-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MuU7jPEN7MxFbrkz1M17emwdomWrGH7MGpDeQiuYbKDYGmoMGrqvVasl9IN2ARYW +T1LMo9vZcp+KAdpkRGASQ== 0000950142-96-000666.txt : 19961206 0000950142-96-000666.hdr.sgml : 19961206 ACCESSION NUMBER: 0000950142-96-000666 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19961205 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP REALTY FUND LTD III CENTRAL INDEX KEY: 0000702117 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042763323 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-46975 FILM NUMBER: 96675990 BUSINESS ADDRESS: STREET 1: C/O BERKSHIRE REALTY AFFILIATES STREET 2: 470 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVENUE STREET 2: C/O BERKSHIRE REALTY AFFILIATES CITY: BOSTON STATE: MA ZIP: 02210 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP REALTY FUND LTD III CENTRAL INDEX KEY: 0000702117 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042763323 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: C/O BERKSHIRE REALTY AFFILIATES STREET 2: 470 ATLANTIC AVENUE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 ATLANTIC AVENUE STREET 2: C/O BERKSHIRE REALTY AFFILIATES CITY: BOSTON STATE: MA ZIP: 02210 SC 14D9 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- SCHEDULE 14D-9 Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 --------------------------- KRUPP REALTY FUND, LTD. - III (Name of Subject Company) KRUPP REALTY FUND, LTD. - III (Name of Person Filing Statement) LIMITED PARTNERSHIP UNITS (Title of Class of Securities) N/A (CUSIP Number of Class of Securities) --------------------------- Laurence Gerber The Krupp Corporation 470 Atlantic Avenue Boston, Massachusetts 02210 (617) 423-2233 (Name, Address and Telephone Number of Person Authorized to Receive Notice and Communications on Behalf of the Person(s) filing Statement) COPY TO: Scott D. Spelfogel, Esq. James M. Dubin, Esq. The Berkshire Group Paul, Weiss, Rifkind, Wharton & Garrison 470 Atlantic Avenue 1285 Avenue of the Americas Boston, Massachusetts 02210 New York, New York 10019-6064 (617) 423-2233 (212) 373-3000 ITEM 1. SECURITY AND SUBJECT COMPANY The name of the subject partnership is Krupp Realty Fund, Ltd. - - III, a Massachusetts limited partnership (the "Partnership"), and the address of its principal executive offices is c/o The Krupp Corporation, 470 Atlantic Avenue, Boston, Massachusetts 02210. The title of the class of equity securities to which this statement relates is the Partnership's Units of Investor Limited Partnership Interests ("Units"). ITEM 2. TENDER OFFER OF THE BIDDER This statement relates to an unsolicited offer by Krescent Partners L.L.C., a Delaware limited liability company (the "Purchaser"), disclosed in a Tender Offer Statement on Schedule 14D-1 dated November 21, 1996 (the "Schedule 14D-1"), to purchase up to 5,117 issued and outstanding Units at a purchase price of $315 per Unit, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 21, 1996 and the related Letter of Transmittal, as each may be supplemented, modified or amended from time to time (which collectively constitute the "Krescent Offer" and are contained within the Schedule 14D-1). The address of the Purchaser's principal executive offices is 1301 Avenue of the Americas, 38th Floor, New York, New York 10019. ITEM 3. IDENTITY AND BACKGROUND (a) The name and business address of the Partnership, which is the person filing this statement, are set forth in Item 1 above. (b)(i) The general partners responsible for management of the Partnership's business are The Krupp Corporation, a Massachusetts corporation (the "Corporate General Partner"), and The Krupp Company, a Massachusetts limited partnership (together with the Corporate General Partner, the "General Partners"). Except as described below, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the General Partners or their affiliates and the Partnership, its executive officers, directors or affiliates. Pursuant to the Partnership Agreement of the Partnership (the "Partnership Agreement"), the General Partners are entitled to certain cash distributions in respect of their interests in the Partnership. The General Partners have received aggregate cash distributions in respect of such interests of $1,043, $3,132 and $4,174, respectively, for the years ended December 31, 1994, 1995 and 1996 (projected). 1 Pursuant to certain management agreements, an affiliate of the General Partners receives property management fees for its services as management agent for the Partnership's properties. Such agreements provide for the payment of monthly management fees payable at the rate of up to 5% of rents and other income actually received by the Partnership. In addition, although the General Partners and their affiliates do not receive any fees from the Partnership for the partnership administration services they provide, affiliates of the General Partners are reimbursed by the Partnership for the expenses they incur in connection with providing those services, which include accounting, computer, insurance, travel, payroll, legal and the preparation and mailing of reports and other communication to the Unit holders. The Partnership paid such affiliates property management fees and reimbursement of expenses aggregating $585,800, $472,000 and $389,600, respectively, for the three years ended December 31, 1994, 1995 and 1996 (projected). Pursuant to the Partnership Agreement, the General Partners are entitled to a brokerage fee in an amount equal to 3% of the contract sales price of any real estate acquired by the Partnership, subject to certain limitations. No brokerage fees have been paid or are projected to be paid to the General Partners or their affiliates during the three-year period ending December 31, 1996. The General Partners are subject to certain conflicts of interests in connection with the response to the Krescent Offer contained in this Schedule 14D-9. The Partnership Agreement provides that, without the concurrence of the General Partners, a majority in interest of the "Investor Limited Partners" (a person who has been admitted to the Partnership as, and has the rights afforded to, an Investor Limited Partner, as provided in the Partnership Agreement) may vote to remove the General Partners or amend the Partnership Agreement (including amending certain fees and compensation payable or authorized to be payable to the General Partners or their affiliates), and the ownership of a large block of Units by any person increases the likelihood that the General Partners may be removed or that the Partnership Agreement may be amended should that person become an Investor Limited Partner or otherwise acquire the voting rights of an Investor Limited Partner. In addition, since property management agreements between affiliates of the General Partners and the Partnership are terminable without penalty on not more than 180 days notice, the removal of the General Partners or the amendment of the Partnership Agreement could result in a reduction of management fee income from the Partnership to such affiliates. If a large number of Units were tendered pursuant to the Krescent Offer, the likelihood of such removal or amendment would increase. However, as described in Items 3(b)(ii) and 8 below, the Purchaser is subject to a standstill agreement pursuant to which it has agreed, among other things, not to acquire more than 25% of the outstanding Units for the period ending 30 months after receipt from the Partnership and certain other partnerships affiliated with the General Partners of any list of its unit holders or investors. Accordingly, during such 30 month period the Purchaser will not be in a position to unilaterally remove the General Partners or amend the Partnership Agreement. 2 (b)(ii) Except as described below, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interests between the Partnership or its affiliates and the Purchaser, its executive officers, directors or affiliates. The Corporate General Partner and Liquidity Financial Group, L.P., the financial advisor of the Purchaser ("Liquidity"), are parties to a Settlement Agreement and Release, dated as of June 27, 1996, as amended as of October 8, 1996 (the "Standstill Agreement"), pursuant to which Liquidity and any of its affiliates are restricted from, among other things, acquiring more than 25% of the outstanding Units for the period ending 30 months after receipt from the Partnership and certain other partnerships affiliated with the General Partners of any list of its unit holders or investors. Such a list was last provided on November 20, 1996 and, pursuant to the Standstill Agreement, additional lists may be requested through June 27, 1997. The Krescent Offer states that, pursuant to an Assumption Agreement dated November 21, 1996 between the Purchaser and Liquidity, the Purchaser has agreed to be bound by the restrictions set forth in the Standstill Agreement. On October 24, 1996, a representative of Liquidity contacted a representative of the Partnership to request, on behalf of the Purchaser, that the General Partners agree to admit the Purchaser as a "Limited Partner" (an assignee of a Unit holder who, at the discretion of the General Partners, is admitted as a Unit holder pursuant to the terms of the Partnership Agreement) or as a recognized or registered owner of Units in the event the Purchaser made an offer to purchase Units and the Purchaser accepted Units for payment pursuant to the terms of such offer. During that conversation, the Partnership's representative indicated that in order to agree to such treatment, the Partnership had to be satisfied that the consummation of such offer and such treatment would not cause the Partnership to be classified as a "publicly-traded partnership" for tax purposes (a "PTP"). Later that day, the Partnership received a memorandum from counsel to the Purchaser concluding that such a tender offer would not cause the Partnership to be classified as a PTP and a letter agreement was sent to the Corporate General Partner requesting that the Purchaser be treated as a Limited Partner or a recognized or registered owner of Units upon the acceptance of Units for payment pursuant to an offer anticipated to be made by the Purchaser. On October 29, 1996, counsel for the Partnership, in a letter to Liquidity, responded to the memorandum prepared by the Purchaser's counsel. During the week of November 4th, counsel for the Purchaser and counsel for the Partnership continued to discuss the PTP status issue. On November 11, 1996, counsel for the Purchaser and counsel for the Partnership agreed on a form of opinion letter regarding the PTP issue that would be delivered upon the treatment of the Purchaser as a Limited Partner or recognized or registered owner of Units. On November 12, 1996, the Partnership was notified by Liquidity that the Purchaser planned to commence the Krescent Offer five business days after the Partnership's receipt of such notice. On November 14, 1996, the Partnership received a request from Liquidity for a current list of Unit holders and the lists of securityholders of 3 various entities affiliated with the Partnership, which lists were delivered to Liquidity on November 19, 1996 and November 20, 1996. Also on November 19, 1996, the Corporate General Partner executed a letter to the Purchaser indicating its agreement to admit the Purchaser, or cause the Purchaser to be admitted, as a Limited Partner or a recognized or registered owner of Units (i) upon the Purchaser's payment for Units pursuant to the Krescent Offer, (ii) upon delivery of an opinion of the Purchaser's counsel (in the agreed form) that the Krescent Offer would not cause the Partnership to be classified as a PTP and (iii) upon delivery, in satisfactory form, of the Partnership's standard transfer paperwork, payment of standard transfer fee and satisfaction of any other standard ministerial matters. On November 20, 1996, a representative of the Purchaser contacted a representative of the Partnership for the stated purpose of confirming the commencement date of the Krescent Offer and to confirm the fact that the Purchaser did not have any current plan to change the current management or the operations of the Partnership. ITEM 4. THE SOLICITATION OR RECOMMENDATION (a) Following receipt of the Krescent Offer, the Corporate General Partner reviewed and considered the Krescent Offer. The Corporate General Partner has determined that the Krescent Offer is inadequate and not in the best interests of the Unit holders, and recommends that the holders of Units reject the Krescent Offer and not tender their Units pursuant thereto. (b) In reaching its conclusion described in paragraph (a) above, the Corporate General Partner considered a number of factors, including the following: (i) While the value of the Units is not readily ascertainable, since there is neither an established trading market nor a consistent historical pattern of making annual or periodic distributions in respect of the Units, the price specified in the Krescent Offer of $315 per Unit represents a significant discount from the Corporate General Partner's estimate of the inherent value of such Units. Based on estimated values of the Partnership's properties and current market conditions, the Corporate General Partner has estimated the net asset value of each Unit to be $661. (Such net asset value assumes a sale of all of the Partnership's properties at net asset value, after deduction for estimated transaction costs, and the distribution of the net proceeds of such sale to the Unit holders. Actual transaction costs and market conditions will affect the actual amount available for distribution.) While the actual amount of liquidation proceeds distributed in respect of a Unit may be either above or below the estimate, the Corporate General Partner believes its estimate of the net asset value of a Unit is representative of current value. The Krescent Offer is less than 48% of such estimate. The Corporate General Partner recognizes that, in exchange for receiving the certainty of a cash purchase price from the Purchaser in 4 connection with the Krescent Offer, Unit holders may prefer to forego the opportunity to hold their Units and receive proceeds upon the potential future liquidation of the Partnership's assets in excess of the amount being offered by the Purchaser. However, the Corporate General Partner believes that the price specified in the Krescent Offer reflects too great a discount to value. (ii) As stated by the Purchaser in the Krescent Offer, Unit holders who tender Units acquired from the Partnership in connection with the original issuance thereof are expected to recognize taxable gain, which will be in excess of the purchase price received by them from the Purchaser. (iii) The Partnership currently is paying a semi-annual cash distribution of $7.93, or $15.86 annually, per Unit. Unit holders who sell their Units to the Purchaser will lose their right to receive future semi-annual distributions from operations that are payable in respect of Units. Furthermore, Unit holders who sell their Units to the Purchaser will lose the right to future distributions from future sales of Partnership properties. (iv) As stated by the Purchaser in the Krescent Offer, the Purchaser is making the Krescent Offer with a view to making a profit. Accordingly, there is a conflict of interest between the Purchaser's desire to purchase the Units at a low price and a Unit holder's desire to sell its Units at a high price. (v) As stated by the Purchaser in the Krescent Offer, if the Krescent Offer is successful, the Purchaser may be in a position to influence control over the Partnership and to influence voting decisions, including the removal of the General Partners. ITEM 5. PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED Neither the Partnership nor any person acting on its behalf has employed, retained or compensated, or intends to employ, retain or compensate, any person to make solicitations or recommendations to Unit holders on its behalf concerning the Krescent Offer. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES (a) Neither the Partnership nor the General Partners have effected any transactions in the Units during the past 60 days. The General Partners are not aware of any transactions in the Units during the past 60 days by any of its executive officers, directors, affiliates or subsidiaries. 5 (b) Neither the General Partners nor, to the knowledge of the General Partners, any of their executive officers, directors, affiliates or subsidiaries intend to tender Units owned by them to the Purchaser pursuant to the Krescent Offer. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY (a) No negotiation is being undertaken or is underway by the Partnership in response to the Krescent Offer which relates to or would result in (i) an extraordinary transaction, such as a merger or reorganization, involving the Partnership; (ii) a purchase, sale or transfer of a material amount of assets by the Partnership; (iii) a tender offer for or other acquisition of securities by or of the Partnership; or (iv) any material change in the present capitalization or dividend policy of the Partnership. The General Partners and their affiliates may explore transactions such as asset sales, a consolidation, a merger, financings of Partnership properties followed by distributions, or possibly a tender offer for Units at a price in excess of the Krescent Offer. However, no plans for, or negotiations relating to, any of these types of transactions have been made, and there can be no assurances that any such discussions or plans will be developed or that any such transactions could be successfully consummated. (b) There are no transactions, board resolutions, agreements in principle or signed contracts in response to the Krescent Offer which relate to or would result in one or more of the matters referred to in Item 7(a) above. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED The General Partners have in the past received numerous requests from third parties requesting that such parties be provided with a list of the Partnership's Unit holders. Such a list has only been provided by the General Partners to parties in cases where the General Partners have been satisfied that such list has been properly requested by a person entitled by the Partnership Agreement to receive such a list and/or the party requesting the list has demonstrated that such party has a proper partnership business purpose in connection with such request, or the Corporate General Partner has been satisfied that the Partnership and the Unit holders have obtained appropriate protections from such party with respect to the use of such list. The Corporate General Partner agreed to provide a list of the Partnership's Unit holders to Liquidity, the Purchaser's financial advisor, in connection with obtaining the agreement by such advisor, pursuant to the Standstill Agreement, that such advisor and its affiliates, among other things, would refrain from acquiring in excess of 25% of the Units for the period ending 30 months after receipt from the Partnership of any list of its Unit holders. The Krescent Offer states that, pursuant to the Assumption Agreement dated November 21, 1996 between the Purchaser and 6 Liquidity, the Purchaser has agreed to become bound by the same standstill restrictions applicable to Liquidity. By letter dated November 4, 1996, Longacre Corp. ("Longacre") requested that the Partnership provide to it a list of the Partnership's Unit holders. The letter stated that the request was being made to facilitate a tender offer by an affiliate of Longacre. As a result of negotiations, the Corporate General Partner agreed to provide a list of the Partnership's Unit holders to Longacre in connection with obtaining the agreement by Longacre, pursuant to a Standstill Agreement dated as of November 26, 1996, that Longacre and its affiliates, among other things, would refrain from acquiring in excess of 25% of the Units for a period ending 30 months after receipt from the Partnership of any list of its Unit holders. The Corporate General Partner was subsequently advised by Longacre that its affiliate, American Holdings I, L.P. ("American Holdings"), intended to commence an offer to acquire up to 4.9% of the outstanding Units at a price of $325 per Unit, which is in excess of the purchase price specified in the Krescent Offer. On December 4, 1996, a representative of Liquidity advised a representative of the Partnership that an agreement had been reached between persons affiliated with each of Longacre and Krescent and that, as a result of such agreement, the offer by American Holdings "would be withdrawn." ITEM 9. MATERIAL TO BE FILED AS EXHIBITS (a)(i) Form of cover letter to Unit holders from the Partnership dated December 5, 1996. (ii) Press release of the Partnership dated December 5, 1996. (b) Letter of the Partnership to Unit holders dated November 25, 1996. (c)(i) Amended Agreement, dated as of June 1, 1982 (the "Partnership Agreement"), by and among The Krupp Company and The Krupp Corporation, as general partners, The Krupp Company, as the Original Limited Partner, and those persons who have been admitted to the Partnership as Investor Limited Partners pursuant to the terms of the Partnership Agreement. (ii) Form of Property Management Agreement between the Partnership and Berkshire Property Management Company. (iii) Settlement Agreement and Release, dated as of June 27, 1996, between the Corporate General Partner and Liquidity Financial Group, L.P. (iv) First Amendment to Settlement Agreement and Release, dated as of October 8, 1996, between the Corporate General Partner and Liquidity Financial Group, L.P. 7 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: December 5, 1996 KRUPP REALTY FUND, LTD. - III By: The Krupp Corporation, a general partner By: s/Laurence Gerber ------------------------------- Name: Laurence Gerber Title: President 8 EXHIBIT INDEX Exhibit Description Page 1. Form of cover letter to Unit holders from the Partnership dated December 5, 1996 2. Letter of the Partnership to Unit holders dated November 25, 1996 3. Press release of the Partnership dated December 5, 1996 4. Amended Agreement, dated as of June 1, 1982 (the "Partnership Agreement"), by and --------------------- among The Krupp Company and The Krupp Corporation, as general partners, The Krupp Company, as the Original Limited Partner, and those persons who have been admitted to the Partnership as Investor Limited Partners pursuant to the terms of the Partnership Agreement 5. Form of Property Management Agreement between the Partnership and Berkshire Property Management Company 6. Settlement Agreement and Release, dated as of June 27, 1996, between the Corporate General Partner and Liquidity Financial Group, L.P. 7. First Amendment to Settlement Agreement and Release, dated as of October 8, 1996, between the Corporate General Partner and Liquidity Financial Group, L.P. 9 EX-1 2 Exhibit 1 KRUPP REALTY FUND, LTD. - III December 5, 1996 Dear Limited Partner: As you are by now aware, Krescent Partners L.L.C., a Delaware limited liability company (the "Purchaser"), has made an offer (the "Krescent Offer") to purchase limited partnership units ("Units") of Krupp Realty Fund, Ltd. - III (the "Partnership") for $315 per Unit. THE KRUPP CORPORATION, A GENERAL PARTNER OF THE PARTNERSHIP (A "GENERAL PARTNER"), IN LIGHT OF ALL RELEVANT CIRCUMSTANCES, HAS DETERMINED THAT THE KRESCENT OFFER IS INADEQUATE AND NOT IN THE BEST INTERESTS OF THE UNIT HOLDERS. THE GENERAL PARTNER RECOMMENDS THAT THE HOLDERS OF UNITS REJECT THE KRESCENT OFFER AND NOT TENDER THEIR UNITS PURSUANT THERETO. The General Partner reached this conclusion after considering a number of factors, including, but not limited to, the following: o THE PRICE PER UNIT OFFERED BY THE PURCHASER DOES NOT REFLECT THE VALUE INHERENT IN THE UNITS. The price being offered by the Purchaser is less than 48% of the General Partner's estimate of the Partnership's net asset value of $661 per Unit. (Such net asset value assumes a sale of all of the Partnership's properties at net asset value, after deduction for estimated transaction costs, and the distribution of the net proceeds of such sale to the Unit holders. Actual transaction costs and market conditions will affect the actual amount available for distribution.) Although Unit holders, in exchange for receiving the certainty of a cash purchase price from the Purchaser, may prefer to forego the opportunity to hold their Units and receive proceeds upon the potential future liquidation of the Partnership's assets in excess of the amount being offered by the Purchaser, the General Partner believes that the price specified in the Krescent Offer reflects too great a discount to value. o AS STATED BY THE PURCHASER IN THE KRESCENT OFFER, THE PURCHASER IS MAKING THE KRESCENT OFFER WITH A VIEW TO MAKING A PROFIT. Accordingly, there is a conflict of interest between the 10 Purchaser's desire to purchase the Units at a low price and the Unit holders' desire to sell their Units at a high price. o UNIT HOLDERS WHO ACCEPT THE KRESCENT OFFER WILL NO LONGER RECEIVE CASH DISTRIBUTIONS. The Partnership currently is paying a semi-annual cash distribution of $7.93, or $15.86 annually, per Unit. Unit holders who sell their Units to the Purchaser will lose their right to receive future semi-annual distributions from operations that are payable in respect of Units. Furthermore, Unit holders who sell their Units to the Purchaser will lose their right to future distributions from future sales of Partnership properties. o AS STATED BY THE PURCHASER IN THE KRESCENT OFFER, UNIT HOLDERS WHO TENDER UNITS ACQUIRED FROM THE PARTNERSHIP IN CONNECTION WITH THE ORIGINAL ISSUANCE THEREOF ARE EXPECTED TO RECOGNIZE TAXABLE GAIN, WHICH WILL BE IN EXCESS OF THE PURCHASE PRICE RECEIVED BY THEM FROM THE PURCHASER. Enclosed is a copy of the Partnership's Statement on Schedule 14D-9 which has been filed with the Securities and Exchange Commission and sets forth the Partnership's response to the Krescent Offer. Limited partners are advised to carefully read the Schedule 14D-9. Unit holders also should be advised that, by letter dated November 4, 1996, Longacre Corp. ("Longacre") requested that the Partnership provide to it a list of the Partnership's Unit holders. The letter stated that the request was being made to facilitate a tender offer by an affiliate of Longacre. As a result of negotiations, the General Partner agreed to provide a list of the Partnership's Unit holders to Longacre in connection with obtaining the agreement by Longacre, pursuant to a Standstill Agreement dated as of November 26, 1996, that Longacre and its affiliates, among other things, would refrain from acquiring in excess of 25% of the Units for a period ending 30 months after receipt from the Partnership of any list of its Unit holders. The General Partner was subsequently advised by Longacre that its affiliate, American Holdings I, L.P. ("American Holdings"), intended to commence an offer to acquire up to 4.9% of the outstanding Units at a price of $325 per Unit, which is in excess of the purchase price specified in the Krescent Offer. On December 4, 1996, a representative of Liquidity advised a representative of the Partnership that an agreement had been reached between persons affiliated with each of Longacre and Krescent and that, as a result of such agreement, the offer by American Holdings "would be withdrawn." The General Partner believes that the market value of the Partnership's assets have recently begun to recover. As you may know, real estate values fell precipitously during the late 1980's and early 1990's. The Partnership survived this turbulent period by adopting various measures, including the suspension of 11 distributions in 1990, the sale of certain properties, and the refinancing of the remaining properties at favorable rates. The Partnership's properties have begun to generate greater revenues and reflect increased property values. Encouraged by this improvement, the General Partner authorized the reinstatement of distributions in 1994. The General Partner looks forward to continued success in recovering the loss in value that occurred in the late 1980's and early 1990's. The General Partner's strategy is to aggressively manage the Partnership's properties to maximize their value and prepare the properties for sale when this goal is reached. Please do not hesitate to call our Investor Communication representatives at 1-800-255-7877 for assistance in any Partnership matter. Sincerely yours, Laurence Gerber The Krupp Corporation, a General Partner 12 EX-2 3 Exhibit 2 Krupp Funds Group 470 Atlantic Avenue, Boston, Massachusetts 02210 Telephone (800) 25-KRUPP (800-255-7877) Krupp Realty Fund, Ltd. - III November 25, 1996 Dear Limited Partner: As you are probably aware by now, Krescent Partners L.L.C., a Delaware limited liability company, has made an offer (the "Krescent Offer") to purchase limited partnership units of Krupp Realty Fund Ltd. - III (the "Partnership"). The General Partners of the Partnership will be carefully studying the Krescent Offer in consultation with the Partnership's outside advisors and, after completing their evaluation, will announce their conclusion and recommendation on or before December 9, 1996. Prior to that time, you are urged not to take any action with respect to the Krescent Offer. Krupp Realty Fund, Ltd. - III EX-3 4 Exhibit 3 NEWS RELEASE GENERAL PARTNER OF KRUPP REALTY FUND, LTD. - III RECOMMENDS REJECTION OF KRESCENT PARTNERS L.L.C. OFFER BOSTON, MA -- December 5, 1996. Laurence Gerber, President of the General Partner of Krupp Realty Fund Ltd. - III, said today that, after carefully considering the unsolicited cash tender offer by Krescent Partners L.L.C. of $315 per Unit of Limited Partnership Interest, the General Partner has determined that the Krescent offer is inadequate and not in the best interests of the Unit holders. The General Partner recommends that the holders of Units reject the Krescent offer and not tender their Units pursuant to such offer. In a letter to Unit holders accompanying a recommendation statement on Schedule 14D-9 filed today with the Securities and Exchange Commission, Mr. Gerber said that the General Partner had recommended that holders of Units reject the offer after considering a number of factors, including, but not limited to the following: o The General Partner believes the price offered by Krescent is less than 48% of the General Partner's estimate of the Fund's net asset value of $661 per Unit. o Unit holders who accept the Krescent offer will no longer receive the semi-annual cash distributions currently paid in respect of Units and will forego any claim to future distributions from sales of the Fund's properties. o As noted by Krescent in its offer, Unit holders who purchased Units at the original offering are expected to recognize taxable gain in excess of the purchase price offered by Krescent. For further information, Unit holders may contact Investor Communications of the Krupp Funds Group at 1-800-343-0989. For information on the press release contact: Maryann Merigan (617) 423-2233 EX-4 5 Exhibit 4 KRUPP REALTY FUND, LTD. - III (A Massachusetts Limited Partnership) AMENDED AGREEMENT OF LIMITED PARTNERSHIP AMENDED AGREEMENT dated as of the 1st day of June, 1982, by and among The Krupp Company, a Massachusetts limited partnership, and The Krupp Corporation, a Massachusetts corporation, each as a General Partner; The Krupp Company, as the Original Limited Partner; and those persons who shall hereafter be admitted to the Partnership as Investor Limited Partners. The Original Limited Partner and the Investor Limited Partners are collectively referred to herein as the "Limited Partners" and, together with the General Partners, as the "Partners." Certain other terms used throughout this Agreement are defined in Section 17 hereof. WHEREAS, the General Partners and the Original Limited Partner have formed a limited partnership (the "Partnership") under an Agreement of Limited Partnership dated as of April 23, 1982 (the "Original Agreement") and the provisions of the Massachusetts Uniform Limited Partnership Act; and WHEREAS, the Partners now wish to amend the Original Agreement and to provide for the admission of the Investor Limited Partners to the Partnership subject to the revised terms and conditions herein specified; NOW THEREFORE, the parties hereto hereby agree as follows: Section 1. Continuation. The parties hereto hereby agree to continue the Partnership pursuant to the provisions of the Uniform Limited Partnership Act of the Commonwealth of Massachusetts. Section 2. Name and Office. The Partnership shall be conducted under the name and style of "Krupp Realty Fund, Ltd.-III (A Massachusetts Limited Partnership)." The principal office and place of business of the Partnership shall be located at One Liberty Square, Boston, Massachusetts 02109, or at such other place as the General Partners may from time to time determine and specify by written notice to all of the Partners. Section 3. Purposes and Powers. 3.1 Purposes. The purposes of the Partnership are to acquire, invest in, maintain, operate, lease, improve, hold, encumber, sell, manage and otherwise deal with the Properties of the Partnership. 3.2 Powers. In furtherance of the above purposes, the Partnership shall have the powers: (a) to acquire, improve, mortgage, hold, sell, exchange, and otherwise deal in Properties situated in any location in the United States and in any real 2 property appurtenant thereto and in interests therein as may be necessary or desirable to carry out the operation, leasing and maintenance of such Properties; (b) subject to any applicable statutes and regulations, to borrow money to further the purposes of the Partnership, to issue evidences of indebtedness in respect thereof and to secure the same by mortgage or pledge or grant of lien on or other security interest in a Property or any other assets of the Partnership; (c) to do all things, carry on any activities and enter into, perform, modify, supplement or terminate any contracts necessary to, in connection with or incidental to the furtherance of the purposes of the Partnership, all so long as such things, activities and contracts may be lawfully done, carried on or entered into by the Partnership under the laws of the Commonwealth of Massachusetts and the United States of America and under the terms of this Agreement. The Partnership shall not engage in any business not provided for in this Section 3.2 without the Consent of a majority in interest of the Investor Limited Partners. Section 4. Term. The term of the Partnership commenced upon the filing of the Certificate of Limited Partnership with the Secretary of the State of the Commonwealth of Massachusetts, and shall terminate at midnight on December 31, 2020, unless sooner dissolved or terminated as provided in Section 11 hereof. Section 5. Capital Contributions. 5.1 Contributions of General Partners. The General Partners have contributed in cash in respect of their General Partnership Interests an aggregate of $1,000, in the respective amounts set forth opposite their names in Schedule A hereto. If upon termination of the Partnership, the General Partners have a deficit balance in their Capital Accounts, they shall contribute in the aggregate to the capital of the Partnership an amount equal to the amount, if any, by which one and one-hundredths percent (1.01%) of the total Capital Contributions of the Limited Partners exceeds the total amount of the General Partners' Capital Contributions prior to such termination. 5.2 Contribution of the Original Limited Partner. The Original Limited Partner has contributed $4,000 in cash in respect of its Original Limited Partnership Interests. The Original Limited Partner shall not be obligated to make any further Capital Contributions to the Partnership. 5.3 Contributions of Investor Limited Partners. Except to the extent, if any, that additional Units of Investor Limited Partnership Interests may be sold pursuant to a subsequent offering as specified in Section 6.1(b)(3)(ii) hereof, the Investor Limited Partnership Interests in the Partnership shall consist of up to twenty-five thousand (25,000) Units of Investor Limited Partnership Interests which shall initially be held 3 by the Investor Limited Partners who shall be admitted to the Partnership as provided in Sections 6.1(b)(3)(i), 7.2 and 7.5 hereof. The Investor Limited Partner or Partners acquiring each such Unit shall contribute One Thousand Dollars ($1,000) per Unit (or, in the case of a subsequent offering pursuant to Section 6.1(b)(3)(ii) hereof, such amount as may be specified by the General Partners in connection therewith) in cash to the capital of the Partnership with respect to such Unit in the manner and subject to the conditions described in the aforesaid Sections. No Investor Limited Partner shall initially acquire or thereafter own a fractional Unit. 5.4 Capital Accounts. A Capital Account shall be established and maintained for each General Partner and Limited Partner. The Capital Account of each Partner shall be (a) credited with all payments made to the Partnership by such Partner on account of Capital Contributions and with allocations to such Partner of Partnership Profits for Tax Purposes and (b) charged with allocations to such Partner of Partnership Losses for Tax Purposes and with cash distributions made to such Partner as distributions of Cash Flow or of Net Cash Proceeds of Capital Transactions and the Terminating Capital Transaction, and shall otherwise appropriately reflect transactions of the Partnership and the Partners. A Partner shall not be required to make any Capital Contribution, or be entitled to bring an action for partition against the Partnership, or to demand or receive any distribution of or with respect to his Capital Contribution except as is specifically provided under this Agreement. For the purposes of this Section 5.4, a substitute Partner shall be deemed to have made the Capital Contributions to the Partnership which were made by the Partner who such substitute Partner succeeds, and to have received from the Partnership the allocations and distributions received from the Partnership by such former Partner. No loan made by a General Partner or a Limited Partner to the Partnership as permitted by this Agreement shall constitute a Capital Contribution for any purpose. Section 6. General Partners. 6.1 Extent of Powers and Duties. (a) General. Except as expressly limited by the provisions of this Agreement, the General Partners shall have complete and exclusive discretion in the management and control of the affairs and business of the Partnership and all powers necessary, convenient or appropriate to carry out the purposes, conduct the business and exercise the powers of the Partnership. Except as so expressly limited, the General Partners shall possess and enjoy with respect to the Partnership all of the rights and powers of partners of a partnership without limited partners to the extent permitted by Massachusetts law. (b) Powers and Duties. (1) General Powers and Duties. The General Partners shall diligently and faithfully exercise their discretion to the best of their ability and use 4 their best efforts during so much of their time as may be necessary to carry out the purposes and conduct the business of the Partnership in accordance with this Agreement and in the best interests of the Partnership and so as, consistent therewith, to protect the interests of the Limited Partners as a group. The General Partners shall have fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership, whether or not in their immediate possession or control, and they shall not employ, or permit another person to employ such funds or assets in any manner except for the exclusive benefit of the Partnership. In particular, the General Partners, solely, shall be responsible for and shall use their best efforts and exercise discretion to the best of their ability: (i) to cause Properties to be acquired, held, financed and refinanced, and sold, exchanged or otherwise disposed of; (ii) to rent, maintain and operate the Properties so as to comply with the provisions of any mortgage instruments, other indebtedness, and/or regulatory agreements with governmental bodies or agencies relating thereto; (iii) to select and supervise the activities of the real estate management agent(s) for the Partnership including, without limitation, the inspection of the Properties in order to assure their proper maintenance and repair; (iv) to assure the proper application of revenues of the Partnership; (v) to maintain proper books of account for the Partnership and to prepare all reports of operations and tax returns which are to be furnished to the Partners pursuant to this Agreement or which are required by taxing bodies or other governmental agencies; (vi) to maintain adequate insurance with respect to the Properties and any other insurable property of the Partnership pursuant to policies of insurance in form and coverage customary for property similar to the Properties and such other insurable property; and (vii) to assure the doing of all other things which may be necessary or advisable in connection with the supervision of the affairs, business and property of the Partnership. (2) Amplification of Powers and Duties. As amplification, and not by way of limitation on the powers expressed herein, the General Partners shall have full power and authority on behalf of the Partnership, in order to carry out and accomplish its purposes and functions: (i) to expend Partnership capital and income; (ii) to purchase, lease, sell, exchange, improve, divide, combine and otherwise transact business with respect to interests in real estate and personal property, and in that connection to employ engineers, contractors, attorneys, accountants, brokers, appraisers, and such other consultants, advisors, artisans, and workmen as may be necessary or advisable for the purpose; (iii) to designate depositories of the Partnership's funds, and the terms and conditions of such deposits and drawings thereon; (iv) to borrow money or otherwise to procure extensions of credit for the Partnership, and in connection therewith to execute, seal, acknowledge, and deliver agreements, promissory notes, guaranties and other written documents constituting obligations or evidences of indebtedness, and as security therefor to pledge, hypothecate, mortgage, assign, transfer, or convey mortgages or security interests in the Properties and other assets of the Partnership; (v) to execute and deliver documents and instruments relating to real and personal property of whatever kind and description, including, but not limited to, deeds, mortgages, leases and other 5 documents of title or conveyance, regulatory agreements with governmental bodies and agencies, assumption agreements pertaining to such agreements, powers of attorney, and other contracts, instruments, agreements of all kinds; (vi) to hold all or any portion of the Properties and other assets of the Partnership in the name of one or more trustees, nominees or other agents of or for the Partnership for the purpose of facilitating transactions involving said assets; (vii) to establish reserves for normal repairs, replacements and contingencies and, in their discretion, for any other proper Partnership purpose; and (viii) in general to do all things and execute all documents the General Partners shall deem necessary or convenient to accomplish the purposes of the Partnership, or to protect and preserve the Partnership assets, to the same extent as if they owned such assets individually. (3) Admission of Investor Limited Partners. The General Partners shall have the right to admit to the Partnership as Investor Limited Partners such Persons (including a General Partner or the Original Limited Partner) as may acquire the respective Units in consideration of their Capital Contributions to the Partnership pursuant to Section 5.3 hereof, provided that each Person so admitted shall, in connection with such acquisition, agree to be bound by the provisions of this Agreement in the manner specified in Section 7.2 hereof and further provided: (i) In connection with the initial offering of Units which shall involve up to twenty-five thousand (25,000) Units at an offering price of $1,000 per Unit, no Investor Limited Partners shall be admitted pursuant to this Section 6.1(b)(3) unless and until the class of Investor Limited Partners has made aggregate Capital Contributions totaling $4,000,000. (ii) Subsequent to the initial offering of Units, if in the judgment of the General Partners, the Partnership requires additional Capital Contributions for the purpose of financing capital improvements to one or more existing Properties for which improvements the Partnership then has insufficient reserves, the General Partners may in their discretion offer to sell additional Units, subject to certain conditions. These conditions are: (i) in no event shall the Capital Contributions made in connection with any and all such additional offerings exceed $3,000,000, (ii) at the time of any such subsequent offering, all or substantially all of the net proceeds of the initial offering of Units shall have already been invested in Properties or reserves, (iii) the principal terms of any such offering shall have been approved by vote of the holders of not less than 51% of the Units then outstanding, and (iv) the capital expenditures to be financed through such subsequent offering (or the amount of such expenditures) were not foreseen and could not reasonably have been foreseen over the anticipated period of Partnership ownership at the time the Property was acquired by the Partnership, and such expenditures are, in the opinion of the General Partners, necessary to preserve the value of the Property. If the General Partners elect to make such an offering, each of the Investor Limited Partners shall be offered, to the extent then permitted by applicable securities laws, an opportunity to subscribe for additional Units pro rata to the number of Units held by 6 such Investor Limited Partner, at a price equal to the fair market value of the Units as determined in the judgment of the General Partners. If any Investor Limited Partner does not subscribe for his proportionate share, the unsubscribed Units shall be similarly offered to the remaining Investor Limited Partners, and then to the Original Limited Partner and the General Partners in that order until fully subscribed. Any Units not subscribed may thereafter be offered to such persons as the General Partners shall determine, provided always the minimum price to be received therefor is equal to the fair market value of the Units as determined in the judgment of the General Partners. (4) Authority to Enter into Certain Agreements. The General Partners are specifically authorized to enter into the following agreements on behalf of the Partnership, and to pay the following fees and expenses: (i) Commencing with the month of acquisition of any Property, the General Partners are authorized to enter into a Management Agreement and to pay the Management Agent which manages such Property a monthly Management Fee in an amount equal to not in excess of the lesser of (i) the competitive rate for comparable services in the market area, or (ii) five percent (5%) of the rentals and other operating income of the Property actually received. (ii) The General Partners are authorized to pay Management Agent Reimbursement to the entity or entities which manage any Property pursuant to a Management Agreement, which Reimbursement shall include all proper expenditures, obligations and liabilities incurred by such Agent in connection with the operation of such Property. Such reimbursement shall be limited to the actual cost of goods, services and materials used for or by the Partnership, and in no event shall such cost exceed the cost of such items if supplied by Persons other than the General Partners and their Affiliates. The Management Agent Reimbursement shall not include reimbursement for costs of services rendered by employees who are not employed in the operation of the Property [except that employees servicing more than one property (whether or not owned by the Partnership) may have their costs prorated based upon the respective number of units or square footage in each property], or other expenses for which managing agents of real estate would not customarily receive reimbursement in addition to stated compensation. Any agreements, contracts and arrangements authorized by clauses (i) and (ii) of this Section 6.1(b)(4) may be entered into with a General Partner or an Affiliate of the General Partners subject to the following conditions: (A) any such agreements, contracts or arrangements shall be embodied in a written contract which precisely describes the subject matter thereof and all compensation to be paid therefor; 7 (B) no rebates or "give-ups" may be received by a General Partner or any such Affiliate, nor may the General Partner or any such Affiliate participate in any reciprocal business arrangements which would have the effect of circumventing any of the provisions of this Agreement; (C) neither a General Partner (in any capacity other than as General Partner) nor any such Affiliate may act as paying or purchasing agent for the Partnership and no funds of the Partnership may be paid to a General Partner or any such Affiliate by way of reimbursement for Partnership expenses other than organization and offering expenses or direct expenses as permitted by clause (ii) above or by Section 6.4(b) hereof; (D) any such agreements, contracts or arrangements shall be fully and promptly disclosed to all Partners in the reports provided for in Section 12.4(a) hereof (stating the compensation paid and to be paid by the Partnership); and (E) any such agreements, contracts or arrangements shall be terminable by either party, without penalty, upon 60 days' prior written notice. (iii) The General Partners are authorized to enter into a Sales Agent Agreement with Smith Barney under which Smith Barney shall agree to act as sales agent for the initial offering of Units. Pursuant to such Agreement, Smith Barney shall be entitled to receive out of the gross proceeds of such offering the following compensation: (i) a sales commission of $80 for each Unit sold, (ii) a financial consulting fee equal to an additional $10 for each Unit sold, and (iii) reimbursement of the expenses incurred by Smith Barney up to a maximum of $45,000. In addition, Smith Barney shall be entitled under the Sales Agent Agreement to receive out of the Net Cash Proceeds of sales and refinancings of Partnership Properties over the life of the Partnership a Subordinated Financial Consulting Fee equal to 7.5% of any Net Cash Proceeds from such sales or refinancings which remain after all distributions of such Proceeds which are required by clauses First through Third of Section 8.3(a) hereof and by clauses First through Fourth of Section 8.3(b) hereof have been made to the Partners, provided, however, that in no event shall the maximum amount of the Subordinated Financial Consulting Fee exceed 1.5% of the gross proceeds of the initial offering of Units (including any exercise of the over-allotment option granted by the Partnership to Smith Barney as sales agent respecting such offering). (5) Maintenance of Net Worth. The General Partners shall at all times use their best efforts to maintain their combined net worth (including the net worth of the general partners of any partnership which serves as a General Partner including, without limitation, The Krupp Company) at a sufficient level to meet all requirements of the Code under currently applicable rulings, regulations and policies of the Internal Revenue Service and as hereafter interpreted by the Internal Revenue Service, any agency of the federal government or the courts, to permit the Partnership 8 to be classified for federal income tax purposes as a partnership and not as an association taxable as a corporation, and shall, irrespective of such requirements, maintain such combined net worth on a fair market basis at an amount at least equal to $1,000,000. (c) Delegation of Powers. Each General Partner, while there are more than one, may act on behalf of the Partnership in connection with any particular matter affecting the Partnership, including the authority to execute notes, deeds, mortgages and other instruments. Except as otherwise provided under this Agreement or by law, the General Partners may delegate all or any of their duties under this Agreement to any of their own respective partners, officers or employees, and in furtherance of such delegation may elect, employ, contract or deal with any Person (including any General Partner or any Affiliate of a General Partner). (d) Reliance by Third Parties. No Person dealing with the Partnership, or its assets, whether as mortgagee, assignee, purchaser, lessee, grantee or otherwise, shall be required to investigate the authority of the General Partners, or any General Partner purporting to act in behalf of the other General Partners, in selling, assigning, leasing, mortgaging, conveying or otherwise dealing with any Partnership Property or other assets or any part thereof, nor shall any such assignee, lessee, purchaser, mortgagee, grantee or other Person entering into a contract with the Partnership be required to inquire as to whether the approval of the Partners for any such sale, assignment, lease, mortgage, transfer or other transaction has been first obtained. Any such Person shall be conclusively protected in relying upon a certificate of authority or any other material fact signed by any General Partner, or in accepting any instrument signed by any General Partner in the name and behalf of the Partnership or the General Partners. 6.2 Limitations on the Exercise of Powers of General Partners. The General Partners shall have no power to take any action prohibited by this Agreement or by the Massachusetts Uniform Limited Partnership Act. Furthermore, in their administration of the Partnership's affairs, the General Partners shall be subject to the following specific limitations: (a) Investment Objectives and Policies. The Properties to be acquired by the Partnership shall consist of apartment complexes and/or commercial properties such as office buildings or shopping centers. All of the Properties shall be located in the United States. The Partnership shall not invest in Properties under construction or to be constructed, except for expansion or improvement of existing Properties, and shall not invest in single family residential homes, low income housing or other properties subject to government housing assistance payments, secondary homes, resort or recreational properties, hotels, nursing homes, gaming facilities, mobile home parks or property subject to sale-leaseback transactions. No unimproved or non-income producing property shall be acquired where the aggregate purchase price for all such unimproved or non-income producing properties would exceed 10% of the 9 gross proceeds of the initial offering of Units. On an interim basis, the Partnership may invest its funds either in (i) United States Government securities, other United States Government guaranteed money instruments, certificates of deposit of banks located in the United States, bank repurchase agreements collateralized by securities of the United States Government or governmental agencies, bankers' acceptances, and similar money market investments, or (ii) shares of public investment companies registered with the Securities and Exchange Commission whose assets exceed $50,000,000 and are invested in the foregoing types of investments and held by an independent custodian. The Partnership shall not invest in mortgages, trust deeds or similar obligations, except that the Partnership may advance a portion of the purchase price of a Property to the seller in the form of a loan, and except that second mortgages or similar obligations may be taken back from purchasers of Properties in connection with the sale thereof by the Partnership. The aggregate amount of mortgage indebtedness which may be incurred in connection with the acquisition of Properties shall not exceed 80% of the gross purchase price of all Properties determined on a combined basis. The Partnership shall not redeem or repurchase Units and shall not underwrite the securities of other issuers. The General Partners shall use their best efforts to assure that the Partnership shall not be deemed an investment company as such term is defined in the Investment Company Act of 1940. (b) Sales and Leases of Properties from or to the General Partners and their Affiliates. The Partnership shall not purchase, lease or acquire any Property from any General Partner or any Affiliate of any General Partner or any Person in which any General Partner or Affiliate has a material interest including, without limitation, any partnership of which any General Partner or Affiliate of a General Partner is a partner, unless (i) such transaction occurs in connection with the formation of the Partnership and is fully disclosed in the prospectus used by the Partnership for its initial offering of Units, (ii) any Property sold to the Partnership is sold upon terms fair to the Partnership and at a price not in excess of its value as determined by independent appraisal, and (iii) the cost of any such Property and any improvements thereon is clearly established. Notwithstanding the foregoing, the General Partners or their Affiliates may purchase Property in their own name, and assume loans in connection therewith and temporarily hold title thereto for the purpose of facilitating the acquisition of such Property or the borrowing of money or obtaining of financing for the Partnership, or completion of construction of the Property, or any other purpose related to the business of the Partnership, provided that such Property is purchased by the Partnership for a cash investment no greater than the cash investment in such Property (including, without limitation, equity payments, financing and closing costs) made or agreed to be made by the General Partners or their Affiliates, and that no other payment directly or indirectly arising out of such transaction is received by any General Partner or Affiliate thereof apart from compensation otherwise permitted by this Agreement. In the event the Partnership is not successful in selling sufficient Units of Investor Limited Partnership Interests to permit the Partnership to make any payments required in connection with obligations or indebtedness incurred by the Partnership in connection with the acquisition of any 10 Property, the Partnership may sell such Property to the General Partners or any Affiliate of the General Partners for a price (and related cash investment as defined above) not less than the total price (and related cash investment) paid by the Partnership for such Property. The General Partners or their Affiliates may lease office or other space in any Property owned by the Partnership; provided, however, that any such lease (i) shall be for rentals and on other terms not less favorable to the Partnership than those available to the Partnership from unaffiliated tenants, (ii) shall be terminable on 60 days' prior written notice by the Partnership without penalty, and (iii) shall provide that any rentals from subleases relating thereto which are in excess of the rentals from such lease shall be paid to the Partnership and, provided further, that no more than 15% of the office space of the Partnership Properties shall be leased to the General Partners or their Affiliates. Except as otherwise provided herein, the Partnership shall not sell or lease any Property to any General Partner or any Affiliate of a General Partner. (c) Loans to or from the General Partners and their Affiliates. No loans may be made by the Partnership to any General Partner or any Affiliate of a General Partner. Neither any General Partner nor any Affiliate of a General Partner shall loan funds to the Partnership with interest rates and other finance charges and fees in excess of the amounts that are charged by unrelated banks on comparable loans for the same purpose in the locality of the Property in connection with which the loan was made, and in no event shall the annual interest rate charged on any such loan exceed by more than 2% the then prime rate of such an unrelated local bank. In addition, neither any General Partner nor any Affiliate of a General Partner shall make loans to the Partnership with a prepayment charge or penalty which are evidenced or secured by either a first or junior or all-inclusive note or mortgage, except to the extent that such prepayment charge or penalty is attributable to an underlying encumbrance. Neither any General Partner or Affiliate of a General Partner shall provide permanent financing for the Partnership, and all payments of principal and interest on any financing provided by the General Partners or any Affiliate of a General Partner shall be due and payable within 12 months after the date of the loan. In the event the Partnership utilizes any all-inclusive (or "wrap-around") note issued by the Partnership to the General Partners or an Affiliate thereof, said note shall provide that the Partnership shall receive credit on its obligation under said note for payments made by the Partnership directly on the underlying encumbrance and that a bank, escrow company or other paying agent shall collect payments (other than amounts not to be applied to the underlying encumbrance) on the all-inclusive note and make disbursements therefrom to the holder of the underlying encumbrance prior to making any disbursement to the holder of the all-inclusive note or, in the alternative, all payments on the all-inclusive note and underlying notes shall be made directly by the Partnership. In addition, no General Partner or Affiliate of a General Partner shall receive interest on the amount of the underlying encumbrance included in any all-inclusive note in excess of that payable to the lender on that underlying encumbrance. 11 (d) Exchange of Interests for Properties. The Partnership shall not acquire any Property in exchange for Interests in the Partnership. (e) Investments in Other Programs. The Partnership shall not make investments in the general or limited partnership interests of any other program, or enter into any joint venture or partnership which owns or operates a particular Property except for (i) any such partnership or venture entered into to facilitate the holding of title to any Property and in which the Partnership holds all or substantially all of the beneficial interest, or (ii) a partnership or joint venture entered into with an Affiliate of the General Partners to acquire and hold a Property if the investment by the Partnership and such Affiliate are on substantially the same terms and conditions, except as a result from varying percentage interests in the joint venture. The Partnership shall acquire a controlling interest in any such partnership or venture, and in no event shall any duplicate property management or other fees be paid by the Partnership as a result thereof. For purposes hereof, the term "controlling interest" shall mean an interest of not less than 50% in the capital and profits of the joint venture and the inclusion of appropriate provisions in the joint venture agreement or related documents giving the Partnership the joint right to make basic management decisions concerning the sale, leasing, refinancing or expansion of the Property. The Partnership may not act indirectly through any such joint venture if the Partnership would be prohibited from doing so directly by reason of restrictions in this Agreement. In the event of a proposed sale of the Property initiated by either joint venture partner, each party must have a right of first refusal to purchase the other party's interest. Finally, in no event shall the Partnership's equity investment in all such joint ventures exceed 50% of the Partnership's total equity investment in all of its Properties. (f) Property Appraisals. No Property shall be acquired at a purchase price to the Partnership (including any Acquisition Fees) in excess of its market value as determined by an appraisal prepared by a competent independent appraiser, which appraisals shall be maintained in the records of the Partnership for not less than five years after the date of acquisition and which shall be available for inspection and duplication by any Partner or his representative at his cost. 6.3 Liability for Acts or Omissions and Indemnification. No General Partner or Affiliate of a General Partner shall be liable, responsible or accountable in damages or otherwise to any of the Partners or the Partnership for any act or omission of any General Partner in good faith on behalf of the Partnership and in a manner reasonably believed by such General Partner to be within the scope of the authority granted to the General Partners by this Agreement and in the best interests of the Partnership, except for acts or omissions constituting negligence, misconduct or breach of fiduciary duty. The General Partners and their respective Affiliates shall be entitled to indemnify from the Partnership for any loss, damage, or claim by reason of any act or omission performed or omitted by the General Partners in good faith on behalf of the Partnership and in a manner reasonably believed by the General Partners 12 to be within the scope of the authority granted to the General Partners by this Agreement and in the best interests of the Partnership, except that they shall not be entitled to be indemnified in respect of any loss, damage or claim incurred by reason of negligence, misconduct, or breach of fiduciary duty. Any indemnity under this Section shall be provided out of and to the extent of Partnership assets only, and no Partner shall have or incur any personal liability on account thereof. 6.4 Compensation of General Partners. The General Partners shall not, in their capacities as General Partners, receive any salary, fees, profits or distributions except: (a) The General Partners shall be entitled to receive the allocations and distributions which are provided under Section 8 hereof in respect of their General Partnership Interests. (b) Neither the General Partners nor their Affiliates shall receive any Acquisition Fees in connection with the acquisition of Partnership Properties, and the Partnership shall not pay any such Fees to any other Person. The General Partners shall be entitled to receive reimbursement from the Partnership for expenditures (including deposits and expenses incurred in the acquisition of any Property), obligations and liabilities incurred by them in connection with the organization, offering expenses and business of the Partnership, including reimbursement for traveling expenses incurred on business of the Partnership, and salaries and direct expenses of officers and employees of the General Partners directly engaged in organizing the Partnership and registering and marketing the Units, provided that such reimbursement shall be subject to the following limitations. Except for expenses incurred in connection with the organization of the Partnership and the initial offering of Units, all of the Partnership's expenses shall be billed directly to and paid by the Partnership. Reimbursements to the General Partners shall be limited to the actual cost of goods, services and materials used for or by the Partnership and, except for reimbursement of salaries of officers and employees of the General Partners directly engaged in organizing the Partnership and registering and marketing the Units, supplied by Persons other than the General Partners and their Affiliates. In no event shall the Partnership be obligated to pay or reimburse the General Partners for expenses (including, without limitation, any salaries of officers or employees of the General Partners as aforesaid) incurred in connection with the organization of the Partnership and the initial offering of Units in an aggregate amount exceeding 5% of the gross proceeds of the initial offering of Units. Furthermore, in no event shall (i) the Partnership's reimbursement for travel and related expenses of the General Partners incurred in connection with the acquisition of Partnership Properties exceed 2.0% of the gross proceeds of the initial offering of Units, or (ii) any real estate brokerage fees or other Acquisition Fees paid to or by any sellers of Properties or other Persons in connection with the acquisition of Partnership Properties exceed, with respect to each Property, 4.0% of its purchase price or, with respect to all Properties, 4.0% of the gross proceeds of the initial offering of Units. Expenses 13 incurred by the General Partners in connection with the administration of the Partnership including, but not limited to, salaries, rent and such other items generally constituting General Partners' overhead, shall not be charged to the Partnership. (c) Upon the sale of any Property, the General Partners shall receive for their actual services in arranging such sale, a brokerage fee in an amount equal to three percent (3%) of the gross sales price of the Property, provided that in no event shall (1) any such brokerage fee exceed 50% of the competitive real estate commission in the area where the Property sold is located and, together with any other brokerage fees payable to or by any other Person, exceed 4% of the sales price of such Property, and (2) any such brokerage fee be paid until after all Investor Limited Partners shall first have received a return of their total Invested Capital and any previously unpaid Cumulative Return on Investment as determined in accordance with Section 8.3(a) Second and Section 8.3(b) Second hereof. If and when such a return has been achieved, any and all brokerage fees previously earned by the General Partners shall be paid by the Partnership to the General Partners prior to any other distributions to the Partners. 6.5 Other Interests of the General Partners and their Affiliates. Any General Partner and any Affiliate of a General Partner may engage in or possess an interest in other business ventures (unconnected with the Partnership) of every kind and description, independently or with others including, but not limited to, serving as general partner of other partnerships and participating in the real estate business in all of its phases, which shall include, without limitation, ownership, operation, construction, management, syndication and development of real property and which may include properties competitive with any Property. The General Partners will devote such time to the affairs of the Partnership and each other such partnership as they, within their sole discretion, deem necessary for the proper performance of their duties. Neither the Partnership nor the Limited Partners shall have any rights in and to such independent ventures or the income or profits therefrom by reason of the General Partner's position with the Partnership. Neither the General Partners nor any Affiliate of any General Partner shall be obligated to present any particular investment opportunity to the Partnership even if such opportunity is of a character which, if presented to the Partnership, could be taken by the Partnership, and each of the General Partners and their Affiliates shall have the right to take for its own account (individually or otherwise) or to recommend to others any such particular investment opportunity. Subject to the other provisions of this Agreement, the Partnership may employ or transact business with any Person, notwithstanding the fact that any Partner or any of his Affiliates may have (or have had) an interest in or connection with such Person, and neither the Partnership nor the other Partners shall have any rights by virtue of this Agreement in or to any income or profits derived therefrom. 6.6 Other Transactions Involving the General Partners and their Affiliates. Except as specifically permitted by this Agreement, the General Partners are prohibited from entering into any agreements, contracts or arrangements on behalf of 14 the Partnership with any General Partner or any Affiliate of any General Partner. Such prohibition shall include, without limitation, the following: (a) neither a General Partner nor any such Affiliate shall be given an exclusive right to sell or exclusive employment to sell Property for the Partnership; (b) neither any General Partner nor any such Affiliate shall receive directly or indirectly a commission or fee in connection with the reinvestment of the proceeds of the sale, exchange or refinancing of any Property; and (c) neither any General Partner nor any such Affiliate shall enter into an agreement or contract with the Partnership for the development of any Property or the construction of improvements on any Property. Section 7. Limited Partners. 7.1 Classes of Limited Partners. There shall be two classes of Limited Partnership Interests, namely, (a) Investor Limited Partnership Interests which shall be acquired and held by the Investor Limited Partners, and (b) Original Limited Partnership Interests which have been acquired and shall be held by the Original Limited Partner. 7.2 Requirements for Admission as an Investor Limited Partner. Each Person desiring to become an Investor Limited Partner, except for an assignee desiring to be admitted as a Substitute Limited Partner in accordance with Section 10 hereof, shall execute and deliver to the General Partners a subscription agreement and such other documents as shall be deemed appropriate by the General Partners. Under such subscription agreement and other documents, such subscriber shall, subject to acceptance of his subscription by the General Partners, execute and agree to be bound by this Agreement. If the General Partner shall accept such subscription, and if, in connection with the initial offering of Units pursuant to Section 6.1(b)(3)(i) hereof, subscriptions are received and accepted respecting not less than $4,000,000 of Units (excluding Units subscribed for by the General Partners and their Affiliates and by residents of Texas) the subscribers whose subscriptions are accepted shall be admitted as Investor Limited Partners in accordance with Section 7.5 hereof. The General Partners shall accept or reject each subscription for Units within 30 days after its receipt by the Partnership; if rejected, all subscription payments which accompanied such rejected subscription shall be returned forthwith to the subscriber. No General Partner or Affiliate of a General Partner or any underwriter, dealer or salesman of Units shall directly or indirectly pay or award any finder's fee, commission or other compensation to any Person engaged by a potential investor for investment advice as an inducement to such advisor to advise the purchase of Units; provided, however, that this provision shall not prohibit the normal selling commission payable to a registered broker-dealer or other properly licensed Person for selling Units. 7.3 Absence of Control Over Partnership Business. The Limited Partners hereby consent to the exercise by the General Partners of the powers conferred on them by this Agreement. No Limited Partner (except one who may also be a General Partner) shall participate in or have any control over the Partnership business or have 15 any right or authority to act for or to bind the Partnership. No Limited Partner shall have the right to have the Partnership dissolved and liquidated or to have his Capital Contribution returned except as provided in this Agreement. 7.4 Limited Liability. The liability of each Limited Partner in his capacity as a Limited Partner shall be limited to the amount of the Capital Contributions as described in Sections 5.2 and 5.3 hereof. Except as may otherwise be required by law, no Limited Partner shall, in his capacity as Limited Partner, have any further obligations to the Partnership or be required to contribute any capital or loan funds to the Partnership. 7.5 Admission of Investor and Substitute Limited Partners. Each Investor Limited Partner shall become a Partner simultaneously with the filing of the first amendment to the Certificate of Limited Partnership which shall reflect the respective name, address and Capital Contribution of such Investor Limited Partner. The General Partners shall prepare and file the first amendment to the Certificate of Limited Partnership admitting Investor Limited Partners to the Partnership within 15 days after a successful completion of the minimum offering of $4,000,000 of Units, as specified in Section 7.2 hereof. Thereafter, the General Partners shall prepare and file from time to time during the initial offering of Units, and in any event not less frequently than each month during such offering period, and promptly upon the completion thereof, further amendments to admit additional Investor Limited Partners whose subscriptions for Units shall have been accepted by the General Partners. Until they are admitted into the Partnership through the filing of an amendment to the Certificate of Limited Partnership, the subscribers will not be Partners but instead will be creditors of the Partnership entitled to a return of their respective subscription payments in the event they are not admitted as Investor Limited Partners. Following the completion of the initial offering of Units, the General Partners shall prepare and file not less often than quarterly, as specified in Section 10.3 hereof, further amendments to the Certificate of Limited Partnership to reflect the admission of Substitute Limited Partners admitted to the Partnership in accordance with Section 10 hereof. Section 8. Allocations and Distributions. 8.1 Allocations of Profits and Losses for Tax Purposes. (a) Operating Profits or Losses. Prior to the admission of any Investor Limited Partner, the Profits or Losses for Tax Purposes of the Partnership shall be allocated to the Original Limited Partner and the General Partners in proportion to their respective Capital Contributions. Commencing with the first day of the month in which the initial admission of an Investor Limited Partner occurs, the Profits or Losses for Tax Purposes of the Partnership, other than Profits or Losses of the Partnership arising from a Capital Transaction and the Terminating Capital Transaction, for each fiscal year (or portion thereof in the case of the initial fiscal 16 year in which any Investor Limited Partner shall be admitted) shall be determined as of the end of such fiscal year, or portion thereof, and allocated among the classes comprised of the Investor Limited Partners, the Original Limited Partner, and the General Partners in the same proportions as distributions of Cash Flow are made pursuant to Section 8.2(b) hereof, or, in the event no Cash Flow is then available for distribution, in the respective proportions in which Cash Flow would have been distributed under that Section if then available in the amount of such Profits or Losses. (b) Profits for Tax Purposes from a Capital Transaction. The Profits for Tax Purposes of the Partnership arising from a Capital Transaction shall be allocated as follows: First, to the class comprised of the Investor Limited Partners to the extent of cash distributions pursuant to Section 8.3(a) First attributable to the return of Invested Capital; Second, to the class comprised of the Investor Limited Partners to the extent of cash distributions pursuant to Section 8.3(a) Second attributable to payment of the Cumulative Return on Investment; Third, to the classes comprised of the Original Limited Partner and the General Partners to the extent of cash distributions pursuant to Section 8.3(a) Third attributable to the return of Invested Capital; and Fourth, until such time as the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital plus the Cumulative Return on Investment required by Section 8.3(a) Second, any remaining Profits for Tax Purposes shall be allocated ninety-five percent (95%) to the class comprised of the Investor Limited Partners, four percent (4%) to the class comprised of the Original Limited Partner, and one percent (1%) to the class comprised of the General Partners; and subsequent to such time as the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital plus such Cumulative Return on Investment, any remaining Profits shall be allocated sixty-five percent (65%) to the class comprised of the Investor Limited Partners, twenty-eight percent (28%) to the class comprised of the Original Limited Partner, and seven percent (7%) to the class comprised of the General Partners. Notwithstanding anything in this Section 8.1(b) to the contrary, the class comprised of the General Partners shall be allocated, to the extent not otherwise allocated, at least one percent (1%) of all Profits for Tax Purposes allocated pursuant to this Section 8.1(b). (c) Profits for Tax Purposes from the Terminating Capital Transaction. Subsequent to the charging to Capital Accounts of (i) all distributions of Cash Flow 17 pursuant to Section 8.2, (ii) the Net Cash Proceeds of any Capital Transactions pursuant to Section 8.3(a), and (iii) the Net Cash Proceeds of the Terminating Capital Transaction pursuant to Section 8.3(b) and as set forth in Section 8.4 (with regard to the allocations within the classes of Partners), the Profits for Tax Purposes arising from such Terminating Capital Transaction and the winding up of the affairs of the Partnership shall be allocated among the Partners (treating the classes comprised of the Investor Limited Partners, the Original Limited Partner, and the General Partners as separate classes for such allocation) as follows: First, to each class of Partners (without preference over any other class of Partners) in the amount as to each class equal to the excess of (1) the aggregate Losses for Tax Purposes and cash distributions charged to the aggregate of the Capital Accounts of such class prior to the date as of which such allocation is made, over (2) the sum of the aggregate Profits for Tax Purposes and Capital Contributions credited to the aggregate of the Capital Accounts of such class prior to the time as of which such allocation is made; Second, to the classes of Partners in the amount as to each class equal to the aggregate cash distributions, if any, from the Terminating Capital Transaction pursuant to clauses Second through Fourth of Section 8.3(b); and Third, until such time as the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital, plus the Cumulative Return on Investment required by Section 8.3(b) Second, any remaining Profits for Tax Purposes shall be allocated ninety-five percent (95%) to the class comprised of the Investor Limited Partners, four percent (4%) to the class comprised of the Original Limited Partner, and one percent (1%) to the class comprised of the General Partners; and subsequent to such time as the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital plus such Cumulative Return on Investment, any remaining such Profits shall be allocated sixty-five percent (65%) to the class comprised of the Investor Limited Partners, twenty-eight (28%) to the class comprised of the Original Limited Partner, and seven percent (7%) to the class comprised of the General Partners. Notwithstanding anything in this Section 8.1(c) to the contrary, the class comprised of the General Partners shall be allocated, to the extent not otherwise allocated, at least one percent (1%) of all Profits for Tax Purposes arising from the Terminating Capital Transaction. Any such allocation shall be treated for all purposes as though it were otherwise receivable by the General Partners under this Section. (d) Losses for Tax Purposes from a Capital Transaction. All Losses for Tax Purposes attributable to a Capital Transaction shall be allocated as follows: First, until such time as the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital plus the 18 Cumulative Return on Investment required by Section 8.3(a) Second, ninety-five (95%) to the class comprised of the Investor Limited Partners, four percent (4%) to the class comprised of the Original Limited Partner, and one percent (1%) to the class comprised of the General Partners; and Second, after such time as the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital plus such Cumulative Return on Investment, sixty-five percent (65%) to the class comprised of the Investor Limited Partners, twenty-eight percent (28%) to the class comprised of the Original Limited Partner, and seven percent (7%) to the class comprised of the General Partners. (e) Losses for Tax Purposes from the Terminating Capital Transaction. Losses for Tax Purposes attributable to the Terminating Capital Transaction and the winding-up of the affairs of the Partnership shall be allocated to the Partners to the extent of, and any excess in proportion to, the positive balances in their Capital Accounts (adjusted as though the Partnership's fiscal year ended immediately prior to the event giving rise to such Losses). Notwithstanding anything in this Section 8.1(e) to the contrary, the class comprised of the General Partners shall be allocated, to the extent not otherwise allocated, at least one percent (1%) of all Losses for Tax Purposes allocated pursuant to this Section 8.1(e). Any such allocation shall be treated for all purposes as though it were otherwise allocable to the General Partners under this Section. 8.2 Cash Flow of the Partnership. (a) "Cash Flow." The term "Cash Flow" of the Partnership for a particular fiscal year shall include all Profits or Losses for Tax Purposes from the operation of the Partnership for such fiscal year, excluding Profits or Losses for Tax Purposes for such fiscal year arising from a Capital Transaction or the Terminating Capital Transaction, and shall be determined by adjusting such Profits or Losses (to the extent not otherwise adjusted) as follows: (1) Depreciation of buildings, improvements and personal property shall not be considered a deduction; (2) Amortization of any item for which there is not an associated cash payment shall not be considered a deduction; (3) Principal and interest payments on a mortgage or other loan shall be considered deductions; (4) Principal payments on all conditional sales contracts and other secured obligations shall be considered a deduction; 19 (5) If the General Partner shall so determine, reasonable reserves established in accordance with generally accepted accounting principles shall be deducted to provide for replacements, improvements, capital improvements or any other contingency of the Partnership; (6) Any amounts paid by the Partnership for capital expenditures or replacement (and not withdrawn from a reserve fund established for such purpose) shall be considered a deduction; (7) Amounts equal to accounts payable and accrued items payable at the close of the Partnership fiscal year, to the extent not already deducted in calculating Profits or Losses for Tax Purposes, shall be considered a deduction; (8) Amounts required to maintain reasonable working capital shall be considered a deduction; (9) The reimbursement and fees payable to the General Partners hereunder shall be considered as a deduction; (10) The Management Fees and Management Agent Reimbursement shall be considered as a deduction; (11) Capital Contributions to the Partnership and the proceeds of any Capital Transaction or the Terminating Capital Transaction shall not be included in Cash Flow of the Partnership and payments made from such sources of funds shall be excluded in determining Cash Flow of the Partnership; and (12) Any other cash receipts from the operation of the Partnership not properly includable in Profits or Losses for Tax Purposes, and any amounts released from operating reserve accounts described in this Section 8.2(a) and available for distribution, shall be included in Cash Flow of the Partnership. (b) Cash Flow Distributions. Within 45 days after the completion of the first half of each of the Partnership's fiscal years, commencing with the first fiscal year in which any Investor Limited Partner shall be admitted to the Partnership, the Partnership will make a distribution of Cash Flow to the Partners, which distribution will be based upon an estimate by the General Partners of the Partnership's total Cash Flow for such year. Within 90 days after the end of each fiscal year, the Partnership's Cash Flow for such year will be determined and, after giving effect to the amount of Cash Flow previously distributed, the remainder will then be distributed to the Partners. Each such distribution of Cash Flow will be accompanied by a Cash Flow statement as required by Section 12.4(a) hereof. Each distribution of Cash Flow of the Partnership shall be made in the manner and amounts as follows: 20 First, for years ending prior to the year in which the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital, plus the Cumulative Return on Investment required by either Section 8.3(a) Second or 8.3(b) Second, ninety-five (95%) to the class comprised of the Investor Limited Partners, four percent (4%) to the class comprised of the Original Limited Partner, and one percent (1%) to the class comprised of the General Partners; and Second, for years commencing with the year in which the class comprised of the Investor Limited Partners shall have received a return of its total Invested Capital plus such Cumulative Return on Investment, sixty-five percent (65%) to the class comprised of the Investor Limited Partners, twenty-eight percent (28%) to the class comprised of the Original Limited Partner, and seven percent (7%) to the class comprised of the General Partners. 8.3 Proceeds of Capital Transactions and the Terminating Capital Transaction. (a) Capital Transaction Proceeds. All cash which is determined by the General Partners to be available for distribution as a result of a Capital Transaction and any cash other than Cash Flow distributable pursuant to Section 8.2(b), and other than proceeds of the Terminating Capital Transaction distributable pursuant to Section 8.3(b), shall first be applied to the payment of all debts and liabilities of the Partnership then due (or required by any lender or creditor to be repaid on account of the event referred to in this Section 8.3(a) which makes such cash available), including any fees and expenses then payable pursuant to Section 6.4 hereof but excluding any Subordinated Financial Consulting Fee, and then to fund reserves for contingent liabilities (including fees then earned but not yet payable pursuant to Section 6.4 hereof, but excluding any Subordinated Financial Consulting Fee) to the extent deemed reasonable by the General Partners, provided, that at the expiration of such period of time as the General Partners shall deem advisable, the balance of such reserves remaining after payment (or other satisfaction) of such contingencies shall be distributed in the manner hereinafter set forth in this Section 8.3(a). The remaining Net Cash Proceeds, if any, shall then be distributed as follows: First, to the class comprised of the Investor Limited Partners until such class has received a return of its total Invested Capital; Second, to the class comprised of the Investor Limited Partners until such class shall have received an amount which, when added to the sum of (i) all amounts of Cash Flow whenever distributed to such class pursuant to Section 8.2(b) First, and (ii) all amounts of cash distributed to such class pursuant to this Section 8.3 (a) Second (which distributions were made due to a prior Capital Transaction) equals the amount which such class would have received, in the aggregate, if it had received the Cumulative Return on Investment in respect of all fiscal years of the Partnership from the initial admission of the Investor Limited Partners through the most recent 21 fiscal year completed prior to the Capital Transaction giving rise to the distribution made pursuant to this clause Second; Third, to the classes comprised of the Original Limited Partner and the General Partners until each such class has received a return of its total Invested Capital; Fourth, to Smith Barney to the extent of any Subordinated Financial Consulting Fee then due; and Fifth, any remaining Net Cash Proceeds shall be distributed sixty-five percent (65%) to the class comprised of the Investor Limited Partners, twenty-eight percent (28%) to the class comprised of the Original Limited Partner, and seven percent (7%) to the class comprised of the General Partners. Notwithstanding anything in this Section 8.3(a) to the contrary, the class comprised of the General Partners shall be entitled to receive, to the extent not otherwise entitled, at least one percent (1%) of all Net Cash Proceeds arising from a Capital Transaction. Any such distribution shall be treated for all purposes as though it were otherwise distributable to the General Partners under this Section. (b) Terminating Capital Transaction Proceeds. All cash available from a Terminating Capital Transaction and the winding up of the affairs of the Partnership which is determined by the General Partners to be available for distribution, shall first be applied to the payment of all debts and liabilities of the Partnership then due (or required by any lender or creditor to be repaid on account of the event referred to in this Section 8.3(b) which makes such cash available), including the fees and expenses payable pursuant to Section 6.4 hereof but excluding any Subordinated Financial Consulting Fee, and then to fund such reserves for contingent liabilities (including fees then earned but not yet payable pursuant to Section 6.4 hereof, but excluding any Subordinated Financial Consulting Fee) to the extent deemed reasonable by the General Partners, provided, that at the expiration of such period of time as the General Partners shall deem advisable, the balance of such reserves remaining after payment (or other satisfaction) of such contingencies shall be distributed in the manner hereinafter set forth in this Section 8.3(b). The remaining Net Cash Proceeds, if any, shall then be distributed as follows: First, to the classes comprised of the Investor Limited Partners, the Original Limited Partner and the General Partners, and in that order of priority in the amount as to each class equal to the aggregate of the then positive balances (if any) in the Capital Accounts of the Partners of such class; Second, to the class comprised of the Investor Limited Partners until such class shall have received an amount which, when added to the sum of (i) all amounts of Cash Flow whenever distributed to such class pursuant to Section 8.2(b) 22 First, and (ii) all amounts of cash whenever distributed to such class pursuant to Section 8.3(a) Second arising from Capital Transactions, equals the amount which such class would have received, in the aggregate, if it had received the Cumulative Return on Investment in respect of all fiscal years of the Partnership from the initial admission of the Investor Limited Partners through the most recent fiscal year completed prior to the Terminating Capital Transaction; Third, to the class comprised of the Investor Limited Partners until such class has received a return of its total Invested Capital; Fourth, to the classes comprised of the Original Limited Partner and the General Partners until each such class has received a return of its total Invested Capital; Fifth, to Smith Barney to the extent of any Subordinated Financial Consulting Fee then due; and Sixth, any remaining Net Cash Proceeds shall be distributed sixty-five percent (65%) to the class comprised of the Investor Limited Partners, twenty-eight percent (28%) to the class comprised of the Original Limited Partner, and seven percent (7%) to the class comprised of the General Partners. Notwithstanding anything in this Section 8.3(b) to the contrary, the General Partners shall be entitled to receive, to the extent not otherwise entitled, at least one percent (1%) of all Net Cash Proceeds arising from the Terminating Capital Transaction. Any such distribution shall be treated for all purposes as though it were otherwise distributable to the General Partners under this Section. 8.4 Allocations and Distributions Within Classes of Partners. (a) Subject to the provisions of Section 8.4(c) hereof, which shall govern with respect to allocations of Profits or Losses from normal operations and distributions of Cash Flow derived from the Partnership's operations during any fiscal year in which any Investor Limited Partner shall initially be admitted to the Partnership, all Profits or Losses for Tax Purposes of the Partnership allocated to, and distributions of cash made to, the classes of Partners consisting of the Investor Limited Partners and the General Partners shall be allocated among the respective members of such classes as follows: (i) among the Investor Limited Partners, in proportion to their respective number of Units, except for distributions of cash which are based upon a return of Invested Capital, which shall be allocated in proportion to their respective Invested Capital, and (ii) among the General Partners, in proportion to their respective Invested Capital. (b) All Profits or Losses for Tax Purposes allocated to, and distributions of cash made to, the Partners shall be credited or charged, as the case 23 may be, to their Capital Accounts as of the date as of which such Profits or Losses for Tax Purposes are allocated and the date as of which distributions of cash are made. All distributions made to the Partners pursuant to the provisions of Section 8.2 hereof shall be treated as having been made and charged to their respective Capital Accounts prior to the allocation of Profits or Losses for Tax Purposes pursuant to Section 8.1(a); distributions under Section 8.3(a) shall be treated as having been made and charged to their respective Capital Accounts prior to the allocation of Profits for Tax Purposes pursuant to Section 8.1(b) First; distributions under Section 8.3(b) shall be treated as having been made and charged to their respective Capital Accounts immediately after the allocation of Profits for Tax Purposes pursuant to Section 8.1(c) First and immediately prior to Section 8.1(c) Second; and all cash distributions shall be treated as having been made and charged to their respective Capital Accounts prior to the allocation of Losses for Tax Purposes pursuant to Section 8.1(d) and Section 8.1(e). The Profits or Losses for Tax Purposes of the Partnership allocated among the Partners pursuant to Section 8.1(a) shall be credited or charged to their respective Capital Accounts prior to the allocation of Profits or Losses for Tax Purposes of the Partnership pursuant to Sections 8.1(b), (c) and (d). (c) All Profits or Losses for Tax Purposes which are allocated to the class of Investor Limited Partners pursuant to Section 8.1(a) hereof, and all distributions, if any, of Cash Flow made to the class of Investor Limited Partners pursuant to Section 8.2(b) hereof, shall, to the extent such allocations or distributions are based upon the Partnership's operations during any fiscal year in which Investor Limited Partners are initially admitted to the Partnership, be allocated among the Investor Limited Partners as follows. First, each such fiscal year shall be divided into twelve segments of one month each, and the operations of the Partnership shall be deemed as having occurred on a pro rata basis over each of such twelve segments irrespective of the actual operations of the Partnership during any given month. Second, each Investor Limited Partner who was admitted to the Partnership prior to the commencement of such fiscal year shall be deemed to have held his respective Units during each of such twelve segments, and each Investor Limited Partner who was admitted to the Partnership during such fiscal year shall be deemed to have held his respective Units during the appropriate number of such segments as shall commence with the first day of the month in which his respective admission to the Partnership as an Investor Limited Partner occurred. Third, all Profits or Losses which are allocated to the class of Investor Limited Partners pursuant to Section 8.1(a) hereof, and all distributions, if any, of Cash Flow made to the class of Investor Limited Partners pursuant to Section 8.1(b) hereof, shall, to the extent such allocations or distributions are based upon the Partnership's operations during such fiscal year, be allocated among the Investor Limited Partners in proportion to the respective products produced by multiplying (i) their respective number of Units by (ii) the respective number of segments of such year in which such Units were held. (d) Upon the transfer of a Partnership Interest, which shall be deemed to have occurred as set forth below, the transferor and transferee shall be allocated a 24 pro rata share of Profits or Losses for Tax Purposes and shall receive pro rata distributions of Cash Flow and of Net Cash Proceeds, if any. Each item of income, gain, cost, deduction or credit entering into the computation thereof shall be pro-rated for the fiscal year in which the transfer occurs, and such pro-ration between the transferor and transferee shall be based on the portion of the fiscal year that the transferred Partnership Interest was held by the transferor and transferee, respectively. Such pro-ration shall be based upon dividing each fiscal year of the Partnership into twelve even segments of one month each and without regard to the actual operations of the Partnership during any specified month, as specified in Section 8.4(c) hereof. For the purpose of allocating Profits or Losses for Tax Purposes and distributing cash, such transfer shall be deemed to have been made on the first day of the month following which written evidence respecting the assignment is received by the Partnership in form satisfactory to the General Partners or, if such date shall not be permitted for allocation purposes under the Code, on the nearest date otherwise permitted under the Code. 8.5 Adjustment of Allocations and Distributions in the Event of the Sale of Additional Units. If Units in addition to the Units originally offered by the Partnership pursuant to Section 6.1(b)(3)(i) hereof (the "Original Units") are subsequently offered and sold pursuant to Section 6.1(b)(3)(ii) hereof (the "Additional Units"), the allocations and distributions described in Sections 8.1 through 8.3 above for each class of Partners shall be adjusted with respect only to those clauses of such Sections pursuant to which the class of Investor Limited Partners receives a percentage interest of ninety-five percent (95%), or sixty-five percent (65%). With respect to each of the aforementioned clauses, the percentage interest of the class of Investor Limited Partners (hereinafter "PI") shall be increased according to the following formula: New percentage interest ) of the class of Investor ) = (PI + A) -------- Limited Partners ) (100 + A) In the above formula, "A" equals: PI x (number of Additional Units/number of Original Units). In the event of such an upward adjustment of the percentage interest of the class of Investor Limited Partners, the percentage interests of the classes of the Original Limited Partner and the General Partners with respect to the clauses specified above shall be reduced in an aggregate amount equal to the increase in the percentage increase for the class of Investor Limited Partners. This reduction shall be allocated between the classes of the Original Limited Partner and the General Partners in proportion to the relative percentage interests of such classes in each particular clause to be adjusted. Notwithstanding the foregoing, the percentage interest of the class of General Partners in each allocation and distribution under this Agreement shall at all 25 times be not less than one percent and, if and to the extent required, the interest of the Original Limited Partner in any such allocation or distribution shall be reduced as necessary to produce such a one percent allocation for the class of General Partners. 8.6 Return of Partners' Capital Contributions. All Partners shall look solely to the assets of the Partnership for the return of their respective Capital Contributions or any other distributions with respect to their Partnership Interests. If the assets remaining after payment or discharge, or provisions for payment or discharge, of its debts and liabilities are insufficient to return the Capital Contributions or to make any other distributions to the Partners, no Partner shall have any recourse against the personal assets of any other Partner for that purpose, except to the limited extent set forth in Section 6.3 hereof. 8.7 Reinvestment of Cash Flow and Net Cash Proceeds. The Partnership shall not invest Cash Flow in Properties. No Net Cash Proceeds of a Capital Transaction or the Terminating Capital Transaction may be reinvested by the Partnership except for Net Cash Proceeds of a Capital Transaction which occurs in the two year period following the completion of the initial offering of Units. In the event of such a Capital Transaction, the General Partners may elect, in their sole discretion based upon real estate market conditions then in effect, either to distribute all or any portion of such Net Cash Proceeds to the Partners or to reinvest such Net Cash Proceeds in reserves or in one or more Properties. Notwithstanding the foregoing, if such a Capital Transaction shall create any federal or state income tax liability for the Investor Limited Partners, no such Net Cash Proceeds shall be reinvested unless sufficient such Net Cash Proceeds are distributed to the Investor Limited Partners to pay any such federal or state income taxes (assuming the Investor Limited Partners are taxable at a 40% rate on ordinary income and a 16% rate on capital gains). 8.8 Return of Uninvested Capital Contributions. In the event that any portion of the Investor Limited Partners' Capital Contributions derived from the initial offering of Units is not invested or committed for investment by the Partnership within 24 months from the date on which such initial public offering of Units commenced (except for any amounts utilized to pay expenses of the Partnership and amounts set aside for reserves), such portion of Capital Contributions shall promptly be distributed to the Investor Limited Partners by the Partnership as a return of capital. For the purpose of this Agreement, funds will be deemed to have been committed to investment and will not be returned to the Investor Limited Partners to the extent written agreements in principle, commitment letters, letters of intent or understanding, option agreements or any similar contracts or understandings were at any time executed regardless of whether any such investment is or is not ultimately consummated, and to the extent any funds have been reserved to make contingent payments in connection with any property, regardless of whether any such payments are or are not ultimately made. In the event that any Investor Limited Partners' Capital Contributions shall be returned pursuant to this Section, the respective Capital 26 Contributions (and Invested Capital) of such Partners shall thereupon be deemed to have been reduced by the amount of such distribution. Section 9. Withdrawal of General Partners 9.1 Voluntary Withdrawal. Any General Partner may Voluntarily Withdraw from the Partnership at any time provided that (a) the Partnership shall have received the opinion of Counsel to the Partnership to the effect that such Withdrawal will not constitute a termination of the Partnership or otherwise materially adversely affect the status of the Partnership for federal income tax purposes and (b) if the General Partner proposing to withdraw is then the sole General Partner, or if such Voluntary Withdrawal shall require the admission of a new General Partner in order to preserve the status of the Partnership as a partnership for federal income tax purposes, a new General Partner shall have been selected who, or which, (1) shall have stated willingness to be admitted, (2) shall satisfy the then applicable provisions of the Code and any applicable procedures, regulations, rules and rulings (including published private rulings) thereunder, including applicable net worth requirements so that the Partnership shall be classified as a partnership for tax purposes, and (3) shall have received the unanimous Consent of all of the other Partners with respect to admission (which unanimous consent shall, in the case of the Limited Partners, be deemed to have been received provided that the Consent of a majority in interest of the Investor Limited Partners has been received in the manner provided in Section 13 hereof). 9.2 Involuntary Withdrawal. If a General Partner (or all general partners of a partnership which acts as a General Partner of the Partnership) shall die, or become insane or otherwise physically, mentally or emotionally incapable of performing the duties or exercising the responsibilities of a General Partner, or be liquidated or dissolved, or become a bankrupt, such General Partner shall be deemed to have Involuntarily Withdrawn from the Partnership upon the date of such occurrence. The date upon which such General Partner (or such general partners) shall be deemed to have become insane or incapacitated as aforesaid is the date upon which a certificate of a licensed physician shall be delivered to the Partnership which certificate shall state the opinion of the signer that the General Partner (or each such general partner) is incapable of performing his duties and exercising his responsibilities by reason of physical, mental or emotional disability of indefinitely long duration. A General Partner shall be deemed to become a bankrupt when such Partner (or each general partner thereof) files a bankruptcy petition, voluntarily takes advantage of any bankruptcy or insolvency law, or is adjudicated a bankrupt, or if a petition or an answer is filed proposing adjudication as a bankrupt, when such Partner (or each such general partner) shall consent to the filing thereof or 60 days after the filing thereof, unless the same shall have been discharged or denied prior thereto. 9.3 Consequences of Withdrawal. (a) Upon the Withdrawal of any General Partner, the Withdrawn General Partner or his estate or legal representatives shall be entitled to receive from 27 the Partnership (1) any positive balance in his or its Capital Account (as adjusted to the date of such Withdrawal), (2) any amounts due and owing to it or him by the Partnership less any amounts due and owing by it or him to the Partnership, and (3) the remaining balance, if any, of fees payable as and when due pursuant to this Agreement or any other written agreements between the Partnership and such General Partner in his capacity as General Partner; however, the Withdrawn General Partner shall not be entitled to any such fees which had not yet been earned by him prior to his Withdrawal. The right of a General Partner, his estate or legal representatives to payment of said amounts and fees shall be subject to any claim for damages which the Partnership or any Partner may have against such General Partner, his estate or legal representative if such Withdrawal is in contravention of this Agreement. (b) Each General Partner hereby covenants and agrees, in the event of his Withdrawal, to transfer to a Substitute General Partner selected as provided in Section 9.5 hereof or to the remaining General Partner or General Partners, such portion, if any, of his General Partnership Interest as may be required to assure that the Partnership will meet the minimum general partnership interest requirement for the continued treatment of the Partnership as a partnership under the then applicable provisions of the Code and any applicable procedures, regulations, rules and rulings (including published private rulings) thereunder. Any such transfer will be made in consideration of the payment by the Substitute General Partner or the remaining General Partner or Partners to the Withdrawn General Partner, his estate or legal representatives, of the fair market value of such interest. Such payments shall be in addition to any amounts payable pursuant to Section 9.3(a) hereof by the Partnership. Any portion of such Withdrawn General Partner's Interest which is not required to be transferred as aforesaid may be retained by such Withdrawn General Partner, or his estate or legal representatives as appropriate. Such Withdrawn General Partner, or his estate or legal representatives, shall be treated as a Limited Partner in the Partnership in respect of any such retained Interest. 9.4 Liability of Withdrawn General Partner. If the business of the Partnership is continued after Withdrawal of a General Partner, the Withdrawn General Partner, his estate and legal representatives shall remain liable for all obligations and liabilities incurred by him while a General Partner and for which he was liable as a General Partner, but shall be free of any obligation or liability incurred on account of or arising from the activities of the Partnership from and after the time such Withdrawal shall have become effective. 9.5 Continuation of Partnership Business. (a) Procedure if there is a Remaining General Partner. Upon the Withdrawal of a General Partner, the remaining General Partner or Partners, if any, shall promptly notify the Limited Partners of such Withdrawal. The remaining General Partner or Partners may elect to continue the Partnership business. If such General Partner or Partners so elect, the Limited Partners hereby elect to continue the business of the Partnership. If at any time The Krupp Company or a successor 28 General Partner with substantial net worth shall Withdraw as a General Partner, the remaining General Partners or Partner may (but shall not be obligated to), propose for admission a Substitute General Partner or General Partners. Any such proposed Substitute General Partner shall, with the Consent of the other General Partners, and with the Consent of a majority in interest of the Investor Limited Partners, become a Substitute General Partner upon his or its execution of this Agreement. Provided that the Consent of a majority in interest of the Investor Limited Partners is obtained as specified in Section 13 hereof, the Investor Limited Partners hereby specifically and unanimously consent to such admission of a Substitute General Partner. (b) Procedure if there is no Remaining General Partner. If, following the Withdrawal of a General Partner, there is no remaining General Partner or Substitute General Partner, any Investor Limited Partner may notify the other Limited Partners of such circumstances and may propose for admission a Substitute General Partner. Any Substitute General Partner proposed by such Investor Limited Partner pursuant to this Section 9.5(b) shall, with the Consent of a majority in interest of the Investor Limited Partners, become a Substitute General Partner upon his or its execution of this Agreement. Provided that the Consent of a majority in interest of the Investor Limited Partners is obtained as specified in Section 13 hereof, the Investor Limited Partners hereby specifically and unanimously consent to such admission of a Substitute General Partner. If no Substitute General Partner has received the Consent of a majority in interest of the Investor Limited Partners and executed this Agreement within one-hundred eighty (180) days from the date of the last remaining General Partner's Withdrawal, then the Partnership shall thereupon terminate. Section 10. Assignment of Limited Partnership Interests. 10.1 Withdrawal of a Limited Partner. Subject to compliance with this Agreement, an Original or Investor Limited Partner may withdraw from the Partnership only by assigning or otherwise transferring his or its Interest as specified in this Section 10. The withdrawal of a Limited Partner shall not dissolve or terminate the Partnership. In the event of a Limited Partner's withdrawal because of death or legal incompetence, the estate or legal representative of such withdrawn Limited Partner shall be deemed to be the assignee of such withdrawn Limited Partner's Interest and may become a Substitute Limited Partner upon compliance with the provisions of Section 10.3 hereof. 10.2 Assignment. Except as provided in Section 10.4 below, any Limited Partner may Assign all or any part of his Limited Partnership Interests, provided such Limited Partner shall file with the Partnership, in form satisfactory to the General Partners, a duly executed counterpart of the instrument making such Assignment and such instrument (a) evidences the written acceptance by the assignee of all of the terms and provisions of this Agreement, (b) represents that such Assignment was made in accordance with all applicable laws and regulations (including, without limitation, such minimum investment and investor suitability requirements as may 29 then be applicable under state securities laws), and (c) is accompanied by a fee of not in excess of $50.00 to reimburse the Partnership for its costs respecting the Assignment. 10.3 Substitution. An assignee of a Limited Partnership Interest assigned in accordance with the provisions of Section 10.1 or 10.2 hereof shall become a Substitute Limited Partner of the same class as his assignor if: (a) the General Partners, in their sole discretion, shall consent in writing to such substitution (which consent may be withheld); (b) such assignee executes an instrument reasonably satisfactory to the General Partners accepting and adopting the terms and provisions of this Agreement; and (c) in the case of Assignments other than by operation of law, the assignor states his intention in writing to have his assignee become a Substitute Limited Partner. If all of the conditions of Sections 10.2 and 10.3 shall have been met, the assignee of a Unit shall become a Substitute Limited Partner on the date as of which the General Partners consent in writing to his admission to the Partnership as a Substitute Limited Partner, which consent shall be evidenced by the filing of an amendment to the Certificate of Limited Partnership listing the name of such Substitute Limited Partner. Such an amendment shall be filed no later than 15 days after the completion of any fiscal quarter of the Partnership in which an Assignment has occurred which will give rise to the admission of a Substitute Limited Partner. An assignee of a Limited Partnership Interest who does not become a Substitute Limited Partner in accordance with this Section 10.3 and who desires to make a further Assignment of his Interest shall be subject to all the provisions of Sections 10.2, 10.3 and 10.4 hereof, to the same extent and in the same manner as any Limited Partner of his class desiring to make an Assignment of his Interests. Failure or refusal of the General Partners to admit an assignee as a Substitute Limited Partner shall in no way affect the right of such assignee to receive the share of the Profits or Losses for Tax Purposes and distributions of Cash Flow and Net Cash Proceeds to which his predecessor in interest was entitled in accordance with Section 8.4(d) hereof. 10.4 Prohibited Assignment. Unless in each of the following instances the General Partners shall give their express written consent, no Units may be assigned or otherwise transferred: (a) to a minor or incompetent (unless a guardian, custodian or conservator has been appointed to handle the affairs of such person); 30 (b) to any person or entity not permitted to be a transferee under law including, in particular but without limitation, applicable state securities laws which generally provide that, except in the case of a transfer by gift, inheritance, intra-family transfer, or family dissolution, each transferee of Units must acquire not less than five Units and must satisfy similar investor suitability standards to those which were applicable to the original offering of Units, and that following a transfer of less than all his Units, each transferor must retain a sufficient number of Units to satisfy the minimum investment standards applicable to his initial purchase of Units; (c) in the case of a proposed assignment of Units, to any assignee if such assignee would hold after such Assignment a fraction of a Unit; or (d) to any person if, in the opinion of Counsel to the Partnership, such transfer would result in the termination under the Code of the Partnership's taxable year or of its status as a partnership. Any such attempted Assignment without the express written consent of the General Partners shall be void and ineffectual and shall not bind the Partnership. In the case of a proposed Assignment which is prohibited solely under clause (d) above, however, the Partnership shall be obligated to permit such Assignment to become effective if and when, in the opinion of Counsel to the Partnership, such Assignment would no longer have either of the adverse consequences under the Code which are specified in that clause. 10.5 Status of an Assigning Limited Partner. Any Limited Partner who shall Assign his Interest (other than by pledge or similar conditional assignment which has not yet become effective) shall cease to be a Limited Partner of the Partnership, and shall no longer have any of the rights or privileges of a Limited Partner. Section 11. Termination and Liquidation. 11.1 Events Causing Termination. The Partnership shall be terminated and its affairs wound up on the first to occur of the following: (a) the Withdrawal of any General Partner, unless the remaining General Partner or Partners, if any, or a Substitute General Partner admitted in accordance with Section 9.5 hereof, agree to continue the Partnership business pursuant to Section 9.5; or (b) an election to dissolve the Partnership made in writing by the General Partners with the Consent of a majority in interest of the Investor Limited Partners, or, subject to compliance with Section 13, hereof, made by a majority in interest of the Investor Limited Partners without action by the General Partners; or (c) the sale or other disposition of all or substantially all of the assets of the Partnership unless the General Partners elect to continue the Partnership 31 business for the purpose of the receipt and collection of a note and payments thereon or the collection of any other consideration to be received in exchange for the assets of the Partnership (which activities shall be deemed to be a part of the Terminating Capital Transaction and the winding up of the affairs of the Partnership); or (d) the expiration of the Partnership term; or (e) any other event which causes the termination and dissolution of the Partnership under the Massachusetts Uniform Limited Partnership Act to the extent not otherwise provided herein. 11.2 Distribution Upon Termination. Upon the termination of the Partnership, the General Partners, or if there is none, such other Person required by law to wind up the Partnership's affairs, shall proceed with the liquidation of the Partnership (including, without limitation, the sale or other disposition of any remaining Properties and cancellation of the Certificate of Limited Partnership), and the net proceeds of such liquidation shall be applied and distributed in accordance with the provisions of Section 8.3(b) hereof. During the period of winding up, liquidation and the final termination of the Partnership, the General Partners or any Person performing such actions may exercise all of the powers granted to the General Partners herein, and they may adopt such plan, method or procedure of liquidation as they may deem reasonable in order to effectuate an orderly liquidation. If the General Partners shall perform the foregoing functions, they shall be compensated therefor as provided in Sections 6.4 and 8 hereof, and if such functions shall be performed by Persons other than the General Partners, such Persons shall be entitled to reasonable compensation from the Partnership for their services. Section 12. Fiscal Matters. 12.1 Title to Property and Bank Accounts. Except to the extent that trustees, nominees or other agents are utilized as specified in Section 6.1(b)(2) hereof, the Properties and other assets of the Partnership shall be held in the name of the Partnership. The funds of the Partnership shall be deposited in the name of the Partnership in such bank account or accounts as shall be designated by the General Partners, and withdrawals therefrom shall be made upon the signature of any General Partner or such Person or Persons as shall be designated in writing by any General Partner. The funds of the partnership shall not be commingled with the funds of any other Person. 12.2 Records and Accounting. The General Partners shall keep or cause to be kept complete and accurate books with respect to the Partnership's business. The books and records of the Partnership shall be kept on an accrual basis and the Profits and Losses for Tax Purposes of the Partnership shall be determined for each fiscal year in accordance with accounting methods followed for federal income tax purposes and otherwise in accordance with generally accepted accounting principles applied in a consistent manner. Except as otherwise provided herein, whenever a proportionate 32 part of the Profits or Losses for Tax Purposes of the Partnership is credited or charged to a Partner's Capital Account, every item of income, gain, loss or deduction entering into the computation of such Profits or Losses shall be considered either credited or charged, as the case may be, and every item of credit or tax preference related to such Profits and Losses and applicable to the period during which such Profits or Losses were realized shall be allocated to such Capital Account in the same proportion. 12.3 Fiscal Year. Except as may otherwise be determined from time to time by the General Partners, the Partnership's fiscal year for federal income tax and financial reporting purposes shall end on December 31 of each year. 12.4 Reports, Accounting Decisions and Federal Tax Elections. (a) Reports to Limited Partners. (1) Quarterly Reports. Within 45 days after the end of each the first three quarters of each fiscal year, the General Partners shall send to each Person who was a Limited Partner at any time during the quarter then ended (i) a balance sheet (which need not be audited), (ii) a statement of operations (which need not be audited), (iii) a Cash Flow statement (which need not be audited), (iv) a detailed statement describing (A) any new agreement, contract or arrangement required to be reported by Section 6.1(b)(4), and (B) the amount of all fees and other compensation and distributions paid by the Partnership for such quarter to any General Partner or any Affiliate of any General Partner, (v) a report in narrative form summarizing the status of the Partnership's investments, (vi) until the Capital Contributions to the Partnership derived from the initial offering of Units shall be fully invested, a special report of real property acquisitions including (A) a description of the Properties purchased, (B) a description of the geographic locale and of the market upon which the success of operations is dependent, (C) the date of appraisal and amount thereof, (D) the actual purchase price and terms, (E) the cash expended from Capital Contributions to acquire each Property, and (F) the amount of Capital Contributions which then remains unexpended, stated in terms of both dollar amount and percentage of the total amount of Capital Contributions derived from the initial offering of Units, and (vii) a report of the activities of the Partnership during such fiscal quarter. (2) Annual Reports. Within 90 days after then end of each fiscal year, the General Partners shall send to each person who was a Limited Partner at any time during the fiscal year then ended (i) a balance sheet as of the end of such fiscal year and statements of operations, Partners' equity and changes in financial position for such fiscal year, all of which shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an opinion of the Accountants, (ii) a Cash Flow statement (which need not be audited), (iii) a report summarizing the fees and other remuneration paid by the Partnership for such fiscal year to any General Partner or any Affiliate of any General Partner, and (iv) a statement (which need not be audited) showing the Cash Flow and 33 Net Cash Proceeds from any Capital Transaction or Terminating Capital Transaction distributed per Unit to each Person who was a Limited Partner at any time during such fiscal year. Until the Capital Contributions of the Partnership derived from the initial offering of Units shall be fully invested, the annual report shall also contain a special report of real property acquisitions containing the information specified above for quarterly reports. (b) Tax Returns and Tax Information. The General Partners shall: (i) have the Accountants prepare the tax returns (federal, state and local, if any) of the Partnership for each fiscal year within 75 days after the end of each calendar year in which such fiscal year was completed; and (ii) deliver to each Partner within 75 days after the end of each calendar year the information necessary to prepare his federal income tax return, and a state tax return to the extent required in each state where the Partnership then owns a Property, for the calendar year during which such fiscal year was completed. (c) Accounting Decisions. All decisions as to accounting matters, except as specifically provided to the contrary herein, shall be made by the General Partners in accordance with the accounting methods adopted by the Partnership for federal income tax purposes and otherwise in accordance with generally accepted accounting principles and procedures applied in a consistent manner. Such decisions must be acceptable to the Accountants, and the General Partners may rely upon the advice of such Accountants as to whether such decisions are in accordance with generally accepted accounting principles. (d) Federal Tax Elections. The Partnership, in the sole discretion of the General Partners, may make elections for federal tax purposes as follows: (i) In case of a transfer of all or part of the Partnership Interest of a Partner, the Partnership, in the absolute discretion of the General Partners, may timely elect pursuant to Section 754 of the Code (or corresponding provisions of future law) and pursuant to similar provisions of applicable state or local income tax laws, to adjust the basis of the assets of the Partnership. In such event, any basis adjustment attributable to such election shall be allocated solely to the transferee. (ii) All other elections, including but not limited to the adoption of accelerated depreciation or cost recovery methods, required or permitted to be made by the Partnership under the Code shall be made by the General Partners in such manner as will, in the opinion of the Accountants, be most advantageous to a majority in interest of the Limited Partners. The Partnership shall, to the extent permitted by applicable law and regulations, elect to treat as an expense for federal income tax purposes all amounts incurred by it for real estate taxes, interest and other 34 charges which may, in accordance with applicable law and regulations, be considered as expenses. (e) Access to Books and Records. The books and records of the Partnership will be maintained at the Partnership's principal office and each Limited Partner (or his duly authorized representative) at his own expense will have access to them and the right to inspect and copy them at all reasonable times during normal business hours. A list of the names and addresses of all Investor Limited Partners and their respective Capital Contributions shall be maintained as part of the books and records of the Partnership and shall be made available on request to any Investor Limited Partner or his representative at his cost. (f) Tax Audits. In the event of an audit of the Partnership, or the interest of any Partner in the Partnership, by the Internal Revenue Service, the General Partners, at Partnership expense, shall have the exclusive right, but not the obligation, to conduct all negotiations with the Internal Revenue Service on behalf of the Partnership and the Partners, and the attorneys and accountants selected by the General Partners to conduct such negotiations are hereby specifically authorized by the Partners so to act, and each Partner will execute such further authority, if any, as the Internal Revenue Service may require therefor. Each of the General Partners is hereby authorized on behalf of each of the Partners, and as their attorney, to execute in the name and stead of each of the Partners such authority as the Internal Revenue Service may require to permit the General Partners and their selected attorneys and accountants to so represent the Partners. (g) Reports to Appropriate State Authorities. The General Partners shall prepare and file with appropriate state authorities all reports required to be so filed by state securities or "Blue Sky" authorities. Section 13. Meetings and Voting Rights of Investor Limited Partners. 13.1 Meetings. (a) Meetings of the Investor Limited Partners for any purpose may be called by the General Partners and shall be called by the General Partners upon receipt of a request in writing signed by 10% or more in interest of the Investor Limited Partners. Notice of any such meeting shall be sent within ten days after receipt of such request. Such request shall state the purpose of the proposed meeting and the matters proposed to be acted upon at the meeting. Such meeting shall be held at the principal office of the Partnership, or at such other place as may be designated by the General Partners or, if called upon the request of Investor Limited Partners, as designed by such Investor Limited Partners. In addition, upon receipt of a request in writing signed by 10% or more in interest of the Investor Limited Partners, the General Partners shall submit any matter (upon which the Investor Limited Partners are entitled to act) to the Investor Limited Partners for a vote by written Consent without a meeting. 35 (b) A notice of any such meeting shall be given either personally or by mail, not less than 15 days nor more than 60 days before the date of the meeting, to each Investor Limited Partner at his record address, or at such other address which he may have furnished in writing to the General Partners. Such notice shall be in writing, and shall state the place, date and hour of the meeting, and shall indicate that it is being issued at or by the direction of the Partner or Partners calling the meeting. The notice shall state the purpose or purposes of the meeting. If a meeting is adjourned to another time or place, and if any announcement of the adjournment of time or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting. The presence in person or by proxy of a majority in interest of the Investor Limited Partners shall constitute a quorum at all meetings of the Investor Limited Partners; provided, however, that if there be no such quorum, holders of a majority in interest of such Investor Limited Partners so present or so represented may adjourn the meeting from time to time without further notice, until a quorum shall have been obtained. No notice of the time, place or purpose of any meeting of Investor Limited Partners need be given to any Investor Limited Partner who attends in person or is represented by proxy (except when an Investor Limited Partner attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business on the ground that the meeting is not lawfully called or convened), or to any Investor Limited Partner entitled to such notice who, in writing, has executed and filed with the records of the meeting, either before or after the tie thereof, waiver of such notice. (c) For the purpose of determining the Investor Limited Partners entitled to vote on, or to vote at, any meeting of the Partnership or any adjournment thereof, the General Partners or the Investor Limited Partners requesting such meeting may fix, in advance, a date as the record date for any such determination of Investor Limited Partners. Such date shall not be more than 50 days nor less than ten days before any such meeting. (d) Each Investor Limited Partner may authorize any person or persons to act for him by proxy in all matters in which an Investor Limited Partner is entitled to participate, whether by waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Investor Limited Partner or his attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Investor Limited Partner executing it. (e) At each meeting of Investor Limited Partners, the Investor Limited Partners present or represented by proxy may adopt such rules for the conduct of such meeting as they shall deem appropriate. 13.2 Voting Rights of Investor Limited Partners. Subject to Section 13.3, a majority in interest of the Investor Limited Partners, without the concurrence of the General Partners or the Original Limited Partner, may (a) amend this Agreement, 36 subject to the provisions of Section 14 hereof and to the conditions that such amendment (i) may not in any manner allow the Limited Partners to take part in the control of the Partnership's business and (ii) may not, without the consent of the General Partner affected, alter the rights, power and duties of such General Partner as set forth herein, (b) terminate the Partnership, (c) remove any General Partner and elect a replacement thereof (who shall upon such replacement be deemed a Substitute General Partner admitted to the Partnership in accordance with Section 9.5 hereof), or (d) approve or disapprove the sale of all or substantially all the assets of the Partnership. 13.3 Conditions to Action by Investor Limited Partners. The rights of the Investor Limited Partners pursuant to Section 13.2 hereof shall not come into existence or be effective in any manner unless and until (a) the Partnership has received an opinion of counsel, which counsel is satisfactory to a majority in interest of the Investor Limited Partners, as to the legality of such action, and (b) either (1) the Partnership has received an opinion of counsel, which counsel is satisfactory to a majority in interest of the Investor Limited Partners, that such action may be effected without subjecting the Investor Limited Partners to liability as general partners under the Massachusetts Uniform Limited Partnership Act or under the laws of such other jurisdiction in which the Partnership is qualified or owns a Property, or (2) a Massachusetts court having appropriate jurisdiction has entered a judgment to the foregoing effect, and (c) either (1) the Partnership has received an opinion of counsel, which counsel is satisfactory to a majority in interest of the Investor Limited Partners, that such action may be effected without changing the Partnership's status for tax purposes or (2) either a court having appropriate jurisdiction has entered a judgment, or the Internal Revenue Service has issued a ruling, to the foregoing effect. For purposes of this Section 13.3, counsel will be deemed satisfactory to the Investor Limited Partners if proposed by the General Partners and affirmatively approved in writing within 45 days by a majority in interest of the Investor Limited Partners; provided that if the holders of 10% or more of the Investor Limited Partnership Interests propose counsel for this purpose, such proposed counsel, and not counsel proposed by the General Partners, shall be submitted for such approval by the Investor Limited Partners. 13.4 Valuation of Interest of General Partner. In the event of removal of any General Partner pursuant to Section 13.2 hereof, his or its Interest as a General Partner in the Partnership shall be appraised by two independent appraisers, one selected by the removed General Partner and one by the Investor Limited Partners. In the event that such two appraisers are unable to agree on the value of the removed General Partner's Interest, they shall jointly appoint a third independent appraiser whose determination shall be final and binding. The Partnership shall pay the removed General Partner for the value of its Interest as so determined by delivery of a promissory note bearing interest at the then prime rate of The First National Bank of Boston, with interest payable annually in cash and principal payable from any cash thereafter received by the Partnership from the sale or refinancing of Partnership 37 properties and prior to any distribution being made to the Partners pursuant to Section 8.3 of this Agreement. Any amounts received pursuant to Section 13.4 shall constitute complete and full discharge for all amounts owing to the removed General Partner on account of its Interest in the Partnership. For purposes of this Section 13.4, the independent appraiser selected by the Investor Limited Partners shall be selected in the following manner: a list of three qualified MAI (Member of Appraisal Institute) appraisers shall be obtained (by a General Partner not being removed) from the Boston chapter of the American Institute of Real Estate Appraisers and one of said three appraisers shall be selected by random number and proposed by such General Partner for selection by the Investor Limited Partners. Such appraiser shall be deemed selected by the Investor Limited Partners unless objected to in writing by a majority in interest of the Investor Limited Partners within 45 days after notification thereof is sent in writing by such General Partner. Section 14. Amendments. (a) In addition to the right of the Investor Limited Partners to amend this Agreement pursuant to Section 13 hereof, the General Partners may propose an amendment to this Agreement. The General Partners shall submit to all of the Partners in writing the text of any such proposed amendment to this Agreement and a statement by the General Partners of the purpose of any such amendment. The General Partners may include in any submission a statement of the view of the General Partners as to the proposed amendment. Upon the Consent of the General Partners, of the Original Limited Partner, and of a majority in interest of the Investor Limited Partners, such amendment shall take effect, except that no such amendment shall increase the liability of any Partner or adversely affect any Partner's share of distributions of cash or allocations of Profits or Losses for Tax Purposes of the Partnership (except in the case of a sale of additional Units pursuant to Section 6.1(b)(3)(ii) hereof) without in each case the approval of the Partner involved, and except that all the Investor Limited Partners must approve any amendment of this Section 14. A written approval may not be withdrawn or voided once it is filed with the General Partners. (b) In addition to any amendments otherwise authorized herein, this Agreement may be amended from time to time by the General Partner without the consent of any of the Limited Partners: (i) to add to the representations, duties or obligations of the General Partners or surrender any right or power granted to the General Partners herein, for the benefit of the Limited Partners, (ii) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Agreement which will not be inconsistent with the provisions of this Agreement; (iii) to preserve the status of the Partnership as a "partnership" for federal income tax purposes; and (iv) to delete or add any provisions of this Agreement required to be so deleted or added by the Staff of the Securities and Exchange Commission or other federal agency or by a state "Blue Sky" commissioner or similar such official, which addition or deletion is deemed by such 38 Commission, agency or official to be for the benefit or protection of the Limited Partners. Section 15. Power of Attorney. (a) Appointment. Each of the Investor Limited Partners hereby makes, constitutes, and appoints the General Partners of the Partnership and each of them, and each person who shall hereafter become a General Partner during the term of the Partnership and any continuation of the Partnership pursuant to Section 9.5 and Section 11, with full power of substitution, the true and lawful attorney-in-fact of, and in the name, place and stead of, such Limited Partner, with the power from time to time to execute, acknowledge, make, swear to, verify, deliver, record and/or publish: (1) this Agreement of Limited Partnership and the Certificate of Limited Partnership under the laws of the Commonwealth of Massachusetts or any other jurisdiction, that may be required by this Agreement or by the laws of Massachusetts or any such other jurisdiction, any subsequent amendment to this Agreement and the Certificate of Limited Partnership (including, but not limited to, amendments reflecting the addition or substitution of Partners), or any other document required from time to time to admit a Partner, to effect the substitution of a Partner, or to effect the substitution of a Limited Partner's assignee as a limited Partner; (2) any other document required to reflect any action of the Partners duly taken in the manner provided for in this Agreement, whether or not such Limited Partner voted in favor of or otherwise Consented to such action; (3) any other instrument, certificate or document which may be required by any regulatory agency, laws of the United States, any state, or any other jurisdiction in which the Partnership is doing or intends to do business or which the General Partners deem advisable to file or record, provided such instrument, certificate or document is not inconsistent with the terms of this Agreement as then in effect; (4) any certificate of dissolution or cancellation of the Certificate of Limited Partnership that may be necessary upon the termination of the Partnership; and (5) any instrument or papers required to continue or terminate the business of the Partnership pursuant to Sections 9.5 and 11 hereof; provided that no General Partner shall take any action as attorney-in-fact for any Limited Partner which could in any way increase the liability of such Limited Partner beyond the liability expressly set forth in this Agreement or alter the rights of Investor Limited Partners under Section 8 of this Agreement (except in the case of a sale of additional Units pursuant to Section 6.1(b)(3)(ii) hereof), unless (in either 39 case) the Limited Partner has given a Power of Attorney to a General Partner expressly for such purpose. (b) Amendments to Agreement and Certificate (1) Each of the Investor Limited Partners is aware that the terms of this Agreement permit certain amendments of this Agreement to be effected and certain other actions to be taken or omitted by, or with respect to, the Partnership, in each case with the approval of less than all the Investor Limited Partners if a specified percentage of the Partners shall have voted in favor of, or otherwise Consented to, such action. If, as, and when: (i) an amendment of this Agreement is proposed or an action is proposed to be taken or omitted by, or with respect to, the Partnership which requires, under the terms of this Agreement, the Consent of a specified percentage in interest (but less than all) of the Partners; (ii) Partners holding the percentage of interests specified in this Agreement as being required for such amendment or action have Consented to such amendment or action in the manner contemplated by this Agreement; and (iii) a Limited Partner has failed or refused to Consent to such amendment or action (hereinafter referred to as a "non-consenting Limited Partner"), then each non-consenting Limited Partner agrees that each attorney-in-fact specified in Section 15(a) above, with full power of substitution, is hereby authorized and empowered to execute, acknowledge, make, swear to, verify, deliver, record, file and/or publish, for and in behalf of such non-consenting Limited Partner, and in his name, place and stead, any and all instruments and documents which may be necessary or appropriate to permit such amendment to be lawfully made or action lawfully taken or omitted. Each consenting and non-consenting Limited Partner is fully aware that he and each other Limited Partner have executed this special power of attorney and that each Limited Partner will rely on the effectiveness of such powers with a view to the orderly administration of the Partnership's affairs. (2) Any amendment to this Agreement (and to the Certificate of Limited Partnership) substituting a Limited Partner, or adding a Limited or General Partner, may be signed by any General Partner and by the person to be substituted as a Limited Partner, or added as a Limited or General Partner, and shall also be signed on behalf of the assigning Limited Partner in the case of a substitution. Any amendment reflecting the determination of the remaining General Partner or Partners to continue the business of the Partnership upon the Withdrawal of a General Partner need be signed only by one General Partner. The execution of any such amendment on behalf of a Limited Partner or any proposed substitute or added Limited Partner may be effected by his attorney-in-fact. 40 (c) Power Coupled With an Interest. The foregoing grant of authority: (1) is a special power of attorney coupled with an interest in favor of the General Partners and as such shall be irrevocable and shall survive the death or insanity of each Limited Partner; (2) may be exercised for each Limited Partner by a signature of any General Partner of the Partnership or by listing the names of all of the Investor Limited Partners, including such Limited Partner, and then executing any instrument with a single signature of any General Partner acting as attorney-in-fact for all of them; and (3) shall survive the Assignment by any Limited Partner of the whole or any portion of his Interest, except that, where the assignee of the whole thereof has furnished a Power of Attorney and has been approved by the General Partners for admission to the Partnership as a Substitute Limited Partner, this Power of Attorney shall survive such Assignment with respect to the assignor for the sole purpose of enabling a General Partner to execute, acknowledge and file any instrument necessary to effect such substitution and shall thereafter terminate with respect to any Partner who assigns his entire Interest. (d) Power of Attorney by Substitute Investor Limited Partners. A similar power of attorney shall be one of the instruments which the General Partners shall require an assignee of a Limited Partner to execute as a condition to the admission of such assignee as a Substitute Limited Partner. Section 16. General Provisions. 16.1 Notices, Approvals and Consents. All notices, approvals, Consents or other communications hereunder shall be in writing and signed by the party giving the same, and shall be deemed to have been given when the same are (a) deposited in the United States mail and sent by first class mail, postage prepaid, or (b) delivered. In each case, said mailing or delivering shall be made to the parties at the address set forth below or at such other addresses as such parties may designate by notice to the Partnership: (1) If to the Partnership or any General Partner, at the principal office of the Partnership; (2) If to the Original Limited Partner at the address set forth in Schedule A hereto or to such other address as may be designated by notice from such Partner; and (3) If to an Investor Limited Partner, at the address set forth in Schedule A hereto, or to such other address as may be designated by notice from such Partner given in the manner hereby specified. 41 16.2 Further Assurances. The Partners will execute, acknowledge and deliver such further acts and things as may be required to carry out the intent and purpose of this Agreement. 16.3 Captions. Captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit, extend or describe the scope of this Agreement or the intent of any of the provisions thereof. 16.4 Binding Effect. Except to the extent required under the Massachusetts Uniform Limited Partnership Act and for fees, rights to reimbursement, and other compensation provided as such, none of the provisions of this Agreement shall be for the benefit of or be enforceable by any creditor of the Partnership. 16.5 Separability. If one or more of the provisions of this Agreement or any application thereof shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and any other application thereof shall not in any way be affected or impaired thereby, and such remaining provisions shall be interpreted consistently with the omission of such invalid, illegal or unenforceable provisions. 16.6 Integration. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith which conflict with the express terms of this Agreement. No covenant, representation or condition not expressed in this Agreement shall affect or be effective to interpret, change or restrict the express provisions of this Agreement. 16.7 Applicable Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of Massachusetts. 16.8 Counterparts. This Agreement may be signed by each party hereto upon a separate copy (including, in the case of the Investor Limited Partners, a separate signature page executed by one or more such Partners), in which event all such copies shall constitute a single counterpart of this Agreement. However, no counterpart shall be binding unless accepted by one or more of the General Partners, which acceptance shall be evidenced by the filing of the Certificate of Limited Partnership or an appropriate amendment thereto. 16.9 Interest in HUD Federally Regulated Projects. So long as any of the Property shall include a Federally Regulated Project with a mortgage insured or held by the Department of Housing and Urban Development ("HUD"), the following provisions and controls shall not be altered or amended without the written consent of the Secretary of HUD and such provisions and controls shall apply to the ownership and management of each of such Federally Regulated Projects so long as each remains such a Federally Regulated Project, and if any ceases to be such a Federally 42 Regulated Project these provisions and controls shall continue to apply to all other such Federally Regulated Projects: (i) All applicable regulations, rules, restrictions and procedures (all being herein called "HUD Regulations"), including, without limitation, any provisions contained in any applicable regulatory agreement, shall control each HUD Federally Regulated Project hereunder, and in the event any provision of this Partnership Agreement shall be in conflict with any of the HUD Regulations, the HUD Regulations shall control with respect to each such HUD Federally Regulated Project. (ii) In no event shall any action be taken under this Partnership which relates to any HUD Federally Regulated Project unless the same shall conform in all respects with all applicable HUD Regulations. (iii) Any Partner shall as a condition of receiving a direct ownership interest in any HUD Federally Regulated Project of the Partnership agree to be bound by the note, mortgage, and regulatory agreement and other documents required in connection with any loan secured by such HUD Federally Regulated Project of the Partnership to the same extent and on the same terms as the Partnership. Upon any dissolution of the Partnership, no title or right to possession and control of any HUD Federally Regulated Project of the Partnership, and no right to collect the rents therefrom, shall pass to any person who is not bound by the applicable regulatory agreement relating to such HUD Federally Regulated Project of the Partnership in a manner satisfactory to the Secretary of HUD. (iv) No "Distribution" (as defined in the HUD Regulations) and no management fees in excess of those allowed by HUD shall be paid to anyone except from "Surplus Cash" (as defined in the HUD Regulations) or except (a) from Cash Flow or (b) from proceeds of any Capital Transactions, none of which arise from HUD Federally Regulated Projects, nor may Cash Flow or proceeds from Capital Transactions arising from Federally Regulated Projects be used to reimburse expenses except in conformity with the HUD Regulations. (v) The General Partners are specifically authorized: (a) to deal with HUD and to comply with all of its requirements, including the submission of such financial reports and other data as may from time to time be required by HUD; (b) to enter into such regulatory and other agreements as may be required by HUD; and (c) any one of the General Partners is authorized to execute and deliver to the Secretary of HUD any note, mortgage, regulatory or other agreement required by the HUD Regulations in accordance with the transfer of a HUD Federally 43 Regulated Project to the Partnership, and to execute and to deliver any document, instrument or report which may at any time be required by HUD Regulations. (vi) No person or entity may become a General Partner of the Partnership except by complying with the applicable HUD Regulations. 16.10 Creditors. No creditor who makes a non-recourse loan to the Partnership shall have or acquire at any time, as a result of making such loan, any direct or indirect interest in the profits, capital or property of the Partnership other than as a secured creditor. 16.11 Interpretation. Unless the context in which words are used in this Agreement otherwise indicates that such is the intent, words in the singular shall include the plural and in the masculine shall include the feminine and neuter and vice versa. Section 17. Definitions. The defined terms used in this Agreement shall have the meanings specified below: "Accountants" means Coopers & Lybrand, One Post Office Square, Boston, Massachusetts or a successor thereto, or another firm of independent certified public accountants selected by the General Partners. "Acquisition Fees" means the total of all fees and commissions paid by any Person to any Person in connection with the selection, purchase, construction or development of any Property by the Partnership, whether designated as a real estate commission, acquisition fee, finder's fee, selection fee, development fee, construction fee, non-recurring management fee, consulting fee or any fee of similar nature however designated and however treated for tax or accounting purposes. "Affiliate" means when used with reference to a specified Person, (i) any Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person, (ii) any Person that is an officer of, partner in or trustee of, or serves in a similar capacity with respect to, the specified Person or of which the specified Person is an officer, partner or trustee, or with respect to which the specified Person serves in a similar capacity, (iii) any Person that, directly or indirectly, is the beneficial owner of 10% or more of any class of equity securities of, or otherwise has a substantial beneficial interest in, the specified Person or of which the specified Person is directly or indirectly the owner of 10% or more of any class of equity securities or in which the specified Person has a substantial beneficial interest, and (iv) any Immediate Family Member of the specified Person. "Agreement" means this Amended Agreement of Limited Partnership, as the same may hereafter be amended from time to time. 44 "Assign" means, with respect to a Partnership Interest or part thereof, to offer, sell, assign, transfer, hypothecate, pledge, give, or otherwise dispose of, whether voluntarily or involuntarily or by operation of law. "Assignment" means any such transaction involving a Partnership Interest or any part thereof. "Capital Account" means the capital account of each Partner established and maintained in accordance with Section 5.4 hereof. "Capital Contribution" means the amount of cash contributed to the Partnership by a Partner, prior to the deduction of any offering expenses or selling commissions. "Capital Transaction" means the sale, exchange, refinancing, condemnation, eminent domain taking, casualty or other disposition of a Partnership Property, but not including the Terminating Capital Transaction. "Cash Flow" shall have the meaning given in Section 8.2(a) hereof. "Certificate of Limited Partnership" means the certificate of limited partnership to be filed with the Secretary of State of the Commonwealth of Massachusetts pursuant to this Agreement, as the same may be amended from time to time. "Code" means the Internal Revenue Code of 1954, as amended, or corresponding provisions of subsequent laws. "Consent" means either the consent given by vote at a meeting called and held in accordance with the provisions of Section 13.1 hereof or the written consent, as the case may be, of a Person to do the act or thing for which the consent is solicited, or the act of granting such consent, as the context may require. "Counsel to the Partnership" means Messrs. Gaston Snow & Ely Bartlett, One Federal Street, Boston, Massachusetts 02110 or another law firm selected by the General Partners. "Cumulative Return on Investment" means a return equal to nine percent (9%) per annum (and pro rated for part of a year commencing with the initial admission of an Investor Limited Partner) of the Invested Capital of the class comprised of the Investor Limited Partners. In calculating whether the 9% annual Cumulative Return on Investment payable to the Investor Limited Partners has been satisfied, only distributions by the Partnership of cash will be considered and no credit will be given for tax benefits allocated to the Investor Limited Partners. "Federally Regulated Project" means any Property owned by the Partnership that at the time is (i) encumbered by a mortgage, deed of trust or similar instrument securing indebtedness held, insured or reinsured in whole or in part by any 45 agency, department, administration or commission of the United States Government, and (ii) subject to a regulatory agreement between the Partnership (whether directly or by assumption) and such agency, department, administration or commission. "General Partner" means any person designated as a General Partner in Schedule A of this Agreement or who becomes a Substitute General Partner as provided in this Agreement, in such person's capacity as a General Partner of the Partnership. "General Partners" means every person or persons who serve(s) as a General Partner, whether there be one or several. "Immediate Family Member" means with respect to any person, his spouse, parent, parent-in-law, issue, brother, sister, brother-in-law, sister-in-law, or child-in-law. "Interest" means the entire ownership interest of a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which a Partner may be entitled as provided in this Agreement, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement, but excluding any claims which such Partner may have against the Partnership as a creditor. "Invested Capital" means, with respect to each class of Partners, the Capital Contributions by such class of Partners less any amounts of cash distributed to such class pursuant to: (i) Clauses First and Third of Section 8.3(a) hereof from a Capital Transaction; and (ii) Clauses First, Third and Fourth of Section 8.3(b) hereof from the Terminating Capital Transaction. With respect to each Partner in a class of Partners, the respective Invested Capital of such Partner shall be determined by the proportion which such Partner's Invested Capital bears to the total Invested Capital held by such class. "Investor Limited Partner" means any person who shall purchase a Unit and be admitted to the Partnership as an Investor Limited Partner, or any person who becomes a Substitute Investor Limited Partner, in the capacity of such person as an Investor Limited Partner. "Involuntary Withdrawal" means, with respect to any General Partner, the deemed withdrawal or retirement of a General Partner from the Partnership pursuant to Section 9.2 hereof due to death, insanity, physical, mental or emotional incapability of performing the duties of a General Partner, or the liquidation, dissolution or bankruptcy of such General Partner. In the case of The Krupp Company, or any other partnership which shall serve as a General Partner of the Partnership, such partnership shall be deemed to have Involuntarily Withdrawn as such a General Partner upon the death, insolvency, physical, mental or emotional incapability or bankruptcy of all of its respective general partners. 46 "Limited Partner" means any Original Limited Partner or Investor Limited Partner or any Person admitted to the Partnership as a Substitute Limited Partner in such Person's capacity as an Original or Investor Limited Partner of the Partnership. "Management Agent" means an entity which enters into a Management Agreement with the Partnership. "Management Agent Reimbursement" means the reimbursement paid to the Management Agent as authorized by Section 6.1(b)(4)(ii) hereof. "Management Agreement" and "Management Fee" mean an agreement entered into for the management of a Property and the fees payable pursuant to such agreement as authorized by Section 6.1(b)(4)(ii) hereof. "Net Cash Proceeds" of a Capital Transaction or the Terminating Capital Transaction means the cash received by the Partnership as a result of such Transaction, less (i) all debts and liabilities of the Partnership required to be paid as a result of the Transaction (including, among other liabilities, any fees and expenses payable pursuant to Section 6.4 hereof, exclusive of any Subordinated Consulting Fee), and (ii) any reserves for contingent liabilities (including fees then earned but not yet payable pursuant to Section 6.4 hereof, exclusive of any Subordinated Consulting Fee), to the extent deemed reasonable by the General Partners provided that, at the expiration of such period as the General Partners shall deem advisable, the balance of such reserves remaining after payment of such contingencies shall be distributed in the manner provided in this Agreement for Net Cash Proceeds. "Original Agreement" means the Agreement of Limited Partnership executed and delivered on April 23, 1982 by the General Partners and the Original Limited Partner. "Original Limited Partner" means The Krupp Company, a Massachusetts limited partnership, or a Substitute Limited Partner to The Krupp Company admitted to the Partnership in accordance with this Agreement, in its capacity as the Original Limited Partner of the Partnership. "Partner" means any General Partner or Limited Partner. "Partnership" means the limited partnership as formed and as amended in accordance with this Agreement, as said limited partnership may from time to time be constituted. "Person" means any individual, partnership, corporation, trust, governmental official, body or agency, or other entity of any type. 47 "Profits or Losses for Tax Purposes" means profits or losses as determined by the Partnership for federal income tax purposes, and items of income, gain, loss, deduction, or credit entering into the computation thereof. "Property" means any real estate, buildings, improvements, fixtures and related personal property acquired by the Partnership, and any equity interest of the Partnership therein, whether direct or indirect through a nominee, joint venture or otherwise. "Sales Agent Agreement" means the Sales Agent Agreement between the Partnership and Smith Barney entered into pursuant to Section 6.1(b)(4)(iii) hereof. "Schedule A" means Schedule A to this Agreement as amended from time to time. "Smith Barney" means Smith Barney, Harris Upham & Co. Incorporated, a New York corporation, and any successor thereto by statutory merger or other reorganization. "Subordinated Financial Consulting Fee" means the subordinated financial consulting fee payable by the Partnership to Smith Barney pursuant to the Sales Agent Agreement over the life of the Partnership out of the Net Cash Proceeds of sales and refinancings of Partnership Properties. "Substitute General Partner" means the assignee of a General Partnership Interest who is admitted to the Partnership as a General Partner pursuant to Section 9.5 or Section 13.2 of this Agreement. "Substitute Limited Partner" means the assignee of a Limited Partnership Interest who is admitted to the Partnership as a Limited Partner pursuant to Section 10.3 of this Agreement. "Terminating Capital Transaction" means the sale, exchange, condemnation, eminent domain taking, casualty or other disposition of all or substantially all of the assets of the Partnership which results in the termination of the Partnership pursuant to Section 11 of the Agreement. The Terminating Capital Transaction shall also include the receipt and collection of notes, if any, and payments thereon or any other consideration received or to be received by the Partnership upon a sale or other disposition of all or substantially all of the assets of the Partnership and all activities reasonably related thereto. Such activities are deemed to be included in the winding up of Partnership affairs, and all allocations and distributions therefrom shall be governed by Sections 8.1(c) and (e) and 8.3(b) hereof. "Unit" means the Investor Limited Partnership Interest of an Investor Limited Partner representing, in the case of the initial offering of Units, a Capital 48 Contribution of One Thousand Dollars ($1,000), and in the case of any additional Units sold by the General Partners pursuant to Section 6.1(b)(3)(ii), a Capital Contribution equal to the fair market value of such Units at the time of such offering, as determined in the judgment of the General Partners. "Voluntary Withdrawal" means, with respect to a General Partner, the voluntary retirement or withdrawal of a General Partner from the Partnership, or the voluntary sale, assignment, encumbrance or other disposition of his General Partnership Interest pursuant to Section 9.1 hereof. "Withdrawal" means, with respect to a General Partner, the Voluntary or Involuntary Withdrawal of such General Partner. 49 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amended Agreement of Limited Partnership as of the date first specified above. GENERAL PARTNERS ORIGINAL LIMITED PARTNER THE KRUPP COMPANY THE KRUPP COMPANY By: s/George Krupp By: s/George Krupp --------------------- --------------------- George Krupp, a George Krupp, a General Partner General Partner THE KRUPP CORPORATION By: s/Douglas Krupp --------------------- Douglas Krupp, President SCHEDULE A NAMES, ADDRESSES AND CAPITAL CONTRIBUTIONS OF PARTNERS Capital Contributions Names and Addresses Made I. General Partners The Krupp Company $ 975 One Liberty Square Boston, Massachusetts 02109 The Krupp Corporation 25 One Liberty Square Boston, Massachusetts 02109 ----------- Total $ 1,000 II. Original Limited Partner The Krupp Company $ 4,000 One Liberty Square Boston, Massachusetts 02109 III. Investor Limited Partners [To be determined] [To be determined] EX-5 6 Exhibit 5 PROPERTY MANAGEMENT AGREEMENT This Agreement is made as of the ____ day of ________________, 199___ between the undersigned KRUPP REALTY FUND, LTD.-III (The "Owner") and the undersigned BERKSHIRE REALTY ENTERPRISES LIMITED PARTNERSHIP, (the "Agent"). 1. APPOINTMENT AND ACCEPTANCE. The Owner appoints the Agent as exclusive agent for the management of the property described in Section 2 of this Agreement, and the Agent accepts the appointment, subject to the terms and conditions set forth in this Agreement. 2. DESCRIPTION OF THE PROJECT. The property to be managed by the Agent under this Agreement (the "Project") is a housing development consisting of the land, buildings, and other improvements located in _______________ and known as ________________ Apartments, containing ______ dwelling units. 3. BASIC INFORMATION. The Agent will thoroughly familiarize itself with the character, location, construction, layout, plan and operation of the Project, and especially the electrical, plumbing, air-conditioning and ventilating systems, the elevators and all other mechanical equipment. 4. MARKETING. The Agent will carry out the marketing activities designed to attract tenants as described below. 5. RENTALS. The Agent will offer for rent and will rent the dwelling units and commercial space, if any, in the Project. Incident thereto, the following provisions will apply: a. The Agent will show the Project to prospective tenants; b. The Agent will take and process applications for rentals. If an application is rejected, the applicant will be told the reason for rejection, and will be given the rejected application, with reason for rejection noted. A current list of prospective tenants will be maintained; c. The Agent will prepare all dwelling leases and, unless otherwise directed by the Owner, will execute the same in its name, identifying itself thereon as agent for the Owner. Dwelling leases will be in a form approved by the Owner; d. The Owner will furnish the Agent with rent schedules, showing contract rents for dwelling units, and other charges for facilities and services. The Agent will periodically review such rent schedules and make recommendations to the Owner with respect to changes thereto; e. The Agent will collect, deposit, and disburse security deposits, if required, in accordance with the terms of each tenant's lease; f. The Agent will negotiate and prepare commercial leases and concession agreements, if the Project shall now or hereafter contain any commercial space, and will execute the same in its name, identified thereon as agent for the Owner, subject to the Owner's prior approval of all terms and conditions; and g. The Agent will perform periodic market surveys with respect to the market area in which the Project is located. 6. COLLECTION OF RENTS AND OTHER RECEIPTS. The Agent will collect, when due, all rents, charges and other amounts receivable for the Owner's account in connection with the management and operation of the Project. Such receipts will be deposited in an account, separate from all other accounts and funds, with a bank whose deposits are insured by the Federal Deposit Insurance Corporation. This account will be carried in the Owner's name and designated of record as "Krupp Realty Fund, Ltd.-III dba ___________ Apartments" (the "Project Rental Account"). Subject to compliance with Section 11 hereof, the Agent is, however, hereby authorized to make deposits to and withdrawals from the Project Rental Account as agent for the Owner. 7. ENFORCEMENT OF LEASES. The Agent will secure full compliance by each tenant with the terms of such tenant's lease. Voluntary compliance will be emphasized, but the Agent may lawfully terminate any tenancy when, in the Agent's judgment, sufficient cause (including but not limited to non-payment of rent) for such termination occurs under the terms of the tenant's lease. For this purpose, the Agent is authorized to consult with legal counsel, to be designated by the Owner, to bring actions for eviction against such tenants; provided, however, the Agent shall keep the Owner informed of such actions and shall follow such instructions as the Owner may prescribe for the conduct of any such action. Subject to the Owner's approval, attorney fees and other necessary costs incurred in connection with such actions will be paid out of the Project Rental Account as Project expenses. 8. MAINTENANCE AND REPAIR. The Agent will maintain the Project in good repair and in compliance with local codes, and in a condition at all times acceptable to the Owner, including, but not limited to, cleaning, painting, decorating, plumbing, carpentry, grounds care, and such other maintenance, repair, remodeling and refurbishing work as may be necessary, subject to any limitations imposed by the Owner in addition to those contained herein. The Agent will also assist the Owner in identifying and implementing capital improvements to the Project. The Agent will perform such periodic physical inspections as shall be appropriate in connection therewith. Incident thereto, the following additional provisions will apply: a. Special attention will be given to preventive maintenance, and, to the extent feasible, the services of regular maintenance employees will be used; b. Subject to the Owner's prior approval, the Agent will negotiate, review and sign, on behalf of the Owner, contracts with qualified independent contractors for the maintenance and repair of heating and air-conditioning systems and elevators, and for extraordinary repairs to such items and other assets of the Project, which are beyond the capability of regular maintenance employees; c. The Agent will systematically and promptly receive and investigate all service requests from tenants, take such action thereon as may be justified, and will keep records of the same. Emergency requests will be received and serviced on a twenty-four (24) hour basis. Complaints of a serious nature will be reported to the Owner after investigation; d. The Agent is authorized to purchase all materials, equipment, tools, appliances, supplies and services necessary to the proper maintenance and repair of the Project; and e. Notwithstanding any of the foregoing provisions, the prior approval of the Owner will be required for any expenditure which exceeds Five Thousand Dollars ($5,000) in any one instance for labor, materials or otherwise, in connection with the maintenance and repair of the Project, except for recurring expenses within the limits of the operating budget and emergency repairs involving manifest danger to persons or property or required to avoid suspension of any necessary service to the Project. In the latter event, the Agent will inform the Owner of the facts as promptly as possible. 9. UTILITIES AND SERVICES. In accordance with the operating budget, the Agent will make arrangements for water, electricity, gas, sewage and trash disposal, vermin extermination, decorating, laundry facilities, and telephone service. Subject to the Owner's prior approval, the Agent will make such contracts as may be necessary to secure such utilities and services. 10. NONCUSTOMARY SERVICES. Notwithstanding any contrary provision in this Agreement, the Owner shall cause any services, in connection with the rental of the Project, that are not customarily furnished to tenants of comparable buildings in the region (including, but not limited to, the provision of maid service and the furnishing of parking facilities, other than on a complimentary, unreserved basis), to be performed by an entity qualifying as an independent contractor. 11. EMPLOYEES. Except as otherwise agreed, all on-site personnel will be employees of the Owner, for purposes of their compensation, and not the Agent, but will be hired, paid, supervised, and discharged through the Agent, in the Agent's sole discretion, subject to the following conditions: a. The resident manager will have duties of the type usually associated with this position; b. Compensation (including fringe benefits) of bookkeeping, clerical, and other managerial personnel will be within the Agent's sole discretion, provided minimum wage standards are met; c. The Owner will reimburse the Agent for the compensation (including fringe benefits) payable to the on-site management and maintenance employees, and for all local, state and federal taxes and assessments (including, but not limited to, Social Security taxes, unemployment insurance, and Workman's Compensation insurance) incident to the employment of such personnel. Such reimbursements will be paid out of the Project Rental Account and will be treated as Project expenses; and d. Compensation (including fringe benefits) payable to the on-site staff, and all bookkeeping, clerical and other managerial personnel, plus all local, state and federal taxes and assessments incident to the employment of such personnel will be borne solely by the Project, and will not be paid out of the Agent's management fee. The rental value of any dwelling unit furnished rent-free to on-site personnel will be treated as a cost of the Project. 12. DISBURSEMENTS FROM PROJECT RENTAL ACCOUNT. a. From the funds collected and deposited by the Agent in the Project Rental Account, either the Owner or the Agent, as shall be determined from time to time by the Owner, will make the following disbursements, when payable: (1) Reimbursement to the Agent for compensation payable to the employees specified in Section 10 above, and for the taxes and assessments payable to local, state and federal governmental agencies; (2) All sums otherwise due and payable by the Owner as expenses of the Project, including compensation payable to the Agent for its services hereunder and expenses of the Project incurred by the Agent under the terms of this Agreement; (3) Any payment required to be made monthly by the Owner to any mortgagee of the Project, including the amounts due under the mortgage for principal amortization, interest, ground rents, taxes and assessments, and fire and other hazard insurance premiums; b. Except for the disbursements mentioned above, funds will be disbursed or transferred from the Project Rental Account only as the Owner may from time to time direct; and c. In the event the balance in the Project Rental Account is at any time insufficient to pay disbursements due and payable under Section 11(a) above, the Agent will inform the Owner of that fact and Owner shall immediately deposit sufficient funds. In no event will the Agent be required to use its own funds to pay such disbursements. 13. RECORDS AND REPORTS. The Agent will have the following responsibilities with respect to records and reports: a. The Agent will establish and maintain a comprehensive system of records, books and accounts in a manner satisfactory to the Owner; b. With respect to each fiscal year ending during the term of this Agreement, the Agent will furnish an annual financial report. The Agent will also prepare and review budgets and cash flow projections for the Project in such manner and at such times as may be agreed with the Owner; c. The Agent will furnish such information (including occupancy reports) as may be reasonably requested by the Owner from time to time with respect to the financial, physical, or operating condition of the Project; and d. By the twenty-fifth (25th) day of each month, the Agent will furnish the Owner with a statement of receipts and disbursements during the previous month, a schedule of accounts receivable and payable, as of the end of the previous month and reconciled bank statements for the Project Rental Account, as of the end of the previous month. 14. ON-SITE MANAGEMENT FACILITIES. Subject to the further agreement of the Owner and the Agent as to more specific terms, the Agent will maintain a management office within the Project, for the convenience of the Owner, for the sole purpose of the Agent's performing its duties under this Agreement, and the Owner will make no rental charge for such office. 15. INSURANCE. The Owner will inform the Agent of insurance to be carried with respect to the Project and its operations, and the Agent, when authorized by the Owner, will cause such insurance to be placed and kept in effect at all times. The Agent will pay premiums out of the Project Rental Account, as an expense of the Project. All insurance will be placed with such companies, on such conditions, in such amounts, and with such beneficial interests appearing thereon as shall be acceptable to the Owner and shall be otherwise in conformity with any mortgage relating to the Project, provided that the same will include public liability coverage, with the Agent designated as one of the insured, in amounts acceptable to the Owner, Agent and any mortgagee of the Project. The Agent will investigate and furnish the Owner with full reports as to all accidents, claims, and potential claims for damage relating to the Project and will cooperate with the Owner's insurers in connection therewith. 16. AGENT'S COMPENSATION. The Agent will be compensated for its service under this Agreement by monthly fees to be paid out of the Project Rental Account to be treated as Project expenses. Such fees will be payable monthly. Each such monthly fee will be in an amount equal to five percent (5%) of the gross receipts (including rentals and other operating income of the Project) actually received during the preceding month. In addition, the Agent shall receive reimbursement for all proper expenditures, obligations and liabilities incurred by the Agent in connection with the operation of the Project. Such reimbursement shall be limited to the actual cost of goods, services and materials used for or by the Project, and in no event shall such cost exceed the cost of such items if supplied by persons or entities other than the Agent or its affiliates. Such reimbursement shall not include reimbursement for costs of services rendered by employees who are not employed in the operation of the Project (except that employees servicing more than one property (whether or not owned by the Owner) may have their costs prorated based upon the respective number of units or square footage in each property), or other expenses for which managing agents of real estate would not customarily receive reimbursement in addition to stated compensation. 17. INDEMNIFICATION BY THE OWNER. The Owner shall indemnify and hold harmless the Agent, to the full extent permitted by the Delaware General Corporation Law (in effect at the time indemnity is sought), from all liability, claims, damages or loss arising out of the performance of its duties hereunder, and related expenses, including reasonable attorneys' fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance; provided, however, that the Agent shall be entitled to indemnification, under this Section 17, only if the Agent, in connection with any liability, damages, claim or loss for which it seeks indemnity, acted in a manner which would not constitute gross negligence or wilfull misfeasance. 18. INDEMNIFICATION BY THE AGENT. The Agent shall indemnify and hold harmless the Owner from contract or other liability, claims, damages, losses and related expenses, including attorneys' fees, to the extent that such liability, claims, damages, losses and related expenses are not fully reimbursed by insurance and are incurred by the Owner by reason of the Agent's deliberate dishonesty or gross negligence. 19. RIGHT TO ASSIGN. The Agent may assign some or all of its rights or obligations under this Agreement, provided that the Agent remains principally responsible hereunder, and the Owner is given notice of such assignment. The Owner may assign its rights and obligations under this Agreement to any successor in title to the Property, and upon any such assignment, the Owner shall be relived of all liability accruing after the effective date of such assignment. 20. TERM OF AGREEMENT. This agreement shall be in effect for a period commencing on the date hereof. This agreement may be terminated, without penalty, by written notice of either party to the other as of the end of any calendar month, provided at least sixty (60) days advance notice thereof is given. IN WITNESS WHEREOF, the parties hereto (by their duly authorized representatives) have executed this Agreement on the date first above written. OWNER: AGENT: KRUPP REALTY FUND, LTD.-III BERKSHIRE REALTY ENTERPRISES By: The Krupp Corporation, LIMITED PARTNERSHIP its General Partner By: By: ------------------------ ------------------------ EX-6 7 Exhibit 6 SETTLEMENT AGREEMENT This Settlement Agreement and Release (this "Agreement") is made and entered into as of the 27th day of June, 1996, by and between The Krupp Corporation ("Krupp"), a Massachusetts corporation with a principal place of business at 470 Atlantic Avenue, Boston, Massachusetts 02210, and Liquidity Financial Group, L.P. ("Liquidity") individually and on behalf of certain Affiliates as hereinafter defined, a California limited partnership with a principal place of business at 2200 Powell Street, Suite 700, Emeryville, California 94608. W I T N E S S E T H WHEREAS, Liquidity is engaged in the business of sponsoring and managing funds which invest in, among other things, real estate limited partnerships; WHEREAS, Krupp and certain affiliates sponsored and are engaged in the business of managing, among other things, real estate limited partnerships; WHEREAS, Liquidity sponsored and manages Liquidity Fund #33 LP as well as other investment funds, and may in the future sponsor and manage and/or provide investment advice to additional investment funds (collectively, the "Liquidity Funds"), and Krupp sponsored and manages Krupp Realty Fund, Ltd.-III ("Realty III") and Krupp Realty Limited Partnership-V ("Realty-V") as well as other investment funds, and may in the future sponsor or manage additional investment funds (individually a "Krupp Fund" and collectively, the "Krupp Funds"); WHEREAS, Liquidity has, on behalf of certain of the Liquidity Funds sought to obtain from Krupp lists of the investors in certain of the Krupp Funds for the stated purpose of contacting such investors in order to attempt to acquire their units in the Krupp Funds; WHEREAS, Krupp has refused to provide lists of the investors to Liquidity, alleging that they are not entitled to obtain such lists and Liquidity has stated that, absent a satisfactory resolution, its present intention is to litigate the issue; WHEREAS, the parties have conferred through their respective counsel and are desirous of resolving and settling Liquidity's claims, upon the terms and conditions hereinafter set forth. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. DELIVERY OF LISTS: Within ten (10) business days of the date of this Agreement, Krupp will deliver to Liquidity lists of investors (containing the names, addresses and capital contributions of such investors) in Realty III and Realty V. The lists will be sorted alphabetically and delivered in both paper format and on 3.5" IBM Compatible computer diskette in ASCII format. Any additional lists delivered pursuant to paragraph 3 below will also be delivered in both paper format and on 3.5" IBM Compatible computer diskette in ASCII format. 2. PAYMENT FOR LISTS: Within ten (10) business days of the date of this Agreement, Liquidity will deliver to Krupp payment for the estimated cost of reproducing and delivering such lists in the total amount of $600.00. 3. PROVISION OF ADDITIONAL LISTS: From time to time during the twelve (12) month period commencing on the date hereof and expiring on the first anniversary date of this Agreement, Krupp will, upon written request from Liquidity, deliver to Liquidity within fifteen (15) business days of receipt of such written request, updated lists of investors in Realty III and Realty V, or, to the extent a Liquidity Fund is a Limited Partner or Shareholder (as the case may be) in any other Krupp Fund, current lists of investors in such other Krupp Fund, provided such request includes an undertaking by Liquidity to pay the cost of reproducing and delivering such lists within ten business days after receipt of such lists. 4. RESTRICTION ON ACTIVITIES: For a period commencing on the date hereof and continuing for thirty (30) months from the last date an investor list in a Krupp Fund is delivered to Liquidity in response to Liquidity's request, Liquidity and any person or entity controlling, controlled, managed or advised by Liquidity or its subsidiaries (including the Liquidity Funds) or under common control with Liquidity ("Liquidity Affiliates") shall not, without the prior written consent of Krupp, which may be granted or withheld in Krupp's sole and exclusive discretion and for any reason, or no reason: (a) vote its interests in any Krupp Fund on any issue other than in proportion to the votes of all other interest holders who vote on such issue; (b) in any manner acquire, attempt to acquire, or make a proposal to acquire, directly or indirectly, more than a 25% interest in any Krupp Fund; (c) propose, or propose to enter into, directly or indirectly, any merger, consolidation, business combination, sale or acquisition of assets, liquidation or other similar transaction involving any Krupp Fund; (d) form, join or otherwise participate in a "group" within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934, as amended, with respect to any voting securities of a Krupp Fund; 2 (e) make or participate in any way, directly or indirectly, in any solicitation of "proxies" or "consents" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of any voting securities of any Krupp Fund. (f) sell, transfer or assign any interests in any Krupp Fund to any person or entity not bound by the terms and conditions of this Agreement; (g) disclose any intention, plan or arrangement inconsistent with the terms of this Agreement; (h) loan money to, advise, assist or encourage any person in connection with any of the actions restricted or prohibited by this Agreement. 5. USE OF LISTS, PROHIBITION ON FURNISHING TO OTHERS: Any investor list obtained by Liquidity or Liquidity Affiliates relative to any Krupp Fund will be utilized only for the purpose of contacting investors to inquire as to whether they wish to sell their units in such Krupp Fund to a Liquidity Fund, and for no other purpose. The lists will not be furnished by Liquidity or Liquidity Affiliates to any other person or entity. 6. THIRD PARTIES: If at any time Liquidity or Liquidity Affiliates is approached or contacted by any third party concerning participation in a transaction involving the assets, businesses or securities of any Krupp Fund or involving any of the actions proscribed by Section 4 hereof or otherwise by this Agreement, Liquidity or Liquidity Affiliates, as the case may be, will immediately notify such party of its inability to participate in such a transaction and its obligation to notify Krupp and will thereafter promptly (and in any event, within five (5) business days) notify Krupp of the nature of such contact and the parties thereto. Krupp will indemnify, defend and hold harmless Liquidity and the Liquidity Affiliates from and against any and all claims, demands or liabilities that may arise as a result of Liquidity's or any Liquidity Affiliates' strict compliance with the terms of this paragraph. 7. COMPLIANCE WITH SECURITIES AND OTHER LAWS: Liquidity and Liquidity Affiliates acknowledge their obligations under the Securities Laws and Rules of the Securities and Exchange Commission. 8. PROVISION OF COPIES OF ALL COMMUNICATIONS: Liquidity and Liquidity Affiliates covenant and agree that they shall deliver to Krupp at least five (5) business days before mailing or otherwise distributing to investors in any Krupp Fund any communication to be given to one or more investors in any Krupp Fund. 3 9. FIDUCIARY DUTIES OF KRUPP; SAFE HARBOR PROVISION, PROTECTION OF PARTNERSHIP STATUS: Liquidity acknowledges that: (a) Krupp and its affiliates have significant fiduciary obligations to the investors in the Krupp Funds, and has stated that it is entering into this Agreement to, among other things, fulfill those fiduciary obligations; (b) Krupp may need to take certain further action to meet its fiduciary obligations, including, without limitation, suspending the acceptance of transfer paperwork in one or more Krupp Funds to avoid the termination of such Krupp Fund's status as a partnership under the Internal Revenue Code of 1986 (the "Code"), as amended; avoid the treatment of such Krupp Fund as a Publicly Traded Partnership under the Code; or cause the Krupp Fund to fall outside any so-called "Safe Harbor" provision relating to taxation or tax status, including provisions relating to Publicly Traded Partnerships; and (c) That the suspension of the acceptance of transfer paperwork by Krupp would mean that notwithstanding the presentment of valid transfer paperwork and the terms of this Agreement, transfers requested by Liquidity or a Liquidity Affiliate would not be processed nor reflected on the books and records of the Krupp Fund. Nothing herein shall be construed, however, as an acknowledgment or agreement by Liquidity that Krupp has the right under any particular circumstances to suspend the acceptance of transfer paperwork, or as a waiver of any future claims of Liquidity arising out of any such suspension or other similar action. 10. RELEASE: FOR AND IN CONSIDERATION OF THE AGREEMENTS HEREIN MADE, LIQUIDITY, INDIVIDUALLY AND ON BEHALF OF THE LIQUIDITY AFFILIATES, DOES HEREBY REMISE, RELEASE AND ACQUIT KRUPP AND ALL OF ITS PARTNERS, OFFICERS, DIRECTORS, AFFILIATES, PREDECESSORS, SUCCESSORS AND ASSIGNS AND EACH OF THEIR PARTNERS, OFFICERS, DIRECTORS, AFFILIATES, PREDECESSORS, SUCCESSORS AND ASSIGNS, FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, COSTS, EXPENSES, ACTIONS AND CAUSES OF ACTION WHICH LIQUIDITY AND THE LIQUIDITY AFFILIATES (INCLUDING THEIR PARTNERS, OFFICERS, DIRECTORS, AFFILIATES, SUCCESSORS AND ASSIGNS AND ALL OF THEIR PARTNERS, OFFICERS, DIRECTORS, AFFILIATES, PREDECESSORS, SUCCESSORS AND ASSIGNS) HAD IN THE PAST, NOW HAS, OR MAY IN THE FUTURE ACQUIRE, ARISING FROM OR RELATED TO THE FAILURE OR REFUSAL OF KRUPP TO PRODUCE AN INVESTOR LIST OF ANY KRUPP FUND, EXCEPT FOR SUCH A FAILURE OR REFUSAL IN VIOLATION OF THE PROVISIONS OF THIS AGREEMENT. 11. NOTICES: Any and all notices required or permitted hereunder shall be in writing and shall be deemed given or served, as the case may be, upon actual delivery to the parties at the following addresses: 4 If to Liquidity: Liquidity Financial Group, L.P. 220 Powell Street, Suite 700 Emeryville, California 94608 Attention: Brent Donaldson With a copy to: Roger B. Mead, Esq. Folger & Levin Embarcadero Center West Tower 275 Battery Park, 23rd Floor San Francisco, California 94111 If to Krupp: The Krupp Corporation 470 Atlantic Avenue Boston, Massachusetts 02210 Attention: Laurence Gerber With a copy to: Scott D. Spelfogel, Esq. Vice President and General Counsel The Berkshire Group 470 Atlantic Avenue Boston, Massachusetts 02210 12. NO ADMISSIONS, CONFIDENTIALITY: The parties agree that this Agreement is being entered into solely to settle disputed claims, and nothing herein shall be deemed to constitute an admission of liability on the part of Krupp, all such liability being expressly contested. The parties agree that their discussions prior to entering into this Agreement, the nature, existence and terms of this Agreement, and all matters relating to the dispute and settlement shall be strictly confidential and not disclosed by either party to any individual or entity, not be admissible in court for any purpose. Notwithstanding the foregoing, should either party believe that it must produce this Agreement in response to subpoena or other lawful process, it shall first notify the other party and provide the other party with at least fifteen (15) business days in which to seek to quash or limit any such subpoena or process, before producing this Agreement. To the extent the second party does not have standing to seek to quash or limit the subpoena, the first party shall cooperate in such efforts, provided such cooperation does not result in the incurring of any costs on the part of said first party. 13. ENFORCEMENT: The parties agree that each shall be entitled to equitable relief, including injunctive relief and specific performance, in the event of any breach of the provisions of this Agreement, in addition to all other remedies available at law or in equity. In the event either party must refer this Agreement to an attorney for enforcement, the prevailing party shall be entitled to all costs of enforcement, including attorney's fees. 5 14. GOVERNING LAW; VENUE AND JURISDICTION: This Agreement shall be governed by the laws of the Commonwealth of Massachusetts without regard to principles of conflict of law thereof. The parties agree that the Federal and state courts located within the Commonwealth of Massachusetts shall have exclusive jurisdiction over disputes arising hereunder, and the parties hereby consent to such venue and submit to the jurisdiction of such courts. 15. CAPTIONS: Captions and section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. 16. AMENDMENTS: This Agreement may be amended, changed, modified, altered or terminated only by written instrument or written instruments signed by all of the parties hereto. 17. SEVERABILITY: In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written. LIQUIDITY FINANCIAL GROUP, L.P. By: Liquidity Financial Corporation, its general partner By: S/Brent Donaldson ---------------------------- Brent Donaldson President THE KRUPP CORPORATION By: S/Laurence Gerber ---------------------------- Laurence Gerber President 6 EX-7 8 Exhibit 7 FIRST AMENDMENT TO SETTLEMENT AGREEMENT AND RELEASE This First Amendment to Settlement Agreement and Release (this "Amendment") is made and entered into as of the 8th day of October, 1996, by and between The Krupp Corporation ("Krupp"), a Massachusetts corporation with a principal place of business at 470 Atlantic Avenue, Boston, Massachusetts 022210, and Liquidity Financial Group, L.P. ("Liquidity") individually and on behalf of certain Affiliates as defined in the Agreement (as hereinafter defined), a California limited partnership with a principal place of business at 2200 Powell Street, Suite 700, Emeryville, California 94608. WITNESSETH: WHEREAS, the parties entered into a Settlement Agreement and Release dated the 27th day of June, 1996 (the "Agreement") and desire to amend the Agreement to eliminate a possible ambiguity, as hereinafter set forth. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Section 4(d) of the Agreement shall be and hereby is amended by adding, at the end of said section following the semicolon, the following clause: provided, however, that Liquidity and Liquidity Affiliates shall not be deemed to be acting in a "group" in violation of this Section 4(d) solely by virtue of their voting their interests in compliance with Section 4(a) of this Agreement; 2. Except as expressly set forth above, the Agreement shall remain in full force and effect without amendment or modification. IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written. LIQUIDITY FINANCIAL GROUP, L.P. THE KRUPP CORPORATION By: Liquidity Financial Corporation, its general partner By: s/Brent Donaldson By: s/Laurence Gerber ------------------------ ------------------------ Brent Donaldson Laurence Gerber President President -----END PRIVACY-ENHANCED MESSAGE-----