-----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, WC+2dhYsBUPA0CbzNSBXVFAf+w17s/7Vy03evyWVpzKDoqWQzZA3A/EK3fJRCkSC Onp+/OavFbne372XptUMyQ== 0000936392-98-000497.txt : 19980330 0000936392-98-000497.hdr.sgml : 19980330 ACCESSION NUMBER: 0000936392-98-000497 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INCOME GROWTH PARTNERS LTD X CENTRAL INDEX KEY: 0000830051 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330294177 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-18528 FILM NUMBER: 98575733 BUSINESS ADDRESS: STREET 1: 11300 SORRENTO VALLEY RD STE 108 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194572750 MAIL ADDRESS: STREET 1: 11300 SORRENTO VALLEY ROAD STREET 2: SUITE 108 CITY: SAN DIEGO STATE: CA ZIP: 92121 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____ to ____ Commission File Number 0-18528 INCOME GROWTH PARTNERS, LTD. X, A CALIFORNIA LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CALIFORNIA 33-0294177 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1300 Sorrento Valley Road, Suite 108, San Diego, California 92121 (Address of principal executive offices) (Zip Code) (619) 457-2750 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS 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 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 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] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes[X] No [ ] 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business........................................................................1 Item 2. Properties......................................................................3 Item 3. Legal Proceedings...............................................................4 Item 4. Submission of Matters to a Vote of Security Holders.............................4 PART II Item 5. Market for the Registrant's Units and Related Security Holder Matters...........4 Item 6. Selected Financial Data.........................................................5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................6 Item 8. Financial Statements and Supplementary Data.....................................9 Item 9. Disagreements on Accounting and Financial Disclosures...........................9 PART III Item 10. Directors and Executive Officers of the Registrant..............................9 Item 11. Executive Compensation.........................................................10 Item 12. Security Ownership of Certain Beneficial Owners and Management.................10 Item 13. Certain Relationships and Related Transactions.................................11 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................11 Signatures ...............................................................................14
3 PART I ITEM 1. BUSINESS GENERAL Income Growth Partners, Ltd. X, a California limited partnership (the "Limited Partnership") and subsidiaries (collectively, the "Partnership"), was formed in February 1988, to acquire, operate and hold for investment one or more parcels of income-producing, multi-family residential real property. Currently, the Limited Partnership operates two separate apartment complexes in Southern California: 1) Mission Park and 2) Shadow Ridge Meadows. The limited partnership agreement provides that the Partnership shall continue through February 2021, unless terminated sooner. Income Growth Management, Inc. ("IGM") is the sole general partner. The general partner has made no cash capital contributions to date. As of December 31, 1997, there were approximately 2,082 limited partners in the Partnership. The Partnership has no full-time employees. Employees of corporations affiliated with the general partner perform certain administrative and other services on behalf of the Partnership (see Item 13). The Partnership's executive offices are located at 11300 Sorrento Valley Road, Suite 108, San Diego, California 92121 and the Partnership's telephone number is (619) 457-2750. FINANCING STRATEGY The Partnership seeks to minimize the cost of financing its properties and will refinance existing loans from time to time to take advantage of prevailing market conditions. The Mission Park and Shadow Ridge Meadows properties were refinanced to prevailing rates during 1995 and 1997, respectively. COMPETITIVE CONDITIONS Changes in the national and regional economic climates, changes in local real estate conditions such as the oversupply of apartments or a reduction in demand for apartments, competition from single-family housing, apartment properties and other forms of multifamily residential housing, the inability to provide adequate maintenance and to obtain adequate insurance, increased operating costs, changes in zoning, building, environmental, rent control and other laws and regulations, the costs of compliance with current and future laws, changes in real property taxes and unusual occurrences (such as earthquakes and floods) and other factors beyond the control of the Partnership may adversely affect the income from, and value of, the Partnership's properties. 1 4 ITEM 1. BUSINESS, CONTINUED LEASES AND INFLATION Substantially all of the leases at the Partnership's apartment properties are for a period of six months or less, allowing, at the time of renewal, for adjustments in the rental rate and the opportunity to release the apartment unit at the prevailing market rate. The short-term nature of these leases generally serves to minimize the risk to the Partnership of the adverse effect of inflation and the Partnership does not believe that inflation has had a material adverse impact on its revenues. RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. These requirements became effective in 1992. A number of additional federal, state and local laws exist which also may require modifications to the properties, or restrict certain further renovations thereof, with respect to access thereto by disabled persons. For example, the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with the ADA or the FHAA could result in an order to correct any noncomplying feature, which could result in substantial capital expenditures. Although management of the Partnership believes that the properties are substantially in compliance with present requirements, if the properties are not in compliance, the Partnership is likely to incur additional costs to comply with the ADA and the FHAA. RECENT DEVELOPMENTS In January 1994, the Limited Partnership filed a voluntary petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for Southern District of California. In October 1994, the Limited Partnership filed a Plan of Reorganization (the "Plan") that was confirmed by the Bankruptcy Court in March 1995. In general, the Plan provided for resolution of all claims against the Limited Partnership as of January 26, 1994. The Limited Partnership emerged from Chapter 11 effective in May 1995 having fully satisfied all claims in accordance with the Plan. The Plan proposed that the Limited Partnership raise additional funds through an offering of Class A Units that have a preferred status over the Original Units. The gross proceeds from the offering, which closed in June 1995, were approximately $2 million. Under the provisions of the Plan, the Limited Partnership was allowed to retain ownership of the Mission Park and Shadow Ridge Meadows properties. However, the Limited Partnership was unable to raise the capital necessary to retain ownership of its third property, Margarita Summit. 2 5 ITEM 1. BUSINESS, CONTINUED During 1995, on a tax free basis, the Limited Partnership exchanged the Mission Park property for a 99% interest in IGP X Mission Park Associates, L.P., a newly formed California limited partnership (the "Mission Park Subsidiary"). The Mission Park Subsidiary is separate and distinct from the Partnership, having separate assets, liabilities and business operations. During 1997, on a tax free basis, the Limited Partnership exchanged the Shadow Ridge Meadows property for a 99% interest in IGP X Shadow Ridge Meadows, Ltd., a newly formed California limited partnership (the "Shadow Ridge Meadows Subsidiary"). The Shadow Ridge Meadows Subsidiary is also separate and distinct from the Partnership, having separate assets, liabilities and business operations. Formation of the Mission Park Subsidiary and the Shadow Ridge Subsidiary had no impact on the Partnership's overall operations, allocation of net income/loss, cash distributions or Partnership assets. ITEM 2. PROPERTIES The Partnership presently owns two properties, as follows: MISSION PARK: Date of purchase: August 1989 Purchase price: $17,100,000 1995 impairment write-down: $1,200,000 Property Description: A 264-unit apartment complex located in San Marcos, California. The property includes two full-size recreation rooms, two heated swimming pools and spas, night-lighted tennis courts, a satellite cable TV system and covered parking. The building is approximately eight years old. The property contains 215,292 square feet. SHADOW RIDGE MEADOWS: Date of purchase: November 1988 Purchase price: $12,700,000 1995 impairment write-down: $1,600,000 Property Description: A 184-unit apartment complex located in Vista, California. The property includes a large recreation center, a heated swimming pool and spa, five laundry facilities, a satellite cable TV system and covered parking. The building is approximately eleven years old. The property contains 127,197 square feet. 3 6 ITEM 3. LEGAL PROCEEDINGS The Partnership is not a party to any legal proceedings other than various claims and lawsuits arising in the normal course of its business which, in the opinion of the Partnership's management, are not individually or in the aggregate material to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS (a) Market Information As of December 31, 1997, the outstanding securities of the Partnership included the Original Units and Class A Units held by the limited partners. The Partnership's Amended and Restated Agreement of Partnership substantially restricts transfers of all units and no public trading market for the units exists or is intended or expected to develop. (b) Holders As of December 31, 1997, the Partnership's 18,826.5 outstanding Original Units and 8,100 Class A Units were held by an aggregate of 2,082 Limited Partners. (c) Dividends As a limited partnership, the Partnership does not pay dividends. The amended partnership agreement provides that any distributions of cash from operations will be made in the following order of priority: First, each Class A Unit receives a 12% cumulative noncompounded annual return on the balance of actual funds invested in Class A Units. Second, each Class A Unit receives a total return of original invested capital. Third, each Class A Unit receives a $500 bonus. Fourth, each Original Unit holder receives a 10% noncumulative return on the adjusted balance of original invested capital. Thereafter, 90% of distributions on cash from operations will be made to the Original Unit holders and 10% to the general partner. No distributions had been made through December 31, 1997. As of December 31, 1997 and 1996, cumulative unpaid distributions were approximately $15,900,000 and $15,100,000, respectively. 4 7 ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS, CONTINUED The Partnership distributed $100,000 during January 1998. Cash distributions are determined at the discretion of the general partner. Any future distributions are largely dependent on future income, expenses, debt service and operating reserves and there can be no assurance that future distributions will be paid. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements and the related notes described in Item 8 herein:
1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Total assets $ 21,225,719 $ 21,476,918 $ 22,153,868 $ 28,945,057 $ 33,954,409 Long-term obligations 19,765,202 19,788,869 19,966,935 29,426,708 29,678,456 Total revenue 3,791,975 3,576,981 3,896,384 4,344,717 4,418,407 Total expenses (4,163,361) (4,063,509) (4,584,674) (9,413,282) (6,969,061) Write-down of land and building - - - 3,900,000 - Loss before extraordinary item: gain on forgiveness of debt (371,386) (486,528) (688,290) (5,322,740) (2,550,654) Extraordinary item: gain on forgiveness of debt - - 4,446,019 - - Net income (loss) (371,386) (486,528) 3,757,729 (5,322,740) (2,550,654) Net loss per partnership unit before extraordinary gain (13.79) (18.06) (28.48) (282.73) (135.49) Extraordinary gain per partnership unit - - 184.01 - - Net income (loss) per partnership unit (13.79) (18.06) 155.53 (282.73) (135.49) Weighted average limited partnership units 26,926 26,926 24,161 18,826 18,826
There had been no cash distributions to partners to December 31, 1997. The Partnership distributed $100,000 during January 1998. 5 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto filed herewith. Historical results and percentage relationships set forth in the consolidated statement of operations in the financial statements, including trends which might appear, should not be taken as indicative of future operations. (a) Liquidity and Capital Resources In January 1994, the Limited Partnership filed a voluntary petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of California. Under the provisions of the Plan of Reorganization (the "Plan"), the Limited Partnership was allowed to retain ownership of the Mission Park and Shadow Ridge Meadows properties. Despite $2,025,000 in additional capital from existing investors in the form of Class A Units, the Limited Partnership was unable to raise the necessary capital to retain ownership of its third property, Margarita Summit. The Limited Partnership emerged from Chapter 11 effective in May 1995 having fully satisfied all claims in accordance with the Plan. Prior to 1996, the Partnership's operating and debt service obligations have been financed through the sale of Partnership Units, cash provided by operating activities, and 1995 debt restructuring activities. During 1997 and 1996, all of the Partnership's operating and debt service cash requirements have been met through cash generated from operations. As of December 31, 1997, the Partnership's properties, Shadow Ridge Meadows and Mission Park, remain highly leveraged. The Mission Park mortgage was refinanced in December 1995 at a fixed interest rate of 7.76%. The Shadow Ridge Meadows mortgage was refinanced in October 1997 at a fixed interest rate of 7.49%. Despite the refinancings, mortgage indebtedness on the properties remains high, which may make it difficult for the properties to service their debt through Partnership operations. In the event that one or more of the properties is unable to support its debt service and the Partnership is unable to cover operational shortfalls from cash reserves, the Partnership may have to take one or more alternative courses of action. The general partners would then determine, based on their analysis of relevant economic conditions and the status of the properties, a course of action intended to be consistent with the best interests of the Partnership. Possible courses of action might include the sacrifice, sale or refinancing of one or more of the properties, the entry into one or more joint venture partnerships with other entities, or the filing of another bankruptcy petition. 6 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED: The Partnership changed its method of reporting cash flows from the direct method to the indirect method in 1996. Prior period amounts have been reclassified to conform with the current year presentation. COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996. Net cash provided by operating activities for the year ended December 31, 1997 was $594,000 compared to $360,000 for the same period in 1996. The principal reason for this difference is a decrease in net loss of approximately $115,000 and an increase in accounts payable resulting from the timing of payments. Net cash used in investing activities for the year ended December 31, 1997 was $252,000 compared to $44,000 for the same period in 1996. The increase in cash used in investing activities is due primarily to increases in improvements made possible by increased rental revenues. Net cash used in financing activities for the year ended December 31, 1997 was $305,000 compared to $225,000 for the same period in 1996. The increase is primarily due to debt issue costs related to the refinancing of the Shadow Ridge Meadows property. COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995. Net cash provided by operating activities for the year ended December 31, 1996 was $360,000 compared to net cash used by operating activities of $1,354,000 for the same period in 1995. The change is primarily due to a significant decrease in accounts payable resulting from the bankruptcy in 1995. Net cash used in investing activities for the year ended December 31, 1996 was $44,000 compared to $98,000 for the same period in 1995. The decrease is primarily due to fewer capital improvements in 1996 over 1995. Net cash used by financing activities for the year ended December 31, 1996 was $245,000 compared to net cash provided by financing activities for the year ended December 31, 1995 of $1,425,000. The decrease is primarily attributable to the sale of Class A limited partnership units in 1995. (b) Results of Operations COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996. Rental revenue for the year ended December 31, 1997 was $3,656,000, an increase of 7% over rents of $3,430,000 in the comparable period in 1996. The increase is primarily attributable to an increase in monthly tenant rental rates and occupancy rates. 7 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED: Interest expense for the year ended December 31, 1997 was $1,544,000, an increase of 1% over interest expense of $1,527,000 in the comparable period in 1996. The increase is primarily attributable to the variable interest rate on the Shadow Ridge Meadows Property. The increase is also attributable to amortization of loan fees related to the refinancing of the Shadow Ridge Meadows Property. Operating expense for the year ended December 31, 1997 was $1,782,000, an increase of 3% over operating expense of $1,726,000 in the comparable period in 1996. The increase is primarily attributable to an increase in refurbishment expenses in 1997 over 1996. The increase is also attributable to higher expenses related to increases in occupancy rates. Depreciation expense for the year ended December 31, 1997 was $837,000, an increase of 3% over depreciation expense of $810,000 in the comparable period in 1996. The increase is primarily attributable to an increase in capitalized fixed asset expenditures in 1997 over 1996. COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995. Rental revenue for the year ended December 31, 1996 was $3,430,000, a decrease of 6% over rents of $3,663,000 in the comparable period in 1995. The decrease is primarily attributable to the 1995 foreclosure loss of the Margarita Summit property. Interest expense for the year ended December 31, 1996 was $1,527,000, a decrease of 8% over interest expense of $1,660,000 in the comparable period in 1995. The decrease is primarily due to the loss of the Margarita Summit Property in 1995. Operating expense for the year ended December 31, 1996 was $1,726,000, a decrease of 17% over operating expense of $2,074,000 in the comparable period in 1995. The decrease is primarily attributable to the 1995 foreclosure loss of the Margarita Summit property. Depreciation expense for the year ended December 31, 1996 was $810,000, a decrease of 5% over depreciation expense of $850,000 in the comparable period in 1995. The decrease is primarily due to the loss of the Margarita Summit Property in 1995 offset by increased capitalized fixed asset expenditures in 1996. (c) Year 2000 The Partnership currently uses a prepackaged accounting software on a Novell Netware platform. The software maker has announced that it will not support the current software beginning in the Year 2000. As a result, the Partnership intends to purchase a new accounting system that is Year 2000 compliant. The Partnership believes that the purchase and related training costs will not be material to the Partnership's financial position or results of operations. 8 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data required by this Item are set forth at the pages indicated in Item 14(a). 1ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. GENERAL PARTNER AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The general partner of the Partnership is Income Growth Management, Inc. ("IGM"), a California corporation. The executive officers of IGM do not receive compensation from the Partnership. The names, ages and positions of responsibility held by the executive officers and directors of IGM are as follows:
NAME AGE POSITION ---- --- -------- David Maurer 45 President and Director Timothy Maurer 48 Secretary and Director Robert Green 40 Vice President of Operations and Director
FAMILY RELATIONSHIPS David Maurer and Timothy Maurer are brothers. BUSINESS EXPERIENCE The following is a brief background of the directors and executive officers of IGM: DAVID MAURER has served as President and Director of IGM since 1992, and as President and Director of ENA Corporation ("ENA"), an affiliate of IGM, since 1979. He has been involved in real estate syndication and property management since 1980, and in real estate development and construction since 1974. David was educated at the University of California, San Diego (B.A. 1974). TIMOTHY MAURER has served as Chief Financial Officer, Secretary and Director of IGM since 1979. He has been involved in real estate syndication, development, design and construction since 1975. Timothy was educated at the California College of Arts and Crafts, Oakland (B.F.A. 1972). 9 12 ITEM 10. GENERAL PARTNER AND EXECUTIVE OFFICERS OF THE PARTNERSHIP, CONTINUED ROBERT GREEN has served as Vice President of Operations and Director since 1988. He has also been the Director of Property Management of ENA since 1988. He has been directly involved in property management since 1980. Robert worked for four years with Coldwell Banker Real Estate Management Services in San Diego managing both commercial and residential property. He also worked for four years with C&R Realty Company managing over 75 residential properties in Oregon and Washington. Robert was educated at Pacific University in Forest Grove, Oregon (B.A. 1980). ITEM 11. EXECUTIVE COMPENSATION The Partnership has no executive officers and has not paid nor proposes to pay any compensation or retirement benefits to the directors or executive officers of Income Growth Management, Inc., the general partner. See Item 13 for compensation to the general partner. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS -------------- ------------------- -------------------- -------- Class A Units John W. Baer 609.0000 7.5% 1091 Valley View Court Los Altos, CA 94024
No other person or group is known by the Partnership to own beneficially more than 5% of the outstanding Original Units or Class A Units. (b) Security Ownership of Management None of the officers and directors of the Partnership's corporate general partners are the beneficial owners of any Original Units or Class A Units. 10 13 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership is entitled to engage in various transactions involving its general partners and its affiliates as described in the Partnership Agreement. The table below reflects amounts paid to the general partner or its affiliates during the year ended December 31, 1996:
1997 1996 1995 -------- -------- -------- Management fees $179,000 $167,000 $175,000 Administrative fees 113,000 68,600 81,100 Loan origination fees 97,500 - 102,000
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: (1) Financial Statements The following financial statements of the Partnership and related notes to financial statements and accountants' report are filed herewith: Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Partners' Capital (Deficit) for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements (2) Financial Statement Schedule Schedule III - Real Estate and Accumulated Depreciation All other schedules are either not required, or the information therein is included in the notes to the audited financial statements. 11 14 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K, CONTINUED (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year covered by this report. (c) Exhibits The following Exhibit Index lists the exhibits that are either filed as part of this report or incorporated herein by reference from a prior filing. 12 15 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION - ----------- ----------- -------- 2.2 Second Amended Disclosure Statement to Debtor's (1) Second Amended Plan of Reorganization, As Revised (with Second Amended Plan of Reorganization attached as Exhibit 1) filed with the Bankruptcy Court on October 25, 1994; Order Approving Second Amended Disclosure Statement to Debtor's Second Amended Plan of Reorganization, Approving Ballots and Fixing Dates for Filing Acceptances or Rejections of Plan and for Confirmation Hearing, Combined with Notice Thereof; Equity Interest Holder Ballot for Accepting or Rejecting Debtor's Second Amended Plan of Reorganization; Offering Memorandum for Income Growth Partners, Ltd. X Class A Units dated October 27, 1994 (with Amended and Restated Agreement of Limited Partnership attached as Exhibit B). 3.1 Articles of Incorporation of IGP X Mission Park, Inc. (2) 4.2 Amended and Restated Agreement of Limited Partnership (3) 4.3 Agreement of Limited Partnership of IGP X Mission (2) Park Associates, L.P., A California Limited Partnership 4.4 Agreement of Limited Partnership of IGP X Shadow Ridge (6) Meadows, Ltd., A California Limited Partnership 27.6 Financial Data Schedule (6) 28.1 Prospectus dated January 3, 1991 (4) 28.4 Letter regarding resignation of General Partner (5)
- ------------------------- (1) Incorporated by reference from the Partnership's Quarterly Report on Form 10-Q for the third quarter ended September 30, 1994 (Commission File Number 0-18528). (2) Incorporated by reference from the Partnership's Current Report on Form 8-K dated December 27, 1995 (Commission File Number 0-18528). 13 16 (3) Included as Exhibit "B" to the Partnership's Offering Memorandum for Income Growth Partners, Ltd. X Class A Units dated October 27, 1994, included in Exhibit 2.2 incorporated by reference from the Partnership's Quarterly Report on Form 10-Q for the third quarter ended September 30, 1994 (Commission File Number 0-18528). (4) Incorporated by reference from the Partnership's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1992 (Commission File Number 0-18528). (5) Incorporated by reference from the Partnership's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1993 (Commission File Number 0-18528). (6) Filed herewith 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. Date: ____________ INCOME GROWTH PARTNERS, LTD. X (a California Limited Partnership) By: Income Growth Management, Inc. General Partner By: /s/ David W. Maurer ----------------------------------- David W. Maurer, President 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. Signatures Title and Capacity Date ------------------------- ------------------ --------- ------------------------- ------------------ --------- 14 17 APPENDIX FINANCIAL STATEMENTS 18 INDEX TO FINANCIAL STATEMENTS - ITEM 14 OF FORM 10-K
PAGE ---- Report of Independent Accountants.........................................................F-2 Consolidated Financial Statements and Notes: Balance Sheets as of December 31, 1997 and 1996......................................F-3 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995.....................................................F-4 Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1997, 1996 and 1995.....................................................F-5 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.....................................................F-6 Notes to Financial Statements........................................................F-7 Schedule III - Real Estate and Accumulated Depreciation.............................F-18
F-2 19 REPORT OF INDEPENDENT ACCOUNTANTS Income Growth Partners, Ltd. X, a California limited partnership We have audited the consolidated financial statements and the financial statement schedule of Income Growth Partners, Ltd. X, a California limited partnership, and subsidiaries (collectively, the "Partnership") listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the general partners and the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Income Growth Partners, Ltd. X and subsidiaries as of December 31, 1997 and 1996 and the results of their operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. San Diego, California February 16, 1998 F-3 20 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ----------
1997 1996 ------------ ------------ ASSETS Rental properties: Land $ 7,078,365 $ 7,078,364 Buildings and improvements 21,607,078 21,355,047 ------------ ------------ 28,685,443 28,433,411 Less accumulated depreciation (8,582,492) (7,745,530) ------------ ------------ 20,102,951 20,687,881 Cash and cash equivalents 282,293 244,582 Deferred loan fees, net of accumulated amortization of $80,873 and $61,434, respectively 689,294 370,820 Prepaid expenses and other assets 151,181 173,635 ------------ ------------ $ 21,225,719 $ 21,476,918 ============ ============ LIABILITIES AND PARTNERS' CAPITAL Mortgage loans payable $ 19,765,202 $ 19,788,869 Other liabilities: Loan payable to affiliates 113,000 55,300 Accounts payable and accrued liabilities 148,501 81,473 Accrued interest payable 125,623 123,392 Security deposits 201,250 184,355 ------------ ------------ 20,353,576 20,233,389 Commitments Partners' capital 882,143 1,253,529 Note receivable from general partner (10,000) (10,000) ------------ ------------ $ 21,225,719 $ 21,476,918 ============ ============
The accompanying notes are an integral part of the financial statements. F-4 21 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------
1997 1996 1995 ----------- ----------- ----------- Revenues: Rents $ 3,655,595 $ 3,429,751 $ 3,663,206 Interest 8,925 6,887 31,714 Other 127,455 140,343 201,464 ----------- ----------- ----------- Total revenues 3,791,975 3,576,981 3,896,384 ----------- ----------- ----------- Expenses: Operating expenses 1,782,364 1,726,424 2,073,775 Depreciation 836,962 810,220 850,178 Interest and penalties 1,544,035 1,526,865 1,660,721 ----------- ----------- ----------- Total expenses 4,163,361 4,063,509 4,584,674 ----------- ----------- ----------- Loss before extraordinary item (371,386) (486,528) (688,290) Extraordinary item: Gain on forgiveness of debt - - 4,446,019 ----------- ----------- ----------- Net income (loss) $ (371,386) $ (486,528) $ 3,757,729 =========== =========== =========== Basic and diluted per limited partnership unit data: Loss before extraordinary gain $ (13.79) $ (18.06) $ (28.48) Extraordinary gain - - 184.01 ----------- ----------- ----------- Net income (loss) $ (13.79) $ (18.06) $ 155.53 =========== =========== =========== Weighted average limited partnership units 26,926 26,926 24,161 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. F-5 22 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------
LIMITED PARTNERS ------------------------ GENERAL ORIGINAL CLASS A PARTNER PARTNERS PARTNERS TOTAL ----------- ------ -------------- ----------- Balance, December 31, 1994 $(3,972,413) $ - $ - $(3,972,413) Net income 3,757,729 - - 3,757,729 Issuance of 8,099 Class A partnership units, net of issuance costs - - 1,954,741 1,954,741 ----------- ------ -------------- ----------- Balance, December 31, 1995 (214,684) - 1,954,741 1,740,057 Net loss (72,979) - (413,549) (486,528) ----------- ------ -------------- ----------- Balance, December 31, 1996 (287,663) - 1,541,192 1,253,529 Net loss (55,708) - (315,678) (371,386) ----------- ------ -------------- ----------- Balance, December 31, 1997 $ (343,371) $ - $ 1,225,514 $ 882,143 =========== ====== ============== ===========
The accompanying notes are an integral part of the financial statements. F-6 23 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) $ (371,386) $ (486,528) $ 3,757,729 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 836,961 810,220 850,178 Amortization of loan fees 20,103 27,543 13,358 Write off of refinancing deposit and deferred costs - - 67,805 Extraordinary gain on forgiveness of debt - - (4,446,019) Decrease (increase) in prepaid expenses and other assets 22,454 (25,584) (284,979) Increase (decrease) in: Accounts payable and accrued liabilities 67,028 (49,695) (1,327,449) Security deposits 16,895 19,154 (42,674) Accrued interest payable 2,231 64,886 58,506 ----------- ----------- ----------- Net cash provided (used) by operating activities 594,286 359,996 (1,353,545) ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (252,031) (44,383) (98,273) ----------- ----------- ----------- Net cash used in investing activities (252,031) (44,383) (98,273) ----------- ----------- ----------- Cash flows from financing activities: Sale of Partnership units - - 2,024,991 Payments of debt issuance costs - - (70,250) Principal payments under mortgage debt (23,667) (178,066) (512,856) Loan fees and refinancing costs (338,577) - - Principal payments to affiliate (14,800) (46,700) (17,028) Proceeds from affiliate loan 72,500 - - ----------- ----------- ----------- Net cash provided (used) by financing activities (304,544) (224,766) 1,424,857 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 37,711 90,847 (26,961) Cash and cash equivalents at beginning of year 244,582 153,735 180,696 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 282,293 $ 244,582 $ 153,735 =========== =========== =========== Supplemental cash flows information: Cash paid for interest $ 1,337,417 $ 1,434,436 $ 1,588,857 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. F-7 24 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION: Income Growth Partners, Ltd. X (a California limited partnership) (the "Limited Partnership") and subsidiaries (collectively, the "Partnership") was formed in February 1988, to acquire, operate and hold for investment one or more parcels of income-producing, multi-family residential real property. Currently, the Partnership owns a 264 unit building in San Marcos, California ("Mission Park") and a 184 unit building in Vista, California ("Shadow Ridge Meadows"). Income Growth Management, Inc. is the sole general partner. The general partner has made no cash capital contributions to date. As of December 31, 1997, there were approximately 2,082 limited partners in the Partnership. In January 1994, the Limited Partnership filed a voluntary petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for Southern District of California. The Limited Partnership emerged from Chapter 11 effective in May 1995 having fully satisfied all claims in accordance with the Plan of Reorganization (the "Plan"). Under the provisions of the Plan, the Limited Partnership was allowed to retain ownership of the Mission Park and Shadow Ridge Meadows properties. However, the Limited Partnership was unable to raise the required capital necessary to retain ownership of its third property, Margarita Summit. The extraordinary gain on forgiveness of debt reflected in the accompanying consolidated statement of operations for the year ended December 31, 1995 is summarized as follows: Discharge of debt due to reorganization according to the Plan $1,433,394 Refinancing of Mission Park 2,013,625 Foreclosure of Margarita Summit 999,000 ---------- $4,446,019 ==========
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Limited Partnership and its subsidiaries. Subsidiaries consist primarily of California limited partnerships formed to hold and operating the Partnership's properties. All significant intercompany balances and transactions have been eliminated. F-8 25 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and short-term investments with original maturities at the date of purchase of 90 days or less. LAND, BUILDINGS AND IMPROVEMENTS Land, buildings and improvements are recorded at cost. Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of 27.5 and 5 to 15 years, respectively. Expenditures for maintenance and repairs are charged to expense as incurred. Significant renovations are capitalized and depreciated over the remaining life of the property. The Partnership assesses its property for impairment whenever events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. Recoverability of property to be held and used is measured by a comparison of the carrying amount of the property to future undiscounted net cash flows expected to be generated by the property. If the property is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property exceeds the fair value of the property. The cost and related accumulated depreciation of real estate are removed from the accounts upon disposition. Gains and losses arising from the dispositions are reported as income or expense. DEFERRED LOAN FEES Deferred loan fees represent expenses incurred in obtaining the Partnership's mortgage loans payable. These fees are being amortized to interest expense over the initial term of the loan using the straight-line method which approximates the effective interest method. REVENUE RECOGNITION Rental revenues are recognized at the beginning of each month based on the current occupancy of the apartments. Tenant leases are generally for a term of six months with an option to renew for an additional six months or to rent on a month-to-month basis. F-9 26 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: ADVERTISING COSTS Advertising costs are expensed as incurred. Total advertising expense was approximately $52,000, $56,000 and $61,000 for the years ended December 31, 1997, 1996 and 1995, respectively. INCOME TAXES No provision has been made for federal or state income taxes on the operations of the Partnership. Such taxes are imposed on the individual partners for their respective shares of Partnership income or loss. The tax returns and amounts of allocable Partnership income or loss of the Partnership are subject to examination by federal and state taxing authorities. If such examinations result in a change in the Partnership status, or in changes to allocable Partnership income or loss, the tax liability of the Partnership or of the partners could be changed accordingly. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenue and expense during the reporting period. Actual results could differ from estimates. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with the current year presentation. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS CASH AND SHORT-TERM INVESTMENTS: The carrying amount approximates fair value because of the short maturity of those instruments. LONG-TERM DEBT: The fair value of the Partnership's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Partnership for debt of the same remaining maturities. The fair value of the mortgage loans on both the Mission Park and Shadow Ridge Meadows properties approximates their respective carrying values. F-10 27 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 3. SUPPLEMENTAL CASH FLOW INFORMATION: Excluded from the consolidated statements of cash flows for the year ended December 31, 1995 are the following effects of certain noncash activities associated with the discharge of debt, refinancing of Mission Park and foreclosure of Margarita Summit in 1995: o Assumption of a $102,000 note payable to an affiliate for payment of loan origination costs associated with the refinancing of the Mission Park property. o $80,000 of additional debt incurred in connection with the cure and reinstatement of the mortgage loan related to the Shadow Ridge Meadows property. o Extraordinary gain of $999,000 resulting from the foreclosure on the Margarita Summit property. Such gain was the difference between the carrying value of the property and the related liability of approximately $6,274,000 and $7,273,000, respectively. o $1,433,000 of liabilities subject to compromise discharged due to reorganization. o Extraordinary gain of approximately $2,014,000, representing the forgiveness of debt as a result of refinancing of Mission Park property. 4. CONCENTRATION OF CREDIT RISK: UNINSURED CASH The Partnership maintains cash accounts which may exceed FDIC insured levels at one financial institution. All of the Partnership's cash equivalents are held in a U.S. Treasury Money Fund which invests in short-term U.S. Treasury securities. The Partnership has not experienced any losses to date on its cash or cash equivalents. F-11 28 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 4. CONCENTRATION OF CREDIT RISK, CONTINUED: NATURE OF BUSINESS Changes in the national and regional economic climates, changes in local real estate conditions such as the oversupply of apartments or a reduction in demand for apartments, competition from single-family housing, apartment properties and other forms of multifamily residential housing, the inability to provide adequate maintenance and to obtain adequate insurance, increased operating costs, changes in zoning, building, environmental, rent control and other laws and regulations, the costs of compliance with current and future laws, changes in real property taxes and unusual occurrences (such as earthquakes and floods) and other factors beyond the control of the Partnership may adversely affect the income from, and value of, the Partnership's properties. 5. ACTIVITIES OF THE PARTNERSHIP: The general partner or its affiliates manage and control the affairs of the Partnership and have general responsibility for supervising the Partnership's properties and operations. The general partner and affiliates are compensated for these efforts as explained in Note 7. The original partnership agreement was amended in October 1994 and provides that cash distributions from operations are to be determined at the discretion of the general partner. After adequate working capital reserves have been met, cash distributions deemed appropriate by the general partner will be made as set forth, therein. DISTRIBUTION OF CASH FROM OPERATIONS The amended partnership agreement provides that any distributions of cash from operations will be made in the following order of priority: First, each Class A Unit receives a 12% cumulative noncompounded annual return on the balance of actual funds invested in Class A Units. Second, each Class A Unit receives a total return of original invested capital. Third, each Class A Unit receives a $500 bonus. Fourth, each Original Unit holder receives a 10% noncumulative return on the adjusted balance of original invested capital. Thereafter, 90% of distributions on cash from operations will be made to the Original Unit holders and 10% to the general partner. F-12 29 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 5. ACTIVITIES OF THE PARTNERSHIP, CONTINUED: No distributions have been made to December 31, 1997. As of December 31, 1997 and 1996, cumulative unpaid distributions were approximately $15,900,000 and $15,100,000, respectively. DISTRIBUTION OF CASH FROM SALE OR REFINANCING The amended partnership agreement provides that any distributions of sale or refinancing will be made in the following order of priority: First, each Class A Unit receives a 12% cumulative noncompounded annual return on the balance of actual funds invested in Class A Units. Second, each Class A Unit receives a total return of original invested capital. Third, each Class A Unit receives a $500 bonus. Fourth, each Original Unit holder receives an amount equal to the adjusted balance of original invested capital. Fifth, each Original Unit holder receives a 10% cumulative return on the adjusted balance of original invested capital (the "Preferred Return"). Thereafter, 85% of distributions of cash from operations will be made to the Original Unit holders and 15% to the general partner. ALLOCATION OF NET INCOME/LOSS Net losses are allocated 85% to the limited partners and 15% to the general partner. Losses in excess of the limited partners' capital balances are allocated 100% to the general partner. Net income will be allocated 100% to the general partner until the aggregate net income allocated is equal to the aggregate net losses allocated to the general partner in all previous years. The balance of net income after the initial allocation to the general partner, shall be allocated 85% to the limited partners and 15% to the general partner. 6. MORTGAGE LOANS AND LOAN PAYABLE TO AFFILIATE: At December 31, 1997 and 1996, mortgage loans and loan payable to affiliate consisted of the following:
1997 1996 ----------- ----------- Mission Park - Note dated December 27, 1995, collateralized by first trust deed on land and buildings and a guarantee by officers of the general partner, interest and principal of $73,144 payable monthly based on 7.76% annual interest rate, amortized over 30 years, balloon payment of approximately $8,918,000 due in January 2006. $10,022,451 $10,118,364
F-13 30 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 6. MORTGAGE LOANS AND LOAN PAYABLE TO AFFILIATE, CONTINUED:
1997 1996 ----------- ----------- Shadow Ridge Meadows - Note dated October 27, 1997, collateralized by first trust deed on land and buildings, interest and principal of $68,106 payable monthly based on 7.49% annual interest rate, amortized over 30 years, balloon payment of approximately $8,475,000 due in November 2007. $ 9,742,751 $ - Shadow Ridge Meadows - Note dated July 26, 1988, collateralized by first trust deed on land and buildings with interest only payments plus additional payments of $8,250 per month based on 11th District cost of funds, plus 2.75% until August 1997, thereafter these payments include principal and interest, and call for periodic increases in interest rates, remaining principal of $9,585,000 paid October 1997. - 9,670,505 ----------- ----------- 19,765,202 19,788,869 ContiNote payable to ENA, affiliate of general partner - promissory note dated December 27, 1995, with simple interest and principal payable from time to time at the published prime rate, stated as 8.5% at December 31, 1997, and due upon demand. 40,500 55,300 Note payable to Income Growth Property Management, affiliate of the general partner - promissory note dated October 23, 1997, with simple interest and principal payable from time to time at the published prime rate, stated as 8.5% at December 31, 1997, and due upon demand. 72,500 - ----------- ----------- $19,878,202 $19,844,169 =========== ===========
Future minimum annual principal payments are summarized as follows: 1998 $ 307,244 1999 209,602 2000 226,176 2001 244,060 2002 263,360 Thereafter 18,627,760 ----------- $19,878,202 ===========
F-14 31 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 7. RELATED PARTY TRANSACTIONS: Following is a description of related party transactions for the three years ended December 31, 1997 that have not otherwise been disclosed: MANAGEMENT FEES The Partnership's properties are managed by an affiliate of the general partner who receives a management fee. The fee for Mission Park is equal to 5% of the operating revenues generated by that property. The fee for Shadow Ridge Meadows was equal to 4% of the operating revenues generated by that property through October 1997 and 5% thereafter. Management fees aggregated approximately $179,000, $167,000 and $175,000 in 1997, 1996 and 1995, respectively. ADMINISTRATIVE COSTS The Partnership has an agreement with an affiliate of the general partner (the "Affiliate") who furnishes certain administrative services and facilities to the Partnership, including accounting, data processing, duplication and transfer agent expenses, professional (including, but not limited to, regulatory reporting and legal services) and recording and partner communication expenses. The agreement provides for reimbursement to the affiliate for actual costs incurred. Reimbursements paid to the Affiliate under the provisions of this agreement aggregated approximately $113,000, $68,600 and $81,100 in 1997, 1996 and 1995, respectively. NOTE RECEIVABLE FROM GENERAL PARTNER At December 31, 1997 and 1996, a non-interest bearing note receivable of $10,000 was due from the general partner for their initial partnership capital contribution. DEBT PLACEMENT FEES During 1997 and 1995, the Partnership issued notes payable to an affiliate of the general partner for payment of debt placement fees of $97,500 and $102,000, respectively. Debt placement fees were equal to 1% of the principal amounts of the new third party financing. At December 31, 1997 and 1996, the aggregate balances of these notes were $113,000 and $55,300, respectively (See Note 6). F-15 32 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 7. RELATED PARTY TRANSACTIONS, CONTINUED: SUBORDINATED REAL ESTATE BROKERAGE COMMISSIONS If the general partner, or any of its affiliates, render services in negotiating and implementing the sale of Partnership properties, the general partner or such affiliates will be paid a real estate brokerage commission in an amount up to one-half of the commission customarily charged in arm's-length transactions but not in excess of 3% of the contract price for the property. Payment of such commission (other than payments in the form of promissory notes that are subordinated to the return of capital contributions to limited partners) shall be deferred until the limited partners have received distributions equal to their total original invested capital, plus the 10% Preferred Return described in Note 5. No properties were sold in 1997, 1996 or 1995 and, accordingly, no brokerage commissions were paid by the Partnership. 8. RECENT AUTHORITATIVE PRONOUNCEMENTS: In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes requirements for disclosure of comprehensive income and becomes effective for the Partnership for the year ending December 31, 1998. Comprehensive income includes such items as foreign currency translation adjustments and unrealized holding gains and losses on available for sale securities that are currently being presented by the Company as a component of stockholders' equity (deficit). The Partnership does not expect this pronouncement to materially impact the Partnership's results of operations. In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for disclosure about operating segments in annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. The new standard becomes effective for the Partnership for the year ending December 31, 1998 and requires that comparative information from earlier years be restated to conform to the requirements of this standard. The Partnership does not expect this pronouncement to materially change the Partnership's current reporting and disclosures. F-16 33 INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 9. EARNINGS PER LIMITED PARTNERSHIP UNIT DISCLOSURES: The Partnership has adopted the provisions of SFAS No. 128, Earnings Per Share, effective December 31, 1997. SFAS No. 128 requires the presentation of basic and diluted earnings per limited partnership unit. Basic earnings per limited partnership unit is computed by dividing income allocable to limited partners by the weighted average number of limited partnership units outstanding for the period. No dilutive effects exist for the Partnership's limited partnership units. There were no adjustments to prior period earnings per share amounts resulting from the implementation of this pronouncement. F-17 34 SCHEDULE III INCOME GROWTH PARTNERS, LTD. X AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 1997 ----------
NET CHANGE GROSS AMOUNT AT WHICH INITIAL COST SUBSEQUENT TO ACQUISITION CARRIED AT CLOSE OF PERIOD --------------------------- --------------------------- ----------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ---------- ------------- --------- ------------- ---------- ------------- Shadow Ridge Meadows $ 9,742,751 $3,294,260 $ 9,821,589 $(400,000) $ (997,151) $2,894,260 $ 8,824,438 Mission Park 10,022,451 4,484,105 13,490,802 (300,000) (708,162) 4,184,105 12,782,640 ----------- ---------- ----------- --------- ----------- ---------- ----------- $19,765,202 $7,778,365 $23,312,391 $(700,000) $(1,705,313) $7,078,365 $21,607,078 =========== ========== =========== ========= =========== ========== ===========
LIFE ON WHICH ACCUMULATED DATE OF DATE DEPRECIATION IN LATEST TOTAL DEPRECIATION CONSTRUCTION ACQUIRED STATEMENTS IS COMPUTED ----------- ------------ ------------ -------- ----------------------- Shadow Ridge Meadows $11,718,698 $3,208,918 Jan. 1988 Nov. 1988 27.5 years Mission Park 16,966,745 5,373,574 May 1989 Aug. 1989 27.5 years ----------- ---------- $28,685,443 $8,582,492 =========== ==========
(a) Reconciliation of total real estate carrying value for the three years ended December 31, 1997:
1997 1996 1995 ------------ ------------ ------------ Balance at beginning of year $ 28,433,411 $ 28,389,029 $ 37,863,984 Acquisitions 252,032 44,382 98,273 Foreclosure of Margarita Summit - - (9,573,228) ------------ ------------ ------------ Balance at end of year $ 28,685,443 $ 28,433,411 $ 28,389,029 ============ ============ ============
(b) Reconciliation of accumulated depreciation for the three years ended December 31, 1997:
1997 1996 1995 ----------- ----------- ----------- Balance at beginning of year $ 7,745,530 $ 6,935,310 $ 9,340,165 Expense 836,962 810,220 850,178 Foreclosure of Margarita Summit - - (3,255,033) ----------- ----------- ----------- Balance at end of year $ 8,582,492 $ 7,745,530 $ 6,935,310 =========== =========== ===========
F-18 EX-4.4 2 EXHIBIT 4.4 1 EXHIBIT 4.4 ================================================================================ AGREEMENT OF LIMITED PARTNERSHIP OF IGP X SHADOW RIDGE MEADOWS, LTD., A CALIFORNIA LIMITED PARTNERSHIP ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 ESTABLISHMENT...................................................................1 1.1 Name......................................................................1 1.2 Principal Place of Business...............................................1 1.3 Term......................................................................1 1.4 Certificate of Limited Partnership and Other Filings......................1 ARTICLE 2 PURPOSE AND LIMITATIONS OF PARTNERSHIP REAL ESTATE INVESTMENT...........................................2 2.1 Purpose...................................................................2 2.2 Further Limitations on Partnership Transactions...........................2 2.3 Reinvestments.............................................................3 2.4 Conflicts.................................................................3 ARTICLE 3 CAPITALIZATION..................................................................4 3.1 Capital Contributions.....................................................4 3.1.1 General Partner....................................................4 3.1.2 Limited Partner....................................................4 3.2 Partner's Capital Account.................................................4 3.3 Limited Partners' Liability...............................................4 ARTICLE 4 DISTRIBUTIONS AND ALLOCATIONS...................................................4 4.1 Cash Distributions........................................................4 4.1.1 Distributable Cash from Operations.................................4 4.1.2 Distributable Cash from Sale or Refinancing........................4 4.2 Allocation of Net Income and Net Loss.....................................5 4.2.1 Allocations of Net Income and Net Losses...........................5 4.2.2 Recapture Income.................................................. 9 4.2.3 Allocation of Partnership Items................................... 9 4.2.4 Special Allocations to General Partner............................ 9 4.2.5 Allocation Among Limited Partners................................. 9 4.2.6 Assignment........................................................ 9 4.2.7 Quarterly Distributions.......................................... 10 4.2.8 Power of General Partner to Vary Allocations of Net Income and Net Loss..........................................................10 4.2.9 Consent of Partners...............................................10 4.3 Working Capital Reserve..................................................10 ARTICLE 5 MANAGEMENT AND ADMINISTRATION..................................................10 5.1 Powers and Authority of the General Partner..............................10 5.2 Duties of the General Partner............................................11 5.2.1 Maintenance of Limited Partnership Status.........................12 5.2.2 Acquisition of the Property.......................................12 5.2.3 Management of the Property........................................12 5.2.4 Disposition of the Property.......................................13 5.2.5 Insurance.........................................................13 5.2.6 Net Worth.........................................................13
i 3
PAGE ---- 5.2.7 Avoidance of Investment Company Status............................13 5.2.8 Records...........................................................13 5.2.9 Delivery to Limited Partners and Inspection.......................14 5.2.10 Reports...........................................................14 5.2.11 Interim Reports; Accountant's Report..............................15 5.3 Restrictions on Authority of General Partner.............................15 5.3.1 Actions Requiring Consent of all Limited Partners.................15 5.3.2 Actions Requiring Consent of a Majority-In-Interest of the Limited Partners..........................................................15 5.3.3 Unconditional Restrictions on General Partner's Authority.........16 5.4 Method of Action by General Partner......................................17 5.5 Time and Efforts of the General Partner..................................17 5.6 Power of Attorney........................................................18 5.7 Section 754 Election.....................................................18 5.8 Fiscal Year..............................................................18 5.9 Banking..................................................................18 ARTICLE 6 COMPENSATION OF GENERAL PARTNER AND EXPENSES...................................18 6.1 General Partner's Compensation...........................................18 6.1.1 Acquisition Fees..................................................19 6.1.2 Management Fee....................................................19 6.1.3 Subordinated Real Estate Commissions on Sale of Partnership Real Estate............................................................19 6.2 Operating Expenses.......................................................20 6.2.1 Payment Generally.................................................20 6.2.2 Reimbursements to General Partner.................................20 6.3 Indemnification of General Partner.......................................21 6.3.1 Indemnification Generally.........................................21 6.3.2 Restrictions on Indemnification...................................21 6.3.3 Indemnification Limited to Partnership Assets.....................21 6.4 Exoneration of General Partner for Acts in Good Faith....................21 ARTICLE 7 LIMITED PARTNER INTEREST.......................................................21 7.1 Limited Liability........................................................21 7.2 Withdrawal and Return of Limited Partner's Capital Contribution..........22 7.3 Role of Limited Partners.................................................22 7.4 Unanimous Votes; Consent of General Partner..............................22 7.5 Meetings of the Limited Partners.........................................22 7.6 Notice...................................................................22 7.7 Adjourned Meeting and Notice Thereof.....................................23 7.8 Quorum...................................................................23 7.9 Consent of Absentees.....................................................23 7.10 Action Without Meeting...................................................23 7.11 Record Dates.............................................................24 7.12 Proxies..................................................................24 7.13 Chairman of Meeting......................................................24 7.14 Inspectors of Election...................................................24 7.15 Record Date and Closing Partnership Books................................24 7.16 No Termination by Reason of Change in Limited Partners...................25
ii 4
PAGE ---- 7.17 Transfer of Units........................................................25 7.17.1 Restrictions on Transfer and Assignment of Units..................25 7.17.2 Transfers of Units by Operation of Law............................26 7.17.3 Repurchase of Units by Partnership................................26 7.17.4 Recognition Date for Assignments and Other Transfers..............26 7.17.5 Admission of Substitute Limited Partners..........................27 7.17.6 Names and Addresses of Limited Partners...........................27 ARTICLE 8 GENERAL PARTNER INTERESTS......................................................28 8.1 Removal of General Partner...............................................28 8.1.1 Removal by Vote of Limited Partners...............................28 8.1.2 Removal by Other General Partner..................................28 8.2 Withdrawal of General Partner Upon Election of a New General Partner.....28 8.3 Admission of New or Substitute General Partner...........................28 8.4 Continuation of the Partnership..........................................28 8.5 Payment to Removed or Withdrawn General Partner..........................29 8.5.1 Removal of All General Partners or Remaining General Partner......29 8.6 Liability of General Partner.............................................30 ARTICLE 9 TERMINATION, LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP ..............................................................................30 9.1 Events of Termination....................................................30 9.2 Liquidation..............................................................30 9.3 Application and Distribution of Proceeds of Liquidation..................31 9.3.1 General...........................................................31 9.3.2 General Partner's Deficit Capital Accounts........................32 9.4 Cancellation of Certificate of Limited Partnership.......................32 9.5 Final Partnership Statement..............................................32 ARTICLE 10 DEFINITIONS....................................................................32 10.1 Acquisition Fees.........................................................32 10.2 Adjusted Capital Account Deficit.........................................33 10.3 Adjusted Invested Capital................................................32 10.4 Affiliate................................................................32 10.5 Basic Regulatory Allocations.............................................33 10.6 Capital Account..........................................................33 10.7 Capital Contribution.....................................................34 10.8 Certificate of Limited Partnership.......................................34 10.9 CRLPA....................................................................34 10.10 Distributable Cash.......................................................34 10.10.1 Distributable Cash from Operations...............................34 10.10.2 Distributable Cash from Sale or Refinancing......................34 10.11 General Partner..........................................................34 10.12 Gross Operating Revenues.................................................34 10.13 Gross Property Revenues..................................................34 10.14 Internal Revenue Code....................................................35 10.15 Legal Restrictions.......................................................35 10.16 Limited Partner..........................................................35
iii 5
PAGE ---- 10.17 Majority-In-Interest.....................................................35 10.18 Management Fee...........................................................35 10.19 Minimum Gain.............................................................35 10.20 Net Income or Net Loss...................................................35 10.21 Nonrecourse Debt.........................................................35 10.22 Nonrecourse Deductions...................................................35 10.23 Nonrecourse Regulatory Allocations.......................................36 10.24 10% Operating Cash Preference............................................36 10.25 Original Invested Capital................................................36 10.26 Other Definitions........................................................36 10.27 Partner..................................................................36 10.28 Partner Nonrecourse Debt.................................................36 10.29 Partner Nonrecourse Deductions...........................................36 10.30 Partner Nonrecourse Regulatory Allocations...............................36 10.31 Partners of Record.......................................................36 10.32 Partnership..............................................................36 10.33 Partnership Minimum Gain.................................................36 10.34 Person...................................................................36 10.35 10% Preferred Return.....................................................36 10.36 Property or Properties...................................................37 10.37 Purchase Price...........................................................37 10.38 Qualified Plan...........................................................37 10.39 Recognition Date.........................................................37 10.40 Refinancing..............................................................37 10.41 Regulatory Allocations...................................................37 10.42 Sale.....................................................................37 10.43 Substitute Limited Partner...............................................37 10.44 Unit.....................................................................37 10.45 Working Capital Reserve..................................................37 ARTICLE 11 RELATIONSHIP OF CERTAIN TERMS OF THIS AGREEMENT TO PROVISIONS OF THE CALIFORNIA REVISED LIMITED PARTNERSHIP ACT................................................38 11.1 Revised Limited Partnership Act Governs..................................38 11.2 Provisions of the CRLPA Supplanted by the Terms of this Agreement........38 11.3 Other Terms and Provisions...............................................38 ARTICLE 12 GENERAL PROVISIONS.............................................................39 12.1 Notices..................................................................39 12.2 Amendment of Agreement and the Certificate of Limited Partnership........39 12.2.1 Admission of Limited Partners.....................................39 12.2.2 Amendments with Consent of Limited Partners.......................39 12.2.3 Amendments Without Consent of Limited Partners....................39 12.2.4 Execution and Recording of Amendments.............................40 12.3 Partition................................................................40 12.4 Severability.............................................................40 12.5 Headings.................................................................40 12.6 Further Assurances.......................................................40 12.7 Integrated and Binding Agreement.........................................40
iv 6
PAGE ---- 12.8 Counterparts.............................................................40 12.9 Governing Law............................................................40 ARTICLE 13 REPRESENTATIONS OF LIMITED PARTNERS............................................41
v 7 IGP X SHADOW RIDGE MEADOWS, LTD., A CALIFORNIA LIMITED PARTNERSHIP AGREEMENT OF LIMITED PARTNERSHIP THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is made this 10th day of August, 1997, by and among INCOME GROWTH MANAGEMENT, INC., a California corporation, IGP X SHADOW RIDGE MEADOWS, INC., a California corporation (collectively, the "General Partner"), and INCOME GROWTH PARTNERS, LTD. X, a California limited partnership (the "Limited Partner") under the California Revised Limited Partnership Act ("CRLPA") for the purposes and upon the terms and conditions hereinafter set forth. Capitalized terms used in this Agreement are defined in Section 10 hereof. ARTICLE 1 ESTABLISHMENT 1.1 NAME. The name of the Partnership shall be IGP X SHADOW RIDGE MEADOWS, LTD., A CALIFORNIA LIMITED PARTNERSHIP; provided, that the General Partner may from time to time, in its sole discretion, change such name and amend this Agreement and the Certificate of Limited Partnership to reflect such change. 1.2 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the Partnership shall be 11300 Sorrento Valley Road, Suite 108, San Diego, California 92121; provided, that the General Partner may from time to time, in its sole discretion, elect to change the principal place of business, so long as such place remains within the contiguous United States. 1.3 TERM. The Partnership shall have a term commencing September 18, 1992, and ending 33 years therefrom, unless (i) the Partnership has been sooner terminated as provided herein or otherwise by law or (ii) the term has been extended by the affirmative vote of the General Partner and the Limited Partner. 1.4 CERTIFICATE OF LIMITED PARTNERSHIP AND OTHER FILINGS. The General Partner has caused a Certificate of Limited Partnership to be recorded in the office of the Secretary of State of the State of California, as required by applicable California law (i) to preserve and maintain the status of the Partnership as a limited partnership under the CRLPA. The General Partner shall cause to be recorded, filed and/or published, in each county (or other jurisdiction) where the Partnership acquires real property or otherwise does business, a certified copy of the Certificate of Limited Partnership, a fictitious business name statement and/or such other recording or filing as may be required under any applicable law to preserve the Partnership's limited partnership status and right to the use of its name. The General Partner shall also cause the Certificate of Limited Partnership and each such other recording or filing to be amended whenever there is any addition to or change in the General Partner, or change of the Partnership's name or principal place of business or other change requiring such an amendment under applicable law. ARTICLE 2 PURPOSE AND LIMITATIONS OF PARTNERSHIP REAL ESTATE INVESTMENT 2.1 PURPOSE. This Partnership has been formed for the sole purpose of acquiring for investment and the production of income, and to own, operate, maintain, improve, develop, lease, mortgage, sell, sell and lease back, 1 8 exchange, refinance, transfer, or dispose of the real property known as the Shadow Ridge Meadows Apartments ("Property"), as more fully described at Exhibit "A", together with such other activities as may be necessary or advisable in connection with the ownership of the Property. The Partnership shall not engage in any business unrelated to the ownership and operation of the Property and shall not own any assets other than those related to the Property or otherwise in furtherance of the purposes of the Partnership. The Partnership shall not incur indebtedness other than the indebtedness related to the Property and otherwise provided herein. The Partnership shall maintain its own separate books, records, and accounts. 2.2 FURTHER LIMITATIONS ON PARTNERSHIP TRANSACTIONS. In its acquisition of the Properties, the Partnership shall be further subject to the following restrictions on transactions with the General Partner and Affiliates: 2.2.1 Notwithstanding any other provision in this Agreement or applicable law to the contrary, until such time as all obligations of the Partnership secured by the mortgage loan ("Mortgage" or "Loan") from Lehman Brothers Holdings., Inc. ("Lender") or relating to the Loan originated by Lender, and all other loan documents in connection with the Loan ("Loan Documents") have been indefeasibly paid in accordance with their terms and otherwise fully discharged, neither the Partnership nor any Partner shall take any action to do any of the following: (1) to elect any additional or substitute General Partner; or (2) act which would constitute an "Event of Default" or a "Default" as those terms are defined in the Mortgage or any of the Loan Documents evidencing or securing the obligations secured by the Mortgage. 2.2.2 Notwithstanding anything in this Agreement, the Certificate, or applicable law to the contrary, any obligation of the Partnership to indemnify any Partner herein shall be fully subordinated to the Loan and the Loan and the rated obligations issued in connection with a securitization of the Loan, and shall not constitute a claim against the Partnership or its assets until such time as all obligations of the Partnership secured by the Loan and all of the Loan Documents have been indefeasibly paid in accordance with their terms and otherwise fully discharged and the rated obligations are no longer outstanding. 2.2.3 Upon dissolution of the Partnership, or upon an Event of Default or a Default as those terms are defined in the Mortgage or under any of the Loan Documents, the Trustee appointed in connection with the securitization shall have the independent ability to retain all collateral secured by the Mortgage and other Loan Documents and to continue to pay scheduled debt service, or to liquidate the collateral in the event the proceeds would be insufficient to repay all amounts due to holders of the Loan. 2.2.4 Notwithstanding any other provisions of this Agreement, the Certificate or any provision of the law that empowers the Partnership, until such time as all obligations of the Partnership under the Mortgage and other Loan Documents have been fully indefeasibly paid and discharged, without the express written unanimous consent of all the Partners, the Partnership shall not take any of the following actions: (1) amend, alter, change or repeal the Certificate or this Agreement; (2) dissolve or liquidate, in whole or in part, consolidate or merge with or into any other entity or convey, sell or transfer the Partnership's properties or assets substantially as an entirety to any entity, except as otherwise may be permitted under the Mortgage or under any of the other Loan Documents or in connection with the satisfaction or permitted assumption of the Loan; (3) incur any indebtedness or assume or guaranty any indebtedness of any other entity or person, or engage in any other business or activity other than as set forth herein; (4) file a voluntary petition or otherwise initiate proceedings to be adjudicated bankrupt or insolvent or seek an order for relief as a debtor under the United States Bankruptcy Code, as amended (11 U.S.C. Section 101, 2 9 et seq.), or file or cause the filing of, or consent to, or acquiesce in, any petition seeking any composition, reorganization, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy laws or any other present or future applicable federal, state or other statute or law relative to bankruptcy, insolvency or other relief for debtors; or seek, or consent to, or acquiesce in, the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of the Partnership or any substantial part of the properties and assets of the Partnership, or make, or cause to be made, any general assignment for the benefit of creditors, or admit in writing its inability to pay its debts generally as they become due, or declare or effect a moratorium on its debt or take any Partnership action in furtherance of any such action. (5) When voting in matters set forth in this Section 13.4 hereof, the Parties shall take in to account the interest of the Partnership's creditors, including without limitation, the Lender, regardless of whether the Partnership is then insolvent on either a balance sheet basis or equitable basis. 2.2.5 The Partnership shall at all times (i) maintain, separate from any other person, its own separate and distinct books of account, bank accounts and partnership records, (ii) maintain separate financial statements and cause its financial statements to be prepared and maintained in accordance with generally accepted accounting principles in a manner that indicates the separate existence of the Partnership and its assets and liabilities, (iii) pay all of its liabilities out of its own funds (including the salaries of its own employees) and allocate fairly and reasonably any overhead for shared office space, (iv) maintain and use its own separate stationary, invoices and checks, (v) in all dealings with the public identify itself and conduct its own business under its own name as a separate and distinct legal entity (vi) maintain an arm's-length relationship with its Affiliates, (vii) pay the salaries of its own employees and maintain a sufficient number of employees in light of its contemplated business operations, and (viii) independently make decisions with respect to its business and daily operations. The Partnership shall not (i) pledge its assets for the benefit of any other person (ii) commingle its assets with those of any other person, (iii) assume or guarantee the liabilities or obligations of any other person or otherwise hold out its credit as being available or able to satisfy the liabilities or obligations of any other person (iv) acquire obligations or securities of, or make loans or advances to, any Affiliate of the Partnership, or (v) incur any indebtedness, liabilities or obligations relating to the operation of the Property, other than trade debt incurred in the ordinary course of business, except as otherwise required by the Lender in connection with the Loan. 2.2.6 For so long as the Loan is outstanding, the Partnership shall have at least one General Partner which is a single purpose entity, whose sole purpose is to serve as a General Partner of the Partnership. The Board of Directors of this corporation shall include one (1) Independent Director. An "Independent Director" shall mean a person who is not and has not within the past five (5) years been, (i) an officer, director, employee, partner, member, beneficial-interest holder or stockholder of any partner of the Partnership (a "Partner"), any partner of a Partner, or the Partnership, or any affiliate of any of the foregoing; (ii) a lessee under any lease or supplier of the Partnership or any affiliate thereof (other than a supplier that does not derive more than 10% of its revenues from its activities with the Partnership or any affiliate thereof); or (iii) a spouse, parent, sibling, or child of any person described in (i) or (ii) above provided, however, that a person shall not be deemed to be a director of an affiliate solely by reason of such person being a director of a single-purpose entity. For the purpose of this definition along, affiliate means any person or entity which is controlled by, or under common control with, any person or entity described in clause (i) above; provided that the terms "control" and "controlled by" shall have the meanings assigned to them in Rule 405 under the Securities Act of 1933. 2.3 REINVESTMENTS. The Partnership shall not use any Gross Operating Revenues or Net Cash from Sales or Refinancings to acquire real estate, or make any other investments. 2.4 CONFLICTS. General Partner Income Growth Management, Inc. is in the business of acquiring, operating, managing, developing and/or disposing of real estate, and may hereafter, from time to time, act as a general partner, sponsor or manager for other real estate limited partnerships or similar real estate investment entities (hereinafter called "Other Purchasers") with investment objectives and criteria comparable to those of the Partnership. General Partner Income Growth Management, Inc. shall not be obligated to identify or present any real estate acquisition to the Partnership, or to refrain from presenting such acquisition to any other Person (or making, or entering into an agreement for, such acquisition itself). 3 10 ARTICLE 3 CAPITALIZATION 3.1 CAPITAL CONTRIBUTIONS. 3.1.1 General Partner. The General Partner shall not make any separate Capital Contribution to the Partnership. 3.1.2 Limited Partner. The Limited Partner shall be Income Growth Partners Ltd., X, a California Limited Partnership. In exchange for Units, the Limited Partner shall contribute the Property to the Partnership. 3.2 PARTNER'S CAPITAL ACCOUNT. On the books of the Partnership, there shall be maintained for the General Partner and the Limited Partner a Capital Account, which shall be maintained in accordance with Section 10.6. 3.3 LIMITED PARTNERS' LIABILITY. In no event shall the liability of the Limited Partner for Partnership losses exceed the aggregate amount of its Capital Contribution (including, in some instances, portions returned to it), plus its pro rata share of undistributed profits. ARTICLE 4 DISTRIBUTIONS AND ALLOCATIONS 4.1 CASH DISTRIBUTIONS. 4.1.1 Distributable Cash from Operations. The General Partner shall have the right to make distributions to Partners from Distributable Cash from Operations in such amounts and at such times as the General Partner determines to be appropriate, consistent with sound business practices. Distributions made from Distributable Cash from Operations for a fiscal year, if any, shall be made in the following order of priority: (1) FIRST, 100% to the Limited Partner until it has received during such fiscal year an amount equal to a 10% per annum noncumulative return on its Adjusted Invested Capital. The distribution under this Section 4.1.1(1) is referred to herein as the "Operating Cash Preference"; and (2) SECOND, thereafter, 99% to the Limited Partner and 1% to the General Partner. 4.1.2 Distributable Cash from Sale or Refinancing. Distributions of Distributable Cash from Sale or Refinancing of a Property (other than sales made in connection with the liquidation of the Partnership, the distribution of which is governed by Section 9.3.1) or from Working Capital Reserves will be made in the following order of priority: (1) FIRST, 100% to the Limited Partner, until it has received an amount equal to its Adjusted Invested Capital; (2) SECOND, 100% to nonsubordinated fees, compensation and debts payable to the General Partner; (3) THIRD, thereafter, 100% to the Limited Partner until it has received an amount which, when added to any prior distributions to the Limited Partner from any source whatsoever (other than distributions under Section 4.1.2(1)-(2)), equals a 10% per annum cumulative, but not compounded, return on its Adjusted Invested Capital. The distribution under this Subsection 4.1.2(3) is referred to herein as the "Preferred Return"; and 4 11 (4) After the distributions described in Sections 4.1.2(1) - (3) have been made, remaining Distributable Cash from Sale or Refinancing shall be distributed 99% to the Limited Partner and 1% to the General Partner. 4.2 ALLOCATION OF NET INCOME AND NET LOSS. For each fiscal year, Net Income and Net Loss of the Partnership shall be allocated as follows: 4.2.1 Allocations of Net Income and Net Losses. For each fiscal year, Net Income and Net Loss of the Partnership shall be allocated as follows: (1) Net Losses. After giving effect to the special allocations set forth in Section 4.2.1(3) hereof, Net Losses for any fiscal year shall be allocated as follows: (a) First, 99% to the Limited Partner and 1% to the General Partner, except that Net Losses shall not be allocated pursuant to this Section 4.2.1(1)(a) to the extent such allocation would cause any Limited Partner to have an Adjusted Capital Account Deficit at the end of such fiscal year; and (b) The balance, if any, to the General Partner. (2) Net Income. After giving effect to the special allocations set forth in Section 4.2.1(3), hereof, Net Income for any fiscal year shall be allocated as follows: (a) First, 100% to the General Partner until the aggregate Net Income allocated to the General Partner pursuant to this Section 4.2.1(2)(a) for such fiscal year and all previous fiscal years is equal to the aggregate Net Losses allocated to the General Partner pursuant to Section 4.2.1(1)(b) hereof for all previous fiscal years; and (b) The balance, if any, 1% to the General Partner and 99% to the Limited Partner. (3) Special Allocations. (a) Qualified Income Offset. Except as provided in Section 4.2.1(3)(c) but subject to Section 4.2.1(3)(f), in the event the Limited Partner unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704- 1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially allocated to the Limited Partner in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficits created by such adjustments, allocations or distributions as quickly as possible. (b) Gross Income Allocation. In the event any Partner has an Adjusted Capital Account Deficit at the end of any Partnership fiscal year, each such Partner shall be specially allocated items of Partnership gross income and gain, in the amount of such Adjusted Capital Account Deficit as quickly as possible. (c) Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4 (other than Section 4.2.1(f)), if there is a net decrease in Partnership Minimum Gain during any Partnership fiscal year, each Partner shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to the greater of (i) the portion of such Partner's share of the net decrease in Partnership Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-1T(b)(4)(iv)(f), that is allocable to the disposition of Property subject to Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-1T(b)(4)(iv)(e), or (ii) if such Partner would otherwise have an Adjusted Capital Account Deficit at the end of such year, an amount sufficient to eliminate such Adjusted Capital Account Deficit. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner. The items to be so allocated shall be determined in accordance with Treasury Regulations Section 1.704-1T(b)(4)(iv)(e). This Section 4.2.1(3)(c) is intended to comply with the minimum gain chargeback 5 12 requirement in the Treasury Regulations and shall be interpreted consistently therewith. To the extent permitted by the Treasury Regulations and for purposes of this Section 4.2.1(3)(c) only, each Partner's Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to this Section 4 with respect to such fiscal year and without regard to any net decrease in Partner Minimum Gain during such fiscal year. (d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or other period shall be specially allocated 1% to the General Partner and 99% to the Limited Partner. (e) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Internal Revenue Code Section 734(b) or Internal Revenue Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which its Capital Accounts are required to be adjusted pursuant to such section of the Treasury Regulations. (f) Allocations to Qualified Plans. Notwithstanding anything contained in this Agreement to the contrary: (A) No distributive share of overall Partnership loss allocable to a Partner that is not a Qualified Plan shall exceed such Partner's smallest distributive share of overall Partnership income for any fiscal year and any such loss that cannot be allocated because of this provision shall be allocated to Partners that are Qualified Plans; and (B) No distributive share of overall Partnership income allocable to a Partner that is a Qualified Plan shall exceed such Partner's smallest distributive share of overall Partnership loss for any taxable year, provided, however, that overall Partnership income shall be allocated among Partners that are Qualified Plans to the maximum extent permissible under Section 514(c)(9)(E)(ii) of the Internal Revenue Code so that on a cumulative basis, overall Partnership income allocable to Partners that are Qualified Plans pursuant to this Section 4.2.1(3)(f)(B) equals the amount of overall Partnership losses specially allocated to such Partners pursuant to Section 4.2.1(3)(f)(A) above. (g) Priority Allocations. After giving effect to all other special allocations in this Section 4.2.1(3), all or a portion of the remaining items of Partnership income or gain for the year, if any, shall be specially allocated to the Partners in proportion to the cumulative distributions of both (i) the 10% Preferred Return pursuant to Section 4.1.2(3); and (ii) the Operating Cash Preference pursuant to Section 4.1.1(1) from the commencement of the Partnership to a date 30 days after the end of such fiscal year until the aggregate amounts allocated to each such Partner pursuant to this Section 4.2.1(3)(g) for such fiscal year and all previous fiscal years is equal to the cumulative amount of such distributions to such Partner. In addition, in connection with a sale upon liquidation of the Partnership, as described in Section 9.3, there shall be allocated to each Limited Partner, an amount of Net Income equal to the amount to be distributed to such Partner under Section 9.3.1(c), (e) and (f), provided that such allocation shall not duplicate the allocation described in the preceding sentence. (h) Gain. After giving effect to all of the special allocations in this Section 4.2.1(3), any remaining Partnership gain for any fiscal year resulting from any Sales or other dispositions of Partnership Property shall be allocated in the following order and priority: (A) First, to the Limited Partner, in proportion to the sum of its Units, until the sum of the cumulative gains allocated pursuant to this Section 4.2.1(3)(h)(A) for the current and all previous fiscal years and the cumulative Net Income allocated to the Limited Partner pursuant to Section 4.2.1(2) hereof for the current and all previous fiscal years is equal to the cumulative Net Losses allocated pursuant to Section 4.2.1(1)(a) to the Limited Partner for the current and all previous fiscal years; 6 13 (B) Second, 99% to the Limited Partner and 1% to the General Partner in a total amount equal to the excess, if any, of (i) the cumulative distributions pursuant to Sections 4.1.1(3) and 4.1.1(5) hereof from the commencement of the Partnership to the date 30 days after the end of such fiscal year over (ii) the sum of the cumulative Net Income allocated pursuant to Section 4.2.1(2)(b) hereof for the current and all previous fiscal years plus the cumulative gains allocated pursuant to this Section 4.2.1(3)(h)(B) for all previous fiscal years; and (C) The balance, if any, 99% to the Limited Partner in proportion to the sum of its Original Invested Capital, and 1% to the General Partner. (i) Net Income Arising From Sale Upon Liquidation of Partnership. After giving effect to the special allocations set forth in Section 4.2.1(3) (other than those set forth in Section 4.2.1(3)(g) and 4.2.1(3)(h)) hereof, Net Income arising from a Sale upon liquidation of the Partnership shall be allocated as follows: (A) First, 100% to the General Partner until the aggregate Net Income allocated to the General Partner pursuant to Section 4.2.1(2)(a) and this Section 4.2.1(3)(i)(A) for such fiscal year and all previous fiscal years is equal to the aggregate Net Losses allocated to the General Partner pursuant to Section 4.2.1(1)(b) hereof for all previous fiscal years; (B) Second, the balance, if any, 1% to the General Partner and 99% to the Limited Partner until the aggregate Net Income allocated to the Partners pursuant to Section 4.2.1(2)(b) and this Section 4.2.1(3)(i)(B) for such fiscal year and all previous fiscal years is equal to the aggregate Net Losses allocated to the Partners pursuant to Section 4.2.1(1)(a) for all previous fiscal years; (C) Third, Net Income arising from a Sale upon liquidation of the Partnership shall be allocated pursuant to Section 4.2.1(3)(g); (D) Fourth, Net Income arising from a Sale upon liquidation of the Partnership shall be allocated pursuant to Section 4.2.1(3)(h); and (E) Any remaining Net Income arising from a Sale upon liquidation of the Partnership shall be allocated 1% to the General Partner and 99% to the Limited Partner. (j) Partner Nonrecourse Deductions. All Partner Nonrecourse Deductions for any fiscal year or other period shall be specially allocated to the Partner who bears the economic risk of loss (as set forth in Treasury Regulations Section 1.704-1T(b)(4)(iv)(k)(1)) with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704- 1T(b)(4)(iv)(h). (k) Partner Minimum Gain Chargeback. Notwithstanding any other provision of this Section 4 (other than Section 4.2.1(3)(c) and Section 4.2.1(3)(f)), if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership fiscal year, each Partner who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to the greater of (i) the portion of such Partner's share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-1T(b)(4)(iv)(h)(5), that is allocable to the disposition of Property subject to such Partner Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-1T(b)(4)(iv)(h)(4), or (ii) if such Partner would otherwise have an Adjusted Capital Account Deficit at the end of such year, an amount sufficient to eliminate such Adjusted Capital Account Deficit. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(4) of the Treasury Regulations. This Section 4.2.1(3)(k) is intended to comply with the minimum gain chargeback requirement in the Treasury Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section 4.2.1(3)(k), each Partner's 7 14 Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to this Section 4 with respect to such fiscal year, other than allocations pursuant to Section 4.2.1(3)(c). (l) Curative Allocations. Notwithstanding any other provision of this Agreement, the Regulatory Allocations shall be taken into account in allocating items of income, gain, loss and deduction among the Partners so that, to the extent possible, the net amount of such allocations of other items and the Regulatory Allocations to each Partner shall be equal to the net amount that would have been allocated to each such Partner if the Regulatory Allocations had not occurred ("Curative Allocations"). For purposes of applying the foregoing sentence, (i) Curative Allocations shall only be made with respect to allocations pursuant to Section 4.2.1(3)(e) to the extent the General Partner reasonably determines that such allocations will otherwise be inconsistent with the economic agreement among the Partners, (ii) no Curative Allocations attributable to Nonrecourse Regulatory Allocations shall be made prior to the Partnership fiscal year during which there is a net decrease in Partnership Minimum Gain, and then only to the extent necessary to avoid any potential economic distortions caused by such net decrease in Partnership Minimum Gain, (iii) Curative Allocations shall be deferred with respect to allocations pursuant to Section 4.2.1(3)(d) to the extent the General Partner reasonably determines that such allocations are likely to be offset by subsequent allocations pursuant to Section 4.2.1(3)(c), (iv) no Curative Allocation attributable to Partner Nonrecourse Regulatory Allocations shall be made with respect to allocations pursuant to Section 4.2.1(3)(j) relating to a particular Partner Nonrecourse Debt prior to the Partnership fiscal year during which there is a net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, and then only to the extent necessary to avoid any potential economic distortions caused by such net decrease in Partner Minimum Gain, and (v) Curative Allocations shall be deferred with respect to allocations pursuant to Section 4.2.1(3)(j) relating to a particular Partner Nonrecourse Debt to the extent the General Partner reasonably determines that such allocations are likely to be offset by subsequent allocations pursuant to Section 4.2.1(3)(k). The General Partner shall have reasonable discretion to apply, and divide among the Partners, the Regulatory Allocations in whatever order is likely to minimize the economic distortions that might otherwise result from the Regulatory Allocations. 4.2.2 Recapture Income. Each Partner's allocable share of Partnership Net Income which is characterized as ordinary income pursuant to Section 1245 or 1250 of the Internal Revenue Code shall be allocated to the Partners to whom the Net Income or Net Loss which included the prior corresponding depreciation deductions were allocated, such allocation to be made pro rata to the Partners in accordance with the manner in which such Net Income or Net Losses were allocated. 4.2.3 Allocation of Partnership Items. Except as otherwise provided in this Agreement, whenever a proportionate part of Net Income or Net Loss is allocated to a Partner, every item of income, gain, loss or deduction entering into the computation of such Net Income and Net Loss shall be considered allocated, and every item of credit or tax preference related to such Net Income and Net Loss and applicable to the period during which such Net Income or Net Loss was realized shall be allocated to the Partner in the same proportion. 4.2.4 Special Allocations to General Partner. To the extent compensation paid to the General Partner under this Partnership Agreement is determined not to be a guaranteed payment under Section 707(c) of the Internal Revenue Code, and is not paid to a General Partner other than in its capacity as a partner within the meaning of Section 707(a) of the Internal Revenue Code, the General Partner shall be specially allocated gross income of the Partnership at a time and in an amount equal to the amount of such compensation, and the General Partner's Capital Account shall be adjusted to reflect the payment of such compensation. Such allocations shall be shared equally between the General Partners. 4.2.5 Allocation Among Limited Partners. Except as otherwise provided in this Agreement, all allocations to the Limited Partners shall be in the ratio of the number of Units which are held by each such Limited Partner on the date of such allocation (which allocation date shall be deemed to be the last day of each month) to the total number of Limited Partner Units issued and outstanding as of such date, and, except as otherwise provided in this Agreement, without regard to the number of days during such month that the Limited Partner Units were held by each Limited Partner. For purposes of this Section 4.2 only, an Assignee of Record shall be treated as a Limited Partner. 8 15 4.2.6 Assignment. In the event of the assignment of a Unit as a result of which the Assignee becomes an Assignee of Record, the Net Income or Net Loss and Distributions during the period commencing with the last allocation date before the assignment shall be apportioned as between the Partner and his Assignee based upon the number of months of its respective ownership during the year in which the assignment occurs, without regard to the results of the Partnership's operations during the period before or after such assignment. An Assignee of a Unit who becomes an Assignee of Record during the first 15 days of the month will receive any Distributions and allocations relative to such month. An Assignee of a Unit who becomes an Assignee of Record on or after the 16th day of the month will be treated as acquiring his Unit on the first day of the following month. 4.2.7 Quarterly Distributions. The Partnership intends to make quarterly distributions (within 30 days after the first days of January, April, July and October of each year) of substantially all Distributable Cash available as determined by the General Partner, subject to the following: (i) distributions may be restricted or suspended for limited periods when the General Partner determines in its absolute discretion that it is in the best interests of the Partnership; and (ii) all distributions are subject to the payment of Partnership expenses and to the maintenance of reasonable reserves for debt service, alterations, repairs, improvements, maintenance and replacement of furniture and fixtures. 4.2.8 Power of General Partner to Vary Allocations of Net Income and Net Loss. It is the intent of the Partners that each Partner's distributive share of Net Income or Net Loss and tax credits be determined and allocated in accordance with Section 4.2 of this Agreement to the fullest extent permitted by Section 704(b) of the Internal Revenue Code. Therefore, if the Partnership is advised that the allocations provided in Section 4.2 of this Agreement are unlikely to be respected for federal income tax purposes, the General Partner is granted the power in Section 5.1.14 of this Agreement to amend the allocation provisions of this Agreement, on advice of accountants and legal counsel, to the minimum extent necessary to effect the plan of allocations and distributions provided in this Agreement and yet have such allocations respected for federal income tax purposes. 4.2.9 Consent of Partners. The methods hereinabove set forth by which the distributions and allocations of Net Income and Net Loss are made and apportioned are hereby expressly consented to by each Partner as a condition of becoming a Partner. 4.3 WORKING CAPITAL RESERVE. Until its dissolution and liquidation, the Partnership shall use its best efforts to maintain the Working Capital Reserve, Gross Operating Revenues and Cash from Sale or Refinancing. ARTICLE 5 MANAGEMENT AND ADMINISTRATION 5.1 POWERS AND AUTHORITY OF THE GENERAL PARTNER. The General Partners shall have complete and exclusive control over the management of the Partnership's business and affairs, and the Limited Partner shall have no right to participate in the management or conduct of such business or affairs nor any power or authority to act for or on behalf of the Partnership in any respect whatsoever. Except as otherwise expressly provided in this Agreement, the General Partners shall equally have the right, power and authority, on behalf of the Partnership and in its name, to exercise all of the rights, powers and authority permitted to a general partner under the CRLPA, including, without limitation, the power and authority to do all of the following, at such times and on such terms and conditions as it deems, in its absolute discretion, to be in the best interests of the Partnership: 5.1.1 To acquire, hold, sell, exchange, lease, rent or otherwise dispose of the Property, interests therein or appurtenances thereto, as well as personal or mixed property connected therewith, including the purchase, lease, development, improvement, maintenance, repair, exchange, trade or sale of the Property; 5.1.2 To borrow money required for the business and affairs of the Partnership, to secure the repayment of such borrowing by executing mortgages or pledging or otherwise encumbering or subjecting to security 9 16 interests all or any part of the assets of the Partnership, and to refund, refinance, increase, modify, consolidate or extend the maturity of any indebtedness created by such borrowing, or any such mortgage, pledge, encumbrance or other security device; 5.1.3 To place record title to, or the right to use, Partnership assets in the name or names of a nominee or nominees for any purpose convenient or beneficial to the Partnership; 5.1.4 To operate, manage and develop the Property or other asset of the Partnership, to enter into agreements with others with respect to such management, operation and development, and to employ Persons, at the expense of the Partnership, in the operation and management of the Property (including, but not limited to, supervisory managing agents, building or project managers, insurance brokers, real estate brokers and property appraisers); 5.1.5 To purchase, at the expense of the Partnership, contracts of liability, casualty and other insurance for the protection of the assets or affairs of the Partnership or for any purpose convenient or beneficial to the Partnership; 5.1.6 To invest Partnership funds in commercial paper, government securities, certificates of deposit, banker's acceptances, or similar investments having a maturity of not more than 360 days; 5.1.7 To employ Persons, at the expense of the Partnership, to perform legal and independent auditing services in connection with the operation and management of the Partnership's business, and to provide services in connection with the preparation and filing of any tax return required of the Partnership; 5.1.8 To incur, at the expense of the Partnership, bank charges with respect to bank accounts maintained, and expenses relating to the purchase of supplies, materials, equipment or similar items used in connection with the operation of, and escrow fees, recording fees, title insurance premiums and similar expenses in connection with the acquisition or disposition of, the Property; 5.1.9 To cause the Partnership to participate in any transaction in any legal capacity other than that of partner or joint venturer; 5.1.10 To enter into such agreements, contracts, documents and instruments with such parties, and to give such receipts, releases and discharges with respect to all of the foregoing and any matters incident thereto, as the General Partner may deem advisable, appropriate and convenient; 5.1.11 To admit, without the consent of the Limited Partner, any Limited Partner or Substitute Limited Partner; 5.1.12 To perform any and all other acts which the General Partner is obligated to perform hereunder; 5.1.13 In addition to any amendments otherwise authorized herein, and subject to the provisions regarding amendment of this Agreement without any action on the part of the Limited Partner by special or general power of attorney or otherwise to amend the provisions of Sections 4.1, 4.2 and 9.3 of this Agreement, if the Partnership is advised at any time by the Partnership's accountants or legal counsel that the allocations and distributions provided in such sections are unlikely to be respected for federal income tax purposes, either because of promulgation of Treasury Regulations under Section 704 of the Internal Revenue Code or other developments in the law. The General Partner is empowered to amend such provisions to the minimum extent necessary in accordance with the advice of the accountants and counsel to effect the plan of allocations and distributions provided in this Agreement and yet have the allocations respected for federal income tax purposes. New allocations made by the General Partner in reliance upon the advice of the accountants or counsel described above shall be deemed to be made pursuant to the fiduciary obligation of the General Partner to the Partnership and the Limited Partner, and no such new allocation shall give rise to any claim or cause of action by any Limited Partner; 10 17 5.1.15 In the event that the State of California amends the CRLPA in any manner and, as a result of such amendment, tax counsel to the Partnership is unable to give the Partnership an opinion to the effect that the Partnership will be treated as a partnership for federal income tax purposes and not as an association taxable as a corporation, then in the sole discretion of the General Partner, to reconstitute the Partnership under the laws of another state; 5.1.16 To require in any Partnership contracts that the General Partner shall not have any personal liability thereon, but that the Person or entity contracting with the Partnership is to look solely to the Partnership and its assets for satisfaction; 5.1.17 To execute, acknowledge and deliver any and all instruments to effectuate the foregoing, and to take all such action in connection therewith as the General Partner shall deem necessary or appropriate. Any and all documents or instruments may be executed on behalf and in the name of the Partnership by the duly authorized signature of any agent of the General Partner; 5.1.18 To represent the Partnership and Partners as "Tax Matters Partner" within the meaning of the Code in discussions with the Internal Revenue Service regarding the tax treatment of items of Partnership income, loss, deduction or credit, or any other matter reflected in the Partnership's information returns, and, if deemed appropriate and in the best interests of the Partners, to agree to final Partnership administrative adjustments or file a petition for a readjustment of the Partnership items in question with the United States Tax Court, the appropriate United States District Court or the United States Claims Court; 5.1.19 To annually make available to trustees of Qualified Plans and IRAs Unit valuation information which the General Partner deems appropriate, but only to the extent such information is otherwise readily available from records actually maintained by the Partnership; and In the exercise of its powers and authority, the General Partner shall have fiduciary responsibility for the safekeeping and use of all funds and other assets of the Partnership, whether or not the same are in the immediate possession or control of the General Partner. The General Partner shall not employ, or permit another to employ, any such funds or assets in any manner except for the purpose of benefiting the Partnership. 5.2 DUTIES OF THE GENERAL PARTNER. In addition to any other obligations imposed upon it by this Agreement, the General Partner shall have the specific duties described below. The General Partner may allocate any or all such duties and obligations, by written agreement, and may also allocate by such agreement fees and other compensation to be paid the General Partner for or with respect to performance of such duties and obligations. 5.2.1 Maintenance of Limited Partnership Status. The General Partner shall now and hereafter take all actions reasonably practicable to maintain the Partnership's valid existence and status as a limited partnership under the CRLPA and to permit the Partnership to conduct its business, including, without limitation, making all of the filings specified in Section 1.5 hereof. 5.2.2 Acquisition of the Property. The General Partner shall have examined, investigated and approved the Property prior to its acquisition. 5.2.3 Management of the Property. The General Partner shall at all times be responsible for providing to the Partnership, either through its own employees or other agents, who may be Affiliates of the General Partner, or by qualified real property managers engaged by it, property management services for the Property, including supervision of the operation of the Property, monitoring and projecting the economic results of the operation of the Property, monitoring all lease agreements, management agreements, maintenance agreements and other such contracts, and making periodic determinations of the appropriate amount of the Working Capital Reserve. To the extent that the General Partner engages third Persons, including Affiliates, to manage the Property, the General Partner shall oversee such management and shall pay the fees charged by such third Persons; provided, however, that nothing contained in this Agreement shall preclude the General Partner from hiring for each Property, at the 11 18 Partnership's cost and expense, an on-site building manager or superintendent, or similar such Person providing building management services full-time with respect to such Property. 5.2.4 Disposition of the Property. The Partnership may engage any of the General Partners and Affiliates, on a nonexclusive basis, to sell the Property for the Partnership. 5.2.5 Insurance. The General Partner shall obtain and keep in force policies of fire and extended coverage, worker's compensation and public liability insurance covering the Partnership and the Property, with such carriers and in such amounts as the General Partner deems appropriate, but no less (and in deductible amounts no greater) than customarily maintained for properties similar to the Property. Any such policies of insurance may, at the election of the General Partner, name the General Partner as an additional insured thereunder, provided, however, that the Partnership shall obtain no such policy naming the General Partner as additional insured if any of the terms of such policy have the effect of indemnifying the General Partner against liabilities not permitted to be indemnified under any applicable law or regulation. 5.2.6 Net Worth. The General Partner shall at all times use its best efforts to maintain a net worth sufficient to satisfy currently applicable Treasury Regulations and rulings, procedures and policies of the Internal Revenue Service (or controlling decisions by federal courts under the Internal Revenue Code, as amended), concerning treatment of the Partnership for federal income tax purposes as a partnership and not as an association taxable as a corporation. 5.2.7 Avoidance of Investment Company Status. The General Partner shall use its best efforts to insure that the Partnership at no time becomes an investment company, as such term is defined in the Investment Company Act of 1940. 5.2.8 Records. The General Partner shall keep at the Partnership's office in California the following Partnership documents: (1) A current list of the full name and last known business or residence address of each Partner, together with the contribution and share in Net Income and Net Losses of each Partner; (2) A copy of the Certificate of Limited Partnership, and all Certificates of Amendment, and executed copies of any powers of attorney pursuant to which any certificate has been executed; (3) Copies of the Partnership's federal, state and local income tax or information returns and reports if any, for the six most recent fiscal years; (4) Copies of the original Agreement and all amendments to the Agreement; (5) Financial statements of the Partnership for the six most recent fiscal years; (6) The Partnership' s books and records for at least the current and past three fiscal years; and (7) Originals or copies of all minutes, actions by written consent, consents to action and waivers of notice of Partner and Limited Partner votes, actions and consents. 5.2.9 Delivery to Limited Partners and Inspection. The Limited Partner have the following rights regarding access to Partnership records: (1) Upon the request of a Limited Partner, the General Partner shall promptly deliver to the requesting Limited Partner, at the expense of the Partnership, a copy of the information required to be maintained by Sections 5.2.8(1), (2) or (4). 12 19 (2) The Limited Partner has the right, upon reasonable request, to the following: (A) Inspect and copy, at such Limited Partner's expense, during normal business hours any of the Partnership records required to be maintained by Section 5.2.8; and (B) Obtain, at the Limited Partner's expense, from the General Partner promptly after becoming available, a copy of the Partnership's federal, state and local income tax or information returns for each year. 5.2.10 Reports. The General Partner shall cause to be prepared and distributed to each of the Partners the following reports: (1) Within 60 days after the end of each calendar quarter, a quarterly report containing: (A) A balance sheet for the Partnership as of the end of such period; (B) A statement of Net Income (or Net Loss) of the Partnership for such period; (C) A cash flow statement of the Partnership for such period; and (D) Other pertinent information regarding the Partnership and its activities. All of such financial statements may be unaudited. (2) Within 120 days after the end of each fiscal year of the Partnership, an annual report containing: (A) A balance sheet of the Partnership as of the end of such fiscal year, and statements of Net Income (or Net Loss), Partners' equity, changes in financial position, and cash flow for the Partnership for such fiscal year; (B) A report of the activities of the Partnership during such fiscal year, all of which financial statements shall be prepared in accordance with generally accepted accounting principles and all of which (except such cash flow statement) shall be accompanied by an audit report of an independent certified public accountant; and (C) A description of all Distributions to the Limited Partner which shall separately identify Distributions from: (i) Distributable Cash from Operations during such fiscal year; (ii) Distributable Cash from Operations during a prior fiscal year which were held in the Working Capital Reserve; (iii) Distributable Cash from Sale or Refinancing; and (iv) the original Working Capital Reserve. (3) Within 75 days after the end of each fiscal year of the Partnership, a copy of that portion of the Partnership's federal income tax return for such year as the Limited Partner may need for preparation of its federal income tax returns; and (4) Within 60 days after the end of each semi-annual period in each fiscal year in which the General Partner receive fees for services from the Partnership (including Acquisition Fees), a report containing a detailed statement setting forth the services rendered, or to be rendered, by each General Partner and the amount of fees received therefor. Concurrently with the transmittal to the Partners of each report required by this Section 5.2.10, the General Partner shall also cause a copy of such report to be filed with the Commissioner of Corporations of the State of California and with such other state securities regulatory agencies (if any) as may require such filing. 13 20 5.2.11 Interim Reports; Accountant's Report. If as of the end of the fiscal year there are more than 35 Limited Partners: (1) Limited Partners owning at least 5% of the Units may make a written request to the General Partner for an income statement of the Partnership for the initial three-month, six-month or nine-month period of the current fiscal year ended more than 30 days before the date of the request, and a balance sheet of the Partnership as of the end of that period. The statement shall be delivered or mailed to the Limited Partners within 30 days after the request; and (2) The financial statements referred to herein shall be accompanied by a report if any, from the independent accountant engaged by the Partnership. If there is no report, the financial statements shall be accompanied by the certificate of the General Partner stating that the financial statements were prepared without audit from the books and records of the Partnership. 5.3 RESTRICTIONS ON AUTHORITY OF GENERAL PARTNER. 5.3.1 Actions Requiring Consent of the Limited Partner. Without the prior written consent of the Limited Partner, the General Partner shall not have the authority to: (1) Do any act in contravention of this Agreement; (2) Do any act that would make it impossible to carry on the ordinary business of the Partnership (except as provided in Section 5.3.2(1) hereof); (3) Confess a judgment against the Partnership; (4) Possess any Partnership assets, or assign its right in any such assets, for other than a Partnership purpose; or (5) Knowingly perform any act that would subject the Limited Partner to liability as general partners in any jurisdiction. 5.3.2 Actions Requiring Consent of the Limited Partner. Without the consent of the Limited Partner, the General Partner shall not have authority to: (1) Sell, or otherwise dispose of, all or substantially all of the assets of the Partnership, except where such sale is part of (i) the disposition of the Property (whether real, personal or mixed) in the ordinary course of business or (ii) the orderly liquidation and winding up of the Partnership upon its termination and dissolution, in either of which case no consent of the Limited Partner will be required; (2) Elect to dissolve the Partnership, except upon the removal, bankruptcy, death, insanity or dissolution of the remaining General Partner; (3) Amend this Agreement or the Certificate of Limited Partnership except as provided in Section 12.2 hereof; or (4) Retire as a General Partner. 5.3.3 Unconditional Restrictions on General Partner's Authority. The General Partner shall have no authority to: (1) Grant to itself or any Affiliate an exclusive right or engagement to sell any Property; 14 21 (2) Enter into any agreement or arrangement on behalf of the Partnership with itself or any Affiliate for the provision of services or supply of goods, except as set forth in Article 6 hereof, unless such agreement (i) does not contravene applicable Legal Restrictions and (ii) permits termination thereof by the Partnership without penalty on no more than 60 days prior notice; (3) Sell or lease any Property or other Partnership asset to itself or to any Affiliate; (4) Lend any Partnership funds or other assets to the General Partner or any Affiliate; (5) Commingle funds of the Partnership with the funds of any other Person; (6) Receive or permit any Affiliate to receive from the Partnership any rebate or give up, or participate or permit any Affiliate to participate in any reciprocal business arrangements that would circumvent the foregoing restriction or any other restrictions herein against dealings between the Partnership and the General Partner and its Affiliates; (7) Directly or indirectly pay or award any finder's fees, commissions or other compensation to any Person engaged by a potential investor in Units for investment advice as an inducement to such Person to recommend the purchase of Units to such potential investor, provided, however, that the foregoing shall not preclude normal sales commissions payable to registered broker/dealers or other properly licensed Persons for selling Units; (8) Make any assessment on the Limited Partner; (9) Admit any Limited Partner or General Partner to the Partnership except in accordance with the provisions of this Agreement; (10) Make any distributions to the Partners of the cash or other assets of the Partnership, except as expressly provided in this Agreement; (11) Invest in limited partnership interests of another program; (12) Except as provided in Section 6.3 hereof, enter into any agreement or arrangement by which the Limited Partner or the Partnership waive or otherwise limit any of the fiduciary obligations of the General Partner; or (13) Acquire any future Property on behalf of the Partnership in exchange for Units. (14) The General Partner shall only incur or cause the Partnership to incur indebtedness in an amount necessary to acquire, operate and maintain the Property. For so long as any mortgage lien exists on the Property, the General Partner shall not cause the Partnership to incur, assume, or guaranty any other indebtedness. (15) The General Partner shall not cause the Partnership to dissolve as long as the first deed of trust mortgage encumbers the Property. (16) The General Partner shall not and shall not cause the Partnership to consolidate or merge with or into any other entity or convey or transfer the Property and assets substantially as an entirety to any entity unless (i) the entity (if other than the General Partner or the Partnership) formed or surviving such consolidation or merger or that acquired by conveyance or transfer the Property and assets of the General Partner or the Partnership substantially as an entirety (a) shall be organized and existing under the laws of the United States of America or any State or the District of Columbia; (b) shall include in its organizational documents the same 15 22 limitations set forth in this subsection 5.3.3(16); and (c) shall expressly assume the due and punctual performance of the Partnership's obligations; and (ii) immediately after giving effect to such transaction, no default or event of default under any agreement to which it is a party shall have been committed by this Partnership and be continuing. (17) For so long as a mortgage lien exists on the Property, the General Partner shall not voluntarily commence a case with respect to itself, as debtor, under the Federal Bankruptcy Code or any similar federal or state statute without the unanimous consent of the Board of Directors of both General Partners, including the Independent Director. (18) For so long as a mortgage lien exists on the Property, no material amendment to the General Partner's certificate of incorporation or to the bylaws of the General Partner may be made without first obtaining approval of the mortgagees holding any first mortgage on the Property. 5.4 METHOD OF ACTION BY GENERAL PARTNER. The Partnership may act by any of the General Partners, and each General Partner is authorized to perform any act within the General Partners' power and authority under this Agreement, provided such act has been duly authorized by all General Partners. Except as provided in Section 8.1 hereof, neither the Partnership nor any of the General Partners shall take any action that has not been approved by all of the General Partners. Any Individual General Partner or any officer of a Corporate General Partner may execute, sign and deliver documents and instruments on behalf of the Partnership, and all such documents and instruments shall constitute duly executed and delivered documents and/or instruments of the Partnership. 5.5 TIME AND EFFORTS OF THE GENERAL PARTNER. The General Partners shall devote such of their time and efforts to the Partnership's business as, in their sole discretion, it deems to be necessary for the proper management and supervision of the Partnership's business and assets. The Limited Partner hereby acknowledges that the General Partner, Income Growth Management, Inc. has other businesses and will engage in activities other than those relating to the Partnership, including, without limitation, the acquisition, development, management, operation, maintenance, refinancing and sale, both for itself and for others, of real properties, some of which may be comparable to or competitive with the Property, and General Partner IGP X Shadow Ridge Meadows, Inc. shall devote its time solely to serving as a General Partner of this Partnership. Nothing in this Agreement or in the relationship of the General Partner to the Partnership and the Limited Partner shall preclude General Partner, Income Growth Management, Inc. from engaging in such other businesses and activities (including, without limitation, businesses and activities that may in some instances be competitive with the Partnership), or create in the Partnership or in any Partner any right to the income or proceeds derived from such other businesses or activities, or create any other obligations or liabilities on the part of such General Partner to the Partnership or to any Partner by reason thereof. 5.6 POWER OF ATTORNEY. The Limited Partner hereby irrevocably makes, constitutes and appoints the General Partner with full power of substitution, its true and lawful attorney-in-fact, in its name alone, place and stead to make, execute, sign, acknowledge, record, file and publish, on behalf of it and of the Partnership, the following: 5.6.1 The Certificate of Limited Partnership, fictitious business name statements and any and all other certificates or instruments that are required to be filed pursuant to Section 1.4 hereof; 5.6.2 Upon the termination of the Partnership, a certificate of cancellation of the Partnership and such other instruments and documents required to effect such termination or by Section 12.2 hereof; 5.6.3 Any contract for purchase or sale of real estate, and any deed, deed of trust, mortgages or other instrument of conveyance or encumbrance, with respect to the Property; and 5.6.4 Any and all such other instruments as the General Partner may deem necessary or desirable to effect the purposes of this Agreement and carry out fully its provisions, in accordance with its terms. 16 23 The power of attorney hereby granted is acknowledged to be coupled with the interest of the General Partner in the Partnership and its assets, and is therefore irrevocable and shall survive the death, incapacity, termination or dissolution of any Limited Partner granting the power, or the assignment by any Limited Partner of all or any of his Units. Such power of attorney may be exercised by the General Partner by and through one or more of the officers of such General Partner, or by listing the names of all of the Limited Partners executing any instrument subscribed with a single signature for such General Partner as attorney-in-fact for them, or by such other method as may be required or requested in connection with the recording or filing of any instrument or other document so executed. Each instrument and other document executed under the power of attorney granted hereby shall be in such form as the General Partner and counsel for the Partnership deem appropriate. 5.7 SECTION 754 ELECTION. The General Partner shall have the authority, but not the obligation, to make or revoke, on behalf of the Partnership, the election provided for in Section 754 of the Internal Revenue Code and such other elections, as the General Partner, in its sole discretion, determines to be in the best interests of the Limited Partner. 5.8 FISCAL YEAR. The Partnership's fiscal year shall be the calendar year, and the Partnership's tax year shall be the same as its fiscal year. 5.9 BANKING. All funds of the Partnership shall be deposited in a separate and distinct bank account or accounts, as determined by the General Partner, and all withdrawals from such accounts shall be made upon checks signed by the General Partner (or by such other Person or Persons as the General Partner may authorize) or by such other method(s) of withdrawal as the General Partner may authorize. ARTICLE 6 COMPENSATION OF GENERAL PARTNER AND EXPENSES 6.1 GENERAL PARTNER'S COMPENSATION. In addition to the distributions to the General Partner provided for in Section 4.1 hereof for services rendered by the General Partner to the Partnership, the General Partner shall be compensated as follows: 6.1.1 Acquisition Fees. For services rendered in connection with an acquisition of real property by the Partnership, the General Partner, or an Affiliate of the General Partner, shall be entitled to receive from the Partnership, at the time the Partnership acquires a Property, an Acquisition Fee in an amount equal to 3% of the Purchase Price of the Property being acquired by the Partnership, subject to the lesser of the following limitations: (1) Any such Acquisition Fee shall not exceed the normal and competitive rate for similar services in the locality where the services are provided. (2) The total of such Acquisition Fee paid pursuant to this Section 6.1.1 plus any other Acquisition Fee known to the General Partner to be paid to any person by any person in connection with the acquisition or development of the Property by the Partnership shall not exceed an amount equal to the normal and competitive rates for similar services in the locality where the services are provided. The Acquisition Fee paid to the General Partner shall be reduced to the extent that Acquisition Fees to be paid to any Person by any Person in connection with the acquisition or development of the Property by the Partnership exceeds the maximum set forth in this Section 6.1.1. (3) The sum of the Purchase Price of any Property acquired by the Partnership and the Acquisition Fee shall not exceed the fair market value of the Property as substantiated by an independent, qualified appraisal. 6.1.2 Management Fee. In the event that the General Partner (or its Affiliates) renders services to the Partnership in connection with the management and operation of the Properties, the General Partner (or its Affiliates) shall be entitled to receive a monthly Management Fee equal to 5% of the Gross Property Revenues earned during the calendar month for which such fee is paid. Each such fee shall be paid on or before the thirtieth (30th) 17 24 day after the end of the calendar month for which it is payable. Notwithstanding the above, such Management Fee paid to the General Partner or its Affiliates shall be competitive in price and terms with that which would be charged by a nonaffiliated Person for comparable services which could reasonably be made available. In addition, in the event any Management Fee is paid by the Partnership to a nonaffiliated Person for similar management services, the total of all such fees payable to all Persons shall not exceed a single standard property management fee, as provided herein. 6.1.3 Subordinated Real Estate Commissions on Sale of Partnership Real Estate. The General Partner shall be entitled to receive a fee in connection with any sale of the Property effected in whole or in part through the efforts of the General Partner, or any Affiliate, including, without limitation, sales in which the General Partner is instrumental in (i) identifying or interesting the buyer in the Property, (ii) negotiating the terms of such sale, (iii) investigating the then available market for sale of the Property and determining what offer the Partnership should make or accept in connection with a prospective sale thereof, (iv) investigating the financial condition, experience and reputation of the buyer, where any portion of the Purchase Price for such sale is to be deferred, or (v) performing any services that are customarily performed in connection with sales of real estate by real estate brokers acting for the seller. Nothing contained in this Section 6.1.3 shall be deemed to give any General Partner or any Affiliate of the General Partner an exclusive right to list or sell any Property. The fee (if any) paid to the General Partner under this Section 6.1.3 shall be the same as the customary fee the Partnership would pay to an independent real estate broker for the sale of the Property in question, subject to and limited by the following conditions: (1) With respect to any sale of a Property by the Partnership on which the General Partner will collect a fee under this Section 6.1.3, the aggregate amount of such fee and all real estate brokerage commissions or similar fees paid to other Persons shall not exceed 6% of the contract price for the Property and the amount payable to the General Partner shall not exceed 3% of the contract price; and (2) Payment of any such fees to the General Partner (other than payments in the form of promissory notes that are subordinated to the return of Capital Contributions to the Limited Partner) shall be deferred until the Limited Partner has received, in distributions under either Section 4.1.2 or 9.3.1 hereof, an aggregate amount equal to its Adjusted Invested Capital plus a 10% per annum cumulative, but not compounded, return on its Adjusted Invested Capital. After such condition has been satisfied, however, such fees shall be paid to the General Partner out of Distributable Cash from Sale or Refinancing. 6.2 OPERATING EXPENSES. 6.2.1 Payment Generally. Subject to limitations expressly set forth in Section 6.2.2 hereof and elsewhere in this Agreement, the Partnership shall pay all of the costs and expenses incurred in acquiring, operating, maintaining, refinancing and disposing of the Properties, conducting the other affairs of the Partnership and dissolving, liquidating, winding up and terminating the Partnership. All such Partnership costs and expenses shall be billed directly to, and paid in the first instance by, the Partnership, except for costs reimbursable to the General Partner under Section 6.2.2 hereof. 6.2.2 Reimbursements to General Partner. Except as provided in this Section 6.2.2, the Partnership shall not reimburse the General Partner or any Affiliate for its general or administrative overhead or any of the expenses of any of the officers and directors of the General Partner and Affiliates not directly attributable to the rendering of services or providing facilities to the Partnership, and no payment shall be made for services for which the General Partner (or any Affiliate) are entitled to compensation by way of any Management Fees or subordinated real estate commissions on sales of the Properties or the General Partner's interest in the Partnership. Notwithstanding the foregoing general prohibition on reimbursement to the General Partner and Affiliates, however, the Partnership shall reimburse a General Partner or an Affiliate, as set forth below, for all accounting, documentation, professional (including, but not limited to, regulatory reporting and legal services), recording and Partner communications expenses incurred for the Partnership. Such expenses shall be reimbursed in amounts equal to the lower of (i) such General Partner's or Affiliate's actual costs for the services or facilities provided, or (ii) 90% of the rates customarily charged for similar services or facilities in the same or comparable geographic location by Persons dealing at arm's-length and having no affiliation with the Partnership. "Actual cost" as used herein means 18 25 the pro rata cost of personnel or facilities including an allocation for the direct cost associated therewith (as if such personnel were part-time employees of the Partnership or such facilities were time-shared among the Partnership and others), all based on the amount of time such personnel spent or such facilities were used on business or affairs of the Partnership. The General Partner has an adequate staff to render the required administrative services. For purposes of reimbursement to a General Partner or Affiliate, accounting, documentation, professional and recording expenses of the Partnership shall not include the cost of time devoted to the Partnership's business affairs by any executive personnel of a General Partner or Affiliate who will be involved in making investment and other management decisions for the Partnership (or by any of its successors in such role), but may include time spent by officers and other employees of the General Partner and Affiliates who do not have such executive responsibility. The provision of any services to the Partnership shall be embodied in a written contract describing services to be rendered and compensation to be paid therefor and providing that the contract will be terminable without penalty upon 60 days notice. 6.3 INDEMNIFICATION OF GENERAL PARTNER. 6.3.1 Indemnification Generally. The Partnership its receiver or trustee shall hold harmless, indemnify and defend the General Partner and its shareholders, directors, officers and other employees from and against any claim, liability or expense (including, without limitation, reasonable attorneys' fees) suffered by them by virtue of any act performed or omitted to be performed by them in connection with the Partnership's activities, provided, that if such claim, liability or expense arises out of any action or inaction by the General Partner, or other related Person, the General Partner must have determined, in good faith, that such course of conduct was in the best interests of the Partnership, and such course of conduct must not have constituted negligence or misconduct by the General Partner. All judgments against a General Partner, concerning which such General Partner is entitled to indemnification, shall be satisfied from Partnership assets before such General Partner shall be held responsible. 6.3.2 Restrictions on Indemnification. Notwithstanding Section 6.3.1 hereof, the Partnership shall not indemnify any General Partner or shareholder, director, officer or other employee thereof, for liability imposed or expenses incurred in connection with any claim arising out of a violation of the Securities Act of 1933, or any other federal or state securities law, with respect to the offer and sale of the Units. Indemnification will be allowed for settlements and related expenses in lawsuits alleging securities law violations, and for expenses incurred in successfully defending such law suits, provided that a court either: (1) approves the settlement and finds that indemnification of the settlement and related costs should be made; or (2) approves indemnification of litigation costs, if a successful defense is made. If the General Partner seek indemnification, it will apprise the court of the position of the Securities and Exchange Commission and applicable state securities laws commissions (including the California Commissioner of Corporations) with respect to indemnification for securities law violations, before seeking court approval for indemnification. 6.3.3 Indemnification Limited to Partnership Assets. Any indemnification hereunder shall be made only to the extent of the Partnership's assets, and no Limited Partner shall be personally liable on such indemnification. Any indemnification shall be fully subordinated to any obligations respecting the Property and shall not constitute a claim against the Partnership in the event that cash flow is insufficient to pay such obligations. 6.4 EXONERATION OF GENERAL PARTNER FOR ACTS IN GOOD FAITH. Notwithstanding any other provision hereof, and to the maximum extent permissible under applicable law, the Partnership and of the Limited Partner hereby waives and releases the General Partner, its shareholders, directors, officers, employees, and other agents from any and all claims and liabilities by reason of adverse results to the Partnership or any Limited Partner of any act or failure to act on the part of the General Partner, in the performance of any duty of the General Partner hereunder, so long 19 26 as the General Partner was proceeding in good faith to promote the best interests of the Partnership and did not act in a manner which would constitute negligence or misconduct. ARTICLE 7 LIMITED PARTNER INTEREST 7.1 LIMITED LIABILITY. Except as otherwise provided by applicable state law, a Limited Partner shall not be liable for any of the debts, liabilities, contracts or other obligations of the Partnership, except to the extent of the Capital Contribution made by him in return for the Units. Once such Capital Contribution is fully paid to the Partnership, in cash, a Limited Partner shall not be obligated to make any further contribution to, or be subject to any assessment by, the Partnership. 7.2 WITHDRAWAL AND RETURN OF LIMITED PARTNER'S CAPITAL CONTRIBUTION. Except upon the dissolution and liquidation of the Partnership, no Limited Partner shall be entitled to withdraw any of his Capital Contribution, and no Limited Partner shall have the right to receive a return of his Capital Contribution at any time in property other than cash. 7.3 ROLE OF LIMITED PARTNERS. The Limited Partners shall take no part in, nor in any manner interfere with, the management, control, conduct or operation of the Partnership, its business or assets, and shall have no right or authority to act for or bind the Partnership in any particular; provided, however, that the Limited Partners shall have the right, by affirmative vote thereof, to: 7.3.1 Remove a General Partner, as provided in Section 8.1 hereof; 7.3.2 Elect or approve a successor to any removed or withdrawn General Partner, as provided in Section 8.3 hereof; 7.3.3 Subject to the limitations set forth in Section 5.3(15), dissolve the Partnership; 7.3.4 Approve any amendment of this Agreement, except as otherwise provided in Section 12.2 hereof; and 7.3.5 Approve any proposed sale of all or substantially all of the assets of the Partnership, except as permitted without consent of the Limited Partners under Subsection 5.3.2(1) hereof. Any vote of the Limited Partners taken pursuant to this Section 7.3 may be taken either at a meeting of the Limited Partners of Record, to be called in accordance with Section 7.5 hereof or, without a meeting in accordance with Section 7.10. 7.4 UNANIMOUS VOTES; CONSENT OF GENERAL PARTNER. Each Limited Partner shall be entitled to one vote for each Unit he owns and to the equivalent fraction of one vote for each fraction of a Unit he owns. Any amendment that would affect the compensation to be paid to the General Partner under this Agreement or the General Partner's interest in the Partnership, the election of an additional General Partner when the General Partner will continue as such, extension of the term of the Partnership and any amendment that would affect the rights, powers or authorities of the General Partner as provided for in this Agreement, shall also require the consent of the General Partner to pass and become effective. Election of a General Partner or election to continue to be a General Partner (other than by removal) where there is no remaining General Partner, and any amendment that would reduce the economic interest of the Limited Partners in the Partnership or increase its obligations or liabilities thereto shall require the consent of each of the Limited Partners to pass and become effective. 7.5 MEETINGS OF THE LIMITED PARTNERS. The General Partner may at any time call for a meeting of the Partners, or for a vote without a meeting, on matters on which the Limited Partners are entitled to vote, and shall call 20 27 for such a meeting (but not a vote without a meeting) following receipt of a written request therefor of Limited Partners holding 10% or more of the Units entitled to vote as of the record date. Within 20 days (or as soon as practicable if the date for the meeting specified in the request, if any, is earlier) after receipt of such request, the General Partner shall notify all Limited Partners of record as of the record date of the Partnership meeting. 7.6 NOTICE. Written notice of each meeting shall be given to each Limited Partner entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such Limited Partner at his address appearing on the books of the Partnership or given by him to the Partnership for the purpose of notice or, if no such address appears or is given, at the principal executive office of the Partnership, or by publication of notice at least once in a newspaper of general circulation in the county in which such office is located. All such notices shall be sent to each Limited Partner entitled thereto not less than 10 nor more than 60 days before such meeting. The notice shall specify the place, date and hour of the meeting and the general nature of business to be transacted, and no other business shall be transacted at the meeting. In addition, the notice shall state such other matters, if any, as may be expressly required by law. 7.7 ADJOURNED MEETING AND NOTICE THEREOF. When a Limited Partners' meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Partnership may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Limited Partner of record entitled to vote at the meeting. 7.8 QUORUM. Except as to matters as to which this Agreement requires a greater vote, the presence in Person or by proxy of the Persons entitled to vote a Majority-In-Interest of the Units shall constitute a quorum for the transaction of business. The Partners present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Partners to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a Majority-In-Interest or such greater vote as may be required by this Agreement or by law. In the absence of a quorum, any meeting of Partners may be adjourned from time to time by the vote of a majority of the Units represented either in Person or by proxy, but no other business may be transacted, except as provided above. 7.9 CONSENT OF ABSENTEES. The transactions of any meeting of Partners, however called and noticed and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in Person or by proxy, and if, either before or after the meeting, each of the Persons entitled to vote, not present in Person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All waivers, consents and approvals shall be filed with the Partnership records or made a part of the minutes of the meeting. 7.10 ACTION WITHOUT MEETING. Except as may otherwise be provided in this Agreement, any action that may be taken at any meeting of the Partners may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by Partners having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all Partners entitled to vote thereon were present and voted. In the event the Limited Partners are requested to consent on a matter without a meeting, each Partner shall be given at least 10, but not more than 60, days notice before the consummation of the action to be authorized by such approval. In the event any General Partner or Limited Partners representing more than 10% of the Units request a meeting for the purpose of discussing or voting on the matter, the notice of a meeting shall be given in the same manner as required by Section 7.6 and no action shall be taken until the meeting is held. Unless delayed in accordance with the provisions of the preceding sentence, any action taken without a meeting will be effective 15 days after the required minimum number of Partners has signed the consent; however, the action will be effective immediately if the General Partner and Limited Partners representing at least 90% of the Units have signed the consent. 7.11 RECORD DATES. For purposes of determining the Partners entitled to notice of any meeting or to vote or entitled to receive any distributions or to exercise any rights in respect of any other lawful matter, the General 21 28 Partner or Limited Partners representing more than 10% of the Units may fix in advance a record date, which shall be not more than 60 nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action. If no record date is fixed: 7.11.1 The record date for determining Partners entitled to notice of or to vote at a meeting of Partners shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; 7.11.2 The record date for determining Partners entitled to give consent to Partnership action in writing without a meeting shall be the day on which the first written consent is given; 7.11.3 The record date for determining Partners for any other purpose shall be at the close of business on the day on which the General Partner adopts it, or the sixtieth day prior to the date of the other action, whichever is later; and 7.11.4 A determination of Partners of record entitled to notice of or to vote at a meeting of Partners shall apply to any adjournment of the meeting unless the General Partner, or the Limited Partners who called the meeting, fix a new record date for the adjourned meeting, but the General Partner, or such Limited Partners, shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. 7.12 PROXIES. Except as may otherwise be provided in this Agreement, every Person entitled to vote or execute consents shall have the right to do so either in Person or by one or more agents authorized by a written proxy executed by such Person or his duly authorized agent and filed with the General Partner. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked as specified in Section 705(b) of the California General Corporations Law or unless it states that it is irrevocable. A proxy which states that it is irrevocable is irrevocable for the period specified therein when it is held by a Person specified in Section 705(e) of the California General Corporations Law. 7.13 CHAIRMAN OF MEETING. The General Partner may select any Person to preside as Chairman of any meeting of Partners, and if such Person shall be absent from the meeting, or fail or be unable to preside, the General Partner may name any other Person in substitution therefor as Chairman. In the absence of an express selection by the General Partner of a Chairman or substitute therefor, the General Partner's Chairman of the Board, President, Vice President or Vice Presidents in order of its rank, Secretary, or Chief Financial Officer, shall preside as Chairman, in that order. The Chairman of the meeting shall designate a secretary for such meeting, who shall take and keep or cause to be taken and kept minutes of the proceedings thereof. The conduct of all Partners' meetings shall at all times be within the discretion of the Chairman of the meeting and shall be conducted under such rules as he may prescribe. The Chairman shall have the right and power to adjourn any meeting at any time, without a vote of the Units present in Person or represented by proxy, if the Chairman shall determine such action to be in the best interests of the Partnership and its Partners. 7.14 INSPECTORS OF ELECTION. In advance of any meeting of Partners, the General Partner may appoint any Persons, other than nominees for General Partner or other office, as inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any such Persons fail to appear or refuse to act, the Chairman of any such meeting may, and on the request of any Partner or his proxy shall, make such appointment at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more Partners or proxies, the majority of Units present in Person or by proxy shall determine whether one or three inspectors are to be appointed. The inspectors of election shall (i) determine the number of Units outstanding and the voting power of each, the Units represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, (ii) receive votes, ballots or consents, (iii) hear and determine all challenges and questions in any way arising in connection with the right to vote, (iv) count and tabulate all votes or consents, (v) determine when the polls shall close, (vi) determine the result and (vii) do such acts as may be proper 22 29 to conduct the election or vote with fairness to all Partners. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. 7.15 RECORD DATE AND CLOSING PARTNERSHIP BOOKS. When a record date is fixed, only Partners of Record on that date are entitled to notice of and to vote at the meeting or to receive a distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any Units on the books of the Partnership after the record date. 7.16 NO TERMINATION BY REASON OF CHANGE IN LIMITED PARTNERS. The Partnership shall not be dissolved or terminated, or subject to dissolution or termination, by reason of the death, dissolution, termination, legal incapacity, bankruptcy or insolvency of any Limited Partner or Limited Partners, or the transfer or assignment of any Unit (whether or not in accordance with the provisions of this Agreement), or by any other change in the circumstances or identity of the holders of Units (unless such holder is also a General Partner). 7.17 TRANSFER OF UNITS. 7.17.1 Restrictions on Transfer and Assignment of Units. No transfer, assignment or conveyance of any Unit shall be effective unless and until the following conditions are satisfied: (1) No Limited Partner shall have the right to transfer any Unit to any minor or to any Person who, for any reason, lacks the capacity to contract for himself under applicable law. Such limitations shall not, however, restrict the right of any Limited Partner to transfer any one or more Units to a custodian or a trustee for a minor or other Person who lacks such contractual capacity. (2) The General Partner, with advice of counsel, must determine that such transfer will not result in the Partnership being treated, for federal income tax purposes, as having been terminated pursuant to Section 708 of the Internal Revenue Code, and will not violate the requirements of the Securities Act of 1933, as amended, and applicable state securities laws. (3) The instrument of transfer and all other necessary documentation is in form and substance satisfactory to the General Partner, and the transferee has paid all costs and expenses of the Partnership in an amount not to exceed $200.00, incurred in connection with such transfer. (4) The General Partner, with advice of counsel, determines that such transfer will not (i) cause the Units to be deemed "readily tradable on a secondary market (or the substantial equivalent thereof)" under the provisions of the Internal Revenue Code relating to publicly traded partnerships or (ii) cause the Partnership to be treated as a publicly traded partnership. Any attempted transfer, assignment or conveyance or offer to transfer, assign or convey a Unit that does not comply with this Section 7.17.1 shall be null and void ab initio and shall not be recognized by the Partnership. In addition, a transferee shall have no rights to any information regarding an accounting of the Partnership's transactions, to inspect the Partnership's books or to vote in any matter presented to the Limited Partners; nor may such rights be exercised by the transferor in respect of the Units so transferred. An assignment of Units satisfying the conditions specified in this Section 7.17.1 shall entitle the transferee or assignee to receive all distributions of cash and other property from the Partnership, and all allocations of Net Income and Net Losses made with respect to the assigned Units after the Recognition Date for such assignment; but shall not entitle such assignee to any other of the rights and privileges of a Limited Partner hereunder unless such assignee becomes a Substitute Limited Partner in accordance with Section 7.17.5 hereof. In the event that the Partnership or its counsel determines that an assignment does not satisfy the conditions specified in this Section 7.17.1, the General Partner shall promptly notify the assignor of such determination and such assignment shall be void ab initio and shall not be recognized for any purpose; provided, however, nothing contained in this Section 7.17.1 shall 23 30 obligate the General Partner or counsel to the Partnership to make any independent examination or investigation to determine whether such conditions have been satisfied. 7.17.2 Transfers of Units by Operation of Law. Upon any transfer of Units by operation of law (including, without limitation, transfers at death, whether testamentary or otherwise), either the transferee or transferor (or the transferor's personal representative) shall promptly give the Partnership written notice of such transfer, stating by what means it occurred. The Partnership shall recognize any such transfer of which it receives such notice, provided such transfer does not violate any applicable federal or state securities law or regulation, and any restriction imposed thereby with respect to the financial suitability of, or minimum purchase (in terms of number of Units) by, any transferee for consideration. If a transfer violates any applicable federal or state securities laws, it shall be void ab initio. A transferee of Units satisfying the conditions specified in this Section 7.17.2 shall be entitled to receive all distributions of cash and other property from the Partnership and all allocations of Net Income and Net Losses made with respect to the transferred Units after the Recognition Date for such transfer, but shall not be entitled to any other of the rights and privileges of a Limited Partner hereunder unless such transferee becomes a Substitute Limited Partner in accordance with Section 7.17.5 hereof. 7.17.3 Repurchase of Units by Partnership. The Partnership may only repurchase Units from any Limited Partner under all of the following conditions: (1) A Limited Partner must request repurchase of his Unit(s) by delivery of a written request to the General Partner; (2) The repurchase price shall be equal to 90% of the Limited Partner's Adjusted Invested Capital. In the event that such price is greater than the fair market value of the Units on the date of repurchase or less than 99% of the fair market value of the Units on the date of repurchase, then the repurchase price shall be equal to such higher or lower limit, as applicable; (3) Whether the General Partner accepts a request for repurchase will be at its sole and absolute discretion, and a condition to exercise of such discretion in favor of repurchase will be the General Partner's determination that such repurchase will not impair the capital or operation of the Partnership; (4) Any requests for repurchase will be accepted and satisfied on a first-received, first-purchased basis; (5) Units repurchased may, in the sole and absolute discretion of the General Partner, be resold, subject to applicable securities laws, or, if not resold, cancelled; (6) The Partnership will not purchase, in any year, Units with an aggregate purchase price in excess of $200,000. 7.17.4 Recognition Date for Assignments and Other Transfers. The Recognition Date for any assignment or other transfer of Units satisfying the conditions set forth in Section 7.17.1 or 7.17.2 hereof shall be the first day of the calendar month in which the Partnership receives written notice of such assignment or other transfer if notice is received before the sixteenth day of the month or the first day of the following month if notice of such assignment or transfer is received on or after the sixteenth day of the month. Notwithstanding the foregoing sentence, however, if recognition by the Partnership of any assignment or other transfer of Units would result in 50% or more of all outstanding Units having been assigned or otherwise transferred within a 12-month period, the Partnership shall have the right to defer the Recognition Date for such assignment or transfer, whenever the General Partner in its sole discretion determines that recognition thereof could result in a determination for federal income tax purposes that the Partnership had terminated, until the last day of the next ensuing calendar month during which such recognition would not risk such a tax "termination." 24 31 7.17.5 Admission of Substitute Limited Partners. An assignee or transferee of Units recognized under Section 7.17.1 or 7.17.2 hereof may become a Substitute Limited Partner in place of his assignor or transferor, to the extent of the Units assigned, only if: (1) With respect to such an assignment, the written and executed instrument of assignment delivered to the Partnership with respect to such assignment sets forth the intention of the assignor that the assignee become a Substitute Limited Partner in his place, to the extent of the Units assigned; (2) The assignee or transferee of such Units executes, acknowledges and delivers to the Partnership a written agreement to become a party to and be bound by the provisions of this Agreement, in a form satisfactory to the General Partner, as well as such other instruments as the General Partner may deem necessary or desirable with respect to the admission of such assignee or transferee as a Substitute Limited Partner; (3) Such assignee or transferee tenders to the Partnership a uniform transfer fee, in an amount determined by the General Partner sufficient to cover all reasonable expenses incurred by the Partnership in connection with admission of a Substitute Limited Partner; and (4) The General Partner gives its written consent, which may be given or withheld in its sole and absolute discretion, to the admission of such assignee or transferee as a Substitute Limited Partner. The General Partner's refusal to consent to any admission as a Substitute Limited Partner shall be deemed reasonable if, inter alia, it is based upon a reasonable belief that such admission would (a) cause a termination of the Partnership under Section 708(b) of the Internal Revenue Code; (b) violate the conditions of any applicable state or federal securities law; or (c) cause the admission of an individual as a Substitute Limited Partner who does not meet the suitability standards established for purchasers of Units hereunder. It is expressly understood that the General Partner's discretion to consent or to refuse to consent to the admission of an assignee or transferee of Units as a Substitute Limited Partner is granted to the General Partner for the benefit of the Limited Partners in order to negate the corporate characteristic of free transferability of interests. No consent of any of the Limited Partners shall be required to effect the admission of such an assignee or transferee as a Substitute Limited Partner, except (in the case of an assignment) the consent of the Limited Partner making such assignment, which shall be evidenced as provided in Section 7.17.5(1), above. The Recognition Date for admission of any Substitute Limited Partner shall be the last day of the calendar quarter in which the General Partner gives its written consent to the admission of such Substitute Limited Partner, and on or before such Recognition Date the General Partner shall cause the Certificate of Limited Partnership to be amended to reflect the admission of such Substitute Limited Partner. 7.17.6 Names and Addresses of Limited Partners. The General Partner shall keep at the principal place of business of the Partnership a list containing the name and address of each Limited Partner. ARTICLE 8 GENERAL PARTNER INTERESTS 8.1 REMOVAL OF GENERAL PARTNER. 8.1.1 Removal by Vote of Limited Partners. By the vote of a Majority-In-Interest (as provided in Section 7.3 hereof) the Limited Partners may at any time remove the General Partner. 8.1.2 Removal by Other General Partner. Any General Partner may remove any other General Partner, if such other General Partner: 25 32 (1) Has been judicially determined to have committed a material default of its obligations hereunder, and fails to cure such default within 30 days after receiving written notice of such judicial determination; (2) Is adjudicated a bankrupt or insolvent under the Bankruptcy Code, as amended, or federal legislation related thereto or other debtor relief laws; or otherwise seeks, by way of petition or answer, any form of debtor's relief under said Bankruptcy Code or any such laws; or makes an assignment for the benefit of its creditors; or seeks or consents to the appointment of any receiver, liquidator, trustee, or similar creditor's representative for itself or its assets; or fails to have dismissed or denied, within 60 days after filing, any petition by another for adjudication of such General Partner as a bankrupt or as insolvent under said Bankruptcy Code or any such laws, or for the appointment of a receiver, trustee, liquidator or similar such creditor's representative for such General Partner or its assets; or (3) Is an individual General Partner and becomes insane. 8.2 WITHDRAWAL OF GENERAL PARTNER UPON ELECTION OF A NEW GENERAL PARTNER. Notwithstanding the provisions of Section 5.3.2(4), in the event that a General Partner is removed or withdraws, and a new General Partner is elected by the Limited Partners pursuant to Section 8.3 hereof, then within 60 days after such election occurs, any remaining General Partner shall have the right to give such newly elected General Partner written notice of its intention to withdraw as a General Partner, such withdrawal to be effective 90 days after such written notice is given or (if earlier) upon the election of such new General Partner. Any withdrawing General Partner shall have no obligation or liability as a General Partner with respect to any decision, act, event or condition that occurs after such withdrawal becomes effective. 8.3 ADMISSION OF NEW OR SUBSTITUTE GENERAL PARTNER. Except as provided in, and subject to the General Partner's rights under Section 8.5, after the removal or withdrawal of one of the General Partners (as provided for in Sections 8.1 and 8.2 hereof), a Majority-In-Interest of the Limited Partners may, at a meeting or by action without a meeting, designate a successor to such removed or withdrawn General Partner. Any such successor shall become a General Partner in place of such removed or withdrawn General Partner, as of the date of such election, provided that such successor General Partner agrees in writing to become a party to, and be bound by, the provisions of this Agreement and to assume all of the obligations of such removed or withdrawn General Partner hereunder. 8.4 CONTINUATION OF THE PARTNERSHIP. The retirement, withdrawal, removal, death, insanity or bankruptcy of the General Partner shall dissolve the Partnership unless (i) within 90 days thereafter the remaining General Partner elects to continue the business of the Partnership, (ii) there remains one solvent General Partner, or (iii) if there is no remaining General Partner, the Limited Partners, within 120 days of the date of such event, elect by unanimous vote to continue the business of the Partnership and elect a new General Partner. In the event of such election by the remaining General Partner or Limited Partners, the Partnership shall not be dissolved, but shall continue with any remaining or replacement General Partner as a General Partner, with all rights, power and authority vested by this Agreement. In the event no such election is made, the Partnership shall be dissolved and liquidated in accordance with Article 9 hereof. 8.5 PAYMENT TO REMOVED OR WITHDRAWN GENERAL PARTNER. 8.5.1 Removal of All General Partners or Remaining General Partner. In the event that all General Partners are removed, or that (after removal or withdrawal of one or more General Partners) the remaining General Partner is removed, pursuant to the provisions of this Article 8, the removed General Partner shall be entitled to receive payment of all fees and other compensation to which it (or it) would have otherwise been entitled hereunder, to the extent the same have been earned but not paid, as of the date of such removal (hereinafter called the "Termination Date"), as well as the present value of the General Partner's interest in the assets and business of the Partnership, as follows: (1) Such General Partner shall be paid, as soon as the same would otherwise have been payable, the following: 26 33 (A) Management Fees for any month, or portion of a month, prior to the Termination Date (with such fee for the month in which the Termination Date occurs prorated on a daily basis); and (B) Subject to Section 6.1 hereof, the subordinated real estate commissions on the sale of the Properties, to the extent it have been sold, or are subject to binding agreements for sale, as of the Termination Date. (2) If the Limited Partners do not reconstitute the Partnership and continue its business with the same assets, as provided in Sections 8.4 and 9.1 hereof, then such General Partner shall be entitled to receive, after the liquidation of the Partnership's assets, the General Partner's distributive share of the Distributable Cash resulting from such liquidation; but (3) If the Limited Partners do reconstitute the Partnership and continue its business with the same assets, as provided in Sections 8.4 and 9.1 hereof, then such General Partner shall be entitled to receive, in addition to any fees and other compensation then payable to such General Partner under Section 8.5.1(1), above, the amount that would be payable to such General Partner if the Properties of the Partnership were sold for its fair market values as of the Termination Date, plus the present value (as of the Termination Date) of the General Partner's interest in the future distributions by the Partnership of Distributable Cash, as follows: (A) The total amount payable to such former General Partner under this Section 8.5.1(3) shall be resolved by arbitration under the rules of the American Arbitration Association, before three arbitrators, each of which shall be an M.A.I. appraiser. The expense of such arbitration shall be borne equally by the Partnership and such former General Partner. The results of such arbitration shall be binding upon, and enforceable by, such former General Partner and the Partnership; and (B) The Partnership shall, in its sole discretion, within 30 days following determination of the total amount payable to the former General Partner, give such former General Partner either (i) a lump sum of cash equal to the total amount due to the former General Partner, or (ii) a promissory note for the total amount of the payments due such General Partner which note shall bear interest at an annual rate of 10% and shall provide for the payment of equal monthly installments of principal and interest over a period of 60 months, but shall be paid earlier (with respect to both interest and principal) to the extent of all cash from Sale or Refinancing received or retained by the Partnership after the Limited Partner has received from all distributions hereunder an aggregate amount equal to its Capital Contribution. 8.6 LIABILITY OF GENERAL PARTNER. The General Partner shall be liable for the debts and obligations of the Partnership, to the extent such debts and obligations exceed the Partnership's assets, but the General Partner shall not be obligated to incur, or cause the Partnership to incur, any such obligations or debts in excess of its assets, or to obtain recourse debt financing for the Partnership (even in a situation where nonrecourse debt financing is not available on competitive terms). Except as provided in Section 9.3.2 hereof, in no event shall the General Partner be personally liable for the repayment of any of the Capital Contributions or payment of any return thereon. ARTICLE 9 TERMINATION, LIQUIDATION AND DISSOLUTION OF THE PARTNERSHIP 9.1 EVENTS OF TERMINATION. Upon the occurrence of any of the following events: 9.1.1 Any event listed in Section 8.4 hereof, unless the remaining General Partner(s) or, if there is no remaining General Partner the Limited Partners, by unanimous vote, elect to continue the business of the Partnership; 27 34 9.1.2 The sale or other disposition of the Property; provided, however, that if the sale of the Property involves the Partnership's receipt of a note, the General Partner may keep the Partnership in existence until such note is paid in full; 9.1.3 Subject to Section 9.1.5 hereinbelow, election by a Majority-ln-Interest of the Limited Partners to dissolve the Partnership, whether or not with the concurrence of the General Partner; or 9.1.4 Upon the expiration of the term of the Partnership, the Partnership shall dissolve, its assets shall be liquidated as provided in Section 9.2 hereof, the proceeds of such liquidation shall be applied and distributed as provided in Section 9.3 hereof, and finally, the Certificate of Limited Partnership shall be cancelled (and the Partnership terminated) as provided in Section 9.4 hereof. During the period elapsing between dissolution and termination of the Partnership, the business of the Partnership and affairs of the Partners shall continue to be governed by this Agreement, and the General Partner, or remaining General Partner, shall continue to manage such business and affairs. If such dissolution results from a removal of all General Partners, or the sole remaining General Partner, any Limited Partner may apply to a court of competent jurisdiction to appoint a liquidator, who shall then administer the liquidation and termination of the Partnership, but otherwise have none of the obligations or liabilities of a General Partner. If the Limited Partners elect to continue the business of the Partnership, as provided in Subsection 9.1(1), above, and elect a new General Partner, the new General Partner shall reconstitute the Partnership and continue its business with the same assets for the balance of the term specified in Section 1.3 hereof. The relationship of all of the Partners in the reconstituted Partnership shall be governed by this Agreement, as it may be then or thereafter amended. Each Limited Partner hereby consents to any such reconstitution and waives any right which such Limited Partner may otherwise have to demand a return of his Capital Contribution by reason of such a dissolution. 9.1.5 Subject to applicable law, the dissolution of the Partnership shall not occur so long as the Partnership remains mortgagor of the Property. 9.2 LIQUIDATION. Upon the dissolution of the Partnership, the General Partner shall proceed to liquidate all of the assets of the Partnership in an orderly and expeditious manner, provided, however, that if such dissolution results from the removal of all General Partners or of the sole remaining General Partner, such liquidation shall be deferred until the Limited Partners have had an opportunity to reconstitute the Partnership, as provided in Section 9.1 hereof; provided, further, that, if the General Partner determines that an immediate sale of part of all of such assets would result in unnecessary loss to the Partnership, then the General Partner may, after giving written notice of the intention to do so to each of the Limited Partners and to the extent not then prohibited by the CRLPA, defer liquidation of such assets (except those necessary to satisfy debts and obligations of the Partnership) for a reasonable time. The Partnership shall not terminate solely as a consequence of the insolvency or bankruptcy of one or more of the general partners of the Partnership so long as there remains a solvent general partner of the Partnership. 9.3 APPLICATION AND DISTRIBUTION OF PROCEEDS OF LIQUIDATION. 9.3.1 General. Upon dissolution and termination of the Partnership, the assets of the Partnership will be liquidated, and, after all debts and obligations of the Partnership to third Persons have been satisfied, the proceeds from such liquidation will be distributed as follows after giving effect to the allocations referred to under Section 4.2.1(3)(i) hereof: (a) First, to the payment of creditors of the Partnership, including Partners who are creditors to the extent permitted by law, but excluding secured creditors whose obligations will be assumed or otherwise transferred on the liquidation of the Partnership's assets; (b) Second, to the setting up of any reserves reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership; provided, however, that such reserves shall be deposited with a bank or trust company in an interest-bearing escrow account for the purpose of disbursing such reserves for the payment of any of the aforementioned contingencies and, at the expiration of a reasonable period, for the purpose of distributing the balance remaining in accordance with this Section 9.3.1; 28 35 (c) Third, 100% to the Limited Partners until it has received an amount which, when added to any prior distributions to the Limited Partners from any source whatsoever (other than distributions under Section 4.1.2(4)), equals the 10% Preferred Return described in Section 4.1.2(6), but not in excess of its positive Capital Account balances; (d) Fourth, to each Partner in an amount equal to the positive balance, if any, of such Partner's Capital Account after giving effect to the distribution under Section 9.3.1(f); provided, however, that if the remaining Capital Accounts of all Limited Partners exceed the amount of the liquidation proceeds available for distribution, such distributions shall be made to each Partner in the ratio that the positive balance of each Partner's Capital Account bears to the positive Capital Account balances of all Partners who have positive Capital Account balances; and (e) Fifth, the balance of any such liquidation proceeds 99% to the Limited Partners and 1% to the General Partner. If the Limited Partner has received from the distributions described in Section 9.3.1(c) through (f) and/or from prior distributions of Distributable Cash From Sale or Refinancing or initial Working Capital Reserves an aggregate amount equal to 100% of its Original Invested Capital plus the 10% Preferred Return, then the Partnership shall withhold from the amount otherwise distributable to the Limited Partners from Distributable Cash under Section 9.3.1(g) an amount equal to the subordinated compensation payments (if any) then owing to the General Partner for real estate commissions on the Sale of Partnership real estate, as described in Section 6.1.3, above. The Partnership shall pay such withheld amounts to the General Partner rather than to the Limited Partners, but only to the extent that such payment to the General Partner does not cause the Limited Partners to receive aggregate distributions upon liquidation and/or from prior distributions of Distributable Cash from Sale or Refinancing or initial Working Capital Reserves that are less than 100% of its Original Invested Capital plus the 10% Preferred Return. The Limited Partners' share of such final cash distribution will be paid in equal shares on account of each Unit. 9.3.2 GENERAL PARTNER'S DEFICIT CAPITAL ACCOUNTS. If, following the dissolution and termination of the Partnership and the liquidation of its assets, any General Partner shall have a deficit Capital Account balance, the General Partner shall pay to the Partnership, within the time and in the manner specified in Treasury Regulations under Section 704(b)(2) of the Internal Revenue Code, for distribution to creditors and then to Partners with positive Capital Account balances in accordance with Section 9.3.1 an amount equal to the lessor of (i) the deficit in the General Partner's Capital Account, or (ii) the difference between the amount of the General Partner's Capital Contributions to the Partnership immediately prior to the dissolution and termination of the Partnership and liquidation of its assets and 1% of the total Capital Contributions to the Partnership. 9.4 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP. Upon completion of the liquidation of the Partnership and distribution of the proceeds there from, as provided in Section 9.3 hereof, the General Partner shall record a cancellation certificate with respect to the Certificate of Limited Partnership, record or file a copy of the cancellation certificate in each place where a copy of the Certificate of Limited Partnership has been recorded or filed and record or file cancellations of any other filings made pursuant to Section 1.5 hereof. 9.5 FINAL PARTNERSHIP STATEMENT. Within a reasonable time after the Partnership's assets have been fully liquidated and the proceeds therefrom fully allocated and distributed as provided in Section 9.3 hereof, the General Partner shall furnish to each of the Limited Partners a statement prepared by the Partnership's independent certified public accountants, which shall set forth the receipts and disbursements of the Partnership in the course of such liquidation, together with the amount of proceeds from such liquidation distributed with respect to each Unit and the amount of such proceeds paid or distributed to the General Partner. 29 36 ARTICLE 10 DEFINITIONS 10.1 ADJUSTED CAPITAL ACCOUNT DEFICIT. "Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments. 10.1.1 Credit to such Capital Account any amounts which such Partner is obligated to restore or is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Section 1.704- 1T(b)(4)(iv)(f); and 10.1.2 Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(id)(S) and 1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations. The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be interpreted consistently therewith. 10.2 ADJUSTED INVESTED CAPITAL. "Adjusted Invested Capital" of a Limited Partner shall be the Original Invested Capital paid for or attributable to his Units reduced by the total cash distributed to him and prior owners of the same Units from Distributable Cash from Sales or Refinancing and from Working Capital Reserves, and which distributions were attributable to his Units. 10.3 AFFILIATE. "Affiliate" means any of (i) each Person, if any, other than the General Partner, directly or indirectly instrumental in organizing, wholly or in part the Partnership or participating in its management (excluding, however, wholly independent third Persons such as attorneys, accountants and underwriters whose only compensation from the Partnership is for professional services rendered), (ii) each Person directly or indirectly controlling, controlled by or under common control with a General Partner or another Affiliate, or owning or controlling 10% or more of the outstanding voting securities of a General Partner or another Affiliate, or acting as an officer, director or partner of a General Partner or another Affiliate. 10.4 BASIC REGULATORY ALLOCATIONS. "Basic Regulatory Allocations" consist of allocations pursuant to Sections 4.2.1(3)(a), (b) and (e). 10.5 CAPITAL ACCOUNT. "Capital Account" with respect to any Partner (or such Partner's transferee) shall mean such Partner's Original Invested Capital (including, when made, principal payments by a Partner under a promissory note, this Agreement, or other obligation to make capital contributions), adjusted in accordance with this Section. 10.5.1 A Partner's Capital Account shall be increased by all of: (1) such Partner's share of Net Income; (2) any item of income or gain specially allocated to a Partner and not included in Net Income or Net Loss; (3) any additional cash contribution by such Partner to the Partnership; and (4) the fair market value of any additional property contributed by such Partner to the capital of the Partnership reduced by any liabilities assumed by the Partnership in connection with such contribution or to which the property is subject. 30 37 10.5.2 A Partner's Capital Account shall be reduced by all of: (1) such Partner's share of Net Loss; (2) any deduction specially allocated to a Partner and not included in Net Income or Net Loss; (3) any cash Distribution to such Partner; and (4) the Partnership's fair market value of any Property (reduced by any liabilities assumed by the Partner in connection with the distribution or to which the distributed property is subject) distributed to such Partner; provided that, upon liquidation and winding up of the Partnership, unsold property will be valued for distribution at fair market value and the Capital Account of each Partner before such distribution shall be adjusted to reflect the allocation of gain or loss that would have been realized had the Partnership then sold the property for fair market value. Such fair market value shall in no case be treated as less than the amount of any nonrecourse indebtedness of the Partnership secured by the Property. 10.5.3 The Capital Account of a Substituted Limited Partner or an Assignee of Record shall include the Capital Account of his transferor. 10.5.4 Notwithstanding anything to the contrary in this Agreement, the Capital Accounts of the Partners shall be maintained in accordance with Treasury Regulations Section 1.704-1(b), or any corresponding subsequent provision, and the provisions of this Agreement concerning maintenance of Capital Accounts will be interpreted consistently therewith. 10.6 CAPITAL CONTRIBUTION. "Capital Contribution" means the gross amount invested in the Partnership by a Partner and shall be equal in amount to the cash purchase price paid or value of real property contributed by such Partner for the Units sold to him by the Partnership. In the plural, "Capital Contributions" means the aggregate amount invested by all of the Partners in the Partnership and shall equal in total the amount of the proceeds attributable to the purchase of Units and any contribution of the General Partner. 10.7 CERTIFICATE OF LIMITED PARTNERSHIP. "Certificate of Limited Partnership" means the certificate required to be recorded under Section 15621 of the California Corporations Code, or successor legislation thereto. 10.8 CRLPA. "CRLPA" means the California Revised Limited Partnership Act, as currently enacted or hereafter amended, as well as any successor legislation thereto. 10.9 DISTRIBUTABLE CASH. "Distributable Cash" means the sum of (i) Distributable Cash from Operations and (ii) Distributable Cash from Sale or Refinancing held by the Partnership at a given time. 10.9.1 Distributable Cash from Operations. "Distributable Cash from Operations" means Gross Operating Revenues during a given period less (i) all cash expenditures by the partnership during such period to pay the Partnership's operating expenses, including the Management Fee, debt payments and costs of capital improvements or replacements (but without any deduction for depreciation), and less (ii) any additional funds then required for the Working Capital Reserve, or plus (iii) any funds then held in the Working Capital Reserve in excess of the amounts required therefor. 10.9.2 Distributable Cash from Sale or Refinancing. "Distributable Cash from Sale or Refinancing" means, with respect to any Sale or Refinancing or series of such transactions involving a Property, the gross cash proceeds received by the Partnership therefrom or on account thereof, less (i) all expenses incurred and paid by the Partnership with respect to such transaction or transactions, including, without limitation, brokerage commissions paid to third Persons, and (ii) the amount paid, in connection with such transactions, on pre-existing indebtedness of the Partnership. 31 38 10.10 GENERAL PARTNER. "General Partner" means the Persons who, at a given time, are general partners in the Partnership under the terms of this Agreement, and shall collectively refer to INCOME GROWTH MANAGEMENT, INC., a California corporation, and IGP X SHADOW RIDGE MEADOWS, INC., a California corporation. 10.11 GROSS OPERATING REVENUES. "Gross Operating Revenues," with respect to a given period, means the sum of (i) Gross Property Revenues received by the Partnership during such period, plus (ii) all other cash revenues received by the Partnership during such period, except proceeds from any loans to the Partnership or any sales or other dispositions of the Property. 10.12 GROSS PROPERTY REVENUES. "Gross Property Revenues," with respect to any given period, means all rents, concession payments and other payments received by the Partnership from the operation of the Property during such period, excluding only (i) refundable security deposits or (ii) proceeds from any Sale, financing or Refinancing of the Property. 10.13 INTERNAL REVENUE CODE. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. 10.14 LEGAL RESTRICTIONS. "Legal Restrictions" means restrictions upon the operations and management of the Partnership and upon the actions of the General Partner in its capacity as such, imposed by (i) applicable securities laws, including, without limitation, the California Corporate Securities Law of 1968, and any regulations promulgated pursuant to such laws (except to the extent that such regulations have been expressly waived with respect to the Partnership); or (ii) the terms and conditions upon which the Units are qualified under such securities laws. 10.15 LENDER. "Lender" shall refer to Lehman Brothers Holdings, Inc., dba Lehman Capital, a division of Lehman Brothers Holdings, Inc. 10.16 LIMITED PARTNER. "Limited Partner" shall mean Income Growth Partners, Ltd. X, a California limited partnership, or any Person owning Units who has been admitted by the General Partner as a Limited Partner or Substitute Limited Partner pursuant to the provisions of this Agreement. In the plural, "the Limited Partners" refers to all Limited Partners as of a given time. 10.17 LOAN OR MORTGAGE LOAN. "Loan" or "Mortgage Loan" shall refer to the mortgage/deed of trust loan originated by the Lender and secured by the Property. 10.18 LOAN DOCUMENTS. "Loan Documents" shall refer to the loan documents as defined in the Mortgage/Deed of Trust and Security Agreement executed by the Company as Trustor and the Lender as Beneficiary. 10.19 MAJORITY-IN-INTEREST. "Majority-In-Interest" means the vote of more than 50% of the outstanding Units. 10.20 MANAGEMENT FEE. "Management Fee" means the monthly fee to be paid for services in managing and operating the Properties. The Management Fee shall include all fees paid for bookkeeping services and fees, rent-up, leasing and re-leasing fees and bonuses, and related services. The Management Fee shall not include other direct costs of operating the Properties, which costs shall be borne by the Partnership. 10.21 MINIMUM GAIN. "Partner Minimum Gain" shall mean an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-1T(b)(4)(iv)(h) of the Treasury Regulations. 10.22 NET INCOME OR NET LOSS. "Net Income" or "Net Loss" shall mean, respectively, for each taxable year of the Partnership the taxable income and tax loss of the Partnership as determined for federal income tax purposes in accordance with Section 702(a) of the Internal Revenue Code (including all items of income, gain, loss, or 32 39 deduction required to be separately stated pursuant to Section 702(a)(1) of the Internal Revenue Code) (other than any specific item of income, gain, loss, deduction or credit subject to special allocation under this Agreement), with the following modifications: 10.22.1 The amount determined above shall be increased by any income exempt from federal income tax; 10.22.2 The amount determined above shall be reduced by any Section 705(a)(2)(B) of the Internal Revenue Code expenditures or expenditures treated as such pursuant to Treasury Regulations Section 1.704- 1(b)(2)(iv)(i) or any corresponding subsequent provision; and 10.22.3 Depreciation, amortization and other cost recovery transactions shall be computed based on the value of the Property as determined for book purposes instead of in the amount determined in computing taxable income or loss. Any item of income, loss, credit, gain, amortization, cost recovery or basis specially allocated to a Partner and not included in Net Income or Net Loss shall be determined for Capital Account purposes in a manner similar to this Section 10.19. 10.23 NONRECOURSE DEBT. "Nonrecourse Debt" shall have the meaning set forth in Treasury Regulations Section 1.704-1T(b)(4)(iv)(k)(3). 10.24 NONRECOURSE DEDUCTIONS. "Nonrecourse Deductions" has the meaning set forth in Section 1.704- 1T(b)(4)(iv)(b) of the Treasury Regulations. The amount of Nonrecourse Deductions for a Partnership fiscal year equals the net increase, if any, in the amount of Partnership Minimum Gain during that fiscal year, determined according to the provisions of Section 1.704-1T(b)(4)(iv)(b) of the Treasury Regulations. 10.25 NONRECOURSE REGULATORY ALLOCATIONS. "Nonrecourse Regulatory Allocations" consist of allocations pursuant to Sections 4.2.1(3)(c) and (d). 10.26 10% OPERATING CASH PREFERENCE. "10% Operating Cash Preference" shall mean the amount, if any, distributed to the Limited Partners from Distributable Cash from Operations for each fiscal year until the Limited Partner has received during such year an amount equal to a 10% per annum noncumulative return on its Adjusted Invested Capital. 10.27 ORIGINAL INVESTED CAPITAL. "Original Invested Capital" shall mean the amount of cash or property contributed by each Limited Partner to the capital of the Partnership upon the acquisition of Units. This amount shall be attributed to such Units in the hands of a subsequent Limited Partner. 10.28 OTHER DEFINITIONS. Each term defined in this Article 10, as well as each term defined elsewhere in this Agreement, shall have its defined meaning wherever used with an initial capital letter herein. The terms "hereof," "herein" and variations thereof shall, whenever used in this Agreement, refer to this Agreement as a whole, and not to any particular Article or Section hereof. Where appropriate to the context of this Agreement, use of the singular shall be deemed also to refer to the plural, and use of the plural to the singular, and pronouns of certain gender shall be deemed to comprehend either or both genders. 10.29 PARTNER. "Partner" means any of the General Partner or the Limited Partners and, in the plural, "the Partners" means each of the General Partners and all of the Limited Partners as of a given time. 10.30 PARTNER NONRECOURSE DEBT. "Partner Nonrecourse Debt" has the meaning set forth in Section 1.704- 1T(b)(4)(iv)(k)(4) of the Treasury Regulations. 10.31 PARTNER NONRECOURSE DEDUCTIONS. "Partner Nonrecourse Deductions" shall mean the deductions and the amount as set forth in Treasury Regulations Section 1.704-1T(b)(4)(iv)(h)(3). 33 40 10.32 PARTNER NONRECOURSE REGULATORY ALLOCATIONS. "Partner Nonrecourse Regulatory Allocations" shall mean the allocations under Section 4.2.1(3)(j) and (k). 10.33 PARTNERS OF RECORD. "Partners of Record" means, at any given date, the General Partner, the Limited Partner and all other Limited Partners who have been admitted as such in accordance with the provisions of this Agreement on or prior to such date. 10.34 PARTNERSHIP. "Partnership" means the limited partnership formed by this Agreement. 10.35 PARTNERSHIP MINIMUM GAIN. "Partnership Minimum Gain" has the meaning set forth in Treasury Regulations Section 1.704-1T(b)(4)(iv)(c). 10.36 PERSON. "Person" means any natural Person or other legal entity (such as a partnership, joint venture, corporation or trust). 10.37 10% PREFERRED RETURN. "10% Preferred Return" shall mean the amount, if any, distributed to the Limited Partners from Distributable Cash from Sale or Refinancing (other than amounts representing repayment of Adjusted Invested Capital) which, when added to prior distributions to the Limited Partners from any source whatsoever (other than amounts representing repayment of Adjusted Invested Capital), equals a 10% per annum cumulative, but not compounded, return on the Limited Partners' Adjusted Invested Capital. 10.38 PROPERTY OR PROPERTIES. "Property" or "Properties" means the Shadow Ridge Meadows Apartments located in San Diego County, California. 10.39 PURCHASE PRICE. "Purchase Price" means, with respect to the acquisition of the Property by the Partnership, the sum of (i) the cash consideration paid to the seller of the Property by or on behalf of the Partnership, plus (ii) the principal amount of any purchase money note or similar purchase money obligation given to such seller, plus (iii) the outstanding amount of principal on any mortgage(s) or other lien(s) to which such Property is subject at the time of its acquisition by the Partnership, plus (iv) the fair market value of all other consideration given to such seller, plus (v) the amount of all Acquisition Fees paid with respect to such acquisition other than such fees paid, directly or indirectly, by such seller out of the proceeds to him from such sale, and (vi) all other costs related to such acquisition which, by custom in the area where such Property is located, are normally paid by the seller of real estate, but which in connection with such acquisition are paid by the Partnership (but excluding all other costs of such acquisition, including, without limitation, any points or prepaid interest charged to the Partnership with respect to any debt financing for such acquisition). 10.40 QUALIFIED PLAN. "Qualified Plan" means any pension, profit sharing or stock bonus plan that is qualified under Section 401(a) of the Internal Revenue Code and any Keogh Plan. 10.41 RECOGNITION DATE. "Recognition Date" means the date upon which the Partnership recognizes, in accordance with the applicable provisions of this Agreement, (i) the admission of any Limited Partner or Substitute Limited Partner or (ii) the assignment or other transfer of any Units, for purposes of the exercise of any rights or privileges or the distribution of any cash or allocation of any Net Income or Net Losses to which a Limited Partner or holder of Units is entitled under this Agreement. 10.42 REFINANCING. "Refinancing" means any transaction in which indebtedness secured by a Property is incurred for the purpose of repaying existing principal of, and/or accrued interest on, indebtedness that is secured by Partnership Property. 10.43 REGULATORY ALLOCATIONS. "Regulatory Allocations" shall mean the Basic Regulatory Allocations, the Nonrecourse Regulatory Allocations, and the Partner Nonrecourse Regulatory Allocations. 34 41 10.44 SALE. "Sale" means any sale, exchange or other disposition of real property, condemnation, or recovery of damage awards and insurance proceeds (other than business or rental interruption insurance proceeds) not reinvested in repair or reconstruction of a Property. 10.45 SUBSTITUTE LIMITED PARTNER. "Substitute Limited Partner" means a Limited Partner admitted in place of another Limited Partners (to the extent of Units transferred by such other Limited Partner to such Substitute Limited Partner) in accordance with the provisions of Section 7.17.5 hereof. 10.46 UNIT. "Unit" means any one of equal interests in the Distributable Cash, Net Income and Net Losses of the Partnership which are issued to the Partners in return for a cash capital contribution or real property contribution equal to $1,000 for each such interest. All references to Units held by Partners shall include all fractional Units held by those Limited Partners. 10.47 WORKING CAPITAL RESERVE. "Working Capital Reserve" means a cash reserve, to be maintained by the Partnership in an amount deemed reasonably sufficient by the General Partner to cover anticipated capital improvements and replacement costs and other contingencies that may be incurred by the Partnership. ARTICLE 11 RELATIONSHIP OF CERTAIN TERMS OF THIS AGREEMENT TO PROVISIONS OF THE CALIFORNIA REVISED LIMITED PARTNERSHIP ACT 11.1 REVISED LIMITED PARTNERSHIP ACT GOVERNS. The Partnership, the rights and obligations of the Partners, and the terms of this Agreement are governed in certain respects by the provisions of the CRLPA effective July 1, 1984, which, however, permits or contemplates that certain of its provisions may be altered, extended or supplanted by provisions of this Agreement. Set forth below are rules governing the intent of the Partners with respect to the relationship of the terms of this Agreement to the provisions of the CRLPA as to certain matters. 11.2 PROVISIONS OF THE CRLPA SUPPLANTED BY THE TERMS OF THIS AGREEMENT. The following provisions of the CRLPA are supplanted by the terms of this Agreement in that the Partners intend such provisions of the CRLPA to have no effect on the rights and obligations of the Partners or the construction, interpretation or enforcement of this Agreement: 11.2.1 Section 15611(b), regarding the definition of "capital account." 11.2.2 Section 15611(d), regarding the definition of "contribution." 11.2.3 Section 15611(q), regarding the definition of "return of capital." 11.2.4 The second sentence, respectively, of Sections 15653 and 15654, regarding the allocation of profits and losses and distributions of money or property to Partners absent a provision with respect thereto in the partnership agreement (it being the Partners' intent that any such matter be determined by the construction and interpretation of this Agreement under principles of law otherwise applicable without regard to provisions of the Act that might apply absent a provision in the Agreement). 11.2.5 Section 15662, regarding the withdrawal by a general partner except for (i) the provision of Section 15662(a) that a general partner may withdraw from a limited partnership at any time by giving written notice to the other partners, and (ii) the provision of Section 15662(b)(2) that a general partner who withdraws shall not be personally liable for partnership debts incurred after the Person ceases to be a general partner. 11.2.6 The second sentence of Section 15663, regarding the right of a limited partner to withdraw. 35 42 11.2.7 Section 15664, regarding certain rights of a withdrawing limited partner to the extent it affords a withdrawing limited partner any rights greater than those afforded by this Agreement. 11.2.8 Section 15684(b), regarding the priority of certain distributions upon winding up of a limited partnership, to the extent it would alter the priority or amounts of distributions to Partners under the terms of this Agreement. 11.3 OTHER TERMS AND PROVISIONS. Many of the terms of this Agreement are intended to alter or extend provisions of the CRLPA as they may apply to the Partnership or the Partners and in some instances express reference to provisions of the CRLPA is made. Any failure on the part of any other term of this Agreement to mention or specify the relationship of such term to provisions of the CRLPA that may affect the scope or application of such term shall not be construed to mean that any such term is not intended to be a partnership agreement provision authorized or permitted by the CRLPA or which in whole or in part alters, extends or supplants provisions of the CRLPA as may be allowed thereby. ARTICLE 12 GENERAL PROVISIONS 12.1 NOTICES. All notices and demands required or permitted under this Agreement shall be delivered in writing, and either in Person or by registered or certified mail, return receipt requested, at the principal office of the Partnership (if a notice to or demand on the Partnership or either or both of the Partnership and the General Partner) or to the address shown for the recipient Limited Partner on the list maintained by the Partnership in accordance with Section 7.17.6 hereof. Notices and demands to the General Partner shall be deemed delivered and received on the actual date of its delivery, and notices to and demands on the Limited Partners shall be deemed delivered and received 48 hours after the same are deposited in the U.S. mails (except in the case of a mail strike). 12.2 AMENDMENT OF AGREEMENT AND THE CERTIFICATE OF LIMITED PARTNERSHIP. 12.2.1 Admission of Limited Partners. Admission of a Limited Partner or Substitute Limited Partner shall not, if in accordance with other provisions of this Agreement, require the consent of any Limited Partner (except, in the case of a Substitute Limited Partner, the consent of the Limited Partner transferring Units thereto). 12.2.2 Amendments with Consent of Limited Partner. In addition to any amendments otherwise authorized herein, this Agreement and the Certificate of Limited Partnership may be amended by the General Partner with the consent of a Majority-In-Interest of the Limited Partners; provided, however, that neither this Agreement nor the Certificate of Limited Partnership may be amended without the consent of the Lender, and all Partners adversely affected thereby so as (i) to convert a Limited Partner interest into a General Partner interest, or otherwise modify the limited liability of a Limited Partner (including, without limitation, any amendment which, in the opinion of counsel to the Partnership, poses a significant risk of impairing the limited liability of any or all of the Limited Partners), or (ii) to alter the interest of any Limited Partner in Distributable Cash, Net Income, Net Losses, or otherwise cause unequal treatment of the Limited Partners; provided, further, that this Section 12.2.2 may be amended only by the consent of all the Partners. 12.2.3 Amendments Without Consent of Limited Partners. Subject to the written consent of the Lender, in addition to any amendments otherwise authorized herein, the General Partner may amend this Agreement and/or the Certificate of Limited Partnership, without the consent of any of the Limited Partners, to (i) change the name and/or principal place of business of the Partnership, (ii) increase the duties or obligations of the General Partner or decrease the rights and powers of the General Partner (so long as such decrease does not impair the ability of the General Partner to manage the Partnership and conduct its business and affairs), (iii) cure any ambiguity, or correct or supplement any provision hereof which may be inconsistent with any other provision hereof, or make provision with respect to any matter or question arising under this Agreement so long as such additional provision is not inconsistent herewith, (iv) delete or add any provision of or to this Agreement required to be so deleted or added by 36 43 the staff of the Securities and Exchange Commission or of any other federal agency, or by any state securities commissioner or similar such official, and (v) comply with final regulations under the Employment Retirement Income Security Act defining "plan assets"; provided, however, that no amendment shall be adopted pursuant to this Section 12.2.3 unless the adoption thereof (A) is for the benefit of or not adverse to the interests of the Limited Partners, (B) is not inconsistent with Article 4 hereof, (C) does not alter, adversely to the Limited Partners or any of them, the allocations of Distributable Cash, Net Income or Net Losses among the Limited Partners or between the Limited Partners and the General Partner except as provided in Section 5.1.14, and (D) does not affect the limited liability of the Limited Partners or the status of the Partnership as a partnership for federal income tax purposes. 12.2.4 Execution and Recording of Amendments. Any amendment to this Agreement adopted in accordance with the provisions of this Section 12.2 or in accordance with any other provisions of this Agreement shall be executed by the General Partner for itself, and by the General Partner as attorney-in-fact for the Limited Partners pursuant to the power-of-attorney contained in Section 5.6 hereof. After the execution of such amendment, the General Partner shall also prepare and record or file any certificate or other document which may be required to be recorded or filed with respect to such amendment, either under the CRLPA or under the laws of any other jurisdiction in which the Partnership holds any Property or otherwise does business. 12.3 PARTITION. The Partners hereby acknowledge and agree that the assets of the Partnership will not be suitable for partition; and, accordingly, each Partner hereby irrevocably waives any and all rights which he may otherwise have, under the CRLPA or any other applicable law, to maintain any action for partition of such assets. 12.4 SEVERABILITY. In the event that any provision of this Agreement, or the application thereof to any person or under any circumstances, is determined to be invalid, unlawful or unenforceable to any extent, then to such extent such provision shall be deemed severed from this Agreement; but the application of such provision to any other Persons or under any other circumstances other than those as to which it is determined to be invalid, unlawful or unenforceable, and every remaining provision of this Agreement, shall continue in full force and effect. 12.5 HEADINGS. Article and section headings in this Agreement are for convenience of reference only and shall not be used in any way to interpret or construe this Agreement. 12.6 FURTHER ASSURANCES. Each Partner hereby agrees to execute, acknowledge (if necessary) and deliver any and all further instruments and other documents as counsel to the Partnership may determine to be necessary or desirable for the achievement of the purposes of this Agreement (including, without limitation, the Certificate of Limited Partnership and any and all amendments thereto, as well as any cancellation thereof); provided that such instrument or other document does not adversely affect the rights and obligations of such Partner hereunder. 12.7 INTEGRATED AND BINDING AGREEMENT. This Agreement contains the entire understanding and agreement among the Partners with respect to the subject matter hereof, and there are no other agreements, understandings, representations or warranties among the Partners other than those set forth herein (subject, however, to the General Partners (in the event there is more than one General Partner) having agreed or hereafter agreeing between themselves with respect to the allocation of the duties, distributions, allocations or other rights herein imposed upon or provided to the General Partners jointly). This Agreement may be amended only as provided in Section 12.2 hereof, or elsewhere herein; and this Agreement shall be binding upon, and inure to the benefit of, each of the Partners and his respective heirs, successors and assigns (subject, however, to the provisions hereof relating to assignment and transfer of a Partner's interest in the Partnership). 12.8 COUNTERPARTS. This Agreement may be executed in two or more counterparts and by each party on separate counterparts, each of which shall be an original, but all of which taken together shall constitute but one and the same instrument. 12.9 GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of California. 37 44 ARTICLE 13 REPRESENTATIONS OF LIMITED PARTNERS 13.1 The Limited Partner represents as follows: 13.1.1 The Limited Partner is thoroughly informed concerning the type of Property to be owned by the Partnership and has asked and has answered such questions relating thereto as the Limited Partner deems necessary, and understands that no return of, on, or with respect to the consideration given for the Limited Partners' Units of interest is represented, warranted or promised in any way by the General Partner or the Partnership; 13.1.2 The Limited Partner has read this Partnership Agreement and understands and agrees to its terms; 13.1.3 The Limited Partner is capable of evaluating the risks and merits of acquiring an interest in Units of the Partnership, has no need for liquidity of investment with respect to the acquisition of such Units, and can afford to sustain a complete loss of such investment; 13.1.4 The Limited Partner understands that neither the General Partner nor its counsel have represented the interests of the Limited Partner in connection with the transaction, and the Limited Partner is free (and encouraged) to seek independent counsel of the Limited Partner's choosing; and 13.1.5 The Limited Partner is acquiring the Units for investment purposes only and not with a view to resale or distribution of record or beneficially to any other person. IN WITNESS WHEREOF, the parties hereto have, by themselves or by their officers or representatives duly authorized thereunto, caused this Agreement to be executed and delivered effective as of the date first above written. GENERAL PARTNER: INCOME GROWTH MANAGEMENT, INC. IGP X SHADOW RIDGE MEADOWS, INC. a California corporation a California corporation By: /s/ DAVID MAURER By: /s/ DAVID MAURER ------------------------------- ------------------------------- David Maurer, President David Maurer, President LIMITED PARTNER: INCOME GROWTH PARTNERS, LTD. X a California limited partnership By its General Partner: Income Growth Management, Inc. a California corporation By: /s/ DAVID MAURER ------------------------------- David Maurer, President 38 45 EXHIBIT "A" 01-165325 LEGAL DESCRIPTION THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF SAN DIEGO AND IS DESCRIBED AS FOLLOWS: PARCEL 1: PARCEL A OF PARCEL MAP NO. 14711, IN THE CITY OF VISTA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY ON FEBRUARY 27, 1987 AS FILE NO. 87-105065 OF OFFICIAL RECORDS. PARCEL 2: AN EASEMENT FOR INGRESS AND EGRESS ONLY, OVER THAT PORTION OF PARCEL B OF PARCEL MAP NO. 14711, IN THE CITY OF VISTA, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, FEBRUARY 27, 1987 AS FILE NO. 87-105065 OF OFFICIAL RECORDS, MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE WESTERLY BOUNDARY LINE OF SAID PARCEL B; SAID POINT FORMED BY THE INTERSECTION OF TWO COURSES: NORTH 27 DEGREES 37' 40" EAST 343.67 FEET AND NORTH 62 DEGREES 22' 20" WEST 37.48 FEET; THENCE ALONG SAID WESTERLY BOUNDARY LINE AND THE NORTHERLY BOUNDARY LINE OF SAID PARCEL B THE FOLLOWING COURSES: NORTH 62 DEGREES 22' 20" WEST 37.48 FEET TO A POINT ON THE ARC OF A NON-TANGENT 200.00 FOOT RADIUS CURVE CONCAVE WESTERLY, A RADIAL LINE TO SAID POINT BEARS SOUTH 71 DEGREES 59' 40" EAST; THENCE NORTHERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 16 DEGREES 14' 24", A DISTANCE OF 56.69 FEET TO A POINT OF REVERSE CURVATURE OF A 200.00 FOOT RADIUS CURVE CONCAVE EASTERLY; THENCE NORTHERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 25 DEGREES 46' 34", A DISTANCE OF 89.98 FEET; THENCE NORTH 27 DEGREES 32' 30" EAST 10.00 FEET; THENCE SOUTH 62 DEGREES 27' 30" EAST 35.35 FEET TO A POINT ON A NON-TANGENT 24.00 FOOT RADIUS CURVE CONCAVE SOUTHEASTERLY, TO WHICH A RADIAL LINE BEARS NORTH 23 DEGREES 46' 34" WEST; THENCE LEAVING SAID BOUNDARY LINE SOUTHWESTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 40 DEGREES 38' 41", A DISTANCE OF 17.03 FEET TO A POINT OF COMPOUND CURVATURE OF A 170.00 FOOT RADIUS CURVE CONCAVE SOUTHEASTERLY, TO WHICH A RADIAL LINE BEARS NORTH 64 DEGREES 25' 15" WEST; THENCE SOUTHWESTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 5 DEGREES 11' 58", A DISTANCE OF 15.43 FEET; THENCE TANGENT TO SAID CURVE SOUTH 20 DEGREES 22' 47" WEST 77.51 FEET TO THE BEGINNING OF A TANGENT 34.00 FOOT RADIUS CURVE CONCAVE NORTHEASTERLY; THENCE SOUTHEASTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF 82 DEGREES 31' 08", A DISTANCE OF 48.97 FEET TO A POINT ON THE PROLONGATION OF THE WESTERLY BOUNDARY LINE OF SAID PARCEL B; THENCE ALONG SAID PROLONGATION SOUTH 27 DEGREES 37' 40" WEST 13.00 FEET TO THE POINT OF BEGINNING. 46 01-165325 PARCEL 3: AN EASEMENT FOR GRADING, EXCAVATION, CONSTRUCTION, USE AND MAINTENANCE OF SLOPES AND INCIDENTAL PURPOSES THERETO OVER, UNDER, ALONG AND ACROSS THAT PORTION OF PARCEL B OF PARCEL MAP NO. 14100, IN THE CITY OF OCEANSIDE, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, DECEMBER 30, 1985 AS FILE NO. 85-493506 OF OFFICIAL RECORD, AS SHOWN ON EXHIBIT "C" OF THAT CERTAIN "SLOPE EASEMENT AGREEMENT" RECORDED MARCH 31,1987 AS FILE NO. 87-167797 OF OFFICIAL RECORDS. THE EASEMENT HEREIN DESCRIBED IS HEREBY DECLARED TO BE APPURTENANT TO AND FOR THE USE AND BENEFIT OF THE PRESENT AND FUTURE OWNERS OF ALL OR ANY PORTION OF PARCEL A, ABOVE DESCRIBED. 47 EXHIBIT "B" 48 CERTIFICATE OF BORROWER The undersigned, President of Income Growth Management, Inc., a California corporation, and President of IGP X Shadow Ridge Meadows, Inc., a California corporation, general partners of IGP X SHADOW RIDGE MEADOWS, LTD., A CALIFORNIA LIMITED PARTNERSHIP (the "Borrower"), HEREBY CERTIFIES TO LEHMAN BROTHERS HOLDINGS, INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS, INC., its successors and assigns, as follows: 1. Attached hereto as Exhibit A is a true and correct copy of the Agreement of Limited Partnership of the Borrower dated as of September 3, 1997, which has not been amended or modified in any respect except as stated herein and is in full force and effect as of the date hereof. 2. Attached hereto as Exhibit B is a true and correct copy of the Certificate of Limited Partnership of the Borrower dated September 18, 1992, as first amended on August 6, 1997, which has been duly filed in the California Secretary of State and has not been amended or modified in any respect except as stated herein and is in full force and effect as of the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of September, 1997. INCOME GROWTH MANAGEMENT, INC. a California corporation By: /s/ DAVID W. MAURER ----------------------------------- David W. Maurer, President IGP X SHADOW RIDGE MEADOWS, INC. a California corporation By: /s/ DAVID W. MAURER ----------------------------------- David W. Maurer, President 49 EXHIBIT "A" EX-27.6 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FILED WITH THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 DEC-31-1997 282,293 0 0 0 0 433,474 28,685,443 (8,582,492) 21,225,719 581,368 19,765,202 0 0 0 872,143 21,225,719 0 3,791,975 0 1,782,364 836,962 0 1,544,035 (371,386) 0 0 0 0 0 (371,386) (13.79) (13.79)
-----END PRIVACY-ENHANCED MESSAGE-----