Agreement Of Limited Partnership

EXHIBIT 10.1


AGREEMENT OF LIMITED PARTNERSHIP


OF


BAY PACIFIC NORTHWEST, L.P.


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TABLE OF CONTENTS


PAGE


ARTICLE 1
DEFINED TERMS.......................................................... 1
ARTICLE 2
ORGANIZATIONAL MATTERS................................................. 14
Section 2.1 FORMATION.................................................. 14
Section 2.2 NAME....................................................... 15
Section 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE.............. 15
Section 2.4 POWER OF ATTORNEY.......................................... 15
Section 2.5 TERM....................................................... 17
ARTICLE 3
PURPOSE................................................................ 17
Section 3.1 PURPOSE AND BUSINESS....................................... 17
Section 3.2 POWERS..................................................... 17
ARTICLE 4
CAPITAL CONTRIBUTIONS.................................................. 18
Section 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS...................... 18
Section 4.2 NO ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS............ 19
Section 4.3 DISCRETIONARY CAPITAL CONTRIBUTIONS........................ 19
Section 4.4 NO GUARANTEED PAYMENT WITHIN THE MEANING OF
SECTION 707(c) OF THE INTERNAL REVENUE CODE................ 20
Section 4.5 FUNDING TO COMPENSATE FOR CERTAIN DISTRIBUTIONS............ 20
ARTICLE 5
DISTRIBUTIONS.......................................................... 20
Section 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS.......... 20
Section 5.2 AMOUNTS WITHHELD........................................... 22
ARTICLE 6
ALLOCATIONS OF PROFIT AND LOSS......................................... 22
Section 6.1 CAPITAL ACCOUNTS........................................... 22
Section 6.2 PROFITS, LOSSES AND DISTRIBUTIVE SHARES.................... 23
Section 6.3 NEGATIVE CAPITAL ACCOUNTS.................................. 28
Section 6.4 APPLICATION TO ASSIGNEES................................... 28


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ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS.................................. 28
Section 7.1 MANAGEMENT............................................... 28
Section 7.2 CERTIFICATE OF LIMITED PARTNERSHIP....................... 31
Section 7.3 RESTRICTIONS ON GENERAL PARTNER AUTHORITY................ 32
Section 7.4 REIMBURSEMENT OF THE GENERAL PARTNER..................... 33
Section 7.5 CONTRACTS WITH AFFILIATES................................ 33
Section 7.6 INDEMNIFICATION.......................................... 34
Section 7.7 LIABILITY OF THE GENERAL PARTNER......................... 35
Section 7.8 OTHER MATTERS CONCERNING THE GENERAL PARTNER............. 36
Section 7.9 TITLE TO PARTNERSHIP ASSETS.............................. 37
Section 7.10 RELIANCE BY THIRD PARTIES................................ 37
Section 7.11 GENERAL PARTNER'S CAPITAL CONTRIBUTION TO FUND THE
CONTRIBUTORS' PRORATIONS AND OTHER EXPENSES
UNDER THE CONTRIBUTION AGREEMENTS........................ 38
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................. 38
Section 8.1 LIMITATION OF LIABILITY.................................. 38
Section 8.2 MANAGEMENT OF BUSINESS................................... 38
Section 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS AND ASSIGNEES..... 38
Section 8.4 RETURN OF CAPITAL........................................ 39
Section 8.5 EXCHANGE RIGHTS OF QUALIFYING PARTIES.................... 39
Section 8.6 THE GENERAL PARTNER'S RIGHT TO CALL LIMITED PARTNER
INTERESTS................................................ 44
Section 8.7 OTHER EXCHANGES.......................................... 44
Section 8.8 RIGHT TO NOTICE UPON SPECIAL DIVIDEND BY BAY............. 45
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS................................. 45
Section 9.1 RECORDS AND ACCOUNTING................................... 45
Section 9.2 FISCAL YEAR.............................................. 45
Section 9.3 REPORTS.................................................. 46
Section 9.4 CONFIDENTIAL MATERIAL.................................... 46
ARTICLE 10
TAX MATTERS............................................................ 46
Section 10.1 PREPARATION OF TAX RETURNS............................... 46
Section 10.2 TAX ELECTIONS............................................ 46
Section 10.3 TAX MATTERS PARTNER...................................... 47
Section 10.4 ORGANIZATIONAL EXPENSES.................................. 48
Section 10.5 WITHHOLDING.............................................. 49


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ARTICLE 11
TRANSFERS AND WITHDRAWALS.............................................. 50
Section 11.1 TRANSFER................................................. 50
Section 11.2 TRANSFER OF THE GENERAL PARTNER INTEREST................. 50
Section 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER..................... 51
Section 11.4 SUBSTITUTED LIMITED PARTNERS............................. 52
Section 11.5 ASSIGNEES................................................ 53
Section 11.6 INTENTIONALLY OMITTED.................................... 53
Section 11.7 GENERAL PROVISIONS....................................... 53
ARTICLE 12
ADMISSION OF PARTNERS.................................................. 54
Section 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER................... 54
Section 12.2 AMENDMENT OF AGREEMENT AND CERTIFICATE OF
LIMITED PARTNERSHIP...................................... 54
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION............................... 55
Section 13.1 DISSOLUTION.............................................. 55
Section 13.2 WINDING UP............................................... 56
Section 13.3 RIGHTS OF PARTNERS....................................... 57
Section 13.4 NOTICE OF DISSOLUTION.................................... 57
Section 13.5 TERMINATION OF PARTNERSHIP AND CANCELLATION OF
CERTIFICATE OF LIMITED PARTNERSHIP....................... 57
Section 13.6 REASONABLE TIME FOR WINDING-UP........................... 58
Section 13.7 WAIVER OF PARTITION...................................... 58

ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS........................... 58
Section 14.1 AMENDMENTS............................................... 58
Section 14.2 MEETINGS OF THE PARTNERS................................. 59
ARTICLE 15
GENERAL PROVISIONS..................................................... 59
Section 15.1 ADDRESSES AND NOTICE..................................... 59
Section 15.2 TITLES AND CAPTIONS...................................... 60
Section 15.3 PRONOUNS AND PLURALS..................................... 60
Section 15.4 FURTHER ACTION........................................... 60
Section 15.5 BINDING EFFECT........................................... 60
Section 15.6 CREDITORS................................................ 60
Section 15.7 WAIVER................................................... 60
Section 15.8 COUNTERPARTS............................................. 61
Section 15.9 APPLICABLE LAW........................................... 61


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Section 15.10 INVALIDITY OF PROVISIONS................................ 61
Section 15.11 ENTIRE AGREEMENT........................................ 61


EXHIBITS


Exhibit A - Partners Contributions and Partnership Interests Exhibit B - Form of Guarantee Exhibit C - Form of Notice of Exchange Exhibit D - Form of Prospective Subscriber Questionnaire Exhibit E - Representations and Warranties


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AGREEMENT OF LIMITED PARTNERSHIP
OF
BAY PACIFIC NORTHWEST, L.P.


THIS AGREEMENT OF LIMITED PARTNERSHIP OF Bay Pacific Northwest, L.P. (as it may be amended, supplemented or restated from time to time, this "Agreement"), dated as of September 12, 1997, is entered into by Bay Apartment Communities, Inc., a Maryland corporation (the "General Partner") and the Persons (as defined below) whose names are set forth on EXHIBIT A attached hereto (as it may be amended from time to time) (collectively, the "Initial Limited Partners").


NOW THEREFORE, in consideration of the mutual covenants herein contained, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:


ARTICLE 1
DEFINED TERMS


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


"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute.


"ADJUSTED CAPITAL ACCOUNT" means, with respect to any Partner or Assignee, such Partner's or Assignee's Capital Account maintained in accordance with Section 6.1 hereof, as of the end of the relevant period, after giving effect to the following adjustments:


A. Credit to such Capital Account that portion of any deficit Capital Account balance that such Partner or Assignee is obligated to restore under the terms of this Agreement or any other document, such Partner's or Assignee's share of Minimum Gain determined in accordance with Treasury Regulations Section 1.704-2(g)(1) and such Partner's or Assignee's share of Partner Nonrecourse Debt Minimum Gain determined in accordance with Treasury Regulations Section 1.704-2(i)(5).


B. Debit to such Capital Account the items described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).


The foregoing definition of "Adjusted Capital Account" is intended to comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2) and 1.704-2, and shall be interpreted consistently therewith.


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"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner or Assignee, the deficit balance, if any, in that Partner's or Assignee's Adjusted Capital Account as of the end of the relevant period.


"ADJUSTMENT FACTOR" means 1.0; provided, however, that in the event Bay or its successors in interest (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares, (iii) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, or (iv) issues REIT Shares to all holders of its outstanding REIT Shares pursuant to a recapitalization or reclassification of outstanding REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (A) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (B) the denominator of which shall be the actual number of REIT Shares (determined by assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has not occurred as of such time) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination; provided, further, that in the event Bay or its successor in interest engages in a Transaction that results in the Transfer of the General Partner Interest, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction (A) the numerator of which shall be the Value of a REIT Share of the predecessor General Partner immediately prior to the effectiveness of the Transaction and the denominator of which shall be the Value of a REIT Share of the successor General Partner immediately prior to the effectiveness of the Transaction, provided, further, that the Adjustment Factor shall be adjusted in the event of a distribution pursuant to Section 5.1.B(3) and Section 5.1.B(4) of this Agreement by multiplying the Adjustment Factor previously in effect by a fraction (X) the numerator of which shall be the aggregate Fair Market Value of all Limited Partner Interests held by the Limited Partners and the Assignees as of the date of such distribution minus the aggregate distribution to the Limited Partners and the Assignees pursuant to Section 5.1.B(3) and Section 5.1.B(4) hereof on such date and (Y) the denominator of which shall be the aggregate Fair Market Value of all Limited Partner Interests held by the Limited Partners and the Assignees as of the date of such distribution. If prior to a Specified Exchange Date, (i) REIT Share Rights (other than REIT Share Rights issued pursuant to an employee benefit plan or other compensation arrangement) are issued to all holders of outstanding REIT Shares without consideration, (ii) such REIT Share Rights have not expired, and (iii) such REIT Share Rights were issued at a conversion or exercise price that was below fair market value in relation to the REIT Shares to be acquired upon conversion or exercise of such REIT Share Rights, then the Adjustment Factor applicable to the exercise of an Exchange Right on a subsequent Specified Exchange Date shall be equitably adjusted in a manner determined by the General Partner to be consistent with "weighted average" anti-dilution provisions in warrants and other similar instruments providing for adjustments in the event of a below market exercise


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or issuance price, or, in the General Partner's sole and absolute discretion, in lieu of such adjustment to the Adjustment Factor the General Partner may elect to issue to a Limited Partner who has tendered Units equivalent REIT Share Rights in the amount that the Limited Partner would have received with respect to the number of REIT Shares the Limited Partner would have received had the Limited Partner tendered the Tendered Units immediately prior to the original record date for receiving the REIT Share Rights. Any adjustments to the Adjustment Factor shall become effective, with respect to any events described above, on the record date (or if no record date, the effective date for such event) or, with respect to an adjustment to the Adjustment Factor due to a distribution to the Limited Partners and the Assignees pursuant to Section 5.1.B(3) and Section 5.1.B(4) hereof, the earlier of the date of such distribution or the date in which the Limited Partners and the Assignees become entitled to such distribution (if any).


"AFFILIATE" means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person; (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person; (iii) any Person of which such Person owns or controls ten percent (10%) or more of the voting interests; or (iv) any officer, director, general partner or trustee of such Person or of any Person referred to in clauses (i), (ii), and (iii) above.


"AGREED VALUE" means, (i) in the case of any one (1) of the Contributed Properties, the fair market value of such property at the time of contribution as set forth in the applicable Contribution Agreement, (ii) in the case of assets (other than cash) contributed or deemed contributed to the Partnership by a Partner or Assignee, the value thereof listed in EXHIBIT A to this Agreement or as otherwise agreed upon by the General Partner and the Person making the contribution, reduced by any indebtedness either assumed by the Partnership upon such contribution or to which the asset is subject at the time of contribution, and (iii) in the case of Partnership assets other than cash or the REIT Shares (which shall be valued as provided in Section 8.5 hereof) distributed to a Partner or Assignee by the Partnership, the Partnership's Book Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Partner or Assignee upon such distribution or to which such asset is subject at the time of distribution as determined under Code Section 752 and the Treasury Regulations thereunder.


"AGREEMENT" means this Agreement of Limited Partnership, as it may be amended, supplemented or restated from time to time.


"ASSIGNEE" means a Person to whom all or a portion of the economic interest appurtenant to one (1) or more Limited Partner Interests has been transferred in a manner permitted under this Agreement. "Assignee" shall not include a Substituted Limited Partner.


"AVAILABLE CASH" means, with respect to any period for which such calculation is being made, (a) all cash revenues and funds received by the Partnership from whatever source


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(excluding the proceeds of any Capital Contribution to the Partnership pursuant to Sections 4.1, 4.3, 4.5, 7.3(C) or 8.5 hereof and excluding the gross proceeds of any Terminating Capital Transaction) plus the amount of any reduction (including, without limitation, a reduction resulting because the General Partner determines in its sole and absolute discretion such amounts are no longer necessary) in reserves of the Partnership, which reserves are referred to in clause (b)(iv) below; less (b) the sum of the following (except to the extent made with the proceeds of any Capital Contribution and except to the extent taken into account in determining Terminating Capital Transaction Proceeds):


(i) all interest, principal and other debt payments made during
such period by the Partnership,


(ii) all cash expenditures (including, without limitation,
capital expenditures with respect to tangible and intangible assets) made
by the Partnership during such period,


(iii) investments in any entity (including, without limitation,
loans made thereto) to the extent that such investments are not otherwise
described in clauses (b)(i) or (ii); and


(iv) the amount of any increases in reserves established during
such period which the General Partner determines in its sole and absolute
discretion are necessary or appropriate.


Notwithstanding the foregoing, Available Cash shall not include any cash received or reductions in reserves, or take into account any disbursements made or reserves established, after commencement of the dissolution and liquidation of the Partnership.


"BAY" means Bay Apartment Communities, Inc., a Maryland corporation.


"BOOK-TAX DISPARITY" means, with respect to any item of the Contributed Properties, as of the date of determination, the difference between the Book Value of such property and the adjusted basis of such property for federal income tax purposes.


"BOOK VALUE" means, with respect to any of the Contributed Properties, the Agreed Value of such property reduced (but not below zero) by all Depreciation with respect to such property properly charged to the Capital Accounts and, with respect to any other Partnership asset, the asset's adjusted basis for federal income tax purposes; PROVIDED, HOWEVER, (a) the Book Value of all Partnership assets may be adjusted in the event of a revaluation of Partnership assets in accordance with Treasury Regulations Section 1.704(b)(2)(iv)(f) to such fair market value as shall be determined by the General Partner in its reasonable judgment; (b) the Book Value of any Partnership asset other than cash distributed to any Partner or Assignee shall be the fair market value of such asset on the date of distribution as determined by the


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General Partner in its reasonable judgment and (c) such Book Value of any Partnership asset shall be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses.


"BUILT IN TAX AMOUNT" means an assumed amount of state and federal taxes which would be payable by the Limited Partners who have executed a guaranty as contemplated in Section 7.3.A on the date of the Taxable Event in question at an assumed combined federal and state tax rate of 33.5%. Notwithstanding the foregoing, (a) with respect to a non-taxable transaction with "boot" or a taxable sale of some but not all of the Contributed Properties, or, in the case of a reduction in the principal balance of the debt so guaranteed, "Built in Tax Amount" means the assumed amount of state and federal taxes that would be payable by the Limited Partners who have executed such guarantees on account of such transaction at an assumed combined federal and state tax rate of 33.5% and (b) the Built in Tax Amount shall be reduced to reflect any transfer, disposition or other event or occurrence which has caused such Limited Partners to recognize a portion of their gain but which are not Taxable Events.


"BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.


"CAPITAL CONTRIBUTION" means, with respect to any Partner or Assignee, the aggregate amount of cash and Agreed Value of any other property which such Partner or Assignee contributes or is deemed to contribute to the Partnership pursuant to Sections 4.1, 4.3, 4.5, 7.3(C) and 8.5 hereof.


"CASH AMOUNT" means the Value of a REIT Share on the Valuation Date.


"CASH PAYMENT" has the meaning set forth in Section 8.5.A.


"CERTIFICATE" means the Certificate of Limited Partnership relating to the Partnership to be filed in the office of the Delaware Secretary of State simultaneously with the effectiveness of this Agreement, as amended from time to time in accordance with the terms hereof and the Act.


"CHARTER" means the Articles of Incorporation of the General Partner filed with the Maryland State Department of Assessments and Taxation, as amended, supplemented or restated from time to time.


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


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"CONSENT" means the consent or approval of a proposed action by a Partner given in accordance with Section 14.2 hereof.


"CONSUMER PRICE INDEX" means The Consumer Price Index, All Urban Consumers (CPI-U), US City Average, All-Items Index (1982-84 = 100) as published by the Bureau of Labor Statistics, United States Department of Labor. If at any time during the term of this Agreement, the United States Bureau of Labor Statistics discontinues the issuance of such Index, or such Index shall be superseded as the generally accepted cost-of-living index, then "Consumer Price Index" shall mean the successor cost-of-living index or any other standard nationally recognized cost-of-living index identified by the General Partner.


"CONTRIBUTED PROPERTIES" means, collectively, the properties contributed to the Partnerships pursuant to the Contribution Agreements.


"CONTRIBUTION AGREEMENTS" means, collectively, the Agreement to Acquire Limited Partner Interests and to Contribute, dated as of July 30, 1997, between the General Partner and TCR #510 Kelley Limited Partnership and the Agreement to Acquire Limited Partner Interests and to Contribute, dated as of September 8, 1997, between the General Partner and Avondale Bear Creek Limited Partnership, in each case, as amended from time to time.


"CONTROL" means the ability, whether through ownership of partnership interests, of voting securities, or otherwise, to direct the policies and management of any business entity.


"DELIVERY DATE" has the meaning set forth in Section 8.5.C.


"DEPRECIATION" means, for each fiscal year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period for federal income tax purposes, except that if an asset has a Book-Tax Disparity at the beginning of such year or other period (as a result of property contributions or adjustments to such values), Depreciation shall be adjusted as necessary so as to be an amount which bears the same ratio to such beginning Book Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to the beginning adjusted tax basis; PROVIDED, HOWEVER, that if the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period is zero, Depreciation for such year or other period s ...