AGREEMENT OF LIMITED PARTNERSHIP OF FOSSIL PARTNERS, L.P.

 

(b)            Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.

 

1.3      “Adjusted Capital Contributions” means, as of any day, a Partner’s Capital Contributions,  adjusted as follows:

 

(a) Increased by the amount of any Partnership liabilities that, in connection with distributions pursuant to Sections 5.4 and 13.2 hereof, are assumed by such Partner or are secured by any Partnership Property distributed to such Partner;

 

(b)            Increased by any amounts actually paid by such Partner to any Partnership lender, and

 

(c)            Reduced by the amount of cash and the Gross Asset Value of any Partnership Property distributed to such Partner pursuant to Sections 5.4, 5.6 and 13.2(c) hereof and the amount of any liabilities of such Partner assumed by the Partner or that are secured by any property contributed by such Partner to the Partnership.

 

In the event any Partner transfers all or any portion of its Interest in accordance with the terms Agreement, its transferee shall succeed to the Adjusted Capital Contribution of the to the extent it relates to the transferred Interest in the Partnership.

 

1.4         “Affiliate” means, with respect to any Person, any person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, the specified Person. As used herein, the term “control” means the possession, directly of indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

 

1.5         “Agreement” or “Partnership Agreement” means this Agreement of Limited Partnership, as amended from time to time. Words such as “herein,” “hereinafter, “hereto” and “hereunder” refer to this Agreement as a whole, unless the context otherwise requires.

 

1.6         “Bankruptcy” of a Partner shall mean: (i) the filing by such Partner of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under Title 11 of the United States Code or any other federal or state insolvency law, or such Partner filing an answer consenting to or acquiescing in any such petition; (ii) the making by such

 

 

Partner of any assignment for the benefit of its creditors; or (iii) the expiration of 60 days after the filing of an involuntary petition under Title 11 of the United States Code, an application for the appointment of a receiver for the assets of such Partner or an involuntary seeking liquidation, reorganization, arrangement or readjustment of its debt under any other federal or state insolvency law, provided that the same shall not have been vacated, set staved within such 60-day period.

 

1.7         “Capital Account” means the capital account maintained for a Partner :0 Section 4.6.

 

1.8         “Capital Contribution” or “Contribution” means, with respect to any the amount of money and the initial Gross Asset Value of any Property (other than money) contributed to the Partnership with respect to the Interest in the Partnership held by such Person.                 The principal amount of a promissory note that is not readily traded on an established securities market and that is contributed to the Partnership by the maker of the note shall not be m the Capital Account of any Person until the Partnership makes a taxable disposition of the note or until (and to the extent) principal payments are made on the note, all in accordance with Section 1.704-1(b)(2)(iv)(d)(2) of the Regulations.

 

1.9         “Code” means the Internal Revenue Code of 1986, as amended from time to time, any successor thereto and applicable Regulations thereunder.

 

1.10       “Depreciation” means, for each fiscal year or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year or other period, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other Depreciation shall be an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation. amortization, or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that in the federal income tax depreciation, amortization. or other cost recovery deduction for such year is zero. Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner.

 

1 .11      “Entity” means any corporation, association, partnership, joint venture, estate or other organization.

 

1.12       “General Partner” means Fossil, Inc., or any other Person that becomes partner of the Partnership pursuant to the terms of this Agreement. “General Partners” shall mean all such Persons.

 

 

1.13       “Gross Asset Value” means. with respect to any asset, the asset’s adjusted basis for federal income tax purposes. except as follows:

 

(a)            The initial Gross Asset Value of any assets contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the contributing Partner and the Partnership;

 

(b)            The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner, as of the following times: (i) the acquisition of an additional interest in the Partnership in any new or existing Partner in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Property as consideration for an Interest in the Partnership; (iii) the transfer of an Interest in the Partnership, whether by sale, gift, or otherwise, to a Person, whether it is a new or existing Partner; (iv) a distribution by the Partnership pursuant to section 5.4 hereof; and (v) the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; provided, however, that adjustments pursuant to clauses (i) through (iv) above shall be made only if the General Partner reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership:

 

(c)            The Gross Asset Value of any Partnership Property distributed to any Partner shall be the gross fair market value of such Property on the date of distribution; and

 

(d)            The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments ire taken into account in determining Capital Accounts pursuant to Section a 7()4-1(b)(2)(iv)(m) of the Regulations and Section 5.3(i) hereof; provided, however, that Gross Asset Values shall not be adjusted pursuant to this Section 1.13 to the extent the General Partner determines that an adjustment pursuant to Section 1.13(b) hereof is necessary or appropriate in connection with a transaction that would otherwise result in .n adjustment pursuant to this Section 1.13.

 

If the Gross Asset Values of an asset has been determined or adjusted pursuant to Section 1.13(a), (b) or (d) hereof, such Gross Asset Value shall thereafter be adjusted by the : 7~pm.mation taken into account with respect to such asset for purposes of computing Profits and Losses.

 

1.14       “Limited Partner” means Fossil Trust any person or entity that is or becomes a limited partner of the Partnership pursuant to the terms of this Agreement. “Limited Partners” shall mean all such Persons.

 

 

1.15          “Net Cash From Operations” means the gross cash proceeds from Partnership operations, less the portion thereof used to pay or establish reserves for all Partnership expenses, debt payments, capital improvements, replacements, and contingencies, all as determined by the General Partner. “Net Cash From Operations” shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established.

 

1.16          “Net Cash From Sales or Refinancings” means the net cash proceeds from all sales and other dispositions (other than in the ordinary course of business) and all refinancings of Property, less any portion thereof used to establish reserves, all as determined by General Partner. “Net Cash From Sales or Refinancings” shall include all principal and interest payments with respect to any note or other obligation received by the Partnership in connection with sales and other dispositions (other than in the ordinary course of business) of Partnership Property.

 

1.17          “Nonrecourse Deductions” has the meaning set forth in Section 1.704-T(b)(4)(iv)(b) of the Regulations.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 that fiscal year over the aggregate amount of any distributions during that fiscal year of proceeds of a Nonrecourse Liability that are allocable to an increase in Partnership Minimum Gain, determined according to the provisions of Section 1.704-1T(b)(4)(iv)(b) of the Regulations.

 

1.18          “Nonrecourse Liability” has the meaning set forth in Section “ -1 .704-1T(b)(4)(iv)(k)(3) of the Regulations.

 

1.19          “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, determined in accordance with 1,7 04-1T(b)(4)(iv)(h) of the Regulations.

 

1.20          “Partner Nonrecourse Debt” has the meaning set forth in Section T(b)(4)(iv)(k)(4) of the Regulations.

 

1.21          “Partner Nonrecourse Deductions” has the meaning set forth in Section1.704-1T(b)(4)(iv)(h)(3) of the Regulations. 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 distributions 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 1.704-1T(b)(4)(iv)(h)(3) of the Regulations.

 

1.22          “Partners” means all General Partners and all Limited Partners, where no distinction is required by the context in which the term is used herein. “Partner” means any one of the Partners. All references in this Agreement to a majority in interest of the partners shall mean Partners (or Partners within such classification, as the case may be) who are entitled to an allocation of more than 50% of any Profits at such point in time pursuant to Section 5.1 thereof.

 

1.23          “Partnership” means the partnership formed by this Agreement of Limited Partnership, and the partnership continuing the business of this Partnership in the event of dissolition as herein provided.

 

1.24          “Partnership Interest” or “Interest” means the ownership interest of a .r in the Partnership including any and all benefits to which the holder of such an interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement.

 

1.25          “Partnership Minimum Gain” has the meaning set forth in Section 1.704-1T(b)(4)(iv)(a)(2) and 1.704-1T(b)(4)(iv)(c) of the Regulations.

 

1.26          “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 Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code 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 or Losses pursuant to this Section 1.26 shall be added to such taxable income or loss;

 

(b)            Any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant to Section 1.704-1(b)(2)(iv)(1) of the Regulations and not otherwise taken into amount in computing Profits or Losses pursuant to this Section 1.26, shall be subtracted from such taxable income or loss:

 

 

(c)            In the event the Gross Asset Value of any Partnership Property is adjusted pursuant to Section 1.13(b) or Section 1.13(c) hereof, the amount of such 4idiustment shall be taken into account as gain or loss from the disposition of such Property for purposes of computing Profits or Losses;

 

(d)            Gain or loss resulting from any disposition of Property 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 depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year or other period, computed in accordance with Section 1.10 hereof; and

 

(f)             Notwithstanding any other provision of this Section 1.26, any items that are specially allocated pursuant to Section 5.3 hereof shall not be taken into account ,n computing Profits or Losses.

 

1.27          “Property means all real and personal property, fixtures, equipment, intangible property and other assets, and interests in all of the foregoing, now or hereafter acquired by the Partnership and any improvements or additions thereto.

 

1.28          “Regulations” means the Income Tax Regulations promulgated under the Code, as such Regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

 

1.29          “Transfer” means, as a noun, any voluntary or involuntary transfer, sale, hypothecation, gift, or other disposition and, as a verb, voluntarily or involuntarily to transfer sell. pledge, hypothecate, gift or otherwise dispose of.

 

ARTICLE II

 

ORGANIZATION

 

2.1            Formation. The Partners hereby form the Partnership pursuant to the provision of the Act and the terms and conditions of this Agreement. The General Partner has all he rights and duties of a “general partner” under the Act and this Agreement, and the Limited Partner has all of the rights and duties of a “limited partner” under the Act and this Agreement.

 

 

2.2            Name and Principal Office. The name of the Partnership shall be “Fossil Partners, L.P.”, or such other name as the Partners shall hereafter agree upon. All assets of Partnership shall be held in such name (and not in the name of any Partner), and all business and affairs of the Partnership shall be conducted under such name, or under any name licensed for use by the Partnership by the General Partner.     The principal office of the Partnership shall be at the business mailing address and street address of the General Partner, to wit: 2280 N. Greenville, Richardson, Texas 75082-4412, or such other place as the General Partner may from time to time designate. In addition, the General Partner may establish and maintain such other offices and places of business within and without the State of as it may from time to time determine.

 

2.3            Registered Agent. The name of the Partnership’s registered agent for services of process is T.R. Tunnell. Vice President, Secretary and General Counsel, of Fossil, Inc., or any successor as appointed by the General Partner. The address of the registered agent and the address of the registered office is 2280 N. Greenville, Richardson, Texas 75082.

 

2.4            Filings; Certificate of Limited Partnership.

 

(a)            The General Partner shall execute and cause the Certificate of Limited Partnership described in the Act (the “Certificate”) to be filed with the Secretary of State of Texas as required by Section 2.5 of this Agreement and the provisions of the Act and shall execute and cause to be filed, recorded and/or published such other certificates or documents with the appropriate authorities of the State of Texas as may be determined by the General Partner to be reasonable and necessary or appropriate for the formation, continuation, registration and/or operation of a limited partnership in any state in which the Limited Partnership has elected or may elect to do business. Pursuant to Article III hereof, the Partnership has elected to do business in the State of Texas. The General Partner shall execute such fictitious name registrations as are required by law with regard to the use of the name of the Partnership. The General Partner shall take any and all other actions reasonably necessary to perfect and maintain the status of the Partnership as a “limited partnership,” its Limited Partner as a “limited partner” and its General Partner as a “general partner” under the Act and the laws of the State of Texas or any other state in which the Partnership has elected elect to do business.

 

(b)            To the extent that the General Partner determines such action to be reasonable and necessary or appropriate, the General Partner shall execute and file amendments to the Certificate and do all the things to maintain the Partnership as a limited partnership under the Act and other applicable laws of the State of Texas or any other state in which the Partnership has elected or may elect to do business. Subject to applicable law, the General Partner may omit from the Certificate tiled with the Secretary of State of Texas and from any

 

 

other certificates or documents filed in any other state in order to register and/or qualify the to do business therein. and from all amendments thereto, any information, including, without limitation, the name and address of the Limited Partner and information relating to the Contributions and shares of Profits and Losses and compensation of the General Partner. Subject to the terms of Section 7.3, the General Partner shall not be required to deliver or mail a copy of the Certificate of Limited Partnership, any qualification document or any amendment thereto the Limited Partner.

 

(c)         To the extent that the General Partner determines such action to be and necessary or appropriate, the General Partner shall cause a certified copy of the Certificate and any amendments thereto to be recorded in the office of the county recorder in every county in which the Partnership owns real property.

 

(d)         Upon the dissolution of the Partnership, the General Partner (or, in the event there is no remaining General Partner, any Person selected pursuant to Section 13.2 thereof) shall promptly execute and cause to be filed certificates of dissolution and/or certificates of cancellation in accordance with the Act and the law of any other states or jurisdictions in which the Partnership has filed a Certificate or has registered and/or qualified to do business therein.

 

2.5            Term.  The existence of the Partnership as a limited partnership shall commence on the date the Certificate is filed in the office of the Secretary of State of Texas in accordance with the Act, or such other office as is appropriate under applicable state law, and shall continue until the winding up and liquidation of the Partnership and its business and affairs following Liquidating Event, as provided in Article XIII hereof.

 

2.6            Independent Activities. The General Partner and the Limited Partner may, notwithstanding this Agreement, engage in whatever activities they choose, whether. the same or as competitive with the Partnership or otherwise, without having or incurring any obligation to offer any interest in such activities to the Partnership or any Partner. Neither this Agreement nor any activity undertaken pursuant hereto shall prevent any Partner from engaging in such activities or require any Partner to permit the Partnership or any Partner to participate in any such activities and as a material part of the consideration for the execution of this Agreement by each Partner, each Partner hereby waives, relinquishes, and renounces any such right or claim of participation.

 

 

ARTICLE III

 

PURPOSE

 

3.1            Business Purpose.  The purpose of the Partnership shall be to engage in the business of manufacturing, marketing, developing and distributing fashion watches and other fashion accessories in the United States and other international markets, and to do all other things necessary, appropriate or advisable in connection with such purposes. The Partnership may also conduct such other business or businesses or activity or activities: (a) in Texas as are under the Act and other laws of the State of Texas and (b) in any other state where the Partnership has properly registered and/or qualified to do business as are lawful under the Act other laws of Texas and such other state.

 

3.2            Powers. The Partnership shall have such powers as are necessary or appropriate to carry out the purposes of the Partnership, including, without limitation:

 

(a)            to have and maintain one or more offices within or without the State of Texas and, in connection therewith, to do such acts and things and incur such expenses as may be necessary or advisable in connection with the maintenance of such office or offices and the conduct of the business and affairs of the Partnership;

 

(b)            to open, maintain and close accounts with one or more banks or other financial institutions, and to draw checks and other orders for the payment of money;

 

(c)            to guarantee on a non-recourse basis borrowings of the Partners used to acquire Property for the Partnership, and, in connection therewith, to pledge and g rant security interests in Partnership Property;

 

(d)            to borrow money in furtherance of the purposes set forth in Section 3.1 hereof, and to secure the payment of such borrowing or other obligations of the Partnership by the pledge of, or the grant of security interests in, all or part of the Property of the Partnership;

 

(e)            to enter into, make and perform all such contracts, agreements and other undertakings as may be necessary, advisable or incident to the carrying out of the purpose set forth in Section 3.1 hereof; and

 

(f)             to engage in any other lawful act or activity that may be necessary or appropriate in the pursuance of the foregoing, including, without limitation, the retention of employees, agents, independent contractors, attorneys, accountants and investment counselors and the preparation and filing of all Partnership tax returns.

 

3.3            Limited Purpose. The Partnership shall be a limited partnership between the Partners solely and exclusively for the business

 

 

purposes specified in Section 3.1, and this Agreement is not intended and shall not be deemed to create a partnership between the Partners with respect to any activities whatsoever other than the activities that are actually undertaken by the Partnership and that are within, or in pursuance of, the business purposes and powers of the Partnership as specified in Section 3.1 and Section 3.2.

 

3.4            Separate Business. The Partnership shall keep its business and affairs and all of its Property and operations separate and distinct from the business, affairs, assets and operation of the Partners and of any other Person or Entity in which any of them may be or interested.

 

ARTICLE IV

 

CAPITAL CONTRIBUTIONS

 

4.1            Partners. On the Effective Date hereof, Fossil, Inc. (“Fossil”) shall to the Partnership on behalf of and in the name of Fossil, as General Partner, and Fossil Trust, as Limited Partner, respectively, those assets and property currently owned by Fossil, all as more fully described in that certain Conveyance Agreement, dated as of even date herewith, between the Partnership and Fossil (the “Conveyance Agreement”) in exchange for the issuance (i) to Fossil of a 1 % general partnership interest in the Partnership (“Fossil Partnership Interest”), and (ii) to Fossil Trust of a 99 % limited partnership interest in the Partnership (“Trust Interest”). From time to time thereafter as necessary, the General Partner shall make Capital Contributions to the Partnership in cash, check or other property, in an amount necessary to maintain the General Partner’s Capital Account balance at a level that equals Fossil Partnership Interest. Such cash shall be deposited in the Partnership’s accounts as soon as practicable after the amount thereof has been computed.

 

4.2            Additional Capital Contributions. No Partner shall be required to make additional Capital Contributions to the Partnership; however, the General Partner may permit any Partner to make one or more additional Capital Contributions to the Partnership at such times and in such amounts as the General Partner, in its absolute discretion, may determine.

 

4.3            Record of Contributions. The books and records of the Partnership shall include true and full information regarding the Capital Contributions by each Partner to the Partnership.

 

 

4.4            No Withdrawal of Interest. No Partner shall be entitled to demand or a return of any part of such Partner’s Capital Contribution or Capital Account, or to withdraw from the Partnership, without the consent of all Partners, except as otherwise provided in this Agreement. Under circumstances requiring a return of any Capital Contributions, no Partner shall have the right to receive Property other than cash, except as may be specifically provided herein. No Partner shall be entitled to interest on any part of such Partner’s Capital Contribution or Capital Account at any time.

 

4.5            Capital Accounts. The Partnership shall maintain for each Partner a separate Capital Account in accordance with the rules of Section 1.704-1(b)(2)(iv) of the Regulations. The initial Capital Account of each Partner is its respective Contribution set forth in Section 4.1 hereof. Such Capital Account shall be maintained in accordance with the following provisions:

 

(a)            To each Person’s Capital Account there shall be credited such Person’s Capital Contributions, such Person’s distributive share of Profits and any items in the nature of income or gain that are specially allocated pursuant to Section 5.3 hereof, and the amount of any Partnership liabilities assumed by such Person or that are secured by any Property distributed to such Person.

 

(b)            To each Person’s Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Property distributed to such Person pursuant to any provision of this Agreement, such Person’s distributive share of Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 5.3 hereof, and the amount of any liabilities of such Person assumed by the Partnership or that are secured by any property contributed by such Person to the Partnership.

 

(c)            In the event all or a portion of an Interest in the Partnership is transferred in accordance with the terms of this Agreement. the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Interest.

 

(d)            In determining the amount of any liability for purposes of Sections 1.3(a), 1.3(c), 4.5(a) and 4.5(b) hereof, there shall be taken into account Section 752(c) of the Code and any other applicable provisions of the Code and Regulations.

 

The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Regulations, and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities that are secured by contributed or distributed property or that are assumed by the Partnership or its Partners), are computed in order to comply with such Regulations, the General Partner may make such modification, provided that it is not likely to have a material effect on amounts distributable

 

 

to any Person pursuant to Article XIII hereof upon the dissolution of the Partnership. The General Partner also shall: (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes in accordance with Section 1.704-1(b)(2)(iv)(q) of the Regulations; and (ii) make any appropriate modifications in the event unanticipated events (for example, the acquisition by the Partnership of oil or gas properties) might otherwise cause this Agreement not to comply with Section 1.704-1(b) of the Regulations.

 

4.6            Loans- Partnership Indebtedness.

 

(a)            Any Partner may make a loan to the Partnership in such amount, at such time and on such terms and conditions as may be approved by the General Partner; provided however, that the Partner may not charge the Partnership interest at a rate greater than the rate (including points or other financing charges or fees) that would be charged the Partnership (without reference to the Partner’s financial abilities or guaranties) by unrelated lenders or comparable leans. No loan by any Partner to the Partnership shall be considered as a Contribution for any purpose. The Partnership shall not loan or advance funds to any Partner nor permit its Property to be pledged or hypothecated to secure the obligation of any Partner, except as provided in Section 3.2(b).

 

(b)            The Partnership shall from time to time arrange such loan or loans with such persons, firms or corporations as are willing to make the same at such rates, for such and upon such other terms and conditions as the General Partner shall approve, and the Partnership shall have the power and authority to incur such obligations and to execute such notes, pledges, security interests, conditional assignments of Partnership Property or other documents as shall be necessary or advisable in connection with said loan or loans. In the event guaranties of the General Partner are required in connection with any loan approved by the Partnership, the General Partner agrees to execute the same.

 

(c)            Except as otherwise provided by this Agreement, no Limited Partner shall be liable for the debts, liabilities, contracts or other obligations of the Partnership. Except as provided by this Agreement, any other agreements among the Partners, or applicable a Limited Partner shall be liable only to make its Capital Contribution and shall not be required to lend any funds to the Partnership or, after its Capital Contribution has been paid, any additional Contributions to the Partnership or to guarantee Partnership debts, loans or other obligations.

 

 

ARTICLE V

 

ALLOCATIONS AND DISTRIBUTIONS

 

5.1            Allocations of Profits and Losses.     After giving effect to the special allocations set forth in Sections 5.2 and 5.3 hereof, Profits and Losses for any fiscal year of the Partnership shall be allocated among the Partners in proportion to their respective Adjusted Contributions as of the first day of such fiscal year; provided, however, that if a Partner’s Adjusted Capital Contributions changes during any fiscal year, Profits and Losses for each month within such year shall be allocated among the Partners in proportion to the Adjusted Capital of each Partner as of the first day of such month, and each Partner’s share of Profits and Losses the fiscal year shall equal the sum of that Partner’s share of Profits and Losses for each month during such fiscal year.

 

5.2            Other Allocation Rules.

 

(a)            Except as otherwise provided in Section 5.1, for purposes of the Profits, Losses, or any other items allocable to any period, Profits, Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the General Partner using any permissible method under Section 706 of the Code and the Regulations thereunder.

 

(b)            All allocations to the Partners pursuant to this Article V shall, as otherwise provided, be divided among them in proportion to the Partnership Interests hr each. In the event there is more than one General Partner, all such allocations to the General Partners shall be divided among them as they may agree.

 

(c)            Except as otherwise provided in this Agreement, all items of Partnership income, gain, loss, deduction, or credit, and any other allocations not otherwise provided for shall be divided among the General Partners and Limited Partners in the same proportions as they Share Profits or Losses, as the case may be, for the year.

 

(d)            The Partners are aware of the income tax consequences of the allocations made by this Article V and hereby agree to be bound by the provisions of this Article V in reporting their shares of Partnership income and loss for income tax purposes.

 

5.3            Tax Allocations.

 

The following special allocations shall be made in the following order, except as in Section 5.3(h) hereof:

 

(a)            Notwithstanding any other provision of this Article V, if there is a net decrease in Partnership Minimum Gain during any Partnership fiscal year, each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal

 

 

to the greater of: (i) the portion of such Person’s share of the net decrease in Partnership Minimum Gain, determined in accordance with Section 1.704-1T(b)(4)(iv)(f) of the Regulations, that is allocable to the disposition of Partnership Property subject to Nonrecourse Liabilities, determined in accordance with Section 1.704-1T(b)(4)(iv)(e) of the Regulations; or (ii) if such Person would otherwise have an Adjusted Capital Account Deficit at the end of such year, an amount sufficient to eliminate such Adjusted Capital Account Deficit. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Section 1.704-1T(b)(4)(iv)(e) of the Regulations. This Section 5.3(a) is intended to comply with the “minimum gain chargeback” requirement in such Section of the Regulations and shall be interpreted consistently therewith. To the extent permitted by such Section of the Regulations and for purposes of this Section 5.3(a) only, each Partner’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to this Article V with respect to such fiscal year and without regard to any net decrease in Partner Minimum Gain during such fiscal year.

 

(b)            Notwithstanding any other provision of this Article V except Section 5.3(a), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership fiscal year, each Partner who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(5) of the Regulations, shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to the greater of: (i) the portion of such Person’s share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(5) of ,he Regulations, that is allocable to the disposition of Partnership Property subject to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(4) of the Regulations; or (ii) if such Person would otherwise have an Adjusted Capital Account Deficit at the end of such year, an amount sufficient to -1,:iminate such Adjusted Capital Account Deficit. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated ,to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(4) of the Regulations. This Section 5.3(b) is intended to comply with the “partner minimum gain chargeback” requirement in such Section of the Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section 5.3(b), each Partner’s Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to this Article V with respect to such fiscal year, other than allocations pursuant to Section 5.3(a) hereof.

 

(c)            In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Sections 1.704-1T(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner

 

 

sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided that an allocation pursuant to this Section 5.3 (c) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all Other allocations provided for in this Article V have been tentatively made as if this Section 5.3(c) were not in the Agreement. This Section 5.3(c) is intended to constitute a “qualified income offset” within the meaning of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.

 

(d)            In the event any Partner has a deficit Capital Account at the end of any Partnership fiscal year that is in excess of the sum of: (i) the amount such Partner is Obligated to restore pursuant to any provision of this Agreement; and (ii) the amount such Partner is deemed to be obligated to restore pursuant to the penultimate sentences Of Sections 1.704-1T(b)(4)(iv)(f) and 1.704-1T(b)(4)(iv)(h)(5) of the Regulations, each such Partner shall be specially allocated items of Partnership income and gain in the amount of such excess as quickly as possible, provided that a “gross income allocation” pursuant to this Section 5.3(d) shall be made only if and to the extent that such Partner would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article V have been made as if Section 5.3 (c) hereof and this Section 3.3(d) were not in the Agreement.

 

(e)            Nonrecourse Deductions for any fiscal year or other period shall he specially allocated to the Partners in the ratios by which they would share in the Profits of the Partnership for such year.

 

(f)             Any Partner Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Section 1.704-1T(h)(4)(iv)(h) of the Regulations.

 

(g)            To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) of the Code or Section 743(b) of the Code is required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss shall be specially allocated to the Partners in a manner consistent with the manner m which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations.

 

(h)            The allocation set forth in Sections 5.3(a) through 5.3(g) hereof ,the “Regulatory Allocations”) are intended to comply with certain requirements of Section 1.704-1(b) of the Regulations.  The Partners understand and acknowledge that , he Regulatory Allocations may not be consistent with the manner in which the Partners intend to divide Partnership Profits, Losses and distributions. These Regulatory Allocations shall be taken into account in allocating times of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of such allocations of the other items and

 

 

these Regulatory Allocations to each Partner shall be equal to the net amount that would have been allocated to each Partner if the Regulatory Allocations had not occurred. Accordingly, the General Partner shall have reasonable discretion. with respect to each fiscal year, to divide the Regulatory Allocations among he Partners in whatever order is made in any manner that is likely to minimize the above economic distortions.

 

(i)             In accordance with Section 704(c) of the Code thereunder, income, gain, loss, and deduction with respect to any Property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners as to take account of any variation between the adjusted basis of such Property to the Partnership for federal income tax purposes and its initial Gross Asset Value (computed in accordance with Section 1.13 of this Agreement).

 

In the event the Gross Asset Value of any Partnership Property is adjusted pursuant to Section 1.13(b) of this Agreement, subsequent allocations of income, gain, loss, and deduction with respect to such Property shall take account of any variation between the adjusted basis of such Property for federal income tax purposes and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the Regulations thereunder.

 

Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 5.3(i) are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Partner’s Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement.

 

(j)             It is the intention of the Partners that each Partner’s distributive share of Profits, Losses and other tax items be determined and allocated in accordance with this Article V to the extent permitted or required by Section 704(b) of the Code and the Regulations promulgated thereunder. Therefore, if the General Partner is advised by Counsel or accountants to the Partnership that the allocation provisions of this Agreement are unlikely to be respected for federal income tax purposes, the General Partner is granted the authority in Article XI to amend the allocation provisions of this Agreement, on advice of counsel or accountants, to the minimum extent necessary to effect the plan of allocations and distributions provided in this Agreement. The General Partner shall have the discretion to adopt such rules, conventions and procedures as it believes appropriate and/or advantageous with respect to the admission of Limited Partners to reflect the Partners’ Interests in the Partnership.

 

5.4            Distributions. Except as otherwise provided in Section 5.5, Section 5.6 and Article XIII hereof. Net Cash From Operations, if any, and Net Cash From Sales and Refinancings, if any, shall be distributed as follows:

 

 

(a)            When and as the General Partner, in its sole discretion shall decide, some or all of the Net Cash From Operations and/or some or all of the Net Cash from Sales and Refinancing shall be made to all Partners in amounts proportionate to their respective positive Capital Account balances and shall be in cash or in kind, or combination thereof, as the General Partner shall specify; or

 

(b)            When approved by a majority in interest of the Partners, some or all of the Net Cash From Operations and/or some or all of the Net Cash From Sales and Refinancing shall be made to less than all Partners (to the designated Partner or Partners), or to all Partners but in varying amounts, and in any case shall be in cash or in kind, or a combination thereof, as the General Partner shall specify.

 

5.5            Amounts Wi