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Southampton was required to maintain at least 2 percent of
partnership capital. In the event that a substantial widening of
the credit spread on Colgate debt caused Southampton's capital
account to fall below the 2-percent threshold, unless prevented
by insolvency, Southampton would contribute enough additional
capital to continue to finance at least a certain minimum amount
of the preferred return.
Section 4.03 of the Partnership Agreement governed the
maintenance of the partners' capital accounts. The capital
accounts would be increased by the amount of the partners'
contributions, adjusted for allocations of partnership income,
gain, expenses, and loss, and reduced by the fair market value of
distributed property. Upon the occurrence of Revaluation Events,
the capital accounts would be adjusted to reflect the
mark-to-market revaluation of partnership assets.
Each of the partners was entitled to have its interest
redeemed at fair market value upon request. Kannex could request
redemption at any time after February 28, 1992. The other two
partners could request redemption 1 year later. The redemption
provision apparently was not the subject of negotiation. It was
the intention of the parties that Kannex would be redeemed within
2 years, before its formal right under the Partnership Agreement
ripened. The planned duration of Kannex's participation was
dictated by the period prescribed for carryback of the capital
loss to Colgate's 1988 taxable year. Colgate's plan afforded ABN
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