THE PARTNERSHIP INTERESTS ISSUED UNDER THIS DOCUMENT
HAVE NOT .BEEN REGISTERED UNDER ANY FEDERAL OR STATE
SECURITIES LAW, INCLUDING THE SECURITIES ACT OF 1933,
AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR THE OPINION
OF COUNSEL TO THE PARTNERSHIP THAT SUCH REGISTRATION IS
NOT REQUIRED.
LUBBOCK GROUP, LTD.
(FORMERLY SOUTH BAY ADVISORS LIMITED
PARTNERSHIP)
AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT
ARTICLE I
FORMATION AS A TEXAS LIMITED PARTNERSHIP
This Limited Partnership (Partnership) is created
under the Texas Revised Limited
Partnership Act, Article 6132a-1, Vernon's Texas
Revised Civil Statutes (T.R.L.P.A.). This
Limited Partnership will become effective upon the
filing and acceptance of the Certificate
by the Texas Secretary of State.
ARTICLE II
PARTNERSHIP NAME
The name of the Partnership shall be LUBBOCK
GROUP, LTD.
ARTICLE III
REGISTERED AGENT AND ADDRESS
The registered agent for the Limited Partnership,
its registered street address (at which its agent will
be located for the service of process), and the street
address of the Partnership's principal office in the
United States is:
Craig W. Spaulding
5720 LBJ Freeway
Suite 450, Lock Box 16
Dallas, Texas 75240-6339
The registered agent is an individual whose
business office is the same as the Partnership's
registered office.
ARTICLE IV
NATURE OF BUSINESS
The purpose and nature of the Partnership is to
acquire, by purchase in its own name, certain lands
in the City of Lubbock, Lubbock County, Texas, and
described in Exhibit "A" attached hereto and
incorporated herein by reference for all purposes
(hereinafter the "Property"), to hold for resale, to
develop all or portions of such real estate with or
without improvements, to construct improvements on
all or portions of such real estate to the extent
the General Partner deems advisable, to own,
operate, manage, or lease all or portions
thereof to others, to sell or otherwise dispose of
any part or all of the Property, and to do all
things necessary or convenient for the development
of such improvements and the ownership, operation,
and eventual disposition of all or any part of the
Properly and all personal property related thereto.
In view of the exclusive and limited purposes
of the Partnership, no Partner shall have any
obligation to make other real estate opportunities
not involving We Property available to the
Partnership or to any of its Partners. Any Partner
may engage in and/or possess interests in other
business ventures of every nature and description,
independently or with others, including, but not
limited to, the ownership, financing, leasing,
operation, management, syndication, brokerage, and
development of real property; and neither the
Partnership nor any Partner shall have any rights by
virtue of this Agreement or the existence of this
Partnership in and to said independent ventures or
to the income or profits derived therefrom. The fact
that a Partner, an officer, director, or shareholder
of a Partner, a member of a limited liability
company, a member of a Partner's family, or an
associate of a Partner is employed by, or owns or is
otherwise directly or indirectly interested in or
connected with any person, firm, or corporation
employed or retained by the Partnership to render or
perform management, mortgage placement, financing,
brokerage, development, management, or other
services, or from whom the Partnership may buy
merchandise or other property, borrow money, manage
financing, or place securities, or to or from whom
the Partnership shall lease real property, shall not
prohibit the General Partners from executing a lease
with or employing such person, firm, corporation, or
limited liability company or from otherwise dealing
with him or it, and neither the Partnership nor any
of the Partners as such shall have any rights in or
to any income or profits derived therefrom.
ARTICLE V
PRINCIPAL OFFICE
The address of the principal office in the
United States where the records of the Partnership
are to be maintained is:
5720 LBJ Freeway
Suite 450, Lock Box 16
Dallas, Texas 75240-6339
The records maintained, and to be maintained, at
this office are those prescribed by Section 1.07 of the
T.R.L.P.A.
ARTICLE VI
GENERAL PARTNER
The Partnership shall have one General Partner.
The name, the mailing address, and the street address
of the General Partner is:
Aurora Bay I, L.L.C.
5720 LBJ Freeway
Suite 450, Lock Box 16
Dallas, Texas 75240-6339
Reference to "General Partner," used in the
singular, will also include the plural as to any time
there is more than one General Partner. Reference to
"Partner" shall mean either the General Partner or a
Limited Partner, and reference to "Partners" shall mean
all Partners, including General
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and Limited Partners.
ARTICLE VII
INITIAL CONTRIBUTIONS OF CAPITAL
.a. Capital Requirement. General Partner. The
General Partner will be required to make a capital
contribution to the Partnership of not less than
$10.00 (called "General Partner's Capital
Contribution"). The General Partner's Capital
Contribution and capital account will be
maintained separately from another capital account
which he, she or it may have as a Limited Partner.
At all times during the term of this
Partnership, the General Partner shall make
capital contributions to the Partnership in an
amount sufficient to ensure that the General
Partner's contribution to Capital will equal one
percent (1%) or more of the total capital
contributions of all Partners.
b. Capital Requirement, Limited Partner. Each
Limited Partner who is to be a Limited Partner
upon the inception of this Partnership is required
to make a capital contribution to the Partnership
of not less than $990.00 (called "Limited
Partner's Capital Contribution"). A Limited
Partner's Capital Contribution and capital account
will be maintained separately from any other
capital account which he, she or it may have as a
General Partner.
c. Initial Partners. The initial General and
Limited Partners, their initial contributions to
the capital of the Partnership, and their
percentages of interest, are set out on the
attached Exhibit "A" which is incorporated herein
by reference.
d. Additional Contributions to the Capital of
the Partnership. The Partners, both General and
Limited, may make additional contributions of
capital to the Partnership. Since an additional
contribution of capital, if unequal, will affect
the percentages of ownership and distributions of
the Partners, additional capital contributions
will be subject to the requirements of this
Section 7(d). Contributions of additional capital
by a Limited Partner will be subject to the
consent of and acceptance thereof by the General
Partner. Additional contributions by a General
Partner will be subject to the consent and
approval of the Limited Partners, and will require
a vote of at least 70 percent in interest of the
Limited Partners. The required consent and
approval must be in writing.
The General Partner will have the authority
to ask (but not require)
the Limited Partners to contribute additional
capital when: (1) additional capital is
reasonably needed to pay existing or anticipated
expenses of operation and
administration; debt service for any amounts
borrowed by the Partnership; insurance
and tax payments; the cost of acquiring,
maintaining and selling property of the
Partnership; and, (2) the calls for capital are
not discriminatory, that is, when all Limited
Partners are permitted to contribute capital to
the extent of each Limited Partner's percentage
interest in the Partnership. A Limited Partner
will not be obligated to contribute additional
capital. The percentage interest of those who have
made contributions will be increased and the
percentage interest of those who did not make a
full contribution will be decreased in accordance
with overall Partnership Capital Contributions.
ARTICLE VIII
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LIMITED PARTNERS, VOTING, LIMITED LIABILITY
The percentage interest of each Limited Partner
for voting purposes will be determined by dividing the
balance of a Limited Partner's capital account by the
total of all of the capital accounts of the Limited
Partners. A Limited Partner's percentage interest will
be determinative of the measure of a Limited Partner's
vote as to matters on which a Limited Partner is
entitled to vote or which requires a Limited Partners'
consent. For the
purpose of voting, there will be a total of 100 Limited
Partner votes (which is equal to 100 percent of the
total participating Limited Partner interests as
measured by their respective capital accounts) and each
one percent interest will equal one vote. For example,
a Limited Partner with a percentage interest of ten
percent will have ten votes out of 100 votes on any
given matter. A I Limited Partner with a percentage
interest of 12.5 percent will have 12.5 votes out of
100 votes. The term "majority in interest" will mean
that 51 votes out of 100 votes will be determinative of
a given matter. The term "70 percent in interest of the
Limited Partners" will mean that at least 70 votes of
the total 100 votes will be determinative of a given
matter.
Except as may be otherwise provided by the
T.R.L.P.A.; a Limited Partner will not be liable for
the obligations of the Partnership. A Limited Partner
(except for a Limited Partner who is also a General
Partner) will not be permitted to participate in the
management and control of the business of the
Partnership. A Limited Partner, however, may act
individually or in a capacity permitted by the safe-
harbor provisions of the T.R.L.P.A.
ARTICLE IX
TAXATION AS A PARTNERSHIP
The Partnership will constitute a partnership for
federal income tax purposes, and the General Partner
will report all items of income, gain, loss, deduction
and credit as a Partnership. The General Partner will
have the authority to determine the taxable year of the
Partnership and the form in which its accounts are to
be kept. The General Partner is to see to the
preparation of all necessary tax reports and other
information required by the Internal Revenue Service
and a report for income tax purposes to each Partner of
his, her or its distributive share of items of income,
gain, loss, deduction and credit.
ARTICLE X
CAPITAL ACCOUNTS
a. A Capital Account shall be established and
maintained for each Partner in accordance with the
rules of IRS Regulations 1.704-1(b)(2)(iv). Each
Partner's Capital Account (i) shall be increased
by (A) the amount of money contributed by that
Partner to the Partnership, (B) the Net Agreed
Value of property contributed by that Partner to
the Partnership, and (C) allocations to that
Partner of Partnership income and gain (or items
thereof) computed in accordance with paragraph (b)
of this Article X, including income and gain
exempt from tax, and (ii) shall be decreased by
(A) the amount of money distributed to that
Partner by the Partnership, (B) the Net Agreed
Value of property distributed to that Partner by
the Partnership, and (C) allocations of
Partnership loss and deduction (or items thereof),
computed in accordance with paragraph (b) of this
Article X. A Partner that has more than one class
of Interests shall have a single Capital Account
that reflects all its Partnership Interests,
regardless of the class of Units of Partnership
Interests owned by that Partner and regardless of
the time or manner in which those Partnership
Interests were acquired.
b. For purposes of computing the amount of
any item of income, gain, loss, or
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deduction to be reflected in the Partners' Capital
Accounts, the determination, recognition, and
classification of any such item shall be the same
as its determination, recognition, and
classification for federal income tax purposes
(including, without limitation, any method of
depreciation, cost recovery, or amortization used
for that purpose), provided, that:
(i) All fees and other expenses incurred
by the Partnership to promote the sale of (or
to sell) Partnership Interests that can
neither be deducted nor amortized under
Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be
treated as an item of deduction at the time
such fees and other expenses are incurred and
shall be allocated among the Partners
pursuant to the provisions of Article XII
hereof.
(ii) Except as otherwise provided in
IRS Regulations 1.704- 1(b)(2)(iv)(m), the
computation of all items of income, gain,
loss, and deduction shall be made without
regard to any election under Section 754
of the Code which may be made by the
Partnership and, as to those items
described in Section 705(a)(1)(B) or
705(a)(2)(B) of the Code, without regard
to the fact such items are not included in
gross income or are neither currently
deductible nor capitalized for federal
income tax purposes.
(iii) Any income, gain, or loss
attributable to the taxable disposition of
any Partnership property shall be
determined as if the adjusted basis of
such property as of such date of
disposition were equal in amount to the
Partnership's Carrying Value with respect
to such property as of such date.
(iv) In accordance with the
requirements of Section 704(b) of the Code,
any deductions for depreciation, cost
recovery, or amortization attributable to
any Contributed Property shall be determined
as if the adjusted basis of such property on
the date it was acquired by the Partnership
were equal to the Agreed Value of such
property. Upon an adjustment pursuant to IRS
Regulations 1.704-1(b)(2)(iv)(f) to the
Carrying Value of any Partnership property
subject to depreciation, cost recovery, or
amortization, of any further deductions for
such depreciation, cost recovery, or
amortization attributable to such property
shall be determined (A) as if the adjusted
basis of such property were equal to the
Carrying Value of such property immediately
following such adjustment and (B) using a
rate of depreciation cost recovery or
amortization derived from the same method
and useful life (or, if applicable, the re
useful life) as is applied for federal
income tax purposes; provided, however, that
if the asset has a zero adjusted basis for
federal income tax purposes, depreciation,
cost recovery, or amortization deductions
shall be determined using a reasonable
method that the General Partner may adopt.
(v) If the Partnership's adjusted
basis in depreciable or cost recovery
property is reduced for federal income tax
purposes pursuant to Section 48(q)(1) or
49(q)(3) of the Code, the amount of such
reduction shall, solely for purposes
hereof be deemed to be an additional
depreciation or cost recovery deduction in
the year such property is placed in
service and shall be allocated among the
Partners pursuant to paragraph a of
Article XII hereof.. Any restoration of
such basis pursuant to Section 48(q)(2) of
the Code shall, to the extent possible, be
allocated in the year of
5
such restoration as an item of income
pursuant to paragraph a. of Article XII
hereof.
c. A transferee of a Partnership Interest
shall succeed to a pro rata portion of the Capital
Account of We transferor relating to the
Partnership Interest so transferred; provided,
however, that if the transfer causes a termination
of the Partnership under Section 708(b)(1)(B) of
the Code, the Partnership's properties shall be
deemed to have been distributed in liquidation of
the Partnership to We Partners (including any
transferee of a Partnership Interest that is a
party to the transfer causing such termination)
pursuant to Article XV and recontributed by such
Partners in reconstitution of the Partnership. Any
such deemed distribution shall be treated as an
actual distribution for purposes of this Article
X. In such event, the Carrying Values of the
Partnership properties shall be adjusted
immediately prior to such deemed distribution
pursuant to IRS Regulations 1.704-1(b)(2)(iv)(f),
and such Carrying Values shall then constitute the
Agreed Values of such properties upon such deemed
contribution to the reconstituted Partnership. The
Capital Accounts of such reconstituted Partnership
shall be maintained in accordance with the
principles of this Article X.
ARTICLE XI
BOOKS AND RECORDS, ACCOUNTING, STATEMENTS AND TAX
MATTERS
a. Books and Records. At all times during the
duration of the Partnership, the General Partner
shall keep accurate books of the Partnership's
accounts, including all of its income,
expenditures, assets, and liabilities. These books
shall be open to examination by any Partner at any
reasonable time.
b. Annual Accounting Period. All books and
records of the Partnership shall be kept on the
basis of an annual accounting period ending
December 31 of each year, except for the final
accounting period which shall end on the date of
termination of the Partnership. All references
herein to the "fiscal year of the Partnership" are
to the annual accounting period described in the
preceding sentence, whether the same shall consist
of twelve months or less.
c. General Partner's Report to Partners. 'The
General Partner shall send, at Partnership
expense, to each Partner the following:
(i) Within seventy-five (75) days after
the end of each fiscal year of the
Partnership, such information as shall be
necessary for the preparation by such Partner
of such Partner's federal income tax return
which shall include a computation of the
distributions to such Partner and the
allocation to such Partner of profits or
losses as the case may be; and
(ii) Within forty-five (45) days after
the end of each fiscal quarter of the
Partnership, a quarterly report, which shall
include:
(1) A balance sheet;
(2) A statement of income and
expenses;
(3) A statement of changes in
Partner's capital; and
6
(4) A statement of the balances in
the Capital Accounts of the
Partners.
d. Tax Matters Partner. Should there be
any controversy with the Internal Revenue
Service or any other taxing authority
involving the Partnership, the General
Partner may expend such funds as it deems
necessary and advisable in the interest of
the Partnership to resolve such controversy
satisfactorily, including, without being
limited thereto, attorneys' and accounting
fees. The General Partner is hereby
designated as the "Tax Matters Partner" as
referred to in Section 6231(a)(7)(A) of the
Code and is specially authorized to exercise
all of the rights and powers now or hereafter
granted to the Tax Matters Partner under the
Code.
Any cost incurred in the audit by any
governmental authority of the income tax
returns of a Partner (as opposed to the
Partnership) shall not be a Partnership
expense. The General Partner shall consult
with and keep the Partners advised with
respect to (i) any income tax audit of a
Partnership income tax return, and (ii) any
elections made by the Partnership for
federal, state, or local income tax purposes.
e. Tax Returns. The General Partner
shall, at Partnership expense, cause the
Partnership to prepare and file a United
States Partnership Return of Income and all
other tax returns required to be filed by the
Partnership for each fiscal year of the
Partnership.
f. Tax Elections. The General Partner
shall be permitted in its discretion to
determine whether the Partnership should make
an election pursuant to Section 754 of the
Code to adjust the basis of the assets of the
Partnership. Each of the Partners shall, upon
request, supply any information necessary to
properly give effect to such election. In
addition, the General Partner, in its sole
discretion, shall be authorized to cause the
Partnership to make and revoke any other
elections for federal income tax purposes as
it deems appropriate, necessary, or
advisable.
ARTICLE XII
ALLOCATIONS AND DISTRIBUTIONS
a. Allocations. Except as otherwise
provided herein, all items of income, gain,
loss, deduction, and credit of the Partnership
shall be allocated among the Partners in
accordance with their Percentage Interests.
b. Special Allocations. The following
special allocations shall be made in the
following order:
(i) Partnership Minimum Gain Chargeback.
Notwithstanding the other provisions of this
paragraph b, except as provided in IRS
Regulations 1.704-2(f)(2) through (5), if
there is a net decrease in Partnership
Minimum Gain during any Partnership taxable
period, each Partner shall be allocated items
of Partnership income and gain for such
period (and, if necessary subsequent periods)
in the manner and in the amounts provided in
IRS Regulations 1.704-2(f)(6) and 1.704-
2(g)(2) and 1.704-2(j)(2)(i), or any
successor provisions. For
7
purposes of this paragraph b, each Partner's
Adjusted Capital Account balance shall be
determined, and the allocation of income or
gain required hereunder shall be effected,
prior to the application of any other
allocations pursuant to this paragraph b with
respect to such taxable period (other than an
allocation pursuant to paragraphs b(v) and
(vi) of this Article XII).
(ii) Chargeback of Minimum Gain
Attributable to Partner Nonrecourse Debt.
Notwithstanding the other provisions of this
paragraph b of this Article XII (other than
paragraph b (i) hereof), except as provided
in IRS Regulations 1.704-2(i)(4), if there is
a net decrease in Minimum Gain Attributable
to Partner Nonrecourse Debt during any
Partnership taxable period, any Partner with
share of Minimum Gain Attributable to Partner
Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of
Partnership income and gain for such period
(and, if necessary, subsequent periods) in
the manner and in the amounts provided in IRS
Regulations 1.704-2(i)(4) and 1.704-
2(j)(2)(ii), or any successor provisions. For
purposes of this paragraph b, each Partner's
Adjusted Capital Account balance shall be
determined, and the allocation of income or
gain required hereunder shall be effected,
prior to the application of any other
allocations pursuant to this paragraph b with
respect to such taxable period (other than an
allocation pursuant to paragraphs b(v) and
(vi) of this Article XII.
(iii) Qualified Income Offset. In the
event any Partner unexpectedly receives
adjustments, allocations, or distributions
described in IRS Regulations 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5),
or 1.704-1(b)(2)(ii)(d)(6), items of
Partnership income and gain shall be
specifically allocated to such Partner in an
amount and manner sufficient to eliminate, to
the extent required by the IRS Regulations
promulgated under Section 704(b) of the Code,
the deficit balance, if any, in its Adjusted
Capital Account created by such adjustments,
allocations or distributions as quickly as
possible unless such deficit balance is
otherwise eliminated pursuant to paragraphs
b(i) and (ii) of this Article XII.
(iv) Gross Income Allocations. In the
event any Partner has a deficit balance in
its Adjusted Capital Account at the end of
any Partnership taxable period, such Partner
shall be specially allocated items of
Partnership gross income and gain in the
amount of such excess as quickly as possible;
provided, that an allocation pursuant to this
paragraph b(iv) of this Article XII shall be
made only if and to the extent that such
Partner would have a deficit balance in its
Adjusted Capital Account after all other
allocations provided in this Article XII have
been tentatively made as if this paragraph
b(iv) was not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse
Deductions for any taxable period shall be
allocated to the Partners in accordance with
their Percentage Interests. If the General
Partner determines in its good faith
discretion that the Partnership's Nonrecourse
Deductions must be allocated in a different
ratio to satisfy the safe harbor requirements
of the IRS Regulations promulgated under
Section 704(b) of the Code, the General
Partner is authorized, upon notice to the
Partners, to revise the prescribed ratio to
the numerically closest ratio which does
satisfy such requirements.
(vi) Partner Nonrecourse Deductions.
Partner Nonrecourse Deductions for any
taxable period shall be allocated 100% to the
Partner that bears the
8
Economic Risk of Loss for such Partnership
Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in
accordance with ITS Regulations 1.704-2(i).
If more than one Partner bears the Economic
Risk of Loss with respect to a Partner
Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be
allocated between or among such Partners in
accordance with the ratios in which they
share such Economic Risk of Loss.
(vii) Curative Allocations. The
allocations set forth in paragraph b of this
Article XII (the "Special Allocations") are
intended to comply with certain requirements
of the Code and the IRS Regulations
promulgated thereunder. It is the intent of
the Partners that, to the extent possible,
all Special Allocations will be offset either
with other Special Allocations or with
special allocations of other items of
Partnership income, gain, loss, or deduction,
pursuant to this paragraph b(vii). Therefore,
notwithstanding any other provision of this
Article XII (other than the Special
Allocations), the General Partner shall make
such offsetting special allocations in
whatever manner it deems appropriate so that,
after such offsetting allocations are made,
each Partner's Capital Account balance is, to
the extent possible, equal to the Capital
Account balance such Partner would have had
if the Special Allocations were not a pat of
this Agreement and all Partnership items were
allocated pursuant to paragraph a. of this
Article XII.
c. Allocations for Tax Purposes.
(i) Except as otherwise provided herein,
for federal income tax purposes, each item of
income, gain, loss, and deduction which is
recognized by the Partnership, for federal
income tax purposes, shall be allocated among
the Partners in the same manner as its
correlative item of "book" income , gain,
loss, or deduction is allocated pursuant to
paragraphs a. and b. of this Article XII.
(ii) In an attempt to eliminate Book-
Tax. Disparities attributable to a
Contributed Property or Adjusted Property,
each item of income, gain, loss,
depreciation, depletion, and cost recovery
deduction which is recognized by the
Partnership, for federal income tax purposes,
shall be allocated for federal income tax
purposes among the Partners as follows:
(a) (A) In the case of a
Contributed Property, such items
attributable thereto shall be allocated
among the Partners in the manner
provided under Section 704(c) of the
Code that takes into account the
variation between the Agreed Value of
such property and its adjusted basis at
the time of contribution; and (B) except
as otherwise provided in paragraph
c(ii)(c) of this Article XII hereof any
item of Residual Gain or Residual Loss
attributable to a Contributed Property
shall be allocated among the Partners in
the same manner as its correlative item
of 'book" gain or loss is allocated
pursuant to this Article XII.
(b) (A) In the case of an Adjusted
Property, such items shall (a) first, be
allocated among the Partners in a manner
consistent with the principles of
Section 704(c) of the Code to take into
account the Unrealized Gain or
Unrealized Loss attributable to such
property and the allocations thereof
pursuant to IRS Regulations 1.704-
9
1(b)(2)(iv)(f), and (b) second, the
event such property was originally a
Contributed Property, be allocated among
the Partners in a manner consistent with
paragraph c(ii)(a)(A) hereof; and (B)
except as otherwise provided in
paragraph c(ii)(c) hereof any item of
Residual Gain or Residual Loss
attributable to an Adjusted Property
shall be allocated among the Partners in
the same manner as its correlative item
of "book" gain or loss is allocated
pursuant to Article XII hereof
(c) Any items of income, gain,
loss, or deduction otherwise allocable
under paragraph c(ii)(A)(2) or c(ii)(B)
hereof shall be subject to allocation by
the General Partner in a manner designed
to eliminate, to the maximum extent
possible, Book-Tax Disparities in a
Contributed Property or Adjusted
Property otherwise resulting from the
application of the "ceiling" limitation
(under Section 704(c) of the Code or
Section 704(c) principles) to the
allocations provided under paragraphs
c(ii)(a)(A) or c(ii)(b)(A) of this
Article XII.
(iii) Any gain allocated to the Partners
upon the sale or other taxable disposition of
any Partnership asset shall, to the extent
possible, after taking into account other
required allocations of gain pursuant to this
paragraph c of this Article XII, be
characterized as Recapture Income in the same
proportions and to the same extent as such
Partners have been allocated any deductions
directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
(iv) All items of income, gain, loss,
deduction, and credit recognized by the
Partnership for federal income tax purposes
and allocated to the Partners in accordance
with the provisions hereof shall be
determined without regard to any election
under Section 754 of the Code which may be
made by the Partnership; provided, however,
that such allocations, once made, shall be
adjusted as necessary or appropriate to take
into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(v) Each item of income, gain, expense,
loss, deduction, or credit allocable to any
Partnership Interest which may have been
transferred during any year shall, if
permitted by law, be allocated during such
year, in proportion to the number of calendar
days for which each such holder was
recognized as the owner of the Partnership
Interest during such year, without regard to
the results of Partnership operations during
the period in which such holders were
recognized as the owner thereof and without
regard to the date, amount, or recipient of
any distributions which may have been made
with respect to such Partnership Interest.
d. Cash Distributions. At such times and in
such amounts as the General Partner determines
appropriate, all Cash Available for Distribution
shall be distributed among the Partners in
proportion to their Percentage Interests. As long
as there are any amounts due and owing to Emeritus
under the Emeritus Corporation Loan or Emeritus is
a member of Aurora Bay Investments, LLC, the
General Partner shall cause the Partnership to
make quarterly distributions of Cash Available for
Distribution, no later than 45 days after the end
of each calendar quarter. In computing Cash
Available for Distribution, the General Partner
may set aside reasonable amounts as reserves for
capital expenditures, replacements, contingent or
unforeseen liability, or other obligations of the
Partnership; but the amounts of such reserves
shall be reassessed at the end of each quarter to
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determine whether such balances are adequate in
amount, should be increased or decreased, and if
decreased the excess reserves will be available
for distribution to the Members. Moreover, Cash
Available for Distribution may not be used by the
Partnership to make investments in any assets or
project other than the Project, without the prior
consent of Emeritus. It is the intent of the
parties to make periodic distributions of Cash
Available for Distribution if and when such excess
cash is available and not to hold such funds to
build up reserves beyond reasonable amounts or to
make investments in new projects.
ARTICLE XIII
LOANS FROM A PARTNER
If any Partner shall advance funds or make any
other payment to or on behalf of the Partnership, other
than a permitted capital contribution, to cover
operating costs or capital expenses, such advance or
payment will be deemed to be a loan to the Partnership
which will bear interest as agreed upon by the Partner
advancing such loan and the Partnership. The Limited
Partner plans to make loans to the Partnership as
contemplated by the Credit Agreement.
ARTICLE XIV
PARTNERSHIP TERM
The term for which the Partnership shall exist
shall be from the date of the filing of a Certificate
of I Limited Partnership, as provided by the Texas
Uniform I Limited Partnership Act, until December 31,
2027, unless sooner terminated by:
a. The written agreement of the Partners;
b. The disposition of all of the Property and
all personal property owned by the Partnership;
provided, however, that if such sale involves the
receipt by the Partnership of purchase money
obligations, then, in such event, the Partnership
shall not dissolve, except with the consent of all
Partners, prior to the collection or other
disposition of such purchase money obligations;
c. The removal or resignation of the General
Partner unless within sixty (60) days after any
such event the Limited Partners shall elect and
appoint a successor General Partner or
d. The filing for record in the office of the
Secretary of State of the State of Texas of a
fully-executed copy by all then remaining Partners
of a Certificate of Cancellation of the
Certificate of I Limited Partnership.
For so long as the Partnership shall exist, each
Partner waives the right to compel a dissolution of the
Partnership or to compel a partition of the property of
the Partnership. No Partner will have an ownership
interest in the property of the I Limited Partnership.
ARTICLE XV
DISTRIBUTIONS UPON TERMINATION AND DISSOLUTION
Upon termination and dissolution of the
Partnership, the General Partner will proceed to wind
up the affairs of the Partnership. The liabilities and
obligations to creditors and all expenses
11
incurred in its liquidation and dissolution will be
paid and will have first priority in winding up. The
General Partner may retain from available cash and
other assets of the Partnership sufficient reserves for
anticipated and contingent liabilities. Undistributed
cash, and other property valued at its fair market
value on the date of distribution, will be distributed
to the Partners in the following order:
a. Distributions will first be made to
repay any loans to the Partnership by a
Partner, including the amount of any deferred
payment obligation to a Partner or a Partner's
personal representative as the result of a buy-
out by the Partnership of a Partner's interest.
b. Distributions will then be made to the
Partners, both General and
Limited, in an amount equal to the credit
balances in their capital accounts so that
the capital account of each Partner shall be
brought to zero. For the purpose of determining
distributions in liquidation, a negative
capital account balance will be considered to
be a loan from the Partnership to a Partner.
c. The balance, if any, will be made to We
Partners in an amount equal to each Partner's
percentage interest in the Partnership as
determined immediately prior to the
distribution of the credit balances of the
Partners' capital accounts.
Except as limited by the T.R.L.P.A., the
General Partner in making, or in preparing to make, a
partial or final distribution may prepare an
accounting and may require, as a condition to
payment, a written and acknowledged statement from
each distributee that the accounting has been
thoroughly examined and accepted as correct; a
discharge of the General Partner; a release from any
loss, liability, claim or question concerning the
exercise . of due care, shall, and prudence of the
General Partner in the management, investment,
retention, and distribution of property during the
General Partner's term of service, except for any
undisclosed error or omission having basis in fraud
or bad faith; and an indemnity of the General
Partner, to include the payment of attorney's fees,
from any asserted claim of any taxing agency,
governmental authority, or other claimant. Any
Partner having a question or potential claim may
require an audit of the Partnership as an expense of
administration. Failure to require the audit prior to
acceptance of the General Partner's report, or the
acceptance of payment, will operate as a final
release and discharge of the General Partner except
as to any error or omission having a basis in fraud
or bad faith.
The General Partner, in making or preparing to
make a partial or final distribution will have the
authority to (1) partition any asset or class of
assets and deliver divided and segregated interests
to Partners; (2) sell any asset or class of assets
(whether or not susceptible to partition in kind),
and deliver to the Partners a divided interest in
the proceeds of sale and/or divided or undivided
interests in any note and security arrangement taken
as part of the purchase price; and/or (3) deliver
undivided interests in an asset or class of assets
to the Partners subject to any indebtedness which
may be secured by the property.
The Partnership may continue beyond its
scheduled termination date for a time reasonably
necessary to conclude the administration of the
Partnership, pay expenses of termination and to
distribute the Partnership property to those
entitled thereto.
ARTICLE XVI
MANAGEMENT, SERVICE OF A GENERAL PARTNER
a. Election or Replacement of a General
Partner. The Limited Partners will have the right
to remove an existing General Partner and elect
another to serve in his or her or its place, or to
add another as a General Partner or appoint new
Successor General Partners as
12
permitted by the T.R.L.P.A At no time will more
than three General Partners be permitted.
i. Redemption or Conversion of a General
Partners Interest as a General Partner: The
Partnership will have the option to redeem the
interest of a General Partner who ceases to
serve for any reason, or to convert that
Partner's General Partnership interest to that
of a Limited Partner. If the Partnership
elects to redeem that interest, the redemption
amount will be the greater of (1) the General
Partner's capital account, less the value
attributable thereto of Partnership debt of
which the General Partner, as a General
Partner, is relieved, or (Z) the fair market
value of the General Partner's interest. The
redemption amount, which may be paid in cash
or in other property of the Partnership of
equivalent value, must be paid to the General
Partner within 90 days from the date his, her
or its successor files an amendment to the
Certificate of Lifted Partnership in the form
and manner required by law. Unless the
Partnership and the transferee agree
otherwise, the fair market value of a General
Partner's interest is to be determined by the
written appraisal of a person or firm
qualified to value this type of business or
partnership interest. 'The appraiser selected
by the Partnership must be a member of the
American Society of Appraisers, (P.O. Box
17265, Washington; D.C. 20041) and qualified
to perform business appraisals. The
Partnership and the transferee may waive an
appraisal, and agree to matters of value and
payment which deviate from these requirements.
ii. Amendment to the Certificate of
Limited Partnership: In the event a General
Partner is unwilling or unable to sign a
required amendment to the Certificate of
Limited Partnership as evidence of the
withdrawal, substitution or addition of a
General Partner, the amended certificate may
be signed by: (1) the remaining General
Partner or Partners, if more than one General
Partner is then serving, and any successor
elected by the Limited Partners or as
otherwise designated by this Agreement; or,
(2) if but one General Partner was serving,
and such General Partner ceases to serve for
any reason, by the new General Partner or
Partners, as substitute or successor, and at
least 70 percent in interest of the Limited
Partners. Each General Partner serving or to
serve in the capacity of a General Partner
does hereby appoint his, her or its
successor, (or if there is more than one
General Partner serving at the time of a
General Partner shall refuse or be unable to
act, the remaining General Partner or
Partners) as his, her or its attorney-in-
fact, to sign the amended certificate of his,
her or its behalf In the event T.R.L.P.A.,
Section 8.01 should require dissolution of
the Partnership due to the death, disability,
resignation, removal of a General Partner, or
other event of withdrawal, it is agreed that
the Partnership shall be reconstituted and
will continue as provided by T.R.L.P.A.,
Section 8.03 without further act of the
Partners other than the election of a new
General Partner or Partners if no General
Partner remains following the event requiring
dissolution.
b. Authority of a General Partner Acting
alone, Other Matters Pertaining to the General
Partner. The General Partner or Partners will
have the responsibility for the day to day
management of the business of the Partnership. The
General Partner's authority and capacity will be
the same as that of the chief executive officer of
a corporation. In addition to the authority given
to a General Partner by this agreement and by law,
the General Partner will have the specific
authority to do the following:
i. Transfers by a General Partner Except
as limited by this Agreement of Partnership,
the General Partner or Partners will have the
authority at any
13
time and from time to time to sell, exchange,
lease and/or transfer legal and equitable
title to the Partnership property upon such
terms and conditions, and for such
consideration, as the General Partner or
Partners consider reasonable. The execution
of any document of conveyance or lease by the
General Partner will be sufficient to
transfer complete legal and equitable title
to the interest conveyed without the joinder,
ratification, or consent of the Partners. No
purchaser, tenant, transferee or obligor will
have any obligation whatever to see to the
application of payments made to the General
Partner.
ii. Retention of Properly Contributed to
the Partnership: A General Partner will have
the authority to retain, without liability,
any and all property in the form which it is
received by a General Partner without regard
to its productivity or the proportion that
any one asset or class of assets may bear to
the whole. A General Partner will not have
liability nor responsibility for loss of
income from or depreciation in the value of
the property which was retained in the form
which the General Partner received it.
iii. Employment of Consultants and Other
Professionals: A General Partner will have
the authority to employ such consultants and
professional help as the General Partner
considers necessary to assist in the prudent
management, acquisition, leasing and transfer
of the Partnership property and to obtain
such policies of insurance as the General
Partner considers reasonably necessary to
protect the Partnership property from loss or
liability.
iv. Legal Title to Partnership Assets: A
General Partner will be permitted to register
or take title to Partnership assets in the
name of the Partnership or as Trustee, with
or without disclosing the identity of his or
her principal, or to permit the registration
of securities in "street name" under a
custodial arrangement with an established
securities brokerage firm trust department or
other custodian.
v. Limitation on a General Partners
Liability: Insofar as Texas law will permit,
a General Partner who succeeds another will
be responsible only for the property and
records delivered by or otherwise acquired
from the preceding General Partner, and may
accept as correct the accounting of the
preceding General Partner without duty to
audit the accounting or to inquire further
into the administration of the predecessors
and without liability for a predecessor's
errors and omissions.
vi. Affidavit of Authority: Any person
dealing with the Partnership may rely upon
the affidavit of a General Partner or
Partners which states:
On my (our) oath, and under the penalties of
perjury, I (we) sweat that I (we) am (are)
the duly elected and authorized General
Partner(s) of LUBBOCK GROUP, LTD. I (we)
certify that I (we) have not been removed as
General Partner(s) and have the authority to
act for, and bind, LUBBOCK GROUP, LTD. in the
transaction of the business for which this
affidavit is given as affirmation of my (our)
authority.
14
___________________________
Signature Line
Sworn and subscribed before me, the
undersigned authority, by _____________this
__________ day of ____________, 19____.
__________________________
Notary Public, State of Texas
vii. Compensation: A General Partner
will be entitled to a reasonable annual
compensation for services rendered to the
Partnership, reasonable compensation to be
measured by the time required in the
administration of the Partnership, the value
of property under the General Partner's
administration, and the responsibilities
assumed in the discharge of the duties of
office. The General Partner will also be
entitled to a reimbursement for or direct
payment of all reasonable and necessary
business expenses incurred in the
administration of the Partnership. The
Limited Partners may, by affirmative action,
vote to establish, increase or reduce a
General Partner's compensation based upon the
General Partner's performance and dedication
of time to the business of the Partnership.
Payments to the General Partner for services
rendered to the Partnership will not be a
return on invested capital, but will be paid
as compensation for services rendered.
Payments to the Partnership by reason of
personal services rendered by the General
Partner for or on behalf of the Partnership
are to be allocated and distributed to the
General Partner.
viii. Bond: No one serving as General
Partner will be required to furnish a
fiduciary bond or other security as a
prerequisite to his, her, or its service.
ARTICLE XVII
RESTRICTIONS ON PARTICIPATION BY AND AUTHORITY OF
LIMITED PARTNERS
No Partner, other than a General Partner, may
participate in the management and operation of the
Partnership's business and its investment
activities, or bind the Partnership to any
obligation or liability whatsoever. A Limited
Partner may not lawfully transfer legal or
beneficial title to property of the Partnership
unless, supported by an affidavit of fact, the
Limited Partner acts pursuant to the limited
authority prescribed by T.R.L.P.A., Section 8.04
(winding up of the Partnership in the absence of a
qualified General Partner). A General Partner who is
also a Limited Partner will act for the Partnership
in his, her, or its capacity as General Partner
alone.
ARTICLE XVIII
RESTRICTIONS UPON OWNERSHIP AND TRANSFER OF OWNERSHIP
The ownership and transferability of interests
in the Partnership, both General and Limited, are
substantially restricted. Neither record title nor
beneficial ownership of a
15
Limited Partnership interest shall be transferred or
encumbered without the consent of the Partners and
compliance with the provisions of the T.R.L.P.A.
This Partnership is formed by a closely-held group
who know and trust one another, who will have
surrendered control (in the case of a Limited
Partner) or assumed sole event responsibility and
risk (in the case of a General Partner) based upon
their trust of one another, and with the commitment
to one another that a Partner will not transfer or
encumber his or her ownership interest without the
consent of the re Partners. Capital is also material
to the business and investment objectives of the
Partnership and its federal tax status. An
unauthorized transfer of a Partner's interest could
create a substantial hardship to the Partnership,
jeopardize its capital base, and adversely affect
its tax structure. These restrictions upon ownership
and transfer (especially an interest conveyed
voluntarily to someone unknown to the remaining
Partners, or involuntarily as in a divorce
proceeding or to a judgment creditor), and the
rights given to the Partnership which follow are not
intended as penalty, but as a method to protect and
preserve existing relationships based upon trust and
the Partnership's capital and its financial ability
to continue.
The ownership and transfer of a Limited
Partnership interest is further subject to the
following disclosure and condition:
THE LIMITED PARTNERSHIP INTERESTS OF LUBBOCK
GROUP, LTD. HAVE NOT, NOR WILL BE, REGISTERED
OR QUALIFIED UNDER FEDERAL OR STATE
SECURITIES LAWS. THE LIMITED PARTNERSHIP
INTERESTS OF LUBBOCK GROUP, LTD. MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED UNLESS SO REGISTERED OR
QUALIFIED, OR UNLESS AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION EXISTS. THE
AVAILABILITY OF ANY EXEMPTION FROM
REGISTRATION OR QUALIFICATION MUST BE
ESTABLISHED BY AN OPINION OF COUNSEL FOR THE
OWNER THEREOF, WHICH OPINION AND COUNSEL MUST
BE REASONABLY SATISFACTORY TO LUBBOCK GROUP,
LTD.
The Partnership will not be required to recognize
the interest of any transferee who has obtained a
purported interest as the result of a transfer of
ownership which is not an authorized transfer. The
transferee will not be admitted to the Partnership as a
substitute Limited Partner and the transferee will have
only the rights of an assignee unless all Partners
consent to the transferee becoming a Limited Partner.
If the ownership of a Partnership interest is in doubt,
or if there is reasonable doubt as to who is entitled
to a distribution of the income realized from a
Partnership interest, the Partnership may accumulate
the income until this issue is finally determined and
resolved. Accumulated income will be credited to the
capital account of the Partner whose interest is in
question.
If any person or agency should acquire the
interest of a Limited Partner as the result of an order
of a court of competent jurisdiction which the
Partnership is required to recognize, or if a Limited
Partner makes an unauthorized transfer of a Partnership
interest which the Partnership is required to
recognize, the interest of the transferee may then be
acquired by the Partnership upon the following terms
and conditions:
a. The Partnership will have the option to
acquire the interest by giving written notice to
the transferee of its intent to purchase within 90
days from the date it is finally determined that
the Partnership is required to recognize the
transfer.
16
b. The Partnership will have 180 days to
purchase the interest, said 180 days to be
measured from the first day of the month following
the month in which it delivers notice exercising
its option to purchase. The valuation date for the
Partnership interest will be the first day of the
month following the month in which notice is
delivered.
c. Unless the Limited Partnership and the
transferee agree otherwise, the fair market value
of a Limited Partners' interest is to be
determined by written appraisal of a person or
firm qualified to value this type of business or
Partnership interest. The appraiser selected by
the Partnership must be a member of the American
Society of Appraisers (P.O. Box 17265, Washington,
DC 20041) and qualified to perform business
appraisals.
d. Closing of the sale will occur at the
business office of the Partnership (as designated
in this Agreement) at 10 o'clock AM on the first
Tuesday of the month following the month in which
the valuation report is accepted by the transferee
(called the "closing date"). The transferee must
accept or reject the valuation report within 30
days from the date it is delivered. If not
rejected in writing within the required period,
the report will be accepted as written. If
rejected, closing of the sale will be postponed
until the first Tuesday of the month following the
month in which the valuation of the Partnership
interest is resolved. The transferee will be
considered a nonvoting owner of the Partnership
interest, and entitled to all items of income,
deduction, gain or loss from the Limited
Partnership interest, plus any additions or
subtractions therefrom until closing.
e. In order to reduce the burden upon the
resources of the Partnership, the Partnership will
have the option, to be exercised in writing
delivered at closing, to pay its purchase money
obligation in 15 equal annual installments (or the
remaining term of the Partnership if less than 15
years) with interest thereon at market rates,
adjusted annually as of the first of each calendar
year at the option of the General Partner then
serving. 'The term "market rates" will mean the
rate per annum equal to the lesser of (1) the Wall
Street Journal prime rate as quoted in the money
rates section of the Wall Street Journal which is
also the base rate on corporate loans at large
United States money center commercial banks as its
prime commercial or similar reference interest
rate, with adjustments to be made on the same date
as any change in the rate, and (2) the maximum
rate permitted by applicable law. If Internal
Revenue Code Sections 483 or 1274A apply to this
transaction, the rate of interest of the purchase
money obligation will be fixed at the rate of
interest then required by law. The first
installment of principal, with interest due
thereon, will be due and payable on the first day
of the calendar year following closing, and
subsequent annual installments, with interest due
thereon, will be due and payable, in order, on the
first day of each calendar year which follows
until the entire amount of the obligation,
principal and interest, is fully paid. The
Partnership will have the right to prepare all or
any part of the purchase money obligation at any
time without premium or penalty.
f. The General Partner may assign the
Partnership's option to purchase to one or more of
the re Limited Partners (this with the affirmative
consent of no less than 70 percent of the re
Limited Partners, excluding the interest of the
Limited Partner or transferee whose interest is to
be acquired), and when done, any rights or
obligations imposed upon the Partnership will
instead become, by substitution, the rights and
obligations of the Limited Partners who are
assignees.
g. Neither the transferee of any unauthorized
transfer or the Limited Partner causing the
transfer will have the right to vote during the
prescribed option period or, if
17
the option to purchase is timely exercised,
until the sale is actually closed.
ARTICLE XIX
ADDITION OF A LIMITED PARTNER
A new Limited Partner may be admitted only with
the written consent of all Partners.
ARTICLE XX
RESTRICTIONS ON WITHDRAWAL
Neither a General Partner nor a Limited Partner
may withdraw from the Partnership before the end of the
term. If a General Partner breaches this agreement not
to withdraw, the Partnership may recover from that
General Partner any damages the Partnership suffers on
account of that withdrawal (including, without
limitation, the cost of securing from another source
the services provided by the withdrawing General
Partner) and may offset those damages against any
payment otherwise due the withdrawing General Partner.
ARTICLE XXI
COUNTERPARTS, POWER OF ATTORNEY
The execution and acceptance of this Agreement and
Certificate of limited Partnership may be evidenced by
a separate certificate signed by a Limited Partner
acknowledging that a true and correct copy of this
Agreement has been received, reviewed in its entirety,
and accepted. Each Limited Partner, in accepting this
Agreement, makes, constitutes and appoints the General
Partner, with full power of substitution, as his, her
or its attorney-in-fact and personal representative to
sign, execute, certify, acknowledge, file and record
all appropriate instruments amending this Agreement and
the Certificate of Limited Partnership on behalf of the
Limited Partner. In particular, the General Partner as
attorney-in-fact may sign, acknowledge, certify, file
and record on behalf of each Limited Partner such
instruments, agreements, and documents which: (1)
reflect the exercise by the General Partner of any of
the powers granted to him under this Agreement; (2)
reflect any amendments made to this Agreement; (3)
reflect the admission or withdrawal of a General or
Limited Partner; and (4) may otherwise be required of
the Partnership or a Partner by Texas law, federal law,
or the law of any other applicable jurisdiction. The
power of attorney herein given by each Limited Partner
is a durable power of attorney and will survive the
disability or incapacity of the principal.
ARTICLE XXII
NOTICE
Any notice required or permitted in this Agreement
will be effective if written and hand delivered to the
intended recipient or if placed in the United States
Mail marked "Certified Mail, Return Receipt Requested"
with postage prepaid. Notice will be deemed as
delivered to the intended recipient if addressed to the
intended recipient at his or her last known mailing
address, and the receipt is returned as having been
delivered or is marked "Refused", "Addressee Unknown",
"Unable to Forward", or other similar designation or
notation. In this regard, it will be the affirmative
duty of each Partner to provide the General Partner at
all times with a current address for the delivery of
notice and to notify the General Partner of any change
of address.
If this Agreement does not specifically prescribe
a time for performance or notice, the required time
will be 30 days. Notice of the exercise of any point or
right, notice of default or noncompliance, and any
other notice required by this Agreement or by law must
be in writing.
18
ARTICLE XXIII
GLOSSARY OF TERMS
The following terms, when used in this
Agreement, shall have the respective meanings
assigned to them in this Article unless the context
otherwise requires:
"Act" means The Texas Revised Limited
Partnership Act, Article 6132a-1 of the Revised
Civil Statutes of the State of Texas, as amended
(or the corresponding provisions of any
successor statute).
"Adjusted Capital Account" means the
capital account maintained for each Partner as of
the end of each taxable year of the Partnership
(a) increased by any amounts which such Partner is
obligated to restore under the standards set by
IRS Regulations 1.704-1(b)(2)(ii)(c) [or is deemed
obligated to restore under IRS Regulations 1.704-
2(g)(1) and 1.704-2(i)(5)) and (b) decreased by
(i) the amount of all losses and deductions that,
as of the end of such taxable year, are reasonably
expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and
706(d) of the Code and IRS Regulations 1.751-
1(b)(2)(ii), and (ii) the amount of all
distributions that, as of the end of such taxable
year, are reasonably expected to be made to such
Partner in subsequent years in accordance with the
terms of this Agreement or otherwise to the extent
they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to
occur during (or prior to) the year in which such
distributions are reasonably expected to be made
(other than increases pursuant to a minimum gain
chargeback pursuant to paragraph b(i) or b(ii) of
Article XII hereof). The foregoing definition of
Adjusted Capital Account is intended to comply
with the provisions of IRS Regulations 1.704-
1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Property" means any property
the Carrying Value of which has been adjusted
pursuant to IRS Regulations 1.704-1(b)(2)(iv)(f).
Once an Adjusted Property is deemed distributed
by, and recontributed to, the Partnership for
federal income tax purposes upon a termination
thereof pursuant to Section 708 of the Code, such
property shall thereafter constitute a Contributed
Property until the Carrying Value of such property
is further adjusted pursuant to IRS Regulations
1.704- 1(b)(2)(iv)(f).
"Agreed Value" of any Contributed
Property means the fair market value of such
property or other consideration at the time of
contribution as determined by the General Partner
using such reasonable method of valuation as it
may adopt. The General Partner shall, in its
reasonable discretion, use such method as it deems
reasonable and appropriate to allocate the
aggregate Agreed Value of Contributed Properties
contributed to the Partnership in a single or
integrated transaction among such properties on a
basis proportional to their fair market values.
"Book-Tax Disparity" means, with respect
to any item of Contributed Property or Adjusted
Property, as of the date of any determination, the
difference between the Carrying Value of such
Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the
Partnership's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be
reflected by the difference between such Partner's
Capital Account balance as maintained pursuant to
Section 5.10 of this Agreement and the
hypothetical balance of such Partner's Capital
Account computed as if it had been maintained
strictly in accordance with federal income tax
accounting principles.
19
"Capital Account" means, with respect to
any Partner, that Capital Account determined and
maintained in accordance with the rules of IRS
Regulations 1.704- 1(b)(2)(iv).
"Capital Contribution" means any
contribution by a Partner to the capital of the
Partnership and includes initial Capital
Contributions and Additional Contributions.
"Carrying Value" means (a) with respect
to a Contributed Property, the Agreed Value of
such property reduced (but not below zero) by all
depreciation, amortization, and cost recovery
deductions charged to the Partners' Capital
Accounts and (b) with respect to any other
Partnership property, the adjusted basis of such
property for federal income tax purposes, all as
of the time of determination. The Carrying Value
of any property shall be adjusted from time to
time in accordance with IRS Regulations 1.704-
1(b)(2)(iv)(f), and to reflect changes, additions,
or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership
properties.
"Code" means the Internal Revenue Code
of 1986, as amended (or any corresponding
provisions of successor statute).
"Contributed Property" means each
property or other asset, but excluding cash,
contributed to the Partnership (or deemed
contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of
the Code). Once the Carrying Value of a
Contributed Property is adjusted pursuant to IRS
Regulations 1.704-1(b)(2)(iv)(f) hereof such
property shall no longer constitute a Contributed
Property for purposes of paragraph c(ii) of
Article XII hereof but shall be deemed an Adjusted
Property for such purposes.
"Economic Risk of Loss" shall have the
meaning set forth in IRS Regulations 1.752-2(a).
"Minimum Gain Attributable to Partner
Nonrecourse Debt" means that amount determined in
accordance with the principles of IRS Regulations
1.704-2(i)(3)
"Net Agreed Value" means (a) in the case
of any Contributed Property, the Agreed Value of
such property reduced by any liabilities either
assumed by the Partnership upon such contribution
or to which such property is subject when
contributed and (b) in the case of any property
distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at
the time such property is distributed, reduced by
any indebtedness either assumed by such Partner
upon such distribution or to which such property
is subject at the time of distribution as
determined under Section 752 of the Code.
"Nonrecourse Built-in Gain" means, with
respect to any Contributed Properties or Adjusted
Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability,
the amount of any taxable gain that would be
allocated to the Partners pursuant to paragraphs
c(ii)(a)(A), c(ii)(b)(A) or c(ii)(c) of Article
XII hereof if such properties were disposed of in
a taxable transaction in full satisfaction of such
liability and for no other consideration.
"Nonrecourse Deductions" means any and
all items of loss, deduction,
20
or expenditures (described in Section 705(a)(2)(B)
of the Code) that, in accordance with the
principles of IRS Regulations 1.704-2(b)(1), are
attributable to a Nonrecourse Liability.
"Nonrecourse Liability" shall have the
meaning set forth in IRS Regulations 1.704-
2(b)(3).
"Partner" means those persons or
entities that execute a counterpart of this
Agreement and those persons or entities that are
hereafter admitted as a General or Limited Partner
under the terms hereof.
"Partner Nonrecourse Debt" shall have
the meaning set forth in IRS Regulations 1.704-
2(b)(4).
"Partner Nonrecourse Deductions" means
any and au items of loss, deduction, or
expenditure (described in Section 705(a)(2)(B) of
the Code) that, in accordance with the principles
of IRS Regulations 1.704-2(i)(2), are attributable
to a Partner Nonrecourse Debt.
"Partnership Interest" or "Interest"
means all of the ownership interests and rights of
a Partner in the Partnership, including his (i)
right to a distributive share of the profits and
losses of the Partnership, (ii) right to a
distributive share of the assets of the
Partnership, (iii) rights to allocations,
information, and to consent or approve, and (iv)
if a general partner, right to participate in the
management of the affairs of the Partnership.
"Partnership Minimum Gain" means that
amount determined in accordance with the
principles of IRS Regulations 1.704.2(d).
"Percentage Interest" means, with
respect to any Partner, a fraction (expressed as a
percentage), the numerator of which is the
aggregate number of Units of Partnership Interest
owned by such Partner and the denominator of which
is the total number of all then issued and
outstanding Units of Partnership Interest.
"Unrealized Gain" attributable to any
item of Partnership property means, as of any date
of determination, the excess, if any, of (a) the
fair market value of such property as of such
date, over (b) the Carrying Value of such property
as of such date [prior to any adjustment to be
made pursuant to IRS Regulations 1.704-
1(b)(2)(iv)(f)] as of such date. In determining
such Unrealized Gain, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt.
The General Partner shall allocate such aggregate
value among the assets of the Partnership (in such
manner as it determines in its reasonable
discretion) to arrive at a fair market value for
individual properties.
"Unrealized Loss" attributable to any
item of Partnership property means, as of any date
of determination, the excess, if any, of (a) the
Carrying Value of such property as of such date
[prior to any adjustment to be made pursuant to
IRS Regulations 1.704-1(b)(2)(iv)(f)] as of such
date, over (b) the fair market value of such
property as of such date. In determining such
Unrealized Loss, the aggregate cash amount and
fair market value of all Partnership assets
(including cash or cash equivalents) shall
21
be determined by the General Partner using such
reasonable method of valuation as it may adopt.
The General Partner shall allocate such aggregate
value among the assets of the Partnership (in such
manner as it determines in its reasonable
discretion) to arrive at a fair market value for
individual properties.
ARTICLE XXIV
NOTICES
a. Any notices or communications required or
permitted to be delivered hereunder must be in writing
and shall be deemed to be delivered (i) upon receipt if
delivered personally or (ii) upon deposit in the United
States Mail, certified, return receipt requested,
postage prepaid, addressed to Seller or Buyer, as the
case may be, or (iii) upon receipt of a facsimile
transmission, at the following addresses and/or
facsimile numbers:
General Partner:
Aurora Bay I, L.L.C.
5720 LBJ Freeway
Suite 450,
Lock Box 16
Dallas, Texas 75240
Phone: 972-458-0025
Fax #: 972-458-2233
With a copy to: Craig W. Spaulding
5720 LBJ Freeway
Suite 450, Lock Box
16
Dallas, Texas 75240
Phone: 972-458-0025
Fax #: 972-458-2233
and: Jerry Erwin
9817 N. E. 54th
Street
Vancouver, Washington
98662 Phone: 360-254-
9442
Fax #: 360-254-1770
ARTICLE XXV
AMENDMENTS
This agreement may be amended only by a written
instrument signed by all of the Partners.
ARTICLE XXVI
CONCLUSION
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This document is a contract which will be
binding upon, and inure to the benefit of, each of
the contracting parties, their heirs, personal
representatives, successors, and assigns. The use of
pronouns, masculine or feminine, will be construed in
context and may include an individual, no matter his
or her gender, or an entity (e.g., a corporation,
trust, Limited Partnership, General Partnership). The
venue of any action brought to construe this
contract, for specific performance of any contractual
obligation or other cause directly related to this
contract, will be Dallas County, Texas. The date of
this agreement, for purposes of identification, is
the 6th day of January, 1998.
Acceptance and Approval by
General Partner:
AURORA BAY I, L.L.C., a
Washington
Limited liability company
By: /s/ Craig W. Spaulding
-----------------------
- ------------------------------
Craig W. Spaulding, Manager
By: /s/ Jerry Erwin
-----------------------
- ------------------------------
Jerry Erwin, Manager
23