SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

 

 

ARTICLE I
ORGANIZATIONAL MATTERS		1
1.1.	Formation	1
1.2.	Name	1
1.3.	Registered Office; Principal Office	1
1.4.	Power of Attorney	2
1.5.	Term	3
ARTICLE II
DEFINITIONS		3
ARTICLE III
PURPOSE		6
ARTICLE IV
CAPITAL CONTRIBUTIONS		7
4.1.	General Partner	7
4.2.	Class B Limited Partner	7
4.3.	Allocation of Consideration for Contribution under Allied Bruce Contribution Agreement	7
4.4.	Capital Accounts	8
4.5.	Interest	9
4.6.	Withdrawal	9
4.7.	Loan from Partners	10
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS		10
5.1.	Determination of Income, Gain, Loss, Deduction and Credit	10
5.2.	Allocation of Net Income Before Taxes and Cost Recovery Deductions and Net Loss Before Taxes and Cost Recovery Deductions	10
5.3.	Allocation in Event of Transfer	11
5.4.	Allocation of Income and Losses on Distribution of Assets in Kind	11
5.5.	Elections	12
5.6.	Recharacterization of Fees and Guaranteed Payments	12
5.7.	Imputation of Profit or Loss	12

 

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(Continued)

 

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	5.8.	Allocation of Nonrecourse Deductions	12
	5.9.	Allocation of Partner Nonrecourse Deductions	12
	5.10.	Minimum Gain Chargeback	13
	5.11.	Partner Minimum Gain Chargeback	13
	5.12.	Qualified Income Offset	13
	5.13.	Limitations on Loss Allocation	13
	5.14.	Curative Allocations	13
	5.15.	Interest in Partnership Profits	13
	5.16.	Book/Tax Disparities; Section 754 Elections; etc.	14
ARTICLE VI
DISTRIBUTIONS OF CASH			14
	6.1.	Distributions of Cash	14
	6.2.	Set-Off Right	15
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS			16
	7.1.	Management	16
	7.2.	Certificate of Limited Partnership	16
	7.3.	Reliance by Third Parties	17
	7.4.	Compensation and Reimbursement of the General Partner	17
	7.5.	Outside Activities	18
	7.6.	Partnership Funds	18
	7.7.	Loans to or from the General Partner; Contracts with Affiliates	18
	7.8.	Indemnification of the General Partner	19
	7.9.	Liabilities of the General Partner and Affiliates	20
	7.10.	Resolution of Conflicts of Interest	20
	7.11.	Other Matters Concerning the General Partner	21
	7.12.	Title to Partnership Assets	21
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS			21
	8.1.	Limitation of Liability	21
	8.2.	Management of Business	22
	8.3.	Return of Capital	22
	8.4.	Rights of Limited Partners Relating to the Partnership	22

 

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(Continued)

 

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ARTICLE IX
BOOKS, RECORDS AND ACCOUNTING			23
	9.1.	Records and Accounting	23
	9.2.	Other Information	23
ARTICLE X
TAX MATTERS			23
	10.1.	Preparation of Tax Returns	23
	10.2.	Tax Elections	23
	10.3.	Tax Controversies	23
	10.4.	Organization Expenses	24
	10.5.	Taxation as a Partnership	24
ARTICLE XI
TRANSFER OF INTERESTS			24
	11.1.	Transfer	24
	11.2.	Transfer of General Partner Partnership Interest	24
	11.3.	Transfer of Partnership Interest of Limited Partners	24
ARTICLE XII
ADMISSION OF SUBSTITUTED PARTNERS			25
	12.1.	Admission of Successor Limited Partner	25
	12.2.	Amendment of Agreement and of Certificate of Limited Partnership	25
ARTICLE XIII
DISSOLUTION AND LIQUIDATION			25
	13.1.	Dissolution	25
	13.2.	Continuation of the Business of the Partnership after Dissolution	25
	13.3.	Liquidation	26
	13.4.	Distribution in Kind	27
	13.5.	Cancellation of Certificate of Limited Partnership	27
	13.6.	Reasonable Time for Winding Up	27
	13.7.	Deficit Capital Accounts	28
	13.8.	Waiver of Partition	28
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT			28
	14.1.	These Amendments may be Adopted Solely by General Partner	28
	14.2.	These Amendments require Approval of Limited Partners	29

 

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SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
THE TERMINIX INTERNATIONAL COMPANY
LIMITED PARTNERSHIP

 

This SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is entered into as of January 1, 2001 by and among Terminix International, Inc, a Delaware corporation, as the General Partner, ServiceMaster Consumer Services, L.P., a Delaware limited partnership, as the Class A Limited Partner, and Allied Bruce-Terminix Companies, Inc., an Arkansas corporation, as the Class B Limited Partner.

 

The Partnership was formed by the filing of a certificate of limited partnership for organizational purposes only on November 25, 1986. The limited partnership agreement of the Partnership was amended and restated as of December 15, 1986 and was further amended from time to time thereafter. The General Partner and the Class A Limited Partner now desire to further amend and restate the limited partnership agreement of the Partnership in its entirety for the purpose of, among other things, admitting the Class B Limited Partner to the Partnership, as follows:

 

ARTICLE I

 

ORGANIZATIONAL MATTERS

 

1.1.         Formation . The General Partner, the Class A Limited Partner and the Class B Limited Partner hereby continue the Partnership as a limited partnership pursuant to the provisions of the Delaware Act. 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 Delaware Act. The Partnership interest of any Partner shall be personal property for all purposes.

 

1.2.         Name . The name of the Partnership shall be, and the business of the Partnership shall be conducted under the name of, “The Terminix International Company”. The Partnership’s business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate. The words “Limited Partnership” shall he 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 in its sole discretion may change the name of the Partnership at any time and from time to time.

 

1.3.         Registered Office; Principal Office . The address of the registered office of the Partnership in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the registered agent for service of process on the Partnership in the State of Delaware at such registered office shall be The Corporation Trust Company. The principal office of the Partnership shall be 2300 Warrenville

 

 

Road, Downers Grove, Illinois 60515, or such other place as the General Partner may from time to time designate to the Partners. The Partnership may maintain offices at such other place or places as the General Partner deems advisable.

 

1.4.         Power of Attorney . (a) Each Partner hereby constitutes and appoints the General Partner and the Liquidator (and any successor to either thereof by merger, assignment, election or otherwise) with full power of substitution as such Partner’s true and lawful agent and attorney-in-fact, with full power and authority in such Partner’s name, place and stead, to:

 

(i)            execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) this Agreement, all certificates and other instruments and all amendments thereof which the General Partner or the Liquidator deems reasonable and appropriate or necessary to form, qualify, or continue the qualification of, the Partnership as a limited partnership (or partnership in which limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (B) all instruments which the General Partner or the Liquidator deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement made in accordance with its terms; (C) all conveyances and other instruments or documents which the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement. including a certificate of cancellation; and (D) all instruments relating to the admission, withdrawal or substitution of any Partner pursuant to Article XI or Article XII ; and

 

(ii)           execute, swear to and acknowledge all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole discretion of the General Partner or the 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 and/or appropriate or necessary, in the sole discretion of the General Partner or the Liquidator, to effectuate the terms or intent of this Agreement; provided , however , that when the consent or approval of the Limited Partners is required by Section 13.2 , the General Partner or the Liquidator may exercise the power of attorney made in this subsection (ii) only after obtaining the necessary consent or approval of the Limited Partners.

 

Nothing herein contained shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article XIV 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, and it shall survive and not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Partner or the transfer of all or any portion of such Partner’s Partnership Interest and shall extend to such Partner’s heirs, successors, assigns and personal representatives. Each such Partner hereby agrees to be bound by any representations made by the General Partner or the Liquidator, acting in good faith pursuant to such power of attorney; and each such Partner hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the General

 

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Partner or the Liquidator, taken in good faith under such power of attorney. Each Partner shall execute and deliver to the General Partner or the Liquidator, within 15 days after receipt of the General Partner’s or the Liquidator’s request therefor, such further designations, powers of attorney and other instruments as the General Partner or the Liquidator deem necessary to effectuate this Agreement and the purposes of the Partnership.

 

1.5.         Term . The Partnership commenced upon the filing of the Certificate of Limited Partnership of the Partnership in accordance with the Delaware Act and shall continue in existence until the close of Partnership business on December 31, 2036 or until the earlier termination of the Partnership in accordance with the provisions of Article XIII .

 

ARTICLE II

 

DEFINITIONS

 

The following definitions shall be for all purposes, unless clearly indicated to the contrary, applied to the terms used in this Agreement:

 

“ Adjusted Capital Account ” means, with respect to any Partner, the balance, if any, in such Partner’s Capital Account as of the end of the relevant taxable year, after (i) crediting to such Capital Account any amounts that such Partner is obligated to restore pursuant to Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations (cr is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations) and (ii) debiting to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.

 

“ Adjusted Property ” means any property the Carrying Value of which has been adjusted pursuant to Section 4.4(e)  or (f).

 

“ Affiliate ” means any Person that directly or indirectly controls, is controlled by, or is under common control with the Person in question. As used in the definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.

 

“ Agreed Value ” means the fair market value of any property as determined by the General Partner using any reasonable method of valuation.

 

“ Agreement ” means this Second Amended and Restated Agreement of Limited Partnership, as it may be amended, supplemented or restated from time to time.

 

“ Allied Bruce ” means Allied Bruce-Terminix Companies, Inc., an Arkansas corporation.

 

“ Allied Bruce Contribution Agreement ” means the Contribution Agreement dated December 22, 2000 among the Partnership, Allied Bruce, Robert J. Williams, Thomas B. Clement, T. Todd Martin and R. Mark Foster.

 

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“ Capital Account ” means the capital account maintained for a Partner pursuant to Section 4.4 .

 

“ Carrying Value ” means (a) with respect to contributed property, the Agreed Value of such property reduced (but not below zero) by all depreciation, cost recovery and amortization deductions charged to the Capital Accounts pursuant to Section 4.4(d)  with respect to such property, as well as any other reductions as a result of sales, retirements and other dispositions of assets included in a contributed property, as of the time of determination, (b) with respect to an Adjusted Property, the value of such property immediately following the adjustment provided in Section 4.4(e)  or (f) reduced (but not below zero) by all depreciation, cost recovery and amortization deductions charged to the Capital Accounts pursuant to Section 4.4(d)  with respect to such property, as well as any other reductions as a result of sales, retirements or dispositions of assets included in Adjusted Property, as of the time of determination, and (c) with respect to any other property, the adjusted basis of such property for federal income tax purposes as of the time of determination.

 

“ Certificate of Limited Partnership ” means the Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware pursuant to Section 7.2 . as it may be amended and/or restated from time to time.

 

“ Class A Limited Partner ” means ServiceMaster Consumer Services or any Affiliate to which it transfers its Class A Limited Partner Partnership Interest in accordance with this Agreement.

 

“ Class A Limited Partner Partnership Interest ” means the ownership interest of a Class A Limited Partner in the Partnership.

 

“ Class B Limited Partner ” means Allied Bruce or any Affiliate to which it transfers its Class B Limited Partner Partnership Interests in accordance with this Agreement.

 

“ Class B Limited Partner  Partnership Interest ” means the ownership interest of a Class B Limited Partner in the Partnership.

 

“ Class B Limited Partner Unit ” means one percent (1%) of the Class B Limited Partner Partnership Interests.

 

“ Code ” means the Internal Revenue Code of 1986, as amended and in effect from time to time, and applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law.

 

“ Cost Recovery Deductions ” means items of loss and deduction of the Partnership consisting of depreciation, amortization or similar cost recovery deductions.

 

“ Delaware Act ” means the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. Sections 17-101, et seq., as it may be amended from time to time, and any successor to such Act.

 

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“ Exchange Rights Agreement ” means the Exchange Rights Agreement dated as of January 1, 2001 among ServiceMaster, ServiceMaster Consumer Services and Allied Bruce, in the form attached as Exhibit A .

 

“ Fiscal Year ” means the calendar year.

 

“ General Partner ” means Terminix International, Inc., a Delaware corporation.

 

“ General Partner Partnership Interest ” means the ownership interest of the General Partner in the Partnership.

 

“ Limited Partner ” means any person who is a Class A Limited Partner or a Class B Limited Partner.

 

“ Liquidator ” has the meaning specified in Section 13.3 .

 

“ Net Income Before Taxes and Cost Recovery Deductions ” means an amount equal to the excess, if any, of (i) the aggregate amount of items of gross income and gain of the Partnership, over (ii) the aggregate amount of items of loss and deduction of the Partnership (excluding items consisting of Taxes or consisting of Cost Recovery Deductions).

 

“ Net Loss Before Taxes and Cost Recovery Deductions ” means an amount equal to the excess, if any, of (i) the aggregate amount of items of loss and deduction of the Partnership (excluding items consisting of Taxes or consisting of Cost Recovery Deductions), over (ii) the aggregate amount of items of gross income and gain of the Partnership.

 

“ Nonrecourse Liability ” means a liability (or that portion of a liability) with respect to which no Partner bears the economic risk of loss, as determined under Section 1.752-2 of the Treasury Regulations.

 

“ Opinion of Counsel ” means a written opinion of counsel (who may be regular counsel to the Partnership or the General Partner) acceptable to the General Partner.

 

“ Partner ” means the General Partner, any Class A Limited Partner or any Class B Limited Partner.

 

“ Partner Nonrecourse Debt ” means any liability (or portion thereof) of the Partnership that constitutes debt which, by its terms, is nonrecourse to the Partnership and the Partners for purposes of Section 1.1001-2 of the Treasury Regulations, but for which a Partner bears the economic risk of loss, as determined under Section l.704-2(b)(4) of the Treasury Regulations.

 

“ Partner Nonrecourse Debt Minimum Gain ” means an amount of gain characterized as “partner nonrecourse debt minimum gain” under Sections 1.704-2(i)(2) and 1.704-2(i)(3) of the Treasury Regulations. Subject to the preceding sentence, Partner Nonrecourse Debt Minimum Gain will mean an amount, with respect to each Partner Nonrecourse Debt, equal to the Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability.

 

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“ Partnership ” means the limited partnership organized pursuant to this Agreement.

 

“ Partnership Interest ” means the ownership interest of a Partner in the Partnership.

 

“ Partnership Minimum Gain ” means the amount determined by computing with respect to each Nonrecourse Liability of the Partnership the amount of book gain, if any, that would be realized by the Partnership if it disposed of the property securing such liability in full satisfaction thereof, and by then aggregating the amounts so computed.

 

“ Person ” means an individual or a corporation, partnership, limited liability company, trust, unincorporated organization, association or other entity.

 

“ Registration Rights Agreement ” means the Registration Rights Agreement dated as of January 1, 2001 between ServiceMaster and Allied Bruce, in the form attached as Exhibit B .

 

“ Section 705(a)(2)(B) Expenditure ” means any expenditure of the Partnership described in Section 705(a)(2)(B) of the Code and any expenditure considered to be an expenditure described in Section 705(a)(2)(B) of the Code pursuant to Section 704(b) of the Code and the Treasury Regulations thereunder.

 

“ ServiceMaster ” means The ServiceMaster Company, a Delaware corporation.

 

“ ServiceMaster Consumer Services ” means ServiceMaster Consumer Services, L.P., a Delaware limited partnership.

 

“ Taxes ” means items of loss or deduction of the Partnership relating to taxes or other governmental charges based on income.

 

“ Treasury Regulations ” means the regulations promulgated by the United States Treasury Department.

 

ARTICLE III

 

PURPOSE

 

The purpose and business of the Partnership shall be the conduct of a termite inspection and extermination, pest control and product sales business, including the acquisition, management, operation and disposition of the properties contributed to the Partnership under the Allied Bruce Contribution Agreement: the carrying on of any business relating thereto or arising therefrom; the entering into of any partnership, joint venture or other similar arrangement to engage in any of the foregoing; and anything incidental or necessary to the foregoing, all for the production of income and profit.

 

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ARTICLE IV

 

CAPITAL CONTRIBUTIONS

 

4.1.         General Partner . The General Partner shall not be required to contribute to the capital of the Partnership except as expressly required pursuant to the provisions of this Agreement. The General Partner will at all times while serving in such capacity be entitled to a 1% participation in the Partnership’s income, gains, losses, deductions and credits, determined after excluding income, gain, loss, deductions and credits allocated to the Class B Limited Partners (all in accordance with Article V) but only for so long as it continues to serve in such capacity.

 

4.2.         Class B Limited Partner . Concurrently with the execution and delivery of this Agreement, the Closing (as defined in the Allied Bruce Contribution Agreement) is occurring, the Partnership is issuing to Allied Bruce 100 Class B Limited Partner Units and the Exchange Rights Agreement and the Registration Rights Agreement are being executed and delivered by the parties thereto.

 

4.3.         Allocation of Consideration for Contribution under Allied Bruce Contribution Agreement . Within 90 days following the date hereof, the Partnership shall deliver to Allied Bruce, for its review and approval, a schedule (the “Allocation Schedule”) allocating the consideration for the contribution under the Allied Bruce Contribution Agreement among the Assets (as defined in the Allied Bruce Contribution Agreement). The Allocation Schedule shall be reasonable and shall be prepared in accordance with the methodology used under Section 1060 of the Code and the regulations thereunder and in a manner consistent with Allied Bruce’s initial Capital Account balance as set forth on Schedule A. Allied Bruce shall have 30 days in which to review the proposed Allocation Schedule and deliver to the Partnership a written response that Allied Bruce either agrees or disagrees with the proposed Allocation Schedule. If Allied Bruce does not respond to the Partnership within such 30 day period, Allied Bruce shall be deemed to have agreed with the Allocation Schedule. If Allied Bruce disagrees with the proposed Allocation Schedule, which disagreement shall not be unreasonable, Allied Bruce shall specify its reason(s) for disagreement in its written notice to the Partnership. Allied Bruce and the Partnership shall attempt to reconcile Allied Bruce’s disagreement, and if such disagreement cannot be reconciled within 20 days of receipt of Allied Bruce’s notice to the Partnership, the allocations shall be determined by a nationally-recognized public accounting firm promptly selected jointly by Allied Bruce and the Partnership. Each party will furnish such accounting firm with such information as such accounting firm deems necessary for the determination of the Allocation Schedule. The determination by such accounting firm shall be reached not later than 90 days following the engagement of such accounting firm and shall be final and binding on Allied Bruce and the Partnership upon receipt of the accounting firm’s report, and the fees and expenses of such accounting firm shall be borne equally by the Partnership and Allied Bruce. Allied Bruce and the Partnership agree to file all federal, state, local and foreign tax returns in accordance with the final Allocation Schedule.

 

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4.4.         Capital Accounts .

 

(a)           A separate Capital Account shall be established and maintained for each Partner in accordance with federal income tax accounting principles, maintained in accordance with Treasury Regulation Section 1.704-1(b). The Capital Account of each Partner shall be increased by: (i) the amount of any cash and the fair market value of any property contributed to the Partnership by such Partner (net of liabilities secured by such contributed property that the Partnership is considered to assume or take subject to); (ii) the amount of Partnership income and gain or items thereof allocated to such Partner (including income and gain exempt from tax and income and gain described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g), but excluding income and gain described in Treasury Regulation Section 1.704-1(b)(4)(i)); and (iii) other items to the extent mandated by Treasury Regulation Section 1.704-1(b). The Capital Account of each Partner shall be reduced by: (i) the amount of money distributed to the Partner by the Partnership; (ii) the fair market value of property distributed by the Partnership to the Partner (net of liabilities secured by such distributed property that the Partner is considered to assume or take subject to); (iii) the amount of Partnership losses and deductions or items thereof (including Sections 705(a)(2)(B) Expenditures and losses and deductions or items thereof described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g), but excluding items described in Treasury Regulation Section 1.704(b)(4)(i)) allocated to the Partner; (iv) such Partner’s pro rata share (determined in the same manner as such Partner’s share of income, gains, losses, deductions or credits) of any other expenditures of the Partnership which are not deductible in computing the Partnership’s taxable income and which are not properly capitalized; and (v) other items to the extent mandated by Treasury Regulation Section 1.704-1(b).

 

(b)             Schedule A sets forth each Partner’s Capital Account balance immediately after the contribution to the Partnership made by Allied Bruce pursuant to the Allied Bruce Contribution Agreement.

 

(c)           Upon the transfer of Partnership interests after the date of this Agreement in accordance with the terms hereof, the Capital Account of the transferor Partner that is attributable to the transferred Partnership Interest will be carried over to the transferee Partner or assignee of a Partner upon written notification to the Partnership from such transferor Partner but, if the Partnership has an election in effect under Section 754 of the Code, the Capital Account will be adjusted to reflect any adjustment required as a result thereof by the Treasury Regulations promulgated pursuant to Section 704(b) of the Code.

 

(d)           For purposes of computing Net Income Before Taxes and Cost Recovery Deductions, Net Loss Before Taxes and Cost Recovery Deductions, Cost Recovery Deductions and Taxes, realization, recognition and classification of any item of income, gain, loss or deduction for Capital Account purposes shall be the same as its realization, recognition and classification for federal income tax purposes; provided , however , that:

 

(i)            any deductions for depreciation, amortization or similar cost recovery deduction attributable to property contributed to the partnership by a Partner shall be determined as if the adjusted tax basis of such property on the date it was contributed to the Partnership was equal to the Agreed Value of such property. Upon adjustment pursuant to Section 4.4(e)  or 4.4(f)  of the Carrying Value of the Partnership property

 

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subject to depreciation, amortization or similar cost recovery deduction, any further deductions for such depreciation, cost recovery or amortization shall be determined as if the adjusted tax basis of such property was equal to its Carrying Value immediately following such adjustment. Any deductions for depreciation, amortization or similar cost recovery deduction under this Section 4.4(d)  shall be computed in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g)(3) (and, to the extent applicable, Treasury Regulations Section 1.704-3(d)(2)).

 

(ii)           any income, gain or loss attributable to the taxable disposition of any property shall be determined by the Partnership as if the adjusted tax basis of such property as of such date of disposition was equal in amount to the Carrying Value of such property as of such date.

 

(iii)          all items incurred by the Partnership that can neither be deducted nor amortized under Section 709 of the Code shall, for purposes of Capital Accounts, be treated as an item of deduction and shall be allocated among the Partners pursuant to Article V .

 

(e)           Except as may otherwise be expressly provided in this Agreement immediately prior to the contribution to the Partnership by a new or existing Partner of cash or property, or any transaction contemplated by Section 8(b) or 8(c) of the Exchange Rights Agreement, the Capital Accounts of all Partners and the Carrying Values of all Partnership properties immediately prior to such contribution shall be adjusted (consistent with the provisions hereof and with the Treasury Regulations under Section 704 of the Code) upward or downward to reflect any gain or loss (as determined for Capital Account purposes) with respect to each Partnership property, as if such gain or loss had been recognized upon an actual sale of each such item of Property immediately prior to such contribution and had been allocated to the Partners in accordance with Article V .

 

(f)            Immediately prior to the distribution of any Partnership property (other than cash) or the distribution of cash to a retiring or continuing Partner as consideration for an interest in the Partnership, or any transaction contemplated by Section 8(b) or 8(c) of the Exchange Rights Agreement, the Capital Accounts of all Partners and the Carrying Value of all Partnership property shall be adjusted (consistent with the provisions hereof and Treasury Regulations under Section 704 of the Code) upward or downward to reflect any gain or loss (as determined for Capital Account purposes) with respect to each Partnership property, as if such gain or loss had been recognized upon an actual sale of each such item of Property immediately prior to such contribution and had been allocated to the Partners in accordance with Article V .

 

4.5.         Interest . No interest shall be paid by the Partnership on capital contributions or on balances in Partners’ Capital Accounts.

 

4.6.         Withdrawal . A Partner shall not be entitled to withdraw any part of such Partner’s Capital Contribution or such Partner’s Capital Account or to receive any distribution from the Partnership, except as provided in Article VI and Article XIII ,

 

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4.7.        Loan from Partners . Loans by a Partner to the Partnership shall not be considered capital contributions. If any Partner shall advance funds to the Partnership in excess of the amounts required hereunder to be contributed by it to the capital of the Partnership, the making of such advances shall not result in any increase in the amount of the Capital Account of such Partner. The amounts of any such advances shall be a debt of the Partnership to such Partner and shall be payable or collectible only out of the Partnership assets in accordance with the terms and conditions upon which such advances are made. All such advances shall be made on terms at least as favorable as the Partnership could bargain for at arms length with unrelated third party lenders.

 

ARTICLE V

 

ALLOCATIONS AND DISTRIBUTIONS

 

5.1.         Determination of Income, Gain, Loss, Deduction and Credit . The income, gain, loss, deduction and credit of the Partnership (including Net Income (or Net Loss) Before Taxes and Cost Recovery Deductions, Taxes, and Cost Recovery Deductions) shall be determined for each Fiscal Year in accordance with the accrual method of accounting within 90 days after the end of such Fiscal Year.

 

5.2.         Allocation of Net Income Before Taxes and Cost Recovery Deductions and Net Loss Before Taxes and Cost Recovery Deductions . Except as otherwise provided herein, Net Income Before Taxes and Cost Recovery Deductions and Net Loss Before Taxes and Cost Recovery Deductions shall be allocated with respect to each Fiscal Year in the following manner:

 

(a)           Net Loss Before Taxes and Cost Recovery Deductions .  Any Net Loss Before Taxes and Cost Recovery Deductions shall be allocated as follows:

 

(i)            first , Net Loss Before Taxes and Cost Recovery Deductions shall be allocated with respect to the General Partner Partnership Interest, Class A Limited Partner Partnership Interest and Class B Limited Partner Partnership Interests to the extent of, and in proportion to, their respective positive Adjusted Capital Account balances, provided that in no event will the General Partner Partnership Interest be allocated less than 1% of the aggregate amount allocated under this Section 5.2(a)(i) with respect to any Fiscal Year (with any amount allocated with respect to the General Partner Partnership Interest in excess of the amount that would have been so allocated without regard to this proviso reducing the amount allocated with respect to the Class A Limited Partner Partnership Interest); and

 

(ii)           second , any remaining Net Loss Before Taxes and Cost Recovery Deductions shall be allocated 1% with respect to the General Partner Partnership Interest and 99% with respect to the Class A Limited Partner Partnership Interests.

 

(b)           Net Income Before Taxes and Cost Recovery Deductions . Any Net Income Before Taxes and Cost Recovery Deductions shall be allocated as follows:

 

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(i)            first , Net Income Before Taxes and Cost Recovery Deductions shall be allocated 1% with respect to the General Partner Partnership Interest, 83% with respect to the Class A Limited Partner Partnership Interests and 16% with respect to the Class B Limited Partner Partnership Interests until the amount allocated, and previously allocated, with respect to the Class B Limited Partner Partnership Interests under this Section 5.2(b)(i)  equals the amount distributed, and previously distributed, with respect to the Class B Limited Partner Partnership Interests under Section 6.1(b)  (including, without duplication, amounts deemed distributed under Section 6.1(b)  by reason of the second proviso of Section 6.1(b)(i)  or by reason of Section 6.2) ; and

 

(ii)           second , any remaining Net Income Before Taxes and Cost Recovery Deductions shall be allocated 1% with respect to the General Partner Partnership Interest and 99% with respect to the Class A Limited Partner Partnership Interest.

 

(c)           Taxes and Cost Recovery Deductions . Any Taxes and Cost Recovery Deductions shall be allocated 1% with respect to the General Partner Partnership Interest and 99% with respect to the Class A Limited Partner Partnership Interests.

 

(d)           Any allocation with respect to Class B Limited Partner Partnership Interests shall be allocated among the Class B Partners pro rata in accordance with Class B Limited Partner Units.

 

(e)           To the extent Net Income Before Taxes and Cost Recovery Deductions or Net Loss Before Taxes and Cost Recovery Deductions, as appropriate, is sufficient to partially, but is insufficient to fully, allocate Net Income Before Taxes and Cost Recovery Deductions or Net Loss Before Taxes and Cost Recovery Deductions in accordance with a clause of Section 5.2(a)  or Section 5.2(b) , the allocation pursuant to such clause shall be made among the relevant Partnership Interests in proportion to the amount that would have been allocated with respect to each such Partnership Interest had sufficient Net Income Before Taxes and Cost Recovery Deductions or Net Loss Before Taxes and Cost Recovery Deductions been available to make a full allocation under such clause.

 

5.3.         Allocation in Event of Transfer . If any Partnership Interest is transferred, increased or decreased during the year, all items of income, gain, loss and deduction recognized by the Partnership during such year shall be allocated among the Partners to take into account the Partners’ varying interests during the year in a manner permitted by the Code and Treasury Regulations and selected by the General Partner.

 

5.4.         Allocation of Income and Losses on Distribution of Assets in Kind . If all or a portion of the assets of the Partnership are to be distributed to the Partners in kind, the Capital Accounts of the Partners shall be:

 

(a)           increased by the income and gain which would have been recognized by the Partnership if the assets to be distributed in kind were sold by the Partnership at a price equal to the fair market value of such assets and any such income and gain were allocated among the Partners in accordance with the provisions of this Article V ; or

 

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(b)           decreased by the loss which would have been recognized by the Partnership if the assets to be distributed in kind were sold by the Partnership at a price equal to the fair market value of such assets and any such loss were allocated among the Partners in accordance with the provisions of this Article V .

 

For purposes hereof, “ fair market value ” shall be an amount agreed upon unanimously by the Partners within 30 days of a determination to distribute assets in kind pursuant hereto, and if not so agreed, by appraisal performed by an appraiser selected in the reasonable good faith discretion of the General Partner, provided such appraiser shall be an M.A.I. appraiser with at least five years prior experience in valuing similar assets.

 

5.5.         Elections . In the event of a transfer of any Partnership Interests, the Partnership shall elect pursuant to Section 754 of the Code to adjust the basis of the Partnership’s assets. Each Partner agrees to furnish the Partnership with all information necessary to give effect to such election.

 

5.6.         Recharacterization of Fees and Guaranteed Payments . Notwithstanding anything to the contrary herein, in the event that any fees, interest, or other amounts paid or payable to any Partner or any of its Affiliates (or any fees paid or payable to a third party) are deducted by the Partnership in reliance in Section 707(a) or 707(c) of the Code (or would so be if such payee were treated as a Partner), and such fees, interest, or other amounts are disallowed as deductions to the Partnership and are recharacterized as Partnership distributions, then there shall be allocated to such Partner prior to the allocations otherwise pursuant to this Article V , an amount of Partnership gross revenues for the year in which such fees, interest or other amounts are treated as Partnership distributions in an amount equal to such fees. interest or other amounts treated as distributions.

 

5.7.         Imputation of Profit or Loss . Notwithstanding anything to the contrary in this Agreement, and to the extent that, as a result of the Partnership engaging in any transaction with any Partner, any Partner is deemed to recognize income as a result of any transaction between such Partner and the Partnership pursuant to Sections 1272-1274, Section 7872, Section 483 or Section 482 of the Code, or any similar provision now or hereafter in effect, or the Partnership is deemed to receive income under any of these provisions, any corresponding resulting loss, deduction or income of the Partnership shall be allocated to the Partner who engaged in such transaction with the Partnership.

 

5.8.         Allocation of Nonrecourse Deductions . Items of loss, deduction and Section&n