Dakotah Hills Offices Limited Partnership, An Arizona Limited Partnership, William M. and Dianne B. Stephens, Tax Matters Partner, et al. - Page 6

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               As an additional inducement for the lenders to accept the              
          investor notes from the partnerships as collateral, the                     
          partnerships negotiated and purchased financial guaranty bonds              
          from Admiral Insurance Co. (Admiral).  The bonds provided that in           
          the event any limited partner defaulted on his or her obligations           
          under the investor notes, Admiral agreed to pay to the lender(s)            
          the amount due under the investor notes.  The terms of the                  
          financial guaranty bonds provided that upon the satisfaction of             
          the bond, the lenders were required to transfer the investor                
          notes as well as the security agreements to Admiral.                        
               Concomitantly with the purchase of the bonds, the                      
          partnerships entered into indemnity agreements in which the                 
          partnerships agreed to indemnify Admiral against any loss on the            
          bonds.  In most instances, the partnerships' obligation under the           
          indemnity agreements was secured by liens on real estate                    
          properties owned by the partnerships.                                       
               Sometime in 1987 and 1988, the partnerships initiated                  
          bankruptcy proceedings and terminated payments on the partnership           
          notes held by the financial lenders.  Consequently, the lenders             
          made demand on the limited partners who had contributed the                 
          investor notes, to the extent stipulated in the financial                   
          guaranty bonds.  The limited partners, however, refused to honor            
          the outstanding investor notes.  The lenders, therefore, demanded           
          and received a settlement from Admiral pursuant to the terms of             
          the bonds.                                                                  




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