the general partner
receiving any distributions.
NON-LIQUIDATING NET SALE PROCEEDS. Net Sale Proceeds (generally the net
proceeds from any sale or exchange of partnership properties less appropriate
reserves) will be distributed as follows:
1. If there are any unpaid accrued preferred returns, to the
limited partners until each limited partner has received all
preferred returns due;
2. Then, to the general partner until it has received,
aggregating all prior periods distributions, distributions
totaling 25% of the preferred return paid to the limited
partners, aggregating all prior periods distributions;
3. To the limited partners on a per unit basis until each limited
partner has received or has been deemed to have received
distributions, thereunder equal to its Net Capital
Contribution at the beginning of the quarter;
20
4. Then, to the general partner until the general partner has
received distributions totaling 100% of its capital
contributions;
5. Thereafter, 80% to the limited partners on a per unit basis
and 20% to the general partner.
LIQUIDATION PROCEEDS. Upon liquidation, the partnership shall convert
all assets to cash and pay all debts and liabilities other than indebtedness to
the general partner and adequate reserves shall be established as deemed
necessary by the general partner. Thereafter proceeds shall be distributed as
follows:
1. If there are any unpaid accrued preferred returns, to the
limited partners until each limited partner has received all
preferred returns due;
2. Then, to the limited partners until each limited partner has
received distributions equal to his Net Capital Contribution
at the beginning of the quarter;
3. Then, to repay any partnership debt owed to the general
partner;
4. Then, to the general partner until it has received,
aggregating all prior periods distributions, distributions
totally 25% of the preferred return paid to the limited
partners, aggregating all prior periods distributions;
5. Then pro rata in accordance with capital accounts until
capital accounts have a zero balance, and then 80% to the
limited partners and 20% to the general partner. The
distributions in accordance with capital accounts after Gain
on Sale in excess of depreciation deductions has been
allocated 80% to limited Partners and 20% to the general
partner and gain equal to prior period depreciation deductions
has been allocated to the respective limited partner that was
allocated the deduction.
NO ASSURANCE CAN BE GIVEN AS TO THE TIMING OR AMOUNT OF ANY CASH
DISTRIBUTIONS TO THE LIMITED PARTNERS, INCLUDING THE LIMITED PARTNERS'PREFERRED
RETURN.
SUMMARY OF ALLOCATIONS
Following is a summary of the allocation of the partnership's taxable
income, loss and gain on sale of partnership properties:
NET INCOME. The partnership's net income (defined generally as the net
income of the partnership for federal income tax purposes, including any income
exempt from tax, but excluding all deductions for depreciation, amortization and
any net gain on the sale of assets) will be allocated each year in the same
proportions, and to the extent that, Net Cash From Operations is distributed or
deemed distributed to the partners. To the extent the partnership's net income
in any year exceeds Net Cash From Operations, such excess net income will be
allocated 80% to limited partners holding units during such year and 20% to the
general partner.
NET LOSS, DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS.
Deductions for depreciation, amortization and cost recovery and the
partnership's net loss (defined generally as the net loss of the partnership for
federal income tax purposes, but excluding all deductions for depreciation,
amortization and cost recovery) for each fiscal year will be allocated as
follows:
21
1. 99% to limited partners holding units during such year and 1%
to the general partner until each such partner's capital
account (defined generally as the sum of capital contributions
and income allocated to a partner less the sum of
distributions paid and losses allocated to a partner) of all
such partners are reduced to zero;
2. thereafter, all such deductions will be allocated to the
general partner, which, at that time, would be the only
partner having an economic risk of loss.
GAIN ON SALE. Gain on sale (defined generally as the net taxable income
or gain from all sales or exchanges of partnership properties during the fiscal
year) will be allocated first, pursuant to the qualified income offset provision
contained in the partnership agreement, if applicable, then to partners having
negative capital accounts, if any, until negative capital accounts have been
restored to zero, then to the limited partners and general partner pro rata in
amounts equal to the deductions for depreciation and amortization allocated to
each such partner in connection with the specific partnership property and
thereafter, 80% to the limited partners and 20% to the general partner.
COMPENSATION OF THE GENERAL PARTNER
The following table indicates the compensation and fees (including
reimbursement of expenses) to be paid by the partnership to the general partner
during the organization, acquisition and development, operation and liquidation
stages of the partnership.
<Table>
<Caption>
$$ Amount for
$$ Amount for Maximum Offering
Minimum Offering (4,000,000
(10,000 units) units)
Type Of Compensation Form of Compensation $100,000 $40,000,000
- -------------------- -------------------- ---------------- ----------------
ORGANIZATIONAL AND OFFERING STAGE
Organization and 6% of gross offering proceeds to reimburse $6,000 $2,400,000
Offering Expenses registration, legal, accounting, printing and other
out-of-pocket expenses and general and administrative
expenses and overhead borne by the general partner in
connection with this offering and the organization of
the partnership.
ACQUISITION AND DEVELOPMENT STAGE
Acquisition 3% of gross offering proceeds to be paid ratably on a $3,000 $1,200,000
Advisory Fee monthly basis as properties are acquired, in
connection with the selection, valuation and
acquisition of properties, in addition to
reimbursement of actual costs and expenses incurred
in the acquisition of properties.
</Table>
22
<Table>
OPERATIONAL STAGE
Property The partnership will pay to the general partner an N/A N/A
Supervision Fee ongoing property supervision fee in the amount of 2%
annually of funds amount invested in properties
payable on a monthly basis.
Property The general partner generally will utilize N/A N/A
Management and independent third party property management and
Leasing Fees leasing companies and shall cause the partnership to
employ a property management and leasing company
(which may, when necessary, be an Affiliate of the
general partner) to perform professional property
management and leasing services for the partnership.
In the event the property management and leasing
company is an Affiliate of the general partner, the
compensation payable to such Affiliate shall not
exceed fees which would be charged by persons who are
not affiliated with the general partner rendering
comparable services in the same geographic area.
Partnership A partnership administration fee shall be paid N/A N/A
Administration monthly to the general partner at 1/12th of 1% of the
and Investor aggregate amount of limited partner subscriptions. An
Administration investor administration fee shall be paid monthly at
Fees 1/12th of 1% of the aggregate amount of limited
partner subscriptions.
Cash Net Cash from Operations will be distributed first to N/A N/A
Distributions limited partners holding units until they have
received their preferred return. Remaining Net Cash
Flow from Operations will be distributed to the
general partner until it has received distributions
totaling 25% of the preferred return paid to the
limited partners, to include all prior periods'
distributions. Thereafter distributions of Net Cash
from Operations shall be 80% to limited partners on a
per unit basis and 20% to the general partner. If, in
any year, Net Cash from Operations is insufficient to
pay the limited partners their preferred return, the
unpaid portion shall accrue and be payable in future
periods prior to the general partner receiving any
distributions.
</Table>
23
<Table>
LIQUIDATION STAGE
Real Estate Commissions In connection with the sales of partnership N/A N/A
properties, the general partner generally will
utilize independent third-party real estate companies
to facilitate property sales. In the event the sales
agent is affiliated with the general partner,
commissions shall not exceed fees which would be
charged by persons who are not affiliated with the
general partner rendering comparable services in the
same geographic area.
Non-Liquidating Distributions of Non-Liquidating Net Sale Proceeds N/A N/A
Net Sale Proceeds and Liquidating Distributions will first be applied
and Liquidating toward any unpaid accrued limited partner preferred
Distributions returns and then to the general partner until it has
received, aggregating all prior periods'
distributions, an amount equal to 25% of the limited
partners' preferred return. After all preferred
returns have been paid, distributions will then be
made to the limited partners in an amount equal to
their Net Capital Contributions and then to the
general partner in an amount equal to its capital
contribution. Thereafter, distributions will be 80%
to limited partners and 20% to the general partner.
</Table>
The general partner and its Affiliates may receive or the partnership
may pay directly other items of incidental expense incurred during the
organizational, acquisition and development, operation and liquidation stages of
the partnership.
CONFLICTS OF INTEREST
The partnership is subject to various conflicts of interest arising out
of its relationship with the general partner and/or its Affiliates. Michael R.
Marshall is the sole shareholder of the general partner. The potential conflicts
of interest are as follows:
1. RECEIPT OF FEES AND OTHER COMPENSATION BY GENERAL PARTNER
AND/OR AFFILIATES. Partnership transactions involving the
purchase and sale of partnership properties may result in the
receipt of substantial commissions, fees and other
compensation by the general partner and/or its Affiliates,
including due diligence and acquisition fees, property
supervision fees, property management and leasing fees, real
estate commissions, and participation in distributions of Net
Cash From Operations, Non-liquidating Net Sale Proceeds and
Liquidating Distributions. The partnership will not purchase
properties from the general partner or sell properties to the
general partner; however, the partnership may borrow funds
from the general partner at an interest rate not to exceed the
prime rate plus 2%. The partnership may borrow from the
general partner up to $500,000. The general partner has
considerable discretion with respect to all decisions relating
to the terms and timing of all partnership transactions.
Therefore, the general partner may have conflicts of interest
concerning certain actions taken on behalf of the partnership.
Certain conflicts of interest could involve the loss of
management fees upon the sale of a property versus the
brokerage fee which may be received other conflicts could
involve the receipt of a brokerage fee and the desirability of
selling a property at a specific time. The agreements and
arrangements among the partnership and the general partner
have been established by the general partner, and the general
partner believes the fees to be paid thereunder and the terms
to be reasonable under the circumstances. However, said
agreements and arrangements were not negotiated on an
arm's-length basis.
24
2. LACK OF SEPARATE REPRESENTATION. The partnership, Mr.
Marshall, and the general partner may have the same legal
counsel in connection with this offering, and legal counsel
may in the future act as counsel to the partnership, Mr.
Marshall and the general partner. There is a possibility that
in the future the interests of the various parties may be
subject to conflict of interest.
3. TAX AUDITS. In the event of an audit of the federal income tax
returns of the partnership by the IRS, it is possible that the
interests of the general partner in such tax audit could
become inconsistent with or adverse to the interests of
limited partners.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The general partner is accountable to the partnership as a fiduciary
and consequently must exercise good faith and integrity in handling partnership
affairs. This is a rapidly developing and changing area of the law, and limited
partners who have questions concerning the duties of the general partner under
Texas law should consult with their counsel.
The general partner may not be liable to the partnership or limited
partners for errors in judgment or other acts or omissions not amounting to
willful misconduct or gross negligence, since provision has been made in the
partnership agreement for exculpation of the general partner. Therefore,
purchasers of units have a more limited right of action than they would have
absent the limitations in the partnership agreement. See Section 11.5 of the
partnership agreement, which is Exhibit A to this prospectus.
The partnership agreement provides for indemnification of the general
partner by the partnership for liabilities it incurs in dealings with third
parties on behalf of the partnership. To the extent that the indemnification for
liabilities arising under the Securities Act of 1933, in the opinion of the
Securities and Exchange Commission, such indemnification is contrary to public
policy and therefore unenforceable. See Section 11.5 of the partnership
agreement, which is Exhibit A to this prospectus.
MANAGEMENT
THE GENERAL PARTNER
The general partner is ABIC Realty Corporation, a Texas corporation
formed in February 2000 for the purpose of organizing, operating and managing
long term real estate investment programs. Other than formation and
pre-capitalization planning for the partnership, the general partner has no
prior operations. As of the date of this prospectus, the general partner is
capitalized with approximately $300,000 ($220,000 in cash and has advanced
offering and organization costs of the partnership totaling approximately
$80,000). Other than its $1,000.00 initial contribution, the general partner
holds no interest in the partnership. The general partner will not acquire any
of the units. The executive offices of ABIC Realty Corporation are located at
9520 North May Avenue, Suite 330, Oklahoma City, Oklahoma 73120. The telephone
number is (405) 302-6434.
25
The sole officer, director and shareholder of ABIC Realty Corporation
is Michael R. Marshall, and its consultants are as follows:
<Table>
<Caption>
Name Age Position
- ---- --- --------
Michael R. Marshall 53 President, Secretary-Treasurer, and Director
Carroll D. Blake 65 Acquisition and Operations Consultant
William C. Blake 39 Property Administration Consultant
</Table>
MICHAEL R. MARSHALL. Since 1971 Mr. Marshall has been a practicing
certified public accountant and a corporate financial consultant. He is
currently President of Settlers Capital Corporation, an Oklahoma corporation
which has principally specialized in assisting companies in the placement of
finance transactions, since 1982. Additionally, Mr. Marshall was from 1982 to
1989 President of Settlers Corporation, an Oklahoma corporation which
specialized in acquisition, management and liquidation of distressed loans and
other assets of distressed financial institutions. Mr. Marshall has more than 20
years experience as a participating investor and originator of various secured
lending transactions and in the structuring, monitoring, management and
liquidation of various asset-backed investment and lending transactions. From
1971 through 1977 Mr. Marshall was employed by Coopers and Lybrand, an
international firm of certified public accountants, in various capacities,
including as general practice manager of the Oklahoma City office.
Mr. Marshall has been the principal officer of U.S. Automobile
Acceptance 1995-I, Inc. (1995-I), which was formed in January 12, 1995, and U.S.
Automobile Acceptance SNP-III, Inc. (SNP-III), which was formed in June 7, 1996,
both investment corporations which purchased and collected extremely high
yield/high risk sub-prime credit consumer finance contracts. These consumer
finance contracts did not perform as initially planned and the related two
publicly registered high yield/high risk securitization note offerings have not
performed as planned. These investment corporations discontinued purchasing
consumer finance contracts and adopted orderly liquidation plans and have been
following the liquidation plans since early 1999. The investment corporations
were placed in Chapter 7 Bankruptcies by their Indenture Trustee. The
bankruptcies of these corporations were subsequently dismissed and orderly
collections and liquidation of these corporations is continuing. As of December
31, 2002 the investors of 1995-I have been repaid approximately $5,500,000
(which represents approximately 55% of amounts initially invested by 1995-I
investors), and the investors of SNP-III have been repaid approximately
$14,500,000 (which represents approximately 60% of amounts initially invested by
SNP-III investors.) The programs were non-recourse except as to the specific
assets of each of the individual investment corporations. There are no investor
lawsuits, federal or state securities actions or any other legal actions against
1995-I, SNP-III, Mr. Marshall or any other affiliate entity. Mr. Marshall is
continuing to oversee the collections and orderly liquidation of these
investment entities.
Mr. Marshall holds a Bachelor of Business Administration Degree in
Accounting, which was obtained in 1971 from Texas A&M University and is a
certified public accountant. Mr. Marshall expects to devote substantially all of
his time to the business activities of ABIC Realty Corporation. Mr. Marshall is
the only promoter of the Partnership.
CARROLL D. BLAKE. From 1962 to 1976 Mr. Blake was employed by the
Federal Reserve Bank in Dallas, Texas in various capacities including Manager of
the Loan Department, Bank Relations Officer, Assistant Secretary of the Board of
Directors, and as an alternate Federal Reserve Agent. From 1976 to 1991 Mr.
Blake served as president of several banks located in Texas and from 1991
through 1993 was President of TB Ventures , a loan brokerage company. From 1993
to present Mr. Blake has been general manager of BTB Capital Corporation, a
consumer loan servicing and collection company located in Mesquite, Texas. Mr.
Blake has substantial experience as an originator and investor in real estate
transactions. Mr. Blake is a graduate of Texas Tech University where he obtained
a Bachelor Degree in Business Administration in 1960. Mr. Blake intends to
devote most of his time to the business affairs of ABIC Realty Corporation.
26
WILLIAM C. BLAKE is the son of Carroll D. Blake. From 1986 through 1989
Mr. Blake was a broker of real estate loans for properties located principally
in Texas and from 1989 through 1991 Mr. Blake was a Vice-President and
compliance officer for a Texas bank. From 1993 to present Mr. Blake has been the
operations and collections supervisor of BTB Capital Corporation. Mr. Blake is a
graduate of Southern Methodist University, where he obtained a Bachelors Degree
in Economics in 1985. Mr. Blake plans initially to devote approximately one half
of his time assisting ABIC Realty Corporation.
Messrs Carroll and William Blake will assist the general partner in
locating properties to acquire, perform or supervise property acquisition
reviews, assist with the selection and supervision of third party property
managers, assist with selection of third party property leasing agents, and
assist with the supervision of third party property managers.
There are presently no consulting agreements in place with Messrs
Blake. Any future compensation paid to Mr. Carroll Blake and Mr. William Blake
for services described above will be paid from fees allowed to the general
partner.
There are no affiliates of the general partner or its management that
will act as consultants to the partnership.
MANAGEMENT
The general partner of the partnership, ABIC Realty Corporation, will
be responsible for the direction and management of the partnership, including
acquisition, property management and supervision of third party managers and
leasing agents.
PROPERTY MANAGEMENT. Management of the partnership properties is the
responsibility of the general partner. However, the general partner generally
plans to contract or subcontract property management and leasing to third
parties. Property management and leasing may be performed by an affiliate of the
general partner. In the event the property management and leasing company is an
affiliate of the general partner, the compensation payable to such affiliate
shall not exceed fees which would be charged by persons who are not affiliated
with the general partner rendering comparable services in the same geographic
area. Property management fees will typically no be less than $1000 per month
versus 5 - 6% of gross rental income collected each month. Leasing fees will
typically be 4.5 - 6% of the gross rental income collected over the term of the
lease.
The general partner does not presently own and has not formed a
property management or leasing company affiliate. Said affiliate will be formed
if necessary in the future.
CHANGES IN MANAGEMENT
With the consent of the general partner and a 66 2/3 % vote of the
limited partners after being given 90 days written notice, the general partner
may at any time designate one or more persons to be additional or successor
general partners, with such participation in the general partner's interest as
the general partner and the successor or additional general partners may agree
upon. However, any agreement between the general partner and any new or
successor general partner shall not affect the interests of the limited
partners. Any voluntary withdrawal by the general partner from the partnership
or any sale, transfer or assignment by the general partner of its interest in
the partnership will be effective only upon the admission of a new general
partner.
27
INVESTMENT OBJECTIVES AND CRITERIA
GENERAL
The partnership has been formed to acquire and operate commercial real
estate properties, which generally have been constructed and have operating
histories, but may also acquire and operate newly constructed properties with
limited or no operating histories. The properties will be acquired on an
all-cash basis. The partnership's policy is to acquire properties primarily for
income. The partnership's business objectives are to purchase and operate a
portfolio of income producing real estate properties that: (i) pay quarterly
cash distributions to its investors at an increasing rate over time, that for
taxable investors may be partially free from current taxation; and (ii) increase
in value over time. No assurance can be given that these business objectives
will be attained.
ACQUISITION AND INVESTMENT POLICIES
The partnership will seek to invest the net offering proceeds available
for investment on an all cash basis in the acquisition of commercial real estate
properties, which have generally been previously constructed and have operating
histories. The partnership may also invest in newly constructed properties with
limited or no operating histories. While not limited to such investments, the
general partner will generally seek to invest in commercial properties such as
office buildings, shopping centers, and industrial properties, the space in
which has been leased to one or more tenants. The partnership has no policy as
to the amount or percentage of assets which will be invested in any specific
property. If only the minimum offering amount is raised, the partnership may be
able to invest in only one property. In such a situation, the general partner
plans to invest in a property such as a small branch bank or office building in
a metropolitan area, which the general partner believes can be purchased for
that amount.
The partnership will seek to invest in properties that will satisfy a
primary objective of providing distributions of cash flow to investors that will
increase over time. Due to the fact that a significant factor in the valuation
of income-producing real properties is their potential for future income, the
general partner anticipates that the majority of properties acquired by the
partnership will satisfy both attributes of providing potential for capital
appreciation and providing increasing over time distributions of cash flow to
investors. To the extent feasible, the general partner will strive to invest in
a diversified portfolio of properties that will satisfy the partnership's
investment objectives.
Investment in property generally will take the form of fee title. The
partnership may purchase properties and lease them back to the sellers of such
properties. While the general partner will use its best efforts to structure any
such sale-leaseback transaction such that the lease will be characterized as a
"true lease" and so that the partnership will be treated as the owner of the
property for federal income tax purposes, no assurance can be given that the IRS
will not challenge such characterization. In the event that any such
sale-leaseback transaction is re-characterized as a financing transaction for
federal income tax purposes, deductions for depreciation relating to such
property would be disallowed or significantly reduced.
The partnership is not limited as to the geographic area where it may
conduct its operations, but the general partner prefers to invest in properties
located in growing population urban and suburban areas of the southern and
southwestern United States.
28
There are no specific limitations on the number or size of properties
to be acquired by the partnership or on the percentage of net proceeds of this
offering which may be invested in a single property. The number and mix of
properties acquired will depend upon real estate and market conditions and other
circumstances existing at the time the partnership is acquiring its properties
and the amount of the net proceeds of this offering.
In making investment decisions for the partnership, the general partner
will consider relevant real property and financial factors, including but not
limited to the following:
o Properties to be purchased will generally be located in high
growth suburban and urban areas in the southern and
southwestern United States. Properties to be purchased will
have masonry construction with an economic building life of
approximately 30 years, and will have high traffic locations.
Surrounding neighborhoods and or nearby commercial properties
should be in good condition and have long remaining economic
lives.
o The prior financial and operating history of properties and
credit worthiness of tenants will be determined by review of
three previous years property financial statements if the
property is more than three years old, by review of current
and prior rent rolls, tenant collection records, prior
operating cost records, review of existing lease agreements,
review of independent credit reports of current tenants and/or
prospective tenants.
Although the partnership will obtain independent appraisals, and the
purchase price of such property will not exceed its appraised value, the general
partner will rely on its own independent analysis and not totally on such
appraisal in determining whether to invest in a particular property. It should
be noted that appraisals are estimates of value and should not be relied upon as
measures of true worth or realizable value. In this regard, the general partner
will have substantial discretion with respect to the selection of specific
partnership investments.
The partnership's obligation to close the purchase of any investment
will generally be conditioned upon the delivery and verification of certain
documents from the seller or developer, including, where appropriate, plans and
specifications, environmental reports, surveys, evidence of marketable title
(subject only to such liens and encumbrances as are acceptable to the general
partner), unaudited financial statements covering recent operations of any
properties having operating histories, title insurance policies and opinions of
counsel in certain circumstances. The partnership will not close the purchase of
any property unless and until it obtains an environmental assessment for each
property purchased and the general partner is generally satisfied with the
environmental status of the property.
In determining whether to purchase a particular property, the
partnership may, in accordance with customary practices, obtain an option on
such property. The amount paid for an option, if any, is normally surrendered if
the property is not purchased and is normally credited against the purchase
price if the property is purchased.
In purchasing and leasing real properties, the partnership will be
subject to risks generally incident to the ownership of real estate, including
changes in general economic or local conditions, changes in supply of or demand
for similar or competing properties in an area, changes in interest rates and
availability of permanent mortgage funds which may render the sale of a property
difficult or unattractive, and changes in tax, real estate, environmental and
zoning laws. Periods of high interest rates and tight money supply may make the
sale of properties more difficult. The partnership may experience difficulty in
keeping the properties fully leased due to tenant turnover, general overbuilding
or excess supply in the market area.
29
The partnership will not engage in any of the following activities: (a)
issuing senior securities; (b) lending money; (c) investing in securities of
other issuers; (d) underwriting the securities of other issuers; (e) engaging in
the purchase or sale of investments other than the types of real estate
described above; (f) offering securities in exchange for property; (g)
repurchasing its units or other securities; or (h) investing in real estate
mortgages.
TERMS OF LEASES AND LESSEE CREDITWORTHINESS
The terms and conditions of any lease entered into by the partnership
with regard to a tenant may vary substantially. However, whenever possible,
leases will be what is generally referred to as "triple net" leases, which means
that the lessee will be required to pay or reimburse the partnership for all
real estate taxes, sales and use taxes, special assessments, utilities,
insurance and building repairs as well as lease payments.
BORROWING POLICIES
The partnership will acquire properties on an all-cash basis.
However, in order to give the general partner flexibility in the management of
the partnership, the partnership agreement authorizes the partnership to borrow
funds (a) for partnership operating purposes in the event of unexpected
circumstances in which the partnership's working capital reserves and other cash
resources available to the partnership become insufficient for the maintenance
and repair of partnership properties or for the protection or replacement of the
partnership's assets, and (b) in order to finance improvement of and
improvements to properties, when the general partner deems such improvements to
be necessary or appropriate to protect the capital previously invested in the
properties, to protect the value of the partnership's investment in a particular
property, or to make a particular property more attractive for sale or lease.
The partnership cannot borrow funds for any other purposes. Examples of the
types of occurrences in which the partnership might find it necessary to borrow
funds include (a) failure of major mechanical systems such as air conditioning
or elevators; (b) major remodel of a building to prepare the building for sale;
(c) space remodel required by a major tenant; or (d) change in a state,
municipal or federal law requiring extensive modification to a property. These
are only examples and are not intended to be all-inclusive. The aggregate amount
of partnership borrowings at any given time may not exceed 40% of the total
purchase price of partnership properties.
DISPOSITION POLICIES
The partnership anticipates that prior to its termination and
dissolution, all of the partnership properties will be sold. The partnership
intends to hold the various properties in which it invests until such time as
sale or other disposition appears to be advantageous to achieve the
partnership's investment objectives or until it appears that such objectives
will not be met. In deciding whether to sell a property, the partnership will
consider factors such as potential capital appreciation, cash flow, and federal
income tax considerations, including possible adverse federal income tax
consequences to the limited partners. The general partner anticipates that the
partnership will sell existing income-producing properties within several to
twenty years after acquisition. However, the general partner may exercise its
discretion as to whether and when to sell a property, and the partnership will
have no obligation to sell properties at any particular time.
Although not required to do so, the partnership will generally seek to
sell its properties for all cash. The partnership may, however, accept terms of
payment from a buyer, which include purchase money obligations, secured by
mortgages as partial payment, depending upon then prevailing economic conditions
customary in the area where the property being sold is located, credit of the
buyer and available financing alternatives. Some properties sold by the
partnership may be sold on the installment basis under which only
30
a portion of the sales price will be received in the year of sale, with
subsequent payments spread over a number of years. In such event, the full
distribution by the partnership of the net proceeds of any sale may be delayed
until the notes are paid, sold or financed.
OTHER POLICIES
In an attempt to qualify for the 90% qualified income exception to the
treatment of the partnership as a publicly traded partnership taxable as a
corporation under Section 7704 of the Code, the general partner intends to
operate the partnership such that at all times more than 90% of the gross income
of the partnership will be derived from interest, real property rents (excluding
rents which are contingent on the profits of the lessees and rents from rental
of personal property) and gains from the sale of real property.
REAL PROPERTY INVESTMENTS
As of the date of this prospectus, the partnership has not acquired or
contracted to acquire any specific real properties. The general partner will
continually evaluate various potential property investments and engage in
discussions and negotiations with sellers, developers and potential tenants
regarding the purchase and development of properties for the partnership. At
such time during the negotiations for a specific property as the general partner
believes that a reasonable probability exists that the partnership will acquire
such property, this prospectus will be supplemented to disclose the negotiations
and pending acquisition. This will normally occur on the signing of a legally
binding purchase agreement for the acquisition of a specific property, but may
occur before or after such signing or upon the satisfaction or expiration of
major contingencies in any such purchase agreement, depending on the particular
circumstances surrounding each potential investment. IT SHOULD BE UNDERSTOOD
THAT THE INITIAL DISCLOSURE OF ANY PROPOSED ACQUISITION CANNOT BE RELIED UPON AS
AN ASSURANCE THAT THE PARTNERSHIP WILL ULTIMATELY CONSUMMATE SUCH PROPOSED
ACQUISITION NOR THAT THE INFORMATION PROVIDED CONCERNING THE PROPOSED
ACQUISITION WILL NOT CHANGE BETWEEN THE DATE OF SUCH SUPPLEMENT AND ACTUAL
PURCHASE.
It is intended that the proceeds of this offering will be invested in
properties in accordance with the partnership's investment policies. In the
event that all of the units offered hereby are sold, it is anticipated that the
partnership will invest in 10 to 20 properties. Funds available for investment
in partnership properties which are not expended or committed to the acquisition
or development of specific real properties on the later of the fourth
anniversary of the effective date of the registration statement or the third
year after the termination of the offering and not reserved for working capital
purposes will be returned to the limited partners.
Adequate insurance coverage will be obtained for all properties in
which the partnership will invest.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of the date of this prospectus, the partnership had not yet begun
active operations. The partnership will not begin active operations until it
receives and accepts subscriptions for a minimum of $100,000.
Following achievement of such minimum funding level, subscription
proceeds may be released from escrow and applied to the payment or reimbursement
of selling commissions and other organization and offering expenses, leaving net
proceeds available for investment and in properties and operation of properties.
Thereafter, the partnership will experience a relative increase in liquidity as
additional subscriptions for units are received, and a relative decrease in
liquidity as net offering proceeds are expended in connection with the
acquisition and operation of the properties.
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As of the initial date of this prospectus, the partnership has not
entered into any arrangements creating a reasonable probability that the
partnership will acquire any specific property. The number of properties
ultimately acquired will depend upon the number of units sold and the resulting
amount of the net proceeds available for investment in properties.
Until required for the acquisition of properties, net offering proceeds
will be kept in short-term, liquid investments. Because the partnership will
purchase properties on an all cash basis and the majority of leases for the
properties the partnership intends to acquire will provide for tenant
reimbursement of operating expenses, the partnership does not anticipate that a
permanent reserve for maintenance and repairs of its properties will be
established. The partnership may, but is not required to, establish reserves
from gross offering proceeds and/or out of cash flow generated by operating
properties or out of nonliquidating net sale proceeds.
The general partner is not aware of any material trends or
uncertainties, favorable or unfavorable, other than national economic conditions
affecting real estate generally, which the partnership reasonably anticipates to
have a material impact on acquisition or operation of real estate properties.
INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS
While the general partner has attempted to structure the partnership in
such a manner that it will be an attractive investment vehicle for Qualified
Plans, IRAs and other tax-exempt entities, in considering an investment in the
partnership of a portion of the assets of a Retirement Plan, the plan's
fiduciary should consider all applicable provisions of the Code and ERISA. In
this regard, IRAs which are not sponsored or endorsed by an employer or by an
employee organization or Keogh Plan under which only partners or a sole
proprietor are participants generally are not subject to the provisions of
ERISA; however, fiduciaries of such accounts should review carefully the
exceptions set forth below. In general, Qualified Plan fiduciaries should
consider: (i) whether the investment is in accordance with the documents and
instruments governing such Qualified Plan; (ii) whether the investment satisfies
the prudence and diversification requirements of Sections 404(a)(1)(B) and
404(a)(1)(C) of ERISA; (iii) whether the investment will result in UBTI to the
Qualified Plan (or to an investing IRA, Keogh Plan or other tax-exempt entity)
(see "FEDERAL INCOME TAX CONSEQUENCES - INVESTMENT BY QUALIFIED PLANS AND OTHER
TAX-EXEMPT ENTITIES"); (iv) whether there is sufficient liquidity for the
Qualified Plan after taking this investment into account; (v) the need to value
the assets of the Qualified Plan annually; and (vi) whether the investment would
constitute or give rise to a prohibited transaction under either Section 406 of
ERISA or Section 4975 of the Code.
ERISA also requires generally that the assets of employee benefit plans
be held in trust and that the trustee, or a duly authorized investment manager
(within the meaning of Section 3(38) of ERISA), have exclusive authority and
discretion to manage and control the assets of the plan. Persons who are
fiduciaries of employee benefit plans subject to ERISA have certain duties
imposed on them by ERISA and, as noted above, certain transactions between an
employee benefit plan and the parties in interest with respect to such plan
(including fiduciaries) are prohibited. Similar prohibitions apply to Retirement
Plans under the Code and IRAs and Keogh Plans covering only self-employed
individuals, which are not subject to ERISA, are, nevertheless, subject to the
prohibited transaction rules under the Code. For purposes of both ERISA and the
Code, any person who exercises any authority or control with respect to the
management or disposition of the assets of a Retirement Plan is considered to be
a fiduciary of such Retirement Plan (subject to certain exceptions not here
relevant).
32
Potential investors who intend to purchase units in their IRAs and any
trustee of an IRA or other fiduciary of a Retirement Plan considering an
investment in units should take into consideration the limited liquidity of an
investment in the units as it relates to applicable minimum distribution
requirements under the Code for the IRA or other Retirement Plan. If the units
are still held in the IRA or Retirement Plan and the partnership properties have
not yet been sold at such time as mandatory distributions are required to
commence to the IRA beneficiary or Qualified Plan participant, applicable
provisions of the Code and Regulations will likely require that a distribution
in kind of the units be made to the IRA beneficiary or Qualified Plan
participant. Any such distribution in kind of units must be included in the
taxable income of the IRA beneficiary or Qualified Plan participant for the year
in which the units are received at the then current fair market value of the
units without any, corresponding cash distribution with which to pay the income
tax liability arising out of any such distribution.
PLAN ASSETS - GENERALLY
ERISA provides a comprehensive statutory scheme regarding the
investment in and management of a plan's assets. While the general partner has
used its best efforts to structure the partnership so that the assets of the
partnership will not be deemed to be assets of the Retirement Plans investing as
limited partners ("Plan Assets"), in the event that the assets of the
Partnership were deemed to be Plan Assets, the General Partner would be
considered to be a plan fiduciary under ERISA (and the Code), and certain
contemplated transactions between the partnership and the general partner may be
deemed to be "prohibited transactions." Additionally, if the assets of the
partnership are deemed to be Plan Assets, the standards of prudence and other
provisions of Title I of ERISA applicable to investments by Retirement Plans
would extend (as to all plan fiduciaries) to the general partner with respect to
investments made by the partnership.
PLAN ASSETS - CURRENT LAW
The definition of Plan Assets was addressed initially by the Department
of Labor in 1975 by the adoption of Interpretive Bulletin 75-2, which provided
that the assets of a corporation or partnership in which an employee benefit
plan invested would not generally be treated as assets of such plan. The
Department stated that:
Generally, investment by a plan in securities (within the meaning of
section 3(20) of the Employee Retirement Income Security Act of 1974) of a
corporation or partnership will not, solely by reason of such investment, be
considered to be an investment in the underlying assets of such corporation or
partnership so as to make such assets of the entity "plan assets" and thereby
make a subsequent transaction between the party in interest and the corporation
or partnership a prohibited transaction under Section 406 of the Act.
On November 13, 1986, the Department of Labor issued final regulations
(the "Plan Asset Regulations") relating to the definition of Plan Assets, which
became effective generally for the characterization of assets in investments
made after March 13, 1987. The Plan Asset Regulations adopt the general
statement regarding Plan Assets set forth in Interpretive Bulletin 75-2;
however, the Plan Asset Regulations further provide that assets of investment
entities in which Retirement Plans make equity investments will be treated as
assets of such plans unless such investments are in publicly offered securities,
are in securities offered by an investment company registered under the
Investment Company Act of 1940, or come within one of the specific exemptions
set forth below. As the partnership is not a registered investment company, the
exemptions contained in the Plan Asset Regulations which may apply to the
partnership include (i) investments in "publicly offered securities" (generally
interests which are freely transferable, widely-held and registered with the
Securities and Exchange Commission); (ii) investments in interests in "real
estate operating companies;" and (iii) investments in which equity participation
by "benefit plan investors" is not significant. The Plan Asset Regulations
provide that equity participation in an entity
33
would be "significant" if at any time 25% or more of the value of any class of
equity interest is held by benefit plan investors. The term "benefit plan
investors" is broadly defined to include any employee pension or welfare benefit
plan, whether or not subject to ERISA, any plan described in Section 4975(e)(1)
of the Code and any entity whose underlying assets include Plan Assets by reason
of plan investment in the entity. The general partner does not anticipate that
the partnership will qualify for the exemption described in (iii) above.
EXEMPTIONS UNDER PLAN ASSET REGULATIONS
As noted above, if a Retirement Plan acquires "publicly offered"
securities, the assets of the issuer are not deemed to be Plan Assets. Under the
Plan Asset Regulations, the definition of publicly offered securities requires
that such securities must be "widely-held," "freely transferable" and must
satisfy certain registration requirements under federal securities laws.
Although the partnership should satisfy the registration requirements under this
definition, the determinations of whether a security is "widely-held" and
"freely transferable" are inherently factual matters. The Plan Asset Regulations
provide that a class of securities will be "widely-held" if it is held by 100 or
more persons. Accordingly, to preserve the ability of the partnership to qualify
for this exemption, the general partner may suspend the offering of units to
Retirement Plans, if upon the closing of the minimum offering less than 100
persons have acquired units and, in such case, would continue the offering to
Retirement Plans only after at least 100 persons have acquired of units.
With respect to the "freely transferable" requirement, the Plan Asset
Regulations provide several examples of restrictions on transferability with
respect to offerings in which the minimum investment is $10,000 or less which,
absent unusual circumstances, will not, either alone or in any combination,
cause the rights of ownership to be considered not "freely transferable." The
allowed restrictions are based upon restrictions commonly found in public real
estate limited partnerships, which are imposed to comply with state and federal
law to assure continued eligibility for favorable tax treatment, and to avoid
certain practical administrative problems. The partnership agreement is intended
to satisfy the freely transferable requirement with respect to the units. It
should be noted in this regard, however, that because certain adverse tax
consequences can result if the partnership were to be characterized as a
"publicly traded partnership" under Section 7704 of the Code (see "FEDERAL
INCOME TAX CONSEQUENCES" -"Publicly Traded Partnerships"), certain additional
restrictions on the transferability of units have been incorporated into the
partnership agreement which are intended to prevent such reclassification of the
Partnership as a publicly traded partnership (the "Section 7704 Restrictions").
In this regard, the Plan Asset Regulations provide specifically that any
"restriction on, or prohibition against, any transfer or assignment which would
either result in a termination or reclassification of the entity for federal or
state tax purposes" will ordinarily not alone or in combination with other
restrictions affect a finding that securities are "freely transferable." The
Plan Asset Regulations were promulgated prior to the enactment of Section 7704
of the Code, however, and accordingly, the incorporation of the Section 7704
Restrictions into the partnership agreement may have the effect of making the
"publicly offered securities" exemption unavailable to the partnership.
On the other hand, if the Department of Labor interprets the Section
7704 Restrictions in the partnership agreement consistently with the specific
exemption language in the Plan Asset Regulations set forth above, the
partnership should qualify for the publicly offered securities exemption
contained in the Plan Asset Regulations. However, because of the factual nature
of the determination and lack of guidance as to the meaning of the term "freely
transferable," particularly in light of the Section 7704 Restrictions, there can
be no assurance that the partnership will, in fact, qualify for this exemption.
34
Even if the partnership were not to qualify for the "publicly offered
securities" exemption, the Plan Asset Regulations also provide an exemption from
the Plan Assets definition with respect to securities issued by a "real estate
operating company." An entity is a real estate operating company if, during the
relevant valuation periods defined in the Plan Asset Regulations, at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors) valued at cost, are invested in real estate which is
managed or developed and with respect to which the partnership has the right to
participate substantially in the management or development activities. The
partnership intends to devote more than 50% of its assets to management and
development of real estate; however, an example contained in the Plan Asset
Regulations indicates that, although some management and development activities
may be performed by independent contractors rather than by the entity itself, if
over one-half of the entity's properties are acquired subject to long-term
leases under which substantially all management and maintenance activities with
respect to the properties are the responsibility of the lessees thereof, then
the entity is not eligible for the real estate operating company exemption.
In an attempt to comply with the real estate operating company
exemption under the Plan Asset Regulations, the general partner intends to
structure the management and development activities of the partnership such that
at all times more than 50% of the partnership's assets are invested in
multi-tenant properties with individually negotiated leases whereby maintenance
of the common areas and general maintenance activities with respect to such
properties will be the partnership's responsibility and not passed through to
the lessees of such properties. See "INVESTMENT OBJECTIVES AND CRITERIA." Due to
the uncertainty of the application of the standards set forth in the examples in
the Plan Asset Regulations, however, there can be no assurance as to the
partnership's ability to qualify for the real estate operating company
exemption.
PLAN ASSET CONSEQUENCES - PROHIBITED TRANSACTION EXCISE TAX
If the partnership were deemed to hold Plan Assets, additional issues
relating to the "Plan Assets" and "prohibited transaction" concepts of ERISA and
the Code arise by virtue of the general partner's ownership of interests in the
partnership and the possible relationship between the general partner or the
partnership and any Retirement Plan which may purchase units. Section 406 of
ERISA and Section 4975 of the Code prohibit Retirement Plans from engaging in
certain transactions with specified parties involving Plan Assets. These parties
are referred to as "parties in interest," as defined in Section 3(14) of ERISA,
and as "disqualified persons," as defined in Section 4975(e)(2) of the Code.
These definitions include "persons providing services to the plan" and certain
of their affiliates. Thus, if the general partner's interest in the partnership
were deemed to exceed certain threshold levels set forth in the Code and ERISA,
the partnership itself could be deemed to be a disqualified person and an
investment in units could be a prohibited transaction; however, the general
partner does not believe such thresholds have been exceeded with respect to
their interest in the partnership or that the partnership should otherwise be
deemed to be a party in interest or a disqualified person. Further, any
transaction between the partnership and a party in interest or disqualified
person with respect to an investing Retirement Plan could be a prohibited
transaction if the partnership were deemed to hold Plan Assets.
In addition, if the partnership is deemed to hold Plan Assets, the
general partner could be characterized as a "fiduciary" with respect to such
assets, and would thus be a "party in interest" under ERISA and a "disqualified
person" under the Code with respect to investing Retirement Plans. If such
relationship were to exist, various transactions between the General Partner and
the Partnership could constitute prohibited transactions because a fiduciary may
not deal with Plan Assets in its own interest or represent a person whose
interests are adverse to those of the plan in a transaction involving Plan
Assets. In addition, it could be argued that, because the General Partner shares
in certain Partnership distributions and tax allocations in a manner
disproportionate to its Capital Contribution to the Partnership, the General
Partner is being compensated directly out of Plan Assets rather than the
Partnership assets in exchange for the provision of services, i.e.,
establishment of the Partnership and making it available as an investment to
Retirement Plans. If this were the case, absent a specific exemption applicable
to the transaction, a prohibited transaction could be deemed to have occurred
between investing Retirement Plans and the General Partner.
35
If it is determined by the Department of Labor or the IRS that a
prohibited transaction has occurred, the General Partner and any party in
interest that has engaged in any such prohibited transaction would be required
to eliminate the prohibited transaction by reversing the transaction and make
good to the Retirement Plan any loss resulting from the Prohibited transaction.
In addition, each party in interest would be liable to pay an excise tax equal
to 5% of the amount involved in the transaction for each year in which the
transaction remains uncorrected. Moreover, if the fiduciary or party in
interest, does not correct the transaction within a specified period, the party
in interest could also be liable for an additional excise tax in an amount equal
to 100% of the amount involved. Plan fiduciaries who make the decision to invest
in Units could, under certain circumstances, be liable as co-fiduciaries for
actions taken by the Partnership or the General Partner.
Special rules apply to an investing IRA. If the Partnership were deemed
to be a party in interest or disqualified person, as described above, the
tax-exempt status of the IRA could be lost by reason of such investment because
a transaction between the Partnership and the account would be deemed under
Section 4975 of the Code to constitute a prohibited transaction.
It should be noted that even if the assets of the Partnership are
deemed, as the General Partner anticipates, not to be Plan Assets, under the
Plan Asset Regulations, Interpretive Bulletin 75-2 indicates that in certain
circumstances an investment in the Partnership by a Retirement Plan may still be
a prohibited transaction. For example, if a Retirement Plan may, by reason of
its investment, compel the Partnership to invest in a property or engage in
transactions which such Retirement Plan could not enter into directly under the
prohibited transaction rules, then the provisions of Interpretive Bulletin 75-2
and the Plan Asset Regulations would not have precluded re-characterization of
such investment as a prohibited transaction. The General Partner has represented
in that regard that no such arrangements will be entered into with investing
Retirement Plans, and therefore it is unlikely that these provisions of
Interpretive Bulletin 75-2 would be invoked by the Department of Labor.
ANNUAL VALUATION
Fiduciaries of Retirement Plans are required to determine annually the
fair market value of the assets, such Retirement Plans, typically, as of the
close of a plan's fiscal year. To enable the fiduciaries of Retirement Plans
subject to the annual reporting requirements of ERISA to prepare reports
relating to an investment in the Partnership, Limited Partners will be furnished
with an annual statement of estimated Unit value. This annual statement will
report the estimated value of each Unit based upon the estimated amount a Unit
holder would receive if all Partnership assets were sold as of the close of the
Partnership's fiscal year for their estimated values and such proceeds (without
reduction for selling expenses), together with the other funds of the
Partnership, were distributed in liquidation of the Partnership. Such estimated
values will be based upon annual appraisals of Partnership Properties performed
by the General Partner, and no independent appraisals will be obtained. However,
the General Partner is required to obtain the opinion of an independent third
party stating that its estimates of value are reasonable and were prepared in
accordance with appropriate methods for valuing real estate. For the first three
full fiscal years following the termination of the offering, the value of a Unit
will be deemed to be $10.00, and no valuations will be performed. The estimated
value per Unit will be reported to Limited Partners in the Partnership's next
annual or quarterly report on Form 10-K or 10-Q sent to the Limited Partners for
the period immediately following completion of the valuation process. There can
be no assurance that the estimated value per Unit will actually be realized by
the Partnership or by the Limited Partners upon liquidation (in part because
estimates do not necessarily indicate the price at which properties could be
sold and because no attempt will be made to estimate the expenses of selling any
property).
36
FEDERAL INCOME TAX CONSEQUENCES
It is assumed that an investment in the partnership will be based upon
an expectation of profits and that the limited partners fully understand that
they must pay federal income tax on their pro rata shares of that profit. The
following discussion addresses the federal income tax considerations that are
material to an investment in units. Each prospective investor should consult his
own tax adviser to ascertain how the federal income tax consequences of an
investment in the partnership will impact on his or her specific tax situation.
Potential investors should note that this discussion does not fully
address the tax issues specific to corporations, tax exempt entities subject to
Subchapter F of the Code, including pension plans, profit sharing plans, IRAs
and other tax exempt retirement plans, and foreign taxpayers subject to
Subchapter N of the Code. Nor does it address state, local, and foreign tax
considerations. This discussion addresses the major federal tax consequences to
individuals of an investment in Units and is intended to summarize all of the
federal income tax considerations material to an investment in the partnership.
This summary is based upon the Code; Treasury Regulations (including Temporary
and Proposed Regulations) promulgated thereunder ("Regulations"), current
positions of the IRS contained in revenue rulings and revenue procedures, other
current administrative positions of the IRS and existing judicial decisions in
effect as of the date of this prospectus. Investors should note that it is not
feasible to comment on all aspects of federal, state and local tax laws that may
affect each limited partner in the partnership. The federal income tax
considerations discussed below are necessarily general in nature, and their
application may vary depending upon a limited partner's particular
circumstances. No representations are made as to state and local tax
consequences. Further, the partnership does not intend to request a ruling from
the IRS with respect to any of the federal income tax matters discussed below,
and on certain matters no ruling could be obtained even if requested.
Investors should also note that a great deal of uncertainty exists with
respect to certain recently enacted and amended provisions of the Code. There
can be no assurance that the present federal income tax laws applicable to
limited partners and the operation of the partnership will not be further
changed prospectively or retroactively by additional legislation, by new
Regulations, by judicial decisions or by administrative interpretations, any of
which could adversely affect a limited partner, nor is there any assurance that
there will not be a difference of opinion as to the interpretation or
application of current federal income tax laws as discussed herein.
FOR THE FOREGOING REASONS, EACH PROSPECTIVE INVESTOR IS URGED TO
CONSULT WITH HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL
INCOME TAX CONSEQUENCES ARISING FROM THE PURCHASE OF UNITS. NOTHING IN THIS
PROSPECTUS IS OR SHOULD BE CONSTRUED AS LEGAL OR TAX ADVICE TO A POTENTIAL
INVESTOR IN THE PARTNERSHIP. THOSE POTENTIAL INVESTORS WHO BECOME LIMITED
PARTNERS MAY RELY UPON MATTERS CONTAINED HEREIN TO THE EXTENT SET FORTH IN THE
TAX OPINION. INVESTORS SHOULD BE AWARE THAT THE IRS MAY NOT AGREE WITH ALL TAX
POSITIONS TAKEN BY THE PARTNERSHIP AND THAT LEGISLATIVE, ADMINISTRATIVE OR
JUDICIAL DECISIONS MAY REDUCE OR ELIMINATE ANTICIPATED TAX BENEFITS OF AN
INVESTMENT IN THE PARTNERSHIP.
PROSPECTIVE INVESTORS WHO ARE FIDUCIARIES OF RETIREMENT PLANS SHOULD
CAREFULLY READ "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS" AND
"INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES" IN THIS SECTION,
AS WELL AS CONSULT THEIR OWN TAX AND ERISA ADVISORS.
37
The discussion below is directed primarily to individual taxpayers who
are citizens of the United States. Accordingly, persons who are trusts,
corporate investors in general, corporate investors that are subject to
specialized rules (such as Subchapter S corporations) and any potential investor
who is not a United States citizen are cautioned to consult their own personal
tax advisors before investing in the partnership.
TAX OPINION
We have retained Julia Swisher, JD, LL.M, CPA, ("Tax Counsel") to
render an opinion concerning the material federal income tax issues related to
an investment in the Partnership ("Tax Opinion"). Potential investors should be
aware that Tax Counsel has relied upon the accuracy of facts set forth in this
prospectus; representations made by the general partner and Michael R. Marshall,
including the representation that the partnership will be managed strictly in
accordance with the provisions of the prospectus and partnership agreement;
facts represented to Tax Counsel by Amy Waters, securities and general counsel
to the partnership; and financial statements prepared by Tyson Hopkins, CPA. Tax
Counsel has not made any independent verification of any such information. She
has assumed that the partnership will be operated strictly as set forth in the
Prospectus and strictly in accordance with the partnership agreement and her Tax
Opinion is so limited. Any alteration of the facts relied upon by Tax Counsel or
the failure to operate the partnership in accordance with the prospectus and
partnership agreement may seriously adversely affect Tax Counsel's opinion. As
of the date of the Tax Opinion, no properties have been acquired nor have any
contracts been entered into for the acquisition of properties.
Tax Counsel's opinion is based upon existing law, applicable existing
Regulations and current published administrative positions set forth in Revenue
Rulings, Revenue Procedures and judicial decisions. All such sources are subject
to change, either prospectively or retroactively, by new legislation, new court
rulings or new administrative positions. Any such changes are not addressed in
the Tax Opinion and could materially adversely effect the tax treatment of an
investment in the units.
Neither the Tax Opinion or the description of the tax consequences of
an investment in the units set forth in this prospectus will have any binding
effect or official status of any kind and no assurance can be given that the
conclusions reached in the Tax Opinion will be sustained by any court if the IRS
chooses to contest any such opinion. Accordingly, the Tax Opinion should not be
viewed as a guarantee or any sort that the income tax effects described herein
will be achieved or that any court would hold that there is "substantial
authority" for any such positions.
SPECIFIC OPINIONS
Relying upon the representations and assumptions contained herein and
described in the Tax Opinion and subject to the qualifications set forth in this
prospectus and in the Tax Opinion, Tax Counsel in the Tax Opinion has concluded
that the following material tax issues would have a favorable outcome on the
merits for federal income tax purposes if challenged by the IRS, litigated and
judicially decided:
o The partnership will be classified a partnership for federal
income tax purposes and not as an association taxable as a
corporation;
o The partnership will not be classified as a "publicly traded
partnership" under Code Section 7704;
o Investment in a unit will be treated as a passive activity;
38
o The partnership's activities will be considered activities
entered into for profit;
o The partnership is not currently required to register as a tax
shelter with the IRS prior to the offer and sale of the units
based upon the general partner's representation that the "tax
shelter ratio", determined by dividing an investor's share of
aggregate deductions from the investment, without regard to
income, by the investor's capital contributions, will not
exceed 2 to 1 for any investor as of the close of any of the
first five years of the partnership's operations;
o The partnership will not be considered a "tax shelter" under
the Code for purposes of determining possible exemptions from
the application of accuracy-related penalty provisions of the
Code; and
o Tax Counsel is unable to form an opinion as to the probable
outcome of the issue of whether the partnership, at the time
it disposes of properties, will be considered to hold some or
all of its properties primarily for sale to customers in the
ordinary course of business if challenged by the IRS,
litigated and judicially decided.
Investors should also note that the IRS may attempt to disallow or
limit some of the benefits of investing in the partnership by applying certain
provisions at the individual or partner level. Tax Counsel gives no opinion or
conclusion as to the tax consequences to limited partners with regard to any
material tax issues that impact at the partner level and are dependent on the
partner's individual tax circumstances. These issues include, but are not
limited to, (1) the imposition of the alternative minimum tax; (2) investment
interest deductibility; (3) limitation of deductions attributable to activities
not entered into for profit at the partner level. Potential investors are urged
to consult with and rely upon their own tax advisors with respect to all tax
issues that impact on the partner or individual level.
PARTNERSHIP STATUS
Partnerships are not subject to federal income tax. Instead, they file
an annual information return with the IRS and each partner is required to report
on his federal income tax return his distributive share of each item of
partnership income, gain, loss, deduction and credit, if any. The tax results
anticipated from an investment in the partnership are dependent upon the
partnership being classified as a partnership by the IRS rather than as an
association taxable as a corporation. In the event that the partnership, for any
reason, were to be treated for federal income tax purposes as a corporation, the
partners of the partnership would be treated as stockholders with the following
results, among others: (i) the partnership would become a taxable entity subject
to the federal income tax imposed on corporations; (ii) items of income, gain,
loss, deduction and credit would be accounted for by the partnership on its
federal income tax return and would not flow through to the partners; and (iii)
distributions of cash would generally be treated as dividends taxable to the
partners at ordinary income rates, to the extent of current or accumulated
earnings and profits, and would not be deductible by the partnership in
computing its income tax.
Regulations regarding entity classification have been issued under the
Code which, in effect, allow a business entity that is not otherwise required to
be classified as a corporation, an "eligible entity", to choose its
classification for tax purposes. In this case, the partnership is organized as a
limited partnership under Texas law and, unless it is deemed to be a publicly
traded partnership under the Code provisions discussed below, it will qualify as
an "eligible entity". The Regulations provide that an "eligible entity" that has
two or more members will be treated as a partnership in the absence of an
election to the contrary. The partnership agreement forbids the general partner
from electing to have the partnership taxed as a corporation.
39
Tax Counsel has opined that the partnership will be classified as a
partnership for federal tax purposes and not as an association taxable as a
corporation. That opinion is based upon 1) the fact that the partnership is duly
organized and in good standing as of February 13, 2003 under the limited
partnership statutes of the State of Texas, 2) the entity classification
Regulations, IRS rulings and judicial decisions, all of which are subject to
change; 3) the partnership agreement that prohibits the general partner from
electing to have the partnership treated as a corporation, 4) the general
partner's representation that it intends that the partnership be taxed as a
partnership and be organized and operated as a limited partnership in accordance
with Texas law and in accordance with the terms of the partnership agreement;
and, as discussed below under "Publicly Traded Partnerships", the partnership
will not be considered a 'publicly traded partnership" taxable as a corporation.
PUBLICLY TRADED PARTNERSHIPS
Although a partnership may be duly organized and operated under limited
partnership statutes and file its federal tax returns as a partnership, if it is
classified as a "publicly traded partnership" and 90% or more of its income is
not considered "qualifying income", the partnership may be taxable as a
corporation (see "Partnership Status Generally" below). If the partnership is
classified as a publicly traded partnership and 90% of more of its income is
"qualifying income", while avoiding being treated as a corporation, the
partnership's income will be considered portfolio income rather than passive
income (see "Passive Loss Limitations" below).
A publicly traded partnership is generally defined under Section 7704
of the Code as any partnership whose interests are traded on an established
securities market or are readily tradable on a secondary market or the
substantial equivalent thereof. On November 29, 1995, the IRS issued final
Regulations (the "Section 7704 Regulations").
The Section 7704 Regulations contain definitions of what constitutes an
established securities market and a secondary market or the substantial
equivalent thereof and what transfers may be disregarded in determining whether
such definitions are satisfied with respect to the activities of a partnership.
The Section 7704 Regulations further provide certain safe harbors (the
"secondary market safe harbors") which, after taking into consideration all
transfers other than those deemed disregarded, may be satisfied in order to
avoid classification of such transfers as being made on a secondary market or
the substantial equivalent thereof. One of the secondary market safe harbors
provides that interests in a partnership will not be considered tradeable on a
secondary market or the substantial equivalent thereof if the sum of the
partnership interests transferred during any taxable year, other than certain
disregarded transfers, does not exceed 2% of the total interest in the
partnership's capital or profits. Disregarded transfers include, among other
things, transfers by gift, transfers at death, transfers between family members,
distributions from a qualified retirement plan and block transfers, which are
defined as transfers by a partner during any 30 calendar day period of
partnership units representing more than 2% of the total interest in a
partnership's capital or profits. Another safe harbor from the definition of a
publicly traded partnership dealing with redemption and repurchase agreements is
also provided in the Section 7704 Regulations. The Section 7704 Regulations also
provide that the failure to satisfy a safe harbor provision under the
Regulations will not cause a partnership to be treated as a publicly traded
partnership if, after taking into account all facts and circumstances, partners
are not readily able to buy, sell or exchange their partnership interests in a
manner that is comparable, economically, to trading on an established securities
market.
The general partner will not create any market for the resale of
units nor will the partnership be listed on any trading exchange. However, there
are certain secondary markets in which similar registered limited partnership
interests do trade and trading of units in those markets could take place even
without any actions by the general partner. If trading of units in those or
other markets were to rise above safe harbor limits, it could be classified as a
publicly traded partnership.
40
The partnership agreement limits unit transfers of all types to
transfers of units which satisfy an applicable safe harbor contained in the
Section 7704 Regulations (or any other applicable safe harbor from "publicly
traded partnership" status which may be adopted by the IRS). The general partner
has represented that the partnership will be operated strictly in accordance
with the partnership agreement and that it will void any transfers or
assignments of units if it believes that such transfers or assignments will
cause the partnership to be treated as a publicly traded partnership under the
Section 7704 Regulations or any Regulations adopted by the IRS in the future.
Based upon the partnership agreement, which only allows transfers
which satisfy the safe harbor provisions of the Code Section 7704 Regulations,
and the general partner's representation that it will not facilitate the
creation of any public market for the units and will operate the partnership in
accordance with the terms of the agreement, Tax Counsel has opined that the
partnership will not be classified as a publicly traded partnership under
current statutes and regulations. However, due to the complex nature of the safe
harbor provisions contained in the Section 7704 Regulations and because any
determination in this regard will necessarily be based upon future facts not yet
in existence at this time, no assurance can be given that the IRS will not
challenge this conclusion or that the partnership will not, at some time in the
future, be deemed to be a publicly traded partnership.
Even if the partnership were deemed to be a publicly traded
partnership, Section 7704(c) of the Code provides an exception to taxation of an
entity as a corporation if 90% or more of the gross income of such entity for
each taxable year consists of "qualifying income". Qualifying income includes
interest, real property rents and gain from the sale or other disposition of
real property. According to the legislative history of Section 7704, qualifying
income does not include real property rents which are contingent on the profits
of the lessees or income from the rental or lease of personal property. The
general partner intends to operate the partnership in such a manner as to
qualify for the 90% qualifying income exception. Investors should note, however,
that even if the partnership satisfies the qualifying income exception, being
deemed to be a publicly traded partnership would result in certain other
material adverse tax consequences to limited partners, including the treatment
of net income of the partnership as portfolio income rather than passive income.
(See "Passive Loss Limitations" below).
GENERAL PRINCIPALS OF PARTNERSHIP TAXATION
Partnerships are not taxable entities, and, hence, do not pay income
tax. Instead, partners report their pro rata shares of income, loss and credit
items on their respective tax returns and pay tax accordingly. If, as
anticipated, the partnership is treated as a partnership for tax purposes, each
limited partner will report on his federal income tax return his distributive
share of each item of partnership income, gain, loss, deduction and credit, if
any. Each partner's distributive share of such items will be determined in
accordance with the allocations made in the partnership agreement, provided such
allocations are recognized for federal income tax ppurposes. Each partner will
be subject to tax on his distributive share of partnership income even if no
cash is distributed. The amount of any loss or deduction which a partner may
utilize in computing his federal income tax liability is limited to his adjusted
basis. Additionally, in the case of individuals and certain closely held
corporations, losses will also be limited to the amount "at risk" and the amount
of income and loss from other passive activities.
Limited partners are required to report partnership items on their
individual returns in the same manner as the items were treated on the
partnership return. If a limited partner chooses to report an item
inconsistently, the limited partner must give notice to the IRS that he is
reporting the item inconsistently.
41
The receipt of a cash distribution from the partnership by a limited
partner in respect of, but not in liquidation of, his units generally will not
generate the recognition of gain or loss for federal income tax purposes except
to the extent that the cash distribution exceeds the limited partner's basis in
his unit. Cash distributions will reduce a limited partner's basis and amounts
`at risk" by the amount of the cash distribution. To the extent that a cash
distribution is in excess of basis, the gain recognized will be taxable in
accordance with the rules discussed below which govern the sale of units.
Each potential investor must be mindful that partnership information
returns are audited more frequently by the Service than individual returns. The
partnership will claim all deductions for federal income tax purposes which it
reasonably believes it is entitled to claim. However, there can be no assurance
that such deductions will not be contested or, if contested, will not be
disallowed by the Service. Final disallowance or reallocation of any claimed
deductions could adversely affect the partners. Although the partnership does
not intend to take an aggressive position on any issue, an audit of any
deduction is entirely possible. Such an audit could result in an audit of a
partner's tax return in which items in addition to partnership items would be
examined by the Service.
The remaining summary of federal income tax consequences in this
Section assumes that the partnership will be classified as a partnership for
federal income tax purposes.
ANTI-ABUSE RULES
In December 1994 the IRS adopted final Regulations setting forth
"anti-abuse" rules under the Code provisions applicable to partnerships, which
rules authorize the Commissioner of Internal Revenue to recast transactions
involving the use of partnerships either to reflect the underlying economic
arrangement or to prevent the use of a partnership to circumvent the intended
purpose of any provision of the Code. These rules generally apply to all
transactions relating to a partnership occurring on or after May 12, 1994, and
thus would be applicable to the partnership's activities. If any of the
transactions entered into by the partnership were to be recharacterized under
these rules, or the partnership itself were to be recast as a taxable entity
under these rules, material adverse tax consequences to all of the partners
would occur as otherwise described herein. In this regard, the general partner
is not aware of any fact or circumstance which could cause the IRS to exercise
its authority under these rules to recast any of the transactions to be entered
into by the partnership or to restructure the partnership itself.
BASIS LIMITATIONS
A limited partner may not deduct his share of partnership losses and
deductions in excess of the adjusted basis of his partnership interest
determined as of the end of the taxable year. Losses which exceed a limited
partner's basis will not be allowed but may be carried over indefinitely and
claimed as a deduction in a subsequent year to the extent that such limited
partner's adjusted basis in his units has increased above zero. A limited
partner's adjusted basis in his units will include his cash investment in the
partnership along with his pro rata share of any partnership liabilities as to
which no partner is personally liable. A limited partner's basis in his units
will be increased by his distributive share of the partnership's taxable income
and decreased (but not below zero) by his distributive share of the
partnership's losses. Cash distributions made to a limited partner will also
reduce a limited partner's basis in his units and, to the extent of that basis
will be considered a return of capital. In the event that a limited partner has
no remaining basis in his units, any excess cash distributions will generally be
taxable to him as gain from the sale of his units.
42
PASSIVE LOSS LIMITATIONS
The Code substantially restricts the ability of many taxpayers
(including individuals, estates, trusts, certain closely-held corporations and
certain personal service corporations) to deduct losses derived from so called
"passive activities. " Passive activities generally include any activity
involving the conduct of a trade or business in which the taxpayer does not
materially participate (including the activity of a limited partnership in which
the taxpayer is a limited partner) and certain rental activities (including the
rental of real estate). A limited partner's interest in the partnership will be
treated as a passive activity if such issue were challenged by the IRS,
litigated and judicially decided. Accordingly, income and loss of the
partnership, other than interest or other similar income earned on temporary
investments and working capital reserves (which would constitute portfolio
income), will constitute passive activity income and passive activity loss, as
the case may be, to limited partners.
Generally, losses from passive activities are deductible only to the
extent of a taxpayer's income or gains from passive activities and will not be
allowed as an offset against other income, including salary or other
compensation for personal services, active business income or "portfolio
income," which includes non-business income derived from dividends, interest,
royalties, annuities and gains from the sale of property held for investment.
Passive activity losses that are not allowed in any taxable year are suspended
and carried forward indefinitely and allowed in subsequent years as an offset
against passive activity income in future years.
Upon a taxable disposition of a taxpayer's entire interest in a passive
activity to an unrelated party, suspended losses with respect to that activity
will then be allowed as a deduction against: (i) first, any remaining income or
gain from that activity including gain recognized on such disposition; (ii)
then, net income or gain for the taxable year from other passive activities; and
(iii) finally, any other non-passive income or gain. Regulations provide that
similar undertakings which are under, common control and owned by passthrough
entities such as partnerships are generally aggregated into a single activity.
Accordingly, it is unlikely that suspended passive activity losses derived from
a specific partnership property would be available to limited partners to offset
non-passive income from other sources until the sale or other disposition of all
partnership properties has been consummated or until the unit is disposed of in
a taxable transaction to an unrelated party.
The Code provides that the passive activity loss rules will be applied
separately with respect to items attributable to each publicly traded
partnership. Accordingly, if the partnership were deemed to be a publicly traded
partnership, partnership losses, if any, would be available only to offset
future non-portfolio income of the partnership. In addition, if the partnership
were deemed to be a publicly traded partnership which is not treated as a
corporation because of the qualifying income exception, partnership income would
generally be treated as portfolio income rather than passive income and, hence,
not available to be applied against passive losses from other activities.
AT RISK LIMITATIONS
The deductibility of partnership losses is limited further by the "at
risk" limitations in the Code. Limited partners who are individuals, estates,
trusts and certain closely-held corporations are not allowed to deduct
partnership losses in excess of the amounts which such pimited partners are
determined to have "at risk" at the close of the partnership's year. Generally,
a limited partner's amount "at risk" will include the amount of his cash capital
contribution to the partnership. A limited partner's amount "at risk" will be
reduced by his allocable share of partnership losses and by partnership
distributions and increased by his allocable share of partnership income. Any
deductions which are disallowed under this limitation may be carried forward
indefinitely and utilized in subsequent years to the extent that a limited
partner's amount "at risk" is increased in those years.
43
ALLOCATIONS OF PROFIT AND LOSS
Allocations of Net Income, Net Loss, depreciation and amortization
deductions and Gain on Sale are described in this prospectus. Investors should
note in this regard that the partnership agreement defines the terms "Net
Income" and "Net Loss" to mean the net income or loss realized or recognized by
the partnership for a fiscal year, as determined for federal income tax
purposes, including any income exempt from tax, but excluding all deductions for
depreciation and amortization and Gain on Sale.
Generally, the Code provides that partnership items of income, gain,
loss, deduction and credit are allocated among partners as set forth in the
relevant partnership agreement pursuant to Section 704(a) of the Code. Section
704(b) provides, however, that if an allocation to a partner under the
partnership agreement of income, gain, loss, deduction or credit (or items
thereof) does not have substantial economic effect, such allocation will instead
be made in accordance with the partner's interest in the partnership (determined
by taking into account all facts and circumstances).
The partnership has not received and does not intend to seek a ruling
with respect to whether its allocations of profits and losses will be recognized
for federal income tax purposes. The IRS may attempt to challenge the
allocations of profits and losses made by the partnership. If any such challenge
were successful, limited partners' respective shares of taxable income or loss
could be altered to the detriment of some or all of the limited partners.
Regulations under Section 704(b) of the Code (the "Section 704(b)
Regulations") provide complex rules for determining (i) whether allocations will
be deemed to have economic effect; (ii) whether the economic effect of
allocations will be deemed to be substantial; (iii) and whether allocations not
having substantial economic effect will be deemed to be made in accordance with
a partner's interest in the partnership.
The Section 704(b) Regulations provide generally that an allocation
will be considered to have economic effect if: (i) partners' capital accounts
are determined and maintained in accordance with the Section 704(b) Regulations;
(ii) upon the liquidation of the partnership, liquidating distributions are made
in accordance with the positive capital account balances of the partners after
taking into account all capital account adjustments for the year during which
such liquidation occurs; and (iii) the partnership agreement contains a
"qualified income offset" provision and the allocation in question does not
cause or increase a deficit balance in a partner's capital account at the end of
the partnership's taxable year.
The partnership agreement contains a "qualified income offset" if it
provides that a partner who unexpectedly receives an adjustment, allocation or
distribution of certain items which causes a deficit or negative capital account
balance (which means generally that the sum of losses allocated and cash
distributed to a partner exceeds the sum of his capital contributions to the
partnership and any income allocated to such partner), will be allocated items
of income and gain in an amount and manner sufficient to eliminate the deficit
balance as quickly as possible.
The partnership agreement (i) provides for the determination and
maintenance of capital accounts pursuant to the Section 704(b) Regulations, (ii)
provides that liquidation proceeds are to be distributed in accordance with
capital accounts, and (iii) contains a qualified income offset provision. The
qualified income offset provision in the partnership agreement along with
limitations on allocations of net loss and depreciation and amortization
deductions has the effect of prohibiting a limited partner from being allocated
items of loss or deduction which would cause his capital account to be reduced
below zero.
44
Even if the allocations of profits and losses of a partnership are
deemed to have economic effect under the Section 704(b) Regulations, however, an
allocation will not be upheld unless the economic effect of such allocation, is
"substantial." In this regard, the Section 704(b) Regulations generally provide
that the economic effect of an allocation is "substantial" if there is a
reasonable possibility that the allocation will affect the dollar amounts to be
received by partners from a partnership, independent of tax consequences. The
economic effect of an allocation is presumed not to be substantial if there is a
strong likelihood that the net adjustments to the partner's capital account for
any taxable year will not differ substantially from the net adjustments which
would have been made for such year in the absence of such allocation and the
total tax liability of the partners for such year is less than it would have
been in the absence of such allocations. The economic effect will also be
presumed not to be substantial where: (i) the partnership agreement provides for
the possibility that the allocation will be largely offset by one or more other
allocations; (ii) the net adjustments to the partners' capital accounts for the
taxable years to which the allocations relate will not differ substantially from
the net adjustments which would have been recorded in such partners' respective
capital accounts for such years if the original allocations and the offsetting
allocations were not contained in the partnership agreement; and (iii) the total
tax liability of the partners for such year is less than it would have been in
the absence of such allocations.
With respect to the foregoing provision, the Section 704(b) Regulations
state that original allocations and offsetting allocations will not be deemed to
not be substantial if, at the time the allocations become part of the
partnership agreement, there is a strong likelihood that the offsetting
allocations will not, in large part, be made within five years after the
original allocations are made. The Section 704(b) Regulations further state that
for purposes of testing substantiality, the adjusted tax basis of partnership
property will be presumed to be the fair market value of such property, and
adjustments to the adjusted tax basis of partnership property (such as
depreciation or cost recovery deductions) will be presumed to be matched by
corresponding changes in the property's fair market value.
If the allocations of profits and losses set forth in a partnership
agreement are deemed not to have substantial economic effect, the allocations
are then to be made in accordance with the partners' interests in the
partnership as determined by taking into account all facts and circumstances.
The Section 704(b) Regulations provide in this regard that a partner's interest
in a partnership will be determined by taking into account all facts and
circumstances relating to the economic arrangement of the partners, including:
(i) the partners' relative contributions to the partnership; (ii) the interests
of the partners in economic profits and losses (if different from those in
taxable income or loss); (iii) the interests of the partners in cash flow and
other nonliquidating distributions; and (iv) the rights of the partners to
distributions of capital upon liquidation.
The partnership agreement: (i) provides for the determination and
maintenance of capital accounts in accordance with the Section 704(b)
Regulations; (ii) provides that liquidation proceeds will be distributed to the
partners in accordance with capital accounts, and (iii) contains a qualified
income offset provision, and assuming the accuracy of the representations of the
general partner, including that the partnership will be operated strictly in
accordance with the terms of the partnership agreement and that it is
anticipated that partnership properties will not be sold within five years of
acquisition, Tax Counsel is of the opinion that partnership items of income,
gain, loss, deduction and credit will be allocated among the general partner and
the limited partners substantially in accordance with the allocation provisions
of the partnership agreement.
RISK OF TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS
A partner in a partnership is required to report his allocable share of
the partnership's taxable income on his personal income tax return regardless of
whether or not he has received any cash distributions from the partnership.
There are no assurances that a limited partner will not be allocated items of
partnership
45
income or gain in an amount which gives rise to an income tax liability in
excess of cash, if any, received from the partnership for the tax year in
question, and investors are urged to consult with their personal tax advisors in
this regard.
INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES
QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH REGARD TO THE TAX ISSUED UNIQUE TO SUCH ENTITIES, INCLUDING,
BUT NOT LIMITED TO, ISSUES RELATING TO CLASSIFICATION OF PARTNERSHIP ASSETS AS
PLAN ASSETS, UNRELATED BUSINESS TAXABLE INCOME AND REQUIRED DISTRIBUTIONS.
Any person who is a fiduciary of an IRA, Keogh Plan, Qualified Plan or
other tax-exempt entity (collectively referred to as "Exempt Organizations")
considering an investment in the units should be aware that if the partnership
properties are considered debt-financed properties or partnership indebtedness
is considered acquisition indebtedness, then a portion of the income derived
from ownership of units will be be unrelated business taxable income, "UBTI",
generally defined as income derived from any unrelated trade or business carried
on by a tax-exempt entity or a partnership of which it is a member. A trustee of
a charitable remainder trust should be aware that if any portion of the income
derived from its ownership of Units is deemed to be UBTI, the trust will lose
its exemption from income taxation with respect to all of its income for the tax
year in question. (See "Investment by Charitable Remainder Trusts" below.) A
tax-exempt limited partner (other than a charitable remainder trust) which has
UBTI in any tax year from all sources of more than $1,000 will be subject to
taxation on such income.
Acquisition indebtedness includes: (i) indebtedness incurred in
acquiring or improving property; (ii) indebtedness incurred before the
acquisition or improvement of property if such indebtedness would not have been
incurred but for such acquisition of improvement; and (iii) indebtedness
incurred after the acquisition or improvement of property if such indebtedness
would not have been incurred but for such acquisition or improvement and the
incurrence of such indebtedness was reasonably foreseeable at the time of such
acquisition or improvement.
The partnership will under no circumstances incur indebtedness to
acquire partnership properties. The partnership's authority to incur
indebtedness thereafter may be exercised only in limited circumstances.
Specifically, the general partner has the authority to incur indebtedness (i)
for partnership operating purposes, in the event of unforeseen or unexpected
circumstances in which the partnership's working capital reserves and other cash
resources available to the partnership are deemed insufficient for the
maintenance and repair of partnership properties or for the protection or
replacement of the partnership's assets, or (ii) in order to finance improvement
of and improvements to partnership properties at such time as the general
partner may deem such improvements to be necessary or appropriate to protect
capital previously invested in such partnership properties, to protect the value
of the partnership's investment in a particular property, or to make a
particular property more attractive for sale or lease.
The aggregate amount of partnership borrowings shall at no time exceed
40% of the total purchase price of partnership properties. While it is the
intent of the general partner to have no borrowings, it is highly likely that
any borrowings for purposes of improvements will give rise to UBTI. Whether any
other borrowings would give rise to UBTI depends upon a variety of factors
including the timing of the borrowings as compared to the acquisitions of
partnership properties and the likelihood at the time of the acquisition that
borrowings would be necessary.
46
In the event that the partnership did incure debt that gave rise to
UBTI, the portion of income or gain from debt-financed property" that will
constitute UBTI would be based upon the ratio of the "average acquisition
indebtedness" to the basis of the property. In computing the portion of gain
from a sale which constitutes UBTI, "average acquisition indebtedness" means the
highest amount of the acquisition indebtedness with respect to such property
during the 12 month period ending on the date of sale while, for determining the
portion of income from sources other than a sale, "average acquisition
indebtedness" means the average monthly level of acquisition indebtedness during
the taxable year for the year in which such income was recognized.
Any person who is a fiduciary of an Exempt Organization considering
an investment in units. should also consider the impact of minimum distribution
requirements under the Code. The Code provides that certain minimum
distributions from Retirement Plans must be made commencing no later than the
April 1st following the calendar year during which the recipient attains age 70
1/2 . Accordingly, if units are still held by Retirement Plans and partnership
properties have not yet been sold at such time as mandatory distributions are
required to commence to an IRA beneficiary or a Qualified Plan participant, it
is likely that a distribution in kind of the units will be required to be made,
which distribution will be includable in the taxable income of said IRA
beneficiary or Qualified Plan participant for the year in which the units are
received at the fair market value of the units without any corresponding cash
distributions with which to pay the income tax liability arising out of any such
distribution. In certain circumstances, a distribution in kind of the units may
be deferred beyond the date for required distributions, but only upon a showing
of compliance with the minimum distribution requirements of the Code by reason
of distributions from other Retirement Plans established for the benefit of the
recipient. Compliance with these requirements is complex, however, and potential
investors are urged to consult with and rely upon their individual tax advisors
with regard to all matters concerning the tax effects of distributions from
Retirement Plans. No assurances can be given that partnership properties will be
sold or otherwise disposed of in a fashion which would permit sufficient
liquidity in any Retirement Plan holding Units for the Retirement Plan to be
able to avoid making a mandatory distribution in kind of units.
INVESTMENT BY CHARITABLE REMAINDER TRUSTS
A charitable remainder trust ("CRT") is a trust created to provide
income for the benefit of at least one non-charitable beneficiary for life or a
term of up to 20 years, with the property comprising the trust corpus then
transferred to a charitable beneficiary upon the expiration of the trust. Upon
the creation of a CRT, the grantor would normally be entitled to a charitable
income tax deduction equal to the current fair market value of the remainder
interest which will ultimately pass to charity. A CRT is also exempt from
federal income taxation if the trust is established and maintained in compliance
with highly complex rules contained in the Code and underlying Treasury
Regulations. Among these rules is a provision that if any portion of income
derived by a CRT is deemed to be UBTI, all of the CRT's income for the taxable
year in which UBTI is incurred, from whatever sources derived, will be subject
to income taxes at the trust level. As set forth above in "Investment by
Qualified Plans and Other Tax-Exempt Entities," the general partner has used its
best efforts to structure the partnership's activities to avoid having the
partnership's income characterized as UBTI. However, in the event it becomes
necessary to incur indebtedness for improvement of partnership property any CRT
limited partner will have UBTI income and become subject to tax on all its
income. Additionally, as discussed above in "Investments by Qualified Plans and
Other Tax-Exempt Entities", it is also possible that other borrowings could give
rise to UBTI. Additionally, if it was determined that the partnership was a
dealer in the partnership properties, its income would be UBTI, causing any CRT
limited partner to be subject to tax on all its income.
DEPRECIATION
It is currently anticipated that the real property improvements
acquired or constructed by the partnership and any personal property acquired by
the partnership will be depreciated for tax purposes using the Alternative
Depreciation System set forth in the Code for partnerships (such as this
partnership) having
47
both taxable and tax exempt partners. Under that Alternative Depreciation
System, real property improvements will be depreciated on a straight-line basis
over a recovery period of 40 years, and personal property acquired by the
partnership will be depreciated over a recovery period of 12 years on a
straight-line basis.
SYNDICATION AND ORGANIZATIONAL EXPENSES
Expenses incurred in connection with organizing the partnership or
syndicating the partnership must be capitalized. Syndication costs can not be
recovered through amortization. However, amounts which qualify as organizational
expenses may, if so elected, be amortized over 60 months.
Code Section 709 defines organizational expenses as expenses which are
1) incident to the creation of the partnership, 2) chargeable to capital account
and 3) of a character which, if expended incident to the creation of a
partnership having an ascertainable life, would be amortized over such life.
Only expenses related to the partnership's organization which meet all three
tests may be deductible. Examples of expenses which qualify as organization fees
amortizable over sixty months include legal fees incident to the organization of
the partnership including negotiating and preparing the partnership agreement,
accounting fees for services incident to the organization of the partnership,
and filing fees. Expenses connected with acquiring assets for the partnership or
transferring assets to the partnership, connected with the admission or removal
of partners other than at the initial organization, connected with contracts
related to the operation of the partnership or connected with the syndication of
the partnership do not meet the three tests and, accordingly, must be
capitalized.
Examples of nondeductible syndication expenses that must be capitalized
and are not subject to amortization include brokerage fees, legal fees of the
underwriter or placement agent and general partner for securities advise and for
advise related to the adequacy of tax disclosures to partners, accounting fees
for preparations of representations and projections to be included in the
offering material, printing costs of the other selling and promotional material.
Accordingly, the vast majority of the expenses connected with this offering must
be capitalized and will not be subject to any recovery through depreciation,
amortization or otherwise.
There are no assurances that the IRS will not attempt to recharacterize
as nondeductible syndication expenses certain costs and expenses which the
partnership attempts to deduct or amortize over 60 months as organizational
expenses or start up expenses.
DEDUCTIBILITY OF ACQUISITION AND ADVISORY FEES AND PROPERTY MANAGEMENT AND
LEASING FEES
The Code recognizes three types of payments made to a partner by a
partnership. Those payments are (i) payments governed by Code Section 707(a)
made to a partner when he is acting in a capacity other than that of a partner;
(ii) distributions made to a partner in his capacity as a partner governed by
Code Section 731; and (iii) "guaranteed payments" governed by Code Section
707(c). Guaranteed payments are payments made to a partner for services or for
the use of capital without regard to the income of the partnership. For purposes
of determining gross income of the recipient and whether a payment is deductible
or must be capitalized, guaranteed payments are viewed as having been paid to a
non-partner.
It is anticipated that the partnership may pay the general partner an
Acquisition and Advisory Fee, a Property Supervision Fee, a Partnership
Management and Investor Administration Fee, and possibly a Property Management
and Leasing Fee and real estate commission on sale of partnership property.
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The Acquisition and Advisory Fee, the Property Supervision Fee and the
Partnership Management and Investor Administration Fee are all payable to the
general partner regardless of whether the partnership has income. All three
items are calculated upon gross offering proceeds or funds expended for
acquistion of property. The Acquisition and Advisory Fee is payable ratably as
properties are acquired as compensation for services related to the selection,
valuation and acquisition of partnership properties.
It is likely that the Acquisition and Advisory Fee will be considered a
payment made to a partner acting in a capacity other than that of a partner and
be considered a capital expenditure and added to the basis of the partnership
properties. Accordingly, it will not be deductible in computing net income or
loss.
The Property Supervision Fee and the Investor Administration Fee,
whether considered a guaranteed payment under Code Section 707(c) or as being
made to a third party under Code Section 707(a), relates to the ongoing
operations of the partnership and should be deductible rather than capitalized.
In the event that such items are not considered deductible, it is likely that
and the intent of the general partner, that they would be considered as a
distribution to the general partner, reducing the taxable income allocable to
limited partners for tax purposes. Accordingly, in either instance, the limited
partners would be treated the same.
The partnership agreement also provides for a Property Management and
Leasing Fee or real estate commission paid to the general partner or an
Affiliate in the event that such services are not provided by unrelated third
parties. In the event that such fees are paid, under the terms of the
partnership agreement, such fees are limited to the amounts that would be paid
for comparable services to unrelated parties in arm's length transactions. It is
anticipated that the IRS will recognize the fees as ordinary and necessary
business expenses payable to a non-partner and deductible by the partnership
under Code Section 162.
However, it is possible that the IRS could disregard the existence of
the Affiliate and take the position that the Management and Leasing Fee and real
estate commission is in reality a payment made to the general partner. The IRS
has held that a payment will be made without regard to income of the partnership
when it is based upon a percentage of gross rental revenues. In that case, the
Management and Leasing Fee or real estate commission could be viewed as a
guaranteed payment made to the general partner. However, assuming the payment is
reasonable, it would be deductible by the partnership regardless of the IRS's
recharacterization.
It is possible that the IRS could rule that the Management and Leasing
Fee or real estate commission is not reasonable compensation for the services
performed by the general partner, instead the fee represents a disguised
distribution from the partnership. In that case, the management fee would not be
deductible by the partnership and taxable income would be increased accordingly.
However, it is the intent in such a case that the general partner would be
allocated that increased amount of partnership income to reflect the deemed
distribution and the limited partners would not be impacted.
Since the appropriate classification of fees and expenses paid by the
partnership into their proper categories and a determination of whether certain
fees and expenses are ordinary and necessary and reasonable in amount depends
upon facts relating to and existing at the time the services are to be rendered
to the partnership, it is impossible to predict to the probable outcome if the
IRS were to challenge the deductibility or the timing of deduction or
amortization of those fees and expenses, if such challenge to any or all of such
fees and expenses were to be litigated and judicially decided. Disallowance by
the IRS of any of these fees and expenses would result in an increase in the
taxable income of the partnership and its partners with no associated increase
in Net Cash From Operations. However, as stated above, in the event any such
items are deemed to be distributions to the general partner, allocations of
taxable income will be adjusted to reflect such a determination.
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ACTIVITIES NOT ENGAGED IN FOR PROFIT
Section 183 of the Code provides for the disallowance of deductions
attributable to activities "not engaged in for profit." The term "not engaged in
for profit," is defined as any activity other than an activity that constitutes
a trade or business or an activity that is engaged in for the production or
collection of income. In general, an activity will be considered as entered into
for profit where there is a reasonable expectation of profit in the future. The
determination of whether an activity is engaged in for profit is based upon the
facts and circumstances of each case.
Based upon the investment objectives of the partnership and the
representation of the general partner that the partnership will be operated in a
business-like manner in all material respects and in accordance with the
partnership agreement and this prospectus, and assuming the determination as to
whether the activities of the partnership are activities entered into for profit
under Section 183 is made at the partnership level, Tax Counsel is of the
opinion that the activities contemplated by the partnership will be considered
activities entered into for profit by the partnership, if such issue were
challenged by the IRS, litigated and judicially decided. However, the IRS may
also apply Section 183 to limited partners notwithstanding any determination
made with respect to the partnership in this regard, and since the test of
whether an activity is deemed to be engaged in for profit is based upon facts
and circumstances that exist from time to time, no assurance can be given that
Section 183 of the Code may not be applied in the future to disallow deductions
allocable to limited partners from partnership operations. Accordingly,
prospective investors should consult with their own tax advisors regarding the
impact of Section 183 on their particular situations.
CHARACTERIZATION OF LEASES
The partnership has the authority to purchase properties and lease them
back to the sellers of such properties pursuant to "sale-leaseback"
transactions. The tax benefits described herein associated with ownership of a
property, such as depreciation or cost recovery deductions, depend on having the
lease in any such leaseback transaction treated as a "true lease" under which
the partnership is treated as the owner of the property for federal income tax
purposes, rather than having such transaction treated as a conditional sale of
the property or a financing transaction entered into with the seller.
While the general partner will use its best efforts to structure any
such sale-leaseback transaction to insure that the lease will be characterized
as a "true lease," so that the partnership will be treated as the owner of the
property in question for federal income tax purposes, the partnership will not
seek an advance ruling from the IRS or obtain an opinion of counsel that it will
be treated as the owner of any leased properties for federal income tax
purposes. A determination by the IRS that the partnership is not the owner of
leased properties could result in substantial adverse tax consequences,
including depriving limited partners of deductions for depreciation. In
addition, if a sale-leaseback transaction is recharacterized as a financing for
federal income tax purposes, any partnership income derived from such leaseback
would be treated as interest which is portfolio income, rather than passive
activity income which may be offset by passive activity losses generated by the
partnership or from investments in other passive activities.
PROPERTY HELD PRIMARILY FOR SALE
The partnership has been organized for the purpose of acquiring real
estate for investment and rental purposes. However, if the partnership were at
any time deemed for tax purposes to be a "dealer" in real property (one who
holds real estate primarily for sale to customers in the ordinary course of
business), any gain recognized upon a sale of such real property would be
taxable as ordinary income, rather than as capital gain, and would constitute
UBTI to limited partners which are tax-exempt entities.
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Under existing law, whether property is or was held primarily for sale
to customers in the ordinary course of business, must be determined from all the
facts and circumstances surrounding the particular property and sale in
question. The partnership intends to acquire real estate for investment and
rental only and to engage in the business of owning and operating such
improvements. The partnership will make sales thereof only as, in the opinion of
the general partner, are consistent with the partnership's investment
objectives. Although the general partner does not anticipate that the
partnership will be treated as a dealer with respect to any of its properties,
there is no assurance that the IRS will not take a contrary position. Because
the issue is dependent upon facts which will not be known until the time a
property is sold or held for sale and due to the lack of judicial authority in
this area, it is impossible to predict whether the partnership will, be
considered to hold any or all of its properties primarily for sale to customers
in the ordinary course of business. For example, market conditions at the time
properties are disposed of may dictate that the partnership would obtain the
greatest return if a building were divided into condominiums. In such a case, as
to that particular property, the partnership would most likely be deemed a have
held those condominiums for sale in the normal course of business. It is
impossible to determine or predict today, what impact that determination might
have on the partnership's overall status as a dealer.
SALES OF PARTNERSHIP PROPERTIES
Upon the sale of partnership properties, the partnership will recognize
gain or loss to the extent that the amount realized is more or less than the
adjusted basis of the partnership property sold. The amount realized upon the
sale of a partnership property will generally be equal to the sum of the cash
received plus the amount of indebtedness encumbering the property, if any,
assumed by the purchaser or to which the property remains subject upon the
transfer of the property to the purchaser. The adjusted basis of partnership
property will in general be equal to the original cost of the property less
depreciation allowances allowed to the partnership with respect to such
property.
Assuming that the partnership is not deemed to be a dealer with respect
to its properties (see "Property Held Primarily for Sale" above), such gain or
loss will generally be taxable under Section 1231 of the Code. A limited
partner's share of the gains or losses resulting from the sale of partnership
properties would generally be combined with any other Section 1231 gains or
losses realized by the limited partner in that year from source other than the
partnership, and the net Section 1231 gain or loss is generally treated as
long-term capital gain (subject to depreciation or cost recovery allowance
recapture, if any) or ordinary loss, as the case may be. Investors should be
aware that the amount of taxable gain allocated to a limited partner with
respect to the sale of partnership property may exceed the cash proceeds
received by such limited partner with respect to such sale.
SALES OF LIMITED PARTNERSHIP UNITS
A limited partner may be unable to sell any of his units. In the event
that units are sold, however, the selling limited partner will realize gain or
loss equal to the difference between the gross sale market price or proceeds
received from sale and the limited partner's adjusted tax basis in his units.
Assuming the limited partner is not a "dealer" with respect to such units and
has held the unit for more than one year, his gain or loss will be long-term
capital gain or loss, except for that portion of any gain attributable to such
limited partner's share of the partnership's "unrealized receivables" and
"substantially appreciated inventory," as defined in Section 751 of the Code,
which would be taxable as ordinary income.
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DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
The dissolution and liquidation of the partnership will involve the
distribution to the partners of the cash remaining after the sale of its assets,
if any, and after payment of all the partnership's debts and liabilities. If a
limited partner receives cash in excess of the basis of his units, such excess
will be taxable as a gain. If a limited partner were to receive only cash upon
dissolution and liquidation, he would recognize a loss to the extent, if any,
that the adjusted basis of his units exceeded the amount of cash received. No
loss would be recognized if a limited partner were to receive property other
than money, unrealized receivables and substantially appreciated inventory (as
defined in Section 751 of the Code). There are a number of exceptions to these
general rules, including but not limited to, the effect of a special basis
election under Section 732(d) of the Code for a limited partner who may have
acquired his partnership interest within the two years prior to the dissolution,
and the effects of distributing one kind of property to some partners and a
different kind of property to others as determined under Section 751 (b) of the
Code. Because it is anticipated that only cash will be distributed upon
liquidation, each prospective investor should consult his own tax advisor for a
more detailed explanation of the tax consequences of receipt of assets other
than cash upon liquidation.
CAPITAL GAINS AND LOSSES
Ordinary income for individual taxpayers is currently taxed at a
maximum marginal rate of 39.6%, while long term capital gains are currently
taxed at a maximum marginal rate of 20%, except that that portion of long-term
capital gain attributable to the sale or exchange of depreciable real property
which constitutes recapture of depreciation will be taxed at a maximum marginal
rate of 25% rather than 20% . Capital losses may generally be used to offset
capital gains and, in addition, may be deductible against ordinary income on a
dollar-for-dollar basis up to a maximum annual deduction of $3,000 ($1,500 in
the case of a married individual filing a separate return). There is no
guarantee that capital gains will continue to be taxed at a lower rate than
ordinary income.
ELECTION FOR BASIS ADJUSTMENTS
Under Section 754 of the Code, partnerships may elect to adjust the
basis of partnership property upon the transfer of an interest in the
partnership so that the transferee of a partnership interest will be treated for
purposes of calculating depreciation and realizing gain as though he had
acquired a direct interest in the partnership's assets. However, as a result of
the complexities and added expense of the tax accounting required to implement
such an election, the general partner does not intend to cause the partnership
to make any such election on behalf of the partnership. As a consequence,
depreciation available to a transferee of units will be limited to the
transferor's share of the remaining depreciable basis of partnership properties,
and upon a sale of a partnership property, taxable income or loss to the
transferee of the units will be measured by the difference between his share of
the amount realized upon such sale and his share of the partnership's tax basis
in the property, which may result in greater tax liability to him than if a
Section 754 election had been made. In addition, the absence of such an election
by the partnership may result in limited partners having greater difficulty in
selling their units.
ALTERNATIVE MINIMUM TAX
Alternative minimum tax is payable to the extent that a taxpayer's
alternative minimum tax exceeds his regular federal income tax liability for the
taxable year. Alternative minimum tax for individual taxpayers is a percentage
of "alternative minimum taxable income" ("AMTI") in excess of certain exemption
amounts. The first, $175,000 of AMTI in excess of the exemption amount is taxed
currently at 26%, and AMTI in excess of $175,000 over the exemption amount is
taxed currently at 28%.
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Alternative minimum taxable income is generally computed by adding what are
called "tax preference items" to the taxpayer's regular taxable income with
certain adjustments. It is not anticipated that an investment in the partnership
will give rise to any specific tax preference items. However, to the extent that
a limited partner borrows funds to invest in units, that limited partner may be
subject to alternative minimum tax or such interest may be disallowed as a
deduction. Accordingly, each limited partner should consult with his own
personal tax advisor regarding the possible application of the alternative
minimum tax to his or her particular facts.
PENALTIES
Under Section 6662 of the Code, a 20% penalty is imposed on any portion
of an underpayment of tax attributable to a "substantial understatement of
income tax." In general, a "substantial understatement of income tax" will exist
if the actual income tax liability of the taxpayer exceeds the income tax
liability, shown on his return by the greater of 10% of the actual income tax
liability or $5,000. Unless the understatement is attributable to a "tax
shelter," the amount of an understatement is reduced by any portion of such
understatement which is attributable to (i) the income tax treatment of any item
shown on the return if there is "substantial authority" for the taxpayer's
treatment of such item on his return or (ii) any item with respect to which the
taxpayer adequately discloses on his return the relevant facts affecting the
item's income tax treatment. In the case of a "tax shelter," which is defined in
Section 6662 of the Code as a partnership or other entity that has as its
principal purpose the avoidance or evasion of federal income tax, this reduction
in the understatement only will apply in cases where, in addition to having
"substantial authority" for treatment of the item in question, the taxpayer
reasonably believed that the income tax treatment of that item was more likely
than not the proper treatment.
Although the partnership is not intended to be a so-called "tax
shelter," it is possible that it may be considered a tax shelter for purposes of
Section 6662 of the Code and that certain partnership tax items could be
considered tax shelter items within the meaning of Code Section 6662. The
Regulations under Section 6662 provide that an entity will be deemed to be a tax
shelter if the tax avoidance or evasion in motive exceeds all other motives.
Based on the investment objectives of the partnership and the restrictions upon
debt financing, Tax Counsel has opined that the partnership does not constitute
a tax shelter for purposes of the Code Section 6662 penalties.
In addition to the substantial understatement penalty, Section 6662 of
the Code also imposes a 20 % penalty on any portion of an underpayment of tax
(i) attributable to any substantial valuation misstatement (generally where the
value or adjusted basis of a property claimed on a return is 200% or more of the
correct value or adjusted basis), or (ii) attributable to negligence, defined as
any failure to make a reasonable attempt to comply with the Code, or a careless,
reckless or intentional disregard of federal income tax rules or regulations.
TAX SHELTER REGISTRATION
Any entity deemed to be a "tax shelter," as defined in Section 6111 of
the Code, is required to register with the IRS. Regulations under Section 6111
define a "tax shelter" as an investment in connection with which an investor can
reasonably infer from the representations made that the "tax shelter ratio" may
be greater than 2 to 1 as of the close of any of the first five years ending
after the date in which the investment is offered for sale. The "tax shelter
ratio" is generally determined by dividing the investor's share of the aggregate
deductions derived from the investment, determined without regard to income, by
the amount of the investor's capital contributions.
53
The partnership is not intended to constitute a "tax shelter." Debt
financing of properties, the source of significant deductions related to real
estate investments, is limited by the terms of the Partnership Agreement.
Further; the general partner has represented that, in the absence of events
which are unlikely to occur, the aggregate amount of deductions derived from any
limited partner's investment in the partnership, determined without regard to
income, will not exceed twice the amount of any such limited partner's
investment in the partnership as of the close of any year in the partnership's
first five calendar years.
Based upon the authority of the Regulations under Code Section 6111 and
the representations of the general partner that, in the absence of events which
are unlikely to occur, the "tax shelter ratio" with respect to an investment in
the partnership will not exceed 2 to 1 for any investor as of the close of any
year in the partnership's first five calendar years, Tax Counsel has opined that
the partnership is not currently required to register as a tax shelter with the
IRS under Section 6111 of the Code prior to the offer and sale of the units.
AUDITS
The IRS has undertaken an intensified audit program with respect to
partnerships and partnership returns. An audit of the partnership generally
should not affect the units.
In the event of an audit of the partnership's tax return, the general
partner will take primary responsibility for contesting federal income tax
adjustments proposed by the IRS, to extend the statute of limitations as to all
partners and, in certain circumstances to bind the limited partners to such
adjustments. Although the general partner will attempt to inform each limited
partner of the commencement and disposition of any such audit or subsequent
proceedings, limited partners should be aware that their participation in
administrative or judicial proceedings relating to partnership items will be
substantially restricted. An audit of the partnership could result in
substantial legal and accounting fees required to be paid to substantiate the
reporting positions taken, and any such fees would reduce the cash otherwise
available for distribution to the limited partners. Any such audit may result in
adjustments to the tax returns of the partnership which would require
adjustments to each limited partner's personal income tax return and may require
such, limited partners to pay additional taxes plus interest, compounded daily.
In addition, any audit of a limited partner's return could result in adjustments
of other items of income and deductions not related to the partnership.
FOREIGN INVESTORS AS LIMITED PARTNERS
As a general matter, foreign investors may purchase units in the
partnership. A foreign investor who purchases units and becomes a limited
partner in the partnership will generally be required to file a United States
tax return on which he must report his distributive share of the partnership's
items of income, gain, loss, deduction and credit, and pay United States federal
income tax at regular United States tax rates on his share of any net income,
whether ordinary or capital gains. A foreign investor may also be subject to tax
on his distributive share of the partnership's income and gain in his country of
nationality or residence or elsewhere. In addition, cash distributions of Net
Cash From Operations or Sale Proceeds otherwise payable to a foreign investor
from the partnership or amounts payable upon the sale of a foreign investor's
units may be reduced by United States tax withholdings made pursuant to
applicable provisions of the Code.
Foreign investors should consult their own tax advisors with regard to
the effect of both the United States tax laws and foreign laws on an investment
in the partnership and the potential that the partnership will be required to
withhold federal income taxes from amounts otherwise payable to foreign
investors.
54
TAX LEGISLATION AND REGULATORY PROPOSALS
Tax legislative, judicial and administrative changes have been made
over the years that significantly impact on the partnership's operations. Those
changes have included restrictions on the transferability of limited partnership
interests, restrictions on deduction of losses, increasing the scope of the
alternative minimum tax, implementation of audit programs targeting limited
partnerships, increased penalties on disputed tax deficiencies and registration
of investment limited partnerships deemed to be tax shelters. In some cases,
legislative changes have not yet been fully imterpreted administratively or
judicially,. There is no guarantee that during the life of the partnership, new
legislative, judicial and administrative changes will occur that will
significantly alter the anticipated tax treatment of an investment in the
partnership. It is impossible at this time, however, to predict whether or in
what form any such legislation will be enacted or what judicial or
administrative interpretations of existing or future legislation will be made.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT
TO HIS OWN TAX SITUATION, THE EFFECT OF ANY LEGISLATIVE, REGULATORY OR
ADMINISTRATIVE DEVELOPMENTS OR PROPOSALS ON AN INVESTMENT IN UNITS IN THE
PARTNERSHIP, OR OTHER POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above,
prospective investors should consider potential state and local tax consequences
of an investment in the partnership. This prospectus makes no attempt to
summarize the state and local tax consequences to an investor in those states in
which the partnership may own properties or carry on activities, and each
investor is urged to consult his own tax advisor on all matters relating to
state and local taxation, including the following: (i) whether the state in
which he resides will impose a tax upon his share of the taxable income of the
partnership, (ii) whether an income tax or other return must also be filed in
those states where the partnership will own properties, and (iii) whether he
will be subject to state income tax withholding in states where the partnership
will own properties.
Because the partnership will conduct its activities and own properties
in different taxing jurisdictions, an investment in the partnership may impose
upon a limited partner the obligation to file annual tax returns in a number of
different states or localities in addition to the limited partner's state of
residence, as well as the obligation to pay taxes to a number of different
states or localities in addition to the limited partner's state of residence.
Additional costs incurred in having to prepare various state and local tax
returns, as well as the additional state and local tax which may be payable,
should be considered by prospective investors, in deciding whether to make an
investment in the partnership.
It should be noted that, many states have implemented or are in the
process of implementing programs to require partnerships to withhold and pay
state income taxes owed by non-resident partners relating to income-producing
properties located in their states. In the event that the partnership is
required to withhold state taxes from cash distributions otherwise payable to
limited partners, the amount of the Net Cash From Operation otherwise payable to
such limited partners would likely be reduced. In addition, such collection and
filing requirements at the state level may result in increases in the
partnership's administrative expenses which would likely have the effect of
reducing returns to the limited partners. (See "RISK FACTORS.")
EACH PROPECTIVE PURCHASER OF UNITS IS URGED TO CONSULT WITH HIS OWN TAX
ADVISOR WITH RESPECT TO THE IMPACT OF APPLICABLE STATE AND LOCAL TAXES ON HIS
PROPOSED INVESTMENT IN THE PARTNERSHIP.
SUMMARY OF PARTNERSHIP AGREEMENT
The partnership is a Texas limited partnership formed on May 17, 2002,
whose general partner is ABIC Realty Corporation, a Texas corporation. The
Amended and Restated Agreement of Limited Partnership will be executed when the
registration statement is declared effective by the SEC. The following is a
summary of the material terms of the partnership agreement.
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POWERS OF THE GENERAL PARTNER
The general partner has full, exclusive and complete authority and
discretion in the management and control of the business of the partnership.
Limited partners have no right or power to take part in the management of, or to
bind, the partnership.
LIABILITIES OF THE LIMITED PARTNERS
The partnership was organized as a limited partnership under Texas law.
Investors whose subscriptions are accepted by the general partner will be
admitted as limited partners. Under Texas law, limited partners have no personal
liability for partnership debts or obligations in excess of their capital
contributions.
OTHER ACTIVITIES OF THE GENERAL PARTNER
The general partner may engage in or possess interests in other
business ventures of any kind for its own account, including, without
limitation, the syndication, ownership or management of other real estate. It
shall incur no liability to the partnership, or to the limited partners, as a
result of engaging in any other business or venture.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS;
NONASSESSABILITY OF UNITS
Limited partners are not permitted to participate in the management and
control of the business of the partnership, and may not transact any business in
the name of the partnership. Pursuant to the partnership agreement, each limited
partner appoints the general partner, with full power and substitution, as his
lawful attorneys-in-fact to act in his name, place, and stead: (i) to amend the
Certificate of Limited Partnership and the Partnership Agreement, including
amendments necessary to properly reflect allocations of profits and losses as
may be required for tax purposes; and (ii) to take any further action which, the
general partner deems necessary or advisable in connection with the foregoing.
Units acquired by limited partners pursuant to the partnership
agreement will be fully paid and non-assessable. No limited partner has the
right to withdraw all or any portion of his capital contribution until the full
and complete winding up and liquidation of the business of the partnership. No
limited partner will be liable for any debts or obligations of the partnership
in excess of his capital contribution.
ANNUAL AUDITS
Annual audits of the partnership's affairs will be conducted by such
firm of independent certified public accountants as may from time to time be
engaged by the partnership. Copies of annual audits will be provided to each
limited partner.
TRANSFERABILITY OF UNITS
There are a number of restrictions on the transferability of units.
Except for intra-family transfers and transfers by gift, inheritance or family
dissolution, no units may be transferred unless the proposed transferee meets
the minimum suitability standards set forth in this prospectus. Investors
transferring less
56
than all of their units must transfer a number of units such that, after the
transfer, both the transferor and transferee shall own no less than the minimum
number of units required to be purchased by an investor, unless such transfer is
made on behalf of a Retirement Plan, or by gift, inheritance, intra-family
transfer, family dissolution or to an affiliate. Payment of a transfer fee in an
amount sufficient to cover transfer costs, as established by the general
partner, is a condition to effectiveness of a transfer. All transfers of units
must be pursuant to documentation satisfactory in form and substance to the
general partner, including, without limitation, confirmation by the transferee
that the transferee has been informed of all pertinent facts relating to the
liquidity and marketability of the units. Additional restrictions on transfers
of units are imposed under the securities laws of various states upon the
residents of such states. Further, no unit may be sold, assigned or exchanged if
the sale of such unit when added to the total of all other sales or exchanges of
units within the period of 12 consecutive months prior to the proposed date of
sale or exchange would, in the opinion of counsel for the partnership, result in
the termination of the partnership under Section 708 of the Code (dealing with
transfers of 50 % or more of the outstanding interests of a partnership) unless
the partnership and the transferring holder shall have received a ruling from
the IRS that the proposed sale or exchange will not cause such a termination.
In addition to the foregoing restrictions, the partnership agreement
contains substantial restrictions on the transfer or assignment of units in
order to prevent the partnership from being deemed a "publicly traded
partnership." These restrictions are those described in the Section 7704
Regulations, the most significant of which prohibits the transfer during any
taxable year of more than 2% of the total interest in the partnership's capital
or profits excluding transfers by gift, transfers at death, transfers between
family members, distributions from a qualified retirement plan and block
transfers, which are defined as transfers by a partner during any 30 calendar
day period of partnership interests representing more than 2 % of the total
interest in a partnership's capital or profits. Further, the partnership
agreement provides that any transfer or assignment of units which the general
partner believes will cause the partnership to be treated as a publicly traded
partnership will be void ab initio and will not be recognized by the
partnership.
An assignee of units shall not become a substituted limited partner in
place of his assignor unless the assignee shall have expressly agreed to become
a party to the partnership agreement. An assignee of units who does not become a
substituted limited partner shall be entitled to receive distributions
attributable to the units properly transferred to him, but shall not have any of
the other rights of a limited partner, including the right to vote as a limited
partner and the right to inspect and copy the partnership's books. Assignments
of units are restricted similarly to transfers of units.
WITHDRAWAL OF GENERAL PARTNER
With the consent of 66 2/3 % of the limited partners, the general
partner may designate one of more persons to act as additional or successor
general partner. Any voluntary withdrawal of the general partner or the sale,
transfer or assignment of some or all of the general partner's interests would
not be effective until the new general partner had been admitted. In any such
event, the limited partners' interests will not be affected, including, but not
limited to, their interests in distributions from the partnership. However, a
limited partner's limited right to transfer his interest may be further limited
to the extent that the transfer, when added to a transfer by the general partner
in the same tax year, would cause a deemed termination of the partnership under
Code Section 708 or would cause the partnership to be classified as a "publicly
traded partnership".
PARTNERSHIP BORROWING
The general partner is prohibited from borrowing to finance the
acquisition, construction or ownership of the partnership's properties. However,
the partnership may incur debt for the following limited
57
purposes: (a) in the event of unforeseen circumstances in which the
partnership's working capital reserves and other cash resources available to the
partnership are insufficient for operating purposes; and (b) in order to finance
property improvements, when the general partner deems such improvements to be
necessary or appropriate to protect the capital previously invested in the
properties, to protect the value of the partnership's investment in a particular
property or to make a particular property more attractive for sale or lease. The
aggregate amount of partnership borrowings at any given time may not exceed 40%
of the total purchase price of partnership properties.
DISSOLUTION AND TERMINATION
The partnership is to continue until December 31, 2030, but may under
certain circumstances be dissolved earlier as provided in the partnership
agreement. (Article VI.) The partnership will be dissolved upon: (a) the sale or
disposition of all interests in real property and other assets of the
partnership; (b) the effective date of the occurrence of an Event of Withdrawal
of the general partner unless, however, within 120 days from such event, 66 2/3
% interest of the limited partners elect to continue the business of the
partnership and elect a new general partner; or (c) the happening of any other
event causing the dissolution of the partnership under the laws of Texas.
In addition to the foregoing events, the general partner may also
terminate the offering, compel a termination and dissolution of the partnership,
or restructure the partnership's affairs, upon notice to all limited partners
but without the consent of any limited partner, if upon the advice of counsel to
the partnership, either (a) the partnership's assets constitute "Plan Assets,"
as such term is defined for purposes of ERISA, or (b) any of the transactions
contemplated in the partnership agreement constitute "prohibited transactions"
under ERISA.
In the event the partnership is dissolved, the assets of the
partnership shall be converted to cash. The general partner shall be given a
reasonable amount of time to collect any notes receivable with respect to the
sale of partnership assets and to collect any other outstanding debts. All cash
on hand shall be distributed first to creditors to satisfy debts and liabilities
of the partnership other than loans or advances made by partners to the
partnership, including the establishment of reserves deemed reasonably necessary
to satisfy contingent or unforeseen liabilities or obligations of the
partnership. Any remaining cash will then be used to repay loans or advances
made by any of the partners to the partnership and to pay any fees due the
general partner. The balance, if any, shall be distributed among the partners in
accordance with the positive balance in their capital accounts as of the date of
distribution. Upon completion of the foregoing distributions, the partnership
shall be terminated.
DISTRIBUTIONS AND ALLOCATIONS
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Net Cash From Operations (defined in the partnership agreement to mean
generally the partnership's cash flow from operations after payment of all
operating expenses and adjustments for reserves), if any, will be distributed in
each year as follows and in the following priority:
(i) First, to limited partners holding units on a per unit basis
until they have received a 7% annual return on their Net
Capital Contributions (defined in the partnership agreement to
mean generally the amount of cash contributed to the
partnership reduced by prior distributions of net proceeds
from any sale or exchange of partnership properties);
58
(ii) Then, to the general partner until it has received an amount
equal to 25 % of the total amount thus far distributed; and
then, 80% to limited partners holding units and 20% to the
general partner.
The general partner shall not incur any liability as a result
of its determination to distribute Net Cash from Operations, even though such
distribution may result in the partnership's retaining insufficient funds for
the operation of its business, provided its determination was made in good faith
and not as a result of its negligence or misconduct.
The partnership agreement prohibits the general partner from making any
distributions of Net Cash From Operations out of capital contributions.
Distributions of Net Cash From Operations will be allocated among the limited
partners in accordance with participating percentages and as provided in Code
Section 706. A transferee of units will be deemed the owner of such units as of
the first day of the quarter following the quarter during which the transfer
occurred and therefore, will not participate in distributions made with respect
to the quarter in which such transfer occurs. Distributions of Net Cash From
Operations will be made on a quarterly basis.
NON-LIQUIDATING NET SALE PROCEEDS. Net Sale Proceeds (generally the net
proceeds from any sale or exchange of partnership properties less appropriate
reserves) will be distributed as follows:
1. If there are any unpaid accrued preferred returns, to the
limited partners until each limited partner has received all
preferred returns due;
2. Then, to the general partner until it has received,
aggregating all prior periods distributions, distributions
totally 25% of the preferred return paid to the limited
partners, aggregating all prior periods distributions;
3. To the limited partners on a per unit basis until each limited
partner has received or has been deemed to have received
distributions hereunder equal to its net capital contribution
at the beginning of the quarter;
4. Then, to the general partner until the general partner has
received distributions totaling 100% of its net capital
contributions;
5. Thereafter, 80% to the limited partners on a per unit basis
and 20% to the general partner.
LIQUIDATION PROCEEDS. Upon liquidation, the partnership shall convert
all assets to cash and pay all debts and liabilities other than indebtedness to
the general partner and adequate reserves shall be established as deemed
necessary by the general partner. Thereafter proceeds shall be distributed as
follows:
1. If there are any unpaid accrued preferred returns, to the
limited partners until each limited partner has received all
preferred return due;
2. Then, to the limited partners until each limited partner has
received distributions equal to his net capital contribution
at the beginning of the quarter.
3. Then, to repay any partnership debt owed to the general
partner;
4. Then, to the general partner until it has received,
aggregating all prior periods distributions, distributions
totally 25% of the preferred return paid to the limited
partners, aggregating all prior periods distributions;
59
5. Then pro rata in accordance with capital accounts until
capital accounts have a zero balance, and then 80% to the
limited partners and 20% to the general partner. The
distributions in accordance with capital accounts are
determined after Gain on Sale in excess of depreciation
deductions has been allocated 80% to limited partners and 20%
to general partner and gain equal to prior period depreciation
deductions has been allocated to the respective limited
partner that was allocated the deduction.
Potential investors should be aware that their share of distributions
of Sale Proceeds may be less than their net capital contributions unless the
partnership's aggregate Sale Proceeds are sufficient to fund the amount required
to repay aggregate Net Capital Contributions to all limited partners.
RETURN OF UNUSED CAPITAL CONTRIBUTIONS
Funds not expended, committed or reserved for working capital purposes
by the later of the fourth anniversary of the effective date of the registration
statement or three years after the termination of the offering will be returned
proportionately to limited partners. For purposes of the foregoing, funds will
be deemed to have been committed and will not be returned to the extent that
such funds would be required to complete the acquisition of partnership
properties with respect to which contract agreements in principle or letters of
understanding have been executed, regardless of whether such property is
actually acquired. Any funds reserved in order to make contingent payments in
connection with the acquisition of any partnership property will be treated as
committed whether or not any such payments are actually made.
PARTNERSHIP ALLOCATIONS
Partnership allocations are as follows:
NET INCOME. The partnership's Net Income (defined generally as the net
income of the partnership for federal income tax purposes, including any income
exempt from tax, but excluding all deductions for depreciation, amortization and
any net gain on the sale of assets) will be allocated each year in the same
proportions, and to the extent that, Net Cash From Operations is distributed or
deemed distributed to the partners. To the extent the partnership's Net Income
in any year exceeds Net Cash From Operations; such excess Net Income will be
allocated 80% to limited partners holding units during such year and, 20% to the
general partner.
NET LOSS, DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS.
Deductions for depreciation, amortization and cost recovery and the
partnership's Net Loss (defined generally as the net loss of the partnership for
federal income tax purposes, but excluding all, deductions for depreciation,
amortization and cost recovery) for each fiscal year will be allocated as
follows:
1. 99% to limited partners holding units during such year and 1 %
to the general partner until each such partner's capital
account (defined generally as the sum of capital contributions
and income allocated to a partner less the sum of
distributions paid and losses allocated to a partner) of all
such partners are reduced to zero;
2. Thereafter, all such deductions will be allocated to the
general partner, who, at that time, would be the only partner
having any economic risk of loss.
60
GAIN ON SALE. Gain on Sale (defined generally as the net taxable income
or gain from all sales or exchanges of partnership properties during the fiscal
year) will be allocated first, pursuant to the qualified income offset provision
contained in the partnership agreement, if applicable, then, to partners having
negative capital accounts, if any, until negative capital accounts have been
restored to zero, then to the limited partners and general partner pro rata in
amounts equal to the deductions for depreciation and amortization allocated to
each such partner in connection with the specific partnership property and
thereafter, 80% to the limited partners and 20% to the general partners.
The partnership agreement contains a "qualified income offset"
provision which provides that in the event that any partner receives an
adjustment, allocation or distribution of certain items which causes a deficit
or negative balance in such partner's capital account, such aartner will be
allocated items of income or gain (consisting of a pro rata portion of each item
of partnership income, including gross income, and gain for such year) in an
amount and manner sufficient to eliminate such deficit balance as quickly as
possible. The intent of the foregoing provision is to prohibit allocations of
losses or distributions of cash to a limited partner which would cause his
capital account to become negative (which would occur in the event that the
aggregate amount of losses allocated and cash distributed to such limited
partner exceeded the sum of his capital contributions plus any income allocated
to him) or, in the event such allocation or distribution did cause his capital
account to become negative, such limited partner would be allocated income or
gain in an amount necessary to bring his capital account back to zero.
The qualified income offset provision may result in income being
specially allocated to limited partners even in a fiscal year when the
partnership has a net loss from operations or from the sale of property.
Income, losses and distributions of cash relating to units which are
acquired directly from the partnership during the offering will be allocated
among the limited partners on a pro rata basis based on the number of days such
units have been owned by such limited partner.
REPORTS TO INVESTORS
Within 75 days after the end of each fiscal year of the partnership,
the general partner will deliver to each limited partner and any assignee such
information as is necessary for the preparation of his federal income tax return
and state income or other tax returns with regard to jurisdictions in which
partnership properties are located. Within 120 days after the end of the
partnership's fiscal year, the general partner will deliver to each limited
partner and any assignee an annual report which includes financial statements of
the partnership, audited by independent certified public accountants. and
prepared in accordance with generally accepted accounting principles. Such
financial statements will include a profit and loss statement, a balance sheet
of the partnership, a cash flow statement, a statement of changes in partners'
capital, and any materials required to be filed with the Securities and Exchange
Commission.
For as long as the partnership is required to file quarterly reports on
Form 10-Q with the Securities and Exchange Commission, financial information
substantially similar to the financial information contained in each such report
shall be sent to the limited partners within 60 days after the end of such
quarter. Whether or not such reports are required to be filed, each limited
partner will be furnished within 60 days after the end of each of the first
three quarters of the partnership's fiscal year an unaudited financial report
for that period including a profit and loss statement, a balance sheet and a
cash flow statement.
The partnership will distribute annually to limited partners a report
on the estimated value of each unit. Such estimated value will be based upon
annual appraisals of partnership properties performed by the general partner and
not by an independent appraiser. The general partner is, however, required to
obtain the
61
opinion of an independent third party that its estimate of the value of each
unit is reasonable and was prepared in accordance with appropriate methods for
valuing real estate. For the first three full fiscal years following the year in
which the offering of units terminates, the value of the units will be deemed to
be their initial purchase price of $10.00, and no valuation of partnership
properties will be performed.
PLAN OF DISTRIBUTION
A minimum of 10,000 units and a maximum of 4,000,000 units are being
offered to the public through registered broker-dealers which are members of the
National Association of Securities Dealers, Inc. The units are being offered at
a price of $10.00 per unit on a "best efforts" basis (which means generally that
the broker-dealers will be required to use only their best efforts to sell the
units and have no firm commitment or obligation to purchase any of the units).
The partnership does not plan to pay any referral or similar fees in connection
with the distribution of the units.
Payment for units should be made by check payable to ABIC Realty Fund
I, L.P. Subscriptions will be effective only upon acceptance by the general
partner, and the general partner may reserve the right to reject any
subscription in whole or in part.
Subscription proceeds will be placed in an interest-bearing account
until such subscriptions aggregating at least $100,000 have been received and
accepted by the general partner (the "minimum offering"). Subscription proceeds
will be invested in obligations of, or obligations guaranteed by, the United
States government or bank money market accounts, or certificates of deposit of
national or state banks that have deposits insured by the Federal Deposit
Insurance Corporation (including certificates of deposit of any bank acting as
depository or custodian for any such funds), directed by the general partner.
If the minimum offering has not been received and accepted by 180 days
after the affective date of the offering, this offering will be terminated. No
later than fifteen business days after termination of the offering, the general
partner will refund and return all monies to subscribers. During the period in
which subscription proceeds are held in escrow, interest earned thereon will be
allocated among subscribers on the basis of the respective amounts of their
subscriptions and the number of days that such amounts were on deposit. Such
interest net of escrow expenses will be paid to subscribers upon the termination
of the escrow period.
Initial subscribers may be admitted to the partnership and the payments
transferred from escrow to the partnership at any time after the partnership has
received and accepted the minimum offering. Certain states may impose different
requirements than those set forth herein. Any such additional requirements will
be set forth in a supplement to this prospectus.
The offering will commence upon the effective date of this prospectus.
Provided subscriptions for at least 10,000 units are received and accepted
within 180 days of the effective date of this offering, the offering will
continue until and terminate upon the earlier of (i) May 31, 2004 or (ii) the
date on which all $40,000,000 in units of ABIC Realty Fund I, L.P. have been
sold.
SUPPLEMENTAL SALES MATERIAL
In addition to this prospectus, the partnership may utilize certain
sales material in connection with the offering of the units, although such
material may only be used when accompanied by or preceded by the delivery of
this prospectus. In certain jurisdictions, some or all of such sales material
may not be available. This material may include information relating to this
offering, property brochures and articles and publications concerning real
estate. In addition, the sales material may contain certain quotes from various
publications without obtaining the consent of the author or the publication for
use of the quoted material in the sales material.
62
The offering of units in the partnership is made only by means of this
prospectus. Although the information contained in such sales material does not
conflict with any of the information contained in this prospectus, such material
does not purport to be complete, and should not be considered a part of this
prospectus or the registration statement of which this prospectus is a part, or
as incorporated by reference in this prospectus or the registration statement or
as forming the basis of the offering of the units.
LEGAL MATTERS
Certain matters relating to the legality of the units will be passed
upon by Alice A. Waters, Attorney, Waxahachie, Texas. The discussion of the
federal income tax considerations relating to the units has been passed upon by
Julia Swisher, Attorney, Austin, Texas.
EXPERTS
The financial statements of ABIC Realty Fund I, L.P. included in this
prospectus have been audited by Tyson Hopkins, independent certified public
accountant, Oklahoma City, Oklahoma. These financial statements as well as his
report have been included in reliance upon the report and authority of such firm
as an expert in auditing and accounting.
ADDITIONAL INFORMATION
The partnership has filed with the Securities and Exchange Commission
(the "Commission"), Washington D.C., a registration statement under the
Securities Act of 1933, as amended, with respect to the units offered pursuant
to this prospectus. This prospectus does not contain all the information set
forth in the registration statement and the exhibits related thereto filed with
the Commission. Copies of the registration statement and exhibits, as well as
periodic reports and information filed by partnership, may be obtained upon
payment of the fees prescribed by the Commission, or may be examined at offices
of the Commission without charge, at the SEC's Public Reference Room in
Washington, D.C. at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the SEC's Public Reference Room by calling 1-800-SEC-0330. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other information with regard to registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov.
GLOSSARY
The following are definitions of certain terms used in this prospectus
and not otherwise defined herein in the partnership agreement:
"AFFILIATE" means (i) any person directly or indirectly controlling,
controlled by or under common control with the general partner, (ii) any person
owning or controlling 10% or more of the outstanding voting securities of the
general partner, (iii) any officer, director or partner of the general partner,
and (iv) if such other person is officer, director or partner, any company for
which such person acts in any such capacity.
63
"CAPITAL ACCOUNT" means the account established for each partner
pursuant to the partnership agreement. Each partner's Capital Account shall be
determined in accordance with Treasury Regulations Section 1.704-1(b). Capital
Accounts generally will be adjusted as follows. Each partner's Capital Account
shall be credited with: (i) the amount of the cash contributed to the
partnership by distributive share of partnership income and gain; and each
artner's Capital Account shall be debited with: his distributive share of
partnership losses and deductions or items thereof; and (iv) the cash
distributed to him.
"CASH FLOW" means cash funds from operations of the partnership,
including without limitation rental income, interest and other investment
income, but excluding Capital Contributions, and without deduction for
depreciation or amortization, after deducting funds used to pay or to provide
for the payment of all operating expenses ofartnership and each partnership
property and debt service, if any, capital improvements and replacements, but
not including any proceeds from the sale, exchange or other disposition of
partnership property.
"CODE" means the Internal Revenue Code of 1986, as amended.
"GAIN ON SALE" means the taxable income or gain for federal income tax
purposes in the aggregate for each fiscal year from the sale or exchange of all
or any portion of a partnership asset after netting losses from such sales or
exchanges against the gains from such transactions.
"INVESTMENT IN PROPERTIES" means the amount of Capital Contributions
actually paid or allocated to the purchase or improvement of properties acquired
by the partnership, including the purchase of properties, working capital
reserves allocable thereto and other cash payments such as interest and taxes.
"IRA" means an Individual Retirement Account established pursuant to
Section 408 of the Code.
"LIQUIDATING DISTRIBUTIONS" means the funds available for distribution
from net cash proceeds received by the partnership from (a) the sale, exchange,
condemnation, eminent domain taking, casualty or other disposition of
substantially all of the assets of the partnership or the last remaining assets
of the partnership or (b) a liquidation of the partnership's assets in
connection with a dissolution of the partnership, after (i) payment of all
expenses of such sales, exchanges, condemnations, eminent domain takings,
casualties, other dispositions or liquidations, including real estate
commissions, if applicable, (ii) the payment of any outstanding indebtedness and
other liabilities of the partnership, and (iii) any amounts set aside as
reserves which general partner in its sole discretion may deem necessary or
desirable.
"MINIMUM OFFERING" means the receipt and acceptance by the general
partner of subscriptions aggregating at least $100,000 in offering proceeds.
"NET CAPITAL CONTRIBUTION" means, with respect to any partner, the
partner's capital contribution as reduced from time to time by distributions to
such partner constituting a return of unused capital or by distributions to such
partner of Non-liquidating Net Sale Proceeds and Liquidating Distributions which
are returns of capital.
"NET CASH FROM OPERATIONS" shall mean Cash Flow, less adequate cash
reserves for other obligations of the partnership, including, but not limited
to, payments for property supervision, management, leasing and all other costs
of properties and partnership operation.
"NET INCOME" or "NET LOSS" means the net income or loss realized or
recognized by the partnership in a fiscal year, as determined for federal income
tax purposes, including any income exempt from tax, but excluding all deductions
for depreciation and amortization and Gain on Sale.
64
"NON-LIQUIDATING NET SALE PROCEEDS" means the net cash proceeds
received by the partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the partnership, which does
not constitute substantially all of the remaining assets of the partnership,
after (i) the payment of all expenses of such sale, exchange, condemnation,
eminent domain taking, casualty, sale or other disposition, including estate
commissions, if applicable, (ii) the payment of any outstanding indebtedness and
other partnership liabilities relating to such assets, (iii) any amounts used to
restore any such assets of the partnership, and (iv) any amounts set aside as
reserves which the general partner in its sole discretion may deem necessary or
desirable.
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred in
connection with organizing the partnership, preparing the partnership for
registration and subsequently offering and distributing the units to the public,
including without limitation, legal and accounting fees, sales commissions paid
to broker-dealers in connection with the distribution of the units and all
advertising and out of pocket expenses.
"PREFERRED RETURN" shall mean the 7% per annum cumulative but
non-compound return on limited partners' Net Capital Contributions which is
distributed to limited partners quarterly prior to any distributions to the
general partner and prior to any distributions that are allocated 20 % to the
general partner and 80% to the limited partners, said preferred return being
calculated quarterly on the basis of the net capital contribution at the
beginning of the quarter the distribution is being made. Preferred returns are
not guaranteed and may only be paid if funds are available.
"PROPERTY MANAGEMENT AND LEASING FEE" means the fee payable for
day-to-day professional property management and leasing services rendered in
connection with the partnership properties.
"QUALIFIED PLAN" means a qualified sole proprietorship, partnership or
corporate pension or profit sharing plan established under Section 401(a) of the
Code.
"RETIREMENT PLANS" means Individual Retirement Accounts ("IRAs")
established under Section 408 of the Code and Qualified Plans.
"SALE PROCEEDS" means, collectively, Non-liquidating Net Sale Proceeds
and Liquidating Distributions.
"SPONSOR" means any individual, partnership, corporation or other legal
entity which (i) is directly or indirectly instrumental in founding or
organizing, wholly or in part, the partnership, either alone or in conjunction
with one or more other persons, other than an outside accountant or attorney
acting as such and receiving arm's-length compensation, (ii) will manage or
participate in the management of the partnership, and any Affiliate of any such
person, other than a person whose only relationship with the partnership is that
of an independent property manager, whose only compensation is as such, (iii)
receives a material participation in the partnership in connection with the
founding or organizing of the business of the partnership, in consideration of
services or property, or both services and property, (iv) has a substantial
number of relationships and contacts with the partnership, (v) possesses
significant rights to control partnership properties, (vi) receives fees for
providing services to the partnership which are paid on a basis that is not
customary in the industry, or (vii) provides goods or services to the
partnership on a basis which was not negotiated at arm's-length with the
partnership. Based upon the foregoing, Sponsors of the partnership include the
general partner.
"UBTI" means unrelated business taxable income, as that term is defined
in Sections 511 through 514 of the Code.
"UNUSED CAPITAL CONTRIBUTIONS" means so much of the capital
contributions of partners which are not required to acquire property and
improvements thereon with respect to which contracts, agreements in principle or
letters of understanding have been executed within the later of four years
following the effective date of the registration statement or three years after
the termination of the offering of the units.
65
[TYSON HOPKINS LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To ABIC Realty Fund I, L.P.
I have audited the accompanying balance sheet of ABIC Realty Fund I, L.P. (a
Texas Limited Partnership and developmental stage enterprise, the "Partnership")
as of December 31, 2002, and the related statement of changes in partner's
capital for the period from Partnership formation on May 17, 2002 through
December 31, 2002. These financial statements are the responsibility of the
Partnership. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of ABIC Realty Fund I, L.P. as of
December 31, 2002, and the changes in partner's capital for the period from
Partnership formation on May 17, 2002 through December 31, 2002 in conformity
with generally accepted accounting principles.
TYSON HOPKINS
Certified Public Accountant
Oklahoma City, Oklahoma
January 10, 2003
66
ABIC REALTY FUND I, L.P.
(a Texas Limited Partnership and development stage enterprise)
BALANCE SHEET
As of December 31, 2002
ASSETS
<Table>
CURRENT ASSETS
Cash and cash equivalents $ 11,100
Capitalized offering costs 71,000
----------
TOTAL ASSETS $ 82,100
==========
LIABILITIES AND PARTNERSHIP CAPITAL
COMMITMENTS (Notes B and C)
LIABILITIES
Due to General Partner, ABIC Realty Corporation $ 81,800
PARTNERSHIP CAPITAL
Initial General Partner Capital 1,000
Initial Limited Partner Capital, $10 per unit, 4,000,000
units authorized, 10 units issued and outstanding 100
Loss resulting from write-off of organization cost (800)
----------
Total Partnership Capital 300
----------
TOTAL LIABILITIES AND PARTNERSHIP CAPITAL $ 82,100
==========
</Table>
See accompanying notes to financial statements
67
ABIC REALTY FUND I, L.P.
(a Texas Limited Partnership and development stage enterprise)
STATEMENT OF CHANGES IN PARTNER'S CAPITAL
For the period from formation on May 17, 2002 through December 31, 2002
<Table>
<Caption>
Initial
Initial Limited
General Partner Current
Partner Capital Year
Capital (10 Units) Loss Total
--------- ---------- --------- ---------
Balance Prior to
Formation on May 17, 2002 0 0 0 0
June 2002, Initial Capital $ 1,000 $ 100 0 $ 1,100
Write-off of organization cost 0 0 (800) (800)
--------- --------- --------- ---------
Balances, December 31, 2002 $ 1,000 $ 100 $ (800) $ 300
========= ========= ========= =========
</Table>
See accompanying notes to financial statements
68
ABIC REALTY FUND I, L.P.
(a Texas Limited Partnership and developmental stage enterprise)
NOTES TO FINANCIAL STATEMENTS
NOTE A - DESCRIPTION OF BUSINESS
General
ABIC Realty Fund I, L.P. (the "Partnership") was formed on May 17, 2002 as a
Texas Limited Partnership to purchase and operate a portfolio of income
producing real estate properties that: (i) pay quarterly cash distributions to
its investors at an increasing rate over time, that for taxable investors may be
partially free from current taxation; and (ii) increase in value over time. (the
"Properties") No assurance can be given that these business objectives will be
attained. The General Partner of the Partnership is ABIC Realty Corporation, a
Texas corporation. The Partnership has filed a Registration Statement with the
Securities and Exchange Commission and various state security boards with
respect to its offering of up to $40,000,000 of Limited Partnership Units (the
"Units") (4,000,000 units at $10 per unit). Upon completion of the review
process of the various federal and state regulatory authorities the Partnership
will at that time begin the Limited Partnership Unit offering. Thereafter, the
Partnership will initiate its principal business operations only after a minimum
of $100,000 in Unit subscriptions is received.
The Partnership's fiscal year will end on December 31.
DEVELOPMENTAL STAGE ENTERPRISE
The Partnership is considered to be in the "developmental stage" as
substantially all of its efforts have been expended in establishing the new
business and planned principal operations have not commenced. The Partnership
has received no revenues and incurred no expenses since inception except for
write-off of organization costs in the amount of $800. Accordingly, statements
of income and cash flows are not material and are not included herein.
NOTE B - SALE OF LIMITED PARTNERSHIP UNITS
The Partnership plans to offer on a "best efforts basis" up to $40,000,000 of
Limited Partnership Units. The Units will be offered though licensed
broker-dealers. The broker-dealers will be paid commissions equaling 7.5% of the
proceeds of the Unit sale and up to 1% of the gross offering proceeds for
non-accountable expenses. The Partnership will pay to the General Partner 6% of
the Unit proceeds to reimburse registration, legal, accounting, printing,
marketing and other out-of-pocket expenses as well as general, administrative
and overhead expenses borne by the General Partner in connection with the
offering and organization of the Partnership. The remainder of the Limited
Partner Unit sale proceeds will be used to purchase commercial real estate
properties, acquired on an all-cash basis. ABIC Realty Fund I, L.P. will conduct
its business pursuant to a limited partnership agreement. Investor subscription
funds are to be held in an escrow bank account until $100,000 in subscriptions
have been received by the Partnership.
69
NOTE C - RISKS AND UNCERTAINTIES
Limited Partnership Investors will incur various risks and uncertainties
including, but not limited to, all market risks generally associated with real
estate investments and concentration of assets since the Partnership will invest
only in commercial real estate properties and all Properties are expected to be
located in urban and suburban areas of southern and southwestern United States.
Limited Partners have limited voting rights and must rely on the General
Partner, who will have full responsibility for the management of the
Partnership. The number of properties that the Partnership will acquire and
diversification of its investments will be reduced to the extent that less than
the maximum offering amount is raised. Additionally, due to certain federal
income considerations liquidity of the Limited Partnership Units will be
restricted.
NOTE D - RELATED PARTY TRANSACTIONS
The total General Partner Initial Capital Contribution is $1,000. Additionally,
as of October 10, 2002 the General Partner has advanced cash to the Partnership
of $10,000 which may be used in the future to pay incidental expenses of the
partnership. All offering and organization costs have been paid by the General
Partner and if the offering is successfully completed, the Partnership will pay
6% of the proceeds of the offering to the General Partner as described in Note
B. Partnership offering and organization costs paid by the General Partner prior
to December 31, 2002 are approximately $72,000. Offering costs have been
recorded as a liability and capitalized as an asset on the balance sheet of the
Partnership. Organization costs of $800 have been expensed in 2002. The
Partnership and its Properties will be managed and administrated on behalf of
the Partnership by the General Partner. Fees to be paid to the General Partner
have not been negotiated on an arms length basis. The General Partner intends to
contract a portion of its duties to qualified third-party property managers and
real estate brokers.
70
[TYSON HOPKINS LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To ABIC Realty Corporation:
I have audited the accompanying balance sheet of ABIC Realty Corporation (a
Texas Corporation and developmental stage enterprise, the "Company") as of
December 31, 2002. The balance sheet is the responsibility of the Company. My
responsibility is to express an opinion on the balance sheet based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. I believe that my audit
provides a reasonable basis for my opinion.
In my opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ABIC Realty Corporation as of
December 31, 2002, in conformity with generally accepted accounting principles.
TYSON HOPKINS
Certified Public Accountant
Oklahoma City, Oklahoma
January 10, 2003
71
PURCHASERS OF LIMITED PARTNERSHIP UNITS OF ABIC REALTY FUND I, L.P. WILL NOT
RECEIVE ANY INTEREST IN THE GENERAL PARTNER, ABIC REALTY CORPORATION.
ABIC REALTY CORPORATION
BALANCE SHEET
As of December 31, 2002
ASSETS
<Table>
Cash $ 218,200
Amounts advanced to and on behalf of ABIC Realty Fund I, L.P. 81,800
------------
TOTAL ASSETS $ 300,000
============
STOCKHOLDERS' EQUITY
Common stock, $1 par, 100,000 shares authorized, issued
and outstanding $ 100,000
Additional paid in capital 200,000
------------
TOTAL STOCKHOLDERS' EQUITY $ 300,000
============
</Table>
See accompanying notes to balance sheet
72
PURCHASERS OF LIMITED PARTNERSHIP UNITS OF ABIC REALTY FUND I, L.P. WILL NOT
RECEIVE ANY INTEREST IN THE GENERAL PARTNER, ABIC REALTY CORPORATION.
ABIC REALTY CORPORATION
NOTES TO BALANCE SHEET
1. HISTORY AND OPERATIONS
ABIC Realty Corporation, a Texas Corporation (the "Company"), was
incorporated on February 1, 2000. The Company was formed to facilitate
formation, funding, management, operations and administration of
investment entities to be formed to purchase commercial real estate
properties and/or initiate mortgage loans secured by commercial real
estate properties. The only activity of the company has been certain
formation and pre-offering planning for an offering of limited
partnership units of ABIC Realty Fund I, L.P. (the "Partnership"). The
Company is the General Partner of the Partnership and to date the
principal business activities of the Company and the Partnership have
been as follows:
ABIC Realty Fund I, L.P.
ABIC Realty Fund I, L.P. was formed in May 2002 as a Texas
Limited Partnership to purchase and operate a portfolio of
income producing real estate properties that: (i) pay
quarterly cash distributions to its investors at an increasing
rate over time, that for taxable investors may be partially
free from current taxation; and (ii) increase in value over
time. (the "Properties") The Partnership has filed a
Registration Statement with the Securities and Exchange
Commission and various state security boards with respect to
its offering of up to $40,000,000 of Limited Partnership Units
(the "Units"). Upon completion of the review process of the
various federal and state regulatory authorities the
Partnership will at that time begin the Limited Partnership
Unit offering. The Units will be offered though licensed
broker-dealers on a best efforts basis. The Partnership will
pay to the General Partner 6% of the Unit proceeds to
reimburse registration, legal, accounting, printing, marketing
and other out-of-pocket expenses as well as general,
administrative and overhead expenses borne by the General
Partner in connection with the offering and organization of
the Partnership.
The total General Partner Initial Capital Contribution to the
Partnership is $1,000. Additionally, the General Partner has
advanced cash to the Partnership of $10,000 as of December 31,
2002 and has paid offering and organization costs of
approximately $72,000. The Partnership and its Properties will
be managed and administrated on behalf of the Partnership by
the General Partner. The General Partner will be paid
management and administration fees by the Partnership. The
Company's advances to the Partnership for offering and
organization costs will be repaid to the Company only if the
offering is successful.
73
PURCHASERS OF LIMITED PARTNERSHIP UNITS OF ABIC REALTY FUND I, L.P. WILL NOT
RECEIVE ANY INTEREST IN THE GENERAL PARTNER, ABIC REALTY CORPORATION
2. DEVELOPMENTAL STAGE ENTERPRISE
The Company is considered to be in the "developmental stage" as
substantially all of its efforts have been expended in establishing the
new business and planned principal operations have not commenced. The
Company has received no revenues and incurred no expenses since
inception.
3. STOCKHOLDERS EQUITY
The Company is closely held and has been initially capitalized with
$300,000 in cash. Stockholder's equity at December 31, 2002 includes
100,000 shares of $1 par value common stock authorized, issued and
outstanding and $200,000 of additional paid in capital.
74
EXHIBIT A
FORM OF AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
ABIC REALTY FUND I, L.P.
ABIC REALTY FUND I, L.P.
TABLE OF CONTENTS TO PARTNERSHIP AGREEMENT
<Table>
I FORMATION A - 2
II NAME A - 2
III DEFINITIONS A - 2
IV BUSINESS A - 7
V NAMES AND ADDRESSES OF PARTNERS A - 7
VI TERM A - 8
VII PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT A - 8
VIII CAPITAL CONTRIBUTIONS A - 8
IX DISTRIBUTIONS A - 10
X ALLOCATIONS A - 12
XI MANAGEMENT OF THE PARTNERSHIP A - 15
XII SERVICES TO PARTNERSHIP BY GENERAL PARTNER A - 20
XIII TRANSACTIONS BETWEEN GENERAL PARTNER AND THE PARTNERSHIP A - 21
XIV INDEPENDENT ACTIVITIES OF PARTNERS A - 21
XV BOOKS, REPORTS, FISCAL AND TAX MATTERS A - 22
XVI RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS A - 23
XVII WITHDRAWAL OF GENERAL PARTNER;
ASSIGNABILITY OF PARTNER'S PARTNERS' INTEREST A - 23
XVIII LOANS TO PARTNERSHIP A - 26
XIX POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS A - 26
XX DISSOLUTION AND TERMINATION OF THE PARTNERSHIP A - 28
XXI DISTRIBUTION ON TERMINATION OF PARTNERSHIP A - 29
XXII GENERAL PROVISIONS A - 30
</Table>
A-1
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ABIC REALTY FUND I, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into effective as of the_____ day of _________, 2002, by ABIC REALTY
CORPORATION, a Texas corporation, as the General Partner, and Settlers Capital
Corporation, an Oklahoma corporation, as the Initial Limited Partner, and those
parties who from time to time become Limited Partners as provided in this
Agreement, as the Limited Partners.
WHEREAS, on May 17, 2002, a Certificate of Limited Partnership was
filed with the Secretary of State of the State of Texas, pursuant to which the
General Partner and the Initial Limited Partner formed a limited partnership
(the "Partnership") under the Texas Revised Limited Partnership Act, (the
"Act"); and
WHEREAS, the parties hereto desire to amend, restate and supersede in
its entirety the original partnership agreement pursuant to the terms and
provisions of this Amended and Restated Agreement of Limited Partnership;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions herein contained, the parties hereto hereby agree, and
the limited partnership agreement of the Partnership shall hereafter be restated
and amended in its entirety, as follows:
ARTICLE I
FORMATION
The General Partner has executed and filed a Certificate of Limited
Partnership dated May 17, 2002 with the Secretary of State of the State of Texas
in accordance with the provisions of Section 2.01 of the Act, pursuant to which
the parties hereto have previously formed the Partnership.
ARTICLE II
NAME
The business of the Partnership shall be conducted under the name of
"ABIC REALTY FUND I, L.P." or such other name as the General Partner shall
hereafter designate in its discretion from time to time.
ARTICLE III
DEFINITIONS
"ABIC REALTY CORPORATION" shall mean ABIC Realty Corporation, a Texas
corporation, as the General Partner.
"ABIC REALTY FUND I, L.P." shall mean ABIC Realty Fund I, L.P., a Texas
limited partnership, the "Partnership".
"ACT" shall mean the Texas Revised Limited Partnership Act.
A-2
"ACQUISITION EXPENSES" shall mean expenses, including, but not limited
to, legal fees and expenses, travel and communications expenses, costs of
appraisals, nonrefundable option payments on property not acquired, accounting
fees and expenses, title insurance and miscellaneous expenses related to
selection and acquisition of properties, whether or not acquired.
"ACQUISITION FEES" shall mean the total of all fees and commissions
paid by any party to any Person in connection with the purchase of property by
the Partnership, including the Acquisition and Advisory Fees payable to the
General Partner or its Affiliates, real estate brokerage commissions, investment
advisory fees, finder's fees, selection fees, nonrecurring management fees, or
any other fees of a similar nature, however designated.
"ACQUISITION AND ADVISORY FEE" shall mean the fee payable to the
General Partner or its Affiliates for performing acquisition and advisory
services in connection with the review and evaluation of potential real property
acquisitions for the Partnership.
"ADDITIONAL LIMITED PARTNERS" shall refer to all persons who are
admitted as Limited Partners pursuant to the provisions hereof.
"AFFILIATE" shall mean (a) any Person directly or indirectly
controlling, controlled by or under common control with the General Partner, (b)
any Person owning or controlling 10% or more of the outstanding voting
securities of the General Partner, (c) any officer, director or partner of the
General Partner, and (d) if such other Person is an officer, director or
partner, of any company for which the General Partner acts in any such capacity.
"AGREEMENT" shall mean this Agreement of Limited Partnership as
amended, modified or supplemented from time to time.
"ASSIGNEE" shall mean a Person who has acquired a Limited Partner's
beneficial interest in one or more Units and has not become a substituted
Limited Partner.
"CAPITAL ACCOUNT" shall mean the account established and maintained for
each Partner.
"CAPITAL CONTRIBUTION" shall mean, in the case of the General Partner,
the aggregate amount of cash contributed by the General Partner to the
Partnership and, in the case of a Limited Partner, the gross amount of
investment in the Partnership by such Limited Partner, which shall be an amount
equal to $10.00 multiplied by the number of Units purchased by such Limited
Partner.
"CASH FLOW" shall mean cash funds from operations of the Partnership,
including without limitation rental income, interest and other investment income
but excluding Capital Contributions and without deduction for depreciation or
amortization, after deducting funds used to pay or to provide for the payment of
all operating expenses of the Partnership and each Partnership Property and debt
service, if any, capital improvements and replacements but not including any
proceeds from the sale, exchange or other disposition of Partnership Property.
"CERTIFICATE" shall mean the Certificate of Limited Partnership filed
by the General Partner with the Secretary of State of Texas dated May 17, 2002.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"EVENT OF WITHDRAWAL" shall occur, as to the General Partner:
(a) upon the dissolution, death or permanent disability of the General
Partner;
A-3
(b) if the General Partner should:
(i) make an assignment for the benefit of the creditors;
(ii) file a voluntary petition in bankruptcy;
(iii) be adjudicated a bankrupt or insolvent;
(iv) file a petition or answer speaking for himself or
itself in the reorganization, arrangement,
composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or
regulation;
(v) file an answer or other pleading admitting or failing
to contest the material allegations of the petition
filed against him or it in any proceeding of this
nature; or
(vi) seek, consent to or acquiesce in the appointment of a
trustee, receiver or liquidator of such General
Partner of all or a substantial part of his or its
property; or
(c) upon
(i) the filing of a certificate of dissolution of the
General Partner or the revocation of the General
Partner's charter and lapse of 90 days after notice
to the General Partner of revocation without
reinstatement of its charter;
(ii) the expiration of 120 days after the commencement of
any proceeding against the General Partner seeking
reorganization, arrangement composition,
readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, if the
proceeding has not been dismissed; or
(iii) the expiration of 90 days after the appointment
without such General Partner's consent or
acquiescence of a trustee, receiver or liquidator of
such General Partner or of all or any substantial
part of its properties, the appointment of which is
not vacated or stayed within 90 days after such an
appointment.
If an Event of Withdrawal shall occur with respect to the General
Partner, the Event of Withdrawal shall not be effective until 120 days after the
event giving rise to the Event of Withdrawal has occurred.
"EXPIRATION DATE" shall mean the date on which the Offering terminates
as provided in the Prospectus.
"GAIN ON SALE" shall mean the taxable income or gain for federal income
tax purposes (including gain exempt from tax) in the aggregate for each fiscal
year from the sale, exchange or other disposition of all or any portion of a
Partnership asset after netting losses from such sales, exchanges or other
dispositions against the gains from such transactions.
"GENERAL PARTNER" shall refer to ABIC Realty Corporation or any other
Person or Persons who succeed it in that capacity.
"GROSS REVENUES" shall mean all amounts actually collected as rents or
other charges for the use and occupancy of Partnership Properties, but shall
exclude interest and other investment income of the Partnership and proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership.
"IRS" means Internal Revenue Service.
"INDEPENDENT EXPERT" shall mean a Person with no material current or
prior business or personal relationship with the Sponsor or General Partner who
is engaged to a substantial extent in the business of rendering opinions
regarding the value of assets of the type held by the Partnership and who is
qualified to perform such work.
A-4
"INVESTMENT IN PROPERTIES" shall mean the amount of Capital
Contributions actually paid or allocated to the purchase or improvement of
properties acquired by the Partnership (including the purchase of properties,
working capital reserves allocable thereto and other cash payments such as
interest and taxes).
"LIMITED PARTNERS" shall refer to the Initial Limited Partner, the
Additional Limited Partners and to all other Persons who are admitted to the
Partnership as additional or substituted Limited Partners.
"LIQUIDATING DISTRIBUTIONS" shall mean the funds available for
distribution from net cash proceeds received by the Partnership from (a) the
sale, exchange, condemnation, eminent domain taking, casualty or other
disposition of substantially all of the assets of the Partnership or the last
remaining assets of the Partnership or (b) a liquidation of the Partnership's
assets in connection with a dissolution of the Partnership, after (i) payment of
all expenses of such sales, exchanges, condemnations, eminent domain takings,
casualties or other dispositions or liquidations, including real estate
commissions, if applicable, (ii) the payment of any outstanding indebtedness and
other liabilities of the Partnership and (iii) any amounts set aside as reserves
which the General Partner in its sole discretion may deem necessary or
desirable.
"MINIMUM GAIN" shall have the meaning set forth in Treasury Regulations
Section 1.704-2(d).
"MINIMUM OFFERING" shall mean the receipt and acceptance by the General
Partner of subscriptions for Units aggregating at least $100,000 in offering
proceeds.
"MINIMUM OFFERING EXPIRATION DATE" shall be as specified in the
Prospectus.
"NASAA GUIDELINES" shall mean the Statement of Policy Regarding Real
Estate Programs of the North American Securities Administrators Association,
Inc., as amended.
"NET CAPITAL CONTRIBUTION" shall mean, with respect to any Partner, the
Partner's Capital Contribution as reduced from time to time by distributions to
such Partner constituting a return of capital under Section 8.10 or by
distributions to such Partner of Non-liquidating Net Sale Proceeds under Section
9.2(c) and (d) and Liquidating Distributions under Section 9.3(d) which are
returns of capital.
"NET CASH FROM OPERATIONS" shall mean Cash Flow, less adequate cash
reserves for other obligations of the Partnership, including, but not limited
to, payments for property supervision, management, leasing and all other costs
of Properties and Partnership operation.
"NET INCOME" or "NET LOSS" shall mean the net income or loss realized
by the Partnership for a fiscal year, as determined for federal income tax
purposes, including any income exempt from tax, but excluding all deductions for
depreciation, amortization and Gain on Sale.
"NON-LIQUIDATING NET SALE PROCEEDS" shall mean the net cash proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership, which does
not constitute substantially all of the remaining assets of the Partnership,
after (a) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition, including real estate commissions,
if applicable, (b) the payment of any outstanding indebtedness and other
Partnership liabilities relating to such assets, (c) any amounts used to restore
any such assets of the Partnership, and (d) any amounts set aside as reserves
which the General Partner in its sole discretion may deem necessary or
desirable.
A-5
"OFFERING" shall mean the offering and sale of Units to the public
pursuant to the terms and conditions set forth in the Prospectus.
"ORGANIZATION AND OFFERING EXPENSES" shall mean those expenses incurred
in connection with the organization of the Partnership and the offering of Units
of the Partnership, as indicated in the Prospectus.
"PARTICIPATING PERCENTAGE" shall mean at any given time, as to each
holder of a Unit or Units, the percentage of that Person's Unit or Units to the
total Units being measured and shall be determined by dividing the total number
of Units held by such Person by the total number of outstanding Units.
"PARTNERS" shall refer collectively to the General Partner and to the
Limited Partners, and reference to a "Partner" shall be to any one of the
Partners.
"PARTNERSHIP" shall refer to the limited partnership created under this
Agreement.
"PARTNERSHIP PROPERTY" OR "PARTNERSHIP PROPERTIES" OR "PROPERTY" shall
mean any and all land and improvements purchased or constructed by the
Partnership and all repairs, replacements or renewals thereof, together with all
personal property acquired by the Partnership which is from time to time located
thereon or specifically used in connection therewith.
"PERSON" shall mean any natural person, partnership, corporation,
association, or other legal entity, including without limitation, qualified
pension and profit sharing trusts.
"PREFERRED RETURN" shall mean the 7% per annum cumulative but
non-compound return on Limited Partners' Net Capital Contributions which is
distributed to Limited Partners quarterly prior to any distributions to the
General Partner, said Preferred Return being calculated quarterly on the basis
of the Net Capital Contribution at the beginning of the quarter the distribution
is being made.
"PROPERTY SUPERVISION FEE" shall mean the fee payable to the General
Partner for supervising property management companies and leasing companies.
"PROSPECTUS" shall mean the prospectus used by the Partnership in
connection with its offer and sale of Units pursuant to a Registration Statement
filed under the Securities Act of 1933, as amended.
"PURCHASE PRICE" shall mean the sum of the prices paid for all
Properties by the Partnership (including all Acquisition Fees, but excluding
points and prepaid interest) plus all costs of improvements, (including liens
and mortgages on the Properties from such improvements) if any, reasonably and
properly allocable to the Properties.
"REGISTRATION STATEMENT" shall mean the registration statement filed by
the Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
"RETIREMENT PLANS" shall mean Individual Retirement Accounts
established under Section 408 of the Code and Keogh or corporate pension or
profit sharing plans established under Section 401(a) of the Code.
"SALE DATE" shall mean the day on which the Partnership realizes any
gain or loss from the sale, exchange or other disposition of Partnership assets
which it is required to allocate to the Partners.
"SPONSOR" shall mean any individual, partnership, corporation or other
legal entity which (i) is directly or indirectly instrumental in founding or
organizing, wholly or in part, the Partnership, either alone
A-6
or in conjunction with one of more other Persons, other than an outside
accountant or attorney acting as such and receiving arm's length compensation,
(ii) will manage or participate in the management of the Partnership, and any
Affiliate of any such Person, other than a Person whose only relationship with
the Partnership is that of an independent property manager, whose only
compensation is as such, (iii) receives a material participation in the
Partnership in connection with the founding or organizing of the business of the
Partnership, in consideration of services or property, or both services and
property, (iv) has a substantial number of relationships and contacts with the
Partnership, (v) possesses significant rights to control Partnership Properties,
(vi) receives fees for providing services to the Partnership which are paid on a
basis that is not customary in the industry, or (vii) provides goods or services
to the Partnership on a basis which was not negotiated at arm's-length with the
Partnership.
"TREASURY REGULATIONS" shall mean the Income Tax Regulations
promulgated under the Code by the United States Treasury Department.
"UNIT" shall mean the limited partnership interest entitling the holder
thereof to all rights and benefits under this Agreement including, but not
limited to an interest in the income, loss, distributions and capital of the
Partnership to be allocated to holders of Units. All Units shall represent a
Capital Contribution of $10.00 each (irrespective of the fact that because of
discounts in sales commissions and other fees under certain circumstances,
certain Units may be sold and issued for a gross consideration of less than
$10.00 per Unit), shall be issued as fully paid and non-assessable and shall
have the same rights, privileges and preferences.
ARTICLE IV
BUSINESS
4.1 PURPOSE. The principal purpose of the Partnership is to acquire,
own, operate, improve, lease and otherwise manage for investment purposes, a
diversified portfolio of income-producing commercial or industrial properties as
shall, from time to time, be acquired by the Partnership and to engage in any or
all general business activities related to or incidental to such principal
purpose.
4.2 OBJECTIVES. The business of the Partnership shall be to purchase
and operate a portfolio of real estate properties that:
(a) Pay cash distributions to it's investors at an
increasing rate over time; and
(b) Increase in value over time.
ARTICLE V
NAMES AND ADDRESSES OF PARTNERS
The name of the General Partner is ABIC Realty Corporation, a Texas
corporation. The name of the Initial Limited Partner is Settlers Capital
Corporation. The business address of the General Partner is 9520 North May
Avenue, Suite 330, Oklahoma City, Oklahoma 75120. The business address of the
Initial Limited Partner is 9520 North May Avenue, Suite 330, Oklahoma City,
Oklahoma 75120. The names and addresses of all the Additional Limited Partners
shall be set forth in the books and records of the Partnership.
A-7
ARTICLE VI
TERM
The Partnership term commenced upon the filing of the Certificate and
shall continue until December 31, 2030, unless sooner terminated as hereinafter
provided.
ARTICLE VII
PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT
The principal office of the Partnership shall be 9520 North May Avenue,
Suite 330, Oklahoma City, Oklahoma 75120. The General Partner may from time to
time change the principal place of business and, in such event, shall notify the
Limited Partners in writing of the change and the effective date of such change.
The registered agent for the Partnership shall be ABIC Realty Corporation and
the registered address shall be 18601 LBJ Freeway, Suite 440, Mesquite, Texas
75150.
ARTICLE VIII
CAPITAL CONTRIBUTIONS
8.1 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained
for each Partner. The Capital Accounts of the Partners shall be determined and
maintained throughout the term of the Partnership in accordance with the capital
accounting rules of Treasury Regulations Section 1.704-1(b), as it may be
amended or revised from time to time. In the event there is a determination that
the Agreement conflicts with the Treasury Regulations, that particular provision
of the Agreement will be superseded by the Treasury Regulations.
8.2 GENERAL PARTNER. The General Partner shall make an initial Capital
Contribution of $1,000 to the Partnership.
8.3 GENERAL PARTNER PURCHASE OF UNITS. The Capital Contributions of the
General Partner, together with the Capital Contribution of the Initial Limited
Partner, shall constitute the initial capital of the Partnership and shall not
entitle the General Partner to any Units. The General Partner who purchases
Units shall continue, in all respects, to be treated as the General Partner but
shall receive the income, losses and cash distributions with respect to any
Units purchased by such General Partner on the same basis as other Partners may
receive with respect to their Units. Units purchased by the General Partner or
its Affiliates shall not be entitled to vote on any transaction requiring
Limited Partner approval.
8.4 INITIAL LIMITED PARTNER. The Initial Limited Partner shall
contribute $100 in cash to the Partnership and agrees that his interest shall
automatically be redeemed for $100 upon the admission of any Additional Limited
Partners to the Partnership.
8.5 LIMITED PARTNER CONTRIBUTIONS. The General Partner is authorized
and directed to raise capital for the Partnership as provided in the Prospectus
by offering and selling not more than an aggregate of 4,000,000 Units as
follows:
(a) Each Unit shall be issued for a purchase price of
$10.00.
(b) Except as set forth below, the minimum purchase of
Units shall be 200 Units (or such greater minimum
number of Units as may be required under applicable
state or federal laws). In addition, after
subscribers have satisfied the minimum purchase
A-8
requirements, the minimum additional investment in
the Partnership shall not be less than 100 Units. The
suitability standards set forth in the Prospectus
will not be decreased with respect to any investment
in Units of the Partnership.
(c) The General Partner may refuse to accept
subscriptions for Units and contributions tendered
therewith for any reason whatsoever. Subscriptions
shall be so accepted or rejected by the General
Partner within 30 days of their receipt. If rejected,
all funds will be returned to the subscriber within
fifteen business days. Once accepted, such
subscription amounts shall be deposited within two
business days to a Partnership account.
(d) Each Unit sold to a subscriber shall be fully paid
and non-assessable.
8.6 ADMISSION OF LIMITED PARTNERS. No action or consent by any Limited
Partners shall be required for the admission of Additional Limited Partners to
the Partnership, provided that the Partnership may not issue more than 4,000,000
Units. Until the receipt and acceptance by the Partnership of the Minimum
Offering, funds of subscribers for Units shall be held in an escrow account.
Such funds shall not be released from escrow, and no subscribers for Units shall
be admitted to the Partnership unless and until the receipt and acceptance by
the Partnership of the Minimum Offering. At any time thereafter, the Capital
Contributions of such subscribers may be released directly to the Partnership,
provided that such subscribers shall be admitted to the Partnership on the day
on which the subscriptions from such Persons are accepted by the Partnership.
Subscriptions from subsequent subscribers other than Retirement Plans shall be
accepted or rejected within 30 days of receipt by the Partnership, and if
rejected, all funds shall be returned to subscribers within fifteen business
days. Subscriptions from Retirement Plans may be held in abeyance until such
time as the acceptance of said subscription would not violate Section 8.6(a).
Subsequent subscribers shall be deemed admitted as Limited Partners of the
Partnership on the day on which the subscriptions from such Persons are accepted
by the Partnership.
(a) At no time shall the aggregate interests of capital
and profits of any Limited Partners who are
Retirement Plans be twenty-five (25%) percent or more
of the total capital and profits of the Partnership.
(b) No Person shall be admitted as a Limited Partner
under this Offering who has not executed and
delivered to the Partnership the Subscription
Agreement specified in the Prospectus, together with
such other documents and instruments as the General
Partner may deem necessary or desirable to effect
such admission, including, but not limited to, the
written acceptance and agreement by such Person to be
bound by the terms and conditions of this Agreement.
8.7 MINIMUM CAPITALIZATION. The Offering will terminate if the
Partnership has not received and accepted subscriptions for the Minimum Offering
on or before the Minimum Offering Expiration Date.
8.8 ESCROW. Until subscriptions for the Minimum Offering are received
and accepted by the General Partner, or until the Minimum Offering Expiration
Date, whichever first occurs, all subscription proceeds shall be held in an
escrow account separate and apart from all other funds and invested in
obligations of, or obligations guaranteed by, the United States government, or
bank money-market accounts or certificates of deposit of national or state banks
that have deposits insured by the Federal Deposit Insurance Corporation
(including certificates of deposit of any bank acting as a depository or
custodian for any such funds). All moneys tendered by Persons whose
subscriptions are rejected shall be returned, without interest, to such Persons
promptly after such rejection within fifteen days. If subscriptions for the
Minimum Offering are not received and accepted before the Minimum Offering
Expiration Date, those subscriptions and funds in escrow on such date plus
interest earned, less escrow expenses shall be returned to the subscribers.
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8.9 PUBLIC OFFERING. Except as otherwise provided in this Agreement,
the General Partner shall have sole and complete discretion in determining the
terms and conditions of the offer and sale of Units and is hereby authorized and
directed to do all things which it deems to be necessary, convenient,
appropriate and advisable in connection therewith, including, but not limited to
the preparation and filing of the Registration Statement with the Securities and
Exchange Commission and the securities commissioners (or similar agencies or
officers) of such jurisdictions as the General Partner shall determine, and the
execution or performance of agreements with selling agents and others concerning
the marketing of the Units, all on such basis and upon such terms as the General
Partner shall determine.
8.10 RETURN AND WITHDRAWAL OF CAPITAL.
(a) Any proceeds of the Offering of the Units not
invested or committed to the acquisition of specific
real properties within the later of four years from
the effective date of the Registration Statement or
three years after the termination of the Offering
(except for necessary operating expenses and any
reserves) shall be distributed pro rata to the
Limited Partners as a return of capital. For purposes
of the foregoing, funds will be deemed to have been
committed and will not be distributed to the extent
such funds would be required to acquire property with
respect to which contracts, agreements in principle
or letters of understanding have been executed,
regardless of whether such property is actually
acquired, and to the extent such funds have been
reserved to make contingent payments in connection
with the acquisition or improvement of any property,
whether or not any such payments are made.
(b) No Partner, including a withdrawing Partner, shall
have any right to withdraw or make a demand for
withdrawal of any such Partner's Capital Contribution
until the full and complete winding up and
liquidation of the business of the Partnership unless
such withdrawal is provided for herein.
8.11 INTEREST ON CAPITAL CONTRIBUTIONS. No interest shall be paid on
any Capital Contributions.
8.12 OWNERSHIP BY LIMITED PARTNER OF INTEREST IN AFFILIATES OF GENERAL
PARTNER. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in any Affiliate of the General Partner if such
ownership, by itself or in conjunction with the stock or other interest owned by
other Limited Partners would, in the opinion of counsel for the Partnership,
jeopardize the classification of the Partnership as a partnership for federal
income tax purposes. The General Partner shall be entitled to make such
reasonable inquiry of the Limited Partners and prospective Limited Partners, as
is required to establish compliance by the Limited Partners with the provisions
of this Section.
8.13 DEFICIT CAPITAL ACCOUNTS. The Limited Partners shall not be
required to reimburse the Partnership or any other Partner for deficiencies in
their Capital Accounts.
ARTICLE IX
DISTRIBUTIONS
9.1 NET CASH FROM OPERATIONS. Net Cash From Operations for each quarter
shall be distributed to the Partners as follows:
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(a) First, to the Limited Partners until each of such
Limited Partners has received distributions which,
when added to prior Preferred Return distributions
under this subsection and subsections 9.2(a) and
9.3(b), equal 7% per annum of his Net Capital
Contribution from the date he was admitted to the
Partnership through the end of said quarter. For
example, if the cumulative (but not compound) 7% per
annum preferred distribution to Limited Partners from
the date of admission into the Partnership through
the end of the quarter is $100 and $90 has previously
been distributed to pursuant to this subsection and
subsections 9.2 (a) and 9.3(b), then the first $10 of
distributions of Net Cash From Operations shall be
distributed to the Limited Partners as a Preferred
Return. In the event that in any quarter the amount
of such distributions is less than the Preferred
Return for that quarter, the deficiency shall be
accrued, but shall not itself accrue interest, and
shall be paid when funds become available.
(b) Then, to the General Partner until it has received
distributions of Net Cash From Operations,
aggregating all prior periods' distributions, equal
to 25% of the total distributions to Limited Partners
under Subsection 9.1(a), aggregating all prior
periods' distributions; and
(c) Thereafter, 80% to the Limited Partners on a per Unit
basis, and 20% to the General Partner.
The General Partner shall not incur any liability as a result of its
determination to distribute Net Cash From Operations, even though such
distribution may result in the Partnership's retaining insufficient funds for
the operation of its business, provided its determination was made in good faith
and not as a result of its negligence or misconduct.
9.2 NON-LIQUIDATING NET SALE PROCEEDS. Non-Liquidating Net Sale
Proceeds, after the payment of all Partnership debts and liabilities and the
establishment of any reserves which the General Partner in its sole discretion
may deem reasonably necessary or desirable, shall be distributed to the Partners
as follows:
(a) In the event that, after distributions of Net Cash
Flow from Operations for the relevant quarter, there
remains any unpaid accrued 7% per annum Preferred
Return, then, to the Limited Partners until each
Limited Partner has received or has been deemed to
have received under subsections (9.1(a), 9.2 (a) and
9.3(b), an amount equal to his Preferred Return from
the date he (or the initial holder of his Units if
said Units have been previously transferred) was
admitted to the Partnership through the end of said
quarter.
(b) Then, to the General Partner until it has received,
aggregating all prior periods' distributions,
distributions equal to 25% of the total distributions
to Limited Partners under Subsection 9.2(a),
aggregating all prior periods.
(c) To the Limited Partners on a per Unit basis until
each Limited Partner has received or has been deemed
to have received distributions hereunder equal to its
Net Capital Contribution at the beginning of the
quarter.
(d) Then, to the General Partner until the General
Partner has received distributions totaling 100% of
its Net Capital Contributions at the beginning of the
quarter;
(e) Thereafter, 80% to the Limited Partners on a per Unit
basis and 20% to the General Partner.
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9.3 LIQUIDATION OR DISSOLUTION. Upon liquidation or dissolution of the
Partnership, the assets of the Partnership shall be converted to cash. The
Partnership shall be given adequate time to collect any notes received with
respect to the sale of such assets and collect any other debts outstanding. All
cash shall be applied and distributed as follows:
(a) All of the debts and liabilities of the Partnership,
except indebtedness to the General Partner, shall
first be paid and satisfied or adequate provision,
including the setting up of any reserves which the
General Partner in its sole discretion deems
reasonably necessary or desirable, shall be made for
the payment or satisfaction thereof,
(b) In the event that, after any distributions of Net
Cash Flow from Operations for the relevant quarter,
there remains any unpaid accrued 7% per annum
Preferred Return, then, to the Limited Partners until
each Limited Partner has received or has been deemed
to have received under subsections 9.1(a), 9.2(a)
and 9.3(b), an amount equal to his Preferred Return
from the date he (or the initial holder of his Units
if the Units have been previously transferred) was
admitted to the Partnership through the end of said
quarter.
(c) To the Limited Partners on a per Unit basis until
each Limited Partner has received or has been deemed
to have received distributions hereunder equal to its
Net Capital Contribution at the beginning of the
quarter
(d) All indebtedness of the Partnership to the General
Partner.
(e) Then, to the General Partner until it has received
distributions, aggregating all prior periods'
distributions, equal to 25% of the total
distributions to Limited Partners under Subsection
9.3(b), aggregating prior periods' distributions.
(f) After payment of all obligations as indicated in this
Section, the balance of the assets of the Partnership
shall be distributed pro rata in accordance with
Capital Accounts after adjusting such Capital
Accounts for all transactions through the date of
distribution until such Capital Accounts have a zero
balance, and then 80% to the Limited Partners and
20% to the General Partner.
Upon dissolution, each Limited Partner shall look solely to the assets
of the Partnership for the return of his investment, and if the Partnership
Property remaining after payment or discharge of the debts and liabilities of
the Partnership, other than debts and liabilities owed to one or more of the
Partners, is insufficient to return the aggregate Capital Contributions of each
Limited Partner, such Limited Partners shall have no recourse against the
General Partner or any other Limited Partner.
9.4 DISTRIBUTION DATES. Periodic Partnership distributions will be made
within 30 days after the end of each calendar quarter, or, at the discretion of
the General Partner, more frequently. All distributions made to Limited Partners
pursuant to this Article IX shall be paid to those Persons who were Limited
Partners or Assignees thereof who are owners of record, as of the last day of
the calendar quarter for which the distribution is being made (the "Allocation
Date").
ARTICLE X
ALLOCATIONS
10.1 NET LOSS. Net Loss for each quarter shall be allocated to the
Partners as follows:
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(a) 99% to the Limited Partners with respect to such
accounting period on a per Unit basis, and 1% to the
General Partner until the Capital Accounts of all
such Partners have been reduced to zero;
(b) Then, 100% to the General Partner.
Notwithstanding the foregoing, in any fiscal year with respect to which
the Partnership incurs an aggregate Net Loss, interest income of the Partnership
shall be specially allocated to the Limited Partners with respect to the full
year on a per Unit basis, and Net Loss of the Partnership for the full year
shall be determined without regard to such interest income.
10.2 DEPRECIATION AND AMORTIZATION. All deductions for depreciation and
amortization for each applicable accounting period shall be allocated to the
Partners as follows:
(a) 99% to the Limited Partners with respect to such
accounting period on a per Unit basis, and 1% to the
General Partner until the Capital Accounts of all
such Partners have been reduced to zero;
(b) Then, 100% to the General Partner.
This Section 10.2 notwithstanding, all Net Loss and Net Income for each
fiscal year shall be allocated to the Partners in the manner provided in
Sections 10.1 and 10.3 hereof and shall be reflected in each Partner's Capital
Account as of the last day of such fiscal year before any allocation of
depreciation and amortization deductions is made to the Partners under this
Section.
10.3 NET INCOME. Subject to the Qualified Income Offset provisions of
Section 10.5 hereof, Net Income for each quarter shall be allocated to the
Partners as follows:
(a) To the General Partner and the Limited Partners with
respect to such accounting period on a per Unit
basis, in the same proportion as, and to the extent
that, Net Cash From Operations is distributed or
deemed distributed to them under Section 9.1 hereof
with respect to such accounting period; and
(b) Then, to the extent Net Income exceeds the actual
distribution of Net Cash From Operations with respect
to such accounting period, such excess Net Income
shall be allocated 80% to the Limited Partners with
respect to such accounting period on a per Unit
basis, and 20% to the General Partner.
10.4 GAIN ON SALE. Gain on Sale of a Partnership Property for each
quarter shall be allocated to the Partners as follows:
(a) First, to the extent applicable, pursuant to the
Qualified Income Offset provisions of Section 10.5
hereof;
(b) Then, to those Partners having negative Capital
Accounts, if any, in the ratio that the negative
Capital Account of each Partner having a negative
Capital Account bears to the aggregate amount of
negative Capital Accounts of all such Partners until
all negative Capital Accounts have been restored to
zero;
(c) Then, to the Limited Partners and the General Partner
in amounts equal to the deductions for depreciation
and amortization allocated to each Partner pursuant
to Section 10.2 hereof with respect to the specific
Partnership Property, the sale, exchange or other
disposition of which resulted in the allocation of
Gain on Sale hereunder;
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(d) Then, to the Limited Partners and General Partner pro
rata until each Partner has been allocated an amount
of gain from the sale of the Partnership Property
equal to the amount of any distributions of proceeds
of the sale of the Partnership Property under
Sections 9.2(a), 9.2(b), 9.3(b) and 9.3(f);
(e) Thereafter, 80% to the Limited Partners on a per Unit
basis and 20% to the General Partner.
10.5 QUALIFIED INCOME OFFSET. Notwithstanding any provision to the
contrary contained herein, in the event that any Partner receives an adjustment,
allocation or distribution described in Treasury Regulations Section
1.704-(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit balance in such
Partner's Capital Account, such Partner will be allocated items of income or
gain (consisting of a pro rata portion of each item of Partnership income,
including gross income, and gain for such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible, all in
accordance with Treasury Regulations Section 1.704-1(b)(2)(ii)(d). It is the
intent of the Partners that the foregoing provision constitutes a "Qualified
Income Offset," as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(d), and the foregoing provision shall in all events be
interpreted so as to constitute a valid "Qualified Income Offset."
10.6 ALLOCATION AMONG LIMITED PARTNERS. Except as otherwise provided in
this Article X, all allocations made to the Limited Partners as a group under
this Article X shall be apportioned among the Limited Partners according to each
Limited Partner's Participating Percentage. If, however, Limited Partners are
admitted to the Partnership pursuant to Article VIII on different dates during
any fiscal year, such allocations under this Article X for such fiscal year
(and, if necessary, subsequent years) shall be divided among the Persons who own
Units from time to time during such year in accordance with Section 706 of the
Code, using any conventions permitted by law and selected by the General
Partner, in its sole discretion.
10.7 ITEM PRORATIONS. Any fiscal year of the Partnership in which the
Partnership realizes any Gain on Sale shall be divided into multiple accounting
periods, the first of which shall begin on the first day of such fiscal year and
shall end on the Sale Date, and the second of which shall begin on the day
following such Sale Date and shall end on the following Sale Date, if any, and
if no further Sale Date occurs, then on the last day of such fiscal year. Any
Net Income realized by the Partnership in any of such accounting periods shall
be allocated to the Partners in the manner provided in Section 10. 3 hereof as
if such accounting period were a complete fiscal year of the Partnership. Any
Net Loss, depreciation, amortization or cost recovery deductions incurred by the
Partnership in any of such accounting periods shall be allocated to the Partners
in the manner provided in Sections 10.1 and 10.2 hereof as if such accounting
period were a complete fiscal year of the Partnership. The Net Income, Net Loss,
depreciation and amortization deductions so allocated to the Partners shall be
reflected in their respective Capital Accounts before any Gain on Sale realized
by the Partnership during such accounting period is allocated to the Partners
under Section 10.4 hereof.
10.8 ALLOCATIONS IN RESPECT TO TRANSFERRED UNITS. If any Units are
transferred during any fiscal year, all items attributable to such Units for
such year shall be allocated between the transferor and the transferee by taking
into account their varying interests during the year in accordance with Section
706(d) of the Code, utilizing any conventions permitted by law and selected by
the General Partner, in its sole and absolute discretion. Solely for purposes of
making such allocations, the Partnership shall recognize the transfer of such
Units as of the end of the calendar quarter during which it receives written
notice of such transfer, provided that, if the Partnership does not receive a
written notice stating the date such Units were
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transferred and such other information as may be required by this Agreement or
as the General Partner may reasonably require within 30 days after the end of
the year during which the transfer occurs, then all such items shall be
allocated to the Person who, according to the books and records of the
Partnership, on the last day of the year during which the transfer occurs, was
the owner of the Units. The General Partner and the Partnership shall incur no
liability for making allocations in accordance with the provisions of this
Section, whether or not the General Partner or the Partnership has knowledge of
any transfer of ownership of any Units.
10.9 DISPUTES. Except with respect to matters as to which the General
Partner is granted discretion hereunder, the opinion of the independent public
accountants retained by the Partnership from time to time shall be final and
binding with respect to all disputes and uncertainties as to all computations
and determinations required to be made under Articles IX and X hereof (including
but not limited to any computations and determinations in connection with any
distribution or allocation pursuant to a dissolution and liquidation).
ARTICLE XI
MANAGEMENT OF THE PARTNERSHIP
11.1 MANAGEMENT. The General Partner shall conduct the business of the
Partnership, devoting such time thereto as it, in its sole discretion, shall
determine to be necessary to manage Partnership business and affairs in an
efficient manner.
11.2 POWERS OF THE GENERAL PARTNER. The General Partner shall have full
charge of overall management, conduct and operation of the Partnership, and
shall have the authority to act on behalf of the Partnership in all matters
respecting the Partnership, its business and its property, and without limiting
in any manner the foregoing authority:
(a) To do on behalf of the Partnership all things which,
in its sole judgment, are necessary, proper or
desirable to carry out the Partnership's business,
including, but not limited to, the right, power and
authority: (i) to execute all agreements and other
documents necessary to implement the purposes of the
Partnership, to take such action as may be necessary
to consummate the transactions contemplated hereby
and by the Prospectus, and to make all reasonably
necessary arrangements to carry out the Partnership's
obligations in connection therewith; (ii) to employ,
oversee and dismiss from employment any and all
employees, agents, independent contractors, real
estate managers, contractors, engineers, architects,
designers, brokers, attorneys and accountants; (iii)
to sell, exchange or grant an option for the sale of
all or substantially all or any portion of the real
and personal property of the Partnership, at such
price or amount for cash, securities or other
property and upon such other terms as the General
Partner, in its sole discretion, deems proper; (iv)
to let or lease all or any portion of the Partnership
Properties for any purpose and without limit as to
the term thereof, whether or not such term (including
renewal terms) shall extend beyond the date of the
termination of the Partnership so long as such leases
do not violate Section 11.3(n) and (o) herein; (v) to
create, by grant or other, easements and servitudes;
(vi) to borrow money and incur indebtedness;
provided, however, the Partnership shall not be
permitted to incur any indebtedness except as
authorized in Section 11.3(e) hereof, (vii) to draw,
make, accept, endorse, sign and deliver any notes,
drafts or other negotiable instruments or commercial
paper; (viii) to execute such agreements and
instruments as may be necessary; in its discretion,
to operate, manage and promote the Partnership assets
and business; (ix) to alter, improve, repair, raze,
replace or rebuild all or any portion of the
Partnership Properties; (x) to submit to arbitration
any
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claim, liability or dispute involving the Partnership
(provided that such claims will be limited to actions
against the Partnership not involving securities
claims by the Limited Partners and provided further
that no claim, liability or dispute of a Limited
Partner will be subject to mandatory arbitration);
(xi) to compromise any claim or liability due to the
Partnership; (xii) to execute, acknowledge or verify
and file any notification, application, statement and
other filing which the General Partner considers
either required or desirable to be filed with any
state or federal securities administrator or
commission; (xiii) to make any tax elections to be
made by the Partnership; (xiv) to place record title
to any of its assets in the name of a nominee, agent
or a trustee; (xv) to do any or all of the foregoing,
discretionary or otherwise, through agents selected
by the General Partner, whether compensated or
uncompensated by the Partnership; (xvi) to execute
and file or record all instruments and documents
which are deemed by the General Partner to be
necessary to enable the Partnership properly and
legally to do business in the State of Texas or any
other jurisdiction deemed advisable (xvii) at the
appropriate time, to register the Units with the
Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934; and (xviii) to do
any or all of the foregoing for such consideration
and upon such other terms or conditions as the
General Partner, in its discretion, determines to be
appropriate.
(b) Notwithstanding anything contained herein to the
contrary, subject to the provisions contained in
Section 16.2 hereof, to amend this Agreement without
the consent or vote of any of the Limited Partners:
(i) to reflect the addition or substitution of
Limited Partners or the reduction of Capital Accounts
upon the return of capital to Partners; (ii) to add
to the representations, duties or obligations of the
General Partner or its Affiliates or surrender any
right or power granted herein to the General Partner
or its Affiliates for the benefit of the Limited
Partners; (iii) to cure any ambiguity, to correct or
supplement any provision herein which may be
inconsistent with any other provision herein, or to
add any other provision with respect to matters or
questions arising under this Agreement which will not
be inconsistent with the provisions of this
Agreement; (iv) to delete or add any provision from
or to this Agreement requested to be so deleted or
added by the staff of the Securities and Exchange
Commission or by the staff of any state regulatory
agency, the deletion or addition of which provision
is deemed by the staff of any such regulatory agency
to be for the general benefit or protection of the
Limited Partners; and (v) to attempt to have the
provisions of this Agreement comply with federal
income tax law and regulations thereunder.
(c) To possess and exercise, as may be required, all of
the rights and powers of the general partner as more
particularly provided by the Act.
(d) To execute, acknowledge and deliver any and all
instruments and take such other steps as are
necessary to effectuate the foregoing. The General
Partner may execute any such instruments on behalf of
the Partnership.
11.3 LIMITATIONS ON POWERS OF THE GENERAL PARTNER. The General Partner
shall observe the following policies in connection with Partnership operations:
(a) Pending initial investment of its funds, or to
provide a source from which to meet contingencies,
including, without limitation, the working capital
reserve, the Partnership may temporarily invest its
funds in short-term, highly liquid investments where
there is appropriate safety of principal, such as
government obligations, bank or savings and loan
association certificates of deposit, short-term debt
obligations and interest-bearing accounts.
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(b) The Partnership shall not acquire unimproved or
non-income producing property.
(c) All real property acquisitions must be supported by
an appraisal that shall be prepared by a competent,
independent appraiser. The Purchase Price paid by the
Partnership for each property shall not exceed the
appraised value of such property.
(d) The General Partner shall not have the authority to
incur indebtedness that is secured by the Partnership
Properties or assets, except as specifically
authorized pursuant to Section 11.3(e) below.
(e) The General Partner shall have the authority to
borrow funds (i) for Partnership operating purposes,
in the event of unforeseen or unexpected
circumstances in which the Partnership's working
capital reserves and other cash resources available
to the Partnership are deemed insufficient for the
maintenance and repair of Partnership Properties or
for the protection or replacement of the
Partnership's assets, or (ii) in order to finance
improvement of and improvements to Partnership
Properties at such time as the General Partner may
deem such improvements to be necessary or appropriate
to protect capital previously invested in such
Partnership Properties, to protect the value of the
Partnership's investment in a particular Partnership
Property, or to make a particular Partnership
Property more attractive for sale or lease, provided,
however, that the aggregate amount of Partnership
borrowings shall at no time exceed 40% of the total
purchase price of Partnership Properties.
(f) The completion of improvements on Partnership
Property shall be guaranteed at the price contracted
either by an adequate completion bond or by other
satisfactory assurances, provided, however, that such
other satisfactory assurances shall include at least
one of the following: (i) a written personal
guarantee of one or more of the general contractor's
principals accompanied by the financial statements of
such guarantor indicating a substantial net worth;
(ii) a written fixed price contract with a general
contractor that has a substantial net worth; (iii) a
retention of a reasonable portion of the construction
contract price as a potential offset to such
construction contract price in the event the seller
does not perform in accordance with the construction
contract; or (iv) a program of disbursements control
which provides for direct payments to subcontractors
and suppliers.
(g) The Partnership shall make no construction loans to
builders of Partnership Properties and shall make no
periodic progress or other advance payments to such
contractors unless the Partnership has first received
an architect's or engineer's certification as to the
percentage of the project which has been completed
and as to the dollar amount of the improvements then
completed.
(h) The Partnership shall not acquire property in
exchange for Units.
(i) The Partnership shall not obtain financing from a
Limited Partner or any party affiliated with a
Limited Partner.
(j) The Partnership's business purposes and objectives,
as set forth in Article IV, shall not be changed.
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(k) The Partnership shall not invest in junior trust
deeds and other similar obligations.
(l) The funds of the Partnership shall not be commingled
with the funds of any other Person.
(m) The General Partner hereby agrees that it shall not
initiate a transaction wherein the Partnership is
merged or consolidated with another partnership or
corporation, and the General Partner shall not be
authorized to merge or consolidate the Partnership
with any other partnership or corporation or to
convert the Partnership to a real estate investment
trust.
(n) The General Partner shall not enter into any leases
in respect of the Partnership Properties that contain
provisions for determining rent that are based upon
the income, receipts or other profitability of the
lessee. or which constitute a lease of an entire
building which, in turn, will be substantially
subleased by the lessee to sub-lessees. Nor shall the
General Partner enter into any lease in which the
General Partner or its designee will not have
significant management responsibilities unless the
underlying Property, when aggregated with all other
Properties subject to similar leases, constitutes
less than fifty (50%) percent of the Purchase Price,
fair market value and net cash flow for or from all
Partnership Properties.
(o) The General Partner shall not list, recognize or
facilitate the trading of Units (or any interest
therein) on any "established securities market (or
the equivalent thereof)" within the meaning of
Section 7704 of the Code, or permit any of its
Affiliates to take such actions, if as a result
thereof, the Partnership would be treated for federal
income tax purposes as an association taxable as a
corporation or taxed as a "publicly traded
partnership;" or
(p) The General Partner shall not create for the Units
(or any interest therein) a "secondary market (or the
equivalent thereof)" within the meaning of Section
7704 of the Code or otherwise permit, recognize or
facilitate the trading of any such Units (or any
interest therein) on any such market or permit any of
its Affiliates to take such actions, if as a result
thereof, the Partnership would be treated for federal
income tax purposes as an association taxable as a
corporation or taxed as a "publicly traded
partnership."
11.4 EXPENSES OF THE PARTNERSHIP. Whenever possible the Partnership's
expenses shall be billed directly to and paid by the Partnership. The General
Partner may be paid or reimbursed for the administrative and other services,
costs or expenses necessary to the operation of the Partnership and its
properties.
(a) The Partnership shall pay all operational and
administrative expenses of the Partnership, which may
include, but are not limited to: (A) all costs of
personnel employed by the Partnership or directly
involved in the business of the Partnership,
including Persons who may also be employees of the
General Partner or its Affiliates, including but not
limited to, salaries and other employee-related
expenses, travel and other out-of-pocket expenses of
such personnel which are directly related to a
particular Partnership Property; (B) all costs of
borrowed money, taxes and assessments on Partnership
Properties and other taxes applicable to the
Partnership; (C) legal, accounting, audit, brokerage
and other fees; (D) fees and expenses paid to
independent contractors, brokers and servicers,
leasing agents, consultants, on-site managers, real
estate brokers, mortgage brokers, insurance brokers
and other agents;
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(E) expenses in connection with the disposition,
replacement, alteration, repair, remodeling,
refurbishment, leasing and operation of Partnership
Properties (including the costs and expenses of
foreclosures, legal and accounting fees, insurance
premiums, real estate brokerage and leasing
commissions and maintenance connected with such
Property); and (F) any expenses of independent
appraisers, market analysts or other such Persons not
affiliated with the General Partner who may be
engaged to evaluate potential real estate
acquisitions by or on behalf of the Partnership.
(b) The Partnership shall pay all accounting,
documentation, professional and reporting expenses of
the Partnership, which may include, but are not
limited to: (A) preparation and documentation of
Partnership bookkeeping, accounting and audits; (B)
preparation and documentation of budgets, economic
surveys, Cash Flow projections and working capital
requirements; (C) preparation and documentation of
Partnership federal and state tax returns; (D)
printing, engraving and other expenses and documents
evidencing ownership of an interest in the
Partnership or in connection with the business of the
Partnership; (E) expenses of insurance as required in
connection with the business of the Partnership,
including, without limitation, life and disability
insurance with respect to key employees of the
General Partner; (F) expenses in connection with
distributions made by the Partnership to, and
communications, bookkeeping and clerical work
necessary in maintaining relations with Limited
Partners, including the costs of printing and mailing
to such Persons certificates for the Units and
reports of the Partnership, and of preparing proxy
statements and soliciting proxies in connection
therewith; (G) expenses in connection with preparing
and mailing reports required to be furnished to
Limited Partners for investing, tax reporting or
other purposes, including reports required to be
filed with the Securities and Exchange Commission and
other federal or state regulatory agencies, or
expenses associated with furnishing reports to
Limited Partners which the General Partner deems to
be in the best interests of the Partnership; (H)
expenses of revising, amending, converting, modifying
or terminating the Partnership; (I) costs incurred in
connection with any litigation in which the
Partnership is involved as well as any examination,
investigation or other proceedings conducted of the
Partnership by any regulatory agency, including legal
and accounting fees incurred in connection therewith;
(J) costs of any computer equipment or services used
for or by the Partnership; (K) costs of any
accounting, statistical or bookkeeping equipment
necessary for the maintenance of the books and
records of the Partnership; (L) costs of preparation
and dissemination of information and documentation
relating to potential sale, financing or other
disposition of Partnership Properties; and (M)
supervision and expenses of professionals employed by
the Partnership in connection with any of the
foregoing, including attorneys, accountants and
appraisers.
(c) The General Partner shall receive a fixed
reimbursement amount in the amount of 6% of the gross
proceeds of the Offering of Units to reimburse the
General Partner for all Organization and Offering
Expenses other than commissions and expenses paid to
broker-dealers and other underwriting compensation.
Said Organization and Offering Expenses include, but
are not limited to, registration, legal, accounting,
printing, marketing and other out of pocket fees and
expenses and general and administrative and overhead
relating to the offering and organization cost of the
Partnership borne by the General Partner and services
by the General Partner in connection with the
offering and organization of the Partnership.
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(d) The Partnership shall pay all underwriting
compensation, including broker-dealer selling
commissions, payable in the amount of 7.5% of the
gross proceeds of the Offering of Units, plus a
maximum of 1% of the gross proceeds of the Offering
of Units for reimbursement of due diligence and non
accountable expenses incurred by such broker-dealers
to be paid out of Organization and Offering Expenses.
11.5 LIMITATION ON LIABILITY OF THE GENERAL PARTNER; INDEMNIFICATION OF
THE GENERAL PARTNER. Neither the General Partner nor any of its Affiliates
(hereinafter, an "Indemnified Party") shall be liable, responsible or
accountable in damages or otherwise to any other Partner, the Partnership, its
receiver or trustee (the Partnership, its receiver or trustee are hereinafter
referred to as "Indemnitors") for, and the Indemnitors agree to indemnify, pay,
protect and hold harmless each Indemnified Party (on the demand of such
Indemnified Party) from and against any and all liabilities, obligations,
losses, damages, actions, judgments, suits, proceedings, reasonable costs,
reasonable expenses and disbursements (including, without limitation, all
reasonable costs and expenses of defense, appeal and settlement of any and all
suits, actions or proceedings instituted against such Indemnified Party or the
Partnership and all reasonable costs of investigation in connection therewith)
(collectively referred to as "Liabilities" for the remainder of this Section)
which may be imposed on, incurred by, or asserted against such Indemnified Party
or the Partnership in any way relating to or arising out of any action or
inaction on the part of the Partnership or on the part of such Indemnified Party
in connection with services to or on behalf of the Partnership (and with respect
to an Indemnified Party which is an Affiliate of the General Partner for an act
which the General Partner would be entitled to indemnification if such act were
performed by it) which such Indemnified Party in good faith determined was in
the best interest of the Partnership. Notwithstanding the foregoing, each
Indemnified Party shall be liable, responsible and accountable, and neither the
Partnership nor any Indemnitor shall be liable to an Indemnified Party, for any
portion of such Liabilities which resulted from such Indemnified Party's (i) own
fraud, negligence, misconduct or knowing violation of law, (ii) breach of
fiduciary duty to the Partnership or any Partner, or (iii) breach of this
Agreement, regardless of whether or not any such act was first determined by the
Indemnified Party, in good faith, to be in the best interest of the Partnership.
If any action, suit or proceeding shall be pending against the Partnership or
any Indemnified Party relating to or arising out of any such action or inaction,
such Indemnified Party shall have the right to employ, at the reasonable expense
of the Partnership, separate counsel of such Indemnified Party's choice in such
action, suit or proceeding. The satisfaction of the obligations of the
Partnership under this Section shall be from and limited to the assets of the
Partnership and no Limited Partner shall have any personal liability on account
thereof.
ARTICLE XII
SERVICES TO PARTNERSHIP BY GENERAL PARTNER
12.1 ACQUISITION AND ADVISORY SERVICES. The General Partner or its
Affiliates shall perform acquisition and advisory services in connection with
the review and evaluation of potential real property acquisitions for the
Partnership, which services shall include, but shall not be limited to, an
analysis of: (a) the geographic market in which any such property is located,
including market demand analyses; (b) the physical condition of any existing
structures, appurtenances and service systems; (c) the availability of
contractors and engineers; (d) zoning and other governmental restrictions
applicable to the use of the property; and (e) income and expense forecasts. In
consideration for such services, including services rendered with respect to
properties which are considered for acquisition by the Partnership but are not
acquired, the General Partner and its Affiliates shall be paid Acquisition and
Advisory Fees in an amount of 3% of Capital Contributions payable ratably as
properties are acquired. In addition to such fees, the Partnership shall bear
any expenses of independent appraisers, market analysts or other such Persons
not affiliated with the General Partner who may be engaged to evaluate potential
real estate acquisitions by or on behalf of the Partnership.
12.2 PROPERTY SUPERVISION FEES. The General Partner and/or an Affiliate
shall supervise property management and leasing companies and/or agents and
shall be paid a Property Supervision Fee in the amount of 2% annually of the
amount of Investment in Properties. The Property Supervision fees shall be
payable monthly.
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12.3 PROPERTY MANAGEMENT AND LEASING SERVICES. The General Partner may
retain independent third party property management and leasing companies and
shall cause the Partnership to employ a property management and leasing company
(which may be an Affiliate of the General Partner) to perform professional
property management and leasing services for the Partnership. In the event the
property management and leasing company is an Affiliate of the General Partner,
the compensation payable to such Affiliate shall not exceed fees which would be
charged by Persons who are not affiliated with the General Partner rendering
comparable services in the same geographic area.
12.4 REAL ESTATE COMMISSIONS ON RESALE OF PROPERTIES. The General
Partner and its Affiliates may perform real estate brokerage services for the
Partnership in connection with the resale of property by the Partnership,
provided that the compensation therefore to the General Partner or its
Affiliates in connection with the sale of a particular property shall not exceed
the reasonable, customary and competitive real estate brokerage commission
normally and customarily paid for the sale of a comparable property in light of
the size, type and location of the property. The aggregate real estate
commission paid to all parties involved in the sale of a Partnership Property
shall not exceed the reasonable, customary and competitive real estate brokerage
commission normally and customarily paid for the sale of a comparable property
in light of the size, type and location of the Property.
12.5 MANAGEMENT AND INVESTOR ADMINISTRATION. The General Partner shall
receive monthly fees of 1/12th of 1% of the aggregate amount of Limited Partner
subscriptions for providing Partnership management services to the Partnership
and 1/12th of 1% of Limited Partner subscriptions for an investor administration
fee.
12.6 TREATMENT AS DISTRIBUTION TO GENERAL PARTNER. In the event that
any of the payments set forth in Sections 12.1 through 12.6 above are determined
to be distributions to the General Partner rather than payments in a capacity
other than a partner and taxable income is increased as a result thereof, the
General Partner shall be allocated an additional amount of taxable income (or
less taxable loss) so that the Limited Partners shall be allocated the same
amount of taxable income as if the payment had been deemed made to a third
party.
ARTICLE XIII
TRANSACTIONS BETWEEN THE GENERAL PARTNER AND THE PARTNERSHIP
13.1 SALES AND LEASES TO THE PARTNERSHIP. The Partnership shall not
purchase properties or portions of properties in which the
General Partner or its Affiliates have an interest or from any
entity in which the General Partner or its Affiliates have an
interest.
13.2 BORROWINGS FROM GENERAL PARTNER. The Partnership may borrow
funds from the General Partner provided that such borrowing
shall be on terms and conditions comparable to borrowings from
banks or other commercial lending institutions and shall bear
interest at a rate no greater than two (2%) percent above
prime as published in the Wall Street Journal, said interest
rate to be adjusted on the first of each month the debt
remains outstanding.
ARTICLE XIV
INDEPENDENT ACTIVITIES OF PARTNERS
Any of the Partners may engage in or possess an interest in other
business ventures of every nature and description, independently or with others,
including, but not limited to, the ownership, financing,
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leasing, management, syndication, brokerage and development of real property of
any kind whatsoever (including properties which may be similar to those owned by
the Partnership), and neither the Partnership nor any of the Partners shall have
any right by virtue of this Agreement in and to such independent ventures or to
the income or profits derived therefrom. In the event that the Partnership, the
General Partner or any Affiliate or any entity formed or managed by the General
Partner or its Affiliates is in the market for similar properties, the General
Partner will review the investment portfolio of each partnership and each such
affiliated entity and will decide which entity will acquire a particular
property on the basis of such factors as, among others, anticipated cash flow,
the effect of the purchase price on diversification of the portfolio of each
such entity, the estimated income tax effects of the purchase on each such
entity, the amount of funds which each such entity has available for investment,
and the length of time funds of each such entity have been available for
investment.
ARTICLE XV
BOOKS, REPORTS, FISCAL AND TAX MATTERS
15.1 BOOKS. The General Partner shall maintain full and complete books
and records for the Partnership at its principal office. The books of account
for financial accounting purposes shall be kept in accordance with generally
accepted accounting principles. The books of account for income tax purposes
shall be kept on cash or an accrual basis, as determined in the discretion of
the General Partner. In addition, the General Partner shall maintain an
alphabetical list of the names, addresses and business telephone numbers of the
Limited Partners of the Partnership along with the number of Units held by each
of them (the "Participant List"). The Participant List shall be updated at least
quarterly to reflect changes in the information contained therein.
15.2 REPORTS. The General Partner shall prepare or cause to be prepared
the following reports:
(a) ANNUAL REPORT. Within 120 days after the end of each
fiscal year, an annual report shall be sent to all
the Limited Partners and Assignees which shall
include (i) a balance sheet as of the end of such
fiscal year, together with a profit and loss
statement, a statement of cash flows and a statement
of Partners' capital for such year, (ii) beginning
for the fourth fiscal year, the an estimate of fair
market value of Partnership Properties and an
estimated value per Unit and (iii) any materials
required to be filed with the Securities and Exchange
Commission. All annual financial statements shall be
prepared in accordance with generally accepted
accounting principles and shall be accompanied by an
auditor's report containing an opinion of the
independent certified public accountant for the
Partnership. All estimates of Unit value shall
contain an opinion of an independent third party that
the estimates of value are reasonable and were
prepared in accordance with appropriate methods for
valuing real estate.
(b) QUARTERLY REPORTS. If and for as long as the
Partnership is required to file quarterly reports on
Form 10-Q with the Securities and Exchange
Commission, financial information substantially
similar to the financial information contained in
each such report for a quarter shall be sent to the
Limited Partners within 60 days after the end of such
quarter. Whether or not such reports are required to
be filed, each Limited Partner will be furnished
within 60 days after the end of each of the first
three quarters of each Partnership fiscal year an
unaudited financial report for that quarter including
a profit and loss statement, a balance sheet and a
cash flow statement. Such reports shall also include
such other information as is deemed reasonably
necessary by the General Partner to advise the
Limited Partners of the affairs of the Partnership.
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(c) TAX INFORMATION. There shall be sent to all the
Limited Partners and Assignees all information
necessary for the preparation of each Limited
Partner's federal income tax return and state income
and other tax returns in regard to jurisdictions
where Partnership Properties are located.
(d) OTHER REPORTS. The General Partner shall cause to be
prepared and timely filed with appropriate federal
and state regulatory and administrative bodies all
reports to be filed with such entities under then
currently applicable laws, rules and regulations.
Such reports shall be prepared on the accounting or
reporting basis required by such regulatory bodies.
15.3 TAX ELECTIONS. No election shall be made by the Partnership or any
Partner to be excluded from the application, of the provisions of Subchapter K
of the Code or from any similar provisions of state or local income tax laws.
15.4 BANK ACCOUNTS. The cash funds of the Partnership shall be
deposited in commercial bank account(s) at such banks or other institutions
insured by the Federal Deposit Insurance Corporation as the General Partner
shall determine. The General Partner in conformity with this Agreement therefrom
shall make disbursements. The funds of the Partnership shall not be commingled
with the funds of any other Person.
15.5 INSURANCE. The Partnership shall at all times maintain
comprehensive insurance, including fire, liability and extended coverage
insurance in amounts determined by the General Partner to be adequate for the
protection of the Partnership. In addition, the Partnership shall carry
appropriate worker's compensation insurance and such other insurance with
respect to the real property owned by it as shall be customary for similar
property, similarly located, from time to time.
15.6 TAX MATTERS. The General Partner may or may not, in its sole and
absolute discretion, make any or all decisions and/or elections which it is
entitled to make on behalf of the Partnership and the Partners for federal,
state and local tax purposes.
ARTICLE XVI
RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS
16.1 POWERS OF THE LIMITED PARTNERS. The Limited Partners shall take no
part in the management of the business or transact any business for the
Partnership and shall have no power to sign for or bind the Partnership;
provided, however, that the Limited Partners, by a 66 2/3% Vote shall have the
right to elect a new General Partner upon the occurrence of an Event of
Withdrawal.
16.2 LIMITED LIABILITY. No Limited Partner shall be liable for any
debts or obligations of the Partnership in excess of his or its Capital
Contribution.
ARTICLE XVII
WITHDRAWAL OF THE GENERAL PARTNER;
ASSIGNABILITY OF PARTNERS' INTERESTS
17.1 WITHDRAWAL OF THE GENERAL PARTNER; ADMISSION OF SUCCESSOR OR
ADDITIONAL GENERAL PARTNER.
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(a) With the consent of the General Partner and a
66 2/3% Vote of the Limited Partners after being
given 90 days written notice, the General Partner may
at any time designate one or more Persons to be
additional or successor General Partners, with such
participation in such General Partner's interest as
such General Partner and such successor or additional
General Partners may agree upon, provided that the
interests of the Limited Partners shall not be
affected thereby.
(b) Any voluntary withdrawal by any General Partner from
the Partnership or any sale, transfer or assignment
by such General Partner of his interest in the
Partnership shall be effective only upon the
admission of the new General Partner.
17.2 LIMITED PARTNERS' INTEREST. Except as specifically provided in
this Article XVII, none of the Limited Partners shall sell, transfer, encumber
or otherwise dispose of, by operation of law or otherwise, all or any part of
his or its interest in the Partnership. No assignment shall be valid or
effective unless in compliance with the conditions contained in this Agreement,
and any unauthorized transfer or assignment shall be void ab initio.
17.3 RESTRICTIONS ON TRANSFERS.
(a) No Unit may be transferred, sold, assigned or
exchanged if the transfer or sale of such Unit, when
added to the total of all other transfers or sales of
Units within the period of 12 consecutive months
prior to the proposed date of sale or exchange,
would, in the opinion of counsel for the Partnership,
result in the termination of the Partnership under
Section 708 of the Code unless the Partnership and
the transferring holder shall have received a ruling
from the IRS that the proposed sale or exchange will
not cause such termination.
(b) No transfer or assignment may be made if, as a result
of such transfer, a Limited Partner (other than one
transferring all of his Units) will own fewer than
the minimum number of Units required to be purchased
under Section 8.5(b) hereof, unless such transfer is
made on behalf of a Retirement Plan, or such transfer
is made by gift, inheritance, intra-family transfer,
family dissolution or to an Affiliate.
(c) No transfer or assignment of any Unit may be made if
counsel for the Partnership is of the opinion that
such transfer or assignment would be in violation of
any state securities or "Blue Sky" laws (including
investment suitability standards) applicable to the
Partnership.
(d) No Limited Partner may transfer or assign any Units
or beneficial ownership interests therein (whether by
sale, change, repurchase, redemption, pledge,
hypothecation or liquidation), and any such purported
transfer shall be void ab initio and shall not be
recognized by the Partnership or be effective for any
purpose unless (i) the General Partner determines, in
its sole discretion, that the Partnership would be
able to satisfy the secondary market safe harbor
provision for partnerships set forth in Treasury
Regulations Section 1.7704-1 (or any other applicable
safe harbor from publicly traded partnership status
related to income which may be adopted by the IRS)
for the Partnership's taxable year in which such
transfer otherwise would be effective, or (ii) the
Partnership has received an opinion of counsel
satisfactory to the General Partner or a favorable
IRS ruling that any such transfer will not result in
the Partnership's being taxable as a corporation for
federal income tax purposes or result in Partnership
income being treated as portfolio income. The Limited
Partners agree to provide all information with
respect to a proposed transfer that the General
Partner deems
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necessary or desirable in order to make such
determination, including but not limited to,
information as to whether the transfer occurred on a
secondary market (or the substantial equivalent
thereof).
(e) Any purported transfer or assignment not satisfying
all of the foregoing conditions shall be void ab
initio, and no purported transfer or assignment shall
be of any effect unless all of the foregoing
conditions have been satisfied.
17.4 SUBSTITUTED LIMITED PARTNERS. Except as otherwise provided in this
Agreement, an Assignee of the whole or any portion of a Limited Partner's
interest in the Partnership shall not have the right to become a substituted
Limited Partner in place of his assignor unless (a) the assignment instrument
shall have been in form and substance satisfactory to the General Partner; and
(b) the Assignee shall have accepted, adopted and approved in writing all of the
terms and provisions of this Agreement, as the same may have been amended.
Assignees of Units will be recognized by the Partnership as substituted Limited
Partners as of the commencement of the first fiscal quarter of the Partnership
following the fiscal quarter which includes the effective date of the assignment
and in which the foregoing conditions are satisfied, notwithstanding the time
consumed in preparing the documents necessary to effectuate the substitution.
17.5 ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST WITHOUT SUBSTITUTION.
Subject to the transfer restrictions of Section 17.3, a Limited Partner shall
have the right to assign all or part of such Limited Partner's interest in Units
by a written instrument of assignment. The assigning Limited Partner shall
deliver to the General Partner a written instrument of assignment in form and
substance satisfactory to the General Partner, duly executed by the assigning
Limited Partner or his personal representative or authorized agent, including an
executed acceptance by the Assignee of all the terms and provisions of this
Agreement and the representations of the assignor and Assignee that the
assignment was made in accordance with all applicable laws and regulations
(including investment suitability requirements). Said assignment shall be
accompanied by such assurance of genuineness and effectiveness and by such
consents or authorizations of any governmental or other authorities as may be
reasonably required by the General Partner. The Partnership shall recognize any
such assignment not later than the last day of the calendar month following
receipt of notice of the assignment and all required documentation, and an
Assignee shall be entitled to receive distributions and allocations from the
Partnership attributable to the Partnership interest acquired by reason of any
such assignment from and after the first day of the fiscal quarter following the
fiscal quarter in which the assignment of such interest is recognized. The
Partnership and the General Partner shall be entitled to treat the assignor of
such Partnership interest as the absolute owner thereof in all respects, and
shall incur no liability for distributions made in good faith to such assignor,
until such time as the written instrument of assignment has been received by the
Partnership and recorded on its books.
17.6 WITHDRAWAL OF LIMITED PARTNER. Except as otherwise specifically
permitted by this Agreement, no Limited Partner shall be entitled to withdraw or
retire from the Partnership.
17.7 DEATH, LEGAL INCOMPETENCY OR DISSOLUTION OF LIMITED PARTNER. Upon
the death, legal incompetency or dissolution of a Limited Partner, the estate,
personal representative, guardian or other successor in interest of such Limited
Partner shall have all of the rights and be liable for all the obligations of
the Limited Partner in the Partnership to the extent of such Limited Partner's
interest therein, subject to the terms and conditions of this Agreement, and
with the prior written consent of the General Partner which may be withheld at
its sole discretion, may be substituted for such Limited Partner.
17.8 ELIMINATION OR MODIFICATION OF RESTRICTIONS. Notwithstanding any
of the foregoing provisions of this Article XVII, the General Partner may amend
this Agreement to eliminate or modify any restriction on substitution or
assignment at such time as the restriction is no longer necessary.
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ARTICLE XVIII
LOANS TO PARTNERSHIP
18.1 AUTHORITY TO BORROW. The General Partner shall cause the
Partnership to purchase and own all Partnership Properties on an un-leveraged
basis, and the Partnership shall not incur any indebtedness except for loans
that are authorized pursuant to Section 11.3(e) hereof.
ARTICLE XIX
POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS
19.1 POWER OF ATTORNEY. Each Limited Partner, by becoming a Limited
Partner and adopting this Agreement, constitutes and appoints the General
Partner and any successor to the General Partner as his true and lawful
attorney-in-fact, in his name, place and stead, from time to time:
(a) To execute, acknowledge, swear to, file and/or record
all agreements amending this Agreement that may be
appropriate:
(i) To reflect a change of the name or the
location of the principal place of business
of the Partnership;
(ii) To reflect the disposal by any Limited
Partner of his interest in the Partnership,
or any Units constituting a part thereof, in
any manner permitted by this Agreement and
any return of the Capital Contribution of a
Limited Partner (or any part thereof)
provided for by this Agreement;
(iii) To reflect a Person's becoming a Limited
Partner of the Partnership as permitted by
this Agreement;
(iv) To reflect a change in any provision of this
Agreement or the exercise by any Person of
any right or rights hereunder not requiring
the consent of said Limited Partner;
(v) To reflect the addition or substitution of
Limited Partners or the reduction of Capital
Accounts upon the return of capital to
Partners;
(vi) To add to the representations, duties or
obligations of the General Partner or its
Affiliates or surrender any right or power
granted to the General Partner or its
Affiliates herein for the benefit of the
Limited Partners;
(vii) To cure any ambiguity, to correct or
supplement any provision herein which may be
inconsistent with law or with any other
provision herein, or to make any other
provision with respect to matters or
questions arising under this Agreement which
will not be inconsistent with law or with
the provisions of this Agreement;
(viii) To delete, add or modify any provision to
this Agreement required to be so deleted,
added or modified by the staff of the
Securities and Exchange Commission, the
National Association of Securities Dealers,
Inc. or by a State Securities Commissioner
or similar such official, which addition,
deletion or modification is deemed by such
Commission or official to be for the benefit
or protection of the Limited Partners;
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(ix) To make all filings as may be necessary or
proper to provide that this Agreement shall
constitute, for all purposes, an agreement
of limited partnership under the laws of the
State of Texas as they may be amended from
time to time;
(x) To eliminate or modify any restriction on
substitution or assignment contained in
Article XVII at such time as the restriction
is no longer necessary.
(b) To execute, acknowledge, swear to, file or record
such certificates, instruments and documents as may
be required by, or may be appropriate under, the laws
of any state or other jurisdiction, or as may be
appropriate for the Limited Partners to execute,
acknowledge, swear to, file or record to reflect:
(i) Any changes or amendments of this Agreement,
or pertaining to the Partnership, of any
kind referred to in paragraph (a) of this
Section 19.1; or
(ii) Any other changes in, or amendments of, this
Agreement, but only if and when the consent
of 66 2/3% or other required percentage of
the Limited Partners has been obtained.
Each of such agreements, certificates, instruments and documents shall
be in such form as the General Partner and legal counsel for the Partnership
shall deem appropriate. Each Limited Partner hereby authorizes the General
Partner to take any further action which the General Partner shall consider
necessary or convenient in connection with any of the foregoing, hereby giving
said attorney-in-fact full power and authority to do and perform each and every
act and thing whatsoever requisite, necessary or convenient to be done in and
about the foregoing as fully as said Limited Partner might or could do if
personally present and hereby ratifies and confirms all that said
attorney-in-fact shall lawfully do or cause to be done by virtue hereof. The
power hereby conferred shall be deemed to be a power coupled with an interest in
recognition of the fact that each of the Partners under this Agreement will be
relying upon the power of the General Partner to act as contemplated by this
Agreement in any filing and other action by them on behalf of the Partnership,
and shall survive the bankruptcy, death, adjudication of incompetence or
insanity, or dissolution of any Person hereby giving such power and the transfer
or assignment of all or any part of the Units of such Person; provided, however,
that in the event of the transfer by a Limited Partner of all of his Units, the
foregoing power of attorney of a transferor Limited Partner shall survive such
transfer only until such time as the transferee shall have been admitted to the
Partnership as a substituted Limited Partner and all required documents and
instruments shall have been duly executed, sworn to, filed and recorded to
effect such substitution.
19.2 REQUIRED SIGNATURES. Any writing to amend this Agreement to
reflect the addition of a Limited Partner need be signed only by the General
Partner, by the Limited Partner who is disposing of his interest in the
Partnership, if any, and by the Person to be substituted or added as a Limited
Partner. The General Partner may sign for either or both of said Limited
Partners as their attorney-in-fact pursuant to paragraph (a) of Section 19.1
hereof. Any writing to amend this Agreement to reflect the removal or withdrawal
of the General Partner in the event the business of the Partnership is continued
pursuant to the terms of this Agreement need be signed only by the new General
Partner.
19.3 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the
others, agrees to perform any further acts and execute and deliver any further
documents that may be reasonably necessary to carry out the provisions of this
Agreement.
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ARTICLE XX
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
20.1 DISSOLUTION. Except as otherwise provided in this Section 20.1, no
Partner shall have the right to cause dissolution of the Partnership before the
expiration of the term for which it is formed. The Partnership shall be
dissolved and terminated upon the happening of any of the following events:
(a) The expiration of the term of the Partnership as
specified in Article VI hereof,
(b) The entry of a decree of judicial dissolution by a
court of competent jurisdiction provided that the
foregoing should not apply if the Partnership files a
voluntary petition seeking reorganization under the
bankruptcy laws;
(c) The retirement or withdrawal of the General Partner
unless the Limited Partners, within 120 days from the
date of such event, elect by 66 2/3% vote to
continue the business of the Partnership and elect a
new General Partner;
(d) The effective date of an Event of Withdrawal of the
General Partner unless the Limited partners within
120 days from the date of such event, elect by
66 2/3% vote to continue the business of the
Partnership and elect a new General Partner;
(e) The sale or other disposition of all of the interests
in real estate (including, without limitation,
purchase money security interests and interests in
joint ventures or other entities owning interests in
real estate) of the Partnership; or
(f) The election by the General Partner to terminate the
Partnership, without the consent of any Limited
Partner, in the event that either (i) the
Partnership's assets constitute "plan assets," as
such term is defined for purposes of ERISA, or (ii)
any of the transactions contemplated by this
Agreement constitute a "prohibited transaction" under
ERISA or the Code and no exemption for such
transaction is obtainable from the United States
Department of Labor or the General Partner determines
in its discretion not to seek such an exemption.
The Partnership shall not be dissolved or terminated by the admission
of any new Limited Partner or by the withdrawal, expulsion, death, insolvency,
bankruptcy or disability of a Limited Partner.
20.2 LIMITED PARTNERS' RIGHT TO CONTINUE THE BUSINESS OF THE
PARTNERSHIP. Upon the occurrence of an event specified in Section 20.1 above,
with respect to the General Partner, the Limited Partners shall have a right
prior to the effective date of the occurrence of any such event to elect to
continue the business of the Partnership pursuant to the provisions of this
Section 20.2. The effective date of the events specified in paragraphs (c) and
(d) of Section 20.1 above shall be 120 days after the date of any such event. In
the case of the occurrence of an event specified in paragraphs (c) or (d) of
Section 20.1 above, the Limited Partners may elect, by 66 2/3% vote within 120
days from the date of such event, to continue the business of the Partnership
and elect one or more new General Partners. The new General Partner or General
Partners so elected shall execute, deliver, acknowledge and record an amendment
to the Certificate and such other documents and instruments as may be necessary
or appropriate to effect such change.
20.3 PAYMENT TO WITHDRAWN GENERAL PARTNER. Upon the Event of Withdrawal
or other removal, withdrawal or retirement of the General Partner, the
Partnership shall be required to pay such General Partner any amounts then
accrued and owing to such General Partner under this Agreement. The method of
payment to the General Partner must be fair and must protect the solvency and
liquidity of the Partnership.
A-28
In addition, the Partnership shall have the right, but not the obligation, to
terminate the General Partner's interest in Partnership income, losses,
distributions and capital upon payment to it of an amount equal to the value of
its interest in Partnership income, losses, distributions and capital on the
date of such retirement, removal or Event of Withdrawal. Such value shall be
computed taking into account the General Partner's economic interest in the
Partnership under Articles IX and X hereof, and shall be based upon the market
value of the assets of the Partnership determined as if such assets were sold on
the date of such Event of Withdrawal, retirement, withdrawal or removal. In the
event such General Partner (or its representative) and the Partnership cannot
mutually agree upon such value within 90 days following such withdrawal, such
value shall be determined by arbitration before a panel of three appraisers, one
of whom shall be selected by such General Partner (or its representative) and
one by the Partnership, and the third of whom shall be selected by the two
appraisers so selected by the parties. Such arbitration shall take place in
Dallas, Texas and shall be in accordance with the rules and regulations of the
American Arbitration Association then in force and effect. The expense of
arbitration shall be borne equally by such General Partner and the Partnership.
Payment to such General Partner of the value of its interest in Partnership
income, losses, distributions and capital shall be made by the delivery of a
promissory note coming due in not less than five years and bearing interest at
the rate of 10% per annum, with principal and interest payable annually in equal
installments.
ARTICLE XXI
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
21.1 LIQUIDATION DISTRIBUTION. Upon the occurrence of an event set
forth in Section 20.1, the General Partner (or if there is no remaining General
Partner, any other Person selected by the Limited Partners) shall take account
of the Partnership assets and liabilities, and the assets shall be liquidated as
promptly as is reasonable with obtaining the fair market value thereof, and the
proceeds therefrom, to the extent sufficient therefore, shall be applied and
distributed in accordance with Section 9.3.
21.2 TIME OF LIQUIDATION. A reasonable time shall be allowed for the
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to minimize the losses upon liquidation.
21.3 LIQUIDATION STATEMENT. Each of the Partners shall be furnished
with a statement prepared or caused to be prepared by the General Partner, which
shall set forth the a plan of distribution and set forth all assets and
liabilities of the Partnership and the date of complete liquidation. Upon
compliance with the foregoing distribution plan, the Limited Partners shall
cease to be such and the General Partner, as the sole remaining Partner of the
Partnership, shall execute, acknowledge and cause to be filed a Certificate of
Cancellation of the Partnership.
21.4 NO LIABILITY FOR RETURN OF CAPITAL. The General Partner shall not
be personally liable for the return of all or any part of the Capital
Contributions of the Limited Partners. Any such return shall be made solely from
Partnership assets.
21.5 NO RIGHT OF PARTITION. The Partners and Assignees shall have no
right to receive Partnership Property in kind, nor shall such Partners or
Assignees have the right to partition the Partnership Property, whether or not
upon the dissolution and termination of the Partnership.
21.6 PRIORITY; RETURN OF CAPITAL. Except as provided in this Agreement,
no Limited Partner shall have priority over any other Limited Partner either as
to the return of Capital Contributions or as to allocations of income and losses
or payments of distributions. Other than upon the dissolution and termination of
the Partnership as provided by this Agreement, there has been no time agreed
upon when the Capital Contribution of each Limited Partner is to be returned.
A-29
21.7 ESCHEAT OF DISTRIBUTIONS. If, upon termination and dissolution of
the Partnership, there remains outstanding on the books of the Partnership
(after a reasonable period of time determined in the sole discretion of the
General Partner) a material amount of distribution checks which have not been
negotiated for payment by the Limited Partners, the General Partner may, if
deemed to be in the best interest of the Partnership, cause such amounts to be
redistributed pro rata to Limited Partners of record on such final distribution
date who have previously cashed all of their distribution checks; provided,
however, that neither the General Partner nor the Partnership shall be liable
for any subsequent claims for payment of such redistributed distributions. The
General Partner is not required to make such redistribution, in which case such
amounts may eventually escheat to the appropriate state.
ARTICLE XXII
GENERAL PROVISIONS
22.1 NOTICES. Except as otherwise provided herein, any notice, payment,
distribution or other communication which shall be required to be given to any
Partner in connection with the business of the Partnership shall be in writing
and any such notice shall become effective the earlier of (a) upon personal
delivery thereof, including by overnight mail and Courier service, or (b) four
days after it shall have been mailed by United States mail, first class with
postage prepaid; in each case, if to a Limited Partner, addressed to the last
address furnished for such purpose by the Limited Partner to whom it is
authorized to be given as of the time sent for delivery or as of the time of
such mailing, and if to the General Partner or the Partnership, at the principal
office of the Partnership, or at such other address as such General Partner may
hereafter specify in a notice duly given as provided herein.
22.2 SURVIVAL OF RIGHTS. This Agreement shall be binding upon and inure
to benefit of the Partners and their respective heirs, legal representatives,
successors and assigns.
22.3 HEADINGS. The captions of the articles and sections of this
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
22.4 AGREEMENT IN COUNTERPARTS. This Agreement, or any Amendment
hereto, may be executed in counterparts each of which shall be deemed an
original Agreement, and all of which shall constitute one agreement by each of
the Partners hereto on the dates respectively indicated in the acknowledgements
of said Partners, notwithstanding that all of the Partners are not signatories
to the original or the same counterpart, to be effective as of the day and year
first above written.
22.5 GOVERNING LAW. This Agreement shall be governed and construed
according to the laws in the state of Texas and laws governing Texas
Partnerships and the jurisdiction for legal actions shall be in the State of
Texas, Dallas County.
22.6 TIME. Time is of the essence in this Agreement.
22.7 PRONOUNS. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or Persons may require.
22.8 SEPARABILITY OF PROVISIONS. Each provision of this Agreement shall
be considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation, or affect those portions, of this
Agreement, which are valid.
A-30
IN WITNESS WHEREOF, the undersigned hereby execute this Amended and Restated
Agreement of Limited Partnership under seal as of the date and year first above
written.
LIMITED PARTNER
By:
------------------------------
(Signature)
---------------------------------
Printed Name
GENERAL PARTNER
ABIC REALTY CORPORATION
Attest:
By: By:
-------------------------------------- -----------------------------
(Signature)
Name:
------------------------------------ -----------------------------
President
Title:
----------------------------------- -----------------------------
(Signature)
A-31
EXHIBIT B
FORM OF SUBSCRIPTION AGREEMENT
AND SIGNATURE PAGE
ABIC REALTY FUND I, L.P.
ABIC REALTY FUND I, L.P.
SUBSCRIPTION AGREEMENT - LIMITED PARTNERSHIP UNITS
The Investor named below, by payment of a check payable to ABIC REALTY FUND I,
L.P. - Escrow Account hereby subscribes for limited partnership units ("the
Units") indicated below (minimum purchase of 200 units at a purchase price of
$10 per unit. Minimum investment is $2000) of ABIC REALTY FUND I, L.P. Units may
be purchased in increments of $1,000. By such payment, the named Investor
further acknowledges receipt of the Prospectus and any Supplement and the
Subscription Agreement, the terms of which govern the investment in the limited
partnership units being subscribed for hereby.
<Table>
A. INVESTMENT: (1) Amount of limited partnership units purchased $___________
(2) [ ] Initial Purchase [ ] Additional Purchase Date of Investor's check: _______ / _______ / _______
B. REGISTRATION:
(3) Registered Owner: [ ] Mr. [ ] Mrs. [ ] Ms. [ ] MD. [ ] PhD. [ ] Other ___________________________________________________
Name: ___________________________________________________________________________________________________________________
(4) Co-owner: [ ] Mr. [ ] Mrs. [ ] Ms. [ ] MD. [ ] PhD. [ ] Other ___________________________________________________
Name: ___________________________________________________________________________________________________________________
(5) Mailing Address: ______________________________________ City, State & Zip: ____________________________________________
(6) Residence Address (if different from above): ____________________________________________________________________________
(7) Birth Date: _______ / _______ / _______ (8) Birth Date Co-Owner: _______ / _______ / _______
(9) Please indicate Citizenship Status: (10) Social Security #: _______ / _______ / _______
[ ] U.S. Citizen [ ] Other Co-Owner SS #: _______ / _______ / _______
(11) Telephone #: (Home) (_____) _____ - ________ Corporate or Custodial
(Office) (_____) _____ - ________ Taxpayer ID #: _______ /_______ / _______
C. OWNERSHIP: [ ] Individual Ownership [ ] IRA or Keogh [ ] Joint Tenants with Rights of Survivorship
[ ] Trust/Date of Trust Established Pension/Trust ___ / ___ / ___ (S.E.P.) [ ] Tenants in Common
[ ] Tenants by the Entirety [ ] Corporate Ownership [ ] Partnership [ ] Other __________________________________
D. SIGNATURES: By signing below, I/we represent that I/we meet the suitability standards set forth in the Prospectus under
"Suitability Standards."
Signatures - Registered Owner: ___________________________________ Co-Owner: __________________________________________________
E. Print Names of Custodian
or Trustee: ___________________________________________ Authorized Signature: ________________________________________________
Date: ______ - ______ - ______ Witness Signature: _______________________________________________________________________
F. PAYMENT SHOULD BE SENT TO (IF DIFFERENT THAN REGISTERED OWNER):
Name: _______________________________________________________________________ c/o: ___________________________________________
Address: ____________________________________________________________________ Account Number: ________________________________
City, State & Zip: __________________________________________________________ Telephone Number: (_____) ______ - _____________
G. BENEFICIAL OWNER(S): All reports and financial statements will normally be sent to the registered owner at the address in
Section B. If reports and financial statements are to be sent to the Beneficial Owner of an IRA or Keogh, insert name of the
Beneficial Owner.
Name of Beneficial Owner Only: ______________________________________________ Telephone Number: (_____) ______ - _____________
Address: ____________________________________________________________________ City, State & Zip: _____________________________
H. BROKER-DEALER/REGISTERED REPRESENTATIVE DATA: ALL LINES MUST BE COMPLETED.ANY MISSING SIGNATURES MAY DELAY PROCESSING OF
THIS ORDER.
Broker-Dealer NASD Firm Name: _______________________________________________ Telephone Number: (_____) ______ - ______________
Main Office Address: ________________________________________________________ City, State & Zip: _____________________________
Print or Type name of Broker-Dealer, Principal or other Authorized -Signator: _________________________________________________
Authorized Signature: ________________________________________________________________________ Date: ______ - ______ - ______
Print or Type Name of Registered Representative: ______________________________________________________________________________
Signature: ___________________________________________________________________ Telephone Number: (_____) ______ - _____________
Branch Office Address: _______________________________________________________ City, State & Zip: ___________________________
===============================================================================================================================
MAIL TO: ABIC Realty Fund I, L.P. - 9520 North May Avenue, Suite 330, Oklahoma City, Oklahoma 73120
(405) 302-6434 FAX(405) 302-6407
===============================================================================================================================
</Table>
4,000,000 UNITS (MAXIMUM) 10,000 UNITS (MINIMUM)
ABIC REALTY FUND I, L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST
PURCHASE PRICE - $10.00 PER UNIT
Until_______________, all dealers that effect transactions in these securities
may be required to deliver a prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses, including all allocated general and administrative and
overhead expenses, related to the Offering or the organization of the
Partnership will be borne by the General Partner, ABIC Realty Corporation. The
Partnership will reimburse the General Partner for all or a part of such
expenses through a payment by the Partnership to the General Partner of a fee of
6% of the gross Offering proceeds.
The following table sets forth a reasonable itemized statement of all
anticipated out-of-pocket and overhead expenses (subject to future
contingencies) to be incurred in connection with the distribution of the
securities being registered, reflecting the minimum and maximum subscription
amounts:
<Table>
<Caption>
MINIMUM MAXIMUM
------- -------
SEC Registration Fee $ 3,680 $ 3,860
Printing and Engraving Expenses 5,000 120,000
Legal Fees and Expenses 45,000 45,000
Escrow Fees 5,000 10,000
Marketing and Due Diligence Expenses 3,000 400,000
Accounting Fees and Expenses 20,000 40,000
Blue Sky Fees and Expenses 10,000 35,000
Miscellaneous 5,000 70,000
TOTAL $96,680.00 $723,860
</Table>
ITEM 32. SALES TO SPECIAL PARTIES
None
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
On June 5, 2002, the General Partner made an initial capital
contribution to the Partnership in the amount of $1,000.00. On June 6, 2002, the
Original Limited Partner made a capital contribution to the Partnership in the
amount of $100.00. Since these transactions were not considered to have involved
a "public offer" within the meaning of Section 4(2) of the Securities Act of
1933, as amended (the "Act"), these partnership interests were deemed to be
exempt from registration.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of ABIC Realty Corporation ("Articles")
provide for indemnification of Directors in accordance with the Texas Business
Corporation Act. Article Six of the Articles provides as follows:
A director of the Corporation is not liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this Article Six does not eliminate or limit
the liability of a director for:
(i) a breach of a director's duty of loyalty to the Corporation or its
shareholders;
II-1
(ii) an act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law;
(iii) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the
scope of the director's office;
(iv) an act or omission for which the liability of a director is expressly
provided for by statute; or
(v) an act related to an unlawful stock purchase or payment of a dividend.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements are included as Exhibit A to the
Prospectus, including:
(i) Independent Auditor's Report for ABIC Realty Fund I,
L.P.;
(ii) Balance Sheet of ABIC Realty Fund I, L.P.;
(iii) Statement of Changes in Partner's Capital of ABIC
Realty Fund I, L.P.;
(iv) Notes to Financial Statements of ABIC Realty Fund I,
L.P.;
(v) Independent Auditor's Report for ABIC Realty
Corporation;
(vi) Balance Sheet of ABIC Realty Corporation; and
(vii) Notes to Balance Sheet of ABIC Realty Corporation.
(b) Exhibits - The following Exhibits are filed as part of the
Registration Statement:
<Table>
<Caption>
Exhibit No. Identification of Exhibit
----------- -------------------------
4.1 The Form of Limited Partnership Agreement is
Exhibit A to the Prospectus.
5.1 Opinion of Alice A. Waters, Attorney,
regarding the legality of the securities
issued
8.1 Opinion of Julia Swisher, Attorney, as to
certain tax matters
10.1* Form of Broker-Dealer Selling Agreement
23.1 Consent of Alice A, Waters, Attorney at Law
(included in her opinion as Exhibit 5)
23.2 Consent of Julia Swisher, Attorney at Law
(included in her opinion as Exhibit 8)
23.3 Consents of Tyson Hopkins, CPA
</Table>
- ----------
* Filed previously with Amendment No. 1 to the Registration Statement
II-2
ITEM 37. UNDERTAKINGS
The Registrant hereby undertakes
(a) To file any prospectuses required by Section 10(a)(3) as
post-effective amendments to the Registration Statement,
(b) That for the purpose of determining any liability under the
Act each such post-effective amendment may be deemed to be a
new registration statement relating to the securities offered
therein and the Offering of such securities at that time may
be deemed to be the initial bone fide Offering thereof,
(c) That all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in
effect at the time such post-effective amendments are filed,
and
(d) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
at the termination of the Offering.
The Registrant undertakes to send to each Limited Partner at least on
an annual basis a detailed statement of any transactions with the General
Partner or its affiliates, and of fees, commissions, compensation and other
benefits paid, or accrued to the General Partner or its affiliates for the
fiscal year completed, showing the among paid or accrued to each recipient and
the services performed.
The Registrant undertakes to provide to the Limited Partners the
financial statements required by form 10-K for the first full fiscal year of
operations of the Partnership.
The Registrant undertakes to file a sticker supplement pursuant to Rule
424(C) under the Act during the distribution period describing each property not
identified in the Prospectus at such time as there arises a reasonable
probability that such property will be acquired and to consolidate all such
stickers into a post-effective amendment filed at least once every three months,
with the information contained in such amendment provided simultaneously to the
existing Limited Partners. Each sticker supplement should disclose all
compensation and fees received by the General Partner and its affiliates in
connection with any such acquisition. The post-effective amendment shall include
audited financial statements meeting the requirements of Rule 3-14 of Regulation
S-X only for properties acquired during the distribution period.
The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of
10% or more (on a cumulative basis) of the net proceeds of the Offering and to
provide the information contained in such report to the Limited Partners at
least once each quarter after the distribution period of the Offering has ended.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Oklahoma City, State of Oklahoma, on the 19th
day of February, 2003.
ABIC Realty Fund I, L.P.
By: ABIC Realty Corporation, General Partner
By: /s/ MICHAEL R. MARSHALL
-----------------------------------------
Michael R. Marshall, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacity and on the date indicated:
<Table>
<Caption>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ MICHAEL R. MARSHALL President, Secretary-Treasurer February 19, 2003
- ----------------------------- & Director of ABIC Realty Corporation,
Michael R. Marshall General Partner
</Table>
II-4
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- -------------------------
4.1 The Form of Amended and Restated Agreement of
Limited Partnership is Exhibit A to the
Prospectus.
5.1 Opinion of Alice A. Waters, Attorney, regarding
the legality of the securities issued
8.1 Opinion of Julia Swisher, Attorney, as to certain
tax matters
10.1* Form of Broker-Dealer Selling Agreement
23.1 Consent of Alice A. Waters, Attorney at Law
(included in her opinion as Exhibit 5.1)
23.2 Consent of Julia Swisher, Attorney at Law
(included in her opinion as Exhibit 8.1)
23.3 Consents of Tyson Hopkins, CPA
</Table>
- ----------
* Filed previously with Amendment No. 1 to the Registration Statement