WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS... TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES.
WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. DRAFTING AND NEGOTIATING LIMITED PARTNERSHIP AGREEMENTS FROM THE GENERAL PARTNER AND LIMITED PARTNER PERSPECTIVES Sally A. Schreiber Munsch Hardt Kopf & Harr, P.C. 1445 Ross Avenue, Suite 4000 Dallas, Texas 75202-2790 (214) 855-7598 [email protected] WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. AGREEMENT OF LIMITED PARTNERSHIP OF XYZ LIMITED PARTNERSHIP* THE LIMITED PARTNERSHIP INTERESTS THAT ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE INTERESTS MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER THEREOF PROVIDES EVIDENCE SATISFACTORY TO THE GENERAL PARTNER (WHICH, IN THE DISCRETION OF THE GENERAL PARTNER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE GENERAL PARTNER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE SECURITIES LAWS. THE PARTNERSHIP INTERESTS THAT ARE THE SUBJECT OF THIS AGREEMENT ARE SUBJECT TO RESTRICTIONS ON THE TRANSFER, SALE, PLEDGE, OR OTHER DISPOSITION AS SET FORTH IN ARTICLE 10 OF THIS AGREEMENT. Practice Comment: This legend is sometimes used to help a partnership comply with the requirements of Regulation D under the Securities Act of 1933. If the partnership interests are to be certificated as contemplated by §7.02(c) of the Texas Revised Limited Partnership Act ("TRLPA"), legends similar to those appearing on this page should appear on the certificates. Practice Comment: Confirm that this legend is consistent with any restrictions on transfer contained in the partnership agreement. *Prepared by Sally A. Schreiber. The contributions of J. Dean Hinderliter in the preparation of this agreement are gratefully acknowledged. Copyright 2003 by Sally A. Schreiber. All rights reserved. WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. AGREEMENT OF LIMITED PARTNERSHIP OF XYZ LIMITED PARTNERSHIP TABLE OF CONTENTS Page ARTICLE 1. DEFINITIONS ........................................................................................................1 1.1 1.2 Certain Definitions ...................................................................................................1 Other Definitions; References to Definitions ........................................................12 ARTICLE 2. ORGANIZATIONAL MATTERS ........................................................................12 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Formation...............................................................................................................12 Name ......................................................................................................................13 Name and Address of Initial Partners ....................................................................13 Registered Office and Registered Agent ...............................................................13 Principal Office and Other Offices ........................................................................14 Purpose ..................................................................................................................14 Certificate; Foreign Qualification..........................................................................14 Term.......................................................................................................................15 Merger....................................................................................................................15 ARTICLE 3. CAPITAL CONTRIBUTIONS AND LOANS .....................................................15 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 Newco's Contribution ............................................................................................15 Investors' Contributions .........................................................................................16 No Additional Contribution...................................................................................16 Return of Contributions .........................................................................................16 Loans by Partners ..................................................................................................16 Capital Accounts....................................................................................................17 Other Provisions With Respect to Capital Contributions ......................................17 No Duty to Restore Negative Capital Account ......................................................17 ARTICLE 4. DISTRIBUTIONS AND ALLOCATIONS ..........................................................18 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Distributions Of Distributable Cash ......................................................................18 Allocation of Profits ..............................................................................................19 Allocation of Losses ..............................................................................................20 Limitation on Allocation of Losses .......................................................................20 Special Allocations ................................................................................................20 Curative Allocations ..............................................................................................22 Allocations Under Section 704(c) of the Code......................................................22 Other Distribution and Allocation Rules. ..............................................................23 Working Capital Reserve .......................................................................................24 Agreement of Limited Partnership – Table of Contents Copyright 2003 by Sally A. Schreiber. All rights reserved. -i- WARNING: 4.10 THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Distribution in Kind ...............................................................................................24 ARTICLE 5. MANAGEMEN T; CERTAIN RIGHTS AND DUTIES OF GENERAL PARTNER .........................................................................................25 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 Management of Partnership Affairs.......................................................................25 Limitations on Powers and Authority of the General Partner ...............................26 No Other Authority................................................................................................28 Reliance on Authority............................................................................................28 Compensation ........................................................................................................28 Reimbursement ......................................................................................................29 Standards of Performance. .....................................................................................29 Dealings with Partnership ......................................................................................29 Removal. ................................................................................................................30 Withdrawal. ...........................................................................................................31 Conversion of Interest; Right to Purchase .............................................................31 Indemnification of General Partner .......................................................................32 Power of Attorney..................................................................................................32 Representations and Covenants of the General Partner.........................................33 ARTICLE 6. RIGHTS, OBLIGATIONS, AND REPRESENTATIONS OF LIMITED PARTNERS .........................................................................................34 6.1 6.2 6.3 Withdrawal ............................................................................................................34 No Fiduciary..........................................................................................................34 Representations of Limited Partners......................................................................34 ARTICLE 7. MEETINGS AND CONSENTS OF PARTNERS ................................................35 7.1 7.2 7.3 7.4 Consents and Voting. .............................................................................................35 Meetings ................................................................................................................36 Action Without Meeting ........................................................................................36 Action by Telephone Conference ..........................................................................36 ARTICLE 8. BANK ACCOUNTS, INVESTMENTS, GENERAL ACCOUNTING PROVISIONS, AND REPORTS ...............................................37 8.1 8.2 8.3 8.4 Books of Account; Access .....................................................................................37 Annual Reports ......................................................................................................37 Bank Accounts .......................................................................................................38 Investments ............................................................................................................38 ARTICLE 9. TAXES ..................................................................................................................38 9.1 9.2 9.3 Tax Returns............................................................................................................38 Tax Elections .........................................................................................................38 Tax Matters Partner ...............................................................................................39 Agreement of Limited Partnership – Table of Contents Copyright 2003 by Sally A. Schreiber. All rights reserved. -ii- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. ARTICLE 10. RESTRICTIONS ON CERTAIN TRANSFERS AND COMPETITIVE ACTIVITIES..............................................................................39 10.1 10.2 10.3 10.4 10.5 10.6 10.7 General Prohibition................................................................................................39 Transfer by General Partner...................................................................................39 Transfer by Limited Partner; Right of Purchase. ...................................................40 Securities Laws Compliance..................................................................................41 Substituted Partners ...............................................................................................41 Amendment of Certificate of Limited Partnership ................................................42 Competition ...........................................................................................................42 ARTICLE 11. DISSOLUTION.....................................................................................................42 11.1 11.2 11.3 11.4 Dissolution.............................................................................................................42 Continuation ..........................................................................................................43 Interim Manager ....................................................................................................43 Effect of Dissolution..............................................................................................43 ARTICLE 12. WINDING UP AND TERMINATION.................................................................44 12.1 12.2 Winding Up and Termination. ...............................................................................44 Cancellation of Certificate .....................................................................................45 ARTICLE 13. MISCELLANEOUS ..............................................................................................45 13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 13.10 13.11 13.12 13.13 13.14 13.15 Amendment or Modification .................................................................................45 Notices ...................................................................................................................46 Failure to Pursue Remedies ...................................................................................47 Section Headings ...................................................................................................47 Severability of Provisions ......................................................................................47 Governing Law; Venue ..........................................................................................47 Cumulative Remedies ............................................................................................47 Counterparts...........................................................................................................47 Successors and Assigns .........................................................................................48 Construction, Sections, Exhibits, Etc ....................................................................48 Further Assurances ................................................................................................48 Waiver of Certain Rights .......................................................................................48 Attorneys' Fees.......................................................................................................48 Entire Agreement ...................................................................................................48 Transition to Texas Revised Partnership Act ........................................................48 EXHIBIT A - NAME, ADDRESS, AND UNITS OF PARTNERS EXHIBIT B - PROPERTY Agreement of Limited Partnership – Table of Contents Copyright 2003 by Sally A. Schreiber. All rights reserved. -iii- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. AGREEMENT OF LIMITED PARTNERSHIP OF XYZ LIMITED PARTNERSHIP This Agreement of Limited Partnership of XYZ Limited Partnership (as the same may be amended from time to time, the "Agreement ") is executed as of _____________, 2003, by _________________, a Texas corporation ("Newco"), and each of the Persons who signs this Agreement under the caption "Investors" on the signature page of this Agreement (each, an "Investor"). RECITALS: ARTICLE 1. DEFINITIONS 1.1 Certain Definitions. As used in this Agreement, each of the following terms has the meaning given to it below: "Acquisition Debt " means $_________ million in indebtedness to be borrowed by the Partnership from ____________ to finance the acquisition of the Property. "Adjusted Capital Account Deficit " means, with respect to an Interest Owner, the deficit balance, if any, in the Interest Owner's Capital Account as of the end of the relevant Adjustment Period, after giving effect to the following adjustments: (a) The Capital Account will be increased to reflect any amounts that such Interest Owner is obligated to restore to the Partnership or is deemed to be obligated to restore under Treasury Regulations Sections 1.704-1(b)(2)(ii)(c) and 1.704-2(g) and (i)(5); and (b) The Capital Account will be decreased by the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6). This definition of Adjusted Capital Account Deficit and the application of the term in the manner provided in this Agreement are intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and will be interpreted consistently with those provisions. Practice Comment: Like many provisions of this Agreement, this provision is based on federal income tax considerations. It is critical that a partnership agreement be reviewed by someone with a sound knowledge of the current provisions of the Internal Revenue Code and Treasury Regulations relating to partnerships. Practice Comment: Note the use of the term "Interest Owner" rather than "Partner" he re and elsewhere in the partnership agreement. See Practice Comment under the definition of "Interest Owner." Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -1- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. "Adjustment Period" means any period of time that begins on the effective date of the filing of the Certificate with the Secretary of State of the State of Texas (in the case of the first Adjustment Period) or the day following the end of the immediately preceding Adjustment Period (with respect to each subsequent Adjustment Period) and ends on the first to occur of: (a) the last day of a Fiscal Year, (b) the day immediately preceding the date of the "liquidation" of a Partner’s interest in the Partnership (within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations), or (c) the date on which the Partnership is terminated pursuant to Section 12.1(d) following dissolution. "Affiliate" means, with respect to any Person, any Family Member of such first Person or any other Person who is controlled by, under common control with, or in control of such first Person. Practice Comment: This definition needs to be closely reviewed to determine if it is appropriate for the particular transaction and provision. Sometimes this term is used in a restrictive sense (e.g., there are restrictions on dealings with affiliates unless they are on arm'slength terms) and sometimes it is used in a permissive sense (e.g., transfers of partnership interests are permitted to be made without consent if they are made to affiliates). Therefore, be certain the definition works in all circumstances or modify where necessary. "Agreement" has the meaning given that term in the introductory paragraph of this Agreement. "Article" means an article of this Agreement, unless the text indicates otherwise. "Bankruptcy Law" means the Federal Bankruptcy Code or any other present or future applicable federal, state, or other statute or law relating to bankruptcy, insolvency, reorganization, moratorium, or similar relief for debtors. "Bankrupt Partner" means any Partner with respect to which an event of the type described in Section 4.02(a)(4) or (5) of the Partnership Act has occurred, subject to the lapsing of any period of time therein specified. "Base Rate" means a rate per annum that from day to day is equal to the lesser of (a) the prime rate of interest as cited by The Wall Street Journal and (b) the maximum rate permitted by applicable laws, with each change in the rate to be made on the same date as any change in (a) or (b), as appropriate. "Business Day" means any day other than a Saturday, a Sunday, or a holiday on which national banks in the State of Texas are permitted to be closed. "Capital Account " means, with respect to any Interest Owner, the capital account maintained for such Interest Owner in accordance with the rules of Section 1.704-1(b)(2)(iv) of the Regulations. Subject to Section 1.704-1(b)(2)(iv) of the Regulations: Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -2- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (a) To each Interest Owner’s Capital Account there shall be credited such Interest Owner’s Capital Contribution (net of liabilities that the Partnership is considered to assume or to take subject to under Code Section 752 to the extent such liabilities were not taken into account in determining the Capital Contribution) and such Interest Owner’s distributive share of Profits and any items in the nature of income or gain that are specially allocated pursuant to Section 4.5 or Section 4.6. (b) To each Interest Owner’s Capital Account there shall be debited the amount of cash and the Gross Asset Value of any property distributed to such Interest Owner pursuant to any provision of this Agreement (net of liabilities that such Interest Owner is considered to assume or to take subject to under Code Section 752) and such Interest Owner’s distributive share of Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 4.5 or Section 4.6. (c) In the event all or a portion of a Partnership Interest is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Partnership Interest. The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704-1(b) of the Regulations, and they shall be interpreted and applied in a manner consistent with such Regulations. "Capital Contribution" means, with respect to any Interest Owner, the amount of money and the initial Gross Asset Value of property (other than money) contributed to the Partnership by such Interest Owner (or its predecessors in interest) with respect to the interest in the Partnership held by such Interest Owner reduced by any indebtedness either assumed by the Partnership upon such contribution or to which such property is subject when contributed. Such term does not include any loan made by an Interest Owner to the Partnership. "Capital Expenditure" means any cost properly classified as such under GAAP. "Certificate" means, at any time, the certificate of limited partnership of the Partnership filed with the Secretary of State of the State of Texas pursuant to the Partnership Act and Section 2.7, as amended or restated at such time. "Code" means, at any time, the Internal Revenue Code of 1986, as amended, or, from and after the date any successor statute becomes, by its terms, applicable to the Partnership, such successor statute, in each case as amended at such time by amendments that are, at that time, applicable to the Partnership. All references to sections of the Code include any corresponding provision or provisions of any such successor statute. "Distributable Cash" of the Partnership means all cash funds of the Partnership on hand at any time after payment of all expenses of the Partnership payable as of such time, as reduced by the amount of the Working Capital Reserve and of the Liquidation Escrow, if any, at such Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -3- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. time. Distributable Cash does not include or reflect any proceeds received or expenses incurred in connection with a capital transaction. Practice Comment: Consider whether the economics of the deal require including proceeds and expenses of capital transactions in this definition or a separate definition that deals with capital transaction proceeds. "Event of Withdrawal" means, with respect to a General Partner, the occurrence of any of the following events: (a) the General Partner gives written notice to the other Partners of its withdrawal and it becomes effective under Section 5.10; (b) Agreement; the General Partner is removed as a general partner in accordance with this (c) the General Partner becomes a Bankrupt Partner (unless a Majority in Interest of the Limited Partners agree that such event shall not constitute an Event of Withdrawal); (d) a certificate of dissolution or its equivalent is filed with respect to the General Partner or 90 days lapse after the General Partner receives notice that its charter has been revoked without a reinstatement of the charter (unless a Majority in Interest of the Limited Partners agree that such event shall not constitute an Event of Withdrawal); or (e) any other event that is an event of withdrawal with respect to the General Partner as set forth in Subsection 4.02(a) of the Partnership Act (unless, to the extent the Partnership Act permits the partnership agreement to vary such result, a Majority in Interest of the Limited Partners agree that such event shall not constitute an Event of Withdrawal). Practice Comment: Depending on the nature of the general partner, other provisions may be appropriate. See §4.02 of TRLPA. Although this list need not be included because it merely incorporates the provisions of TRLPA §4.02, it is advisable to include it to remind clients about what constitutes an event of withdrawal, which, pursuant to §8.01(3) of TRLPA, may result in a dissolution, so there is a greater opportunity for them to continue the partnership and its business within the relevant time period if they so desire. There may be circumstances in which the limited partners prefer that an event not be an "Event of Withdrawal" by the general partner. This language gives limited partners the right to negate certain events being an "Event of Withdrawal" by majority, rather than unanimous, vote. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -4- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. "Fair Value" means, with respect to any Partnership Interest, the fair value thereof, as determined by an independent appraiser selected by the General Partner, the cost of which appraisal will be borne by the Partnership. Practice Comment: Consider whether each of the two "sides" that have an interest in the outcome of the appraisal should have the right to appoint its own appraiser or if some other mechanism for choosing an appraiser should be used. Consider whether there should be specified parameters for the appraisers to consider (e.g., whether the valuation should be based on liquidation or going-concern value and whether consideration should be given to the restricted transferability of the partnership interest). Avoid using formulas unless there is certainty that a formula that makes sense at the time the agreement is signed will make sense during the entire life of the partnership. "Family Member" means, with respect to any individual, any other individual that is (a) a spouse of such individual, (b) a birth or adoptive parent of such individual or spouse, (c) a descendant (whether by blood or adoption) of any such parent; or (d) a trust, the trustees or primary beneficiaries of which are one or more persons of the type described in clauses (a) through (c) immediately above. "Fiscal Year" means the calendar year. "GAAP" means generally accepted accrual basis accounting principles (including allocation of all revenues, expenses, and depreciation) appropriate for the Partnership's business and good real estate practices. Practice Comment: Consider whether cash basis accounting is more appropriate. "General Partner" means Newco or any other Person admitted pursuant to this Agreement in the capacity of general partner in the Partnership, each for only so long as such Person remains as a general partner in accordance with this Agreement and the Partnership Act. Practice Comment: Note that the initial general partner, Newco, is defined as "Newco" and not as "General Partner." This separation of identity provides a mechanism to refer to the initial general partner in a capacity separate and apart from its capacity as a general partner. For instance, Newco may enter into an agreement to manage the property owned by the partnership independently of Newco's status as a general partner. Note that amendments to §4.01 of TRLPA to be effective September 1, 2003, permit a person to become a general partner without making a capital contribution to the partnership and without having an economic interest in the partnership. "GP Interest " means a Partnership Interest other than an LP Interest. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -5- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. "GP Interest Owner" means, at any time, the owner of a GP Interest, whether or not such owner is then admitted as a General Partner with respect to such GP Interest. Practice Comment: See Practice Comment below the definition of "Interest Owner." "Gross Asset Value" means, with respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows: (a) The initial Gross Asset Value of any asset contributed (or deemed to have been contributed) by a Partner to the Partnership in connection with the execution and delivery of this Agreement and the initial Gross Asset Value of any other asset contributed (or deemed to have been contributed) by a Person to the Partnership will be the gross fair market value of such asset, as determined by the contributing Person and General Partner; provided that, if the contributing Person is a GP Interest Owner, the determination of the gross fair market value of a contributed assets will be determined by the contributing Person and a Majority in Interest of the Limited Partners. (b) The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner, as of the following times: (i) the acquisition of an additional Partnership Interest by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Partnership to an Interest Owner of more than a de minimis amount of property as consideration for a Partnership Interest; and (iii) the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; provided, however, that the adjustments pursuant to clauses (i) and (ii) above shall only be made if the General Partner reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Interest Owners in the Partnership. (c) The Gross Asset Value of any Partnership asset distributed to any Interest Owner shall be adjusted to equal the gross fair market value of such asset, as determined by the General Partner, on the date of the distribution. (d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 732(d), Code Section 734(b), or Code Section 743(b), but only to the extent that (i) such adjustments are taken into account in determining Capital Accounts pursuant to clause (f) of the definition of "Profits" and "Losses" and (ii) an adjustment pursuant to clause (b) immediately above is not required in connection with the transaction. Practice Comment: Consider whether a different mechanic for establishing fair market value should be specified here and elsewhere in the agreement. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -6- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. "Gross Income" means, for each Adjustment Period, an amount equal to the Partnership’s gross income as determined for federal income tax purposes for the Adjustment Period but computed with the adjustments in paragraphs (a) through (f) of the definition of "Profits" and "Losses." "including" and variations of the term mean including without limitation. "Interest Owner" means, at any time, a GP Interest Owner or an LP Interest Owner. Practice Comment: This definition is intended to distinguish partners from assignees of partnership interests who are not admitted as partners. Be thoughtful about which term to use in each provision of the agreement. Note that the Internal Revenue Service views certain assignees as partners for purposes of the Code, whether or not the assignees are in fact partners for state law purposes. "Limited Partner" means any Investor or any other Person admitted pursuant to this Agreement in the capacity of a limited partner in the Partnership, each for only so long as such Person remains as a limited partner in accordance with this Agreement and the Partnership Act. Practice Comment: See Practice Comment below the definition of "General Partner." "Limited Partners" means, at any time, all Persons who are Limited Partners at such time. "Liquidating Manager" means the General Partner(s) who did not wrongfully dissolve the Partnership who remain after the Partnership is dissolved, if its business is not properly carried on, or, in the absence of any such remaining General Partner, the Person or Persons selected to effect the liquidation of the Partnership by a Majority in Interest of the Limited Partners or, in both the absence of any such remaining General Partner and the failure of the Limited Partners to select a Liquidating Manager within the period of time during which the Partnership's business may be properly continued following its dissolution, the Person or Persons appointed by a court of competent jurisdiction pursuant to Section 8.04(a) of the Partnership Act. Practice Comment: Avoid the use of the term "trustee," which has frequently been used in partnership agreements and implies a duty greater than that imposed by law. "Liquidation Escrow" means a cash escrow account established for the payment of liabilities of the Partnership in accordance with Section 12.1(a)(i). "Losses" has the meaning given it in the definition of "Profits" and "Losses." "LP Interest " means a Unit or fraction thereof. "LP Interest Owner" means, at any time, an owner of an LP Interest, whether or not such owner is then admitted as a Limited Partner with respect to such LP Interest. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -7- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: See Practice Comment below definition of "Interest Owner." "Majority in Interest " means, with respect to any group of Partners, one or more Partners of that group who, together with their direct and indirect assignees who have not been admitted as a substituted Partner in respect of any Units Transferred by such Partner or Partners, own more than 66 2/3% of the Units owned by all Partners of that group (or such assignees). Practice Comment: Recall that only partners are entitled to vote and otherwise exercise the "status" rights of a partner; mere assignees may not vote or exercise status rights. This provision allows all partners to vote, even if they no longer own a partnership interest. In certain situations, it may be appropriate to terminate voting rights of partners who no longer own a partnership interest and this language would have to be revised to accomplish that. Practice Comment: §3.02(a) of TRLPA specifically permits classes or groups of limited partners who have different voting rights. Practice Comment: There may be a reason to specify a greater or lesser percentage, either in all circumstances (in which case this definition should be modified to reference the greater or lesser percentage) or in particular circumstances (in which case two definitions, one for "Majority in Interest" and one for "Supermajority in Interest," should be used, each of which uses the same language except for the specific percentage). "Management Fee" means, with respect to any Fiscal Year, an amount equal to $___________________. If a payment is due with respect to only a portion of a Fiscal Year, such amount will be prorated using the actual number of days in such portion over a 365- or 366day year, as appropriate. Practice Comment: Note tha t, in the absence of an agreement, no partner is entitled to compensation for services to the partnership except for reasonable compensation for services rendered in the winding up of the partnership. See §4.01 of the Texas Revised Partnership Act ("TRPA"). "Nonrecourse Liability" has the meaning set forth in Treasury Regulations Section 1.7042(b)(3). "Partner" means any General Partner or Limited Partner. Practice Comment: Avoid defining any partner in terms of a person who owns or holds a partnership interest. Otherwise, the distinction between assignees and substitute partners becomes blurred. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -8- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. "Partner Nonrecourse Debt " has the meaning set forth in Treasury Regulations Section 1.704-2(b)(4). "Partner Nonrecourse Debt Minimum Gain" means 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 1.704-2(i)(3) of the Regulations. "Partner Nonrecourse Deductions" has the meaning set forth in Treasury Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2). "Partners" means, at any time, all General Partners and Limited Partners at such time. "Partnership" means the limited partnership formed pursuant to this Agreement. "Partnership Act " means, at any time, the Texas Revised Limited Partnership Act or, from and after the date any successor statute becomes, by its terms, applicable to the Partnership, such successor statute, in each case as amended at such time by amendments that are, at that time, applicable to the Partnership. All references to sections of the Partnership Act include any corresponding provision or provisions of any such successor statute. "Partnership Interest " means the interest of a Partner in the Partnership, including the right to receive distributions of Partnership assets and the right to receive allocations of income, gain, loss, deduction, or credit of the Partnership. It does not include the Status Right. Practice Comment: This restates the definition found in the TRLPA but goes on to expressly carve out the management and other non-economic rights associated with a partnership interest. This is to reinforce the fact that a transfer of a partnership interest transfers economic rights only -- not management and other non-economic rights. Management and other non-economic rights are conferred by virtue of partner status and not by mere ownership of a partnership interest. "Partnership Minimum Gain" has the meaning set forth in Section 1.704-2(b)(2) of the Regulations, and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for an Adjustment Period shall be determined in accordance with the rules of Section 1.704-2(d) of the Regulations. "Partnership Nonrecourse Deductions" means any loss, deduction, or Code Section 705(a)(2)(B) expenditure, or item thereof, that is attributable to nonrecourse liabilities of the Partnership as defined in Section 1.752-1(a)(2) of the Regulations. "Permitted Investments" has the meaning given it in Section 8.4. "Person" includes any individual, partnership, limited partnership, joint venture, corporation, limited liability company, trust, estate, custodian, trustee, executor, administrator, Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -9- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. nominee, representative, unincorporated organization, sole proprietorship, trust, employee benefit plan, tribunal, governmental entity, department, or agency, or other entity. "Preferred Return" means, with respect to any Interest Owner, an amount calculated like interest at a cumulative, noncompounded per annum rate equal to the Return Rate on the average daily balance of the unreturned Capital Contributions of such Interest Owner. "Profits" and "Losses" means, for each Adjustment Period, the Partnership’s taxable income or taxable loss for the Adjustment Period, as determined under Section 703(a) of the Code and Section 1.703-1 of the Regulations (and for this purpose all items of income, gain, loss, or deduction required to be stated separately under Section 703(a)(1) of the Code will be included in taxable income or taxable loss), but with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits and Losses pursuant to this definition of "Profits" and "Losses" shall be added to such taxable income or loss; (b) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations that are not otherwise taken into account in computing Profits and Losses shall be subtracted from such taxable income or loss; (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to clause (b) or (c) of the definition of "Gross Asset Value," the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits and Losses; (d) Gain or loss resulting from any disposition of any Partnership asset with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the asset disposed of, notwithstanding that the adjusted tax basis of such asset differs from its Gross Asset Value; (e) The depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss shall be taken into account for such Adjustment Period in accordance with Section 1.704-1(b)(2)(iv)(g) of the Regulations; (f) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) is required, pursuant to Section 1.7041(b)(2)(iv)(m)(4) of the Regulations, to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of an Interest Owner’s Partnership Interest, the amount of such adjustment 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) from the disposition of such asset and shall be taken into account for purposes of computing Profits and Losses; and Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -10- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (g) Notwithstanding any other provisions of this definition, any items that are specially allocated pursuant to Section 4.5 or Section 4.6 shall not be taken into account in computing Profits and Losses. The amounts of the items of Partnership income, gain, loss, or deduction available to be specially allocated pursuant to Section 4.5 or Section 4.6 shall be determined by applying rules analogous to those set forth in clauses (a) through (f) above. "Property" means the real property described on Exhibit B, together with all buildings, structures, garages, open parking areas, and other improvements thereon, all fixtures now installed on or in such real property or such improvements, all materials, supplies, equipment, and other items now installed on or in such real property or such improvements, and all rights, titles, and interests appurtenant thereto. "Qualified Representative" means, with respect to any Partner who is not a natural person, an authorized officer, partner, director, or agent of such Partner who is not appointed or elected solely or primarily for the purpose of representing such Partner as a Partner and, with respect to any Partner who is a natural person, a Person who has been duly appointed as the legal representative of such Partner due to such Partner's mental or physical incapacity. Practice Comment: This definition is used in provisions that prevent a prohibited transfer of status rights associated with a partnership interest occurring indirectly through the grant of a proxy or other mechanism. "Return Rate" means _____% per annum. "Section" means a section of this Agreement, unless the text indicates otherwise. "Sharing Ratio" means with respect to the GP Interest Owner(s), 30%, and with respect to any LP Interest Owner, the percentage derived from dividing the number of Units owned by such LP Interest Owner by the total number of outstanding Units and multiplying the result by 70%. Practice Comment: This Agreement provides for fixed sharing ratios. Consider whether the particular transaction requires a shift of sharing ratios for any reason, including, for example, a "back-end" interest for a general partner. "Status Right " means, with respect to any Partnership Interest, the right of the Person last admitted as a Partner in respect of such Partnership Interest to participate in the management of the business and affairs of the Partnership in accordance with the Partnership Act and this Agreement, including but not limited to the right to consent to or approve certain actions of the Partnership. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -11- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: This definition is intended to reinforce the concept that the status rights associated with a partnership interest are separate from the partnership interest itself. Thus, when a partnership interest is assigned, only the economics associated with the partnership interest are transferred. The management and other non-economic rights are separate and distinct and arise from the status as a partner -- not from mere ownership of a partnership interest. This definition and its related provisions merely restate the law, but it may be helpful to emphasize this point because it frequently comes as a surprise to the partners and interest owners. "Subsection" means a subsection of this Agreement, unless the text indicates otherwise. "Transfer" means (a) any sale, transfer, encumbrance, gift, donation, assignment, pledge, hypothecation, or other transfer of any Partnership Interest or any interest therein, whether voluntary or involuntary, and whether during the transferor's lifetime or upon or after the transferor's death, including any transfer by operation of law, by court order, by judicial process, or by foreclosure, levy, or attachment; or (b) the act of making any of the foregoing. Practice Comment: Consider whether to include a change in control to capture indirect transfers of a partnership interest through a change in control of an entity that owns the partnership interest. "Treasury Regulations" or "Regulations" means, at any time, the federal income tax regulations promulgated under the Code that are in effect at such time and that, by their terms, are applicable to the Partnership at such time. All references to sections of the Regulations include any corresponding provision or provisions of any such successor regulations. "Unit " means a unit of limited partner interest in the Partnership that represents an original Capital Contribution of $________. Practice Comment: The use of units permits changes in sharing ratios to occur without amending the agreement. "Working Capital Reserve" has the meaning given to it in Section 4.9. 1.2 Other Definitions; References to Definitions. Other terms defined herein have the meanings so given them. Each reference in this Agreement to a definition is a reference to a definition contained in this Agreement, unless the context expressly provides otherwise. ARTICLE 2. ORGANIZATIONAL MATTERS 2.1 Formation. Newco and each of the Investors hereby form, effective with the first proper filing of the Certificate as described in Section 2.7, the Partnership pursuant to the Partnership Act. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -12- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. 2.2 Name. The name of the Partnership is "XYZ Limited Partnership." The business of the Partnership shall at all times be conducted under such name unless, in order to comply with the laws of any jurisdiction outside the State of Texas in which the Partnership plans to conduct business, the Partnership is required to conduct business within such jurisdiction under a different name or unless the General Partner, with the consent of a Majority in Interest of the Limited Partners, selects, from time to time, another name or names in which the Partnership will conduct business. The General Partner shall promptly give each other Partner notice of any name other than XYZ Limited Partnership under which the Partnership does business and the jurisdictions in which such other name is used. Practice Comment: Remember that the name of the partnership must satisfy the requirements of §1.03 of TRLPA. Effective September 1, 2003, §1.03 of TRLPA will expressly permit the use of "LP" (without punctuation) to be used. Practice Comment: This Agreement is drafted with a bias that requires the general partner to seek the consent of the limited partners for a number of actions that might be viewed as ministerial (e.g., use of other names and designation of other registered agent/office). Consider whether these consent requirements should be eliminated for the particular transaction. 2.3 Name and Address of Initial Partners. The name and address of each Partner of the Partnership are set forth on Exhibit A. Each such Person shown on Exhibit A on the effective date of this Agreement is admitted to the Partnership as a gene ral partner or limited partner, as the case may be, at the time the Partnership's existence begins under Section 2.8. Any change in the status of a Person as a Partner, the name and address of each Person who later becomes a Partner, and any change in the address of any Partner of which the Partnership is given notice will be as set forth in the records of the Partnership and Exhibit A will be deemed amended appropriately. The General Partner is hereby directed to substitute a new Exhibit A (indicating its effective date) to reflect such additional and/or different information. The records of the Partnership will be prima facie evidence of the status of any Person as a Partner or Interest Owner. 2.4 Registered Office and Registered Agent. The address of the registered office of the Partnership in the State of Texas shall be at _______________________ and the name of the registered agent of the Partnership at such address shall be________________. With the consent of a Majority in Interest of the Limited Partners, the General Partner may at any time and from time to time designate a new or successor registered office or registered agent, or both, but the General Partner shall take all necessary action to ensure that the Partnership at all times complies with applicable provisions of the Partnership Act regarding the maintenance of a registered office and registered agent in the State of Texas. Practice Comment: §1.06 of TRLPA requires the partnership to have a registered office and registered agent in Texas. Effective September 1, 2003, §1.06 of TRLPA will expand the types of entities that may serve as a registered agent to include more than corporations. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -13- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. 2.5 Principal Office and Other Offices. The principal address and place of business of the Partnership and the place where the Partnership's books and records will be kept as required by Section 1.07 of the Partnership Act shall be _________________________ or such other place that is consistent with the purpose of the Partnership as the General Partner may designate from time to time by notice to the other Partners. The Partnership may have such other office or offices as the General Partner may designate from time to time by notice to the other Partners but only if the General Partner complies with the requirements of Section 2.7 before the Partnership opens any such office in a jurisdiction other than Texas and only if having each such other office is consistent with the purpose of the Partnership. 2.6 Purpose. The purpose of the Partnership is to acquire, own, hold, improve, maintain, operate, lease, dispose of, and otherwise deal with the Property. Practice Comment: Be careful when defining the purpose of the Partnership. Avoid using the phrase "and such other purposes for which limited partnerships may be formed under the Partnership Act" or similar open-ended language. The purpose clause is often used to interpret a number of matters, including: the scope of a Partner's authority (e.g., a General Partner will presumably have more authority to bind the Partnership for actions unrelated to the primary purpose of the Partnership if the Partnership has a broad purpose clause); and a Partner's duties to the other Partners (e.g., an allegation that a Partner has usurped a Partnership opportunity by purchasing a parcel of land that is close to the property owned by the Partnership may be negated if the purpose of the Partnership is to own and develop only the specified property). Practice Comment: Consider whether the Partnership should be permitted to operate its business through a subsidiary in order to give the Partnership more flexibility in meeting the requirements of certain lenders who may want the assets in a bankruptcy-remote entity. 2.7 Certificate; Foreign Qualification. The General Partner shall promptly file, on behalf of the Partnership, a certificate of limited partnership that meets the requirements of the Partnership Act with the Secretary of State of the State of Texas and shall cause such certificate of limited partnership to be amended from time to time as required by the Partnership Act. Prior to commencing any activities in any jurisdiction other than Texas, the General Partner shall, to the fullest extent required by or advisable under the laws of such jurisdiction, cause the Partnership to comply with all requirements for the qualification of the Partnership as a limited partnership, or a partnership in which each Partner other than the General Partner has similar limited liability, in such jurisdiction, including appointing a registered age nt and maintaining a registered office in such jurisdiction. Upon the reasonable request of the General Partner, each other Partner shall immediately execute all certificates and other documents consistent with the terms of this Agreement necessary for the General Partner to accomplish all filing, recording, publishing, and other acts as may be appropriate to comply with all requirements to form, operate, qualify, continue, and terminate the Partnership as (a) a limited partnership under the Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -14- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Partnership Act and the laws of the State of Texas and (b) a limited partnership, or a partnership in which each Partner other than the General Partner has limited liability, in all other jurisdictions where the Partnership proposes to operate. 2.8 Term. The Partnership's existence shall commence on the effective date of the initial filing of the Certificate with the Secretary of State of the State of Texas and shall continue until the Partnership terminates pursuant to Section 12.1(d) following dissolution. The Partnership may not conduct business until the Certificate has been filed with the Secretary of State of the State of Texas. Practice Comment: Be sure to understand the difference between dissolution and termination. The partnership needs to continue in existence following dissolution in order to complete the liquidation and winding up of the partnership's affairs. If the partnership continues only until it is dissolved, the dissolution and termination must, by definition, occur at the same time, which is not practical and creates a question as to what the terminated partnership is during the windingup phase. 2.9 Merger. The Partnership may effect or participate in a merger, as such term is defined in the Partnership Act, or enter into an agreement to do so, with the consent of the General Partner and of a Majority in Interest of the Limited Partners. Practice Comment: The term "merger" is broadly defined by TRLPA to encompass a number of acts that have not traditionally been thought of as mergers and permits mergers with other types of entities. Effective September 1, 2003, §2.11(i) of TRLPA will add limited liability companies to the types of entities with which limited partnerships may merge. Practice Comment: §2.11 of TRLPA requires that the partnership agreement authorize a merger before the partnership can engage in a merger--presumably the mere consent of the partners is insufficient. Therefore, it is easier to provide this authorization mechanism. Some practitioners believe it is virtually impossible to give this type of advance blessing to a merger because the general authorization does not "authorize the merger provided for in the plan of merger adopted by the limited partnership" as required by §2.11 of TRLPA. ARTICLE 3. CAPITAL CONTRIBUTIONS AND LOANS 3.1 Newco's Contribution. Simultaneously with the execution of this Agreement, Newco will contribute $______ in cash to the capital of the Partnership. Practice Comment: Effective September 1, 2003, §5.01 of TRLPA will specify the permissible forms a general partners' capital contribution may take, which are identical to the permissible forms of capital contributions by limited partners. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -15- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: Until the adoption of "check the box" regulations, it was prudent to have the general partner(s) contribute, in the aggregate, at least 1% of all capital contributions. Since the adoption of those regulations, it's not unusual to see capital contributions from the general partner of 0.1% or even 0.01%. 3.2 Investors' Contributions. Simultaneously with the executio n of this Agreement, each of the Investors will contribute $______ to the capital of the Partnership for each Unit shown across from such Investor's name on Exhibit A. 3.3 No Additional Contribution. No Partner shall be required to make any Capital Contributions to the Partnership beyond those described in this Agreement or otherwise agreed to in writing by the Interest Owner from whom such additional Capital Contribution is sought. Practice Comment: Frequently, the agreement will state that the partners/interest owners are required to make additional capital contributions. In those cases, the remedies for the failure to make a required contribution need to be addressed. §5.02 of TRLPA permits a wide variety of penalties, including forfeiture. Practice Comment: Additional capital contributions by limited partners/interest owners may themselves involve the sale of securities so it is important to confirm compliance with all applicable securities laws at the time they are sought. 3.4 Return of Contributions. No Partner or Interest Owner is entitled to the return of any part of its Capital Contributions or to be paid interest in respect of either its Capital Account or its Capital Contributions. Except as provided in Section 3.8, an unreturned Capital Contribut ion is not a liability of the Partnership or of any Partner or Interest Owner. Except as provided in Section 3.8, no Partner or Interest Owner is required to contribute or to lend any cash or property to the Partnership to enable the Partnership to return any Partner's or Interest Owner's Capital Contributions. Practice Comment: The references to §3.8 are intended to address certain concerns about rights of contribution among general partners and issues raised by registered limited liability limited partnerships. 3.5 Loans by Partners. Any Partner, with the General Partner's consent, may loan funds to or on behalf of the Partnership. In addition, payment by a General Partner of a Partnership obligation is deemed to be a loan under this Section. Unless otherwise agreed by the Partnership and the lending Partner, a loan described in this Section is payable on demand, bears interest at the Base Rate from the date of the advance until the date of payment, and is not a Capital Contribution. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -16- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: The partners may want to specify other terms of any such loans, including payment schedule, security, subordination, etc. The parties may also prefer to specify that all partners have a right of first refusal to make a loan rather than deferring to the general partner's discretion on who may act as a lender. 3.6 Capital Accounts. There shall be established for each Interest Owner a Capital Account on the books of the Partnership to be maintained and adjusted pursuant to this Agreement, which shall control the division of Partnership assets upon liquidation of the Partnership. The General Partner, in its sole discretion, may maintain such other accounts for the Interest Owners as it deems necessary or appropriate for financial reporting purposes. 3.7 Other Provisions With Respect to Capital Contributions. Except as otherwise provided in this Agreement, no Partner or Interest Owner shall be entitled to priority over any other Partner or Interest Owner with respect to a return of its Capital Contributions. No payment of fees, salary, or loans or of other amounts paid in connection with arm's-length transactions to a Partner or Interest Owner shall be considered a return of Capital Contributions. Practice Comment: The last sentence of this provision is intended to avoid a recharacterization of certain payments as unauthorized returns of capital contributions. Consider whether the reference to "arm's-length transactions" is appropriate. 3.8 No Duty to Restore Negative Capital Account. Except to the extent otherwise required herein or agreed to in writing by a Partner or Interest Owner, no Partner or Interest Owner is required to contribute or lend any cash to the Partnership to enable the Partnership to return any other Partner's or Interest Owner's Capital Contribution or to make any distribution to any Partner or Interest Owner, even if such Partner or Interest Owner has a deficit balance in its Capital Account. This provision does not negate any right of contribution a General Partner may have as against any other General Partner. Practice Comment: This type of provision is not generally intended to override the common law right of contribution among general partners. The final sentence is added to avoid any argument to the contrary. Practice Comment: For partnerships that elect registered limited liability limited partnership status, this provision may need to be modified to provide that a partner or interest owner who creates a liability for the partnership does have a duty to restore a negative capital account to the extent of such liability, at least to the extent that the partner or interest owner is not entitled to be indemnified by the partnership for such liability. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -17- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. ARTICLE 4. DISTRIBUTIONS AND ALLOCATIONS Practice Comment: As mentioned before, the provisions of a partnership agreement, particularly the provisions addressed by this Article, need to be reviewed by someone with a sound knowledge of the current provisions of the Internal Revenue Code and Treasury Regulations relating to partnerships. 4.1 Distributions Of Distributable Cash. Distributions of Distributable Cash with respect to a Fiscal Year shall be made at such times as the General Partner determines, but in no event shall such distributions be made later than the first Business Day following the lapse of 45 days after the end of the Fiscal Year to which it relates. No payment of fees, salary, or loans or of other amounts paid in connection with arm's-length transactions to any Person shall be considered a distribution. Distributions of cash or property in respect of a Partnership Interest shall be made only to the Person who, according to the books and records of the Partnership, is the holder of such Partnership Interest in respect of which such distribution is made on the date of such distribution. The date for any distribution of Distributable Cash shall be determined by the General Partner, in its sole discretion, but shall generally be the last day of a fiscal quarter. The Distributable Cash of the Partnership (if any) shall be distributed to the record owners of Partnership Interests in the following order of priority: (a) First, to the record owners of LP Interests, to the extent their Preferred Return has not previously been distributed pursuant to this Subsection 4.1(a), pro rata in accordance with their respective amounts of accrued but undistributed Preferred Return; (b) Next, to the record owners of Partnership Interests, to the extent of their unreturned Capital Contributions, pro rata in accordance with their respective amounts of unreturned Capital Contributions; and (c) Next, to the record owners of Partnership Interests in accordance with their Sharing Ratios. Practice Comment: This provision will not eliminate a general partner's obligation to satisfy debts owed by the partnership to third parties -- it only affects claims among partners. Practice Comment: Note that, as drafted, it is clear that persons other than partners may be entitled to distributions. This language reinforces the concept of the distinction between partners and owners of partnership interests. Practice Comment: The second sentence of this provision is intended to avoid a recharacterization of certain payments as unauthorized distributions. Consider whether the reference to "arm's-length transactions" is appropriate. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -18- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: Consider whether distributions should be required more frequently or should be totally discretionary on the part of the general partner. 4.2 Allocation of Profits. After giving effect to the special allocations set forth in Sections 4.5 and 4.6, Profits for an Adjustment Period will be allocated for both tax and Capital Account purposes among the Partners in the following order and priority: (a) First, to the record owners of Partnership Interests so as to reverse the effect of the prior allocation of Losses in the following order and priority: (i) First, to the extent Losses were allocated to any Person(s) pursuant to Subsection 4.3(e) for any prior Adjustment Period, Profits will be allocated to Person(s) to the extent of such previously allocated Losses (among such Person(s) in proportion to their respective shares of Losses being offset); (ii) Next, to the extent Losses were allocated to any Person(s) pursuant to Subsection 4.3(d) for any prior Adjustment Period, Profits will be allocated to Person(s) to the extent of such previously allocated Losses (among such Person(s) in proportion to their respective shares of Losses being offset); (iii) Next, to the extent Losses were allocated to any Person(s) pursuant to Subsection 4.3(c) for any prior Adjustment Period, Profits will be allocated to Person(s) to the extent of such previously allocated Losses (among such Person(s) in proportion to their respective shares of Losses being offset); (iv) Next, to the extent Losses were allocated to any Person(s) pursuant to Subsection 4.3(b) for any prior Adjustment Period, Profits will be allocated to Person(s) to the extent of such previously allocated Losses (among such Person(s) in proportion to their respective shares of Losses being offset); (v) Next, to the extent Losses were allocated to any Person(s) pursuant to Subsection 4.3(a) for any prior Adjustment Period, Profits will be allocated to Person(s) to the extent of such previously allocated Losses (among such Person(s) in proportion to their respective shares of Losses being offset); (b) Next, to the record owners of LP Interests in proportion to the amount of their respective Preferred Returns on the last day of such Adjustment Period, until the aggregate amount of allocations pursuant to this Subsection 4.2(b) equals the Preferred Return of such record owners; (c) Next, if (i) the cumulative aggregate amount of distributions made to any Person, in the current and all prior Adjustment Periods, under Subsection 4.1(c) exceeds (ii) the cumulative amount allocated in prior Adjustment Periods to such Person under this Subsection 4.2(c), then to each such Person in proportion to and to the extent of the excess; and Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -19- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (d) Next, to the record owners of Partnership Interests in accordance with their relative Sharing Ratios. 4.3 Allocation of Losses. After giving effect to the special allocations set forth in Sections 4.5 and 4.6, Losses for any Adjustment Period will be allocated in the following order and priority: (a) First, to the extent Profits were allocated to any Person(s) pursuant to Subsection 4.2(d) for any prior Adjustment Period, Losses will be allocated to such Person(s) to the extent of such previously allocated Profits (among such Person(s) in proportion to their respective shares of the Profits being offset); (b) Next, to the extent Profits were allocated to any Person(s) pursuant to Subsection 4.2(c) for any prior Adjustment Period, Losses will be allocated to such Person(s) to the extent of such previously allocated Profits (among such Person(s) in proportion to their respective shares of the Profits being offset); (c) Next, to the extent Profits were allocated to any Person(s) pursuant to Subsection 4.2(b) for any prior Adjustment Period, Losses will be allocated to such Person(s) to the extent of such previously allocated Profits (among such Person( s) in proportion to their respective shares of the Profits being offset); (d) Next, to the record owners of Partnership Interests in proportion to and to the extent of their respective positive Capital Account balances until the Capital Account balance of each such record owner is reduced to zero; and (e) Next, to the GP Interest Owner. 4.4 Limitation on Allocation of Losses. Notwithstanding the provisions of Section 4.3 hereof, if the amount of Losses for any Adjustment Period that would otherwise be allocated to an owner of the LP Interest under Section 4.3 would cause or increase an Adjusted Capital Account Deficit of the owner of the LP Interest as of the last day of such Adjustment Period, then a proportionate amount of the Losses equal to the excess will be allocated to the GP Interest Owner, and the remainder of the Losses, if any, will be allocated to the owner of the LP Interest. This Section 4.4 is intended to ensure that allocations of Losses have economic effect pursuant to Section 1.704-1(b)(2)(ii)(d) of the Regulations and will be interpreted consistently therewith. 4.5 Special Allocations. The following special allocations will be made in the following order before allocations of Profits and Losses are made: (a) Minimum Gain Chargeback. Notwithstanding any other provision of this Agreement to the contrary, if in any Adjustment Period there is a net decrease in Partnership Minimum Gain, then each Interest Owner will first be allocated items of Gross Income for the Adjustment Period (and, if necessary, subsequent Adjustment Periods) in an amount equal to the portion of the Interest Owner’s share of the net decrease in Partnership Minimum Gain, determined in accordance with Section 1.704Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -20- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. 2(g) of the Regulations that is attributable to the disposition of Partnership property subject to one or more nonrecourse liabilities of the Partnership that are not Partner Nonrecourse Debts; provided, however, if there is insufficient Gross Income in an Adjustment Period to make the above allocation for all Interest Owners for the Adjustment Period, the Gross Income will be allocated among the Interest Owners in proportion to the respective amounts they would have been allocated had there been an unlimited amount of Gross Income for the Adjustment Period. (b) Minimum Gain Chargeback for Partner Nonrecourse Debt. Notwithstanding any other provision of this Agreement to the contrary other than Subsection 4.5(a), if in any Adjustment Period there is a net decrease in Partner Nonrecourse Debt Minimum Gain, then each Interest Owner will first be allocated items of Gross Income for the Adjustment Period (and, if necessary, subsequent Adjustment Periods) in an amount equal to the portion of the Interest Owner’s share of the net decrease in the Minimum Gain during the Adjustment Period (as determined in accordance with Section 1.704-2(i) of the Regulations) attributable to the disposition of Partnership property subject to one or more Partner Nonrecourse Debts; provided, however, if there is insufficient Gross Income in an Adjustment Period to make the above allocation for all Interest Owners for the year, the Gross Income will be allocated among the Interest Owners in proportion to the respective amounts they would have been allocated had there been an unlimited amount of Gross Income for the Ad justment Period. (c) Qualified Income Offset. After application of Subsections 4.5(a) and 4.5(b), if in any taxable year an LP Interest Owner unexpectedly receives any adjustment, allocation, or distribution described in Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the Regulations and if the LP Interest Owner has an Adjusted Capital Account Deficit, items of Gross Income will be allocated to the LP Interest Owner in the amount and in the manner sufficient to eliminate the Adjusted Capital Account Deficit as quickly as possible; provided, however, that an allocation under this Subsection 4.5(c) will be made only if and to the extent that the LP Interest Owner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 4 have been tentatively made as if this Subsection 4.5(c) were not in this Agreement. (d) Gross Income Allocation. In the event an Interest Owner has a deficit Capital Account at the end of any Adjustment Period that is in excess of the sum of (i) the amount the Interest Owner is obligated to restore to the Partnership pursuant to any provision of this Agreement, (ii) the amount that the Interest Owner is deemed to be obligated to restore to the Partnership pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations, and (iii) the amounts that the Interest Owner is deemed to be obligated to restore to the Partnership pursuant to Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, items of Gross Income will be allocated to the Interest Owner in the amount and in the manner sufficient to eliminate such deficit as quickly as possible; provided, however, that an allocation under this Subsection 4.5(d) will be made only if and to the extent that the Interest Owner would have a deficit Capital Account in excess of such Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -21- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. sum after all other allocations provided for in this Article 4 have been tentatively made as if Subsection 4.5(c) and this Subsection 4.5(d) were not in this Agreement. (e) Partnership Nonrecourse Deductions . Partnership Nonrecourse Deductions for any Adjustment Period shall be allocated among the Interest Owners in proportion to their respective Sharing Ratios. If the General Partner determines in its good faith discretion that the Partnership Nonrecourse Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of the Treasury Regulations promulgated under Section 704(b) of the Code, the General Partner is authorized, upon notice to the Limited Partners, to revise the prescribed ratio to the numerically closest ratio that does satisfy such requirements. (f) Partner Nonrecourse Deductions . Partner Nonrecourse Deductions for any Adjustment Period or other period will be allocated to the Interest Owner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which the Partner Nonrecourse Deductions are attributable. (g) Basis Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset is required pursuant to Code Section 732(d), Code Section 734(b), or Code Section 743(b), the Capital Accounts of the Interest Owners will be adjusted pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations. Practice Comment: Sections 4.1 through 4.5 need to be coordinated with the provisions relating to distributions and sharing ratios to reflect properly the specific agreement. 4.6 Curative Allocations. In the event that any Gross Income (or items thereof), Profits (or items thereof), Losses (or items thereof), or deductions are allocated under Section 4.4 or 4.5, subsequent Gross Income (or items thereof), Profits (or items thereof), Losses (or items thereof), or deductions will first be allocated (subject to Sections 4.4 and 4.5) to the Interest Owners in a manner that will result in each Interest Owner having a Capital Account balance equal to the balance that would have resulted if the original allocation of Gross Income, Profits (or items thereof), Losses (or items thereof), or deductions under Section 4.4 or 4.5 had not occurred; provided, however, no allocations under this Section 4.6 that are intended to offset allocations under Subsection 4.5(a) or 4.5(b) will be made prior to the taxable year during which there is a net decrease in Partner Nonrecourse Debt Minimum Gain or Partnership Minimum Gain, and then only to the extent necessary to avoid any potential economic distortions caused by the net decrease in Partner Nonrecourse Debt Minimum Gain or Partnership Minimum Gain, and no such allocation under this Section 4.6 will be made to the extent that the General Partner reasonably determines that it is likely to duplicate a subsequent mandatory allocation under Subsection 4.5(a) or 4.5(b). 4.7 Allocations Under Section 704(c) of the Code. In accordance with Code Section 704(c) and the Treasury Regulations promulgated thereunder, income, gain, loss, and deduction with respect to any asset contributed to the capital of the Partnership will, solely for tax purposes, be allocated among the Interest Owners so as to take account of any variation between the Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -22- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. adjusted basis of such asset to the Partnership for federal income tax purposes and the Gross Asset Value of the property. In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to clause (d) of the definition of "Gross Asset Value,", subsequent allocations of income, gain, loss, and deduction with respect to such asset will take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations promulgated thereunder. An Interest Owner’s distributive share of income, gain, loss, and deduction with respect to any such asset will be determined in accordance with the principles of the "remedial allocation method" set forth in Section 1.704-3(d) of the Regulations. Any other elections or other decisions relating to allocations under this Section 4.7 will be made by the General Partner with the consent of a Majority in Interest of the Limited Partners, which consent will not be unreasonably withheld. Allocations under this Section 4.7 are solely for purposes of federal, state, and local taxes and will not affect, or in any way be taken into account in computing, any Interest Owner's Capital Account or share of Profits, Losses or other items or distributions under any provision of this Agreement. 4.8 Other Distribution and Allocation Rules. (a) Withholding. Notwithstanding anything to the contrary contained in this Agreement, the General Partner, in its sole discretion, may withhold from any distribution of Distributable Cash or other cash or other property to any Interest Owner contemplated by this Agreement any amounts due from such Interest Owner to the Partnership, the General Partner, or any other Person in connection with the business of the Partnership to the extent not otherwise paid. If any provision of the Code, the Regulations, or state or local law or regulations requires the Partnership to withhold any tax with respect to an Interest Owner’s distributive share of Partnership income, gain, loss, deduction, or credit, the Partnership will withhold the required amount and pay the same over to the taxing authorities as required by such provision. The amount withheld will be deducted from the amount that would otherwise be distributed to that Interest Owner but will be treated as though it had been distributed to the Interest Owner with respect to which the Partnership is required to withhold. If at any time the amount required to be withheld by the Partnership exceeds the amount of money that would otherwise be distributed to the Interest Owner with respect to which the withholding requirement applies, then that Interest Owner will make a Capital Contribution to the Partnership equal to the excess of the amount required to be withheld over the amount, if any, of money that would otherwise be distributed to that Interest Owner and that is available to be applied against the withholding requirement. Each of the Interest Owners represents that such Interest Owner is not aware of any provision of the Code, the Regulations, or state or local law or regulations that currently requires withholding of any tax by the Partnership with respect to such Interest Owner. (b) Allocations Upon Transfers of Partnership Interests. If any Partnership Interest is Transferred, or the Sharing Ratios are increased or decreased by reason of the admission of a new Partner or otherwise, during any Adjustment Period, then Profits, Losses, each item thereof, and all other Partnership profit and loss Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -23- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. attributable to such Partnership Interest for such Adjustment Period shall be assigned pro rata to each day in the particular period of such Adjustment Period to which such item is attributable (i.e., the day on or during which it is accrued or otherwise incurred) and the amount of each such item so assigned to any such day shall be allocated among the Interest Owners based upon their respective interests in the Partnership at the close of such day. For the purpose of accounting convenience and simplicity, the Partnership shall treat a Transfer of, or an increase or decrease in, a Partnership Interest or an increase or decrease in an Interest Owner’s Sharing Ratios that occurs at any time during a semimonthly period as having been consummated on the first day of such semi- monthly period, regardless of when during such semi- monthly period such Transfer, increase or decrease actually occurs (i.e., Transfers or increases or decreases made during the first 15 days of any month will be deemed to have been made on the first day of the month and Transfers or increases or decreases thereafter will be deemed to have been made on the 16th day of the month). (c) Other Items . Except as otherwise provided in this Agreement, all items of Partnership income, gain, loss, deduction, and other allocations not otherwise provided for will be divided among the Interest Owners in the same proportions as they share Profits and Losses, as the case may be, for the period during which such items were allocated. 4.9 Working Capital Reserve. From time to time, the General Partner, using reasonable business judgment, may establish and maintain a Working Capital Reserve (herein so called). If and to the extent the General Partner determines that funds in the Working Capital Reserve that have not been utilized by the Partnership are no longer required to be so maintained, such funds shall be released from the Working Capital Reserve and distributed in the manner in which they would have been distributed had they not been set aside to fund such Working Capital Reserve. The General Partner shall determine, in its reasonable discretion, the periods to which any funds released from the Working Capital Reserve are attributable. Practice Comment: The need to maintain a working capital reserve is arguably greater if the partnership does not provide for additional capital contributions. However, some restrictions on the ability of the general partner to establish a reserve may be appropriate. Some examples of restrictions include linking the reserve to actual binding commitments that exist on the date the reserve is established that will come due within a specified period of time and capping the reserve at a specified percentage of cash flow for some period. 4.10 Distribution in Kind. Unless authorized as contemplated by Subsection 5.2(d), no assets will be distributed in kind, regardless of any potential unrealized depreciation or appreciation in respect thereof. Any in-kind distributions will be made proportionately among the Interest Owners in accordance with the percentage of the distributions the Interest Owners are entitled to receive. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -24- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: §6.05 of TRLPA prohibits an in-kind distribution of assets unless the partnership agreement provides otherwise. Determine what is appropriate for the particular transaction and modify as appropriate. ARTICLE 5. MANAGEMENT; CERTAIN RIGHTS AND DUTIES OF GENERAL PARTNER 5.1 Management of Partnership Affairs. The Partnership shall be managed by the General Partner who shall have, subject to any restrictions imposed by applicable law or expressly imposed by this Agreement, full, complete, and exclusive authority to manage and control the business, affairs, and properties of the Partnership, to make all decisions regarding those matters, and to perform any and all other acts or activities customary or incident to the management of the Partnership's business. In addition to the powers now or hereafter granted the general partners of a limited partnership under applicable law or that are granted the General Partner under any provision of this Agreement, subject to the limitations described in Section 5.2 and elsewhere in this Agreement, the General Partner shall have the power, for and on behalf and in the name of the Partnership, to carry out and implement the purpose of the Partnership set forth in Section 2.6 and to do all things necessary or desirable or expedient in connection therewith or incidental thereto and to manage, conduct, and supervise the day-to-day business affairs of the Partnership and, without limiting the generality of the foregoing, to cause the Partnership to do the following: (a) to acquire, purchase, own, hold, maintain, develop, operate, sell, exchange, lease, sublet, assign, transfer, or otherwise dispose of tangible and intangible properties of any kind and character; (b) to enter into, become bound by, and perform obligations under contracts and instruments and to make all decisions and waivers thereunder; (c) to open, maintain, and close bank accounts, make withdrawals therefrom, and designate and change signatories on such accounts; (d) to procure and maintain with responsible companies insurance, including general liability, bodily injury, and property damage insurance, in amounts that are available and that are generally carried by similar entities; (e) to incur all legal, accounting, investment banking, independent financial consulting, litigation, brokerage, registration, and other fees and expenses as it may deem necessary or appropriate for carrying on and performing the powers and authorities herein conferred; (f) to collect amounts due the Partnership, settle claims, prosecute and defend lawsuits, and handle matters with governmental agencies; Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -25- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (g) to exercise the voting rights of the Partnership on account of its ownership in any other Person; provided however, that if the action to be voted on is one that, if taken by the Partnership itself, would require the approval of other Partners, such approval shall be required before the General Partner exercises such voting rights to approve such action; (h) to borrow funds or otherwise commit the credit of the Partnership; and (i) to make, constitute, and appoint, by written document duly executed and acknowledged, any Person who does not suffer any legal disability, contractual or otherwise, that would prohibit such Person from so acting, as the Partnership's true and lawful attorney and agent for it and in its name, place, and stead and for its use and benefit to perform any act or exercise any power or authority, all as specified in such document, that the General Partner might perform or exercise in accordance with this Agreement; provided, however, that no such appointment shall relieve the General Partner of the duties and obligations imposed on it under this Agreement or the Partnership Act. Practice Comment: This list of specific authority is not really required but it may be helpful if there are some specific actions with third parties who are likely to inquire as to authority. Consider modifying the list to add actions specific to the particular transaction. 5.2 Limitations on Powers and Authority of the General Partner. Notwithstanding the provisions of Section 5.1, the General Partner may not cause the Partnership to do any of the following without the consent of a Majority in Interest of the Limited Partners (or, in the case of subsection (a), such other consent as would be required to amend this Agreement to provide such act would not violate this Agreement): (a) do any act in violation of this Agreement; (b) do any act that would make it impossible to carry on the ordinary business of the Partnership (except in connection with the winding up of the Partnership's business); Practice Comment: The parenthetical phrase eliminates any ambiguities that may exist as to authority to take actions during winding- up that are inconsistent with carrying on the ordinary course of business such as, for example, selling of assets. (c) Agreement; admit a Person as a Partner except as otherwise expressly permitted by this (d) sell, assign, exchange, transfer, convey, or otherwise dispose of, or consent to the sale, assignment, exchange, transfer, conveyance, or other disposition of, all or substantially all the Partnership's assets or the Partnership's interest in the Property Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -26- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (other than in connection with the winding up of the Partnership's business if the Liquidating Manager does not believe there is a reasonable alternative to pay, satisfy, and discharge the debts, liabilities, and obligations of the Partnership or if a Majority in Interest of the Limited Partners do not agree in writing, after being requested to do so, to the in-kind distribution of such assets and/or Property); Practice Comment: Modify if the partners want to grant the general partner unfettered discretion to transfer assets to a subsidiary or some other person. Practice Comment: §6.05 of TRLPA specifies tha t no in-kind distributions may be demanded or received except as provided in the partnership agreement. This language permits a majority in interest of the limited partners to authorize an in-kind distribution. Modify this provision as appropriate for the particular transaction. (e) possess Partnership property or assign its rights in Partnership property, other than for a Partnership purpose; (f) cause the Partnership to operate in such a manner as to be classified as an "investment company" for purposes of the Investment Company Act of 1940; (g) cause the Partnership to enter into or agree to any merger, consolidation, or reorganization with any other Person; (h) permit any agent designated by the General Partner to do any of the acts listed in this Section 5.2; (i) acquire any real estate or interest therein, by purchase or lease, other than the Property; (j) guaranty or otherwise become responsible for the payment or satisfaction of any obligation of another Person; (k) make any Capital Expenditure that exceeds $_________ except (i) to the extent that any such Capital Expenditure is deemed to be reasonably necessary by the General Partner to protect against the loss of value of the Property or in order to maintain the safety of the residents thereof and the General Partner reasonably believes that there is insufficient time to obtain the approval of the Limited Partners or (ii) Capital Expenditures made with respect to the Property with the proceeds of any insurance policy on the Property if the Capital Expenditures are no more tha n $____________(with the General Partner being required to give prompt notice of any Capital Expenditures made under clause (i) or (ii) to all Limited Partners); (l) make an assignment for the benefit of creditors; Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -27- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (m) institute any legal proceedings seeking reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution, or similar relief for the Partnership under Bankruptcy Law; (n) partition the Property or institute and proceeding at law or in equity to have the Property partitioned; or (o) other than the Acquisition Loan, incur any indebtedness for borrowed money in a single transaction or series of related transactions that exceeds $________ or that, when added to the other indebtedness for borrowed money of the Partnership (other than the Acquisition Loan), exceeds $__________. Practice Comment: This list is not statutorily required. Consider modifying this list to address any other areas of specific concern to the limited partners. Concerns about the limited partners losing limited liability as a result of possessing too many management-type powers have been mitigated by §3.03(b) of TRLPA. 5.3 No Other Authority. No Person other than the General Partner has the right or authority to act for or on behalf of the Partnership, except to the extent otherwise expressly required by this Agreement or required by provisions of the Partnership Act or other applicable law that cannot be modified by this Agreement. 5.4 Reliance on Authority. In its dealings with the Partnership, a third party may rely on the authority of the General Partner to bind the Partnership without reviewing the provisions of this Agreement or confirming compliance with the provisions of this Agreement. Practice Comment: This provision should be revised to reflect the standard of care required of the general partner in the particular transaction, which may be different than this standard. Note that TRPA has expressly eliminated the trustee standard to which general partners have previously been held. See §4.04 of TRPA. Note also that certain duties required of the general partner may not be eliminated by the partnership agreement. See §1.03(b) of TRPA. Practice Comment: This provision is intended to give comfort to a third party relying on the authority of the general partner but may be detrimental to the limited partners. 5.5 Compensation. Beginning as of the date of this Agreement, the General Partner shall be entitled to receive a Management Fee for its services provided in managing the Partnership and its operations. The Management Fee shall be payable annually within 45 days after the last day of the Fiscal Year to which it relates. Practice Comment: See the Practice Comment below the definition of "Management Fee." If no compensation is to be paid to the general partner for acting as such, it is prudent to include an affirmative disclaimer to that effect to avoid misunderstandings. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -28- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. 5.6 Reimbursement. The General Partner is entitled to be reimbursed for out-ofpocket costs and expenses reasonably incurred by it in performing its duties under this Agreement; provided, however, that the General Partner is not entitled to be reimbursed for any of its overhead costs and expenses. Practice Comment: Limits are sometimes placed on reimbursements of expenses to assure the general partner is prudent. If the general partner is entitled to be reimbursed for expenses, consider whether overhead costs are included in expenses. If the general partner is reimbursed for its overhead, consider whether the reimbursement is to be limited in some manner. 5.7 Standards of Performance. (a) General. Except as otherwise provided in this Agreement, the General Partner shall perform its duties with respect to the Partnership in good faith and in the best interests of the Partnership and shall devote such time and effort to the Partnership business and operations as is reasonably necessary to manage the affairs of the Partnership prudently. The general partner is liable for acts, errors, or omissions in performing its duties with respect to the Partnership ONLY if such performance is conducted in bad faith or with gross negligence. THE GENERAL PARTNER IS NOT LIABLE FOR ACTS, ERRORS, OR OMISSIONS IN PERFORMING ITS DUTIES WITH RESPECT TO THE PARTNERSHIP FOR ANY OTHER REASON, INCLUDING THE GENERAL PARTNER'S SOLE, PARTIAL, OR CONCURRENT NEGLIGENCE. Practice Comment: Coordinate this provision with the provisions governing indemnification and removal of the general partner to avoid inconsistent results. Practice Comment: It is not uncommon to see a partnership agreement hold a general partner liable for breaches of the partnership agreement. Note that the imposition of liability on the general partner for breaches of the agreement, when coupled with the inclusion of specific duties and/or limitations on the general partner, could impose liability on the general partner for mere negligence, which may not be the intended result. 5.8 Dealings with Partnership. The Partnership may enter into agreements and transact business with a Partner or Interest Owner or any Affiliate of a Partner or Interest Owner but the terms of such agreement or transaction must be no less favorable to the Partnership than those the Partnership could obtain from unrelated third parties or be approved by the General Partner and a Majorit y in Interest of the Limited Partners. Practice Comment: If there are specific agreements or transactions that are to be entered into between the partnership and an interest owner or one of its affiliates, the partners may desire to have the partnership agreement expressly bless those agreements and transactions. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -29- WARNING: 5.9 THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Removal. (a) Right to Remove. The General Partner may be removed from the Partnership by a Majority in Interest of the Limited Partners if they, acting reasonably and in good faith, determine that the General Partner has breached any material agreement contained herein. Practice Comment: A general partner may not generally be removed unless the partnership agreement expressly provides otherwise. Practice Comment: Consider whether there should be any limits on the limited partners to remove a general partner. Practice Comment: Consider other things that can trigger the removal such as (a) the general partner or any of its officers, directors, agents, or employees being guilty of fraud, dishonesty, unethical business conduct, moral turpitude, or similar acts of misconduct that are likely to materially adversely affect the partnership; or (b) any officer, director, agent, or employee of the general partner becoming mentally or physically incapacitated to such extent that the general partner is unable to perform fully its duties under the partnership agreement for a period of more than eight weeks; (c) a transfer of the general partner's partnership interest in violation of the partnership agreement is purported to be made; or (d) the general partner has transferred all of its rights as a general partner, all of its partnership interest as a general partner, or all of its status rights as a general partner. Practice Comment: Coordinate the standard for removal with the provisions regarding indemnification and standards of performance of the general partner to avoid inconsistent results. (b) New General Partner. Any action for removal is conditioned on a new General Partner, selected by a Majority in Interest of the Limited Partners, being admitted to the Partnership immediately prior to the effective date of such removal. In connection with such admission, the new General Partner shall (i) make or agree to make such Capital Contribution as a Majority in Interest of the Limited Partners specify in exchange for a GP Interest entitling it to such allocations of Profits and Losses and distributions as a Majority in Interest of the Limited Partners specify and (ii) execute a written instrument pursuant to which it agrees to be bound by this Agreement, specifies its address for notices, and makes such representations, warranties, and covenants as a Majority in Interest of the Limited Partners specify. The new General Partner so selected shall be admitted to the Partnership as a General Partner on such terms, and the removal of the old General Partner is effective only immediately subsequent to that admission. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -30- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: This provision requires a new general partner to be in place before the old general partner is removed. By doing so, the new general partner is in a position to continue the business of the partnership under §8.01 of TRLPA and Section 12.2 of this Agreement. If no general partner remained, the continuation of the business would require the approval of all of the limited partners or such lesser percentage as is specified within the partnership agreement under §8.01 of TRLPA. 5.10 Withdrawal . (a) No Right. The General Partner does not have the right to withdraw from the Partnership as a general partner. The General Partner agrees that it will not voluntarily withdraw from the Partnership as a general partner within the meaning of Section 6.02(a) of the Partnership Act, and any such voluntary withdrawal shall be a violation of this Agreement. If a General Partner voluntarily withdraws from the Partnership in violation of this covenant, the withdrawal will not be effective until the 90th day following notice of the withdrawal to all other Partners or such later date as the notice may specify. (b) Consequences of Wrongful Withdrawal. If a General Partner wrongfully withdraws from the Partnership, including in violation of Subsection 5.10(a), the Partnership may (i) recover damages from the withdrawing General Partner, including the reasonable cost of obtaining replacement of the services that the General Partner is obligated to perform, (ii) pursue any other remedies available under applicable law, (iii) effect recovery of damages by offsetting those damages against the amount otherwise distributable to that General Partner, (iv) reduce the General Partner's Sharing Ratio (whether attributable to its GP Interest or the LP Interest into which it is converted pursuant to Section 5.11), or (v) take any combination of such actions as it deems appropriate. Practice Comment: Note that a voluntary withdrawal by the general partner is only one way in which an “Event of Withdrawal” occurs. Practice Comment: Although a general partner may be denied the right to withdraw, it always retains the power to withdraw. Therefore, it is important to address the consequences of a withdrawal, which are the subject §6.02 of TRLPA. 5.11 Conversion of Interest; Right to Purchase. Simultaneously with an Event of Withdrawal with respect to the General Partner (whether under the immediately prior Section or otherwise), the former General Partner's Partnership Interest as a General Partner shall be automatically converted into that of a Limited Partner having a right to receive distributions from the Partnership and an obligation to make Capital Contributions to the Partnership equal to the right and obligation of the former General Partner as a General Partner immediately prior to its ceasing to be a General Partner and the former General Partner shall be automatically admitted to Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -31- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. the Partnership as a Limited Partner in respect of such Partnership Interest. Furthermore, any Person named as a new General Partner pursuant to Section 5.9 or 11.2 shall have, for a period of one year following such Event of Withdrawal, the right to purchase such Partnership Interest for its fair market value (as determined by the General Partner using such reasonable methods as it shall adopt). If such Partnership Interest is so purchased, it shall be automatically converted into that of a General Partner having the right to receive distributions from the Partnership and an obligation to make Capital Contributions to the Partnership equal to the right and obligation of the former Limited Partner as a Limited Partner immediately prior to such purchase and the new General Partner shall automatically be substituted as a General Partner in respect of such Partnership Interest. Practice Comment: Conversion of the general partner's interest to a limited partner interest is only one alternative. See §6.02(b) of TRLPA. 5.12 Indemnification of General Partner. To the fullest extent permitted by law, and subject to the procedures in Article 11 of the Partnership Act, on request by the Person indemnified the Partnership shall indemnify each General Partner and its Affiliates and their respective officers, directors, partners, employees, and agents and hold them harmless from and against all losses, costs, liabilities, damages, and expenses (including, without limitation, fees and disbursements of counsel) any of them may incur as a General Partner in the Partnership or in performing the obligations of the General Partner with respect to the Partnership, SPECIFICALLY INCLUDING THE INDEMNIFIED PERSON'S SOLE, PARTIAL, OR CONCURRENT NEGLIGENCE, but excluding any such items incurred as a result of something for which the General Partner is liable under Section 5.7, and on request by the Person indemnified the Partnership shall advance expenses associated with the defense of any related action. Practice Comment: Coordinate the provisions regarding indemnification with those relating to the standard of conduct of, and right to remove, the general partner in order to avoid inconsistent and conflicting treatment. 5.13 Power of Attorney. Each Partner and Interest Owner appoints the General Partner (and any Liquidating Manager or interim manager appointed pursuant to Section 12.1) as attorney- in- fact for such Partner or Interest Owner for the purpose of executing, swearing to, acknowledging, and delivering all certificates, documents, and other instruments as may be necessary, appropriate, or advisable in the judgment of the General Partner (or Liquidating Manager or interim manager appointed pursuant to Section 12.1) in furtherance of the business of the Partnership or complying with applicable law, including, without limitation, filings of the type described in Section 2.7 and amendments to Exhibit A to this Agreement to reflect any admission or withdrawal of a Partner in accordance with the provisions of this Agreement or any other matter approved in accordance with the provisions of this Agreement. This power of attorney is irrevocable and is coupled with an interest. On request by the General Partner (or Liquidating Manager or interim manager appointed pursuant to Section 12.1), each Partner and Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -32- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Interest Owner shall confirm its grant of this power of attorney or any use of it by the General Partner (or Liquidating Manager or interim manager appointed pursuant to Section 13.1) and shall execute, swear to, acknowledge, and deliver any such certificate, document, or other instrument. Practice Comment: This is a fairly broad power of attorney. If it will be used to sign documents that are required to be witnessed or notarized, the partnership agreement should be similarly witnessed or notarized. There may be specific documents unique to the business of the partnership to which express reference should be made, including, for example, leases of federal lands. 5.14 Representations and Covenants of the General Partner. Newco represents and warrants to the Partnership and to each other Partner that: Practice Comment: The representations and warranties of the general partner, if included, should be tailored to address any specific concerns, including, for instance, the nature of title to any property to be contributed by the general partner to the partnership. (a) Due Organization, Good Standing and Corporate Power. Newco is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas. Newco has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as now being conducted. (b) Authorization and Validity of Agreement. Newco has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement by Newco, and the consummation by it of the transactions contemplated hereby, have been duly authorized and approved by Newco. This Agreement has been duly executed and delivered by Newco and is a valid and binding obligation of Newco, enforceable against Newco in accordance with its terms, except to the extent that its enforceability may be subject to applicable Bankruptcy Laws and to general equitable principles. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, violate any provision of any agreement, instrument, order, regulation, judgment, or decree to which Newco is subject or by which it or any of its assets is bound. Newco is under no legal disability, contractual or otherwise, that prohibits it from entering into this Agreement and performing the obligations of the General Partner hereunder. Newco is the sole party in interest in its Partnership Interest under this Agreement and, as such, is vested with all legal and equitable rights in such Partnership Interest. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -33- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. ARTICLE 6. RIGHTS, OBLIGATIONS, AND REPRESENTATIONS OF LIMITED PARTNERS 6.1 Withdrawal . A Limited Partner does not have the right to withdraw from the Partnership as a limited partner. 6.2 No Fiduciary. A Limited Partner owes no fiduciary duty to the Partnership of any of the other Partners solely as a result of being a Limited Partner. Practice Comment: This is included to avoid any uncertainty about this issue. If limited partners are to have fiduciary duties, they should be clearly spelled out in the partnership agreement. 6.3 Representations of Limited Partners. Each Investor hereby severally represents and warrants to, and agrees with, the Partnership and each other Partner as follows: Practice Comment: The representations and warranties of each limited partner, if included, should be tailored to address any specific concerns, including, for instance, the nature of title to any property to be contributed by a limited partner to the partnership. (a) Authorization and Validity of Agreement. Such Investor has full power and authority to execute and deliver this Agreement, to perform the obligations of such Investor hereunder, and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement by such Investor, and the consummation by such Investor of the transactions contemplated hereby, have been duly authorized and approved by such Investor. This Agreement has been duly executed and delivered by such Investor and is a valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms, except to the extent that its enforceability may be subject to applicable Bankruptcy Laws and to general equitable principles. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, vio late any provision of any agreement, instrument, order, regulation, judgment, or decree to which such Investor is subject or by which such Investor or any asset of such Investor is bound. Such Investor is under no legal disability, contractual or otherwise, that prohibits such Investor from entering into this Agreement and performing the obligations of such Investor hereunder. Such Investor is the sole party in interest in the Units of such Investor under this Agreement and, as such, is vested with all legal and equitable rights in such Units. (b) Securities Act Investment. Such Investor is acquiring the Units of such Investor for the account of such Investor and not with a view to distribution thereof within the meaning of the Securities Act of 1933, as amended, or any state securities laws. Such Units will not be Transferred by such Investor in contravention of that act or any applicable state securities laws. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -34- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: Because partnership interests of limited partners are usually securities, it is likely that a representation of some sort will be necessary to confirm the exemption(s) from registration under federal and state securities laws on which the issuer is relying. The foregoing language should be modified to incorporate the relevant standards for such exemption(s). (c) Pursuant to the Texas Securities Act, Art. 581-1 et seq. (the "Texas Securities Act "), the liability of a lawyer, accountant, consultant, the firm of any of the foregoing, and any other person engaged to provide services relating to an offer of securities of the Partnership (such persons, "Service Providers") under the Texas Securities Act is limited to a maximum of three times the fee paid by the Partnership or a seller of the Partnership's securities to the Service Provider for the services related to the offer of the Partnership's securities, unless the trier of fact finds that such Service Provider engaged in intentional wrongdoing in providing the services. By signing below, each Investor hereby acknowledges the disclosure provided in this paragraph. Practice Comment: This language is included to take advantage of the limitation on liability permitted by the Texas Securities Act. It may be prudent to have it also included in the subscription agreement, if any, initialed in the partnership agreement, or otherwise singled out to avoid a claim that the limited partner did not notice it. ARTICLE 7. MEETINGS AND CONSENTS OF PARTNERS Practice Comment: The provisions of this Article generally parallel those relating to shareholders of a corporation. These provisions may not be needed in every partnership or variations may be appropriate. 7.1 Consents and Voting. (a) Sole Discretion. A Limited Partner (including the General Partner with respect to any Partnership Interest it may have as a Limited Partner) may grant or withhold its consent or vote its interest in its sole discretion, without regard to the interests of the Partnership or any Interest Owner. Practice Comment: Although this rule generally prevails, there are instances in which a limited partner's right to vote free of any restriction or duty to the other partners may be challenged. Therefore, it is prudent to include this language if it reflects the intent of the parties. (b) Only Partners of Record to Vote. Only Partners of record, acting personally or through a Qualified Representative, are entitled to vote on matters submitted to a vote of Partners. A Partner is deemed present at a meeting only if present in person or through a Qualified Representative. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -35- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: This provision and the next one are intended to assure that the status rights associated with a partnership interest are not indirectly transferred. (c) No Proxies. Partners are not entitled to vote by proxy unless the proxy is exercised by a Qualified Representative. 7.2 Meetings. At any time, either the General Partner or Limited Partners owning Partnership Interests entitling them to at least 10% of the Sharing Ratios of all Limited Partners may call a meeting of the Partners to transact business that the Partners or any group of Partners may conduct as provided in this Agreement. A meeting may be called by notice to all Partners entitled to vote thereat on or before the tenth day prior to the date of the meeting specifying the location and the time and stating the business to be transacted at the meeting. The chairperson of the meeting shall be an individual the Person(s) sending the notice of the meeting specifies. At the meeting, the Partners may take any action included in the notice of the meeting by vote of Partners present, in person or through a Qualified Representative, constituting Partners whose consent is required for that action pursuant to the other provisions of this Agreement. With respect to other matters, the meeting must be conducted in accordance with rules that the General Partner and a Majority in Interest of the Limited Partners establish or, failing agreement on rules, in accordance with Robert's Rules of Order. 7.3 Action Without Meeting. Any action that may be taken, or that is required by law or this Agreement to be taken, by the Partners or any group thereof may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall have been signed by the Partner(s) whose consent is necessary to take the action. The consent may be in one or more counterparts. For purposes of this Section, a telegram, telex, cablegram, or similar transmission by a Person or a photographic, photostatic, facsimile, or similar reproduction of a writing signed by a Person shall be regarded as signed by that Person. In any request for consent or approval from another Partner, the requesting Partner(s) may specify a response period, ending no earlier than the fifth following the date on which the Partner whose consent or approval is sought receives the request as described in Section 13.2. If the receiving Partner does not respond by the end of this period, it shall be deemed to have not consented to or approved the action set forth in the request. Prompt notice of such action shall be given to each Partner who did not consent to such action in writing, but failure to give such notice shall not affect the validity of such action. Practice Comment: Consider whether it would be preferable to provide that failure to respond is the equivalent of consent being given rather than denied. 7.4 Action by Telephone Conference. Partners may participate in and hold a meeting by means of a conference telephone or similar communications equipment by means of which all Persons participating in the meeting can hear each other, and participation in such meeting shall constitute attendance and presence in person at such meeting, except where a Person participates Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -36- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE 8. BANK ACCOUNTS, INVESTMENTS, GENERAL ACCOUNTING PROVISIONS, AND REPORTS 8.1 Books of Account; Access. Appropriate books of account shall be kept at the principal office of the Partnership, and each Partner and its representatives shall have reasonable access to all books, records, and accounts of the Partnership during regular business hours and shall be entitled to be furnished with such other information concerning the operations and investments of the Partnership as it may reasonably request. The books of account for the Partnership shall be maintained on a cash basis in accordance with generally accepted cash basis accounting principles, consistently applied, except that the Capital Accounts of the Partners shall be maintained in accordance with Section 3.6. The calendar year shall be the accounting year of the Partnership. Practice Comment: Consider whether confidentiality provisions should be added. §1.07(d) of TRLPA favors broad inspection rights and any limitation on those rights should be worded to fit within the parameters of that section. 8.2 Annual Reports. On or before the 120th day following the end of each Fiscal Year during the term of the Partnership, the General Partner shall cause each other Partner to be furnished with a balance sheet, an income statement, and a statement of changes in Partners' capital of the Partnership for, and as of the end of, that year. These financial statements must be prepared in accordance with the accounting principles required by Section 8.1 and may be, if requested by a Majority in Interest of the Limited Partners, certified by a recognized firm of certified public accountants chosen by such Limited Partners. If they are so certified, the financial statements shall be accompanied by a report of the certified public accountants certifying the statements and stating that (a) their examination was made in accordance with generally accepted auditing standards and, in their opinion, the financial statements fairly present the financial position, financial results of operations, and changes in Partners' capital in accordance with accounting principles generally employed for records kept in accordance with Section 8.1 (except as therein noted) and (b) in making the examination and reporting on the financial statements described above, nothing came to their attention that caused them to believe that (i) the income and revenues were not paid or credited in accordance with the financial and accounting provisions of this Agreement, (ii) the costs and expenses were not charged in accordance with the financial and accounting provisions of this Agreement, or (iii) the General Partner or any other Partner failed to comply in any material respect with the financial and accounting provisions of this Agreement, or if they do conclude that the General Partner or another Partner so failed, specifying the nature and period of existence of the failure. The General Partner also may cause to be prepared or delivered such other reports as it may deem appropriate. The Partnership shall bear the costs of all these reports. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -37- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: This provision does not mandate audited financial statements unless the limited partners feel the expense of an audit is justified. Consider whether the general partner should have the right to cause an audit to be done at partnership expense even if the limited partners do not approve. Also consider whether the other tasks with which the auditor is charged are appropriate. Each one involves some additional cost that may not be warranted in the particular situation. 8.3 Bank Accounts. The General Partner shall establish and maintain in the name of the Partnership one or more accounts at one or more banks that are members of the Federal Deposit Insurance Corporation. All Partnership funds shall be deposited into such account(s). No other funds shall be deposited into any such account. Funds deposited in any such account may be withdrawn only to pay Partnership debts or obligations, to make distributions to the Partners pursuant to this Agreement, or to make Permitted Investments. 8.4 Investments. Partnership funds may be invested in cash in interest bearing accounts that are fully insured by the United States government ("Permitted Investments"). Practice Comment: Depending on how much excess cash the partnership may have at any time and how aggressive the partners want to be, the definition of "Permitted Investments" could be significantly expanded from what is included in this provision. ARTICLE 9. TAXES 9.1 Tax Returns. The General Partner shall cause to be prepared and filed all necessary federal and state income tax returns for the Partnership, including making the elections described in Section 9.2. Each Partner shall furnish to the General Partner all pertinent information in its possession relating to Partnership operations that is necessary to enable the Partnership's income tax returns to be prepared and filed. Practice Comment: Consider whether to require the general partner to have the K-1s delivered to the limited partners by a certain date. 9.2 Tax Elections. appropriate tax returns: (a) The Partnership shall make the following elections on the to adopt the calendar year as the Partnership's fiscal year; (b) to adopt the cash method of accounting and to keep the Partnership's books and records on the income-tax method; (c) if a distribution of Partnership property as described in section 734 of the Code occurs or if a transfer of a Partnership Interest as described in section 743 of the Code occurs, on request by notice from any Partner, to elect, pursuant to section 754 of the Code, to adjust the basis of Partnership properties; Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -38- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (d) to elect to amortize the organizational expenses of the Partnership ratably over a period of 60 months as permitted by section 709(b) of the Code; and (e) any other election the General Partner may deem appropriate and in the best interests of the Partners. Neither the Partnership nor any Partner may make an election for the Partnership to be excluded from the application of the provisions of subchapter K of chapter 1 of subtitle A of the Code or any similar provisions of applicable state law. 9.3 Tax Matters Partner. The General Partner shall be the "tax matters partner" of the Partnership pursuant to section 6231(a)(7) of the Code. The General Partner shall take such action as may be necessary to cause each other Partner to become a "notice partner" within the meaning of section 6223 of the Code. The General Partner shall inform each other Partner of all significant matters that may come to its attention in its capacity as tax matters partner by giving notice thereof on or before the fifth Business Day after becoming aware thereof and, within that time, shall forward to each other Partner copies of all significant written communications it may receive in that capacity. The General Partner may take any action contemplated by sections 6222 through 6232 of the Code only with the consent of a Majority in Interest of the Limited Partners and then only if such action is not one left to the determination of an individual Partner under sections 6222 through 6232 of the Code. ARTICLE 10. RESTRICTIONS ON CERTAIN TRANSFERS AND COMPETITIVE ACTIVITIES 10.1 General Prohibition. No Person shall make or suffer any Transfer of all or any part of its Partnership Interest, whether now owned or hereafter acquired, except in accordance with the terms of this Agreement or upon death or disability, and any purported Transfer not made in compliance with this Agreement shall be void and of no force and effect. Practice Comment: The restrictions on transfer and substitution in this Article give partners comfort that they will not be forced to be partners with someone unacceptable. These restrictions are no longer needed to negate the corporate characteristic of free transferability for federal income tax classification purposes. Practice Comment: Note that the restriction relates to any person and not just to partners. This is necessary because of the possibility that someone will own a partnership interest as a mere assignee. 10.2 Transfer by General Partner. Each Limited Partner has entered into this Agreement, in part, based upon the identity of the General Partner. The General Partner shall not make or suffer any Transfer of all or any part of its Partnership Interest, whether now owned or hereafter acquired, except with the prior written consent of a Majority in Interest of the Limited Partners. The Limited Partners will be excused from accepting the performance of and rendering Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -39- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. performance to any other Person as a general partner hereunder (including any trustee or assignee of the General Partner) as to whom such prior written consent has not been rendered. Practice Comment: This is a fairly onerous prohibition on transfers by the general partner. Consider whether a general partner can transfer its partnership interest to an affiliate without consent. Consider the implications if the general partner is an individual who will inevitably make a transfer upon death, if not sooner. 10.3 Transfer by Limited Partner; Right of Purchase. (a) No Transfers . No Person shall make or suffer any Transfer of all or any part of a Limited Partner Interest, whether now owned or hereafter acquired, except with the prior written consent of the General Partner or as a result of death, disability, or divorce (to the extent the spouse of the Person who owns such Limited Partner Interest has a community interest in or other entitlement thereto). Practice Comment: Consider whether the limited partners should make this decision rather than the general partner. (b) Right to Purchase Upon Death or Disability. Within one year after a Transfer of any Limited Partner Interest as a result of death or disability, the Limited Partners, other than the Limited Partner whose Limited Partner Interest was Transferred, shall have the right to purchase the Transferred Limited Partner Interest for its Fair Value. If there is more than one Limited Partner who desires to exercise such right (each, a "Purchasing Limited Partner"), the Transferred Limited Partner Interest will be allocated among all Purchasing Limited Partners as follows: First, a portion of the Transferred Limited Partner Interest will be allocated to each Purchasing Limited Partner to the extent of the lesser of (i) the Purchasing Limited Partner's pro rata portion (based on the number of Units owned by such Purchasing Limited Partner relative to the number of Units of all Purchasing Limited Partners) of the Limited Partner Interest and (ii) the portion of the Transferred Limited Partner Interest such Purchasing Limited Partner expressed a desire to purchase. If, after such allocation, any portion of the Transferred Limited Partner Interest has not been allocated to the Purchasing Limited Partners, a similar allocation sha ll be made among the Purchasing Limited Partners who have not been allocated the full portion of the Transferred Limited Partner Interest that such Purchasing Limited Partners desire to purchase. Such procedure shall be continued until all of the Transferred Limited Partner Interest has been allocated, if possible. Practice Comment: Consider whether, rather than having an absolute prohibition on transfers, each partner should grant a right of first refusal or a right of first offer to other partners instead. Consider whether there are other events that will give rise to the right or obligation of some or all of the partners to buy an interest owner's partnership interests. Consider who has the right to purchase the partnership interests. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -40- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (c) Right to Purchase Upon Divorce. If, as a result of divorce, a Limited Partner Interest is Transferred to the spouse of the person who was, prior to such divorce (the "Divorced LP Interest Owner"), the holder of such LP Interest, the Limited Partners, including, if applicable, the Limited Partner who was a party to such divorce, shall have the right to purchase the Transferred Limited Partner Interest for its Fair Value. If there is more than one Limited Partner who desires to exercise such right, the Transferred Limited Partner Interest will be allocated using the concepts set out in Subsection 10.3(b) but giving the Divorced Interest Owner priority. 10.4 Securities Laws Compliance. The Partnership Interests have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the state securities laws of Texas or any other state. Without such registration, no Interest Owner may effect or suffer a Transfer until the Interest Owner provides evidence satisfactory to the General Partner which, in the discretion of the General Partner, may include an opinion of counsel satisfactory to the General Partner that such registration is not required for such Transfer to the effect that any such Transfer will not be in violation of the Securities Act of 1933, as amended, applicable state securities laws, or any rule or regulation promulgated thereunder. Practice Comment: Confirm that the provisions of this section are consistent with the legend at the beginning of the partnership agreement and are sufficient to permit the offering of partnership interests to fall within the appropriate exemption under both federal and state securities laws. 10.5 Substituted Partners. Unless otherwise provided in this Agreement, an assignee of a Partner may become a substituted partner only with the consent of the General Partner and a Majority in Interest of the Limited Partners and compliance with any other requirements of the Partnership Act (other than any that require a different consent of Partners). Practice Comment: Absent a provision in the partnership agreement concerning substitution of partners, unanimity of partners is required to authorize a substitution. See §7.04(a) of TRLPA. Consider whether just the consent of the general partner is sufficient. Practice Comment: Consider whether the consent of the general partner should be conditioned on anything, including, for example, an opinion that no termination of the partnership for federal income tax purposes will result from the substitution. Practice Comment: If certain transfers are exempted from the restrictions on transfers, consider whether they should also be exempted from these substitution requirements. Practice Comment: Be sure to remember that an assignment does not, by itself, caus e a substitution. A substitution must be addressed as a matter separate and apart from a mere assignment. Failure to handle this issue properly can result in the "wrong" people being partners. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -41- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. 10.6 Amendment of Certificate of Limited Partnership. If required by the Partnership Act, the Partners shall cause the Certificate to be amended, if and when appropriate, to reflect the substitution or addition of Partners in accordance with this Agreement. 10.7 Competition. Neither this Agreement nor the relationship created hereby shall preclude or limit, in any respect, the right of any Interest Owner or a Partner or any Affiliate of any Interest Owner or a Partner to engage, directly or indirectly, through participation, investment, or otherwise, in any opportunity or business of any type, including those that may be the same as or similar to the Partnership or its business, those that compete with the Partnership, and those in which the Partnership has invested. Neither an Interest Owner or a Partner nor any Affiliate of an Interest Owner or a Partner shall have any obligation to offer to the Partnership or any other Interest Owner or Partner the right to participate in any such activity. Neither the Partnership nor any Interest Owner or Partner shall have any right, by virtue of this Agreement or the relationship created by this Agreement, with respect to any such activity. Practice Comment: There will be instances in which the parties desire to limit the ability of some or all of the partners to compete with the partnership. Rather than relying on the relatively general standards imposed on general partners under §4.04 of TRPA (which arguably bind only general, but not limited, partners), it would be prudent to spell those limitations out in the partnership agreement. ARTICLE 11. DISSOLUTION 11.1 Dissolution. Subject to Section 13.15, upon the happening of the first to occur of the following events, the Partnership shall be dissolved: (a) December 31, 2053; (b) the execution by all Partners of an instrument dissolving the Partnership; (c) Partner; or the occurrence of an Event of Withdrawal with respect to a General (d) the entry of a decree of judicial dissolution under Section 8.02 of the Partnership Act. The death, insanity, disability, bankruptcy, dissolution, or other event occurring with respect to any Limited Partner shall not dissolve the Partnership. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -42- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: A fixed date for dissolution is advisable to negate the right of a limited partner to withdraw from the partnership under §6.03 of TRLPA. There may be other events that the parties want to trigger a dissolution, including, for instance, a sale of all or substantially all of the assets of the partnership. However, such a provision, if coupled with a vote of the limited partners to approve the sale, may create securities laws issues under Rule 145 promulgated under the Securities Act of 1933, as amended. 11.2 Continuation. If the Partnership is dissolved pursuant to clause (a) or (c) of Section 11.1, the business of the Partnership may be continued without being wound up if (a) there remains at least one General Partner and the remaining General Partner or Partners continue to carry on the business of the Partnership, which such General Partner(s) are expressly permitted to do, or (b) within 90 days after the occurrence of the event of dissolution, a Majority in Interest of the Limited Partners agree in writing to continue the business of the Partnership and, to the extent that they desire or if there are no remaining General Partners, agree to the appointment, effective as of the date of an Event of Withdrawal, of one or more new General Partners. If the Partnership is reconstituted, an amendment to the Certificate shall be executed and filed of record. Practice Comment: This language is intended to provide for the continuation of the partnership to the maximum extent permitted by §8.01 of TRLPA. Practice Comment: Consider whether there are circumstances in which it would be appropriate to require the general partner or the limited partners to agree to continue the business. Practice Comment: Consider whether the 90-day period specified should be lengthened. 11.3 Interim Manager. If the Partnership is dissolved, a Majority in Interest of the Limited Partners may appoint an interim manager of the Partnership, who shall have and ma y exercise only the rights, powers, and duties of a general partner necessary to preserve the Partnership assets, until (a) a new general partner, if any, is elected, if the Partnership is reconstituted or (b) the Liquidating Manager is appointed, if the Partnership is not reconstituted. The interim manager shall not be liable as a general partner to the Partners. 11.4 Effect of Dissolution. The dissolution shall be effective on the day on which the event giving rise to the dissolution occurs, but the Partnership shall not terminate until the assets have been distributed in accordance with Article 12. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -43- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: As noted above, it is important to understand the difference between dissolution and termination. The partnership needs to continue in existence following dissolution in order to complete the liquidation and winding up of the partnership's affairs. If the partnership continues only until it is dissolved, the dissolution and termination must, by definition, occur at the same time, which is not practical and creates a question as to what the terminated partnership is during the winding-up phase. ARTICLE 12. 12.1 WINDING UP AND TERMINATION Winding Up and Termination. (a) General. As expeditiously as possible following a dissolution, the Liquidating Manager shall proceed to wind up the affairs of the Partnership, liquidate the assets, pay the liabilities, and make liquidating distributions to the Interest Owners, in the following order of priority: (i) subject to Subsection 5.2(d), the Liquidating Manager shall sell Partnership assets (which sale may be made to any or all of the Partners and Interest Owners and their respective Affiliates) only to the extent necessary to pay all of the debts and liabilities of the Partnership (including all expenses incurred in liquidation and debts and liabilities owed to Partners and Interest Owners other than in their capacity as Partners or Interest Owners) or otherwise make adequate provision therefor (including the establishment of a Liquidation Escrow to pay for contingent liabilities in such amount and for such term as the Liquidating Manager may reasonably determine), and any resulting Profits or Losses from each sale shall be computed and allocated to the Capital Accounts of the Interest Owners in the manner described in Article 4; (ii) subject to Subsection 5.2(d), the Liquidating Manager shall sell all remaining Partnership property (other than the Liquidation Escrow) (which sale may be made to any or all of the Partners and Interest Owners and their respective Affiliates), and any resulting Profits or Losses from each sale shall be computed and allocated to the Capital Accounts of the Interest Owners in the manner described in Article 4; (iii) the Gross Asset Value of any Partnership property that is to be distributed in kind shall be determined by the Liquidating Manager using such reasonable methods as it shall adopt and the Capital Accounts of the Interest Owners shall be adjusted in accordance with this Agreement; (iv) all remaining cash and other Partnership property (other than the Liquidation Escrow) shall be distributed among the Interest Owners in accordance with the positive Capital Account balances of the Interest Owners. Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -44- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Practice Comment: This language contemplates that the partnership's assets may be distributed in kind if a majority in interest of the limited partners agree. This may not be appropriate for every transaction. Practice Comment: Consider adding a provision that permits the partnership to continue to do business for a period of time reasonably necessary to maximize the value of the partnership's assets. For instance, if the partnership is building an apartment project and dissolution occurs, the partners may want the project completed before attempting to market it. §8.03(c) of TRPA expressly endorses this concept, but only to the extent necessary to avoid an "unreasonable loss." Practice Comment: This provision specifically authorizes a sale of the partnership's assets to partners and their affiliates. Frequently, a partner is the most likely purchaser of the partnership's assets. (b) Powers . Until final distribution, the Liquidating Manager shall continue to operate the Partnership properties with all of the power and authority of the General Partner. (c) Cost of Liquidation. Partnership expense. The costs of liquidation shall be borne as a (d) Termination; Release of Liquidation Escrow. At the time such distributions are made in accordance with subsection (a), the Partnership shall terminate, but if at any time thereafter any of the funds in the Liquidation Escrow are released because, in the opinion of the Liquidating Manager, the need for such escrow has ended, such funds shall be distributed in accordance with subsection (a). (e) No Recourse. No Partner shall have any recourse against the Partnership or any other Partner for the return of its Capital Contributions or any distributions not required by this Agreement except as contemplated by Section 3.8. 12.2 Cancellation of Certificate. On completion of the distribution of Partnership assets as provided herein, the Partnership is terminated, and the General Partner (or such other Person or Persons as the Partnership Act may require or permit) shall cause the cancellation of the Certificate and any other filings made as provided in Section 2.7 and shall take such other actions as may be necessary to terminate or reflect the termination of the Partnership. Practice Comment: Note that the partnership does not terminate upon dissolution. ARTICLE 13. MISCELLANEOUS 13.1 Amendment or Modification. Except to the extent this Agreement otherwise provides for a change to be effected without the approval required in this Section, this Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -45- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Agreement may be amended or modified at any time and from time to time only by a written instrument approved by the General Partner and a Majority in Interest of the Limited Partners; provided, however, that (a) an amendment or modification (i) reducing an Interest Owner's share of distributions (other than as a result of the issuance of additional Partnership Interests or adjustments to Sharing Ratios authorized without violation of this Agreement) or (ii) increasing the obligation of an Interest Owner to make Capital Contributions also requires the consent of the Person last admitted as a Partner with respect to the Partnership Interest of such Interest Owner, (b) an ame ndment that disproportionately affects one Interest Owner also requires the consent of the Person last admitted as a Partner with respect to the Partnership Interest of such Interest Owner, (c) an amendment that disproportionately affects one Partner also requires the consent of such Partner, (d) an amendment that disproportionately affects a group of Interest Owners also requires the consent of a Majority in Interest of the Persons last admitted as Partners with respect to the Partnership Interests of such Interest Owners, (e) an amendment that disproportionately affects a group of Partners also requires the consent of a Majority in Interest of such Partners, (f) an amendment or modification reducing the required measure for any consent or vote in this Agreement requires only the consent or vote of Partners having the measure theretofore required, (g) an amendment or modification made solely to reflect the admission or withdrawal of a Partner need not be approved by any Partner if the requirements set forth in this Agreement with respect to such admission or withdrawal are otherwise satisfied; and (h) an amendment or modification that modifies the mandatory nature of the obligation of Interest Owners to make Additional Capital Contributions or the voluntary nature of the obligation of Interest Owners to make Partner Loans requires the consent of a Supermajority in Interest of the Partners last admitted as Partners with respect to the Partnership Interests of such Interest Owners rather than a simple Majority in Interest. Practice Comment: Absent express authorization to amend the partnership agreement, a unanimous vote of partners is required, which is frequently difficult to obtain. Practice Comment: Some partnership agreements give the general partner more authority to amend the partnership agreement without the consent of the limited partners to comply, for instance, with the requirements of a lender or federal or state regulatory agency. Practice Comment: Carefully consider whether the vote of limited partners, rather than mere assignees, is appropriate in each circumstance. 13.2 Notices. All notices required or permitted to be given pursuant to this Agreement shall be in writing and shall be personally delivered, or mailed, first class postage prepaid, or delivered by a nationally recognized express courier service, charges prepaid, if to the Partnership to the address of the Partnership's registered office (as reflected on the records of the Secretary of State of the State of Texas) and if to a Partner, to the appropriate address set forth on Exhibit A to this Agreement, and if to an Interest Owner, to the address shown on the records of the Partnership. Any such notice, when sent in accordance with the provisions of the preceding sentence, shall be deemed to have been given and received (a) on the day personally delivered, Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -46- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. (b) on the third day following the date mailed, or (c) twenty-four hours after shipment by such courier service. A Partner may change its address by giving notice in writing to all other Partners and Interest Owners in the manner set forth in this Section, stating the new address. Practice Comment: The requirement to use certified or registered mail, which is frequently seen in notice provisions, is often cumbersome and unnecessary. Consider whether notice by facsimile or electronic mail is appropriate. 13.3 Failure to Pursue Remedies. The failure of any party to seek redress for violation, or to insist upon the strict performance, of any provision of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation. 13.4 Section Headings. The headings in this Agreement are inserted for convenience and identification only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof. 13.5 Severability of Provisions. Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement and the illegal or invalid provision shall be enforced to the maximum extent possible to still be legal and valid. 13.6 Governing Law; Venue. This Agreement, and the application or interpretation thereof, shall be governed exclusively by its terms and by the laws of the State of Texas. Except for those actions, proceedings, or claims which this Agreement provides will be settled by arbitration, any action, proceeding, or claim arising out of or relating to this Agreement commenced by any Partner or Interest Owner in its individual capacity must be prosecuted in Dallas County, Texas. Each Partner and Interest Owner waives any plea of privilege that might exist in the absence of such Partner's or Interest Owner's agreement to prosecute such claim in Dallas County, Texas, and each Partner and Interest Owner irrevocably submits to the nonexclusive jurisdiction of the state and federal courts of the State of Texas and consents to service of process upon such Partner or Interest Owner in any legal proceeding arising out of or in connection with this Agreement. 13.7 Cumulative Remedies. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or constitute a waiver of its right to use any or all other remedies. Such rights and remedies are given in addition to any other rights the Partners and Interest Owners may have by law, statute, ordinance, or otherwise. 13.8 Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if the Partners had all signed the same document. All counterparts shall be construed together and shall constitute one ins trument. In making proof of this Agreement, it Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -47- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. shall not be necessary to account for more than one counterpart executed by the Person against whom enforcement is sought. 13.9 Successors and Assigns. Each and every covenant, term, provision, and agreement herein contained shall be binding upon each of the Partners and their respective heirs, legal representatives, successors, and assigns and shall inure to the benefit of each of the Partners. Unless and until properly admitted as a Partner, no assignee shall have any rights of a Partner beyond those provided by the Partnership Act to assignees or otherwise expressly provided herein to assignees. Practice Comment: Note that this language differs from the boilerplate language concerning assigns in order to effect the concept that an assignee does not succeed to all of the rights of a partner until it is properly substituted. However, this language does bind an assignee so that, for instance, restrictions on transfers of partnership interests are binding on trans ferees even if they are not admitted as partners. 13.10 Construction, Sections, Exhibits, Etc. Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine, and neuter. Each reference to an "Exhibit" herein is, unless specifically indicated otherwise, a reference to an exhibit attached hereto, all of which are made a part hereof for all purposes, it being understood that if any Exhibit that is to be executed and delivered pursuant to the terms hereof contains blanks, it shall be completed correctly and completely in accordance with the terms and provisions hereof and as contemplated herein prior to or at the time of its execution and delivery. 13.11 Further Assurances. In connection with this Agreement and the transactions contemplated by it, each Partner and Interest Owner shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and those transactions. 13.12 Waiver of Certain Rights. Each Partner and Interest Owner irrevocably waives any right it may have to maintain any action for dissolution of the Partnership (other than pursuant to Article 12) or for partition of the property of the Partnership. 13.13 Attorneys' Fees. If the Partnership or any Partner or Interest Owner brings any legal action to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and expenses, in addition to any other relief to which such party may be entitled. 13.14 Entire Agreement. This Agreement sets forth the entire Agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, if any, related thereto. 13.15 Transition to Texas Revised Partnership Act. The parties understand that the Texas Revised Partnership Act has eliminated the concept of dissolution of a partnership and replaced it with the concept of events requiring a winding up. If and when the Partnership Act is Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -48- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. amended to provide that events of dissolution are no longer applicable to the Partnership and are replaced by the concept of events requiring a winding up, (a) this Agreement shall automatically be amended so that each reference to dissolution in this Agreement shall be a reference to an event requiring a winding up and (b) Section 11.1 shall automatically be amended to delete therefrom Subsection 11.1(c). The Partners agree to take all action and execute all agreements necessary or appropriate to effect such amendments. Practice Comment: This provision is intended to cure automatically the current "disconnect" between TRLPA and TRPA with respect to the continuation of a partnership. TRLPA says that, upon dissolution, the partnership is to terminate unless its business is continued by affirmative action. Contrast that with TRPA, which does not use the term "dissolution" and has a bias in favor of continuing a partnership unless there is an affirmative agreement to the contrary. [This page intentionally left blank. Signature page follows.] Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -49- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. Executed on the date or dates indicated below, to be effective as of the date first set forth above. GENERAL PARTNER: [NEWCO] By: Name (print): Title: Date: , 2003 INVESTORS: [Signature line to be added for each Investor] Agreement of Limited Partnership Copyright 2003 by Sally A. Schreiber. All rights reserved. -50- WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. EXHIBIT A NAME, ADDRESS, AND UNITS OF PARTNERS Name Address Units General Partner: Newco N/A Limited Partners: [name, address, and number of Units to be added for each Investor] Agreement of Limited Partnership – Exhibit A Copyright 2003 by Sally A. Schreiber. All rights reserved. WARNING: THIS SAMPLE SHOULD NOT BE USED AS IS FOR ANY TRANSACTION. IT WAS DRAFTED MERELY TO ILLUSTRATE CERTAIN ISSUES. EXHIBIT B PROPERTY Agreement of Limited Partnership – Exhibit B Copyright 2003 by Sally A. Schreiber. All rights reserved. DALLAS 850863_4 990000.1
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