Document:

exv4w1

 

Exhibit 4.1

NASH FINCH COMPANY

INCOME DEFERRAL PLAN

(As amended through 5/21/04)

ARTICLE 1

Description

	1.1	 	Plan Name. The name of the Plan is the “Nash Finch Company Income
Deferral Plan.”
	 
	1.2	 	Plan Purpose. The purpose of the Plan is to provide Active Participants
with the opportunity to defer a portion of the Base Salary or Annual Bonus
or both that would otherwise be payable to them and to compensate Active
Participants for the amount, if any, by which such deferrals decrease the
amount of profit sharing contributions that would otherwise be made on
their behalf pursuant to the Profit Sharing Plan.
	 
	1.3	 	Plan Type. The Plan is an unfunded plan maintained primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees and, as such, is intended to be
exempt from the provisions of Parts 2, 3 and 4 of Subtitle B of Title I of
ERISA by operation of sections 201(2), 301(a)(3) and 401(a)(4) thereof,
respectively, and from the provisions of Title IV of ERISA, to the extent
otherwise applicable, by operation of section 4021(b)(6) thereof. The
Plan will be construed and administered in a manner that is consistent
with and gives effect to such intent.

ARTICLE 2

Participation

	2.1	 	Eligibility.

	(A)	 	Prior to the beginning of each Plan Year, the Committee
will determine which Qualified Employees, if any, are eligible to
make deferral elections pursuant to Section 3.2 with respect to the
Plan Year.
	 
	(B)	 	At any time during a Plan Year, the Committee may determine
that a Qualified Employee who became such after the beginning of
the Plan Year is eligible to make a deferral election pursuant to
Section 3.2 with respect to the remainder of the Plan Year.
	 
	(C)	 	The fact that an Employee has been eligible to make
deferral elections with respect to any particular Plan Year does
not give the Employee any right to make deferral elections in any
other Plan Year.
	 
	(D)	 	A Participant who, pursuant to Section 3.2(B), has revoked
an Annual Bonus deferral election in connection with an
Unforeseeable Emergency is not eligible to elect additional
deferrals (of either Base Salary or Annual Bonus) with respect to
the remainder of the Plan Year during which the revocation occurs
or the immediately following Plan Year. A Participant who has
received a distribution pursuant to Section 4.1(D) is not eligible
to elect additional deferrals (of either Base Salary or Annual
Bonus) with respect to the Plan Year during which the distribution
is received or the four immediately following Plan Years. In
either case, however, for the Plan Year during which the revocation
or distribution occurs, the Participant’s Account will be credited
with the amount, if any, determined pursuant to Section 3.2(E) or
Section 3.2(F) based on his or her deferrals for the portion of the
Plan Year preceding the

 

 

	 	 	revocation or distribution. [Section 2.1(D) as amended 5/21/04]
	 
	(E)	 	In conjunction with his or her initial election to
participate in the Plan, a Participant must elect whether his or
her distribution made pursuant to Section 4.1(A)(2) following his
or her disability or termination of employment on or after
attaining Retirement Age will (1) be made or commence within 60
days after termination of employment or within the first 60 days of
the following calendar year and (2) be made in the form of a lump
sum payment or installments. Such elections are irrevocable and
apply to all benefits distributed to the Participant pursuant to
the Plan.

	2.2	 	Transfer Among Participating Employers. An Active Participant who
transfers employment from one Participating Employer to another
Participating Employer and who continues to be a Qualified Employee after
the transfer will, for the duration of the Plan Year during which the
transfer occurs, continue to participate in the Plan, in accordance with
the election in effect for the portion of the Plan Year before the
transfer, as a Qualified Employee of such other Participating Employer.
	 
	2.3	 	Multiple Employment. An Active Participant who is simultaneously
employed as a Qualified Employee with more than one Participating Employer
will participate in the Plan as a Qualified Employee of all such
Participating Employers on the basis of a single deferral election
pursuant to Section 3.2 applied separately to his or her Base Salary and
Annual Bonus from each such Participating Employer.
	 
	2.4	 	Termination or Ceasing to be a Qualified Employee. An Active Participant
who, during a Plan Year, terminates his or her employment with all
Participating Employers or is determined by the Committee to have
otherwise ceased to be a Qualified Employee is not eligible for further
deferral credits for the Plan Year pursuant to Section 3.2 other than such
credits relating to the period prior to such termination or cessation.
	 
	2.5	 	Condition of Participation. Each Qualified Employee, as a condition of
participation, is bound by all of the terms and conditions of the Plan and
the Plan Rules, including but not limited to the reserved right of the
Company to amend or terminate the Plan, and must furnish to the Committee
such pertinent information, and must execute such election forms and other
instruments, as the Committee or Plan Rules may require by such dates as
the Committee or Plan Rules may establish.
	 
	2.6	 	Termination of Participation. A Participant or Beneficiary will cease to
be such as of the date on which his or her entire Account balance has been
distributed.

ARTICLE 3

Benefits

	3.1	 	Participant Accounts. The Committee will establish and maintain an
Account for each Participant to evidence amounts credited with respect to
the Participant pursuant to Sections 3.2, 3.3 and 3.4. If a Participant
makes deferrals with respect to Base Salary, Annual Bonus or both from
more than one Participating Employer, the Committee will establish a
separate Account for the Participant with respect to each such
Participating Employer. [Section 3.1 as amended 5/21/04]

	3.2	 	Deferral Credits.

	(A)	 	An Active Participant may elect to defer his or her Base
Salary for a Plan Year by any one percent increment from one
percent to a maximum percentage specified in Plan Rules and the
percentage so elected will automatically apply to the Participant’s
Base

 

 

	 	 	Salary as adjusted from time to time. An election made pursuant
to this subsection will not be effective unless it is made on a
properly completed election form received by the Committee by a
date specified by the Committee which is prior to the first day of
the Plan Year to which the election relates or, in the case of an
Active Participant who is determined by the Committee to be
eligible to participate for a Plan Year pursuant to Section
2.1(B), within 30 days after the Committee’s determination. An
Active Participant may revoke a deferral election made pursuant to
this subsection at any time. The revocation will be effective as
soon as administratively practicable after the Committee receives
a properly completed revocation form. Any election or revocation
pursuant to this subsection applies only to Base Salary relating
to services performed after the effective date of the election or
revocation.
	 
	(B)	 	An Active Participant who is determined by the Committee to
be eligible to participate for a Plan Year pursuant to Section
2.1(A) may elect to defer his or her Annual Bonus for the Plan Year
by any five percent increment from five percent to a maximum
percentage specified in Plan Rules. An Active Participant who is
determined by the Committee to be eligible to participate for a
Plan Year pursuant to Section 2.1(B) may, if and to the extent
specified by the Committee in conjunction with such determination,
elect to defer his or her Annual Bonus for the Plan Year. An
election made pursuant to this subsection will not be effective
unless it is made on a properly completed election form received by
the Committee by a date specified by the Committee which is prior
to the first day of the Plan Year to which the election relates or,
in the case of an Active Participant who is determined by the
Committee to be eligible to participate for a Plan Year pursuant to
Section 2.1(B), within 30 days after the Committee’s determination.
An election pursuant to this subsection is irrevocable after the
latest date by which it must be received by the Committee to be
effective; provided, that Plan Rules may permit a Participant to
revoke the election after that date if the Participant has an
Unforeseeable Emergency, in which case no additional deferrals of
either Base Salary or Annual Bonus will be made with respect to the
portion of the Plan Year following the revocation and the
Participant will be ineligible to elect additional deferrals for
the period specified in Section 2.1(D).
	 
	(C)	 	Notwithstanding Subsections (A) and (B), Plan Rules may
impose a dollar limitation on the total amount of deferrals that
may be made during a Plan Year and may establish procedures to be
applied in the event that a Participant’s deferral elections for a
Plan Year would otherwise cause such limitation to be exceeded.
Plan Rules may also impose conditions and limitations on
participation by any Qualified Employee or any group of similarly
situated Qualified Employees.
	 
	(D)	 	Reductions to an Active Participant’s Base Salary and
Annual Bonus pursuant to this section will be credited to his or
her Account as of the day on which the Participant would have
otherwise received the Base Salary or Annual Bonus with respect to
which such credit relates.
	 
	(E)	 	The Account of an Active Participant who is eligible to
share in the allocation of a Participating Employer’s profit
sharing contribution for a Plan Year pursuant to the Profit Sharing
Plan will be credited with an amount equal to the amount, if any,
by which (1) the amount of the profit sharing contribution that
would have been allocated to his or her account under the Profit
Sharing Plan but for deferrals made pursuant to this Plan exceeds
(2) the amount of the profit sharing contribution actually
allocated to his or her account under the Profit Sharing Plan. The
Account will be credited as of the first day of the month next
following the month during which the Participatory Employer’s
profit sharing contribution has been made in full.
	 
	(F)	 	If a matching contribution is made on behalf of an Active
Participant for any Plan Year beginning after December 31, 2003, pursuant

 

 

	 	 	to the Profit Sharing
Plan and the amount of the matching contribution is determined
based on his or her “eligible earnings,” as defined in the Profit
Sharing Plan (because six percent of his or her eligible earnings
for the Plan Year is less than the amount of the 401(k)
contributions made on his or her behalf for the Plan Year pursuant
to the Profit Sharing Plan), the Active Participant’s Account will
be credited with an amount equal to the amount, if any, by which
(i) the amount of the matching contribution that would have been
allocated to his or her account for the Plan Year pursuant to the
Profit Sharing Plan but for the deferrals made pursuant to this
Plan exceeds (ii) the amount of the matching contribution actually
allocated to his or her account for the Plan Year pursuant to the
Profit Sharing Plan. The amount of the credit for a Plan Year
pursuant to this subsection, if any, will be determined after any
forfeitures and distributions of excess deferrals, excess
contributions and excess aggregate contributions for the Plan Year
pursuant to the Profit Sharing Plan. The Account will be credited
as of a date during the following Plan Year selected by the
Participating Employer. [Section 3.2(F) added 5/21/04]

	3.3	 	Earnings Credits.

	(A)	 	This Section 3.3 only applies to a Participant who has an
Account balance under the Plan as of May 21, 2004.
	 
	(B)	 	A Participant who has an Account balance under the Plan as
of May 21, 2004 may make a one-time election, subject to any
conditions imposed by the Committee in Plan Rules, whether such
Account balance along with any future credits made to the
Participant’s Account pursuant to Section 3.2 will receive
investment credits pursuant to Section 3.4 in lieu of earnings
credits pursuant to Subsection (C). An election made pursuant to
this subsection will not be effective unless it is made on a
properly completed election form received by the Committee no later
than June 30, 2004. An election pursuant to this subsection is
irrevocable after the date it is received by the Committee. Such
election will be applicable to credits to the Plan made after June
30, 2004 and to all existing Account balances as of July 1, 2004
that are attributable to credits made before July 1, 2004.
	 
	(C)	 	Unless a Participant, pursuant to Subsection (B), has
elected to have his or her Account credited with investment credits
pursuant to Section 3.4, the Committee will, in accordance with
Plan Rules, credit the Participant’s Account, including the
undistributed portion of an Account being distributed in the form
of installment payments, with earnings each day in an amount equal
to the “applicable percentage” of the balance of the Account for
that day. Such earnings shall be compounded daily. The applicable
percentage for a given day is the daily equivalent of the annual
yield set forth for the applicable month in the Moody’s Bond
Record, published by Moody’s Investor’s Service, Inc. (or any
successor thereto) under the heading of “Moody’s (Mergent)
Corporate Bond Yield Averages — Av. Corp.” or, if such yield is no
longer available, a substantially similar yield selected by the
Committee. [Section 3.3 as amended 5/21/04]

	3.4	 	Investment Credits.

	(A)	 	This Section 3.4 applies to any Participant who has made an
election pursuant to Section 3.3(B) to have his or her Account
credited with investment credits rather than earnings credits and
to any Qualified Employee who becomes a Participant in the Plan
after May 21, 2004. With respect to any Participant who made an
election pursuant to Section 3.3(B), this Section 3.4 will be
applicable to credits to the Plan made after June 30, 2004 and to
all existing Account balances as of July 1, 2004 that are
attributable to credits made before July 1, 2004.

 

 

	(B)	 	Designation of Valuation Funds. The Committee will
designate two or more valuation funds that will serve as the basis
for determining investment credits pursuant to this section. The
Committee may, from time to time, designate additional valuation
funds or eliminate any previously designated valuation funds. The
designation or elimination of a valuation fund pursuant to this
subsection is not a Plan amendment. The Committee will not be
responsible in any manner to any Participant or other person for
any damages, losses, liabilities, costs or expenses of any kind
arising in connection with any designation or elimination of a
valuation fund.
	 
	(C)	 	Participant Direction. A Participant must direct the
manner in which amounts credited to his or her Accounts pursuant to
Section 3.2 will be allocated among and deemed to be invested in
the valuation funds designated pursuant to Subsection (B). Such
allocation and investment directions shall be submitted in writing
on a prescribed form (or in such other manner as the Plan Rules may
authorize from time to time) to the Committee or to such agent as
may be designated from time to time for this purpose and may be
made separately for existing Account balances and for future
amounts to be credited to an Account. Each such direction must be
expressed in whole percentage increments for each selected
valuation fund and such direction will remain in effect until the
Participant subsequently submits a properly completed new direction
form to the Committee or its designated agent. Amounts will be
deemed to be invested in accordance with the Participant’s
direction on or as soon as administratively practicable after the
amounts are credited to the Participant’s Account. To the extent a
Participant fails to direct the manner in which amounts credited to
his or her Accounts will be deemed to be invested, such amounts
will deemed to be invested in a default valuation fund specified in
Plan Rules.
	 
	(D)	 	Change in Direction for Future Credits. A Participant may
direct a change in the manner in which future credits to his or her
Accounts pursuant to Section 3.2 will be allocated among and deemed
to be invested in the valuation funds designated pursuant to
Subsection (B). The changed allocation and investment direction
will be effective for deferrals credited to the Participant’s
Account pursuant to Section 3.2 at least 30 days (or such shorter
period as Plan Rules may allow) after the date on which the
Committee or its designated agent receives the direction from the
Participant.
	 
	(E)	 	Change in Direction for Existing Account Balance. A
Participant may direct a change in the manner in which his or her
existing Account balances are allocated among and deemed to be
invested in the valuation funds designated pursuant to Subsection
(B). The changed allocation and investment direction will be
effective as soon as administratively practicable after the date on
which the Committee or its designated agent receives the direction
from the Participant.
	 
	(F)	 	Account Adjustment. As of the close of business on each
day on which trading occurs on the NASDAQ Stock Market, the
Committee will cause Participants’ Accounts to be separately
adjusted, in a manner determined by the Committee to be uniform and
equitable, to reflect the investment credits (comprised of the
income, expense, gains, losses, fees and the like (other than
taxes)) that would have resulted since the last adjustment had the
Participant’s investment directions pursuant to this section
actually been implemented. For purposes of this subsection, an
amount will be deemed to have been invested in accordance with a
Participant’s direction by the fifth business day after (1) the
date on which the amount is credited to the Participant’s Account
in the case of a direction pursuant to Subsection (C) or Subsection
(D) or (2) the effective date of a direction pursuant to Subsection
(E). To the extent determined by the Committee to be necessary in
conjunction with any distribution pursuant to the Plan, the
Committee will

 

 

	 	 	cause the Account from which the distribution is to
be made to be adjusted to reflect a good faith estimate by the Committee
of any fees and other expenditures payable after the date of the
distribution in connection with deemed investment activity in the
Account through and including the date of the distribution. Any
such estimate is binding on the Participating Employer and the
person to whom the distribution is made.
	 
	(G)	 	Obligations and Responsibilities of Committee. The sole
obligation of the Committee with respect to the designation or
elimination of any valuation fund designated pursuant to Subsection
(B) is to act in accordance with the express terms of Subsection
(B). By way of example and without limiting the previous sentence,
the Committee is not required, and no course of conduct will cause
it to be required, to investigate or monitor any designated fund to
any extent or for any purpose or to take or refrain from taking any
action with respect to a fund because of any aspect of the
performance of the fund. The designation of a limited number of
valuation funds is solely for administrative convenience and in no
way reflects any endorsement of any such funds by the Committee.
	 
	(H)	 	Deemed Investment. Trust assets are not required to be
invested in accordance with a Participant’s directions and the
balance of all Accounts pursuant to the Plan will be determined
pursuant to this section and other applicable sections of the Plan
without regard to the actual amount of Trust assets. No
Participating Employer shall be under any obligation to purchase
any valuation fund used to determine investment credits. The
valuation funds are used solely for purposes of record-keeping to
calculate the amount of investment credits on Participants’
Accounts and such Accounts are not actually invested in the
valuation funds.
	 
	(I)	 	Participant Responsibilities. Each Participant is solely
responsible for any and all consequences of his or her investment
directions made pursuant to this section. Neither any
Participating Employer, any of its directors, officers or
employers, the Company’s Board nor the Committee has any
responsibility to any Participant or other person for any damages,
losses, liabilities, costs or expenses of any kind arising in
connection with any investment direction made by a Participant
pursuant to this section. [Section 3.4 added 5/21/04]

	3.5	 	Vesting. Each Participant always has a fully vested nonforfeitable
interest in his or her Account.

ARTICLE 4

Distribution

	4.1	 	Distribution to Participant.

	(A)	 	Form.

	(1)	 	Termination Prior to Retirement Age. If a
Participant terminates employment prior to attaining
Retirement Age, distribution to the Participant will be made
in the form of a lump sum payment.
	 
	(2)	 	Disability or Termination on or After
Retirement Age. If a Participant

	(a)	 	is determined by the Committee to
be absent from active employment because of illness,
injury or disease that is likely to be of long or
indefinite duration or result in death or

 

 

	(b)	 	terminates employment on or after
attaining Retirement Age,

distribution to the Participant will be made in the
form of ten annual installment payments made on or around
the same date in each of the ten years unless, at the time
of his or her initial enrollment in the Plan, the
Participant makes an irrevocable election to receive his or
her distribution in the form of a lump sum payment.

	(B)	 	Time. Distribution to a Participant will be made or
commence, as the case may be, within the 60-day period following
the date on which the Participant is determined to be disabled or
terminates employment, unless the distribution is made pursuant to
Subsection (A)(2), in which case the distribution will be made or
commence within the first 60 days of the calendar year following
the calendar year during which he or she is determined to be
disabled or terminates employment if the Participant so elected
pursuant to Section 2.1(E); provided, that if the Participant makes
a written claim pursuant to Section 6.2 objecting to the benefit,
distribution will be made or commence as soon as administratively
practicable after the Committee’s final determination with respect
to the claim.
	 
	(C)	 	Amount.

	(1)	 	Lump Sum. If a distribution is made in the
form of a lump sum payment, the amount of the payment will be
equal to the balance of the Participant’s Account calculated
as of the close of business on a date preceding, and as close
as administratively feasible to, the date of distribution.
	 
	(2)	 	Installments. If a distribution is made in the
form of installment payments, the amount of each annual
installment payment from a Participant’s Account will be
determined by dividing the Participant’s Account balance,
calculated as of a date preceding, and as close as
administratively feasible to, the payment date, by the total
number of remaining payments (including the current payment).
Any installment payment to a Participant shall be deemed to
have been made proportionally from each of the valuation
funds into which amounts credited to his or her Account are
deemed invested, based on the ratio of the amount deemed
invested in each such valuation fund to the Participant’s
total Account balance as of the date the amount of the
installment payment is determined. The undistributed portion
of an Account distributed in the form of installment payments
will continue to be credited with earnings in accordance with
Section 3.3(C) or 3.4. [Section 4.1(C) as amended 5/21/04]

	(D)	 	Special Rules.

	(1)	 	Withdrawals Due to Unforeseeable Emergency.
Notwithstanding Subsections (A) or (B), a distribution will
be made to a Participant if the Participant submits a written
distribution request to the Committee and the Committee
determines that the Participant has experienced an
Unforeseeable Emergency. The amount of the distribution may
not exceed the lesser of (a) the amount necessary to satisfy
the emergency, as determined by the Committee or (b) the
balance of the Account as of the date the Committee makes the
determination specified in clause (a). The distribution will
be made in the form of a lump sum payment as soon as
administratively practicable afterthe Committee’s
determination that the Participant has experienced an
Unforeseeable Emergency. Any distribution to a Participant
whose Account receives investment credits pursuant to Section
3.4 shall be deemed

 

 

	 	 	to have been made proportionally from
each of the valuation funds into which amounts credited to his or her Account are deemed invested, based
on the ratio of the amount deemed invested in each such
valuation fund to the Participant’s total Account balance
as of the date the Committee makes the determination
specified in clause (a). [Section 4.1(D)(1) as amended
5/21/04]
	 
	(2)	 	Accelerated Distribution. Notwithstanding
Subsections (A) or (B), a Participant may elect an immediate
distribution of his or her Account in an amount equal to 90
percent of the balance of the Account calculated as of the
close of business on the date the Committee receives a
written application for such distribution from the
Participant on a form furnished by the Committee, in which
case the remaining balance of the Account will be forfeited.
The distribution will be made in the form of a lump sum
payment as soon as administratively practicable after the
Committee’s receipt of the written application from the
Participant. [Section 4.1(D)(2) as amended 5/21/04]
	 
	(3)	 	Nondeductibility. If the Committee determines
in good faith that there is a reasonable likelihood that any
compensation paid to a Participant by an Affiliated
Organization for a taxable year of the Affiliated
Organization would not be deductible by the Affiliated
Organization solely by reason of the limitation under Code
section 162(m), to the extent deemed necessary by the
Committee to ensure that the entire amount of any
distribution to the Participant pursuant to this subsection
is deductible, the Committee may defer all or any portion of
the distribution.

	4.2	 	Distribution to Beneficiary.

	(A)	 	Form. In the event of a Participant’s death, the balance
of the Participant’s Account will be distributed to the
Participant’s Beneficiary in a lump sum payment whether or not
payments had commenced to the Participant in the form of
installments prior to his or her death.
	 
	(B)	 	Time. Distribution to a Beneficiary will be made within
the 60-day period following the date on which the Committee
receives notice of the Participant’s death; provided, that if the
Beneficiary makes a written claim pursuant to Section 6.2 objecting
to the benefit, distribution will be made as soon as
administratively practicable after the Committee’s final
determination with respect to the claim.
	 
	(C)	 	Amount. The amount of the payment will be determined in
accordance with Section 4.1(C).
	 
	(D)	 	Beneficiary Designation.

	(1)	 	Each Participant may designate, on a form
furnished by the Committee, one or more primary Beneficiaries
or alternative Beneficiaries to receive all or a specified
part of his or her Account after his or her death, and the
Participant may change or revoke any such designation from
time to time. No such designation, change or revocation is
effective unless executed by the Participant and received by
the Committee during the Participant’s lifetime. No
designation of a Beneficiary other than the Participant’s
spouse is effective unless the spouse consents to the
designation or the Committee determines that spousal consent
cannot be obtained because the spouse cannot reasonably be
located or is legally incapable of consenting. The consent
must be in writing, must acknowledge the effect of the
election and must be witnessed by a notary public. The
consent is effective only with respect to the Beneficiary or
class of Beneficiaries so designated and only with respect to
the spouse who so consented.

 

 

	 
	(2)	 	If a Participant -

	(a)	 	fails to designate a Beneficiary,
or
	 
	(b)	 	revokes a Beneficiary designation
without naming another Beneficiary, or
	 
	(c)	 	designates one or more
Beneficiaries none of whom survives the Participant or
exists at the time in question,

for all or any portion of his or her Account, such
Account or portion will be paid to the Participant’s
surviving spouse or, if the Participant is not survived by a
spouse, to the representative of the Participant’s estate.

	(3)	 	The automatic Beneficiaries specified above
and, unless the designation otherwise specifies, the
Beneficiaries designated by the Participant, become fixed as
of the Participant’s death so that, if a Beneficiary survives
the Participant but dies before the receipt of the payment
due such Beneficiary, the payment will be made to the
representative of such Beneficiary’s estate. Any designation
of a Beneficiary by name that is accompanied by a description
of relationship or only by statement of relationship to the
Participant is effective only to designate the person or
persons standing in such relationship to the Participant at
the Participant’s death.

	4.3	 	Payment in Event of Incapacity. If any individual entitled to receive
any payment under the Plan is, in the judgment of the Committee,
physically, mentally or legally incapable of receiving or acknowledging
receipt of the payment, and no legal representative has been appointed for
the individual, the Committee may (but is not required to) cause the
payment to be made to any one or more of the following as may be chosen by
the Committee: the Beneficiary (in the case of the incapacity of a
Participant); the institution maintaining the individual; a custodian for
the individual under the Uniform Transfers to Minors Act of any state; or
the individual’s spouse, children, parents, or other relatives by blood or
marriage. The Committee is not required to see to the proper application
of any such payment and the payment completely discharges all claims under
the Plan against the Participating Employer, the Plan and Trust to the
extent of the payment.

ARTICLE 5

Source of Payments; Nature of Interest

	5.1	 	Establishment of Trust.

	(A)	 	A Participating Employer may establish a Trust, or may be
covered by a Trust established by another Participating Employer,
with an independent corporate trustee. The Trust must be a grantor
trust that conforms substantially with the model trust described in
Revenue Procedure 92-64. The Participating Employers may from time
to time transfer to the Trust cash, marketable securities or other
property acceptable to the Trustee in accordance with the terms of
the Trust.
	 
	(B)	 	Notwithstanding Subsection (A), not later than the
effective date of a Change in Control, each Participating Employer
must transfer to the Trust an amount not less than the amount by
which (1) 125 percent of the aggregate balance of all Participants’
Accounts

 

 

	 	 	attributable to the Participating Employer as of the last
day of the month immediately preceding the effective date of the Change in Control
(determined in the manner specified in Section 4.1(C) if the last
day of the month is not also the last day of a calendar quarter)
exceeds (2) the value of the Trust assets attributable to amounts
previously contributed by the Participating Employer as of the
most recent date as of which such value was determined.

	5.2	 	Source of Payments.

	(A)	 	Each Participating Employer will pay, from its general
assets, the portion of any benefit pursuant to Article 4 or Section
6.4 attributable to a Participant’s Account with respect to that
Participating Employer, and all costs, charges and expenses
relating thereto.
	 
	(B)	 	The Trustee will make distributions to Participants and
Beneficiaries from the Trust in satisfaction of a Participating
Employer’s obligations under the Plan in accordance with the terms
of the Trust. The Participating Employer is responsible for paying
any benefits attributable to a Participant’s Account with respect
to that Participating Employer that are not paid by the Trust.

	5.3	 	Status of Plan. Nothing contained in the Plan or Trust is to be
construed as providing for assets to be held for the benefit of any
Participant or any other person or persons to whom benefits are to be paid
pursuant to the terms of this Plan, the Participant’s or other person’s
only interest under the Plan being the right to receive the benefits set
forth herein. The Trust is established only for the convenience of the
Participating Employers and the Participants, and no Participant has any
interest in the assets of the Trust prior to distribution of such assets
pursuant to the Plan. To the extent the Participant or any other person
acquires a right to receive benefits under this Plan or the Trust, such
right is no greater than the right of any unsecured general creditor of
the Participating Employer.
	 
	5.4	 	Non-assignability of Benefits. The benefits payable under the Plan and
the right to receive future benefits under the Plan may not be
anticipated, alienated, sold, transferred, assigned, pledged, encumbered,
or subjected to any charge or legal process.

ARTICLE 6

Miscellaneous

	6.1	 	Administration.

	(A)	 	The Plan will be administered on behalf of the Company by a
committee whose members will be appointed by and will serve at the
pleasure of the Company’s Board. Any Committee member may be
dismissed at any time, with or without cause, on ten days’ notice
from the Company’s Board. Any Committee member may resign by
delivering his or her written resignation to the Company’s Board.
Vacancies arising by the death, resignation or removal of a
Committee member may (but need not) be filled by the Company’s
Board.
	 
	(B)	 	The Committee will operate in accordance with such rules as
the Company’s Board may from time to time specify.
	 
	(C)	 	The Committee may delegate to any person authority to
perform nondiscretionary, ministerial acts determined by the
Committee to be necessary or desirable in connection with the
administration of the Plan.
	 
	(D)	 	The Committee has discretionary power and authority to
adopt, modify and rescind Plan Rules, make all determinations
necessary

 

 

	 	 	for the administration of the Plan, to construe, interpret, apply and enforce the Plan and Plan Rules and
to remedy ambiguities, inconsistencies, omissions and erroneous
Account balances.
	 
	(E)	 	The Committee will maintain records, make the requisite
calculations and disburse or direct the Trustee to disburse
payments under the Plan. The Committee’s interpretations,
determinations, regulations and calculations are final and binding
on all persons and parties concerned.
	 
	(F)	 	The Participating Employers jointly and severally agree to
indemnify and hold harmless, to the extent permitted by law, each
member of the Committee or other director, officer or employee of
any Affiliated Organization performing administrative duties in
connection with the Plan against any and all liabilities, losses,
costs and expenses (including legal fees) of every kind and nature
that may be imposed on, incurred by, or asserted against such
person at any time by reason of such person’s services in
connection with the Plan, but only if such person did not act
dishonestly or in bad faith or in willful violation of the law or
regulations under which such liability, loss, cost or expense
arises. The Participating Employers have the right, but not the
obligation, to select counsel and control the defense and
settlement of any action for which a person may be entitled to
indemnification under this provision.

	6.2	 	Benefit Claim Procedure. Within a reasonable time following termination
of a Participant’s employment, the Committee will determine and notify the
Participant or, if the Participant is deceased, his or her Beneficiary, of
his or her benefits, if any, payable under the Plan. Not later than 30
days after receipt of such notice, the Participant or his or her
Beneficiary, as the case may be, may file with the Committee a written
claim objecting to the Committee’s determination. Not later than 90 days
after receipt of such claim, the Committee will render a written decision
on the claim to the claimant. If the claim is denied in whole or in part,
such decision will include: the reasons for the denial; a reference to
the Plan provision that is the basis for the denial; a description of any
additional material or information necessary for the claimant to perfect
the claim; an explanation as to why such information or material is
necessary; and an explanation of the Plan’s claim procedure. Not later
than 60 days after receiving the Committee’s written decision, the
claimant may file with the Committee a written request for review of the
Committee’s decision, and the claimant or his or her representative may
thereafter review Plan documents that relate to the claim and submit
written comments to the Committee. Not later than 60 days after receiving
such request, the Committee will afford the claimant or his or her
representative an opportunity to present the claim in person to the
Committee. Not later than 60 days after such presentation or, if there is
no such presentation, not later than 60 days after the Committee’s receipt
of the request for review, the Committee will render a final written
decision on the claim, which decision will include the specific reasons
for the decision, including references to specific Plan provisions where
appropriate. The 90- and 60-day periods during which the Committee must
respond to the claimant may be extended by up to an additional 90 or 60
days, respectively, if special circumstances beyond the Committee’s
control so require and if notice of such extension is given to the
claimant prior to the expiration of the initial 90- or 60-day period.
	 
	6.3	 	Adoption by Affiliated Organization. With the prior approval of the
Committee, an Affiliated Organization may, by action of its Board, adopt
this Plan and become a Participating Employer.
	 
	6.4	 	Amendment.

	(A)	 	By action of its Board, the Company may amend the Plan at
any time and in any manner, except that (1) no amendment may
adversely affect a benefit to which a Participant or the
Beneficiary of a deceased Participant is entitled under the Plan as
of the later of the adoption date or effective date of the
amendment and (2) no attempted amendment to Section 5.1(B), this
clause (2) or

 

 

	 	 	Section 7.8 will be effective with respect to any Change in Control, as defined in Section 7.8
without regard to the attempted amendment, occurring within 12
months after the date on which the attempted amendment is approved
by the Company’s Board unless each Participant provides his or her
prior written consent to the amendment. Any amendment that
changes the rate of earnings credited to Participants’ Accounts
pursuant to Section 3.3 is effective with respect to the portion
of the Accounts attributable to credits made before the date on
which the amendment is adopted only if the Participant consents to
the change pursuant to Section 3.3(B) or the Company’s Board
determines in good faith that on that date, it is reasonably
likely that, in the long run, the new rate will not result in
materially lower earnings credits than the old rate. Any
amendment to the Plan applies only to Participants who terminate
employment after the effective date of the amendment unless the
amendment expressly otherwise provides.
	 
	(B)	 	By action of its Board, the Company may terminate the Plan
at any time. By action of its Board, any other Participating
Employer may terminate its participation in the Plan at any time.
If the Plan or a Participating Employer’s participation in the Plan
is terminated, no additional deferrals or deferral credits will be
made with respect to affected Participants, other than credits
relating to the period prior to the effective date of the
termination, and the Accounts of affected Participants will
continue to be credited with earnings credits pursuant to Section
3.3 or investment credits pursuant to Section 3.4, as applicable,
until they are distributed pursuant to Article 4 following the
Participant’s termination of employment or death.
	 
	(C)	 	Notwithstanding any other provision of the Plan to the
contrary, the Committee may cause a Participating Employer to make
an immediate lump sum distribution to any Participant of the
balance of his or her Account (determined in the manner specified
in Section 4.1(C)) and/or transfer the benefits that would
otherwise be payable under the Plan for all or any Participants to
a new plan that is similar in all material respects (other than
those which require the action in question to be taken), if the
Committee in good faith determines that:

	(1)	 	such action is necessary to ensure the
continued status of the Plan (or the transferee plan) as an
unfunded plan maintained primarily for the purpose of
providing deferred compensation to a select group of
management or highly compensated employees, or
	 
	(2)	 	a Participant’s interest in the Plan has been
or is likely to be includable in the Participant’s gross
income for federal income tax purposes prior to the actual
payment of benefits pursuant to the Plan. [Section 6.4 as
amended 5/21/04]

	6.5	 	Withholding and Offsets. The Participating Employers and the Trustee
retain the right to withhold from any benefit payment under the Plan, any
and all income, employment, excise and other tax as the Participating
Employers or Trustee deems necessary and the Participating Employers may
offset against amounts payable to a Participant or Beneficiary under the
Plan any amounts then owing to the Participating Employers by such
Participant or Beneficiary.

	6.6	 	Disputes. In the event of a dispute over whether any person is entitled
to a benefit under the Plan, the amount, form or timing of payment of any
such benefit or any other provision of the Plan, the person is responsible
for paying any costs he, she or it incurs, including attorney’s fees and
legal expenses, and each Participating Employer is responsible for paying
any costs it incurs, including attorney’s fees and legal expenses.

	6.7	 	Other Benefits. Neither amounts deferred nor amounts paid pursuant to
the Plan constitute salary or compensation for the purpose of computing
benefits under any other benefit plan, practice, policy or procedure of a
Participating Employer unless otherwise expressly provided thereunder.

 

 

	6.8	 	No Warranties Regarding Tax Treatment. The Participating Employers make
no warranties regarding the tax treatment to any person of any deferrals
or payments made pursuant to the Plan and each Participant will hold the
Committee and the Participating Employers and their officers, directors,
employees, agents and advisors harmless from any liability resulting from
any tax position taken in good faith in connection with the Plan.

	6.9	 	No Employment Rights Created. Neither the establishment of or
participation in the Plan confers on any Employee the right to continued
employment or limits the right of the Participating Employer to discharge,
transfer, demote, modify terms and conditions of employment or otherwise
deal with any Employee without regard to the effect which such action
might have on him or her with respect to the Plan.

ARTICLE 7

Definitions, Construction and Interpretation

The definitions and rules of construction and interpretation set forth in this
article apply in construing the Plan unless the context otherwise indicates.

	7.1	 	Account. “Account” means the bookkeeping account maintained with respect
to a Participant pursuant to Section 3.1.

	7.2	 	Active Participant. “Active Participant” with respect to a Plan Year is
a Qualified Employee who the Committee has determined is eligible to
participate in the Plan for the Plan Year pursuant to Section 2.1 for the
portion of the Plan Year during which he or she remains eligible.

	7.3	 	Affiliated Organization. An “Affiliated Organization” is the Company and
any corporation that is a member of a controlled group of corporations
(within the meaning of Code section 1563(a) without regard to Code
sections 1563(a)(4) and 1563(e)(3)(C)) that includes the Company or any
trade or business (whether or not incorporated) that is controlled (within
the meaning of Code section 414(c)) by the Company.

	7.4	 	Annual Bonus. “Annual Bonus” with respect to a Participant for a Plan
Year means the discretionary annual cash bonus paid to the Participant by
a Participating Employer during the calendar quarter first following the
Plan Year or that would have been so paid but for an election made
pursuant to the Plan.

	7.5	 	Base Salary. “Base Salary” with respect to a Participant for a Plan Year
means the regular cash remuneration for services rendered as a Qualified
Employee paid to the Participant by a Participating Employer during the
Plan Year or that would have been so paid but for an election made
pursuant to the Plan, excluding the following:

	(1)	 	any bonus;
	 
	(2)	 	the value of life insurance coverage included
in the Participant’s wages under Code section 79;
	 
	(3)	 	any car allowance, moving expense or mileage
reimbursement;
	 
	(4)	 	any educational assistance payment;
	 
	(5)	 	any severance pay;
	 
	(6)	 	any payments under any plan of deferred
compensation; or

 

 

	(7)	 	any benefit under any qualified or nonqualified
stock option or stock purchase plan; or
	 
	(8)	 	any other element of compensation specified in
Plan Rules.

	7.6	 	Board. “Board” means the board of directors of the Affiliated
Organization in question. When the Plan provides for an action to be
taken by the Board, the action may be taken by any committee or individual
authorized to take such action pursuant to a proper delegation by the
board of directors in question.

	7.7	 	Beneficiary. “Beneficiary” with respect to a Participant is the person
designated or otherwise determined under the provisions of Section 4.2(D)
as the distributee of benefits payable after the Participant’s death who
has not ceased to be a Beneficiary pursuant to Section 2.6.

	7.8	 	Change in Control.

	(A)	 	“Change in Control” is any of the following:

	(1)	 	the sale, lease, exchange or other transfer,
directly or indirectly, of all or substantially all of the
assets of the Company, in one transaction or in a series of
related transactions, to any person;
	 
	(2)	 	the approval by the stockholders of the Company
of any plan or proposal for the liquidation or dissolution of
the Company;
	 
	(3)	 	any person is or becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of (a) 20 percent or more, but not more than
50 percent, of the combined voting power of the Company’s
outstanding securities ordinarily having the right to vote at
elections of directors, unless the transaction resulting in
such ownership has been approved in advance by the continuity
directors or (b) more than 50 percent of the combined voting
power of the Company’s outstanding securities ordinarily
having the right to vote at elections of directors(regardless
of any approval by the continuity directors);
	 
	(4)	 	a merger or consolidation to which the Company
is a party if the stockholders of the Company immediately
prior to the effective date of such merger or consolidation
have beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) immediately following the effective date of
such merger or consolidation of securities of the surviving
company representing (a) 50 percent or more, but not more
than 80 percent, of the combined voting power of the
surviving corporation’s then outstanding securities
ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has been
approved in advance by the continuity directors, or (b) less
than 50 percent of the combined voting power of the surviving
corporation’s then outstanding securities ordinarily having
the right to vote at elections of directors (regardless of
any approval by the continuity directors);
	 
	(5)	 	the continuity directors cease for any reason
to constitute at least a majority of the Company’s board of
directors; or
	 
	(6)	 	a change in control of the Company of a nature
that would be required to be reported pursuant to section 13
or 15(d) of the Exchange Act, whether or not the Company is
then subject to such reporting requirement.

 

 

	(B)	 	For purposes of this section:

	(1)	 	a “continuity director” means any individual
who is a member of the Company’s board of directors on the
Effective Date while he or she is a member of the board, and
any individual who subsequently becomes a member of the
Company’s board of directors whose election or nomination for
election by the Company’s stockholders was approved by a vote
of at least a majority of the directors who are continuity
directors (either by a specific vote or by approval of the
proxy statement of the Company in which such individual is
named as a nominee for director without objection to such
nomination);
	 
	(2)	 	“Exchange Act” is the Securities Exchange Act
of 1934, as amended from time to time; and
	 
	(3)	 	“person” includes any individual, corporation,
partnership, group, association or other “person,” as such
term is defined in section 14(d) of the Exchange Act, other
than (i) the Company; (ii) any corporation at least a
majority of whose securities having ordinary voting power for
the election of directors is owned, directly or indirectly,
by the Company; (iii) any other entity in which the Company,
by virtue of a direct or indirect ownership interest, has the
right to elect a majority of the members of the entity’s
governing body; or (iv) any benefit plan sponsored by the
Company, a corporation described in clause (ii) or an entity
described in clause (iii).

	7.9	 	Code. “Code” means the Internal Revenue Code
of 1986, as amended from time to time.
	 
	7.10	 	Committee. “Committee” means the administrative
committee described in Section 6.1.
	 
	7.11	 	Company. “Company” means Nash Finch Company or any successor thereto.

	7.12	 	Cross Reference. References within a section of the Plan to a particular
subsection refer to that subsection within the same section and references
within a section or subsection to a particular clause refer to that clause
within the same section or subsection, as the case may be.

	7.13	 	Effective Date. “Effective Date” means June 1, 1994 or an earlier date
specified by the Committee.

	7.14	 	Employee. “Employee” is an individual who performs services as a common
law employee of a Participating Employer.

	7.15	 	ERISA. “ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time.

	7.16	 	Governing Law. To the extent that state law is not preempted by the
provisions of ERISA, or any other laws of the United States, all questions
pertaining to the construction, validity, effect and enforcement of the
Plan will be determined in accordance with the internal, substantive laws
of the State of Minnesota without regard to its conflict of laws rules of
the State of Minnesota or any other jurisdiction.

	7.17	 	Headings. The headings of articles and sections are included solely for
convenience of reference; if there exists any conflict between such
headings and the text of the Plan, the text will control.

	7.18	 	Participant. “Participant” is a current or former Active Participant to
whose Account amounts have been credited pursuant to Article 3 and who has
not ceased to be a Participant pursuant to Section 2.6.

 

 

	7.19	 	Participating Employer. “Participating Employer” is the Company and any
other Affiliated Organization that has adopted the Plan, or all of them
collectively, as the context requires. An Affiliated Organization will
cease to be a Participating Employer upon a termination of the Plan as to
its Employees and the satisfaction in full of all of its obligations under
the Plan or upon its ceasing to be an Affiliated Organization.

	7.20	 	Plan. “Plan” means the Nash Finch Company Income Deferral Plan, as from
time to time amended or restated.

	7.21	 	Plan Year. “Plan Year” means the period beginning on the Effective Date
and ending on December 31, 1994 and, thereafter, the calendar year.

	7.22	 	Plan Rule. “Plan Rule” is a rule, policy, practice or procedure adopted
by the Committee. Each Plan Rule will be uniform and nondiscriminatory
with respect to persons determined by the Committee to be similarly
situated.

	7.23	 	Profit Sharing Plan. “Profit Sharing Plan” means the Nash Finch Company
Profit Sharing Plan as amended from time to time.

	7.24	 	Qualified Employee. “Qualified Employee” means an Employee who is
considered to be a management or highly compensated employee under Plan
Rules.

	7.25	 	Retirement Age. “Retirement Age” means the earliest age at or after
which a termination of employment is considered to be a retirement under
policies of the Participating Employer generally applicable to Qualified
Employees as in effect from time to time.

	7.26	 	Termination of Employment.

	(A)	 	For purposes of determining entitlement to distribution
under this Plan, subject to Subsections (B) and (C), a Participant
will be deemed to have terminated his or her employment only if the
Committee determines that he or she has completely severed his or
her employment relationship with all Affiliated Organizations or
has become disabled within the meaning of Section 4.1(A)(2).
Accordingly, neither transfer of employment among Affiliated
Organizations nor absence from active service by reason of leave of
absence of any nature (other than in connection with a Participant
becoming disabled within the meaning of Section 4.1(A)(2)) will
constitute a termination of employment. In addition, neither
termination of the Plan nor, subject to Subsection (C), termination
of participation in the Plan by a Participating Employer will be
deemed to result in a termination of employment with respect to any
affected Participant.
	 
	(B)	 	If some or all of the assets of a Participating Employer
are acquired by a unrelated third party, a Participant who is
employed by the acquiror or an affiliate of the acquiror in
connection with the acquisition will be deemed to have terminated
his or her employment unless the acquiror adopts a successor plan
which is substantially similar to the Plan in all material respects
and expressly assumes the Participating Employer’s obligation to
provide benefits to the Participant, in which case the
Participating Employer will cease to have any obligation to provide
benefits to the Participant pursuant to the Plan as of the
effective date of the assumption.
	 
	(C)	 	If a Participating Employer ceases to be an Affiliated
Organization, unless otherwise provided in an agreement between the
Company or the Participating Employer and an unrelated third party
acquiror:

	(1)	 	a Participant who is employed with the
Participating Employer; or

 

 

	(2)	 	a Participant who is not employed with the
Participating Employer but has an Account balance
attributable to the Participating Employer

will not be deemed to have terminated his or her employment
with respect to his or her Account balance attributable to the
Participating Employer and the Participating Employer will, after
the date on which it ceases to be an Affiliated Organization,
continue to be solely responsible to provide benefits to the
Participant equal to the balance of the Account as of the
effective date of the cessation and as thereafter increased by
deferral credits relating to the period before the effective date
and earnings credits pursuant to Section 3.3 or investment credits
pursuant to Section 3.4, as applicable. [Section 7.26(C) as
amended 5/21/04]

	7.27	 	Trust. “Trust” means any trust or trusts established by a Participating
Employer pursuant to Section 5.1.

	7.28	 	Trustee. “Trustee” means the one or more banks or trust companies that
at the relevant time has or have been appointed by the Company to act as
Trustee of the Trust.

	7.29	 	Unforeseeable Emergency. “Unforeseeable Emergency” means an
unanticipated emergency that is caused by an event beyond the control of a
Participant and that would result in severe financial hardship to the
Participant if the revocation or distribution, as the case may be, were
not permitted. An Unforeseeable Emergency includes a sudden and
unexpected illness or accident of the Participant or a dependent (as
defined in Code section 152(a)) of the Participant, the loss of the

Participant’s property due to casualty or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of the Participant. An Unforeseeable Emergency does not exist if
the financial hardship may be relieved (1) through reimbursement or
compensation by insurance or otherwise, (2) by liquidation of the
Participant’s assets, to the extent the liquidation itself would not cause
severe hardship or (3) by cessation of deferrals under the Plan. The
existence of an Unforeseeable Emergency will be determined by the
Committee.<PAGE>

                                                                    Exhibit 10.1

                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                           HINES REIT PROPERTIES, L.P.

<PAGE>

                                TABLE OF CONTENTS

                                                                           PAGE

ARTICLE I PARTNERSHIP........................................................1
         1.1   CREATION OF PARTNERSHIP: PARTNERSHIP INTERESTS................1
         1.2   NAME..........................................................2
         1.3   APPROVAL OF ASSIGNMENT TO, AND ADMISSION OF, HREH.............2

ARTICLE II DEFINITIONS.......................................................2
         2.1   DEFINITIONS...................................................2

ARTICLE III CAPITALIZATION...................................................12
         3.1   INITIAL CAPITAL...............................................12
         3.2   ISSUANCE AND REDEMPTION OF PARTNERSHIP INTERESTS..............12
         3.3   ADDITIONAL FUNDS..............................................19
         3.4   CAPITAL ACCOUNTS..............................................20
         3.5   INTEREST ON AND RETURN OF CAPITAL.............................21
         3.6   NEGATIVE CAPITAL ACCOUNTS.....................................21
         3.7   LIMIT ON CONTRIBUTIONS AND OBLIGATIONS OF PARTNERS............21
         3.8   REDEMPTION AND REPURCHASE OF UNITS............................21

ARTICLE IV OFFICE AND REGISTERED AGENT.......................................22

ARTICLE V PURPOSES AND POWERS OF PARTNERSHIP.................................22
         5.1   PURPOSES OF THE PARTNERSHIP...................................22
         5.2   POWERS........................................................22
         5.3   REIT REQUIREMENTS.............................................22

ARTICLE VI TERM..............................................................23

ARTICLE VII ALLOCATIONS......................................................23
         7.1   PROFITS.......................................................23
         7.2   LOSSES........................................................24
         7.3   SPECIAL ALLOCATIONS...........................................25
         7.4   CURATIVE ALLOCATIONS..........................................27
         7.5   TAX ALLOCATIONS: CODE SECTION 704(C)..........................27

ARTICLE VIII CASH AVAILABLE FOR DISTRIBUTION.................................28
         8.1   DEFINITION OF AVAILABLE CASH..................................28
         8.2   TIMING AND PRIORITY OF DISTRIBUTIONS OF AVAILABLE CASH........28
         8.3   CONSENT TO ALLOCATIONS AND DISTRIBUTIONS......................28
         8.4   RIGHT TO LIMIT DISTRIBUTIONS..................................28

                                       i

<PAGE>

ARTICLE IX MANAGEMENT OF PARTNERSHIP.........................................28
         9.1   GENERAL PARTNER...............................................28
         9.2   LIMITATIONS ON POWER AND AUTHORITY OF PARTNERS................30
         9.3   LIMITED PARTNERS..............................................30
         9.4   LIABILITY OF GENERAL PARTNER..................................30
         9.5   INDEMNITY.....................................................30
         9.6   OTHER ACTIVITIES OF PARTNERS AND AGREEMENTS WITH RELATED
               PARTIES.......................................................31
         9.7   OTHER MATTERS CONCERNING THE GENERAL PARTNER..................31
         9.8   PARTNER EXCULPATION...........................................32
         9.9   GENERAL PARTNER EXPENSES AND LIABILITIES......................32

ARTICLE X BANKING............................................................33

ARTICLE XI ACCOUNTING........................................................33
         11.1  FISCAL YEAR...................................................33
         11.2  BOOKS OF ACCOUNT..............................................33
         11.3  METHOD OF ACCOUNTING..........................................33
         11.4  TAX MATTERS...................................................33

ARTICLE XII TRANSFERS OF PARTNERSHIP INTERESTS...............................34
         12.1  GENERAL PARTNER...............................................34
         12.2  LIMITED PARTNER...............................................35
         12.3  ADMISSION ADJUSTMENTS.........................................36
         12.4  TRANSFERS TO LENDERS..........................................37

ARTICLE XIII ADMISSION OF NEW PARTNERS.......................................37

ARTICLE XIV TERMINATION, LIQUIDATION AND DISSOLUTION OF PARTNERSHIP..........37
         14.1  TERMINATION EVENTS............................................37
         14.2  METHOD OF LIQUIDATION.........................................37
         14.3  DATE OF TERMINATION...........................................38
         14.4  RECONSTITUTION UPON BANKRUPTCY................................38
         14.5  DEATH, LEGAL INCOMPETENCY, ETC. OF A LIMITED PARTNER..........39

ARTICLE XV POWER OF ATTORNEY.................................................39

ARTICLE XVI AMENDMENT OF AGREEMENT...........................................40

ARTICLE XVII MISCELLANEOUS...................................................41
         17.1  NOTICES.......................................................41
         17.2  MODIFICATIONS.................................................41
         17.3  SUCCESSORS AND ASSIGNS........................................41
         17.4  DUPLICATE ORIGINALS...........................................41
         17.5  CONSTRUCTION..................................................41
         17.6  GOVERNING LAW.................................................41
         17.7  OTHER INSTRUMENTS.............................................42
         17.8  GENERAL PARTNER WITH INTEREST AS LIMITED PARTNER..............42

                                       ii

<PAGE>

         17.9  LEGAL CONSTRUCTION............................................42
         17.10 GENDER........................................................42
         17.11 PRIOR AGREEMENTS SUPERSEDED...................................42
         17.12 NO THIRD PARTY BENEFICIARY....................................42
         17.13 PURCHASE FOR INVESTMENT.......................................42
         17.14 ACCESS TO RECORDS.............................................42
         17.15 WAIVER........................................................43
         17.16 COUNTERPARTS..................................................43

Schedule A - Partners, Capital Accounts and Partnership Interests

                                      iii

<PAGE>

                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                           HINES REIT PROPERTIES, L.P.

      THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") has been executed and delivered effective as of the ___ day of
_______________, 2004 (the "Effective Date"), by Hines Real Estate Investment
Trust, Inc., a Maryland corporation (the "General Partner" or the "Company"),
and those persons and entities identified as "Limited Partners" in Schedule A
(the "Limited Partners"), (the General Partner and each Limited Partner being a
"Partner" and collectively, the "Partners").

                                    RECITALS

      WHEREAS, effective as of August 20, 2003, the General Partner and HALP
Associates Limited Partnership entered into that certain Agreement of Limited
Partnership (the "Original Agreement") of Hines REIT Properties, L.P. in
accordance with the Delaware Revised Uniform Limited Partnership Act as amended
(the "Act").

      WHEREAS, as of August 27, 2003, the Original Agreement was amended
pursuant to the First Amendment to Agreement of Limited Partnership for Hines
REIT Properties, L.P. (the "First Amendment").

      WHEREAS, the Partners deem it to be in their best interest to amend and
restate the Original Agreement, as amended by the First Amendment, in accordance
with the Act and this Agreement.

      THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Partners agree as follows:

                                    ARTICLE I
                                   PARTNERSHIP

      1.1 CREATION OF PARTNERSHIP: PARTNERSHIP INTERESTS. The General Partner is
the sole general partner and the Limited Partners are the sole limited partners
of the Partnership. All Partnership profits, losses, and distributive shares of
tax items accruing prior to the date of this Agreement shall be allocated in
accordance with, and the respective rights and obligations of the Partners with
respect to the period prior to the date of this Agreement shall be governed by,
the Agreement of Limited Partnership of the Partnership that existed prior to
this Agreement. No Partner has any interest in any Partnership property solely
as a result of being a Partner and the interests of all Partners in the
Partnership are, for all purposes, personal property.

                                       1

<PAGE>

            1.2 NAME. The Partnership name shall be "Hines REIT Properties,
L.P.," but the General Partner may from time to time change the name of the
Partnership or may adopt such trade or fictitious names as it may determine.

            1.3 APPROVAL OF ASSIGNMENT TO, AND ADMISSION OF, HREH. Effective as
of the date hereof, HALP has made an assignment of 20,000 OP Units (representing
all of the OP Units owned by HALP) to HREH. Such assignment is hereby approved
and HREH is hereby admitted as a limited partner of the Partnership.

                                   ARTICLE II
                                   DEFINITIONS

            2.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth respectively after each:

      "Act" shall mean the Delaware Revised Uniform Limited Partnership Act, as
amended from time to time, and any successor statute.

      "Adjusted Capital Account" shall mean, at any time, the then balance in
the Capital Account of a Partner, after giving effect to the following
adjustments:

            (i) add to such Capital Account any amounts that such Partner is
      obligated to restore or is deemed obligated to restore under any provision
      of this Agreement or as described in the penultimate sentences of
      Regulations Section 1.704-2(g)(1) and Regulations Section 1.704-2(i)(5),
      or any successor provisions; and

            (ii) subtract from such Capital Account the items described in
      Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

      "Adjusted Capital Account Deficit" shall mean, with respect to any
Partner, the deficit balance, if any, in that Partner's Adjusted Capital
Account.

      "Affiliate" means (i) any Person directly or indirectly owning,
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other Person, (ii) any Person ten percent
or more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with the power to vote, by such other Persons, (iii) any
Person directly or indirectly controlling, controlled by, or under common
control with such other Person, (iv) any executive officer, director, trustee or
general partner of such other person, or (v) any legal entity for which such
Person acts as an executive officer, director, trustee or general partner.

      "Agreement" shall mean this Agreement of Limited Partnership, as it may be
amended from time to time.

      "Articles of Incorporation" means the Articles of Incorporation of the
Company.

                                       2

<PAGE>

      "Available Cash" shall have the meaning provided in Section 8.1.

      "Bankruptcy" of a Partner shall mean (a) the filing by a Partner of a
voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under Title 11 of the United States Code
(or corresponding provisions of future laws) or any other federal or state
insolvency law, or a Partner's filing an answer consenting to or acquiescing in
any such petition, (b) the making by a Partner of any assignment for the benefit
of its creditors or the admission by a Partner in writing of its inability to
pay its debts as they mature, or (c) the expiration of sixty (60) days after the
filing of any involuntary petition under Title 11 of the United States Code (or
corresponding provisions of future laws), seeking liquidation, reorganization,
arrangement or readjustment of its debts under any other Federal or state
insolvency law, provided that the same shall not have been vacated, set aside or
stayed within such 60-day period.

      "Board of Directors" means the Board of Directors of the Company.

      "Business Day" means any day other than Saturday or Sunday during which
national banks located in Houston, Texas are customarily open for business.

      "Capital Account" shall mean the capital account maintained by the
Partnership for each Partner as described in Section 3.4 below.

      "Capital Contribution" shall mean, when used in respect of a Partner, if
applicable, the initial capital contribution of such Partner as set forth in
Section 3.1 below, and any other amounts of money and/or the Gross Asset Value
of other property contributed by such Partner to the capital of the Partnership
with respect to the Partner's interest in the Partnership, including the Capital
Contribution made by any predecessor holder of the Partnership Interest of such
Partner.

      "Capital Transaction Gain or Loss" shall mean any Profits or Losses
described in paragraphs (iii), (iv) and (vi) of the definition of Profits and
Losses contained in this Article 2.

      "Cash Amount" means an amount of cash equal to the value of the REIT
Shares Amount, which shall be based upon Net Asset Value on the date of receipt
by the General Partner of a Notice of Redemption.

      "Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time, and any successor statute.

      "Common Share" means a share of common stock, $.001 par value per share,
of the Company.

      "Company" means Hines Real Estate Investment Trust, Inc., a Maryland
corporation and the General Partner of the Partnership.

      "Contributing Partner" shall have the meaning provided in Section
3.2(B)(v).

                                       3

<PAGE>

      "Depreciation" shall mean for any fiscal year or portion thereof, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such period for Federal income tax
purposes, 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 period,
Depreciation shall be an amount that bears the same relationship to such
beginning Gross Asset Value as the depreciation, amortization or cost recovery
deduction in such period for Federal income tax purposes bears to the beginning
adjusted tax basis; provided, however, that if the adjusted basis for Federal
income tax purposes of an asset at the beginning of such period is zero,
Depreciation shall be determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the General Partner.

      "Effective Date" shall have the meaning provided in the introductory
paragraph of this Agreement.

      "Exchange Date" shall have the meaning provided in Section 3.2(G).

      "General Partner" means Hines Real Estate Investment Trust, Inc., a
Maryland corporation, sometimes also referred to in this Agreement as the
"Company."

      "Gross Asset Value" means, with respect to any Partnership asset, the
asset's adjusted basis for Federal income tax purposes, except as follows:

            (i) The initial Gross Asset Value of any asset contributed by a
      Partner to the Partnership shall be the gross fair market value of such
      asset, as agreed to by the General Partner and the Contributing Partner;

            (ii) The Gross Asset Value of all Partnership assets shall be
      adjusted to equal their respective gross fair market values, which shall
      be determined in a manner consistent with the determination of Net Asset
      Value, as of the following times: (a) the acquisition of an additional
      interest in the Partnership by any new or existing Partner in exchange for
      more than a de minimis Capital Contribution; (b) 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; (c) the
      liquidation of the Partnership within the meaning of Regulations Section
      1.704-1(b)(2)(ii)(g); and (d) upon the occurrence of any other event for
      which an adjustment to Gross Asset Value is permitted under the
      Regulations; provided, however, that adjustments pursuant to clauses (a),
      (b) and (d) above shall be made only if the General Partner reasonably
      determines that such adjustments are necessary or appropriate to reflect
      the relative economic interests of the Partners in the Partnership;

            (iii) The Gross Asset Value of any Partnership asset distributed to
      any Partner shall be adjusted to equal the gross fair market value of such
      asset on the date of distribution, which shall be determined in a manner
      consistent with the determination of Net Asset Value; and

                                       4

<PAGE>

            (iv) The Gross Asset Value 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 adjustments are taken into account in determining
      Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and
      paragraph (vi) of the definition of Profits and Losses in this Article II
      below; provided, however, that Gross Asset Value shall not be adjusted
      pursuant to this paragraph (iv) to the extent the General Partner
      determines that an adjustment pursuant to paragraph (ii) above is
      necessary or appropriate in connection with a transaction that would
      otherwise result in an adjustment pursuant to this paragraph (iv).

            (v) If the Gross Asset Value of an asset has been determined or
      adjusted pursuant to paragraphs (i), (ii) or (iv) above, such Gross Asset
      Value shall thereafter be adjusted by the Depreciation taken into account
      with respect to such asset for purposes of computing Profits and Losses.

      "HALP" shall mean HALP Associates Limited Partnership.

      "Hines Controlled Entity" shall mean any partnership, limited liability
company, corporation, trust or other entity which is, directly or indirectly,
controlled by (a) Hines Interests Limited Partnership, and/or (b) Jeffrey C.
Hines and/or Gerald D. Hines or, in the event of the death or disability of
Jeffrey C. Hines and/or Gerald D. Hines, the heirs, legal representatives or
estates of either or both of them.

      "HREH" shall mean Hines Real Estate Holdings Limited Partnership.

      "Issuance Date" means with respect to OP Units or the Participation
Interest owned by a Partner, the date upon which such OP Units or the
Participation Interest are issued to such Partner (and with respect to
Preference Units, shall have the meaning set forth in the applicable Preference
Unit Term Sheet).

      "Limited Partner" shall mean any Person (i) whose name is set forth as a
Limited Partner on Schedule A attached hereto or who has become a Limited
Partner pursuant to the terms and conditions of this Agreement, and (ii) who
holds a partnership interest. "Limited Partners" means all such persons.

      "Listing Date" shall mean the date on which the Common Shares are first
listed on a national securities exchange or included for quotation on a national
market system.

      "Majority-in-Interest of the Limited Partners" shall mean, as of any given
time, Limited Partners who own more than fifty percent (50%) of the Percentage
Interests in the Partnership held by Limited Partners.

      "Market Price" means, with respect to any Specified Redemption Date: (a)
the last reported sales price per share of the Common Shares at the close of
trading (whether or not the last reported sale occurred on such date) as
reported in the Wall Street Journal on the first Business Day of the calendar
quarter immediately preceding the date of receipt by the General

                                       5

<PAGE>

Partner of the Notice of Redemption, or (b) if the Common Shares are not traded
on a national exchange, the Net Asset Value per Common Share as of the date of
receipt by the General Partner of the Notice of Redemption.

      "Net Asset Value" as of a particular date means the net fair market value
of the Partnership's equity as of such date, as approved by the Board of
Directors, which shall generally equal the net proceeds that would be available
for distribution by the Partnership if all assets owned directly or indirectly
(through one or more special purpose entities) by the Partnership were sold at
their fair market value in an all cash sale as of such date, and all expected
transaction costs (including all closing costs customarily borne by a seller in
the market where each Property is located and estimated legal fees and expenses)
were paid, and all liabilities were repaid, out of such proceeds.

      "Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(c).

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

      "Notice of Redemption" means a written notice delivered by a Redeeming
Partner to the Partnership (with a copy to the General Partner) under Section
3.2(C), pursuant to which the Redeeming Partner exercises the Redemption Right
with respect to all or a portion of its OP Units or Participation Interest in
accordance with the provisions of Section 3.2(C).

      "OP Units" are units of Partnership Interest more particularly described
in Section 3.2.

      "OP Unit Value" shall mean, as of any given time, the number of OP Units
into which a Preference Unit is convertible (whether or not the conversion can
then be effected), or the value of the Preference Unit expressed in OP Units if
the Preference Unit is not convertible into OP Units, as provided for in the
applicable Preference Unit Term Sheet.

      "Other Securities" shall have the meaning set forth in Section 3.2(B)(iv).

      "Participation Interest" shall have the meaning set forth in Section
3.2(A).

      "Participation Interest Unit Equivalents" shall mean, as of any Specified
Redemption Date with respect to part or all of the Participation Interest, the
lesser of (i) the number of outstanding OP Units of the Partnership, multiplied
by a fraction whose numerator is the Percentage Interest attributable to the
Participation Interest as of such date and whose denominator is 100% minus the
Percentage Interest attributable to the Participation Interest as of such date
or (ii) the number of outstanding OP Units of the Partnership, multiplied by a
fraction (a) whose numerator is the aggregate amount that would be distributed
in respect of the Participation Interest if an amount equal to Net Asset Value
as of such date were distributed among the Partners in accordance with Section
14.2(C) hereof and (b) whose denominator equals (x) the aggregate amount that
would be distributed to all Partners if an amount equal to Net Asset Value as of
such date were distributed among the Partners in accordance with Section
14.2(C), minus (y) the amount determined under clause (a).

                                       6

<PAGE>

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

      "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i)(3).

      "Partner Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i)(2).

      "Partners" shall mean, collectively, the General Partner and the Limited
Partners, or any additional or successor partners of the Partnership admitted to
the Partnership in accordance with the terms of this Agreement. References to a
Partner shall be to any one of the Partners.

      "Partnership Interest" shall mean the ownership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which such Partner may be entitled as provided in this
Agreement, and to the extent not inconsistent with this Agreement, under the
Act, together with the obligations of such Partner to comply with all of the
terms and provisions of this Agreement and the Act.

      "Partnership Minimum Gain" has the meaning set forth in Regulations
Sections 1.704-2(b)(2) and 1.704-2(d).

      "Percentage Interest" shall mean a percentage that is determined for each
Partner in the following manner:

            (i) End of Month Calculation of Percentage Interest Attributable to
      Participation Interest. As of the end of each calendar month, the holder
      of the Participation Interest shall have a Percentage Interest in respect
      of its Participation Interest equal to the sum of (a) the Percentage
      Interest of the holder of the Participation Interest as of the end of the
      immediately preceding month (which shall be 0% in the case of each
      calendar month beginning prior to the Effective Date), adjusted as
      provided in clause (iii) below for OP Units issued or redeemed during the
      calendar month just ended, and further adjusted for any redemptions of
      such Participation Interest during the calendar month just ended, plus (b)
      0.0625% of the net equity invested in those real estate investments
      reflected on the balance sheet of the Partnership as of the end of such
      month, divided by the Equity Value (as defined below) of the Partnership
      as of the end of the current month, plus (c) 0.5% of the Gross Real Estate
      Investments (as defined below) made by the Partnership during the current
      month, divided by the Equity Value of the Partnership as of the end of the
      current month; provided, however, that no adjustment shall be made under
      either clause (b) or clause (c) as of the end of any calendar month if,
      during such calendar month or any prior calendar month, the Advisory
      Agreement, dated as of May __, 2004, by and between the Partnership, Hines
      Advisors Limited Partnership, and the Company, has expired or otherwise
      been terminated.

            -     "Equity Value" of the Partnership as of the end of a
                  particular month shall mean (i) in cases where the Company has
                  an offering of Common Shares in

                                       7

<PAGE>

                  effect, the product of (A) the per-share offering price for
                  the Common Shares that are the subject of such offering, net
                  of selling commissions, dealer manager fees and the per share
                  estimate of organization and offering costs (based on the
                  maximum number of Common Shares being sold in the offering),
                  multiplied by (B) a number equal to the number of OP Units
                  outstanding as of the end of such month, divided by the
                  difference between 100% and the Percentage Interest
                  attributable to the Participation Interest as of the end of
                  such month, and (ii) in cases where the Company does not have
                  an offering of Common Shares in effect, the Net Asset Value of
                  the Partnership as of the end of the current month.

            -     "Gross Real Estate Investments" of the Partnership shall
                  generally mean the gross amount invested by the Partnership in
                  any real estate investments (either directly or indirectly
                  through one or more partnerships, limited liability companies,
                  or special purpose entities and including any real estate
                  investments contributed to the Partnership in exchange for
                  Units), including any debt attributable to such investments;
                  provided, however, that in the case of amounts invested by the
                  Partnership in any entity that is not wholly-owned by the
                  Partnership, "Gross Real Estate Investments" shall mean the
                  sum of the amount invested by the Partnership in such entity,
                  plus the Partnership's allocable share of the debt of such
                  entity that is attributable to real estate investments by such
                  entity.

      (ii) When Change to Participation Interest Becomes Effective. The
Percentage Interest determined under clause (i) as of the end of a particular
month shall become effective as of the beginning of the immediately following
month.

      (iii) Adjustment of Percentage Interest Attributable to Participation
Interest Following Issuance or Redemption of OP Units. Immediately after the
issuance or redemption by the Partnership of any OP Units, the Percentage
Interest attributable to the Participation Interest shall be adjusted so that it
equals (a) the Percentage Interest attributable to the Participation Interest
immediately prior to the issuance or redemption of such OP Units, multiplied by
(b) a fraction whose numerator is (1) the number of OP Units outstanding
immediately prior to the issuance or redemption of such OP Units and whose
denominator equals (2) the number of OP Units outstanding immediately after the
issuance or redemption of such OP Units.

      (iv) Calculation of Percentage Interests of Partners Holding OP Units. The
Percentage Interest as of a particular time for each Partner holding OP Units
shall equal (a) 100% minus the Percentage Interest attributable to the
Participation Interest, multiplied by (b) the sum of the OP Unit Value of any
Preference Units held by that Partner and the number of OP Units held by that
Partner, divided by (c) the sum of the OP Unit Value of all Preference Units
issued and outstanding at the time and the total number of OP Units issued and
outstanding at the time.

                                       8

<PAGE>

      The respective Percentage Interests of the Partners as of the date of this
Agreement are set forth in Schedule A attached to this Agreement.

      "Person" means an individual, corporation, partnership, estate, trust, a
portion of a trust set aside for or to be used exclusively for the purposes
described in Section 642(c) of the Code, association, private foundation within
the meaning of Section 509(a) of the Code, joint stock company or other entity
and also includes a group as that term is used for purposes of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended.

      "Preference Units" are units of Partnership Interest more particularly
described in Section 3.2(A)(ii).

      "Preference Unit Term Sheet" shall have the meaning provided in Section
3.2(B)(1).

      "Private Placement PTP Exemption" shall mean the exemption from publicly
traded partnership status provided in Regulations Section 1.7704-1(h) (which
generally applies if (i) all interests in a partnership are issued in a
transaction or series of transactions that are not required to be registered
under the Securities Act and (ii) the partnership does not have more than 100
partners at any time during taxable year of the partnership).

      "Private Transfer" shall mean:

            (i) transfers in which the basis of the Partnership Interest in the
      hands of the transferee is determined, in whole or in part, by reference
      to its basis in the hands of the transferor or is determined under Code
      Section 732;

            (ii) transfers at death, including transfers from an estate or
      testamentary trust;

            (iii) transfers between members of a family;

            (iv) transfers involving the issuance of interests by (or on behalf
      of) the Partnership in exchange for cash, property, or services;

            (v) transfers involving distributions from a qualified retirement
      plan or an individual retirement account;

            (vi) the transfer by a Partner and any related persons (within the
      meaning of Code Section 267(b) or 707(b)(1)) in one or more transactions
      during any 30 calendar day period of Partnership Interests representing in
      the aggregate more than 2 percent of the total interests in Partnership
      capital or profits;

            (vii) transfers by one or more Partners of interests representing in
      the aggregate 50 percent or more of the total interests in Partnership
      capital and profits in one transaction or a series of related
      transactions; and

                                       9

<PAGE>

            (viii) transfers not recognized by the Partnership within the
      meaning of Regulations Section 1.7704-1(d)(2) (i.e., transfers in cases
      where the Partnership neither admits the transferee as a partner nor
      recognizes any rights of the transferee as a partner).

      "Profits" and "Losses" shall mean for each fiscal year or portion thereof,
an amount equal to the Partnership's items of taxable income or loss for such
year or period, determined by the General Partner in accordance with Code
Section 703(a) with the following adjustments:

            (i) any income which is exempt from Federal income tax and not
      otherwise taken into account in computing Profits or Losses shall be added
      to taxable income or loss;

            (ii) any expenditures of the Partnership described in Code Section
      705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under
      Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into
      account in computing Profits or Losses, will be subtracted from taxable
      income or loss;

            (iii) in the event that the Gross Asset Value of any Partnership
      asset is adjusted pursuant to the definition of Gross Asset Value
      contained in this Article 2, the amount of such adjustment shall be taken
      into account as gain or loss from the disposition of such asset for
      purposes of computing Profits and Losses;

            (iv) gain or loss resulting from any disposition of Partnership
      assets 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;

            (v) in lieu of the depreciation, amortization and other cost
      recovery deductions taken into account in computing such taxable income or
      loss, there shall be taken into account Depreciation for such fiscal year
      or other period;

            (vi) 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)(4) to be
      taken into account in determining Capital Accounts as a result of a
      distribution other than in complete liquidation of a Partner's Partnership
      Interest, is required pursuant to the last sentence of Regulations Section
      1.704-1(b)(2)(iv)(m)(2) to be taken into account in determining Capital
      Accounts, 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 Profits or
      Losses; and

            (vii) any items specially allocated pursuant to Section 7.3 or
      Section 7.4 shall not be considered in determining Profits or Losses.

                                       10

<PAGE>

      "Recapitalization" shall have the meaning provided in Section 3.2(F).

      "Record Date" shall have the meaning provided in Section 9.1.

      "Redeeming Partner" shall have the meaning provided in Section 3.2(C).

      "Redemption Amount" means either the Cash Amount or the REIT Shares Amount
as determined pursuant to Section 3.2 hereof.

      "Redemption Right" shall have the meaning provided in Section 3.2(C).

      "Regulations" shall mean the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).

      "REIT" shall have the meaning provided in Section 5.3.

      "REIT Requirements" shall have the meaning provided in Section 5.3.

      "REIT Shares Amount" means a number of Common Shares equal to (i) in the
case of a Partner redeeming OP Units, the number of OP Units offered for
redemption by a Redeeming Partner, as adjusted pursuant to Sections 3.2(F) and
(G) and (ii) in the case of a Partner redeeming part or all of the Participation
Interest, the number of Participation Interest Unit Equivalents.

      "Rights" shall have the meaning provided in Section 3.2(G).

      "Shareholder" means a holder of the Common Shares.

      "Specified Redemption Date" means with respect to a Redeeming Partner, the
date that is ten Business Days after receipt by the General Partner of the
Notice of Redemption from such Partner.

      "TMP" shall have the meaning provided in Section 11.4.

      "Transfer" shall mean any sale, transfer, gift, exchange, assignment,
devise or other disposition, any pledge or collateral assignment, and any other
event that causes any Person to acquire beneficial ownership, or any agreement
to take any such actions or cause any such events, with respect to Units or
other Partnership Interests, or the right to vote or receive distributions with
respect to Units or other Partnership Interests, including (a) the granting or
exercise of any option (or any disposition of any option), (b) any disposition
of any securities or rights convertible into or exchangeable for Units or other
Partnership Interests or any interest in Units or other Partnership Interests or
any exercise of any such conversion or exchange right, and (c) Transfers of
interests in other entities that result in changes in beneficial ownership of
Units or other Partnership Interests; in each case, whether voluntary or
involuntary, whether owned of record or beneficially owned, and whether by
operation of law or otherwise; provided, however,

                                       11

<PAGE>

neither the conversion of a Preference Unit into one or more OP Units nor the
redemption of an OP Unit or Participation Interest in accordance with Section
3.2 constitutes a Transfer. The terms "Transferor," "Transferee," "Transferred"
and "Transferring" have correlative meanings.

      "Units" has the meaning set forth in Section 3.2(A).

                                   ARTICLE III
                                 CAPITALIZATION

      3.1 INITIAL CAPITAL. As of the effective date hereof, the Partners have
made or will make contributions of cash and/or property to the Partnership, and
the amount of such cash contributions and the Gross Asset Value of such in-kind
Capital Contributions are reflected in the Capital Account balance of each such
Partner as set forth opposite such Partner's name on the attached Schedule A, as
amended from time to time, under the heading "Agreed Capital Account".

      3.2 ISSUANCE AND REDEMPTION OF PARTNERSHIP INTERESTS.

            A. The interest of a Partner in the Partnership that has been
      received in exchange for Capital Contributions is referred to as being
      evidenced by one or more "Units." Units may be either "OP Units" or
      "Preference Units":

                  (i) An "OP Unit" is a unit of Partnership Interest that has
            been received in exchange for Capital Contributions and that, as
            more particularly provided for below in Section 3.2(C), may be
            redeemed for the Redemption Amount. The General Partner may create
            separate classes or series of OP Units having privileges,
            variations, and designations as may be determined by the General
            Partner in its sole and absolute discretion.

                  (ii) A "Preference Unit" is a unit of Partnership Interest
            having such rights, preferences and other privileges, variations and
            designations as may be determined by the General Partner in its sole
            and absolute discretion (but not in violation of the provisions of
            Section 3.2(B) or the terms of any other Preference Unit(s) Term
            Sheets). There may be more than one series or class of Preference
            Units having differing terms and conditions, but all Preference
            Units within a given series or class shall have the same rights,
            preferences and other privileges, variations and designations. With
            respect to each series or class of Preference Units, the General
            Partner may also, in its discretion, determine and fix, among other
            terms and conditions, any of the following: (a) the series to which
            such Preference Units shall belong, (b) the distribution rate
            therefor, (c) the price at and the terms and conditions on which
            such Preference Units may be redeemed, (d) the amount payable in
            respect of such Preference Units in the event of involuntary or
            voluntary liquidation, (e) the terms and conditions on which such
            Preference Units may be converted and the securities into which such
            Preference Units may be converted (and/or the valuation of such
            Preference Units as measured in OP Units), if such Preference Units
            are issued with the privilege of conversion, and

                                       12

<PAGE>

            (f) the number of such Preference Units to be issued as a part of
            such series. Once determined and fixed as herein provided, however,
            the terms and conditions of a particular series or class of
            Preference Units may not be changed without the written consent of
            the holders of at least 67% of the Preference Units within the class
            or series (or such greater percentage as may be provided for in any
            the applicable Preference Unit Term Sheet).

The aggregate total of all Units outstanding as of the date of this Agreement is
21,000, all of which consist of OP Units. As of the date of this Agreement, each
Partner is deemed to hold Units as shown on Schedule A.

      Effective as of the date hereof, the Partnership is issuing to HALP a
limited partnership interest denominated as a "Participation Interest." The
Participation Interest is in addition to, and distinct from, the Units described
above and any references to "Units" or OP Units shall not be deemed to include
the Participation Interest. It is intended that the Participation Interest
constitute a profits interest within the meaning of Section 2.02 of IRS Revenue
Procedure 93-27, 1993-2 C.B. 343.

      B. From time to time hereafter, subject to and in accordance with the
provisions of this Section 3.2(B), the General Partner shall cause the
Partnership to issue additional Units as follows:

                  (i) OP Units to the Company upon the issuance by the Company
            of additional Common Shares (other than in exchange for OP Units)
            and the contribution of the net proceeds thereof as a Capital
            Contribution to the Partnership as provided for in Section 3.3(B)
            below, it being understood, however, that the Company may issue
            Common Shares in connection with share option plans, dividend
            reinvestment plans, restricted share plans or other benefit or
            compensation plans without receiving any proceeds and that the
            issuance of such Common Shares shall nonetheless entitle the Company
            to receive additional OP Units pursuant to this clause (i);

                  (ii) OP Units to Partners (including the General Partner) that
            hold Preference Units that are convertible into OP Units, upon the
            exercise of such conversion in accordance with the terms and
            conditions of the Preference Unit Term Sheet applicable thereto;

                  (iii) OP Units to Partners holding OP Units (including the
            General Partner) if and to the extent of each such Partner's
            participation in any reinvestment program contemplated by Section
            3.3(C) below;

                  (iv) Preference Units to the Company upon the issuance by the
            Company of securities other than Common Shares whether debt or
            equity securities ("Other Securities") and the contribution of the
            net proceeds thereof as a Capital Contribution to the Partnership as
            provided for in Section 3.3(B) below; and

                                       13

<PAGE>

                  (v) in all other cases, OP Units and/or Preference Units, as
            determined by the General Partner, in its discretion, to existing or
            newly-admitted Partners (including the General Partner), in exchange
            for the contribution by a Partner (the "Contributing Partner") of
            Capital Contributions to the Partnership.

Issuance of OP Units as aforesaid shall be in accordance with the following:

      (a) the number of OP Units issued to the Company under clause (i) of this
Section 3.2(B) shall be equal to the number of Common Shares issued;

      (b) the number of OP Units issued to a Partner under clause (ii) of this
Section 3.2(B) shall be as provided for in the Preference Unit Term Sheet
pursuant to which the Preference Units being converted exist;

      (c) the number of OP Units issued to a Limited Partner under clause (iii)
of this Section 3.2(B) shall be as provided for in the applicable reinvestment
program; and

      (d) the number of OP Units issued to a Contributing Partner under clause
(v) of this Section 3.2(B) shall be equal to the quotient (rounded to the
nearest whole number) arrived at by dividing (x) the initial Gross Asset Value
of the property contributed as additional Capital Contributions (net of any debt
to which such property is subject or assumed by the Partnership in connection
with such contribution) by (y) the Net Asset Value attributable to each OP Unit.

Issuance of Preference Units as aforesaid shall be in accordance with the
following:

      (1) Preference Units issued pursuant to clause (v) of this Section 3.2(B)
shall have the terms and conditions specified in an agreement (a "Preference
Unit Term Sheet") executed by and between the Partnership (at the direction or
in the discretion of the General Partner) and the Contributing Partner. The
number of Preference Units issued to a Contributing Partner under clause (v) of
this Section 3.2(B) shall be equal to the quotient (rounded to the nearest whole
number) arrived at by dividing (x) the net fair market value of any property or
assets contributed as additional capital contributions by (y) price per
Preference Unit provided for in the Preference Unit Term Sheet; and

      (2) Preference Units issued pursuant to clause (iv) of this Section 3.2(B)
shall have economic terms substantially identical to those of the applicable
Other Securities.

Units may also be issued to some or all of the Partners holding Preference Units
if and to the extent of such Partner's participation in any reinvestment program
contemplated by Section 3.3(C). Upon the issuance of additional OP Units and/or
Preference Units in accordance with the provisions of this Section 3.2(B), each
recipient of such Units shall either execute this Agreement or a joinder to this
Agreement (which joinder, as to Preference Units, may be a part of any
applicable Preference Unit Term Sheet) and, as applicable, the Percentage
Interest of all of the Partners shall thereupon be appropriately adjusted by the
General Partner.

                                       14

<PAGE>

      C. Subject to the provisions of Sections 3.2(D) and (F), on or after the
later of (i) the date which is one year after the Issuance Date or (ii) upon the
commencement of an initial public offering of the Common Shares of the Company
pursuant to a registration statement filed with the Securities and Exchange
Commission, each Limited Partner shall have the right (the "Redemption Right")
to require the Partnership to redeem on a Specified Redemption Date all or a
portion of the OP Units or Participation Interest held by such Limited Partner
at a redemption price equal to and in the form of the Redemption Amount. The
Redemption Right shall be exercised pursuant to a Notice of Redemption delivered
to the Partnership (with a copy to the General Partner) by the Limited Partner
who is exercising the Redemption Right (the "Redeeming Partner"); provided,
however, that the Partnership shall not be obligated to satisfy such Redemption
Right if the Company elects to purchase the OP Units or Participation Interest
subject to the Notice of Redemption pursuant to Section 3.2(E). Notwithstanding
the foregoing provisions of this Section 3.2(C), the Company agrees to use its
best efforts to cause the closing of the acquisition of redeemed Partnership
Interests hereunder to occur as quickly as reasonably possible. The Redeeming
Partner shall have no right, with respect to any OP Units or Participation
Interest so redeemed, to receive any distribution paid with respect to such OP
Units or Participation Interest if the Record Date for such distribution is on
or after the Specified Redemption Date. If, and beginning with the first day of
the first taxable year in which, the Partnership no longer qualifies for the
Private Placement PTP Exemption, the Redemption Right shall comply with the
requirements of Regulations Section 1.7704-1(f) and shall be construed and
administered in accordance therewith.

      D. In addition to other restrictions set forth on the Redemption Rights in
any other provision of this Agreement, the following restrictions apply to
Redemption Rights:

            (i) Notwithstanding any other provision of this Article 3, but
      subject to the last sentence of clause (iii) below, a Limited Partner
      shall be entitled to exercise the Redemption Right only if (x) the
      redemption or purchase of the Limited Partner's OP Units or Participation
      Interest would constitute a Private Transfer or (y) the Percentage
      Interest attributable to the OP Units or Participation Interest to be
      purchased or redeemed, when aggregated with other Transfers of Partnership
      Interests within the same taxable year of the Partnership (but not
      including Private Transfers), would constitute a Percentage Interest of
      ten percent (10%) or less.

            (ii) The General Partner may establish such policies and procedures
      as it may deem necessary or desirable in its discretion to administer the
      10% Percentage Interest limit set forth in subparagraph (i) above,
      including without limitation imposing further limitations on the OP Units
      or Participation Interest with respect to which the Redemption Right may
      be exercised during any period of time shorter than a calendar year and
      establishing procedures to allocate the ability to exercise the Redemption
      Right among the Limited Partners.

                                       15

<PAGE>

            (iii) The restrictions set forth in clauses (i) and (ii) above shall
      continue in effect until such time as the Partnership is no longer
      potentially subject to classification as a publicly traded partnership, as
      defined in Code Section 7704, in the absence of such restrictions, as
      determined by the General Partner in its discretion. The restrictions set
      forth in clauses (i) and (ii) above, together with the restrictions on the
      Transfer of Partnership Interests set forth in Section 12(B), are intended
      to limit transfers of interests in the Partnership in such a manner as to
      permit the Partnership to qualify for the safe harbors from treatment as a
      publicly traded partnership set forth in Regulations Sections 1.7704-1(d),
      (e), (f) and (j) and shall be construed and administered in accordance
      therewith. The General Partner may modify the restrictions set forth in
      clauses (i) and (ii) above, and the provisions of Section 12(B), from time
      to time in its discretion to ensure that the Partnership complies and
      continues to comply with the Code and Regulations requirements described
      above. Notwithstanding anything herein to the contrary, the provisions of
      subparagraphs (i)-(iii) shall only apply if, and beginning with the first
      day of the first taxable year in which, the Partnership no longer
      qualifies for the Private Placement PTP Exemption.

            (iv) A Limited Partner shall not be entitled to exercise either a
      Redemption Right or any right to convert a Preference Unit into an OP Unit
      if such exercise would (a) result in the total Common Shares and any other
      ownership or beneficial interests in the Company being owned by fewer than
      one hundred persons within the meaning of Code Section 856(a)(5); (b)
      result in such Limited Partner or any other person owning, directly or
      constructively under Code Section 856(d)(5), in excess of 9.9% of the
      total Common Shares (and any other ownership or beneficial interests) in
      the Company; (c) cause more than 50% of the value of the Company's Common
      Shares (and any other ownership or beneficial interests) to be held by
      five or fewer individuals and certain organizations under Code Section
      856(h) and 542(a)(2); (d) cause the Company to own, directly or
      constructively, 10% or more of the ownership interests of any person that
      is a tenant with respect to any real property owned or constructively
      owned by the Company (so as to prevent the application of Code Section
      856(d)(2)); or (e) cause the acquisition of Common Shares (and any other
      ownership or beneficial interests) in the Company by such Limited Partner
      to be "integrated" with any other distribution of interests in the Company
      for purposes of complying with the registration provisions of the
      Securities Act of 1933. The General Partner may modify the restrictions
      set forth in this Section 3.2(D)(iv) from time to time in its discretion
      to ensure that the Partnership complies and continues to comply with Code
      Section 856. The General Partner may, in its sole discretion, waive the
      restrictions on redemption set forth in this Section 3.2(D)(iv); provided,
      however, that in the event a restriction is waived, the redeeming partner
      shall be paid the Cash Amount.

            (v) A Limited Partner shall not be entitled to exercise a Redemption
      Right if it prejudices or affects the continuity of the Partnership for
      purposes of Code Section 708. Prior to any such redemption described in
      the preceding sentence, the General Partner may require an opinion of
      counsel

                                       16
<PAGE>

      satisfactory to the General Partner to the effect that such redemption
      will not cause adverse tax consequences to the nonredeeming Partners, and
      such Limited Partner exercising the Redemption Right shall be responsible
      for paying said counsel's fee for his opinion.

Provided, however, that the General Partner may exempt a Limited Partner from
the foregoing restrictions to the same extent, and under the same circumstances,
that the General Partner may waive similar restrictions pursuant to its Articles
of Incorporation.

      E. Notwithstanding the provisions of Section 3.2(C), a Limited Partner
that exercises the Redemption Right shall be deemed to have offered to sell the
OP Units or Participation Interest described in the Notice of Redemption to the
Company, and the Company (or any designee thereof) may, in its sole and absolute
discretion, elect to purchase directly and acquire such OP Units or
Participation Interest by paying to the Redeeming Partner either the Cash Amount
or the REIT Shares Amount, as elected by the Company or any designee thereof
(each in its sole and absolute discretion), on the Specified Redemption Date,
whereupon the Company or any designee thereof shall acquire the OP Units or
Participation Interest offered for redemption by the Redeeming Partner and shall
be treated for all purposes of this Agreement as the owner of such OP Units or
Participation Interest. If the Company or any designee thereof shall elect to
exercise its right to purchase OP Units or a Participation Interest under this
Section 3.2(E) with respect to a Notice of Redemption, it shall so notify the
Redeeming Partner within five Business Days after the receipt by the General
Partner of such Notice of Redemption. Unless the Company or any designee thereof
(each in its sole and absolute discretion) shall exercise its right to purchase
OP Units or a Participation Interest from the Redeeming Partner pursuant to this
Section 3.2(E), neither the Company nor any designee thereof shall have any
obligation to the Redeeming Partner or the Partnership with respect to such
Redeeming Partner's exercise of such Redemption Right. In the event that the
Company or any designee thereof shall exercise its right to purchase OP Units or
a Participation Interest with respect to the exercise of a Redemption Right in
the manner described in the first sentence of this Section 3.2(E), the
Partnership shall have no obligation to pay any amount to the Redeeming Partner
with respect to such Redeeming Partner's exercise of such Redemption Right, and
each of the Redeeming Partner, the Partnership, and the Company or any designee
thereof, as the case may be, shall treat the transaction between the Company or
any designee thereof, as the case may be, and the Redeeming Partner for federal
income tax purposes as a sale of the Redeeming Partner's OP Units or
Participation Interest to the Company or any designee thereof. Each Redeeming
Partner agrees to execute such documents as the General Partner may reasonably
require in connection with the issuance of Common Shares upon exercise of the
Redemption Right. Any OP Units or Participation Interest acquired by the General
Partner pursuant to such Redemption Right shall, upon and after such
acquisition, be treated as a general partner interest.

      F. The Company shall at all times reserve and keep available out of its
authorized but unissued Common Shares, solely for the purpose of effecting the
exchange of OP Units and the Participation Interest for Common Shares, such
number of Common Shares as shall from time to time be sufficient to effect the
redemption of the

                                       17

<PAGE>

Participation Interest and all outstanding OP Units not owned by the Company,
and any Preference Units not owned by the Company that are convertible into OP
Units (whether or not the conversion can then be effected). No Limited Partner
shall, by virtue of being the holder of the Participation Interest or one or
more OP Units and/or Preference Units be deemed to be a shareholder of or have
any other interest in the Company. In the event of any change in the outstanding
Common Shares of the Company or its successor by reason of any share dividend,
split, recapitalization, merger, consolidation, combination, exchange of shares
or other similar corporate change other than the issuance of Rights, as further
described in Section 3.2(G) (a "Recapitalization"), the number of OP Units held
by each Partner shall be adjusted upward or downward to equal such number of
Common Shares of the Company (or as applicable, the Common Shares or equivalent
class of securities of the successor thereto) as would have been held by the
Partner immediately following the Recapitalization if such Partner had held a
number of Common Shares equal to such number of OP Units immediately prior to
such Recapitalization. In the event the Company or any designee thereof acquires
OP Units or a Participation Interest pursuant to such Section 3.2(E), the
General Partner shall record the transfer on the books of the Partnership so
that the Company or any designee thereof, as applicable, is thereupon the owner
and holder of such OP Units or Participation Interest. As is more particularly
described in Section 3.2(D)(iv), notwithstanding any other provisions of this
Section 3.2, a Limited Partner shall not have the right to exercise a Redemption
Right if, upon payment of the REIT Shares Amount to such Limited Partner, (i)
the Company would, as a result thereof, no longer qualify (or it would be
reasonably possible in the judgement of the General Partner that the Company no
longer would qualify) as a real estate investment trust under the Code; or (ii)
the payment of such REIT Shares Amount to the Limited Partner would constitute
or be reasonably possible in the judgment of the General Partner to constitute a
violation of applicable federal or state securities laws or would violate any
applicable provisions of the organizational documents of the Company (including
without limitation any restrictions on ownership of securities of the Company
set forth in the Articles of Incorporation or Bylaws of the Company). In either
such event, to the extent the consequences described in (i) or (ii) could be
eliminated by reasonable action of the General Partner or the Company without
any material detriment to the General Partner or the Company and at the expense
of such Limited Partner(s) requesting such exchange, the Company or the General
Partner shall take all such reasonable action to effect the exchange of OP Units
or a Participation Interest for Common Shares by such Limited Partner(s) as
herein provided.

      G. In the event that a Redeeming Partner exercises the Redemption Right,
and the Company or any designee thereof elects to make the payment of the REIT
Shares Amount to the Redeeming Partner referenced in accordance with the first
sentence of Section 3.2(E), and in the event that the Company issues to all of
its holders of Common Shares as of a certain record date rights, options,
warrants or convertible or exchangeable securities entitling such shareholders
to subscribe for or purchase Common Shares or any other securities or property
(collectively, "Rights"), with the record date for such Rights issuance falling
within the period starting on the date that the Company receives the Redemption
Notice from the Redeeming Partner and ending on the day immediately preceding
the date upon which the Company or its designee delivers the Common Shares to
the Redeeming Partner in exchange for such Redeeming Partner's OP

                                       18
<PAGE>

Units (the date upon which such exchange occurs being
referred to herein as the "Exchange Date"), which Rights will not be distributed
before the Exchange Date, then the amount payable by the Company or its designee
to the Redeeming Partner in exchange for its OP Units or Participation Interest
under this Section 3.2 shall also include such Rights that the Redeeming Partner
would have received if it had been the owner of the Common Shares to be
delivered by the Company to the Redeeming Partner prior to the record date for
the issuance of the Rights (as the same may be expressed for any purpose
hereunder in a number of OP Units or Common Shares as determined by the General
Partner).

      3.3 ADDITIONAL FUNDS.

          A. No Partner shall be assessed or, except as otherwise provided in
this Agreement, be required to contribute additional funds or other property to
the Partnership. Any additional funds or other property required by the
Partnership, as determined by the General Partner in its sole discretion, may,
at the option of the General Partner and without an obligation to do so (except
as provided for in Section 3.3(B) below), be contributed by the General Partner
or any other Partner (provided such other Partner is willing to do so and the
General Partner consents thereto, each in its sole and absolute discretion) as
additional Capital Contributions. If and as the General Partner or any other
Partner makes additional Capital Contributions to the Partnership, each such
Partner shall receive additional OP Units and/or Preference Units as provided
for in Section 3.2(B) above. The General Partner shall also have the right (but
not the obligation) to raise any additional funds required for the Partnership
in accordance with the provisions of Section 9.7(E) below and/or by causing the
Partnership to borrow the necessary funds from third parties on such terms and
conditions as the General Partner shall deem appropriate in its sole discretion.
If the General Partner elects to cause the Partnership to borrow the additional
funds, or if the Partnership issues a guaranty, indemnity or similar undertaking
in connection with the indebtedness of the Company as aforesaid, in any such
case one or more of the Partnership's assets may be encumbered to secure the
loan or undertaking. Except as provided for in Section 3.3(C) below, no Limited
Partner shall have the right to make additional Capital Contributions to the
Partnership without the prior written consent of the General Partner.

          B. Except for (i) the capitalization of any wholly-owned entity of
the General Partner which is the general partner of a partnership having the
Partnership as a limited partner, (ii) the net proceeds generated by the
issuance of Other Securities that evidence debt (and are not equity securities)
that are loaned by the Company to the Partnership, and (iii) where the Company
determines that the net proceeds generated by the issuance of Common Shares or
Other Securities (whether for debt or equity) are to be retained by the Company
for a valid business reason consistent with the purposes of the Partnership and
such retention does not materially adversely affect the Limited Partners, the
net proceeds of any and all funds raised by or through the Company through the
issuance of Common Shares or Other Securities shall be contributed to the
Partnership as additional Capital Contributions, and in such event the Company
shall be issued additional Units pursuant to Section 3.2(B) above.

                                       19

<PAGE>

          C. If the General Partner creates and administers a reinvestment
program in substantial conformance with a dividend reinvestment program which
may be available from time to time to holders of the Common Shares, each Limited
Partner holding OP Units shall have the right to reinvest any or all cash
distributions payable to it from time to time pursuant to this Agreement
(subject to the restrictions described in Article 12), by having some or all (as
the Limited Partner elects) of such distributions contributed to the Partnership
as additional Capital Contributions, and in such event the Partnership shall
issue to each such Limited Partner additional OP Units pursuant to Section
3.2(B)(iii) above, or the General Partner, in its sole discretion, may elect to
cause distributions with respect to which a Limited Partner has elected
reinvestment to be contributed to the Company in exchange for the issuance of
Common Shares. At the option of the General Partner, such a program may also be
made available with respect to Preference Units.

      3.4 CAPITAL ACCOUNTS. A separate capital account ("Capital Account") shall
be maintained for each Partner.

            A. To each Partner's Capital Account there shall be added the amount
      of cash and the Gross Asset Value of any property contributed by such
      Partner to the Partnership pursuant to any provision of this Agreement,
      such Partner's distributive share of Profits and any items in the nature
      of income or gain which are specially allocated pursuant to Section 7.3,
      Section 7.4 or Section 14.2(C) hereof, and the amount of any Partnership
      liabilities assumed by such Partner or which are secured by any
      Partnership 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 Partnership property
      distributed to such Partner pursuant to any provision of this Agreement,
      such Partner's distributive share of losses and any items in the nature of
      expenses or losses which are specially allocated pursuant to Section 7.3,
      Section 7.4 or Section 14.2(C) hereof, and the 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.

            C. In the event all or a portion of a Partnership Interest is
      transferred in accordance with the terms of this Agreement (including a
      transfer of OP Units or a Participation Interest in exchange for Common
      Shares, pursuant to Section 3.2(E)), the transferee shall succeed to the
      Capital Account of the transferor to the extent it relates to the
      transferred Partnership Interest.

            D. In determining the amount of any liability for purposes of
      Sections 3.4(A) and 3.4(B) above, there shall be taken into account Code
      Section 752(c) and any other applicable provisions of the Code and
      Regulations.

            E. This Section 3.4 and the other provisions of this Agreement
      relating to the maintenance of Capital Accounts are intended to comply
      with Regulations Section 1.704-1(b), and shall be interpreted and applied
      in a manner consistent with such Regulations. In the event the General
      Partner shall determine that it is prudent to modify

                                       20
<PAGE>

      the manner in which the Capital Accounts, or any debits or credits thereto
      (including, without limitation, debits or credits relating to liabilities
      which are secured by contributed or distributed property or which are
      assumed by the Partnership, or the Partners) are computed in order to
      comply with such Regulations, the General Partner may make such
      modification, provided that it is not likely to have a material effect on
      the amounts distributed to any Partner pursuant to Section 14.2 upon the
      liquidation of the Partnership. The General Partner also shall (i) 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)(g), and
      (ii) make any appropriate modifications in the event unanticipated events
      might otherwise cause this Agreement not to comply with Regulations
      Section 1.704-1(b).

                  3.5 INTEREST ON AND RETURN OF CAPITAL.

            A. No Partner shall be entitled to any interest on its Capital
      Account or on its Capital Contributions to the Partnership.

            B. Except as expressly provided for in this Agreement, no Partner
      shall have the right to demand or to receive the return of all or any part
      of its Capital Contributions to the Partnership and there shall be no
      priority of one Partner over another Partner as to the return of capital
      contributions or withdrawals or distributions of profits and losses. No
      Partner shall have the right to demand or receive property other than cash
      in return for the contributions of such Partner to the Partnership.

      3.6 NEGATIVE CAPITAL ACCOUNTS. Upon the liquidation of the Partnership or
the liquidation of the Participation Interest, the holder of the Participation
Interest shall be required to pay to the Partnership any deficit or negative
balance which may exist in its Capital Account at such time (determined after
taking into account the allocations described in Article 7 or Section 14.2(C)
for the year in which such liquidation or redemption occurs). Subject to the
provisions of any guarantee or other written agreement between a Partner and the
Partnership, or except as provided in the preceding sentence, no Partner shall
otherwise be required to pay to the Partnership any deficit or negative balance
which may exist in its Capital Account.

      3.7 LIMIT ON CONTRIBUTIONS AND OBLIGATIONS OF PARTNERS. Except as provided
in Sections 3.1, 3.2 and 3.3 (or the provisions of any guarantee or other
written agreement between a Partner and the Partnership), no Partner shall be
required to make any additional advances or contributions to or on behalf of the
Partnership or guarantee any obligations of the Partnership.

      3.8 REDEMPTION AND REPURCHASE OF UNITS3.9 . Notwithstanding any other
provision of this Agreement which may be contrary to this Section 3.8, in the
event of the proposed repurchase or redemption for cash by the Company of (i)
Common Shares or (ii) Other Securities with respect to which the Partnership had
previously issued Preference Units pursuant to Section 3.2(B)(iv) of this
Agreement, then, in such event, the Partnership shall provide cash to the
Company concurrently with such repurchase or redemption or for such purpose
equal to the proposed repurchase or redemption price, and one OP Unit owned by
the General Partner (or, in

                                       21
<PAGE>

the case of redemption or repurchase by the Company of Other Securities
contemplated by clause (ii) above, one Preference Unit owned by the General
Partner which had been issued with respect to such Other Securities) shall be
canceled with respect to each Common Share (or share of Other Securities) so
repurchased or redeemed.

                                   ARTICLE IV
                           OFFICE AND REGISTERED AGENT

      The address of the registered office of the Partnership in the State of
Delaware is located at 1209 Orange Street, City of Wilmington, County of New
Castle, State of 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
2800 Post Oak Boulevard, Suite 5000, Houston, Texas 77056-6118 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 may deem
advisable.

                                   ARTICLE V
                       PURPOSES AND POWERS OF PARTNERSHIP

      5.1 PURPOSES OF THE PARTNERSHIP. The objects and purposes of the
Partnership are to engage in any lawful business activities in which a
partnership formed under the Act may engage or participate, with its primary
objectives and purposes being, either as a partner in a partnership or joint
venture or otherwise, to purchase, own, maintain, mortgage, encumber, equip,
manage, lease, finance, operate, dispose of or otherwise deal with real
property, interests in real property or mortgages secured by real property.

      5.2 POWERS. The Partnership purposes may be accomplished by taking any
action which is not prohibited under the Act.

      5.3 REIT REQUIREMENTS. Each Limited Partner understands and acknowledges
that the General Partner intends to elect to be treated as a real estate
investment trust ("REIT") under Code Section 856. Each Limited Partner further
understands and acknowledges that in order to maintain its status as a REIT, the
General Partner must comply with numerous and complex rules and regulations set
forth in the Code and the Regulations, many of which are applied on a quarterly
and/or annual basis (the "REIT Requirements"), and that the management and
operation of the Partnership will have a material effect on the ability of the
General Partner to continue to maintain its status as a REIT. Accordingly,
notwithstanding any other provision of this Agreement or any non-mandatory
provision of the Act, the Partnership shall not take any action which (or fail
to take any action, the omission of which) (i) could adversely affect the
ability of the General Partner to qualify or continue to qualify as a REIT, (ii)
could subject the General Partner to any additional taxes under Code Section 857
or Code Section 4981 or other potentially adverse consequences under the Code,
or (iii) otherwise could cause the General Partner to violate the REIT
Requirements, specifically including, but not limited to, restrictions on
Redemption Rights in Section 3.2(D)(iv). In addition, notwithstanding any other
provision of this Agreement or any non-mandatory provision of 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 General Partner's business judgement that such action or
omission is necessary or advisable in order (i) to protect the ability of the
General Partner to continue to qualify as a REIT or (ii) to avoid the General
Partner incurring any taxes under Code Section 857 or Code Section 4981, is
expressly authorized under this Agreement and is approved by all of the Limited
Partners.

                                       22
<PAGE>

                                   ARTICLE VI
                                      TERM

      The term of the Partnership shall continue until the Partnership is
terminated upon the occurrence of an event described in Section 14.1 below.

                                  ARTICLE VII
                                   ALLOCATIONS

      7.1 PROFITS.

            A. After giving effect to the special allocations set forth in
      Sections 7.3, 7.4, and 14.2(C), Profits for any fiscal year other than
      Capital Transactions Gains shall be allocated as follows:

                  (i) first, gross profits shall be allocated to the holder of
            the Participation Interest, until the cumulative amount of Profits
            allocated to such holder pursuant to this Section 7.1(A) with
            respect to its Participation Interest equals the cumulative amount
            of distributions, other than distributions of proceeds from
            transactions resulting in Capital Transaction Gains or Losses, made
            to such holder pursuant to Section 8.2 hereof with respect to its
            Participation Interest; and

                  (ii) thereafter, remaining Profits shall be allocated among
            the Partners in proportion to the number of OP Units held by each
            such Partner.

            B. After giving effect to the allocations set forth in Sections 7.3,
      7.4 and 14.2(C), Capital Transaction Gains shall be computed separately
      with respect to each property and shall be allocated among the Partners as
      follows:

                  (i) first, among the Partners in proportion to, and to the
            extent of, any deficit balance in each such Partner's Capital
            Account;

                  (ii) second, to the holder of the Participation Interest in
            the minimum amount needed so as to cause its Capital Account balance
            to equal the product of the Percentage Interest attributable to the
            Participation Interest and the aggregate Capital Account balances of
            all the Partners (after giving effect to the allocation in this
            clause (ii)); and

                  (iii) thereafter, among the Partners in proportion to their
            respective Percentage Interests.

                                       23

<PAGE>

            C. In the event that the Partnership issues additional Units to the
      General Partner or any Limited Partner pursuant to Section 3.2 hereof, the
      General Partner shall make such revisions to this Section 7.1 as it
      determines are necessary to reflect the terms of the issuance of such
      additional Units, including such revisions as are needed to ensure that
      such allocations (i) will comply with the terms of Regulations Sections
      1.704-1 and -2 and Code Section 514(c)(9)(E), (ii) will properly reflect
      the varying interests of the Partners in the Partnership, and (iii) will
      cause the Capital Accounts of the Partners held by them to be in the
      ratios in which the Partners are entitled to receive distributions with
      respect to their Partnership Interests pursuant to Article 8 hereof.

      7.2 LOSSES.

            A. After giving effect to the special allocations set forth in
      Sections 7.3, 7.4, and 14.2(C), all Losses (including Capital Transaction
      Losses, which shall be computed and allocated separately with respect to
      each property) shall be allocated among the Partners as follows:

                  (i) first, among the Partners in proportion to the number of
            OP Units held by each such Partner, until the aggregate Capital
            Account balances of the Partners holding OP Units is reduced to an
            amount equal to the product of (a) 100% minus the Percentage
            Interest attributable to the Participation Interest and (b) the
            aggregate Capital Account balances of all the Partners (after giving
            effect to the allocation in this clause (i));

                  (ii) second, among the Partners in proportion to their
            respective positive Capital Account balances; and

                  (iii) thereafter, among the Partners in proportion to the
            number of OP Units held by each such Partner.

            B. The Losses allocated pursuant to Section 7.2(A) above shall not
      exceed the maximum amount of Losses that can be so allocated without
      causing any Limited Partner to have an Adjusted Capital Account Deficit at
      the end of any fiscal year. All Losses in excess of the limitations set
      forth in this Section 7.2(B) shall be allocated among the other Partners
      in proportion to the number of OP Units held by each such other Partner.

            C. In the event that the Partnership issues additional Units to the
      General Partner or any Limited Partner pursuant to Section 3.2 hereof, the
      General Partner shall make such revisions to this Section 7.2 as it
      determines are necessary to reflect the terms of the issuance of such
      additional Units, including such revisions as are needed to ensure that
      such allocations (i) will comply with the terms of Regulations Sections
      1.704-1 and -2 and Code Section 514(c)(9)(E), (ii) will properly reflect
      the varying interests of the Partners in the Partnership, and (iii) will
      cause the Capital Accounts of the Partners to be in the ratios in which
      the Partners are entitled to receive distributions with respect to their
      Partnership Interests pursuant to Article 8 hereof.

                                       24
<PAGE>

      7.3 SPECIAL ALLOCATIONS. The following special allocations shall be made
in the following order:

            A. Except as otherwise provided in Regulations Section 1.704-2(f),
      and notwithstanding any other provision of this Article 7, if there is a
      net decrease in Partnership Minimum Gain during any fiscal year, each
      Partner shall be specially allocated items of Partnership income and gain
      for such fiscal year (and, if necessary, subsequent fiscal years) in an
      amount equal to such Partner's share of the net decrease in Partnership
      Minimum Gain, determined in accordance with Regulations Section
      1.704-2(g). The items to be so allocated shall be determined in accordance
      with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
      7.3(A) is intended to comply with the minimum gain chargeback requirement
      in Regulations Section 1.704-2(f) and shall be interpreted consistently
      therewith.

            B. Except as otherwise provided in Regulations Section
      1.704-2(i)(4), and notwithstanding any other provision of this Article 7,
      if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
      attributable to a Partner Nonrecourse Debt during any Partnership fiscal
      year, each Partner who has a share of the Partner Nonrecourse Debt 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 fiscal year (and,
      if necessary, subsequent fiscal years) in an amount equal to such
      Partner's share of the net decrease in Partner Nonrecourse Debt Minimum
      Gain attributable to such Partner Nonrecourse Debt, determined in
      accordance with Regulations Section 1.704-2(i)(4). The items to be so
      allocated shall be determined in accordance with Regulations Sections
      1.704-2(i)(4) and 1.704-2(i)(2). This Section 7.3(B) is intended to comply
      with the minimum gain chargeback requirement in Regulations Section
      1.704-2(i)(4) and shall be interpreted consistently therewith.

            C. In the event any Partner unexpectedly receives any adjustments,
      allocations, or distributions described in Regulations Sections
      1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
      1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be
      specially allocated to each such Partner in an amount and manner
      sufficient to eliminate, to the extent required by the Regulations, the
      Adjusted Capital Account Deficit of such Partner as quickly as possible,
      provided that an allocation pursuant to this Section 7.3(C) shall be made
      only if and to the extent that such Partner would have an Adjusted Capital
      Account Deficit after all other allocations provided for in this Article 7
      have been tentatively made, as if this Section 7.3(C) were not in this
      Agreement.

            D. In the event any Partner has a deficit Capital Account at the end
      of any Partnership fiscal year which is in excess of the sum of (i) the
      amount such Partner is obligated to restore pursuant to any provision of
      this Agreement, and (ii) 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, provided that an allocation pursuant to
      this Section 7.3(D) shall be made only if and to the extent that such
      Partner would have a deficit Capital Account after all other

                                       25
<PAGE>

      allocations provided for in this Article 7 have been made as if Section
      7.3(C) hereof and this Section 7.3(D) were not in the Agreement.

            E. If and to the extent Partners holding Preference Units receive
      preferred distributions from the Partnership (other than distributions
      pursuant to Section 14.2(C) in final liquidation of the Partnership), each
      such Partner shall be allocated Partnership gross income in an amount
      equal to the amount of preferred distributions received with respect to
      such Preference Units, prior to any allocations of Profit and Loss
      pursuant to Sections 7.1 and 7.2 above. For purposes of this Section
      7.3(E), any payment with respect to a Preference Unit that, under the
      applicable Preference Unit Term Sheet, constitutes a payment in redemption
      of such Preference Unit (and a return of the Partner's Capital
      Contribution with respect to such Preference Unit) shall not result in a
      special allocation of gross income to the Partner receiving such payments
      under this Section 7.3(E), except to the extent such payment is
      specifically attributable to accrued and unpaid preferred distributions
      with respect to such Preference Unit provided for in such Preference Unit
      Term Sheet.

            F. Nonrecourse Deductions for any fiscal year shall be allocated
      among the Partners in accordance with their respective Percentage
      Interests.

            G. Any Partner Nonrecourse Deductions for any fiscal year shall be
      specially allocated to the 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)(1).

            H. To the extent an adjustment to the adjusted tax basis of any
      Partnership asset pursuant to Code Section 734(b) is required, pursuant to
      Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
      determining Capital Accounts as the result of a distribution to a Partner
      in complete liquidation of its interest in the Partnership, the amount of
      such adjustment to 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
      specifically allocated to the Partner to whom such distribution was made.

      7.4 CURATIVE ALLOCATIONS. The allocations set forth in Sections 7.2(C),
7.3(A), 7.3(B), 7.3(C), 7.3(D), 7.3(F), 7.3(G), and 7.3(H) above (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations under Code Section 704(b). It is the intent of the Partners
that, to the extent possible, all Regulatory Allocations shall be offset either
with other Regulatory Allocations or with special allocations of other items of
Partnership income, gain, loss, or deduction pursuant to this Section 7.4.
Therefore, notwithstanding any other provision of this Article 7 (other than the
Regulatory Allocations), the General Partner shall make such offsetting special
allocations of Partnership income, gain, loss, or deduction in whatever manner
it determines appropriate so that, after such offsetting allocations are made,
each Partner's Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Partner would have had if the Regulatory
Allocations were not part of the Agreement and all Partnership items were
allocated pursuant to Section 7.1(A)(ii) and 7.2(A) (subject, however, to
Section 7.3(E) above). In exercising its discretion under this

                                       26
<PAGE>

Section 7.4, the General Partner shall take into account future Regulatory
Allocations under Section 7.3(A) and 7.3(B) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under Sections
7.3(F) and 7.3(G).

      7.5 TAX ALLOCATIONS: CODE SECTION 704(C).

            A. Income, gain, loss, and deduction with respect to any property
      contributed to the capital of the Partnership shall, solely for tax
      purposes, be allocated among the Partners so as to take account of any
      variation between the adjusted basis of such property to the Partnership
      for Federal income tax purposes and its initial Gross Asset Value in
      accordance with any permissible method or methods under Code Section
      704(c) and the Regulations thereunder, as determined in the sole
      discretion of the General Partner.

            B. In the event the Gross Asset Value of any Partnership asset is
      adjusted pursuant to the definition of "Gross Asset Value" contained in
      Article 2 above, subsequent allocations of income, gain, loss and
      deduction with respect to such asset shall take account of any variation
      between the adjusted basis of such asset for Federal income tax purposes
      and its Gross Asset Value in the same manner or manners permitted under
      Code Section 704(c) and the Regulations thereunder.

            C. The portion of any gain recognized by the Partnership on the
      disposition of property which is classified as ordinary income under
      Sections 751, 1245 or 1250 of the Code, or which is classified as
      "unrecaptured section 1250 gain" under Section 1(h)(7) of the Code, shall
      be allocated among the Partners in the ratio in which the deductions
      giving rise to such ordinary income or unrecaptured section 1250 gain were
      allocated; provided, however, that the amount of ordinary income or
      unrecaptured section 1250 gain so allocated shall not exceed the gain from
      such sale or disposition that is so allocable to the Partner.

            D. Any elections or other decisions relating to the allocations
      provided under this Section 7.5 shall be made by the General Partner using
      any permissible manner under the Code or the Regulations that the General
      Partner may elect in its sole discretion. Allocations pursuant to this
      Section 7.5 are solely for purposes of Federal, state, and local taxes and
      shall not affect, or in any way be taken into account in computing, any
      Partner's Capital Account or share of Profits, Losses, other items, or
      distributions pursuant to any provision in this Agreement.

                                  ARTICLE VIII
                         CASH AVAILABLE FOR DISTRIBUTION

      8.1 DEFINITION OF AVAILABLE CASH. As used in this Agreement, "Available
Cash" shall mean and be defined as all cash receipts of the Partnership from
whatever source during the period in question in excess of all items of
Partnership expense (other than non-cash expenses such as depreciation) and
other cash needs of the Partnership, including, without limitation, investments
by the Partnership, amounts paid by the Partnership as principal on debts and
advances during such period, capital expenditures, payments to any dealer
manager, advisor

                                       27

<PAGE>

or property manager under any dealer manager, advisory and/or property
management agreement, other fees and expense reimbursements, funds used for
redemptions, and any reserves (as determined by the General Partner) established
or increased during such period. In the discretion of the General Partner, but
subject to Section 5.3, reserves may include cash held for future acquisitions.

      8.2 TIMING AND PRIORITY OF DISTRIBUTIONS OF AVAILABLE CASH. Available Cash
shall be distributed to or for the benefit of the Partners of record as of the
applicable Record Date not less frequently than quarterly. All such
distributions shall, subject to the rights of any holder of Preference Units, be
distributed among the Partners holding OP Units and Participation Interests in
proportion to their respective Percentage Interests as of the applicable Record
Date.

      8.3 CONSENT TO ALLOCATIONS AND DISTRIBUTIONS. Each of the Partners hereby
consents to the allocations and distributions provided for in this Agreement.
8.4 RIGHT TO LIMIT DISTRIBUTIONS. The right of any Partner to receive
distributions of any nature pursuant to the terms of this Agreement shall be
subject to the terms of any agreement between such Partner and the Partnership
limiting, restricting or providing rights of set-off with respect to such
distributions.

                                   ARTICLE IX
                            MANAGEMENT OF PARTNERSHIP

      9.1 GENERAL PARTNER. The General Partner shall be the sole manager of the
Partnership business, and shall have the right and power to make all decisions
and take any and every action with respect to the property, the business and
affairs of the Partnership and shall have all the rights, power and authority
generally conferred by law, or necessary, advisable or consistent with
accomplishing the purposes of the Partnership. All such decisions or actions
made or taken by the General Partner hereunder shall be binding upon all of the
Partners and the Partnership. The powers of the General Partner to manage the
Partnership business shall include, without limitation, the power and authority
to, directly or indirectly:

            (i) operate any business normal or customary for the owner of or
      investor in commercial property of the type held by the Partnership;

            (ii) perform any and all acts necessary or appropriate to the
      operation of the Partnership's assets, including, but not limited to,
      preparing, negotiating, executing and delivering leases and rental
      agreements with regard to real and personal property owned by the
      Partnership, preparing applications for rezoning, preparing objections to
      rezoning of other property and establishing bank accounts in the name of
      the Partnership;

            (iii) improve, renovate and/or perform construction activities with
      regard to the properties owned by the Partnership and to retain such
      contractors, subcontractors and other persons or entities as may be
      required in connection with such activities;

                                       28

<PAGE>

            (iv) procure and maintain such insurance as may be available in such
      amounts and covering such risks as are deemed appropriate by the General
      Partner;

            (v) take and hold all real, personal and mixed property of the
      Partnership in the name of the Partnership or in the name of a nominee;

            (vi) negotiate, execute and deliver agreements on behalf of and in
      the name of the Partnership;

            (vii) borrow money (whether on a secured or unsecured basis),
      finance and refinance the assets of the Partnership or any part thereof or
      interest therein, and in connection therewith, issue notes, bonds,
      securities and other undertakings and evidences of indebtedness and
      documents related thereto (including, without limitation, guaranties,
      indemnities and similar undertakings to support loans obtained or debt
      securities issued by the Company);

            (viii) coordinate all accounting and clerical functions of the
      Partnership and employ such accountants, lawyers, property managers,
      leasing agents and other management or service personnel as may from time
      to time be required to carry on the business of the Partnership;

            (ix) acquire any assets, and encumber, sell, assign, transfer,
      ground lease or otherwise dispose of any or all of the assets of the
      Partnership, or any part thereof or interest therein including, without
      limitation, by way of any Unit dividend, split, recapitalization, merger,
      consolidation, combination, exchange of Units or other similar Partnership
      organizational change;

            (x) organize one or more partnerships, corporations, limited
      liability companies or other business entities which are controlled,
      directly or indirectly, by the Partnership and make any capital
      contributions (in cash or in kind) required pursuant to the organizational
      documents or subscription agreements relating to any such partnerships,
      corporations, limited liability companies or other business entities; and

            (xi) establish the date (the "Record Date") for the purpose of
      making any proper determination in connection with, but not limited to,
      the following matters: (a) which Partners are entitled to receive
      distributions, (b) consent to any matter for which the consent of Partners
      is permitted or required under any provision hereof, or (c) otherwise when
      Partners are allocated rights hereunder.

      9.2 LIMITATIONS ON POWER AND AUTHORITY OF PARTNERS. Notwithstanding the
powers of the General Partner set forth in Section 9.1 above, the General
Partner shall not have the right or power to do any of the following unless any
such action is approved by a Majority-in-Interest of the Limited Partners:

                                       29

<PAGE>

            A. do any act in contravention of this Agreement, or any amendment
      hereto; or

            B. do any act which would make it impossible to carry on the
      ordinary business of the Partnership, except to the extent that such act
      is specifically permitted by the terms hereof (it being understood and
      agreed that a sale of any or all of the assets of the Partnership, for
      example, would be an ordinary part of the Partnership's business and
      affairs and is specifically permitted hereby).

      9.3 LIMITED PARTNERS. The Limited Partners shall have no right or
authority to act for or to bind the Partnership and no Limited Partner (other
than the General Partner if the General Partner is also a Limited Partner) shall
participate in the conduct or control of the Partnership's affairs or business.

      9.4 LIABILITY OF GENERAL PARTNER. The General Partner shall not be liable
or accountable, in damages or otherwise, to the Partnership or to any other
Partner for any error of judgment or for any mistakes of fact or law or for
anything which it may do or refrain from doing hereafter in connection with the
business and affairs of the Partnership except (i) in the case of fraud, willful
misconduct (such as an intentional breach of fiduciary duty or an intentional
breach of this Agreement) or gross negligence, and (ii) for other breaches of
this Agreement, but the liability of the General Partner under this clause (ii)
shall be limited to its interest in the Partnership as more particularly
provided for in Section 9.8. The General Partner shall not have any personal
liability for the return of any Limited Partner's Capital Contributions.

      9.5 INDEMNITY. The Partnership shall indemnify and shall hold the General
Partner (and the officers and directors thereof) harmless from any liability,
loss, cost or damage, including without limitation reasonable legal fees and
court costs, incurred by it by reason of anything it may do or refrain from
doing hereafter for and on behalf of the Partnership or in connection with its
business or affairs; provided, however, that the Partnership shall not be
required to indemnify (i) the General Partner for any liability, loss, cost or
damage which it might incur as a result of its fraud, willful misconduct or
gross negligence in the performance of its duties hereunder, (ii) any officer or
director (other than "Independent Directors", as such term is defined in the
Articles of Incorporation) of the General Partner for any liability, loss, cost
or damage which it might incur as a result of misconduct or negligence of such
person, and (iii) any Independent Directors of the General Partner for any
liability, loss, cost or damage which it might incur as a result of willful
misconduct or gross negligence of such person. In addition, the General Partner
shall be entitled to reimbursement from the Partnership for any amounts paid by
it in satisfaction of indemnification obligations owed by the General Partner to
present or former officers or directors of the General Partner or its
predecessors, as provided for in or pursuant to the Articles of Incorporation
and Bylaws of the General Partner. The right of indemnification set forth in
this Section 9.5 shall be in addition to any rights to which the person or
entity seeking indemnification may otherwise be entitled and shall inure to the
benefit of the successors and assigns of any such person or entity. No Partner
shall be personally liable with respect to any claim for indemnification
pursuant to this Section 9.5, but such claim shall be satisfied solely out of
assets of the Partnership.

                                       30
<PAGE>

      9.6 OTHER ACTIVITIES OF PARTNERS AND AGREEMENTS WITH RELATED PARTIES.
Except as may otherwise be agreed to in writing, each Limited Partner, and its
affiliates, shall be free to engage in, to conduct or to participate in any
business or activity whatsoever, including, without limitation, the acquisition,
development, management and exploitation of real and personal property (other
than property of the Partnership), without any accountability, liability or
obligation whatsoever to the Partnership or to any other Partner, even if such
business or activity competes with or is enhanced by the business of the
Partnership. The General Partner, in the exercise of its power and authority
under this Agreement, may contract and otherwise deal with or otherwise obligate
the Partnership to entities in which the General Partner or any one or more of
the officers, directors or shareholders of the General Partner may have an
ownership or other financial interest, whether direct or indirect.

      9.7 OTHER MATTERS CONCERNING THE GENERAL PARTNER.

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

            B. The General Partner may exercise any of the powers granted or
      perform any of the duties imposed by this Agreement either directly or
      through agents. The General Partner may consult with legal counsel,
      accountants, appraisers, management consultants, investment bankers and
      other consultants selected by it, each of whom may serve as consultants
      for the Partnership. An opinion by any consultant on a matter which the
      General Partner believes to be within its professional or expert
      competence shall be full and complete protection as to any action taken or
      omitted by the General Partner based on the opinion and actions taken or
      omitted in accordance therewith. The General Partner shall not be
      responsible for the misconduct, negligence, acts or omissions of any
      consultant or contractor of the Partnership or of the General Partner, and
      shall assume no obligation other than to use due care in the selection of
      all consultants and contractors.

            C. No mortgagee, grantee, creditor or any other person dealing with
      the Partnership shall be required to investigate the authority of the
      General Partner or secure the approval of or confirmation by any Limited
      Partner of any act of the General Partner in connection with the conduct
      of any ordinary or extraordinary Partnership business.

            D. The General Partner may retain such persons or entities as it
      shall determine (including the General Partner or any entity in which the
      General Partner shall have an interest or with which it is affiliated) to
      provide services to or on behalf of the Partnership. The General Partner
      shall be entitled to reimbursement from the Partnership for its
      out-of-pocket expenses (including, without limitation, amounts paid or
      payable to the General Partner or any entity in which the General Partner
      shall have an interest or with which it is affiliated) incurred in
      connection with Partnership business. Such expenses shall be deemed to
      include without limitation those expenses required in

                                       31
<PAGE>

      connection with the administration of the Partnership such as the
      maintenance of Partnership books and records, management of the
      Partnership property and assets and preparation of information respecting
      the Partnership needed by the Partners in the preparation of their
      individual tax returns.

            E. The General Partner may loan to the Partnership the net proceeds
      of loans obtained or debt securities issued by the Company so long as the
      terms of such loan to the Partnership are substantially equivalent to the
      corresponding loan obtained or debt securities issued by the Company.

      9.8 PARTNER EXCULPATION. Except for fraud, willful misconduct and gross
negligence, no Partner shall have any personal liability whatsoever, whether to
the Partnership or to any other Partner, for the debts or liabilities of the
Partnership or its obligations hereunder, and the full recourse of any Partner
shall be limited to the interest of that Partner in the Partnership. To the
fullest extent permitted by law, no officer, director or shareholder of the
General Partner shall be liable to the Partnership for money damages except for
(i) active and deliberate dishonesty established by a final judgment, order or
decree of a court of competent jurisdiction or (ii) actual receipt of an
improper benefit or profit in money, property or services. Without limitation of
the foregoing, and except for fraud, willful misconduct and gross negligence, 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
Partners and arising out of, or in connection with, this Agreement. No advisor,
trustee, manager, trust manager, member, director, officer, partner, employee,
beneficiary, shareholder, participant or agent of any Partner (or of any partner
of a Partner) shall be personally liable in any matter or to any extent under or
in connection with this Agreement, and the Partnership, each Partner and their
respective successors and assigns shall look solely to the interest of the other
Partner in the Partnership for the payment of any claim or for any performance
hereunder.

      9.9 GENERAL PARTNER EXPENSES AND LIABILITIES. The Partnership will pay or
reimburse the General Partner for all ongoing accounting and administrative
expenses of the General Partner so that, absent extraordinary circumstances, the
General Partner will not bear any expenses beyond those borne by the
Partnership. The Partnership shall pay all out-of-pocket costs and expenses
(including legal, accounting, tax, consulting and other professional fees and
expenses and travel and entertainment expenses) incurred by the Partnership, the
General Partner, and the General Partner and its Affiliates in connection with
the structuring and organization of the Partnership and the General Partner and
the offering and sale of Units and Common Shares and Other Securities.

                                   ARTICLE X
                                     BANKING

      The funds of the Partnership shall be kept in accounts designated by the
General Partner and all withdrawals therefrom shall be made on such signature or
signatures as shall be designated by the General Partner.

                                       32

<PAGE>

                                   ARTICLE XI
                                   ACCOUNTING

      11.1 FISCAL YEAR. The fiscal year and taxable year of the Partnership (the
"fiscal year") shall end on the last day of December of each year, unless
another fiscal year end is selected by the General Partner.

      11.2 BOOKS OF ACCOUNT. The Partnership books of account shall be
maintained at the principal office designated in Article 4 or at such other
locations and by such person or persons as may be designated by the General
Partner. The Partnership shall pay the expense of maintaining its books of
account. Each Partner shall have, during reasonable business hours and upon
reasonable prior notice, access to the books of the Partnership and in addition,
at its expense, shall have the right to copy such books. The General Partner, at
the expense of the Partnership, shall cause to be prepared and distributed to
the Partners annual financial data sufficient to reflect the status and
operations of the Partnership and its assets and to enable each Partner to file
its federal income tax return.

      11.3 METHOD OF ACCOUNTING. The Partnership books of account shall be
maintained and kept, and its income, gains, losses and deductions shall be
accounted for, in accordance with generally accepted accounting principles
consistently applied, or such other method of accounting as may be adopted
hereafter by the General Partner.

      11.4 TAX MATTERS.

            A. The General Partner is hereby designated the Tax Matters Partner
      (hereinafter referred to as the "TMP") of the Partnership and shall have
      all rights and obligations of the TMP under the Code. The Partnership
      shall reimburse the TMP for any and all out-of-pocket costs and expenses
      (including attorneys' and accountants' fees) incurred or sustained by it
      in its capacity as TMP. The Partnership shall indemnify, defend and hold
      the TMP harmless from and against any loss, liability, damage, cost or
      expense (including attorneys' and accountants' fees) sustained or incurred
      as a result of any act or decision concerning the Partnership tax matters
      and within the scope of its responsibility as TMP. If the Partnership is
      the subject of an income tax audit by any federal, state, local or foreign
      authority, then to the extent the Partnership is treated as an entity for
      purposes of the audit, including administrative settlement and judicial
      review, the TMP shall be authorized to act for, and its decision shall be
      final and binding upon, the Partnership and each Partner.

            B. The General Partner shall take such steps as are necessary to
      ensure that the Partnership is taxed as a partnership under the Code.
      Subject to the preceding sentence, the General Partner shall have the
      exclusive right to make any determination whether the Partnership shall
      make available elections (including any election pursuant to Code Section
      754 to adjust the tax basis of Partnership assets) for federal, state, or
      local tax purposes, and the General Partner shall be absolved from all
      liability and other consequences from its making or failing to make any
      such election. All decisions and other matters concerning the computation
      and allocation or tax items and attributes which are not otherwise
      specifically provided for by the terms of this Agreement shall be

                                       33
<PAGE>

      determined by the General Partner, and the General Partner shall be
      absolved from all liability and other consequences from any such decisions
      which are made in good faith.

            C. The General Partner shall take all such actions as are reasonably
      necessary for the Partnership to comply with any withholding or comparable
      requirements under federal, state, local and foreign law and shall remit
      any amounts withheld to, and file required forms with, the applicable
      taxing jurisdictions. All amounts withheld from distributions shall be
      treated as having been distributed to the Partner with respect to whom the
      withholding was made. Any amounts that are required to be withheld by the
      Partnership with respect to a Partner which are in excess or in advance of
      distributions to such Partnership shall be paid over by such Partner to
      the Partnership. Each Partner agrees to furnish the Partnership with such
      representations and forms as the General Partner shall reasonably request
      to assist in complying with the Partnership's withholding obligations. A
      Partner subject to withholding shall pay to or reimburse the Partnership
      for taxes, related interest and penalties, and all other costs and
      expenses incurred by the Partnership in connection with such withholding
      obligation, except for interest, penalties or costs (but not taxes) that
      are incurred as a result of the gross negligence or willful misconduct of
      the Partnership or the General Partner

                                  ARTICLE XII
                       TRANSFERS OF PARTNERSHIP INTERESTS

      12.1 GENERAL PARTNER. The General Partner may not Transfer its interest in
the Partnership without the consent of a Majority-in-Interest of the Limited
Partners unless (i) the Transfer of such interest is to a Hines Controlled
Entity or to an entity that is, directly or indirectly, wholly-owned by the
Company and/or a Hines Controlled Entity, or (ii) the Transfer of such interest
is pursuant to or in connection with a Recapitalization and either (a) the
Recapitalization has been approved by the consent of a Majority-in-Interest of
the Limited Partners, or (b) an appropriate adjustment to the number of OP Units
held by each Partner has been made in accordance with Section 3.2(F).

      12.2 LIMITED PARTNER.

            A. No Limited Partner or substituted Limited Partner may Transfer
      all or any part of its interest in the Partnership, unless each of the
      following conditions are met:

                  (i) The Limited Partner obtains the prior written consent of
            the General Partner (which consent may be given or withheld in the
            sole discretion of the General Partner), except for (x) the exchange
            of OP Units or a Participation Interest for Common Shares, pursuant
            to Section 3.2(C) above or (y) the Transfer of Units or
            Participation Interests by any Hines Controlled Entity to any other
            Hines Controlled Entity.

                  (ii) Either (x) the Partnership qualifies for the Private
            Placement PTP Exemption for the entire taxable year of such Transfer
            and for all prior taxable years, (y) the Transfer is a Private
            Transfer, or (z) the Partnership is no longer

                                       34
<PAGE>

            potentially subject to classification as a publicly traded
            partnership, as defined in Section 7704 of the Code, as determined
            by the General Partner in its sole discretion.

                  (iii) Such Transfer is not limited or prohibited by, and
            complies with, any restrictions on transferability contained in the
            Articles of Incorporation and Bylaws of the Company and/or any
            applicable agreement executed by the transferor.

                  (iv) Such Transfer would not violate the securities laws of
            any jurisdiction applicable to the Partnership or the Partnership
            Interest to be assigned or transferred;

                  (v) Such Transfer would not cause the Partnership to lose its
            status as a partnership for U.S. federal income tax purposes or
            cause the Partnership to become subject to the Investment Company
            Act;

                  (vi) Such Transfer would not cause (A) all or any portion of
            the assets of the Partnership (1) to constitute "plan assets" (under
            ERISA, the Code or the applicable provisions of any similar law) of
            any existing or contemplated investor, or (2) to be subject to the
            provisions of ERISA, the Code or any applicable similar law, or (B)
            the General Partner to become a fiduciary with respect to any
            existing or contemplated investor, pursuant to ERISA or the
            applicable provisions of any similar law, or otherwise.

                  (vii) Such Transfer would not cause a termination of the
            Partnership under Code Section 708.

                  (viii) The Transferor delivers opinions of counsel regarding
            the foregoing matters in form and substance reasonably acceptable to
            the General Partner as a condition to any such Transfer.

                  (ix) The Transfer would not, in the opinion of the General
            Partner, (y) by treating the interest in the Partnership so
            transferred as if it had been exchanged for Common Shares in
            accordance with Section 3.2(C) above, violate the limitations on
            ownership of Common Shares contained in the Articles of
            Incorporation and/or Bylaws of the Company, or (z) violate any State
            or Federal securities laws.

                  (x) The Transferee shall have agreed to be bound by the terms
            of this Agreement and shall have executed a counterpart hereof or
            joinder hereto.

            B. A Limited Partner shall notify the General Partner of any
      Transfer of beneficial interest or other interest which occurs without a
      transfer of record ownership, as well as any pledge or other collateral
      transfer.

                                       35

<PAGE>

            C. No part of the interest of a Limited Partner shall be subject to
      the claims of any creditor, any spouse for alimony or support, or to legal
      process, and may not be voluntarily or involuntarily alienated or
      encumbered except as may be specifically provided for in this Agreement. A
      Limited Partner shall not be permitted to retire or withdraw from the
      Partnership except as expressly permitted by this Agreement.

            D. Any Transferee of all or any portion of a Limited Partner's
      interest in the Partnership in accordance and compliance with the
      provisions of this Section 12.2 shall be entitled to receive Profits,
      Losses and distributions hereunder attributable to such interest acquired
      by reason of such Transfer, from and after the effective date of the
      Transfer of such interest; provided, however, anything in this Agreement
      to the contrary notwithstanding, (i) without the prior written consent of
      the General Partner, no Transferee shall be considered a substituted
      Limited Partner; (ii) the Partnership and the General Partner shall be
      entitled to treat the Transferor of such interest as the absolute owner
      thereof in all respects, and shall incur no liability for the allocation
      of Profits and Losses or distributions which are made to such Transferor
      until such time as the written instrument of Transfer has been received by
      the General Partner and the "effective date" of the Transfer has passed,
      and (c) the General Partner shall have the right to require any such
      Transferor to exchange such Partnership Interest for Common Shares or
      cash, pursuant to Section 3.2(C) above. The "effective date" of any
      Transfer shall be the last day of the month set forth on the written
      instrument of Transfer or such other date consented to in writing by the
      General Partner as the "effective date."

      12.3 ADMISSION ADJUSTMENTS. The General Partner shall, when necessary,
cause this Agreement to be amended from time to time (and shall cause Schedule A
to be revised), to reflect the admission or withdrawal of Partners, and the
issuance, conversion and redemption of any Preference Units and/or OP Units
(including the corresponding adjustment to Percentage Interests).

      12.4 TRANSFERS TO LENDERS. Notwithstanding any other provision of this
Agreement to the contrary, no transfer of any Units or Participation Interest
may be made to a lender to the Partnership or any person who is related (within
the meaning of Regulations Section 1.752-4(b)) to any lender to the Partnership
whose loan constitutes a Nonrecourse Liability, without the consent of the
General Partner, which consent may be given or withheld by the General Partner
in its sole and absolute discretion, provided that as a condition to such
consent being granted the lender will be required to enter into an arrangement
with the Partnership and the General Partner to exchange or redeem for the Cash
Amount or the REIT Shares Amount any Units or Participation Interest in which a
security interest is held simultaneously with the time at which such lender
would be deemed to be a partner in the Partnership for purposes of allocating
liabilities to such lender under Code Section 752.

                                  ARTICLE XIII
                            ADMISSION OF NEW PARTNERS

      The General Partner shall admit to the Partnership as limited partners
those persons and entities who are not already Partners and who receive a
Participation Interest, OP Units and/or Preference Units in accordance with the
provisions of this Agreement.

                                       36

<PAGE>

                                  ARTICLE XIV
             TERMINATION, LIQUIDATION AND DISSOLUTION OF PARTNERSHIP

      14.1 TERMINATION EVENTS. The Partnership shall be dissolved and its
affairs wound up in the manner hereinafter provided upon the earliest to occur
of the following events:

            A. the sale of all or substantially all of the assets of the
      Partnership; or

            B. subject to Section 14.4 below, the entry of a final judgment,
      order or decree of a court of competent jurisdiction adjudicating as
      bankrupt either the Partnership or the General Partner, and the expiration
      without appeal of the period, if any, allowed by applicable law to appeal
      therefrom.

      14.2 METHOD OF LIQUIDATION. Upon the happening of any of the events
specified in Section 14.1 above, the General Partner (or if there be no General
Partner, a liquidating trustee selected by a Majority-in-Interest of the Limited
Partners) shall immediately commence to wind up the Partnership's affairs and
shall liquidate the assets of the Partnership as promptly as possible, unless
the General Partner, or the liquidating trustee, shall determine that an
immediate sale of Partnership assets would cause undue loss to the Partnership,
in which event the liquidation may be deferred for a reasonable time. The
Partners shall continue to share distributions, Profits and Losses during the
period of liquidation in the same proportions as before dissolution (subject to
Section 14.2(C) below). The proceeds from liquidation of the Partnership,
including repayment of any debts of Partners to the Partnership, shall be
applied in the following order:

            A. Debts of the Partnership, including repayments of principal and
      interest on loans and advances made by the General Partner pursuant to
      Sections 3.3 and/or 9.7 above; then

            B. To the establishment of any reserves deemed necessary or
      appropriate by the General Partner, or by the person(s) winding up the
      affairs of the Partnership in the event there is no remaining General
      Partner of the Partnership, for any contingent or unforeseen liabilities
      or obligations of the Partnership. Such reserves established hereunder
      shall be held for the purpose of paying any such contingent or unforeseen
      liabilities or obligations and, at the expiration of such period as the
      General Partner, or such person(s) deems advisable, the balance of such
      reserves shall be distributed in the manner provided hereinafter in this
      Section 14.2 as though such reserves had been distributed
      contemporaneously with the other funds distributed hereunder; and then

            C. To the Partners in accordance with their respective positive
      Capital Account balances, after giving effect to all contributions,
      distributions and allocations for all periods. In connection therewith,
      income, gain and loss of the Partnership (and to the extent necessary to
      achieve the purposes hereof, items of gross income and deduction) with
      respect to the sale or other disposition of all or substantially all of
      the Partnership's assets and/or the Partnership's operations in connection
      therewith (whether or not attributable to the taxable year in which the
      distribution pursuant to this Section 14.2(C)

                                       37
<PAGE>

      is to be made or a preceding taxable year) shall be allocated among the
      Partners so that each Partner's Capital Account shall equal, after taking
      into account the prior balance (positive or negative) in such Partner's
      Capital Account and the effect of such allocation, the amount that such
      Partner would be entitled to receive if the Partnership were to make a
      distribution to the Partners pursuant to the provisions of Section 8.2
      hereof in an amount equal to the remaining liquidation proceeds to be
      distributed under this Section 14.2(C).

      14.3 DATE OF TERMINATION. The Partnership shall be terminated when all
notes received in connection with any liquidating sales or other dispositions
have been paid or distributed and all of the cash or property available for
application and distribution under Section 14.2 above (including reserves) shall
have been applied and distributed in accordance therewith.

      14.4 RECONSTITUTION UPON BANKRUPTCY.

            A. Notwithstanding any dissolution of the Partnership under Section
      14.1(D) above, if the Partnership is reconstituted as set forth in this
      Section 14.4, then the business of the Partnership shall be continued with
      the Partnership's property and the Partnership's assets shall not be
      liquidated.

            B. If the Partnership is dissolved by reason of the bankruptcy of
      the General Partner, a successor general partner may, in the discretion of
      the General Partner hereunder with the written consent of a
      Majority-in-Interest of the Limited Partners, be admitted within 90 days
      after the dissolution, effective as of the date of dissolution. Upon the
      admission of such successor general partner, without any further consent
      or approval of any other Partner, the Partnership shall be reconstituted
      as a successor limited partnership.

            C. If the Partnership is dissolved by reason of the bankruptcy of
      the Partnership in a proceeding for the reorganization (and not the
      liquidation) of the Partnership, then, with the consent of the Company and
      a Majority-in-Interest of the Limited Partners, the Partnership may be
      reconstituted within 90 days after dissolution, effective as of the date
      of dissolution, whereupon the Partnership shall be reconstituted as a
      successor limited partnership.

            A. The successor limited partnership reconstituted in accordance
      with the foregoing provisions of this Section 14.4 shall continue the
      business of the Partnership with the Partnership's property. The
      Percentage Interests of the Partners in the successor limited partnership
      shall be in proportion to their respective Percentage Interests in the
      dissolved Partnership. Such successor limited partnership shall be
      governed by the terms and provisions of this Agreement and references in
      this Agreement to the Partnership or to the Partners or their rights and
      obligations shall be understood to comprehend such successor limited
      partnership and the Partners thereof and their rights and obligations.

      14.5 DEATH, LEGAL INCOMPETENCY, ETC. OF A LIMITED PARTNER. The death,
legal incompetency, insolvency, dissolution or bankruptcy of a Limited Partner
shall not dissolve or terminate the Partnership. Upon the death or incapacity of
an individual Limited Partner, such

                                       38
<PAGE>

individual Limited Partner's interest in the Partnership shall be transferred
either by will, the laws of intestacy or otherwise to the legal representative
or successor of such individual Limited Partner.

                                   ARTICLE XV
                                POWER OF ATTORNEY

      Each Limited Partner hereby irrevocably constitutes and appoints the
General Partner, with full power of substitution, its true and lawful attorney,
for it and in its name, place and stead and for its use and benefit, to sign,
swear to, acknowledge, file and record:

            A. this Agreement, and subject to Article 16 below, amendments to
      this Agreement;

            B. any certificates, instruments and documents (including assumed
      and fictitious name certificates) as may be required by, or may be
      appropriate under, the laws of the State of Delaware, the State of Texas
      or any other State or jurisdiction in which the Partnership is doing or
      intends to do business, in order to discharge the purposes of the
      Partnership or otherwise in connection with the use of the name or names
      used by the Partnership;

            C. any other instrument which may be required to be filed or
      recorded by the Partnership on behalf of the Partners under the laws of
      any State or by any governmental agency in order for the Partnership to
      conduct its business;

            D. any documents which may be required to effect the continuation of
      the Partnership, the admission of a substitute or additional Partner, the
      dissolution and termination of the Partnership or the amendment and
      restatement of Schedule A, provided such continuation, admission,
      dissolution and termination or amendment and restatement of Schedule A, is
      not in violation of any provision of this Agreement; and

            E. any documents which may be required or desirable to have the
      General Partner appointed, and act as, the TMP.

The foregoing grant of authority is a special power of attorney coupled with an
interest, is irrevocable and shall survive the death or incapacity of any
individual Limited Partner, and shall survive the delivery of any assignment by
a Limited Partner of the whole or any portion of his interest in the
Partnership.

                                  ARTICLE XVI
                             AMENDMENT OF AGREEMENT

            A. Each Limited Partner, by his execution of or joinder in this
      Agreement, hereby irrevocably appoints the General Partner with power of
      substitution, as his true and lawful attorney coupled with an interest, in
      his name, place and stead to amend this Agreement in any respect other
      than:

                                       39

<PAGE>

                  (i) to enlarge the obligation of any Partner to make
            contributions to the capital of the Partnership; or

                  (ii) except as otherwise provided for in this Agreement or as
            required by law, to modify the allocation of Profits or Losses or
            distributions among the Partners as provided for in Articles 7 and 8
            above, respectively; or

                  (iii) to amend Articles 1 or 12 or Section 9.2; or

                  (iv) to amend this Article 16.

            B. With respect to amendments regarding Sections 16(A)(ii) or
      16(A)(iii), this Agreement may be amended with the written consent of the
      General Partner and those Limited Partners holding not less than 67% of
      the aggregate of Percentage Interests held by all Limited Partners.
      Notwithstanding the foregoing, the terms and conditions of a particular
      series of Preference Units may not be changed without the written consent
      of the holders of at least 67% of the Preference Units within the class or
      series (or such greater percentage as may be provided for in the
      applicable Preference Unit Term Sheet).

            C. With respect to amendments regarding Section 16(A)(i), this
      Agreement may be amended only with the written consent of the General
      Partner and any Partner adversely affected by such amendment. With respect
      to amendments regarding Section 16(A)(iv) this Agreement may be amended
      only with the written consent of all Partners.

      In the event this Agreement shall be amended pursuant to this Article 16,
the General Partner shall cause this Agreement to be amended to reflect the
amendment.

                                  ARTICLE XVII
                                  MISCELLANEOUS

      17.1 NOTICES. Any notice, election or other communication provided for or
required by this Agreement shall be in writing and shall be deemed to have been
given when delivered by hand or by telecopy or other facsimile transmission, the
first business day after sent by overnight courier (such as Federal Express), or
on the second business day after deposit in the United States Mail, certified or
registered, return receipt requested, postage prepaid, properly addressed to the
Partner to whom such notice is intended to be given at the address for the
Partner set forth on Schedule A of this Agreement, or at such other address as
such person may have previously furnished in writing to the Partnership and each
Partner with copies to the General Partner at 2800 Post Oak Boulevard, Suite
5000, Houston, Texas 77056-6118.

      17.2 MODIFICATIONS. Except as otherwise provided in this Agreement, no
change or modification of this Agreement, nor any waiver of any term or
condition in the future, shall be valid or binding upon a Partner unless such
change or modification shall be in writing and signed by such Partner.

                                       40

<PAGE>

      17.3 SUCCESSORS AND ASSIGNS. Any person acquiring or claiming an interest
in the Partnership, in any manner whatsoever, shall be subject to and bound by
all of the terms, conditions and obligations of this Agreement to which his
predecessor-in-interest was subject or bound, without regard to whether such a
person has executed a counterpart hereof or any other document contemplated
hereby. No person, including the legal representative, heir or legatee of a
deceased Partner, shall have any rights or obligations greater than those set
forth in this Agreement, and no person shall acquire an interest in the
Partnership or become a Partner thereof except as expressly permitted by and
pursuant to the terms of this Agreement. Subject to the foregoing, and the
provisions of Article 12 above, this Agreement shall be binding upon and inure
to the benefit of the Partners and their respective successors, assigns, heirs,
legal representatives, executors and administrators.

      17.4 DUPLICATE ORIGINALS. For the convenience of the Partners, any number
of counterparts hereof may be executed, and each such counterpart shall be
deemed to be an original instrument, and all of which taken together shall
constitute one agreement.

      17.5 CONSTRUCTION. The titles of the Articles, Sections and subsections
herein have been inserted as a matter of convenience of reference only and shall
not control or affect the meaning or construction of any terms or provisions
herein.

      17.6 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware. Except to the extent the Act is inconsistent with the
provisions of this Agreement, the provisions of such Act shall apply to the
Partnership.

      17.7 OTHER INSTRUMENTS. The parties hereto covenant and agree that they
will execute such other and further instruments and documents as, in opinion of
the General Partner, are or may become necessary or desirable to effectuate and
carry out the Partnership as provided for by this Agreement.

17.8 GENERAL PARTNER WITH INTEREST AS LIMITED PARTNER. If the General Partner
ever has an interest as a Limited Partner in the Partnership, the General
Partner shall, with respect to such interest, enjoy all of the rights and be
subject to all of the obligations and duties of a Limited Partner.

      17.9 LEGAL CONSTRUCTION. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein

      17.10 GENDER. Whenever the context shall so require, all words herein in
any gender shall be deemed to include the masculine, feminine or neuter gender,
all singular words shall include the plural, and all plural words shall include
the singular.

      17.11 PRIOR AGREEMENTS SUPERSEDED. This Agreement supersedes any prior
understandings or written or oral agreements among the Partners, or any of them,
respecting the within subject matter and contains the entire understanding
amongst the Partners with respect thereto.

                                       41

<PAGE>

      17.12 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are for the exclusive use and benefit of General Partner and the
Limited Partners and shall not inure to the benefit of any other person or
entity.

      17.13 PURCHASE FOR INVESTMENT. Each Partner represents, warrants and
agrees that it has acquired and will 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. 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.

      17.14 ACCESS TO RECORDS. Any Shareholder and any designated representative
thereof shall be permitted reasonable access to all the records of the
Partnership at and during reasonable times, and may inspect and copy any of them
for a reasonable charge.

      17.15 WAIVER. No consent or waiver, express or implied, by any Partner to
or of any breach or default by any other Partner in the performance by such
other Partner of its obligations hereunder shall be deemed or construed to be a
consent to or waiver of any other breach or default in the performance by such
other Partner of the same or any other obligations of such Partner hereunder.
Failure on the part of any Partner to complain of any act or failure to act on
the part of any other Partner or to declare any other Partner in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such Partner of its rights hereunder. 17.16 COUNTERPARTS. This Agreement may
be executed in one or more counterparts, which when taken together, shall
constitute but one original.

                                       42

<PAGE>

         IN WITNESS WHEREOF, this Agreement has been executed and sworn to as of
the day and year first above written by the General Partner and the undersigned
Limited Partners.

                                      GENERAL PARTNER:
                                      ---------------

                                      HINES REAL ESTATE INVESTMENT TRUST, INC.,
                                      a Maryland corporation

                                      By: /s/ CHARLES M. BAUGHN
                                         --------------------------------------
                                      Name: Charles M. Baughn
                                           ------------------------------------
                                      Title: Chief Executive Officer
                                            -----------------------------------

                                      LIMITED PARTNERS:
                                      ----------------

                                      HINES REAL ESTATE HOLDINGS LIMITED
                                      PARTNERSHIP

                                      By: JCH Investments, Inc.,
                                          its General Partner

                                      By: /s/ JEFFREY C. HINES
                                         --------------------------------------
                                      Name: Jeffrey C. Hines
                                           ------------------------------------
                                      Title: Authorized Person
                                            -----------------------------------

                                      HALP ASSOCIATES LIMITED PARTNERSHIP

                                      By: Hines Interests Limited Partnership,
                                          its General Partner

                                      By: Hines Holdings, Inc.,
                                          its General Partner

                                      By: /s/ C. HASTINGS JOHNSON
                                         --------------------------------------
                                      Name: C. Hastings Johnson
                                           ------------------------------------
                                      Title: Authorized Person
                                            -----------------------------------

                                       43

<PAGE>

                                   SCHEDULE A

              Partners, Capital Accounts and Partnership Interests

<TABLE>
<CAPTION>
                                                                                            AGREED
                                                                        PREFERENCE          CAPITAL          PERCENTAGE
NAME AND ADDRESS OF PARTNERS                          OP UNITS             UNITS            ACCOUNT           INTEREST
----------------------------                          --------          ----------          -------           --------
<S>                                                 <C>                <C>                <C>               <C>

General Partner:

         Hines Real Estate Investment
         Trust, Inc.                                     1,000                             $ 10,000             4.7619%

Limited Partners:

         Hines Real Estate Holdings
         Limited Partnership                            20,000                             $200,000            95.2381%

         HALP Associates Limited
         Partnership                                Participation                          $      0                  0%
                                                    Interest

</TABLE>

                                       44

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