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RS&P/WC FIELDS v. BOSP INVS.

July 30, 1993

RS&P/WC FIELDS LIMITED PARTNERSHIP, et al., Plaintiffs,
v.
BOSP INVESTMENTS and BOMAT INVESTMENTS, Defendants.


HOLDERMAN


The opinion of the court was delivered by: JAMES F. HOLDERMAN

JAMES F. HOLDERMAN, District Judge:

 This litigation involves disputes between the general partners (the "plaintiffs") and the limited partners (the "defendants") of several real estate limited partnerships. The plaintiffs have asked the court to interpret the proper calculation methodology for the "buy-sell" provisions of the partnerships (Count I), and they have asked the court to declare that the defendants could not invoke the "buy-sell" provisions in the spring of 1991 (Count III). The defendants have asserted third-party claims and counterclaims to recover allegedly excess management fees ("management fee issue") and allegedly improper accounting fees ("accounting fee issue"). After a bench trial on all issues, for the reasons stated herein, the court finds in favor of the defendants on Count I and III, and in favor of the plaintiffs on defendants' third-party claims and counterclaims as to the management fee issue and accounting fee issue.

 TABLE OF CONTENTS

 I. BACKGROUND FACTS

 A. The Master Agreement

 B. The Form of Agreement of Limited Partnership

 C. The Form of Management Agreement

 D. The Guaranty Agreement

 E. The Indemnity Agreement

 F. The First Amendment to Master Agreement

 G. The 13 Limited Partnerships

 
1. The Parties
 
2. Capital Contributions, Loans and Fees
 
3. The Agreements of Limited Partnership
 
4. The Management Agreements
 
5. Assignment of the Management Agreements

 H. The Exercise of Buy-Sell Rights by BOSP and BOMAT

 
1. The Count I Partnerships
 
a. 2120 Corporate Drive Associates Limited Partnership
 
b. WC West Chicago Associates Limited Partnership
 
c. TC Associates Limited Partnership
 
d. MP Melrose Park Associates Limited Partnership
 
2. The Count III, Counterclaim and Third Party Partnerships
 
a. W65 Bedford Park Associates
 
b. CG Coral Gables Associates Limited
 
c. SW Associates Limited Partnership
 
d. 32500 Van Born Associates Limited Partnership
 
e. 601 West Polk Associates Limited Partnership
 
f. 32500 Capitol Avenue Associates Limited Partnership
 
g. WC Fields Limited Partnership
 
h. Barnside Apartment Associates Limited Partnership
 
i. Newtown Associates Limited Partnership
 
I. Commencement of this Litigation

 II. DISCUSSION

 A. Count I

 
1. The Relevant Contract Provisions
 
2. Plaintiffs' Ambiguity Theory
 
3. Contract Reformation
 
a. Business Reality
 
b. Phantom Income
 
c. Variance in Limited Partnership Agreements
 
d. Lack of Authority/Failure to Read
 
e. Summary

 B. Count III

 
1. Existence of a Forbearance Agreement
 
a. Burch's consent Re: Grub & Ellis
 
b. Negotiation for Amended Barnside Agreement
 
c. Creditor Memorandum
 
d. Burch Memorandum
 
2. Equitable Estoppel

 C. Management Fees

 
1. Contract Provisions and Correspondence
 
2. Unilateral Right Theory
 
3. Existence of an Agreement

 D. Accounting Fees

 
1. Charging Accounting Fees
 
2. KTP as a Sheridan Affiliate

 E. The Accounting

 F. Terminating the Partnerships

 III. CONCLUSION

 The plaintiffs and defendants established 13 limited partnerships, which were formed between April, 1987 and May, 1990, for the purpose of acquiring, developing, owning, operating, and selling commercial real estate properties.

 There are 12 plaintiffs in this action: 1) RS&P/WC Fields Limited Partnership ("Fields LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois and Florida; 2) W 65 RS&P Associated Limited Partnership ("W65LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois, New York and Florida; 3) CG RS&P Associates Limited Partnership ("CGLP"), an Illinois limited partnership, all of whose partners are citizens of Illinois and Florida; 4) RS&P/Capitol Avenue Associates Limited Partnership ("Capitol LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois and Florida; 5) WM/RS&P Limited Partnership ("WMLP"), an Illinois limited partnership, all of whose partners are citizens of Illinois, New York and Florida; 6) SW/RS&P Limited Partnership ("SWLP"), an Illinois limited partnership, all of whose partners are citizens of Illinois, New York and Florida; 7) RS&P/Barnside Associates Limited Partnership ("Barnside LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois, New York and Florida; 8) TC/RS&P Limited Partnership ("TCLP"), an Illinois limited partnership, all of whose partners are citizens of Illinois and Florida; 9) RS&P/Addison Associates Limited Partnership ("Addison LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois, New York and Florida; 10) RS&P/Melrose Park Associates Limited Partnership ("Melrose LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois and Florida; 11) RS&P/Polk Associates Limited Partnership ("Polk LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois and Florida; and 12) RS&P/WC West Chicago Limited Partnership ("West LP"), an Illinois limited partnership, all of whose partners are citizens of Illinois, New York and Florida.

 Defendant BOSP Investment ("BOSP") is a California partnership, all of whose partners are citizens of states other than Illinois, New York and Florida.

 Defendant BOMAT Investments ("BOMAT") is a Nevada partnership, all of whose partners are citizens of states other than Illinois, New York and Florida.

 Third Party Defendant RS&P/Newtown Associates Limited Partnership ("Newtown LP") is a Florida limited partnership, all of whose partners are citizens of Illinois and Florida.

 Third Party Defendant Edgemont Corporation ("Edgemont") is an Illinois corporation. At all relevant times, Edgemont has been controlled by Robert Sheridan and 100 percent of the stock of Edgemont has been owned by Robert Sheridan.

 Third Party Defendant Robert Sheridan & Partners Management Corporation ("RS&P Management") is an Illinois corporation. At all relevant times, RS&P Management has been controlled by Robert Sheridan and 100 percent of the stock of RS&P Management has been owned by Robert Sheridan.

 Third Party Defendant The Bridgewood Corporation ("Bridgewood") is an Illinois corporation. Robert Sheridan owns 45% of the stock of Bridgewood, Robert Sheridan's daughter, Beth Sheridan, owns 15% of the stock, and Bruce Kinney owns the remaining 40% of the stock.

 This court has jurisdiction over this matter under 28 U.S.C. ยง 1332, there being complete diversity of citizenship among the parties and the amount in controversy being in excess of $ 50,000.

 The primary, although not only, dispute concerns the interpretation and application of the "buy-sell" provisions of 13 Agreements of Limited Partnership. Buy-sell provisions are commonplace in partnership agreements. They are a contractual mechanism by which partners may, among other things, resolve disputes and break deadlocks between and among one another. Buy-sell provisions vary from partnership agreement to partnership agreement. In their most simple form, buy-sell provisions permit one partner to make an offer to purchase the partnership interest of the other partner. Often the second partner may then elect either to sell his interest in accordance with the offer or to purchase the interest of the first partner under substantially the same terms and conditions. The timing and conditions of buy-sell rights generally is determined by the agreement of the parties.

 In the case of the four Count I partnerships, the parties disagree on how the purchase price is to be calculated pursuant to Article VII of the Agreements of Limited Partnership. In the case of the nine Count III and third party partnerships, the general partner claimed that the limited partner was not entitled to exercise buy-sell rights at that time. The Counterclaim and Third Party Complaint in this case raise issues regarding the general partner's management of the real property owned by the respective limited partnerships.

 Although this case involves many different partnerships and corporate entities, it really involves two individuals, Robert Sheridan ("Sheridan") and Robert D. Burch ("Burch"). Sheridan is a Chicago, Illinois-based real estate developer and manager. Burch is a tax and trust lawyer in the Los Angeles, California-based law firm of Gibson, Dunn & Crutcher. For a number of years, Burch has served as trustee of a number of investment trusts set up by various members of the Bing family. Burch first met Sheridan in 1985, when, on behalf of certain Bing family trusts, Burch sold some real estate located in New York City to Sheridan. That transaction is not in dispute in this case.

 During the Fall and Winter of 1986-87, Sheridan and Burch began to discuss the development of a business relationship under which: (a) Sheridan would locate and assess commercial real estate investment opportunities and recommend appropriate opportunities to Burch; (b) if Burch, acting on behalf of the Bing family interests, chose to invest in such opportunities, the parties would form limited partnerships, wholly or partially funded by Burch, to acquire, develop, manage, operate, and dispose of the property; and (c) Burch would provide much of the funding and Sheridan would provide his expertise in locating and managing the partnership properties through entities controlled by him.

 A. THE MASTER AGREEMENT

 The discussions between Sheridan and Burch concerning the creation of an ongoing business relationship culminated, in March of 1987, in the execution of a contract, entitled the "Master Agreement", between Burch, as Trustee or Co-Trustee of certain Bing family trusts, and Edgemont.

 The parties to the negotiations were sophisticated and experienced in dealing with matters such as those being negotiated, and were represented by qualified and sophisticated legal counsel. The negotiations concerning the form and content of the Master Agreement were conducted, on behalf of Sheridan and Edgemont, by Sheridan himself, by Stuart Lederer ("Lederer"), an attorney employed by an entity controlled by Sheridan, and by Harvey Uris ("Uris") and Victoria Watson ("Watson") of the New York City-based law firm of Skadden, Arps, Slate, Meagher & Flom ("Skadden Arps"). On behalf of Burch, such negotiations were conducted primarily by Burch himself and Ralph Wintrode ("Wintrode") and Charles Larson ("Larson"), also members of the law firm of Gibson, Dunn & Crutcher. Other attorneys at Gibson, Dunn & Crutcher were involved to a much lesser extent.

 The parties agree that neither party to the negotiation was compelled to enter into the Master Agreement by any form of duress or coercion.

 The introductory paragraphs of the Master Agreement provided as follows:

 
WHEREAS, Sheridan has expertise in locating commercial properties for investment, analyzing the investment potential of same, and owning, operating, developing and managing such properties, and is desirous of obtaining an equity commitment in connection with the pursuit of such investment opportunities;
 
WHEREAS, Burch is desirous of committing certain funds for investment with Sheridan on a joint venture basis in one for more commercial properties to be identified, analyzed and recommended by Sheridan as viable investment opportunities; and
 
WHEREAS, Sheridan and Burch are mutually desirous of entering into a joint venture program (the "Program"), whereby Sheridan will present to Burch joint venture investment proposals for commercial properties with respect to which Sheridan and one or more of the trusts described in Exhibit A (the "Burch Partner") will enter into separate limited partnerships (each, an "Investment Partnership") for the purpose of jointly acquiring those commercial properties recommended by Sheridan which are approved by Burch, for investment, and thereafter owning, operating, developing and/or disposing of same, all upon the terms and subject to the conditions set forth hereinafter and in the partnership agreements for the individual partnerships.

 The Master Agreement contained, among others, provisions:

 (a) Committing Burch to invest not less than $ 5 million in the Program as defined in the Master Agreement (Master Agreement P 1(a));

 (b) Establishing investment criteria, or guidelines, with respect to the kind of properties which the parties would attempt to locate and acquire (Master Agreement P 2(a) and Exhibit C);

 (c) Obligating Edgemont to use reasonable efforts to locate commercial properties meeting the investment criteria, to analyze the investment potential of such properties, and to prepare and submit to Burch an acquisition proposal with respect to each property which Edgemont deemed appropriate for investment (Master Agreement P 2(b));

 (d) Obligating Edgemont to provide Burch with a proposed plan for development of the recommended property, which was defined in the Master Agreement as the "Business Plan":

 (Master Agreement P 2(b)(iii));

 (e) Providing that, if Burch decided to accept an acquisition proposal made by Sheridan, the parties would execute an Agreement of Limited Partnership in "substantially the form set forth in Exhibit B" to the Master Agreement. In particular, Section 3 of the Master Agreement provided as follows:

 
3. Acceptance of Acquisition Proposal; Formation of Investment Partnership; Confidentiality.
  
(a) Sheridan shall submit each acquisition Proposal to Burch promptly after compiling same. Burch shall consider each Acquisition Proposal and may promptly request such additional information as he determines is reasonably necessary to allow him to determine whether or not to invest in the Investment Partnership that will acquire the Recommended Property. If Burch desires to accept the Acquisition proposal, he shall so notify Sheridan and the parties shall promptly finalize and execute a Partnership Agreement to form the Investment Partnership in substantially the form set forth in Exhibit B for the Recommended Property. Burch recognizes that time may be of the essence in many of the proposed acquisitions and will endeavor to respond promptly to each Acquisition Proposal. Sheridan recognizes that the investment decision by Burch necessarily requires an informed exercise of his judgment with respect to each such proposal and that Burch will frequently have other commitments which may prevent his acting on an Acquisition Proposal as promptly as he might wish. Sheridan agrees to provide Burch with as much advance notice as is feasible of the date an Acquisition Proposal will be presented, to provide advance preliminary information concerning the Acquisition Proposal wherever feasible, in each case, to give Burch a time period which is reasonable in light of all relevant circumstances to consider and make a decision as to the Acquisition Proposal.
  
(b) Each Investment Partnership shall (x) enter into all appropriate contractual documentation required in order to acquire, operate and develop the Recommended Property described in the approved Acquisition Proposal (each Recommended Property, when so approved, being referred to herein as an "Approved Property") and (y) pay (from capital contributions and/or interim loans made thereto), to the extent and at the times set forth in the Budget, all required down payments, portions of the purchase price (if applicable), Approved Expenses and all other costs and expenses to be incurred with respect to such Approved Property. Among other matter, the Partnership Agreement shall be consistent with the following:
  
(i) The initial Budget and Business Plan appearing in the approved Acquisition Proposal and annexed as Schedules to such Partnership Agreement may not be materially amended without the consent of the Burch Partner (provided that changes to individual line items of the Budget shall not be deemed material amendments unless such changes in the aggregate result in a material increase in the total anticipated costs and expenses of the Investment Partnership as set forth in the Budget or a material change in the manner in which the Approved Property will be operated or developed).
  
(ii) With respect to each Investment Partnership entered into, the Burch Partner shall be entitled to received a Preferred Return (such capitalized term, and each other capitalized term not otherwise defined in this subparagraph 3(b), shall have the meaning ascribed thereto by the Partnership Agreement) at the rate of ten percent (10%) per annum (compounded annually in arrears) on a cumulative basis to the extent of Distributable Cash and on a priority basis from Proceeds from a Capital Transaction.
  
(iii) Each Investment Partnership will contain additional provisions comparable to those set forth in Exhibit B, the general intended effect of which is that thereafter, Distributable cash will be distributed fifty (50%) percent to Sheridan and fifty (50%) percent to the Burch partner. In the case of Proceeds from a Capital Transaction, after distribution to the Burch Partner of the Preferred Return for the applicable Investment Partnership, and recovery by the Burch Partner of its Unrecovered Capital, the balance of such Proceeds from a Capital Transaction will be distributed fifty (50%) percent to Sheridan and fifty (50%) percent to the Burch Partner. To the extend that any additional limited partners participate in any Investment Partnership, the Burch Partner and such other limited partners shall share all distributions in the ratio of their respective Investment Participation.
  
(c) If Burch rejects an Acquisition Proposal or does not accept an Acquisition Proposal within a reasonable period of time, Burch shall have no right to participate in the acquisition of the Recommended Property covered thereby, and Sheridan shall thereafter upon written notice to Burch be free to acquire the Recommended Property for its own account or with participants or investors other than Burch.
  
(d) Subject to such disclosures as are reasonably necessary to Burch's investigations of a Proposal, Burch agrees to keep confidential all information and materials that are supplied to him in accordance with the terms and provisions of this Agreement including, without limitation, any and all information set forth in any Acquisition Proposal delivered to Burch pursuant hereto.

  (Master Agreement P 3);

  (f) Providing a minimum return to the Burch entities, Section 4(a) of the Master Agreement provided as follows:

  
4. Minimum Investment Return.
  
Supplementing the provisions of the various Partnership Agreements relating to the Preferred Return for each Investment Partnership, Sheridan agrees that it will not be entitled to receive any return from any Investment Partnership until the Burch Partner of each Investment Partnership has received a cumulative preferred yield of at least eight percent (8%) per annum (compounded annually in arrears). It is not intended that the Subsidy Payments and repayments thereof under this Section 4 effect amounts otherwise payable to partners other than Burch and Sheridan. In order to implement this it is specifically agreed that:
  
(a) If at any time there is Distributable Cash or Proceeds from a Capital Transaction (collectively "Available Cash Proceeds") from an Investment Partnership in excess of the Preferred Return but there are one or more other Investment Partnerships where the Burch Partner has not received a cumulative preferred yield of at least eight percent (8%) Per annum (compounded annually in arrears) (each a "Subsidized Partnership"), the next Available Cash Proceeds otherwise payable to the Partners in excess of the Burch Partner's Preferred Return shall be paid instead pro rata to the Burch Partners, in each such Subsidized Partnership (each such payment a "Subsidy Payment") until each such Burch Partner has received a cumulative preferred yield of eight percent (8%) per annum (compounded annually in arrears). Any additional amounts of Available Cash Proceeds from such other Investment Partnerships making a Subsidy Payment shall be paid in accordance with the Partnership Agreements for such Investment Partnerships making a Subsidy Payment and this Agreement. All Subsidy Payments provided in this Section 4(a) shall be made from Investment Partnerships designated by Burch. Subsidy Payments made under this Section 4(a) shall be repaid before any Subsidy Payments under Section 4(c).

  (Master Agreement P 4(a).

  (h) Entitling Edgemont to receive an acquisition fee at the closing of the acquisition by a particular partnership of an approved property, stating that the acquisition fee would be calculated as a percentage of the total purchase price, and establishing a schedule for the determination of such acquisition fee:

  
(i) two and one-half (2-1/2%) percent of all or any portion of the total purchase price up to the first Ten Million ($ 10,000,000) Dollars thereof;
  
(ii) two (2%) percent of the portion of the total purchase price, if any, in excess of Ten Million ($ 10,000,000) Dollars and up to Twenty Million ($ 20,000,000) Dollars;
  
(iii) one and one-half (1-1/2%) percent of the portion of the total purchase price, if any, in excess of Twenty Million ($ 20,000,000) Dollars and up to Thirty Million ($ 30,000,000) Dollars; and
  
(iv) one (1%) percent of the portion of the total purchase price, if any, in excess of Thirty Million ($ 30,000,000) Dollars.

  (Master Agreement P 5(b)).

  The parties contemplated that each limited partnership would enter into a contract with a corporation controlled by Sheridan under which the latter would provide management services concerning the real property owned by the partnership for a management fee. The Master Agreement at Section 7 specifically provided:

  
7. Management Agreement.
  
Promptly after the formation thereof pursuant to the provisions of this Agreement, each Investment Partnership shall enter into a management agreement (a "Management Agreement") between each such Investment Partnership, as owner, and Sheridan (or its affiliate or designee), as managing agent in the form annexed hereto as Exhibit D and made a part hereof, pursuant to the terms of which Sheridan (or its approved affiliate) shall manage and operate each Approved Property on behalf of the acquiring Investment Partnership. Sheridan (or its approved affiliate or approved designee), as the managing agent, shall be entitled to receive a management fee (the "Management Fee") in an amount which the parties contemplate shall approximate its costs in managing the property. Except as the parties may from time to time agree in order to better coordinate the fee with Sheridan's costs, responsibilities and/or the results achieved, the fee shall be equal to three (3%) percent of the annual collected gross income from each Approved Property. Said Management Agreement may also provide for leasing fees to Sheridan (in addition to commissions and fees paid to outside brokers) in an amount not to exceed 25% of the commission payable to outside brokers for new leases and for renewal leases under 50,000 square feet, which leasing fees are intended to be used primarily to provide incentive compensation to the Managers's employees responsible for leasing and renewing leases. Leasing commissions, if any, for renewal leases over 50,000 square feet shall be subject to agreement by both parties. It is understood and agreed that income from all sources is to be included in the calculation of collected gross income for purposes of calculating the amount of the Management Fee, provided, however, that with respect to properties which are leased to tenants on a net lease basis, the revenues from such net leases will be equitably adjusted and increased where appropriate for purposes of calculating the applicable Management Fees, which fees are intended to be based on an amount of collected gross income that reflects the amount of the rentals which would have been paid if such net lease had been written on a "gross lease" rather than a "net lease" basis, pursuant to which the tenant would pay to the Investment Partnership its pro rata share of real estate and other applicable tax increases over the initial lease year, together with energy, maintenance and other applicable charges.

  The Master Agreement also provided, at Section 10, as follows:

  
(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois.
  
(b) Sheridan and Burch each agree to execute, acknowledge and deliver or cause to be delivered such other documents as may be reasonably necessary and required from time to time in order to confirm the provisions of this Agreement and the performance of the obligations of the parties hereto in such form as shall be reasonably satisfactory to the parties hereto.
  
(c) This Agreement, including the Exhibits annexed hereto, contains the entire Agreement among the parties hereto with respect to the subject hereof and supersedes all prior agreements, understandings, discussions, negotiations and representations, if any, with respect thereto. In the event of any conflict between the provisions of this Agreement and the provisions of any Partnership Agreement for any Investment Partnership, the provisions of this Agreement shall control.
  
(d) If any terms or provisions of this Agreement are determined to be unenforceable, the remainder of this Agreement and any other application thereof shall not be affected thereby.
  
(e) This Agreement may not be modified, terminated or amended, nor any of its provisions waived, except by a written instrument signed by the party to be charged.
  
(f) The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, each of the parties hereto and its respective heirs, legal representatives, successors and assigns.
  
(g) Neither of the parties hereto may assign any of its interests under this Agreement, and the interests of Robert Sheridan in Sheridan or in the General Partner of Sheridan may not be transferred or assigned without the prior written consent of the other party, unless said transfer results in Robert Sheridan having or continuing to have a 51% interest in Sheridan or General Partner of Sheridan or any assignee in which case Burch's consent shall not be required. Sheridan agrees to promptly advise Burch of any transfer or assignment of the interests in Sheridan or the General Partner of Sheridan not otherwise requiring the consent of Burch hereunder including the identity of the transferee.

  B. THE FORM OF AGREEMENT OF LIMITED PARTNERSHIP

  The Master Agreement contained a form of Agreement of Limited Partnership which the parties agreed would be "promptly finalized and executed" if, as, and when they agreed to enter into a limited partnership for the purpose of acquiring and operating certain commercial real property. (Master Agreement P 3(a)). This form of agreement, which was attached to the Master Agreement as Exhibit B, was also the subject of negotiations between the parties.

  The form of Agreement of Limited Partnership contained a provision, designated Section 3.7 and entitled "Capital Transaction," which provided as follows:

  
3.7 "Capital Transaction" Any Partnership transaction resulting in the receipt of cash or other consideration (other than the receipt of capital contributions to the extent necessary for the uses for which it was contributed) from the sale, disposition or refinancing of any Partnership asset that is capital in nature including without limitation sales, condemnations, recoveries of damage awards and insurance proceeds (other than business or rental interruption insurance proceeds) or any borrowing or mortgage refinancing with respect to any such asset.

  The form of Agreement of Limited Partnership contained a provision, designated Section 4.1 and entitled "Capital Contributions," which provided as follows:

  
4.1 Capital Contributions.
  
(a) General Partner. The General Partner shall not be required to make any Capital Contribution to the Partnership.
  
(c) If the Limited Partner fails to make may required Capital Contribution, the General Partner shall have the following rights and alternatives:
  
(i) to lend to the Partnership all or a portion of the amount that the Limited Partner has failed to so contribute which shall (1) bear interest at the rate of one percent (1%) per annum above the Prime Rate, (2) to be secured by the interest of the Limited Partner in the Partnership, and (3) be repaid out of the amounts otherwise payable to the Limited Partner under this Agreement;
  
(ii) to cause the Partnership to borrow all or a portion of the amount that the Limited Partner has failed to so contribute from any third party source on commercially reasonable terms, the repayment of which will be charged against the amounts otherwise payable to the Limited Partner under this Agreement;
  
(iii) to purchase the interest of the Limited Partner for an amount equal to the limited Partner's Unrecovered Capital; or
  
(iv) dissolve the Partnership.
  
The General Partner must elect one of the remedies set forth above or to foreclose the security interest on the interest of the Limited Partner within 30 days after notice from the General Partner of any such failure by the Limited Partners to make a required Capital Contribution by written notice to the Limited Partner.

  The form of Agreement of Limited Partnership contained a provision, designated Section 5.3 and entitled "Allocation of Income, Gains, Losses, and Deductions from a Capital Transaction," which provided as follows:

  
5.3 Allocation of Income, Gains, Losses and Deductions from a Capital Transaction.
  
(a) The excess of income and gains over losses and deductions from a Capital Transaction shall be allocated between the General Partner and the Limited Partner for each fiscal year, or portion thereof, in the following order of priority;
  
(i) If either or both Partners have a negative Adjusted Capital Account Balance, first to the Limited Partner to the extent of the Limited Partner's negative Adjusted Capital Account Balance and thereafter to the General Partner to the extent of the General Partner's negative Adjusted Capital Account Balance;
  
(ii) To the Limited Partner, to the extent of the Limited Partner's Unrecovered Capital;
  
(iii) To the Limited Partner, to the extent of the Limited Partner's Preferred Return; and
  
(iv) Thereafter 50% to the General Partner and 50% to the Limited Partner.
  
(b) The excess of losses and deductions over income and gains from a Capital Transaction shall be allocated 50% to the General Partner and 50% to the Limited Partner.

  The form of Agreement of Limited Partnership contained a provision, designated Section 6.1 and entitled "Management of Partnership Business", which provided as follows:

  The form of Agreement of Limited Partnership contained a provision, designated Section 6.2 and entitled "Compensation of the General Partner," which provided the following:

  
6.2 Compensation of the General Partner.
  
The General Partner shall be entitled to an acquisition fee, management fees and leasing commissions as set forth in the Business Plan and Budget and the Management Agreement, but shall not otherwise be entitled to compensation for its services. The General Partner shall be entitled to reimbursement from the Partnership for all ordinary and necessary out-of-pocket costs incurred directly in connection with the business of the Partnership, but specifically excluding compensation of officers or employees of the General Partner or any Affiliate of the General Partner or for overhead expenses of the General Partner or any Affiliate of the General Partner.

  The form of Agreement of Limited Partnership contained a provision, designated Section 7.1 and entitled "Purchase Rights Between Partners", which provided as follows:

  
7.1 General. Either Partner may at any time make an offer of purchase and sale to the other Partner on the terms and conditions set forth herein.

  The form of Agreement of Limited Partnership contained a provision, designated Section 7.2 and entitled "Determination of Purchase Price," which provided as follows:

  
7.2 Determination of Purchase Price. The offer shall be in writing and specify a value for the Property and other items of Partnership Property, other than cash, cash equivalents, receivables, prepaid items and the like. The offer shall provide that the offeror or his designee will purchase the partnership interest of the other partner at a price equal to the amount that the offeree partner would receive on liquidation of the Partnership if the Property were sold at the specified price taking into account normal prorations of receivables, payables, prepaid expenses and deferred charges with respect to the Property, all liabilities of the Partnership paid, and the remaining assets distributed to the Partners in accordance with this Agreement. If, within ten (10) days after submitting the offer, the offeror Partner has not received written communication from or had a conversation with the offeree Partner acknowledging or regarding the offer, a second copy of the offer shall be sent to the offeree Partner by Federal Express or a similar overnight courtier service. In the event the General Partner is the offeror, he shall provide in his offer a certified and complete disclosure of any material facts relating to the value of the Property and other items of Partnership Property, other than cash, cash equivalents, receivables, prepaid items and the like and the partnership interest which it has not previously disclosed in writing to the Limited Partner. In the event the Limited Partner is the offeror, the General Partner shall provide such disclosure within ten (10) days of receipt of the offer and the Limited Partner shall then have ten (10) days after receipt of such disclosure to revise its offer if any new information materially affecting value was received. Upon making or receiving an offer, the General Partner shall cause the Partnership's accountants promptly to determine the amount of the Partnership's assets (other than the Property) net of liabilities in accordance with the accounting procedures and practices previously followed by the Partnership, with the view that the combined value of the partnership interests of the General Partner and Limited Partner shall be equal to the value placed on the Property by the Offeror plus the amount of the other assets of the Partnership less the liabilities of the Partnership as reflected in its books. Any delay in determining the amount of the Partnership's assets and liabilities or the purchase price shall not increase the period within which the election required by Section 7.3 must be made. After an offer has been made, the Partnership shall not enter into any leases for periods longer than six (6) months or any other material contracts without the approval of both the General Partner and the Limited Partner.

  The form of Agreement of Limited Partnership contained a provision, designated Section 7.3 and entitled "Right of Offeree," which provided as follows:

  
7.3 Right of Offeree. Within forty-five (45) days following the offer or thirty (30) days following the revised offer (or, in the event the Limited Partner is the offeree, within sixty (60) days following the date of the offer), the offeree Partner shall elect either (i) to sell its Partnership interest to the offeror Partner or its designee for the purchase price for such interest determined as provided in Section 7.2, or (ii) to elect to purchase from the offeror Partner its Partnership interest for the purchase price so determined. The offeree Partner may designate any affiliate or designee of said Partner to purchase on its behalf. Absent an affirmative election by the offeree Partner, the offeree Partner shall be deemed to have elected to sell its Partnership interest to the offeror Partner or its designee.

  The form of Agreement of Limited Partnership contained a provision, designated Section 8.2 and entitled "Approval Rights of Limited Partner," which provided as follows:

  
8.2 Approval Rights of Limited Partner. The Limited Partner shall have the right to approve the following matters in addition to any matters specified elsewhere in this Agreement:
  
1. Any amendment (except as provided in Section 13.1) to this Agreement, including any material amendment to the Budget or Business Plan.

  * * *

  
3. The sale, exchange, lease, mortgage, pledge or other transfer of all or a substantial part of the assets of the Partnership, other than leases in the ordinary course of business which comply with the terms of the Business Plan.
  
4. A change in the nature of the business of the Partnership.

  * * *

  
7. Any transaction of the Partnership (including any amendment or any existing transaction) in which the General Partner or any Affiliate of a General Partner has an actual or potential conflict of interest with the Partnership or the Limited Partner and any amendment to or cancellation of the Management Agreement other than those necessary to make the Management Agreement consistent with the Business Plan and Budget then in effect.

  The form of Agreement of Limited Partnership contained a provision, designated Section 11.2 and entitled "Winding Up and Liquidation," which provided as follows:

  
11.2 Winding Up and Liquidation.
  
(a) Upon the dissolution of the Partnership the General Partner (or another party designated by the Limited Partner) shall cause the Partnership assets to be sold.
  
(b) Upon the winding up and termination of the business and affairs of the Partnership, its assets (other than cash) shall be sold, its liabilities and obligations to creditors and all expenses incurred in its liquidation shall be paid or provided for, and all resulting items of Partnership income, gain, loss or deduction shall be credited or charged to the capital accounts of the Partners in accordance with the principles of Article V of this Agreement. During said same time period, the net proceeds from such sales and all other assets of the Partnership shall be distributed among the Partners in the following order of priority:
  
(i) First, to the payment and discharge of all of the Partnership's debts and liabilities, excluding liabilities to Partners, except the claims of secured creditors whose obligations will be assumed or otherwise transferred upon liquidation of the Partnership's assets;
  
(iii) Third, to the payment and discharge of all the Partnership's debts and liabilities to Partners to the extent permitted by law;
  
(iv) Fourth, to the Partners in accordance with the positive balances in their capital account by the end of the taxable year in which the liquidation occurs (or, if later, within ninety (90) days after the date of the Partnership's liquidation).

  The form of Agreement of Limited Partnership contained a provision, designated section 14.4 and entitled "Entire Agreement," which provided as follows:

  
14.4 Entire Agreement. This Agreement contains the entire understanding between the parties which respect to the subject matter hereof and supersedes any prior understandings and agreements between them with respect thereto.

  The form of Agreement of Limited Partnership contained a provision, designated Section 14.5 and entitled "Recovery of Attorneys' Fees," which provided as follows:

  
14.5 Recovery of Attorneys' Fees. In the event suit is brought to enforce or interpret any part of this Agreement, the prevailing party shall be entitled to recover, as an element of his costs of suit and not as damages, reasonable attorneys' fees to be fixed by the court. The "prevailing party" shall be the party who is entitled to recover his costs of suit, whether or not the suit proceeds to final judgment. A party not entitled to recover his costs shall not recover attorneys' fees. No sum for attorneys' fees shall be counted in calculating the amount of a judgment for purposes of determining whether a party is entitled to recover his costs or attorneys' fees.

  C. THE FORM OF MANAGEMENT AGREEMENT

  Appended to the Master Agreement was a form of Management Agreement. The form of Management Agreement contained a provision, designated Section 3 and entitled "Agent's Compensation," which provided as follows:

  
3. AGENT'S COMPENSATION.
  
A. Owner shall pay Agent an annual management fee equal to three percent (3%) of the gross income and collections from the Property from all sources during each year of the term hereof (as appropriately prorated for any partial year and computed on an accrual basis), including, but not limited to, rents, additional rents, alteration charges, parking fees and all other charges and payments due to Owner from any tenants, licensees, concessionaires or other occupants or users of any space at the Property. Notwithstanding the foregoing, in the event the Property or any portion thereof shall be leased to tenants on a net lease basis, the revenues from such net leases will be equitably adjusted and increased for purposes of calculating the management fee set forth above, which fee is intended to be based on an amount of collected gross income that reflects the amount of the rentals which would have been paid if such net lease had been written on a "gross lease" rather than a "net lease" basis, pursuant to which the tenant would pay to Owner, as landlord, its pro rata share of real estate and other applicable charges. Such payments shall be made concurrently with the rendering by Agent of its quarterly statements to Owner as hereinafter set forth.

  The form of Management Agreement contained a provision, designated Section 4 and entitled "Agent's Duties," which provided as follows:

  
4. AGENT'S DUTIES
  
A. For and in consideration of the compensation provided in Article 3 hereof, Agent, as agent for owner, shall:
  
(a) Use its best efforts to perform its duties in the leasing, management, operation and maintenance of the Property in such manner that the Property shall be and remain a high-quality industrial property;
  
(b) Conduct all negotiations connected with any leases or renewal or expansion agreements (and leasing commission agreement and other documents in connection therewith) for any part of the Property, and execute and deliver as agent for Owner all such leases and related documents which comply with leasing guidelines theretofore approved by Owner from time to time, provided that prior to executing any lease or any other document in connection therewith which does not comply with such guidelines, Agent will obtain Owner's approval to the basic terms of the proposed lease or such other document, including the cost of tenant improvements, and further provided that all legal and other professional fees in connection with said negotiations and document preparation shall be at the expense of Owner;
  
(c) Use its best efforts to collect all income from the Property, including, without limitation, all rent, additional rent, parking fees, maintenance and other charges from tenants, licensees, concessionaires, occupants and users of any portion of the Property, and when, as and if Agent or Owner shall deem it proper and expedient, to serve notices upon tenants to quit space occupied by them and to terminate their leases, or likewise to terminate any licenses or occupancy agreements granted to licensees, occupants, tenants, concessionaires, users or others;
  
(d) Institute, in its own name or in the name of Owner, but in any event at the expense of Owner, any and all legal actions or proceedings to collect rent or other income from the Property or to evict or dispossess tenants or other persons in possession therefrom, or to cancel or terminate any lease for the breach thereof or default thereunder by the tenant;
  
(e) Supervise the moving in and out of all tenants and, so far as possible, to arrange the dates thereof so that there shall be a minimum of disturbance to the operation of the Property and of inconvenience to other tenants;
  
(f) Receive, consider and handle all inquiries or requests of tenants;
  
(g) Arrange for an advertising and public relations program for the Property of a type and format to be determined by Agent but at Owner's cost, provided that Agent shall be required to obtain prior written approval of Owner for any such costs in excess of the amounts allocated for such expenses in the Budget (as defined in Article 6 hereof);
  
(h) As agent for Owner, hire, pay, direct, supervise and discharge all operating and service employees (and service contractors, space planners and property tax or other consultants) performing services in or about or for the Property, including specifically, but not limited to, the property manager, the superintendent and any security personnel; all such employees at the Property shall be employees of Owner, and Agent shall not be liable to Owner or any third party for the acts or omissions of such employees; Owner shall pay for the wages or compensation of such employees and for the fees of such contractors, consultants and planners as part of the cost of operating the Property; Agent shall, in the hiring of such employees, contractors and consultants, use reasonable care to select qualified, competent and trustworthy employees, contractors and consultants; Agent, as agent for Owner, shall negotiate (in conjunction with other owner-representatives and in accordance with Practice in the metropolitan area) with any labor union lawfully entitled to represent building employees and will enter into collective bargaining agreements or other labor contracts no less advantageous to Owner than contracts which shall be standard for buildings of similar character in the area;
  
(i) Procure and maintain, at the expense of Owner, adequate worker's compensation insurance as required by law covering all of the aforesaid employees;
  
(j) Prepare, maintain and file all necessary reports and records with respect to withholding taxes, social security taxes, unemployment insurance, disability insurance (if any), the Fair Labor Standards Act, and all other legally required statements and reports pertaining to labor employed in or about the Property;
  
(k) Permit any partner of Owner, upon reasonable advance notice to Agent, at all times during business hours on business days, to have access to the books, records, files, papers, accounts and contracts maintained by Agent for the Property;
  
(l) Provide, at Owner's expense with respect to employees at the Property and at Agent's expense with respect to employees in Agent's regional or main offices, all bookkeeping and clerical services, including the maintenance of payroll records, and the services of such leasing, managing, supervising and bookkeeping personnel, including without limiting the generality of the foregoing, Agent's executive personnel, and such other incidental services, an may be necessary to carry out the purposes of this Agreement; to the extent that only part-time services at or for the Property are required from any of the foregoing employees or personnel for the performance of the aforesaid functions and services, their salaries shall be appropriately prorated for such part of their time as may be spent at or for the Property;
  
(m) Enter into contracts, as agent for, on behalf of and at the expense of Owner for the furnishing to the Property of electricity, gas, water, steam, telephone, cleaning (including window cleaning), vermin extermination, elevator, escalator and boiler maintenance, air-conditioning maintenance, master television antennae and electronic security installations (if any) service and other utilities and/or services as Agent deems advisable;
  
(n) Purchase all material and supplies, as agent for, on behalf of and at the expense of Owner, which Agent shall deem necessary to properly maintain and operate the Property;
  
(o) Make or install or cause to be made or to be installed, as agent for, on behalf of and at Owner's expense, such alterations, repairs, decorations, replacements, equipment or installations (all hereinafter collectively referred to as "Improvements") in or to any portion of the Property as shall be reasonably required to preserve, main, and keep the Property as a high-quality industrial property; provided, however, any provision in this Agreement to the contrary notwithstanding, it is agreed that Agent shall not, without the prior written consent of Owner (except in the case of any emergency or as provided in Article 7 hereof or for expenditures made and obligations incurred pursuant to a Budget), make or contract to make any one item of Improvements in or to the Property the total cost of which shall exceed the amounts allocated therefor in the Budget;
  
(p) Give Owner and Owner's insurance carriers prompt notice of any claims made against Owner or Owner and Agent and cooperate fully with Owner and with any insurance carrier to the and that all such claims will properly investigated and defended; Agent shall not without Owner's prior consent hire any attorneys to defend any such claim;
  
(q) Cause, as agent for, on behalf of and at Owner's expenses, insofar as reasonably possible, all such acts and things to be done in or about the Property as shall be necessary to comply with all statutes, ordinances, laws, rules, regulations, orders and determinations affecting or issued in connection with the Property by any governmental authority having jurisdiction thereof, as well as with all orders and requirements applicable to the Property of the recognized board of fire underwriters for the Chicago area or any other board which may now or hereafter exercise similar function; provided, however, that Agent shall not, without the prior written consent of Owner, unless permitted pursuant to the Budget, make any alterations or repairs so ordered or so required, the cost of which shall exceed the amount allocated therefor in the Budget, except that in case of emergency or if the failure promptly to comply with any order or violation could expose Agent or Owner to the imminent danger of criminal liability (other than payment of fines), Agent may cause the same to be done or complied with, irrespective of the amount of the cost thereof;
  
(r) notify Owner promptly in writing of all occurrences and facts necessary to enable Owner to determine policy with respect to the Property and the management thereof; and
  
(s) comply or cause compliance with all the terms, conditions and obligations of any lease or other agreement executed by owner or by Agent on behalf of Owner which shall relate to any matters connected with renting, operation or management of the Property, unless prevented or delayed by strikes, riot, civil commotion, war, inability to obtain materials because of governmental restrictions of Acts of God or the public enemy or any other cause beyond Agent's control, ...

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