EXHIBIT 10.1 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PALADIN REALTY INCOME PROPERTIES, L.P.

EXHIBIT 10.1

 

 

 

 

AMENDED AND RESTATED

 

AGREEMENT OF LIMITED PARTNERSHIP

 

OF

 

PALADIN REALTY INCOME PROPERTIES, L.P.

 

 

 

 

February 28, 2005

TABLE OF CONTENTS

 

 

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AMENDED AND RESTATED

 

AGREEMENT OF LIMITED PARTNERSHIP

 

OF

 

PALADIN REALTY INCOME PROPERTIES, L.P.

 

THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PALADIN REALTY INCOME PROPERTIES, L.P. (this “ Agreement ”), dated as of February 28, 2005, is entered into by and among PALADIN REALTY INCOME PROPERTIES, INC., a Maryland corporation, as general partner (the “ General Partner ”), and those Persons who have executed this Agreement or a counterpart hereof, or who become parties hereto pursuant to the terms of this Agreement.

 

W I T N E S S E T H

 

WHEREAS, the General Partner and the Initial Limited Partner formed Paladin Realty Income Properties, L.P. (the “ Partnership ”) as a limited partnership pursuant to the Act by filing a certificate of limited partnership with the Secretary of State of the State of Delaware on October 31, 2003;

 

WHEREAS, the General Partner and the Initial Limited Partner entered into that certain Agreement of Limited Partnership of Paladin Realty Income Properties, L.P., dated as of October 31, 2003 (the “ Prior Partnership Agreement ”), providing for the organization of the Partnership upon the terms and conditions set forth therein;

 

WHEREAS, the parties thereto desire to amend and restate the Prior Partnership Agreement in its entirety pursuant to the terms hereof; and

 

WHEREAS, this Agreement shall constitute the “partnership agreement” (within the meaning of the Act) of the Partnership, and shall be binding upon all Persons now or at any time hereafter who are Partners;

 

NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending legally to be bound, hereby agree as follows:

 

ARTICLE 1

DEFINED TERMS

 

Capitalized terms used in this Agreement (including exhibits, schedules and amendments) shall have the meanings set forth below or in the Section of this Agreement referred to below, except as otherwise expressly indicated or limited by the context in which they appear in this Agreement. All terms defined in this Agreement in the singular have the same meanings when used in the plural and vice versa. Accounting terms used but not otherwise defined shall have the meanings given to them under GAAP.

1.1    “Act” means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, and any successor to such statute.

 

1.2    “Additional Limited Partner” means a Person that has executed and delivered an additional limited partner signature page in the form attached hereto and has been admitted to the Partnership as a Limited Partner pursuant to Section 12.2.

 

1.3    “Adjusted Capital Account Deficit” means with respect to any Partner, the negative balance, if any, in such Partner’s Capital Account as of the end of any relevant Fiscal Year, determined after giving effect to the following adjustments:

 

(a)    credit to such Capital Account any portion of such negative balance which such Partner (i) is treated as obligated to restore to the Partnership pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, or (ii) is deemed to be obligated to restore to the Partnership pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations; and

 

(b)    debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.

 

This definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

1.4    “Advisor” means Paladin Realty Advisors, LLC, the advisor to the Partnership and the General Partner pursuant to the Advisory Agreement.

 

1.5    “Advisory Agreement” means that certain Advisory Agreement by and among the Advisor, the Partnership and the General Partner dated as of February 28, 2005.

 

1.6    “Affiliate” means, with respect to a specified Person, any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the specified Person. For this purpose, the term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

1.7    “Agreed Value” means (a) in the case of any Contributed Property, the fair market value of such Contributed Property at the time such property is contributed as determined by the General Partner and agreed to by the contributing party, reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed, and (b) in the case of any property distributed to a Partner by the Partnership, the Partnership’s Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Partner upon such distribution or to which such property is subject at the time of distribution.

 

1.8    “Agreement” means this Amended and Restated Agreement of Limited Partnership of Paladin Realty Income Properties, L.P., as originally executed and as amended, modified, supplemented or restated from time to time, as the context requires.

 

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1.9    “Appraised Value” means the value of the Partnership Assets as determined by an appraisal made by an Independent Appraiser.

 

1.10    “Articles of Incorporation” means the General Partner’s Articles of Incorporation, filed with the Maryland State Department of Assessments and Taxation, or other organizational document governing the General Partner, as amended, modified, supplemented or restated from time to time.

 

1.11    “Assignee” means a Person to whom one or more Partnership Units have been transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5.

 

1.12    “Available Operating Cash” means the cash flows derived by the Partnership from the operation of the Partnership’s business (other than any Net Capital Event Proceeds or Capital Contributions) before any deduction for depreciation or amortization and after deduction of:

 

(a)    all operating costs and expenses including taxes;

 

(b)    all payments of principal, interest and other charges in respect of any Partnership indebtedness;

 

(c)    all expenditures for capital improvements to the Partnership assets or property; and

 

(d)    all reserves, whether for working capital, debt repayment, new portfolio investments or otherwise (including for the redemption of Partnership Units) that are established by the General Partner in the exercise of its sole and absolute discretion.

 

1.13    “Book Gain” or “Book Loss” means the gain or loss recognized by the Partnership for purposes of Section 704(b) of the Code in any Fiscal Year by reason of any sale or disposition with respect to any of the property or assets of the Partnership. Such Book Gain or Book Loss shall be computed by reference to the Carrying Value of such property or assets as of the date of such sale or disposition, rather than by reference to the tax basis of such property or assets as of such date, and each and every reference herein to “gain” or “loss” shall be deemed to refer to Book Gain or Book Loss, rather than to tax gain or tax loss, unless the context manifestly otherwise requires.

 

1.14    “Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in Los Angeles, California are authorized or required by law to close.

 

1.15    “Capital Account” has the meaning set forth in Section 4.8.

 

1.16    “Capital Contribution” means, with respect to any Partner, any cash, cash equivalents or the Agreed Value of Contributed Property that such Partner contributes or is deemed to contribute to the Partnership pursuant to Article 4 hereof.

 

1.17    “Capital Transaction” means (a) any sale, exchange, taking by eminent domain, damage, destruction or other disposition of all or any part of the assets of the Partnership, any

 

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Subsidiary or any other Person in which the Partnership holds a direct or indirect interest, other than tangible personal property disposed of in the ordinary course of business; or (b) any financing or refinancing of any indebtedness of the Partnership, any Subsidiary or any other Person in which the Partnership holds a direct or indirect interest; provided, that the receipt by the Partnership of Capital Contributions shall not constitute a Capital Transaction; and provided further that no Terminating Capital Transaction shall constitute a Capital Transaction.

 

1.18    “Carrying Value” means, except as otherwise provided herein, (a) with respect to a Contributed Property, the fair market value of such Contributed Property at the time such property is contributed, as determined by the General Partner and agreed to by the contributing partner, without reduction for any liabilities either assumed by the Partnership upon such contribution or to which such property was subject when contributed, reduced (but not below zero) by all Depreciation with respect to such property charged to the Partners’ Capital Accounts, and (b) with respect to any other Partnership Asset, the adjusted basis of such Partnership Asset for Federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted in accordance with Section 4.8(b) from time to time to reflect changes, additions or other adjustments to the Carrying Value, as deemed appropriate by the General Partner.

 

1.19    “Cash Amount” means an amount of cash equal to the Value of the REIT Stock Amount on the Valuation Date.

 

1.20    “Certificate” means the Certificate of Limited Partnership of the Partnership, filed on October 31, 2003, as amended, restated, supplemented or otherwise modified from time to time as herein provided in accordance with the Act.

 

1.21    “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any subsequent Federal law of similar import, and, to the extent applicable, any Treasury Regulations promulgated thereunder.

 

1.22    “Common Stock” means a share of the common stock of the General Partner, par value $.01 per share. Common Stock may be issued in one or more classes or series in accordance with the terms of the Articles of Incorporation. If there is more than one class or series of Common Stock, the term “Common Stock” shall, as the context requires, be deemed to refer to the class or series of Common Stock that correspond to the class or series of Partnership Units for which the reference to Common Stock is made.

 

1.23    “Consent” means the consent or approval of a proposed action by a Partner given in accordance with Section 14.2 hereof.

 

1.24    “Consent of the Outside Limited Partners” means the Consent of the Outside Limited Partners holding a number of Partnership Units greater than fifty percent (50%) of the aggregate Partnership Units held by all Outside Limited Partners.

 

1.25    “Contributed Property” means each property or other asset (but excluding cash and cash equivalents), in such form as may be contributed by a Partner to the Partnership as permitted by the Act.

 

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1.26    “Depreciation” means, for each Fiscal Year, 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; provided, that if the Carrying Value of an asset differs from its adjusted basis for Federal income tax purposes at the beginning of any such year or other period, Depreciation shall be determined in the manner described in Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) or 1.704-3(d)(2), whichever is applicable, and if such asset has a zero adjusted tax basis, Depreciation shall be an amount determined under any reasonable method selected by the General Partner.

 

1.27    “Effective Date” means the date of first closing of the offering of Common Stock pursuant to the Registration Statement.

 

1.28    “8% Return” means, with respect to the General Partner, an amount calculated like simple interest at the rate of eight percent (8%) per annum calculated on the varying daily balances of Invested Capital of the General Partner during the period to which the 8% Return relates, and determined on the basis of a 360-day year/30-day month, cumulative for the period for which such 8% Return is being determined.

 

1.29    “8% Return Account” means, with respect to the General Partner, as of any relevant date, an amount equal to the excess of (i) the 8% Return that has accrued with respect to the Invested Capital of the General Partner through such date, over (ii) the sum of (A) the cumulative distributions of Available Cash and Net Capital Event Proceeds made to the General Partner prior to such relevant date pursuant to Section 5.1 hereof, and (B) the cumulative amounts paid to the General Partner in redemption of its Partnership Units pursuant to Section 8.6(g) as of such date, other than such distributions and payments that are applied to reduce the Unrecovered Contribution Account of the General Partner. All amounts distributed and paid to the General Partner pursuant to Sections 5.1 and 8.6(g) shall first be applied to reduce the Unrecovered Contribution Account of the General Partner until the balance of such Unrecovered Contribution Account equals zero ($0), and then shall be applied to reduce the 8% Return Account of the General Partner.

 

1.30    “Entity” means any general partnership, limited liability company, proprietorship, corporation, joint venture, joint-stock company, limited partnership, limited liability partnership, business trust, firm, trust, estate, governmental entity, cooperative, association or other foreign or domestic enterprise.

 

1.31    “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time (or any corresponding provisions of succeeding laws).

 

1.32    “Fiscal Year” means the fiscal year of the Partnership and shall be the same as its taxable year, which shall be the calendar year unless otherwise determined by the General Partner in accordance with the Code.

 

1.33    “GAAP” means United States generally accepted accounting principles, as in effect from time to time.

 

1.34    “General Partner” means Paladin Realty Income Properties, Inc., a Maryland corporation, and any successor as general partner of the Partnership.

 

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1.35    “General Partner Interest” means a Partnership Interest held by the General Partner, in its capacity as general partner. A General Partner Interest may be expressed as a number of Partnership Units.

 

1.36    “Incapacity” or “Incapacitated” means:

 

(a)    as to any individual Partner, death, total physical disability or entry by a court of competent jurisdiction adjudicating him incompetent to manage his person or his estate;

 

(b)    as to any corporation that is a Partner, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter;

 

(c)    as to any partnership that is a Partner, the dissolution and commencement of winding up of the partnership;

 

(d)    as to any estate that is a Partner, the distribution by the fiduciary of the estate’s entire interest in the Partnership;

 

(e)    as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee); or

 

(f)    as to any Partner, the bankruptcy of such Partner, which shall be deemed to have occurred when:

 

(i)    the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect;

 

(ii)    the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner;

 

(iii)    the Partner executes and delivers a general assignment for the benefit of the Partner’s creditors;

 

(iv)    the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (ii) above;

 

(v)    the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner’s assets;

 

(vi)    any proceeding seeking liquidation, reorganization or other relief of or against such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof;

 

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(vii)    the appointment without the Partner’s consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment; or

 

(viii)    an appointment referred to in clause (vii) which has been stayed is not vacated within ninety (90) days after the expiration of any such stay.

 

1.37    “Indemnitee” means

 

(a)    any Person made a party to a proceeding by reason of its status as:

 

(i)    the General Partner,

 

(ii)    a Limited Partner,

 

(iii)    the Advisor,

 

(iv)    a director, trustee, manager, member or officer of the Partnership, the General Partner or the Advisor, or

 

(v)    a director, trustee, manager, member or officer of any other Entity, serving in such capacity at the request of the Partnership, the General Partner or the Advisor, acting on behalf of the Partnership or the General Partner, or

 

(b)    such other Persons (including Affiliates of the General Partner) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion.

 

1.38    “Independent Appraiser” means an appraiser of real estate with no material current or prior business or personal relationship with the Advisor, the Partnership, the General Partner or the directors of the General Partner, that, in the determination of the General Partner, is qualified to appraise real estate by virtue of being engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Partnership. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive evidence of such qualification.

 

1.39    “Initial Limited Partner” means Paladin Realty Advisors, LLC.

 

1.40    “Invested Capital” means, with respect to the General Partner, as of any relevant date, an amount equal to the excess of (i) the aggregate amount of cash contributed or deemed contributed by the General Partner to the Partnership from the gross proceeds of the issuance by the General Partner of REIT Stock or other equity Securities pursuant to Article IV hereof, over (ii) the sum of (A) the cumulative distributions of Net Sales Proceeds made to the General Partner pursuant to Section 5.1(c) as of such date, and (B) the cumulative amounts paid to the General Partner in redemption of its Partnership Units pursuant to Section 8.6(g) as of such date.

 

1.41    “IRS” shall mean the Internal Revenue Service of the United States.

 

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1.42    “Lien” means any lien, security interest, mortgage, deed of trust, charge, claim, encumbrance, pledge, option, right of first offer or first refusal and any other right or interest of others of any kind or nature, actual or contingent, or other similar encumbrance of any nature whatsoever.

 

1.43    “Limited Partner” means, prior to the admission of the first Additional Limited Partner to the Partnership, the Initial Limited Partner, and thereafter any Person named as a limited partner of the Partnership in Exhibit A , as such Exhibit may be amended from time to time, upon the execution and delivery by such Person of an additional limited partner signature page, including any Additional Limited Partner or Substituted Limited Partner in each case, in such Person’s capacity as a limited partner of the Partnership.

 

1.44    “Limited Partner Interest” means a Partnership Interest of a Limited Partner in the Partnership. A Limited Partner Interest may be expressed as a number of Partnership Units.

 

1.45    “Liquidating Event” has the meaning set forth in Section 13.1 hereof.

 

1.46    “Liquidator” has the meaning set forth in Section 13.2 hereof.

 

1.47    “Listing Event” means the listing of the REIT Stock on a national securities exchange or quotation of the REIT Stock on the National Market System of the Nasdaq Stock Market.

 

1.48    “Listing Date” means the date on which a Listing Event occurs.

 

1.49    “Market Value” means the market value of the REIT Stock as of the date of a Listing Event, which shall be equal to the product of (a) the number of shares of REIT Stock issued and outstanding at the time of the Listing Event, multiplied by (b) the average Listed Market Price (as defined below) of a share of REIT Stock for the 30 trading days beginning on the 180 ^th day after the Listing Date. The “Listed Market Price” of a share of REIT Stock for each such trading day shall be the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported on the national securities exchange on which the REIT Stock is listed for trading, or, if the REIT Stock is not listed for trading on a national securities exchange, as reported by the Nasdaq Stock Market.

 

1.50    “Nasdaq Stock Market” means the National Market of the National Association of Securities Dealers, Inc. Automated Quotation System.

 

1.51    “NASAA Guidelines” means the North American Securities Administrators Association, Inc. Statement of Policy Regarding Real Estate Investment Trusts.

 

1.52    “Net Capital Event Proceeds” means, with respect to any Partnership Asset (or portion thereof), the proceeds, if any, with respect to a Capital Transaction related to such Partnership Asset, net of (a) any costs and expenses incurred in connection with such Capital Transaction, (b) any of such proceeds which are used to repay indebtedness, (c) any insurance proceeds applied to restoration, repair or rebuilding, and (d) any proceeds of business interruption insurance, and after setting aside appropriate reserves, as determined by the General Partner in its sole and absolute discretion.

 

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1.53    “Net Sales Proceeds” means any Net Capital Event Proceeds other than proceeds from any transaction or event described under clause (b) of the definition herein of Capital Transaction; provided, that the receipt by the Partnership of Capital Contributions shall not constitute Net Sales Proceeds; and provided further that the proceeds of a Terminating Capital Transaction shall not constitute Net Sales Proceeds.

 

1.54    “Nonrecourse Deductions” has the meaning set forth in Sections 1.704-2(b)(1) and 1.704-2(c) of the Treasury Regulations.

 

1.55    “Nonrecourse Liabilities” has the meaning set forth in Section 1.704-2(b)(3) of the Treasury Regulations.

 

1.56    “Notice of Redemption Request” means a notice of redemption request substantially in the form of Exhibit B attached hereto.

 

1.57    “Outside Limited Partners” means the Limited Partners, excluding the Initial Limited Partner and any Limited Partner that is an Affiliate of the General Partner or the Initial Limited Partner.

 

1.58    “Partner” means a General Partner or a Limited Partner, and “Partners” means the General Partner and the Limited Partners, collectively.

 

1.59    “Partner Minimum Gain” means an amount, with respect to each Partner’s 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 Treasury Regulations Section 1.704-2(i)(3).

 

1.60    “Partner Nonrecourse Debt” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(4).

 

1.61    “Partner Nonrecourse Deductions” has the meaning set forth in Treasury Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable year shall be determined in accordance with the rules of Treasury Regulations Section 1.704-2(i)(2).

 

1.62    “Partnership” means Paladin Realty Income Properties, L.P., and any successor thereto.

 

1.63    “Partnership Asset” means the interest of the Partnership in any Entity or security (whether in corporate securities, equity, debt or hybrid securities, partnership or joint venture interests, other contractual rights or otherwise), or any other Real Estate Assets or other assets owned, directly or indirectly, by the Partnership, as determined by the General Partner.

 

1.64    “Partnership Interest” means the entire ownership interest of a Partner in the Partnership at any particular time which represents a Capital Contribution by such Partner and which includes the right of such Partner to any and all benefits to which such Partner may be entitled as provided in this Agreement, together with the obligations of such Partner to comply with all terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Units.

 

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1.65    “Partnership Minimum Gain” has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in a Partnership Minimum Gain, for a Partnership taxable year shall be determined in accordance with the rules of Treasury Regulations Section 1.704-2(d).

 

1.66    “Partnership Record Date” means the record date established by the General Partner for the distribution by the Partnership of Available Operating Cash, Net Capital Event Proceeds or other Partnership Assets pursuant to Section 5.1 hereof, which record date shall be the same as the record date established by the General Partner for a distribution to its stockholders of some or all of its portion of such distribution by the Partnership.

 

1.67    “Partnership Unit” means a unit of Partnership Interest with the rights, powers and duties set forth herein, designated as such on Exhibit A and expressed in the number set forth on Exhibit A , as such exhibit may be amended from time to time.

 

1.68    “Percentage Interest” means, as to each Partner, the percentage determined by dividing the total number of Partnership Units owned by such Partner by the aggregate number of Partnership Units then issued and outstanding, as set forth on Exhibit A , as such exhibit may be amended from time to time.

 

1.69    “Permitted Transferee” means with respect to a Person, (a) any Affiliate of such Person, (b) the spouse of such Person or any ancestor, descendent or sibling of such Person or of the spouse of such Person, or (c) any trust for the benefit of such Person or any other person described in clause (b) of this Section 1.68.

 

1.70    “Person” means any individual or Entity, and the heirs, executors, administrators, legal representatives, successors and assigns of such individual or Entity where the context so permits.

 

1.71    “Profits” and “Losses” means, for each Fiscal Year or other period for which allocations to Partners are made, an amount equal to the Partnership’s taxable income or loss for such period determined in accordance with Federal income tax principles, with the following adjustments:

 

(a)    any income of the Partnership that is exempt from Federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this provision shall be added to such taxable income or loss;

 

(b)    any expenditure of the Partnership described in Section 705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Treasury Regulations, and not otherwise taken into account in computing Profits or Losses pursuant to this provision, shall be subtracted from such taxable income or loss;

 

(c)    in the event the Carrying Value of any Partnership asset is adjusted pursuant to this Agreement, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses, and shall be allocated in accordance with the provisions of Article 6;

 

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(d)    Book Gain or Book Loss from a Capital Transaction shall be taken into account in lieu of any tax gain or tax loss recognized by the Partnership by reason of such Capital Transaction;

 

(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 in this Agreement;

 

(f)    to the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or Section 743(b) of the Code is required pursuant to Treas. Reg. § 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner’s interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the Partnership asset) or loss (if the adjustment decreases the basis of the Partnership asset) from the disposition of the Partnership asset and shall be taken into account for purposes of computing Profits or Losses; and

 

(g)    any items which are specially allocated pursuant to Section 6.2 shall not be taken into account in computing Profits or Losses.

 

If the Partnership’s taxable income or loss for such Fiscal Year or other period, as adjusted in the manner provided above, is a positive amount, such amount shall be the Partnership’s Profits for such Fiscal Year or other period; and if a negative amount, such amount shall be the Partnership’s Losses for such Fiscal Year or other period.

 

1.72    “Prohibited Transferee” means any Person who is a:

 

(a)    person or entity who is a “designated national,” “specially designated national,” “specially designated terrorist,” “specially designated global terrorist,” “foreign terrorist organization,” or “blocked person” within the definitions set forth in the Foreign Assets Control Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended;

 

(b)    person acting on behalf of, or an entity owned or controlled by, any government against whom the United States maintains economic sanctions or embargoes under the Regulations of the United States Treasury Department, 31 C.F.R., Subtitle B, Chapter V, as amended, including, but not limited to, the “Government of Sudan,” the “Government of Iran,” the “Government of Libya,” and the “Government of Iraq;” or

 

(c)    person or entity subject to additional restrictions imposed by the following statutes or Regulations and Executive Orders issued thereunder: the Trading with the Enemy Act, 50 U.S.C. app. §§1 et. seq., the Iraq Sanctions Act, Pub. L. 101-513, Title V, §§ 586 to 586J, 104 Stat. 2047, the National Emergencies Act, 50 U.S.C. §§ 1601 et. seq., the Antiterrorism and Effective Death Penalty Act of 1996, Pub. L. 104-132, 110 Stat. 1214-1319, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., the United Nations Participation Act, 22 U.S.C. § 287c, the International Security and Development Cooperation Act, 22 U.S.C. § 2349aa-9, the Nuclear Proliferation Prevention Act of 1994, Pub. L. 103-236, 108 Stat. 507, the Foreign Narcotics Kingpin Designation Act, 21 U.S.C. §§ 1901 et. seq., the Iran and Libya

 

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Sanctions Act of 1996, Pub. L. 104-172, 110 Stat. 1541, the Cuban Democracy Act, 22 U.S.C. §§ 6001 et seq., the Cuban Liberty and Democratic Solidarity Act, 22 U.S.C. §§ 6021-91, and the Foreign Operations, Export Financing and Related Programs Appropriations Act, 1997, Pub. L. 104-208, 110 Stat. 3009-172, or any other law of similar import as to any non-U.S. country, as each such Act or law has been or may be amended, adjusted, modified, or reviewed from time to time.

 

1.73    “Real Estate Assets” means unimproved and improved real property, real estate-related assets and any direct or indirect interest therein (including, without limitation, fee or leasehold interests, options, leases, partnership and joint venture interests, equity and debt securities of entities that own real estate, first or second mortgages on real property, mezzanine loans secured by junior liens on real property, preferred equity interests secured by a property owner’s interest in real property and other contractual rights in real estate).

 

1.74    “Redeeming Partner” has the meaning set forth in Section 8.6.

 

1.75    “Redemption Amount” means either the Cash Amount or the REIT Stock Amount, as determined by the General Partner in its sole and absolute discretion.

 

1.76    “Redemption Right” has the meaning set forth in Section 8.6.

 

1.77    “Registration Statement” means the Registration Statement on Form S-11 to be filed by the General Partner with the Securities and Exchange Commission, and any amendments thereto made at any time.

 

1.78    “REIT” means a “real estate investment trust” as defined under Section 856 of the Code.

 

1.79    “REIT Notice” has the meaning set forth in Section 8.6(g).

 

1.80    “REIT Requirements” has the meaning set forth in Section 5.2.

 

1.81    “REIT Stock” means the Common Stock and all other shares of capital stock of the General Partner.

 

1.82    “REIT Stock Amount” means a number of shares of REIT Stock equal to the number of Partnership Units offered by redemption by a Redeeming Partner; provided that in the event that the General Partner issues to all holders of REIT Stock rights, options, warrants, or convertible or exchangeable securities entitling stockholders of the General Partner to acquire REIT Stock, or any other securities or property (collectively, the “rights”), then the REIT Stock Amount shall also include such rights that a holder of that number of shares of REIT Stock would be entitled to receive.

 

1.83    “Securities Act” means the Securities Act of 1933, as amended.

 

1.84    “Specified Redemption Date” means the tenth (10 ^th ) Business Day after receipt by the General Partner of a Notice of Redemption Request (or, in the case of the General Partner exercising the Redemption Right, after the date of the General Partner’s receipt of a REIT Notice).

 

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1.85    “Stock Option Plans” means, collectively, any and all plans adopted from time to time by the General Partner pursuant to which REIT Stock is issued, or options to acquire REIT Stock are granted, to employees or directors of the General Partner, employees of the Partnership or employees of their respective Affiliates in consideration for services or future services.

 

1.86    “Subsidiary” means, with respect to any Person, any Entity of which a majority of the voting power or the voting equity securities, and/or the outstanding equity interests (whether or not voting), is owned, directly or indirectly, by such Person.

 

1.87    “Substituted Limited Partner” means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4 hereof.

 

1.88    “Terminating Capital Transaction” means any sale or other disposition (other than a deemed disposition pursuant to Code Section 708(b)(1)(B) and the Treasury Regulations thereunder) of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership.

 

1.89    “Termination Event” means any termination of the Advisor as advisor to the Partnership and the General Partner under the terms of the Advisory Agreement, other than any termination for “Cause” (as defined in the Advisory Agreement) and other than any termination of the Advisory Agreement due to the occurrence of a Listing Event.

 

1.90    “Transfer” means to give, sell, assign, pledge, hypothecate, devise, bequeath, or otherwise dispose of, transfer, or permit to be transferred, during life or at death. The word “Transfer,” when used as a noun, shall mean any Transfer transaction.

 

1.91    “Treasury Regulations” means the Federal income tax regulations, including any temporary or proposed regulations, promulgated under the Code, as such Treasury Regulations may be amended from time to time (it being understood that all references herein to specific sections of the Treasury Regulations shall be deemed also to refer to any corresponding provisions of succeeding Treasury Regulations).

 

1.92    “Unrecovered Contribution Account” means, with respect to the General Partner, as of any relevant date, the excess of (i) the aggregate amount of cash contributed or deemed contributed by the General Partner to the Partnership pursuant to the provisions of Article IV as of such date, over (ii) the sum of (A) the cumulative distributions of Available Cash and Net Capital Event Proceeds made to the General Partner prior to such relevant date pursuant to Section 5.1 hereof, and (B) the cumulative amounts paid to the General Partner in redemption of its Partnership Units pursuant to Section 8.6(g) as of such date. All amounts distributed and paid to the General Partner pursuant to Sections 5.1 and 8.6(g) shall first be applied to reduce the Unrecovered Contribution Account of the General Partner until the balance of such Unrecovered Contribution Account equals zero ($0), and then shall be applied to reduce the 8% Return Account of the General Partner.

 

1.93    “Valuation Date” means the date of receipt by the General Partner of a Notice of Redemption Request (or, in the case of the General Partner exercising the Redemption Right, the date of the General Partner’s receipt of a REIT Notice) or, if such date is not a Business Day, the first Business Day thereafter.

 

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1.94    “Value” means, with respect to a share of REIT Stock, (a) if REIT Stock is traded on a national securities exchange, reported through the Nasdaq Stock Market or otherwise traded over-the-counter, the average of the daily Market Price (as defined below) for shares of REIT Stock for the ten (10) consecutive trading days immediately preceding the Valuation Date, or (b) if REIT Stock is not traded in a manner described in clause (a), the value of a share of REIT Stock as determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. The “Market Price” for each such trading day shall be (i) the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner; or (ii) if no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or (iii) if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten (10) days prior to the date in question) for which prices have been so reported. In the event the REIT Stock Amount includes rights that a holder of REIT Stock would be entitled to receive, then the Value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate.

 

ARTICLE 2

ORGANIZATIONAL MATTERS

 

2.1    Formation

 

The Partnership is a limited partnership organized pursuant to the provision of the Act and upon the terms and conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act.

 

2.2    Name

 

The name of the Partnership is Paladin Realty Income Properties, L.P. The Partnership’s business may be conducted under such name or under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words “Limited Partnership,” “L.P.,” “Ltd.” or similar words or letters shall be included in the Partnership’s name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner, acting in its sole and absolute discretion without the Consent of any Limited Partner, may change the name of the Partnership. The General Partner shall notify the Limited Partners of any such name change in the next regular communication to the Limited Partners. Upon termination of the Partnership or the termination, resignation or withdrawal of the Initial Limited Partner as the Advisor, all of the Partnership’s right, title and interest in and to the use of the name “Paladin Realty Income Properties, L.P.” and any variation thereof, shall become the property of the Initial Limited Partner, and if requested to do so by the Initial Limited Partner, the Partnership shall change the name of the Partnership to exclude the term “Paladin.” Neither the Partnership nor any Limited Partner shall have any right or interest in and to the use of any such name or mark.

 

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2.3    Registered Office and Agent

 

The address of the registered office of the Partnership in the State of Delaware shall be c/o Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, or such other place as may be designated from time to time by the General Partner. The name of the registered agent for service of process on the Partnership in the State of Delaware at such address shall be Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, or such other Person as may be designated from time to time by the General Partner.

 

2.4    Principal Place of Business

 

The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable. The principal office of the Partnership shall be 10880 Wilshire Blvd., Los Angeles, California 90024, Suite 1400 or such other place as the General Partner may from time to time designate by notice to the Limited Partners.

 

2.5    Term and Termination

 

The term of the Partnership shall commence on the date hereof and shall continue until February 23, 2104, unless the Partnership is dissolved sooner pursuant to the provisions of Article 13 or as otherwise provided by law.

 

2.6    Power of Attorney

 

(a)    Each Limited Partner and each Assignee who accepts Partnership Units (or any other Partnership Interest or any rights, benefits or privileges associated therewith) is deemed to irrevocably constitute and appoint the General Partner, any Liquidator and authorized officers and attorneys-in-fact of each, and each such Person acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:

 

(i)    execute, swear to, acknowledge, deliver, file and record in the appropriate public offices:

 

(A)    all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the Limited Partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may or plans to conduct business or own property, including, without limitation, any documents necessary or advisable to convey any Contributed Property to the Partnership;

 

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(B)    all instruments that the General Partner or any Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms;

 

(C)    all conveyances and other instruments or documents that the General Partner or any Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation;

 

(D)    all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article 11, 12 or 13 hereof or any Capital Contribution of any Partner;

 

(E)    all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of Partnership Interests;

 

(F)    all amendments to this Agreement as provided in Article 14 hereof; and

 

(G)    all other instruments that may be required by law to be filed on behalf of or relating to the Partnership and that are not inconsistent with this Agreement; and

 

(ii)    execute, swear to, seal, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole discretion of the General Partner or any Liquidator, to effectuate the terms or intent of this Agreement.

 

Nothing contained herein shall be construed as authorizing the General Partner or any Liquidator to amend this Agreement except in accordance with Article 14 hereof or as may be otherwise expressly provided for in this Agreement.

 

(b)    The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, in recognition of the fact that each of the Partners will be relying upon the power of the General Partner and any Liquidator to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and/or the Transfer of all or any portion of such Limited Partner’s or Assignee’s Partnership Units and shall extend to such Limited Partner’s or Assignee’s heirs, successors, assigns and personal representatives.

 

(c)    Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or any Liquidator, acting in good faith pursuant to such power of attorney, and each such Limited Partner or Assignee hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General Partner or any Liquidator, taken in good faith under such power of attorney.

 

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(d)    Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner’s or Liquidator’s request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership.

 

(e)    Any Person dealing with the Partnership may conclusively presume and rely upon the fact that any instrument referred to in this Section 2.6, executed by the General Partner or the Liquidator acting as attorney-in-fact, is authorized by and binding on the Partnership, without further inquiry.

 

2.7    Effectiveness of this Agreement

 

This Agreement shall govern the operations of the Partnership and the rights and restrictions applicable to the Partners, to the extent permitted by law. Pursuant to Section 17-101(12) of the Act, all Persons who become holders of Partnership Interests shall be bound by the provisions of this Agreement. The execution by a Person of this Agreement and acceptance thereof by the General Partner in accordance with the terms of this Agreement or the receipt of Partnership Interests by a Person as a successor or assign of an existing Partner and the consent of the General Partner to the admission of such Person as a Substituted Limited Partner in accordance with the terms of this Agreement shall be deemed to constitute a request that the records of the Partnership reflect such admission, and shall be deemed to be a sufficient act to comply with the requirements of Section 17-101(12) of the Act and to so cause that Person to become a Partner as of the date of acceptance of its Capital Contribution by the Partnership and to bind that Person to the terms and conditions of this Agreement (and to entitle that Person to the rights of a Partner hereunder).

 

ARTICLE 3

PURPOSE AND POWERS

 

3.1    Purpose and Business

 

The purpose and nature of the business to be conducted by the Partnership is to conduct any business that may be lawfully conducted by a limited partnership organized pursuant to the Act including, without limitation, to engage in the following activities:

 

(a)    to acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease, transfer, encumber, convey, exchange and otherwise dispose of or deal with Real Estate Assets;

 

(b)    to acquire, hold, own, develop, construct, maintain, operate, sell, lease, transfer, encumber, convey, exchange and otherwise dispose of or deal with other real and personal property of all kinds;

 

(c)    acquire own, hold for investment and ultimately dispose of general and limited partner interests, and stock, warrants, options or other equity and debt interests in Entities, and exercise all rights and powers granted to the owner of any such interests;

 

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(d)    make any type of investment and engage in any other lawful act or activity for which limited partnerships may be formed under the Act, and by such statement all lawful acts and activities shall be within the purposes of the Partnership;

 

(e)    to undertake such other activities as may be necessary, advisable, desirable or convenient to the business of the Partnership; and

 

(f)    to engage in such other ancillary activities as shall be necessary or desirable to effectuate the foregoing purposes;

 

provided, however, that such business shall be limited to and conducted in such a manner as to permit the General Partner at all times to be classified as a REIT, unless the General Partner determines not to qualify as a REIT or ceases to qualify as a REIT for reasons other than the conduct of the business of the Partnership.

 

3.2    Powers

 

(a)    The Partnership is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described in Section 3.1 and for the protection and benefit of the Partnership including, without limitation, full power and authority to enter into, perform, and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by mortgage, trust deed, pledge or other Lien, and, directly or indirectly, to acquire, hold, own, develop, construct, improve, maintain and operate Real Estate Assets, and to sell, lease, transfer, encumber, convey, exchange and otherwise dispose of Real Estate Assets.

 

(b)    The General Partner also is empowered to do any and all acts and things necessary, appropriate or advisable to ensure that the Partnership will not be classified as a “publicly traded partnership” within the meaning of Section 7704 of the Code, including, but not limited to, imposing restrictions on Transfers of Partnership Units.

 

ARTICLE 4

CAPITAL CONTRIBUTIONS; PARTNERSHIP UNITS;

ADDITIONAL FUNDS

 

4.1    Capital Contributions of the Partners

 

(a)     Initial Capital Contributions . The General Partner and the Initial Limited Partner have made or shall make on the Effective Date, the Capital Contributions as set forth on Exhibit A to this Agreement in exchange for the number of Partnership Units set forth opposite their names on Exhibit A . At such time as Additional Limited Partners are admitted to the Partnership, each such Additional Limited Partner shall make Capital Contributions in the amount set forth opposite such Limited Partner’s name on Exhibit A , as it shall be amended at the time of such contribution.

 

(b)     Deemed Capital Contributions . To the extent the Partnership acquires any property by the merger of any other Person into the Partnership or the contribution of assets by

 

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any other Person to the Partnership, Persons who receive Partnership Interests in exchange for their interests in the Person merging into or contributing assets to the Partnership shall become Partners and shall be deemed to have made Capital Contributions as provided in the applicable merger agreement or contribution agreement and as set forth in Exhibit A , as it shall be amended to reflect such deemed Capital Contributions.

 

(c)     Partnership Units. Each Partner shall own Partnership Units in the amounts set forth for such Partner in Exhibit A and shall have a Percentage Interest in the Partnership as set forth in Exhibit A , which Percentage Interest shall be adjusted in Exhibit A from time to time by the General Partner to the extent necessary to reflect accurately redemptions, additional Capital Contributions, the issuance of additional Partnership Units or similar events having an effect on the number of Partnership Units held by, and the Percentage Interest of, any Partner. Each Partnership Unit shall entitle the holder thereof to one vote on all matters on which the Partners (or any portion of the Partners) are entitled to vote under this Agreement.

 

(d)     No Additional Capital Contributions . Except as provided in Sections 4.3(a) and 10.5, the Partners shall have no obligation to make any additional Capital Contributions or provide any additional funding to the Partnership (whether in the form of loans or otherwise) and no Partner shall have any obligation to restore any deficit that may exist in its Capital Account, either upon a liquidation of the Partnership or otherwise.

 

4.2    Issuance of Additional Partnership Interests

 

(a)    The General Partner is authorized to cause the Partnership to issue additional Partnership Interests (or options or warrants to acquire Partnership Interests) in the form of Partnership Units or other Partnership Interests in one or more series or classes to any Persons at any time or from time to time, on such terms and conditions as the General Partner shall establish in each case in its sole and absolute discretion subject to Delaware law, including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each class or series of Partnership Interests, (ii) the right of each class or series of Partnership Interests to share in Partnership distributions, and (iii) the rights of each class or series of Partnership Interest upon dissolution and liquidation of the Partnership; provided, that, no such Partnership Interests shall be issued to the General Partner unless either (A) the Partnership Interests are issued pursuant to Section 4.3, or (B) the additional Partnership Interests are issued to all Partners holding Partnership Interests in the same class in proportion to their respective Percentage Interests in such class.

 

(b)    Subject to the limitations set forth in Sections 4.2(a) and 4.3(a), the General Partner may take such steps as it, in its sole and absolute discretion, deems necessary or appropriate to admit any Person as a Limited Partner of the Partnership in accordance with Section 12.2 or to issue any Partnership Interests, including, without limitation, amending the Certificate, Exhibit A or any other provision of this Agreement.

 

(c)    Without limiting the foregoing, the General Partner is expressly authorized to cause the Partnership to issue Partnership Interests (or options to acquire Partnership Interests) for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the interest of the Partnership and the Partners (for example, and not by way of

 

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limitation, the issuance of Partnership Units in connection with a Stock Option Plan providing for employee purchases of REIT Stock and corresponding Partnership Units at a discount from fair market value or employee options that have an exercise price that is less than the fair market value of the REIT Stock and corresponding Partnership Units covered by the option, either at the time of issuance or at the time of exercise).

 

4.3    Issuance of Securities by the General Partner

 

(a)     General . The General Partner shall not issue any debt securities, preferred stock, Common Stock, any other class of REIT Stock or rights, options, warrants or other securities convertible into or exchangeable for preferred stock, Common Stock or any other class of REIT Stock (collectively, “ Securities ”), other than (1) as payment of the REIT Stock Amount in connection with a redemption of Partnership Units pursuant to Section 8.6, (2) upon the conversion, exchange or exercise of other outstanding securities of the General Partner in accordance with the terms of such securities, or (3) to all holders of REIT Stock on a pro rata basis, unless the General Partner shall:

 

(i)    in the case of REIT Stock or other equity Securities other than Securities described in clause (ii) below, (A) contribute to the Partnership the proceeds of or consideration (including any property or other non-cash assets) received upon the issuance of such Securities, and (B) receive from the Partnership in consideration for such contributions Partnership Interests with the same terms and conditions, including dividend, dividend priority and liquidation preference, as are applicable to such Securities (including, for purposes of clarification, Partnership Units in the case of any issuance of Common Stock by the General Partner);

 

(ii)    in the case of options, warrants or other rights to purchase REIT Stock, or other equity securities convertible into or exchangeable for REIT Stock, (A) contribute to the Partnership the proceeds of or consideration (including any property or other non-cash assets) received upon the issuance of such equity Securities, and (B) receive from the Partnership in consideration for such contributions a number of options, warrants or other rights to purchase Partnership Interests equal to the number of such Securities issued by the General Partner, with equivalent rights, preferences and limitations to the terms of such equity Securities; and

 

(iii)    in the case of debt securities, lend to the Partnership the proceeds of or consideration received for such Securities on the same terms and conditions, including interest rate and repayment schedule, as shall be applicable with respect to or incurred in connection with the issuance of such Securities and the proceeds of, or consideration received from, any subsequent exercise, exchange or conversion thereof (if applicable).

 

(b)     Splits . The Partnership shall (i) make a distribution in Partnership Units, (ii) subdivide its outstanding Partnership Units, or (iii) combine its outstanding Partnership Units into a smaller number of Partnership Units, in the event the General Partner takes an analogous action with respect to the Common Stock. The intent of the previous sentence is that one Partnership Unit remains the economic equivalent of one share of Common Stock without dilution. If the General Partner determines that it is necessary or desirable to make any filings

 

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under the Act or otherwise in order to reference the existence of such action, the General Partner may cause such filings to be made, which filings might take the form of amendments to the Certificate; provided, however, that, unless specifically required by this Agreement or the Act after giving effect to the terms of this Agreement, no approval or consent of any Partners shall be required in connection with the making of any such filing.

 

(c)     Treatment of Proceeds . If the proceeds actually received by the General Partner in connection with an issuance of Securities by the General Partner are less than the gross proceeds of such offering, grant, award or issuance as a result of any underwriter’s discounts, commissions or other fees or expenses paid or incurred in connection with such offering, grant, award or issuance, then the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount of the gross proceeds of such offering, grant, award or issuance and the Partnership shall be deemed simultaneously to have paid pursuant to Section 7.3(c) for the amount of such expenses.

 

4.4    Additional Funds

 

(a)    The sums of money required to finance the business and affairs of the Partnership shall be derived from the initial Capital Contributions made to the Partnership by the Partners as set forth in Section 4.1 and from funds generated from the operation and business of the Partnership.

 

(b)    In the event additional financing is needed from sources other than as set forth in Section 4.4(a) for any reason, the General Partner may, in its sole and absolute discretion, in such amounts and at such times as it solely shall determine to be necessary or appropriate:

 

(i)    cause the Partnership to issue additional Partnership Interests and admit additional Limited Partners to the Partnership in accordance with Section 4.2;

 

(ii)    make additional Capital Contributions to the Partnership (subject to the provisions of Section 4.3(a));

 

(iii)    cause the Partnership to borrow money, enter into loan arrangements, issue debt securities, obtain letters of credit or otherwise borrow money on a secured or unsecured basis;

 

(iv)    make a loan or loans to the Partnership (subject to Section 4.3(a)); or

 

(v)    cause the Partnership to sell any assets or properties directly or indirectly owned by the Partnership.

 

4.5    No Third-Party Beneficiary

 

No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligations of any Partner to make Capital Contributions or loans or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns.

 

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4.6    No Interest

 

No Partner shall be entitled to interest on any Capital Contribution or on such Partner’s Capital Account.

 

4.7    No Preemptive Rights

 

Subject to any preemptive rights that may be granted in connection with the issuance of Partnership Interests under Section 4.3(a), no Person shall have any preemptive or other similar right with respect to any:

 

(a)    additional Capital Contributions or loans to the Partnership; or

 

(b)    issuance or sale of any Partnership Units or other Partnership Interests.

 

4.8    Capital Accounts; Adjustments to Carrying Values

 

(a)     Capital Accounts . The Partnership shall establish and maintain throughout the life of the Partnership for each Partner a separate “Capital Account” in accordance with Treasury Regulations Section 1.704-1(b). Such Capital Account shall be increased by (i) the amount of all Capital Contributions made by such Partner to the Partnership pursuant to this Agreement and (ii) all Profits and other items of income and gain allocated to such Partner pursuant to Section 6.2, and decreased by (1) the amount of cash or Agreed Value of all actual and deemed distributions of cash or property made to such Partner pursuant to this Agreement and (2) all Losses and other items of loss and deduction allocated to such Partner pursuant to Section 6.2 of this Agreement. Any other Partnership item which is required or authorized under Treasury Regulation Section 1.704-1(b) to be reflected in Capital Accounts shall be so reflected.

 

(b)     Adjustments to Carrying Values. Consistent with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv)(f), and as provided in this Section 4.8(b), the Carrying Values of all Partnership Assets shall be adjusted upward or downward to reflect any Book Gains or Book Losses attributable to such Partnership Asset, as of the times of the adjustments provided in this Section 4.8(b), as if such Book Gain or Book Loss had been recognized on an actual sale of each such Partnership Asset and allocated pursuant to Section 6.1. Such adjustments shall be made as of the following times: (i) as of the end of the calendar quarter immediately prior to 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; (ii) as of the end of the calendar quarter immediately prior to the distribution by the Partnership to a Partner of more than a de minimis amount of property as consideration for an interest in the Partnership; (iii) upon the occurrence of a Listing Event or a Termination Event if the Advisor is entitled to a distribution under Section 5.1(d) or 5.1(e) as a result of such event, and (iv) at such other times as the General Partner may determine so long as such adjustment is made under generally accepted industry accounting practices within the meaning of Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(5). In accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(e), the Carrying Values of Partnership assets distributed in kind shall be adjusted upward or downward to reflect any Book Gain or Book Loss attributable to such Partnership Asset, as of the time any such asset is distributed. If the Carrying Values of the Partnership Assets are adjusted as a result of a Listing Event, the total Carrying Value of all Partnership

 

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Assets shall be deemed to equal the Market Value plus the total amount of liabilities of the Partnership as of the date of the Listing Event. If the Carrying Values of the Partnership Assets are adjusted as a result of a Termination Event, the total Carrying Value of all Partnership Assets shall be deemed to equal the Appraised Value as of the Termination Date.

 

ARTICLE 5

DISTRIBUTIONS

 

5.1    Distributions

 

(a)     General . Subject to the provisions of Sections 5.3, 5.4, 8.6(b), 11.6(d) and 13.2, the General Partner shall cause the Partnership to distribute to the Partners as of the applicable Partnership Record Date, at such times as the General Partner shall determine, amounts of Available Operating Cash, Net Sales Proceeds and Net Capital Event Proceeds in the manner set forth in this Section 5.1.

 

(b)     Available Operating Cash . Available Operating Cash shall be distributed to the Partners as determined by the General Partner in its sole and absolute discretion in accordance with their respective Percentage Interests as of the applicable Partnership Record Date.

 

(c)     Net Sales Proceeds and Net Capital Event Proceeds . Net Sales Proceeds shall be distributed to the Partners as determined by the General Partner in its sole and absolute discretion in accordance with their respective Percentage Interests as of the applicable Partnership Record Date until the Unrecovered Contribution Account and 8% Return Account of the General Partner has been reduced to zero ($0). Thereafter, 10% of any Net Sales Proceeds shall be distributed to the Advisor (such distributions, the “Advisor Participation in Sales Proceeds”), and 90% of such Net Sales Proceeds shall be distributed to the Partners as determined by the General Partner in its sole and absolute discretion in accordance with their respective Percentage Interests as of the applicable Partnership Record Date. Any Net Capital Event Proceeds in excess Net Sales Proceeds of shall be distributed to the Partners as determined by the General Partner in its sole and absolute discretion in accordance with their respective Percentage Interests as of the applicable Partnership Record Date.

 

(d)     Distribution to Advisor Upon Listing . Upon a Listing Event, the Advisor shall no longer be entitled to any distributions of the Advisor Participation in Sales Proceeds under Section 5.1(c). If the Advisor has not been terminated under the Advisory Agreement as of the Listing Date, the Advisor shall receive a distribution, which shall be paid within five (5) Business Days of the determination of the Market Value, in an amount equal to 10% of the amount, if any, by which (i) the Market Value plus the cumulative distributions made to the General Partner from the inception of the Partnership through the Listing Date exceeds (ii) the sum of (A) the Invested Capital of the General Partner as of the Listing Date, and (B) the 8% Return that has accrued with respect to the Invested Capital of the General Partner from the inception of the Partnership through the Listing Date.

 

(e)     Distribution to Advisor Upon Termination . Upon a Termination Event, the Advisor shall no longer be entitled to any distributions of the Advisor Participation in Sales Proceeds under Section 5.1(c). If a Listing Event has not occurred as of the date of a

 

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Termination Event, and the Advisor was not terminated for Cause (as defined in the Advisory Agreement), then the Advisor shall receive a distribution, which shall be paid within five (5) Business Days of the date of such Termination Event, in an amount equal to 10% of the amount, if any, by which (i) the Appraised Value of all of the Partnership Assets as of the date of the Termination Event, less any indebtedness secured by such assets, plus the