<PAGE>   1
                                                                     EXHIBIT 3.5





              -----------------------------------------------------


                    SECOND AMENDED AND RESTATED AGREEMENT OF
                               LIMITED PARTNERSHIP

                                       OF

                       IRVINE APARTMENT COMMUNITIES, L.P.

                        (a Delaware limited partnership)

              -----------------------------------------------------





                                                    Dated as of January 20, 1998
<PAGE>   2
                                TABLE OF CONTENTS


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ARTICLE 1 DEFINED TERMS......................................................     2


ARTICLE 2 ORGANIZATIONAL MATTERS.............................................    23
 Section 2.1    Formation; Continuation......................................    23
 Section 2.2    Name.........................................................    23
 Section 2.3    Registered Office and Agent;
                Principal Office.............................................    23
 Section 2.4    Power of Attorney............................................    23
 Section 2.5    Term.........................................................    25


ARTICLE 3 PURPOSE............................................................    25
 Section 3.1    Purpose and Business.........................................    25
 Section 3.2    Powers.......................................................    25
 Section 3.3    Partnership Only for Purposes Specified......................    26
 Section 3.4    Representations and Warranties by the Parties................    26


ARTICLE 4 CAPITAL CONTRIBUTIONS..............................................    27
 Section 4.1    Capital Contributions of the Partners........................    27
 Section 4.2    Additional Capital Contribution and Loans Generally..........    28
 Section 4.3    Land Rights Agreement; Property Acquisitions.................    28
 Section 4.4    Loans by Third Parties.......................................    29
 Section 4.5    Additional Funding and Capital Contributions.................    29
 Section 4.6    Stock Incentive Plans........................................    33
 Section 4.7    No Third Party Beneficiary...................................    33
 Section 4.8    DRIP/ACP Plans ..............................................    34


ARTICLE 5 DISTRIBUTIONS......................................................    37
 Section 5.1    Requirements and Characterization of Distributions...........    37
 Section 5.2    Distributions in Kind........................................    38
 Section 5.3    Distributions Upon Liquidation...............................    38
 Section 5.4    Restricted Distributions.....................................    38


ARTICLE 6 ALLOCATIONS........................................................    38
 Section 6.1    Allocations in General.......................................    38
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<TABLE>
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 Section 6.2    Additional Allocation Provisions.............................    38
 Section 6.3    Tax Allocations..............................................    42


ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS..............................    42
 Section 7.1    Management...................................................    42
 Section 7.2    Certificate of Limited Partnership...........................    46
 Section 7.3    Restrictions on General Partner's Authority..................    47
 Section 7.4    Reimbursement of the General Partner;
                Reimbursement of Limited Partner.............................    50
 Section 7.5    Outside Activities of the General Partner....................    51
 Section 7.6    Contracts with Affiliates....................................    52
 Section 7.7    Indemnification..............................................    53
 Section 7.8    Liability of the General Partner.............................    54
 Section 7.9    Other Matters Concerning the General Partner.................    56
 Section 7.10   Title to Partnership Assets..................................    56
 Section 7.11   Reliance by Third Parties....................................    57


ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.........................    58
 Section 8.1    Limitation of Liability......................................    58
 Section 8.2    Management of Business.......................................    58
 Section 8.3    Outside Activities of Limited Partners.......................    58
 Section 8.4    Return of Capital............................................    59
 Section 8.5    Rights of Limited Partners Relating to the Partnership.......    59
 Section 8.6    Exchange and Cash Tender Rights..............................    60


ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS.............................    67
 Section 9.1    Records and Accounting.......................................    67
 Section 9.2    Reports......................................................    68


ARTICLE 10 TAX MATTERS.......................................................    68
 Section 10.1   Preparation of Tax Returns; Tax Accounting...................    68
 Section 10.2   Tax Elections................................................    69
 Section 10.3   Tax Matters Partner..........................................    69
 Section 10.4   Withholding..................................................    69


ARTICLE 11 TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER.............    70
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<TABLE>
<S>             <C>                                                            <C>
 Section 11.1   Transfer.....................................................    70
 Section 11.2   Transfer of General Partner's Interest.......................    70
 Section 11.3   Limited Partners' Rights to Transfer.........................    71
 Section 11.4   Substituted Limited Partners.................................    76
 Section 11.5   Assignees....................................................    76
 Section 11.6   General Provisions...........................................    77
 Section 11.7   Removal of General Partner...................................    78


ARTICLE 12 ADMISSION OF PARTNERS.............................................    79
 Section 12.1   Admission of Successor General Partner.......................    79
 Section 12.2   Admission of Additional Limited Partners.....................    79
 Section 12.3   Amendment of Agreement and Certificate of Limited
                Partnership..................................................    80
 Section 12.4   Limit on Number of Partners..................................    80


ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION..........................    81
 Section 13.1   Dissolution..................................................    81
 Section 13.2   Winding Up...................................................    81
 Section 13.3   [Intentionally omitted]......................................    83
 Section 13.4   Rights of Limited Partners...................................    83
 Section 13.5   Notice of Dissolution........................................    83
 Section 13.6   Termination of Partnership and Cancellation of Certificate
                of Limited Partnership.......................................    84
 Section 13.7   Reasonable Time for Winding-Up...............................    84
 Section 13.8   Waiver of Partition..........................................    84


ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS......................    84
 Section 14.1   Amendments...................................................    84
 Section 14.2   Meetings of the Common Limited Partners......................    85
 Section 14.3   Meetings of the Preferred Limited Partners...................    85


ARTICLE 15 GENERAL PROVISIONS................................................    86
 Section 15.1   Addresses and Notice.........................................    86
 Section 15.2   Titles and Captions..........................................    86
 Section 15.3   Pronouns and Plurals.........................................    86
 Section 15.4   Further Action...............................................    86
 Section 15.5   Binding Effect...............................................    86
 Section 15.6   Waiver.......................................................    87
 Section 15.7   Counterparts.................................................    87
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<TABLE>
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 Section 15.8   Applicable Law...............................................    87
 Section 15.9   Entire Agreement.............................................    87
 Section 15.10  Invalidity of Provisions.....................................    87
 Section 15.11  Outstanding Limited Partner Interests........................    87
 Section 15.12  Certificates for Preferred Limited Partner Interests
                Issued to IAC Capital Trust..................................    87
</TABLE>

EXHIBITS:

Exhibit A - Partners, Contributions and Partnership Interests
Exhibit B - Notice of Exchange
Exhibit C - Notice of Cash Tender
Exhibit D - Form of Common Limited Partner Unit Certificate


                                       iv
<PAGE>   6
                           SECOND AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP
                                       OF
                       IRVINE APARTMENT COMMUNITIES, L.P.

      THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of
January 20, 1998 is entered into by and among Irvine Apartment Communities,
Inc., a Maryland corporation, as the General Partner, and the Persons whose
names are set forth on Exhibit A as attached hereto, as the Limited Partners,
together with any other Persons who become Partners in the Partnership as
provided herein.

                              W I T N E S S E T H:

      WHEREAS, on November 15, 1993, Irvine Apartment Communities, Inc. and The
Irvine Company formed a Delaware limited partnership under the name "Irvine
Apartment Communities, L.P." (the "Partnership");

      WHEREAS, effective as of December 1, 1993, (i) Irvine Apartment
Communities, Inc. and The Irvine Company made additional contributions to the
Partnership and admitted additional Common Limited Partners to the Partnership;
and (ii) Irvine Apartment Communities, Inc., The Irvine Company and such Limited
Partners entered into the Amended and Restated Agreement of Limited Partnership
dated as of December 1, 1993 (the "First Amendment and Restatement");

      WHEREAS, the First Amendment and Restatement was amended by agreements
dated as of April 20, 1995, July 18, 1995, August 9, 1995, March 20, 1996, May
1, 1996, June 30, 1996, February 4, 1997, July 25, 1997 and December 1, 1997 (as
so amended, the "Prior Agreement") and pursuant to certain of such amendments
and agreements dated as of March 7, 1995, June 21, 1996, July 3, 1996 and July
30, 1996 certain Additional Limited Partners and Substituted Limited Partners
were admitted to the Partnership as Common Limited Partners;

      WHEREAS, as of the date hereof the interests of the current Partners in
the Partnership are as set forth in Amendment No. 26 to Exhibit A to the Prior
Agreement;

      WHEREAS, the parties desire to further amend the Prior Agreement pursuant
to Sections 14.1 and 7.3D thereof to, among other things, (i) provide for the
issuance from time to time of preferred limited partner interests in series and
(ii) to delete certain provisions and related definitions and exhibits relating
to certain events and transactions which have occurred and which do not affect
the Partnership or the distributions and allocations provided for herein on an
ongoing basis; and in connection therewith to amend and restate the Prior
Agreement in its entirety; and

      WHEREAS, the parties hereto desire to continue the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
in accordance with the provisions of this Agreement, which supersedes, amends
and restates the Prior Agreement.


<PAGE>   7
      NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, covenant and 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.

      "ACP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of additional cash to be invested in newly issued REIT
Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan minus the
aggregate amount of additional cash to be so invested by all Irvine Persons and
the Original Limited Partners in newly issued REIT Shares on such DRIP/ACP
Investment Date pursuant to the DRIP/ACP Plan.

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

      "Act of Bankruptcy" shall be deemed to occur (i) with respect to TRC if
TRC or any shareholder thereof, and (ii) with respect to a TRC Shareholder if
such TRC Shareholder shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (b) admit in writing its
inability to pay its debts as they become due, (c) make a general assignment for
the benefit of its creditors, (d) file a voluntary petition or commence a
voluntary case or proceeding under the Federal Bankruptcy Code (as now or
hereafter in effect) or any new bankruptcy statute, (e) be adjudicated bankrupt
or insolvent, (f) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts, (g) fail to controvert in a timely and appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
or proceeding under the Federal Bankruptcy Code (as now or hereafter in effect)
or any new bankruptcy statute, or (h) take any corporate or partnership action
for the purpose of effecting any of the foregoing; or if a proceeding or case
shall be commenced, without the application or consent of a party hereto or any
general partner thereof, in any court of competent jurisdiction seeking (1) the
liquidation, reorganization, dissolution or winding-up, or the composition or
readjustment of debts, of such party or general partner, (2) the appointment of
a receiver, custodian, trustee or liquidator of such party, shareholder or
general partner of all or any substantial part of its assets, or (3) other
similar relief under any law relating to bankruptcy, insolvency, reorganization,
winding-up or composition or adjustment of debts, and such proceeding or case
shall continue undismissed; or an order (including an order for relief entered
in an involuntary case under the Federal Bankruptcy Code, as now or hereafter in
effect, or any new bankruptcy statute) judgment or decree approving or


                                       2
<PAGE>   8
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of sixty (60) consecutive days.

      "Actions" has the meaning set forth in Section 7.7.A hereof.

      "Actual Limited Partner Investment Amount" means with respect to each
DRIP/ACP Investment Date the dollar amount specified in the election notice
delivered pursuant to Section 4.8.A(2) not to exceed the Maximum Limited Partner
Investment Amount for such DRIP/ACP Investment Date, provided that if such
election notice is given but fails to specify the Actual Limited Partner
Investment Amount, then the Actual Limited Partner Investment Amount shall be
the Maximum Limited Partner Investment Amount.

      "Additional Funds" has the meaning set forth in Section 4.5.A hereof.

      "Additional Limited Partner" means a Person admitted to the Partnership as
either a Preferred Limited Partner or Common Limited Partner pursuant to
Sections 4.5.D and 12.2 hereof and who is shown as such on the books and records
of the Partnership.

      "Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.

      "Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.

      "Adjustment Date" means the date of a Capital Contribution pursuant to
Section 4.5 hereof.

      "Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "control" when used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.

      "Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time,
including pursuant to a Designation Instrument.


                                       3
<PAGE>   9
      "Apartment Community Project" means any multifamily rental apartment
community, including the structure, buildings and other facilities, and any
construction and improvement activities undertaken with respect thereto.

      "Appraisal" means, with respect to any assets, the written opinion of an
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith, such selection to be subject to the
reasonable approval of The Irvine Company, for so long as The Irvine Company is
a holder of a Common Limited Partner Interest representing at least a 10% Junior
Percentage Interest, and thereafter, to the extent there is an Original Limited
Partner, the Original Limited Partner holding the largest Junior Percentage
Interest in the Partnership, provided that for purposes of clause (c) of the
definition of Gross Asset Value, the independent third party shall be selected
by the distributee if the distributee is other than the General Partner.

      "Assignee" means a Person to whom one or more Limited Partner Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.

      "Available Cash" means, with respect to any period for which such
calculation is being made,

      (i)   the sum, without duplication, of:

                  (a)   the Partnership's Net Income or Net Loss (as the case
            may be) for such period (without regard to adjustments resulting
            from special allocations described in Section 6.2.B hereof),

                  (b)   Depreciation and all other noncash charges or accruals
            to the extent deducted in determining Net Income or Net Loss for
            such period,

                  (c)   the excess, if any, of the net cash proceeds from the
            sale, exchange, disposition, or refinancing of Partnership property
            for such period over the gain (or loss, as the case may be)
            recognized from such sale, exchange, disposition, or refinancing
            during such period (excluding Terminating Capital Transactions), and

                  (d)   all other cash received (including amounts previously
            accrued as Net Income and amounts of deferred income) or any amounts
            borrowed by the Partnership for such period that was not included in
            determining Net Income or Net Loss for such period;

      (ii)  less the sum, without duplication, of:

                  (a)   all principal debt payments made during such period by
            the Partnership,


                                       4
<PAGE>   10
                  (b)   capital expenditures made by the Partnership during such
            period,

                  (c)   investments in any entity (including loans made thereto)
            to the extent that such investments are not otherwise described in
            clause (ii)(b),

                  (d)   all other expenditures and payments not deducted in
            determining Net Income or Net Loss for such period (including
            amounts paid in respect of expenses previously accrued),

                  (e)   any amount included in determining Net Income or Net
            Loss for such period that was not received by the Partnership during
            such period, and

                  (f)   the amount of any working capital accounts and other
            cash or cash equivalents which the General Partner determines to be
            necessary or appropriate in its sole discretion.

      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.

      "Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York or Los Angeles, California are
authorized or required by law to close.

      "Capital Account" means, with respect to any Partner, the Capital Account
maintained for such Partner in accordance with the following provisions:

                  (a)   To each Partner's Capital Account, there shall be added
            such Partner's Capital Contributions, such Partner's share of Net
            Income and any items in the nature of income or gain which are
            specially allocated pursuant to Section 6.2 hereof, and the
            principal amount of any Partnership liabilities assumed by such
            Partner or which are secured by any property distributed to such
            Partner.

                  (b)   From each Partner's Capital Account, there shall be
            subtracted the amount of cash and the Gross Asset Value of any
            property distributed to such Partner pursuant to any provision of
            this Agreement, such Partner's distributive share of Net Losses and
            any items in the nature of expenses or losses which are specially
            allocated pursuant to Section 6.2 hereof, and the principal amount
            of any liabilities of such Partner assumed by the Partnership or
            which are secured by any property contributed by such Partner to the
            Partnership.


                                       5
<PAGE>   11
                  (c)   In the event any interest in the Partnership 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 is attributable to the transferred interest.

                  (d)   In determining the amount of any liability for purposes
            of subsections (a) and (b) hereof, there shall be taken into account
            Code Section 752(c) and any other applicable provisions of the Code
            and Regulations.

                  (e)   The provisions of this Agreement relating to the
            maintenance of Capital Accounts are intended to comply with
            Regulations Section 1.704-1(b) and 1.704-2, and shall be interpreted
            and applied in a manner consistent with such Regulations. If the
            General Partner shall determine that it is prudent to modify the
            manner in which the Capital Accounts are maintained in order to
            comply with such Regulations, the General Partner may make such
            modification provided that such modification will not have a
            material effect on the amounts distributable to any Partner without
            such Partner's consent. The General Partner also shall make any
            adjustments that are necessary or appropriate to maintain equality
            between the Capital Accounts of the Partners and the amount of
            Partnership capital reflected on the Partnership's balance sheet, as
            computed for book purposes, in accordance with Regulations Section
            1.704-1(b)(2)(iv)(q).

      "Capital Contribution" means, with respect to any Partner, any cash or the
Gross Asset Value of any Contributed Property which such Partner contributes to
the Partnership pursuant to Sections 4.1, 4.2, 4.3 or 4.5 hereof or is deemed to
contribute pursuant to Sections 4.5.F, 4.5.H(1), 4.6 and 4.8 hereof, as such
Gross Asset Value may be determined from time to time.

      "Cash Amount" means an amount of cash equal to the Value of the REIT
Shares Amount.

      "Cash Tender" has the meaning set forth in Section 8.6.

      "Cash Tender Amount" means the lesser of (i) the Cash Amount or (ii) the
Public Offering Funding Amount.

      "Certificate" means the Certificate of Limited Partnership of the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.

      "Certificate of Incorporation" means the Articles of Amendment and
Restatement of the General Partner filed in the office of the State Department
of Assessments and Taxation of the State of Maryland on April 29, 1996, as
amended or restated from time to time, including any Articles Supplementary.


                                       6
<PAGE>   12
      "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.

      "Common Limited Partner" means any Person named as a Common Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Common Limited Partner in the Partnership.

      "Common Limited Partner Interest" means a Partnership Interest of a Common
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Common Limited Partners. A Common Limited Partner
Interest may be expressed as a number of Partnership Units (each a "Common
Limited Partner Unit").

      "Consent" means the consent to or approval of a proposed action by a
Partner given in accordance with Section 14.2 or Section 14.3 hereof.

      "Consent of the Common Limited Partners" means the Consent of a
Majority-In-Interest of the Common Limited Partners, which Consent shall be
obtained prior to the taking of any action for which it is required by this
Agreement and may be given or withheld by a Majority-In-Interest of the Common
Limited Partners, in their sole discretion.

      "Contributed Properties" means each Property or other asset, but excluding
cash, contributed or deemed contributed to the Partnership (or deemed
contributed to the Partnership on termination and reconstitution thereof
pursuant to Section 708 of the Code).

      "Conversion Factor" means 1.0, provided that in the event that the General
Partner (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) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination. Any adjustment to the Conversion Factor shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.

        "Corresponding ACP/L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date a number of Common Limited Partner Units equal to "A" divided by
"B", where


                                       7
<PAGE>   13
"A" equals a dollar amount equal to the Actual Limited Partner Investment Amount
for such DRIP/ACP Investment Date minus the Maximum DRIP Limited Partner
Investment Amount for such DRIP/ACP Investment Date (provided that if the
Maximum DRIP Limited Partner Investment Amount is greater than the Actual
Limited Partner Investment Amount, then "A" shall be $0); and "B" equals the
purchase price per newly issued REIT Share issued on such DRIP/ACP Investment
Date with additional cash investments, determined as provided in the DRIP/ACP
Plan.

      "Corresponding DRIP/L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date a number of Common Limited Partner Units equal to "C" divided by
"D", where "C" equals the lesser of (i) the Actual Limited Partner Investment
Amount for such DRIP/ACP Investment Date and (ii) the Maximum DRIP Limited
Partner Investment Amount for such DRIP/ACP Investment Date, and "D" equals the
purchase price per newly issued REIT Share issued on such DRIP/ACP Investment
Date as a result of the reinvestment of dividends, determined as provided in the
DRIP/ACP Plan.

      "Corresponding L.P. Unit Amount" means with respect to each DRIP/ACP
Investment Date the aggregate of the Corresponding DRIP/L.P. Unit Amount and the
Corresponding ACP/L.P. Unit Amount, provided that if such calculation results in
a fractional Common Limited Partner Unit, the Corresponding L.P. Unit Amount
shall be rounded downward.

      "Debt" means, as to any Person, as of any date of determination, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; and (iii) all indebtedness for
borrowed money or for the deferred purchase price of property or services
secured by any lien on any property owned by such Person, to the extent
attributable to such Person's interest in such property, even though such Person
has not assumed or become liable for the payment thereof.

      "Declaration of Trust" means the Declaration of Trust of IAC Capital Trust
dated as of October 31, 1997, as amended and restated by the Amended and
Restated Declaration of Trust of IAC Capital Trust dated as of January 20, 1998,
as such agreement may be amended, modified or restated from time to time.

      "Depreciation" means, for each Partnership Year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year, Depreciation shall be in an amount which
bears the same ratio to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery deduction for such year
bears to such beginning adjusted tax basis; provided, however, that if the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year is zero, Depreciation shall be


                                       8
<PAGE>   14
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partner.

      "Designation Instrument" means with respect to a series of Preferred
Limited Partner Interests, an instrument executed by the General Partner at the
time of issuance of such series of Preferred Limited Partner Interests, setting
forth the rights, powers and duties of such series as established by the General
Partner pursuant to Section 4.5.F of this Agreement. The General Partner shall
identify each such Designation Instrument as the next consecutively lettered
Exhibit to this Agreement (the first such Designation Instrument to be Exhibit E
hereto) and shall deliver a conformed copy thereof to each Limited Partner,
provided that the failure to deliver a conformed copy to a Limited Partner shall
not in any way invalidate the issuance of such series of Preferred Limited
Partner Interests or give any Limited Partner any rights under this Agreement
other than the right to obtain a conformed copy of such Designation Instrument.

      "DRIP/ACP Investment Amount" means with respect to a DRIP/ACP Investment
Date the aggregate of the DRIP Investment Amount and the ACP Investment Amount.

      "DRIP Investment Amount" means with respect to a DRIP/ACP Investment Date
the aggregate amount of dividends paid on REIT Shares to be reinvested in newly
issued REIT Shares on such DRIP/ACP Investment Date pursuant to the DRIP/ACP
Plan minus the aggregate amount of dividends paid on REIT Shares beneficially
owned (whether under the DRIP/ACP Plan or otherwise) by all Irvine Persons and
the Original Limited Partners to be so reinvested in newly issued REIT Shares on
such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan.

      "DRIP/ACP Investment Date" means the date on which the DRIP Investment
Amount is reinvested in newly issued REIT Shares and/or the date on which the
ACP Investment Amount is used to purchase newly issued REIT Shares, in each case
as set forth in the DRIP/ACP Plan.

      "DRIP/ACP Plan" means the Irvine Apartment Communities, Inc. Dividend
Reinvestment and Additional Cash Investment Plan described in the General
Partner's Registration Statement on Form S-3 and any other dividend reinvestment
and additional cash investment plan established by the General Partner.

      "DRIP Percentage" has the meaning set forth in Section 4.8.A(1).

      "Effective Date" means December 8, 1993, the date of closing of the
Initial Public Offering of the REIT Shares.

      "Election Notice" has the meaning set forth in Section 4.5.G hereof.

      "Excess Common Stock" and "Excess Preferred Stock" means the classes of
shares of the General Partner as defined in Subsection 4(A) of Section (c) of
ARTICLE SIXTH of the Certificate of Incorporation.


                                       9
<PAGE>   15
      "Exchange" shall have the meaning set forth in Section 8.6 hereof.

      "Existing Property Partnership" means the San Rafael Apartments Limited
Partnership.

      "Existing Property Partnership Interest" shall mean the interest of the
Partnership as a 1% general partner and a 98% limited partner in the Existing
Property Partnership.

      "Funding Debt" means any Debt incurred by or on behalf of the General
Partner for the purpose of providing funds to the Partnership.

      "Funding Notice" has the meaning set forth in Section 4.5.B hereof.

      "General Partner" means Irvine Apartment Communities, Inc. or its
successor as general partner of the Partnership in their capacities as general
partner of the Partnership.

      "General Partner Interest" means the Partnership Interest held by the
General Partner that is the general partner interest hereunder. A General
Partner Interest may be expressed as a number of Partnership Units (each a
"General Partner Unit").

      "General Partner Loan" has the meaning set forth in Section 4.5.C hereof.

      "General Partner's Stock Incentive Plans" means the Irvine Apartment
Communities, Inc. 1993 Long-Term Stock Incentive Plan, the Irvine Apartment
Communities, Inc. 1993 Stock Plan for Directors, The Irvine Apartment
Communities, Inc. 1996 Long-Term Stock Incentive Plan, and any other officer,
director or employee stock plan established from time to time by the General
Partner.

      "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
            by a Partner to the Partnership shall be (i) in the case of assets
            included in Exhibit A the gross fair market value of such assets as
            agreed by the Partners and as set forth in Exhibit A under the
            heading "Gross Asset Value of Contributed Property", and (ii) in the
            case of any other assets that are contributed to the Partnership,
            their gross fair market value as agreed by the General Partner, the
            contributing Partner and the Irvine Person, if any, holding the
            largest Junior Percentage Interest in the Partnership. The
            sub-allocation of any Gross Asset Value determined pursuant to
            clauses (i) or (ii) within any group of assets shall be determined
            by agreement of the General Partner, the contributing Partner and
            the Irvine Person, if any, holding the largest Junior Percentage
            Interest in the Partnership in accordance with the principles of
            Section 1060 of the Code. In any case in which the General Partner,
            the contributing Partner and the Irvine Person, if any, holding the
            largest Junior


                                       10
<PAGE>   16
            Percentage Interest in the Partnership are unable to agree as to the
            gross fair market value of any asset or assets such Gross Asset
            Value shall be determined by Appraisal in accordance with such
            principles.

                  (b)   The Gross Asset Values of all Partnership assets
            immediately prior to the occurrence of any event described in (i),
            (ii), (iii), (iv) or (v) hereof shall be adjusted to equal their
            respective gross fair market values, as determined by the General
            Partner using such reasonable method of valuation as it may adopt,
            as of the following times:

                        (i)   the acquisition of an additional interest in the
                  Partnership by a new or existing Partner in exchange for more
                  than a de minimis Capital Contribution including, but not
                  limited to, acquisitions pursuant to Section 4.3 or
                  contributions and deemed contributions by the General Partner
                  pursuant to Section 4.6, if the General Partner reasonably
                  determines that such adjustment is necessary or appropriate to
                  reflect the relative economic interests of the Partners in the
                  Partnership;

                        (ii)  the distribution by the Partnership to a Partner
                  of more than a de minimis amount of Partnership property as
                  consideration for an interest in the Partnership, if the
                  General Partner reasonably determines that such adjustment is
                  necessary or appropriate to reflect the relative economic
                  interests of the Partners in the Partnership;

                        (iii) the liquidation of the Partnership within the
                  meaning of Regulations Section 1.704-1(b)(2)(ii)(g);

                        (iv)  upon the admission of a successor General Partner
                  pursuant to Section 11.7.C hereof; and

                        (v)   at such other times as the General Partner shall
                  reasonably determine necessary or advisable in order to comply
                  with Regulations Sections 1.704-1(b) and 1.704-2.

                  (c)   The Gross Asset Value of any Partnership asset
            distributed to a Partner shall be the gross fair market value of
            such asset on the date of distribution as determined by the
            distributee and the General Partner provided, however, if the
            distributee is the General Partner, or if the distributee and the
            General Partner cannot agree on such a determination, by Appraisal.

                  (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 734(b) or Code Section
            743(b), but only to the extent that such


                                       11
<PAGE>   17
            adjustments are taken into account in determining Capital Accounts
            pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
            however, that Gross Asset Values shall not be adjusted pursuant to
            this subparagraph (d) to the extent that the General Partner
            reasonably determines that an adjustment pursuant to subparagraph
            (b) is necessary or appropriate in connection with a transaction
            that would otherwise result in an adjustment pursuant to this
            subparagraph (d).

                  (e)   If the Gross Asset Value of a Partnership asset has been
            determined or adjusted pursuant to subparagraph (a), (b) or (d),
            such Gross Asset Value shall thereafter be adjusted by the
            Depreciation taken into account with respect to such asset for
            purposes of computing Net Income and Net Losses.

      "G.P. Per Unit Contribution" has the meaning set forth in Section
4.5.H(1).

      "IAC Capital Trust" means IAC Capital Trust, a Delaware business trust
formed pursuant to the Declaration of Trust and the Business Trust Act of the
State of Delaware (12 Del. Code Section 3801 et seq.).

      "IRS" means the Internal Revenue Service.

      "Immediate Family" of any individual means, such individual's estate and
heirs, spouse and children (whether natural or adoptive or by marriage) and any
trust or estate, the beneficiaries of which include such Person or any of the
foregoing.

      "Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation,


                                       12
<PAGE>   18
reorganization or other relief of or against such Partner under any bankruptcy,
insolvency or other similar law now or hereafter in effect has not been
dismissed within one hundred twenty (120) days after the commencement thereof,
(g) the appointment without the Partner's consent or acquiescence of a trustee,
receiver or liquidator has not been vacated or stayed within ninety (90) days of
such appointment, or (h) an appointment referred to in clause (g) is not vacated
within ninety (90) days after the expiration of any such stay.

      "Indemnitee" means (i) any Person made a party to a proceeding by reason
of (A) its status as the General Partner, or (B) such Person's status as a
director of the General Partner or an officer or employee of the Partnership or
the General Partner, or (C) such Person's status as a director of The Irvine
Company, (ii) other Persons (including Affiliates of the General Partner or the
Partnership) as the General Partner may designate from time to time (whether
before or after the event giving rise to potential liability), in its sole
discretion, (iii) TRC and the TRC Shareholders and (iv) any Irvine Person.

      "Initial Public Offering" means the offering of the General Partner's
Common Stock pursuant to the Form S-11 Registration Statement (No. 33-68830)
filed by the General Partner with the Securities and Exchange Commission.

      "Investing Entities" has the meaning set forth in Section 4.8.A(2).

      "Irvine Apartment Communities" means Irvine Apartment Communities, Inc, a
Maryland corporation.

      "Irvine Persons" means (i) The Irvine Company and its Affiliates, (ii)
Donald L. Bren and his Affiliates and Immediate Family, and any successors
thereto by descent or devise and (iii) the current and future shareholders of
The Irvine Company, and any Affiliates of any current and future shareholders of
the Irvine Company and the Immediate Family of such shareholders.

      "Junior Partnership Interests" means the General Partner Interest and the
Common Limited Partner Interests.

      "Junior Percentage Interest" means, as to the General Partner and each
Common Limited Partner, its interest in the Partnership as determined by
dividing, as applicable, the number of General Partner Units or Common Limited
Partner Units owned by such Partner by the aggregate number of General Partner
Units and Common Limited Partner Units then outstanding and as specified in
Exhibit A attached hereto, as such Exhibit may be amended from time to time.

      "Land Rights Agreement" means the agreement dated as of November 21, 1993,
as amended, among Irvine Apartment Communities, the Partnership, The Irvine
Company and Donald L. Bren evidencing, inter alia, certain exclusive rights to
acquire land from The Irvine Company and certain non-competition arrangements,
as such agreement may be further amended, modified or restated from time to
time.


                                       13
<PAGE>   19
      "Limited Partner" means a Common Limited Partner or a Preferred Limited
Partner, and "Limited Partners" means the Common Limited Partners and the
Preferred Limited Partners.

      "Limited Partner Interest" means a Common Limited Partner Interest or a
Preferred Limited Partner Interest, and "Limited Partner Interests" means the
Common Limited Partner Interests and the Preferred Limited Partner Interests.

      "Liquidating Events" has the meaning set forth in Section 13.1 hereof.

      "Liquidation Preference Amount" means with respect to any Preferred
Limited Partner Interest, the amount payable with respect to such Preferred
Limited Partner Interest (as established by the General Partner at the time of
issuance thereof and set forth in the Designation Instrument with respect to
such Preferred Limited Partner Interest made a part of this Agreement as set
forth in Section 4.5.F hereof) upon the voluntary or involuntary dissolution,
liquidation, winding-up or termination of the Partnership, or upon the stated
maturity of such Preferred Limited Partner Interest or upon the earlier
redemption of such Preferred Limited Partner Interests, as the case may be,
other than in any such case any accrued and unpaid distributions payable at such
time.

      "Liquidator" has the meaning set forth in Section 13.2 hereof.

      "L.P. Per Unit Contribution" has the meaning set forth in Section
4.5.H(1).

      "Majority-In-Interest of the Common Limited Partners" means those Common
Limited Partners holding in the aggregate more than fifty percent (50%) of the
Percentage Interests of the Common Limited Partners, as a class.

      "Maximum DRIP Limited Partner Investment Amount" means with respect to
each DRIP/ACP Investment Date a dollar amount equal to (A) the Maximum Limited
Partner Investment Amount times (B) the DRIP Percentage.

      "Maximum Limited Partner Investment Amount" means with respect to each
DRIP/ACP Investment Date a dollar amount equal to (A) the DRIP/ACP Investment
Amount for such DRIP/ACP Investment Date divided by 1 minus the aggregate of the
Junior Percentage Interests of the Original Limited Partners in the Partnership
in effect as of the close of business on the third business day immediately
preceding such DRIP/ACP Investment Date, minus (B) such DRIP/ACP Investment
Amount.

      "Miscellaneous Rights Agreement" means the Miscellaneous Rights Agreement
dated March 20, 1996, as amended, among Irvine Apartment Communities, the
Partnership and The Irvine Company, as such agreement may be further amended,
modified or restated from time to time.


                                       14
<PAGE>   20
      "Net Income" and "Net Loss" means, for each Partnership Year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such year, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:

                  (a)   Any income of the Partnership that is exempt from
            federal income tax and not otherwise taken into account in computing
            Net Income (or Net Loss) pursuant to this definition of Net Income
            or Net Loss shall be added to (or subtracted from) such taxable
            income (or loss);

                  (b)   Any expenditure of the Partnership described in Code
            Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B)
            expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) not
            otherwise taken into account in computing Net Income (or Net Loss)
            pursuant to this definition of Net Income (or Net Loss), shall be
            subtracted from (or added to) such taxable income (or loss);

                  (c)   In the event the Gross Asset Value of any Partnership
            asset is adjusted pursuant to subparagraph (b) or subparagraph (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 Net Income or
            Net Loss;

                  (d)   Gain or loss resulting from any disposition of property
            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 property disposed of, notwithstanding that the adjusted tax
            basis of such property differs from its Gross Asset Value;

                  (e)   In lieu of the depreciation, amortization and other cost
            recovery deductions that would otherwise be taken into account in
            computing such taxable income or loss, there shall be taken into
            account Depreciation for such Partnership Year;

                  (f)   To the extent an adjustment to the adjusted tax basis of
            any Partnership asset pursuant to Code Section 734(b) or Code
            Section 743(b) is required pursuant to Regulation Section
            1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
            Capital Accounts as a result of a distribution other than in
            liquidation of a Partner's interest in the Partnership, 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 the basis of the asset) from the disposition of
            the asset and shall be taken into account for purposes of computing
            Net Income or Net Loss; and


                                       15
<PAGE>   21
                  (g)   Notwithstanding any other provision of this definition
            of Net Income or Net Loss, any item which is specially allocated
            pursuant to Section 6.2.B hereof shall not be taken into account in
            computing Net Income or Net Loss. The amounts of the items of
            Partnership income, gain, loss or deduction available to be
            specially allocated pursuant to Section 6.2.B hereof shall be
            determined by applying rules analogous to those set forth in this
            definition of Net Income or Net Loss.

      "New Securities" means (i) any rights, options, warrants or convertible or
exchangeable securities having the right to subscribe for or purchase REIT
Shares, excluding grants under the General Partner's Stock Incentive Plans, or
(ii) any Debt issued by the General Partner that provides any of the rights
described in clause (i).

      "Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(c).

      "Nonrecourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(2).

      "Notice of Cash Tender" means the Notice of Cash Tender substantially in
the form of Exhibit C to this Agreement.

      "Notice of Exchange" means the Notice of Exchange substantially in the
form of Exhibit B to this Agreement.

      "Original Limited Partner" means (i) a Common Limited Partner who was a
Partner on the Effective Date, (ii) an Affiliate of a Common Limited Partner
described in clause (i) of this definition or an Irvine Person that acquires one
or more Common Limited Partner Units pursuant to Section 11.3.A hereof or (iii)
a Person that acquired one or more Common Limited Partner Units from an Original
Limited Partner pursuant to a Pledge.

      "Ownership Limit" means the applicable restriction on ownership of shares
of the General Partner imposed under the Certificate of Incorporation.

      "Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.

      "Partner 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 Regulations Section 1.704-2(i)(3).


                                       16
<PAGE>   22
      "Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).

      "Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined
in accordance with the rules of Regulations Section 1.704-2(i)(2).

      "Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.

      "Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement together with
all obligations of such Person to comply with the terms and provisions of this
Agreement. A Partnership Interest may be expressed as a number of Partnership
Units.

      "Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules and Regulations Section
1.704-2(d).

      "Partnership Record Date" means the record date established by the General
Partner for the distribution of Available Cash under Section 5.1 hereof with
respect to a class or series of Partnership Interests, which record date in the
case of distributions with respect to the General Partner Interest and Common
Limited Partner Interests shall generally be the same as the record date
established by the General Partner for a distribution to its stockholders of
some or all of its portion of such distribution.

      "Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Partners issued pursuant to Article 4 hereof. The ownership of
Partnership Units shall be evidenced by such form of certificate for units as
the General Partner adopts from time to time on behalf of the Partnership.
Partnership Units shall be either General Partner Units, Preferred Limited
Partner Units or Common Limited Partner Units and, without limitation on the
authority of the General Partner set forth in Article 4 hereof, the General
Partner may designate, in accordance with the provisions of this Agreement,
Limited Partner Units, when issued, as Common Limited Partner Units or Preferred
Limited Partner Units and may designate one of more series of Preferred Limited
Partner Units.

      "Partnership Year" means the taxable year of the Partnership, which shall
be the fiscal year ending December 31, until such time as the Code requires a
change of the taxable year.


                                       17
<PAGE>   23
      "Percentage Interest" means, as to each Partner as the context may
require, (i) with respect to any class or series of Partnership Units held by
such Partner, its interest in such class or series of Partnership Units as
determined by dividing the Partnership Units of such class or series owned by
such Partner by the total number of Partnership Units of such class or series
then outstanding as specified in Exhibit A attached hereto, as such Exhibit may
be amended from time to time, or (ii) its interest in the Junior Partnership
Interests determined as set forth in the definition of Junior Percentage
Interest.

      "Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.

      "Pledge" means the pledge by a Limited Partner of all or any portion of a
Partnership Interest to a Person, which is not an Affiliate of such Limited
Partner, as collateral or security for a bona fide loan or other extension of
credit, and the transfer of such pledged Partnership Interest to such Person in
connection with the exercise of remedies under such loan or extension or credit.

      "Preferred Limited Partner" means a Person named as a Preferred Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Preferred Limited Partner in the Partnership.

      "Preferred Limited Partner Interest" means a Partnership Interest issued
from time to time pursuant to Section 4.5.F of this Agreement that is designated
by the General Partner at the time of its issuance as a Preferred Limited
Partner Interest. In accordance with Section 4.5.F hereof, Preferred Limited
Partner Interests may be issued in series with each such series having such
designations, powers, preferences and relative, participating, optional or other
special rights, powers and privileges, including voting and conversion rights
and rights, powers and privileges senior to the General Partner Interest and the
Common Limited Partner Interests as shall be determined by the General Partner
at the time of issuance subject to the requirements of Section 4.5 hereof and
set forth in a Designation Instrument. A Preferred Limited Partner Interest of a
series may be expressed as a number of Partnership Units (each a "Preferred
Limited Partner Unit").

      "Pricing Agreements" has the meaning set forth in Section 8.6.E(2) hereof.

      "Pricing Information" has the meaning set forth in Section 8.6.E(3)
hereof.

      "Primary Offering Notice" has the meaning set forth in Section 8.6.G(5)
hereof.

      "Prior Agreement" has the meaning set forth in the third WHEREAS clause of
this Agreement, which Prior Agreement is amended and restated in its entirety by
this Agreement.


                                       18
<PAGE>   24
      "Prior Agreement Effective Date" means December 1, 1993.

      "Pro Rata Contribution" has the meaning set forth in Section 4.5.G hereof.

      "Pro Rata Participation" has the meaning set forth in Section 4.5.G
hereof.

      "Property" shall mean any property or assets of the Partnership including,
without limitation, any Apartment Community Project in which the Partnership or
any Property Partnership, directly or indirectly, acquires ownership of a fee or
leasehold interest.

      "Property Partnership" shall mean and include the Existing Property
Partnership and any partnership or other entity in which the Partnership is or
becomes a partner or other equity participant and which is formed for the
purpose of acquiring, developing or owning a Property or a proposed Property.

      "Property Partnership Agreement" shall mean and include the partnership
agreement of the Existing Property Partnership and any partnership agreement or
any joint venture or other similar agreement (as any of the foregoing may be
amended, modified or supplemented from to time) under which a Property
Partnership is constituted or by which it is governed.

      "Property Partnership Interests" shall mean and include the Existing
Property Partnership Interest and, with respect to any Property Partnership in
which the Partnership becomes a partner or other equity participant after the
date hereof, the interest or interests of the Partnership as a partner or other
equity participant in such Property Partnership.

      "Property Trustee" shall mean the entity acting as Property Trustee under
the Declaration of Trust.

      "Public Offering Funding" shall have the meaning set forth in Section
8.6.C hereof.

      "Public Offering Funding Amount" means the dollar amount equal to (i) the
product of (x) the number of Registrable Shares sold in a Public Offering
Funding and (y) the public offering price per share of such Registrable Shares
in such Public Offering Funding, less (ii) the aggregate underwriting discounts
and commissions in such Public Offering Funding.

      "Qualified Transferee" means an "Accredited Investor" as defined in Rule
501 promulgated under the Securities Act.

      "Registrable Shares" has the meaning set forth in Section 8.6.C(1) hereof.

      "Regulations" means the applicable income tax regulations under the Code
whether such regulations are in proposed, temporary or final form, as such
regulations may be amended from time to time (including corresponding provisions
of succeeding regulations).


                                       19
<PAGE>   25
      "Regulatory Allocations" has the meaning set forth in Section 6.2.B(8)
hereof.

      "REIT" means a real estate investment trust under Section 856 of the Code.

      "REIT Share" shall mean a share of common stock, par value $.01 per share,
of the General Partner.

      "REIT Shares Amount" shall mean a number of REIT Shares equal to the
product of the number of Common Limited Partner Units tendered by a Tendering
Partner pursuant to Section 8.6 hereof, multiplied by the Conversion Factor;
provided that in the event the General Partner issues to all holders of REIT
Shares as of a certain record date rights, options, warrants or convertible or
exchangeable securities entitling the stockholders of the General Partner to
subscribe for or purchase REIT Shares, or any other securities or property
(collectively, the "rights") that have been declared (i) prior to, on or after
the date of a Notice of Exchange, with a record date within the period starting
on the date of the Notice of Exchange and ending on the day preceding the
Specified Exchange Date then the REIT Shares Amount shall also include such
rights that a holder of that number of REIT Shares would be entitled to receive
and (ii) prior to, on or after a Notice of Cash Tender, with a record date
within the period starting on the date of the Notice of Cash Tender and ending
on the day preceding the Specified Cash Tender Date then the General Partner
shall adjust the Cash Amount in good faith to reflect the increased value of the
REIT Shares.

      "Related Party" means (i) The Irvine Company and (ii) any other Person
whose ownership of REIT Shares would be attributed to Donald L. Bren under
Section 544 of the Code.

      "Second Offering" means the underwritten public offering of up to
5,750,000 REIT Shares referred to in the Funding Notice dated July 18, 1995.

      "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.

      "Single Funding Notice" has the meaning set forth in Section 8.6.C(2)
hereof.

      "Specified Cash Tender Date" means the Business Day next following the
date of the closing of the Public Offering Funding.

      "Specified Exchange Date" means, subject to Section 8.6.G (7) and
compliance with the requirements of Section 8.6.I, the fifth (5th) Business Day
after receipt by the General Partner of a Notice of Exchange.

      "Subsequent Cash Tender" has the meaning set forth in Section 8.6.G(5)
hereof.

      "Subsequent Cash Tender Notice" has the meaning set forth in Section
8.6.G(5) hereof.


                                       20
<PAGE>   26
      "Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person; provided, however, that, with respect to
the Partnership, "Subsidiary" shall mean only a partnership of which the
Partnership is a partner unless the General Partner has received an unqualified
opinion from independent counsel of recognized standing, or a ruling from the
Internal Revenue Service, that the ownership of shares of stock of a corporation
or other entity will not jeopardize the General Partner's status as a REIT in
which event the term "Subsidiary" shall include the corporation or other entity
which is the subject of such opinion or ruling.

      "Substituted Limited Partner" means a Person who is admitted as either a
Preferred Limited Partner or Common Limited Partner to the Partnership pursuant
to Section 11.4 hereof.

      "SVC" means Stonecrest Village Company, LLC, a California limited
liability company.

      "Tandem Project" means the proposed development on the Tandem Property
contemplated by applications numbered 5-Z-96, 14-U-96 and 21-EA-96 on file with
the City of Cupertino, summarized in that certain letter dated December 11,
1996, prepared by the Community Development Department of the City of Cupertino
and approved by the Partnership.

      "Tandem Property" means that certain real property located in the City of
Cupertino, State of California, which TRC has an option to purchase pursuant to
that certain Purchase Agreement dated May 1, 1996, by and between Tandem
Computers Incorporated, as seller, and TRC, as buyer, and more particularly
described therein.

      "Tax Item" means, with respect to each Partnership Year, each item of
income, gain, loss, credit and deduction of the Partnership for purposes of the
Code and the Regulations.

      "Tendered Units" has the meaning set forth in Section 8.6.A hereof.

      "Tendering Partner" has the meaning set forth in Section 8.6.A hereof.

      "Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.

      "TRC" means Thompson Residential Company, Inc., a California corporation.

      "TRC Contribution Agreement" means that certain Contribution Agreement by
and between the Partnership and TRC, dated as of December 20, 1996.

      "TRC Shares" means issued and outstanding shares of all classes of stock
in TRC.


                                       21
<PAGE>   27
      "TRC Shareholder" has the meaning set forth in Section 11.3.F(1).

      "TRC Shareholder Incapacity" has the meaning set forth in Section
11.3.F(3).

      "Transfer" means any sale, assignment, bequest, conveyance, devise, gift,
encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or
act of alienation, whether voluntary or involuntary, or by operation of law.

      "Twelve-Month Period" means the twelve-month period ending on the day
before the first anniversary of the Effective Date or on a subsequent
anniversary thereof.

      "Unit Value" for purposes of Sections 8.6.J and Sections 11.3.F(2),
11.3.F(3) and 11.3.F(4) shall mean on any day the product of the market price of
a REIT Share (determined as provided in the definition of "Value") on such day
multiplied by the Conversion Factor on such day.

      "Value" means on any date with respect to a REIT Share, the market price
on such date or, if such date is not a trading day, then the market price on the
immediately preceding day which is a trading day, provided that for purposes of
determining the Cash Amount with respect to Tendered Units of a Tendering
Partner, the term "Value" shall mean the average of the daily market prices for
ten (10) consecutive trading days immediately preceding the date of receipt by
the General Partner of a Notice of Cash Tender. The market price for any such
trading day shall be: (i) if the REIT Shares are listed or admitted to trading
on any securities exchange or the Nasdaq National Market System, the closing
price, regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, in either case as
reported in the principal consolidated transaction reporting system, (ii) if the
REIT Shares are not listed or admitted to trading on any securities exchange or
the Nasdaq National Market System, the last reported sale price on such day or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner, or (iii) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the Nasdaq National Market System and no
such last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the General Partner, or if there
shall be no bid and asked prices on such day, the average of the high bid and
low asked prices, as so reported, on the most recent day (not more than 10 days
prior to the date in question) for which prices has been so reported; provided
if there are no bid and asked prices reported during the 10 days prior to the
date in question, the Value of the REIT Shares shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the REIT Shares Amount includes rights (as defined in the definition of
REIT Shares Amount) that a holder of REIT Shares would be entitled to receive,
then the Value of such rights shall be determined by the General Partner acting
in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate.


                                       22
<PAGE>   28
      "Withdrawing Partner" has the meaning set forth in Section 8.6.E(3)
hereof.


                                    ARTICLE 2

                             ORGANIZATIONAL MATTERS

      Section 2.1. Formation; Continuation

      The Partnership is a limited partnership formed and continued pursuant to
the provisions of the Act and upon the terms and conditions set forth in the
Prior Agreement. The Partners hereby continue the Partnership pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement which amends and restates the Prior Agreement in its entirety as of
the date hereof. Except as expressly provided herein to the contrary, the rights
and obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.

      Section 2.2. Name

      The name of the Partnership is Irvine Apartment Communities, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner.

      Section 2.3. Registered Office and Agent; Principal Office

      The address of the registered office of the Partnership in the State of
Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801, and the
registered agent for service of process on the Partnership in the State of
Delaware at such registered office is the Corporation Trust Company. The
principal office of the Partnership is located at 550 Newport Center Drive,
Newport Beach, California 92660 or such other place as the General Partner may
from time to time designate by notice to the Limited Partners. The Partnership
may maintain offices at such other place or places within or outside the State
of Delaware as the General Partner deems advisable.

      Section 2.4. Power of Attorney

      A.    Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:


                                       23
<PAGE>   29
                  (1)   execute, swear to, seal, acknowledge, deliver, file and
            record in the appropriate public offices (a) all certificates,
            documents and other instruments (including, without limitation, this
            Agreement and the Certificate and all amendments or restatements
            thereof) that the General Partner or the Liquidator deems
            appropriate or necessary to form, qualify or continue the existence
            or qualification of the Partnership as a limited partnership (or a
            partnership in which the limited partners have limited liability to
            the extent provided by applicable law) in the State of Delaware and
            in all other jurisdictions in which the Partnership may conduct
            business or own property; (b) all instruments that the General
            Partner deems appropriate or necessary to reflect any amendment,
            change, modification or restatement of this Agreement in accordance
            with its terms; (c) all conveyances and other instruments or
            documents that the General Partner deems appropriate or necessary to
            reflect the dissolution and liquidation of the Partnership pursuant
            to the terms of this Agreement, including, without limitation, a
            certificate of cancellation; (d) all conveyances and other
            instruments or documents that the General Partner deems appropriate
            or necessary to reflect the distribution or exchange of assets of
            the Partnership pursuant to the terms of this Agreement; (e) all
            instruments relating to the admission, withdrawal, removal or
            substitution of any Partner pursuant to, or other events described
            in, Article 11, 12 or 13 hereof or the Capital Contribution of any
            Partner; and (f) all certificates, documents and other instruments
            relating to the determination of the rights, preferences and
            privileges of Partnership Interests; and

                  (2)   execute, swear to, seal, acknowledge and file all
            ballots, consents, approvals, waivers, certificates and other
            instruments appropriate or necessary, in the sole discretion of the
            General Partner, to make, evidence, give, confirm or ratify any
            vote, consent, approval, agreement or other action which is made or
            given by the Partners hereunder or is consistent with the terms of
            this Agreement or appropriate or necessary, in the sole discretion
            of the General Partner, to effectuate the terms or intent of this
            Agreement.

      Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article 14 hereof or
as may be otherwise expressly provided for in this Agreement.

      B.    The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner to act as
contemplated by this Agreement in any filing or other action by it on behalf of
the Partnership, and it shall survive and not be affected by the subsequent
Incapacity of any Limited Partner or Assignee and the Transfer of all or any
portion of a Limited Partner's or Assignee's Partnership Units and shall extend
to a Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each Limited Partner or Assignee hereby agrees to be bound by
any representation made by the General Partner, acting in


                                       24
<PAGE>   30
good faith pursuant to such power of attorney, and each Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner, taken in good faith under
such power of attorney. Each Limited Partner or Assignee shall execute and
deliver to the General Partner or the Liquidator, within fifteen (15) days after
receipt of the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.

      Section 2.5. Term

      The term of the Partnership commenced on November 15, 1993, the date the
original Certificate was filed in the office of the Secretary of State of
Delaware in accordance with the Act, and shall continue until December 31, 2092,
unless the Partnership is dissolved sooner pursuant to the provisions of Article
13 hereof or as otherwise provided by law.



                                    ARTICLE 3

                                     PURPOSE

      Section 3.1. Purpose and Business

      The purpose and nature of the Partnership is (i) to conduct the business
of the ownership, construction, development and operation of multifamily rental
apartment communities, (ii) to enter into any partnership, joint venture or
other similar arrangement to engage in any business permitted by clause (i), or
to own interests in any entity engaged in any business permitted by clause (i)
and (iii) to do anything necessary or incidental to the foregoing, provided,
however, such business and arrangements and interests shall be limited to and
conducted in such a manner as to permit the General Partner at all times to be
classified as a REIT.

      Section 3.2. Powers

      The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole discretion, (i) could adversely affect the ability
of the General Partner to continue to qualify as a REIT, (ii) could subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code, or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner or its securities or the
Partnership, unless such action (or inaction) described in


                                       25
<PAGE>   31
subclauses (i)-(iii) above shall have been specifically consented to by the
General Partner in writing.

      Section 3.3. Partnership Only for Purposes Specified

      The Partnership shall be a partnership only for the purposes specified in
Section 3.1 hereof, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any Debt or other obligation of another Partner, nor
shall the Partnership be responsible or liable for any Debt or other obligation
of any Partner, incurred either before or after the execution and delivery of
this Agreement by such Partner, except as to those responsibilities,
liabilities, Debt or obligations incurred pursuant to and as limited by the
terms of this Agreement and the Act.

      Section 3.4. Representations and Warranties by the Parties

      A.    Each Person that is an individual, as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner, as the case may be,
shall represent and warrant to each other Partner that (i) the consummation of
the transactions contemplated by this Agreement to be performed by such Partner
will not result in a breach or violation of, or a default under, any material
agreement by which such Partner or any of such Partner's property is or are
bound, or any statute, regulation, order or other law to which such Partner is
subject, (ii) such Partner is not a "foreign person" within the meaning of Code
Section 1445(f) nor a "foreign partner" within the meaning of Code Section
1446(e), and (iii) this Agreement is binding upon, and enforceable against, such
Partner in accordance with its terms.

      B.    Each Person that is not an individual represents and warrants to
each other Partner as a condition to becoming a Limited Partner that (i) all
transactions contemplated by this Agreement to be performed by it have been duly
authorized by all necessary action, including without limitation, that of its
general partner(s), committee(s), trustee(s), beneficiaries, directors and/or
shareholder(s), as the case may be, as required, (ii) the consummation of such
transactions shall not result in a breach or violation of, or a default under,
its partnership agreement, trust agreement, charter or by-laws, as the case may
be, any material agreement by which such Partner or any of such Partner's
properties or any of its partners, beneficiaries, trustees or shareholders, as
the case may be, is or are bound, or any statute, regulation, order or other law
to which such Partner or any of its partners, trustees, beneficiaries or
shareholders, as the case may be, is or are subject, (iii) such Partner is
neither a "foreign person" within the meaning of Code Section 1445(f) nor a
"foreign partner" within the meaning of Code Section 1446(e), and (iv) this
Agreement is binding upon, and enforceable against, such Partner in accordance
with its terms.


                                       26
<PAGE>   32
      C.    Each Partner represents, warrants and agrees that it has acquired
and continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances except as permitted under Article 11
hereof. Each Partner further represents and warrants that it is a sophisticated
investor, able and accustomed to handling sophisticated financial matters for
itself, particularly real estate investments, and that it has a sufficiently
high net worth that it does not anticipate a need for the funds it has invested
in the Partnership in what it understands to be a highly speculative and
illiquid investment.

      D.    The representations and warranties contained in Sections 3.4.A,
3.4.B and 3.4.C hereof shall survive the execution and delivery of this
Agreement by each Partner (and a Person's being admitted as a Substituted
Limited Partner or an Additional Limited Partner pursuant to Sections 11.4 or
12.2 hereof) and the dissolution, liquidation and termination of the
Partnership.

      E.    Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that projections and
any other information, including, without limitation, financial and descriptive
information and documentation, which may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.



                                    ARTICLE 4

                              CAPITAL CONTRIBUTIONS

      Section 4.1. Capital Contributions of the Partners

      At the time of the execution of this Agreement, the Capital Contributions
of the Partners are as set forth in Amendment No. 26 to Exhibit A to this
Agreement. To the extent the Partnership acquires in the future any property by
the merger of any other Person into the Partnership, Persons who receive
Partnership Interests in exchange for their interests in the Person merging into
the Partnership shall become Partners and shall be deemed to have made Capital
Contributions as provided in the applicable merger agreement and as set forth in
an amendment to Exhibit A. Each Partner shall own Partnership Units in the
amount set forth for such Partner in Exhibit A, as the same may be amended from
time to time, and shall have a Percentage Interest in the Junior Partnership
Interests or in a series of Preferred Limited Partnership Interests as set forth
for such Partner in Exhibit A, as the same may be amended from time to time,
which Percentage Interest shall be adjusted in Exhibit A from time to time by
the General Partner to the extent necessary to reflect accurately sales,
exchanges or other Transfers,


                                       27
<PAGE>   33
redemptions, Capital Contributions, the issuance of additional Partnership
Units, or similar events having an effect on a Partner's Percentage Interest.

      In the event a Contingent Contribution Value (as defined in the TRC
Contribution Agreement) is payable to TRC in additional Common Limited Partner
Units as provided in such TRC Contribution Agreement, then Exhibit A shall be
further amended (i) so that the "Gross Asset Value of Contributed Property" set
forth opposite the name of TRC in Exhibit A shall be increased by the amount of
such Contingent Contribution Value and (ii) the number of Common Limited Partner
Units owned by TRC and the Percentage Interests of the General Partner and all
the Common Limited Partners in the Junior Partnership Interests set forth in
Exhibit A shall be revised accordingly. For purposes of the definition of Gross
Asset Value, the General Partner, The Irvine Company and TRC agree that the
amount set forth opposite the name of TRC under "Gross Asset Value of
Contributed Property" in Exhibit A, as the same may be increased as described
above, constitutes the fair market value of the assets contributed by TRC to the
Partnership. At the Contingent Contribution Value Payment Date (as defined in
such TRC Contribution Agreement), in the event that the Partnership is obligated
to issue TRC additional Common Limited Partner Units, then the General Partner
shall issue TRC a certificate representing such Common Limited Partner Units,
and Exhibit A shall be modified accordingly as provided above. The Partners
acknowledge and agree that this paragraph reflects the provisions of Sections 16
and 17 of Amendment No. 7 of the Prior Agreement.

      Section 4.2. Additional Capital Contribution and Loans Generally

      Except as otherwise required by law, the Partners shall have no obligation
to make any additional Capital Contributions or loans to the Partnership.

      Section 4.3. Land Rights Agreement; Property Acquisitions

      A.    Upon the acquisition of any Property by the General Partner pursuant
to the Land Rights Agreement for REIT Shares, the General Partner will promptly
contribute such Property to the Partnership. Upon such contribution the
Partnership will be deemed to have issued to the General Partner a number of
General Partner Units equal to the number of REIT Shares issued by the General
Partner in such acquisition divided by the Conversion Factor in effect on the
date of issuance of such REIT Shares, and the Junior Percentage Interest of the
General Partner and all other Common Limited Partners shall be adjusted based on
that number of Partnership Units.

      B.    Upon the acquisition of Property pursuant to the Land Rights
Agreement for an additional Common Limited Partner Interest, the Partnership
will issue a number of Common Limited Partner Units equal to the amount of
Common Limited Partner Units determined pursuant to the Land Rights Agreement,
and the Junior Percentage Interest of the Property transferor, the General
Partner and all other Common Limited Partners shall be adjusted based on that
number of Partnership Units.


                                       28
<PAGE>   34
      Section 4.4. Loans by Third Parties

      Subject to Section 4.5 hereof, the Partnership may incur Debt, or enter
into other similar credit, guarantee, financing or refinancing arrangements for
any purpose (including, without limitation, in connection with any further
acquisition of Properties) from any Person upon such terms as the General
Partner determines appropriate; provided that, any Debt which refinances Debt
outstanding upon the closing of the Initial Public Offering, shall be
non-recourse to the General Partner, except to the extent otherwise agreed to by
the General Partner.

      Section 4.5. Additional Funding and Capital Contributions

      A.    General. The General Partner may, at any time and from time to time
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition of additional Properties or for such other purposes as the
General Partner may determine. Additional Funds may be raised by the
Partnership, at the election of the General Partner, in any manner provided in,
and in accordance with, the terms of this Section 4.5. Except as set forth in
this Section 4.5, no Person shall have any preemptive, preferential,
participation or similar right or rights to subscribe for or acquire any
Partnership Interest. Capital Contributions received pursuant to Section 11.7.C
will not be subject to Section 4.5.A.

      B.    Notice of Additional Capital Contributions. Except as provided in
the last sentence of Section 4.5.G, the General Partner shall give written
notice (the "Funding Notice") to the Original Limited Partners of the need for
Additional Funds and the anticipated source(s) thereof.

      C.    General Partner Loans. The General Partner, subject to Section 4.5.G
below, may enter into a Funding Debt including, but not limited to, a Funding
Debt that is convertible into REIT Shares and lend the Additional Funds to the
Partnership (a "General Partner Loan"). If the General Partner enters into such
a Funding Debt, the General Partner Loan will consist of the net proceeds from
such Funding Debt and, to the extent permitted by law, will be on the same terms
and conditions, including interest rate and repayment schedule, and providing
for the reimbursement of costs and expenses, as shall be applicable with respect
to or incurred in connection with such Funding Debt. Otherwise, all General
Partner Loans made pursuant to this Section 4.5 shall be on terms and conditions
no less favorable to the Partnership than would be available to the Partnership
from any third party.

      D.    Additional Limited Partners. The General Partner on behalf of the
Partnership may raise all or any portion of the Additional Funds by accepting
additional Capital Contributions (i) in the case of cash, subject to Section
4.5.G, from any Partners or any third party or (ii) in the case of property
other than cash, from any Partner and/or third parties, and either (A) in the
case of Partners, increasing such Partner's Partnership Interest, or (b) in the
case of a third party, admitting such third party as an Additional Limited
Partner. Subject to the terms


                                       29
<PAGE>   35
of this Section 4.5 and to the definition of Gross Asset Value, the General
Partner shall determine in good faith the amount, terms and conditions of such
additional Capital Contributions.

      E.    Issuance of Shares or Securities by the General Partner. The General
Partner shall not issue any additional REIT Shares (other than REIT Shares
issued pursuant to Section 4.3.A, 4.6, 4.8 or 8.6 hereof or pursuant to a
dividend or distribution (including any stock split) of REIT Shares to all of
its stockholders), shares of preferred stock of the General Partner or New
Securities unless (i) the General Partner shall make a Capital Contribution of
the proceeds from the issuance of such additional REIT Shares, shares of
preferred stock or New Securities, as the case may be, and from the exercise of
the rights contained in such additional New Securities, as the case may be,
provided that with respect to any issuance of preferred stock of the General
Partner or New Securities, the General Partner at its option may, in lieu of
making a Capital Contribution and issuing Preferred Limited Partner Interests to
the General Partner as provided in Section 4.5.F hereof, loan the proceeds from
the issuance of such shares of preferred stock or New Securities to the
Partnership on a subordinated basis, such loan to be on terms and conditions no
less favorable to the Partnership than would be available to the Partnership
from a third party, and (ii) the General Partner shall have delivered to the
Original Limited Partners a Funding Notice regarding the securities to be
issued.

      F.    Issuances of Additional Limited Partner Interests. In accordance
with this Section 4.5, the General Partner is hereby authorized, without the
consent of the Limited Partners, other than as provided in Section 7.3.D hereof
or in a Designation Instrument, to cause the Partnership from time to time to
issue to the Partners (including the General Partner) or other Persons Common
Limited Partner Interests (in addition to Common Limited Partner Interests
issued in accordance with Sections 4.3.B and 4.8.A hereof) and Preferred Limited
Partner Interests. Preferred Limited Partner Interests may be issued in one or
more series, with such rights and powers senior to the General Partner Interest
and the Common Limited Partner Interests and such other rights, powers and
duties as shall be determined by the General Partner in its sole and absolute
discretion subject to the Act and Delaware law and as set forth in a Designation
Instrument, including, without limitation, (i) the allocations of Tax Items to
Preferred Limited Partner Interests as a class or to a specific series of
Preferred Limited Partner Interests, (ii) the rights of a series of Preferred
Limited Partner Interests to share in Partnership distributions of Available
Cash, and (iii) the rights of a series of Preferred Limited Partner Interests
upon dissolution, liquidation, winding-up or termination of the Partnership,
including, without limitation, the Liquidation Preference Amount with respect to
such series. Notwithstanding the foregoing, no Preferred Limited Partner
Interests shall be issued to the General Partner unless (i) the Preferred
Limited Partner Interests are issued in connection with an issuance of preferred
stock of the General Partner which shares of preferred stock have designations,
preferences and other rights such that the economic interests attributable to
such shares of preferred stock are substantially similar to the designations,
preferences and other rights of the Preferred Limited Partner Interests issued
to the General Partner and (ii) the General Partner shall make a Capital
Contribution to the Partnership in accordance with Section 4.5.E in an amount
equal to the proceeds raised in connection with the issuance of such shares of
preferred stock of the General


                                       30
<PAGE>   36
Partner. Unless otherwise specified in the Designation Instrument, with
respect to any series of Preferred Limited Partner Interests issued to the
General Partner or IAC Capital Trust in consideration of the proceeds received
by the General Partner or IAC Capital Trust from a concurrent offering of
preferred stock of the General Partner or preferred securities of IAC Capital
Trust, respectively, the General Partner or IAC Capital Trust, as the case may
be, shall be deemed to have made (notwithstanding the actual amount of the
contribution) a Capital Contribution to the Partnership in the amount of the
gross proceeds of such issuance of preferred stock or preferred securities, as
the case may be. Upon issuance of a series of Preferred Limited Partner
Interests, the Designation Instrument applicable to such series shall constitute
an amendment to this Agreement and shall become a part hereof whether or not
actually attached to this Agreement.

      G.    Participation Rights of Partners. The Funding Notice delivered by
the General Partner prior to its making or accepting (on behalf of the
Partnership) any additional cash Capital Contributions pursuant to Section
4.5.A, 4.5.D, 4.5.E or, if any Preferred Limited Partner Interests are
convertible into, or exercisable or exchangeable for, Common Limited Partner
Interests or REIT Shares or securities whether issued by the Partnership or the
General Partner which are convertible into, or exercisable or exchangeable for,
REIT Shares, 4.5.F hereof shall contain the total amount of additional Capital
Contributions sought to be made to the Partnership, and the terms and conditions
pertaining thereto. Except as provided in the last sentence of this Section
4.5.G, each Original Limited Partner then holding a Common Limited Partner
Interest may elect to make an additional Capital Contribution not to exceed the
product of (i) the total amount of additional Capital Contributions being
sought, and (ii) such Partner's Junior Percentage Interest (with such product
deemed the "Pro Rata Contribution"). The Funding Notice delivered by the General
Partner prior to its making any loans to the Partnership pursuant to Section
4.5.C herein shall contain the total amount of the loan to be made to the
Partnership. Each Original Limited Partner then holding a Common Limited Partner
Interest may elect to participate in such loan in an amount not to exceed the
product of (i) the total amount of the loan, and (ii) such Limited Partner's
Junior Percentage Interest (with such product deemed the "Pro Rata
Participation"). Such election shall be made, if at all, by providing written
notice thereof (the "Election Notice") to the General Partner within fifteen
(15) days after delivery of the Funding Notice. Failure to respond to such
notice shall be deemed to be an election by such Original Limited Partner not to
make such Capital Contribution or participate in such loan. Such Election Notice
shall contain the amount of the additional Capital Contribution or the loan
participation, if any, the Original Limited Partner is to make (such additional
Capital Contribution not to exceed the respective Pro Rata Contribution of such
Original Limited Partner and such loan participation not to exceed the
respective Pro Rata Participation of such Original Limited Partner) equal to all
or any portion of its Pro Rata Contribution or Pro Rata Participation. No
Original Limited Partner shall have any participation right under this Section
4.5.G in connection with the Partnership raising Additional Funds through the
issuance of Preferred Limited Partner Interest to IAC Capital Trust unless such
Preferred Limited Partner Interests are convertible into, or exercisable or
exchangeable for, Common Limited Partner Interests or REIT Shares or securities
whether issued by the Partnership or the General Partner


                                       31
<PAGE>   37
which are convertible into, or exercisable or exchangeable for, REIT Shares and
as a result no Funding Notice need be given to the Original Limited Partners in
connection therewith.

      H.    Percentage Interest Adjustments.

      (1)   Upon the acceptance of additional cash Capital Contributions
pursuant to this Section 4.5, the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution, provided that in connection with a Capital
Contribution by any Original Limited Partner pursuant to an Election Notice
under Section 4.5.G in response to (i) a Funding Notice relating to the Second
Offering, such Original Limited Partner shall be deemed to have contributed to
the Partnership an amount equal to the cash actually contributed by such
Original Limited Partner on the Adjustment Date, minus an amount equal to the
aggregate underwriting discounts and commissions that would have been applicable
to REIT Shares if the cash contributed by such Original Limited Partner on the
Adjustment Date had been used to acquire REIT Shares in the Second Offering, and
(ii) a Funding Notice relating to any offering of REIT Shares subsequent to the
Second Offering in which the amount of cash actually contributed by such
Original Limited Partner per Common Limited Partner Unit (the "L.P. Per Unit
Contribution") is greater than the amount of cash per General Partner Unit
actually contributed by the General Partner in respect of the REIT Shares sold
in such offering (the "G.P. Per Unit Contribution"), such Original Limited
Partner shall be deemed to have contributed to the Partnership an amount equal
to the cash actually contributed by such Original Limited Partner on the
Adjustment Date minus an amount equal to the product of (A) the L.P. Per Unit
Contribution minus the G.P. Per Unit Contribution and (B) the number of Common
Limited Partner Units purchased by such Original Limited Partner pursuant to
such Election Notice.

      (2)   Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of Property other than cash, the amount of the
Capital Contribution shall be equal to the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
such Property is subject, and the Percentage Interests of the Partners shall be
adjusted based upon the number of Partnership Units issued in connection with
such Capital Contribution; provided that with respect to the Capital
Contribution made by TRC pursuant to the TRC Contribution Agreement, the Junior
Percentage Interest of TRC, the General Partner and all other Common Limited
Partners shall be adjusted based on the number of Common Limited Partnership
Units issued from time to time to TRC pursuant to such TRC Contribution
Agreement as provided in Section 4.1.

      (3)   Upon the acceptance of additional Capital Contributions pursuant to
this Section 4.5 in the form of cash and other Property, the amount of the
Capital Contribution shall be equal to the sum of (A) the amount of cash
contributed on the Adjustment Date and (B) the Gross Asset Value of the Property
contributed as of the Adjustment Date, net of any liabilities assumed by the
Partnership in connection with such assets or Nonrecourse Liabilities to which
the Property is


                                       32
<PAGE>   38
subject, and the Percentage Interests of the Partners shall be adjusted based on
the number of Partnership Units issued in connection with such Capital
Contribution.

      Section 4.6. Stock Incentive Plans

      If at any time or from time to time, in connection with the General
Partner's Stock Incentive Plans, any stock options granted are duly exercised or
stock is issued in satisfaction of phantom stock unit grants, or stock becomes
non-forfeitable pursuant to a vesting provision:

                  A.    The General Partner shall, as soon as practicable after
            such exercise, make a Capital Contribution to the Partnership in an
            amount equal to the exercise price paid to the General Partner by
            such exercising party in connection with the exercise of the stock
            option or the purchase price, if any, for such stock; and

                  B.    Notwithstanding the amount of the Capital Contribution
            actually made pursuant to Section 4.6.A above, the General Partner
            shall be deemed to have contributed to the Partnership as a Capital
            Contribution, in consideration of an additional General Partner
            Interest, an amount equal to the Value as of the date of exercise
            (provided, that, for these purposes, only the trading date on which
            the purchase of the REIT Shares by such exercising party is
            consummated shall be considered) or the date of delivery or vesting
            of shares, as the case may be, multiplied by the number of REIT
            Shares acquired under the General Partner's Stock Incentive Plans.

                  C.    A Junior Percentage Interest adjustment shall be made
            pursuant to the terms of Section 4.5.H in which the General Partner
            shall be treated as having made a cash contribution equal to the
            amount described in Section 4.6.B. hereof.

      Section 4.7. No Third Party Beneficiary

      No creditor or other third party having dealings with the Partnership
shall have the right to enforce the right or obligation of any Partner to make
Capital Contributions or loans or to pursue any other right or remedy hereunder
or at law or in equity, it being understood and agreed that the provisions of
this Agreement shall be solely for the benefit of, and may be enforced solely
by, the parties hereto and their respective successors and assigns. None of the
rights or obligations of the Partners herein set forth to make Capital
Contributions or loans to the Partnership shall be deemed an asset of the
Partnership for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Partnership or
pledged or encumbered by the Partnership to secure any debt or other obligation
of the Partnership or of any of the Partners.


                                       33
<PAGE>   39
      Section 4.8. DRIP/ACP Plans

      A.    If at any time or from time to time, in connection with the General
Partner's DRIP/ACP Plan, any REIT Shares are to be issued by the General Partner
out of its authorized but unissued REIT Shares in satisfaction of the General
Partner's obligations thereunder:

                  (1)   Promptly following the close of business on the third
            business day preceding each DRIP/ACP Investment Date but subject to
            having received the notice referred to in clause (5) below, the
            General Partner shall give notice (which shall constitute a Funding
            Notice for purposes of Section 4.5.G.) to each Original Limited
            Partner then holding a Common Limited Partner Interest of the
            DRIP/ACP Investment Amount to be invested in newly issued REIT
            Shares on such DRIP/ACP Investment Date. Such notice shall also set
            forth the Maximum Limited Partner Investment Amount of the Original
            Limited Partners and the percentage of the DRIP/ACP Investment
            Amount constituting the DRIP Investment Amount (the "DRIP
            Percentage") and the percentage constituting the ACP Investment
            Amount.

                  (2)   Not later than the close of business on the business day
            immediately preceding each DRIP/ACP Investment Date, the Original
            Limited Partners then holding Common Limited Partner Interests shall
            give irrevocable written notice to the General Partner of whether
            the Original Limited Partners or any one or more of them elect to
            make a cash investment on such DRIP/ACP Investment Date (not to
            exceed the Maximum Limited Partner Investment Amount) for the
            purchase of additional Common Limited Partner Interests in order to
            maintain the aggregate Junior Percentage Interest of the Original
            Limited Partners in the Partnership. Such notice shall specify the
            Actual Limited Partner Investment Amount if the amount to be
            invested is less than the Maximum Limited Partner Investment Amount
            and the identities of the Original Limited Partner(s) which will
            make such cash investment, provided that the Original Limited
            Partners shall have the right to designate any wholly owned
            subsidiary of The Irvine Company as the entity which shall make a
            Capital Contribution in respect of all or a portion of the Actual
            Limited Partner Investment Amount (the Original Limited Partner(s)
            or such subsidiary making the cash investment, the "Investing
            Entities"). Failure by the Original Limited Partners to respond to
            the Funding Notice shall be deemed an election by such Limited
            Partners not to make any cash investment on such DRIP/ACP Investment
            Date.

                  (3)   The General Partner shall, as soon as practicable
            following the DRIP/ACP Investment Date, make a Capital Contribution
            to the Partnership in an amount equal to the DRIP/ACP Investment
            Amount for such DRIP/ACP Investment Date, provided that
            notwithstanding the amount of the Capital Contribution actually made
            pursuant to the foregoing, the General Partner shall be


                                       34
<PAGE>   40
            deemed to have contributed to the Partnership as a Capital
            Contribution, in consideration of an additional General Partner
            Interest, an amount equal to the Value as of the date of issuance of
            the REIT Shares issued by the General Partner on such DRIP/ACP
            Investment Date pursuant to the DRIP/ACP Plan (provided, that, for
            these purposes, only the DRIP/ACP Investment Date shall be
            considered) multiplied by the number of REIT Shares issued on such
            DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan. Upon such
            contribution the Partnership will be deemed to have issued to the
            General Partner a number of General Partner Units equal to the
            number of newly issued REIT Shares issued by the General Partner on
            such DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan, and the
            Junior Percentage Interest of the General Partner and all other
            Common Limited Partners shall be adjusted based on that number of
            Partnership Units.

                  (4)   As soon as practicable following the DRIP/ACP Investment
            Date, the Investing Entities shall make a Capital Contribution to
            the Partnership in an amount equal to the Actual Limited Partner
            Investment Amount for such DRIP/ACP Investment Date. Upon such
            contribution the Partnership will issue a number of Common Limited
            Partners Units equal to the Corresponding L.P. Unit Amount, and the
            Junior Percentage Interest of the General Partner and the Common
            Limited Partners shall be adjusted based on that number of
            Partnership Units. Notwithstanding the amount of the Capital
            Contribution actually made pursuant to the foregoing, each Investing
            Entity shall be deemed to have contributed to the Partnership as a
            Capital Contribution an amount equal to the Value as of the date of
            issuance of the REIT Shares issued by the General Partner on such
            DRIP/ACP Investment Date pursuant to the DRIP/ACP Plan (provided,
            that for these purposes, only the DRIP/ACP Investment Date shall be
            considered) multiplied by the product of (i) the number of Common
            Limited Partner Units issued to such Investing Entity and (ii) the
            then current Conversion Factor.

                  (5)   Promptly following the close of business on the third
            business day preceding each DRIP/ACP Investment Date, the Original
            Limited Partners shall give written notice to the General Partner of
            (i) the number of REIT Shares beneficially owned by the Original
            Limited Partners and Irvine Persons as of such close of business
            (whether under the DRIP/ACP Plan or otherwise), (ii) the aggregate
            amount of dividends to be paid with respect to such number of REIT
            Shares, if any, which such Persons have elected to be reinvested in
            newly issued REIT Shares on such DRIP/ACP Investment Date pursuant
            to the DRIP/ACP Plan and (iii) the aggregate amount of additional
            cash, if any, to be invested by all such Persons in newly issued
            REIT Shares on such DRIP/ACP Investment Date pursuant to the
            DRIP/ACP Plan. Such notice shall be provided by The Irvine Company
            on behalf of all such Persons so long as The Irvine Company or any
            of its Affiliates is the holder of a Common Limited Partner Interest
            (and thereafter by the Original Limited Partner holding the largest
            Junior Percentage Interest in


                                       35
<PAGE>   41
            the Partnership) and such information shall be used by the General
            Partner in determining the DRIP/ACP Investment Amount for purposes
            of the notice given by it pursuant to Section 4.8.A(1). In the event
            the notice required by this clause (5) is not given by the close of
            business on the second business day preceding a DRIP/ACP Investment
            Date, the General Partner shall determine the DRIP/ACP Investment
            Amount based on the following assumptions: (i) that the Original
            Limited Partners and Irvine Persons beneficially own the number of
            REIT Shares set forth in the most recent Form 3 or Form 4 or
            Schedule 13G filed by such Persons pursuant to the Securities
            Exchange Act of 1934, as amended, (ii) that such Persons will
            reinvest pursuant to the DRIP/ACP Plan all the dividends to be paid
            on such number of REIT Shares on the applicable DRIP/ACP Investment
            Date and (iii) that each such Person will make on the applicable
            DRIP/ACP Investment Date the maximum additional cash investment
            permitted by the DRIP/ACP Plan to be made by such Person on such
            DRIP/ACP Investment Date.

      B.    If at any time or from time to time, in connection with the General
Partner's DRIP/ACP Plan, any REIT Shares are to be issued by the General Partner
out of its authorized but unissued REIT Shares in satisfaction of the General
Partner's obligations under Section 4.2 of the Miscellaneous Rights Agreement:

                  (1)   The General Partner shall, as soon as practicable, after
            the issuance of such REIT Shares, make a Capital Contribution to the
            Partnership in an amount equal to the price paid to the General
            Partner for such REIT Shares as set forth in Section 4.2 of the
            Miscellaneous Rights Agreement.

                  (2)   Notwithstanding the amount of the Capital Contribution
            actually made pursuant to Section 4.8.B(1) above, the General
            Partner shall be deemed to have contributed to the Partnership as a
            Capital Contribution, in consideration of an additional General
            Partner Interest, an amount equal to the Value as of the date of
            issuance of such REIT Shares (provided, that, for these purposes,
            only the trade date on which the purchase of the REIT Shares is
            consummated shall be considered) multiplied by the number of REIT
            Shares issued pursuant to Section 4.2 of the Miscellaneous Rights
            Agreement.

                  (3)   The Partnership will be deemed to have issued to the
            General Partner a number of General Partner Units equal to the
            number of newly issued REIT Shares issued by the General Partner
            pursuant to Section 4.2 of the Miscellaneous Rights Agreement and
            the Junior Percentage Interest of the General Partner and all Common
            Limited Partners shall be adjusted based on that number of
            Partnership Units.


                                       36
<PAGE>   42
                                    ARTICLE 5

                                  DISTRIBUTIONS

      Section 5.1. Requirements and Characterization of Distributions

      The General Partner shall cause the Partnership to distribute quarterly
all, or such portion as the General Partner may in its discretion determine,
including, but not limited to, as a consequence of such reserves as the General
Partner may deem appropriate, of Available Cash generated by the Partnership
during such quarter to the Partners who are Partners on the applicable
Partnership Record Date with respect to such quarter in the following order of
priority:

                  (i)   First, to the Preferred Limited Partners in such amount
            as is required for the Partnership to pay all distributions with
            respect to the Preferred Limited Partner Units held by such
            Preferred Limited Partners due or payable in accordance with the
            Designation Instrument or Instruments for such Preferred Limited
            Partner Units through the last day of such quarter (or the last day
            of the quarterly period set forth in such Designation Instrument or
            Instruments); such distributions to be made to the Preferred Limited
            Partners in such order of priority and with such preferences as have
            been established with respect to such Preferred Limited Partner
            Units as set forth in the Designation Instrument or Instruments; and

                  (ii)  Then, to the General Partner and the Common Limited
            Partners in accordance with their respective Junior Percentage
            Interests on such Partnership Record Date.

Subject to the prior rights of holders of Preferred Limited Partner Units with
respect to distributions of Available Cash, the General Partner in its sole
discretion may distribute to the General Partner and the Common Limited Partners
Available Cash (excluding amounts previously distributed to Preferred Limited
Partners as provided above) in accordance with their Junior Percentage Interests
on a more frequent basis and provide for an appropriate record date. The General
Partner shall take such reasonable efforts consistent with its qualification as
a REIT, to cause the Partnership to distribute sufficient amounts to enable the
General Partner to pay stockholder dividends that will (a) satisfy the
requirements for qualifying as a REIT under the Code and Regulations, and (b)
avoid any federal income or excise tax liability of the General Partner .

      Notwithstanding anything to the contrary contained herein, in no event
shall any Partner receive a distribution of Available Cash in respect of Junior
Partnership Interests with respect to any quarter or other period until such
time as the Partnership has distributed to the Preferred Limited Partners an
amount sufficient to pay all distributions payable with respect to the


                                       37
<PAGE>   43
Preferred Limited Partner Interests held by such Preferred Limited Partners in
accordance with the Designation Instrument or Instruments through the last day
of the most recently ended quarterly period set forth in each such Designation
Instrument.

      Section 5.2. Distributions in Kind

      No right is given to any Partner to demand and receive property other than
cash. The General Partner may determine, in its sole discretion but subject to
the rights of Preferred Limited Partner Interests, to make a distribution in
kind to the General Partner and the Common Limited Partners of Partnership
assets, and such assets shall be distributed in such a fashion as to ensure that
the fair market value is distributed and allocated in accordance with Articles
5, 6 and 10 hereof.

      Section 5.3. Distributions Upon Liquidation

      Proceeds from a Terminating Capital Transaction, and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
13.2.

      Section 5.4. Restricted Distributions

      Notwithstanding any provision to the contrary contained herein, the
Partnership, and the General Partner on behalf of the Partnership, shall not
make a distribution to any Partner on account of its interest in the Partnership
if such distribution would violate Section 17-607 of the Act or other applicable
law.

                                    ARTICLE 6

                                   ALLOCATIONS

      Section 6.1. Allocations in General

      Except as otherwise provided in this Article 6, and subject to Section
11.6.C, Net Income and Net Loss will be allocated to each of the Partners at the
end of each calendar month using the interim closing of the books method and
taking into account varying interests in accordance with the greater part of the
month convention consistent with Section 11.6.C.

      Section 6.2. Additional Allocation Provisions

      A.    Special Allocations

      For each Partnership Year there shall be a special allocation to the
Original Limited Partners (other than SVC and any Person (including the Members
of SVC) to whom SVC


                                       38
<PAGE>   44
Transfers its Common Limited Partner Interests) which when added to amounts
allocated under Section 6.1 and 6.3.B will result in a total allocation to such
Original Limited Partners of (i) all remaining low-income housing tax credits of
the Existing Property Partnership, determined solely by reference to the
adjusted tax basis of the assets of the Existing Property Partnership at June
30, 1995, allocated to the Partnership with respect to the Existing Property
Partnership Interest and (ii) all Depreciation allocated to the Partnership with
respect to the Existing Property Partnership Interest determined solely by
reference to the adjusted tax basis of the assets of the Existing Property
Partnership at June 30, 1995; it being understood that any additional low-income
housing tax credits becoming available to the Existing Property Partnership, and
any additional Depreciation resulting from increases to the adjusted tax basis
of the assets of the Existing Property Partnership, in each case from and after
July 1, 1995, shall not be subject to the special allocation provided for in
this clause (3). Except as provided in this Section 6.2.A, Depreciation shall be
allocated in accordance with Section 6.1 and 6.3.B.

      B.    Regulatory Allocations

      Notwithstanding the foregoing provisions of this Article 6:

                  (1)   Minimum Gain Chargeback. Except as otherwise provided in
            Regulations Section 1.704-2(f), if there is a net decrease in
            Partnership Minimum Gain during any Partnership Year, each Partner
            shall be specially allocated items of Partnership income and gain
            for such year (and, if necessary, subsequent years) in an amount
            equal to such Partner's share of the net decrease in Partnership
            Minimum Gain, as determined under Regulations Section 1.704-2(g).
            Allocations pursuant to the previous sentence shall be made in
            proportion to the respective amounts required to be allocated to
            each Partner pursuant thereto. The items to be allocated shall be
            determined in accordance with Regulations Sections 1.704-2(f)(6) and
            1.704-2(j)(2). This Section 6.2.B(1) is intended to qualify as a
            "minimum gain chargeback" within the meaning of Regulation Section
            1.704-2(f) and shall be interpreted consistently therewith.

                  (2)   Partner Minimum Gain Chargeback. Except as otherwise
            provided in Regulations Section 1.704-2(i)(4) or in Section 6.2.B(1)
            hereof, if there is a net decrease in Partner Minimum Gain
            attributable to a Partner Nonrecourse Debt during any Partnership
            Year, each Partner who has a share of the Partner Minimum Gain
            attributable to such Partner Nonrecourse Debt, determined in
            accordance with Regulations Section 1.704-2(i)(5), shall be
            specially allocated items of Partnership income and gain for such
            year (and, if necessary, subsequent years) in an amount equal to
            such Partner's share of the net decrease in Partner Minimum Gain
            attributable to such Partner Nonrecourse Debt, determined in
            accordance with Regulations Section 1.704-2(i)(4). Allocations
            pursuant to the previous sentence shall be made in proportion to the
            respective amounts required to be allocated to each Partner pursuant
            thereto. The items to be so allocated shall


                                       39
<PAGE>   45
            be determined in accordance with Regulations Section 1.704-2(i)(4)
            and 1.704-2(j)(2). This Section 6.2.B(2) is intended to qualify as a
            "chargeback of partner nonrecourse debt minimum gain" within the
            meaning of Regulation Section 1.704-2(i) and shall be interpreted
            consistently therewith.

                  (3)   Nonrecourse Deductions and Partner Nonrecourse
            Deductions. Any Nonrecourse Deductions for any Partnership Year
            shall be specially allocated to the Partners in accordance with
            their Percentage Interests. Any Partner Nonrecourse Deductions for
            any Partnership Year shall be allocated to each Partner who bears
            the economic risk of loss with respect to the Partner Nonrecourse
            Debt to which such Partner Nonrecourse Deductions are attributable,
            in accordance with Regulations Section 1.704-2(i).

                  (4)   Qualified Income Offset. If any Partner unexpectedly
            receives an adjustment, allocation or distribution described in
            Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
            Partnership income and gain shall be allocated, in accordance with
            Regulations Section 1.704-1(b)(2)(ii)(d), to the Partner in an
            amount and manner sufficient to eliminate, to the extent required by
            such Regulations, the Adjusted Capital Account Deficit of the
            Partner as quickly as possible, provided that an allocation pursuant
            to this Section 6.2.B(4) shall be made if and only to the extent
            that such Partner would have an Adjusted Capital Account Deficit
            after all other allocations provided in this Article 6 have been
            tentatively made as if this Section 6.2.B(4) were not in the
            Agreement. It is intended that this Section 6.2.B(4) qualify and be
            construed as a "qualified income offset" within the meaning of
            Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
            consistently therewith.

                  (5)   Gross Income Allocation. If any Partner has a deficit
            Capital Account at the end of any Partnership Year which is in
            excess of the sum of (1) the amount (if any) such Partner is
            obligated to restore to the Partnership, and (2) the amount such
            Partner is deemed to be obligated to restore pursuant to the
            penultimate sentences of Regulations Sections 1.704-2(g)(1) and
            1.704-2(i)(5), each such Partner shall be specially allocated items
            of Partnership income and gain in the amount of such excess as
            quickly as possible to eliminate such deficit, provided that an
            allocation pursuant to this Section 6.2.B(5) shall be made if and
            only to the extent that such Partner would have a deficit Capital
            Account in excess of such sum after all other allocations provided
            in this Article 6 have been tentatively made as if this Section
            6.2.B(5) and Section 6.2.B(4) were not in the Agreement.

                  (6)   Limitation on Allocation of Net Loss. To the extent any
            allocation of Net Loss would cause or increase an Adjusted Capital
            Account Deficit as to any Partner, such allocation of Net Loss shall
            be reallocated among the other Partners


                                       40
<PAGE>   46
            in accordance with their respective Partnership Interests, subject
            to the limitations of this Section 6.2.B(6).

                  (7)   Section 754 Adjustment. To the extent an adjustment to
            the adjusted tax basis of any Partnership asset pursuant to Code
            Section 734(b) or Code Section 743(b) is required, pursuant to
            Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4) to be taken into
            account in determining Capital Accounts as the result of a
            distribution to a Partner in complete liquidation of his interest in
            the Partnership, the amount of such adjustment to the Capital
            Accounts shall be treated as an item of gain (if the adjustment
            increases the basis of the asset) or loss (if the adjustment
            decreases such basis) and such gain or loss shall be specially
            allocated to the Partners in accordance with their Percentage
            Interests in the Partnership in the event that Regulations Section
            1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such
            distribution was made in the event that Regulations Section
            1.704-1(b)(2)(iv)(m)(4) applies.

                  (8)   Curative Allocation. The allocations set forth in
            Sections 6.2.B(1), (2), (3), (4), (5), (6) and (7) hereof (the
            "Regulatory Allocations") are intended to comply with certain
            regulatory requirements, including the requirements of Regulations
            Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of
            Sections 6.1 and 6.2.A, the Regulatory Allocations shall be taken
            into account in allocating other items of income, gain, loss and
            deduction among the Partners so that, to the extent possible without
            violating the requirements giving rise to the Regulatory
            Allocations, the net amount of such allocations of other items and
            the Regulatory Allocations to each Partner shall be equal to the net
            amount that would have been allocated to each such Partner if the
            Regulatory Allocations had not occurred.

      C.    Excess Nonrecourse Liability Allocation. For purposes of determining
a Partner's proportional share of the "excess nonrecourse liabilities" of the
Partnership within the meaning of Regulations Sections 1.752-3(a)(3), each
Partner's interest in Partnership profits shall be such Partner's Percentage
Interest.

      D.    Priority Allocation With Respect to Preferred Limited Partner
Interests. Notwithstanding any other provision of this Agreement, for each
Partnership Year, Partnership gross income shall be specially allocated to the
Preferred Limited Partners in an amount equal to the distributions received by
the Preferred Limited Partners pursuant to Section 5.1(i) hereof for such
Partnership Year (other than any distributions that are treated as being in
satisfaction of the Liquidation Preference Amount for any Preferred Limited
Partner Interest).


                                       41
<PAGE>   47
      Section 6.3. Tax Allocations

      A.    In General. Except as otherwise provided in this Section 6.3, for
income tax purposes each Tax Item shall be allocated among the Partners in the
same manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.1 and 6.2 hereof.

      B.    Allocations Respecting Section 704(c) Revaluations. Notwithstanding
Section 6.3.A above, Tax Items with respect to Property of the Partnership that
is contributed to the Partnership with a Gross Asset Value that differs from its
basis in the hands of the contributing Partner immediately preceding the date of
contribution shall be allocated for income tax purposes pursuant to Regulations
promulgated under Section 704(c) of the Code to the extent of such difference
and thereafter in accordance with Section 6.3.A. The General Partner shall make
allocations in accordance with the deferred sale method of accounting with
respect to gain on such property if the Regulations under Section 704(c) of the
Code are applicable to the Contributed Properties of the Partnership.



                                    ARTICLE 7

                      MANAGEMENT AND OPERATIONS OF BUSINESS

      Section 7.1. Management

      A.    Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:

            (1)   the making of any expenditures, the lending or borrowing of
                  money (including, without limitation, making prepayments on
                  loans and borrowing money to permit the Partnership to make
                  distributions to its Partners in such amounts as will permit
                  the General Partner or IAC Capital Trust (so long as the
                  General Partner or IAC Capital Trust, as applicable, qualifies
                  as a REIT) to avoid the payment of any federal income tax
                  (including, for this purpose, any excise tax pursuant to
                  Section 4981 of the Code) and to make distributions to its
                  stockholders sufficient to permit the


                                       42
<PAGE>   48
                  General Partner or IAC Capital Trust to maintain REIT status),
                  provided that, except as provided in Section 10.4, the General
                  Partner is prohibited from lending money or permitting the
                  Partnership to lend money to any Irvine Person, the assumption
                  or guarantee of, or other contracting for, indebtedness and
                  other liabilities, the issuance of evidences of indebtedness
                  (including the securing of same by deed to secure debt,
                  mortgage, deed of trust or other lien or encumbrance on the
                  Partnership's assets) and the incurring of any obligations it
                  deems necessary for the conduct of the activities of the
                  Partnership;

            (2)   the making of tax, regulatory and other filings, or rendering
                  of periodic or other reports to governmental or other agencies
                  having jurisdiction over the business or assets of the
                  Partnership;

            (3)   the acquisition, disposition, mortgage, pledge, encumbrance,
                  hypothecation or exchange of any assets of the Partnership
                  (including the exercise or grant of any conversion, option,
                  privilege, or subscription right or any other right available
                  in connection with any assets at any time held by the
                  Partnership) or the merger or other combination of the
                  Partnership with or into another entity (all of the foregoing
                  subject to any prior approval only to the extent required by
                  Section 7.3 hereof), provided that, in the event of any sale,
                  exchange, ---- disposition or other transfer of any Property
                  of the Partnership, or the merger or other combination of the
                  Partnership with or into another entity, the Partnership shall
                  no later than the end of the calendar quarter in which such
                  sale, exchange, disposition, other transfer, merger or
                  combination becomes a taxable event to the General Partner or
                  any of the Common Limited Partners effect a distribution of
                  cash pro rata by Junior Percentage Interests (or, at the
                  option of the General Partner, a promissory note of the
                  Partnership, bearing interest (to the extent permitted by law)
                  at a rate per annum equal to the dividend yield on the REIT
                  Shares, based on the most recent quarterly dividend and the
                  Value as of the date of issuance of such note, and due and
                  payable as soon as reasonably practicable but in no event
                  later than 45 days after the date of issuance), in addition to
                  its then regular quarterly distribution with respect to the
                  Junior Partnership Interests, in an amount such that the pro
                  rata share thereof received by each such Partner shall equal
                  or exceed the total liability of such Partner for federal,
                  state and local income and franchise taxes resulting from such
                  sale, exchange, disposition, other transfer, merger or
                  combination and from such distribution as determined in
                  accordance with the books and records of the Partnership
                  (which determination will be conclusive and binding absent
                  manifest error).


                                       43
<PAGE>   49
            (4)   the use of the assets of the Partnership (including, without
                  limitation, cash on hand) for any purpose consistent with the
                  terms of this Agreement and on any terms it sees fit,
                  including, without limitation, the financing of the conduct of
                  the operations of the General Partner, the Partnership or any
                  of the Partnership's Subsidiaries, the lending of funds to
                  other Persons (including, without limitation, the
                  Partnership's Subsidiaries) and the repayment of obligations
                  of the Partnership and its Subsidiaries and any other Person
                  in which it has an equity investment and the making of capital
                  contributions to its Subsidiaries;

            (5)   the management, operation, leasing, landscaping, repair,
                  alteration, demolition, replacement or improvement of any real
                  property or improvements owned by the Partnership or any
                  Subsidiary of the Partnership;

            (6)   the negotiation, execution, and performance of any contracts,
                  conveyances or other instruments that the General Partner
                  considers useful or necessary to the conduct of the
                  Partnership's operations or the implementation of the General
                  Partner's powers under this Agreement, including contracting
                  with contractors, developers, consultants, accountants, legal
                  counsel, other professional advisors and other agents and the
                  payment of their expenses and compensation out of the
                  Partnership's assets;

            (7)   the distribution of Partnership cash or other Partnership
                  assets in accordance with this Agreement;

            (8)   holding, managing, investing and reinvesting cash and other
                  assets of the Partnership;

            (9)   the collection and receipt of revenues and income of the
                  Partnership;

            (10)  the establishment of one or more divisions of the Partnership,
                  the selection and dismissal of employees of the Partnership,
                  any division of the Partnership or the General Partner
                  (including, without limitation, employees designated as
                  officers having titles such as "president", "vice president",
                  "secretary" and "treasurer" of the Partnership, any division
                  of the Partnership or the General Partner), and agents,
                  outside attorneys, accountants, consultants and contractors of
                  the Partnership, any division of the Partnership or the
                  General Partner and the determination of their compensation
                  and other terms of employment or hiring;

            (11)  the maintenance of such insurance for the benefit of the
                  Partnership and the Partners as it deems necessary or
                  appropriate;


                                       44
<PAGE>   50
            (12)  the formation of, or acquisition of an interest in, and the
                  contribution of property to, any further limited or general
                  partnerships, joint ventures or other relationships that it
                  deems desirable (including, without limitation, the
                  acquisition of interests in, and the contributions of property
                  to, its Subsidiaries and any other Person in which it has an
                  equity investment from time to time);

            (13)  the control of any matters affecting the rights and
                  obligations of the Partnership, including the settlement,
                  compromise, submission to arbitration or any other form of
                  dispute resolution, or abandonment of, any claim, cause of
                  action, liability, debt or damages, due or owing to or from
                  the Partnership, the commencement or defense of suits, legal
                  proceedings, administrative proceedings, arbitrations or other
                  forms of dispute resolution, and the representation of the
                  Partnership in all suits or legal proceedings, administrative
                  proceedings, arbitrations or other forms of dispute
                  resolution, the incurring of legal expense, and the
                  indemnification of any Person against liabilities and
                  contingencies to the extent permitted by law;

            (14)  the undertaking of any action in connection with the
                  Partnership's direct or indirect investment in its
                  Subsidiaries or any other Person (including, without
                  limitation, the contribution or loan of funds by the
                  Partnership to such Persons);

            (15)  the exercise, directly or indirectly, through any
                  attorney-in-fact acting under a general or limited power of
                  attorney, of any right, including the right to vote,
                  appurtenant to any asset or investment held by the
                  Partnership;

            (16)  the exercise of any of the powers of the General Partner
                  enumerated in this Agreement on behalf of or in connection
                  with any Subsidiary of the Partnership or any other Person in
                  which the Partnership has a direct or indirect interest, or
                  jointly with any such Subsidiary or other Person;

            (17)  the exercise of any of the powers of the General Partner
                  enumerated in this Agreement on behalf of any Person in which
                  the Partnership does not have an interest, pursuant to
                  contractual or other arrangements with such Person;

            (18)  the making, execution and delivery of any and all deeds,
                  leases, notes, deeds to secure debt, mortgages, deeds of
                  trust, security agreements, conveyances, contracts,
                  guarantees, warranties, indemnities, waivers, releases or
                  legal instruments or agreements in writing necessary or


                                       45
<PAGE>   51
                  appropriate in the judgment of the General Partner for the
                  accomplishment of any of the powers of the General Partner
                  enumerated in this Agreement; and

            (19)  the issuance of additional Partnership Units as appropriate in
                  connection with Capital Contributions by Additional Limited
                  Partners and additional Capital Contributions by Partners
                  pursuant to Article 4 hereof.

      B.    Except as provided in Section 7.3 hereof, each of the Limited
Partners agrees that the General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions on behalf of the
Partnership without any further act, approval or vote of the Partners,
notwithstanding any other provision of this Agreement, the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.

      C.    At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the Properties of the Partnership and (ii)
liability insurance for the Indemnitees hereunder.

      D.    At all times from and after the Prior Agreement Effective Date, the
General Partner may cause the Partnership to establish and maintain any and all
reserves, working capital accounts and other cash or cash equivalents in such
amounts as the General Partner, in its sole discretion, deems appropriate and
reasonable from time to time.

      E.    In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it. Except as otherwise
provided in the Declaration of Trust and Section 7.4.D hereof, the General
Partner and the Partnership shall not have liability to a Limited Partner under
any circumstances as a result of an income tax liability incurred by such
Limited Partner as a result of an action (or inaction) by the General Partner
pursuant to its authority under this Agreement so long as the action or inaction
is taken in good faith.

      Section 7.2. Certificate of Limited Partnership

      To the extent that such action is determined by the General Partner to be
reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other state or the District of Columbia, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 8.5.A(4)
hereof, the General Partner


                                       46
<PAGE>   52
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the State of Delaware, the State of California,
and any other state, or the District of Columbia, in which the Partnership may
elect to do business or own property.

      Section 7.3. Restrictions on General Partner's Authority

      A.    The General Partner may not take any action in contravention of this
Agreement, including, without limitation:

      (1)   take any action that would make it impossible to carry on the
            ordinary business of the Partnership, except as otherwise provided
            in this Agreement;

      (2)   possess Partnership property, or assign any rights in specific
            Partnership property, for other than a Partnership purpose except as
            otherwise provided in this Agreement;

      (3)   admit a Person as a Partner, except as otherwise provided in this
            Agreement;

      (4)   perform any act that would subject a Limited Partner to liability as
            a general partner in any jurisdiction or any other liability except
            as provided herein or under the Act; or

      (5)   enter into any contract, mortgage, loan or other agreement that
            prohibits or restricts, or has the effect of prohibiting or
            restricting (i) the General Partner or the Partnership from
            satisfying its obligations under Section 8.6 in full or (ii) the
            ability of a Common Limited Partner from exercising its rights under
            Section 8.6 in full; except in each case with the written consent of
            each Common Limited Partner affected by the prohibition or
            restriction.

      B.    The General Partner shall not, without the prior Consent of the
Common Limited Partners, undertake any of the following actions or enter into
any transaction which would have the effect of such transactions:

      (1)   except as provided in Sections 7.3.C and 7.3.D, hereof, amend,
            modify or terminate this Agreement other than to reflect the
            admission, substitution, or withdrawal of partners pursuant to
            Articles 11 and 12 hereof;


                                       47
<PAGE>   53
      (2)   make a general assignment for the benefit of creditors or appoint or
            acquiesce in the appointment of a custodian, receiver or trustee for
            all or any part of the assets of the Partnership;

      (3)   institute any proceeding for bankruptcy on behalf of the
            Partnership;

      (4)   subject to the rights of Transfer provided in Section 11.2 hereof,
            Transfer the Partnership Interest of the General Partner including
            through any merger, consolidation or liquidation of the General
            Partner, or admit into the Partnership any successor General
            Partners;

      (5)   take title to assets (other than temporarily in connection with an
            acquisition prior to contributing such assets to the Partnership)
            other than its interest in the Partnership or conduct business other
            than through the Partnership, or for the General Partner or the
            Partnership to engage in any business other than the ownership,
            construction, development and operation of multifamily rental
            apartment communities.

      C.    Notwithstanding Section 7.3.B hereof, the General Partner shall have
the power, without the Consent of any Limited Partners, to amend this Agreement
(including a Designation Instrument) as may be required to facilitate or
implement any of the foregoing purposes:

      (1)   to add to the obligations of the General Partner or surrender any
            right or power granted to the General Partner or any Affiliate of
            the General Partner for the benefit of the Limited Partners;

      (2)   to reflect the admission, substitution, or withdrawal of Partners in
            accordance with this Agreement, and to amend Exhibit A to the
            Agreement in connection with such admission, substitution or
            withdrawal;

      (3)   to reflect a change that is of an inconsequential nature and does
            not adversely affect the Limited Partners in any material respect,
            or to cure any ambiguity, correct or supplement any provision in
            this Agreement not inconsistent with law or with other provisions,
            or make other changes with respect to matters arising under this
            Agreement that will not be inconsistent with law or with the
            provisions of this Agreement;

      (4)   to satisfy any requirements, conditions, or guidelines contained in
            any order, directive, opinion, ruling or regulation of a federal or
            state agency or contained in federal or state law;

      (5)   to reflect such changes as are reasonably necessary for the General
            Partner or IAC Capital Trust to maintain status as a REIT;


                                       48
<PAGE>   54
      (6)   to modify the manner in which Capital Accounts are computed but only
            to the extent set forth in the definition of "Capital Account"; and

      (7)   to set forth in a Designation Instrument the rights, powers and
            duties of holders of Preferred Limited Partnership Interests issued
            pursuant to Section 4.5.F hereof, subject to the rights set forth in
            the Designation Instrument of any outstanding series of Preferred
            Limited Partner Units.

      The General Partner will provide notice to the Limited Partners when any
action under this Section 7.3.C is taken.

      D.    Notwithstanding Sections 7.3.B and 7.3.C hereof, this Agreement
shall not be amended, and no action may be taken by the General Partner, without
the Consent of each Common Limited Partner adversely affected and each Preferred
Limited Partner materially and adversely affected in each case if such amendment
or action would (i) convert a Limited Partner Interest in the Partnership into a
General Partner Interest (except as a result of the General Partner acquiring
such interest), (ii) modify the limited liability of a Limited Partner, (iii)
alter rights of the Partner to receive distributions pursuant to Article 5,
Article 10 or Section 7.1.A(3) hereof or the allocations specified in Article 6
(except in any such case as permitted pursuant to Section 4.5 and Section
7.3.C(3) or (7)), (iv) alter or modify the right of a Common Limited Partner to
effect an Exchange or Cash Tender pursuant to Section 8.6 hereof or amend or
modify any related definitions, (v) cause the termination of the Partnership
prior to the time set forth in Sections 2.5 or 13.1, (vi) alter or modify
Section 11.3.F or (vii) amend this Section 7.3.D, provided that (1) with respect
to the foregoing clause (iii), the Consent of each Preferred Limited Partner
materially and adversely affected by such amendment or action shall only be
required if the applicable Designation Instrument or Instruments require such
unanimous Consent and, if not so required by such Designation Instrument or
Instruments, then such amendment or action shall only require the approval of
such percentage of Preferred Limited Partner Interests as shall be set forth in
the applicable Designation Instrument or Instruments, (2) only the Consent of
Common Limited Partners shall be required under clauses (iv), (v) and (vi)
above, and (3) with respect to clause (vii) above, the Consent of Preferred
Limited Partners shall be required only if the amendment to this Section 7.3.D
materially and adversely affects the rights, powers and duties of the Preferred
Limited Partner Interests. Further, no amendment may alter the restrictions on
the General Partner's authority set forth in this Section 7.3 without the
appropriate consent.

      E.    For so long as the Common Limited Partner Interests of all of the
Common Limited Partners of the Partnership equal, in the aggregate, not less
than ten percent (10%) of the aggregate Junior Partnership Interests, the
General Partner shall not, without the prior Consent of the Common Limited
Partners, undertake, on behalf of the Partnership, any of the following actions:

      (1)   Agree to or consummate any merger, consolidation, reorganization or
            other business combination to which the Partnership is a party, in
            each case resulting in


                                       49
<PAGE>   55
            the disposition by the then Common Limited Partners and Assignees of
            all outstanding Common Limited Partner Interests and interests of
            Assignees therein in consideration for (a) cash, (b) debt
            instruments or other evidences of indebtedness, (c) other securities
            issued by a corporation, partnership or other entity, other than (i)
            the General Partner, (ii) the Partnership or (iii) any entity at
            least 80% of the total assets of which (on the basis of market
            value) are comprised of assets which, immediately prior to such
            transaction, were assets of the Partnership, or (d) any combination
            of the consideration described in (a), (b) and/or (c) above.

      (2)   Sell or otherwise transfer all or substantially all of the assets of
            the Partnership.

      F.    The Partnership, and the General Partner on behalf of the
Partnership, may enter into and perform any and all agreements (including,
without limitation, the Miscellaneous Rights Agreement, the Land Rights
Agreement and the underwriting agreement relating to the Initial Public
Offering) referred to in, contemplated by, or included as an exhibit (or as an
exhibit to an exhibit) to, the General Partner's Registration Statement on Form
S-11 (No. 33-68830) relating to the Initial Public Offering or necessary to
effect the transfer of assets to the Partnership or the assignments and
assumptions of debt or other obligations or liabilities by the Partnership, in
each case without any further act, vote or approval of any Partner
notwithstanding any other provision of this Agreement.

      G.    Except as provided in Section 7.3.D or in a Designation Instrument
with respect to a series of Preferred Limited Partner Interests and except as
otherwise required by the Act or Delaware law, the Preferred Limited Partners
shall have no right to act, approve, consent or vote on any matter or any action
(or inaction) by the General Partner pursuant to its authority under this
Agreement.

      H.    The Partnership, and the General Partner on behalf of the
Partnership, may enter into and perform any and all agreements (including,
without limitation, the Declaration of Trust and the underwriting agreement)
referred to in or contemplated by the registration statement on Form S-11 (Nos.
333-39405 and 333-39405-01) of IAC Capital Trust and the Partnership and any
future registration statement filed by IAC Capital Trust with the Securities and
Exchange Commission with respect to the issuance of preferred securities of IAC
Capital Trust, without any further act, vote, consent or approval of any Partner
notwithstanding any other provisions of this Agreement.

      Section 7.4. Reimbursement of the General Partner; Reimbursement of
Limited Partners

      A.    Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it


                                       50
<PAGE>   56
may be entitled), the General Partner shall not receive payments from the
Partnership or be compensated for its services as general partner of the
Partnership.

      B.    The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its reasonable discretion,
for all of its expenses including, without limitation, (i) expenses relating to
the ownership of interests in and operation of, or for the benefit of, the
Partnership, (ii) compensation of its officers and employees including, without
limitation, payments under the General Partner's Stock Incentive Plans that
provides for stock units, or other phantom stock, pursuant to which employees of
the General Partner will receive payments based upon dividends on or the value
of REIT Shares, (iii) director fees and expenses and (iv) all costs and expenses
of being a public company, including costs of filings with the Securities and
Exchange Commission, reports and other distributions to its stockholders,
provided that, the amount of any reimbursement shall be reduced by any interest
earned by the General Partner with respect to bank accounts or other instruments
or accounts held by it on behalf of the Partnership as permitted pursuant to
Section 7.5 hereof. Such reimbursements shall be in addition to any
reimbursement of the General Partner as a result of indemnification pursuant to
Section 7.7 hereof.

      C.    Any Limited Partner that incurs an expense attributable to a
property tax or assessment imposed upon a geographic land area, including, but
not limited to, any variable rate assessment, that includes a Contributed
Property may submit a request for reimbursement to the General Partner that
states the total amount of the property tax or assessment imposed upon the area
and an apportionment, in accordance with the requirements of local law, of such
property tax or assessment to the Contributed Property located within the area.
The Limited Partner shall include with such request a copy of a receipt
evidencing payment of the property tax or assessment. The General Partner shall
reimburse the Limited Partner for such amount within five (5) days of receipt of
the request for reimbursement.

      D.    To the extent not previously paid by the Partnership pursuant to the
Declaration of Trust, the General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine in its
reasonable discretion, for all amounts incurred by it and payable by the
Partnership pursuant to the Declaration of Trust. Such amounts shall include the
amount of any underwriting discounts and commissions and other issuance costs
incurred by the General Partner or IAC Capital Trust, as the case may be, in
connection with the issuance of preferred stock of the General Partner or
preferred securities of IAC Capital Trust, as long as the gross proceeds from
such offering are concurrently contributed to the Partnership in exchange for
Preferred Limited Partner Interests. Such amounts shall be treated as incurred
on behalf of the Partnership and as an expense of the Partnership.

      Section 7.5. Outside Activities of the General Partner

      The General Partner shall not directly or indirectly enter into or conduct
any business, other than in connection with the ownership, acquisition and
disposition of


                                       51
<PAGE>   57
Partnership Interests as General Partner and the management of the business of
the Partnership, and such activities as are incidental thereto. The General
Partner shall not incur any debts other than that for which it may be liable in
its capacity as General Partner of the Partnership. Nothing contained herein
shall be deemed to prohibit the General Partner from executing guarantees of
Partnership debt for which it would otherwise be liable in its capacity as
General Partner. Subject to Section 7.3.B hereof, the General Partner shall not
own any assets or take title to assets (other than temporarily in connection
with an acquisition prior to contributing such assets to the Partnership) other
than its Partnership Interest as a General Partner and other than such cash and
cash equivalents, bank accounts or similar instruments or accounts as it deems
reasonably necessary, taking into account Section 7.1.D hereof and the
requirements necessary to qualify as a REIT to carry out its responsibilities
contemplated under this Agreement and the Certificate of Incorporation.
Notwithstanding the foregoing, if the Consent of the Common Limited Partners is
obtained in accordance with 7.3.B and Article 14 hereof to permit the General
Partner to acquire assets in its own name and to own Property other than through
the Partnership, the General Partner and the Common Limited Partners agree to
negotiate in good faith to amend this Agreement, including, without limitation,
the definition of Conversion Factor, to reflect such activities and the direct
ownership of assets by the General Partner. Except as set forth in the
application Designation Instrument, the General Partner and any Affiliates of
the General Partner may acquire Limited Partner Interests and shall be entitled
to exercise all rights of a Limited Partner relating to such Limited Partner
Interests. Notwithstanding the foregoing, the General Partner may purchase and
own common securities of IAC Capital Trust pursuant to the terms of the
Declaration of Trust, enter into the Declaration of Trust and take all actions
permitted to be taken by it under the Declaration of Trust and such additional
activities as are incidental thereto.

      Section 7.6. Contracts with Affiliates

      A.    The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole discretion of the General Partner. The foregoing
authority shall not create any right or benefit in favor of any Subsidiary or
any other Person.

      B.    Except as provided in Section 7.5 hereof and subject to Section 3.1
hereof, the Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole
discretion, believes are advisable.

      C.    Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property to
the Partnership, directly or indirectly, except pursuant to transactions that
are determined by the General Partner in good faith to be fair and reasonable.


                                       52
<PAGE>   58
      D.    The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole discretion, believes are advisable.

      E.    The General Partner on its own behalf and on behalf of the
Partnership may enter into and perform its and the Partnership's obligations
under the Declaration of Trust.

      Section 7.7. Indemnification

      A.    To the fullest extent permitted by applicable law, the Partnership
shall indemnify each Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorney's fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership ("Actions") as set forth in
this Agreement in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, provided that the Partnership shall not
indemnify an Indemnitee (i) for willful misconduct or a knowing violation of the
law, or (ii) for any transaction for which such Indemnitee received an improper
personal benefit in violation or breach of any provision of this Agreement.
Without limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is hereby
authorized and empowered, on behalf of the Partnership, to enter into one or
more indemnity agreements consistent with the provisions of this Section 7.7 in
favor of any Indemnitee having or potentially having liability for any such
indebtedness. It is the intention of this Section 7.7.A that the Partnership
indemnify each Indemnitee to the fullest extent permitted by law. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by conviction
of an Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee prior to
judgment, does not create a presumption that such Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.

      B.    To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the Partnership
as incurred by the


                                       53
<PAGE>   59
Indemnitee in advance of the final disposition of the Action upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership as authorized in this Section 7.7.A has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount if it
shall ultimately be determined that the standard of conduct has not been met.

      C.    The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee unless otherwise provided in a
written agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.

      D.    The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in connection
with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.

      E.    Any liabilities which an Indemnitee incurs as a result of acting on
behalf of the Partnership or the General Partner (whether as a fiduciary or
otherwise) in connection with the operation, administration or maintenance of an
employee benefit plan or any related trust or funding mechanism (whether such
liabilities are in the form of excise taxes assessed by the Internal Revenue
Service, penalties assessed by the Department of Labor, restitutions to such a
plan or trust or other funding mechanism or to a participant or beneficiary of
such plan, trust or other funding mechanism, or otherwise) shall be treated as
liabilities or judgments or fines under this Section 7.7, unless such
liabilities arise as a result of (i) such Indemnitee's intentional misconduct or
knowing violation of the law, or (ii) any transaction in which such Indemnitee
received a personal benefit in violation or breach of any provision of this
Agreement or applicable law.

      F.    In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.

      G.    An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.

      H.    The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any


                                       54
<PAGE>   60
provision hereof shall be prospective only and shall not in any way affect the
limitations on the Partnership's liability to any Indemnitee under this Section
7.7 as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.

      Section 7.8. Liability of the General Partner

      A.    Notwithstanding anything to the contrary set forth in this
Agreement, neither the General Partner nor any of its officers or directors
shall be liable for monetary damages to the Partnership, any Partners or any
Assignees for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner or such officer or
director acted in such cases in good faith.

      B.    Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its employees or agents (subject to
the supervision and control of the General Partner). The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith.

      C.    Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's, and its officers' and directors',
liability to the Partnership and the Limited Partners under this Section 7.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.

      D.    Notwithstanding anything herein to the contrary, except for fraud,
willful misconduct or gross negligence, or pursuant to any express indemnities
given to the Partnership by any Partner pursuant to any other written
instrument, no Partner shall have any personal liability whatsoever, to the
Partnership or to the other Partners, for the debts or liabilities of the
Partnership or the Partnership's obligations hereunder, and the full recourse of
the other Partners shall be limited to the interest of that Partner in the
Partnership. Without limitation of the foregoing, and except for fraud, willful
misconduct or gross negligence, or pursuant to any such express indemnity, no
property or assets of any Partner, other than its interest in the Partnership,
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of any judgment (or other judicial process) in favor of any other
Partner(s) and arising out of, or in connection with, this Agreement. This
Agreement is executed by the officers of the General Partner solely as officers
of the same and not in their own individual capacities.


                                       55
<PAGE>   61
      E.    To the extent that, at law or in equity, a Limited Partner has
duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or the Partners, the Limited Partner shall not be liable to the
Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of a Limited Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such Limited Partner.

      F.    Whenever in this Agreement a Limited Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the Limited Partner shall be
entitled to consider only such interests and factors as it desires, including
its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Partnership or the
other Partners or (ii) in its "good faith" or under another express standard,
the Limited Partner shall act under such express standard and shall not be
subject to any other or different standards imposed by this Agreement or any
other agreement contemplated herein or by relevant provisions of law or in
equity or otherwise.

      G.    Whenever in this Agreement the General Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the General Partner shall be
required to make such decision in good faith after taking into consideration the
interests of the Partners or (ii) in its "good faith" or under another express
standard, the General Partner shall act under such express standard and shall
not be subject to any other or different standards imposed by this Agreement or
any other agreement contemplated herein or by relevant provisions of law or in
equity or otherwise.

      Section 7.9. Other Matters Concerning the General Partner

      A.    The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.

      B.    The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.

      C.    The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the General Partner hereunder.


                                       56
<PAGE>   62
      D.    Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner or IAC
Capital Trust to continue to qualify as a REIT or (ii) to avoid the General
Partner or IAC Capital Trust incurring any taxes under Section 857 or Section
4981 of the Code, is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.

      Section 7.10. Title to Partnership Assets

      Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership or one or
more nominees, as the General Partner may determine. The General Partner hereby
declares and warrants that any Partnership assets for which legal title is held
in the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; provided,
however, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.

      Section 7.11. Reliance by Third Parties

      Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without the consent or approval of any
other Partner or Person, to encumber, sell or otherwise use in any manner any
and all assets of the Partnership and to enter into any contracts on behalf of
the Partnership, and take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and


                                       57
<PAGE>   63
empowered to do so for and on behalf of the Partnership and (iii) such
certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.


                                    ARTICLE 8

                   RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

      Section 8.1. Limitation of Liability

      The Limited Partners shall have no liability under this Agreement except
as expressly provided in this Agreement, including Section 10.4 hereof, or under
the Act.

      Section 8.2. Management of Business

      No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, partner, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control of the
Partnership's business, transact any business in the Partnership's name or have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner, the Partnership or any of their Affiliates, in their capacity as such,
shall not affect, impair or eliminate the limitations on the liability of the
Limited Partners or Assignees under this Agreement.

      Section 8.3. Outside Activities of Limited Partners

      Subject to any agreements entered into pursuant to Section 7.6.D hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the General Partner, the Partnership or a Subsidiary, any Limited Partner
and any officer, director, employee, agent, trustee, Affiliate or shareholder of
any Limited Partner shall be entitled to and may have business interests and
engage in business activities in addition to those relating to the Partnership,
including business interests and activities that are in direct competition with
the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner to the extent expressly provided herein) and such Person shall
have no obligation pursuant to this Agreement, subject to Section 7.6.D hereof
and any other agreements entered into by a Limited Partner or its Affiliates
with the General Partner, the Partnership or a Subsidiary, to offer any interest
in any such


                                       58
<PAGE>   64
business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.

      Section 8.4. Return of Capital

      Except as provided in a Designation Instrument, no Limited Partner shall
be entitled to the withdrawal or return of its Capital Contribution, except to
the extent of distributions made pursuant to this Agreement or upon termination
of the Partnership as provided herein. Except to the extent provided in Article
6 hereof or otherwise expressly provided in this Agreement (including pursuant
to a Designation Instrument), no Limited Partner or Assignee shall have priority
over any other Limited Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Preferred Limited
Partner Units of a series shall be redeemed only in accordance with a
Designation Instrument relating thereto.

      Section 8.5. Rights of Limited Partners Relating to the Partnership

      A.    In addition to other rights provided by this Agreement or by the
Act, each Limited Partner shall have the right, for a purpose reasonably related
to such Limited Partner's interest as a Limited Partner in the Partnership, upon
written demand:

                  (1)   to obtain a copy of the most recent annual and quarterly
            reports filed with the Securities and Exchange Commission by the
            General Partner pursuant to the Securities Exchange Act of 1934, as
            amended;

                  (2)   to obtain a copy of the Partnership's federal, state and
            local income tax returns for each Partnership Year and the tax work
            papers prepared in connection with such returns;

                  (3)   to obtain a current list of the name and last known
            business, residence or mailing address of each Partner; and

                  (4)   to obtain a copy of this Agreement and the Certificate
            and all amendments thereto, together with executed copies of all
            powers of attorney pursuant to which this Agreement, the Certificate
            and all amendments thereto have been executed.

      B.    The Partnership shall notify any Common Limited Partner, on request,
of the then current Conversion Factor or any change made to the Conversion
Factor.


                                       59
<PAGE>   65
      Section 8.6. Exchange and Cash Tender Rights

      A.    Each Original Limited Partner shall have the right (subject to the
terms and conditions set forth herein) to require the General Partner to acquire
all or a portion of the Common Limited Partner Units held by such Original
Limited Partner, including Common Limited Partner Units acquired by any Original
Limited Partner subsequent to the initial contribution, (such Common Limited
Partner Units being hereafter "Tendered Units") in exchange for, at the election
of such Original Limited Partner, (i) REIT Shares, in which event such required
acquisition shall be considered an "Exchange," or (ii) cash, in which event such
required acquisition shall be considered a "Cash Tender." Any Exchange or Cash
Tender shall be exercised pursuant to a Notice of Exchange or Notice of Cash
Tender, as the case may be, delivered to the General Partner by the Original
Limited Partner who is exercising the relevant right (the "Tendering Partner").

      B.    A Tendering Partner who wishes to effect an Exchange shall receive,
on the Specified Exchange Date, the REIT Shares Amount with respect to the
Tendered Units, subject to the Ownership Limit set forth in ARTICLE SIXTH of the
Certificate of Incorporation and to Section 8.6.G(2) hereof, provided such
Tendering Partner submits such information, certification and affidavits as the
General Partner requires pursuant to Section 8.6.I hereof in connection with the
application of the Ownership Limit. The REIT Shares Amount receivable after
giving effect to the provisions of Section 8.6.F shall be delivered as duly
authorized, validly issued, fully paid and nonassessable REIT Shares and, if
applicable, rights (as defined in the definition of REIT Shares Amount), free of
any pledge, lien, encumbrance or restriction, other than those provided in the
Certificate of Incorporation, the Bylaws of the General Partner, the Securities
Act and relevant state securities or blue sky laws. Notwithstanding any delay in
such delivery, the Tendering Partner shall be deemed the owner of such REIT
Shares and rights for all purposes, including without limitation, rights to
vote, consent, receive dividends, and to exercise rights, as of the Specified
Exchange Date.

      C.    (1)   A Tendering Partner effecting a Cash Tender shall have the
right to receive in cash on the Specified Cash Tender Date the Cash Tender
Amount, subject to Section 8.6.G(3) hereof. The General Partner shall purchase
the Tendered Units solely with the proceeds of a registered public offering (a
"Public Offering Funding") of a number of REIT Shares ("Registrable Shares")
equal to the REIT Shares Amount with respect to the Tendered Units.

            (2)   Promptly upon receipt of a Notice of Cash Tender, the General
Partner shall give notice (a "Single Funding Notice") to all Original Limited
Partners then holding a Common Limited Partner Interest and require that all
such Original Limited Partners elect whether or not to effect a Cash Tender of
their Common Limited Partner Units to be funded through such Public Offering
Funding. In the event any such Original Limited Partner elects to effect such a
Cash Tender, it shall give notice thereof and of the number of Common Limited
Partner Units to be made subject thereto in writing to the General Partner
within 10 Business Days after receipt of the Single Funding Notice, and such
Original Limited Partner shall be


                                       60
<PAGE>   66
treated as a Tendering Partner for all purposes of this Section 8.6. In the
event that an Original Limited Partner does not so elect, it shall be deemed to
have waived its right to effect a Cash Tender for the current Twelve-Month
Period, except that any such Original Limited Partner holding more than
1,000,000 Common Limited Partner Units shall continue to be permitted to effect
a Cash Tender pursuant to this Section 8.6.C during such Twelve-Month Period;
provided that the General Partner shall not be required to acquire Common
Limited Partner Units pursuant to this Section 8.6.C more than twice within a
Twelve-Month Period.

      D.    The General Partner shall purchase the Tendered Units on the
Specified Cash Tender Date for the Cash Tender Amount in immediately available
funds. Any proceeds from a Public Offering Funding that are in excess of the
Cash Amount shall be for the sole benefit of the General Partner. The General
Partner shall make a Capital Contribution of such amounts to the Partnership for
an additional General Partner Interest. Any such contribution shall not be
subject to the participation rights provided under Section 4.5.G but shall
entitle the General Partner to a Junior Percentage Interest adjustment pursuant
to Section 4.5.H hereof.

      E.    The following additional terms and conditions shall apply to any
Public Offering Funding:

                  (1)   The General Partner shall use its best efforts to effect
            as promptly as possible a registration, qualification or compliance
            (including, without limitation, the execution of an undertaking to
            file post-effective amendments, appropriate qualifications under
            applicable blue sky or other state securities laws and appropriate
            compliance with applicable regulations issued under the Securities
            Act and any other governmental requirements or regulations) as would
            permit or facilitate the sale and distribution of the REIT Shares;
            provided, the General Partner shall not by reason hereof, be
            required to submit to jurisdiction or taxation, or qualify to do
            business in any jurisdiction in which such submission or
            qualification would not be otherwise required; provided, further, if
            the General Partner shall deliver a certificate to the Tendering
            Partner stating that the General Partner has determined in the good
            faith judgment of its Board of Directors that such filing,
            registration or qualification would require disclosure of material
            non-public information, the disclosure of which would have a
            material adverse effect on the General Partner, then the General
            Partner may delay making any filing or delay the effectiveness of
            any registration or qualification for the shorter of (a) the period
            ending on the date upon which such information is disclosed to the
            public or ceases to be material or (b) an aggregate period of 90
            days in connection with any Public Offering Funding.

                  (2)   The General Partner shall advise the Tendering Partner,
            regularly and promptly upon any request, of the status of the
            registration, including the timing of all filings, the selection of
            and understandings with underwriters, dealers and brokers, the
            nature and contents of all communications


                                       61
<PAGE>   67
            with the Securities and Exchange Commission and other governmental
            bodies, the nature of marketing activities, and any other matters
            reasonably related to the timing, price and underwriting discounts
            and commissions relating to the Public Offering Funding and the
            compliance by the General Partner with its obligations with respect
            thereto. In addition, the General Partner and each Tendering Partner
            may, but shall be under no obligation to, enter into understandings
            in writing ("Pricing Agreements") whereby the Tendering Partner will
            agree in advance as to the minimum Public Offering Funding Amount
            per Registrable Share at or below the Cash Amount at which such
            Tendering Partner will agree in advance not to become a Withdrawing
            Partner under Section 8.6.E(3) below. Furthermore, the General
            Partner shall establish pricing notification procedures with each
            Tendering Partner, such that the Tendering Partner will have the
            maximum opportunity practicable to determine whether to become a
            Withdrawing Partner pursuant to Section 8.6.E(3) below.

                  (3)   Upon agreement between the General Partner and the
            managing underwriter(s) engaged by the General Partner in order to
            sell the Registrable Shares of the price per share at which the
            Registrable Shares are to be offered to the public and the
            underwriting discounts and commissions with respect thereto (the
            "Pricing Information"), the General Partner shall immediately use
            its best efforts to notify the Tendering Partner of the Pricing
            Information. Each Tendering Partner shall have one hour (or such
            additional time as may be extended by the General Partner in its
            sole discretion) to elect to withdraw his Cash Tender (a Tendering
            Partner making such an election being a "Withdrawing Partner"), and
            Common Limited Partner Units with a REIT Shares Amount equal to such
            excluded Registrable Shares shall be considered to be withdrawn from
            the related Cash Tender. If a Tendering Partner, within such period,
            does not notify the General Partner of such Tendering Partner's
            election not to become a Withdrawing Partner, then such Tendering
            Partner shall, except as otherwise provided in a Pricing Agreement,
            be deemed to have elected to become a Withdrawing Partner, without
            liability to the General Partner. To the extent that the General
            Partner is unable to notify any Tendering Partner, such unnotified
            Tendering Partner shall, except as otherwise provided in any Pricing
            Agreement, be deemed to have elected to become a Withdrawing
            Partner. Each Tendering Partner who does not become a Withdrawing
            Partner shall have the right, subject to the approval of the
            managing underwriter(s) in its sole discretion, to Cash Tender
            additional Common Limited Partner Units in a number no greater than
            the number of Common Limited Partner Units withdrawn. If more than
            one Tendering Partner so elects to tender additional Common Limited
            Partner Units, then such additional Common Limited Partner Units
            shall be tendered on a pro rata basis, based on the number of
            additional Common Limited Partner Units sought to be so Cash
            Tendered. In the event that Original Limited Partners withdraw in
            accordance with this paragraph such that the Public Offering Funding


                                       62
<PAGE>   68
            is canceled, then each Withdrawing Partner shall bear its pro rata
            share of the expenses, if any, reasonably incurred in connection
            with the unconsummated Public Offering Funding including, legal and
            accounting fees and expenses, Securities and Exchange Commission
            registration fees, state blue sky and securities law fees and
            expenses, printing expenses, NASD filing fees and listing fees (such
            share calculated as if such Partner had not been a Withdrawing
            Partner). If the Public Offering Funding is consummated, then the
            Withdrawing Partner will not be subject to such expenses.

                  (4)   The General Partner shall take all reasonable action in
            order to effectuate the sale of the Registrable Shares including,
            but not limited to, the entering into of an underwriting agreement
            in customary form with the book-running managing underwriter
            selected for such underwriting by the Tendering Partner or, if there
            is more than one Tendering Partner, by the Tendering Partner who,
            together with the Affiliates of such Tendering Partner, beneficially
            owns the greatest number of Common Limited Partner Units then being
            made subject to a Cash Tender; provided that such managing
            underwriter shall be reasonably acceptable to the General Partner.
            The General Partner may select any additional investment banks and
            managers to be used in connection with the offering; provided that
            such additional investment bankers and managers must be reasonably
            satisfactory to the Tendering Partners who, together with the
            Affiliates of such Tendering Partner, beneficially own the majority
            of Common Limited Partner Units being Tendered. Notwithstanding any
            other provision of this Agreement, if the managing underwriter(s)
            advises the General Partner in writing that marketing factors
            require a limitation of the number of shares to be underwritten,
            then the General Partner shall so advise all Tendering Partners and
            the number of Common Limited Partner Units to be sold to the General
            Partner pursuant to the Cash Tender shall be allocated among all
            Tendering Partners in proportion, as nearly as practicable, to the
            respective number of Common Limited Partner Units as to which each
            Tendering Partner elected to effect a Cash Tender. No Registrable
            Shares excluded from the underwriting by reason of the managing
            underwriter's marketing limitation shall be included in such
            registration.

                  (5)   If the managing underwriter has not limited the number
            of Registrable Shares to be underwritten, then the General Partner
            may include in any registration filed pursuant to Section 8.6.C
            hereof securities (i) for its own account, subject to Section 4.5.G
            hereof, and (ii) for the account of others, in either case, only if
            and to the extent that (x) the managing underwriter, the General
            Partner and Tendering Partners owning Common Limited Partner Units
            representing at least seventy-five percent (75%) of the Common
            Limited Partner Units with respect to which the Public Offering
            Funding is being effected so agree in writing, and (y) the right of
            any party to Cash Tender Common Limited Partner Units pursuant to
            this Section 8.6, and the Cash Tender Amount to be received by


                                       63
<PAGE>   69
            such party (including by virtue of the number of Registrable Shares
            which would otherwise have been included in such registration and
            underwriting, the offering price for such Registrable Shares and the
            underwriting commissions or discounts for such Registrable Shares)
            will not thereby be limited, reduced or adversely affected. In the
            event that the managing underwriter determines that the size of the
            registration should be reduced, securities included by the General
            Partner shall be reduced or eliminated from the registration prior
            to reducing securities included by any other Person in the
            registration.

      F.    Notwithstanding the provisions of Section 8.6.A hereof, a Common
Limited Partner shall not be entitled to effect an Exchange to the extent that
the ownership or right to acquire REIT Shares by such Partner on the date of the
Notice of Exchange, or any date thereafter, through and including the Specified
Exchange Date, would be prohibited under the Certificate of Incorporation.

      G.    Notwithstanding anything herein to the contrary, with respect to any
Exchange or Cash Tender pursuant to this Section 8.6:

                  (1)   All Common Limited Partner Units acquired by the General
            Partner pursuant thereto shall automatically, and without further
            action required, be converted into and deemed to be General Partner
            Interests comprised of the same number of General Partner Units.

                  (2)   Subject to the Ownership Limit, no Original Limited
            Partner may effect an Exchange (a) for less than 10,000 Common
            Limited Partner Units or, if such Limited Partner holds less than
            10,000 Common Limited Partner Units, all of the Common Limited
            Partner Units held by such Limited Partner; or (b) for more than
            one-third of the number of Common Limited Partner Units held by such
            Limited Partner; provided that, if the Original Limited Partners own
            collectively 6,149,000 Common Limited Partner Units or less, such
            Original Limited Partners may Exchange all their Common Limited
            Partner Units subject to the Ownership Limit;

                  (3)   No Original Limited Partner may effect a Cash Tender (a)
            for less than 100,000 Common Limited Partner Units or, if such
            Limited Partner holds less than 100,000 Common Limited Partner
            Units, all of the Common Limited Partner Units held by such Partner,
            or (b) for more than one-third of the number of Common Limited
            Partner Units; provided that, if the Original Limited Partners own
            6,149,000 Common Limited Partner Units or less, such Original
            Limited Partners may effect a Cash Tender for all their Common
            Limited Partner Units;


                                       64
<PAGE>   70
                  (4)   Each Original Limited Partner (a) may effect an Exchange
            only once in each Twelve-Month Period, and (b) may not effect an
            Exchange or Cash Tender during the period after the Partnership
            Record Date with respect to a distribution and before the record
            date established by the General Partner for a distribution to its
            stockholders of some or all of its portion of such distribution.

                  (5)   Notwithstanding anything herein to the contrary, with
            respect to any Cash Tender, in the event the General Partner gives
            notice to all Original Limited Partners then owning Common Limited
            Partner Interests (a "Primary Offering Notice") that it desires to
            effect a primary offering of its equity securities then, unless the
            General Partner otherwise consents, commencement of the actions
            denoted in Section 8.6.E hereof as to a Public Offering Funding with
            respect to any Notice of Cash Tender thereafter received (a
            "Subsequent Cash Tender Notice") may be delayed until the earlier of
            (a) the completion of the primary offering or (b) 90 days following
            the giving of the Primary Offering Notice; provided to the extent
            that the managing underwriter(s) of such primary offering advise
            that the inclusion of such additional REIT Shares will not adversely
            affect the offering, additional REIT Shares the proceeds of which
            are to be used to satisfy a Cash Tender made subject to such a
            Subsequent Cash Tender Notice (a "Subsequent Cash Tender") (without
            regard to the limitations of subparagraph (3)(a) of this paragraph
            G) shall be included in such offering, and the procedures of this
            Section 8.6 shall otherwise be followed as closely as practicable;
            provided, further, unless the entire REIT Shares Amount relating to
            the Common Limited Partner Units made subject to the Subsequent Cash
            Tender shall be sold in such offering, such Subsequent Cash Tender
            shall not count as a Cash Tender for purposes of this Section 8.6;
            provided, further, a Primary Offering Notice may be given no more
            than once in any Twelve-Month Period without the Consent of the
            Common Limited Partners.

                  (6)   No Common Limited Partner may effect a Cash Tender
            within 90 days following the closing of any prior Public Offering
            Funding;

                  (7)   The consummation of such an Exchange or Cash Tender
            shall be subject to the expiration or termination of the applicable
            waiting period, if any, under the Hart-Scott-Rodino Antitrust
            Improvements Act of 1976, as amended.

                  (8)   Each Tendering Partner shall continue to own all Common
            Limited Partner Units subject to any Exchange or Cash Tender, and be
            treated as a Common Limited Partner with respect to such Common
            Limited Partner Units for all purposes of this Agreement, until such
            Common Limited Partner Units are transferred to the General Partner
            and paid for on the Specified Exchange Date, or Specified Cash
            Tender Date, as the case may be. Until a Specified Exchange


                                       65
<PAGE>   71
            Date, the Tendering Partner shall have no rights as a stockholder of
            the General Partner with respect to the REIT Shares to be received
            in such Exchange.

                  (9)   For purposes of determining compliance with the
            restrictions set forth in this Section 8.6.G, all Common Limited
            Partner Units beneficially owned by a Related Party of an Original
            Limited Partner shall be considered to be owned or held by such
            Limited Partner.

      H.    The General Partner agrees to cause the REIT Shares issuable upon an
Exchange pursuant to this Section 8.6 to be listed on the New York Stock
Exchange prior to or concurrently with the issuance of such REIT Shares by the
General Partner. REIT Shares issued upon an Exchange pursuant to this Section
8.6 may contain such legends regarding compliance with the Securities Act and
applicable state securities laws as the General Partner in good faith determines
to be necessary in order to comply with applicable law.

      I.    In connection with an exercise of Exchange Rights pursuant to this
Section 8.6, each Tendering Partner shall submit the following, in addition to
the Notice of Exchange:

      (1)   An affidavit, dated the same date as the Notice of Exchange,
            disclosing the ownership by (a) such Partner of REIT Shares and (b)
            any Person whose ownership of REIT Shares would be attributed to
            such Partner under Code Section 544 and a representation in writing
            that neither such Partner nor any Person from whom ownership of REIT
            Shares could be attributed to it under Code Section 544 has any
            intention as of such date of acquiring additional REIT Shares
            between the date of the Notice of Exchange and the Specified
            Exchange Date.

      (2)   If the Tendering Partner is a Related Party, the affidavit described
            in (1) above shall disclose the direct and constructive ownership
            pursuant to Section 544 of the Code of REIT Shares of all such
            Related Parties and shall provide the representation described in
            (1) with respect to such Partner and Related Partners.

      (3)   On the Specified Exchange Date, the Tendering Partner shall certify
            the (i) the direct and constructive ownership of REIT Shares by such
            Partner remains unchanged from the affidavit described above in (1)
            or (2) or (ii) if such ownership has changed, the Tendering Partner
            will not and will not be deemed to own REIT Shares of the General
            Partner in violation of the Ownership Limit.

      J.    The provisions of this Section 8.6 insofar as they relate to an
Exchange (but not a Cash Tender) shall be applicable to the Common Limited
Partner Units owned by TRC and any TRC Shareholder to whom Common Limited
Partner Units have been Transferred as provided in Section 11.3, or to whom
Common Limited Partner Units have been issued, and TRC and such TRC Shareholder
shall have the right to effect an Exchange subject to and in accordance with
this Section 8.6, provided that:


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<PAGE>   72
      (1)   until such time as TRC or such TRC Shareholder holds less than
            10,000 Common Limited Partner Units, not more than one-third (1/3)
            of the aggregate number of Common Limited Partner Units that have
            been issued to TRC and the TRC Shareholders may be Exchanged during
            any Twelve-Month Period;

      (2)   none of such Common Limited Partner Units may be Exchanged prior to
            a date which is the earlier to occur of (i) February 4, 2000 or (ii)
            the date on which a notice of completion is filed by the Partnership
            in the official records of Santa Clara County pursuant to California
            Civil Code Section 3093 covering all improvements included in the
            Tandem Project;

      (3)   TRC or such TRC Shareholder may not effect an Exchange of less than
            10,000 Common Limited Partner Units or, if TRC or such TRC
            Shareholder holds less than 10,000 Common Limited Partner Units, all
            of the Limited Partner Units held by TRC or such TRC Shareholder;
            and

      (4)   in the event TRC or a TRC Shareholder wishes to Exchange Common
            Limited Partner Units for REIT Shares, having complied with this
            Section 8.6, the General Partner (for its own account or for the
            account of its nominee) shall have the right, but not the
            obligation, to purchase all or a portion of such Common Limited
            Partner Units for cash at a price equal to the number of Common
            Limited Partner Units to be purchased pursuant to this Section 8.6.J
            multiplied by the average of the Unit Values for the ten (10)
            trading days immediately preceding the date of purchase by the
            General Partner (or its nominee) of such Common Limited Partner
            Units. The General Partner shall exercise such right, if at all,
            within thirty (30) days of the date on which the General Partner
            receives a Notice of Exchange from TRC or a TRC Shareholder as to
            its desire to Exchange such Common Limited Partner Units for REIT
            Shares. In the event the General Partner purchases Common Limited
            Partner Units pursuant to this Section 8.6.J, the Partnership will
            be deemed to have issued to the General Partner a number of General
            Partner Units equal to the number of Limited Partner Units so
            purchased, the Limited Partner Units so purchased shall be canceled
            and the Junior Percentage Interests of the General Partner and all
            Common Limited Partners shall be adjusted based on the foregoing.

                                    ARTICLE 9

                     BOOKS, RECORDS, ACCOUNTING AND REPORTS

      Section 9.1. Records and Accounting

      The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books


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<PAGE>   73
and records deemed by the General Partner to be appropriate with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Sections 8.5 or 9.2 hereof. The
books of the Partnership shall be maintained, for financial and tax reporting
purposes, on an accrual basis in accordance with generally accepted accounting
principles, or on such other basis as the General Partner determines to be
necessary or appropriate.

      Section 9.2. Reports

      A.    As soon as practicable, but in no event later than ninety (90) days
after the close of the last fiscal quarter of each Partnership Year, the General
Partner shall cause to be mailed to each Limited Partner, an annual report
containing financial statements of the Partnership for the Partnership Year, or
of the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for the twelve month period ending December 31,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.

      B.    As soon as practicable, but in no event later than forty five (45)
days after the close of each fiscal quarter (except the last fiscal quarter of
each year), the General Partner shall cause to be mailed to each Limited Partner
as of the last day of the calendar quarter, a report containing unaudited
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
and such other information as may be required by applicable law or regulation or
as the General Partner determines to be appropriate. At the request of any
Limited Partner, the General Partner agrees to provide access to the books,
records and work papers upon which the reports in this Section 9.2. are based.



                                   ARTICLE 10

                                   TAX MATTERS

      Section 10.1. Preparation of Tax Returns; Tax Accounting

      The General Partner shall arrange for the preparation and timely filing of
all returns with respect to Partnership income, gains, deductions, losses and
other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, on or before January
15 of each year (for so long as the Partnership Year is the fiscal year ending
December 31) the tax information, in draft or final form, reasonably required by
Limited Partners for federal and state income tax reporting purposes and
thereafter within fifteen


                                       68
<PAGE>   74
(15) days of the end of the Partnership Year. In the event that the General
Partner delivers such information in draft form, the General Partner shall use
its best efforts to ascertain that any information that would be used by any
Partner for information reporting purposes is accurate and complete. At the
request of any Limited Partner, the General Partner agrees to provide access to
the books, records and work papers upon which the reports in this Section 10.1.
are based and to provide access to financial and income tax data necessary for
the Limited Partners to determine quarterly estimated income tax payments
required to be paid by the Limited Partners.

      Section 10.2. Tax Elections

      Except as otherwise provided herein, the General Partner shall, in its
sole discretion, determine whether to make any available election pursuant to
the Code. The General Partner shall make the election under Section 754 of the
Code in accordance with applicable Regulations thereunder. The General Partner
shall elect, and shall file such returns and amended returns, as necessary, in a
manner consistent with the use of the recurring item method of accounting
provided under Section 461(h) of the Code with respect to property taxes imposed
on the Property of the Partnership, including causing the applicable property
taxes to be paid prior to the date provided under Section 461(h) for purposes of
economic performance. The General Partner shall have the right to seek to revoke
any such election (excluding the elections under Sections 461(h) and 754 of the
Code) upon the General Partner's determination in its sole discretion that such
revocation is in the best interests of the Partners.

      Section 10.3. Tax Matters Partner

      The General Partner shall be the "tax matters partner" of the Partnership
for federal income tax purposes. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership in addition to
any reimbursement pursuant to Section 7.4 hereof. Nothing herein shall be
construed to restrict the Partnership from engaging an accounting firm to assist
the tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable. At the
request of any Limited Partner, the General Partner agrees to consult with such
Limited Partner with respect to the preparation and filing of any returns,
including, without limitation any subsequent audit or litigation with respect to
such return, provided the filing of such returns shall be in the sole discretion
of the General Partner, provided, however, that the Original Limited Partners
shall have the right, at their own expense, to contest any adjustment and
approve any settlement in connection with an item that was allocated to them
pursuant to Section 6.2.A.

      Section 10.4. Withholding

      Each Limited Partner hereby authorizes the Partnership to withhold from or
pay on behalf of or with respect to such Limited Partner any amount of federal,
state, local, or foreign taxes that


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<PAGE>   75
the General Partner determines that the Partnership is required to withhold or
pay with respect to any amount distributable or allocable to such Limited
Partner pursuant to this Agreement, including without limitation any taxes
required to be withheld or paid by the Partnership pursuant to Section 1441,
1442, 1445 or 1446 of the Code. Any amount paid on behalf of or with respect to
a Limited Partner shall constitute a loan by the Partnership to such Limited
Partner, which loan shall be repaid by such Limited Partner within fifteen (15)
days after notice from the General Partner that such payment must be made unless
(i) the Partnership withholds such payment from a distribution which would
otherwise be made to the Limited Partner or (ii) the General Partner determines
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner pursuant to Article 5 hereof.



                                   ARTICLE 11

              TRANSFERS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER

      Section 11.1. Transfer

      A.    The term "Transfer," when used in this Article 11 with respect to a
Partnership Unit, shall be deemed to refer to a transaction by which the General
Partner purports to assign all or any part of its General Partner Interest to
another Person or by which a Limited Partner purports to assign all or any part
of its Limited Partner Interest to another Person. The term "Transfer" when used
in this Article 11 does not include any Exchange of Common Limited Partner Units
by an Original Limited Partner, TRC or a TRC Shareholder for REIT Shares of the
General Partner or acquisition of Common Limited Partner Units from a Common
Limited Partner by the General Partner pursuant to Section 8.6 or Section
11.3.F.

      B.    No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.

      Section 11.2. Transfer of General Partner's Interest

      A.    The General Partner may not Transfer any of its General Partner
Interest or withdraw as General Partner except as provided in Sections 11.2.B
and 11.2.C hereof.

      B.    The General Partner shall not withdraw from the Partnership and
shall not Transfer, pledge, encumber or otherwise dispose of all or any portion
of its interest in the Partnership (whether by sale, disposition, statutory
merger or consolidation, liquidation or


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<PAGE>   76
otherwise) without the Consent of the Common Limited Partners. Upon any Transfer
of such a Partnership Interest pursuant to the Consent of the Common Limited
Partners and otherwise in accordance with the provisions of this Section 11.2.B,
the transferee shall become a successor General Partner for all purposes herein,
and shall be vested with the powers and rights of the transferor General
Partner, and shall be liable for all obligations and responsible for all duties
of the General Partner, once such transferee has executed such instruments as
may be necessary to effectuate such admission and to confirm the agreement of
such transferee to be bound by all the terms and provisions of this Agreement
with respect to the Partnership Interest so acquired. It is a condition to any
such Transfer that the transferee assumes, by operation of law or express
agreement, all of the obligations of the transferor General Partner under this
Agreement with respect to such transferred Partnership Interest, and no such
Transfer (other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor General Partner are assumed by a
successor corporation by operation of law) shall relieve the transferor General
Partner of its obligations under this Agreement without the Consent of the
Common Limited Partners.

      C.    Subject to the consent requirement in Section 7.3 hereof, the
General Partner may merge with another entity if immediately after such merger
substantially all of the assets of the surviving entity, other than the General
Partner Units held by the General Partner are contributed to the Partnership as
a Capital Contribution in exchange for the General Partner Units.

      Section 11.3. Limited Partners' Rights to Transfer

      A.    A Limited Partner shall have the right to transfer all or any
portion of its Partnership Interest to any Person, subject to the provisions of
Section 11.6 hereof and, in the case of Preferred Limited Partner Interests
owned by IAC Capital Trust, 11.3.E hereof; provided that, any Transfer of a
Partnership Interest shall be made only to a Qualified Transferee.
Notwithstanding the foregoing provisions of this Section 11.3, any Original
Limited Partner may, at any time, without the consent of the General Partner,
(i) Transfer all or any portion of its Partnership Interest to an Affiliate or
to an Irvine Person, subject to the provisions of Section 11.6 hereof, (ii)
transfer all or a portion of its Partnership Interest pursuant to its rights to
effect an Exchange or a Cash Tender as provided in Section 8.6 hereof and (iii)
Pledge any portion of its Partnership Interest. It is a condition to any
Transfer otherwise permitted hereunder that the transferee assumes by operation
of law or express agreement all of the obligations of the transferor Limited
Partner under this Agreement with respect to such transferred Partnership
Interest and no such Transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor Limited
Partner are assumed by a successor corporation by operation of law) shall
relieve the transferor Limited Partner of its obligations under this Agreement
without the approval of the General Partner, in its sole discretion.
Notwithstanding the foregoing, any transferee of any transferred Partnership
Interest shall be subject to any and all ownership limitations contained in the
Certificate of Incorporation which may limit or restrict such transferee's
ability to exercise its Exchange Rights. Any transferee shall take subject to
the obligations of the transferor hereunder, but such transferee shall not be


                                       71
<PAGE>   77
liable for the obligations of the transferor under Section 17-607 of the Act.
Any transferee that is an Original Limited Partner shall be permitted to
exercise the rights to effect an Exchange or a Cash Tender as provided in
Section 8.6 hereof. Unless a transferee is an Original Limited Partner, TRC or a
TRC Shareholder, such transferee shall not be entitled to exercise the rights
provided under Section 8.6 hereof in the absence of consent by the General
Partner. Until admitted as a Substituted Limited Partner, no transferee, whether
by a voluntary transfer, by operation of law or otherwise, shall have any rights
hereunder, other than the rights of an Assignee as provided in Section 11.5
hereof.

      B.    If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservatory or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners of the same class or
series, for the purpose of settling or managing the estate, and such power as
the Incapacitated Limited Partner possessed to transfer all or any part of his
or its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.

      C.    In connection with any Transfer, the General Partner shall have the
right to receive an opinion of counsel reasonably satisfactory to it to the
effect that the proposed Transfer may be effected without registration under the
Securities Act and will not otherwise violate any federal or state securities
laws or regulations applicable to the Partnership or the Partnership Interests
transferred. If, in the opinion of such counsel, such Transfer would require the
filing of a registration statement under the Securities Act or would otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Units, the General Partner may prohibit any
Transfer otherwise permitted under this Section 11.3 by a Limited Partner of
Partnership Interests.

      D.    No Transfer by a Limited Partner of its Partnership Interests
(including any Exchange or Cash Tender, any other acquisition of Partnership
Units by the General Partner or any acquisition of Partnership Units by the
Partnership) may be made to any person if (i) in the opinion of legal counsel
for the Partnership, it would result in the Partnership being treated as an
association taxable as a corporation, or (ii) such Transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code.

      E.    In addition to the restrictions on Transfer set forth in this
Section 11.3 and in Section 11.6 and notwithstanding anything to the contrary
contained in this Agreement, no Preferred Limited Partner Interest of any series
owned by IAC Capital Trust may be Transferred except in accordance with the
Designation Instrument creating such series.

      F.    In addition to the restrictions on Transfer set forth in the
foregoing provisions of this Section 11.3 and in Section 11.6, a Transfer of all
or any portion of the Partnership Interest of TRC shall be subject to the
following additional provisions:


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<PAGE>   78
                  (1)   None of such Partnership Interest may be Transferred
            except (i) to any one, or any combination of, William W. Thompson,
            Bruce Dorfman or Robert Hughes (individually, a "TRC Shareholder",
            and collectively, the "TRC Shareholders"), provided that it shall be
            a condition precedent to any such Transfer and the admission of the
            TRC Shareholder as a Substituted Limited Partner that such TRC
            Shareholder agree in writing to be bound by the restrictions on
            Transfer set forth in this Agreement or (ii) to the General Partner
            (or its nominee) as contemplated by this Section 11.3.F.

                  (2)   In the event all or any portion of such Partnership
            Interest is Transferred to a TRC Shareholder and a TRC Shareholder
            Incapacity occurs with respect to such TRC Shareholder, TRC shall
            within thirty (30) days notify the General Partner of such TRC
            Shareholder Incapacity and the General Partner shall have the right,
            but not the obligation, to purchase (for its own account or for the
            account of its nominee) the Partnership Interest of such TRC
            Shareholder for cash at a price equal to the number of Common
            Limited Partner Units representing the Partnership Interest of such
            TRC Shareholder multiplied by the average of the Unit Values for the
            ten (10) trading days immediately preceding the date of purchase by
            the General Partner (or its nominee) of such Partnership Interest.
            The General Partner shall exercise such right, if at all, within
            thirty (30) days of the date on which the General Partner receives
            written notice of such TRC Shareholder Incapacity. If the General
            Partner fails to exercise such right, such Common Limited Partner
            Units must, within 90 days of such TRC Shareholder Incapacity, and,
            in all events, prior to any Transfer to the heirs or devisees of
            such TRC Shareholder or to any other Person, be Exchanged for REIT
            Shares in accordance with Section 8.6, in which event the conditions
            to an Exchange set forth in the proviso in Section 8.6.J shall not
            apply to the right to Exchange such Common Limited Partner Units for
            REIT Shares.

                  (3)   In the event of the death of, or total physical
            disability of, a TRC Shareholder, entry by a court of competent
            jurisdiction adjudicating such TRC Shareholder incompetent to manage
            his person or his estate, or an Act of Bankruptcy with respect to
            such TRC Shareholder ("TRC Shareholder Incapacity"), TRC shall
            within thirty (30) days notify the General Partner of such TRC
            Shareholder Incapacity, and if such TRC Shareholder Incapacity
            relates to a TRC Shareholder other than William W. Thompson, and if
            at the time of such TRC Shareholder Incapacity TRC is a Partner,
            then:

                        (i)   TRC shall have the right, but not the obligation
                  to satisfy the General Partner, in its sole discretion and
                  within thirty (30) days of the occurrence of such TRC
                  Shareholder Incapacity, that such TRC Shareholder Incapacity
                  will not result, at any time, in any portion of TRC's
                  Partnership Interest being Transferred, directly or
                  indirectly, to the


                                       73
<PAGE>   79
                  TRC Shareholder with respect to whom such TRC Shareholder
                  Incapacity occurred.

                        (ii)  In the event TRC fails to so satisfy the General
                  Partner, the General Partner shall have the right, but not the
                  obligation, to purchase (for its own account or for the
                  account of its nominee) a portion of TRC's Partnership
                  Interest for cash at a price equal to the number of the Common
                  Limited Partner Units which the General Partner is entitled to
                  purchase pursuant to this Section 11.3.F(3)(ii) multiplied by
                  the average of the Unit Values for the ten (10) trading days
                  immediately preceding the date of such purchase by the General
                  Partner (or its nominee). The number of Common Limited Partner
                  Units which the General Partner shall be entitled to purchase
                  pursuant to this Section 11.3.F(3)(ii) shall be equal to the
                  total number of Common Limited Partner Units then owned by
                  TRC, multiplied by a fraction, the denominator of which shall
                  be the total number of TRC Shares outstanding as of the time
                  of such TRC Shareholder Incapacity and the numerator of which
                  shall be the total number of TRC Shares owned by the TRC
                  Shareholder at the time of such TRC Shareholder Incapacity.
                  The General Partner shall exercise such right, if at all,
                  within thirty (30) days of the date on which the General
                  Partner receives written notice of such TRC Shareholder
                  Incapacity.

                        (iii) If TRC fails to so satisfy the General Partner and
                  the General Partner fails to exercise its right of purchase as
                  set forth in clause (ii) above, Common Limited Partner Units
                  in the amount which the General Partner was entitled to
                  purchase pursuant to clause (ii) must, within 90 days of time
                  of such TRC Shareholder Incapacity, be Exchanged for REIT
                  Shares, in which event the conditions to an Exchange set forth
                  in the proviso in Section 8.6.J shall not apply to the right
                  to Exchange such Common Limited Partner Units for REIT Shares.

                        (iv)  From and after the date on which the General
                  Partner purchases such Common Limited Partner Units pursuant
                  to clause (ii) or such Common Limited Partner Units are
                  Exchanged for REIT Shares pursuant to clause (iii), TRC shall
                  take such steps as may be necessary, as determined by the
                  General Partner in its sole discretion, to ensure that any
                  Common Limited Partner Units still owned by TRC shall not, at
                  any time, without the prior written consent of the General
                  Partner, be Transferred to the estate, heirs or devisees of
                  the TRC Shareholder who is then subject to a TRC Shareholder
                  Incapacity or to any other Person.

                  (4)   In the event of a TRC Shareholder Incapacity with
            respect to William W. Thompson, if at the time of such TRC
            Shareholder Incapacity, TRC


                                       74
<PAGE>   80
            is a Partner, TRC shall within thirty (30) days notify the General
            Partner of such TRC Shareholder Incapacity and the General Partner
            shall have the right, but not the obligation, to purchase (for its
            own account or for the account of its nominee) all or any portion of
            TRC's Partnership Interest for cash at a price equal to the number
            of Common Limited Partner Units representing such TRC Partnership
            Interest multiplied by the average of the Unit Values for the ten
            (10) trading days immediately preceding the date of purchase by the
            General Partner (or its nominee) of such Partnership Interest. The
            General Partner shall exercise such right, if at all, within thirty
            (30) days of the date on which the General Partner receives written
            notice of such TRC Shareholder Incapacity. If the General Partner
            fails to exercise such right, such Common Limited Partner Units
            must, within 90 days of such TRC Shareholder Incapacity, be
            Exchanged for REIT Shares, in which event the conditions to an
            Exchange set forth in the proviso in Section 8.6.J shall not apply
            to the right to Exchange such Common Limited Partner Units for REIT
            Shares.

                  (5)   In the event of an Act of Bankruptcy with respect to
            TRC, the General Partner shall have the right, but not the
            obligation, to purchase (for its own account or for the account of
            its nominee) all or any portion of TRC's Partnership Interest for
            cash at a price equal to the number of Common Limited Partner Units
            representing such TRC Partnership Interest multiplied by the average
            of the Unit Values for the ten (10) trading days immediately
            preceding the date of purchase by the General Partner (or its
            nominee) of such Partnership Interest. The General Partner shall
            exercise such right, if at all, within thirty (30) days of the date
            on which the General Partner receives written notice of such Act of
            Bankruptcy. If the General Partner fails to exercise such right,
            such Common Limited Partner Units must, within a reasonable period
            of time of such Act of Bankruptcy, be Exchanged for REIT Shares, in
            which event the conditions to an Exchange set forth in the proviso
            in Section 8.6.J shall not apply to the right to Exchange such
            Common Limited Partner Units for REIT Shares.

                  (6)   In the event the General Partner purchases Common
            Limited Partner Units pursuant to clauses (2), (3), (4) or (5) of
            this Section 11.3.F, the Partnership will be deemed to have issued
            to the General Partner a number of General Partner Units equal to
            the number of Common Limited Partner Units so purchased, the Common
            Limited Partner Units so purchased shall be canceled and the Junior
            Percentage Interest of the General Partner and all Common Limited
            Partners shall be adjusted based on the foregoing.

      G.    In addition to the restrictions on Transfer set forth in the
foregoing provisions of this Section 11.3 and in Section 11.6, a Transfer of all
or any portion of the Partnership Interest of a TRC Shareholder shall be subject
to the following additional provision:


                                       75
<PAGE>   81
                  (1)   None of such Partnership Interest may be Transferred by
            such TRC Shareholder, except (i) to another TRC Shareholder in
            compliance with all applicable laws and regulations and the terms
            and conditions of this Agreement, (ii) a Transfer by operation of
            law as a result of a TRC Shareholder Incapacity, in which event the
            provisions of Section 11.3.F(2) shall apply and (iii) to the General
            Partner or its nominee as contemplated by Section 11.3.F.

      Section 11.4. Substituted Limited Partners

      A.    Each Limited Partner shall, pursuant to the provisions of 11.3, have
the right to Transfer all or a portion of its Partnership Interest to any
Person, subject in the case of Preferred Limited Partner Interests owned by IAC
Capital Trust to Section 11.3.E. Upon satisfaction of the conditions provided
under Section 3.4 and Section 11.3 and upon furnishing to the General Partner
(i) evidence of acceptance in form satisfactory to the General Partner of all of
the terms and conditions of this Agreement, including, without limitation, the
power of attorney granted in Section 2.4 hereof, (ii) a counterpart signature
page to this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as a Substituted Limited Partner, the General
Partner shall promptly admit such transferee of the interest of a Limited
Partner as a Substituted Limited Partner.

      B.    A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.

      C.    Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of Limited
Partner Units, and Percentage Interest of such Substituted Limited Partner and
to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.

      Section 11.5. Assignees

      Until such time as a transferee has been admitted as a Substituted Limited
Partner pursuant to Section 11.4, such transferee shall be considered an
Assignee for purposes of this Agreement. An Assignee shall be deemed to have had
assigned to it, and shall be entitled to receive, distributions from the
Partnership and the share of Net Income, Net Losses, and any other items of
income, gain, loss, deduction and credit of the Partnership attributable to the
Limited Partner Units assigned to such transferee, but shall not be deemed to be
a holder of Limited Partner Units for any other purpose under this Agreement,
and shall not be entitled to vote such Limited Partner Units in any matter
presented to the Limited Partners of the same class or series for a vote (such
Limited Partner Units being deemed to have been voted on such matter in the same
proportion as all other Limited Partner Units held by Limited Partners of the
same class or series are voted). In the event any such transferee desires to
make a further assignment


                                       76
<PAGE>   82
of any such Partnership Units, such transferee shall be subject to all the
provisions of this Article 11 to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of Limited Partner Units.

      Section 11.6. General Provisions

      A.    No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's Limited Partner
Units in accordance with this Article 11 or pursuant to an Exchange or a Cash
Tender of all of its Common Limited Partner Units under Section 8.6 hereof.

      B.    Any Limited Partner who shall Transfer all of his Limited Partner
Units in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all Assignees of such Limited Partner
Units as Substituted Limited Partners. Similarly, (i) any Common Limited Partner
who shall transfer all of its Common Limited Partner Units pursuant to an
Exchange or Cash Tender of all of its Common Limited Partner Units under Section
8.6 hereof shall cease to be a Common Limited Partner and (ii) any Preferred
Limited Partner whose Preferred Limited Partner Units of a series are redeemed
in full or paid in full upon the stated maturity thereof, in each case, in
accordance with the Designation Instrument applicable to such series of
Partnership Units shall cease to be a Preferred Limited Partner insofar as such
series is concerned.

      C.    If any Partnership Unit is Transferred during any quarterly segment
of the Partnership Year in compliance with the provisions of this Article 11, or
Exchanged or Cash Tendered pursuant to Section 8.6 hereof on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items attributable to such Partnership Unit for such
Partnership Year shall be allocated to the transferor Partner or the Tendering
Partner, as the case may be, and to the transferee Partner by taking into
account their varying interests during the Partnership Year in accordance with
Section 706(d) of the Code, using the interim closing of the books method.
Solely for purposes of making such allocations, each of such items for the
calendar month in which a transfer occurs shall be allocated to the transferee
Partner and none of such items for the calendar month in which a transfer or an
Exchange or Cash Tender occurs shall be allocated to the transferor Partner or
the Tendering Partner, as the case may be, if such transfer or Exchange or Cash
Tender occurs before the fifteenth day of the month, otherwise such items shall
be allocated to the transferor. All distributions of Available Cash attributable
to such Partnership Unit with respect to which the Partnership Record Date is
before the date of such transfer, assignment, Exchange or Cash Tender shall be
made to the transferor Partner or the Tendering Partner, as the case may be, and
all distributions of Available Cash thereafter attributable to such Partnership
Unit shall be made to the transferee Partner.

      D.    In addition to any other restriction on transfer herein contained,
in no event may any transfer or assignment of a Partnership Interest by any
Partner (including any Exchange or


                                       77
<PAGE>   83
Cash Tender or any other acquisition of Partnership Units by the General
Partner) be made (i) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as the Capital
Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest, (iv) in the event such transfer would
cause the General Partner to cease to comply with the requirements for REIT
status under the Code, (v) if such transfer would, in the opinion of counsel to
the Partnership, cause the Partnership to cease to be classified as a
partnership for Federal income tax purposes (except as a result of the Exchange
or Cash Tender of all Common Limited Partner Units held by all Common Limited
Partners); (vi) if such transfer would cause the Partnership to become, with
respect to any employee benefit plan subject to Title I of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (vii) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if such
transfer requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws other than in connection with the
issuance of preferred securities of IAC Capital Trust; (ix) if such transfer
requires the Partnership to become a reporting company under the Securities
Exchange Act of 1934; or (x) if such transfer subjects the Partnership to be
regulated under the Investment Company Act of 1940, the Investment Advisors Act
of 1940 or the Employee Retirement Income Security Act of 1974, each as amended.

      Section 11.7. Removal of General Partner

      A.    The General Partner may not be removed as general partner except as
provided in this Section 11.7. The General Partner may be removed upon the
affirmative vote of Common Limited Partners holding 50% or more of the issued
and outstanding Common Limited Partner Interests if such removal is for cause.
As used in this Section 11.7, "cause" means an act or omission undertaken with
deliberate intent to cause injury to the Partnership, constituting actual fraud,
actual bad faith or willful misconduct on the part of the General Partner or an
act or omission of gross negligence. The right to remove the General Partner
shall not exist or be exercised unless such action for removal also provides for
the election of a new general partner. Such removal shall be effective
immediately subsequent to the admission of the successor General Partner
pursuant to Article 12 hereof.

      B.    Upon the removal of the General Partner, the departing General
Partner shall become a Common Limited Partner, and its General Partner Interest
shall be converted automatically into a Common Limited Partner Interest, without
any reduction in the departing General Partner's Junior Percentage Interest
(subject to proportionate dilution by reason of the admission of its successor).

      This Agreement shall be amended to reflect any event described in this
Section 11.7, and any successor General Partner covenants so to amend this
Agreement and the Certificate, as required.


                                       78
<PAGE>   84
      C.    The successor to the departing General Partner shall at the
effective date of its admission to the Partnership contribute to the capital of
the Partnership cash in an amount such that its Capital Account, after giving
effect to such contribution, shall be at least equal to the amount, if any,
required by any applicable law.

      D.    The removal of the General Partner pursuant to this Section 11.7
will not relieve the Partnership from any of its debts or other obligations to
the departing General Partner, including, without limitation, reimbursement
obligations under Section 7.4 or its obligations under Section 7.7, arising
prior to the removal of the departing General Partner.



                                   ARTICLE 12

                              ADMISSION OF PARTNERS

      Section 12.1. Admission of Successor General Partner

      A successor to all of the General Partner Interest pursuant to Section
11.2.B hereof who is proposed to be admitted as a successor General Partner
shall be admitted to the Partnership as the General Partner, effective
immediately prior to such Transfer. A successor to a General Partner removed
pursuant to Section 11.7 shall be admitted to the Partnership as the successor
General Partner effective upon satisfaction of the condition specified in
Section 11.7.C. Any such successor shall carry on the business of the
Partnership without dissolution. In each case, the admission shall be subject to
the successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.

      Section 12.2. Admission of Additional Limited Partners

      A.    A Person who makes a Capital Contribution to the Partnership on or
after the date hereof in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner by the General Partner, without the
consent of any other Partner, only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof, (ii) a counterpart signature page to
this Agreement executed by such Person and (iii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner.

      B.    Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole discretion. The admission of any


                                       79
<PAGE>   85
Person as an Additional Limited Partner shall become effective on the date upon
which the name of such Person is recorded on the books and records of the
Partnership, following the consent of the General Partner to such admission.

      C.    If any Additional Limited Partner is admitted to the Partnership on
any day other than the first day of a Partnership Year, then Net Income, Net
Losses, each item thereof and all other items allocable among Partners and
Assignees for such Partnership Year shall be allocated among such Additional
Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of any Additional Limited Partner occurs shall be
allocated among all the Partners and Assignees including such Additional Limited
Partner, in accordance with the principles described in Section 11.6.C. All
distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.

      Section 12.3. Amendment of Agreement and Certificate of Limited
Partnership

      For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A) and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to Section 2.4
hereof.

      Section 12.4. Limit on Number of Partners

      No Person shall be admitted to the Partnership as an additional Partner if
the effect of such admission would be to cause the Partnership to have more than
500 Partners, including as Partners for this purpose those Persons indirectly
owning an interest in the Partnership through another partnership, subchapter S
corporation or a grantor trust, or otherwise cause the Partnership to become a
reporting company under the Securities Exchange Act of 1934, as amended.


                                       80
<PAGE>   86
                                   ARTICLE 13

                    DISSOLUTION, LIQUIDATION AND TERMINATION

      Section 13.1. Dissolution

      The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal or removal of the General Partner, any successor General Partner
shall continue the business of the Partnership without dissolution. The
Partnership shall dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following ("Liquidating Events"):

                  A.    the expiration of its term as provided in Section 2.5
            hereof;

                  B.    an event of withdrawal of the General Partner, as
            defined in the Act, unless, within ninety (90) days after the event
            of withdrawal (i) all the Common Limited Partners agree in writing
            to continue the business of the Partnership and to the appointment,
            effective as of the date of such event of withdrawal, of a successor
            General Partner; and (ii) more than fifty percent (50%) of the
            aggregate Liquidation Preference Amount of all series of Preferred
            Limited Partner Units then outstanding voting together as a single
            class agree to continue the business of the Partnership either in
            writing or by vote at a meeting of Preferred Limited Partners held
            in accordance with Section 14.3 and to the appointment, effective as
            of the date of such event of withdrawal, of a successor General
            Partner;

                  C.    an election to dissolve the Partnership made by the
            General Partner, subject to the Consent of the Common Limited
            Partners;

                  D.    entry of a decree of judicial dissolution of the
            Partnership pursuant to the provisions of the Act;

            or

                  E.    the sale of all or substantially all of the assets and
            properties of the Partnership.

      Section 13.2. Winding Up

      A.    Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is


                                       81
<PAGE>   87
inconsistent with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner or, in the event there
is no remaining General Partner, any Person elected by the Common Limited
Partners holding in the aggregate more than fifty percent (50%) of the
Percentage Interests of the Common Limited Partners or, in the event there is no
remaining General Partner or Common Limited Partner, any Person elected by the
Preferred Limited Partners holding in the aggregate more than fifty percent
(50%) of the Percentage Interests of the Preferred Limited Partners voting as
one class (the General Partner or such other Person being referred to herein as
the "Liquidator") shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and distributed
in the following order:

      (1)   First, to the satisfaction of all of the Partnership's debts and
            liabilities to creditors other than the Partners (whether by payment
            or the making of reasonable provision for payment thereof);

      (2)   Second, to the satisfaction of all of the Partnership's debts and
            liabilities to the General Partner (whether by payment or the making
            of reasonable provision for payment thereof);

      (3)   Third, to the satisfaction of all of the Partnership's debts and
            liabilities to the other Partners (whether by payment or the making
            of reasonable provision for payment thereof);

      (4)   Fourth, to the Preferred Limited Partners, the applicable
            Liquidation Preference Amount plus accrued and unpaid distributions
            in accordance with the terms of the applicable Designation
            Instrument(s); and

      (5)   The balance, if any, to the General Partner and Common Limited
            Partners in accordance with their Capital Accounts, after giving
            effect to all contributions, distributions, and allocations for all
            periods.

      The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4 hereof.

      B.    Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole discretion, defer for a reasonable
time the liquidation of any assets


                                       82
<PAGE>   88
except those necessary to satisfy liabilities of the Partnership (including to
those Partners as creditors) and/or distribute to the Partners, in lieu of cash,
as tenants in common and in accordance with the provisions of Section 13.2.A
hereof, undivided interests in such Partnership assets as the Liquidator deems
not suitable for liquidation. Any such distributions in kind shall be made only
if, in the good faith judgment of the Liquidator, such distributions in kind are
in the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.

      C.    If any Partner has a deficit balance in his Capital Account (after
giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which such liquidation occurs), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. A pro rata portion of the distributions that would otherwise be made
to the General Partner and Limited Partners pursuant to this Article 13 may be
withheld or escrowed to provide a reasonable reserve for Partnership liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Partnership, provided that such withheld or
escrowed amounts shall be distributed to the General Partner and Limited
Partners in the manner and order of priority set forth in Section 13.2.A as soon
as practicable.

      Section 13.3. [Intentionally omitted]

      Section 13.4. Rights of Limited Partners

      Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of his Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement (including pursuant to any Designation Instrument or Instruments), no
Limited Partner shall have priority over any other Partner as to the return of
his Capital Contributions, distributions, or allocations.

      Section 13.5. Notice of Dissolution

      In the event a Liquidating Event occurs or an event occurs that would, but
for an election or objection by one or more Partners pursuant to Section 13.1,
result in a dissolution of the Partnership, the General Partner shall within
thirty (30) days thereafter, provide written notice thereof to each of the
Partners.


                                       83
<PAGE>   89
      Section 13.6. Termination of Partnership and Cancellation of Certificate
of Limited Partnership

      Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the State of Delaware shall be canceled and such other actions as may be
necessary to terminate the Partnership shall be taken.

      Section 13.7. Reasonable Time for Winding-Up

      A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.

      Section 13.8. Waiver of Partition

      Each Partner hereby waives any right to partition of the Partnership
property.


                                   ARTICLE 14

                  AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS

      Section 14.1. Amendments

      Subject to Section 14.3, Amendments to this Agreement may be proposed by
the General Partner or by a Majority-In-Interest of the Common Limited Partners.
Following such proposal, the General Partner shall submit any proposed amendment
to the Common Limited Partners. The General Partner shall seek the written vote
of the Common Limited Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written vote, the General Partner may require a
response within a reasonable specified time, but not less than fifteen (15)
days, and failure to respond in such time period shall constitute a vote which
is consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 7.3.B, 7.3.C or 7.3.D hereof, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the Consent of Common Limited
Partners.


                                       84
<PAGE>   90
      Section 14.2. Meetings of the Common Limited Partners

      A.    Meetings of the Common Limited Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by a Majority-In-Interest of the Common Limited Partners. The call shall
state the nature of the business to be transacted. Notice of any such meeting
shall be given to all Common Limited Partners not less than seven (7) days nor
more than thirty (30) days prior to the date of such meeting. Common Limited
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of Common Limited Partners is permitted or required under this
Agreement, such vote or Consent may be given at a meeting of Common Limited
Partners or may be given in accordance with the procedure prescribed in Section
14.2.B hereof.

      B.    Any action required or permitted to be taken at a meeting of the
Common Limited Partners may be taken without a meeting if a written consent
setting forth the action so taken is signed by a majority of the Percentage
Interests of the Common Limited Partners (or such other percentage as is
expressly required by this Agreement). Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Common Limited Partners (or such
other percentage as is expressly required by this Agreement). Such consent shall
be filed with the General Partner. An action so taken shall be deemed to have
been taken at a meeting held on the effective date so certified.

      C.    Each Common Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Common Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Common Limited
Partner or his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy
(or there is receipt of a proxy authorizing a later date). Unless otherwise
provided therein, every proxy shall be revocable at the pleasure of the Common
Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Common
Limited Partner executing such proxy.

      D.    Each meeting of Common Limited Partners shall be conducted by the
General Partner or such other Person as the General Partner may appoint pursuant
to such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate in his sole discretion. Without limitation,
meetings of Common Limited Partners may be conducted in the same manner as
meetings of the shareholders of the General Partner and may be held at the same
time, and as part of, meetings of the shareholders of the General Partner.

      Section 14.3. Meetings of Preferred Limited Partners

      In the event that the vote or consent of the holders of Preferred Limited
Partner Interests (or any series thereof) is required pursuant to this Agreement
(including pursuant to a Designation Instrument) such vote or consent may be
obtained at a meeting of Preferred Limited


                                       85
<PAGE>   91
Partners or by written consent. The provisions of Section 14.2 hereof shall
apply to any such meeting or written consent to the extent practicable in which
case all references in such Section to Common Limited Partners shall mean the
Preferred Limited Partners as a class or the Preferred Limited Partners holding
the applicable series of Preferred Limited Partner Interests, as shall be
applicable to such vote or consent.


                                   ARTICLE 15

                               GENERAL PROVISIONS

      Section 15.1. Addresses and Notice

      Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A or such other address of which
the Partner shall notify the General Partner in writing.

      Section 15.2. Titles and Captions

      All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" or
"Sections" are to Articles and Sections of this Agreement.

      Section 15.3. Pronouns and Plurals

      Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.

      Section 15.4. Further Action

      The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.

      Section 15.5. Binding Effect

      This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.


                                       86
<PAGE>   92
      Section 15.6. Waiver

      No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.

      Section 15.7. Counterparts

      This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.

      Section 15.8. Applicable Law

      This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.

      Section 15.9. Entire Agreement

      This Agreement contains all of the understandings and agreements between
the Partners with respect to the subject matter of this Agreement and the
rights, interests and obligations of the Partners with respect to the
Partnership.

      Section 15.10. Invalidity of Provisions

      If any provision of this Agreement is or becomes invalid or unenforceable
in any respect, the validity and enforceability of the remaining provisions
contained herein shall not be affected thereby.

      Section 15.11. Outstanding Limited Partner Interests

      The Partners agree that all certificates representing Limited Partner
Interests issued pursuant to the Prior Agreement and outstanding as of the date
of this Agreement constitute certificates representing Common Limited Partner
Interests under this Agreement.

      Section 15.12.Certificates for Preferred Limited Partner Interests Issued
to IAC Capital Trust

      Unless otherwise permitted pursuant to the terms of the Declaration of
Trust, legal title to all Preferred Limited Partner Units issued to IAC Capital
Trust shall be vested in, the Preferred Limited Partner Units shall be held of
record in the name of, and the certificate


                                       87
<PAGE>   93
or certificates representing such Preferred Limited Partner Units shall be
registered in the name of, the Property Trustee.






                           [SIGNATURE PAGES TO FOLLOW]


                                       88
<PAGE>   94
      IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the date and year first above
written.


                                       GENERAL PARTNER:

                                       IRVINE APARTMENT COMMUNITIES, INC.,
                                           a Maryland corporation



                                       By:________________________________
                                           Name:
                                           Title:


                                       By:________________________________
                                           Name:
                                           Title:


                                       COMMON LIMITED PARTNERS:

                                       THE IRVINE COMPANY



                                       By:________________________________
                                           Name:
                                           Title:


                                       By:________________________________
                                           Name:
                                           Title:


                                       89
<PAGE>   95
                                       R.S.J. ASSOCIATES,
                                           a California limited partnership

                                           By:   The Irvine Company, its
                                                 general partner



                                           By:_______________________________
                                                Name:
                                                Title:


                                           By:_______________________________
                                                Name:
                                                Title:

                                       WOODBRIDGE WILLOWS ASSOCIATES,
                                           a California limited partnership

                                           By:  The Irvine Company, its
                                                general partner


                                           By:_______________________________
                                                Name:
                                                Title:


                                           By:_______________________________
                                                Name:
                                                Title:


                                       90
<PAGE>   96
                                       TIC INVESTMENT COMPANY A,
                                           a California general partnership

                                           By:  The Irvine Company,
                                                a general partner


                                           By:_______________________________
                                                Name:
                                                Title:


                                           By:_______________________________
                                                Name:
                                                Title:



                                       TIC INVESTMENT COMPANY B,
                                           a California general partnership

                                           By:  The Irvine Company
                                                a general partner


                                           By:_______________________________
                                                Name:
                                                Title:


                                           By:_______________________________
                                                Name:
                                                Title:


                                       91
<PAGE>   97
                                       TIC INVESTMENT COMPANY C,
                                           a California general partnership

                                           By:  The Irvine Company,
                                                a general partner


                                           By:_________________________________
                                                Name:
                                                Title:


                                           By:_________________________________
                                                Name:
                                                Title:


                                       TIC INVESTMENT COMPANY D,
                                           a California general partnership

                                           By:  The Irvine Company,
                                                a general partner,


                                           By:__________________________________
                                                Name:
                                                Title:


                                           By:__________________________________
                                                Name:
                                                Title:


                                       92
<PAGE>   98
                                     THOMPSON RESIDENTIAL COMPANY, INC.,
                                         a California corporation



                                         By:__________________________________
                                              Name:
                                              Title:


                                     STONECREST VILLAGE COMPANY, LLC,
                                         a California limited liability company

                                         By: California Pacific Homes,
                                              a California corporation,
                                              its Managing Member



                                         By:__________________________________
                                              Name:
                                              Title:

                                         PREFERRED LIMITED PARTNERS:

                                         IAC CAPITAL TRUST,
                                         a Delaware business trust


                                         By:_________________________________
                                            James E. Mead, not in his individual
                                            capacity but solely in his capacity
                                            as a trustee of IAC Capital Trust


                                       93
<PAGE>   99
                                AMENDMENT NO. 26
                                       TO
                                    EXHIBIT A
                           PARTNERS, CONTRIBUTIONS AND
                              PARTNERSHIP INTERESTS


<TABLE>
<CAPTION>
                                                        Gross Asset                               Number
                                                        Value of                                  of
                                  Cash                  Contributed          Total               Partnership         Percentage
Name and Address of Partner       Contribution(1)       Property (1)        Property              Units (2)          Interest(11)
---------------------------       ------------          ------------        --------             -----------         ------------
<S>                               <C>                   <C>                 <C>                  <C>                 <C>

GENERAL PARTNER

IRVINE APARTMENT                  $345,600,033.58(3)    0                   $345,600,033.58(3)   19,901,134          44.4025864%
COMMUNITIES, INC.
550 Newport Center Drive
Newport Beach, CA 92660

COMMON LIMITED PARTNERS

THE IRVINE COMPANY                 0                    883,022,698(4)       883,022,698(4)      17,303,000(4)       38.6057374%
550 Newport Center Drive
Newport Beach, CA 92660

R.S.J. ASSOCIATES                  0                    27,286,000           27,286,000           535,000            1.1936699%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660

WOODBRIDGE WILLOWS ASSOCIATES      0                    9,989,000            9,989,000            609,000            1.3587756%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660

TIC INVESTMENT COMPANY B           0                    17,075,000           17,075,000           478,162(5)         1.0668553%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660
</TABLE>

<PAGE>   100
<TABLE>
<CAPTION>
                                                                 Gross Asset                           Number
                                                                 Value of                              of
                                            Cash                 Contributed      Total               Partnership      Percentage
Name and Address of Partner                Contribution(1)       Property (1)     Property             Units (2)       Interest(11)
---------------------------                ---------------       ------------     --------            -----------      ------------
<S>                                        <C>                   <C>              <C>                 <C>              <C>

TIC INVESTMENT COMPANY A                    24,500,126.25(6)     0                24,500,126.25(6)     1,502,105(6)    3.3514345%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660

TIC INVESTMENT COMPANY C                    67,426,907.33(7)     0                67,426,907.33(7)     2,925,799       6.5279216%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660

TIC INVESTMENT COMPANY D                    0                    33,974,000       33,974,000           1,185,333(8)    2.6446659%
c/o The Irvine Company
550 Newport Center Drive
Newport Beach, CA 92660

THOMPSON RESIDENTIAL COMPANY, INC.
591 Redwood Highway, Suite 5275
Mill Valley, CA 94941                       0                    2,000,000(9)     2,000,000.00(9)      74,523(9)       0.1662726%

STONECREST VILLAGE COMPANY, LLC
c/o California Pacific Homes
One Civic Plaza, Suite 275
Newport Beach, CA 92660                     0                     9,475,000        9,475,000           305,707 (10)    0.6820808%

                                           -----------------------------------------------------------------------------------------

Subtotal                                   $437,527,067.16      $982,821,698     $1,420,348,765.16    44,819,763       100.0000000%

PREFERRED LIMITED PARTNERS

IAC CAPITAL TRUST(12)
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, CA 92660                    $150,000,000.00      0                $150,000,000.00      6,000,000 Series A
                                                                                                      Preferred Limited
                                                                                                      Partner Units     100%
                                           =========================================================================================
TOTAL                                      $587,527,067.16      $982,821,698     $1,570,348,765.16    NA                 NA
</TABLE>


                                      A-2
<PAGE>   101
(1)   These amounts constitute the agreed value for purposes of the Act.

(2)   Except with respect to the Common Limited Partner Units referred to in
      Notes 5, 6 and 8, the 51,345;1,756 and 232,333 General Partner Units
      referred to in Note 3, and the 40,905 Common Limited Partner Units
      referred to in Note 7, Common Limited Partner Units were allocated in
      accordance with the net asset value of the property contributed by each
      Partner.

(3)   Of which $193,602,600 was contributed in connection with the December 1993
      initial public offering of 11,800,000 REIT Shares, $84,378,375 was
      contributed in connection with the August 1995 offering of 5,175,000 REIT
      Shares, $30,000,337.50 was contributed in connection with the July 1996
      offering of 1,490,700 REIT Shares, $29,969,000 was contributed in
      connection with the February 1997 offering of 1,150,000 REIT Shares,
      $6,170,093.9375 was deemed contributed pursuant to Sections 4.6.B and
      4.5.H for 232,333 REIT Shares, $1,428,415.2675 was deemed contributed
      pursuant to Section 4.8.A(3) for 51,345 REIT Shares and $51,211.875 was
      deemed contributed pursuant to Section 4.8.B(2) for 1,756 REIT Shares.

(4)   Includes $65,898,000 gross asset value of property contributed by five
      original limited partners which limited partners were liquidated on June
      30, 1995. The 1,359,000 Common Limited Partner Units owned by such limited
      partners were transferred to The Irvine Company in connection with such
      liquidation. Also includes $37,605,000 gross asset value of property
      contributed by another original limited partner. The 160,000 Common
      Limited Partner Units owned by such limited partner were transferred to
      The Irvine Company in June 1996.

(5)   These Common Limited Partner Units were issued in accordance with Section
      4.3.B prior to June 1, 1996 and were transferred to TIC Investment Company
      B in June 1996 when it was admitted as a Substituted Limited Partner.

(6)   Of which $24,457,500 was contributed pursuant to Section 4.5.G and 4.5.H
      for 1,500,000 Common Limited Partner Units in connection with the August
      1995 offering of REIT Shares and $42,626.25 was deemed contributed
      pursuant to Section 4.8.A.(4) for 2,105 Common Limited Partner Units. All
      such Units were issued prior to June 1, 1996 and were transferred to TIC
      Investment Company A in June 1996 when it was admitted as a Substituted
      Limited Partner.

(7)   Of which $30,000,337.50 and $36,332,695.64 was contributed pursuant to
      Sections 4.5.G and 4.5.H for 1,490,700 Common Limited Partner Units and
      1,394,194 the Common Limited Partner Units, respectively, in connection
      with the July 1996 and February 1997 offerings, respectively, of REIT
      Shares and $1,093,874.1925 was deemed contributed pursuant to Section
      4.8.A(4) for 40,905 Common Limited Partner Units.

(8)   These Common Limited Partner Units were issued in accordance with Section
      4.3.B. TIC Investment Company D was admitted as an Additional Limited
      Partner in July 1996. With respect to three of the transactions
      (representing 824,932 of the Common Limited Partner Units and $24,430,000
      of the Gross Asset Value of Contributed Property) a portion of the Common
      Limited Partner Units issued in each transaction are subject to return and
      cancellation if the Apartment Community Project to be constructed on the
      land site does not achieve a 10% unleveraged return on costs for the first
      year following stabilized occupancy.

(9)   TRC was admitted as an Additional Limited Partner in February 1997 in
      connection with the closing under the TRC Contribution Agreement.
      Additional Common Limited Partner Units may be issued to TRC in connection
      with its contribution pursuant to the TRC Contribution Agreement, in which
      event the amount under "Gross Asset Value of Contributed Property" will be
      increased as provided in Section 4.1 by the amount of the Contingent
      Contribution Value (as defined in such TRC Contribution Agreement).

(10)  SVC was admitted as an Additional Common Limited Partner in December, 1997
      in connection with the closing under the Contribution Agreement dated
      November 25, 1997 between SVC and the Partnership.

(11)  Represents (i) in the case of the General Partner and a Common Limited
      Partner, their Junior Percentage Interest and (ii) in the case of a
      Preferred Limited Partner, its Percentage Interest in such series.

(12)  IAC Capital Trust was admitted as a Preferred Limited Partner on January
      20, 1998.


                                      A-3
<PAGE>   102
                                    EXHIBIT B

                               NOTICE OF EXCHANGE

      The undersigned Common Limited Partner hereby irrevocably (i) exchanges
____ Common Limited Partner Units in Irvine Apartment Communities, L.P. in
accordance with the terms of the Second Amended and Restated Agreement of
Limited Partnership of Irvine Apartment Communities, L.P., as amended (the
"Agreement"), and the Exchange referred to therein, (ii) surrenders such Common
Limited Partner Units and all right, title and interest therein, and (iii)
directs that the REIT Shares deliverable upon exercise of the Exchange be
registered or placed in the name(s) and at the address(es) specified below,
subject to Section 8.6 of the Agreement. The undersigned hereby represents,
warrants, certifies and agrees (a) that the undersigned has good, marketable and
unencumbered title to such Common Limited Partner Units, free and clear of the
rights or interests of any other person or entity, (b) that the undersigned has
the full right, power and authority to exchange and surrender such Common
Limited Partner Units as provided herein, (c) that the undersigned has obtained
the consent or approval of all persons or entities, if any, having the right to
consent to or approve such exchange and surrender, (d) that the undersigned is
acquiring such REIT Shares for his own account, for investment and without a
view to engaging in any resale or distribution thereof, except such as may occur
pursuant to the registration statement which may be filed by the General Partner
pursuant to a Miscellaneous Rights Agreement to which the undersigned and the
General Partner are parties, (e) that the REIT Shares may not be transferred by
the undersigned except in transactions pursuant to a registration statement
under the Securities Act or that are exempt from the registration requirements
of the Securities Act and all applicable state and foreign securities laws and
(f) that the General Partner may refuse to transfer such REIT Shares as to which
evidence satisfactory to it of such registration or exemptions is not provided
to it.

      All capitalized terms used herein and not otherwise defined shall have the
same meaning ascribed to them respectively in the Agreement.

Dated:  ____________

           Name of Common Limited Partner.


           -----------------------------------------
           (Signature of Common Limited Partner)


           -----------------------------------------
           (Street Address)


                                      B-1
<PAGE>   103


           -----------------------------------------
           (City) (State) (Zip Code)

           Signature Guaranteed by:


           -----------------------------------------


issue REIT Shares to:

Please insert social security or other tax identification number:

Name:


                                      B-2
<PAGE>   104
                                    EXHIBIT C

                              NOTICE OF CASH TENDER

      The undersigned Common Limited Partner hereby irrevocably (i) tenders to
the General Partner ______ Common Limited Partner Units in Irvine Apartment
Communities, L.P. in accordance with the terms of the Second Amended and
Restated Agreement of Limited Partnership of Irvine Apartment Communities, L.P.,
as amended, and the Cash Tender Right referred to therein, (ii) surrenders such
Common Limited Partner Units and all right, title and interest therein, and
(iii) directs that the Cash Tender Amount deliverable upon exercise of the Cash
Tender Right be delivered to the address specified below. The undersigned hereby
represents, warrants, certifies and agrees (a) that the undersigned has good,
marketable and unencumbered title to such Common Limited Partner Units, free and
clear of the rights or interests of any other person or entity, (b) that the
undersigned has the full right, power and authority to tender and surrender such
Common Limited Partner Units as provided herein, and (c) that the undersigned
has obtained the consent or approval of all persons or entitles, if any, having
the right to consent to or approve such tender and surrender.

      All capitalized terms used herein and not otherwise defined shall have the
same meaning ascribed to them respectively in the Agreement.

Dated:  ____________

           Name of Common Limited Partner.


           -----------------------------------------
           (Signature of Common Limited Partner)


           -----------------------------------------
           (Street Address)


           -----------------------------------------
           (City) (State) (Zip Code)


           Signature Guaranteed by:


           -----------------------------------------


Please insert social security or other tax identification number:

Name:


                                      C-1
<PAGE>   105
                                    EXHIBIT D

                 FORM OF COMMON LIMITED PARTNER UNIT CERTIFICATE

      THE COMMON LIMITED PARTNER INTERESTS EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF IRVINE APARTMENT COMMUNITIES, L.P.
DATED JANUARY 20, 1998, AS AMENDED (THE "PARTNERSHIP AGREEMENT") A COPY OF WHICH
MAY BE OBTAINED FROM IRVINE APARTMENT COMMUNITIES, INC., GENERAL PARTNER, AT ITS
PRINCIPAL EXECUTIVE OFFICE.

                                                           Number of Common
Certificate Number                                         Limited Partner Units

---------                                                               --------

                       IRVINE APARTMENT COMMUNITIES, L.P.
                 FORMED UNDER THE LAWS OF THE STATE OF DELAWARE


This Certifies that  _____________________________________

is the owner of  _________________________________________


                   FULLY PAID COMMON LIMITED PARTNER UNITS OF

IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. This Certificate and the Common Limited Partner Units
represented hereby are issued and shall be held subject to all of the provisions
of the Partnership Agreement as the same may be amended and/or supplemented from
time to time.

      IN WITNESS WHEREOF, Irvine Apartment Communities, Inc., general partner,
has signed this Certificate this __ day of __, 199_.


                                      D-1
<PAGE>   106
                                    IRVINE APARTMENT COMMUNITIES, INC.
                                            as general partner of
                                            Irvine Apartment Communities, LP.


                                    By: ___________________________________
                                            Name:
                                            Title:


                                      D-2