-----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, TgrxDULRs6L9Rrcfc5iG3hAVWM6xEyqXhbBHite3lBT4U55MkLRIjX48wMXCS3eA wEhf7Q+sfOiGbkvGWr/RWA== 0000927016-96-000076.txt : 19960329 0000927016-96-000076.hdr.sgml : 19960329 ACCESSION NUMBER: 0000927016-96-000076 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND PENSION PROPERTIES V CENTRAL INDEX KEY: 0000806028 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042940131 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-10128 FILM NUMBER: 96539701 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6175781200 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 Commission File No. 0-17808 NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2940131 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No) 399 Boylston Street, 13th FL. Boston, Massachusetts 02116 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 578-1200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] No voting stock is held by nonaffiliates of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE None Item 1. Business. -------- New England Pension Properties V; A Real Estate Limited Partnership (the "Partnership") was organized under the Uniform Limited Partnership Act of the Commonwealth of Massachusetts on October 23, 1986, to invest primarily in to-be-developed, newly-constructed and existing income-producing real properties. The Partnership was initially capitalized with contributions of $2,000 in the aggregate from Fifth Copley Corp. (the "Managing General Partner") and ECOP Associates Limited Partnership (the "Associate General Partner") (collectively, the "General Partners") and $10,000 from Copley Real Estate Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a Registration Statement on Form S-11 (the "Registration Statement") with the Securities and Exchange Commission on November 12, 1986, with respect to a public offering of 60,000 units of limited partnership interest at a purchase price of $1,000 per unit (the "Units") with an option to sell up to an additional 60,000 Units (an aggregate of $120,000,000). The Registration Statement was declared effective on January 9, 1987. The first sale of Units occurred on July 23, 1987, at which time the Initial Limited Partner withdrew its contribution from the Partnership. Investors were admitted to the Partnership thereafter at monthly closings; the offering terminated and the last group of subscription agreements was accepted by the Partnership on December 31, 1987. As of January 31, 1988, a total of 83,291 Units had been sold, a total of 12,900 investors had been admitted as limited partners (the "Limited Partners") and a total of $82,761,530 had been contributed to the capital of the Partnership. The remaining 36,709 Units were de-registered on March 17, 1988. The Partnership makes available 2% of Cash Flow, as defined in the Partnership's Amended and Restated Agreement of Limited Partnership dated July 23, 1987, for the purpose of repurchasing Units. See Note 1 of the Financial Statements in Item 8 hereof. As of December 31, 1995, the Partnership had invested, or had committed to invest in nine real property investments; Two of these investments were sold in 1994. Sales proceeds were distributed in the amount of $48 per Unit in 1994 and $28 per Unit in 1995, after the Partnership made its final strategic decisions on projects yet to be developed. The Partnership has no current plan to renovate, improve or further develop any of its real property other than as described in E. below. In the opinion of the Managing General Partner, the properties are adequately covered by insurance. The Partnership has no employees. Services are performed for the Partnership by the Managing General Partner and affiliates of the Managing General Partner. A. Land in Germantown, Maryland ("Waters Landing II"). -------------------------------------------------- On May 26, 1987, the Partnership acquired a 60% interest in a joint venture with Waters Landing Two - Oxford Limited Partnership ("Oxford"). As of December 31, 1995, the Partnership had contributed $1,392,126 to the capital of the joint venture out of a maximum obligation of $4,682,400. The joint venture agreement entitles the Partnership to receive a monthly preferred return on its invested capital at the rate of 10.5% per annum. Prior to December 1, 1994, such monthly preferred return was permitted to accrue to the extent that the joint venture did not have sufficient cash to pay it. The joint venture agreement also entitles the Partnership to receive 60% of all remaining cash flow from operations and 60% of net sale and refinancing proceeds following the return of the Partnership's equity. The Partnership also committed to make a loan of up to $3,121,600 to Oxford for investment in the venture of which $928,084 had been funded as of December 31, 1995. Interest only on the loan is payable monthly at the rate of 10.5% per annum. The loan will be due upon the sale of the joint venture's assets or the sale of Oxford's interest in the joint venture. Oxford must apply any cash flow received from operations of the joint venture to interest payments on the loan and must apply proceeds of financings or sales received from the joint venture to payments of the interest on and principal of the loan. The loan is secured by Oxford's interest in the joint venture. The joint venture owns approximately 8.5 acres of land in Germantown, Maryland and originally intended to construct a 144-unit apartment complex. Development had been postponed due to the excess supply of apartment units in the Germantown area. During 1995, the joint venture undertook a number of feasibility studies of alternative development proposals for the site and determined development would not yield a sufficient return to justify the investment risk. Accordingly, the Partnership intends to sell the land parcel when market conditions improve. B. Warehouse Building in Fontana, California ("Dahlia"). ---------------------------------------------------- On September 21, 1987, the Partnership acquired a 60% interest in a joint venture formed with an affiliate of Investment Building Group. As of December 31, 1995, the Partnership had contributed $7,081,593 to the capital of the joint venture out of a maximum obligation of $7,250,000. The joint venture agreement entitles the Partnership to receive a monthly preferred return on its invested capital at the rate of 10% per annum. The joint venture agreement also entitles the Partnership to receive 60% of the remaining cash flow and 60% of sale and refinancing proceeds following the return of the Partnership's equity. On September 1, 1995, the joint venture was converted into a California limited partnership with the Partnership as the general partner and the affiliate of Investment Building Group as the limited partner. The limited partnership owns approximately 12.9 acres of land in Fontana, California and has completed construction thereon of a one-story warehouse building containing approximately 278,220 square feet of space. As of December 31, 1995, the building was 100% leased. C. Office/Warehouse Buildings in Phoenix, Arizona (" University Business --------------------------------------------------------------------- Park"). ------ On September 30, 1987, the Partnership acquired a 60% interest in a joint venture formed with an affiliate of The Hewson Company. As of December 31, 1995, the Partnership had contributed $7,976,784 to the capital of the joint venture out of a maximum obligation of $9,450,000. The joint venture agreement entitles the Partnership to receive a monthly preferred return on its invested capital at the rate of 10% per annum. The joint venture agreement also entitles the Partnership to receive 60% of the remaining cash flow and 60% of sale and refinancing proceeds following return of the Partnership's equity. Effective January 1, 1996, the joint venture was dissolved and ownership of the joint venture assets was assigned to the Partnership. The Partnership owns approximately 8.5 acres of land in Phoenix, Arizona and has completed construction thereon of five warehouse buildings containing approximately 109,930 square feet of space. As of December 31, 1995, the buildings were 98% leased. D. Office/Research and Development Buildings in Columbia, Maryland --------------------------------------------------------------- ("Columbia Gateway Corporate Park"). ----------------------------------- On December 21, 1987, the Partnership acquired a 33% interest in a joint venture formed with New England Life Pension Properties IV; A Real Estate Limited Partnership, an affiliate of the Partnership (the "Affiliate"), which had a 17% interest, and M.O.R. Gateway 51 Associates Limited Partnership. As of April 20, 1989, the joint venture agreement was amended and restated to reflect a decrease in the Partnership's interest in the joint venture to 15.25% and an increase in the Affiliate's interest in the joint venture to 34.75%. In addition, the amended and restated joint venture agreement increased the Affiliate's maximum obligation to contribute capital to the joint venture and reallocated the capital contributed to the joint venture by the Partnership and the Affiliate. As of December 31, 1995, the Partnership had contributed $6,181,690 to the capital of the joint venture out of a maximum obligation of $6,402,000. The joint venture agreement entitles the Partnership and the Affiliate to receive a preferred return on their respective invested capital at the rate of 10.5% per annum. Such preferred return will be payable currently until the Partnership and the Affiliate have received an aggregate of $8,865,000; thereafter, if sufficient cash flow is not available therefor, the preferred return will accrue and bear interest at the rate of 10.5% per annum, compounded monthly. The joint venture agreement also entitles the Partnership to receive 15.25% of cash flow following payment of the preferred return and 15.25% of the net proceeds of sales and refinancings following return of the Partnership's and the Affiliate's equity. The joint venture owns approximately 20.85 acres of land in the Columbia Gateway Corporate Park in Columbia, Maryland. The intended development plan for this land was for a two stage development of seven office and research and development buildings. The first phase of this development was completed in 1992 and included the construction of four, one-story office and research and development buildings containing 142,545 square feet. The second phase of this development commenced in the spring of 1994 in which two buildings totaling 46,000 square feet were constructed and leased to a single tenant for a lease term of ten years. As of December 31, 1995 the project was 92% occupied. E. Industrial Building in Brea, California ("Puente Street"). --------------------------------------------------------- On April 28, 1988, the Partnership acquired a 60% interest in a joint venture formed with an affiliate of The Muller Company. In April, 1990, the Partnership increased its commitment to the joint venture by $625,000 to $13,725,000 of which $13,475,000 had been contributed as of June 1, 1991. The joint venture agreement entitled the Partnership to receive a monthly preferred return on its invested capital at the rate of 10.5% per annum. The joint venture agreement also entitled the Partnership to receive 60% of the remaining cash flow and 60% of sale and refinancing proceeds following the return of the Partnership's equity. As of June 1, 1991, because of the developer partner's inability to fund its share of capital contributions, the Partnership assumed 100% ownership of the joint venture's assets. The Partnership owns approximately 16.75 acres of land in Brea, California and has completed renovation of an existing building thereon containing 181,200 square feet. Construction of an approximately 37,320 square foot addition was completed during the first quarter of 1989. Construction of a parking lot and storage area on the remaining vacant land was completed during 1990. The building, including the addition, was 100% leased to Mark Industries; however, the tenant declared bankruptcy on July 15, 1991. The tenant's business was subsequently purchased by another company which leased the building on a month-to-month basis. The tenant moved out of the space and stopped paying rent as of October 31, 1992. The Partnership filed a claim against Mark Industries for $160,000 in unpaid post-petition rent, $1,420,000 in unpaid future rental obligations and $60,000 in legal expenses. In early 1994 the Partnership received $160,000 in payment of the post-petition rent. On September 14, 1994 the Trustee for Mark Industries filed a claim against the Partnership contending that $106,000 in rental payments made by the tenant prior to filing bankruptcy was a preferential transfer. In early 1995 all parties agreed to a stipulated settlement to include: 1) the dismissal of the preferential transfer claim; 2) the payment by the Trustee to the Partnership of $23,000 in full settlement of its administrative claim for attorney's fees relating to the tenant's post petition lease obligations; and 3) the payment by the Trustee to the Partnership of $20,000 in full settlement of its claim against the tenant for future rental obligations. As of December 31, 1995, the building was 100% leased to two tenants. The first tenant assumed occupancy of 152,576 square feet in December 1993 and has a lease whose term expires in February 2004. The remaining space was leased in April 1994 for a term of five years. On December 8, 1995 the Partnership was named as a defendant in a complaint filed in the Superior Court of the State of California for the County of Orange by an existing tenant, Bridgeport Management Services, Inc. alleging breach of lease. On January 17, 1996 the Partnership filed an answer denying the allegations presented by the plaintiff. The Partnership believes this suit is without merit. The Partnership continues to evaluate the alternatives of developing additional space on the 2.8 acres of land currently improved with a parking lot, or selling the land. F. Shopping Center in Salinas, California ("Santa Rita Plaza"). ----------------------------------------------------------- On February 1, 1989, the Partnership acquired a 60% interest in a joint venture formed with Rodde McNellis/Salinas. On July 20, 1990, the Partnership committed to increase its maximum obligation from $9,500,000 to $11,350,000, of which $6,500,000 is characterized as Senior Capital and $4,850,000 is characterized as Junior Capital. As of December 31, 1995, the Partnership had contributed $10,950,840 to the capital of the joint venture. The joint venture agreement entitles the Partnership to receive a monthly preferred return on its Senior Capital at the rate of 10.5% per annum during months 1-24 of the joint venture's operations and a monthly preferred return to reduce its outstanding Senior Capital, together with a return at the rate of 10.5% per annum, based on a 27-year amortization schedule, during months 25-120 of the joint venture's operations. The entire outstanding Senior Capital is due and payable ten years after the date of the Partnership's first investment of Senior Capital. The joint venture agreement also entitles the Partnership to receive a priority return payment on its Junior Capital at the rate of 10.5% per annum. Such junior priority return payment will accrue and bear interest at the rate of 10.5% per annum, if sufficient cash is not available therefor. At such time as the aggregate of accrued junior priority return payments total $1,000,000, all junior priority return payments and the return on the accrued junior priority return payments will thereafter be paid currently; provided, however, that the $1,000,000 threshold will be increased by each dollar of Junior Capital which the Partnership elects not to contribute to fund its return. The Junior Capital will be due and payable after the fifteenth year of the joint venture's operations. On August 1, 1995 the joint venture was converted into a California limited partnership with the Partnership as the general partner with a 63% ownership interest and an affiliate of Rodde/McNellis Salinas as the limited partner with a 37% interest. The joint venture agreement also entitles the Partnership to receive 63% of cash flow remaining after payment of the preferred return and 63% of sale and refinancing proceeds following the return of the Partnership's equity. The limited partnership has a leasehold interest in approximately 10.56 acres of land in Salinas, California (the "Land") and has completed construction thereon of five one-story retail buildings containing a total of approximately 125,247 square feet. The ground lease has a term of 75 years with two options to extend, for ten years each. Under the ground lease, fixed rent of $390,000 per annum is payable. A percentage rent equal to 11.55% of rents in excess of $1,400,000 received by the ground lessee from subtenants, excluding expense reimbursements, is also payable. As of December 31, 1995, the buildings were 91% leased. On August 1, 1995 the Partnership made a $1,750,000 loan to Nielsen Properties, Ltd., which is the ground lessor, for a term of 15 years. The loan earns interest at 8.75% and the Partnership can require full payment of the note on or after August 1, 2000. The note is secured by a deed of trust on the Land. In conjunction with this loan, Nielsen Properties, Inc. repaid the limited partnership $1,299,052, representing full payment of two outstanding notes receivable. G. Office/Retail/Industrial Buildings in Las Vegas, Nevada ("Palms --------------------------------------------------------------- Business Center III and IV"). ---------------------------- On March 7, 1988, the Partnership acquired a 60% interest in a joint venture formed with an affiliate of B.H. Miller Companies. As of January 1, 1995, the Partnership had contributed $11,589,888 to the capital of the joint venture out of a maximum obligation of $11,700,000. The joint venture agreement entitled the Partnership to receive a monthly preferred return at the rate of 11% per annum on the daily balance of its invested capital during each month, of which 9.5% per annum was to be paid currently and up to 1.5% per annum will be deferred if sufficient cash was not available therefor. All invested capital, monthly payments of preferred return and deferred monthly payments of preferred return were due and payable at the end of the tenth year of the joint venture's operations. The joint venture agreement also entitled the Partnership to receive 60% of net cash flow and 60% of sale and refinancing proceeds following the return of the Partnership's equity capital. Effective January 1, 1995, the joint venture partner's ownership interest was transferred and assigned to the Partnership. The Partnership owns approximately 11.75 acres of land in Las Vegas, Nevada and has completed construction thereon of twelve single-story office/industrial buildings and one single-story retail building containing a total of approximately 173,574 square feet. As of December 31, 1995, the buildings were 95% leased. In October 1994, the Clark County of Public Works paid the Partnership $18,600 to acquire a necessary strip of land to widen the road that fronts a portion of the property, in conjunction with planned road improvements in the area. Item 2. Properties The following table sets forth the annual realty taxes for the Partnership's properties and information regarding tenants who occupy 10% or more of gross leasable area (GLA) in the Partnership's properties.
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Annual Estimated Tenants Square Contract 1996 with Feet Rent Annual 10% or of Per Line of Realty More Name(s) of Each Square Lease Renewal Business of Property Taxes of GLA Tenant(s) Tenant Foot Expiration Options Principal Tenants - ------------------------------------------------------------------------------------------------------------------------------------ Office/R&D Bldgs in $213,284 4 Wiltel 23,760 $8.74 3/1997 One for Telecommunications Columbia, MD 5 Years Columbia National 45,951 $8.95 6/2004 Two for Home Mortgages 5 Years EVI, Inc. 31,316 $9.00 6/2005 One for Environmental/Testing 5 Years Coram 25,932 $8.87 1/1997 One for Medical Services 5 Years Land in Germantown, MD $ 18,000 N/A N/A N/A N/A N/A N/A N/A Warehouse Bldg in Fontana, CA $ 85,121 3 M.W. Kasch 172,972 $3.21 5/2003 None Distribution Aromatics Industries 84,660 $2.64 5/1998 None Distribution Building Materials Distributor 20,888 $3.56 12/1996 None Distribution Office/Warehouse Buildings in Phoenix, AZ $142,745 1 EMCON Southwest 11,303 $7.44 11/2000 None Telecommunications Industrial Bldg in Brea, CA $ 96,234 2 20th Century Plastics 152,576 $3.03 3/2004 None Plastics Manuf./Assembler Bridgeport Management 65,944 $3.36 4/1999 None Rec. Vehicle Storage/Svc Shopping Ctr in Salinas, CA $149,103 2 Food Maxx 51,008 $7.32 8/2010 Three for Supermarket 5 Years Ross Dress for Less 17,068 $11.04 1/2001 Three for Apparel Retailer 5 Years Office/Retail/Industrial Bldgs in Las Vegas, NV $ 85,916 2 Hospitality Trade Mart 20,531 $6.60 12/2000 N/A Convention Planners Blublocker Corp. 19,133 $6.11 11/2000 N/A Distribution & Storage - ------------------------------------------------------------------------------------------------------------------------------------
The following table sets forth for each of the last five years the gross leasable area, occupancy rates, rental revenue, and net effective rent for the Partnership's properties:
- ------------------------------------------------------------------------------------------------ Property Gross Leasable Occupancy Rental Net Effective Area Revenue Rent Recognized ($/sf/yr)* - ------------------------------------------------------------------------------------------------ Office/ R&D Buildings in Columbia, MD 1991 107,310 57% $499,862 $ 9.13 1992 142,545 71% $1,225,076 $10.84 1993 142,545 73% $1,334,767 $13.01 1994 188,649 92% $1,496,175 $ 9.61 1995 188,649 92% $1,870,329 $10.78 Land in Germantown, MD 1991 N/A N/A N/A N/A 1992 N/A N/A N/A N/A 1993 N/A N/A N/A N/A 1994 N/A N/A N/A N/A 1995 N/A N/A N/A N/A Warehouse Building in Fontana, CA 1991 278,220 100% $667,540 $ 2.44 1992 278,220 22% $400,496 $ 6.66 1993 278,220 89% $1,026,506 $ 4.59 1994 278,220 100% $990,796 $ 3.77 1995 278,220 100% $1,001,121 $ 3.60 Office/Warehouse Buildings in Phoenix, AZ 1991 109,930 88% $616,796 $ 6.78 1992 109,930 82% $586,336 $ 6.56 1993 109,930 80% $797,135 $ 8.90 1994 109,930 89% $799,675 $ 8.61 1995 109,930 98% $897,490 $ 8.40 - ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ Industrial Building in Brea, CA 1991 218,520 100% $736,034 $ 3.39 1992 218,520 0% $790,986 $ 0.00 1993 218,520 70% $161,378 $ 4.25 1994 218,520 100% $882,870 $ 4.75 1995 218,520 100% $949,389 $ 4.34 Shopping Center in Salinas, CA 1991 125,247 94% $1,789,475 $15.29 1992 125,247 89% $1,748,287 $15.47 1993 125,247 92% $1,759,243 $10.72 1994 125,247 90% $1,874,676 $16.45 1995 125,247 91% $1,657,425 $14.31 Office/Retail/Industrial Buildings in Las Vegas, NV 1991 N/A N/A N/A N/A 1992 173,469 76% $654,064 $ 5.89 1993 173,469 98% $1,199,317 $ 7.13 1994 173,574 92% $1,453,205 $ 8.81 1995 173,574 95% $1,395,445 $ 8.35 - ------------------------------------------------------------------------------------------------
Note: N/A for commercial properties indicates property was not constructed as of this date. * Net Effective Rent calculation is based on average occupancy during the respective years. Following is a schedule of lease expirations for each of the next ten years for the Partnership's properties based on the annual contract rent in effect at December 31, 1995:
- ----------------------------------------------------------------------------------- TENANT AGING REPORT - ----------------------------------------------------------------------------------- Property # of Lease Total Total Percentage of Expirations Square Feet Annual Contract Gross Annual Rent Rental* - ----------------------------------------------------------------------------------- Office/ R&D Buildings in Columbia, MD 1996 1 6,909 $56,447 3% 1997 3 53,008 $466,595 30% 1998 1 8,781 $93,079 6% 1999 2 32,570 $270,248 17% 2000 0 0 $0 0% 2001 0 0 $0 0% 2002 0 0 $0 0% 2003 0 0 $0 0% 2004 1 45,951 $411,261 26% 2005 1 31,316 $281,844 18% Land in Germantown, MD 1996 N/A N/A N/A N/A 1997 N/A N/A N/A N/A 1998 N/A N/A N/A N/A 1999 N/A N/A N/A N/A 2000 N/A N/A N/A N/A 2001 N/A N/A N/A N/A 2002 N/A N/A N/A N/A 2003 N/A N/A N/A N/A 2004 N/A N/A N/A N/A 2005 N/A N/A N/A N/A Warehouse Building in Fontana, CA 1996 1 20,880 $74,400 9% 1997 0 0 $0 0% 1998 1 84,660 $223,200 26% 1999 0 0 $0 0% 2000 0 0 $0 0% 2001 0 0 $0 0% 2002 0 0 $0 0% 2003 1 172,972 $554,724 65% 2004 0 0 $0 0% 2005 0 0 $0 0% - -----------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Office/Warehouse Buildings in Phoenix, AZ 1996 7 21,344 $140,089 17% 1997 2 8,415 $52,864 7% 1998 7 28,339 $227,445 28% 1999 2 15,745 $135,363 17% 2000 3 34,274 $250,490 31% 2001 0 0 $0 0% 2002 0 0 $0 0% 2003 0 0 $0 0% 2004 0 0 $0 0% 2005 0 0 $0 0% Industrial Building in Brea, CA 1996 0 0 $0 0% 1997 0 0 $0 0% 1998 1 65,944 $221,572 32% 1999 0 0 $0 0% 2000 0 0 $0 0% 2001 0 0 $0 0% 2002 0 0 $0 0% 2003 0 0 $0 0% 2004 1 152,576 $461,960 68% 2005 0 0 $0 0% Shopping Center in Salinas, CA (1) 1996 4 5,668 $87,500 6% 1997 2 3,590 $52,482 4% 1998 5 11,258 $161,727 12% 1999 1 1,140 $21,135 2% 2000 6 17,313 $336,296 25% 2001 2 19,648 $220,785 16% 2002 0 0 $0 0% 2003 0 0 $0 0% 2004 0 0 $0 0% 2005 0 0 $0 0% Office/Retail/Industrial Buildings in Las Vegas, NV 1996 3 18,113 $122,673 9% 1997 2 16,043 $89,081 7% 1998 5 36,867 $431,382 33% 1999 1 13,513 $97,932 8% 2000 5 59,806 $402,039 31% 2001 2 20,301 $155,713 12% 2002 0 0 $0 0% 2003 0 0 $0 0% 2004 0 0 $0 0% 2005 0 0 $0 0% - --------------------------------------------------------------------------------
* Does not include expenses paid by tenants. Note: N/A denotes that the disclosure is not applicable based on the nature of the property. (1) Remaining leases expire beyond 2005. The following table sets forth for each of the Partnership's properties the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect to each property or component thereof for purposes of depreciation:
- ------------------------------------------------------------------------------------------------------------------------------------ Rate of Life Accumulated Entity / Property Tax Basis Depreciation Method in years Depreciation - ------------------------------------------------------------------------------------------------------------------------------------ Office/Research and Development Buildings, Columbia, MD - ------------------------------------------ Land Improvements $ 94,022 10.00% 150% DB 15 $ 28,050 Land Improvements 3,092,260 2.56% SL 39 30,296 Building & Improvements 7,829,962 3.18% SL 31.5 1,282,640 ----------- ---------- Total Depreciable Assets 11,016,244 1,340,986 Office/Warehouse Buildings, Phoenix, AZ - ------------------------------------------ Building & Improvements 4,325,469 3.18% SL 31.5 731,753 Building & Improvements 81,423 2.56% SL 39 627 ----------- ---------- Total Depreciable Assets 4,406,892 732,380 Warehouse Building, Fontana, CA - ------------------------------------------ Building & Improvements 5,135,156 2.50% SL 40 717,576 ----------- ---------- Total Depreciable Assets 5,135,156 717,576 Industrial Building, Brea, CA - ------------------------------------------ Building & Improvements 7,976,123 3.18% SL 31.5 1,808,668 Building Improvements 771,373 2.56% SL 39 38,109 ----------- ---------- Total Depreciable Assets 8,747,496 1,846,777 Office/Industrial and Commercial Buildings, Las Vegas, NV - ------------------------------------------ Building & Improvements 8,637,020 3.18% SL 31.5 1,349,431 Tenant Improvements 301,416 2.56% SL 39 24,086 ----------- ---------- Total Depreciable Assets 8,938,436 1,373,517 Land, Germantown, MD - ------------------------------------------ No Depreciable Property 0 0.00% 0 ----------- ---------- Total Depreciable Assets 0 0 Shopping Center, Salinas, CA - ------------------------------------------ Building & Improvements 8,989,174 3.18% SL 31.5 1,167,433 ----------- ---------- Total Depreciable Assets 8,989,174 1,167,433 Total Depreciable Assets $47,233,398 $7,178,669 =========== ========== - ------------------------------------------------------------------------------------------------------------------------------------
SL= Straight Line DB= Declining Balance Following is information regarding the competitive market conditions for each of the Partnership's properties. This information has been gathered from sources deemed reliable. However, the Partnership has not independently verified the information and, as such, cannot guarantee its accuracy or completeness. Industrial Buildings in Brea, California - ---------------------------------------- This property is located within the Orange County industrial market, consisting of 230 million square feet. Brea is a desirable industrial location due to its close proximity to Los Angeles County and the central portion of Orange County. The property more specifically is located within the North Orange County industrial submarket, which has an inventory of 101 million square feet, or 44% of the total Orange County market. As of September 30, 1995 the North Orange County vacancy rate was 8%, down slightly from the 11% vacancy rate reported one year ago and 13% two years ago. While a small amount of speculative construction occurred in 1995, most of the construction related to build-to-suit contracts. As a result of the low vacancy and minimal speculative construction, overall industrial rental rates have stabilized. Rental rates on quality buildings have begun to increase. Shopping Center in Salinas, California - -------------------------------------- This property is located in Salinas, a strong retail community known as the commercial center for much of Monterey County. There are nearly 3.6 million square feet of major shopping centers in Salinas, and for the approximately 2 million square feet that directly competes with this property, overall vacancy was 2% as of December 31, 1995, the same as one year ago. Occupancy and market rents are stable, although an additional 1 million square feet currently under construction in the Salinas area may negatively impact achievable rents at the property until the newly completed space is leased. Office/Research and Development Buildings in Columbia, Maryland - --------------------------------------------------------------- The Howard County R&D market contains approximately 3.2 million square feet and exhibited a vacancy rate of 10% as of December 31, 1995. The 10% vacancy rate is a strong improvement from the 1990-to-1993 period when the vacancy rate hovered in the 22% to 24% range. Office/Warehouse Buildings in Phoenix, Arizona - ---------------------------------------------- This property is located in the metropolitan Phoenix market which has an inventory of approximately 142 million square feet of industrial space, of which 6% was vacant as of year end 1995, compared to the 7% and 12% vacancy rates as of December 31, 1994 and 1993, respectively. The office market, consisting of 39 million square feet, was 11% vacant at year end 1995 compared to 1993 and 1994 vacancies of 20% and 13%, respectively. Rental rates in the Phoenix area continue to increase. Warehouse Building in Fontana, California - ----------------------------------------- This property is located within the greater Los Angeles industrial market, consisting of 950 million square feet. More specifically, the property is located within the Inland Empire industrial market, which consists of 113 million square feet, or 12% of the total Los Angeles industrial market. As of September 30, 1995, the Inland Empire industrial vacancy rate was approximately 8% as compared to the 11% vacancy level reported a year earlier. Similar to other areas of southern California, a small amount of speculative construction occurred in 1995, although most of the construction related to build-to-suit contracts. Low vacancy and minimal speculative construction have resulted in the stabilization of rental rates. Rental rates on quality buildings have begun to increase. Office/Industrial/Retail Buildings in Las Vegas, Nevada - ------------------------------------------------------- The healthy business climate of Las Vegas, fueled by the gaming and service industries, is responsible for a strong industrial market, which exhibits a low vacancy rate of approximately 2% on a base inventory of 38 million square feet. Rental rates have increased over the past year and most free rent concessions have been eliminated. Given the low vacancy level, new construction in all product types and sizes is underway. Item 3. Legal Proceedings. ----------------- The Partnership is not a party to, nor are any of its properties subject to, any material pending legal proceedings. A tenant of one of the Partnership's properties has sued the Partnership for breach of the lease. See Item 1.E. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. --------------------------------------------------------------------- There is no active market for the Units. Trading in the Units is sporadic and occurs solely through private transactions. As of December 31, 1995, there were 13,127 holders of Units. The Partnership's Amended and Restated Agreement of Limited Partnership dated July 23, 1987, as amended to date (the "Partnership Agreement"), requires that any Distributable Cash (as defined therein) be distributed quarterly to the Partners in specified proportions and priorities. There are no restrictions on the Partnership's present or future ability to make distributions of Distributable Cash. Cash distributions paid in 1995 or distributed after year end with respect to 1995 to the Limited Partners as a group totaled $6,389,408, including $2,313,164 of returned capital from the proceeds of two property sales. Cash distributions paid in 1994 or distributed after year end with respect to 1994 to the Limited Partners as a group totaled $7,229,361, including $3,968,640 of returned capital from the proceeds of property sales. Cash distributions exceeded net income in 1995 and, therefore, resulted in a reduction of partners' capital. However, operating cash distributions were less than net cash provided by operating activities. Reference is made to the Partnership's Statement of Changes in Partners' Capital (Deficit) and Statement of Cash Flows in Item 8 hereof. Item 6. Selected Financial Data -----------------------
For Year For Year For Year For Year For Year Ended or Ended or Ended or Ended or Ended as of as of as of as of or as of 12/31/95(1) 12/31/94(2) 12/31/93(3) 12/31/92 12/31/91 ----------- ----------- ----------- -------- -------- Revenues $ 5,522,086 $ 6,096,743 $ 3,190,972 $ 2,903,022 $ 3,694,781 Net Income $ 2,248,715 $ 3,375,406 $ 50,380 $ 1,523,145 $ 1,463,293 Net Income per Weighted Average Limited Partnership Unit $ 26.96 $ 40.42 $ .60 $ 18.21 $ 17.43 Total Assets $60,535,231 $64,530,075 $69,345,524 $71,637,001 $72,837,931 Total Cash Distributions per Limited Partnership Unit outstanding for the entire period, including amounts distributed after year end with respect to the previous year $ 77.36 $ 87.44 $ 32.50 $ 28.75 $ 40.00 (1) During 1995, the Partnership recorded a valuation provision on one property totaling $600,000 ($7.19 per Weighted Average Limited Partnership Unit). Cash distributions include a return of capital of $28 per Unit. (2) During 1994, the Partnership recorded a valuation provision on one property totaling $1,400,000 ($16.76 per Weighted Average Limited Partnership Unit). Net income also includes a gain of $1,790,470 recognized on the sale of two investments. Cash distributions include a return of capital of $48 per Unit. (3) During 1993, the Partnership recorded a valuation provision on two properties totaling $2,000,000 ($23.93 per Weighted Average Limited Partnership Unit).
Item 7 - ------ Management's Discussion and Analysis of Financial Condition and Results of - -------------------------------------------------------------------------- Operations - ---------- Liquidity and Capital Resources The Partnership completed its offering of units of limited partnership interest in December 1988. A total of 83,291 units were sold. The Partnership received proceeds of $74,895,253, net of selling commissions and other offering costs, which have been used for investment in real estate, for the payment of related acquisition costs and for working capital reserves. The Partnership made the real estate investments described in Item 1 herein. Two investments have been sold; one in June 1994 and the other in August 1994. As a result of the sales, capital of $6,281,804 has been returned to the limited partners through December 31, 1995. On September 15, 1994, the Partnership made a capital distribution of $48 per limited partnership unit, which reduced the adjusted capital contribution to $952 from $1,000 per unit. A capital distribution in July 1995 of $28 per limited partnership unit further reduced the adjusted capital contribution to $924. A portion of the sales proceeds was used to pay previously accrued, but deferred, management fees to the advisor ($183,426 in 1995 and $1,259,988 in 1994). At December 31, 1995, the Partnership had $11,655,405 in cash, cash equivalents and short-term investments, of which $1,011,274 was used for cash distributions to partners on January 25, 1996; the remainder will be used to complete the funding of real estate investments or be retained as working capital reserves. The source of future liquidity or cash distributions to partners will be cash generated by the Partnership's real estate and short-term investments. Quarterly distributions of cash from operations relating to 1995 and 1994 were made at the annualized rate of 5.25% and 4%, respectively, on the weighted average adjusted capital contribution during the period. The distribution rate was increased due to the stabilization of property operations and the attainment of appropriate cash reserve levels. The Partnership maintains a fund for the purpose of repurchasing limited partnership units pursuant to the terms and conditions set forth in the Partnership Agreement. Two percent of cash flow, as defined, is designated for this fund which had a balance of $32,572 and $4,447 at December 31, 1995 and 1994, respectively. Through December 31, 1995, the Partnership had repurchased and retired 755 limited partnership units for an aggregate cost of $729,132. The carrying value of real estate investments in the financial statements at December 31, 1995 is at depreciated cost, or if the investment's carrying value is determined not to be recoverable through expected undiscounted future cash flows, the carrying value is reduced to estimated fair market value. The fair market value of such investments is further reduced by the estimated cost of sale for properties held for sale. Carrying value may be greater or less than current appraised value. At December 31, 1995, the appraised value of certain investments exceeded the related carrying values by an aggregate of approximately $4,900,000, and the remaining investments had carrying values which exceeded their appraised values by a total of approximately $2,400,000. The current appraised value of real estate investments has been estimated by the Managing General Partner and is generally based on a combination of traditional appraisal approaches performed by the Partnership's advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Results of Operations - --------------------- Form of Real Estate Investments Effective January 1, 1995, Palms Business Center joint venture was restructured and the venture partner's ownership interest was assigned to the Partnership. Effective August 1, 1995 and September 1, 1995, respectively, the Santa Rita Plaza and Dahlia joint venture investments were restructured to grant the Partnership control over management decisions. Accordingly, these investments have been accounted for as wholly-owned properties since those dates. The Puente Street investment is also a wholly-owned property. The other three investments in the portfolio are structured as joint ventures with real estate development/management firms. The C.S. Graham and Lakewood Apartments investments, which were sold in 1994, were also joint ventures. Operating Factors Occupancy at University Business Park was at 98% at December 31, 1995, an increase from 89% at December 31, 1994 and 80% a year earlier. Rental rates are increasing and occupancy levels have remained high as the Phoenix market appears to have stabilized. Overall occupancy at the Columbia Gateway Corporate Park remained at 92% at December 31, 1995, unchanged from the preceding year end. Construction of a 46,000 square foot build-to-suit facility was completed during the third quarter of 1994 and the tenant assumed occupancy on September 1, 1994. Occupancy was 73% at December 31, 1993. Occupancy at Puente Street has been 100% since the first quarter of 1994. Prior to that date, occupancy was at 70%. Notwithstanding the improvement in leasing, the carrying value of this investment was reduced in 1993 and 1994 to estimated net realizable value, due to depressed market conditions. During 1995, the joint venture undertook a number of feasibility studies of alternative development plans for the Waters Landing II site. Based on the results, it was determined that it is not in the best interest of the limited partners to develop this site. Accordingly, the carrying value was reduced to estimated fair market value less cost of sale. Occupancy increased from 92% to 95% at the Palms Business Center III and IV during 1995. Occupancy was 98% at December 31, 1993. The majority of the tenants are renewing leases upon their expirations, and as a result of demand, rents are increasing. Occupancy at the Dahlia property remained at 100% during 1995. It was 89% at December 31, 1993. The market conditions for industrial space in this area of California are improving. Santa Rita Plaza was 91% leased at December 31, 1995, which approximated the occupancy over the past three years. While occupancy at the Plaza has been high, performance has been affected by tenant delinquencies and turnover due to business failures. Investment Results Interest on short-term investments and cash equivalents increased significantly in 1994 as compared to 1993, and again in 1995, due to both an increase in interest rates and a higher average investment balance resulting from the temporary investment of proceeds from the C.S. Graham and Lakewood sales. Significant Transactions The Managing General Partner determined during the second quarter of 1995 not to develop the Waters Landing II site. Accordingly, the carrying value of this investment was reduced to its estimated fair market value less cost of sale with a $600,000 charge to operations. As a result of depressed market conditions, the Managing General Partner has determined that the carrying value of the Puente Street investment should be reduced to estimated net realizable value through a charge to operations of $1,500,000 in 1993 and further reduced in 1994 by $1,400,000. During 1993, the Managing General Partner also reduced the carrying value of Columbia Gateway Corporate Park to its estimated net realizable value which resulted in an investment valuation allowance of $500,000. The gains recognized by the Partnership in 1994 on the sale of the C.S. Graham and Lakewood properties were $409,982 and $1,380,488, respectively. An additional $6,209 was received in 1995 in final settlement of the Lakewood sale. 1995 Compared to 1994 Exclusive of the investment valuation allowances, the gain on sales of property by joint ventures and the operating results from C.S. Graham and Lakewood Apartments recognized in 1994 ($273,429), total real estate operations were $2,828,940 in 1995 and $2,733,686 in 1994. Operating income increased at Puente Street ($303,000) and Columbia Gateway Park ($127,000). The improvement at Puente Street results from the lease-up of the property during the first quarter of 1994. The improvement at Columbia Gateway Park is due to improvements in rental income. These increases were partially offset by a decline in net operating income at Santa Rita Plaza ($275,000) due to tenant delinquencies and turnover due to business failures. Net operating income also decreased at Palms Business Center III and IV and at University Business Park due to costs associated with tenant turnover in advance of lease expirations. Exclusive of operating distributions from Lakewood Apartments and C.S. Graham ($358,198) during 1994, cash flow from operations increased from $2,128,608 to $4,738,007. Cash flow from operations in 1994 included two significant transactions. The Partnership paid $1,259,988 of the previously accrued, but deferred management fee to the advisor. In addition, the Partnership granted rental concessions and paid a lease commission related to the new tenant at Puente Street, which totalled $410,000. The balance of the increase in cash flow from operations primarily stems from the assumption of joint venture cash balances in connection with the three ownership restructurings and from decreases in working capital items. 1994 Compared to 1993 Operating income from Puente Street increased significantly between 1994 and 1993, with the lease-up of the property. Exclusive of the operating results from C.S. Graham, Lakewood and Puente Street, joint venture earnings were $2,499,676 in 1994 and $2,126,010 in 1993. This $373,666 or 18% increase resulted from improved operating results at all of the joint venture projects. Columbia Gateway Corporate Park improved by approximately $123,000, due to an increase in rental revenue of $50,000 and a decrease in expenses of $73,000. Dahlia improved by approximately $62,000, due to a decrease in property operating expenses of $103,000 which was partially offset by a decrease in rental revenue of $42,000 (although rental revenue in 1993 included $300,000 from a settlement of past due rents from a former tenant). Palms Business Center III and IV, Santa Rita Plaza and University Business Park also improved by approximately $57,000, $68,000 and $62,000, respectively. Exclusive of operating cash flow from Lakewood and C.S. Graham of $358,198 in 1994 and $331,453 in 1993, operating cash flow increased by $713,946 or 50% between the respective years. In addition to the effect of improved operating results, cash flow increased during 1994 as a result of the timing of cash distributions to the Partnership from certain joint ventures which had been retaining additional working capital reserves. This reduction in working capital reserves was most notable at Palms Business Center III and IV ($950,000), Dahlia ($630,000) and Columbia Gateway Corporate Park ($150,000). These increases were partially offset by the payment of deferred, but previously accrued, management fees to the advisor ($1,259,988). Operating cash flow at Puente Street declined due primarily to the payment of lease commissions. Also, cash flow at University Business Park declined by approximately $175,000 due to timing of distributions. Portfolio Expenses The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the Managing General Partner. General and administrative expenses consist primarily of real estate appraisal, printing, legal, accounting and investor servicing fees. 1995 Compared to 1994 The Partnership management fee increased due to an increase in distributable cash flow from operations. General and administrative expenses increased $57,459 or 21%, primarily due to an increase in legal costs associated with the various joint venture restructurings. 1994 Compared to 1993 The Partnership management fee increased due to an increase in distributable cash flow. General and administrative expenses increased $30,453 or 13%, primarily due to professional and servicing fees. Inflation - --------- By their nature, real estate investments tend not to be adversely affected by inflation. Inflation may result in appreciation in the value of the Partnership's real estate investments over time if rental rates and replacement costs increase. Declines in real property values during the period of Partnership operations, due to market and economic conditions, have overshadowed the positive effect inflation may have on the value of the Partnership's investments. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- See the Financial Statements of the Partnership included as a part of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure. -------------------- The Partnership has had no disagreements with its accountants on any matters of accounting principles or practices or financial statement disclosure. PART III -------- Item 10. Directors and Executive Officers of the Registrant. -------------------------------------------------- (a) and (b) Identification of Directors and Executive Officers. -------------------------------------------------- The following table sets forth the names of the directors and executive officers of the Managing General Partner and the age and position held by each of them as of December 31, 1995.
Name Position(s) with the Managing General Partner Age - ---- --------------------------------------------- --- Joseph W. O'Connor President, Chief Executive Officer and Director 49 Daniel J. Coughlin Managing Director and Director 43 Peter P. Twining Managing Director, General Counsel and Director 49 Wesley M. Gardiner, Jr. Vice President 37 Daniel C. Mackowiak Principal Financial and Accounting Officer 44
Mr. O'Connor and Mr. Coughlin have served in an executive capacity since the organization of the Managing General Partner on October 23, 1986. Mr. Gardiner and Mr. Twining have served in their capacities since June 1994, and Mr. Mackowiak has served in his capacity as of January 1, 1996. All of these individuals will continue to serve in such capacities until their successors are elected and qualified. (c) Identification of Certain Significant Employees. ----------------------------------------------- None. (d) Family Relationships. -------------------- None. (e) Business Experience. ------------------- The Managing General Partner was incorporated in Massachusetts on October 23, 1986. The background and experience of the executive officers and directors of the Managing General Partner are as follows: Joseph W. O'Connor has been President, Chief Executive Officer and a Director of Copley Real Estate Advisors, Inc. ("Copley") since January, 1982. He was a Principal of Copley from 1985 to 1987 and has been a Managing Director of Copley since January 1, 1988. He has been active in real estate for 27 years. From June, 1967, until December, 1981, he was employed by New England Mutual Life Insurance Company ("The New England"), most recently as a Vice President in which position he was responsible for The New England's real estate portfolio. He received a B.A. from Holy Cross College and an M.B.A. from Harvard Business School. Daniel J. Coughlin was a Principal of Copley from 1985 to 1987 and has been a Managing Director of Copley since January 1, 1988 and a Director of Copley since July 1994. Mr. Coughlin has been active in financial management and control for 21 years. From June, 1974 to December, 1981, he was a Real Estate Administration Officer in the Investment Real Estate Department at The New England. Since January, 1982, he has been in charge of the asset management division of Copley. Mr. Coughlin is a Certified Property Manager and a licensed real estate broker. He received a B.A. from Stonehill College and an M.B.A. from Boston University. Peter P. Twining is a Managing Director and General Counsel of Copley. As such, he is responsible for general legal oversight and policy with respect to Copley and its investment portfolios. Before being promoted to this position in January 1994, he was a Vice President/Principal and senior lawyer responsible for assisting in the oversight and management of Copley's legal operations. Before joining Copley in 1987, he was a senior member of the Law Department at The New England and was associated with the Boston law firm, Ropes and Gray. Mr. Twining is a graduate of Harvard College and received his J.D. in 1979 from Northeastern University. Wesley M. Gardiner, Jr. joined Copley in 1990 and has been a Vice President at Copley since January, 1994. From 1982 to 1990, he was employed by Metric Realty, a nationally-known real estate investment advisor and syndication firm, as a portfolio manager responsible for several public and private limited partnerships. His career at Copley has included asset management responsibility for the company's Georgia and Texas holdings. Presently, as a Vice President and Team Leader, Mr. Gardiner has overall responsibility for all the partnerships advised by Copley whose securities are registered under the Securities and Exchange Act of 1934. He received a B.A. in Economics from the University of California at San Diego. Daniel C. Mackowiak has been a Vice President of Copley since January 1989 and has been a Vice President and the Principal Financial and Accounting Officer of the Managing General Partner since January 1996. Mr. Mackowiak previously held the offices of Chief Accounting Officer of Copley from January 1989 through April 1994 and Vice President and Principal Financial and Accounting Officer of the Managing General Partner between January 1989 and May 1994. From 1975 until joining Copley, he was employed by the public accounting firm of Price Waterhouse, most recently as a Senior Audit Manager. He is a certified public accountant and has been active in the field of accounting his entire business career. He received a B.S. from Nichols College and an M.B.A. from Cornell University. Mr. O'Connor is a director of Copley Properties, Inc., a Delaware corporation organized as a real estate investment trust which is listed for trading on the American Stock Exchange. None of the other directors of the Managing General Partner is a director of a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. All of the directors and officers of the Managing General Partner also serve as directors and officers of one or more corporations which serve as general partners of publicly-traded real estate limited partnerships which are affiliated with the Managing General Partner. (f) Involvement in Certain Legal Proceedings. ---------------------------------------- None. Item 11. Executive Compensation. ---------------------- Under the Partnership Agreement, the General Partners and their affiliates are entitled to receive various fees, commissions, cash distributions, allocations of taxable income or loss and expense reimbursements from the Partnership. See Note 1, Note 2 and Note 6 of Notes to Financial Statements. The following table sets forth the amounts of the fees and cash distributions and reimbursements for out-of-pocket expenses which the Partnership paid to or accrued for the account of the General Partners and their affiliates for the year ended December 31, 1995. Cash distributions to General Partners include amounts distributed after year end with respect to 1995.
Amount of Compensation and Receiving Entity Type of Compensation Reimbursement - ---------------- -------------------- ------------- General Partners Share of Distributable Cash $ 41,174 Copley Real Estate Advisors, Inc. Management Fees and 427,298 Reimbursement of Expenses New England Securities Corporation Servicing Fees plus out-of- 16,774 pocket reimbursements --------- TOTAL $ 485,246 =========
For the year ended December 31, 1995 the Partnership allocated $31,706 taxable income to the General Partners. Item 12. Security Ownership of Certain Beneficial Owners and Management. -------------------------------------------------------------- (a) Security Ownership of Certain Beneficial Owners. ----------------------------------------------- No person or group is known by the Partnership to be the beneficial owner of more than 5% of the outstanding Units at December 31, 1995. Under the Partnership Agreement, the voting rights of the Limited Partners are limited and, in some circumstances, are subject to the prior receipt of certain opinions of counsel or judicial decisions. Except as expressly provided in the Partnership Agreement, the right to manage the business of the Partnership is vested exclusively in the Managing General Partner. (b) Security Ownership of Management. -------------------------------- The General Partners of the Partnership owned no Units at December 31, 1995. (c) Changes in Control. ------------------ There exists no arrangement known to the Partnership the operation of which may at a subsequent date result in a change in control of the Partnership. Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- The Partnership has no relationships or transactions to report other than as reported in Item 11, above. PART IV ------- Item 14. Exhibits, Financial Statements, and Reports on Form 8-K. ------------------------------------------------------- (a) The following documents are filed as part of this report: (1) Financial Statements--The Financial Statements listed on the accompanying Index to Financial Statements and Schedule are filed as part of this Annual Report. (2) Financial Statement Schedule - The Financial Statement Schedule listed on the accompanying Index to Financial Statements and Schedule are filed as part of this Annual Report. (3) Exhibits--The Exhibits listed in the accompanying Exhibit Index are filed as a part of this Annual Report and incorporated in this Annual Report as set forth in said Index. (b) Reports on Form 8-K. During the last quarter of the year ending December 31, 1995, the Partnership filed no Current Reports on Form 8-K. New England Pension Properties V; A Real Estate Limited Partnership Financial Statements * * * * * * * * December 31, 1995 NEW ENGLAND PENSION PROPERTIES V; --------------------------------- A REAL ESTATE LIMITED PARTNERSHIP --------------------------------- INDEX TO FINANCIAL STATEMENTS AND SCHEDULE ------------------------------------------
Page Report of Independent Accountants ................................................................ Financial Statements: Balance Sheet - December 31, 1995 and 1994 ............................................ Statement of Operations - Years ended December 31, 1995, 1994 and 1993 .......................................................................... Statement of Changes in Partners' Capital (Deficit) - Years ended December 31, 1995, 1994 and 1993 .................................................. Statement of Cash Flows - Years ended December 31, 1995, 1994 and 1993 .......................................................................... Notes to Financial Statements ......................................................... Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation at December 31, 1995 .................................................................
Report of Independent Accountants --------------------------------- To the Partners New England Pension Properties V; A Real Estate Limited Partnership In our opinion, based upon our audits and the reports of other auditors, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of New England Pension Properties V; A Real Estate Limited Partnership (the "Partnership") at December 31, 1995 and 1994, and the results of its operation and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Fifth Copley Corp., the Managing General Partner of the Partnership; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Partnership's investments in Santa Rita Plaza, Palms Business Center III and IV, and Dahlia for the years ended December 31, 1995, 1994 and 1993. Operating income for these investments aggregated $1,594,233 for the year ended December 31, 1995, and equity in joint venture income aggregated $2,200,515 and $2,014,952 for the years ended December 31, 1994 and 1993. We also did not audit the financial statements of the Partnership's investment in Puente Street for the year ended December 31, 1995. Operating income for this investment totalled $784,895 for the year ended December 31, 1995. We also did not audit the financial statements of the Partnership's Columbia Gateway Corporate Park joint venture investee for the year ended December 31, 1995, which results of operations are recorded using the equity method of accounting in the Partnership's financial statements. Equity in joint venture income for this venture was $371,986 for the year ended December 31, 1995. We also did not audit the financial statements of the Partnership's Lakewood joint venture investee for the year ended December 31, 1993, which results of operations are recorded using the equity method of accounting in the Partnership's financial statements. Equity in joint venture income for this venture was $274,968 for the year ended December 31, 1993. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for operating income and equity in joint venture income for Santa Rita Plaza, Palms Business Center III and IV, and Dahlia for the years ended December 31, 1995, 1994 and 1993, for Puente Street for the year ended December 31, 1995, and for Lakewood for the year ended December 31, 1993, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the Managing General Partner, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors for the years ended December 31, 1995, 1994 and 1993 provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP - ------------------------- Price Waterhouse LLP Boston, Massachusetts March 11, 1996 NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP BALANCE SHEET
December 31, ----------------------------------------- 1995 1994 ---------------- ---------------- Assets Real estate investments: Property, net $ 37,058,053 $ 9,861,784 Joint ventures 11,821,773 40,779,263 ---------------- ---------------- 48,879,826 50,641,047 Cash and cash equivalents 3,790,598 8,975,244 Short-term investments 7,864,807 4,913,784 --------------- ---------------- $ 60,535,231 $ 64,530,075 =============== ================ Liabilities and Partners' Capital Accounts payable $ 120,505 $ 116,660 Accrued management fees 50,008 39,295 Deferred management and disposition fees 368,161 347,978 --------------- ---------------- Total liabilities 538,674 503,933 --------------- ---------------- Commitments to fund real estate investments Partners' capital (deficit): Limited partners ($924 and $952 per unit, respectively; 160,000 units authorized, 82,536 and 82,613 issued and outstanding, respectively) 60,073,461 64,086,525 General partners (76,904) (60,383) --------------- --------------- Total partners' capital 59,996,557 64,026,142 --------------- ---------------- $ 60,535,231 $ 64,530,075 =============== ================
(See accompanying notes to financial statements) NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP STATEMENT OF OPERATIONS
Year ended December 31, -------------------------------------------------------------- 1995 1994 1993 -------------- -------------- -------------- Investment Activity Property rentals $ 3,400,015 $ 937,006 $ 161,378 Interest income on loan to ground lessor 63,455 -- -- Property operating expenses (839,565) (315,857) (332,190) Ground rent expense (162,500) -- -- Depreciation and amortization (937,015) (410,119) (300,625) -------------- -------------- -------------- 1,524,390 211,030 (471,437) Joint venture earnings 1,304,550 2,796,085 2,626,535 Investment valuation allowances (600,000) (1,400,000) (2,000,000) -------------- -------------- -------------- Total real estate operations 2,228,940 1,607,115 155,098 Gain on sales of property by joint ventures 6,209 1,790,470 -- -------------- -------------- -------------- Total real estate activity 2,235,149 3,397,585 155,098 Interest on cash equivalents and short-term investments 747,857 573,182 403,059 -------------- -------------- -------------- Total investment activity 2,983,006 3,970,767 558,157 -------------- -------------- -------------- Portfolio Expenses Management fee 407,217 325,746 268,615 General and administrative 327,074 269,615 239,162 -------------- -------------- -------------- 734,291 595,361 507,777 -------------- -------------- -------------- Net Income $ 2,248,715 $ 3,375,406 $ 50,380 ============== ============== ============== Net income per weighted average limited partnership unit $ 26.96 $ 40.42 $ .60 ============== ============== ============== Cash distributions per limited partnership unit outstanding for the entire year $ 74.75 $ 87.92 $ 28.75 ============== ============== ============== Weighted average number of limited partnership units outstanding during the year 82,582 82,675 82,735 ============== ============== ==============
(See accompanying notes to financial statements) NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
Year ended December 31, ----------------------------------------------------------------------------------------------------- 1995 1994 1993 ---------------------------- ---------------------------- ----------------------------- General Limited General Limited General Limited Partners Partners Partners Partners Partners Partners -------- -------- -------- -------- -------- -------- Balance at beginning of year $(60,383) $ 64,086,525 $(60,791) $ 68,092,152 $(37,266) $ 70,476,074 Repurchase of limited partnership units -- (64,360) -- (77,384) -- (54,944) Cash distributions (39,008) (6,174,932) (33,346) (7,269,895) (24,029) (2,378,854) Net income 22,487 2,226,228 33,754 3,341,652 504 49,876 -------- ------------ -------- ------------ -------- ------------ Balance at end of year $(76,904) $ 60,073,461 $(60,383) $ 64,086,525 $(60,791) $ 68,092,152 ======== ============ ======== ============ ======== ============
(See accompanying notes to financial statements) NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS
Year ended December 31, ----------------------------------------------------------- 1995 1994 1993 ----------- ------------ ----------- Cash flows from operating activities: Net income $ 2,248,715 $ 3,375,406 $ 50,380 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 937,015 410,119 300,625 Gain on sales of property by joint ventures (6,209) (1,790,470) -- Investment valuation allowances 600,000 1,400,000 2,000,000 Increase in deferred lease commissions (85,768) (649,813) (395,376) Equity in joint venture earnings (1,304,550) (2,796,085) (2,626,535) Cash distributions from joint ventures 1,850,619 3,930,364 1,933,568 Decrease (increase) in investment income receivable 16,323 44,546 (66,835) Decrease (increase) in property working capital 447,121 (359,316) 434,318 Payment of deferred management fee (183,426) (1,259,988) -- Increase in operating liabilities 218,167 182,043 115,970 ----------- ------------ ----------- Net cash provided by operating activities 4,738,007 2,486,806 1,746,115 ----------- ------------ ----------- Cash flows from investing activities: Return of capital from joint venture 1,305,765 -- 195,000 Net proceeds from sale of investments 6,209 7,749,728 -- Deferred disposition fees -- 267,715 -- Investment in joint ventures (138,242) (790,209) (318,206) Investments in property (100,739) (292,614) (484,578) Loan to ground lessor (1,750,000) -- -- Decrease (increase) in short-term investments, net (2,967,346) 3,691,279 (1,888,745) ----------- ------------ ----------- Net cash provided by (used in) investing activities (3,644,353) 10,625,899 (2,496,529) ----------- ------------ ----------- Cash flows from financing activities: Distributions to partners (6,213,940) (7,303,241) (2,402,883) Repurchase of limited partnership units (64,360) (77,384) (54,944) ----------- ------------ ----------- Net cash used in financing activities (6,278,300) (7,380,625) (2,457,827) ----------- ------------ ----------- Net increase (decrease) in cash and cash equivalents (5,184,646) 5,732,080 (3,208,241) Cash and cash equivalents: Beginning of year 8,975,244 3,243,164 6,451,405 ----------- ------------ ----------- End of year $ 3,790,598 $ 8,975,244 $ 3,243,164 =========== ============ ===========
Non-cash transactions: Three of the Partnership's joint venture investments were converted to wholly-owned properties in 1995. The carrying value of these investments at their respective conversion dates totalled $27,938,099. (See accompanying notes to financial statements) NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and Business - ---------------------------------- General New England Pension Properties V; A Real Estate Limited Partnership (the "Partnership") is a Massachusetts limited partnership organized for the purpose of investing primarily in to-be-developed, newly constructed and existing income-producing real properties. It primarily serves as an investment for qualified pension and profit sharing plans and other entities intended to be exempt from federal income tax. The Partnership commenced operations in May 1987, and acquired the seven real estate investments it currently owns prior to the end of 1989. It intends to dispose of its investments within twelve years of their acquisition, and then liquidate. The Managing General Partner of the Partnership is Fifth Copley Corp., a wholly-owned subsidiary of Copley Real Estate Advisors, Inc. ("Copley"). The associate general partner is ECOP Associates Limited Partnership, a Massachusetts limited partnership, the general partners of which are managing directors of Copley and/or officers of the Managing General Partner. Subject to the Managing General Partner's overall authority, the business of the Partnership is managed by Copley pursuant to an advisory contract. Copley is an indirect wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"), a publicly traded limited partnership. New England Mutual Life Insurance Company ("The New England"), the parent of NEIC's predecessor, is NEIC'S principal unitholder. In August 1995, The New England announced an agreement to merge (the "Merger") with Metropolitan Life Insurance Company ("Metropolitan Life"), with Metropolitan Life to be the surviving entity. This merger, which is subject to various policyholder and regulatory approvals, is expected to take place in the first half of 1996. Metropolitan Life is the second largest life insurance company in the United States in terms of total assets, having assets of over $130 billion (and adjusted capital of over $8 billion) as of June 30, 1995 . The Partnership maintains a repurchase fund for the purpose of repurchasing limited partnership units. Two percent of cash flow, as defined, is designated for this fund which had a balance of $32,572 and $4,447 at December 31, 1995 and 1994, respectively. Through December 31, 1995 and 1994, the Partnership had repurchased and retired 755 units and 678 units, respectively. Management Copley, as advisor, is entitled to receive stipulated fees from the Partnership in consideration of services performed in connection with the management of the Partnership and the acquisition and disposition of Partnership investments in real property. Partnership management fees are 9% of distributable cash flow from operations, as defined, before deducting such fees. Payment of 50% of management fees is deferred until cash distributions to limited partners exceed a specified rate or until payable from sales proceeds. Copley is also reimbursed for expenses incurred in connection with administering the Partnership ($20,081 in 1995, $15,322 in 1994, and $8,696 in 1993). Acquisition fees were based on 2% of gross proceeds from the offering. Disposition fees are generally 3% of the selling price of property, but are subject to the prior receipt by the limited partners of their capital contributions plus a stipulated return thereon. Deferred disposition fees were $267,715 at December 31, 1995 and 1994. New England Securities Corporation, a direct subsidiary of The New England, is engaged by the Partnership to act as its unit holder servicing agent. Fees and out-of pocket expenses for such services totaled $16,774, $26,717, and $19,122 in 1995, 1994 and 1993, respectively. Note 2 - Summary of Significant Accounting Policies - --------------------------------------------------- Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the Managing General Partner to make estimates affecting the reported amounts of assets and liabilities, and of revenues and expenses. In the Partnership's business, certain estimates require an assessment of factors not within management's control, such as the ability of tenants to perform under long-term leases and the ability of the properties to sustain their occupancies in changing markets. Actual results, therefore, could differ from those estimates. Real Estate Joint Ventures Investments in joint ventures, including loans made to venture partners, which are in substance real estate investments, are stated at cost plus (minus) equity in undistributed joint venture income (losses). Allocations of joint venture income (losses) were made to the Partnership's venture partners as long as they had substantial economic equity in the project. Economic equity is measured by the excess of the appraised value of the property over the Partnership's total cash investment plus accrued preferential returns and interest thereon. Currently, the Partnership records an amount equal to 100% of the operating results of each joint venture, after the elimination of all inter-entity transactions, except for the one venture jointly owned by an affiliate of the Partnership which has substantial economic equity in the project. Property Property includes land and buildings and improvements, which are stated at cost, less accumulated depreciation, and other operating net assets (liabilities). The initial carrying value of a property previously owned by a joint venture equals the Partnership's carrying value of the predecessor investment on the conversion date. Tenant leases at the properties provide for rental increases over the respective lease terms. Rental revenue is being recognized on a straight-line basis over the lease terms. Capitalized Costs Maintenance and repair costs are expensed as incurred. Significant improvements and renewals are capitalized. Depreciation is computed using the straight-line method based on estimated useful lives of the buildings and improvements. Leasing costs are also capitalized and amortized over the related lease terms. Acquisition fees have been capitalized as part of the cost of real estate investments. Amounts not related to land are amortized using the straight-line method over the estimated useful lives of the underlying property. Realizability of Real Estate Investments The Partnership considers a real estate investment to be impaired when it determines the carrying value of the investment is not recoverable through undiscounted cash flows generated from the operations and disposition of property. Effective January 1, 1995, with its adoption of Statement of Financial Accounting Standards No. 121 (SFAS 121) entitled, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Partnership measures the impairment loss based on the excess of the investment's carrying value over its estimated fair market value. For investments being held for sale, the impairment loss is measured based on the excess of the investment's carrying value over its estimated fair market value less estimated costs of sale. Property held for sale is not depreciated during the holding period. The Waters Landing II investment was reduced to its estimated fair market value less the cost of sale during 1995. (See Note 3.) Prior to the adoption of SFAS 121, the impairment loss was measured based on the excess of the investment's carrying value over its net realizable value. During 1993, the Managing General Partner determined that the carrying value of the Puente Street and Columbia Gateway Corporate Park investments should be reduced to their respective estimated net realizable values. During 1994, the Managing General Partner further reduced the carrying value of the Puente Street investment. (See Notes 3 and 4.) The carrying value of an investment may be more or less than its current appraised value. At December 31, 1995 and 1994, the appraised values of certain investments exceeded their related carrying values by an aggregate of $4,900,000 and $2,200,000, respectively, and the appraised values of the remaining investments were less than their related carrying values by an aggregate of $2,400,000 and $2,900,000, respectively. The current appraised value of real estate investments has been estimated by the Managing General Partner, and is generally based on a combination of traditional appraisal approaches performed by the advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Cash Equivalents and Short-Term Investments Cash equivalents are stated at cost, plus accrued interest. The Partnership considers all highly liquid debt instruments purchased with a maturity of ninety days or less to be cash equivalents; otherwise, they are classified as short-term investments. The Partnership has the positive intent and ability to hold all short-term investments to maturity; therefore, short-term investments are carried at cost plus accrued interest which approximates market value. At December 31, 1995 and 1994, all investments were in commercial paper with less than seven months and four months, respectively, remaining to maturity. Deferred Disposition Fees Disposition fees due to Copley related to sales of investments are included in the determination of gains or losses resulting from such transactions. According to the terms of the advisory contract, payment of such fees has been deferred until the limited partners first receive their capital contributions, plus a stipulated return thereon. Income Taxes A partnership is not liable for income taxes and, therefore, no provision for income taxes is made in the financial statements of the Partnership. A proportionate share of the Partnership's income is reportable on each partner's tax return. Per Unit Computations Net income per unit is computed based on the weighted average number of units of limited partnership interest outstanding during the year. The actual per unit amount will vary by partner depending on the date of admission to, or withdrawal from, the Partnership. Note 3 - Real Estate Joint Ventures - ----------------------------------- The Partnership had invested in eight real estate joint ventures, each organized as general partnership with a real estate development/management firm. Two joint venture projects were sold in 1994, and three ventures were converted to wholly-owned investments in 1995. Joint venture investments are in either of two forms. In one form, the Partnership makes an equity contribution which is subject to preferential cash distributions at a specified rate and to priority distributions with respect to sale or refinancing transactions. In the second form of joint venture, the Partnership makes an equity contribution to the venture, subject to preferential returns, and also makes a loan to its venture partner which, in turn, contributes the proceeds to the venture. The loans bear interest at a specified rate, mature in full in ten years, and are secured by the venture partner's interest in the venture. These loans have been accounted for as a real estate investment due to the attendant risks of ownership. The joint venture agreements provide for the funding of cash flow deficits in proportion to ownership interests and for the dilution of ownership share in the event a venture partner does not contribute proportionately. The Partnership's venture partners are responsible for day-to-day development and operating activities, although overall authority and responsibility for the business is shared by the venturers. The respective real estate development/management firms or their affiliates also provide various services to the joint ventures for a fee. The following is a summary of cash invested in joint ventures, net of returns of capital and excluding acquisition fees:
December 31, Investment/ Rate of Ownership ---------------------------- Location Return/Interest Interest 1995 1994 - -------------- ----------------- ---------- ------------ ------------ Waters Landing II 10.5% 60% (E) $ 1,338,998 $ 1,328,053 Germantown, MD 10.5% (L) $ 892,665 $ 885,369 Dahlia Fontana, CA 10.0% 60% $ -- $ 7,081,593 University Business Park Phoenix, AZ 10.0% 60% $ 7,858,213 $ 7,738,212 Columbia Gateway Corporate Park Columbia, MD 10.5% 15.25% $ 5,517,497 $ 5,517,497 Palms Business Center III and IV Las Vegas, NV 11.0% 60% $ -- $ 10,979,963 Santa Rita Plaza Salinas, CA 10.5% 63% $ -- $ 10,753,645 (E) Equity (L) Loan
Waters Landing II On May 26, 1987, the Partnership entered into a joint venture with an affiliate of Oxford Development Corporation. The Partnership committed to make a maximum equity contribution of $4,682,400 and a loan to the venture partner of $3,121,600. The venture acquired land to develop an apartment complex. During the second quarter of 1995, the Managing General Partner determined that it was not in the best interest of the limited partners to develop the Waters Landing II site. Accordingly, the carrying value of this investment has been reduced to its estimated net fair market value with the recognition of an investment valuation allowance of $600,000. Dahlia On September 21, 1987, the Partnership entered into a joint venture agreement with an affiliate of Investment Building Group to construct and operate an industrial facility. The Partnership committed to make a maximum equity contribution of $7,250,000, of which $7,081,593 was funded as of December 31, 1995. Effective September 1, 1995, this investment was converted to a wholly-owned property for financial reporting purposes, pursuant to an amendment to the joint venture agreement granting the Partnership control over management decisions. (See Note 4.) University Business Park On September 30, 1987, the Partnership entered into a joint venture agreement with an affiliate of The Hewson Company to construct and operate five multi-tenant industrial buildings. The Partnership committed to make a maximum equity contribution of $9,450,000. Subsequent to December 31, 1995, and effective January 1, 1996, the joint venture was dissolved and the venture partner's ownership interest was assigned to the Partnership. The minimum future rental payments to the venture under non-cancelable operating leases are: $653,000 in 1996; $596,000 in 1997; $508,000 in 1998; $434,000 in 1999; and $203,000 in 2000. Columbia Gateway Corporate Park On December 21, 1987, the Partnership entered into a joint venture agreement with an affiliate of the Partnership and an affiliate of Manekin Corporation to construct and operate seven research and development /office buildings, of which six have been constructed to date. The Partnership committed to make a $6,402,000 equity contribution to the joint venture. The Partnership and its affiliate collectively have a 50% ownership interest in the joint venture. The minimum future rental payments to the venture under non-cancelable operating leases are: $1,316,589 in 1996; $1,176,845 in 1997; $1,116,297 in 1998; $1,038,834 in 1999; $411,261 in 2000, and $1,507,959 thereafter. At December 31, 1993, the Managing General Partner had determined that the carrying value of this investment would not be recovered through estimated undiscounted future cash flows. Accordingly, the carrying value was reduced by $500,000 to estimated net realizable value. Palms Business Center III and IV On March 7, 1988, the Partnership entered into a joint venture with an affiliate of B.H. Miller Companies to construct and operate thirteen commercial buildings. Effective January 1, 1995, the venture partner's ownership interest was assigned to the Partnership. (See Note 4.) Santa Rita Plaza On February 1, 1989, the Partnership entered into a joint venture with an affiliate of Rodde McNellis to acquire a ground leasehold interest and construct and operate a shopping center. The Partnership committed to make a maximum equity contribution of $11,350,000, of which $10,950,840 was funded as of December 31, 1995. Capital contributions of $6,500,000, and accrued preferential return related thereto, began amortizing over a 27-year period in February 1991, with a balloon payment due on February 1, 1999. The remaining $4,850,000 contribution together with any accrued preferential return balance is payable in full in 2004. Effective August 1, 1995 this investment was converted to a wholly-owned property for financial reporting purposes, pursuant to an admendment to the joint venture agreement granting the Partnership control over management decisions and increasing its ownership interest from 60% to 63%. (See Note 4.) Sale of C.S. Graham and Lakewood On June 30, 1987, the Partnership entered into a joint venture agreement with an affiliate of Connell Scott and Associates to own and operate a warehouse facility. The Partnership contributed a total of $3,185,246 to the venture. On June 17, 1994, the joint venture sold its property. The total sales price was $3,925,000. After closing costs, the Partnership received proceeds of $3,720,076 and recognized a gain of $409,982 ($4.91 per weighted average limited partnership unit). A disposition fee of $117,750 was accrued but not paid to the advisor. On August 12, 1988, the Partnership entered into a joint venture with an affiliate of the Partnership and with an affiliate of Evans Withycombe Company to construct and operate an apartment complex. The Partnership's total equity contribution was $ 3,167,615. On August 17, 1994, the joint venture sold its property to a real estate investment trust sponsored by Evans Withycombe. After closing costs, the payment of preferential returns to the Partnership, and the allocation to the venture partner, the Partnership received its share of the proceeds of $4,297,367 and recognized a gain of $1,380,488 ($16.53 per weighted average limited partnership unit). A disposition fee of $149,965 was accrued but not paid to the advisor. An additional $6,209 was received in 1995 in final settlement of the Lakewood sale. On September 15, 1994, the Partnership made a capital distribution of $3,968,640 ($48 per limited partnership unit) from the proceeds of the C.S. Graham and Lakewood sales. A second capital distribution of $2,313,164 ($28 per limited partnership unit) was made in July, 1995. A portion of the proceeds was used to pay previously accrued, but deferred, management fees due to the advisor ($183,426 in 1995 and $1,259,988 in 1994). Summarized Financial Information The following summarized financial information is presented in the aggregate for the joint ventures: Assets and Liabilities ----------------------
December 31, ----------------------------- 1995 1994 ----------- ----------- Assets Real property, at cost less accumulated depreciation of $4,019,677 and $6,358,984, respectively $22,312,780 $45,272,536 Other 484,715 3,525,687 ----------- ----------- 22,797,495 48,798,223 Liabilities 187,308 440,384 ----------- ----------- Net assets $22,610,187 $48,357,839 =========== ===========
Result of Operations --------------------
Year ended December 31, -------------------------------------------- 1995 1994 1993 ---------- ---------- ---------- Revenue Rental income $4,437,415 $8,058,767 $8,468,935 Other income 146,660 222,180 277,313 ---------- ---------- ---------- 4,584,075 8,280,947 8,746,248 ---------- ---------- ---------- Expenses Operating expenses 1,402,041 2,837,050 3,060,918 Depreciation and amortization 1,032,349 1,727,610 2,212,820 ---------- ---------- ---------- 2,434,390 4,564,660 5,273,738 ---------- ---------- ---------- Net Income $2,149,685 $3,716,287 $3,472,510 ========== ========== ==========
Liabilities and expenses exclude amounts owed and attributable to the Partnership and (with respect to two joint ventures) its affiliates on behalf of their various financing arrangements with the joint ventures. The C.S. Graham and Lakewood investments were sold on June 17, 1994 and August 17, 1994, respectively. The above amounts include their results of operations through the respective sale dates. The Palms Business Center, Santa Rita Plaza and Dahlia investments were converted to wholly-owned properties effective January 1, 1995, August 1, 1995, and September 1, 1995, respectively. The above amounts include their results of operations through their respective conversion dates. Note 4 - Property Palms Business Center III and IV Effective January 1, 1995, the Palms Business Center joint venture was restructured and the venture partner's ownership interest was assigned to the Partnership. Since that date, the investment is being accounted for as a wholly-owned property. The carrying value at conversion ($10,308,265) was allocated to land, building and improvements and other net operating assets. The buildings and improvements of Palms Business Center are being depreciated over 25 years, beginning January 1, 1995. The minimum future rental payments venture under non-cancelable operating leases are: $1,230,644 in 1996; $1,180,926 in 1997; $787,018 in 1998; $604,737 in 1999; $536,145 in 2000; and $24,810 thereafter. Santa Rita Plaza Effective August 1, 1995, the Santa Rita Plaza joint venture was restructured into a limited partnership, whereby the Partnership was granted control over management decisions. Accordingly, as of such date, the investment is being accounted for as a wholly-owned property. The carrying value of the joint venture investment at conversion ($10,216,659) was allocated to building and improvements, mortgage loan receivable from the ground lessor and other net operating assets. On this same date, the Partnership made a fifteen-year loan in the amount of $1,750,000 to the ground lessor, who used a portion of the proceeds to repay a loan from the Santa Rita venture which, in turn, paid approximately $1,300,000 to the Partnership as a partial return of its capital investment in the venture. The Partnership can require full payment of the loan after August 1, 2000. The ground lease requires an annual base payment of $390,000 per year through 2063, plus 11.55% of rents, as defined. The buildings and improvements of Santa Rita Plaza are being depreciated over 25 years beginning August 1, 1995. The loan to ground lessor bears interest at 8.75%, with payments to be made monthly based on a 15 year amortization schedule, and is secured by the ground lessor's interest in the Santa Rita Plaza land. The minimum future rental payments from tenants under non-cancelable operating leases are: $1,239,214 in 1996; $1,178,683 in 1997; $1,069,823 in 1998; $951,248 in 1999; $846,850 in 2000; and $3,991,114 thereafter. Dahlia Effective September 1, 1995, the Dahlia joint venture was restructured into a limited partnership, whereby the Partnership was granted control over management decisions. Accordingly, as of this date, the investment is being accounted for as a wholly-owned property. The carrying value at conversion ($7,413,175) was allocated to land, building and improvements, and other net operating assets. During 1993, the joint venture agreed to a settlement with a former tenant for past due rent. This settlement is secured by an attachment on 36 acres of land in Scottsdale, Arizona. The land is currently being marketed for sale pursuant to the settlement agreement. The buildings and improvements of Dahlia are being depreciated over 25 years beginning September 1, 1995. The minimum future rental payments due under non-cancelable operating leases are: $852,324 in 1996; $777,924 in 1997; $678,685 in 1998; $607,805 in 1999; $612,680 in 2000; and $1,610,370 thereafter. Puente Street On April 28, 1988, the Partnership entered into a joint venture with an affiliate of The Muller Company. Effective June 1, 1991, in accordance with the joint venture agreement, the Partnership assumed total ownership of this property due to the venture partner's inability to fund its proportionate share of operating deficits. The property includes an industrial building, together with a parking lot and storage area in Brea, California. The Managing General Partner determined that the carrying value of this investment exceeded its estimated net realizable value because of the effect of depressed market conditions on rental rates. Accordingly, the carrying value was reduced to its estimated net realizable value by $1,500,000 in 1993. Due to a further deterioration in market conditions, the carrying value was further reduced during the fourth quarter of 1994 by $1,400,000. The building and improvements at Puente Street are being depreciated over 30 years beginning June 1, 1991. The minimum future rentals under non-cancelable operating leases are: $717,487 in 1996; $799,044 in 1997; $816,300 in 1998; $707,683 in 1999; $644,220 in 2000; and $2,295,111 thereafter. The following is a summary of the Partnership's investment in property (four in 1995 and one in 1994):
December 31, -------------------------------------- 1995 1994 ------------ ----------- Land $ 7,548,949 $ 3,985,498 Buildings and improvements 30,323,985 8,910,665 Accumulated depreciation (1,596,044) (874,768) Investment valuation allowance (2,900,000) (2,900,000) Loan to ground lessor 1,726,003 -- Lease commissions and other assets, net 1,576,781 839,815 Accounts receivable 900,017 60,380 Accounts payable (521,638) (159,806) ------------ ----------- $ 37,058,053 $ 9,861,784 ============ ===========
Note 5 - Income Taxes - --------------------- The Partnership's income for federal income tax purposes differs from that reported in the accompanying statement of operations as follows:
Year ended December 31, ------------------------------------------------ 1995 1994 1993 ----------- ----------- ---------- Net income per financial statements $ 2,248,715 $ 3,375,406 $ 50,380 Timing differences: Joint venture earnings 1,532,140 329,584 644,139 Property rentals (1,844,941) (433,648) 572 Expenses 31,747 (1,107,117) 151,982 Depreciation and amortization 602,925 21 47,455 Investment valuation allowances 600,000 1,400,000 2,000,000 Gain on sale -- 483,030 -- ----------- ----------- ---------- Taxable income $ 3,170,586 $ 4,047,276 $2,894,528 =========== =========== ==========
Note 6 - Partners' Capital - -------------------------- Allocation of net income from operations and distributions of distributable cash from operations, as defined, are in the ratio of 99% to the limited partners and 1% to the general partners. Cash distributions are made quarterly. Net sale proceeds and financing proceeds are allocated first to limited partners to the extent of their contributed capital plus a stipulated return thereon, as defined, second to pay disposition fees, and then 85% to the limited partners and 15% to the general partners. The adjusted capital contribution per limited partnership unit was reduced from $1,000 to $952 in 1994, and further reduced to $924 in 1995, as a result of the return of capital from the sale of two investments. No capital distributions have been made to the general partners. Income from a sale is allocated in proportion to the distribution of related proceeds, provided that the general partners are allocated at least 1%. Income or losses from a sale, if there are no residual proceeds after the repayment of the related debt, will be allocated 99% to the limited partners and 1% to the general partners. Note 7 - Subsequent Event - ------------------------- Distributions of cash from operations relating to the quarter ended December 31, 1995 were made on January 25, 1996 in the aggregate amount of $1,011,274 ($12.13 per limited partnership unit). NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1995
Initial Cost to the Partnership ----------------------------------------------------------------------------- Lease Comm. Buildings & & Other Other Net Description Land Improvements Capital Costs Assets (Liabilities) - ----------------------------------------- ----------- ------------ ------------- -------------------- Brea, CA. - Puente Street (See Note A) $3,985,498 $ 8,542,701 $1,273,000 ($619) Las Vegas, NV. - Palms Business Center III and IV (See Note A) 2,195,482 7,783,981 115,493 213,309 Fontana, CA. - Dahlia (See Note A) 1,367,969 5,471,878 227,625 345,703 Salinas, CA. - Santa Rita Plaza (See Note A) 0 8,056,722 196,574 1,963,363 ----------------------------------------------------------------------------- Total Wholly-Owned Property $7,548,949 $29,855,282 $1,812,692 $2,521,756 ============================================================================= 60% interest in Waters Landing II joint venture. Owners of ----------------------------------------------------------------------------- land in Germantown, MD. 60% interest in University Business Park joint venture. Develop and operate warehouse/ ----------------------------------------------------------------------------- office bldgs. in Phoenix, AZ. 15.25% Interest in Columbia Gateway Corporate Park Partnership. Develop and operate ----------------------------------------------------------------------------- office/R & D bldgs. in Columbia, MD. ----------------------------------------------------------------------------- Total Joint Ventures ============================================================================= Costs Subsequent to Acquisition --------------------------------------------------------------------------------------- Write off of Buildings Write off of Lease Comm. Change in and Tenant & Other Write down Other Net Description Improvements Improvements Capital Costs of Property Assets (Liabilities) - ----------------------------------------- ------------ ------------ ------------- ------------ --------------------- Brea, CA. - Puente Street (See Note A) $776,766 ($409,228) ($1,273,000) ($2,900,000) $997,369 Las Vegas, NV. - Palms Business Center III and IV (See Note A) 48,665 0 0 0 (143,572) Fontana, CA. - Dahlia (See Note A) 0 0 0 0 (37,013) Salinas, CA. - Santa Rita Plaza (See Note A) 52,500 0 0 0 152,100 --------------------------------------------------------------------------------------- Total Wholly-Owned Property $877,931 ($409,228) ($1,273,000) ($2,900,000) $968,884 ======================================================================================= 60% interest in Waters Landing II joint venture. Owners of --------------------------------- See Note B ----------------------------------------- land in Germantown, MD. 60% interest in University Business Park joint venture. Develop and operate warehouse/ --------------------------------- See Note B ----------------------------------------- office bldgs. in Phoenix, AZ. 15.25% Interest in Columbia Gateway Corporate Park Partnership. Develop and operate --------------------------------- See Note B ----------------------------------------- office/R & D bldgs. in Columbia, MD. --------------------------------------------------------------------------------------- Total Joint Ventures ======================================================================================= Balance at end of year --------------------------------------------------------------------------------------- Accumulated Buildings & Other Depreciation Description Land Improvements Net Assets Total and Amortization - ----------------------------------------- ------------ ------------ ------------- ------------ --------------------- Brea, CA. - Puente Street (See Note A) $3,985,498 $6,010,239 $996,750 $10,992,487 ($1,267,937) Las Vegas, NV. - Palms Business Center III and IV (See Note A) 2,195,482 7,832,646 185,230 10,213,358 (395,448) Fontana, CA. - Dahlia (See Note A) 1,367,969 5,471,878 536,315 7,376,162 (42,908) Salinas, CA. - Santa Rita Plaza (See Note A) 0 8,109,222 2,312,037 10,421,259 (238,920) --------------------------------------------------------------------------------------- Total Wholly-Owned Property $7,548,949 $27,423,985 $4,030,332 $39,003,266 ($1,945,213) ======================================================================================= 60% interest in Waters Landing II joint venture. Owners of ----------------------------------------------- $1,491,742 N/A land in Germantown, MD. 60% interest in University Business Park joint venture. Develop and operate warehouse/ ----------------------------------------------- $5,630,581 N/A office bldgs. in Phoenix, AZ. 15.25% Interest in Columbia Gateway Corporate Park Partnership. Develop and operate ----------------------------------------------- $4,699,450 N/A office/R & D bldgs. in Columbia, MD. -------------------------------------------------------------- Total Joint Ventures $11,821,773 ============================================================== Date of Date Depreciable Description Construction Acquired Life - ----------------------------------------- ------------ ------------ ------------- Brea, CA. - Puente Street (See Note A) 1989 6/1/91 30 Years Las Vegas, NV. - Palms Business Center III and IV (See Note A) Lease-up 3/7/88 25 Years Fontana, CA. - Dahlia (See Note A) 1990 9/21/87 25 Years Salinas, CA. - Santa Rita Plaza (See Note A) 1990 2/1/89 25 years Total Wholly-Owned Property 60% interest in Waters Landing II joint venture. Owners of To be 5/26/87 Land land in Germantown, MD. Constructed 60% interest in University Business Park joint venture. Develop and operate warehouse/ 1991 9/30/87 30 Years office bldgs. in Phoenix, AZ. 15.25% Interest in Columbia Gateway Corporate Park Partnership. Develop and operate Phase I - 1990 12/21/87 50 Years office/R & D bldgs. in Columbia, MD. Phase II - Under Construction Total Joint Ventures
NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP ----------------------------------------- NOTE A TO SCHEDULE III
----------------------------------------------------------------------------------------------------- Balance Conversion to Additions to as of Wholly-Owned Lease Additions to Write Down Description 12/31/94 Property Commissions Property of Property - ---------------------------- ----------------------------------------------------------------------------------------------------- Brea, CA. - Puente Street $10,881,546 $0 ($4,933) ($426) $0 Las Vegas, NV. - Palms Business Center III and IV 0 10,308,265 90,701 48,665 0 Fontana, CA. - Dahlia 0 7,413,175 0 0 0 Salinas, CA. - Santa Rita Plaza 0 10,216,659 0 52,500 0 ----------------------------------------------------------------------------------------------------- Total Wholly-Owned Property $10,881,546 $27,938,099 $85,768 $100,739 $0 ===================================================================================================== ----------------------------------------------------------------------------------------------------- 12/31/94 1995 12/31/95 Change in Balance Accumulated Depreciation Accumulated Property Working as of Depreciation and and Amortization Depreciation and Description Capital 12/31/95 Amortization Expense Amortization - ---------------------------- ----------------------------------------------------------------------------------------------------- Brea, CA. - Puente Street $116,300 $10,992,487 $1,019,762 ($248,175) $1,267,937 Las Vegas, NV. - Palms Business Center III and IV (234,273) 10,213,358 0 (395,448) $395,448 Fontana, CA. - Dahlia (37,013) 7,376,162 0 (42,908) $42,908 Salinas, CA. - Santa Rita Plaza 152,100 10,421,259 0 (238,920) $238,920 ----------------------------------------------------------------------------------------------------- Total Wholly-Owned Property ($2,886) $39,003,266 $1,019,762 ($925,451) $1,945,213 =====================================================================================================
NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP ------------------------------------------ NOTE B TO SCHEDULE III
BALANCE CASH EQUITY IN 1995 AMORTIZATION PERCENT OF AS OF INVESTMENTS IN INCOME/ OF DEFERRED DESCRIPTION OWNERSHIP 12/31/94 JOINT VENTURES (LOSS) ACQUISITION FEES - ------------------------------------ ----------------- ------------ --------------- ------------- ----------------- Waters Landing II 60% $2,073,501 $18,241 $0 $0 Dahlia (3) 60% 7,542,262 0 517,485 (1,572) University Business Park 60% 5,802,686 120,001 89,582 (4,888) Columbia Gateway Corporate Park 15.25% 4,695,528 0 371,986 (2,064) Palms Business Center III and IV (1) 100% 10,308,265 0 0 0 Santa Rita Plaza (2) 63% 10,357,021 0 325,497 (3,040) ----------- -------- ---------- -------- $40,779,263 $138,242 $1,304,550 ($11,564) =========== ======== ========== ======== CASH DISTRIBUTED CONVERSION TO BALANCE FROM WRITE-DOWN WHOLLY-OWNED AS OF DESCRIPTION JOINT VENTURE OF PROPERTY PROPERTY 12/31/95 - ------------------------------------ ----------------- ------------ --------------- ------------- Waters Landing II $0 ($600,000) $0 $1,491,742 Dahlia (3) (645,000) 0 (7,413,175) 0 University Business Park (376,800) 0 0 5,630,581 Columbia Gateway Corporate Park (366,000) 0 0 4,699,450 Palms Business Center III and IV (1) 0 0 (10,308,265) 0 Santa Rita Plaza (2) (462,819) 0 (10,216,659) 0 ---------- --------- ------------ ----------- $(1,850,619) ($600,000) ($27,938,099) $11,821,773 =========== ========= ============ =========== (1) Effective January 1, 1995 converted to wholly-owned property. (2) Effective August 1, 1995 the Joint Venture was restructured into a Limited Partnership. (3) Effective September 1, 1995 the Joint Venture was restructured into a Limited Partnership.
SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP Date: March 11, 1996 By: /s/ Joseph W. O'Connor --- ---------------------- Joseph W. O'Connor President of the Managing General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date ---------- ----- ---- President, Principal Executive Officer and Director of the /s/ Joseph W. O'Connor Managing General Partner March 11, 1996 - ---------------------- --- Joseph W. O'Connor Principal Financial and Accounting Officer of the /s/ Daniel C. Mackowiak Managing General Partner March 11, 1996 - ----------------------- --- Daniel C. Machowiak Director of the /s/ Daniel J. Coughlin Managing General Partner March 11, 1996 - ---------------------- --- Daniel J. Coughlin Director of the /s/ Peter P. Twining Managing General Partner March 11, 1996 - -------------------- --- Peter P. Twining EXHIBIT INDEX ------------- Exhibit Page Number Exhibit Number - ------ ------- ------ 10A. Joint Venture Agreement of Waters Landing * Partners Two, dated as of May 26, 1987 between the Partnership and Waters Landing Two-Oxford Limited Partnership, a Maryland limited partnership ("Oxford"). 10B. Promissory Note dated May 26, 1987 from Oxford * to the Partnership in the original principal amount of $3,121,600. 10C. Joint Venture Interest Pledge and Security * Agreement, dated as of May 26, 1987, between the Partnership and Oxford. 10D. Joint Venture Agreement of Graham Road Joint * Venture, dated as of June 30, 1987, between the Partnership and Connell-Scott Ventures V. 10E. General Partnership Agreement of IBG Dahlia * Associates, dated as of September 21, 1987, between the Partnership and 20 Dahlia Partnership. 10F. General Partnership Agreement of Hewson University * Associates, dated as of September 30, 1987, between Hewson Properties, Inc. and the Partnership. 10G. General Partnership Agreement of Gateway 51 * Partnership, dated as of December 21, 1987, among M.O.R. Gateway 51 Associates Limited Partnership, the Partnership and New England Life Pension Properties IV; A Real Estate Limited Partnership. 10H. Ground Lease dated January 23, 1988 between * Nielson Properties, LTD., a California limited partnership ("Landlord"), and Rodde McNellis/Salinas, a California general partnership ("Tenant"). 10I. Leasehold Indenture dated February 12, 1988 by * Rodde McNellis/Salinas, Borrower, to Santa Clara Land Title Company, Trustee, for New England Pension Properties V, A Real Estate Limited Partnership ("NEPP V"), Beneficiary. - ---------- * Previously filed and incorporated herein by reference. EXHIBIT INDEX ------------- Exhibit Page Number Exhibit Number - ------ ------- ------ 10J. Promissory Note dated February 12, 1988 in * the principal amount of $1,800,000 by Rodde McNellis/Salinas to NEPP V. 10K. Pledge of Note and Security Agreement dated as * of February 12, 1988 by and between Rodde McNellis/Salinas and NEPP V. 10L. R/M Salinas Predevelopment Agreement dated * February 12, 1988 by and between NEPP V and Rodde McNellis/Salinas. 10M. Joint Venture Agreement of Rancho Road * Associates II dated as of March 7, 1988 by and between NEPP V and Commerce Centre Partners. 10N. Pledge and Security Agreement dated as of * March 7, 1988 by and between Commerce Centre Partners and NEPP V. 10O. General Partnership Agreement of Muller Brea * Associates dated as of April 29, 1988 between Tar Partners and the Registrant. 10P. Lakewood Associates General Partnership * Agreement dated August, 1988 between EW Lakewood Limited Partnership, Copley Pension Properties VI; A Real Estate Limited Partnership and Registrant. 10Q. First Amendment to Rancho Road Associates II Joint * Venture Agreement dated as of May 31, 1988 by and between the Registrant and Commerce Centre Partners. 10R. First Amendment to Pledge and Security Agreement * dated as of May 31, 1988 by and between the Registrant and Commerce Centre Partners. 10S. Joint Venture Agreement of R/M Salinas Venture dated * as of February 1, 1989 by and between New England Pension Properties V; A Real Estate Limited Partnership and Rodde McNellis/Salinas. - ---------- * Previously filed and incorporated herein by reference. EXHIBIT INDEX ------------- Exhibit Page Number Exhibit Number - ------ ------- ------ 10T. First Amendment to Joint Venture Agreement of R/M * Salinas Venture dated as of February 1, 1989 by and between New England Pension Properties V; A Real Estate Limited Partnership and Rodde McNellis/Salinas. 10U. Amended and Restated General Partnership Agreement * of Gateway 51 Partnership dated as of April 20, 1989 between M.O.R. Gateway 51 Associates Limited Partnership, New England Life Pension Properties IV; a Real Estate Limited Partnership and New England Pension Properties V; a Real Estate Limited Partnership. 10V. Second Amendment to Pledge and Security * Agreement dated as of June 20, 1990 by and between Commerce Centre Partners, a California general partnership and Registrant. 10W. Second Amendment to Rancho Road Associates * II Joint Venture Agreement dated as of June 20, 1990 by and between Registrant and Commerce Centre Partners. 10X. Second Amendment to Joint Venture Agreement of * R/M Salinas Venture dated as of July 20, 1990 by and between the Registrant and Rodde McNellis/ Salinas. 10Y. Agreement for Dissolution, Distribution and * Winding-up of Muller Brea Associates dated May 31, 1991 by and between TAR Partners, a California partnership, and the Registrant. 10Z. Property Management Agreement effective as of * May 31, 1991 by and between TAR Partners, a California general partnership, and the Registrant. 10AA. Asset Contribution Agreement by and among Evans Withycombe Residential, Inc., a Maryland Corporation, * and Evans Withycombe Residential, L.P., a Delaware limited partnership, as Purchasers and Lakewood Associates, an Arizona limited Partnership composed of Registrant, Copley Pension Properties VI and EW Lakewood L.P., as Sellers dated June 9, 1994. 10BB. Purchase and Sale Agreement between Graham Road * Joint Venture and Prentiss Properties Atlanta Industrial Properties, L.P., dated June 17, 1994. 10CC. $1,750,000 note secured by Deed of Trust between the Partnership, as Lender, and Nielsen Properties, Ltd, as Borrower dated August 1, 1995. 10DD. Third Amendment to Agreement of Lease dated August 1, 1995 by and between Nielsen Properties, Ltd., a California limited partnership, R/M Salinas Venture, a California general partnership, and R/M Salinas, L.P., a California limited partnership. 10EE. R/M Salinas L.P. Limited Partnership Agreement dated August 1, 1995 between Rodde McNellis/Salinas, a California general partnership and Registrant. 10FF. Limited Partnership Agreement of IBG Dahlia Associates dated September 1, 1995 between Registrant and 20 Dahlia Partnership, a California limited partnership. - ---------- * Previously filed and incorporated herein by reference. EX-10.CC 2 $1,750,000 NOTE SECURED $1,750,000 note secured by Deed of Trust between the Partnership, as Lender, and Nielsen Properties, Ltd, as Borrower dated August 1, 1995. NOTE SECURED BY DEED OF TRUST $1,750,000 Salinas, California August 1, 1995 The undersigned, Nielsen Properties Ltd. ("Nielsen"), hereby promises to pay to New England Pension Properties V; A Real Estate Limited Partnership, a Massachusetts limited partnership ("NEPP"), or order at 399 Boylston Street, Boston, Massachusetts 02116, the sum of One Million, Seven Hundred Fifty Thousand Dollars ($1,750,000) (the "Principal Sum"), with interest on the unpaid principal amount outstanding from time to time, at the rate of eight and three-quarters percent (8.75%) per annum. Principal and interest shall be payable on the first day of each month, commencing September 1, 1995, in one hundred eighty (180) equal installments of $17,490.35 (i.e., a 15-year fully amortizing term) (the "Monthly Installments"). All principal and interest due hereunder shall be due and payable in full on August 1, 2010 (the "Maturity Date"). Notwithstanding the foregoing, the holder of this Note may at any time, on or after August 1, 2000, give notice to Nielsen of acceleration of this Note (the "Lender Call"), in which event all principal and accrued interest shall be due and payable on the date specified by the holder in such notice, provided that such date for payment shall be not less than 365 days following the date on which the notice is given. This Note may not be assigned or otherwise transferred by Nielsen or assumed by any party without the prior written consent of the holder of this Note, which consent may be withheld in such holder's sole discretion without any requirement of such holder to be reasonable. Any purported transfer in violation of this provision shall constitute a default hereunder and shall cause the whole sum of principal and interest hereunder to become immediately due at the option of the holder of this Note. This Note is prepayable in whole only and not in part. Nielsen acknowledges that prepayment of this Note shall result in the holder's incurring additional costs and expenses and that it is extremely difficult and impractical to ascertain the extent of such costs and expenses. Therefore, if Nielsen elects to pay this Note prior to August 1, 2000, then on the date of payment, Nielsen will pay the holder (in addition to all other sums then owing to the holder) an amount (the "Prepayment Premium") equal to the greater of (I) one percent (1%) of the outstanding principal balance of this Note or (II) (a) the present value, computed as of the date of prepayment, at the yield on the 10% United States Treasury Bond maturing May 5, 2010 as most recently reported in The Wall Street Journal (or if ----------------------- the same is not then published, another similar journal selected by Lender) as of the date of repayment, of 1. the Monthly Installments from the date of prepayment to, but not ------- including, the Maturity Date (computed on a monthly basis); --------- plus ---- 2. the amount of interest and principal due on the Maturity Date pursuant to the terms of this Note (assuming all Monthly Installments due prior to the Maturity Date were made when due (computed on a monthly basis) LESS - ---- (b) the amount prepaid PLUS - ---- (c) the amount, as reasonably estimated by the holder, of the holder's out-of-pocket reasonable costs and expenses in reinvesting the amount prepaid (i.e., the sums determined under (a) and (b) above), including, without limitation, transaction and processing fees and costs, legal fees and brokerage expenses and the holder's expenses incurred in terminating any servicing agreement related to the loan. Notwithstanding the foregoing, Nielsen shall not be required to pay the Prepayment Premium if Nielsen pays this Note prior to the Maturity Date pursuant to a Lender's Call. If any payment is not made within ten (10) days of the date due, Nielsen agrees to pay a late charge equal to five percent (5%) of the delinquent payment(s). Nielsen hereby expressly agrees that, so long as NEPP is the holder of this Note, R/M Salinas, L.P., a California limited partnership ("R/M") shall offset against the rent due Nielsen under that certain lease dated January 23, 1988, by and between Nielsen, as Landlord, and R/M as successor in interest to R/M Salinas Venture, as Tenant, for that certain land underlying that certain shopping center known as the Santa Rita Plaza, 1934 N. Main Street, Salinas, California (the "Ground Lease") the loan payments due NEPP hereunder as and when such payments would be otherwise payable hereunder in lieu of requiring Nielsen to make such loan payments to NEPP. -2- Should default be made in payment of principal or interest when due, the whole sum of principal and interest shall become immediately due at the option of the holder of this Note. Principal and interest shall be payable in lawful money of the Unites States. If action be instituted on this Note, the undersigned promises to pay such sum as the court may fix as attorneys' fees. This Note is secured by a Deed of Trust of even date encumbering certain real property owned by Nielsen. The holder agrees that neither Nielsen nor the partners of Nielsen shall have any personal liability for the repayment of the indebtedness evidenced hereby and that the holder shall look solely to the assets subject to said Deed of Trust for the repayment of such indebtedness; provided, however, that nothing herein shall be deemed to constitute a waiver or impairment of such indebtedness. Nielsen and any endorsers or guarantors hereof and all others who may become liable for all or any part of this obligation, severally waive presentment for payment, demand and protest and notice of protest, and of dishonor and nonpayment of this Note, and expressly consent to any extension of the time of payment hereof or of any installment hereof, to the release of any party liable for this obligation, and any such extension or release may be made without notice to any of said parties and without in any way affecting or discharging this liability. Nielsen acknowledges that this loan was arranged by R/M Management Company, a licensed California real estate broker, within the meaning of California Constitution, Article XV, and that said loan is, therefore, exempt from any interest rate limitation imposed by California law. NIELSEN PROPERTIES, LTD., a California Limited Partnership By:___________________________ General Partner -3- EX-10.DD 3 THIRD AMENDMENT TO AGREEMENT Third Amendment to Agreement of Lease dated August 1, 1995 by and between Nielsen Properties, Ltd., a California limited partnership, R/M Salinas Venture, a California general partnership, and R/M Salinas, L.P., a California limited partnership. THIRD AMENDMENT TO AGREEMENT OF LEASE This Third Amendment to Agreement of Lease ("Third Amendment") is made this 1st day of August, 1995, by and between NIELSEN PROPERTIES, LTD., a California limited partnership ("Landlord"), R/M SALINAS VENTURE, a California general partnership, and R/M SALINAS, L.P., a California limited partnership. RECITAL A. On January 23, 1988, Landlord and Tenant's predecessor in interest, Rodde McNellis/Salinas, entered into a certain Agreement of Lease ("Ground Lease") concerning the premises described on Exhibit "A" attached hereto and by this reference incorporated herein ("Demised Land"). All capitalized terms not otherwise defined herein have the meanings ascribed to them in the Ground Lease, as amended. B. On November 21, 1989, Landlord and R/M Salinas Venture amended the Ground Lease pursuant to a First Amendment to Agreement of Lease which provided for, among other things, an increase in the size of the Demised Land and a decrease in the Percentage Rent payable to Landlord. C. On February 11, 1991, Landlord and R/M Salinas Venture further amended the Ground Lease pursuant to a Second Amendment to Agreement of Lease which provided for, among other things, the Second Loan, an option in favor of Tenant to acquire a fifty percent interest in the Demised Land (the "Option"), a further reduction of Percentage Rent and a postponement of the date on which Percentage Rent would first become payable. NOW, THEREFORE, the parties agree as follows: 1. Recitals. The foregoing recitals are true and correct. -------- 2. Assignment of Lease. R/M Salinas Venture hereby assigns to R/M ------------------- Salinas, L.P., and R/M Salinas, L.P. hereby assumes, all of the right, title and interest of R/M Salinas Venture in and to the Ground Lease, as amended. Landlord hereby consents to such assignment. 3. Offset of Rent. Notwithstanding any provision to the contrary under -------------- the Ground Lease, as amended, Landlord hereby expressly agrees that, so long as New England Pension Properties V; A Real Estate Limited Partnership is the holder of that certain promissory note in the original principal amount of $1,750,000, dated as of the date hereof and secured by Landlord's interest in the Demised Land (the "Note"), Tenant shall deduct from the rent due under the Ground Lease, as amended, the loan payments due under the Note, as and when such payments would be due and payable under the Note, and any amounts so deducted shall be deemed to have been timely paid to the Landlord. 4. Percentage Rent. The parties agree that the "Initial Gross Rent Level" --------------- (as described in Section 3.01(b)(ii) of the Ground Lease) is the sum of $1,400,000. The parties further agree that Percentage Rent, if any, shall commence to accrue as of January 1, 1996, in an amount equal to eleven and fifty-five hundredths percent (11.55%) of annual Gross Rents in excess of said $1,400,000 for the remaining term of the Lease. 5. Option. The parties acknowledge that the Option has expired and is of ------ no further force or effect. 6. Modifications. Except as herein amended, the Ground Lease remains ------------- unmodified and in full force and effect. WHEREFORE, the parties have executed this Third Amendment to Lease as of the date first above written. LANDLORD: TENANT NIELSEN PROPERTIES, LTD. R/M SALINAS, L.P., a California a California limited limited partnership partnership By: NEW ENGLAND PENSION by: PROPERTIES V; A REAL ESTATE ------------------------------- LIMITED PARTNERSHIP, General Barbara Daggett, Partner general partner -2- By: FIFTH COPLEY CORP., a Massachusetts Corporation General Partner By: -------------------------------- By: -------------------------------- Donald S. Nielsen, general partner By: -------------------------------- Richard S. Nielsen, limited partner R/M SALINAS VENTURE, a California general partnership RODDE MCNELLIS SALINAS, a California general partnership, General Partner By: ---------------------------------- John E. McNellis, general partner By: ---------------------------------- Robert K. Rodde, general partner -3- NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP, Massachusetts limited partnership, General Partner By: FIFTH COPLEY CORP., a Massachusetts corporation, General Partner By: ---------------------------------- -4- EX-10.EE 4 R/M SALINAS L.P. LIMITED PARTNERSHIP R/M Salinas L.P. Limited Partnership Agreement dated August 1, 1995 between Rodde McNellis/Salinas, a California general partnership and Registrant. R/M SALINAS L.P. LIMITED PARTNERSHIP AGREEMENT LIMITED PARTNERSHIP AGREEMENT OF R/M SALINAS L.P. TABLE OF CONTENTS Page ---- ARTICLE 1 - THE PARTNERSHIP Section 1.1 Reconstitution ......................... 2 Section 1.2 Name ................................... 2 Section 1.3 Principal Executive Office ............. 3 Section 1.4 Purposes ............................... 3 Section 1.5 Purposes Limited ....................... 4 Section 1.6 No Payments of Individual Obligations ............................ 5 Section 1.7 Statutory Compliance ................... 5 Section 1.8 Title to Property ...................... 5 Section 1.9 Duration ............................... 5 ARTICLE 2 - THE PARTNERS Section 2.1 Identification ......................... 5 Section 2.2 [Intentionally Omitted.] ............... 5 Section 2.3 Competition ............................ 5 Section 2.4 Limits on Developer's Activities ....... 6 Section 2.5 Other Conflicts ........................ 6 Section 2.6 Reimbursement and Fees ................. 6 Section 2.7 Indemnification of NEPP by the Partnership ............................ 7 Section 2.8 Indemnification by NEPP ................ 7 Section 2.9 Limitation on Liability of Partners .... 8 Section 2.10 Payments to Developer and Affiliates ... 9 Section 2.11 Liability of Limited Partner ........... 9 ARTICLE 3 - CAPITAL Section 3.1 Capital Accounts and Adjusted Capital Accounts ............................... 9 Section 3.2 Capital Contributions .................. 11 Section 3.3 No Further Capital Contributions ....... 12 Section 3.4 Capital Contributions - General ........ 12 Section 3.5 Interests .............................. 12 ARTICLE 4 - LOANS ARTICLE 5 - CASH DISTRIBUTIONS Section 5.1 Definitions ............................ 13 Section 5.2 Senior Payments and Junior Payments .... 16 Section 5.3 Operating Cash Flow .................... 18 Section 5.4 Extraordinary Cash Flow ................ 20 Section 5.5 Distributions in Liquidation ........... 21 Section 5.6 Guaranteed Senior Invested Capital Payment Distribution ........... 21 Section 5.7 In-Kind Distribution ................... 22 ARTICLE 6 - OPERATING DEFICITS Section 6.1 Operating Deficits ..................... 22 Section 6.2 Default Contributions .................. 23 Section 6.3 Adjustment of Interests ................ 24 Section 6.4 Effect of Adjustment on Cash and Tax Allocations ........................ 24 Section 6.5 No Increase of Percentage Interest ..... 25 ARTICLE 7 - TAX ALLOCATIONS Section 7.1 Definition of Net Profit and Net Loss .. 25 Section 7.2 Allocation of Net Profit, Gross Income and Net Loss ........................... 26 Section 7.3 Tax Allocations; Code Section 704(c) ... 30 Section 7.4 Allocations Upon Transfer or Change of Interests .................... 31 -ii- ARTICLE 8 - ACCOUNTING AND RECORDS Section 8.1 Books and Records ...................... 31 Section 8.2 Reports ................................ 32 Section 8.3 Tax Returns ............................ 32 Section 8.4 Depreciation ........................... 33 Section 8.5 Special Basis Adjustment ............... 33 Section 8.6 Tax Matters Partner .................... 33 Section 8.7 Fiscal Year ............................ 33 Section 8.8 Bank Accounts .......................... 33 ARTICLE 9 - MANAGEMENT AND OPERATIONS Section 9.1 Management ............................. 34 Section 9.2 Standard of Care ....................... 36 Section 9.3 Insurance .............................. 37 ARTICLE 10 - REPRESENTATIONS AND WARRANTIES Section 10.1 Developer .............................. 37 Section 10.2 NEPP ................................... 39 Section 10.3 Brokers ................................ 40 ARTICLE 11 - TRANSFER OF INTERESTS Section 11.1 Restrictions on Transfer ............... 40 Section 11.2 Right of First Refusal ................. 41 Section 11.3 Permitted Transfers .................... 42 Section 11.4 General Transfer Provisions ............ 43 Section 11.5 Tax Allocations and Cash Distributions .......................... 43 Section 11.6 Compliance ............................. 44 Section 11.7 Waiver of Partition .................... 44 -iii- ARTICLE 12 - BUY/SELL Section 12.1 Buy/Sell Events ........................ 44 Section 12.2 Rights Arising from a Buy/Sell Event .................................. 45 Section 12.3 Determination of Fair Market Value .................................. 45 Section 12.4 Appraisal Fees ......................... 46 Section 12.5 Determination of Purchase Price ........ 46 Section 12.6 Electing Partner's Option .............. 47 Section 12.7 Closing of Purchase and Sale ........... 47 Section 12.8 Payment ................................ 47 Section 12.9 Liabilities ............................ 47 Section 12.10 Failure to Exercise Option ............. 48 ARTICLE 13 - EXIT RIGHTS ARTICLE 14 - TERMINATION OF THE PARTNERSHIP Section 14.1 Events of Dissolution .................. 48 Section 14.2 Effect of Dissolution .................. 49 Section 14.3 Sale of Assets by Liquidating Trustee .. 49 ARTICLE 15 - MISCELLANEOUS Section 15.1 Notices ................................ 50 Section 15.2 Successors and Assigns ................. 51 Section 15.3 No Oral Modifications; Amendments ...... 51 Section 15.4 Captions ............................... 51 Section 15.5 Terms .................................. 51 Section 15.6 Invalidity ............................. 51 Section 15.7 Counterparts ........................... 51 Section 15.8 Further Assurances ..................... 51 Section 15.9 Complete Agreement ..................... 51 Section 15.10 Attorneys' Fees ........................ 52 Section 15.11 Governing Law .......................... 52 Section 15.12 No Third Party Beneficiary ............. 52 Section 15.13 Exhibits and Glossary .................. 52 Section 15.14 Estoppels .............................. 52 Section 15.15 References to this Agreement ........... 52 Section 15.16 Reliance on Authority of Person Signing Agreement ...................... 52 -iv- Section 15.17 Consents and Approvals ................. 53 Section 15.18 Construction of Agreement .............. 53 EXHIBITS A Legal Description of Land B Property Management Agreement A Glossary of Defined Terms used in this Agreement is attached. -v- R/M SALINAS L.P. LIMITED PARTNERSHIP AGREEMENT THIS LIMITED PARTNERSHIP AGREEMENT ("Partnership Agreement" or "Agreement") of R/M Salinas L.P., a California limited partnership (the "Partnership"), is dated as of August 1, 1995, between Rodde McNellis/Salinas, a California general partnership ("Developer" or the "Limited Partner"), and New England Pension Properties V; A Real Estate Limited Partnership, a Massachusetts limited partnership ("NEPP" or the "General Partner"). Developer and NEPP are sometimes hereinafter referred to collectively as the "Partners" and individually as a "Partner." WHEREAS, R/M Salinas Venture (the "Original Partnership") was formed pursuant to that certain R/M Salinas Venture Joint Venture Agreement entered into by and between Developer and NEPP dated February 1, 1989, as amended by that First Amendment to Joint Venture Agreement of R/M Salinas Venture dated June 5, 1989, as amended by that Second Amendment to Joint Venture Agreement of R/M Salinas Venture dated July 20, 1990 (as so amended, the "Original Agreement"); WHEREAS, the Partners have agreed to convert the Original Partnership into a California limited partnership as of the date of filing, with the California Secretary of State, of a Certificate of Limited Partnership (Form LP-1) for the Partnership; and WHEREAS, the parties hereto now desire to amend and completely restate the Original Agreement in its entirety on the terms and conditions hereinafter set forth to provide for (i) the revised ownership Interests of the Partners; (ii) the conversion of the Original Partnership from a California general partnership into a California limited partnership; and (iii) such other changes to the Original Agreement as the Partners deem appropriate. NOW, THEREFORE, in consideration of the foregoing, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual agreements set forth in this Agreement and intending to be legally bound, the parties hereby agree to continue the Partnership as a California limited partnership in accordance with the California Revised Limited Partnership Act (the "Act") and do hereby agree as follows: ARTICLE I THE PARTNERSHIP --------------- Section 1.1 Reconstitution. The Partners hereby reconstitute the -------------- Original Partnership as a California limited partnership in accordance with the provisions of the Act. The Partners hereby make and execute this Agreement, effective as of the date first above written, so as to set forth the rights, duties, obligations and limitations on the liabilities of the Partners, including, without limitation, the rights of the Partners with respect to the assets and profits of the Partnership, which the Partners shall be entitled to receive by reason of being a general or limited partner of the Partnership. In furtherance of the foregoing provisions of this Section 1.1, the Partners hereby acknowledge that (i) the interest of Developer as a general partner in the Original Partnership is hereby converted into an interest as a limited partner in the Partnership, and (ii) Developer is hereby entitled to exercise all of the rights, powers, and privileges, which may hereafter exist with respect to a limited partner of the Partnership. Each of the Partners hereby consents to the conversion described above in this Section 1.1 and acknowledges that the Partnership shall not dissolve or terminate as a result of such conversion; on the contrary, the business of the Partnership shall continue without any interruption and without any break in continuity. Concurrently with the execution of this agreement, the General Partner shall execute one (1) or more copies of a Certificate of Limited Partnership for the Partnership pursuant to the provisions of Section 15621 of the California Corporations Code, which shall be duly filed in the Office of the California Secretary of State and certified copies of which may, in the sole discretion of the General Partner, be recorded in any county. Section 1.2 Name. The name of the Partnership is hereby changed to "R/M ---- Salinas L.P." or if that name is not available, any other name the General Partner may select that is in compliance with the Act. In furtherance of the foregoing name change, the Partners hereby authorize the General Partner to execute and deliver (with acknowledgment, verification, and/or affidavit, if required) any and all documents required to -2- effectuate such name change including, without limitation, a Cancellation of Statement of Partnership and Statement of Abandonment of Use of Fictitious Business Name for the Original Partnership. Section 1.3 Principal Executive Office. The principal executive office -------------------------- of the Partnership shall be located at 601 California Street, Suite 601, San Francisco, California 94108 or at such other place within or without the State of California as may be selected by NEPP. The Partnership shall at all times maintain an office in California for purposes of Section 15614 of the Act. Section 1.4 Purposes. The sole purposes of the Partnership shall be to -------- acquire, own and hold for production of income, improve, develop, operate, manage, lease, sell, dispose and otherwise deal with the Project. In furtherance of these purposes, but subject to all other provisions of this Agreement, the Partnership is hereby authorized: - to acquire by purchase, lease or otherwise, any real or personal property, including the Land (and to enter into options and agreements so to acquire such real or personal property), which may be necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; - to construct, operate, maintain, finance, improve, own, sell, convey, assign, mortgage or lease any real estate and any personal property necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; - to borrow money and issue evidences of indebtedness in furtherance of any or all of the purposes of the Partnership, and to secure the same by mortgage, pledge or other lien on the Project and/or any other assets of the Partnership; - to borrow money on the general credit of the Partnership for use in the Partnership business and to execute documents in connection therewith; -3- - to enter into, perform and carry out contracts of any kind, including contracts with an Affiliate of a Partner, necessary to, in connection with or incidental to, the accomplishment of the purposes of the Partnership; - to enter into any kind of activity and to perform and carry out contracts of any kind necessary to, or in connection with, or incidental to the accomplishment of the purposes of the Partnership, so long as said activities and contracts may be lawfully carried on or performed by a partnership under applicable laws; - to enter into, on behalf of the Partnership, easements, rights of way, utility or other agreements necessary for the development of the Project or any portion thereof or to permit access over, through, and across the Project or any portion thereof (to serve adjoining properties, for vehicular and pedestrian access, utility installations maintenance and other purposes); - to prepay in whole or in part, refinance, recast, increase, modify, or extend any mortgage affecting the Project or other indebtedness of the Partnership and, in connection therewith, to execute any extensions, renewals or modifications of such other mortgages and indebtedness; and - to take or cause to be taken all actions and to perform or cause to be performed all functions necessary or appropriate to promote the business of the Partnership and to realize and carry out its purposes. Section 1.5 Purposes Limited. The Partnership shall be a partnership ---------------- only for the purposes specified in Section 1.4. Except as otherwise provided in this Agreement, the Partnership shall not engage in any other activity or business and no Partner shall have any authority to hold itself out as a general agent of another Partner in any other business or activity. -4- Section 1.6 No Payments of Individual Obligations. The Partners shall ------------------------------------- use the Partnership's credit and assets solely for the benefit of the Partnership. No asset of the Partnership shall be transferred or encumbered for or in payment of any individual obligation of a Partner. Section 1.7 Statutory Compliance. The Partnership shall exist under and -------------------- be governed by, and this Agreement shall be construed in accordance with, the applicable laws of the State of California. The Partners shall make all filings and disclosures required by, and shall otherwise comply with, all such laws. The Partners shall execute and file in the appropriate records a certificate of limited partnership, and such documents and instruments as may be necessary or appropriate with respect to the continuation of, and conduct of business by, the Partnership as a California limited partnership. Section 1.8 Title to Property. All real and personal property owned by ----------------- the Partnership shall be owned by the Partnership as an entity and, insofar as permitted by applicable law, no Partner shall have any ownership interest in such property in its individual name or right and each Partner's interest in the Partnership shall be personal property for all purposes. Section 1.9 Duration. The term of the Partnership commenced on February -------- 1, 1989 and the Partnership shall dissolve on February 1, 2049 unless sooner dissolved or terminated pursuant to statute or any provision of this Agreement. ARTICLE 2 THE PARTNERS ------------ Section 2.1 Identification. Developer and NEPP shall be the Partners of -------------- the Partnership. No other person may become a Partner except pursuant to a transfer specifically permitted under and effected in compliance with this Agreement. Section 2.2 [Intentionally omitted.] Section 2.3 Competition. Developer agrees that none of its Affiliates ----------- (either individually, collectively or with others) shall, without the prior written consent of NEPP, conduct any real estate development business (as a developer, investor or lender) -5- which competes with the Project or any portion thereof in any location which is five or fewer miles from the Project during the term of this Agreement. Section 2.4 Limits on Developer's Activities. Developer, which shall -------------------------------- not include the general partners of Developer, shall not engage, invest or otherwise participate in any activity, investment or undertaking other than this Partnership. Section 2.5 Other Conflicts. NEPP, Affiliates of NEPP and Affiliates of --------------- Developer (but not Developer itself) may conduct any business or activity whatsoever (including the acquisition, development, leasing and operation and/or sale of real property) without any accountability to the Partnership or to any Partner even if such business or activity competes with the business of the Partnership. Each Partner understands that NEPP, Affiliates of NEPP and Affiliates of Developer may be interested, directly or indirectly, in various other businesses and undertakings not including the Partnership. Further, each Partner understands and acknowledges that the conduct of the business of the Partnership may involve business dealings with such other businesses or undertakings of NEPP, Affiliates of Developer and Affiliates of NEPP. The creation of the Partnership and the assumption by each of the Partners of its duties hereunder shall be without prejudice to the respective rights of NEPP, Affiliates of Developer and Affiliates of NEPP to maintain such other interests and activities and to receive and enjoy profits or compensation therefrom, and each Partner waives any rights it might otherwise have to share or participate in such other interests or activities of NEPP, Affiliates of Developer and Affiliates of NEPP. However, each Partner shall give notice to the other Partner of its interest, or of the interest of any of its Affiliates, in any other business which it proposes to enter into with the Partnership, and such business or undertaking with the Partnership must be approved by the non-interested Partner. Notwithstanding anything to the contrary, Developer shall not engage in or have any business dealings with any other Person or Entity, except as required for its administrative operation. Section 2.6 Reimbursement and Fees. NEPP shall be entitled to ---------------------- reimbursement for its reasonable out-of-pocket expenses paid to third parties (other than Affiliates) incurred in connection with the performance of its obligations hereunder. If NEPP or an Affiliate of NEPP shall at any time provide property management services to the Partnership, NEPP or such Affiliate shall be -6- entitled to property management fees and leasing commissions at rates competitive with those which would be paid to an unaffiliated property manager providing comparable services to a project of the type and size of the Project, in the geographic area in which the Project is located; provided, however, that in no event shall fees paid for property management services exceed 5.0% of gross revenues from the Project. Section 2.7 Indemnification of NEPP by the Partnership. NEPP shall ------------------------------------------ perform its duties under this Agreement with ordinary prudence and in a manner characteristic of businesspersons in similar circumstances. However, NEPP shall have no liability whatsoever to the Partnership or to any other Partner for loss caused by any act or by the failure to do any act if the loss suffered arises out of a mistake in judgment of NEPP, or if NEPP, in good faith, had determined that the action or lack of action giving rise to the loss was in the best interests of the Partnership or if the action or lack of action giving rise to the loss was based on the advice of counsel; provided, however, that such -------- ------- exculpation from liability shall not apply to any liability for loss caused by any act or by the failure to do any act which arises out of the gross negligence, willful neglect or willful misconduct of NEPP. The Partnership, its receiver or liquidating trustee, shall indemnify, hold harmless and pay all judgments and claims against NEPP arising from any actions or decisions performed or made by it in connection with the business of the Partnership, provided such actions or decisions are within the scope of the -------- purposes of the Partnership and NEPP complied with the immediately preceding paragraph. This indemnification shall include, without limitation, payment of attorneys' and accountants' fees incurred in connection with the defense of any claim or proceeding based on any such action or decision, which attorneys' and accountants' fees shall be paid as incurred; and liabilities under Federal and state securities laws, to the extent permitted by law. Section 2.8 Indemnification by NEPP. Subject to Section 2.7, NEPP shall ----------------------- indemnify and hold harmless Developer from and against all claims, demands, actions and rights of action which shall or may arise by virtue of anything done or omitted to be done by NEPP (directly or through or by agents, employees or other representatives) outside the scope of, or in breach of the terms of this Agreement, including without limitation Section 9.1. -7- If the Developer desires to make a claim against NEPP under this Section, it shall notify NEPP of the claim, demand, action or right of action which is the basis of such claim, and shall give NEPP a reasonable opportunity to participate in the defense thereof. Failure to give such notice shall not affect NEPP's obligations hereunder, except to the extent of any actual prejudice resulting therefrom. Any cash distributions of NEPP under Article 5 shall be charged for any amounts NEPP is required to pay pursuant to this Section 2.8. Section 2.9 Limitation on Liability of Partners. Except as hereinafter ----------------------------------- provided, no Partner shall have personal liability for the payment of any sums owing by such Partner to the Partnership or any other Partner under the terms of this Agreement, or for the performance of any other covenant or agreement of such Partner contained herein; rather, the Partnership and each other Partner shall look solely to the Interest of such Partner or to such other specific remedies as may be provided for herein, for satisfaction of each and every of such payments and obligations, and shall never seek, obtain or enforce any deficiency judgment or other judgment or mandatory order of any nature the effect of which would be to compel such Partner to pay any sum of money to any party in respect of any obligation arising under the terms of this Agreement and owed to the Partnership or any other Partner (including, without limitation, any subrogation right or remedy obtained by payment by a Partner of all or any portion of any indebtedness of the Partnership). Except as otherwise provided in this Section 2.9, each Partner hereby waives and relinquishes any right to have any recourse or pursue any remedy whatsoever, other than the foregoing specified remedy, against the following: - the Partnership, the Partners (or any partner, general or limited, present or future subscriber to the capital stock, stockholder, officer or director of any of the Partners); or - any corporation, partnership (or any partner thereof), individual or entity to which any interest in the Project shall have been transferred. The foregoing provisions shall not limit the right of any Partner to name the Partnership or the other Partners a party defendant in any action or suit in the exercise of the sole remedy permitted hereunder, so long as no judgment obtained by such Partner shall be enforced other than as provided above. -8- Notwithstanding the foregoing, each Partner shall be personally liable to the other for any of their respective representations set forth in Sections 10.1 and 10.2 proving to be false or misleading when made. Section 2.10 Payments to Developer and Affiliates. The Partnership has ------------------------------------ entered into a Property Management Agreement with respect to the Project pursuant to which the Developer or an Affiliate of the Developer (the "Property Manager") shall provide management services for the Project. The form of such Property Management Agreement is attached hereto as Exhibit B. --------- Section 2.11 Liability of Limited Partner. Notwithstanding the ---------------------------- foregoing, with respect to third parties the Developer shall be entitled to all of the protections afforded limited partners by the Act. ARTICLE 3 CAPITAL ------- Section 3.1 Capital Accounts and Adjusted Capital Accounts. ---------------------------------------------- (a) A separate capital account ("Capital Account") shall be maintained for each Partner and adjusted in accordance with Treasury Regulations under Section 704(b) of the Code. To the extent consistent with such Regulations, the adjustments to such accounts shall include the following: (i) There shall be credited to each Partner's Capital Account the amount of any cash (which shall not include imputed or actual interest on any deferred contributions) actually contributed by such Partner to the capital of the Partnership (or deemed contributed pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(c)), the fair market value of any property contributed by such Partner to the capital of the Partnership (net of any liabilities secured by such property that the Partnership is considered to assume or to take subject to under Code Section 752) and such Partner's share of the [Gross Income and] Net Profits (and all items thereof) of the Partnership. There shall be charged against each Partner's Capital Account the amount of all cash distributions to such Partner by the Partnership (or deemed distributed pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(c)), the fair market value of any property distributed to such Partner by the -9- Partnership (net of any liability secured by such property that the Partner is considered to assume or take subject to under Code Section 752) and such Partner's share of the Net Losses (and all items thereof) of the Partnership. (ii) If the Partnership at any time distributes any of its assets in-kind to any Partner, the Capital Account of each Partner shall be adjusted to account for that Partner's allocable share (as determined under Article 7 below) of the Net Profit or Net Loss that would have been realized by the Partnership had it sold the assets that were distributed at their respective fair market values immediately prior to their distribution. (iii) Any adjustments to the tax basis (or Book Value) of Partnership property under Code Sections 732, 734 or 743, will be reflected as adjustments to the Capital Accounts of the Partners, only in the manner and to the extent provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m). (b) An adjusted capital account ("Adjusted Capital Account") shall also be maintained for each Partner, which shall be equal to such Partner's Capital Account balance increased by (i) the Partner's Share of Partnership Minimum Gain and (ii) the Partner's Share of Partner Nonrecourse Debt Minimum Gain. (c) For purposes of Section 7.2(i) and (j) only, below, a Partner's Adjusted Capital Account shall be reduced by the net adjustments, allocations and distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) which, as of the end of the Partnership's taxable year are reasonably expected to be made to such Partner, and shall be increased by the sum of (i) any amount which the Partner is required to restore to the Partnership upon liquidation of his or its interest in the Partnership (or which is so treated pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c)) pursuant to the terms of this Agreement or under state law and (ii) that portion of any indebtedness of the Partnership (other than Partner Nonrecourse Debt) with respect to which the Partner bears the Economic Risk of Loss that such indebtedness would not be repaid out of the Partnership's assets if all of the Partnership's assets were sold at their respective Book Values as of the end of the Fiscal Year or other period and the proceeds from the sales together with any amounts described in clause (i) above were used to pay the Partnership's liabilities. -10- (d) As of January 1, 1995, the respective Capital Account balances of the Partners were as follows: NEPP $8,381,563 Developer $ 0 ---------- Section 3.2 Capital Contributions. --------------------- (a) Upon its admission to the Original Partnership, NEPP agreed to contribute to the Partnership capital in the amount of $9,500,000, all of which was contributed by NEPP. $6,500,000 of such amount constitutes "Senior Capital," $3,000,000 of such amount constitutes "Junior Capital." NEPP subsequently agreed to contribute up to an additional $1,850,000 of Junior Capital to the capital of the Partnership, of which $1,450,840 has been contributed as of the date hereof. NEPP shall contribute the balance of the Junior Capital to the capital of the Partnership at such times as NEPP shall determine in its sole discretion. (b) Upon formation of the Original Partnership, Developer contributed or caused to be contributed to the Partnership its interest in the Project, and assigned or caused to be assigned to the Partnership the following: - all rights of Developer and its Affiliates in any plans, specifications, working drawings, designs, models and other similar architectural or engineering materials prepared for the Project (or any portion thereof); - all rights or benefits of Developer and its Affiliates in and to all prior discussions with governmental bodies, entities and agencies with respect to the Project (or any portion thereof); - all agreements for utility services for the Project (or any portion thereof); - all right, title and interest of Developer or its Affiliate in and to (i) that certain promissory note from Nielsen Properties Ltd., ("Nielsen") in favor of Developer in the original principal amount of $250,000, (ii) that certain deed of trust from Nielsen to Developer encumbering the Property, and (iii) that certain Ground Lease by and between Nielsen as Landlord and Developer as Tenant, relating to the Property, all -11- dated January 23, 1988 (collectively, the "Nielsen Documents"); - at the option of NEPP, any additional notes, indebtedness, rights and agreements from Nielsen to Developer; - all right, title and interest of Developer and its Affiliates to continue the negotiations, discussions and business arrangements with respect to the Project (or any portion thereof); - all representations, warranties, guarantees, covenants, etc., relating to the Project (or any portion thereof) to which Developer is presently or may become entitled; and - all other rights, licenses and permits related to the Project (or any portion thereof). The agreed-upon net fair market value of the interests contributed by Developer is zero. Section 3.3 No Further Capital Contributions. The Partners shall not be -------------------------------- required to contribute additional capital or loan any funds to the Partnership, except as expressly provided in this Article 3, Article 5 and Article 6. Section 3.4 Capital Contributions - General. Except as specifically ------------------------------- provided herein, no interest shall be paid on any capital contribution to the Partnership by any Partner. Except as specifically provided herein, no Partner may contribute capital to, or withdraw capital from, the Partnership. To the extent any cash which any Partner is entitled to receive pursuant to Article 5 or any other provision of this Agreement would constitute a return of capital, each of the Partners consents to the withdrawal of such capital. Under circumstances requiring a return of any capital, no Partner shall have the right to receive property other than cash. Section 3.5 Interests. The respective Interests of the Partners shall --------- be: NEPP 63% Developer 37% -12- The provisions of this Section shall not give a Partner an interest in any amount credited to the Capital Account of any other Partner. ARTICLE 4 LOANS ----- [Intentionally omitted.] ARTICLE 5 CASH DISTRIBUTIONS ------------------ 5.1 Definitions. As used in this Agreement, the following terms shall ----------- have the meanings set forth below: "Senior Invested Capital" means an amount equal to the aggregate amount ----------------------- of Senior Capital which NEPP has contributed to the capital of the Partnership pursuant to Section 3.2 hereof decreased (but not below zero) by the aggregate amount of proceeds distributed to NEPP pursuant to clause FIRST of Section 5.3 and clause FIRST of Section 5.4 (to the extent such distributions are in respect of payment of Senior Capital) and clause SECOND of Section 5.4 (other than distributions in respect of the Guaranteed Senior Invested Capital Payment Distribution). "Junior Invested Capital" means an amount equal to the aggregate amount ----------------------- of Junior Capital which NEPP has contributed to the capital of the Partnership pursuant to Section 3.2 hereof, increased by (i) any additional capital contributions of NEPP (other than Deficit Contributions made pursuant to Section 6.1 and Default Contributions made pursuant to Section 6.2) and (ii) by the amount of any payments under the Ground Lease which the Partnership sets off against payments owed NEPP under the Nielsen Note, and decreased (but not below zero) by the amount of proceeds distributed to NEPP pursuant to clause FOURTH of Section 5.4. "Project Expenses" means all expenditures, expenses and charges ---------------- relating to the ownership, operation, construction, development, maintenance, and upkeep of the Project, or any portion thereof, and the operations of the Partnership (excluding Senior Payments and Junior Payments) including, without limitation, the following: -13- - all taxes, assessments, ground rents and other similar governmental and quasi-governmental charges levied or imposed on the Project or any portion thereof; - insurance premiums; - maintenance and security expenses; - marketing, advertising and other promotional expenses; - utility costs; - legal, accounting and other professional fees and expenses; - architects, engineers and surveyors' fees; - cost of roads and utilities built and installed on the Land, or any portion thereof; - other costs associated with the zoning, subdivision and improvement of the Land, or any portion thereof, into building lots, whether incurred on or off the site; - development and management fees; - payments of principal, interest and other amounts due or accrued under any loans; and - any and all other costs and expenses specified in an Annual Business Plan. Depreciation (cost recovery) and amortization or any other non-cash items taken into account in determining Net Profits or Losses shall not be Project Expenses. "Operating Revenues" means as to any particular Fiscal Year or portion ------------------ thereof, the total cash receipts of the Partnership other than (i) Extraordinary ----- ---- Cash Flow and liquidation proceeds subject to Section 5.5, (ii) any properly unapplied advance rentals of the Partnership in connection with the leasing of the Project (which shall be Operating Revenues when applied), and (iii) any unforfeited security deposits of Project tenants. -14- "Operating Cash Flow" means as to any particular Fiscal Year or portion ------------------- thereof, Operating Revenues less the sum of the following: ---- - Project Expenses paid and accrued during such period; and - a provision for a reasonable working capital reserve and a reserve for future Project Expenses in an amount reasonably determined by NEPP (the "Working Capital Fund"), and a reasonable reserve for replacement of Partnership assets subject to depreciation ("Reserve for Replacements") in an amount determined by NEPP in its reasonable discretion which Reserve for Replacements shall be released when no longer necessary as determined by NEPP in its reasonable discretion. "Capital Transaction" means the sale, exchange, condemnation (or ------------------- similar eminent domain taking or disposition in lieu thereof), destruction by casualty, refinancing or disposition of the Project or any portion thereof. "Extraordinary Cash Flow" means the cash proceeds (including any ----------------------- applicable insurance proceeds) realized by the Partnership as a result of a Capital Transaction plus cash interest payments received on such proceeds, net ---- of any expenses, costs or liabilities incurred by the Partnership in effecting or obtaining any such Capital Transaction or the proceeds thereof (including, without limitation, attorneys' and accountants' fees, court costs, brokerage fees, commissions, recording fees, transfer taxes, and the like), which shall be paid out of such proceeds to the extent available, and decreased by the sum of --------- the following: - the amount of such proceeds used, set aside or committed by the Partnership for restoration and repair of the Project; - the amount of such proceeds used for the payment of indebtedness of the Partnership then due and payable, including, without limitation, indebtedness of the Partnership to the Partners and their Affiliates; and - provision for the Working Capital Fund and the Reserve for Replacements, to the extent not funded from Operating Revenues, in an amount determined by NEPP in its reasonable discretion. -15- Section 5.2 Senior Payments and Junior Payments. ----------------------------------- (a) Senior Payments. --------------- (i) Each month for 24 months, beginning on the first day of the first month following the date of the first investment of Senior Capital by NEPP, the Partnership shall make a guaranteed senior return payment ("Guaranteed Senior Return Payment") to NEPP at the rate of 10.5% per annum on the daily balances of the Senior Invested Capital. (ii) Each month for 95 months beginning on the first day of the 25th month following the date of the first investment of Senior Capital by NEPP, the Partnership shall make in equal installments a guaranteed Senior Invested Capital reduction payment ("Guaranteed Senior Invested Capital Reduction Payment") to NEPP in an amount sufficient to completely repay the Senior Invested Capital, together with a return at the rate of 10.5% per annum, over a 27-year term; provided, however, the remaining Senior Invested Capital shall be paid in full on the first day of the 120th month following the date of the first investment of Senior Capital by NEPP. (iii) Guaranteed Senior Return Payments, Guaranteed Senior Invested Capital Reduction Payments and repayment of the Senior Invested Capital shall be made from current or accumulated Operating Cash Flow, Extraordinary Cash Flow, and distributions in liquidation as provided in Sections 5.3, 5.4 and 5.5, respectively, and to the extent that any such payments cannot be made from such sources when due, they shall be funded out of the proceeds of Deficit Contributions and Default Contributions as provided in Article 6. All payments made pursuant to this Section 5.2(a) are sometimes referred to as "Senior Payments." (iv) The Guaranteed Senior Return Payments and that portion of the Guaranteed Senior Invested Capital Reduction Payments representing the return on the Senior Invested Capital are sometimes hereinafter collectively referred to as the "Guaranteed -16- Senior Payments". It is intended that the Guaranteed Senior Payments described in this Section 5.2(a) shall constitute guaranteed payments within the meaning of Code Section 707(c), that they shall be deducted as an expense of the Partnership (unless the Partners agree that such expense should be amortized) and shall not directly reduce the Capital Account of NEPP. (b) Junior Payments. --------------- (i) The Partnership shall make a monthly junior priority return payment ("Junior Priority Return Payment") to NEPP at the rate of 10.5% per annum, compounded monthly on the daily balance of the Junior Invested Capital of NEPP. Junior Priority Return Payments shall be made monthly in arrears commencing on the first day of the first month following the initial investment of Junior Capital, and ending on the date on which the Junior Invested Capital of NEPP shall have been reduced to zero. Junior Priority Return Payments shall be made from Operating Cash Flow, Extraordinary Cash Flow and distributions in liquidation as provided in Sections 5.3, 5.4 and 5.5, respectively, and to the extent that any such payments cannot be made from such sources when due, they shall be deferred and bear an additional return at the rate of 10.5% per annum, compounded monthly and shall be paid out of the first available Operating Cash Flow or Extraordinary Cash Flow pursuant to clause SECOND of Section 5.3 or clause THIRD of Section 5.4, respectively. The total amount of unpaid Junior Priority Return Payments so deferred together with the additional return thereon described in the preceding sentence is referred to as the "Accrued Junior Priority Return." (ii) Once the Accrued Junior Priority Return reaches $1,000,000, the sum of all Junior Priority Return Payments and the return on the Accrued Junior Priority Return shall be paid currently and shall not be deferred further. Any payments required to be paid under this Section 5.2(b)(ii) shall, -17- if necessary, be funded from the unfunded portion of NEPP's Junior Capital; provided, however, that NEPP may elect not to contribute Junior Capital to pay the Junior Priority Return Payments and pay the return on the Accrued Junior Priority Return, in which event the $1,000,000 limit set forth in the preceding sentence shall be increased, and NEPP's obligation to fund Junior Capital shall be decreased, by the amount which NEPP so elects not to fund. (iii) All Junior Priority Return Payments and Accrued Junior Priority Return together with any outstanding Junior Invested Capital shall be paid no later than February 1, 2004. All payments made pursuant to this Section 5.2(b) are sometimes hereinafter collectively referred to as "Junior Payments." (iv) Junior Payments shall not be considered guaranteed payments within the meaning of Code Section 707(c). Section 5.3 Operating Cash Flow. Operating Cash Flow shall be ------------------- determined for each Fiscal Year, or fraction thereof, and shall be distributed by the Partnership in the following order of priority: FIRST: to NEPP in payment of its Senior Payments then payable; ----- SECOND: to NEPP in payment of its Junior Payments then payable; ------ THIRD: to each Partner in payment of any current and accrued Default ----- Preferred Returns; FOURTH: to each Partner as a return of its Default Contributions; ------ FIFTH: to each Partner in payment of any current and accrued Deficit ----- Preferred Returns; and SIXTH: to the Partners in accordance with their Interests. ----- -18- Distributions made pursuant to the third through fifth priorities shall be made proportionately to the amount due and owing to each Partner pursuant to each such priority if there is insufficient Operating Cash Flow to pay all sums due under such priority. Distributions of Operating Cash Flow shall be made monthly on a cash basis within 30 days after the last day of each month. Following the end of each Fiscal Year, and at any time or from time to time during any Fiscal Year if requested by either Partner (and after determination of the actual amount of Operating Cash Flow for such Fiscal Year, or the portion thereof which then shall have elapsed, as applicable), the above provisional distributions of Operating Cash Flow to the Partners with respect to such Fiscal Year or portion thereof shall be recomputed on the basis of the actual amount of Operating Cash Flow, on a cash basis. If the above provisional distributions with respect to such Fiscal Year or portion thereof are greater than the distributions thus recomputed for such Fiscal Year or portion thereof, then the Partners shall recontribute to the Partnership in reverse order of the priorities set forth above the amounts received by the Partners for such Fiscal Year or portion thereof until all distributions of Operating Cash Flow for such Fiscal Year or portion thereof shall be in conformance with this Section 5.3. Furthermore, if an Operating Deficit is projected to exist for all or a portion of the then Fiscal Year, and distributions of Operating Cash Flow theretofore have been made with respect to such Fiscal Year, then the Partners shall recontribute to the Partnership such distributions in reverse order of the priorities set forth in this Section 5.3, until there has been recontributed to the Partnership that aggregate amount which is equal to the lesser of the total of such distributions previously made with respect to such Fiscal Year, or the amount of such projected Operating Deficit for such Fiscal Year. Any amounts so recontributed shall be characterized in the same manner as they were originally distributed so that, following such recontribution, subsequent distributions to the Partners pursuant to any clause of this Section shall be made in the same manner as if the original distributions were never made (except that, any distributions in respect of the Accrued Junior Priority Return made to NEPP which are entitled to earn interest, shall not earn such interest during the period from the date of distribution of such amount to NEPP through the date of its recontribution by NEPP pursuant to this sentence). For example, to the extent NEPP is required to recontribute distributions made pursuant to clause -19- FIRST of this Section, the amount of NEPP's Senior Payments represented by such distributions shall be deemed not to have been made for purpose of calculating the Senior Payments payable to NEPP. Any amounts previously set aside in the Working Capital Fund or the Reserve for Replacements, to the extent funded from Operating Revenues, shall be additions to Operating Cash Flow when and to the extent NEPP no longer regards such reserves as reasonably necessary to the efficient conduct of the affairs of the Partnership. Section 5.4 Extraordinary Cash Flow. Extraordinary Cash Flow shall be ----------------------- distributed by the Partnership in the following order of priority: FIRST: to NEPP in payment of its Senior Payments then payable; ----- SECOND: to NEPP as a return of its Senior Invested Capital, along ------ with the applicable Guaranteed Senior Invested Capital Payment Distribution payable pursuant to Section 5.6; THIRD: to NEPP in payment of its Junior Payments then payable; ----- FOURTH: to NEPP as a return of its Junior Invested Capital; ------ FIFTH: to each Partner in payment on any current and accrued Default ----- Preferred Returns; SIXTH: to each Partner as a return of its Default Contributions; ----- SEVENTH: to each Partner in payment of any current and accrued Deficit ------- Preferred Returns; EIGHTH: to each Partner as a return of its Deficit Contributions; and ------ NINTH: to the Partners in accordance with their Interests. ----- Distributions made pursuant to the first through ninth priorities shall be made proportionately to the amount due and owing to each Partner pursuant to each such priority if there is -20- insufficient Extraordinary Cash Flow to pay all sums due under such priority. Section 5.5 Distributions in Liquidation. Notwithstanding the ---------------------------- provisions of Sections 5.3 and 5.4, distributions in connection with the liquidation and winding up of the Partnership (including distributions of Operating Cash Flow and Extraordinary Cash Flow) pursuant to and in accordance with Article 13 shall be made in the following order of priority, after payment of the reasonable expenses incurred in dissolution and termination and of any additional expenses of the type deductible in computing Operating Cash Flow or Extraordinary Cash Flow: FIRST: in accordance with the first through fourth priorities of ----- Section 5.4, but not in excess of an amount that would reduce NEPP's Capital Account to less than zero. SECOND: to the Partners in proportion to the positive balance in each ------ such Partner's Capital Account (after Capital Accounts have been adjusted for the allocation of Net Profit and Net Loss, and items thereof, for the Fiscal Year in which such liquidation occurs). Section 5.6 Guaranteed Senior Invested Capital Payment Distribution. If ------------------------------------------------------- any portion of the unpaid Senior Invested Capital (except the Senior Invested Capital portion of the Guaranteed Senior Invested Capital Reduction Payments) is paid prior to the 120th month following the date of the first investment of Senior Capital by NEPP (the "Repayment Date"), for any reason, the Partnership shall distribute to NEPP an amount (the "Guaranteed Senior Invested Capital Payment Distribution") equal to: 1. the present value, computed on a monthly basis as of the date of payment of such Senior Invested Capital, at the rate then charged by New England Mutual Life Insurance Company or other similar lenders on loans having a term similar to the period from the date of payment of such Senior Invested Capital to the Repayment Date, of: a. the sum of an amount equal to the Senior Payments from the date of payment of such Senior Invested Capital to, but not including, the Repayment Date, times a factor equal to the amount of Senior -21- Invested Capital so paid, divided by the amount of Senior Invested Capital then outstanding (the "Payment Factor"); plus ---- b. the amount of Senior Payments due on the Repayment Date pursuant to Section 5.2(a) (assuming all Senior Payments due prior to the Repayment Date were made when due), times the Payment Factor; less ---- 2. the amount of Senior Invested Capital so paid. If the foregoing is determined to be unenforceable in whole or in part, NEPP may, at its option, pursue any other legal or equitable right or remedy now or hereafter available to NEPP. Section 5.7 In-Kind Distribution. Assets of the Partnership (other than -------------------- cash) shall not be distributed in kind to the Partners without the prior approval of both Partners. If any assets of the Partnership are distributed to the Partners in kind, such assets shall be valued on the basis of the fair market value thereof on the date of distribution, and any Partner entitled to any interest in such assets shall receive such interest as a tenant-in-common with all other Partners so entitled. The fair market value of such assets shall be determined by an independent appraiser selected by NEPP and Developer. ARTICLE 6 OPERATING DEFICITS ------------------ Section 6.1 Operating Deficits. If, at any time, Project Expenses (plus ------------------ the amount of any Senior Payments and Junior Payments then due) exceed Operating Revenues, Extraordinary Cash Flow and other funds available to the Partnership, including the uncontributed balance of Junior Capital (an "Operating Deficit"), then funds shall be withdrawn from the Working Capital Fund as required and if available. If Operating Deficits cannot be so funded, or if it reasonably appears that the Partnership will be unable to meet in a timely manner any of its obligations as they mature, then NEPP shall notify Developer, which notice shall explain the need for such funds, and shall include a reasonably -22- detailed breakdown of the expenses that caused the need and a statement of the amount needed and the bank account into which the needed funds are to be deposited. Within 10 business days after such notice is given, each Partner shall contribute to the Partnership its proportionate share (as to each Partner, a "Deficit Contribution") of the amount needed. The Partners' proportionate shares shall be determined by reference to their respective Interests at the end of the month in which the contribution is to be made. All Deficit Contributions shall be deposited into an escrow account with such bank as is selected by NEPP, with the funds in such escrow account to be disbursed to the Partnership only after all Partners have deposited their respective Deficit Contributions into such escrow account. Each Partner shall be entitled to a "Deficit Preferred Return" equal to a cumulative return, calculated at the Deficit Equity Rate and compounded monthly, on the daily balance of its Deficit Contributions. Section 6.2 Default Contributions. If a Partner fails to make its --------------------- Deficit Contribution within the time specified in Section 6.1 (such Partner hereafter being called a "Non-Contributing Partner") and the other Partner has deposited the amount of its required Deficit Contribution in escrow (a "Contributing Partner"), the Contributing Partner shall have the right to release its Deficit Contribution from escrow and contribute it, together with the amount of the Deficit Contribution which the Non-Contributing Partner failed to make, to the Partnership, in which case the Interests of the Partners shall be adjusted as provided in Section 6.3. The amount so contributed by the Contributing Partner (a "Default Contribution") shall not be considered a Deficit Contribution. Each Partner shall be entitled to a "Default Preferred Return" equal to a cumulative return, calculated at 10.5% per annum and compounded monthly, on the daily balance of its Default Contributions. If the Contributing Partner does not elect to have its Deficit Contribution removed from escrow and contributed to the Partnership within 15 days after the deadline for making Deficit Contributions, the Contributing Partner shall withdraw its Deficit Contribution from escrow (with respect to that particular notice and call for such a contribution). -23- Section 6.3 Adjustment of Interests. If the Contributing Partner shall ----------------------- have made a Default Contribution in accordance with Section 6.2, the Interest of each Partner shall thereupon be recalculated as of the effective date of the contribution, with the Interest of the Non-Contributing Partner being decreased and the Interest of the Contributing Partner being increased by an amount (stated as a percentage) equal to the amount of the Deficit Contribution the Non-Contributing Partner failed to make divided by $2,500,000 (the "Adjustment Percentage"). For example, if (i) there were an Operating Deficit of $625,000, requiring a Deficit Contribution by NEPP of $393,750 (63% pro rata share) and by Developer of $231,250 (37% pro rata share), (ii) NEPP made its Deficit Contribution and Developer failed so to do, and (iii) NEPP withdrew its Deficit Contribution from escrow and made a Default Contribution of $625,000, the Adjustment Percentage would be 9.25%, i.e., $ 231,250 ------------- = 9.25% $2,500,000 Thus, if immediately before such contribution the Interest of NEPP were 63% and the Interest of Developer were 37%, then the Interest of Developer as the Non-Contributing Partner immediately after giving effect to the above would be 27.75% and that of NEPP as the Contributing Partner would be 72.25%. Section 6.4 Effect of Adjustment on Cash and Tax Allocations. If the ------------------------------------------------ Interest of a Partner is adjusted during a Fiscal Year pursuant to Section 6.3, the Partnership's books shall be closed as of the date immediately preceding the effective date of the contribution described in such section. For the period ended on such date, Operating Cash Flow and Net Profits and Losses shall be distributed and allocated pursuant to the provisions of Sections 5.3 and 7.2(b)(i), respectively, according to the Interests in effect prior to such date, and Operating Cash Flow and Net Profits and Losses for the balance of such Fiscal Year shall be distributed and allocated pursuant to the provisions of Sections 5.3 and 7.2(b)(i), respectively, according to the Interests of such Partners, as so adjusted. Extraordinary Cash Flow and Net Profits or Losses arising from a Capital Transaction shall be distributed and allocated pursuant to the provisions of Sections 5.4 and 7.2(b)(ii), respectively, according to the Interests of the Partners in effect as of the date of the Capital Transaction in question. -24- Section 6.5 No Increase of Percentage Interest. Except as otherwise ---------------------------------- provided in this Article 6, no amounts contributed or loaned by any Partner to the Partnership shall increase such Partner's Interest. ARTICLE 7 TAX ALLOCATIONS --------------- Section 7.1 Definition of Net Profit and Net Loss. (a) "Net Profit" and ------------------------------------- "Net Loss" shall mean, for each Fiscal Year or other period, an amount equal to the Partnership's taxable income or loss for such Fiscal Year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (i) any income of the Partnership that is exempt from federal income tax or not otherwise taken into account in computing Net Profit or Net Loss pursuant to this Section 7.1 shall be added to such taxable income or loss; (ii) any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under Code Section 704(b) and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this Section 7.1, shall be subtracted from such taxable income or loss; (iii) gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of such property rather than its adjusted tax basis; (iv) in lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing taxable income or loss, there shall be taken into account depreciation on the assets' respective Book Values for such Fiscal Year or other period determined in accordance with Treasury Regulations under Code Section 704(b); and (v) the amount of any Gross Income allocated to the Partners pursuant to Section 7.2(a) and Sections 7.2(e), (f) -25- and (i), below, and pursuant to Section 7.2(k), below, to the extent such allocation of Gross Income under Section 7.2(k) is a reversal of an allocation pursuant to Section 7.2(j), below, shall not be included as income or revenue. (b) Definition of Net Profits or Net Losses From Capital Transactions. ----------------------------------------------------------------- "Net Profits or Net Losses from Capital Transactions" shall mean for each Fiscal Year or other period, the Net Profit or Net Loss for such Fiscal Year or other period calculated solely by reference to gains and losses from Capital Transactions. (c) Definition of Net Profits or Net Losses From Operations. "Net ------------------------------------------------------- Profits or Net Losses from Operations" shall mean for each Fiscal Year or other period, the Net Profit or Net Loss for such Fiscal Year or other period calculated without regard to Net Profits and Net Losses from Capital Transactions. (d) Definition of Gross Income. "Gross Income" shall mean, for each -------------------------- Fiscal Year or other period, an amount equal to the Partnership's gross income as determined for federal income tax purposes for such Fiscal Year or period but computed with the adjustments specified in Section 7.1(a)(i) and (iii), above. (e) Definition of Gross Income from Operations. "Gross Income from ------------------------------------------ Operations" shall mean for each Fiscal Year or other period, the Gross Income for such year calculated without regard to Gross Income attributable to Capital Transactions. Section 7.2 Allocation of Net Profit, Gross Income and Net Loss. The --------------------------------------------------- Partners hereby agree that, effective as of August 1, 1995, the Net Profit, Gross Income and Net Loss of the Partnership shall be allocated among them in accordance with this Section 7.2. (a) Gross Income from Operations. Except as otherwise provided in this ---------------------------- Article 7, Gross Income from Operations, if any, of the Partnership (and each item thereof) for each Fiscal Year or other period, in an amount equal to the total amount distributed to Developer pursuant to Section 5.3 with respect to such Fiscal Year or other period, shall be allocated to Developer if and to the extent that such distribution creates or increases a deficit in the Developer's Capital Account. (b) Net Profits From Operations and Capital Transactions. Except as ---------------------------------------------------- otherwise provided in this Article 7, Net Profit, if any, of the Partnership (and each item thereof) for each Fiscal -26- Year or other period shall be allocated among the Partners as follows: (i) All Net Profit from Operations of the Partnership shall be allocated to NEPP. (ii) Net Profit from Capital Transactions shall: (x) first be allocated to the Partners in proportion to the negative balances, if any, in their Adjusted Capital Accounts (after adjusting such Adjusted Capital Accounts for allocations of any Gross Income, Net Loss or Net Profit from Operations of the Partnership for the Fiscal Year or other period) until such negative balances are increased to zero, and (y) thereafter, be allocated to the Partners in such proportions and in such amounts as would result in the Adjusted Capital Account balance of each Partner equaling, as nearly as possible, such Partner's share of the then Partnership Capital determined by calculating the amount the Partner would receive if an amount equal to the Partnership Capital were distributed to the Partners in accordance with the provisions of Section 5.4 hereof, other than clause FIRST thereof. (c) Net Losses From Operations and Capital Transactions. Except as --------------------------------------------------- otherwise provided in this Article 7, Net Loss, if any, of the Partnership (and each item thereof) for each Fiscal Year or other period shall be allocated as follows: (i) All Net Loss from Operations of the Partnership shall be allocated to NEPP. (ii) Net Loss from Capital Transactions shall: (x) first be allocated to those Partners with positive balances in their Adjusted Capital Accounts in amounts equal to their respective Adjusted Capital Account balances; provided, however, that if the amount of Net Loss to be allocated is less than the sum of the Adjusted Capital Account balances of all Partners having positive Adjusted Capital Account balances, then the Net Loss shall be allocated to the Partners in such proportions and in such amounts as would -27- result in the Adjusted Capital Account balance of each Partner equaling, as nearly as possible, such Partner's share of the then Partnership Capital determined by calculating the amount the Partner would receive if an amount equal to the Partnership Capital were distributed to the Partners in accordance with the provisions of Section 5.4 hereof, other than clause FIRST thereof; and (y) thereafter, one hundred percent (100%) to NEPP. (d) Liquidation. Subject to the provisions of Sections 7.2(e) through ----------- (j), Net Profit and Net Loss incurred in the Fiscal Year in which the Partnership is liquidated shall be allocated in accordance with the provisions of Sections 7.2(b)(ii) and 7.2(c)(ii) without regard to whether such Net Profit and Net Loss arises from a Capital Transaction, and Sections 7.2(a), 7.2(b)(i) and 7.2(c)(i) shall not apply. (e) Minimum Gain Chargeback. Notwithstanding any other provision of ----------------------- this Agreement to the contrary, if in any Fiscal Year or other period there is a net decrease in the amount of Partnership Minimum Gain, then each Partner shall first be allocated items of Gross Income for such year (and, if necessary, subsequent years) in an amount equal to such Partner's share of the net decrease in Partnership Minimum Gain determined as set forth in the definition of Partnership Minimum Gain; provided, however, that no such allocation of Gross Income to a Partner shall occur in the following circumstances: (i) If the net decrease in Partnership Minimum Gain is caused by a modification of a Nonrecourse Liability and the Partner bears the Economic Risk of Loss with respect to such modified liability; (ii) If the net decrease in Partnership Minimum Gain is attributable to a repayment of a Nonrecourse Liability with amounts contributed to the capital of the Partnership by the Partner; and (iii) If the allocation of Gross Income would cause a "distortion in the economic arrangement among the Partners" and the Partnership receives a waiver of the requirement that Gross Income be so allocated from the Commissioner of the -28- Internal Revenue Service pursuant to Treasury Regulation Section 1.704-2(f)(4). (f) Minimum Gain Chargeback for Partner Nonrecourse Debt. ---------------------------------------------------- Notwithstanding any other provision of this Agreement to the contrary other than Section 7.2(e), above, if in any year there is a net decrease in the amount of Partner Nonrecourse Debt Minimum Gain, then each Partner shall first be allocated items of Gross Income for such year (and, if necessary, subsequent years) in an amount equal to such Partner's net decrease in Partner Nonrecourse Debt Minimum Gain with respect to liabilities for which the Partner bears the Economic Risk of Loss; provided, however, that no such allocation of Gross Income to a Partner shall occur in the following circumstances: (i) If the net decrease in Partner Nonrecourse Debt Minimum Gain is caused by a modification of a Partner Nonrecourse Debt and the Partner bears the Economic Risk of Loss with respect to such modified liability; (ii) If the net decrease in Partner Nonrecourse Debt Minimum Gain is attributable to a repayment of a Partner Nonrecourse Debt with amounts contributed to the capital of the Partnership by the Partner; (iii) In any circumstance described in clause (iii) of Section 7.2(e) hereof; and (iv) If the net decrease in Partner Nonrecourse Debt Minimum Gain is caused by a modification of a Partner Nonrecourse Debt that causes it to become a Nonrecourse Liability. (g) Nonrecourse Deductions. All Nonrecourse Deductions of the ---------------------- Partnership for any Fiscal Year or other period shall be allocated among the Partners in the same manner and proportions as are Net Losses from Operations of the Partnership. (h) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions ------------------------------ shall be allocated to the Partner who bears the Economic Risk of Loss with respect to the Partner Nonrecourse Debt. (i) Qualified Income Offset. Notwithstanding any of the provisions ----------------------- above (except Sections 7.2(e) and (f) which shall be applied first), if in any Fiscal Year or other period a Partner -29- receives an adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), Gross Income (and items thereof) shall first be allocated to Partners with negative Adjusted Capital Account balances (adjusted in accordance with Section 3.1(c) hereof), in proportion to such negative balances, until such balances are increased to zero. (j) Limit on Loss Allocations. Notwithstanding the provisions of ------------------------- Section 7.2(c), Net Loss (or items thereof) shall not be allocated to a Partner if such allocation would cause or increase a negative balance in such Partner's Adjusted Capital Account (adjusted in accordance with Section 3.1(c) hereof) and shall be reallocated to the other Partner or Partners, subject to the limitations of this Section 7.2(j). (k) Reversal of Mandatory Allocations. In the event that any Net Profit --------------------------------- or Net Loss, or items thereof, of the Partnership are allocated pursuant to Sections 7.2(i) or (j), subsequent Net Profit or Net Loss (or items thereof) will first be allocated (subject to Sections 7.2(e) through (j)) to the Partners in a manner which will result in each Partner having a Capital Account balance equal to that which would have resulted had the original allocation of Net Profit or Loss or items thereof pursuant to Sections 7.2(i) and (j) not occurred. (l) Priority. For purposes of the allocations pursuant to this Article -------- 7 and except as otherwise provided, Sections 7.2(a) (Gross Income from Operations) shall apply first, then Sections 7.2(b)(i) and 7.2(c)(i) (Net Profit or Loss from Operations), and thereafter Sections 7.2(b)(ii) and 7.2(c)(ii) (Net Profit or Loss from Capital Transactions). The allocation of Net Profit and Net Loss from Capital Transactions shall be made before adjusting Capital Account balances to reflect the distribution of proceeds from such Capital Transactions. (m) Compliance with Code. The foregoing provisions of this Agreement -------------------- relating to the allocation of Net Profit and Net Loss are intended to comply with Treasury Regulations under Section 704(b) of the Code and shall be interpreted and applied in a manner consistent with such regulations. Section 7.3 Tax Allocations; Code Section 704(c). In accordance with ------------------------------------ Code Sections 704(b) and 704(c) and the Treasury Regulations thereunder, depreciation, amortization, gain and loss, as determined for tax purposes, with respect to any property whose Book Value differs from its adjusted basis for federal income tax -30- purposes shall, for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its Book Value. Any elections or other decisions relating to such allocations shall be made by the Partners in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 7.3 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Partner's Capital Account or share of Net Profit, Net Loss, other items, or distributions pursuant to any provision of this Agreement. Section 7.4 Allocations Upon Transfer or Change of Interests. Upon a ------------------------------------------------ transfer of all or a portion of a Partner's Interest, Gross Income, Net Profits and Net Losses shall be allocated among the Partners in accordance with the provisions of Section 11.5. ARTICLE 8 ACCOUNTING AND RECORDS ---------------------- Section 8.1 Books and Records. NEPP shall keep or cause to be kept, at ----------------- Partnership expense, at the Partnership's principal office, separate books of account for the Partnership which shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of the Partnership business in accordance with generally accepted accounting principles consistently applied and sufficient to obtain an unqualified opinion from the Accountants as to the Partnership's financial position and results of operations. The Partnership shall use the accrual method of accounting in preparation of its annual reports and for tax purposes and shall keep its books accordingly. The expenses chargeable to the Partnership shall include only those which are reasonable and necessary for the ordinary and efficient operation of the Partnership business and the performance of the obligations of the Partnership under any leases or other agreements relating to the Project or the business of the Partnership. -31- Each Partner shall, at its sole expense, have the right, at any time without notice to the other, to examine, copy and audit the Partnership's books and records during normal business hours. All books, records (including bills and invoices), reports and returns of the Partnership required by this Article 8 shall be maintained in a manner and form consistent with NEPP's methods and procedures of reporting investment transactions. Section 8.2 Reports. With respect to each Fiscal Year of the ------- Partnership, NEPP shall cause a general accounting to be made by the Accountants at the expense of the Partnership. The accounting shall be performed in accordance with generally accepted auditing standards, and shall cover all of the assets, properties, liabilities and net worth of the Partnership as well as its dealings, transactions and operations during such Fiscal Year, together with all other matters customarily included in such accountings. Within 90 days after the end of each Fiscal Year, NEPP shall cause to be furnished to Developer financial statements for the Partnership, prepared on an accrual basis and otherwise in accordance with generally accepted accounting principles consistently applied, which shall contain a balance sheet as of the end of the Fiscal Year, statements of profit and loss, and Operating Cash Flow, changes in the Capital Accounts and a statement of changes in financial position for the Fiscal Year then ended. Such financial statements shall disclose and/or footnote, in sufficient detail, all items of taxable income, gain, loss, or accounts which vary from the reporting of such items for financial accounting purposes. Any exceptions to the financial statements rendered must be made by a Partner within one year from its receipt and, if no exception is made within that time, the statements shall be considered to be correct. Within 30 days after the receipt of any periodic report from a property manager for the Project, NEPP shall furnish a copy of such report to the Developer. Within 30 days of NEPP's approval of any Annual Management Plan, NEPP shall furnish a copy of such Plan to the Developer. Notwithstanding the foregoing, so long as the property manager is the Property Manager, NEPP shall not be required to furnish the Developer with any such reports or Plans. Section 8.3 Tax Returns. At Partnership expense, NEPP shall cause the ----------- Accountants to prepare all income and other tax returns of the Partnership (on an accrual basis) and cause the same to be -32- filed in a timely manner. NEPP shall furnish to Developer a copy of each such return before it has been filed, together with any schedules or other information which each Partner may require in connection with such Partners' own tax affairs. Each of the Partners shall, in its respective income tax return and other statements filed with the Internal Revenue Service or other taxing authority, report taxable income in accordance with the provisions of this Agreement. Section 8.4 Depreciation. The Partnership shall, to the extent ------------ permitted by the Code, utilize the Accelerated Cost Recovery System (as defined in the Code) on a straight-line basis. Section 8.5 Special Basis Adjustment. In connection with any assignment ------------------------ or transfer of an Interest permitted by the terms of this Agreement, NEPP shall cause the Partnership, at the written request of the transferor, the transferee or the successor to such Interest, on behalf of the Partnership and at the time and in the manner provided in Treasury Regulation Section 1.754-1(b) (or any like statute or regulation then in effect), to make an election to adjust the basis of the Partnership's property in the manner provided in Sections 734(b) and 743(b) of the Code (or any like statute or regulation then in effect), and such transferee shall pay all costs incurred by the Partnership in connection therewith, including, without limitation, reasonable attorneys' and accountants' fees. Section 8.6 Tax Matters Partner. NEPP shall be the party designated to ------------------- receive all notices from the Internal Revenue Service ("IRS") which pertain to the tax affairs of the Partnership and NEPP shall be entitled to require that any IRS examinations or audits shall take place at the offices of NEPP. NEPP shall be the "Tax Matters Partner" of the Partnership pursuant to the Code, provided that, in such capacity, NEPP shall have no authority to enter into any settlement of any Partnership tax matter if such settlement would have a material adverse effect on Developer, unless Developer shall have previously approved such settlement, which approval may not be unreasonably withheld. Section 8.7 Fiscal Year. The Fiscal Year of the Partnership shall be ----------- the calendar year, unless otherwise determined by NEPP. As used in this Agreement, a fiscal year shall include any partial fiscal year at the beginning and end of the Partnership term. Section 8.8 Bank Accounts. NEPP shall have fiduciary responsibility for ------------- the safekeeping and use of all funds and assets -33- of the Partnership, whether or not in its immediate possession or control. The funds of the Partnership shall not be commingled with the funds of any other person and NEPP shall not employ, or permit any other person to employ, such funds in any manner except for the benefit of the Partnership. The bank accounts of the Partnership shall be maintained in such banking institutions as are determined by NEPP and withdrawals shall be made only in the regular course of Partnership business and as otherwise authorized in this Agreement on such signature or signatures as NEPP may determine. ARTICLE 9 MANAGEMENT AND OPERATIONS ------------------------- Section 9.1 Management. NEPP acting alone, and without the consent or ---------- approval of Developer, shall have the sole authority to manage the business and operations of the Partnership. Without limiting in any way the foregoing, NEPP acting alone, shall have the sole authority to make all decisions respecting the conduct of the Partnership and its business, without the consent or approval of Developer, including without limitation, the following: - acquiring, by purchase, lease, or otherwise, any real property in addition to the Land, or constructing any new capital improvements on the Land or replacing an existing capital improvement following completion of construction thereof; - giving or granting any options, rights of first refusal, deeds of trust, mortgages, pledges, ground leases, security interests or otherwise encumbering the Project or any portion thereof; - consummating leases in the Project or any portion thereof, on such terms as NEPP may approve; - obtaining, increasing, modifying, consolidating or extending any loan, line of credit or other obligation, whether secured or unsecured, affecting the Project or the Partnership or making draws under any such loan, line of credit or other obligation; -34- - consenting to any rezoning or subdivision of the Land or any other material change in the legal status thereof; - selling, conveying or refinancing the Project or any portion thereof; - causing or permitting the Partnership to extend credit to or to make any loans or become a surety, guarantor, endorser or accommodation endorser for any person, firm or corporation or entering into any contracts with respect to the operation or management of the business of the Partnership or the Project (or any portion thereof); - initiating, defending, adjusting, settling or compromising any claim, action, suit or judgment by or against the Partnership; - releasing, compromising, assigning or transferring any claims, rights or benefits of the Partnership; - confessing a judgment against the Partnership or submitting a Partnership claim to arbitration; - distributing any cash or property of the Partnership, or establishing any reserve, other than as provided in this Agreement; - filing on behalf of the Partnership any Federal or state income tax or information returns, or changing the elections or choices of methods of reporting income or loss for Federal or state income tax purposes provided for in Article 8; - spending money or entering into any contract or agreement (or series thereof) of any nature whatsoever with respect to the Partnership or the Project (or any portion thereof); - assigning the rights of the Partnership in any of its property; - selecting attorneys or Accountants for the Partnership; - advertising or marketing the Project; -35- - granting easements or other property rights by documents that are frequently recorded, except easements for utilities serving the Project exclusively; - giving any approval under any management, construction or other contract to which the Partnership is a party; - approving or changing or amending the plans or specifications or budget for any building or structure being constructed by the Partnership; or - entering into any amendment, modification, revision, supplement or rescission with respect to any of the foregoing. NEPP shall devote itself to the business of the Partnership to the extent it reasonably determines necessary for the efficient carrying on thereof, without compensation therefor except as specifically provided in this Agreement; provided, however, that all of the Partners agree and acknowledge that (a) NEPP shall not be required, nor is it expected, to devote itself to the business of the Partnership on a full-time basis, and (b) the Project shall be managed and maintained by the Property Manager pursuant to the Management Agreement (or by another person who may serve as property manager, in the event the Property Management Agreement is terminated), and NEPP may rely on the Property Manager (or such other property manager) to manage and maintain the Project in a prudent and reasonable manner and shall have no liability to the Partnership or the Partners with respect to any matter delegated to the Property Manager (or such other property manager) which is of the type customarily performed by property managers. NEPP shall be permitted to delegate to a third party such other of its duties and obligations under this Agreement as it may determine in its reasonable discretion. With respect to all of its obligations, powers, and responsibilities under this Agreement, NEPP is authorized, in the name and on behalf of the Partnership, to execute, deliver, and perform the terms, covenants and obligations of, such notes and other evidences of indebtedness, contracts, agreements, assignments, deeds, leases, loan agreements, mortgages, and other security instruments and agreements as it deems proper, all on such terms and conditions as it deems proper. Section 9.2 Standard of Care. NEPP shall use reasonable good faith ---------------- efforts to perform its duties under this Agreement, -36- including, without limitation, employing necessary personnel, on and off-site, in connection with the business of the Partnership, and shall at all times act in a fiduciary manner towards the Partnership and Developer. Section 9.3 Insurance. NEPP shall procure and maintain, or cause to be --------- procured and maintained, at the expense of the Partnership, insurance sufficient to enable the Partnership to comply with applicable laws, regulations and requirements, including without limitation, obligations imposed on the Project by the any documents relating to any loans, and any and all other agreements and instruments by which the Project is bound, such additional insurance as may be customary for projects of a similar type in the geographic area in which the Project is located, and such additional insurance as NEPP reasonably determines to be appropriate for the Project. ARTICLE 10 REPRESENTATIONS AND WARRANTIES ------------------------------ Section 10.1 Developer. As of the date hereof each of the statements in --------- this Section 10.1 shall be a true, accurate and full disclosure of all facts relevant to the matters contained therein, and such warranties and representations shall survive the execution of this Agreement. As of the date hereof, Developer hereby represents and warrants that: - Developer is a duly organized and validly existing California general partnership and has the requisite power and authority to enter into and carry out the terms of this Agreement. - All partnership action required to be taken by Developer to consummate this Agreement has been taken by Developer (and its partners) and no further approval of any board, court, or other body is necessary in order to permit Developer to consummate this Agreement. - To the best of its knowledge, neither the execution and delivery of this Agreement, nor the performance of or the compliance with, this Agreement has resulted (or will result) in any violation of, or will be in conflict with, or invalidate, cancel, or make inoperative, or interfere with, or constitute a default under, or result -37- in the creation of any lien, encumbrance or any other charge upon the Project pursuant to any charter, bylaw, partnership agreement, trust agreement, mortgage, deed of trust, indenture, contract, agreement, permit, judgment, decree, or order to which Developer is a party or by which the Project (or any portion thereof) is bound, and there is no default and no event or omission has occurred which, but for the passing of time or the giving of notice, or both, would constitute a default on the part of Developer under this Agreement. - To the best of its knowledge, there is no action, proceeding or investigation, pending or threatened (nor any basis therefor) which questions, directly or indirectly, the validity or enforceability of this Agreement as to Developer or which would materially and adversely affect the Project. - To the best of its knowledge, the Project complies in all material respects with all applicable laws, rules, ordinances, regulations and orders of governmental authorities having jurisdiction. Without limiting the generality of the foregoing, to the best of Developer's knowledge, which is based solely on a report dated May, 1995, prepared by E2C, Inc., no release of oil or petroleum or chemical liquids or solids, liquid or gaseous products or hazardous waste has occurred on the Land. - Developer has received no notice of any lien having arisen against the Project or existing under Federal or state tax or other laws, other than liens for current real property taxes and assessments. - Except as previously disclosed in writing to NEPP, at the date hereof, there are no outstanding contracts made by Developer nor has there been any other labor or materials supplied at Developer's request for any improvements heretofore commenced or constructed on the Land (or any portion thereof) which have not been fully paid for, except as previously disclosed in writing to NEPP. - To the best of Developer's knowledge, no representation, warranty or covenant of Developer in this Agreement (except for the first two representations of this -38- Section 10.1, which shall not be limited to Developer's best knowledge, but shall be absolute), or in any document or certificate furnished or to be furnished to NEPP pursuant hereto contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. All such representations, warranties or statements of Developer are based, to the best of Developer's knowledge, upon current, accurate and complete information as of the time of their making, and there have been, to the best of Developer's knowledge, no changes in such information subsequent thereto. Section 10.2 NEPP. As of the date hereof each of the statements in this ---- Section 10.2 shall be a true, accurate and full disclosure of all facts relevant to the matter contained therein, and such warranties and representations shall survive the execution of this Agreement. As of the date hereof, NEPP hereby represents and warrants that: - NEPP is a duly organized limited partnership validly existing under the laws of the Commonwealth of Massachusetts and has the requisite power and authority to enter into and carry out the terms of this Agreement; - All partnership action required to be taken by NEPP to consummate this Agreement has been taken and that no further approval of any board, court, or other body is necessary in order to permit NEPP to consummate this Agreement. - To the best of its knowledge, neither the execution and delivery of this Agreement nor the performance of nor the compliance with this Agreement, has resulted (or will result in) any violation of, or will be in conflict with, or invalidate, cancel, or make inoperative, or interfere with, or constitute a default under, or result in the creation of any lien, encumbrance or any other charge upon the Project pursuant to any charter, bylaw, venture agreement, partnership agreement, trust agreement, mortgage, deed of trust, indenture, contract, agreement, permit, judgment, decree, or order, to which NEPP is a party and there is no default and no event or omission has occurred which, but for the passing of time -39- or the giving of notice, or both, would constitute a default on the part of NEPP under this Agreement. - To the best of NEPP's knowledge, there is no action, proceeding or investigation, pending or threatened (nor any basis therefor), which questions, directly or indirectly, the validity or enforceability of this Agreement as to NEPP. - To the best of NEPP's knowledge, no representation, warranty or covenant of NEPP in this Agreement (except for the first two representations of this Section 10.2, which shall not be limited to NEPP's knowledge, but shall be absolute), or in any document or certificate furnished or to be furnished to Developer pursuant hereto contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. All such representations, warranties or statements of NEPP are based, to the best of NEPP's knowledge, upon current, accurate and complete information as of the time of their making, and there have been, to the best of NEPP's knowledge, no changes in such information subsequent thereto. Section 10.3 Brokers. Each party represents to the other that they have ------- not retained or been approached by any broker, finder, agent or the like in connection with this transaction or the negotiations thereof. Each party shall indemnify and hold the other party hereto harmless from and against all loss, liabilities, claims, damages and expenses, including court costs and reasonable attorneys' fees, arising out of any claim for brokerage or other commissions relative to this Agreement or the transactions contemplated hereby insofar as any such claim arises by reason of services alleged to have been rendered to or at the insistence of such indemnifying party. ARTICLE 11 TRANSFER OF INTERESTS --------------------- Section 11.1 Restrictions on Transfer. Except as expressly provided for ------------------------ in this Agreement, no Partner may, without the consent of the other Partner, sell, convey, transfer, assign, -40- mortgage, pledge, hypothecate or otherwise encumber in any way ("transfer") all or any portion of its Partnership Interest or any interest it may have in any property of the Partnership, or withdraw or retire from the Partnership. Any such attempted transfer, withdrawal or retirement not permitted hereunder shall be null and void. A transfer of an interest in Developer shall be deemed a transfer for the purpose of this Section 11.1, but any transfer of any interest in NEPP and any transfer of any interest in any of the partners of NEPP shall not be deemed to be a transfer prohibited hereby. Section 11.2 Right of First Refusal. If a Partner consents to a ---------------------- proposed transfer or the prohibitions contained in Section 11.1 are determined by a court of competent jurisdiction to be unenforceable, then a Partner (the "Selling Partner") desiring to transfer its Interest shall nevertheless notify ("Offering Notice") the other of its intention to do so. The Offering Notice shall specify the nature of the transfer, the consideration to be received therefor, the identity of the proposed purchaser (or lender, as the case may be), and the terms upon which it intends to undertake such transfer. The non-Selling Partner shall have the right to elect to purchase from the Selling Partner all (but not less than all) of the Interest referred to in the Offering Notice at the same price and on the same terms as specified in the Offering Notice for a period of 30 days after the giving of the Offering Notice (or make the loan, if the same involves an encumbrance, hypothecation or mortgage, upon the same terms on which said loan was to be made therefor) by delivering in writing to the Selling Partner an offer to purchase that portion of the Interest of the Selling Partner (or to make the loan) covered by the Offering Notice. Within 45 days thereafter, the purchase by the non-Selling Partner of said Interest shall be consummated on the terms and conditions set forth in the Offering Notice of the Selling Partner (or if the same involves a mortgage, encumbrance or other hypothecation, the loan shall be consummated upon the terms and conditions of the loan set forth in the Offering Notice). If within the 30-day period during which the non-Selling Partner has the right to elect to purchase the Selling Partner's Interest (or to elect to make the loan specified therein), it does not make such election, then the Selling Partner, within 120 days after the expiration of said 30-day period, or within the time scheduled for closing by the purchasing person, firm or corporation, whichever is later, may undertake and complete the transfer to any Person the identity of which was disclosed in the -41- Offering Notice. The transfer shall not be undertaken at a lower price or upon more favorable terms than specified in the Offering Notice. If the Selling Partner does not then consummate the original proposed transfer within 150 days after the date of the Offering Notice, or within the time scheduled for closing by the purchasing person, firm or corporation, whichever is later, then all restrictions of this Section 11.2 shall apply as though no Offering Notice had been given. Section 11.3 Permitted Transfers. NEPP or its successors, without the ------------------- consent of Developer or being subject to Section 11.2, may: - transfer all of its Interest to its successors by merger or consolidation or to any Affiliate of NEPP or to any Entity managed or advised by Copley Real Estate Advisors, Inc.; - transfer to any Person any portion of its allocable interest in the items of loss, deduction and credit of the Partnership (on the condition that NEPP never shall have less than 1% interest in such items); and - assign its rights to all cash distributions and other issues, profits, proceeds and avails payable to it under this Agreement in connection with any loans or financing arrangements obtained by it from time to time. Developer or its successors, without the approval of NEPP or being subject to Section 11.2, may transfer all of its Interest to any Person which at all times shall be at least 51% owned and shall be controlled by Robert K. Rodde and/or John E. McNellis, such that if a partnership, Robert K. Rodde and/or John E. McNellis shall be a general partner owning at least 51% general partnership interest in such Person, if a corporation, Robert K. Rodde and/or John E. McNellis shall have all authority and right to manage and control the affairs of such Person and shall own at least 51% of the authorized, issued and outstanding capital stock of such Person or if a trust, Robert K. Rodde and/or John E. McNellis shall be the only voting trustee(s). For purposes of this paragraph, "Robert K. Rodde" and "John E. McNellis" shall include their respective estates. Any such permitted transferee shall receive and hold such Partnership Interest or portion thereof subject to the terms of this Agreement and the obligations of the transferor Partner, and -42- there shall be no further transfer of such Partnership Interest or portion thereof except to a trust, person or entity to whom such permitted transferee could have transferred his Partnership Interest in accordance with this Section 11.3 had such permitted transferee originally been named as a Partner or as a partner in Developer, or otherwise in accordance with the other terms of this Agreement. Section 11.4 General Transfer Provisions. All transfers shall be by --------------------------- instrument in form and substance satisfactory to counsel for the Partnership and shall contain an expression by the assignee of its intention to accept the assignment and to accept and adopt all of the terms and provisions of this Agreement, as the same may have been amended, and shall provide for the payment by the assignor of all reasonable expenses incurred by the Partnership in connection with such assignment, including, without limitation, the necessary amendments to this Agreement to reflect such transfer. The transferor shall execute and acknowledge all such instruments, in form and substance reasonably satisfactory to the Partnership's counsel, as may be necessary or desirable to effectuate such transfer. In no event shall the Partnership dissolve or terminate upon the admission of any Partner to the Partnership or upon any permitted assignment of an Interest in the Partnership by any Partner. Each Partner hereby waives its right to dissolve, liquidate or terminate the Partnership in such event. Upon completion of a transfer in compliance with this Agreement, the transferor shall be released from all future obligations arising under this Agreement after the date of such transfer provided the assignee of such -------- transferor assumes all such obligations of the transferor. However, the transferor shall remain liable for its obligations under this Agreement occurring on or prior to the date of such transfer. Section 11.5 Tax Allocations and Cash Distributions. If an Interest is -------------------------------------- transferred, the Net Profit or Loss allocable, and cash distributable, to the holder of such Interest for the then Fiscal Year shall be allocated and distributed based on a method consistent with Section 706(d) of the Code. However, if such parties agree that such Net Profit or Loss and cash are to be allocated and distributed based upon an interim closing of the Partnership books, and such parties agree to pay all expenses incurred by the Partnership in connection therewith and so notify the non-transferring Partner, then all such Net Profit or Loss and -43- cash shall be allocated and distributed between the transferor and transferee based upon an interim closing of the Partnership's books and records. In no event, however, shall Extraordinary Cash Flow or Net Profit or Loss arising from a Capital Transaction be distributed and allocated to any Partner other than the Partners owning Interests as of the date of the Capital Transaction in question. Section 11.6 Compliance. Notwithstanding anything to the contrary in ---------- this Agreement, at law or in equity, no Partner shall transfer or otherwise deal with any Interest in a way that would cause a default under any material agreement to which the Partnership is a party or by which it is bound. Section 11.7 Waiver of Partition. Neither Partner shall, either ------------------- directly or indirectly, take any action to require partition or appraisement of the Partnership or of any of its assets or properties or cause the sale of any Partnership property, and notwithstanding any provisions of applicable law to the contrary, each Partner (and its legal representatives, successors or assigns) hereby irrevocably waives any and all right to maintain any action for partition or to compel any sale with respect to its Interest, or with respect to any assets or properties of the Partnership, except as expressly provided in this Agreement. ARTICLE 12 BUY/SELL -------- Section 12.1 Buy/Sell Events. For purposes of this Article 12, each of --------------- the following shall constitute a "Buy/Sell Event": - if within 10 days after notice from a Partner specifying a material default or defaults of another Partner in its covenants, agreements or obligations contained herein, including, without limitation, a transfer other than as permitted by Article 11, the notified Partner has not commenced diligently to correct the default or defaults so specified or has not thereafter pursued such correction to completion but in any event within 90 days of said notice; -44- - if an Event of Bankruptcy with respect to a Partner occurs which is not discharged or stayed within a period of 90 days of its occurrence; or - the Incapacity of NEPP; or - NEPP becomes the owner of 80% or more of the Interests. Section 12.2 Rights Arising from a Buy/Sell Event. When a Buy/Sell ------------------------------------ Event occurs with respect to a Partner (the "Defaulting Partner"), the other Partner (the "Electing Partner") shall have the right, but not the obligation, to implement the Buy/Sell procedures set forth in this Article 12, by giving written notice within 180 days of the Buy/Sell Event ("Election Notice") thereof to the Defaulting Partner. The failure of a Partner to so elect by Election Notice shall preclude election by such Partner thereafter with respect to such Buy/Sell Event, providing the Defaulting Partner has given the other Partner written notice of the Buy/Sell Event within 10 days after the occurrence of such Buy/Sell Event. Section 12.3 Determination of Fair Market Value. Upon the giving of an ---------------------------------- Election Notice, the "Fair Market Value" of the assets of the Partnership shall be determined as set forth in this Section 12.3. The Partners shall attempt in good faith to agree upon the Fair Market Value of the assets of the Partnership. If within 30 days after the Election Notice is given, the Partners fail so to agree, the Electing Partner and the Defaulting Partner shall each select one appraiser, each of whom shall be a member of the American Institute of Real Estate Appraisers, within 15 days after the expiration of such thirty-day period and each shall notify the other of the appraiser selected by it. If a Partner fails to select an appraiser, the appraiser selected shall act alone. The appraiser or appraisers shall value the assets of the Partnership within 60 days of their selection. If one appraiser acts, the Fair Market Value shall be the amount determined by such appraiser. If two appraisers act, the Fair Market Value shall be the average of the amounts so determined, so long as neither appraisal exceeds the other by 5% or more of the higher of the two appraisals. If, however, the appraisals do vary by 5% or more, then the two appraisers shall appoint a third appraiser within 30 days. If they fail to do so, then either Partner may request the American Arbitration Association or any successor organization -45- thereto to appoint a third appraiser. If a third appraiser has not been appointed by the American Arbitration Association within 60 days of a Partners' request for it to do so, then either Partner may apply to any court having jurisdiction to appoint the third appraiser. The third appraiser, whether appointed by the original appraisers, the American Arbitration Association or a court, shall value the assets of the Partnership within 30 days after its selection or appointment. If the third appraisal exceeds the first two appraisals, the Fair Market Value shall be the higher of the first two appraisals; if the third appraisal is less than the first two appraisals, the Fair Market Value shall be the lower of the first two appraisals. In all other cases, the Fair Market Value shall be equal to the third appraisal. This provision for determination by appraisal shall be specifically enforceable to the extent such remedy is available under applicable law, and the determination of Fair Market Value hereunder shall be final and binding upon the parties. When determining the Fair Market Value, the appraiser(s) shall (i) estimate the fairest price estimated in terms of money which the Partnership could obtain if its assets were exposed for sale in the open market allowing a reasonable time to find a purchaser who buys with knowledge of the uses which such assets in their then condition are adapted and for which such assets are capable of being used at the time the Buy/Sell Event occurred and (ii) deduct from such price the reasonable estimated costs of consummating such a sale, including without limitation brokerage commissions. The appraiser(s) shall also take into consideration whether or not any debt to which the assets of the Partnership are subject is prepayable or callable. Section 12.4 Appraisal Fees. Each Partner shall pay the fees and -------------- expenses of the appraiser selected by it. The fees and expenses of the third appraiser shall be paid one-half by each Partner. If only one appraiser is used, the fees and expenses of such appraiser shall be paid one-half by each Partner. Section 12.5 Determination of Purchase Price. Within 15 days after the ------------------------------- determination of the Fair Market Value of the assets of the Partnership, the Accountants shall determine all liabilities of the Partnership and the amount of cash which would -46- be distributed to each Partner pursuant to the provisions of each of clauses FIRST through FIFTH of Section 5.3 if the assets of the Partnership had been sold for the Fair Market Value as of the date of the Buy/Sell Event and shall give each Partner written notice ("Accountant's Notice") thereof. The determination by the Accountant of such amounts shall be conclusive. For purposes of this Agreement, the amount so determined by the Accountant to be distributable to a Partner pursuant to clause FIFTH of Section 5.3 of this Agreement shall be referred to as the "Distributable Cash". Section 12.6 Electing Partner's Option. For a period of 30 days after ------------------------- the Electing Partner receives the Accountant's Notice, the Electing Partner shall have the option to purchase, for cash, the Interest of the Defaulting Partner for 90% of the Distributable Cash and 100% of the aggregate amount, if any, which would be distributable to the Defaulting Partner under clauses FIRST through FOURTH of Section 5.3 if the assets of the Partnership had been sold for the Fair Market Value as of the date of the Buy/Sell Event (the "Purchase Price"), by notice to the Defaulting Partner. If this option is not so exercised, then it shall terminate and be of no further force or effect. Section 12.7 Closing of Purchase and Sale. The closing of a purchase ---------------------------- pursuant to this Article 12 shall be held at the principal office of the Partnership 30 days after the Electing Partner exercises its option under Section 12.6. The Defaulting Partner (the seller) shall transfer to the Electing Partner (the buyer or its designee) the entire Interest of the Defaulting Partner in the Partnership free and clear of all liens, security interests and competing claims, and shall deliver to the Electing Partner or its designee such instruments of transfer, releases and such evidence of due authorization, execution and delivery and of the absence of any liens, security interests or competing claims as the Electing Partner shall reasonably request. Section 12.8 Payment. At the closing, the Electing Partner or its ------- designee shall pay the Purchase Price by delivery at the closing of a certified or bank cashier's check payable to the order of the Defaulting Partner in the amount of the Purchase Price determined pursuant to Section 12.6. Section 12.9 Liabilities. The purchase of the Interest of a Defaulting ----------- Partner pursuant to this Article 12 shall release the Defaulting Partner (and the purchasing Partner shall indemnify and hold harmless the Defaulting Partner) from all liabilities and -47- claimed liabilities of the Partnership except for liabilities not taken into account in the determination of Purchase Price and tort liabilities not taken into account in the determination of Purchase Price to the extent such tort liabilities are not covered by insurance for events occurring prior to the Defaulting Partner's withdrawal from the Partnership. Section 12.10 Failure to Exercise Option. If an Electing Partner fails -------------------------- to exercise the option herein granted to it, then the Electing Partner, within 30 days after such option expires and terminates, may dissolve the Partnership by notifying the Defaulting Partner. ARTICLE 13 EXIT RIGHTS ----------- [Intentionally omitted.] ARTICLE 14 TERMINATION OF THE PARTNERSHIP ------------------------------ Section 14.1 Events of Dissolution. The Partnership shall dissolve upon --------------------- the first to occur of the following events: - the expiration of the term of the Partnership as provided in Section 1.9; - upon an election by an Electing Partner pursuant to Section 12.10; - the sale or other disposition (including, without limitation, taking by eminent domain) of all or substantially all of the assets of the Partnership unless such sale or other disposition involves any deferred payment of the consideration for such sale or disposition, in which case the Partnership shall not dissolve until the last day of the calendar year during which the Partnership shall receive the balance of such deferred payment; - the occurrence of an Event of Bankruptcy of the Partnership, which is not discharged or stayed within 90 days of occurrence; -48- - the issuance of a decree of dissolution by a court of competent jurisdiction; or - upon notice by NEPP to Developer on or after January 1, 1997 of its intent to dissolve the Partnership. Section 14.2 Effect of Dissolution. Upon dissolution of the Partnership --------------------- pursuant to Section 14.1, the Partnership shall not terminate but shall continue solely for the purposes of liquidating all of the assets owned by the Partnership (until all such assets have been sold or liquidated) and collecting the proceeds from such sales and all receivables of the Partnership unless the same have been written off as uncollectible. Upon dissolution, the Partnership shall engage in no further business thereafter other than that necessary to cause the Project to be operated on an interim basis and for the Partnership to collect its receivables, liquidate its assets and pay or discharge its liabilities. Section 14.3 Sale of Assets by Liquidating Trustee. Upon dissolution of ------------------------------------- the Partnership, NEPP shall, as "Liquidating Trustee", proceed diligently to wind up the affairs of the Partnership and distribute its assets. NEPP shall be permitted to appoint another person to serve as Liquidating Trustee, or another person to succeed any subsequently selected successor, whenever the person originally selected or any such subsequently selected successor, as the case may be, fails for any reason to carry out such purpose. The Liquidating Trustee may be an individual, corporation or general or limited partnership. The Liquidating Trustee shall promptly after dissolution obtain an appraisal of the assets of the Partnership by a member of the American Institute of Real Estate Appraisers selected by the Liquidating Trustee. All of the assets of the Partnership, if any, other than cash, shall be offered (either as an entirety or on an asset-by-asset basis) promptly for sale, upon such terms as the Liquidating Trustee shall determine using the above appraisal as a guide. The decision to accept or reject an offer to purchase assets of the Partnership shall be made solely by the Liquidating Trustee. In winding up the affairs of the Partnership, the Liquidating Trustee shall pay the liabilities of the Partnership in such order of priority as provided by law. If at the time of dissolution the completion of all buildings then under construction on the Land has not occurred, the Liquidating Trustee, in winding up the -49- affairs of the Partnership, shall have the authority, but not the obligation, to complete the construction of the buildings. All distributions of cash in winding up the affairs of the Partnership shall be made in accordance with the provisions of Section 5.5. ARTICLE 15 MISCELLANEOUS ------------- Section 15.1 Notices. All notices required or permitted by this ------- Agreement shall be in writing and may be delivered in person to either party or may be sent by registered or certified mail, with postage prepaid, return receipt requested, or may be transmitted by telegraph, telecopy, overnight courier, personal delivery or other commercially reasonable means, and addressed in the case of NEPP to: c/o Copley Advisors, Inc. 399 Boylston Street Boston, Massachusetts 02116 Attention: General Counsel Re: R/M Salinas L.P. and in the case of Developer to: Rodde McNellis/Salinas c/o Rodde McNellis 601 California Street Suite 601 San Francisco, California 94108 Attention: Robert K. Rodde or to such other address as shall from time to time be supplied in writing by any party to the other. Notice sent by registered or certified mail, postage prepaid, with return receipt requested, addressed as above provided, shall be deemed given four days after deposit of same in the United States mail. If any notice is telegraphed the same shall be deemed served or delivered 48 hours after the transmission thereof. Any notice or other document sent or delivered in any other manner shall be effective only if and when received. -50- Section 15.2 Successors and Assigns. Subject to the restrictions on ---------------------- transfer set forth herein, this Agreement shall bind and inure to the benefit of the parties hereto and their respective legal representative, successors and assigns. Section 15.3 No Oral Modifications; Amendments. No oral amendment of --------------------------------- this Agreement shall be binding on the Partners. Any modification or amendment of this Agreement must be in writing signed by all of the Partners. Section 15.4 Captions. Any article, section or paragraph titles or -------- captions contained in this Agreement and the table of contents are for convenience of reference only and shall not be deemed a part of this Agreement. Section 15.5 Terms. Common nouns and pronouns shall be deemed to refer ----- to the masculine, feminine, neuter, singular and plural, as the identity of the Person or Entity may in the context require. Any references to the Code, the Act or other statutes or laws shall include all amendments, modifications or replacements of the specific sections and provisions concerned. Section 15.6 Invalidity. If any provision of this Agreement shall be ---------- held invalid, it shall not affect in any respect whatsoever the validity of the remainder of this Agreement. Section 15.7 Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same instrument, binding on the Partners, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. Section 15.8 Further Assurances. The parties hereto agree that they ------------------ will cooperate with each other and will execute and deliver, or cause to be delivered, all such other instruments, and will take all such other actions, as either party hereto may reasonably request from time to time in order to effectuate the provisions and purposes hereof. Section 15.9 Complete Agreement. This Agreement constitutes the ------------------ complete and exclusive statement of the agreement between the Partners. It supersedes all prior written and oral statements and no representation, statement, condition or warranty not contained in this Agreement shall be binding on the Partners or have any force or effect whatsoever. -51- Section 15.10 Attorneys' Fees. If any proceeding is brought by one --------------- Partner against the other to enforce, or for breach of, any of the provisions in this Agreement, the prevailing Partner shall be entitled in such proceeding to recover reasonable attorneys' fees together with the costs of such proceeding therein incurred, including attorneys' fees and costs in enforcing any judgment. Section 15.11 Governing Law. This Agreement shall be construed and ------------- enforced in accordance with the laws of the State of California. Section 15.12 No Third Party Beneficiary. Any agreement to pay any -------------------------- amount and any assumption of liability herein contained, express or implied, shall be only for the benefit of the Partners and their respective heirs, successors and assigns, and such agreements and assumption shall not inure to the benefit of the obligees of any indebtedness or any other party, whomsoever, it being the intention of the Partners that no one shall be deemed to be a third party beneficiary of this Agreement. Section 15.13 Exhibits and Glossary. Each of the Exhibits and the --------------------- Glossary attached hereto are hereby incorporated herein and made a part hereof for all purposes, and references herein thereto shall be deemed to include this reference and incorporation. Section 15.14 Estoppels. Each Partner shall, upon not less than 15 --------- days' written notice from the other Partner, execute and deliver to the other Partner a statement certifying that this Agreement is unmodified and in full force and effect (or, if modified, the nature of the modification) and whether or not there are, to such Partner's knowledge, any uncured defaults on the part of the other Partner, specifying such defaults if any are claimed. Any such statement may be relied upon by third parties. Section 15.15 References to this Agreement. Numbered or lettered ---------------------------- articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement unless otherwise expressly stated. The words "herein," "hereof," "hereunder," "hereby," "this Agreement" and other similar references shall be construed to mean and include this Partnership Agreement and all amendments thereof and supplements thereto unless the context shall clearly indicate or require otherwise. Section 15.16 Reliance on Authority of Person Signing Agreement. If a ------------------------------------------------- Partner is a trust (with or without disclosed -52- beneficiaries), general partnership, limited partnership, joint venture, corporation, or any entity other than a natural person, the Partnership and the Partners shall: - not be required to determine the authority of the person signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such person; - not be required to see to the application or distribution of proceeds paid or credited to persons signing this Agreement on behalf of such entity; - be entitled to rely on the authority of the person signing this Agreement with respect to the voting of the Interest of such entity and with respect to the giving of consent on behalf of such entity in connection with any matter for which consent is permitted or required under this Agreement; and - be entitled to rely upon the authority of any general partner, joint venturer, co- or successor trustee, or president or vice president, as the case may be, of any such entity the same as if such person were the person originally signing this Agreement on behalf of such entity. Section 15.17 Consents and Approvals. Whenever the consent or approval ---------------------- of a Partner is required by this Agreement, such Partner shall have the right to give or withhold such consent or approval in its sole discretion, unless otherwise specified. Section 15.18 Construction of Agreement. The terms and provisions of ------------------------- this Agreement shall be interpreted and construed without regard to, and the parties hereby expressly waive and disclaim, any rule of law to the effect that ambiguous or conflicting terms or provisions contained in this Agreement shall be interpreted or construed against the party which prepared this Agreement. -53- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP By: FIFTH COPLEY CORP., a Massachusetts corporation, its managing general partner By: --------------------------------- DEVELOPER: RODDE MCNELLIS/SALINAS, a California general partnership By: --------------------------------- John E. McNellis, general partner By: --------------------------------- Robert K. Rodde, general partner -54- EXHIBIT A LEGAL DESCRIPTION OF LAND ------------------------- Certain real property situate, lying and being in Lot 14 of the Rancho Santa Rita in the County of Monterey, State of California, being a part of that certain 9.807 acre tract of land designated as Parcel "A" and of that certain 15 acre tract of land designated as Parcel "B" in that certain deed from Dominie B. Mazza, et ux to John Nielsen, et ux, dated November 21, 1929 and recorded in Volume 217 of Official Records at Page 391, Monterey County Records, said part being particularly described as follows, to-wit: Beginning at a steel bar standing in the southerly boundary of said 15 acre tract of land at the intersection thereof with the casterly line of California State Highway U.S. 101 as widened to 100 feet by deed dated March 11, 1931 from John Nielsen, et ux to State of California and recorded in Volume 294 of Official Records at Page 354, Monterey County Records, and running thence from said place of beginning along said highway line, (1) N. 8(degrees) 37' 20" W., 746.76 feet; thence tangentially (2) curving to the right on a circular arc of 4950 feet radius through an angle of 0(degrees) 29' 34" for a distance of 42.57 feet to a 6" X 6" concrete monument; thence leave said highway line and running along the northerly boundary of said 9.807 acre tract of land. (3) S. 89(degrees) 56' 40" R., 677.91 feet to a 1 1/2 diameter iron pipe; thence leave last mentioned boundary and running (4) S. 10(degrees) 27' 20" W., 931.3 feet to a 1 1/2" diameter iron pipe standing in the southerly boundary of said 15 acre tract of land; thence along last mentioned boundary (5) N. 70(degrees) 48' W., 413.77 feet to the place of beginning. Course all true. A.P. NO. 253-161-17 A-1 EXHIBIT B [Property Management Agreement] B-1 GLOSSARY OF DEFINED TERMS R/M SALINAS L.P. LIMITED PARTNERSHIP AGREEMENT Capitalized terms used in this Limited Partnership Agreement of R/M Salinas L.P. shall have the meanings ascribed to them below: Accountants means Kenneth Leventhal & Company or such firm of ----------- independent, certified public accountants as may be selected by NEPP. Accountant's Notice shall have the meaning set forth in Section 12.5. ------------------- Accrued Junior Priority Return shall have the meaning set forth in ------------------------------ Section 5.2(b). Act means the California Revised Limited Partnership Act, as set forth --- in Title 2, Chapter 3 of the California Corporations Code, as amended. Adjusted Capital Account shall have the meaning set forth in Section ------------------------ 3.1(b). Adjustment Percentage shall have the meaning set forth in Section 6.3. --------------------- Affiliate means a Person that directly or indirectly, through one or --------- more intermediaries, controls, is controlled by, or is under common control with the person in question and any officer, director, trustee, employee, stockholder (10% or more) or partner of any Person referred to in the preceding clause. For purposes of this definition, the term "control" means the ownership of 10% or more of the beneficial interest or the voting power of the appropriate Entity. Notwithstanding the foregoing, a person shall not be considered an affiliate of NEPP or Developer solely by reason of the fact that such person is engaged in one or more real estate projects with NEPP or Developer on a joint venture basis. Agreement shall have the meaning set forth in the Preamble. --------- C-1 Book Value means, with respect to any asset, the asset's adjusted basis ---------- for federal income tax purposes, except as follows: (i) the initial Book Value of any asset contributed (or deemed contributed) to the Partnership shall be such asset's gross fair market value at the time of such contribution; (ii) the Book Value of all Partnership assets shall be adjusted to equal their respective gross fair market values at the times specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(f) if the Partnership so elects; (iii) if the adjusted basis of any asset acquired by the Partnership is determined by reference to the adjusted basis of any other asset of the Partnership, the Book Value of the acquired asset shall be determined by reference to the Book Value of the other asset rather than its adjusted basis; and (iv) if the Book Value of an asset has been determined pursuant to clause (i), (ii) or (iii), such Book Value shall thereafter be adjusted in the same manner as would the asset's adjusted basis for federal income tax purposes except that depreciation deductions shall be computed in accordance with Section 7.1(a)(iv). Buy/Sell Event shall have the meaning set forth in Section 12.1. -------------- Capital Account shall have the meaning set forth in Section 3.1(a). --------------- Capital Transaction shall have the meaning set forth in Section 5.1. ------------------- Code means the Internal Revenue Code of 1986, as amended from time to ---- time, and all published rules, rulings and regulations thereunder at the time of reference thereto. Contributing Partner shall have the meaning set forth in Section 6.2. -------------------- Default Contribution shall have the meaning as set forth in Section -------------------- 6.2. Default Preferred Return shall have the meaning as set forth in Section ------------------------ 6.2. C-2 Defaulting Partner shall have the meaning set forth in Section 12.2. ------------------ Deficit Contribution shall have the meaning set forth in Section 6.1. -------------------- Deficit Equity Rate means the annaul rate of interest announced from ------------------- time to time by Wells Fargo Bank, N.A. as its "prime" or "base" rate to commercial borrowers with the highest credit rating, for short-term, unsecured loans. Deficit Preferred Return shall have the meaning set forth in Section ------------------------ 6.1. Developer or the Limited Partner shall have the meaning set forth in --------- --------------- the Recital. Distributable Cash shall have the meaning set forth in Section 12.5. ------------------ Economic Risk of Loss means the risk as determined under Treasury --------------------- Regulation Section 1.752-2 that a partner or person related to a partner will suffer an economic loss as a result of the failure of the Partnership to repay a liability. Electing Partner shall have the meaning set forth in Section 12.2. ---------------- Election Notice shall have the meaning set forth in Section 12.2. --------------- Entity means any general partnership, limited partnership, corporation, ------ joint venture, trust, business trust, cooperative or association. Event of Bankruptcy means, as to the Partnership or a Partner, (1) ------------------- filing a voluntary petition in bankruptcy or for reorganization or for the adoption of an arrangement under the Federal Bankruptcy Code (as now or in the future amended) or an admission seeking the relief therein provided; (2) making a general assignment for the benefit of its creditors; (3) consenting to the appointment of a receiver for all or a substantial part of its property; (4) in the case of the filing of an involuntary petition in bankruptcy, an entry of an order for relief; (5) the entry of a court order appointing a receiver or trustee for all or a substantial part of its property without its C-3 consent; or (6) the assumption of custody or sequestration by a court of competent jurisdiction of all or substantially all of its property. Extraordinary Cash Flow shall have the meaning set forth in Section ----------------------- 5.1. Fair Market Value shall have the meaning set forth in Section 12.3. ----------------- Fiscal Year shall have the meaning set forth in Section 8.7. ----------- Guaranteed Senior Invested Capital Payment Distribution shall have the ------------------------------------------------------- meaning set forth in Section 5.6. Guaranteed Senior Invested Capital Reduction Payment shall have the ---------------------------------------------------- meaning set forth in Section 5.2(a). Guaranteed Senior Payments shall have the meaning set forth in Section -------------------------- 5.2(a). Guaranteed Senior Return Payment shall have the meaning set forth in -------------------------------- Section 5.2(a). Gross Income shall have the meaning set forth in Section 7.1. ------------ Ground Lease means that ground lease between Nielsen as landlord and ------------ the Partnership, as successor in interest to the Original Partnership, as tenant, dated January 23, 1988 and relating to the Property. Improvements means the buildings and other improvements constructed on ------------ the Land by the Partnership. Incapacity means for a Partner or an Entity which is the general ---------- partner of a Partner, the dissolution, liquidation or termination (but not including a termination under Section 708(b)(1)(B) or Section 708(b)(2)(A) of the Code) of such Partner or Entity. Indemnitor shall have the meaning set forth in Section 2.8. ---------- Interest means the entire ownership interest (which may be segmented -------- into and/or expressed as a percentage of various rights and/or liabilities) of a Partner in the Partnership at any particular time, including the right of such Partner to any and C-4 all benefits to which a Partner may be entitled as provided in this Agreement and in the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement and of the Act. IRS means the Internal Revenue Service. --- Junior Capital shall have the meaning set forth in Section 3.2. -------------- Junior Invested Capital shall have the meaning set forth in Section ----------------------- 5.1. Junior Payments shall have the meaning set forth in Section 5.2(b). --------------- Junior Priority Return Payment shall have the meaning set forth in ------------------------------ Section 5.2(b). Land means the approximately 10.4-acre parcel of land located in the ---- City of Salinas, County of Monterey, California, as more particularly described in Exhibit A to this Agreement. --------- Liquidating Trustee shall have the meaning set forth in Section 14.3. ------------------- NEPP or the General Partner shall have the meaning set forth in the ---- --------------- Recital. Net Profit and Net Loss shall have the meanings set forth in Section ---------- -------- 7.1. Nielsen shall have the meaning set forth in Section 3.2. ------- Nielsen Documents shall have the meaning set forth in Section 3.2. ----------------- Nielsen Note means that promissory note from Nielsen to NEPP dated ------------ August 1, 1995 in the original principal amount of $1,750,000. Non-Contributing Partner shall have the meaning set forth in Section ------------------------ 6.2. Nonrecourse Deductions for a Fiscal Year (or other period) means ---------------------- deductions funded by Nonrecourse Liabilities (as determined under Treasury Regulation Section 1.704-2(c)) for such year and C-5 are generally equal to the excess, if any, of (i) the net increase in Partnership Minimum Gain during such year over (ii) the sum of (A) the aggregate distributions of proceeds from Nonrecourse Liabilities attributable to increases in Partnership Minimum Gain during such year and (B) increases in Partnership Minimum Gain during such year attributable to conversions of liabilities into Nonrecourse Liabilities. Nonrecourse Liability means any liability of a partnership (or portion --------------------- thereof) to the extent that no partner bears the Economic Risk of Loss associated with the liability. Offering Notice shall have the meaning set forth in Section 11.2. --------------- Operating Cash Flow shall have the meaning set forth in Section 5.1. ------------------- Operating Deficit shall have the meaning set forth in Section 6.1. ----------------- Operating Revenues shall have the meaning set forth in Section 5.1. ------------------ Original Agreement shall have the meaning set forth in the Recital. ------------------ Original Partnership shall have the meaning set forth in the Recital. -------------------- Partner means NEPP and Developer, and such successors, assigns or ------- additional partners as may be admitted to the Partnership, from time to time, pursuant to the terms of this Agreement. Partner Nonrecourse Debt means any partnership liability to the extent ------------------------ that the liability is nonrecourse for purposes of Treasury Regulation Section 1.1001-2 and a partner bears the Economic Risk of Loss associated with the liability. Partner Nonrecourse Debt Minimum Gain means the amount that would ------------------------------------- result if Partnership Minimum Gain were computed with respect to Partner Nonrecourse Debt rather than Nonrecourse Liabilities. C-6 Partner Nonrecourse Deductions means deductions funded from Partner ------------------------------ Nonrecourse Debt (as determined under Treasury Regulation Section 1.704-2(i)(2)) computed for a Fiscal Year (or other period) in a manner similar to that used in computing Nonrecourse Deductions but with reference to Partner Nonrecourse Debt Minimum Gain rather than Partnership Minimum Gain. Partner's Share of Partner Nonrecourse Debt Minimum Gain means an -------------------------------------------------------- amount of Partner Nonrecourse Debt Minimum Gain computed for each Partner in a manner similar to that used in computing a Partner's Share of Partnership Minimum Gain but with reference to Partner Nonrecourse Debt with respect to which the Partner bears the Economic Risk of Loss rather than to Nonrecourse Liabilities. Partner's Share of Partnership Minimum Gain means an amount of ------------------------------------------- Partnership Minimum Gain computed for each Partner under Treasury Regulation Section 1.704-2(g) and generally equal to the excess of (i) the sum of (A) the aggregate amount of Nonrecourse Deductions previously allocated to the Partner, (B) the aggregate amount of proceeds of Nonrecourse Liabilities attributable to increases in Partnership Minimum Gain previously distributed to the Partner and (C) increases in Partnership Minimum Gain during such Fiscal Year attributable to conversions of liabilities into Nonrecourse Liabilities over (ii) the Partner's aggregate proportionate share of previous decreases in Partnership Minimum Gain. A Partner's proportionate share of the decrease in Partnership Minimum Gain for a Fiscal Year shall be based upon the ratio that such Partner's Share of Minimum gain for the preceding year bore to the aggregate amount of Partnership Minimum Gain for such preceding Fiscal Year. Partnership means the limited partnership governed by this Agreement as ----------- said limited partnership may from time to time be constituted and amended. Partnership Agreement shall have the meaning set forth in the Recital. --------------------- Partnership Capital means an amount equal to the sum of all of the ------------------- Partners' Capital Account balances determined immediately prior to the allocation to the Partners pursuant to Sections 7.2(b)(ii)(y) or 7.2(c)(ii)(x) of any Net Profit or Net Loss from a Capital Transaction increased by the aggregate amount of Net Profit to be allocated to the Partners pursuant to Section 7.2(b)(ii)(y) as a result of such Capital Transaction or decreased by the aggregate amount of Net Loss to be allocated to the C-7 Partners pursuant to Section 7.2(c)(ii)(x) as a result of such Capital Transaction. Partnership Minimum Gain means the amount determined by computing with ------------------------ respect to each Nonrecourse Liability of the Partnership, the amount of Gross Income, if any, that would be realized by the Partnership if it disposed of the property securing such liability in full satisfaction thereof, and by then aggregating the amounts so computed. For purposes of determining the amount of such Gross Income with respect to a liability, the Book Value of the asset securing the liability shall be allocated among all the liabilities that the asset secures in the manner set forth in Treasury Regulation Section 1.704-2(d)(2). Payment Factor shall have the meaning set forth in Section 5.6. -------------- Person means any individual or Entity, and the heirs, executors, ------ administrators, legal representatives, successors and assigns of such Person where the context so admits; and, unless the context otherwise requires, the singular shall include the plural, and the masculine gender shall include the feminine and the neuter and vice versa. Project means the Land, together with the streets, sewers, curbs, ------- gutters, utility service connections, and other land development infrastructure and improvements constructed or to be constructed on or related to the Land (including related off-site improvements). Project Expenses shall have the meaning set forth in Section 5.1. ---------------- Property Manager shall have the meaning set forth in Section 2.10. ---------------- Purchase Price shall have the meaning set forth in Section 12.6. -------------- Reserve for Replacements shall have the meaning set forth in Section ------------------------ 5.1. Selling Partner shall have the meaning set forth in Section 11.2. --------------- C-8 Senior Capital shall have the meaning set forth in Section 3.2. -------------- Senior Invested Capital shall have the meaning set forth in Section ----------------------- 5.1. Senior Payments shall have the meaning set forth in Section 5.2. --------------- Tax Matters Partner shall have the meaning set forth in Section 8.6. ------------------- Transfer shall have the meaning set forth in Section 11.1. -------- Working Capital Fund shall have the meaning set forth in Section 5.1. -------------------- C-9 EX-10.FF 5 LIMITED PARTNERSHIP AGREEMENT OF IBG DAHLIA Limited Partnership Agreement of IBG Dahlia Associates dated September 1, 1995 between Registrant and 20 Dahlia Partnership, a California limited partnership. IBG DAHLIA ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP LIMITED PARTNERSHIP AGREEMENT LIMITED PARTNERSHIP AGREEMENT OF IBG DAHLIA ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP TABLE OF CONTENTS ----------------- Page ARTICLE 1 - THE PARTNERSHIP Section 1.1 Reconstitution.......................... 2 Section 1.2 Name.................................... 2 Section 1.3 Principal Executive Office.............. 2 Section 1.4 Purposes................................ 3 Section 1.5 Purposes Limited........................ 4 Section 1.6 No Payments of Individual Obligations............................. 4 Section 1.7 Statutory Compliance.................... 4 Section 1.8 Title to Property....................... 4 Section 1.9 Duration................................ 4 ARTICLE 2 - THE PARTNERS Section 2.1 Identification.......................... 5 Section 2.2 Liability Several....................... 5 Section 2.3 Noncompetition.......................... 5 Section 2.4 Limits on Developer's Activities........ 5 Section 2.5 Other Conflicts......................... 5 Section 2.6 Reimbursement and Fees.................. 6 Section 2.7 Indemnification of Partners by the Partnership............................. 6 Section 2.8 Indemnification by Partners............. 6 Section 2.9 Limitation on Liability of Partners..... 7 Section 2.10 Payments to Developer and Affiliates.... 8 ARTICLE 3 - CAPITAL Section 3.1 Capital Accounts and Adjusted Capital Accounts................................ 8 Section 3.2 Capital Contributions................... 9 Section 3.3 No Further Capital Contributions........ 10 Section 3.4 Capital Contributions - General......... 10 Section 3.5 Interests............................... 11 ARTICLE 4 - LOANS Section 4.1 Loans................................... 11 Section 4.2 Payment of Third Party Loans............ 11 ARTICLE 5 - CASH DISTRIBUTIONS Section 5.1 Definitions............................. 11 Section 5.1.1 Guaranteed Payments..................... 14 Section 5.2 Operating Cash Flow..................... 15 Section 5.3 Extraordinary Cash Flow ................ 16 Section 5.4 Distributions in Liquidation............ 17 Section 5.5 In-Kind Distribution.................... 17 ARTICLE 6 - OPERATING DEFICITS Section 6.1 Operating Deficits ..................... 17 ARTICLE 7 - TAX ALLOCATIONS Section 7.1 Definition of Net Profit and Net Loss... 17 Section 7.2 Allocation of Net Profit, Gross Income and Net Loss............................ 19 Section 7.3 Tax Allocations; Code Section 704(c).... 22 Section 7.4 Allocations Upon Transfer or Change of Interests..................... 23 ARTICLE 8 - ACCOUNTING AND RECORDS Section 8.1 Books and Records....................... 23 Section 8.2 Reports................................. 24 Section 8.3 Tax Returns............................. 24 Section 8.4 Depreciation............................ 24 Section 8.5 Special Basis Adjustment................ 24 Section 8.6 Tax Matters Partner..................... 25 Section 8.7 Fiscal Year............................. 25 Section 8.8 Bank Accounts........................... 25 ARTICLE 9 - MANAGEMENT AND OPERATIONS Section 9.1 Management.............................. 25 Section 9.2 Standard of Care........................ 28 Section 9.3 Insurance............................... 28 -ii- ARTICLE 10 - REPRESENTATIONS AND WARRANTIES Section 10.1 Developer............................... 28 Section 10.2 NEPP V.................................. 29 Section 10.3 Brokers................................. 31 ARTICLE 11 - TRANSFER OF INTERESTS Section 11.1 Restrictions on Transfer of Developer's Interest.................... 31 Section 11.2 No Restriction of Transfer of NEPP V Interest...................... 31 Section 11.3 Permitted Transfers..................... 32 Section 11.4 General Transfer Provisions............. 33 Section 11.5 Tax Allocations and Cash Distributions........................... 33 Section 11.6 Compliance.............................. 34 Section 11.7 Waiver of Partition..................... 34 ARTICLE 12 - OPTION TO PURCHASE DEVELOPER'S INTERST Section 12.1 NEPP V'S Right to Acquire Developer's Interest.................... 33 Section 12.2 Purchase Price.......................... 33 Section 12.3 Closing of Purchase and Sale............ 35 Section 12.4 Payment................................. 35 Section 12.5 Liabilities............................. 35 ARTICLE 13 - TERMINATION OF THE PARTNERSHIP Section 13.1 Events of Dissolution................... 35 Section 13.2 Effects of Dissolution.................. 36 Section 13.3 Sale of Assets by Liquidating Trustees................................ 36 ARTICLE 14 - MISCELLANEOUS Section 14.1 Notices................................. 37 Section 14.2 Successors and Assigns.................. 37 Section 14.3 No Oral Modifications; Amendments....... 37 Section 14.4 Captions................................ 37 Section 14.5 Terms................................... 38 Section 14.6 Invalidity.............................. 38 Section 14.7 Counterparts............................ 38 Section 14.8 Further Assurances...................... 38 Section 14.9 Complete Agreement...................... 38 Section 14.10 Attorneys' Fees......................... 38 Section 14.11 Governing Law........................... 38 -iii- Section 14.12 No Third Party Beneficiary.............. 38 Section 14.13 Exhibits and Glossary................... 39 Section 14.14 Estoppels............................... 39 Section 14.15 References to this Agreement............ 39 Section 14.16 Reliance on Authority of Person Signing Agreement....................... 39 Section 14.17 Consents and Approvals.................. 39 EXHIBITS A Legal Description of Land A Glossary of Defined Terms used in this Agreement is attached. -iv- IBG DAHLIA ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP LIMITED PARTNERSHIP AGREEMENT THIS LIMITED PARTNERSHIP AGREEMENT ("Partnership Agreement" or "Agreement") of IBG Dahlia Associates, a California Limited Partnership (the "Partnership"), is dated as of September 1, 1995, between 20 Dahlia Partnership, a California Limited Partnership ("Developer" or the "Limited Partner"), and New England Pension Properties V; a Real Estate Limited Partnership, a Massachusetts limited partnership ("NEPP V" or the "General Partner"). Developer and NEPP V are sometimes hereinafter referred to collectively as the "Partners" and individually as a "Partner." Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the glossary attached hereto. WHEREAS, IBG Dahlia Associates (the "Original Partnership"), was formed pursuant to that certain IBG Dahlia Associates General Partnership Agreement entered into by and between NEPP V and Developer dated as of August 28, 1987 (the "Original Agreement"); and WHEREAS, the Partners have agreed to convert the Partnership into a California limited partnership as of the date of filing, with the California Secretary of State, of a Certificate of Limited Partnership (Form LP-1) for the Partnership; WHEREAS, the parties hereto now desire to amend and completely restate the Original Agreement in its entirety on the terms and conditions hereinafter set forth to provide for (i) the conversion of the Original Partnership from a California general partnership into a California limited partnership; and (ii) such other changes to the Original Agreement as the Partners deem appropriate. NOW, THEREFORE, in consideration of the foregoing, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual agreements set forth in this Agreement and intending to be legally bound, the parties hereby agree to continue the Partnership as a California limited partnership in accordance with the California Revised Limited Partnership Act (the "Act") and do hereby agree as follows: ARTICLE I THE PARTNERSHIP --------------- Section 1.1 Reconstitution. The Partners hereby -------------- reconstitute the Original Partnership as a California limited partnership in accordance with the provisions of the Act. The Partners hereby make and execute this Agreement so as to set forth the rights, duties, obligations and limitations on the liabilities of the Partners, including, without limitation, the rights of the Partners with respect to the assets and profits of the Partnership, which the Partners shall be entitled to receive by reason of being a general or limited partner of the Partnership. In furtherance of the foregoing provisions of this Section 1.1, the Partners hereby acknowledge that (i) the interest of Developer as a general partner in the Original Partnership is hereby converted into an interest as a limited partner in the Partnership, and (ii) Developer is hereby entitled to exercise all of the rights, powers, and privileges, and is hereby obligated to perform all of the duties and obligations, which may hereafter exist with respect to a limited partner of the Partnership. Each of the Partners hereby consents to the conversion described above in this Section 1.1 and acknowledges that the Partnership shall not dissolve or terminate as a result of such conversion; on the contrary, the business of the Partnership shall continue without any interruption and without any break in continuity. Concurrently with the execution of this agreement, the General Partner shall execute one (1) or more copies of a Certificate of Limited Partnership for the Partnership pursuant to the provisions of Section 15621 of the California Corporations Code, which shall be duly filed in the Office of the California Secretary of State and certified copies of which may, in the sole discretion of the General Partner, be recorded in any county. Section 1.2 Name. The name of the Partnership is hereby ---- changed to "IBG Dahlia Associates, a California Limited Partnership," or if that name is not available, any other name the General Partner may select that is in compliance with the Act. In furtherance of the foregoing name change, the Partners hereby authorize the General Partner to execute and deliver (with acknowledgment, verification, and/or affidavit, if required) any and all documents required to effectuate such name change including, without limitation, a Cancellation of Statement of Partnership and Statement of Abandonment of Use of Fictitious Business Name for the Original Partnership. Section 1.3 Principal Executive Office. The principal -------------------------- executive office of the Partnership shall be located in care of Investment Building Group, 500 North State College Boulevard, -2- Suite 525, Orange, California 92668, or at such other place within or without the State of California as may be selected by NEPP V. The Partnership shall at all times maintain an office in California for purposes of Section 15614 of the Act. Section 1.4 Purposes. The sole purposes of the Partnership -------- shall be to acquire, own and hold for production of income, improve, develop, operate, manage, lease, sell, dispose and otherwise deal with the Project. In furtherance of these purposes, but subject to all other provisions of this Agreement, the Partnership is hereby authorized: - to acquire by purchase, lease or otherwise, any real or personal property, including the Land (and to enter into options and agreements so to acquire such real or personal property), which may be necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; - to construct, operate, maintain, finance, improve, own, sell, convey, assign, mortgage or lease any real estate and any personal property necessary, convenient or incidental to the accomplishment of the purposes of the Partnership; - to borrow money and issue evidences of indebtedness in furtherance of any or all of the purposes of the Partnership, and to secure the same by mortgage, pledge or other lien on the Project and/or any other assets of the Partnership; - to borrow money on the general credit of the Partnership for use in the Partnership business and to execute documents in connection therewith; - to enter into, perform and carry out contracts of any kind, including contracts with an Affiliate of a Partner, necessary to, in connection with or incidental to, the accomplishment of the purposes of the Partnership; - to enter into any kind of activity and to perform and carry out contracts of any kind necessary to, or in connection with, or incidental to the accomplishment of the purposes of the Partnership, so long as said activities and contracts may be lawfully carried on or performed by a partnership under applicable laws; - to enter into, on behalf of the Partnership, easements, rights of way, utility or other agreements necessary for the development of the Project or any portion thereof or -3- to permit access over, through, and across the Project or any portion thereof (to serve adjoining properties, for vehicular and pedestrian access, utility installations maintenance and other purposes); - to prepay in whole or in part, refinance, recast, increase, modify, or extend any mortgage affecting the Project or other indebtedness of the Partnership and, in connection therewith, to execute any extensions, renewals or modifications of such other mortgages and indebtedness; and - to take or cause to be taken all actions and to perform or cause to be performed all functions necessary or appropriate to promote the business of the Partnership and to realize and carry out its purposes. Section 1.5 Purposes Limited. The Partnership shall be a ---------------- partnership only for the purposes specified in Section 1.4. Except as otherwise provided in this Agreement, the Partnership shall not engage in any other activity or business and no Partner shall have any authority to hold itself out as a general agent of another Partner in any other business or activity. Section 1.6 No Payments of Individual Obligations. The ------------------------------------- Partners shall use the Partnership's credit and assets solely for the benefit of the Partnership. No asset of the Partnership shall be transferred or encumbered for or in payment of any individual obligation of a Partner. Section 1.7 Statutory Compliance. The Partnership shall -------------------- exist under and be governed by, and this Agreement shall be construed in accordance with, the applicable laws of the State of California. The Partners shall make all filings and disclosures required by, and shall otherwise comply with, all such laws. The Partners shall execute and file in the appropriate records a certificate of limited partnership, and such documents and instruments as may be necessary or appropriate with respect to the continuation of, and conduct of business by, the Partnership as a California limited partnership. Section 1.8 Title to Property. All real and personal ----------------- property owned by the Partnership shall be owned by the Partnership as an entity and, insofar as permitted by applicable law, no Partner shall have any ownership interest in such property in its individual name or right and each Partner's interest in the Partnership shall be personal property for all purposes. Section 1.9 Duration. The term of the Partnership commenced -------- on August 28, 1987 and the Partnership shall dissolve on -4- December 31, 2035 unless sooner dissolved or terminated pursuant to statute or any provision of this Agreement. ARTICLE 2 THE PARTNERS ------------ Section 2.1 Identification. Developer and NEPP V shall be -------------- the Partners of the Partnership. No other person may become a Partner except pursuant to a transfer specifically permitted under and effected in compliance with this Agreement. Section 2.2 Liability Several. The obligations of the ----------------- Partners under this Agreement to one another shall be in every case several and shall not be, or be construed to be, either joint or joint and several. Section 2.3 Noncompetition. Intentionally Omitted. -------------- Section 2.4 Limits on Developer's Activities. Developer -------------------------------- shall not engage, invest or otherwise participate in any activity, investment or undertaking other than this Partnership. Section 2.5 Other Conflicts. NEPP V, Affiliates of NEPP V --------------- and Affiliates of Developer (but not Developer itself) may conduct any business or activity whatsoever (including the acquisition, development, leasing and operation and/or sale of real property) without any accountability to the Partnership or to any Partner even if such business or activity competes with the business of the Partnership. Each Partner understands that NEPP V, Affiliates of NEPP V and Affiliates of Developer may be interested, directly or indirectly, in various other businesses and undertakings not including the Partnership. Further, each Partner understands and acknowledges that the conduct of the business of the Partnership may involve business dealings with such other businesses or undertakings of NEPP V, Affiliates of Developer and Affiliates of NEPP V. The creation of the Partnership and the assumption by each of the Partners of its duties hereunder shall be without prejudice to the respective rights of NEPP V, Affiliates of Developer and Affiliates of NEPP V to maintain such other interests and activities and to receive and enjoy profits or compensation therefrom, and each Partner waives any rights it might otherwise have to share or participate in such other interests or activities of NEPP V, Affiliates of Developer and Affiliates of NEPP V. Notwithstanding anything to the contrary, Developer shall not engage in or have any business dealings with any other Person or Entity, except as required for its administrative operation. -5- Section 2.6 Reimbursement and Fees. NEPP V shall and any ---------------------- Affiliate thereof shall be entitled to reimbursement for their reasonable out-of-pocket expenses paid to third parties incurred in connection with the performance of its obligations hereunder. If NEPP V or an Affiliate of NEPP V shall at any time provide property management services to the Partnership, NEPP V or such Affiliate shall be entitled to property management fees and leasing commissions at rates competitive with those which would be paid to an unaffiliated property manager providing comparable services to a project of the type and size of the Project, in the geographic area in which the Project is located. Section 2.7 Indemnification of Partners by the Partnership. ---------------------------------------------- The Partners shall perform their duties under this Agreement with ordinary prudence and in a manner characteristic of businessmen in similar circumstances. However, neither shall have any liability whatsoever to the Partnership or to any other Partner for loss caused by any act or by the failure to do any act if the loss suffered arises out of a mistake in judgment of the Partner, or if the Partner, in good faith, had determined that the action or lack of action giving rise to the loss was in the best interests of the Partnership or if the action or lack of action giving rise to the loss was based on the advice of counsel; provided, however, that -------- ------- such exculpation from liability shall not apply to any liability for loss caused by any act or by the failure to do any act which arises out of the gross negligence, willful neglect or willful misconduct of any Partner. The Partnership, its receiver or liquidating trustee, shall indemnify, hold harmless and pay all judgments and claims against any of the Partners arising from any actions or decisions performed or made by them in connection with the business of the Partnership, provided such actions or decisions are within the -------- scope of the purposes of the Partnership and the Partner seeking indemnification complied with the immediately preceding paragraph. This indemnification shall include, without limitation, payment of attorneys' and accountants' fees incurred in connection with the defense of any claim or proceeding based on any such action or decision, which attorneys' and accountants' fees shall be paid as incurred; and liabilities under Federal and state securities laws, to the extent permitted by law. Section 2.8 Indemnification by Partners. Subject to Section --------------------------- 2.7, each Partner (an "Indemnitor") shall indemnify and hold harmless the other Partner from and against all claims, demands, actions and rights of action which shall or may arise by virtue of anything done or omitted to be done by the Indemnitor (directly or through or by agents, employees or other representatives) outside the scope of, or in breach of the terms of this Agreement. -6- A Partner who desires to make a claim against an Indemnitor under this Section shall notify the Indemnitor of the claim, demand, action or right of action which is the basis of such claim, and shall give the Indemnitor a reasonable opportunity to participate in the defense thereof. Failure to give such notice shall not affect the Indemnitor's obligations hereunder, except to the extent of any actual prejudice resulting therefrom. Any cash distributions of the Indemnitor under Article 5 shall be charged for any amounts the Indemnitor is required to pay pursuant to this Section 2.8. Section 2.9 Limitation on Liability of Partners. Except as ----------------------------------- hereinafter provided, no Partner shall have personal liability for the payment of any sums owing by such Partner to the Partnership or any other Partner under the terms of this Agreement, or for the performance of any other covenant or agreement of such Partner contained herein; rather, the Partnership and each other Partner shall look solely to the Interest of such Partner or to such other specific remedies as may be provided for herein, for satisfaction of each and every of such payments and obligations, and shall never seek, obtain or enforce any deficiency judgment or other judgment or mandatory order of any nature the effect of which would be to compel such Partner to pay any sum of money to any party in respect of any obligation arising under the terms of this Agreement and owed to the Partnership or any other Partner (including, without limitation, any subrogation right or remedy obtained by payment by a Partner of all or any portion of a Third Party Loan or other indebtedness of the Partnership). Except as otherwise provided in this Section 2.9, each Partner hereby waives and relinquishes any right to have any recourse or pursue any remedy whatsoever, other than the foregoing specified remedy, against the following: - the Partnership, the Partners (or any partner, general or limited, present or future subscriber to the capital stock, stockholder, officer or director of any of the Partners); or - any corporation, partnership (or any partner thereof), individual or entity to which any interest in the Project shall have been transferred. The foregoing provisions shall not limit the right of any Partner to name the Partnership or the other Partners a party defendant in any action or suit in the exercise of the sole remedy permitted hereunder, so long as no judgment obtained by such Partner shall be enforced other than as provided above. Section 2.10 Payments to Developer and Affiliates. The ------------------------------------ Partnership has entered into a Property Management Agreement dated -7- as of September 1, 1995, with respect to the Project pursuant to which the Developer or an Affiliate of the Developer (the "Property Manager") shall provide management services for the Project. ARTICLE 3 CAPITAL ------- Section 3.1 Capital Accounts and Adjusted Capital Accounts. ---------------------------------------------- (a) A separate capital account ("Capital Account") shall be maintained for each Partner and adjusted in accordance with Treasury Regulations under Section 704(b) of the Code. To the extent consistent with such Regulations, the adjustments to such accounts shall include the following: (i) There shall be credited to each Partner's Capital Account the amount of any cash (which shall not include imputed or actual interest on any deferred contributions) actually contributed by such Partner to the capital of the Partnership (or deemed contributed pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(c)), the fair market value of any property contributed by such Partner to the capital of the Partnership (net of any liabilities secured by such property that the Partnership is considered to assume or to take subject to under Code Section 752) and such Partner's share of the Gross Income and Net Profits (and all items thereof) of the Partnership. There shall be charged against each Partner's Capital Account the amount of all cash distributions to such Partner by the Partnership (or deemed distributed pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(c)), the fair market value of any property distributed to such Partner by the Partnership (net of any liability secured by such property that the Partner is considered to assume or take subject to under Code Section 752) and such Partner's share of the Net Losses (and all items thereof) of the Partnership. (ii) If the Partnership at any time distributes any of its assets in-kind to any Partner, the Capital Account of each Partner shall be adjusted to account for that Partner's allocable share (as determined under Article 7 below) of the Net Profit or Net Loss that would have been realized by the Partnership had it sold the assets that were distributed at their respective fair market values immediately prior to their distribution. (iii) Any adjustments to the tax basis (or Book Value) of Partnership property under Code Sections 732, 734 or 743, will be reflected as adjustments to the Capital Accounts of the -8- Partners, only in the manner and to the extent provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m). (b) An adjusted capital account ("Adjusted Capital Account") shall also be maintained for each Partner, which shall be equal to such Partner's Capital Account balance increased by (i) the Partner's Share of Partnership Minimum Gain and (ii) the Partner's Share of Partner Nonrecourse Debt Minimum Gain. (c) For purposes of Section 7.2(i) and (j) only, below, a Partner's Adjusted Capital Account shall be reduced by the net adjustments, allocations and distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) which, as of the end of the Partnership's taxable year are reasonably expected to be made to such Partner, and shall be increased by the sum of (i) any amount which the Partner is required to restore to the Partnership upon liquidation of his or its interest in the Partnership (or which is so treated pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c)) pursuant to the terms of this Agreement or under state law and (ii) that portion of any indebtedness of the Partnership (other than Partner Nonrecourse Debt) with respect to which the Partner bears the Economic Risk of Loss that such indebtedness would not be repaid out of the Partnership's assets if all of the Partnership's assets were sold at their respective Book Values as of the end of the Fiscal Year or other period and the proceeds from the sales together with any amounts described in clause (i) above were used to pay the Partnership's liabilities. (d) As of December 31, 1994, the respective tax Capital Account balances of the Partners were as follows: NEPP V $4,432,382.57 Developer -0- Section 3.2 Capital Contributions. --------------------- (a) Upon formation of the Partnership, NEPP V agreed to contribute to the Partnership capital in the amount of $7,250,000, of which $1,321,000 was contributed by NEPP V upon such formation, and of which an additional $5,760,592.62 has been contributed to the Partnership through the date hereof (so that NEPP V's total capital contributions to the Partnership through the date hereof equal $7,081,592.62). Such capital is hereinafter referred to as NEPP V's "Senior Capital". NEPP V may, but shall have no obligation to, make any further contribution to the capital of the Partnership, but, if it reasonably determines that the Partnership requires, for any reason, additional capital, and it elects to contribute such capital, the aggregate amount of any such contribution or contributions shall hereinafter be referred to as NEPP V's "Junior Capital". -9- (b) Upon formation of the Partnership, Developer contributed or caused to be contributed to the Partnership its interest in the Project, and assigned or caused to be assigned to the Partnership the following, if any: - all rights of Developer and its Affiliates in any plans, specifications, working drawings, designs, models and other similar architectural or engineering materials prepared for the Project (or any portion thereof); - all rights or benefits of Developer and its Affiliates in and to all prior discussions with governmental bodies, entities and agencies with respect to the Project (or any portion thereof); - all agreements providing utility services to the Project (or any portion thereof); - all leases for space in the Project; - all right, title and interest of Developer and its Affiliates to continue the negotiations, discussions and business arrangements in connection with the foregoing; and - all other rights, licenses and permits related to the Project (or any portion thereof). The agreed-upon net fair market value of the interests contributed by Developer is $10.00. Section 3.3 No Further Capital Contributions. The Partners -------------------------------- shall not be required to contribute additional capital or loan any funds to the Partnership, except as expressly provided in this Article 3 and Article 5. Specifically, but not by way of limitation, the Partners shall not be required upon the liquidation and winding up of the Partnership, to contribute to the capital of the Partnership the amount of the negative balance, if any, in their respective Capital Accounts. Section 3.4 Capital Contributions - General. Except as ------------------------------- specifically provided herein, no interest shall be paid on any capital contribution to the Partnership by any Partner. Except as specifically provided herein, no Partner may contribute capital to, or withdraw capital from, the Partnership. To the extent any cash which any Partner is entitled to receive pursuant to Article 5 or any other provision of this Agreement would constitute a return of capital, each of the Partners consents to the withdrawal of such capital. Under circumstances requiring a return of any capital, no Partner shall have the right to receive property other than cash. -10- Section 3.5 Interests. The respective Interests of the --------- Partners in the Partnership shall be as follows: NEPP V 60% Developer 40% The provisions of this Section shall not give a Partner an interest in any amount credited to the Capital Account of any other Partner. ARTICLE 4 OTHER LOANS ----------- Section 4.1 Loans. The Partnership is not currently ----- obligated for loans to third parties ("Third Party Loans"), Section 4.2 Payment of Third Party Loans. As set forth in ---------------------------- the definition of Project Expenses, payments of principal and interest on all Third Party Loans, if any, shall be expenses of the Partnership. ARTICLE 5 CASH DISTRIBUTIONS ------------------ 5.1 Definitions. As used in this Agreement, the following ----------- terms shall have the meanings set forth below: "Junior Invested Capital" means an amount equal to the ----------------------- aggregate amount of Junior Capital which NEPP V has contributed to the capital of the Partnership pursuant to Section 3.2 hereof decreased by the aggregate amount of proceeds distributed to NEPP V pursuant to clause SECOND of each of Sections 5.2 and 5.3. "Senior Invested Capital" means an amount equal to the ----------------------- aggregate amount of Senior Capital which NEPP V has contributed to the capital of the Partnership pursuant to Section 3.2 hereof decreased by the aggregate amount of proceeds distributed to NEPP V pursuant to clause FOURTH of each of Sections 5.2 and 5.3. As of the date hereof, the amount of NEPP V's Senior Invested Capital is $7,081,592.62. "Project Expenses" means all expenditures, expenses and ---------------- charges relating to the ownership, operation, construction, development, maintenance, management and upkeep of the Project (other than Monthly Guaranteed Payments and Accrued Monthly Guaranteed Payments), or any portion thereof, and the operations of the Partnership including, without limitation, the following: -11- - all taxes, assessments, ground rents and other similar governmental and quasi-governmental charges levied or imposed on the Project or any portion thereof; - insurance premiums; - maintenance and security expenses; - marketing, advertising and other promotional expenses; - utility costs; - legal, accounting and other professional fees and expenses; - architects, engineers and surveyors' fees; - cost of roads and utilities built and installed on the Land, or any portion thereof; - other costs associated with the zoning, subdivision and improvement of the Land, or any portion thereof, into building lots, whether incurred on or off the site; - development and management fees; - payments of principal, interest and other amounts due or accrued under any Third Party Loans (if any); and - any and all other costs and expenses specified in this Agreement as Project Expenses. Depreciation (cost recovery) and amortization or any other non-cash items taken into account in determining Net Profits or Losses shall not be Project Expenses. "Operating Revenues" means as to any particular Fiscal Year ------------------ or portion thereof, the total cash receipts of the Partnership other than (i) Extraordinary Cash Flow, (ii) any properly ---------- unapplied advance rentals of the Partnership in connection with the leasing of the Project (which shall be Operating Revenues when applied), (iii) the proceeds of any Third Party Loans and (iv) any unforfeited security deposits of Project tenants. "Operating Cash Flow" means as to any particular Fiscal Year ------------------- or portion thereof, Operating Revenues less the sum of the following: ---- - Project Expenses paid from Operating Revenues during such period; and -12- - a provision for a reasonable working capital reserve and a reserve for future Project Expenses in an amount determined by NEPP V in its reasonable discretion (the "Working Capital Fund"), and a reasonable reserve for replacement of Partnership assets subject to depreciation ("Reserve for Replacements") in an amount determined by NEPP V in its reasonable discretion. "Capital Transaction" means the sale, exchange, condemnation ------------------- (or similar eminent domain taking or disposition in lieu thereof), destruction by casualty, refinancing or disposition of the Project or any portion thereof. "Extraordinary Cash Flow" means the cash proceeds (including ----------------------- any applicable insurance proceeds) realized by the Partnership as a result of a Capital Transaction plus cash interest payments ---- received on such proceeds, decreased by the sum of the following: --------- - payments to creditors of debts then due and payable, including the amount of any obligations to pay Project Expenses that have not been paid from Operating Revenues; - the amount of such proceeds used, set aside or committed by the Partnership for restoration and repair of the Project; - provision for the Working Capital Fund and the Reserve for Replacements, to the extent not funded from Operating Revenues, in an amount determined by NEPP V in its reasonable discretion; and - any expenses, costs or liabilities incurred by the Partnership in effecting or obtaining any such Capital Transaction or the proceeds thereof (including, without limitation, attorneys' and accountants' fees, court costs, brokerage fees, commissions, recording fees, transfer taxes, and the like), all of which expenses, costs and liabilities shall be paid from the gross amount of such cash proceeds to the extent thereof. Section 5.1.1 Guaranteed Payments. The Partnership shall ------------------- make a monthly guaranteed payment to NEPP V ("Senior Monthly Guaranteed Payment") at the rate of 10% per annum on the Senior Invested Capital standing from time to time in NEPP V's Capital Account for each month during the year. All such payments shall be made monthly in arrears commencing on the first day of the first full calendar month following the date on which NEPP V contributed Senior Capital, and ending on the date on which the Senior Invested Capital of NEPP V shall have been reduced to zero. Senior Monthly Guaranteed Payments shall be made from Operating -13- Cash Flow, Extraordinary Cash Flow and distributions in liquidation as provided in Sections 5.2, 5.3 and 5.4. To the extent that any such payments cannot be made when due from Operating Cash Flow, Extraordinary Cash Flow and distributions upon liquidation, such payments may accrue, and such accruals shall bear interest at the rate of 10% per annum, compounded monthly. The amount of such unpaid Senior Monthly Guaranteed Payments and the interest accruing thereon until paid in full are hereinafter referred to collectively as "Accrued Senior Monthly Guaranteed Payments." Accrued Senior Monthly Guaranteed Payments shall be payable out of Operating Cash Flow and Extraordinary Cash Flow as provided in Section 5.2 and 5.3 and distributions in liquidation as provided in Section 5.4. As of March 31, 1995, NEPP V's Accrued Senior Monthly Guaranteed Payments equalled $2,289,254.68. The Partnership shall make a monthly guaranteed payment to NEPP V ("Junior Monthly Guaranteed Payment") at the rate of 10% per annum on the Junior Invested Capital standing from time to time in NEPP V's Capital Account for each month during the year. All such payments shall be made monthly in arrears commencing on the first day of the first full calendar month following the date on which NEPP V has contributed Junior Capital, and ending on the date on which the Junior Invested Capital of NEPP V shall have been reduced to zero. Junior Monthly Guaranteed Payments shall be made from Operating Cash Flow, Extraordinary Cash Flow and distributions in liquidation as provided in Sections 5.2, 5.3 and 5.4. To the extent that any such payments cannot be made when due from Operating Cash Flow, Extraordinary Cash Flow and distributions upon liquidation, such payments may accrue, and such accruals shall bear interest at the rate of 10% per annum, compounded monthly. The amount of such unpaid Junior Monthly Guaranteed Payments and the interest accruing thereon until paid in full are hereinafter referred to collectively as "Accrued Junior Monthly Guaranteed Payments." Accrued Junior Monthly Guaranteed Payments shall be payable out of Operating Cash Flow and Extraordinary Cash Flow as provided in Section 5.2 and 5.3 and distributions in liquidation as provided in Section 5.4. Junior Monthly Guaranteed Payments and Senior Monthly Guaranteed Payments are sometimes referred to collectively as "Monthly Guaranteed Payments." Accrued Junior Monthly Guaranteed Payments and Accrued Senior Monthly Guaranteed Payments are sometimes referred to collectively as "Accrued Monthly Guaranteed Payments." It is intended that the Monthly Guaranteed Payments and Accrued Monthly Guaranteed Payments described in this Section 5.1.1 shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, that they shall be deducted as an -14- expense of the Partnership (unless NEPP V determines that such expense should be amortized) and that their payment shall not directly reduce the Capital Account of NEPP V. Section 5.2 Operating Cash Flow. Operating Cash Flow shall ------------------- be determined for each Fiscal Year, or fraction thereof, and shall be distributed in the following order of priority: FIRST: to NEPP V in payment of its Junior Monthly ----- Guaranteed Payments, and any Accrued Junior Monthly Guaranteed Payments; SECOND: to NEPP V until its Junior Invested Capital has ------ been reduced to zero; THIRD: to NEPP V in payment of its Senior Monthly ----- Guaranteed Payments, and any Accrued Senior Monthly Guaranteed Payments; FOURTH: to NEPP V until its Senior Invested Capital has ------ been reduced to zero; and FIFTH: to the Partners in accordance with their respective ----- Interests. Distributions of Operating Cash Flow shall be made provi- sionally at such reasonable intervals during the Fiscal Year as shall be determined by NEPP V, and in any event shall be made on a monthly basis within 30 days after the last day of each month. Following the end of each Fiscal Year, and at any time or from time to time during any Fiscal Year if requested by either Partner (and after determination of the actual amount of Operating Cash Flow for such Fiscal Year, or the portion thereof which then shall have elapsed, as applicable), the above provisional distributions of Operating Cash Flow to the Partners with respect to such Fiscal Year or portion thereof shall be recomputed on the basis of the actual amount of Operating Cash Flow. If the above provisional distributions with respect to such Fiscal Year or portion thereof are greater than the distributions thus recomputed for such Fiscal Year or portion thereof, then the Partners shall recontribute to the Partnership in reverse order of the priorities set forth above the amounts received by the Partners for such Fiscal Year or portion thereof until all distributions of Operating Cash Flow for such Fiscal Year or portion thereof shall be in conformance with this Section 5.2. Furthermore, if it is projected that the Partnership will not have sufficient cash (from any source) to pay its obligations as they become due, for all or a portion of the then Fiscal Year, and distributions of Operating Cash Flow theretofore have been made with respect to such Fiscal Year, then the Partners shall -15- recontribute to the Partnership such distributions in reverse order of the priorities set forth in this Section 5.2, until there has been recontributed to the Partnership that aggregate amount which is equal to the lesser of the total of such distributions previously made with respect to such Fiscal Year, or the amount of such projected cash shortfall for such Fiscal Year. Any amounts so recontributed shall be characterized in the same manner as they were originally distributed so that, following such recontribution, subsequent distributions to the Partners pursuant to any clause of this Section shall be made in the same manner as if the original distributions were never made (except that, any Accrued Monthly Guaranteed Payment distributed to NEPP V which is entitled to earn interest, shall not earn such interest during the period from the date of distribution of such amount to NEPP V through the date of its recontribution by NEPP V pursuant to this sentence). For example, to the extent NEPP V is required to recontribute distributions made pursuant to clause SECOND of this Section, the amount of such distributions shall be deemed not to have been made for purpose of calculating NEPP V's Junior Invested Capital. Any amounts previously set aside in the Working Capital Fund or the Reserve for Replacements, to the extent funded from Operating Revenues, shall be additions to Operating Cash Flow when and to the extent NEPP V no longer regards such reserves as reasonably necessary to the efficient conduct of the affairs of the Partnership. Section 5.3 Extraordinary Cash Flow. Except as provided in ----------------------- Section 5.4 below, Extraordinary Cash Flow shall be distributed by the Partnership in the following order of priority: FIRST: to NEPP V in payment of its Junior Monthly ----- Guaranteed Payments, and any Accrued Junior Monthly Guaranteed Payments; SECOND: to NEPP V until its Junior Invested Capital has ------ been reduced to zero; THIRD: to NEPP V in payment of its Senior Monthly ----- Guaranteed Payments, and any Accrued Senior Monthly Guaranteed Payments; FOURTH: to NEPP V until its Senior Invested Capital has ------ been reduced to zero; and FIFTH: to the Partners in accordance with their respective ----- Interests. Section 5.4 Distributions in Liquidation. Distributions in ---------------------------- connection with the liquidation and winding up of the Partnership -16- (including distributions of Operating Cash Flow and Extraordinary Cash Flow) shall be made (after payment of the reasonable expenses incurred in dissolution and termination and payment to creditors of the Partnership, but excluding secured creditors whose obligations will be assumed or otherwise transferred on the liquidation of the Partnership property or assets) to the Partners in proportion to the positive balances of their Capital Accounts after Capital Accounts have been adjusted for the allocation of Net Profit and Net Loss (and items thereof) for the Fiscal Year during which such liquidation occurs. Section 5.5 In-Kind Distribution. Assets of the Partnership -------------------- (other than cash) may be distributed in kind to the Partners. If any assets of the Partnership are distributed to the Partners in kind, such assets shall be valued on the basis of the fair market value thereof on the date of distribution, and any Partner entitled to any interest in such assets shall receive such interest as a tenant-in-common with all other Partners so entitled. ARTICLE 6 OPERATING DEFICITS ------------------ Section 6.1 Operating Deficits. If, at any time, Project ------------------ Expenses exceed Operating Revenues, Extraordinary Cash Flow and other funds available to the Partnership (an "Operating Deficit"), then funds shall be withdrawn from the Working Capital Fund as required and if available. If Operating Deficits cannot be so funded, or if it reasonably appears that the Partnership will be unable to meet in a timely manner any of its obligations as they mature, NEPP V may, but shall not be required to, contribute Junior Capital to the Partnership in order to enable the Partnership to meet its obligations. ARTICLE 7 TAX ALLOCATIONS --------------- Section 7.1 Definition of Net Profit and Net Loss. (a) "Net ------------------------------------- Profit" and "Net Loss" shall mean, for each Fiscal Year or other period, an amount equal to the Partnership's taxable income or loss for such Fiscal Year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: -17- (i) any income of the Partnership that is exempt from federal income tax or not otherwise taken into account in computing Net Profit or Net Loss pursuant to this Section 7.1 shall be added to such taxable income or loss; (ii) any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under Code Section 704(b) and not otherwise taken into account in computing Net Profit or Net Loss pursuant to this Section 7.1, shall be subtracted from such taxable income or loss; (iii) gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of such property rather than its adjusted tax basis; (iv) in lieu of the depreciation, amortization, and other cost recovery deductions taken into account in comput- ing taxable income or loss, there shall be taken into account depreciation on the assets' respective Book Values for such Fiscal Year or other period determined in accordance with Treasury Regulations under Code Section 704(b); and (v) the amount of any Gross Income allocated to the Partners pursuant to Section 7.2(a) and Sections 7.2(e), (f) and (i), below, shall not be included as income or revenue. (b) Definition of Net Profits or Net Losses From Capital ---------------------------------------------------- Transactions. "Net Profits or Net Losses from Capital Transac- ------------ tions" shall mean for each Fiscal Year or other period, the Net Profit or Net Loss for such Fiscal Year or other period calculated solely by reference to gains and losses from Capital Transactions. (c) Definition of Net Profits or Net Losses From Operations. ------------------------------------------------------- "Net Profits or Net Losses from Operations" shall mean for each Fiscal Year or other period, the Net Profit or Net Loss for such Fiscal Year or other period calculated without regard to Net Profits and Net Losses from Capital Transactions. (d) Definition of Gross Income. "Gross Income" shall mean, -------------------------- for each Fiscal Year or other period, an amount equal to the Partnership's gross income as determined for federal income tax purposes for such Fiscal Year or period but computed with the adjustments specified in Section 7.1(a)(i) and (iii), above. (e) Definition of Gross Income from Operations. "Gross ------------------------------------------ Income from Operations" shall mean for each Fiscal Year or other period, the Gross Income for such year calculated without regard to Gross Income attributable to Capital Transactions. -18- Section 7.2 Allocation of Net Profit, Gross Income and Net ---------------------------------------------- Loss. The Partners hereby agree that the Net Profit, Gross Income ---- and Net Loss of the Partnership shall be allocated among them in accordance with this Section 7.2. (a) Gross Income from Operations. Except as otherwise ---------------------------- provided in this Article 7, Gross Income from Operations, if any, of the Partnership (and each item thereof) for each Fiscal Year or other period, in an amount equal to the total amount distributed to Developer pursuant to Section 5.2 with respect to such Fiscal Year or other period, shall be allocated to Developer. (b) Net Profits From Operations and Capital Transactions. ---------------------------------------------------- Except as otherwise provided in this Article 7, Net Profit, if any, of the Partnership (and each item thereof) for each Fiscal Year or other period shall be allocated among the Partners as fol- lows: (i) All Net Profit from Operations of the Partnership shall be allocated to NEPP V. (ii) Net Profit from Capital Transactions shall: (x) first be allocated to the Partners in propor- tion to the negative balances, if any, in their Adjusted Capital Accounts (after adjusting such Adjusted Capital Accounts for allocations of any Gross Income, Net Loss or Net Profit from Operations of the Partnership for the Fiscal Year or other period) until such negative balances are increased to zero, and (y) thereafter, be allocated to the Partners in such proportions and in such amounts as would result in the Adjusted Capital Account balance of each Partner equaling, as nearly as possible, such Partner's share of the then Partnership Capital determined by calculating the amount the Partner would receive if an amount equal to the Partnership Capital were distributed to the Partners in accordance with the provisions of Section 5.3 hereof, other than clauses FIRST and THIRD thereof. (c) Net Losses From Operations and Capital -------------------------------------- Transactions. Except as otherwise provided in this Article 7, Net ------------ Loss, if any, of the Partnership (and each item thereof) for each Fiscal Year or other period shall be allocated as follows: (i) All Net Loss from Operations of the Partnership shall be allocated to NEPP V. (ii) Net Loss from Capital Transactions shall: -19- (x) first be allocated to those Partners with positive balances in their Adjusted Capital Accounts in amounts equal to their respective Adjusted Capital Account balances; provided, however, that if the amount of Net Loss to be allocated is less than the sum of the Adjusted Capital Account balances of all Partners having positive Adjusted Capital Account balances, then the Net Loss shall be allocated to the Partners in such proportions and in such amounts as would result in the Adjusted Capital Account balance of each Partner equaling, as nearly as possible, such Partner's share of the then Partnership Capital determined by calculating the amount the Partner would receive if an amount equal to the Partnership Capital were distributed to the Partners in accord- ance with the provisions of Section 5.3 hereof, other than clauses FIRST and THIRD thereof; and (y) thereafter, one hundred percent (100%) to NEPP V. (d) Liquidation. Subject to the provisions of Sections ----------- 7.2(e) through (j), Net Profit and Net Loss incurred in the Fiscal Year in which the Partnership is liquidated shall be allocated in accordance with the provisions of Sections 7.2(b)(ii) and 7.2(c)(ii) without regard to whether such Net Profit and Net Loss arises from a Capital Transaction, and Sections 7.2(a), 7.2(b)(i) and 7.2(c)(i) shall not apply. (e) Minimum Gain Chargeback. Notwithstanding any other ----------------------- provision of this Agreement to the contrary, if in any Fiscal Year or other period there is a net decrease in the amount of Partnership Minimum Gain, then each Partner shall first be allocated items of Gross Income for such year (and, if necessary, subsequent years) in an amount equal to such Partner's share of the net decrease in Partnership Minimum Gain determined as set forth in the definition of Partnership Minimum Gain; provided, however, that no such allocation of Gross Income to a Partner shall occur in the following circumstances: (i) If the net decrease in Partnership Minimum Gain is caused by a modification of a Nonrecourse Liability and the Partner bears the Economic Risk of Loss with respect to such modified liability; (ii) If the net decrease in Partnership Minimum Gain is attributable to a repayment of a Nonrecourse Liability with amounts contributed to the capital of the Partnership by the Partner; and -20- (iii) If the allocation of Gross Income would cause a "distortion in the economic arrangement among the Partners" and the Partnership receives a waiver of the requirement that Gross Income be so allocated from the Commissioner of the Internal Revenue Service pursuant to Treasury Regulation Section 1.704-2(f)(4). (f) Minimum Gain Chargeback for Partner Nonrecourse ----------------------------------------------- Debt. Notwithstanding any other provision of this Agreement to ---- the contrary other than Section 7.2(e), above, if in any year there is a net decrease in the amount of Partner Nonrecourse Debt Minimum Gain, then each Partner shall first be allocated items of Gross Income for such year (and, if necessary, subsequent years) in an amount equal to such Partner's net decrease in Partner Nonrecourse Debt Minimum Gain with respect to liabilities for which the Partner bears the Economic Risk of Loss; provided, however, that no such allocation of Gross Income to a Partner shall occur in the following circumstances: (i) If the net decrease in Partner Nonrecourse Debt Minimum Gain is caused by a modification of a Partner Nonrecourse Debt and the Partner bears the Economic Risk of Loss with respect to such modified liability; (ii) If the net decrease in Partner Nonrecourse Debt Minimum Gain is attributable to a repayment of a Partner Nonrecourse Debt with amounts contributed to the capital of the Partnership by the Partner; (iii) In any circumstance described in clause (iii) of Section 7.2(e) hereof; and (iv) If the net decrease in Partner Nonrecourse Debt Minimum Gain is caused by a modification of a Partner Nonrecourse Debt that causes it to become a Nonrecourse Liability. (g) Nonrecourse Deductions. All Nonrecourse Deductions of ---------------------- the Partnership for any Fiscal Year or other period shall be allocated among the Partners in the same manner and proportions as are Net Losses from Operations of the Partnership. (h) Partner Nonrecourse Deductions. Any Partner Nonrecourse ------------------------------ Deductions shall be allocated to the Partner who bears the Economic Risk of Loss with respect to the Partner Nonrecourse Debt. (i) Qualified Income Offset. Notwithstanding any of the ----------------------- provisions above (except Sections 7.2(e) and (f) which shall be applied first), if in any Fiscal Year or other period a Partner receives an adjustment, allocation or distribution described in -21- Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), Gross Income (and items thereof) shall first be allocated to Partners with negative Adjusted Capital Account balances (adjusted in accordance with Section 3.1(c) hereof), in proportion to such negative balances, until such balances are increased to zero. (j) Limit on Loss Allocations. Notwithstanding the provi- ------------------------- sions of Section 7.2(c), Net Loss (or items thereof) shall not be allocated to a Partner if such allocation would cause or increase a negative balance in such Partner's Adjusted Capital Account (adjusted in accordance with Section 3.1(c) hereof) and shall be reallocated to the other Partner or Partners, subject to the limitations of this Section 7.2(j). (k) Reversal of Mandatory Allocations. In the event that --------------------------------- any Net Profit or Net Loss, or items thereof, of the Partnership are allocated pursuant to Sections 7.2(i) or (j), subsequent Net Profit or Net Loss (or items thereof) will first be allocated (subject to Sections 7.2(e) through (j)) to the Partners in a manner which will result in each Partner having a Capital Account balance equal to that which would have resulted had the original allocation of Net Profit or Loss or items thereof pursuant to Sec- tions 7.2(i) and (j) not occurred. (l) Priority. For purposes of the allocations pursuant to -------- this Article 7 and except as otherwise provided, Sections 7.2(a) (Gross Income from Operations) shall apply first, then Sections 7.2(b)(i) and 7.2(c)(i) (Net Profit or Loss from Operations), and thereafter Sections 7.2(b)(ii) and 7.2(c)(ii) (Net Profit or Loss from Capital Transactions). The allocation of Net Profit and Net Loss from Capital Transactions shall be made before adjusting Capital Account balances to reflect the distribution of proceeds from such Capital Transactions. (m) Compliance with Code. The foregoing provisions of this -------------------- Agreement relating to the allocation of Net Profit and Net Loss are intended to comply with Treasury Regulations under Section 704(b) of the Code and shall be interpreted and applied in a man- ner consistent with such regulations. Section 7.3 Tax Allocations; Code Section 704(c). In ------------------------------------ accordance with Code Sections 704(b) and 704(c) and the Treasury Regulations thereunder, depreciation, amortization, gain and loss, as determined for tax purposes, with respect to any property whose Book Value differs from its adjusted basis for federal income tax purposes shall, for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its Book Value. -22- Any elections or other decisions relating to such allocations shall be made by the Partners in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 7.3 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Partner's Capital Account or share of Net Profit, Net Loss, other items, or distributions pursuant to any provision of this Agreement. Section 7.4 Allocations Upon Transfer or Change of -------------------------------------- Interests. Upon a transfer of all or a portion of a Partner's --------- Interest, Gross Income, Net Profits and Net Losses shall be allocated among the Partners in accordance with the provisions of Section 11.5. ARTICLE 8 ACCOUNTING AND RECORDS ---------------------- Section 8.1 Books and Records. NEPP V shall keep or cause ----------------- to be kept, at Partnership expense, at the Partnership's principal office, separate books of account for the Partnership which shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received and all income derived in connection with the operation of the Partnership business in accordance with generally accepted accounting principles consistently applied and sufficient to obtain an unqualified opinion from the Accountants as to the Partnership's financial position and results of operations. The Partnership shall use the accrual method of accounting in preparation of its annual reports and for tax purposes and shall keep its books accordingly. The expenses chargeable to the Partnership shall include only those which are reasonable and necessary for the ordinary and efficient operation of the Partnership business and the performance of the obligations of the Partnership under any leases or other agreements relating to the Project or the business of the Partnership. Each Partner shall, at its sole expense, have the right, at any time without notice to the other, to examine, copy and audit the Partnership's books and records during normal business hours. All books, records (including bills and invoices), reports and returns of the Partnership required by this Article 8 shall be maintained in a manner and form consistent with NEPP V's methods and procedures of reporting investment transactions. Section 8.2 Reports. With respect to each Fiscal Year of ------- the Partnership, NEPP V shall cause a general accounting to be made by the Accountants at the expense of the Partnership. The -23- accounting shall be performed in accordance with generally accepted auditing standards, and shall cover all of the assets, properties, liabilities and net worth of the Partnership as well as its dealings, transactions and operations during such Fiscal Year, together with all other matters customarily included in such accountings. Within 90 days after the end of each Fiscal Year, NEPP V shall cause to be furnished to Developer financial statements for the Partnership, prepared on an accrual basis and otherwise in accordance with generally accepted accounting principles consistently applied, which shall contain a balance sheet as of the end of the Fiscal Year, statements of profit and loss, and Operating Cash Flow, changes in the Capital Accounts and a statement of changes in financial position for the Fiscal Year then ended. Such financial statements shall disclose and/or footnote, in sufficient detail, all items of taxable income, gain, loss, or accounts which vary from the reporting of such items for financial accounting purposes. Any exceptions to the financial statements rendered must be made by a Partner within one year from its receipt and, if no exception is made within that time, the statements shall be considered to be correct. Section 8.3 Tax Returns. At Partnership expense, NEPP V ----------- shall cause the Accountants to prepare all income and other tax returns of the Partnership (on an accrual basis) and cause the same to be filed in a timely manner. NEPP V shall furnish to Developer a copy of each such return before it has been filed, together with any schedules or other information which each Partner may require in connection with such Partners' own tax affairs. Each of the Partners shall, in its respective income tax return and other statements filed with the Internal Revenue Service or other taxing authority, report taxable income in accordance with the provisions of this Agreement. Section 8.4 Depreciation. The Partnership shall, to the ------------ extent permitted by the Code, utilize the Accelerated Cost Recovery System (as defined in the Code) on a straight-line basis. Section 8.5 Special Basis Adjustment. In connection with ------------------------ any assignment or transfer of an Interest permitted by the terms of this Agreement, NEPP V shall cause the Partnership, at the written request of the transferor, the transferee or the successor to such Interest, on behalf of the Partnership and at the time and in the manner provided in Treasury Regulation Section 1.754-1(b) (or any like statute or regulation then in effect), to make an election to adjust the basis of the Partnership's property in the manner provided in Sections 734(b) and 743(b) of the Code (or any like statute or regulation then in effect), and such transferee shall pay all costs incurred by the Partnership in connection -24- therewith, including, without limitation, reasonable attorneys' and accountants' fees. Section 8.6 Tax Matters Partner. NEPP V shall be the party ------------------- designated to receive all notices from the Internal Revenue Service ("IRS") which pertain to the tax affairs of the Partnership and NEPP V shall be entitled to require that any IRS examinations or audits shall take place at the offices of NEPP V. NEPP V shall be the "Tax Matters Partner" of the Partnership pursuant to the Code. Section 8.7 Fiscal Year. The Fiscal Year of the Partnership ----------- shall be the calendar year, unless otherwise determined by NEPP V. As used in this Agreement, a fiscal year shall include any partial fiscal year at the beginning and end of the Partnership term. Section 8.8 Bank Accounts. NEPP V shall have fiduciary ------------- responsibility for the safekeeping and use of all funds and assets of the Partnership, whether or not in its immediate possession or control. The funds of the Partnership shall not be commingled with the funds of any other person and NEPP V shall not employ, or permit any other person to employ, such funds in any manner except for the benefit of the Partnership. The bank accounts of the Partnership shall be maintained in such banking institutions as are determined by NEPP V and withdrawals shall be made only in the regular course of Partnership business and as otherwise authorized in this Agreement on such signature or signatures as NEPP V may determine. ARTICLE 9 MANAGEMENT AND OPERATIONS ------------------------- Section 9.1 Management. NEPP V acting alone, and without ---------- the consent or approval of Developer, shall have the sole authority to manage the business and operations of the Partnership. Without limiting in any way the foregoing, NEPP V acting alone, shall have the sole authority to make all decisions respecting the conduct of the Partnership and its business, without the consent or approval of Developer, including without limitation, the following: - acquiring, by purchase, lease, or otherwise, any real property in addition to the Land, or constructing any new capital improvements on the Land or replacing an existing capital improvement following completion of construction thereof; -25- - giving or granting any options, rights of first refusal, deeds of trust, mortgages, pledges, ground leases, security interests or otherwise encumbering the Project or any portion thereof; - consummating leases in the Project or any portion thereof, on such terms as NEPP V may approve; - obtaining, increasing, modifying, consolidating or extending any loan, line of credit or other obligation, whether secured or unsecured, affecting the Project or the Partnership or making draws under any such loan, line of credit or other obligation; - consenting to any rezoning or subdivision of the Land or any other material change in the legal status thereof; - selling, conveying or refinancing the Project or any portion thereof; - causing or permitting the Partnership to extend credit to or to make any loans or become a surety, guarantor, endorser or accommodation endorser for any person, firm or corporation or entering into any contracts with respect to the operation or management of the business of the Partnership or the Project (or any portion thereof); - initiating, defending, adjusting, settling or compromising any claim, action, suit or judgment by or against the Partnership; - releasing, compromising, assigning or transferring any claims, rights or benefits of the Partnership; - confessing a judgment against the Partnership or submitting a Partnership claim to arbitration; - distributing any cash or property of the Partnership, or establishing any reserve, other than as provided in this Agreement; - filing on behalf of the Partnership any Federal or state income tax or information returns, or changing the elec- tions or choices of methods of reporting income or loss for Federal or state income tax purposes provided for in Article 8; - spending money or entering into any contract or agreement (or series thereof) of any nature whatsoever -26- with respect to the Partnership or the Project (or any portion thereof); - assigning the rights of the Partnership in any of its property; - selecting attorneys or Accountants, or property managers, for the Partnership and/or the Project; - advertising or marketing the Project; - granting easements or other property rights by documents that are frequently recorded, except easements for utilities serving the Project exclusively; - giving any approval or exercising any right (including rights to terminate or amend) under any management, construction or other contract to which the Partnership or the Project is a party; - approving or changing or amending the plans or specifications or budget for any building or structure being constructed by the Partnership; or - entering into any amendment, modification, revision, supplement or rescission with respect to any of the foregoing. NEPP V shall devote itself to the business of the Partnership to the extent it reasonably determines necessary for the efficient carrying on thereof, without compensation therefor except as specifically provided in this Agreement; provided, however, that all of the Partners agree and acknowledge that (a) NEPP V shall not be required, nor is it expected, to devote itself to the business of the Partnership on a full-time basis, (b) the Project shall be managed and maintained by the Property Manager pursuant to the Management Agreement (or by another person who may serve as property manager, in the event the Property Management Agreement is terminated), and NEPP V may rely on the Property Manager (or such other property manager) to manage and maintain the Project in a prudent and reasonable manner and shall have no liability to the Partnership or the Partners with respect to any matter delegated to the Property Manager (or such other property manager) and (c) NEPP V shall be permitted to delegate to a third party such other of its duties and obligations under this Agreement as it may determine in its sole discretion. With respect to all of its obligations, powers, and responsibilities under this Agreement, NEPP V is authorized, in the name and on behalf of the Partnership, to execute, deliver, and perform the terms, covenants and obligations of, such notes -27- and other evidences of indebtedness, contracts, agreements, assignments, deeds, leases, loan agreements, mortgages, and other security instruments and agreements as it deems proper, all on such terms and conditions as it deems proper. Without limiting the foregoing, Developer hereby waives any and all rights it may have under the Act to vote on, approve or consent to any matter or to participate in the management, business or operations of the Partnership, including without limitation any rights it may have under Section 15636 of the Act. Section 9.2 Standard of Care. NEPP V shall use reasonable efforts to perform its duties under this Agreement, including, without limitation, employing necessary personnel, on and off- site, in connection with the business of the Partnership, and shall at all times act in a fiduciary manner towards the Partnership and Developer. Section 9.3 Insurance. NEPP V shall procure and maintain, or cause to be procured and maintained, at the expense of the Partnership, insurance sufficient to enable the Partnership to comply with applicable laws, regulations and requirements, including without limitation, obligations imposed on the Project by the any documents relating to Third Party Loans, and any and all other agreements and instruments by which the Project is bound, such additional insurance as may be customary for projects of a similar type in the geographic area in which the Project is located, and such additional insurance as NEPP V reasonably determines to be appropriate for the Project. ARTICLE 10 REPRESENTATIONS AND WARRANTIES ------------------------------ Section 10.1 Developer. As of the date hereof each of the --------- statements in this Section 10.1 shall be a true, accurate and full disclosure of all facts relevant to the matters contained therein, and such warranties and representations shall survive the execu- tion of this Agreement. As of the date hereof, Developer hereby represents and warrants that: - Developer is a duly organized and validly existing California limited partnership and has the requisite power and authority to enter into and carry out the terms of this Agreement. - All partnership action required to be taken by Developer to consummate this Agreement has been taken by Developer (and its partners) and no further approval of any board, -28- court, or other body is necessary in order to permit Developer to consummate this Agreement. - To the best of its knowledge, neither the execution and delivery of this Agreement, nor the performance of or the compliance with, this Agreement has resulted (or will result) in any violation of, or will be in conflict with, or invalidate, cancel, or make inoperative, or interfere with, or constitute a default under, or result in the creation of any lien, encumbrance or any other charge upon the Project pursuant to any charter, bylaw, partnership agreement, trust agreement, mortgage, deed of trust, indenture, contract, agreement, permit, judgment, decree, or order to which Developer is a party or by which the Project (or any portion thereof) is bound, and there is no default and no event or omission has occurred which, but for the passing of time or the giving of notice, or both, would constitute a default on the part of Developer under this Agreement. - To the best of its knowledge, there is no action, proceeding or investigation, pending or threatened (nor any basis therefor) which questions, directly or indirectly, the validity or enforceability of this Agreement as to Developer or which would materially and adversely affect the Project. - To the best of Developer's knowledge, no representation, warranty or covenant of Developer in this Agreement (except for the first two representations of this Section 10.1, which shall not be limited to Developer's best knowledge, but shall be absolute), or in any document or certificate furnished or to be furnished to NEPP V pursuant hereto contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. All such representations, warranties or statements of Developer are based, to the best of Developer's knowledge, upon current, accurate and complete information as of the time of their making, and there have been, to the best of Developer's knowledge, no changes in such information subsequent thereto. Section 10.2 NEPP V. As of the date hereof each of the ------ statements in this Section 10.2 shall be a true, accurate and full disclosure of all facts relevant to the matter contained therein, and such warranties and representations shall survive the execu- tion of this Agreement. As of the date hereof, NEPP V hereby represents and warrants that: -29- - NEPP V is a duly organized limited partnership validly existing under the laws of the Commonwealth of Massachusetts and has the requisite power and authority to enter into and carry out the terms of this Agreement; - All partnership action required to be taken by NEPP V to consummate this Agreement has been taken and that no further approval of any board, court, or other body is necessary in order to permit NEPP V to consummate this Agreement. - To the best of its knowledge, neither the execution and delivery of this Agreement nor the performance of nor the compliance with this Agreement, has resulted (or will result in) any violation of, or will be in conflict with, or invalidate, cancel, or make inoperative, or interfere with, or constitute a default under, or result in the creation of any lien, encumbrance or any other charge upon the Project pursuant to any charter, bylaw, partnership agreement, trust agreement, mortgage, deed of trust, indenture, contract, agreement, permit, judgment, decree, or order, to which NEPP V is a party and there is no default and no event or omission has occurred which, but for the passing of time or the giving of notice, or both, would constitute a default on the part of NEPP V under this Agreement. - To the best of NEPP V's knowledge, there is no action, proceeding or investigation, pending or threatened (nor any basis therefor), which questions, directly or indirectly, the validity or enforceability of this Agreement as to NEPP V. - To the best of NEPP V's knowledge, no representation, warranty or covenant of NEPP V in this Agreement (except for the first two representations of this Section 10.2, which shall not be limited to NEPP V's knowledge, but shall be absolute), or in any document or certificate furnished or to be furnished to Developer pursuant hereto contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary to make the statements or facts contained therein not misleading. All such representations, warranties or statements of NEPP V are based, to the best of NEPP V's knowledge, upon current, accurate and complete information as of the time of their making, and there have been, to the best of NEPP V's knowledge, no changes in such information subsequent thereto. -30- Section 10.3 Brokers. Each party represents to the other ------- that, except for fees paid upon formation of the Partnership to Charterhouse Investment Company, they have not retained or been approached by any broker, finder, agent or the like in connection with this transaction or the negotiations thereof. Each party shall indemnify and hold the other party hereto harmless from and against all loss, liabilities, claims, damages and expenses, including court costs and reasonable attorneys' fees, arising out of any claim for brokerage or other commissions relative to this Agreement or the transactions contemplated hereby insofar as any such claim arises by reason of services alleged to have been rendered to or at the insistence of such indemnifying party. ARTICLE 11 TRANSFER OF INTERESTS --------------------- Section 11.1 Restrictions on Transfer of Developer's --------------------------------------- Interest. Except as expressly provided for in this Agreement, -------- Developer may not, without the prior written consent of NEPP V, sell, convey, transfer, assign, mortgage, pledge, hypothecate or otherwise encumber in any way ("transfer") all or any portion of its Partnership Interest or any interest it may have in any property of the Partnership, or withdraw or retire from the Partnership. Any such attempted transfer, withdrawal or retirement not permitted hereunder shall be null and void. A transfer of an interest in Developer shall be deemed a transfer for the purpose of this Section 11.1. Section 11.2 No Restriction on Transfer of NEPP V Interest. --------------------------------------------- NEPP V may, without the consent or approval of Developer, sell, convey, transfer, assign, mortgage, pledge, hypothecate or otherwise encumber in any way ("transfer") all or any portion of its Partnership Interest or any interest it may have in any property of the Partnership, or withdraw or retire from the Partnership. Any such transferee may be admitted to the Partnership in substitution for NEPP V with respect to the interest (or portion thereof) so transferred, and Developer hereby consents to such substitution. Section 11.3 Permitted Transfers. Developer or its ------------------- successors, without the consent of NEPP V, may make the following transfers: - a transfer of stock in Investment Building Group ("IBG") to any party so long as Jack M. Langson and/or a trust of which he is the sole trustee retains voting control of and at least 51% of the stock of IBG; and -31- - transfers by Jack M. Langson of all or any portion of his limited partnership interest in Developer to any trust of which he is the sole trustee. Any such permitted transferee shall receive and hold such Partnership Interest or portion thereof subject to the terms of this Agreement and the obligations of the Developer, and there shall be no further transfer of such Partnership Interest or portion thereof except to a trust, person or entity to whom such permitted transferee could have transferred his Partnership Interest in accordance with this Section 11.3 had such permitted transferee originally been named as a Partner or as a partner in Developer, or otherwise in accordance with the other terms of this Agreement. Section 11.4 General Transfer Provisions. All transfers --------------------------- shall be by instrument in form and substance satisfactory to counsel for the Partnership and shall contain an expression by the assignee of its intention to accept the assignment and to accept and adopt all of the terms and provisions of this Agreement, as the same may have been amended, and shall provide for the payment by the assignor of all reasonable expenses incurred by the Partnership in connection with such assignment, including, without limitation, the necessary amendments to this Agreement to reflect such transfer. The transferor shall execute and acknowledge all such instruments, in form and substance reasonably satisfactory to the Partnership's counsel, as may be necessary or desirable to effectuate such transfer. In no event shall the Partnership dissolve or terminate upon the admission of any Partner to the Partnership or upon any permitted assignment of an Interest in the Partnership by any Partner. Each Partner hereby waives its right to dissolve, liquidate or terminate the Partnership in such event. Upon completion of a transfer in compliance with this Agreement, the transferor shall be released from all future obligations arising under this Agreement after the date of such transfer provided the assignee of such transferor assumes all such -------- obligations of the transferor. However, the transferor shall remain liable for its obligations under this Agreement occurring on or prior to the date of such transfer. Section 11.5 Tax Allocations and Cash Distributions. If an -------------------------------------- Interest is transferred, the Net Profit or Loss allocable, and cash distributable, to the holder of such Interest for the then Fiscal Year shall be allocated and distributed based on a method consistent with Section 706(d) of the Code. However, if such parties agree that such Net Profit or Loss and cash are to be allocated and distributed based upon an interim closing of the Partnership books, and such parties agree to pay all expenses -32- incurred by the Partnership in connection therewith and so notify the non-transferring Partner, then all such Net Profit or Loss and cash shall be allocated and distributed between the transferor and transferee based upon an interim closing of the Partnership's books and records. In no event, however, shall Extraordinary Cash Flow or Net Profit or Loss arising from a Capital Transaction be distributed and allocated to any Partner other than the Partners owning Interests as of the date of the Capital Transaction in question. Section 11.6 Compliance. Notwithstanding anything to the ---------- contrary in this Agreement, at law or in equity, no Partner shall transfer or otherwise deal with any Interest in a way that would cause a default under any material agreement to which the Partnership is a party or by which it is bound. Section 11.7 Waiver of Partition. Neither Partner shall, ------------------- either directly or indirectly, take any action to require partition or appraisement of the Partnership or of any of its assets or properties or cause the sale of any Partnership property, and notwithstanding any provisions of applicable law to the contrary, each Partner (and its legal representatives, successors or assigns) hereby irrevocably waives any and all right to maintain any action for partition or to compel any sale with respect to its Interest, or with respect to any assets or properties of the Partnership, except as expressly provided in this Agreement. ARTICLE 12 OPTION TO PURCHASE DEVELOPER'S INTEREST --------------------------------------- Section 12.1 NEPP V's Right to Acquire Developer's ------------------------------------- Interest. At any time, NEPP V may, by providing written notice to -------- Developer, elect to purchase (or cause its designee to purchase) Developer's entire Interest in the Partnership. The purchase price for the interest shall be determined in accordance with Section 12.2 below. Section 12.2 Purchase Price. The purchase price of -------------- Developer's Interest shall be an amount mutually acceptable to Developer and NEPP V; provided that, if they are unable to agree, the purchase price shall equal 100% of the aggregate amount which would be distributable to Developer under Section 5.3 if the assets of the Partnership were sold for their "Fair Value" and the proceeds of such sale were distributed under Section 5.3. Such Fair Value shall be determined in the manner specified in the following paragraph, and the amount distributable to Developer upon a sale of the Project for its Fair Value shall be determined as provided below. Within 15 days after the determination of the -33- Fair Value of the assets of the Partnership, the Accountants shall determine the amount of cash which would be distributed to each Partner pursuant to the provisions of each of clauses FIRST through FIFTH of Section 5.3 if the assets of the Partnership had been sold for the Fair Value as of the date of the determination and shall give each Partner written notice ("Accountant's Notice") thereof. The determination by the Accountant of such amounts shall be conclusive. The "Fair Value" of the assets of the Partnership shall be determined by one or more real estate appraisers (as provided herein), who shall be members of the American Institute of Real Estate Appraisers. NEPP V and Developer shall each select one appraiser within 15 days after the giving of written notice pursuant to Section 12.1, and each shall notify the other of the appraiser selected by it. If a Partner fails to select an appraiser, the appraiser selected shall act alone. Each Partner shall, after selection of all appraiser(s), be required to provide to the appraiser(s) a proposal as to the Fair Value of the Partnership's assets (the "Proposed Fair Value"). The appraiser(s) so selected shall be required to select as the Partnership's Fair Value one of the two Proposed Fair Values. If they fail to do so, then either Partner may request the American Arbitration Association or any successor organization thereto to appoint a third appraiser. If a third appraiser has not been appointed by the American Arbitration Association within 60 days of a Partners' request for it to do so, then either Partner may apply to any court having jurisdiction to appoint the third appraiser. The third appraiser, whether appointed by the original appraisers, the American Arbitration Association or a court, shall select, from among the two Proposed Fair Values, the Fair Value within 30 days after its selection or appointment. The appraiser(s) shall select the Proposed Fair Value which they believe, as between the two Proposed Fair Values, to be the fairest price estimated in terms of money which the Partnership could obtain if its assets were exposed for sale in the open market allowing a reasonable time to find a purchaser who buys with knowledge of the uses which such assets in their then condition are adapted and for which such assets are capable of being used at the time of the appraisal. The appraiser(s) shall also take into consideration whether or not any debt to which the assets of the Partnership are subject is prepayable or callable. This provision for determination of the Fair Value shall be specifically enforceable to the extent such remedy is available under applicable law, and the determination of Fair Value hereunder shall be final and binding upon the parties. In connection with a determination of the Fair Value pursuant to this Section 12.2: if one appraiser is used, each of the Partners shall bear 50% of the fees and expenses of the appraiser; -34- if two appraisers are used, each of the Partners shall bear the fees and expenses of the appraiser selected by such Partner; if three appraisers are used, each of the Partners shall bear the fees and expenses of the appraiser selected by such Partner and 50% of the fees and expenses of the third appraiser. Section 12.3 Closing of Purchase and Sale. The closing of a ---------------------------- purchase pursuant to this Article 12 shall be held at the principal office of the Partnership within 30 days after purchase price of the Developer's interest has been determined. Developer shall transfer to NEPP V its entire Interest in the Partnership free and clear of all liens, security interests and competing claims, and shall deliver to NEPP V or its designee such instruments of transfer and such evidence of due authorization, execution and delivery and of the absence of any liens, security interests or competing claims as NEPP V shall reasonably request. Section 12.4 Payment. At the closing, NEPP V or its ------- designee shall pay the purchase price by delivery at the closing of a certified or bank cashier's check payable to the order of Developer in the amount of the purchase price determined pursuant to Section 12.2. Section 12.5 Liabilities. The purchase of the Interest of ----------- Developer pursuant to this Article 12 shall release the Developer (and NEPP V shall indemnify and hold harmless Developer) from all liabilities and claimed liabilities of the Partnership except for liabilities not taken into account in the determination of the purchase price and tort liabilities not taken into account in the determination of Purchase Price to the extent such tort liabilities are not covered by insurance for events occurring prior to Developer's withdrawal from the Partnership. ARTICLE 13 TERMINATION OF THE PARTNERSHIP ------------------------------ Section 13.1 Events of Dissolution. The Partnership shall --------------------- dissolve upon the first to occur of the following events: - the expiration of the term of the Partnership as provided in Section 1.9; - the sale or other disposition (including, without limi- tation, taking by eminent domain) of all or substan- tially all of the assets of the Partnership unless such sale or other disposition involves any deferred payment of the consideration for such sale or disposition, in which case the Partnership shall not dissolve until the -35- last day of the calendar year during which the Partner- ship shall receive the balance of such deferred payment; - the occurrence of an Event of Bankruptcy of the Partnership, which is not discharged or stayed within 90 days of occurrence; - at the election of NEPP V, at any time; or - the issuance of a decree of dissolution by a court of competent jurisdiction. Section 13.2 Effect of Dissolution. Upon dissolution of the --------------------- Partnership pursuant to Section 13.1, the Partnership shall not terminate but shall continue solely for the purposes of liqui- dating all of the assets owned by the Partnership (until all such assets have been sold or liquidated) and collecting the proceeds from such sales and all receivables of the Partnership unless the same have been written off as uncollectible. Upon dissolution, the Partnership shall engage in no further business thereafter other than that necessary to cause the Project to be operated on an interim basis and for the Partnership to collect its receivables, liquidate its assets and pay or discharge its liabilities. Section 13.3 Sale of Assets by Liquidating Trustee. Upon ------------------------------------- dissolution of the Partnership, NEPP V shall, as "Liquidating Trustee", proceed diligently to wind up the affairs of the Part- nership and distribute its assets. NEPP V shall be permitted to appoint another person to serve as Liquidating Trustee, or another person to succeed any subsequently selected successor, whenever the person originally selected or any such subsequently selected successor, as the case may be, fails for any reason to carry out such purpose. The Liquidating Trustee may be an individual, corporation or general or limited partnership. The decision to accept or reject an offer to purchase assets of the Partnership shall be made solely by the Liquidating Trustee. In winding up the affairs of the Partnership, the Liquidating Trustee shall pay the liabilities of the Partnership in such order of priority as provided by law. If at the time of dissolution the completion of all buildings then under construction on the Land has not occurred, the Liquidating Trustee, in winding up the affairs of the Partnership, shall have the authority, but not the obligation, to complete the construction of the buildings. All distributions of cash in winding up the affairs of the Partnership shall be made in accordance with the provisions of Section 5.4. -36- ARTICLE 14 MISCELLANEOUS ------------- Section 14.1 Notices. All notices required or permitted by ------- this Agreement shall be in writing and may be delivered in person to either party or may be sent by registered or certified mail, with postage prepaid, return receipt requested, or may be transmitted by telegraph, telecopy, overnight courier, personal delivery or other commercially reasonable means, and addressed in the case of NEPP V to: c/o Copley Real Estate Advisors, Inc. 399 Boylston Street Boston, Massachusetts 02116 Attention: General Counsel Re: IBG Dahlia Associates and in the case of Developer to: c/o Investment Building Group 500 North State College Boulevard Suite 525 Orange, California 92668 Attention: Jack M. Langson RE: IBG Dahlia Associates or to such other address as shall from time to time be supplied in writing by any party to the other. Notice sent by registered or certified mail, postage prepaid, with return receipt requested, addressed as above provided, shall be deemed given four days after deposit of same in the United States mail. If any notice is telegraphed the same shall be deemed served or delivered 48 hours after the transmission thereof. Any notice or other document sent or delivered in any other manner shall be effective only if and when received. Section 14.2 Successors and Assigns. Subject to the ---------------------- restrictions on transfer set forth herein, this Agreement shall bind and inure to the benefit of the parties hereto and their respective legal representative, successors and assigns. Section 14.3 No Oral Modifications; Amendments. No oral --------------------------------- amendment of this Agreement shall be binding on the Partners. Any modification or amendment of this Agreement must be in writing signed by all of the Partners. Section 14.4 Captions. Any article, section or paragraph -------- titles or captions contained in this Agreement and the table of contents are for convenience of reference only and shall not be deemed a part of this Agreement. -37- Section 14.5 Terms. Common nouns and pronouns shall be ----- deemed to refer to the masculine, feminine, neuter, singular and plural, as the identity of the Person or Entity may in the context require. Any references to the Code, the Act or other statutes or laws shall include all amendments, modifications or replacements of the specific sections and provisions concerned. Section 14.6 Invalidity. If any provision of this Agreement ---------- shall be held invalid, it shall not affect in any respect whatsoever the validity of the remainder of this Agreement. Section 14.7 Counterparts. This Agreement may be executed ------------ in counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same instrument, binding on the Partners, and the signature of any party to any counterpart shall be deemed a signature to, and may be appended to, any other counterpart. Section 14.8 Further Assurances. The parties hereto agree ------------------ that they will cooperate with each other and will execute and deliver, or cause to be delivered, all such other instruments, and will take all such other actions, as either party hereto may reasonably request from time to time in order to effectuate the provisions and purposes hereof. Section 14.9 Complete Agreement. This Agreement constitutes ------------------ the complete and exclusive statement of the agreement between the Partners. It supersedes all prior written and oral statements and no representation, statement, condition or warranty not contained in this Agreement shall be binding on the Partners or have any force or effect whatsoever. Section 14.10 Attorneys' Fees. If any proceeding is brought --------------- by one Partner against the other to enforce, or for breach of, any of the provisions in this Agreement, the prevailing Partner shall be entitled in such proceeding to recover reasonable attorneys' fees together with the costs of such proceeding therein incurred. Section 14.11 Governing Law. This Agreement shall be ------------- construed and enforced in accordance with the laws of the State of California. Section 14.12 No Third Party Beneficiary. Any agreement to -------------------------- pay any amount and any assumption of liability herein contained, express or implied, shall be only for the benefit of the Partners and their respective heirs, successors and assigns, and such agreements and assumption shall not inure to the benefit of the obligees of any indebtedness or any other party, whomsoever, it being the intention of the Partners that no one shall be deemed to be a third party beneficiary of this Agreement. -38- Section 14.13 Exhibits and Glossary. Each of the Exhibits --------------------- and the Glossary attached hereto are hereby incorporated herein and made a part hereof for all purposes, and references herein thereto shall be deemed to include this reference and incorporation. Section 14.14 Estoppels. Each Partner shall, upon not less --------- than 15 days' written notice from the other Partner, execute and deliver to the other Partner a statement certifying that this Agreement is unmodified and in full force and effect (or, if modified, the nature of the modification) and whether or not there are, to such Partner's knowledge, any uncured defaults on the part of the other Partner, specifying such defaults if any are claimed. Any such statement may be relied upon by third parties. Section 14.15 References to this Agreement. Numbered or ---------------------------- lettered articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement unless otherwise expressly stated. The words "herein," "hereof," "hereunder," "hereby," "this Agreement" and other similar references shall be construed to mean and include this Partnership Agreement and all amendments thereof and supplements thereto unless the context shall clearly indicate or require otherwise. Section 14.16 Reliance on Authority of Person Signing --------------------------------------- Agreement. If a Partner is a trust (with or without disclosed --------- beneficiaries), general partnership, limited partnership, joint venture, corporation, or any entity other than a natural person, the Partnership and the Partners shall: - not be required to determine the authority of the person signing this Agreement to make any commitment or under- taking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such person; - not be required to see to the application or distribu- tion of proceeds paid or credited to persons signing this Agreement on behalf of such entity; - be entitled to rely on the authority of the person signing this Agreement with respect to the voting of the Interest of such entity and with respect to the giving of consent on behalf of such entity in connection with any matter for which consent is permitted or required under this Agreement; and - be entitled to rely upon the authority of any general partner, joint venturer, co- or successor trustee, or -39- president or vice president, as the case may be, of any such entity the same as if such person were the person originally signing this Agreement on behalf of such entity. Section 14.17 Consents and Approvals. Whenever the consent ---------------------- or approval of a Partner is required by this Agreement, such Partner shall have the right to give or withhold such consent or approval in its sole discretion, unless otherwise specified. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. NEW ENGLAND PENSION PROPERTIES V; A REAL ESTATE LIMITED PARTNERSHIP By: FIFTH COPLEY CORP., a Massachusetts corporation, its Managing General Partner By:__________________________ Authorized Officer DEVELOPER: 20 DAHLIA PARTNERSHIP, a California Limited Partnership By Investment Building Group, its General Partner By__________________________ Authorized Officer -40- IBG DAHLIA ASSOCIATES EXHIBIT A LEGAL DESCRIPTION OF LAND ------------------------- Lot 8, Tract No. 8554, County of San Bernardino, State of California, as per map recorded in Book 123 of Maps, Pages 13 to 17, inclusive, in the office of the County Recorder of said County. GLOSSARY OF DEFINED TERMS IBG DAHLIA ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP LIMITED PARTNERSHIP AGREEMENT Capitalized terms used in this Limited Partnership Agreement of IBG Dahlia Associates, a California Limited Partnership, shall have the meanings ascribed to them below: Accountants means Price Waterhouse, or such other firm of ----------- nationally-recognized independent certified public accountants as may be selected by NEPP V. Accountant's Notice shall have the meaning set forth in ------------------- Section 12.2. Accrued Junior Monthly Guaranteed Payment shall have the ----------------------------------------- meaning set forth in Section 5.1.1. Accrued Monthly Guaranteed Payment shall have the meaning set ---------------------------------- forth in Section 5.1.1. Accrued Senior Monthly Guaranteed Payment shall have the ----------------------------------------- meaning set forth in Section 5.1.1. Act means the California Revised Limited Partnership Act, as --- set forth in Title 2, Chapter 3 of the California Corporations code, as amended. Adjusted Capital Account shall have the meaning set forth in ------------------------ Section 3.1(b). Affiliate means a Person that directly or indirectly, through --------- one or more intermediaries, controls, is controlled by, or is under common control with the person in question and any officer, director, trustee, employee, stockholder (10% or more) or partner of any Person referred to in the preceding clause. For purposes of this definition, the term "control" means the ownership of 10% or more of the beneficial interest or the voting power of the appropriate Entity. Notwithstanding the foregoing, a person shall not be considered an affiliate of NEPP V or Developer solely by reason of the fact that such person is engaged in one or more real estate projects with NEPP V or Developer on a joint venture basis. Book Value means, with respect to any asset, the asset's ---------- adjusted basis for federal income tax purposes, except as follows: (i) the initial Book Value of any asset contributed (or deemed contributed) to the Partnership shall be such asset's gross fair market value at the time of such contribution; (ii) the Book Value of all Partnership assets shall be adjusted to equal their respective gross fair market values at the times specified in Treasury Regulation Section 1.704- 1(b)(2)(iv)(f) if the Partnership so elects; (iii) if the adjusted basis of any asset acquired by the Partnership is determined by reference to the adjusted basis of any other asset of the Partnership, the Book Value of the acquired asset shall be determined by reference to the Book Value of the other asset rather than its adjusted basis; and (iv) if the Book Value of an asset has been determined pursuant to clause (i), (ii) or (iii), such Book Value shall thereafter be adjusted in the same manner as would the asset's adjusted basis for federal income tax purposes except that depreciation deductions shall be computed in accordance with Section 7.1(a)(iv). Capital Account shall have the meaning set forth in Section --------------- 3.1(a). Capital Transaction shall have the meaning set forth in ------------------- Section 5.1. Code means the Internal Revenue Code of 1986, as amended from time to time, and all published rules, rulings and regulations thereunder at the time of reference thereto. Developer or the Limited Partner shall have the meaning set --------- --------------- forth in the Recital. Economic Risk of Loss means the risk as determined under --------------------- Treasury Regulation Section 1.752-2 that a partner or person related to a partner will suffer an economic loss as a result of the failure of the Partnership to repay a liability. Entity means any general partnership, limited partnership, ------ corporation, joint venture, trust, business trust, cooperative or association. Event of Bankruptcy means, as to the Partnership or a ------------------- Partner, (1) filing a voluntary petition in bankruptcy or for reorganization or for the adoption of an arrangement under the Federal Bankruptcy Code (as now or in the future amended) or an admission seeking the relief therein provided; (2) making a general assignment for the benefit of its creditors; (3) consenting to the appointment of a receiver for all or a substan- tial part of its property; (4) in the case of the filing of an involuntary petition in bankruptcy, an entry of an order for relief; (5) the entry of a court order appointing a receiver or trustee for all or a substantial part of its property without its consent; or (6) the assumption of custody or sequestration by a court of competent jurisdiction of all or substantially all of its property. -2- Extraordinary Cash Flow shall have the meaning set forth in ----------------------- Section 5.1. Fair Value shall have the meaning set forth in Section 12.2. ---------- Fiscal Year shall have the meaning set forth in Section 8.7. ----------- Gross Income shall have the meaning set forth in Section 7.1. ------------ Improvements means the buildings and other improvements ------------ constructed on the Land by the Partnership. Incapacity means for a Partner or an Entity which is the ---------- general partner of a Partner, the dissolution, liquidation or ter- mination (but not including a termination under Section 708(b)(1)(B) or Section 708(b)(2)(A) of the Code) of such Partner or Entity. Indemnitor shall have the meaning set forth in Section 2.8. ---------- Interest means the entire ownership interest (which may be -------- segmented into and/or expressed as a percentage of various rights and/or liabilities) 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 and in the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement and of the Act. IRS means the Internal Revenue Service. --- Junior Capital shall have the meaning set forth in -------------- Section 3.2. Junior Invested Capital shall have the meaning set forth in ----------------------- Section 5.1. Junior Monthly Guaranteed Payment shall have the meaning set --------------------------------- forth in Section 5.1.1. Land means the approximately 12.87-acre parcel of land ---- located in Fontana, County of San Bernardino, California, as more particularly described in Exhibit A to this Agreement. --------- Liquidating Trustee shall have the meaning set forth in ------------------- Section 14.3. Monthly Guaranteed Payment shall have the meaning set forth -------------------------- in Section 5.1. NEPP V or the General Partner shall have the meaning set ------ --------------- forth in the Recital. -3- Net Profit and Net Loss shall have the meanings set forth in ---------- -------- Section 7.1. Nonrecourse Deductions for a Fiscal Year (or other period) ---------------------- means deductions funded by Nonrecourse Liabilities (as determined under Treasury Regulation Section 1.704-2(c)) for such year and are generally equal to the excess, if any, of (i) the net increase in Partnership Minimum Gain during such year over (ii) the sum of (A) the aggregate distributions of proceeds from Nonrecourse Liabilities attributable to increases in Partnership Minimum Gain during such year and (B) increases in Partnership Minimum Gain during such year attributable to conversions of liabilities into Nonrecourse Liabilities. Nonrecourse Liability means any liability of a partnership --------------------- (or portion thereof) to the extent that no partner bears the Economic Risk of Loss associated with the liability. Operating Cash Flow shall have the meaning set forth in ------------------- Section 5.1. Operating Deficit shall have the meaning set forth in Section ----------------- 6.1. Operating Revenues shall have the meaning set forth in ------------------ Section 5.1. Original Agreement shall have the meaning set forth in ------------------ Recital. Original Partnership shall have the meaning set forth in the -------------------- Recital. Partner means NEPP V and Developer, and such successors, ------- assigns or additional partners as may be admitted to the Partnership, from time to time, pursuant to the terms of this Agreement. Partner Nonrecourse Debt means any partnership liability to ------------------------ the extent that the liability is nonrecourse for purposes of Treasury Regulation Section 1.1001-2 and a partner bears the Economic Risk of Loss associated with the liability. Partner Nonrecourse Debt Minimum Gain means the amount that ------------------------------------- would result if Partnership Minimum Gain were computed with respect to Partner Nonrecourse Debt rather than Nonrecourse Liabilities. Partner Nonrecourse Deductions means deductions funded from ------------------------------ Partner Nonrecourse Debt (as determined under Treasury Regulation Section 1.704-2(i)(2)) computed for a Fiscal Year (or other period) in a manner similar to that used in computing Nonrecourse Deductions but with reference to Partner Nonrecourse Debt Minimum Gain rather than Partnership Minimum Gain. -4- Partner's Share of Partner Nonrecourse Debt Minimum Gain -------------------------------------------------------- means an amount of Partner Nonrecourse Debt Minimum Gain computed for each Partner in a manner similar to that used in computing a Partner's Share of Partnership Minimum Gain but with reference to Partner Nonrecourse Debt with respect to which the Partner bears the Economic Risk of Loss rather than to Nonrecourse Liabilities. Partner's Share of Partnership Minimum Gain means an amount ------------------------------------------- of Partnership Minimum Gain computed for each Partner under Treasury Regulation Section 1.704-2(g) and generally equal to the excess of (i) the sum of (A) the aggregate amount of Nonrecourse Deductions previously allocated to the Partner, (B) the aggregate amount of proceeds of Nonrecourse Liabilities attributable to increases in Partnership Minimum Gain previously distributed to the Partner and (C) increases in Partnership Minimum Gain during such Fiscal Year attributable to conversions of liabilities into Nonrecourse Liabilities over (ii) the Partner's aggregate proportionate share of previous decreases in Partnership Minimum Gain. A Partner's proportionate share of the decrease in Partnership Minimum Gain for a Fiscal Year shall be based upon the ratio that such Partner's Share of Minimum gain for the preceding year bore to the aggregate amount of Partnership Minimum Gain for such preceding Fiscal Year. Partnership means the limited partnership governed by this ----------- Agreement as said limited partnership may from time to time be constituted and amended. Partnership Agreement shall have the meaning set forth in the --------------------- Recital. Partnership Capital means an amount equal to the sum of all ------------------- of the Partners' Capital Account balances determined immediately prior to the allocation to the Partners pursuant to Sections 7.2(b)(ii)(y) or 7.2(c)(ii)(x) of any Net Profit or Net Loss from a Capital Transaction increased by the aggregate amount of Net Profit to be allocated to the Partners pursuant to Section 7.2(b)(ii)(y) as a result of such Capital Transaction or decreased by the aggregate amount of Net Loss to be allocated to the Partners pursuant to Section 7.2(c)(ii)(x) as a result of such Capital Transaction. Partnership Minimum Gain means the amount determined by ------------------------ computing with respect to each Nonrecourse Liability of the Partnership, the amount of Gross Income, if any, that would be realized by the Partnership if it disposed of the property securing such liability in full satisfaction thereof, and by then aggregating the amounts so computed. For purposes of determining the amount of such Gross Income with respect to a liability, the Book Value of the asset securing the liability shall be allocated among all the liabilities that the asset secures in the manner set forth in Treasury Regulation Section 1.704-2(d)(2). -5- Person means any individual or Entity, and the heirs, ------ executors, administrators, legal representatives, successors and assigns of such Person where the context so admits; and, unless the context otherwise requires, the singular shall include the plural, and the masculine gender shall include the feminine and the neuter and vice versa. Project means the Land, together with the streets, sewers, ------- curbs, gutters, utility service connections, and other land development infrastructure and improvements constructed or to be constructed on or related to the Land (including related off-site improvements) pursuant to an Annual Business Plan. Project Expenses shall have the meaning set forth in Section ---------------- 5.1. Property Manager shall have the meaning set forth in Section ---------------- 2.10. Proposed Fair Value shall have the meaning set forth in ------------------- Section 12.2. Purchase Price shall have the meaning set forth in Section -------------- 13.2. Reserve for Replacements shall have the meaning set forth in ------------------------ Section 5.1. Selling Partner shall have the meaning set forth in Section --------------- 11.2. Senior Capital shall have the meaning set forth in -------------- Section 3.2. Senior Invested Capital shall have the meaning set forth in ----------------------- Section 5.1. Senior Monthly Guaranteed Payment shall have the meaning set --------------------------------- forth in Section 5.1.1. Tax Matters Partner shall have the meaning set forth in ------------------- Section 8.6. Third Party Loans shall have the meaning set forth in Section ----------------- 4.1. Transfer shall have the meaning set forth in Section 11.1. -------- Working Capital Fund shall have the meaning set forth in -------------------- Section 5.1. -6- EX-27 6 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 DEC-31-1995 3,790,598 7,864,807 0 0 0 11,655,405 48,879,826 0 60,535,231 170,513 368,161 0 0 0 59,996,557 60,535,231 4,704,565 5,522,086 1,002,065 1,002,065 1,671,306 600,000 0 2,248,715 0 2,248,715 0 0 0 2,248,715 26.96 26.96
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