AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
KETTLE RIVER TOWNHOMES LIMITED PARTNERSHIP
DATED AS OF DECEMBER 14, 2004
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TABLE OF CONTENTS
Page
Article I.
DEFINITIONS.........................................................2
Article II.
NAME..............................................................16
Article III. PRINCIPAL EXECUTIVE
OFFICE/AGENT FOR SERVICE.....................16
Section 3.1
Principal
Executive Office..............................16
Section 3.2
Agent for
Service of Process............................16
Article IV.
PURPOSE...........................................................17
Section 4.1
Purpose of
the Partnership..............................17
Section 4.2
Authority
of the Partnership............................17
Article V.
TERM...............................................................17
Article VI. GENERAL PARTNER'S CONTRIBUTIONS
AND LOANS.........................18
Section 6.1
Capital
Contribution of General Partner.................18
Section 6.2
Construction Obligations................................18
Section 6.3
Operating
Obligations...................................18
Section 6.4 Other
General Partner Loans.............................19
Article VII. CAPITAL CONTRIBUTIONS OF
LIMITED PARTNER AND SPECIAL LIMITED
PARTNER.......................................................................19
Section 7.1
Original
Limited Partners...............................19
Section 7.2
Capital
Contribution of Limited Partner and Special
Limited Partner.........................................19
Section 7.3
Repurchase
of Limited Partner's and Special Limited
Partner's Interests.....................................23
Section 7.4
Adjustment
of Capital Contributions.....................23
Section 7.5
Return of
Capital Contribution..........................25
Section 7.6
Liability
of Limited Partner and Special Limited
Partner.................................................26
Article VIII. WORKING CAPITAL AND
RESERVES....................................26
Section 8.1
Replacement and Reserve Account.........................26
Section 8.2
Operating
and Maintenance Account.......................26
Section 8.3
Tax and
Insurance Account...............................26
Section 8.4
Intentionally omitted...................................27
Section 8.5
Other
Reserves..........................................27
Article IX. MANAGEMENT AND
CONTROL............................................27
Section 9.1
Power and
Authority of General Partner..................27
Section 9.2
Payments
to the General Partners and Others.............28
Section 9.3
Specific
Powers of the General Partner..................29
Section 9.4
Authority
Requirements..................................30
Section 9.5
Limitations on General Partner's Power and Authority....30
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Section 9.6
Restrictions on Authority of General Partner............32
Section 9.7 Duties of
General Partner...............................33
Section 9.8
Obligations to Repair and Rebuild Apartment Housing.....35
Section 9.9
Partnership Expenses....................................36
Section 9.10
General Partner Expenses................................36
Section 9.11
Other Business of Partners..............................37
Section 9.12
Covenants, Representations and Warranties...............37
Section 9.13
Intentionally omitted...................................41
Section 9.14
Option to Acquire.......................................41
Section 9.15
Right of First Refusal..................................42
Article X. ALLOCATIONS OF INCOME, LOSSES
AND CREDITS..........................43
Section 10.1
General.................................................43
Section 10.2
Allocations From Sale or Refinancing....................43
Section 10.3
Special Allocations.....................................44
Section 10.4
Curative Allocations....................................46
Section 10.5
Other Allocation Rules..................................47
Section 10.6
Tax
Allocations: Code Section 704(c)....................48
Section 10.7
Allocation Among Limited Partners.......................48
Section 10.8
Allocation Among General Partners.......................48
Section 10.9
Modification of Allocations.............................49
Article XI.
DISTRIBUTION......................................................49
Section 11.1
Distribution of Net Operating Income....................49
Section 11.2
Distribution of Sale or Refinancing Proceeds............49
Article XII. TRANSFERS OF LIMITED PARTNER'S
AND SPECIAL LIMITED PARTNER'S
INTERESTS IN THE
PARTNERSHIP..................................................50
Section 12.1
Assignment of Interests.................................50
Section 12.2
Effective Date of Transfer..............................51
Section 12.3
Invalid Assignment......................................51
Section 12.4
Assignee's Rights to Allocations and Distributions......51
Section 12.5
Substitution of Assignee as Limited Partner or Special
Limited Partner.........................................51
Section 12.6
Death, Bankruptcy, Incompetency, etc., of a Limited
Partner.................................................52
Article XIII. WITHDRAWAL, REMOVAL AND
REPLACEMENT OF GENERAL PARTNER..........52
Section 13.1
Withdrawal of General Partner...........................52
Section 13.2
Removal of General Partner..............................52
Section 13.3
Effects of a Withdrawal.................................54
Section 13.4
Successor General Partner...............................56
Section 13.5
Admission of Additional or Successor General Partner....56
Section 13.6
Transfer of Interest....................................57
Section 13.7
No
Goodwill Value.......................................57
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Article XIV. BOOKS AND ACCOUNTS, REPORTS,
TAX RETURNS, FISCAL YEAR AND
BANKING.......................................................................57
Section 14.1
Books and Accounts......................................57
Section 14.2
Accounting Reports......................................58
Section 14.3
Other Reports...........................................59
Section 14.4
Late
Reports............................................61
Section 14.5
Site
Visits.............................................61
Section 14.6
Tax
Returns.............................................61
Section 14.7
Fiscal Year.............................................61
Section 14.8
Banking.................................................62
Section 14.9
Certificates and Elections..............................62
Article XV. DISSOLUTION, WINDING UP,
TERMINATION AND LIQUIDATION OF THE
PARTNERSHIP...................................................................62
Section 15.1
Dissolution of Partnership..............................62
Section 15.2
Return of Capital Contribution upon Dissolution.........62
Section 15.3
Distribution of Assets..................................63
Section 15.4
Deferral of Liquidation.................................64
Section 15.5
Liquidation Statement...................................64
Section 15.6
Certificates of Dissolution; Certificate of Cancellation
of Certificate of Limited Partnership...................64
Article XVI.
AMENDMENTS.......................................................65
Article XVII.
MISCELLANEOUS...................................................65
Section 17.1
Voting Rights...........................................65
Section 17.2
Meeting of Partnership..................................66
Section 17.3
Notices.................................................66
Section 17.4
Successors and Assigns..................................66
Section 17.5
Recording of Certificate of Limited Partnership.........67
Section 17.6
Amendment of Certificate of Limited Partnership.........67
Section 17.7
Counterparts............................................67
Section 17.8
Captions................................................68
Section 17.9
Saving Clause...........................................68
Section 17.10
Certain
Provisions......................................68
Section 17.11
Tax
Matters Partner.....................................68
Section 17.12
Expiration
of Compliance Period.........................69
Section 17.13
Number and
Gender.......................................70
Section 17.14
Entire
Agreement........................................70
Section 17.15
Governing
Law...........................................70
Section 17.16
Attorney's
Fees.........................................70
Section 17.17
Receipt of
Correspondence...............................70
Section 17.18
Security
Interest and Right of Set-Off..................70
Article XVIII. USDA RURAL DEVELOPMENT
REGULATIONS.............................70
EXHIBIT A Legal Description
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EXHIBIT B Form of Legal Opinion
EXHIBIT C Certification and Agreement
EXHIBIT D Form of Completion
Certificate
EXHIBIT E Accountant's Certificate
EXHIBIT F Contractor's Certificate
EXHIBIT G Depreciation Schedule
EXHIBIT H Report of Operations
EXHIBIT I Survey of Requirements
[List of Agreements Attached]
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AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
KETTLE RIVER TOWNHOMES limited partnership
This Amended and
Restated Agreement of Limited Partnership is being entered
into effective as of the date written
below by and between
CURTIS G. CARLSON
CO., INC. ("CGC"), a Minnesota corporation, M.F. CARLSON CO., INC. ("MFC"),
a
Minnesota corporation, and ROBERT B. CARLSON CO.,
INC. ("RBC"), a Minnesota
corporation, collectively as the general
partners (the "General Partner"), WNC
HOLDING, LLC, a California limited corporation, as the limited partner (the
"Limited Partner"), WNC HOUSING, L.P., a
California limited partnership, as the
special limited partner (the "Special
Limited Partner"), and
CURTIS G. CARLSON,
MARK F. CARLSON and ROBERT B. CARLSON,
as the withdrawing
limited partners (the
"Original Limited Partners").
RECITALS
WHEREAS,
KETTLE RIVER TOWNHOMES
LIMITED PARTNERSHIP,
a Minnesota
limited
partnership (the "Partnership") recorded a certificate of limited
partnership
with the Minnesota Secretary of State on April 6,
2004. An agreement of limited
partnership dated March 29, 2004 was entered into by and between the
General
Partner and the Original Limited Partners
(the " Partnership Agreement").
WHEREAS,
the Partners
desire to enter into
this Agreement to provide for,
among other things, (i) the continuation of
the Partnership, (ii)
the admission
of the Limited Partner and the Special Limited Partner as partners of the
Partnership, (iii) the liquidation of the
Original Limited Partners' Interest in
the Partnership, (iv) the payment of Capital Contributions by the Limited
Partner and the Special Limited Partner to
the Partnership,
(v) the allocation
of Income, Losses, Tax Credits and distributions of Net Operating Income and
other cash funds of the Partnership
among the Partners,
(vi) the
determination
of the respective rights, obligations and interests of the Partners to
each
other and to the Partnership, and (vii)
certain other matters.
WHEREAS,
the Partners
desire hereby to amend
and restate the
Partnership
Agreement.
NOW,
THEREFORE,
in consideration of their mutual
agreements
herein set
forth, the Partners hereby agree to amend
and restate the Original Partnership
Agreement in its entirety to provide as
follows:
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ARTICLE I.
DEFINITIONS
"Accountant"
shall mean Judd, Ostermann and Demro, Ltd., or such other firm
of independent certified public accountants as may be engaged for the
Partnership by the General Partner with the Consent of the Special Limited
Partner. Notwithstanding any provision of this Agreement to
the contrary, the
Special Limited Partner shall have the
discretion to dismiss the Accountant for
cause if such Accountant fails to provide,
or untimely provides, or inaccurately
provides, the information required in Section 14.2 or Section 14.3 of this
Agreement.
"Act" shall mean
the laws of the State governing limited partnerships, as
now in effect and as the same may be
amended from time to time.
"Actual Tax
Credit" shall mean as of any point in time, the total amount of
the LIHTC actually allocated by the Partnership to the Limited Partner
and not
subsequently recaptured or disallowed,
representing 99.98% of the LIHTC actually
received by the Partnership, as shown on the applicable tax returns of the
Partnership.
"Adjusted
Capital Account
Deficit" shall mean with respect to any Partner,
the deficit balance, if any, in such Partner's Capital
Account as of the end of
the relevant fiscal period, after giving
effect to the following adjustments:
(a) credit to
such Capital
Account any amounts which such Partner is
obligated to restore or is deemed to be
obligated to restore pursuant to the
penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(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 Treasury Regulations.
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 Treasury
Regulations and shall be interpreted
consistently therewith.
"Affiliate"
shall mean (a) any
Person directly or indirectly controlling,
controlled by, or under common control with another Person; (b) any Person
owning or controlling 10% or more of the
outstanding voting
securities of such
other Person; (c) any officer, director, trustee, or partner of such other
Person; and (d) if such Person is an officer, director, trustee or general
partner, any other Person for which such
Person acts in any such capacity.
"Agreement" or
"Partnership Agreement" shall mean this Amended and Restated
Agreement of Limited Partnership,
as it may be amended
from time to time. Words
such as "herein," "hereinafter," "hereof," "hereto," "hereby" and
"hereunder,"
when used with reference to this Agreement,
refers to this Agreement as a whole,
unless the context otherwise requires.
"Apartment
Housing" shall collectively mean the Kettle River Townhomes
located on approximately 0.85 acres of land
at 401 Old Military Road, Sandstone,
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Pine County, Minnesota, as more fully
described in Exhibit A attached hereto and
incorporated herein by this reference, and
the Improvements.
"Architect of
Record" shall mean JSSH Architects, Inc. The General Partner,
on behalf of the Partnership, shall enter into a contract with
the Architect of
Record to perform certain duties and
responsibilities including, but not limited
to: designing the Improvements; preparing
the construction blueprints, preparing
the property specifications manual; contracting for administrative
services;
completing the close-out procedures;
inspecting for and overseeing resolution of
the Contractor's final punch list; receiving and approving operations and
maintenance manuals; and collecting,
reviewing, approving
and forwarding to the
Partnership all product, material and
construction warranties.
"Asset
Management
Fee" shall have the
meaning set forth in Section 9.2(d)
hereof.
"Assignee"
shall mean a Person who has acquired all or a portion of the
Limited Partner's or the Special Limited
Partner's beneficial
interest in the
Partnership and who has not been
substituted in the stead of the transferor as a
Partner.
"Bankruptcy"
or "Bankrupt"
shall mean the making
of an assignment for the
benefit of creditors, becoming a party to any
liquidation or dissolution action
or proceeding other than as a creditor,
the commencement of any bankruptcy,
reorganization, insolvency or other proceeding for the relief of financially
distressed debtors, the appointment of a receiver,
liquidator,
custodian or
trustee, or the discounted settlement of substantially all the debts and
obligations of a debtor; and, if any of the
same occur
involuntarily, the
same
not being dismissed, stayed or discharged within 90 days; or the entry of
an
order for relief under Title 11 of the
United States
Code. A Partner
shall be
deemed Bankrupt if any of the above has
occurred to that Partner.
"Breakeven
Operations" shall mean
at such time as the Partnership has Cash
Receipts in excess of Cash Expenses, as determined by the Accountant and
approved by the Special Limited Partner.
For purposes of this
definition;
(a)
any one-time up-front fee paid to the
Partnership from any
source shall not be
included in Cash Receipts to calculate
Breakeven Operations;
(b) Cash Expenses
shall include the amount of any
outstanding
Partnership
obligations
and any
management fee or portion thereof which is
currently deferred and
not paid; and
(c) Cash Expenses shall include the amount
of any reserve
required to be funded
in accordance with Article VIII that is
currently deferred and not paid.
"Budget" shall
mean the annual
operating budget of the Partnership as more
fully described in Section 14.3 of this
Agreement.
"Capital
Account" shall mean, with respect to each Partner,
the account
maintained for such Partner comprised of
such Partner's Capital
Contribution as
increased by allocations to such Partner of Partnership Income (or items
thereof) and any items in the nature of income or gain which are specially
allocated pursuant to Section 10.3 or
Section 10.4 hereof, and decreased by the
amount of any Distributions made to such Partner, and allocations to such
Partner of Partnership Losses (or items thereof) and any
items in the nature of
expenses or losses which are specially allocated pursuant to Section 10.3 or
Section 10.4 hereof. In the event of any transfer of an interest in the
Partnership in accordance with the terms of
this Agreement, the transferee shall
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succeed to the Capital Account of the
transferor to the extent it relates to the
transferred interest. The foregoing
definition and the other provisions of this
Agreement relating to the maintenance of
Capital Accounts are intended to comply
with Treasury Regulations Section
1.704-1(b), as amended or any successor
thereto, and shall be interpreted and
applied in a manner consistent with such
Treasury Regulations.
"Capital
Contribution"
shall mean the total
amount of money, or the Gross
Asset Value of property contributed to the Partnership, if any, by all the
Partners or any class of Partners or any
one Partner as the case may be (or by a
predecessor-in-interest of such Partner or Partners), reduced by any such
capital which shall have been returned
pursuant to Section
7.3, Section 7.4, or
Section 7.5 of this Agreement. A loan to the Partnership by a
Partner shall not
be considered a Capital Contribution.
"Cash
Expenses" shall mean all operating
obligations of the
Partnership
(other than those covered by Insurance) including without limitation, the
payment of the monthly Mortgage payments,
the Management Agent fees, the monthly
Asset Management Fee, the funding of
reserves in accordance with Article VIII of
this Agreement, advertising and promotion, utilities, maintenance, repairs,
Partner communications, legal, telephone, any other expenses which may
reasonably be expected to be paid in a
subsequent period but which on an accrual
basis is allocable to the period in
question, including, but not limited to,
Insurance, Real Estate Taxes and audit, tax
or accounting expenses
(excluding
deductions for cost recovery of buildings;
improvements
and personal
property
and amortization of any financing fees) and
any seasonal expenses
(such as snow
removal, the use of air conditioners in the
middle of the summer, or heaters in
the middle of the winter) which may reasonably be expected to be paid in a
subsequent period shall be allocated
equally per month over
the calendar year.
Cash Expenses payable to Partners or Affiliates
of Partners shall be paid after
Cash Expenses payable to third parties.
Interest during the
construction
loan
period for any loan and development
costs of any nature
whatsoever are not Cash
Expenses and shall not be paid from Cash
Receipts. The provisions of Section 6.2
govern the payment of development costs and
construction interest.
"Cash
Receipts" shall mean actual cash received on a cash basis by
the
Partnership from operating revenues of the Partnership, including without
limitation rental income (but not any subsidy
thereof from the
General Partner
or an Affiliate thereof), tenant security deposits that have
been forfeited by
tenants pursuant to the laws of the State, laundry income, paid to the
Partnership, telephone hook-up or service
income, cable fees or
hook-up costs,
telecommunications or satellite fees or hook-up costs, but excluding
prepayments, security deposits, Capital Contributions, borrowings, the
Construction Loan, the Mortgage Loan, lump-sum payments, any extraordinary
receipt of funds, and any income earned on
investment of its funds. Neither the
General Partner nor its Affiliates shall be entitled to payment of any
Cash
Receipts for any reason, including but not limited to a separate contract,
agreement, obligation or the like.
"Code" shall
mean the Internal
Revenue Code of 1986,
as amended from time
to time, or any successor statute.
"Completion of
Construction" shall
mean the date the Partnership receives
the required certificate of occupancy (or
the local equivalent) for all
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twelve (12) apartment units, and by the
issuance of the Construction Inspector's
certification, in a form substantially
similar to the form attached hereto as
Exhibit D and incorporated herein by this
reference, with respect to completion
of all the apartment units in the Apartment
Housing. Completion of Construction
further means that the construction shall
be completed in good quality, and free
and clear of all mechanic, material and
similar liens. In addition to the above,
Completion of Construction shall occur only
when the statutory time period for
the filing of any liens by the Contractor,
subcontractors, material suppliers or
any one else entitled to file a lien
against the property has lapsed unless such
filed liens, other than the Subordinate
Loan, or Mortgage Loan, have been bonded
over and have been approved by the Special
Limited Partner; and the Special
Limited Partner has approved the Completion
of Construction.
"Completion
Date" shall mean November 1, 2005.
"Compliance
Period" shall mean the
period set forth in Section 42(i)(1) of
the Code, as amended, or any successor
statute.
"Consent
of the Special Limited Partner" shall mean the prior written
consent of the Special Limited Partner.
"Construction
Completion,
Operating
Deficit and Tax Credit Guaranty
Agreement" shall mean that agreement
entered into as of
even date herewith,
by
and between the Partnership, the Guarantor and the Limited Partner and
incorporated herein by this reference.
"Construction
Contract" shall mean
the construction contract dated October
8, 2004, in the amount of $914,159.00,
entered into between
the Partnership and
the Contractor pursuant to which the Improvements are being constructed in
accordance with the Plans and
Specifications. The Construction Contract shall be
a fixed price agreement (includes materials
and labor) at a cost consistent with
the Development Budget. Any modifications to the
Construction Contract
require
the Consent of the Special Limited
Partner.
"Construction
Draw Documents" shall mean those documents as set
forth in
Section 14.3 (a) of this Agreement.
"Construction
Lenders" shall mean Anchor Bank.
"Construction
Loan" shall mean the
loan obtained from Anchor. Bank in the
principal amount of $825,000, at an interest rate equal to the
average weekly
yield of actively trading United States Treasury Securities, adjusted to a
constant maturity of One (1) year as
published weekly by the Federal Reserve
Board, rounded to the highest
one-eighth (1/8) of
one percent (1%), plus three
and one-quarter percent (3.25%). This rate shall be adjusted very
one year on
the anniversary of the closing. Where the
context admits, the term "Construction
Loan" shall include any deed, deed of trust, note, security agreement,
assumption agreement or other instrument executed by, or on behalf of, the
Partnership or General Partner in connection with the Construction Loan as
required by the Construction Lender.
Construction
Inspector"
shall
mean that person identified in the
Disbursement Agreement entered as of even
date herewith.
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"Contractor"
shall mean Voronyak Builders, Inc. Any substitution of
Contractor requires the Consent of the
Special Limited Partner.
"Debt
Service Coverage" shall mean for the applicable period the ratio
between the Net Operating Income (excluding Mortgage payments and the Asset
Management Fee) and the debt service
required to be paid on the Mortgage(s). As
example, a 1.10 Debt Service Coverage means
that for every $1.00 of debt service
required to be paid there must be $1.10 of
Net Operating
Income available. A
worksheet for the calculation of Debt
Service Coverage is found in the Report of
Operations attached hereto as Exhibit H and incorporated herein by this
reference. For purposes of this definition:
(a) any one-time
up-front fee paid
to the Partnership from any source shall not be included in Cash
Receipts to
calculate Debt Service Coverage; (b) Cash Expenses shall include
the amount of
any Management Fee, or portion thereof, which is currently deferred and not
paid; and (c) Cash Expenses shall include
the amount of any reserve required to
be funded in accordance with Article VIII that is currently
deferred and not
paid.
"Deferred
Management
Fee" shall have the meaning set forth in Section
9.2(c) hereof.
"Developer"
shall mean CEPCO Development, Inc.
"Development
Budget" shall mean the agreed upon cost of developing the
Apartment Housing and Improvements,
including all
construction costs
based on
the Construction Contract, the Plans and Specifications, land and soft costs
(which includes, but is not limited to, financing charges, market study,
Development Fee, architect fees, etc.) The final Development Budget is
referenced in the Development, Construction and Operating Budget Agreement
entered into by and between the Partners on
even date herewith, and incorporated
herein by this reference.
"Development
Fee" shall mean the
fee payable to the Developer for services
incident to the development and construction of the Apartment Housing in
accordance with the Development Fee Agreement between the Partnership and
the
Developer dated the even date herewith and incorporated herein by this
reference. Development activities do not
include services for the acquisition of
land or syndication activities, or
negotiations for permanent financing.
"Disbursement
Agreement"
shall mean that certain construction loan
disbursement agreement executed in connection
with the Construction/Mortgage
Loan for the oversight and monitoring of
the construction of the Improvements.
"Distributions"
shall mean the total
amount of money,
or the Gross Asset
Value of property (net of liabilities
securing such
distributed
property that
such Partner is considered to assume or
take subject to under Section 752 of the
Code), distributed to Partners with respect to their Interests in the
Partnership, but shall not include any
payments to the
General Partner or
its
Affiliates for fees or other compensation as provided in this Agreement or
any
guaranteed payment within the meaning of
Section 707(c) of the Code, as amended,
or any successor thereto.
"Fair Market
Value" shall mean, with respect to any property, real or
personal, the price a ready, willing and
able buyer would pay to a ready,
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willing and able seller of the property,
provided that such value is reasonably
agreed to between the parties in
arm's-length negotiations and the parties have
sufficiently adverse interests.
"Financial
Interest" shall mean
the General Partners'
capital interest in
the Partnership to be contributed and
maintained pursuant to the requirements of
RD Instruction 1944-E, Section 1944.211(a)(13)(ii) or any amendments thereto.
Such Financial Interest shall not affect the Partners' allocable share of
Profits, Losses, Tax Credits or Net Operating Income as set forth in this
Agreement.
"First
Year Certificate" shall mean the certificate to be filed by the
General Partner with the Secretary of the Treasury as
required by Code Section
42(1)(1), as amended, or any successor
thereto.
"Force
Majeure" shall mean any act of God, strike, lockout, or other
industrial disturbance, act of the public enemy, war,
blockage, public riot,
fire, flood, explosion, governmental
action, governmental delay or restraint.
"General
Partner(s)" shall mean collectively, Curtis G. Carlson Co., Inc.,
M.F. Carlson Co., Inc., and Robert B. Carlson Co.,
Inc. and such other Persons
as are admitted to the Partnership as
additional or substitute General Partners
pursuant to this Agreement. If there is more than one
General Partner of the
Partnership, the term "General Partner"
shall be deemed to collectively refer to
such General Partners or individually may mean any General Partner as the
context dictates.
"General
Partner Interests" shall mean .00475% to Curtis G.
Carlson Co.,
Inc., .00475% to M.F. Carlson Co., Inc., and .0005% to Robert B.
Carlson Co.,
Inc.
"Gross
Asset Value" shall mean 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 asset contributed by a Partner to
the Partnership shall be the Fair Market Value of
such asset, as determined by
the contributing Partner and the General Partner, provided that, if the
contributing Partner is a General Partner, the
determination of the Fair Market
Value of a contributed asset shall be
determined by appraisal;
(b) the Gross
Asset Values of all
Partnership assets
shall be adjusted to
equal their respective Fair Market Values,
as determined by the General Partner,
as of the following times: (1) the
acquisition of an additional Interest in the
Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution; (2) the distribution by the Partnership to a
Partner of more than a de minimis amount of Partnership property as
consideration for an Interest in the
Partnership; and (3) the liquidation of the
Partnership within the meaning of Treasury Regulations
Section
1.704-1(b)(2)(ii)(g); provided, however, that the adjustments pursuant to
clauses (1) and (2) above shall be made only with the
Consent of the
Special
Limited Partner and 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;
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(c) the Gross
Asset Value of any Partnership asset distributed to any
Partner shall be adjusted to equal the Fair Market
Value of such asset on
the
date of distribution as determined by the distributee
and the General
Partner,
provided that, if the distributee is a
General Partner, the determination of the
Fair Market Value of the distributed asset
shall be determined by appraisal; 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 Code Section 734(b) or Code
Section 743(b),
but only to the
extent
that such adjustments are taken into account in
determining Capital
Accounts
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and Section
10.3(g) hereof; provided however, that Gross Asset
Values shall not be adjusted
pursuant to this definition to the extent
the General Partner determines that an
adjustment pursuant to Section (b) hereof is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to Section (d) of this
definition.
If the
Gross Asset Value of an asset has been determined or adjusted
pursuant to this definition, such Gross
Asset Value shall thereafter be adjusted
by the depreciation taken into account with respect to
such asset for purposes
of computing Income and Losses.
"Guarantor" shall mean
Curtis G. Carlson, an
individual, Mark F.
Carlson,
an individual and Robert B. Carlson, an
individual.
"Hazardous
Substance"
shall mean and include
any substance,
material or
waste, including, but not limited to,
asbestos, petroleum and petroleum products
(including crude oil), that is or becomes
designated, classified or regulated as
"toxic" or "hazardous" or a "pollutant" or that is or becomes similarly
designated, classified or regulated, under any federal, state or local law,
regulation or ordinance including, without limitation, Compensation and
Liability Act of 1980, as amended,
the Hazardous
Materials
Transportation Act,
as amended, the Resource Conservation and Recovery Act, as amended, and the
regulations adopted and publications
promulgated pursuant thereto.
"Improvements"
shall mean the construction of one (1) building with (2) two
stories, containing twelve (12) apartment units and ancillary and
appurtenant
facilities (including those intended for
commercial use, if any) for family use
and built in accordance with the Project Documents. It shall also include all
furnishings, equipment and personal property used in connection with the
operation thereof. The total number of apartment
units equal twelve (12) LIHTC
units.
"In-Balance"
shall mean, at any
time when calculated,
when the cumulative
amount of the undisbursed Mortgage Loan, Subordinate Loan and the undisbursed
Capital Contributions of the Limited Partner and Special Limited Partner
required to be paid-in through and
including the Completion of Construction are
sufficient in the Special Limited
Partner's reasonable judgment to pay all of
the following sums: (a) all costs of construction to achieve Completion of
Construction; (b) all soft costs in the
development of the Apartment Housing and
Improvements, including but not limited to,
architect fees, land
acquisition,
impact fees and costs of marketing, maintenance and leasing of the Apartment
Housing units; and (c) all interest and all
other sums accruing or payable under
the Mortgage Loan documents and/or
Construction Loan Documents.
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<PAGE>
"Incentive
Management
Fee" shall have the meaning set forth in Section
9.2(e) hereof.
"Income and
Loss(es)" shall mean, 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 Income or Losses shall be
added to such taxable income or loss;
(b) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section
705(a)(2)(B)
expenditures
pursuant to
Treasury Regulations Section
1.704-1(b)(2)(iv)(i),
and not otherwise taken into
account in computing Income and Losses shall be
subtracted
from such taxable
income or loss;
(c) in the event
the Gross Asset Value of any Partnership asset is adjusted
pursuant to the provisions of the definition thereof, the amount of such
adjustment shall be taken into account as
gain or loss from the
disposition of
such asset for purposes of computing Income
and Losses;
(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 for such fiscal year or other
period,
computed as provided below; and
(f)
notwithstanding any other provision of this definition, any items
which
are specially allocated pursuant to Section 10.3 or
Section 10.4 hereof shall
not otherwise be taken into account in
computing Income or Losses.
Depreciation
for each fiscal year
or other period shall be calculated as
follows: an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year
or other
period for federal income tax purposes,
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
period, depreciation shall be an amount which
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,
if 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.
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<PAGE>
For purposes of this Agreement, the term Income when used alone shall
include all items of income or revenue
contemplated in this Section and the term
Losses when used alone shall include all items of loss or deductions
contemplated in this Section.
"Insurance"
shall mean:
(a) during
construction,
the Partnership will provide and maintain,
or
cause the Contractor to provide and
maintain, builder's
risk insurance in an
amount equal to 100% of the value of the Apartment Housing at the date of
completion; property damage coverage of not
less than $1,000,000 per occurrence
and comprehensive general liability insurance with
limits against bodily injury
of not less than $1,000,000 per occurrence, both with aggregate coverage of
$2,000,000; and worker's compensation insurance, within the State statutory
guidelines;
(b) during
operations the
Partnership will
provide and maintain
business
interruption coverage covering actual sustained loss for 12 months;
worker's
compensation; hazard coverage (including but not limited to fire, or other
casualty loss to any structure or building
on the Apartment Housing in an amount
equal to the full replacement value of the damaged property without deducting
for depreciation); and comprehensive general liability coverage against
liability claims for bodily injury or
property damage in the
minimum amount of
$1,000,000 per occurrence and an aggregate
of $2,000,000;
(c) all
liability coverage
shall include an umbrella liability coverage in
a minimum amount of $4,000,000 per
occurrence and an aggregate of $4,000,000;
(d) all
Insurance polices
shall name the Partnership as the named insured,
the Limited Partner as an additional
insured, and WNC & Associates, Inc. as the
certificate holder;
(e) all
Insurance policies shall include a provision to notify the
insured,
the Limited Partner and the certificate
holder prior to cancellation;
(f) hazard
coverage must include inflation and building or ordinance
endorsements;
(g) the
Insurance Policy or Policies shall not have a deductible
provision
in excess of $5,000; and
(h) the term "Insurance" specifically excludes co-insurance or
self-insurance.
"Insurance
Company" shall mean any insurance company engaged by the
General
Partner for the Partnership. The Special Limited Partner shall have the
discretion to review and approve the
engagement of the
Insurance Company on
an
annual basis.
"Interest"
shall mean the entire
ownership interest of a Partner in the
Partnership at any particular time, including the right of such
Partner to any
and all benefits to which a Partner may be
entitled hereunder and the obligation
of such Partner to comply with the terms of
this Agreement.
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<PAGE>
"Involuntary
Withdrawal"
shall mean any
Withdrawal of a
General Partner
caused by death, adjudication of insanity or
incompetence,
Bankruptcy, or the
removal of a General Partner pursuant to
Section 13.2 hereof.
"Land
Acquisition Fee" shall mean the fee payable to the General Partner
in
an amount equal to $2,000 for the General Partner's services in locating,
negotiating and closing on the purchase of the real property upon which the
Improvements are, or will be, erected or
rehabilitated.
"LIHTC" shall
mean the low-income
housing tax credit
established
by TRA
1986 and which is provided for in Section 42 of the Code,
as amended, or any
successor thereto.
"Limited
Partner" shall mean WNC Holding, LLC, a California limited
liability corporation, and such other
Persons as are admitted to the Partnership
as additional or Substitute Limited
Partners pursuant to this Agreement.
"Management
Agent" shall mean the property management company which
oversees the property management functions for the Apartment
Housing and which
is on-site at the Apartment Housing. The
initial Management Agent shall be CEPCO
Management, Inc. Any substitution of the Management
Agent requires the Consent
of the Special Limited Partner.
"Management
Agreement" shall mean the agreement between the Partnership and
the Management Agent for property
management services.
The management fee shall
equal $55.65 per occupied unit per month.
The General Partner,
on behalf of the
Partnership, shall insure that neither the Management Agreement nor any
ancillary agreement shall provide for an
initial rent-up fee, a set-up fee, any
other similar pre-management fee or recurring
fee for compliance
monitoring or
the like payable to the Management
Agent, General Partner, or Developer. The
Management Agreement shall provide that it will be
terminable at will by
the
Partnership at anytime following the Withdrawal or removal of the General
Partner and, in any event, on any anniversary of the date of execution of
the
Management Agreement, without payment or
penalty for failure to renew the same.
"Minimum
Set-Aside Test" shall mean the 40-60
set-aside test
pursuant to
Section 42(g), as amended and any successor
thereto, of the Code with respect to
the percentage of apartment
units in the
Apartment Housing to be occupied by
tenants whose incomes are equal to or less than
the required
percentage of the
area median gross income.
"Mortgage"
or "Mortgage Loan" shall mean the permanent/construction
nonrecourse financing wherein the Partnership promises to pay: (a) U.S.
Department of Agriculture, Rural Development, or its
successor or assignee, the
principal sum of $798,000, plus interest on
the principal at 7% per annum with a
maturity date of December 15, 2034 and
amortized over 600 months; an RD Interest
Credit Agreement has been entered into in
connection with the above referenced
loan thereby reducing the effective interest rate to 1% per annum, and (b)
Greater Minnesota Housing Fund (the "GMHF"),
the principal sum of
One Hundred
Eighty Thousand and No/100 Dollars
($180,000.00) (the
"Principal Amount")
with
simple interest at the rate of one
percent (1%) per annum on the unpaid balance
thereof on the Maturity Date (as
hereinafter defined). Where the context admits,
the term "Mortgage" or "Mortgage Loan"
shall include any mortgage, deed, deed of
11
<PAGE>
trust, note, regulatory agreement, security agreement, assumption
agreement
or other instrument executed in connection
with the Mortgage which is binding on
the Partnership; and in case any Mortgage is
replaced or
supplemented by
any
subsequent mortgage or mortgages, the Mortgage shall refer to any such
subsequent mortgage or mortgages provided the substitution or change has
received the Consent of the Special Limited Partner. Prior to closing the
Mortgage, the General Partner shall provide to the
Special Limited
Partner a
draft of the Mortgage documents for review and approval and the income and
expense statements for the Partnership
showing Cash Receipts
and Cash Expenses
for each and every month since issuance of
the certificate of
occupancy. Based
on the draft Mortgage documents and the income and
expense statements,
if the
terms of the Mortgage are not as specified
above or the Special
Limited Partner
determines that the Debt Service Coverage of those Mortgage Loans
requiring an
amortized monthly principal and interest
payment falls below 1.10 based on then
current Cash Expenses and Cash Receipts then the General Partner shall adjust
the principal loan amount and close on a
Mortgage which will produce a 1.10 Debt
Service Coverage. The Mortgage funds shall be used to retire the
Anchor Bank
Construction Loan and as construction and
permanent financing
for the Apartment
Housing. Notwithstanding the foregoing, if the interest rate at the time of
closing the Mortgage is less than the
amount stated, the
General Partner
shall
not increase the principal amount of the Mortgage even if the Debt Service
Coverage remains at or above 1.10.
"Net Operating
Income" shall mean the cash available for Distribution on an
annual basis, when Cash Receipts exceed
Cash Expenses.
"Nonrecourse
Deductions"
shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(1).
"Nonrecourse
Liability"
shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(3).
"Operating
and Maintenance Account" shall mean the operating and
maintenance account established pursuant to
Section 8.2 hereof.
"Operating
Deficit" shall mean,
for the applicable
period, insufficient
funds to pay Partnership operating costs when Cash Expenses exceed
the sum of
the Cash Receipts and the Operating and
Maintenance
Account, as determined by
the Accountant and approved by the Special
Limited Partner.
"Operating
Deficit Guarantee Period" shall mean the
period commencing the
date the first apartment unit in the Apartment Housing is available for its
intended use and ending three years following the achievement of three
consecutive months of Breakeven Operations. The Operating Deficit Guarantee
Period will not expire unless the Partnership has achieved Completion of
Construction of the Apartment Housing.
"Operating
Loans" shall mean loans made by the General Partner to the
Partnership pursuant to Article VI of this
Agreement, which loans
are repayable
only as provided in Article XI of this
Agreement.
12
<PAGE>
"Original
Limited Partners" shall mean collectively, Curtis G. Carlson,
Mark F. Carlson and Robert B. Carlson.
"Partner(s)"
shall collectively mean the General Partner, the Limited
Partner and the Special Limited Partner or
individually may mean
any Partner as
the context dictates.
"Partner
Nonrecourse
Debt" shall have the meaning set forth in Section
1.704-2(b)(4) of the Treasury
Regulations.
"Partner
Nonrecourse Debt
Minimum Gain" shall mean 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
Section 1.704-2(i)(3)
of the Treasury
Regulations.
"Partner
Nonrecourse
Deductions"
shall have the meaning set forth in
Sections 1.704-2 (i)(1) and 1.704-2(i)(2)
of the Treasury Regulations.
"Partnership"
shall mean the limited partnership continued under this
Agreement.
"Partnership
Minimum Gain" shall
mean the amount
determined in accordance
with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
"Permanent
Mortgage Commencement" shall mean the first date on which all
of
the following have occurred: (a) the Anchor Bank Construction Loan shall have
been repaid in full; (b) the Mortgage Loan
shall have closed and funded; and (c)
amortization of the Mortgage shall have
commenced.
"Person"
shall mean an individual, proprietorship, trust, estate,
partnership, joint venture, association,
company, corporation
or other entity,
as the circumstances demonstrate.
"Plans
and Specifications" shall mean the plans, blueprints and
specifications manual for the construction of the Improvements which are
approved by the local city/county building
department with jurisdiction over the
construction of the Improvements and which
Plans and Specifications are referred
to in the Construction Contract. The General Partner agrees to
assure that the
Contractor completes construction in accordance with the Plans and
Specifications. Any changes to the Plans and
Specifications
after approval by
the appropriate government building department
shall require the Consent of the
Special Limited Partner.
"Project
Documents"
shall mean all
documents relating to
the Subordinate
Loan, Mortgage Loan, Construction Contract, Title Policy and Partnership
Agreement. It shall also include all documents required by any governmental
agency having jurisdiction over the Apartment Housing in connection with the
development, construction and financing of the
Apartment Housing, including but
not limited to, the approved Plans and
Specifications
for the development and
construction of the Apartment Housing.
"Projected
Annual Tax
Credits" shall mean LIHTC in the amount of
$38,244
for 2006, $40,257 for each of the years 2007
through 2015, and $2,013 for 2016,
which the General Partner has projected to be the total amount of LIHTC
which
13
<PAGE>
will be allocated to the Limited Partner by
the Partnership, constituting 99.98%
of the aggregate amount of LIHTC of
$402,652 to be available to the Partnership.
"Projected
Tax Credits" shall mean LIHTC in the aggregate amount of
$402,652.
"Qualified
Tenants" shall mean any tenants who have incomes of 60% (or
such
smaller percentage as the General Partner shall agree) or less of the area
median gross income, as adjusted for family size,
so as to make the
Apartment
Housing eligible for LIHTC.
"RD"
shall mean the United States Department of Agriculture, Rural
Development-Minnesota (formerly Farmers Home
Administration)
or any successor
thereto.
"RD Interest
Credit Agreement" shall mean the Interest Credit and
Rental
Assistance Agreements between the RD and
the Partnership whereby RD will provide
a monthly credit subsidy to the Partnership's Mortgage account when the
Partnership makes each month payment on the
Mortgage.
"RD Loan
Agreement" shall mean the Loan Agreements for the RRH loans to
the
Partnership in connection with the Mortgage Loan pursuant to
Section 515(b) of
the Housing Act of 1949.
"Real
Estate Taxes" shall mean the sum of $11,000
required to be paid
annually by the Partnership to the tax assessor, school district or similar
representative, of Sandstone/Pine County for real
estate taxes assessed against
the Apartment Housing. The Real Estate Taxes are payable
as follows: 50% on May
15th and 50% on October 15th of each year. The Project is also within a Tax
Increment Financing District, which is anticipated to reduce the real
estate
taxes due annually to approximately
$1,100.
"Rent
Restriction
Test" shall mean the
test pursuant to Section 42 of the
Code whereby the gross rent charged to
tenants of the low-income apartment units
in the Apartment Housing cannot exceed 30% of the
qualifying
income levels of
those units under Section 42.
"Revised
Projected Tax Credits" shall have the meaning set forth in
Section
7.4(a) hereof.
"Sale
or Refinancing" shall mean any of the following items or
transactions: a sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Partnership, a condemnation of or
casualty at the Apartment Housing or any part thereof,
a claim against a
title
insurance company, the refinancing of any Mortgage or
other indebtedness of the
Partnership and any similar item or
transaction;
provided, however, that the
payment of Capital Contributions by the Partners shall not be
included within
the meaning of the term "Sale or
Refinancing."
"Sale
or Refinancing Proceeds" shall mean all cash receipts of the
Partnership arising from a Sale or
Refinancing (including principal and interest
received on a debt obligation received as consideration in whole
or in part, on
a Sale or Refinancing) less the amount paid or to be paid in connection
with
or as an expense of such Sale or Refinancing, and with egard to damage
recoveries or insurance or condemnation
proceeds, the amount paid or to be paid
14
<PAGE>
for repairs, replacements or renewals resulting from damage to or partial
condemnation of the Apartment Housing.
"Special
Limited Partner" shall mean WNC Housing, L.P., a California
limited partnership, and such other Persons as are
admitted to the Partnership
as additional or substitute Special Limited
Partners pursuant to this Agreement.
"State" shall
mean the State of Minnesota.
"State Tax
Credit Agency"
shall mean the state
agency of Minnesota
which
has the responsibility and authority to administer the LIHTC program in
Minnesota.
"Substitute
Limited Partner" shall mean any Person who
is admitted to the
Partnership as a Limited Partner pursuant to Section 12.5 or acquires the
Interest of the Limited Partner pursuant to
Section 7.3 of this Agreement.
"Syndication
Fee" shall mean the
fee payable to the General Partner in an
amount equal to $18,000 for the General Partner's services in forming the
Partnership, locating and approving the Limited
Partner and the Special Limited
Partner as the investors in the
Partnership,
negotiating
and finalizing
this
Partnership Agreement and for such other services referenced in Treasury
Regulations Section 1.709-2(B).
"Tax Credit"
shall mean any credit
permitted under the
Code or the law of
any state against the federal or a state
income tax liability of any Partner as
a result of activities or expenditures of the Partnership including, without
limitation, LIHTC.
"Tax
Credit Compliance Fee" shall mean the fee payable to the General
Partner in accordance with Section 9.2(f)
of this Agreement.
"Tax Credit
Conditions"
shall mean,
for the duration of the Compliance
Period, any and all restrictions including,
but not limited to: (a) the land use
restriction agreement required by the State Tax Credit
Agency to be
recorded
against the Apartment Housing; and (b) any applicable federal,
state and local
laws, rules and regulations, which must be
complied with in order to qualify for
the LIHTC or to avoid an event of recapture
in respect of the LIHTC.
"Tax Credit
Period" shall mean the
10-year time period
referenced in Code
Section 42(f)(1) over which the Projected Tax Credits are allocated to the
Partners. It is the intent of the Partners
that the Projected Tax
Credits will
be allocated during the Tax Credit Period
and not a longer term.
"Title
Policy" shall mean the
policy of insurance
covering the fee simple
title to the Apartment Housing from a company
approved by the
Special Limited
Partner. The Title Policy shall be an ALTA
owners title policy
including the
following endorsements: non-imputation, Fairways, access, contiguity,
survey,
owner's comprehensive, zoning and subdivision,
if available.
The Title Policy
shall also insure against rights-of-way,
easements,
blanket easement or
claims
of easements, not shown by public records. During construction of the
improvements the Title Policy shall be in an amount equal to the
Construction
Loan, the Greater Minnesota Housing Fund
Loan and the Limited Partner's Capital
15
<PAGE>
Contribution. Upon Permanent Mortgage Commencement, the Title Policy shall
be in an amount equal to the aggregate
Mortgage amount and the Limited Partner's
Capital Contribution. If allowed by the title company,
the Title Policy
shall
name the Limited Partner and the Special
Limited Partner as insured parties, or,
if including the Limited Partner and Special Limited
Partner as insured parties
is not allowed, the Title Policy shall
reference them "as
their interests
may
appear in the partnership agreement of the
owner."
"TRA 1986" shall
mean the Tax Reform Act of 1986.
"Treasury
Regulations"
shall mean the Income
Tax Regulations
promulgated
under the Code, as such regulations may be amended from
time to time (including
corresponding provisions of succeeding
regulations).
"Withdrawing"
or "Withdrawal"
(including the verb
form "Withdraw" and the
adjectival forms "Withdrawing" and "Withdrawn") shall mean, as to a General
Partner, the occurrence of the death,
adjudication of
insanity or incompetence,
Bankruptcy of such Partner or any of its
principals, the withdrawal, removal or
retirement from the Partnership of such Partner for
any reason, including
any
sale, pledge, encumbering, assignment or other transfer of
all or any part of
its General Partner Interest and those situations when
a General Partner may no
longer continue as a General Partner by reason of any law or
pursuant to any
terms of this Agreement.
ARTICLE II.
NAME
The name of the Partnership shall be "Kettle River Townhomes Limited
Partnership."
ARTICLE III.
PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE
Section 3.1
Principal Executive Office.
The principal
executive office of the Partnership is located at 32
Tenth
Avenue South, Hopkins, MN 55343, or at such other place or places
within the
State as the General Partner may hereafter
designate.
Section 3.2
Agent for Service of Process.
The name of the
agent for service of process on the Partnership is Curtis
G. Carlson, whose address is 32-10th Ave.
So., Suite 109, Hopkins, MN 55343.
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<PAGE>
ARTICLE IV.
PURPOSE
Section 4.1
Purpose of the Partnership.
The purpose of
the Partnership is to
acquire, construct,
own and operate
the Apartment Housing in order to provide,
in part, Tax Credits
to the Partners
in accordance with the provisions of the Code and the Treasury Regulations
applicable to LIHTC and to sell the
Apartment Housing at
the conclusion of
the
Compliance Period. The Partnership shall not
engage in any business or activity
that is not incident to the attainment of
such purpose.
Section 4.2
Authority of the Partnership.
In order
to carry out its purpose, the Partnership is empowered and
authorized to do any and all acts and things
necessary,
appropriate,
proper,
advisable or incidental to the furtherance and accomplishment of its purpose,
and for protection and benefit of the Partnership in accordance with the
Partnership Agreement, including but not
limited to the following:
(a) acquire ownership of the real property referred to in Exhibit A
attached hereto;
(b) construct,
renovate, rehabilitate, and own the Apartment Housing in
accordance with the Project Documents;
(c) provide
housing to Qualified Tenants, subject to the Minimum
Set-Aside
Test and the Rent Restriction Test and consistent with the
requirements of the
Project Documents so long as any Project
Documents remain in force;
(d) maintain and operate the Apartment Housing, including hiring the
Management Agent (which Management Agent may be any of the Partners or an
Affiliate thereof) and entering into any
agreement for the management of the
Apartment Housing during its rent-up and
after its rent-up period in accordance
with this Agreement;
(e) enter into
the Construction Loan and Mortgage;
(f) rent
dwelling units in the Apartment Housing from time to time,
in
accordance with the provisions of the Code
applicable to LIHTC; and
(g) do any and
all other acts and things necessary or proper in
accordance
with this Agreement.
ARTICLE V.
TERM
The Partnership term commenced upon the filing of the Certificate of
Limited Partnership in the office of, and on the form prescribed by, the
Secretary of State of Minnesota, and shall continue until December 31,
2053, unless terminated earlier in accordance with the provisions of this
Agreement or as otherwise provided by
law.
17
<PAGE>
ARTICLE VI.
GENERAL PARTNER'S CONTRIBUTIONS AND LOANS
Section 6.1
Capital Contribution of General Partner.
The General
Partner shall make a Capital Contribution equal to $100.
Section 6.2
Construction Obligations.
The General
Partner hereby
guarantees lien free Completion of Construction
of the Apartment Housing on or before the
Completion Date
("Completion
Date").
The General Partner further guarantees that the development of the
Apartment
Housing and Improvements will not exceed a total
development cost of $1,273,920
("Development Budget"), which includes all hard and soft
costs incident to the
acquisition, development and construction
of the Apartment Housing in accordance
with the Development Budget and the Project
Documents. If the
actual hard costs
and soft costs of developing and constructing the Apartment Housing and
Improvements exceed the Development Budget then the General Partner shall
advance the money to the Partnership to pay the additional costs.
Notwithstanding the foregoing, at any time during construction and prior to
Permanent Mortgage Commencement, if the Special Limited Partner or the
Construction Lender, in good faith,
determines that the
actual construction and
development costs exceed the line item costs
(excluding the
Development
Fee)
referenced in the Development, Construction and Operating Budget
Agreement then
the General Partner shall be responsible
for and shall be
obligated to advance
and deposit into the Construction Lender's construction account, or similar
disbursement agent's account, the difference thereof for payment to the
Contractor or other vendors, suppliers, or subcontractors.
In addition, at
any
time prior to Completion of Construction, if the Special Limited Partner or
Construction Lender, in good faith,
determines that there are insufficient funds
to achieve Completion of Construction or the funds are not available in
accordance with the funding requirements of the Construction Lender or this
Agreement, the General Partner shall advance
and deposit into the
Construction
Lender's construction account, or similar disbursement account, the amount
requested by the Special Limited Partner or
Construction Lender to pay a current
construction draw or an amount necessary to
achieve Completion of
Construction.
Said advance shall be made and documented with an approved draw request
within
30 days of receiving written notice from the Special Limited Partner. Any
advances by the General Partner pursuant to
this Section shall not be repayable,
shall not change the Interest of any Partner in the Partnership and shall be
considered a guaranteed payment to the
Partnership for cost overruns.
Section 6.3
Operating Obligations.
(a) From the
date the first
apartment unit in the
Apartment Housing is
available for its intended use until 3 consecutive months of Breakeven
Operations, the General Partner will
immediately provide to the Partnership the
necessary funds to pay Operating
Deficits, which funds shall not be
repayable,
shall not change the Interest of any Partner and shall be considered a
guaranteed payment to the Partnership for
cost overruns. For the
balance of the
Operating Deficit Guarantee Period the General Partner will immediately
provide Operating Loans to pay any Operating Deficits. The aggregate
maximum
amount of the Operating Loan(s) the
General Partner will be obligated to lend
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will be $76,000, which is equal to
one year's operating expenses (including
debt and reserves) as agreed to by the
General Partner and
the Special
Limited
Partner. Each Operating Loan shall be
nonrecourse to the Partners, and shall be
repayable out of 50% of the available Net Operating Income or Sale or
Refinancing Proceeds in accordance with
Article XI of this Agreement.
(b) The
Partnership
shall pay the amount
of the Development Fee set forth
in Exhibit B to the Development Fee Agreement entered into as of even date
herewith on an annual basis (the "Scheduled
Amount").
Section 6.4
Other General Partner Loans.
Unless
provided elsewhere, after expiration of the Operating Deficit
Guarantee Period, with the Consent of the Special
Limited Partner, the
General
Partner may loan to the Partnership any
sums required by the Partnership and not
otherwise reasonably available to it. Any such loan
shall bear simple interest
(not compounded) at the 10-year
Treasury money market
rate in effect as of the
day of the General Partner loan, or, if lesser, the maximum legal rate. The
maturity date and repayment schedule of any such loan shall be
as agreed to by
the General Partner and the Special Limited
Partner. The terms of
any such loan
shall be evidenced by a written instrument.
The General Partner shall not charge
a prepayment penalty on any such loan. Any
loan in contravention of this Section
shall be deemed an invalid action taken by
the General Partner
and such advance
will be classified as a General
Partner Capital
Contribution.
Notwithstanding
this provision, the General Partner remains obligated to the Partnership,
Limited Partner and Special Limited Partner as required in
accordance with the
State limited partnership act, as amended
from time to time.
ARTICLE VII.
CAPITAL CONTRIBUTIONS OF LIMITED PARTNER
AND SPECIAL LIMITED PARTNER
Section 7.1
Original Limited Partners.
The Original Limited Partners made a Capital Contribution of $1.00.
Effective as of the date of this
Agreement,
the Original Limited Partners'
Interest has been liquidated and the Partnership has reacquired the Original
Limited Partners' Interest in the Partnership. The Original Limited Partners
acknowledges that it has no further interest in
the Partnership as a partner as
of the date of this Agreement and has
released all claims,
if any, against
the
Partnership arising out of its
participation as a limited partner.
Section
7.2 Capital
Contribution
of Limited
Partner and Special
Limited
Partner.
The Limited
Partner and the
Special Limited
Partner shall make a
Capital
Contribution in the aggregate amount of $295,920, as may be adjusted in
accordance with Section 7.4 of this
Agreement, in cash on
the dates and subject
to the conditions hereinafter set
forth.
(a) $266,330 (which includes the Special Limited Partner's Capital
Contribution of $30) shall be payable
upon the Limited
Partner's receipt and
approval of the following documents:
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(1) a legal
opinion in a form substantially similar to the form of opinion
attached hereto as Exhibit B and
incorporated herein by this reference;
(2) a fully
executed Certification and Agreement in the form attached
hereto as Exhibit C and incorporated herein
by this reference;
(3) a copy of
the Title Policy;
(4) Insurance
required during construction;
(5) a copy of
the recorded grant deed (warranty deed);
(6) an executed
Disbursement Agreement;
(7) an
executed commitment from the Mortgage lender to provide the
Mortgage;
(8) an executed
Development, Construction and Operating Budget Agreement;
(9) an executed
Construction
Completion, Operating
Deficit and Tax Credit
Guaranty Agreement;
(10) an executed
Development
Fee Agreement and
Development
Fee Guaranty
Agreement;
(11) a fully
executed Construction Agreement;
(12) an audited
cost certification
together with the Accountant's work
papers verifying that the Partnership has expended the requisite 10% of
reasonably expected cost basis to meet the carryover
test provisions of Code
Section 42;
(13) payment of
$18,000 for costs and expenses incurred in connection with
the Limited Partner's or its Affiliate's
underwriting of the
Apartment Housing
and Improvements.
Notwithstanding
the foregoing, the
first Capital Contribution payment will
be paid in installments based upon approved
draw requests in accordance with the
Construction Monitoring Agreement.
(b) $29,589 shall be payable upon the Limited Partner's receipt and
approval of the following documents:
(1) a
certificate of occupancy (or equivalent evidence of local occupancy
approval if a permanent certificate is not
available) on all the apartment units
in the Apartment Housing confirming the apartment units are being placed in
service for their intended purpose;
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<PAGE>
(2) a completion
certification in a
form substantially similar to the form
attached hereto as Exhibit D and incorporated herein by this reference,
indicating that the Improvements have been completed in accordance
with the
Project Documents;
(3) a letter
from the Contractor
in a form substantially similar to the
form attached hereto as Exhibit F and
incorporated
herein by this
reference
stating that all amounts payable to the Contractor have been paid in full and
that the Partnership is not in violation of
the Construction Contract;
(4) Insurance
required during operations;
(5) A
determination
by the Special Limited
Partner that the amount of the
remaining Capital Contributions and other
financing funds are equal to or exceed
the difference between the Construction
Loan and Mortgage in order to retire the
Construction Loan.
(6) Mortgage
Loan documents signed and the Mortgage funded;
(7) an
updated Title Policy dated no more than 10 days prior to the
scheduled Capital Contribution confirming that there are no
liens, claims or
rights to a lien or judgments filed against the property or the Apartment
Housing during the time period since the
issuance of the Title Policy referenced
above in Section 7.2(a);
(8) an as-built
survey adhering to the requirements referenced in Exhibit I
attached hereto and incorporated herein and a surveyor's certification as
referenced in Exhibit I;
(9) the current
rent roll evidencing a
minimum 92% occupancy
by Qualified
Tenants for 90 consecutive days immediately prior to funding and 100%
LIHTC
qualified units;
(10)
copies of all initial tenant files including executed lease
agreements, completed applications, completed questionnaires or checklist of
income and assets, documentation of third party verification of income and
assets, income certification forms (LIHTC specific) and any other form or
document collected by the Management Agent,
or General Partner,
verifying each
tenant's eligibility pursuant to the
Minimum Set-Aside Test and other applicable
guidelines under Section 42 of the
Code;
The Limited Partner and Special Limited Partner require receipt and
approval of 100% of the initial tenant files as specified in a subsequent
Capital Contribution payment. The time
required to collect,
review and correct,
if applicable, tenant files can be substantial. Therefore, to expedite the
process, the General Partner shall send tenant files to the Special Limited
Partner as soon as the file is complete
instead of waiting to send the files all
at one time.
(11) Completion
of Construction;
(12) a
construction
closeout binder, which shall include, but not be
limited to, as-built drawings, all operating manuals, and all manufacturing
warranty agreements. In addition, the
Contractor shall provide the Partnership a
one-year warranty on all parts, materials
and work-quality;
21
<PAGE>
(13) a copy of
the recorded
declaration of restrictive covenants/extended
use agreement entered into between the Partnership and the State Tax Credit
Agency;
(14)
an audited construction cost certification that includes an
itemization of development, acquisition, and construction or rehabilitation
costs of the Apartment Housing, the Land Acquisition Fee, the Syndication
Fee
and the eligible basis and applicable percentage of each building of the
Apartment Housing;
(15)
the Accountant's final Tax Credit certification in a form
substantially similar to the form attached
hereto as Exhibit E and incorporated
herein by this reference;
(16) Debt
Service Coverage of 1.10 for 90
consecutive
days immediately
prior to funding;
(17) a fully
signed Internal Revenue Code Form 8609, or any successor form;
(18) the
first year tax return in which Tax Credits are taken by the
Partnership, unless the Tax Credits are
deferred until the
following year and
such deferral has been approved by the
Special Limited Partner;
(19) the audited
Partnership financial
statements required by Section 14.2
for the year the Apartment Housing is
placed-in-service ; and
(20) Any
documents previously not provided to the Limited Partner but
required pursuant to this Section 7.2 and
Sections 14.3(a) and (b).
Notwithstanding
the above conditions to this Capital Contribution payment,
the Limited Partner's payment will be held in escrow
until copies of all
the
signed Mortgage documents have been
received by the Limited Partner.
(21) The Special
Limited Partner's approval of the initial tenant files and
any documents previously not provided to the Limited Partner but required
pursuant to this Section 7.2 and Sections
14.3(a) and (b). The
initial tenant
files will be reviewed at the Limited Partner's expense by an independent
third-party. In the event that the independent third-party and the Special
Limited Partner recommend corrections to an initial tenant file, the
General
Partner will cause the Management Agent to correct the tenant file
and provide
the corrected tenant file to the Limited Partner. The Limited Partner may
withhold all or any portion of a Capital Contribution payment until it has
received all the initial tenant files and the same have been reviewed,
corrected, and approved.
Section 7.3
Repurchase of Limited
Partner's and Special Limited Partner's
Interests.
Within 60 days
after the General Partner receives written demand from the
Limited Partner and/or the Special Limited Partner, the Partnership shall
22
<PAGE>
repurchase the Limited Partner's Interest and/or the Special
Limited Partner's
Interest in the Partnership by refunding to it in cash the full
amount of the
Capital Contribution which the Limited Partner and/or the Special Limited
Partner has theretofore made in the event
that, for any reason,
the Partnership
shall fail to:
(a) cause the
Apartment Housing to
be placed in service within 6 months of
the Completion Date;
(b) achieve 100%
occupancy of the Apartment Housing by Qualified Tenants by
March 1, 2006;
(c) obtain
Permanent Mortgage Commencement by June 1, 2006;
(d) at any time
before the
Completion
Date, prevent a foreclosure, or
abandonment of the Apartment Housing or fail to lift any order restricting
construction of the Apartment Housing;
(e) prior to
completion
of the Improvements, prevent the Construction
Lender from sending a notice of default
under the Mortgage Loan;
(f) replace a withdrawn Mortgage Loan commitment with a comparable
commitment acceptable to the Special Limited
Partner within a reasonable period
of time;
(g) meet both
the Minimum Set-Aside
Test and the Rent Restriction Test not
later than December 31 of the first year the
Partnership
elects the LIHTC
to
commence in accordance with the Code;
or
(h) obtain a
carryover allocation,
within the meaning of Section 42 of the
Code, from the State Tax Credit Agency on
or before the due date.
Section 7.4
Adjustment of Capital Contributions.
(a) The amounts
of the Limited
Partner's and the Special Limited Partner's
Capital Contributions were determined in part upon the amount of Tax
Credits
that were expected to be available to the
Partnership
at a cost of $0.735
for
each dollar of Tax Credit received, and were based on the assumption
that the
Partnership would be eligible to claim,
in the aggregate, the Projected Tax
Credits. If the anticipated amount of Projected Tax Credits to
be allocated to
the Limited Partner and Special Limited Partner as evidenced by
IRS Form 8609,
Schedule A thereto, or by the tax certification required in accordance with
Section 7.2, provided to the Limited
Partner and Special
Limited Partner are
different than 99.99% of $402,652 then the
new Projected Tax Credit amount, if
applicable, shall be referred to as the
"Revised Projected
Tax Credits." The
Limited Partner's and Special Limited
Partner's Capital
Contribution
provided
for in Section 7.2 shall be equal to 73.5% times
the Projected
Tax Credits or
the Revised Projected Tax Credits, if
applicable,
anticipated to be
allocated
to the Limited Partner and Special Limited Partner. If any Capital
Contribution adjustment referenced in this Section 7.4(a)
is a reduction which
is greater than the remaining Capital Contribution to be paid by the Limited
Partner, then the General Partner shall have 90 days from
the date the General
Partner receives notice from either the Limited
Partner or the Special Limited
Partner to pay the shortfall to the Partner
whose Capital
Contribution is being
adjusted. The amount paid by the General
Partner pursuant to
this Section will
23
<PAGE>
be deemed to be a Capital Contribution by the General
Partner.
Notwithstanding
anything to the contrary in this Agreement, the General Partner's Capital
Contribution required to be paid by this Section shall be disbursed to the
Limited Partner as a return of capital. If
the Capital
Contribution
adjustment
referenced in this Section 7.4(a) is an increase then the
Partner whose Capital
Contribution is being adjusted shall have 90 days from the date the
Limited
Partner and Special Limited Partner have received notice from the General
Partner to pay the increase.
(b) The General
Partner is required to use its best efforts to rent 100% of
the Apartment Housing's apartment units to Qualified Tenants throughout the
Compliance Period. If, at the end of any calendar year during the first 5
calendar years following the year in which the
Apartment Housing is
placed in
service, the Actual Tax Credit for the
applicable fiscal year or portion thereof
is or will be less than the Projected
Annual Tax Credit, or the Projected Annual
Tax Credit as modified by Section
7.4(a) of this
Agreement if
applicable (the
"Annual Credit Shortfall"), then the next Capital Contribution owed by the
Limited Partner shall be reduced by the
Annual Credit Shortfall amount, and any
portion of such Annual Credit Shortfall in excess of such
Capital
Contribution
shall be applied to reduce succeeding Capital Contributions of the Limited
Partner. If the Annual Credit Shortfall is greater than the
Limited Partner's
remaining Capital Contributions, then the General Partner shall pay to the
Limited Partner the excess of the Annual
Credit Shortfall over the remaining
Capital Contributions. The General Partner shall have 60
days to pay the Annual
Credit Shortfall from the date the General
Partner receives notice from the
Special Limited Partner. The provisions of this Section 7.4(b) shall apply
equally to the Special Limited Partner in
proportion to its Capital Contribution
and anticipated annual Tax Credit. The amount paid by the General Partner
pursuant to this Section will be deemed to be a Capital
Contribution
by the
General Partner. Notwithstanding anything
to the contrary in this Agreement, the
General Partner's Capital Contribution required by this Section shall be
disbursed to the Limited Partner as a
return of capital.
(c) The General
Partner has represented, in part, that the Limited
Partner
will receive Projected Annual Tax Credits of $38,244 in 2006 and
$40,257 in
2007. In the event the 2006 or 2007
Actual Tax Credits are less than projected
then the Limited Partner's Capital Contribution shall be reduced by an amount
equal to 73.5% times the difference between
the Projected Annual Tax Credits for
2006 or 2007 and the Actual Tax
Credits for 2006 or 2007. If the 2006 or 2007
Actual Tax Credits are less than
projected then the
Special Limited
Partner's
Capital Contribution shall be reduced
following the same equation referenced in
the preceding sentence. If, at the time of determination
thereof, the Capital
Contribution adjustment referenced in this Section
7.4(c) is greater than
the
balance of the Limited Partner's or Special Limited Partner's Capital
Contribution payment which is then due, if any,
then the excess amount shall be
paid by the General Partner to the Limited
Partner and/or the
Special Limited
Partner within 60 days of the General
Partner receiving
notice of the reduction
from the Limited Partner and/or the Special
Limited Partner. The
amount paid by
the General Partner pursuant to this Section will be deemed to be a Capital
Contribution by the General Partner.
Notwithstanding anything to the contrary in
this Agreement, the General Partner's Capital Contribution required by
this
Section shall be disbursed to the Limited
Partner as a return of capital.
(d)
Intentionally omitted.
24
<PAGE>
(e) In the event
there is: (1) a filing of a tax return by the Partnership
evidencing a reduction in the qualified
basis or eligible basis of the Apartment
Housing causing a recapture of Tax Credits
previously
allocated to the
Limited
Partner or an adjustment to Schedule K-1 or
a loss of future Tax Credits; (2) a
filing of a tax return by the Partnership evidencing a disposition of the
Apartment Housing prior to the expiration of the Compliance Period causing a
recapture of Tax Credits previously allocated to the Limited
Partner, or an
adjustment to Schedule K-1, or a loss of
future Tax Credits;
(3) a reduction in
the qualified basis or eligible basis of the Apartment
Housing for income
tax
purposes following an examination or review by the Internal
Revenue Service
("IRS") resulting in a recapture or
reduction of Tax Credits previously claimed
or an adjustment to Schedule K-1; (4) a
decision by any court or administrative
body upholding an assessment of deficiency
against the
Partnership with respect
to any Tax Credit previously claimed or tax losses previously claimed, in
connection with the Apartment Housing, unless the Partnership shall timely
appeal such decision and the collection of such assessment shall be stayed
pending the disposition of such appeal;
or (5) a decision of a
court affirming
such decision upon such appeal then, in
addition to any other
payments to which
the Limited Partner and/or the Special
Limited Partner are entitled under the
terms of this Section 7.4, the General
Partner shall pay to
the Limited Partner
and the Special Limited Partner within 60 days of receiving notice from the
Limited Partner and/or the Special Limited
Partner the sum of (A) the amount of
the Tax Credit recapture, (B) the cumulative tax effect of a
decrease in loss
allocated to the Limited Partner and
Special Limited Partner by the Partnership;
(C) any interest and penalties imposed on
the Limited Partner or Special Limited
Partner with respect to such recapture;
(D) the cumulative
increase of
taxable
income allocated to the Limited Partner and Special Limited Partner by the
Partnership; (E) an amount equal to the product of the Tax Credit pricing
percentage referenced in Section 7.4(a) and future Tax Credits unable to be
taken due to one of the above actions;
and (F) an amount
sufficient to pay
any
tax liability owed by the Limited Partner
or Special Limited
Partner resulting
from the receipt of the amounts
specified in (A),
(B), (C) and (D). The
amount
paid by the General Partner pursuant to this Section will be deemed to be a
Capital Contribution by the General
Partner. Notwithstanding anything to the
contrary in this Agreement, the General Partner's Capital
Contribution required
by this Section shall be disbursed to the Limited Partner as a return of
Capital.
(f) The increase
in the Capital Contribution of the Limited Partner and the
Special Limited Partner pursuant to Section 7.4(a) shall be subject to the
Limited Partner and Special Limited Partner having funds available to
pay any
such increase at the time of its notification of such increase. For these
purposes, any funds theretofore previously earmarked by the
Limited Partner or
Special Limited Partner to make other investments, or to be held as required
reserves, shall not be considered available
for payment hereunder.
Section 7.5
Return of Capital Contribution.
From time to
time the Partnership
may have cash in excess of the amount
required for the conduct of the affairs of the Partnership, and the
General
Partner may, with the Consent of the Special Limited Partner, determine
that such cash should, in whole or in part, be returned to the Partners, pro
rata, in reduction of their Capital
Contribution.
No such return shall
be made
unless all liabilities of the Partnership (except those to Partners on
account
of amounts credited to them pursuant to this
Agreement) have been paid or there
remain assets of the Partnership sufficient, in the sole discretion of the
General Partner, to pay such
liabilities.
25
<PAGE>
Section 7.6
Liability of Limited Partner and Special Limited Partner.
The Limited
Partner and Special Limited Partner shall not be liable for any
of the debts, liabilities, contracts or other obligations of the
Partnership.
The Limited Partner and Special Limited Partner shall be liable only to make
Capital Contributions in the amounts and on the dates specified in this
Agreement and, except as otherwise
expressly required
hereunder,
shall not be
required to lend any funds to the
Partnership or, after their respective Capital
Contributions have been paid, to make any
further Capital
Contribution to
the
Partnership.
ARTICLE VIII.
WORKING CAPITAL AND RESERVES
Section 8.1
Replacement and Reserve Account.
The General
Partner, on behalf of the Partnership, shall open a Replacement
and Reserve Account with a financial banking institution and shall deposit
thereinto an annual amount equal to $833
per residential
unit per year for
the
purpose of capital improvements. Said deposit shall be made monthly in equal
installments. The Replacement and Reserve Account shall require the joint
signature of the Special Limited Partner
and RD for any withdrawals. Any balance
remaining in the account at the time of a
sale of the Apartment Housing shall be
allocated and distributed 75% to the General Partner and 25% to the Limited
Partner.
Section 8.2
Operating and Maintenance Account.
The General Partner, on behalf of the Partnership, shall establish an
Operating and Maintenance Account and shall
deposit thereinto an amount equal to
$21,472 or such greater amount as may be required by RD in
connection with
the
Mortgage Loan. Said amount shall be disbursed in
accordance with
applicable RD
regulations. Withdrawals from such account shall be made
only with the consent
of RD. To the extent that the Partnership has achieved financial stability
between the operational years of two and five, as such
financial stability
is
defined under the RD regulations,
and there is a balance
equal to or great than
$21,472, then the amount of $21,472 shall
be allocated and
distributed to the
General Partner.
Section 8.3 Tax
and Insurance Account.
The General
Partner, on behalf of the Partnership, shall open a tax and
insurance account (the "T & I Account")
for the purpose of making the requisite
Insurance premium payments and the real
estate tax payments. A
deposit equal to
six months of taxes shall be deposited
upon the execution of this Agreement.
Thereafter, the annual deposit to the T
& I Account shall equal the total annual
Insurance payment and the total annual real estate tax payment. Said amount
shall be deposited monthly in an amount equal to 1/12th of the
annual required
amount. Notwithstanding the foregoing, as part of its obligation to
achieve
Breakeven Operations, the General Partner
shall cause the Partnership to prefund
the T & I Account in an amount equal to
one year's property
insurance premium
and the next full installment of real
estate taxes based on improved land. The T
& I Account shall require the joint
signature of the Special Limited Partner for
any withdrawals. Any balance remaining in the account at the
time of a sale of
the Apartment Housing shall be allocated
and distributed 75% to the General
26
<PAGE>
Partner and 25% to the Limited Partner.
The Partnership is
required to pay real
estate taxes on May 15th and October 15th
of each year.
Section 8.4
Intentionally omitted.
Section 8.5
Other Reserves.
The General
Partner, on behalf of the Partnership, may establish out of
funds available to the Partnership a reserve account sufficient in its sole
discretion to pay any unforeseen
contingencies
which might arise in
connection
with the furtherance of the Partnership
business including,
but not limited to,
(a) any rent subsidy required to maintain
rent levels in compliance with the Tax
Credit Conditions and applicable RD regulations; and (b) any debt service or
other payments for which other funds are
not provided for hereunder or otherwise
expected to be available to the
Partnership.
The General
Partner shall not
be
liable for any good-faith estimate which it shall make in connection with
establishing or maintaining any such reserves nor shall the
General Partner be
required to establish or maintain any such
reserves if, in its sole discretion,
such reserves do not appear to be
necessary.
ARTICLE IX.
MANAGEMENT AND CONTROL
Section 9.1
Power and Authority of General Partner.
Subject to the
Consent of the Special Limited Partner or the consent of the
Limited Partner where required by this Agreement, and subject to the other
limitations and restrictions included in this Agreement, the General Partner
shall have complete and exclusive control
over the management of the Partnership
business and affairs, and shall have the right, power
and authority, on
behalf
of the Partnership, and in its name, to exercise all
of the rights, powers
and
authority of a partner of a partnership
without limited
partners. If there is
more than one General Partner, all acts, decisions or consents of the
General
Partners shall require a majority of the
General Partners. If a
General Partner
takes action without the authorization of all the General Partners then such
act, decision, etc. shall not be deemed a valid
action taken by the General
Partners pursuant to this Agreement. No Limited Partner or Special Limited
Partner (except one who may also be a General Partner, and then only in its
capacity as General Partner within the
scope of its authority
hereunder) shall
have any right to be active in the
management of the
Partnership's business
or
investments or to exercise any control
thereover, nor have the right to bind the
Partnership in any contract, agreement,
promise or undertaking, or to act in any
way whatsoever with respect to the control or conduct
of the business of
the
Partnership, except as otherwise
specifically provided in this Agreement.
Section 9.2
Payments to the General Partners and Others.
(a) The
Partnership
shall pay to the
Developer a
Development Fee in
the
amount of $168,498 in accordance with the
Development Fee Agreement entered into
by and between the Developer and the Partnership on even date herewith. The
Development Fee Agreement provides, in part, that the Development Fee shall
27
<PAGE>
first be paid from available proceeds in accordance with
Section 9.2(b) of this
Agreement and if not paid in full then the
balance of the
Development Fee
will
be paid in accordance with Section 11.1 of
this Agreement.
(b) The Partnership shall utilize the proceeds from the Capital
Contributions paid pursuant to Section 7.2 of this Agreement for costs
associated with the development and construction of the Apartment Housing
including, but not limited to, land costs,
Land Acquisition Fee,
architectural
fees, survey and engineering costs,
financing costs, loan fees, Syndication Fee,
building materials and labor. If any
Capital Contribution proceeds are remaining
after Completion of Construction and all acquisition, development and
construction costs, excluding the Development Fee, are paid in full and the
Construction Loan has been retired,
then the remainder
shall: first be paid
to
the Developer in payment of the
Development
Fee; second be paid to
the General
Partner as a reduction of the General
Partner's Capital
Contribution;
and any
remaining Capital Contribution proceeds shall be paid to the
General Partner as
a Partnership oversight fee.
(c) The
Partnership shall pay to the Management Agent a property
management
fee for the leasing and management of the Apartment Housing in an amount in
accordance with the Management Agreement. The term of the Management
Agreement
shall not exceed 1 year, and the execution or renewal of any Management
Agreement shall be subject to the prior
Consent of the Special Limited Partner.
If the Management Agent is an Affiliate of the
General Partner and
there is an
Operating Deficit following the termination of the
Operating Deficit Guarantee
Period or the depletion of the maximum
Operating Deficit amount pursuant to
Section 6.3, whichever occurs first, then 30% of the management fee will be
deferred ("Deferred Management Fees"). Deferred Management Fees, if any,
shall
be paid to the Management Agent in accordance with Section 11.1 of this
Agreement.
(1) The General
Partner shall,
upon receiving any
request of the Mortgage
lender requesting such action, dismiss the Management Agent as the entity
responsible for management of the Apartment Housing under the terms of the
Management Agreement; or, the General
Partner shall dismiss the Management Agent
at the request of the Special Limited
Partner.
(2) The
appointment
of any successor
Management
Agent is subject to
the
Consent of the Special Limited Partner, which may only be sought
after the
General Partner has provided the Special Limited Partner with accurate and
complete disclosure respecting the proposed
Management Agent.
(d) The
Partnership
shall pay to the
Limited Partner an annual Asset
Management Fee commencing in 2006 equal to
10% of Net Operating Income but in no
event less than $750 (the "Minimum Amount")
for the Limited
Partner's services
in assisting with the preparation of tax returns and the reports
required in
Section 14.2 and Section 14.3 of this Agreement. Notwithstanding the
foregoing, the Asset Management fee paid in
2006 will be prorated based upon the
number of months of operations.
The Asset Management
Fee will be payable within
75 days following each calendar year and shall be payable from Net
Operating
Income in the manner and priority
set forth in Section
11.1 of this
Agreement;
provided, however, provided, however, that if in any year Net
Operating Income
is insufficient to pay the full $750, the unpaid
portion thereof shall
accrue
and be payable on a cumulative basis in the first year in which there is
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sufficient Net Operating Income, as
provided in Section 11.1, or sufficient Sale
or Refinancing Proceeds, as provided in Section
11.2. The General Partner shall
ensure that any accrued Asset Management Fee will be reflected in the annual
audited financial statement.
(e) The
Partnership shall pay to the General Partner through the
Compliance
Period an annual Incentive Management Fee equal to 35% of Net
Operating Income
commencing in 2006 for overseeing the marketing, lease-up and continued
occupancy of the Partnership's apartment units, obtaining and monitoring the
Mortgage Loan, maintaining the books and records
of the Partnership,
selecting
and supervising the Partnership's Accountants, bookkeepers and other Persons
required to prepare and audit the
Partnership's
financial statements and tax
returns, and preparing and disseminating
reports on the status
of the Apartment
Housing and the Partnership, all as required by Article XIV of
this Agreement.
The Partners acknowledge that the Incentive
Management Fee is
being paid as an
inducement to the General Partner to operate the
Partnership
efficiently,
to
maximize occupancy and to increase the Net
Operating Income. The Incentive
Management Fee shall be payable from Net Operating Income in the manner and
priority set forth in Section 11.1 of this Agreement upon completion and
delivery of the annual audit pursuant to
Section 14.2(a) of this Agreement. If
the Incentive Management Fee is not paid in any year it
shall not accrue
for
payment in subsequent years.
(f) The
Partnership shall pay to the General Partner through the
Compliance
Period an annual Tax Credit Compliance Fee equal to 35% of Net
Operating Income
commencing in 2006 for the services of the General Partner in ensuring
compliance by the Partnership and the Apartment Housing with all Tax Credit
rules and regulations. The Tax Credit Compliance Fee shall be payable
from Net
Operating Income in the manner and
priority set forth in Section 11.1 of
this
Agreement upon completion and delivery of the
annual audit pursuant to Section
14.2(a) of this Agreement. If the Tax Credit Compliance Fee is not paid in
any
year it shall not accrue for payment in
subsequent years.
Section 9.3
Specific Powers of the General Partner.
Subject to the
other provisions of this Agreement, the General Partner, in
the Partnership's name and on its behalf,
may:
(a) employ,
contract and otherwise
deal with, from time
to time, Persons
whose services are necessary or appropriate
in connection
with management and
operation of the Partnership business, including, without limitation,
contractors, agents, brokers, Accountants and Management Agents
(provided that
the selection of any Accountant or
Management Agent has
received the Consent of
the Special Limited Partner) and attorneys,
on such terms as the General Partner
shall determine within the scope of this
Agreement;
(b) pay as a
Partnership expense
any and all costs and expenses associated
with the formation, development,
organization and
operation of the Partnership,
including the expense of annual audits, tax
returns and LIHTC compliance;
(c) deposit,
withdraw, invest, pay, retain and distribute the Partnership's
funds in a manner consistent with the
provisions of this Agreement;
(d) execute the
Construction Loan and the Mortgage; and
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(e) execute,
acknowledge and
deliver any and all instruments to effectuate
any of the foregoing.
Section 9.4
Authority Requirements.
During the
Compliance Period, the following provisions shall apply.
(a) Each of the
provisions of this
Agreement shall be
subject to, and the
General Partner covenants to act in accordance
with, the Tax Credit
Conditions
and all applicable federal, state and local
laws and regulations.
(b) The Tax
Credit Conditions and all such laws and regulations, as amended
or supplemented, shall govern the rights and
obligations of the Partners, their
heirs, executors, administrators,
successor and assigns,
and they shall control
as to any terms in this Agreement which are
inconsistent therewith, and any such
inconsistent terms of this Agreement shall
be unenforceable by or against any of
the Partners.
(c) Upon any dissolution of the Partnership or any transfer of the
Apartment Housing, no title or right to the possession and control of the
Apartment Housing and no right to collect rent therefrom shall pass to any
Person who is not, or does not become,
bound by the Tax
Credit Conditions in
a
manner that, in the opinion of counsel to the Partnership, would avoid a
recapture of Tax Credits thereof on the
part of the former owners.
(d) Any
conveyance
or transfer of title to all or any portion of the
Apartment Housing required or permitted under this Agreement shall in all
respects be subject to the Tax Credit
Conditions and all
conditions,
approvals
or other requirements of the rules and
regulations of any authority applicable
thereto.
Section 9.5
Limitations on General Partner's Power and Authority.
Notwithstanding
the provisions of this Article IX, the General
Partner
shall not:
(a) except as required by Section 9.4, act in contravention of this
Agreement;
(b) act in any
manner which would make it impossible to carry on the
ordinary business of the Partnership;
(c) confess a
judgment against the Partnership;
(d) possess
Partnership property, or assign the Partner's right in specific
Partnership property, for other than the
exclusive benefit of the Partnership;
(e) admit a Person as a General Partner except as provided in this
Agreement;
(f) directly or
indirectly transfer control of the General Partner;
(g) admit a
Person as a Limited
Partner or Special
Limited Partner except
as provided in this Agreement;
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<PAGE>
(h) violate any
provision of the Mortgage;
(i) cause the Apartment Housing apartment units to be rented to anyone
other than Qualified Tenants;
(j) violate the
Minimum Set-Aside Test or the Rent Restriction Test for the
Apartment Housing;
(k) allow the
Insurance to expire;
(l) permit the
Apartment Housing to be without utility service;
(m) cause any
recapture of the Tax Credits;
(n) permit any
creditor who makes a nonrecourse loan to the Partnership to
have, or to acquire at any time as a
result of making such loan, any direct or
indirect interest in the profits, income, capital or other property of the
Partnership, other than as a secured
creditor;
(o) commingle
funds of the Partnership with the funds of another Person; or
(p) fail to
cause the Partnership to make the Mortgage payment if the
Partnership fails to pay the same when due, subject to available funds,
including funds provided under Section 6.3
or Section 6.4;
(q) fail to
cause the Accountant to issue the reports specified in Sections
14.2(a) and (b) of this Agreement;
(r) take any
action which
requires the Consent of the Special Limited
Partner or the consent of the Limited Partner unless the General Partner has
received said Consent;
(s) allow the
Real Estate Taxes to
be unpaid if the
Partnership fails
to
pay the same when due; or
(t) pay any
real estate commission for the sale or refinancing of the
Apartment Housing;
(u) take any
action that would cause a termination of the Partnership;
(v) encumber the
Apartment Housing, except as provided herein;
(w) execute an
assignment for the benefit of creditors; or
(x) permit the
Partnership to make loans to any Person.
Section 9.6
Restrictions on Authority of General Partner.
Without
the Consent of the Special
Limited Partner the General Partner
shall not:
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(a) sell,
exchange, lease (except in the normal course of business to
Qualified Tenants) or otherwise dispose of
the Apartment Housing;
(b) incur indebtedness in the name of the Partnership other than the
Construction Loan and Mortgage, including, but not limited to, refinancing,
prepaying, or modifying the Construction
Loan or Mortgage;
(c) use
Partnership assets,
property or Improvements to secure the debt of
any Partners, their Affiliates, or any
third party;
(d) engage in
any transaction not expressly contemplated by this Agreement
in which the General Partner has an actual or
potential conflict of interest
with the Limited Partner or the Special
Limited Partner;
(e) contract
away the fiduciary
duty owed to the
Limited Partner and
the
Special Limited Partner at common law;
(f) take any
action which
would cause the Apartment Housing to fail to
qualify, or which would cause a termination or discontinuance of the
qualification of the Apartment Housing, as a "qualified low income housing
project" under Section 42(g)(1) of the Code, as amended, or any successor
thereto, or which would cause the Limited Partner to fail to obtain the
Projected Tax Credits or which would cause
the recapture of any LIHTC;
(g) make any
expenditure of funds, or commit to make any such expenditure,
other than in response to an emergency, except as provided for in the annual
budget approved by the Special Limited
Partner, as provided in Section 14.3(i)
hereof;
(h) cause the
merger or other reorganization of the Partnership;
(i) dissolve the
Partnership,
or sell or dispose of
all or
substantially
all of the Partnership's assets;
(j) acquire any
real or personal
property (tangible or intangible) in
addition to the Apartment Housing the aggregate value of which shall exceed
$10,000 (other than easement or similar
rights necessary or
appropriate for the
operation of the Apartment Housing);
(k) become personally liable on or in respect of, or guarantee, the
Mortgage or any other indebtedness of the
Partnership or any Person;
(l) loan any
money on behalf of the Partnership or pay any salary, fees or
other compensation to a General Partner or any Affiliate
thereof, except as
authorized by Section 9.2 and Section 9.9
hereof or specifically provided for in
this Agreement;
(m) substitute the Accountant, Construction Inspector, Contractor or
Management Agent, as named herein, or terminate, amend or modify the
Construction Contract or any other Project Document, or grant any material
waiver or consent thereunder;
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<PAGE>
(n) change
the nature of the business of the Partnership or cause the
Partnership to redeem or repurchase all or any portion of the Interest of a
Partner;
(o) cause the
Partnership to convert
the Apartment Housing
to cooperative
or condominium ownership;
(p) cause or
permit the Partnership to make loans to the General Partner or
any Affiliate;
(q) bring or
defend, pay, collect,
compromise, arbitrate,
resort to legal
action or otherwise adjust claims or
demands of or against the Partnership in an
amount that exceeds $5,000;
(r) reduce the amount of a construction budget line item in excess of
$5,000 (other than the construction
contingency) to provide funds for an overage
in another construction budget line item,
agree or consent to any changes in the
Plans and Specifications, to any change orders, or to any of the terms and
provisions of the Construction
Contract;
(s) cause any
funds to be paid to the General Partner or its Affiliates for
laundry service, cable hook-up, telephone
connection, computer access, satellite
connection, compliance monitoring, initial
rental set-up fee or similar service
or fee;
(t) on behalf
of the Partnership, file or cause to be filed a
voluntary
petition in bankruptcy under the Federal
Bankruptcy Code, or file or cause to be
filed a petition or answer seeking any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution or
similar relief under any statute, law
or rule;
(u) settle any
audit with the
Internal Revenue Service concerning the
adjustment or readjustment of any Partnership tax item, extend any statute of
limitations, or initiate or settle any judicial
review or action concerning the
amount or character of any Partnership tax
item; or
(v) make, amend
or revoke any tax election.
Section 9.7
Duties of General Partner.
The General
Partner agrees that it shall at all times:
(a) diligently
and faithfully devote such of its time to the
business of
the Partnership as may be necessary to properly conduct the affairs of the
Partnership;
(b) file and
publish all
certificates,
statements
or other instruments
required by law for the formation and
operation of the
Partnership as a limited
partnership in all appropriate
jurisdictions;
(c) cause the
Partnership to carry Insurance from an Insurance Company;
(d) have a
fiduciary responsibility for the safekeeping and use of all
funds and assets of the Partnership,
whether or not in its
immediate possession
or control;
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<PAGE>
(e) have a
fiduciary responsibility to not use or permit another to use
Partnership funds or assets in any manner except for the benefit of the
Partnership;
(f) use its best
efforts so that all
requirements
shall be met which
are
reasonably necessary to obtain or achieve (1) compliance with the Minimum
Set-Aside Test, the Rent Restriction Test,
and any other requirements necessary
for the Apartment Housing to initially
qualify, and to
continue to qualify, for
LIHTC; (2) issuance of all necessary
certificates of
occupancy, including
all
governmental approvals required to permit occupancy of all of the apartment
units in the Apartment Housing; (3) compliance with all provisions of the
Project Documents and (4) a reservation
and allocation of
LIHTC from the State
Tax Credit Agency;
(g) make
inspections of the Apartment Housing and assure that the
Apartment
Housing is in decent, safe, sanitary and good condition, repair and working
order, ordinary use and obsolescence
excepted, and make or cause to be made from
time to time all necessary repairs thereto (including external and structural
repairs) and renewals and replacements
thereof;
(h) pay,
before the same shall become delinquent and before penalties
accrue thereon all Partnership taxes,
assessments and other governmental charges
against the Partnership or its properties, and all of its other liabilities,
except to the extent and so long as the
same are being
contested in good
faith
by appropriate proceedings in such manners as not
to cause any material adverse
effect on the Partnership's property, financial condition or business
operations, with adequate reserves provided
for such payments;
(i) pay, before
the same becomes due or expires, the Insurance premium and
utilities for the Apartment Housing;
(j) permit,
and cause the
Management Agent to permit, the Special Limited
Partner and its representatives: (1) to
have access to the Apartment Housing and
personnel employed by the Partnership and by
the Management Agent
at all times
during normal business hours after reasonable notice; (2) to examine all
agreements, LIHTC compliance data and Plans
and Specifications;
and (3) to make
copies thereof;
(k) exercise
good faith in all
activities
relating to the
conduct of the
business of the Partnership, including the development, operation and
maintenance of the Apartment Housing, and shall take no action with
respect to
the business and property of the
Partnership which is not reasonably related to
the achievement of the purpose of the
Partnership;
(l) make any
Capital Contributions,
advances or loans
required to be made
by the General Partner under the terms of
this Agreement;
(m) establish and maintain all reserves
required to be
established
and
maintained under the terms of this
Agreement;
(n) cause the
Partnership to pay, before the same becomes due, the Mortgage
payment, subject to available funds,
including funds provided under Section 6.3
or Section 6.4;
(o) pay, before
the same becomes due, the Real Estate Taxes;
34
<PAGE>
(p) cause the
Management
Agent to manage the
Apartment Housing in
such a
manner that the Apartment Housing will be
eligible to receive LIHTC with respect
to 100% of the apartment units in the Apartment Housing. To that end, the
General Partner agrees, without limitation:
(1) to make all
elections requested
by the Special Limited Partner under Section 42 of the Code to allow the
Partnership or its Partners to claim the
Tax Credit; (2) to
file Form 8609 with
respect to the Apartment Housing as required, for at least the duration of
the
Compliance Period; (3) to operate the
Apartment Housing and cause the Management
Agent to manage the Apartment Housing so as to comply with the
requirements of
Section 42 of the Code, as amended, or any
successor thereto, including, but not
limited to, Section 42(g) and Section
42(i)(3) of the Code,
as amended, or any
successors thereto; (4) to make all
certifications
required by Section 42(l) of
the Code, as amended, or any successor
thereto; and (5) to operate the Apartment
Housing and cause the Management Agent to
manage the Apartment
Housing so as to
comply with all other Tax Credit
Conditions;
(q) cause the
Accountant to issue
the information
required in
accordance
with Sections 14.2(a) and (b);
(r) perform
such other acts as may
be expressly
required of it under
the
terms of this Agreement;
(s) maintain on its staff during construction and rent-up a trained and
experienced project manager who is responsible for the development and
construction of the Improvements, and responsible for obtaining
Completion of
Construction. In lieu of this employee, or if the project manager position
remains vacant for 21 days, the General Partner shall retain the services
of a
construction management firm, which firm shall be pre-approved
by the Special
Limited Partner; and
(t)
[intentionally omitted].
Section 9.8
Obligations to Repair and Rebuild Apartment Housing.
With
the approval of any lender, if such approval is required, any
Insurance proceeds received by the Partnership due to fire or other casualty
affecting the Apartment Housing will be utilized to repair and rebuild the
Apartment Housing in satisfaction of the conditions contained in Section
42(j)(4) of the Code and to the extent
required by any lender. Any such proceeds
received in respect of such event occurring
after the Compliance Period shall be
so utilized or, if permitted by the Project Documents and with the Consent of
the Special Limited Partner, shall be
treated as Sale or Refinancing Proceeds.
Section 9.9
Partnership Expenses.
(a) All of the
Partnership's expenses
shall be billed directly to and paid
by the Partnership to the extent practicable. Reimbursements to the General
Partner, or any of its Affiliates, by the
Partnership shall be allowed only from
the Partnership's Cash Expenses.
The General Partner
shall not be reimbursed if
the General Partner is obligated to pay the
same as an Operating
Deficit during
the Operating Deficit Guarantee Period, or by operation of law in
accordance
with the State limited partnership act as
amended, or subject to the limitations
on the reimbursement of such expenses set
forth herein in which case the General
Partner shall be responsible for payment of the expense.
For purposes of
this
35
<PAGE>
Section, Cash Expenses shall include fees
paid by the Partnership to the General
Partner or any Affiliate of the General
Partner permitted by
this Agreement and
the actual cost of goods, materials and administrative
services used for or
by
the Partnership, whether incurred by the General Partner,
an Affiliate of
the
General Partner or a nonaffiliated Person
in performing the foregoing functions.
As used in the preceding sentence, "actual cost of goods and
materials" means
the cost of the goods or services
must be no greater and
preferably
less than
the cost of the same goods or services from
non-Affiliated vendors, contractors,
or managers in the market area, and actual
cost of administrative services means
the pro rata cost of personnel (as if such persons were employees of the
Partnership) associated therewith, but in no event to exceed the
amount which
would be charged by nonaffiliated Persons
for comparable goods and services.
(b) Reimbursement to the General Partner or any of its Affiliates of
operating cash expenses pursuant to Subsection
(a) hereof shall be
subject to
the following:
(1) no such
reimbursement
shall be permitted for services for which the
General Partner or any of its Affiliates is
entitled to compensation by way of a
separate fee; and
(2) no such
reimbursement
shall be made for (A) rent or depreciation,
utilities, capital equipment or other such administrative items, and (B)
salaries, fringe benefits, travel expenses and other administrative items
incurred or allocated to any "controlling
person" of the General
Partner or any
Affiliate of the General Partner. For the purposes of this Section
9.9(b)(2),
"controlling person" includes, but is not limited to, any Person, however
titled, who performs functions for the General Partner
or any Affiliate of the
General Partner similar to those of: (i) chairman or member of the board of
directors; (ii) executive management, such as president, vice president or
senior vice president, corporate secretary or treasurer; (iii) senior
management, such as the vice president of an operating division who reports
directly to executive management; or (iv) those holding 5% or more equity
interest in such General Partner or any
such Affiliate of the General Partner or
a person having the power to direct or cause
the direction of such General
Partner or any such Affiliate of the General Partner, whether through the
ownership of voting securities, by contract
or otherwise.
Section 9.10.
General Partner Expenses.
The General
Partner or
Affiliates
of the General
Partner shall pay all
Partnership expenses which are not permitted to be reimbursed pursuant to
Section 9.9 and all expenses which are unrelated to the business of the
Partnership.
Section 9.11
Other Business of Partners.
Any Partner may engage independently or with others in other business
ventures wholly unrelated to the Partnership business of every nature and
description, including, without limitation, the acquisition, development,
construction, operation and management of real
estate projects and developments
of every type on their own behalf or on behalf of other partnerships, joint
ventures, corporations or other business ventures formed by them or in which
they may have an interest, including, without limitation, business ventures
similar to, related to or in direct or
indirect competition
with the Apartment
36
<PAGE>
Housing. Neither the Partnership nor any
Partner shall have any right by virtue
of this Agreement or the partnership
relationship
created hereby in or
to such
other ventures or activities or to the income or
proceeds derived
therefrom.
Conversely, no Person shall have any rights to
Partnership assets,
incomes or
proceeds by virtue of such other ventures
or activities of any Partner.
Section 9.12
Covenants, Representations and Warranties.
The General
Partner covenants,
represents and
warrants that the following
are presently true, will be true at the time of each Capital Contribution
payment made by the Limited Partner and will be true during the term
of this
Agreement, to the extent then
applicable.
(a) The Partnership is a duly organized limited partnership validly
existing under the laws of the State and has complied with all filing
requirements necessary for the protection of the limited liability of the
Limited Partner and the Special Limited
Partner.
(b) The
Partnership Agreement
and the Project
Documents are in full force
and effect and neither the Partnership nor the General Partner is in
breach or
violation of any provisions thereof.
(c) Improvements will be completed in a timely and
worker-like manner
in
accordance with all applicable requirements of all appropriate governmental
entities and the Plans and Specifications
of the Apartment Housing.
(d) The
Apartment Housing is
being operated in
accordance with
standards
and procedures that are prudent and customary for the operation of
properties
similar to the Apartment Housing.
(e) All
conditions to the funding of the Subordinate Loan and Mortgage
Loan
have been met.
(f) No Partner
has or will have any personal liability with respect to or
has or will have personally guaranteed the
payment of the Mortgage.
(g) The
Partnership is in
compliance with all
construction and use
codes
applicable to the Apartment Housing and is not in violation of any zoning,
environmental or similar regulations
applicable to the Apartment Housing.
(h) All
appropriate public utilities, including sanitary and storm
sewers,
water, gas and electricity, are currently available and will be operating
properly for all units in the Apartment
Housing at the time of
first occupancy
and throughout the term of the
Partnership.
(i) All roads
necessary for the full utilization of the Improvements have
either been completed or the necessary rights of way therefore have been
acquired by the appropriate governmental authority or have been
dedicated to
public use and accepted by said
governmental authority.
(j) The
Partnership has Insurance written by an Insurance Company.
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<PAGE>
(k) The
Partnership owns the fee simple interest in the Apartment
Housing.
(l) The
Construction Contract has been entered into between the
Partnership
and the Contractor; no other consideration or fee shall be paid to the
Contractor other than amounts set forth in
the Construction Contract.
(m) The General Partner will require the Accountant to depreciate
Partnership items in accordance with Exhibit G
attached hereto and incorporated
herein by this reference and provide the information required by Sections
14.2(a) and (b) of this Agreement.
(n) To the
best of the General Partner's knowledge: (1) no Hazardous
Substance has been disposed of, or released
to or from, or otherwise now exists
in, on, under or around, the Apartment Housing and (2) no aboveground or
underground storage tanks are now or have ever
been located on or under the
Apartment Housing. The General Partner will
not install or allow to be installed
any aboveground or underground storage tanks on the Apartment
Housing. The
General Partner covenants that the Apartment Housing shall be kept free of
Hazardous Substance and shall not be used to
generate, manufacture, refine,
transport, treat, store, handle, dispose of, transfer, produce or process
Hazardous Substance, except in connection with the normal maintenance and
operation of any portion of the
Apartment Housing. The General Partner shall
comply, or cause there to be compliance,
with all applicable
Federal, state and
local laws, ordinances, rules and regulations with respect to Hazardous
Substance and shall keep, or cause to be
kept, the Apartment
Housing free and
clear of any liens imposed pursuant to such laws, ordinances, rules and
regulations. The General Partner must promptly notify the Limited Partner and
the Special Limited Partner in writing (3) if
it knows, or suspects or believes
there may be any Hazardous Substance in or around any part of the Apartment
Housing, any Improvements constructed on the Apartment
Housing, or the soil,
groundwater or soil vapor, (4) if the General Partner or the
Partnership may be
subject to any threatened or pending
investigation by any
governmental
agency
under any law, regulation or ordinance
pertaining to any
Hazardous
Substance,
and (5) of any claim made or threatened by
any Person, other than a governmental
agency, against the Partnership or General Partner
arising out of or resulting
from any Hazardous Substance being present
or released in, on or around any part
of the Apartment Housing.
(o) The General Partner has not executed and will not execute any
agreements with provisions contradictory to, or in opposition
of the provisions
of this Agreement.
(p) The
Partnership
will allocate to the Limited
Partner the
Projected
Annual Tax Credits, or the Revised
Projected Tax Credits, if applicable.
(q) No charges, liens or encumbrances exist with respect to the
Apartment
Housing other than those which are created
or permitted by the Project Documents
or Mortgage or are noted or excepted in the
Title Policy.
(r) The
Partnership
shall receive copies of reports prepared by the
Construction Inspector pursuant to the Disbursement
Agreement and ensure
that
the Architect of Record's responsibilities include, but are not limited to,
preparing and overseeing the construction
close-out procedures
upon completion;
inspecting for and overseeing resolution of the Contractor's final punch list
items; receiving and approving operation
and maintenance
manuals;
collecting,
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reviewing, approving and forwarding to the
Partnership all warranties, check key
count and key schedules; and confirming
turnover of spare parts and materials.
(s) The
buildings on the Apartment Housing site constitute or shall
constitute a "qualified low-income housing project" as
defined in Section 42(g)
of the Code, and as amplified by the
Treasury Regulations
thereunder.
In this
connection, not later than December 31 of the first year in
which the Partners
elect the LIHTC to commence in accordance
with the Code, the
Apartment Housing
will satisfy the Minimum Set-Aside
Test.
(t) All accounts
of the Partnership
required to be
maintained
under the
terms of the Project Documents,
including,
without limitation,
any reserves in
accordance with Article VIII hereof,
are currently
funded to required
levels,
including levels required by any
governmental or lending authority.
(u) The General
Partner has not lent or otherwise advanced any funds to the
Partnership other than its Capital
Contribution,
or Operating Deficit
Loan, if
applicable, and the Partnership has no unsatisfied obligation to make any
payments of any kind to the General Partner
or any Affiliate thereof.
(v) No event has
occurred which constitutes a default under any of the
Project Documents.
(w) No event has
occurred which has caused, and the General Partner has not
acted in any manner which will cause (1) the Partnership to be treated for
federal income tax purposes as an
association taxable as a corporation, (2) the
Partnership to fail to qualify as a limited
partnership
under the Act, or
(3)
the Limited Partner to be liable for
Partnership obligations; provided however,
the General Partner shall not be in breach
of this representation
if the action
causing the Limited Partner to be liable for the
Partnership
obligations
is
undertaken by the Limited Partner.
(x) No event or
proceeding,
including,
but not limited to, any legal
actions or proceedings before any court, commission, administrative body or
other governmental authority, and acts of any governmental authority having
jurisdiction over the zoning or land use laws applicable to the Apartment
Housing, has occurred the continuing effect of which has: (1)
materially
or
adversely affected the operation of the
Partnership or the
Apartment Housing;
(2) materially or adversely affected the ability of the General
Partner to
perform its obligations hereunder or under any other
agreement with respect to
the Apartment Housing; or (3) prevented the Completion of
Construction of
the
Improvements in substantial conformity with the Project
Documents, other than
legal proceedings which have been bonded against (or as to which other
adequate financial security has been issued) in a manner as to
indemnify the
Partnership against loss; provided, however, the foregoing does not apply
to
matters of general applicability which would adversely affect the
Partnership,
the General Partner, Affiliates of the General Partner
or the Apartment Housing
only insofar as they or any of them are
part of the general public.
(y) Neither the
Partnership nor the
General Partner has
any liabilities,
contingent or otherwise, which have not
been disclosed in writing to the Limited
Partner and the Special Limited Partner and which in the aggregate
affect the
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ability of the Limited Partner to obtain the anticipated benefits of its
investment in the Partnership.
(z) The General
Partner will cause
construction
of the Improvements to
commence and thereafter will cause the Contractor to diligently
proceed with
construction of the Improvements
according to the Plans
and Specifications
so
that the Improvements can be completed by
the Completion Date.
(aa) The General
Partner has contacted
the local tax assessor, or similar
representative, and has determined that the Real Estate Taxes are
accurate and
correct, and that the Partnership will not
be required to pay any more for real
estate
