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AGREEMENT OF LIMITED PARTNERSHIP OF
BEHRINGER HARVARD NORTHWEST HIGHWAY LP
THIS AGREEMENT OF LIMITED PARTNERSHIP (the "AGREEMENT") is made
and
entered into effective as of the ___ day of
March, 2005, by and among BEHRINGER
HARVARD NORTHWEST HIGHWAY GP, LLC, a Texas
limited liability company (the
"GENERAL PARTNER"), BEHRINGER HARVARD
SHORT-TERM OPPORTUNITY FUND I LP, a Texas
limited partnership (the "CLASS A LIMITED
PARTNER"), and J.L. ARMSTRONG TRUST, a
Texas trust, and PAUL AND WILMA NOTHERN
FAMILY TRUST, a Texas trust
(collectively, the "CLASS B LIMITED
PARTNERS").
ARTICLE I.
FORMATION, NAME, PRINCIPAL PLACE OF BUSINESS - AGENT
PURPOSES, TERM AND DEFINITIONS
1.0
FORMATION. For and in consideration of the mutual covenants
herein contained, the Partners hereby form
a limited partnership (hereinafter
the "PARTNERSHIP") under and pursuant to
the Texas Revised Limited Partnership
Act, Tex. Rev. Civ. Stat. Ann., art 6132a-1
(such Act hereinafter referred to as
"TRLPA"). The Partnership shall be governed
by TRLPA. The Certificate of Limited
Partnership of the Partnership has been or
shall promptly be filed and recorded
in such office and places as is required by
TRLPA.
1.1. NAME.
The business of the Partnership shall be conducted under
the name of "Behringer Harvard Northwest
Highway LP".
1.2.
PARTNERSHIP OFFICE, REGISTERED OFFICE AND REGISTERED AGENT. The
Partnership shall maintain its principal
office in the State of Texas at 15601
Dallas Parkway, Suite 600, Addison, Texas
75001, or at such other place as the
General Partner may from time to time
designate. The Registered Office in the
State of Texas is 15601 Dallas Parkway,
Suite 600, Addison, Texas 75001, and the
agent for service of process at such
address shall be Gerald J. Reihsen, III.
The Partnership may maintain such different
or additional offices as the General
Partner may determine.
1.3.
PURPOSES. The nature and business of the Partnership and the
purposes to be conducted and promoted by
the Partnership are to engage solely in
the following activities:
(a)
To acquire the Property, and to develop, own, maintain,
operate, finance, refinance, and sell or
exchange the Project on the Property;
and
(b)
To exercise all powers enumerated in TRLPA necessary or
convenient to the conduct, promotion or
attainment of the business or purposes
otherwise set forth herein.
1.4. TERM.
The Partnership shall continue until December 31, 2055,
unless the business of the Partnership is
terminated sooner pursuant to Article
XV below.
1.5.
DEFINITIONS. As used in this Agreement, unless the context
clearly requires otherwise, the following
words and phrases shall have the
following meanings:
"ADDITIONAL CAPITAL CONTRIBUTIONS" means all amounts paid by
the
Partners to the Partnership as additional
capital contributions under Section
3.2 of this Agreement, except that, as
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provided in Section 3.2, any amounts over
$25,000 paid by the Class B Limited
Partners to the Partnership pursuant to
Section 3.2 shall not count as
Additional Capital Contributions for
purposes of this Agreement.
"ADDITIONAL CAPITAL CONTRIBUTIONS ACCOUNT" means an account
maintained for each Partner equal to (i)
all Additional Capital Contributions
made by such Partner to the Partnership
pursuant to Section 3.2 of this
Agreement, less (ii) the aggregate
distributions made to such Partner pursuant
to Sections 6.1(a) and 6.2(a) of this
Agreement.
"ADJUSTMENT DATE" means the close of business on the last day
of
any fiscal year of the Partnership.
"AFFILIATE" of a Person means (i) any Person, directly or
indirectly controlling, controlled by or
under common control with the specified
Person; (ii) any Person owning or
controlling 10% or more of the outstanding
voting securities of such specified Person;
(iii) any officer, director,
partner, member or trustee of such
specified Person and (iv) if any Person who
is an Affiliate is an officer, director,
partner, member or trustee of another
Person, such other Person. The term
"control" shall mean the ability, directly
or indirectly, to control the management of
an entity.
"AGREEMENT" means this Agreement of Limited Partnership.
"CAPITAL ACCOUNT" means, with respect to each Partner, the
account established and maintained on the
books and records of the Partnership
for each Partner pursuant to Section 3.4
below, adjusted as provided for
therein.
"CAPITAL CONTRIBUTION" means the amount of money and the agreed
fair market value of other property or
consideration contributed to the capital
of the Partnership by a Partner.
"CLASS A LIMITED PARTNER" means Behringer Harvard Short-Term
Opportunity Fund I LP, a Texas limited
partnership, and any other Person who has
been admitted as a Class A Limited Partner
in the Partnership pursuant to the
provisions of this Agreement.
"CLASS B LIMITED PARTNERS" means, collectively, J.L. Armstrong
Trust, a Texas trust, and Paul and Wilma
Nothern Family Trust, a Texas trust,
and any other Person who has been admitted
as a Class B Limited Partner in the
Partnership pursuant to the provisions of
this Agreement.
"CODE" means the Internal Revenue Code of 1986 as it may be
amended or revised from time to time, or
any provision of succeeding law.
"CONSTRUCTION LOAN" means the loan contemplated to be obtained
by the Partnership in the amount of
approximately $4,550,000, the proceeds of
which will be used to pay a portion of the
costs of constructing the Project.
"DISTRIBUTABLE CASH" means all cash, revenues, and funds
received by the Partnership, and any
amounts released from Reserves to the
extent the General Partner deems that the
amount released is no longer required
to be retained in Reserves, less the sum of
the following to the extent paid or
set aside by the Partnership: (a) all
principal and interest payments on
indebtedness of the Partnership and all
other sums paid to lenders; (b) all cash
expenditures incurred incident to the
operation of the Partnership business; (c)
such amounts as may be added to Reserves as
the General Partner deems reasonably
necessary to the proper operation of the
Partnership's business.
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"EQUITY INVESTORS" means the limited partners in Behringer
Harvard Short-Term Opportunity Fund I
LP.
"GENERAL PARTNER" means Behringer Harvard Northwest Highway GP,
LLC, a Delaware limited liability company,
and any other Person who has been
admitted as a General Partner in the
Partnership pursuant to the provisions of
this Agreement.
"IMPROVEMENTS" shall mean any improvements and related
amenities
now located or to be constructed on the
Property.
"INITIAL CAPITAL CONTRIBUTIONS" means each Partner's Capital
Contribution pursuant to Section 3.1.
"INITIAL CAPITAL CONTRIBUTION ACCOUNT" means, as to each
Partner, (a) the Initial Capital
Contribution made by such Partner pursuant to
Section 3.1 of this Agreement, less (ii)
the aggregate distributions made to
such Partner pursuant to Sections 6.1(b)
and 6.2(b) of this Agreement.
"IRR" means, as to the Class A Limited Partner, the actual
internal rate of return on the actual
investment made by the Class A Limited
Partner in respect of the Partnership (not
including any internal "load"
assessed by the Class A Limited Partner
with respect to the investments by the
Equity Investors), as calculated by the
General Partner on a compounded annual
basis taking into consideration the timing
and amount of the investments made by
the Class A Limited Partner in respect of
the Partnership as well as the timing
and amount of all distributions received as
a result of such investment. For
purposes of calculating the IRR, all
Property owned by the Partnership shall be
treated as a single investment and the
income from the Property owned by the
Partnership shall be treated as from a
single source.
"IRR RETURN" means an amount which, when aggregated with all
other distributions from the Partnership
received by the Class A Limited
Partner, results in an IRR to the Class A
Limited Partner of twenty-five percent
(25%).
"LIMITED PARTNERS" means the Class A Limited Partner, the Class
B Limited Partners and any other Person who
is admitted as a limited partner in
the Partnership pursuant to the provisions
of Article VIII.
"MAJORITY IN INTEREST" shall mean Limited Partners owning more
than fifty percent (50%) of the Residual
Percentages.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Sections
1.704-2(b)(1) and 1.702-2(c) of the
Regulations. Subject to the preceding
sentence, the amount of Nonrecourse
Deductions for a Partnership fiscal year
equals the excess, if any, of the net
increase, if any, in the amount of
Partnership Minimum Gain during the fiscal
year (determined under Section
1.704-2(d) of the Regulations) over the
aggregate amount of any distributions
during the fiscal year of proceeds of a
Nonrecourse Liability that are allocable
to an increase in Partnership Minimum Gain
(determined under Section 1.704-2(h)
of the Regulations).
"NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"OPERATING EXPENSES" means all the cash expenditures made or
required to be made by the Partnership in
connection with the operation of the
Partnership in the ordinary course of
business,
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including without limitation, cash
expenditures made or required to be made by
the Partnership in connection with the
construction, development, ownership,
management, improvement, operation,
maintenance, financing and upkeep of the
Project, as well as debt service (principal
and interest) and capital
expenditures of the Partnership; provided,
however, Operating Expenses shall not
include (i) any overhead or general
administrative costs or expenses of the
General Partner or salaries or other
compensation paid to its employees,
officers, directors or shareholders (unless
specifically provided for in this
Agreement); (ii) any expenditures paid from
cash Reserves of the Partnership
(provided that to the extent any capital
expenditures are made in excess of any
such Reserves established for such capital
expenditures, such excess amounts
shall be included as an Operating Expense);
and (iii) non-cash items such as
depreciation and amortization.
"PARTIALLY ADJUSTED CAPITAL ACCOUNTS" means, with respect to
any
Partner as of an Adjustment Date, the
Capital Account of such Partner as of the
beginning of the fiscal year ending on such
Adjustment Date (where such Capital
Account does not reflect such Partner's
share of either cumulative Partner
Minimum Gain or cumulative Partnership
Minimum Gain), after giving effect to all
allocations of items of income, gain, loss
or deduction not included in Profits
and Losses and all Capital Contributions
and distributions during such period,
but before giving effect to any allocations
of Profits or Losses for such period
pursuant to Section 7.1 hereof, increased
by (a) such Partner's share of
Partnership Minimum Gain as of the end of
such fiscal year, and (b) such
Partner's share of Partner Minimum Gain as
of the end of such fiscal year.
"PARTNER" means each of the General Partner and the Limited
Partners, and "Partners" means collectively
all of such Partners.
"PARTNER MINIMUM GAIN" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt
were treated as a Nonrecourse Liability.
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Section
1.704-2(b)(4) of the Regulations.
"PARTNER NONRECOURSE
DEDUCTIONS" has the meaning set forth in
Section 1.704-2(i) of the Regulations.
Subject to the foregoing, the amount of
Partner Nonrecourse Deductions with respect
to a Partner Nonrecourse Debt for a
Partnership fiscal year equals the excess,
if any, of the net increase, if any,
in the amount of Partner Minimum Gain
attributable to such Partner Nonrecourse
Debt during that fiscal year over the
aggregate amount of any distribution
during that fiscal year to the Partner that
bears the economic risk of loss for
such Partner Nonrecourse Debt to the extent
such distributions are from the
proceeds of such Partner Nonrecourse Debt
and are allocable to an increase in
Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined
in accordance with Section 1.704-2(i) of
the Regulations.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Section
1.704-2(d) of the Regulations. Subject to
the foregoing, Partnership Minimum
Gain shall equal the amount of gain, if
any, which would be recognized by the
Partnership with respect to each
nonrecourse liability of the Partnership (or
Property Owner) if the Partnership were to
transfer the Partnership property (or
the Property Owner were to transfer the
Property Owner property) which is
subject to such nonrecourse liability in
full satisfaction thereof.
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"PARTNERSHIP VOTE" shall mean a vote of the Partners. A
Partnership Vote may be conducted at a
meeting of the General Partner and the
Limited Partners, which meeting may take
place by means of telephone conference,
video conference or similar communications
equipment by means of which all
Persons participating therein can hear each
other. Alternatively, a Partnership
Vote may be conducted by notice sent by the
General Partner to the Limited
Partners, which notice shall set forth (a)
the matter with respect to which the
Partnership Vote is to be made and (b) the
time period within which the General
Partner and the Limited Partners must
respond to the notice. Such time period
shall not be less than seven (7) business
days or more than fourteen (14)
business days. If the General Partner or
any Limited Partner does not respond to
the notice within the time period specified
in the notice, such Partner shall be
deemed to have given its written consent in
favor of the matter set forth in the
notice. If a written consent or consents
setting forth the matter to be
determined is signed by the General Partner
and a Majority in Interest of the
Limited Partners, Approval by Partnership
Vote shall be deemed to have been
obtained with respect to such matter.
"PERSON" means any individual or entity, and the heirs,
executors, administrators, legal
representatives, successors and assigns of such
Person where the context so admits, and,
unless the context otherwise requires,
the singular shall include the plural, and
the masculine gender shall include
the feminine and the neuter and vice
versa.
"PREFERRED RETURN" means, for each Limited Partner, an amount
that accrues at the rate of twelve percent
(12%) per annum on all Capital
Contributions from the date such
contributions are made to the Partnership until
they are returned to the contributing
Limited Partner.
"PRIME RATE" means the "prime rate" as published in The Wall
Street Journal (Eastern Edition) under its
"Money Rates" column and specified as
"[t]he base rate on corporate loans at
large U.S. commercial banks," or, if no
longer published as such, the rate of
interest announced from time to time by
Bank of America, N.A., as its prime rate,
base rate or reference rate. If The
Wall Street Journal (Eastern Edition)
publishes more than one "Prime Rate" under
its "Money Rates" column, then the Prime
Rate shall be the average of such
rates. If The Wall Street Journal (Eastern
Edition) is not published on a date
when Prime Rate is to be determined, then
Prime Rate shall be the Prime Rate
published on the first date of publication
which precedes the date on which the
Prime Rate is to be determined.
"PROFITS" AND "LOSSES" means, for each fiscal year or other
period, an amount equal to the
Partnership's taxable income or loss for such
year or period, determined in accordance
with Code Section 703(a) (for this
purpose, all items of income, gain, loss or
deduction required to be stated
separately pursuant to Code Section
703(a)(1) shall be included in taxable
income or loss), with the following
adjustments:
(a) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into
account in computing Profits and Losses
pursuant to this subsection (a) shall be
added to such taxable income or loss;
(b) Any expenditure of the Partnership described in Code
Section
705(a)(2)(B) or treated as Code Section
705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704(b)(2)(iv)(i), and
not otherwise taken into account in
computing Profits or Losses pursuant to
this subsection (b) shall be subtracted
from such taxable income or loss;
(c) In the event the Gross Asset Value of any of the
Partnership
assets is adjusted pursuant to subsections
(b) or (c) of the definition of Gross
Asset Value, the amount of such adjustment
shall be taken into account as gain
or loss from the disposition of such asset
for purposes of computing Profits or
Losses;
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(d) Gain or loss resulting from any disposition of Partnership
assets with respect to which gain or loss
is recognized for federal income tax
purposes shall be computed by reference to
the Gross Asset Value of the property
disposed of, notwithstanding that the
adjusted tax basis of such property
differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in
computing such taxable income or loss,
there shall be taken into account
depreciation computed in accordance with
Section 1.704-1(b)(2)(iv)(g) of the
Regulations for such fiscal year or other
period; and
(f) Notwithstanding anything contained herein to the contrary,
any items which are specially allocated
pursuant to Sections 7.3(a), 7.3(b),
7.3(c), 7.3(d), 7.3(e) and 7.3(f) shall not
be taken into account in computing
Profits or Losses.
"PROJECT" means the residential subdivision containing a
minimum
of 19 lots to be developed by the
Partnership on the Property.
"PROPERTY" means the tract of land (and all rights and
appurtenances incident thereto) described
in EXHIBIT A attached hereto and all
Improvements located, or to be constructed,
or developed thereon.
"PURCHASE AGREEMENT" means the contract of sale dated January
21, 2005, between Milli A. Brown and J.D.
Whitworth, as Seller, and HomeAmerica,
Inc. or assigns, as Buyer, covering the
Property.
"REGULATIONS" means the federal income tax regulations,
including temporary regulations,
promulgated under the Code, as such regulations
may be amended from time to time (including
corresponding provisions of
succeeding regulations).
"RESERVES" means funds set aside or amounts allocated to
reserves for working capital, taxes,
insurance, debt service or other costs and
expenses incident to the ownership and
operation of the Properties. The amount
of funds to be set aside in Reserves shall
be determined by the General Partner
in the General Partner's sole
discretion.
"RESIDUAL PERCENTAGE" means (a) one tenth of one percent (.1%)
as to the General Partner, (b) seventy-nine
and nine-tenths percent (79.9%) as
to the Class A Limited Partner, and (c)
twenty percent (20%) as to the Class B
Limited Partners.
"TARGET ACCOUNT" means, with respect to any Partner as of any
Adjustment Date, a balance (which may be
positive or negative) equal to the
hypothetical amount that such Partner would
receive upon the liquidation of the
Partnership, assuming that (a) all assets
of the Partnership were sold for an
amount equal to their respective Gross
Asset Values, (b) all liabilities of the
Partnership allocable to those properties
became due and were satisfied in
accordance with their terms (limited with
respect to each non-recourse
liability, to the Gross Asset Value of the
asset securing such liability), and
(c) all net assets of the Partnership were
distributed pursuant to Section 6.1
hereof, computed after the Capital
Contributions have been made for the period
ending on such Adjustment Date. The General
Partner shall determine Gross Asset
Value from year to year or at any point in
time as needed.
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ARTICLE II.
PARTNERS
2.1.
GENERAL PARTNER. The name and address of the General Partner is
as follows:
NAME
ADDRESS
Behringer Harvard Northwest
15601 Dallas Parkway
Highway GP, LLC
Suite 600
Addison, Texas 75001
Attn: Gerald J. Reihsen, III
2.2.
LIMITED PARTNERS. The name and address of the Limited Partners
are as follows:
NAME
ADDRESS
Behringer Harvard Short-Term Opportunity 15601 Dallas
Parkway
Fund I LP
Suite 600
Addison, Texas 75001
Attn: Gerald J. Reihsen, III
J.L.
Armstrong Trust
5956 Sherry Lane
Suite 1000
Dallas, Texas 75225
Attn: David Carruth
Paul
and Wilma Nothern Family Trust
5956 Sherry Lane
Suite 1000
Dallas, Texas 75225
Attn: Paul Nothern
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ARTICLE III.
CAPITAL
3.1.
INITIAL CAPITAL CONTRIBUTIONS.
(a)
The General Partner has contributed or shall contribute
cash in the amount of $1.00 to the capital
of the Partnership.
(b)
The Class A Limited Partner has contributed or shall
contribute cash in the amount of
$__________ to the capital of the Partnership.
(c)
The Class B Limited Partners have contributed or shall
contribute cash in the amount of $25,000.00
each (for an aggregate of
$50,000.00) to the capital of the
Partnership.
3.3.
ADDITIONAL CAPITAL CONTRIBUTIONS.
(a)
If at any time the General Partner determines that the
Partnership requires funds over and above
the Initial Capital Contributions and
the proceeds of the Construction Loan to
pay development expenses in respect of
the Project or for Operating Expenses
(collectively, "CASH NEEDS"), then the
General Partner may send the Limited
Partners written notice ("ADDITIONAL
CAPITAL NOTICE") describing the purpose for
which the funds are needed and
requesting that the Limited Partners
contribute in cash such amounts as are
necessary to satisfy such Cash Needs as an
Additional Capital Contribution to
the Partnership. If so requested, the Class
A Limited Partner and the Class B
Limited Partners shall each be obligated to
make an Additional Capital
Contribution in an amount equal to fifty
percent (50%) of the Cash Needs
specified in the Additional Capital Notice.
The time for the payment of any
Additional Capital Contribution to the
Partnership shall be determined by the
General Partner, but shall in no event be
less than ten (10) days after the
delivery of the Additional Capital Notice.
Notwithstanding anything contained
herein to the contrary, only the first
$25,000 of funds contributed by the Class
B Limited Partners pursuant to this Section
3.2(a) shall be counted as
Additional Capital Contributions, and the
Class B Limited Partners' Capital
Account shall be adjusted accordingly. All
funds contributed by the Class A
Limited Partner pursuant to this Section
3.2(a) shall be counted as Additional
Capital Contributions.
(b)
In addition to, or in lieu of, requesting Additional
Capital Contributions to the Partnership
pursuant to Section 3.2(a) above, the
General Partner, or any other Partner upon
request by the General Partner, may
lend or advance money to the Partnership to
pay Operating Expenses, provided the
financing terms are substantially similar
to (or more favorable than) loans
which the Partnership could obtain on a
competitive arms-length basis. If the
General Partner is unable to determine
whether the financing terms are
competitive on an arms length basis, the
General Partner may seek a Partnership
Vote on the issue, or may seek and rely
upon the advice of an independent expert
in financing. If any Partner makes any loan
or loans to the Partnership or
advances money on its behalf, the amount of
any loan or advance shall not be
treated as a Capital Contribution but shall
be treated as a debt due from the
Partnership to such Partner.
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3.3
FAILURE TO MAKE CAPITAL CONTRIBUTION.
(a)
If any Partner fails to timely contribute all or any
portion of any Initial Capital Contribution
or Additional Capital Contribution
required of such Partner, then such Partner
shall be considered a "DELINQUENT
PARTNER." The Partnership may, upon notice
to a Delinquent Partner, exercise
either one of the following remedies as its
sole remedy:
(i)
permit the non-Delinquent Partner(s) to advance
that portion of the required Capital
Contribution that is in default as a loan
(a "DEFAULT LOAN") with the following
results: (A) the sum thus advanced shall
constitute a loan to the Delinquent
Partner; (B) such loan and all accrued
unpaid interest thereon shall be due on
demand, or if no demand is made, twelve
(12) months after such advance is made; (C)
the loan shall bear interest at the
lesser of twelve percent (12%) per annum or
the highest rate permitted by
applicable law, from the date made until
the date fully repaid compounding
monthly; (D) all Partnership distributions
and other payments that otherwise
would be made to the Delinquent Partner
(whether before or after dissolution of
the Partnership) under this Agreement
(including those under Article 6) shall be
paid to the non-Delinquent Partner until
the loan and all interest accrued
thereon is paid in full (with all such
payments being applied first to accrued
and unpaid interest and then to principal
and being deemed to be a distribution
or payment (as may apply) to the Delinquent
Partner, and, in turn, a payment by
the Delinquent Partner with respect to the
loan from the non-Delinquent
Partner); and (E) the non-Delinquent
Partner may, in addition to the other
rights granted herein, take such action as
the non-Delinquent Partner may deem
appropriate to obtain payment of the loan
at the expense of the Delinquent
Partner; or
(ii)
permit the non-Delinquent Partner to contribute
the Capital Contribution not made by the
Delinquent Partner as a Capital
Contribution made by the non-Delinquent
Partner, in which case the
non-Delinquent Partner shall have its
Residual Percentage increased and the
Delinquent Partner shall have its Residual
Percentage decreased in the following
manner: (A) if the Capital Contribution not
made by the Delinquent Partner and
made by the non-Delinquent Partner is an
Initial Capital Contribution, then (1)
the Residual Percentage of the
non-Delinquent Partner immediately following such
Capital Contribution shall be increased by
an amount equal to 175% x A/B
(expressed as a percentage), where `A'
equals the amount the non-Delinquent
Partner contributed in respect of the
Delinquent Partner's required Initial
Capital Contribution, and `B' equals the
sum of all unreturned Capital
Contributions previously made to the
Partnership after giving effect to the
amounts advanced under this Section
3.3(a)(ii) on behalf of the Delinquent
Partner; and (2) the Residual Percentage of
the Delinquent Partner shall be
decreased by the increase of the
non-Delinquent Partner's Residual Percentage;
and (B) if the Capital Contribution not
made by the Delinquent Partner and made
by the non-Delinquent Partner is an
Additional Capital Contribution, then (1)
the Residual Percentage of the
non-Delinquent Partner immediately following such
Capital Contribution shall be increased by
an amount equal to 125% x A/B
(expressed as a percentage), where `A'
equals the amount the non-Delinquent
Partner contributed in respect of the
Delinquent Partner's required Additional
Capital Contribution, and `B' equals the
sum of all unreturned Capital
Contributions previously made to the
Partnership after giving effect to the
amounts advanced under this Section
3.3(a)(ii) on behalf of the Delinquent
Partner; and (2) the Residual Percentage of
the Delinquent Partner shall be
decreased by the increase of the
non-Delinquent Partner's Residual Percentage.
An example of the operation of this Section
3.3(a)(ii) is attached hereto as
EXHIBIT B.
(b)
The exercise by the Partnership of the remedies set
forth in Section 3.3(a) above shall be
determined by the non-Delinquent Partners
in their sole discretion and not by the
Delinquent Partners.
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(c)
With respect to any efforts by the General Partner to
obtain loans to the Partnership from a
third party or a Partner (including the
General Partner), the financing terms must
be substantially similar to (or more
favorable than) loans which the Partnership
could obtain on a competitive
arms-length basis. If the General Partner
is unable to determine whether the
financing terms are competitive on an
arms-length basis, the General Partner may
seek a Partnership Vote on the issue, or
may seek and rely upon the advice of an
independent expert in financing. If any
Partner makes any loan or loans to the
Partnership or advances money on its
behalf, the amount of any loan or advance
shall not be treated as a Capital
Contribution but shall be treated as a debt
due from the Partnership to such
Partner.
3.4
CAPITAL ACCOUNTS. The Partnership shall establish and maintain
on its books and records for each Partner a
capital account (collectively the
"CAPITAL ACCOUNTS") in accordance with
Section 1.704-1(b)(2)(iv) of the
Regulations. Subject to the foregoing, each
Partner's Capital Account generally
shall be:
(a)
increased by (i) the amount of money contributed by such
Partner to the Partnership, including
Partnership liabilities assumed by such
Partner; (ii) the fair market value of
property (net of liabilities securing
such property that the Partnership has
assumed, or taken subject to, under
Section 752 of the Code), or other
consideration contributed by such Partner to
the Partnership; and (iii) allocations to
such Partner of Net Profits (and items
thereof, including certain tax exempt
income) and income and gain described in
Section 1.704-(b)(2)(iv)(g) of the
Regulations; and
(b)
decreased by (i) the amount of money distributed to such
Partner by the Partnership, including such
Partner's individual liabilities
assumed by the Partnership; (ii) the fair
market value of all property
distributed to such Partner by the
Partnership (net of liabilities that such
Partner is considered to assume or take
subject to under Section 752 of the
Code); and (iii) allocations to such
Partner of Net Losses and deductions,
including expenses described in Section
705(a)(2)(B) of the Code which are not
deductible for tax purposes.
3.5
INTEREST ON AND WITHDRAWAL OF CAPITAL CONTRIBUTIONS. Neither
the
General Partner nor the Limited Partners
shall be entitled to receive any
interest on Capital Contributions, nor
shall the General Partner or the Limited
Partners be entitled to withdraw their
Capital Contributions from the
Partnership, except pursuant to the terms
and conditions of this Agreement.
ARTICLE IV.
MANAGEMENT OF PARTNERSHIP AND DEVELOPMENT OF THE PROJECT
4.1.
GENERAL POWERS OF GENERAL PARTNER. The General Partner, acting
alone, shall be authorized and empowered to
make all decisions and to act on
behalf of the Partnership and be solely
responsible for the operation and
management of the business of the
Partnership, with all rights and powers
generally conferred by applicable law or
necessary, advisable or consistent in
connection therewith, including without
limitation to cause the Partnership to
make all decisions, take all actions as may
be necessary for the Partnership to
perform fully, and promptly satisfy and
discharge each and every obligation or
responsibility of the Partnership.
4.2
SPECIFIC POWERS OF THE GENERAL PARTNER. By way of illustration
of the General Partner's power and
authority pursuant to Section 4.1 and not as
a limitation thereon, the General Partner
shall have the unilateral right and
power to take any and all of the following
actions on behalf of the Partnership:
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(a)
to take actions normal or customary for the owner of
businesses similar to that operated by the
Partnership;
(b)
to perform any and all acts necessary or appropriate in
connection with the business of the
Partnership;
(c)
to procure and maintain appropriate insurance covering
the property of the Partnership;
(d)
to take and hold all property and assets of the
Partnership, real, personal and mixed, in
the name of the Partnership;
(e)
to execute and deliver deeds, deeds of trust, notes,
leases, subleases, mortgages, bills of
sale, financing statements, security
agreements and any and all other
instruments necessary or incidental to the
conduct of the business of the Partnership
and the financing thereof;
(f)
to coordinate all accounting and clerical functions of
the Partnership and employ and contract
such accountants, lawyers, managers,
agents and other management or service
personnel as may from time to time be
required to carry on the business of the
Partnership;
(g)
to sell, lease, sublease, assign, convey, transfer,
exchange, grant easements and servitudes or
otherwise dispose of all or any part
of the property and assets of the
Partnership;
(h)
to borrow money, whether on a secured or unsecured
basis, or to refinance, recast, modify or
extend any loan to the Partnership
which is secured by the Properties or other
assets of the Partnership (this
provision being intended, without
limitation, to enable the General Partner to
take all actions necessary to obtain and
refinance, recast, modify or extend the
Construction Loan);
(i)
to engage in any kind of activity and to perform and
carry out contracts of any kind necessary
to, or in connection with, or
incidental to, the development and
operation of the Property as may be lawfully
carried on or performed by a limited
partnership under the laws of each state in
which the Partnership is then formed,
qualified, or does business;
(j)
to file on behalf of the Partnership a voluntarily
bankruptcy petition, or an action seeking
or consenting to the appointment of a
receiver, liquidator, assignee, trustee,
sequestrator, custodian or any similar
official for the Partnership or a
substantial portion of its assets, or a
petition or answer seeking reorganization,
arrangement, composition,
readjustment, liquidation or similar relief
under any statute, law or
regulation, or to take any action in
furtherance of the foregoing;
(k)
to admit any new Partner to the Partnership;
(l)
to enter into a merger, to execute appropriate
documents, including without limitation
deeds, in connection with any such sale
or merger, and to collect and administer
the proceeds of any such merger; and
(m)
to adjust, settle or compromise any claim, obligation,
debt, demand, suit or judgment against the
Partnership or any Partner in its
capacity as a Partner, or waive any breach
of or default in any monetary or
non-monetary obligation owed to the
Company,
4.3.
LIMITED PARTNER PARTICIPATION IN MANAGEMENT. The Limited
Partners, as limited partners, shall not
participate in the operation or
management of the business of the
Partnership, or
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transact any business for or in the name of
the Partnership, and the Limited
Partners, as the limited partners, shall
not have any right or power to sign for
or bind the Partnership in any manner,
except as expressly provided under the
provisions of this Agreement. Any rights of
the Limited Partners to consent to
and approve of certain matters under the
provisions of this Agreement shall not
be deemed a participation in the operation
and management of the business of the
Partnership or the exercise of control of
the Partnership business. Except as
may be otherwise expressly provided herein,
the Limited Partners shall not have
the right to vote on any matter concerning
the management and affairs of the
Partnership.
4.3.
PAYMENT OF COSTS AND EXPENSES. The Partnership will be
responsible for paying all costs and
expenses of forming and continuing the
Partnership, acquiring the Property, and
conducting the business of the
Partnership, including, without limitation,
accounting costs, legal expenses and
office supplies. In the event any such
costs and expenses are incurred and paid
by the General Partner on behalf of the
Partnership, then, except as expressly
provided to the contrary in this Agreement,
such Partner shall be entitled to be
reimbursed for such payment so long as such
cost or expense was reasonably
necessary and is reasonable in amount. The
Partnership may use the proceeds of
any revenues of the Partnership to
reimburse a Partner for any such costs and
expenses so paid.
4.4.
DEVELOPMENT OF PROJECT. The Partnership shall enter into a
Development Agreement with MHC HomeAmerica,
Inc., a Texas corporation ("MHC"),
pursuant to which MHC shall be obligated to
complete the development of the
Project by having all lots ready for
residential construction (i.e., fully
improved, with all streets and utilities in
place and ready for the issuance of
building permits) within twelve (12) months
after the date of acquisition of the
Property, subject to extension on a
day-for-day basis for documented rain
delays.
4.5.
REIMBURSEMENT OF EXPENSES. Upon the closing of the Construction
Loan, the Partnership shall reimburse each
Partner (or its Affiliate) for all
amounts advanced by such Partner (or its
Affiliates) prior to the formation of
the Partnership in connection with the
acquisition of the Property, together
with interest thereon at the rate of 12%
from the date advanced until repaid.
4.6. FEES
PAYABLE BY THE PARTNERSHIP TO PARTNERS AND AFFILIATES
(a)
DEVELOPMENT FEE. Pursuant to the Development Agreement,
MHC shall be paid a general/administrative
fee in the total amount of $66,000,
which fee shall be payable in twelve (12)
equal monthly installments of $5,500
each, commencing upon the date of
acquisition of the Property and continuing
until the expiration of twelve (12) months
after the date of acquisition of the
Property. In the event all of the lots are
completed and conveyed prior to the
expiration of such twelve (12) month
period, then the remaining balance of such
fee shall be payable in a lump sum at the
closing of the conveyance of the final
lot. Notwithstanding anything contained
herein to the contrary, no further
installments of such fee shall be payable
if MHC is no longer diligently and
actively pursuing the completion of the
Project.
(b)
BROKERAGE COMMISSION. Upon the closing of the Purchase
Agreement, David Carruth (an Affiliate of
the Class B Limited Partners) shall
receive a brokerage commission in the
amount of $242,000 from the Seller of the
Property.
4.7
OTHER COMPENSATION. Except as provided in this Agreement, no
Partner or its Affiliate shall be entitled
to any compensation unless approved
by Partnership Vote.
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4.8.
PURCHASE AGREEMENT. Concurrently with the execution of this
Agreement, the Class B Limited Partners
shall cause HomeAmerica, Inc. to execute
an assignment in form satisfactory to the
General Partner, assigning all of its
rights under the Purchase Agreement,
specifically including, without limitation,
all earnest money deposited thereunder, to
the Partnership.
4.9.
CONSTRUCTION LOAN. In order to fund a portion of the costs of
the acquisition of the Property and the
development of the Project, the General
Partner shall use its commercially
reasonable efforts to obtain for the
Partnership the Construction Loan. The
General Partner shall provide or cause
its Affiliates to provide any guarantees
required in connection with the
Construction Loan. Upon the closing of the
Construction Loan, the Class A
Limited Partner shall receive a
distribution in the amount necessary to reduce
its Capital Account to $2,000,000.
4.10. DEED
RESTRICTIONS. The Property will be subject to deed
restrictions to be recorded prior to the
conveyance of the first lot, including
(without limitation) a provision that the
General Partner or its Affiliates
shall have the right to repurchase, at the
original sales price, any lot on
which construction of a residence has not
been commenced within twenty-four (24)
months from the date of the original sale
of the lot. The repurchase right with
respect to each respective lot shall
terminate upon the earlier of (a) the
commencement of construction of a residence
on the applicable lot, or (b) the
date on which all of the lots in the
Project have been conveyed by the
Partnership to purchasers. At the General
Partner's discretion, such period may
be extended subject to the purchasing
ability of a specific buyer.
4.11. SALE OF
LOTS. The price and other terms and conditions for all
contracts for the sale of lots shall be
subject to the prior approval of the
General Partner in its sole discretion,
with the exception of the current
offering from Zachary Custom Builders for
eleven (11) designated lots (i.e.,
lots 2, 3, 4, and 11 through 18) at an
aggregate price of $4,402,000. Without
limiting the foregoing, the Partnership
shall not be obligated to pay any
commissions on lot sales without the prior
approval of the General Partner in
each instance. No Partner or its Affiliates
shall be entitled to any commissions
for lot sales.
ARTICLE VI.
RIGHTS AND POWERS OF PARTNERS
5.1.
LIMITATION OF LIABILITY.
(a)
LIMITATION ON LIABILITY OF LIMITED PARTNERS. The Limited
Partners shall not be bound by, or
personally liable for, obligations or
liabilities of the Partnership to outside
third parties beyond the amount of
their Capital Contributions to the
Partnership, and the Limited Partners shall
not be required to contribute any capital
to the Partnership for any obligations
to third parties in excess of the Capital
Contributions actually made under
Sections 3.1 and 3.2 hereof.
(b)
LIMITATION ON LIABILITY OF GENERAL PARTNER. The General
Partner (including its members, officers,
directors, agents, employees and
representatives) shall not be liable or
responsible in damages or otherwise to
the Partnership or any Partner for any
liability or loss relating to the
performance or nonperformance of any act
concerning the business of the
Partnership, provided the General Partner
was not guilty of gross negligence or
willful misconduct.
5.2.
INDEMNIFICATION.
(a)
The General Partner (including its members, officers,
directors, agents, employees and
representatives) shall be indemnified by the
Partnership to the fullest extent permitted
by law, against any losses,
judgments, liabilities, expenses and
amounts paid in settlement of any claims
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sustained by it or any of them in
connection with the Partnership, provided that
(1) the General Partner has determined, in
good faith, that such course of
conduct was in, and not opposed to, the
best interests of the Partnership and
such liability or loss was not the result
of gross negligence or willful
misconduct, or a material breach of this
Agreement on the part of the General
Partner or such person, and (2) any such
indemnification will only be
recoverable from the assets of the
Partnership and the Limited Partners shall
not have any liability on account thereof.
All rights to indemnification
permitted herein and payment of associated
expenses shall not be affected by the
dissolution or other cessation of the
existence of the General Partner, or the
withdrawal, adjudication of bankruptcy or
insolvency of the General Partner.
(b)
Expenses incurred in defending a threatened or pending
civil, administrative or criminal action,
suit or proceeding against any person
who may be entitled to indemnification
pursuant to this Section 6.2 may be paid
by the Partnership in advance of the final
disposition of such action, suit or
proceeding, if (1) the legal action relates
to the performance of duties or
services by such person on behalf of the
Partnership, (2) the legal action is
initiated by a third party who is not a
Limited Partner, and (3) such person
undertakes to repay the advanced
