<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
COLE OPERATING PARTNERSHIP II, LP
SEPTEMBER 16, 2005
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S>
<C>
ARTICLE I DEFINED
TERMS.......................................................................
1
ARTICLE II PARTNERSHIP FORMATION AND
IDENTIFICATION...........................................
9
2.01
FORMATION...................................................................
9
2.02
NAME, OFFICE AND REGISTERED
AGENT........................................... 9
2.03
PARTNERS....................................................................
9
2.04
TERM AND
DISSOLUTION........................................................
9
2.05
FILING OF CERTIFICATE AND PERFECTION OF LIMITED
PARTNERSHIP................. 10
2.06
CERTIFICATES DESCRIBING PARTNERSHIP
UNITS................................... 10
ARTICLE III BUSINESS OF THE
PARTNERSHIP.......................................................
10
ARTICLE IV CAPITAL CONTRIBUTIONS AND
ACCOUNTS................................................. 11
4.01
CAPITAL
CONTRIBUTIONS.......................................................
11
4.02
ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP
INTERESTS.......................................................
11
4.03
ADDITIONAL
FUNDING..........................................................
13
4.04
CAPITAL
ACCOUNTS............................................................
13
4.05
PERCENTAGE
INTERESTS........................................................
13
4.06
NO INTEREST ON
CONTRIBUTIONS................................................
13
4.07
RETURN OF CAPITAL
CONTRIBUTIONS............................................. 13
4.08
NO THIRD-PARTY
BENEFICIARY..................................................
13
ARTICLE V PROFIT AND LOSS;
DISTRIBUTIONS.......................................................14
5.01
ALLOCATION OF PROFIT AND
LOSS............................................... 14
5.02 DISTRIBUTIONS OF
CASH....................................................... 16
5.03
REIT DISTRIBUTION
REQUIREMENTS.............................................. 17
5.04
NO RIGHT TO DISTRIBUTIONS IN
KIND........................................... 17
5.05
LIMITATIONS ON RETURN OF CAPITAL
CONTRIBUTIONS.............................. 17
5.06
DISTRIBUTIONS UPON
LIQUIDATION.............................................. 17
5.07
SUBSTANTIAL ECONOMIC
EFFECT................................................. 17
ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS
OF THE GENERAL PARTNER.............................. 18
6.01
MANAGEMENT OF THE
PARTNERSHIP............................................... 18
6.02
DELEGATION OF
AUTHORITY.....................................................
21
6.03
INDEMNIFICATION AND EXCULPATION OF
INDEMNITEES.............................. 21
6.04
LIABILITY OF THE GENERAL
PARTNER............................................ 22
6.05
REIMBURSEMENT OF GENERAL
PARTNER............................................ 24
6.06
OUTSIDE
ACTIVITIES..........................................................
24
6.07
EMPLOYMENT OR RETENTION OF
AFFILIATES....................................... 24
6.08
GENERAL PARTNER
PARTICIPATION............................................... 26
6.09
TITLE TO PARTNERSHIP
ASSETS................................................. 26
6.10
MISCELLANEOUS...............................................................
26
ARTICLE VII CHANGES IN GENERAL
PARTNER........................................................
26
7.01
TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP
INTEREST...................... 26
7.02
ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL
PARTNER..................... 28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S>
<C>
7.03
EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A
GENERAL
PARTNER
....................................................................
28
7.04
REMOVAL OF A GENERAL
PARTNER................................................ 29
ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE
LIMITED PARTNERS................................... 30
8.01
MANAGEMENT OF THE
PARTNERSHIP............................................... 30
8.02 POWER OF
ATTORNEY...........................................................
30
8.03
LIMITATION ON LIABILITY OF LIMITED
PARTNERS................................. 30
8.04
OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
AFFILIATE...... 30
8.05
EXCHANGE
RIGHT..............................................................
30
8.06
CALL
RIGHT..................................................................
32
8.07
DUTIES AND
CONFLICTS........................................................
33
ARTICLE IX TRANSFERS OF LIMITED PARTNERSHIP
INTERESTS......................................... 33
9.01
PURCHASE FOR
INVESTMENT.....................................................
33
9.02
RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP
INTERESTS................... 34
9.03
ADMISSION OF SUBSTITUTE LIMITED
PARTNER..................................... 35
9.04
RIGHTS OF ASSIGNEES OF PARTNERSHIP
INTERESTS................................ 36
9.05
EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A
LIMITED
PARTNER
....................................................................
36
9.06
JOINT OWNERSHIP OF
INTERESTS................................................ 36
ARTICLE X BOOKS AND RECORDS; ACCOUNTING;
TAX MATTERS.......................................... 37
10.01
BOOKS AND
RECORDS...........................................................
37
10.02
CUSTODY OF PARTNERSHIP FUNDS; BANK
ACCOUNTS................................. 37
10.03
FISCAL AND TAXABLE
YEAR..................................................... 37
10.04
ANNUAL TAX INFORMATION AND
REPORT........................................... 37
10.05 TAX
MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS
ADJUSTMENTS............... 37
10.06
REPORTS TO LIMITED
PARTNERS................................................. 38
ARTICLE XI AMENDMENT OF AGREEMENT;
MEETINGS................................................... 38
11.01
AMENDMENT...................................................................
38
11.02
MEETINGS OF
PARTNERS........................................................
39
ARTICLE XII MERGER, EXCHANGE OR
CONVERSION....................................................
40
12.01
Merger, Exchange or Conversion of
Partnership............................... 40
12.02
APPROVAL OF PLAN OF MERGER, EXCHANGE OR
CONVERSION.......................... 41
12.03
RIGHTS OF DISSENTING LIMITED
PARTNERS....................................... 42
ARTICLE XIII GENERAL
PROVISIONS...............................................................
43
13.01
NOTICES
....................................................................
43
13.02
SURVIVAL OF
RIGHTS..........................................................
43
13.03
ADDITIONAL
DOCUMENTS........................................................
44
13.04
SEVERABILITY................................................................
44
13.05
ENTIRE
AGREEMENT............................................................
44
13.06
PRONOUNS AND
PLURALS........................................................
44
13.07
HEADINGS....................................................................
44
13.08
COUNTERPARTS................................................................
44
13.09
GOVERNING
LAW..............................................................
44
13.10
ARBITRATION.................................................................
44
13.11 VOTE
OF AFFILIATED LIMITED
PARTNERS......................................... 45
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S>
<C>
INDEX OF
EXHIBITS.............................................................................
47
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
COLE OPERATING PARTNERSHIP II, LP
SEPTEMBER 16, 2005
This Amended and Restated Agreement of Limited Partnership
(this
"AGREEMENT") is entered into effective as
of the 16th day of September, 2005, by
and among Cole Credit Property Trust II,
Inc., a Maryland corporation (the
"GENERAL PARTNER"), Cole REIT Advisors II,
LLC, a Delaware limited liability
company (the "ORIGINAL LIMITED PARTNER"),
and the Limited Partner(s) set forth
or which may, in the future, be set forth
on Exhibit A hereto, as amended from
time to time, with respect to Cole
Operating Partnership II, LP (the
"Partnership"), a limited partnership
formed under the laws of the State of
Delaware, pursuant to a Certificate of
Limited Partnership filed with the Office
of the Secretary of State of the State of
Delaware effective as of September 28,
2004.
RECITALS
WHEREAS, the parties desire to enter into this Agreement in order
to
set forth the terms and conditions under
which the Partnership will be operated
as well as the rights, obligations, and
limitations of the General Partner and
the Limited Partners with respect to each
other and the Partnership as a whole;
NOW, THEREFORE, in consideration of the foregoing, of the
mutual
covenants between the parties to this
Agreement, and of other good and valuable
consideration, the receipt and sufficiency
of which are hereby acknowledged by
the parties, the parties agree as
follows:
AGREEMENT
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have
the
meanings specified below:
"ACT" means the Delaware Revised Uniform
Limited Partnership Act, as it may be
amended from time to time.
"ADDITIONAL FUNDS" has the meaning set
forth in Section 4.03 hereof.
"ADDITIONAL LIMITED PARTNER" means a Person
admitted to the Partnership as a
Limited Partner pursuant to Section 4.02
hereof and who is shown as such on the
books and records of the Partnership.
"ADDITIONAL SECURITIES" means any
additional REIT Shares (other than REIT Shares
issued in connection with an exchange
pursuant to Section 8.05 hereof) or
rights, options, warrants or convertible or
exchangeable securities containing
the right to subscribe for or purchase REIT
Shares, as set forth in Section
4.02(a)(ii).
"ADMINISTRATIVE EXPENSES" means (i) all
administrative and operating costs and
expenses incurred by the Partnership, (ii)
those administrative costs and
expenses of the General Partner, including
any salaries or other payments to
directors, officers or employees of the
General Partner, and any accounting and
legal expenses of the General Partner,
which expenses, the Partners have agreed,
are expenses of the
<PAGE>
Partnership and not the General Partner,
and (iii) to the extent not included in
clause (ii) above, REIT Expenses; provided,
however, that Administrative
Expenses shall not include any
administrative costs and expenses incurred by the
General Partner that are attributable to
Properties or partnership interests in
a Subsidiary Partnership that are owned by
the General Partner directly.
"ADVISOR" or "ADVISORS" means the Person or
Persons, if any, appointed, employed
or contracted with by the General Partner
pursuant to its Articles of
Incorporation and responsible for directing
or performing the day-to-day
business affairs of the General Partner,
including any Person to whom the
Advisor subcontracts all or substantially
all of such functions.
"AFFILIATE" or "AFFILIATED" means, with
respect to any Person, (i) any Person
directly or indirectly owning, controlling
or holding, with the power to vote,
10% or more of the outstanding voting
securities of such other Person; (ii) any
Person 10% or more of whose outstanding
voting securities are directly or
indirectly owned, controlled or held, with
the power to vote, by such other
Person; (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; and (v) any legal
entity for which such Person acts as an
executive officer, director, trustee or
general partner.
"AGREED VALUE" means (i) the fair market
value of a Partner's non-cash Capital
Contribution as of the date of contribution
as agreed to by such Partner and the
General Partner as of the date of
contribution as set forth on Exhibit A hereto,
as it may be amended from time to time, or
(ii) in the case of any contribution
or distribution of property other than cash
not set forth on Exhibit A, the fair
market value of such property as determined
by the General Partner at the time
such property is contributed or
distributed, reduced by liabilities either
assumed by the Partnership or Partner upon
such contribution or distribution or
to which such property is subject when the
property is contributed or
distributed.
"AGREEMENT" means this Agreement of Limited
Partnership, as it may be amended or
restated from time to time.
"ARTICLES OF INCORPORATION" means the
Articles of Incorporation of the General
Partner filed with the Maryland State
Department of Assessments and Taxation, as
amended or restated from time to time.
"CALL NOTICE" means a Call Notice, as
defined in Section 8.06(a) hereof and
substantially in the form of Exhibit C
hereto.
"CALL RIGHT" has the meaning provided in
Section 8.06(a) hereof.
"CAPITAL ACCOUNT" has the meaning provided
in Section 4.04 hereof.
"CAPITAL CONTRIBUTION" means the total
amount of cash, cash equivalents, and the
Agreed Value of any Property or other asset
contributed or agreed to be
contributed, as the context requires, to
the Partnership by each Partner
pursuant to the terms of the Agreement. Any
reference to the Capital
Contribution of a Partner shall include the
Capital Contribution made by a
predecessor holder of the Partnership
Interest of such Partner.
"CASH AMOUNT" means an amount of cash equal
to the Value of the REIT Shares
Amount on the date of receipt by the
General Partner of an Exchange Notice.
"CERTIFICATE" means any instrument or
document that is required under the laws
of the State of Delaware, or any other
jurisdiction in which the Partnership
conducts business, to be signed and sworn
to by the Partners of the Partnership
(either by themselves or pursuant to the
power-of-attorney granted to the
2
<PAGE>
General Partner in Section 8.02 hereof) and
filed for recording in the
appropriate public offices within the State
of Delaware or such other
jurisdiction to perfect or maintain the
Partnership as a limited partnership, to
effect the admission, withdrawal, or
substitution of any Partner from or to the
Partnership, or to protect the limited
liability of the Limited Partners as
limited partners under the laws of the
State of Delaware or such other
jurisdiction.
"CODE" means the Internal Revenue Code of
1986, as amended, and as hereafter
amended from time to time. Reference to any
particular provision of the Code
shall mean that provision in the Code at
the date hereof and any successor
provision of the Code.
"COLE CREDIT PROPERTY TRUST" means Cole
Credit Property Trust II, Inc., a
Maryland corporation.
"COMMISSION" means the U.S. Securities and
Exchange Commission.
"COMPETENT INDEPENDENT EXPERT" shall mean a
Person with no material current or
prior business or personal relationship
with the General Partner or the
Partnership who is engaged to a substantial
extent in the business of rendering
opinions regarding the value of the assets
of the type held by the Partnership
and who is qualified to perform such work.
Membership in a nationally recognized
appraisal society such as the American
Institute of Real Estate Appraisers or
the Society of Real Estate Appraisers shall
be conclusive evidence of such
qualification.
"CONVERSION FACTOR" means 1.0, provided,
that in the event that the General
Partner (i) declares or pays a dividend on
its outstanding REIT Shares in REIT
Shares or makes a distribution to all
holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its
outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller
number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the
Conversion Factor by a fraction, the
numerator of which shall be the number of
REIT Shares issued and outstanding on
the record date for such dividend,
distribution, subdivision or combination
(assuming for such purposes that such
dividend, distribution, subdivision or
combination has occurred as of such time),
and the denominator of which shall be
the actual number of REIT Shares
(determined without the above assumption)
issued and outstanding on such record date,
and provided further, that in the
event that an entity other than an
Affiliate of the General Partner shall become
General Partner pursuant to any merger,
consolidation or combination of the
General Partner with or into another entity
(the "SUCCESSOR ENTITY"), the
Conversion Factor shall be adjusted by
multiplying the Conversion Factor by the
number of shares of the Successor Entity
into which one REIT Share is converted
pursuant to such merger, consolidation or
combination, determined as of the date
of such merger, consolidation or
combination. Any adjustment to the Conversion
Factor shall become effective immediately
after the effective date of such event
retroactive to the record date, if any, for
such event; provided, however, that
if the General Partner receives an Exchange
Notice after the record date, but
prior to the effective date of such
dividend, distribution, subdivision or
combination, the Conversion Factor shall be
determined as if the General Partner
had received the Exchange Notice
immediately prior to the record date for such
dividend, distribution, subdivision or
combination.
"DISSENTING LIMITED PARTNER" has the
meaning provided in Section 12.03(a)
hereof.
"EVENT OF BANKRUPTCY" as to any Person
means (i) the filing of a petition for
relief as to such Person as debtor or
bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any
jurisdiction (except if such petition is
contested by such Person and has been
dismissed within 90 days); (ii) the
insolvency or bankruptcy of such Person as
finally determined by a court
proceeding; (iii) the filing by such Person
of a petition or application to
accomplish the same or for the appointment
of a receiver or a trustee for such
Person or a substantial part of his assets;
and (iv) the commencement of any
proceedings relating to such Person as a
debtor under any other reorganization,
arrangement, insolvency, adjustment
3
<PAGE>
of debt or liquidation law of any
jurisdiction, whether now in existence or
hereinafter in effect, either by such
Person or by another, provided, that if
such proceeding is commenced by another,
such Person indicates his approval of
such proceeding, consents thereto or
acquiesces therein, or such proceeding is
contested by such Person and has not been
finally dismissed within 90 days.
"EXCHANGE AMOUNT" means either the Cash
Amount or the REIT Shares Amount, as
selected by the General Partner in its sole
and absolute discretion pursuant to
Section 8.05(b) hereof.
"EXCHANGE NOTICE" means a Notice of
Exercise of Exchange Right, as defined in
Section 8.05(a) hereof and substantially in
the form of Exhibit B hereto.
"EXCHANGE RIGHT" has the meaning provided
in Section 8.05(a) hereof.
"EXCHANGING PARTNER" has the meaning
provided in Section 8.05(a) hereof.
"GENERAL PARTNER" means Cole Credit
Property Trust, and any Person who becomes a
substitute or additional General Partner as
provided herein, and any successors
thereto.
"GENERAL PARTNERSHIP INTEREST" means a
Partnership Interest held by the General
Partner that is a general partnership
interest.
"GP CAPITAL" means the aggregate of Capital
Contributions of cash made by the
General Partner in accordance with Sections
4.01 and 4.02 hereof.
"GP MINIMUM RETURN" means such amount as
may be necessary or required to allow
the General Partner to meet its
distribution requirement for qualification as a
REIT as set forth in Section 857 of the
Code and to avoid any federal income or
excise tax liability imposed by the
Code.
"HOLDING PERIOD" means, with respect to
Partnership Units acquired by Additional
Limited Partners hereunder, the period
commencing on the date of issuance of
such Units through and including the fourth
anniversary of such date of
acquisition.
"INDEMNITEE" means (i) any Person made a
party to a proceeding by reason of its
status as the General Partner or a
director, officer or employee of the General
Partner or the Partnership, and (ii) such
other Persons (including Affiliates of
the General Partner or the Partnership) as
the General Partner may designate
from time to time, in its sole and absolute
discretion.
"JOINT VENTURE" means any joint venture or
partnership arrangement in which the
Partnership is a co-venturer or general
partner established to acquire or hold
Properties, Mortgages or other investments
of the General Partner.
"LIMITED PARTNER" means the Original
Limited Partner, any Person named as a
Limited Partner on Exhibit A attached
hereto, and any Person who becomes a
Substitute or Additional Limited Partner in
such person's capacity as a Limited
Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means the
ownership interest of a Limited Partner
in the Partnership at any particular time,
including the right of such Limited
Partner to any and all benefits to which
such Limited Partner may be entitled as
provided in this Agreement and in the Act,
together with the obligations of such
Limited Partner to comply with all the
provisions of this Agreement and of such
Act.
"LIQUIDATING EVENT" has the meaning set
forth in Section 2.04 hereof.
4
<PAGE>
"LOSS" has the meaning provided in Section
5.01(f) hereof.
"LP CAPITAL" means the aggregate of Capital
Contributions in cash or cash
equivalents and the Agreed Value of any
non-cash contributions to the
Partnership made by a Limited Partner in
accordance with Sections 4.01 and 4.02.
"LP RETURN" means, with regard to any
Limited Partner, an amount equal to the
aggregate cash dividends that would have
been payable to such Limited Partner
with respect to the applicable fiscal
period if such Limited Partner had owned
REIT Shares equal in number to the number
of Partnership Units owned by such
Limited Partner during such fiscal
period.
"MORTGAGE" means, in connection with
mortgage financing provided, invested in or
purchased by the Partnership, any note,
deed of trust, security interest or
other evidence of indebtedness or
obligations, which is secured or
collateralized by real property owned by
the borrower under such note, deed of
trust, security interest or other evidence
of indebtedness or obligations.
"NET CAPITAL PROCEEDS" means the net cash
proceeds received by the Partnership
in connection with (i) any Sale, (ii) any
borrowing or refinancing of
borrowing(s) by the Partnership, (iii) any
condemnation or deeding in lieu of
condemnation of all or a portion of any
Property, (iv) any collection in respect
of property, hazard, or casualty insurance
(but not business interruption
insurance) or any damage award; or (v) any
other transaction the proceeds of
which, in accordance with generally
accepted accounting principles, are
considered to be capital in nature, in each
case, after deduction of (a) all
costs and expenses incurred by the
Partnership with regard to such transactions
(including, without limitation, any
repayment of any indebtedness required to be
repaid as a result of such transaction or
which the General Partner elects to
pay out of the proceeds of such
transaction, together with accrued interest and
premium, if any, thereon and any sales
commissions or other costs or expenses
due and payable to any Person in connection
therewith, including to a Partner or
its Affiliates), and (b) all amounts
expended by the Partnership for the
acquisition of additional Properties,
Mortgages or other investments or for
capital repairs or improvements to any
Property with such cash proceeds.
"NEW ALLOCATIONS" has the meaning set forth
in Section 5.07.
"OFFER" has the meaning set forth in
Section 7.01(c)(ii).
"OFFERING" means the initial offer and sale
by the General Partner of REIT
Shares to the public.
"ORIGINAL LIMITED PARTNER" means the
Limited Partner designated as such on
Exhibit A hereto.
"PARTNER" means any General Partner or
Limited Partner.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has
the meaning set forth in Regulations
Section 1.704-2(i). A Partner's share of
Partner Nonrecourse Debt Minimum Gain
shall be determined in accordance with
Regulations Section 1.704-2(i)(5).
"PARTNERSHIP" means Cole Operating
Partnership II, LP, a Delaware limited
partnership.
"PARTNERSHIP INTEREST" means an ownership
interest in the Partnership held by
either a Limited Partner or the General
Partner and includes any and all
benefits to which the holder of such a
Partnership Interest may be entitled as
provided in this Agreement, together with
all obligations of such Person to
comply with the terms and provisions of
this Agreement.
5
<PAGE>
"PARTNERSHIP MINIMUM GAIN" has the meaning
set forth in Regulations Section
1.704-2(b)(2). In accordance with
Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by
first computing, for each Partnership
nonrecourse liability, any gain the
Partnership would realize if it disposed of
the property subject to that liability for
no consideration other than full
satisfaction of the liability, and then
aggregating the separately computed
gains. A Partner's share of Partnership
Minimum Gain shall be determined in
accordance with Regulations Section
1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record
date established by the General
Partner for the distribution of cash
pursuant to Section 5.02, which record date
shall be the same as the record date
established by the General Partner for a
distribution to its stockholders.
"PARTNERSHIP UNIT" means a fractional,
undivided share of the Partnership
Interests of all Partners issued hereunder.
The allocation of Partnership Units
among the Partners shall be as set forth on
Exhibit A, as it may be amended from
time to time.
"PERCENTAGE INTEREST" means the percentage
ownership interest in the Partnership
of each Partner, as determined by dividing
the number of Partnership Units owned
by a Partner by the aggregate number of
Partnership Units owned by all Partners.
"PERSON" means any individual, partnership,
corporation, joint venture, limited
liability company, trust or other
entity.
"PROFIT" has the meaning provided in
Section 5.01(f).
"PROPERTY" means any real property in which
the Partnership holds an ownership
interest, either directly or pursuant to
the Partnership's ownership of an
interest in a subsidiary that owns an
interest in any such real property.
"PROSPECTUS" means the final prospectus
delivered to purchasers of REIT Shares
in the Offering.
"REGULATIONS" means the Federal Income Tax
Regulations, including temporary or
proposed regulations, issued under the
Code, as amended and as hereafter amended
from time to time. Reference to any
particular provision of the Regulations
shall mean that provision of the
Regulations on the date of this Agreement and
any successor provision of the
Regulations.
"REIT" means a real estate investment trust
under Sections 856 through 860 of
the Code.
"REIT EXPENSES" means (i) costs and
expenses relating to the formation and
continuity of existence and operation of
the General Partner and any
Subsidiaries thereof (which Subsidiaries
shall, for purposes of this Agreement,
be included within the definition of
General Partner), including taxes, fees and
assessments associated therewith, any and
all costs, expenses or fees payable to
any director, officer, or employee of the
General Partner, (ii) costs and
expenses relating to (A) any registration
and public offering of securities by
the General Partner, the net proceeds of
which were used to make a contribution
to the Partnership, and (B) all statements
and reports incidental thereto,
including, without limitation, underwriting
discounts and selling commissions
applicable to any such offering of
securities, and any costs and expenses
associated with any claims made by any
holders of such securities or any
underwriters or placement agents thereof,
(iii) costs and expenses associated
with any repurchase of any securities by
the General Partner, (iv) costs and
expenses associated with the preparation
and filing, of any periodic or other
reports and communications by the General
Partner under federal, state or local
laws or regulations, including filings with
the Commission, (v) costs and
expenses associated with compliance by the
General Partner with laws, rules and
regulations promulgated by any regulatory
body, including the Commission
6
<PAGE>
and any securities exchange, (vi) costs and
expenses associated with any section
401(k) plan, incentive plan, bonus plan or
other plan providing for compensation
for the employees of the General Partner,
(vii) costs and expenses incurred by
the General Partner relating to any
issuance or redemption of Partnership
Interests or REIT Shares, and (viii) all
other operating or administrative costs
of the General Partner incurred in the
ordinary course of its business on behalf
of or in connection with the
Partnership.
"REIT SHARE" means a share of common stock
in the General Partner (or Successor
Entity, as the case may be).
"REIT SHARES AMOUNT" means a number of REIT
Shares equal to the product of the
number of Partnership Units offered for
exchange by an Exchanging Partner,
multiplied by the Conversion Factor as
adjusted to and including the Specified
Exchange Date; provided that in the event
the General Partner issues to all
holders of REIT Shares rights, options,
warrants or convertible or exchangeable
securities entitling the stockholders to
subscribe for or purchase REIT Shares,
or any other securities or property
(collectively, the "RIGHTS"), and the rights
have not expired at the Specified Exchange
Date, then the REIT Shares Amount
shall also include the rights issuable to a
holder of the REIT Shares on the
record date fixed for purposes of
determining the holders of REIT Shares
entitled to Rights.
"SALE" means any transaction or series of
transactions whereby (i) the
Partnership directly or indirectly (except
as described in other subsections of
this definitions) sells, grants, transfers,
conveys or relinquishes its
ownership of any Property or portion
thereof, including the lease of any
Property consisting of a building only, and
including any event with respect to
any Property which gives rise to a
significant amount of insurance proceeds or
condemnation awards; (ii) the Partnership
directly or indirectly (except as
described in other subsections of this
definition) sells, grants, transfers,
conveys or relinquishes its ownership of
all or substantially all the interest
of the Partnership in any Joint Venture in
which it is a co-venturer or partner;
(iii) any Joint Venture directly or
indirectly (except as described in other
subsections of this definition) in which
the Partnership as a co-venturer or
partner sells, grants, transfers, conveys
or relinquishes its ownership of any
Property or portion thereof, including any
event with respect to any Property
which gives rise to insurance claims or
condemnation awards; (iv) the
Partnership directly or indirectly (except
as described in other subsections of
this definition) sells, grants, conveys or
relinquishes its interest in any
Mortgage or portion thereof (including with
respect to any Mortgage, all
payments thereunder or in satisfaction
thereof other than regularly scheduled
interest payments) of amounts owed pursuant
to such Mortgage and any event with
respect to a Mortgage which gives rise to a
significant amount of insurance
proceeds or similar awards, or (v) the
Partnership directly or indirectly
(except as described in other subsections
of this definition) sells, grants,
transfers, conveys or relinquishes its
ownership of any other asset (other than
investments in bank accounts, money market
funds or other current assets) not
previously described in this definition or
any portion thereof.
"SECURITIES ACT" means the Securities Act
of 1933, as amended.
"SERVICE" means the Internal Revenue
Service.
"SPECIFIED EXCHANGE DATE" means the first
business day of the month first
occurring after the expiration of 60
business days from the date of receipt by
the General Partner of the Exchange
Notice.
"SPONSOR" means any Person which (i) is
directly or indirectly instrumental in
organizing, wholly or in part, Cole Credit
Property Trust, (ii) will manage or
participate in the management of Cole
Credit Property Trust, and any Affiliate
of any such Person, other than a Person
whose only relationship with Cole Credit
Property Trust is that of an independent
property manager and whose only
compensation is as such, (iii) takes the
initiative, directly or indirectly, in
founding or organizing Cole Credit Property
Trust, either alone or in
conjunction with one or more other Persons,
(iv) receives a material
participation in
7
<PAGE>
Cole Credit Property Trust in connection
with the founding or organizing of the
business of Cole Credit Property Trust, in
consideration of services or
property, or both services and property,
(v) has a substantial number of
relationships and contacts with Cole Credit
Property Trust, (vi) possesses
significant rights to control Properties,
(vii) receives fees for providing
services to Cole Credit Property Trust
which are paid on a basis that is not
customary in the industry, or (viii)
provides goods or services to Cole Credit
Property Trust on a basis which was not
negotiated at arm's-length with Cole
Credit Property Trust.
"SUBSIDIARY" means, with respect to any
Person, any corporation or other entity
of which a majority of (i) the voting power
of the voting equity securities or
(ii) the outstanding equity interests is
owned, directly or indirectly, by such
Person.
"SUBSIDIARY PARTNERSHIP" means any
partnership, limited liability company or
other entity taxed as a partnership for
federal income tax purposes in which
interests are owned by the General Partner
or by a wholly-owned Subsidiary or
Subsidiaries of the General Partner.
"SUBSTITUTE LIMITED PARTNER" means any
Person admitted to the Partnership as a
Limited Partner pursuant to Section
9.03.
"SUCCESSOR ENTITY" has the meaning provided
in the definition of "Conversion
Factor" contained herein.
"SURVIVOR" has the meaning set forth in
Section 7.01(d).
"TRANSACTION" has the meaning set forth in
Section 7.01(c).
"TRANSFER" has the meaning set forth in
Section 9.02(a).
"TRANSFER RESTRICTION DATE" means the
effective date upon which Cole REIT
Advisors II, LLC, a Delaware limited
liability company, shall cease acting as
the advisor to the General Partner under
the terms of an advisory agreement
entered into between Cole REIT Advisors II,
LLC and the General Partner.
"UNPAID RETURN" means any accrued but
unpaid LP Return or GP Minimum Return less
all amounts distributed by the Partnership
to a Limited Partner or the General
Partner in reduction thereof.
"VALUE" means, with respect to any
security, the average of the daily market
price of such security for the ten
consecutive trading days immediately
preceding the date as of which such Value
is to be determined. The market price
for each such trading day shall be: (i) if
the security is listed or admitted to
trading on any securities exchange, the
sale price, regular way, on such day, or
if no such sale takes place on such day,
the average of the closing bid and
asked prices, regular way, on such day;
(ii) if the security is not listed or
admitted to trading on any securities
exchange, the last reported sale price on
such day or, if no sale takes place on such
day, the average of the closing bid
and asked prices on such day, as reported
by a reliable quotation source
designated by the General Partner; or (iii)
if the security is not listed or
admitted to trading on any securities
exchange and no such last reported sale
price or closing bid and asked prices are
available, the average of the reported
high bid and low asked prices on such day,
as reported by a reliable quotation
source designated by the General Partner,
or if there shall be no bid and asked
prices on such day, the average of the high
bid and low asked prices, as so
reported, on the most recent day (not more
than ten days prior to the date in
question) for which prices have been so
reported; provided, that if there are no
bid and asked prices reported during the
ten days prior to the date in question,
the value of the security shall be
determined by the General Partner acting in
good faith on the basis of such quotations
and other information as it
considers, in its reasonable judgment,
appropriate. In the event the security
8
<PAGE>
includes any additional rights, then the
value of such rights shall be
determined by the General Partner acting in
good faith on the basis of such
quotations and other information as it
considers, in its reasonable judgment,
appropriate.
ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION
2.01 FORMATION. The Partnership is a limited partnership formed
pursuant to the Act and upon the terms and
conditions set forth in this
Agreement.
2.02 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership
is
"Cole Operating Partnership II, LP." The
principal place of business of the
Partnership shall be 2555 East Camelback
Road, Suite 400, Phoenix, Arizona
85016. The General Partner may at any time
change the location of such office,
provided the General Partner gives notice
to the Partners of any such change.
The name and address of the Partnership's
registered agent, and the registered
office of this Partnership, is National
Registered Agents, Inc., 9 East
Loockerman Street, Suite 1B, Dover, DE
19901. The sole duty of the registered
agent as such is to forward to the
Partnership any notice that is served on it
as registered agent.
2.03
PARTNERS.
(a) The General Partner of the Partnership is Cole Credit
Property
Trust II, Inc., a Maryland corporation. Its
principal place of business is the
same as that of the Partnership.
(b) The Limited Partners are those Persons identified as
Limited
Partners (including the Original Limited
Partner) on Exhibit A hereto, as it may
be amended from time to time.
2.04
TERM AND DISSOLUTION.
(a) The Partnership shall have perpetual duration, except that
the
Partnership shall be dissolved earlier upon
the first to occur of any of the
following events ("LIQUIDATING
EVENTS"):
(i) the occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death, removal or withdrawal of a
General
Partner unless the business of the Partnership is continued
pursuant to
Section 7.03(b), provided, that if a General Partner is on the date
of
such occurrence a partnership, the dissolution of such General
Partner
as a result of the dissolution, death, withdrawal, removal or Event
of
Bankruptcy of a partner in such partnership shall not be an event
of
dissolution of the Partnership if the business of such General
Partner
is continued by the remaining partner or partners thereof, either
alone
or with additional partners, and such General Partner and such
partners
comply with any other applicable requirements of this
Agreement;
(ii) the passage of 90 days after the sale or other
disposition of all or substantially all of the assets of the
Partnership (provided, that if the Partnership receives an
installment
obligation as consideration for such sale or other disposition,
the
Partnership shall continue, unless sooner dissolved under the
provisions of this Agreement, until such time as such obligation
is
paid in full);
(iii) the exchange of all Limited Partnership Interests (other
than any of such interests held by the General Partner or
Affiliates of
the General Partner); or
(iv) the election by the General Partner that the Partnership
should be dissolved.
9
<PAGE>
(b) Upon dissolution of the Partnership (unless the business of
the
Partnership is continued pursuant to
Section 7.03(b)), the General Partner (or
its trustee, receiver, successor or legal
representative) shall amend or cancel
the Certificate and liquidate the
Partnership's assets and apply and distribute
the proceeds thereof in accordance with
Section 5.06. Notwithstanding the
foregoing, the liquidating General Partner
may either (i) defer liquidation of,
or withhold from distribution for a
reasonable time, any assets of the
Partnership (including those necessary to
satisfy the Partnership's debts and
obligations), or (ii) distribute the assets
to the Partners in kind.
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP.
The
General Partner shall execute, acknowledge,
record and file, at the expense of
the Partnership, the Certificate and any
and all amendments thereto and all
requisite fictitious name statements and
notices in such places and
jurisdictions as may be necessary to cause
the Partnership to be treated as a
limited partnership under, and otherwise to
comply with, the laws of each state
or other jurisdiction in which the
Partnership conducts business.
2.06 CERTIFICATES DESCRIBING PARTNERSHIP UNITS. At the request of
a
Limited Partner, the General Partner may,
at its option and in its discretion,
issue a certificate summarizing the terms
of such Limited Partner's interest in
the Partnership, including the number of
Partnership Units owned as of the date
of such certificate. If issued, any such
certificates (a) shall be in form and
substance as approved by the General
Partner, (b) shall not be negotiable, and
(c) shall bear a legend substantially
similar to the following:
"THIS CERTIFICATE IS NOT NEGOTIABLE. THE PARTNERSHIP UNITS
REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY AND
TRANSFERABLE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE
AGREEMENT OF LIMITED PARTNERSHIP OF COLE OPERATING PARTNERSHIP
II, LP, AS AMENDED FROM TIME TO TIME."
ARTICLE III
BUSINESS OF THE PARTNERSHIP
The purpose and nature of the business to be conducted by the
Partnership is (a) to conduct any business
that may be lawfully conducted by a
limited partnership organized pursuant to
the Act, provided, however, that such
business shall be limited to and conducted
in such a manner as to permit the
General Partner at all times to qualify as
a REIT, unless the General Partner
otherwise ceases to qualify as a REIT, (b)
to enter into any partnership, joint
venture or other similar arrangement to
engage in any of the foregoing or the
ownership of interests in any entity
engaged in any of the foregoing, and (c) to
do anything necessary or incidental to the
foregoing. In connection with the
foregoing, and without limiting the General
Partner's right in its sole and
absolute discretion to cease qualifying as
a REIT, the Partners acknowledge that
the General Partner's current status as a
REIT and the avoidance of income and
excise taxes on the General Partner inures
to the benefit of all the Partners
and not solely to the General Partner.
Notwithstanding the foregoing, the
Limited Partners agree that the General
Partner may terminate its status as a
REIT under the Code at any time to the full
extent permitted under its Articles
of Incorporation. The General Partner shall
also be empowered to do any and all
acts and things necessary or prudent to
ensure that the Partnership will not be
classified as a "publicly traded
partnership" for purposes of Section 7704 of
the Code.
10
<PAGE>
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 CAPITAL CONTRIBUTIONS. The General Partner and the
Original
Limited Partner have made Capital
Contributions to the Partnership in exchange
for the Partnership Units set forth
opposite their names on Exhibit A. At such
time as Additional Limited Partners are
admitted to the Partnership, each shall
make Capital Contributions as set forth
opposite their names on Exhibit A, as it
may be amended from time to time.
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF
ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided
in this Section 4.02 or in Section
4.03, the Partners shall have no right or
obligation to make any additional
Capital Contributions or loans to the
Partnership. The General Partner may
contribute additional capital to the
Partnership, from time to time, and receive
additional Partnership Units in respect
thereof in the manner contemplated by
this Section 4.02.
(a) Issuances of Additional Partnership Interests.
(i) General. The General Partner is hereby authorized to cause
the Partnership to issue additional Partnership Interests in the
form
of Partnership Units for any Partnership purpose, at any time or
from
time to time, to the Partners (including the General Partner) or
to
other Persons for such consideration and on such terms and
conditions
as shall be established by the General Partner in its sole and
absolute
discretion, all without the approval of any Limited Partners.
Any
additional Partnership Interests issued thereby may be issued in
one or
more classes, or one or more series of any of such classes, with
such
designations, preferences and relative participating, optional or
other
special rights, powers and duties, including rights, powers and
duties
senior to Limited Partnership Interests, all as shall be determined
by
the
General Partner in its sole and absolute discretion and without
the
approval of any Limited Partner, subject to Delaware law,
including,
without limitation, (A) the allocations of items of Partnership
income,
gain, loss, deduction and credit to each such class or series
of
Partnership Interests; (B) the right of each such class or series
of
Partnership Interests to share in Partnership distributions; and
(C)
the rights of each such class or series of Partnership Interests
upon
dissolution and liquidation of the Partnership; provided, however,
that
no additional Partnership Interests shall be issued to the
General
Partner or any Affiliate of the General Partner unless:
1. the
additional Partnership Interests are issued in connection
with an issuance of REIT Shares or other interests in, the
General Partner, which shares or interests have designations,
preferences and other rights such that the economic interests
are substantially similar to the designations, preferences and
other rights of the additional Partnership Interests issued to
the General Partner by the Partnership in accordance with this
Section 4.02, and the General Partner, on its own or with an
Affiliate, shall make a Capital Contribution to the
Partnership in an amount equal to the aggregate proceeds
raised in connection with the issuance of such shares of stock
of or other interests in the General Partner;
2. the
additional Partnership Interests are issued in exchange
for property or other assets owned by the General Partner or
its Affiliate with a fair market value, as determined by the
General Partner, in good faith, equal to the value of the
Partnership Interests; or
3. the
additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage
Interests.
11
<PAGE>
Without limiting the foregoing, the General Partner is
expressly
authorized to cause the Partnership to
issue Partnership Units for less than
fair market value, so long as the General
Partner concludes in good faith that
such issuance is in the best interests of
the General Partner and the
Partnership.
(ii) Issuance of Additional Securities. The General Partner
shall not issue any additional REIT Shares (other than REIT
Shares
issued in connection with an exchange made pursuant to Section
8.05) or
rights, options, warrants or convertible or exchangeable
securities
containing the right to subscribe for or purchase REIT Shares
(collectively, "Additional Securities") other than to all holders
of
REIT Shares, unless (A) the General Partner shall cause the
Partnership
to issue to the General Partner (or to the General Partner and
an
Affiliate of the General Partner), as the General Partner may
designate, Partnership Interests or rights, options, warrants
or
convertible or exchangeable securities of the Partnership
having
designations, preferences and other rights such that the
economic
interests are substantially similar to those of the Additional
Securities, and (B)
the General Partner (or the General Partner and an
Affiliate of the General Partner) contributes the proceeds from
the
issuance of such Additional Securities and from any exercise of
rights
contained in such Additional Securities, directly and through
the
General Partner (or the General Partner and an Affiliate of the
General
Partner), to the Partnership; provided, however, that the
General
Partner is allowed to issue Additional Securities in connection
with an
acquisition of a Property or other asset to be held directly by
the
General Partner. Without limiting the foregoing, the General
Partner is
expressly authorized to issue Additional Securities for less than
fair
market value, and to cause the Partnership to issue to the
General
Partner (or to the General Partner and an Affiliate of the
General
Partner) corresponding Partnership Interests, so long as (1)
the
General Partner concludes in good faith that such issuance is in
the
best interests of the General Partner and the Partnership,
including
without limitation, the issuance of REIT Shares and
corresponding
Partnership Units pursuant to an employee share purchase plan
providing
for employee purchases of REIT Shares at a discount from fair
market
value or employee stock options that have an exercise price that
is
less than the fair market value of the REIT Shares, either at the
time
of issuance or at the time of exercise, and (2) the General
Partner
contributes directly or directly and through an Affiliate of
the
General Partner all proceeds from such issuance to the
Partnership.
(b) Certain Deemed Contributions of Proceeds of Issuance of
REIT
Shares. In connection with any and all
issuances of REIT Shares, the General
Partner shall make directly or directly and
through one or more of its
Affiliates Capital Contributions to the
Partnership of the proceeds from such
issuances, provided, that if the proceeds
actually received and contributed by
the General Partner are less than the gross
proceeds of such issuance as a
result of any underwriter's discount or
other fees or expenses paid or incurred
in connection with such issuance, then the
General Partner (or the General
Partner together with one or more of its
Affiliates, as applicable) shall be
deemed to have made Capital Contributions
to the Partnership in the aggregate
amount of the gross proceeds of such
issuance and the Partnership shall be
deemed simultaneously to have paid such
offering expenses in accordance with
Section 6.05 and in connection with the
required issuance of additional
Partnership Units for such Capital
Contributions pursuant to Section 4.02(a).
12
<PAGE>
4.03 ADDITIONAL FUNDING. If the General Partner determines that it
is
in the best interests of the Partnership to
provide for additional Partnership
funds ("ADDITIONAL FUNDS") for any
Partnership purpose, the General Partner may
(a) cause the Partnership to obtain such
funds from outside borrowings, or (b)
elect to have the General Partner or any of
its Affiliates provide such
Additional Funds to the Partnership through
loans or otherwise.
4.04 CAPITAL ACCOUNTS. A separate capital account (a "CAPITAL
ACCOUNT")
shall be established and maintained for
each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If
(a) a new or existing Partner acquires
an additional Partnership Interest in
exchange for more than a de minimis
Capital Contribution, (b) the Partnership
distributes to a Partner more than a
de minimis amount of Partnership property
as consideration for the redemption of
a Partnership Interest, or (c) the
Partnership is liquidated within the meaning
of Regulations Section
1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair
market value (as determined by the
General Partner, in its sole and absolute
discretion, and taking into account
Section 7701(g) of the Code) in accordance
with Regulations Section 1.704-
l(b)(2)(iv)(f). When the Partnership's
property is revalued by the General
Partner, the Capital Accounts of the
Partners shall be adjusted in accordance
with Regulations Sections
1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to
reflect the manner in which the
unrealized gain or loss inherent in such
property (that has not been reflected
in the Capital Accounts previously) would
be allocated among the Partners
pursuant to Section 5.01 if there were a
taxable disposition of such property
for its fair market value (as determined by
the General Partner, in its sole and
absolute discretion, and taking into
account Section 7701(g) of the Code) on the
date of the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding
Partnership
Units increases or decreases during a
taxable year, each Partner's Percentage
Interest shall be adjusted by the General
Partner effective as of the date of
each such increase or decrease to a
percentage equal to the number of
Partnership Units held by such Partner
divided by the aggregate number of
Partnership Units outstanding after giving
effect to such increase or decrease.
In such event, the General Partner shall
revalue the property of the Partnership
and the Capital Account for each Partner
shall be adjusted as set forth in
Section 4.04. If the Partners' Percentage
Interests are adjusted pursuant to
this Section 4.05, the Profit and Loss for
the taxable year in which the
adjustment occurs shall be prorated between
the part of the year ending on the
day when the Partnership's property is
revalued by the General Partner and the
part of the year beginning on the following
day and, as so divided, shall be
allocated to the Partners based on their
Percentage Interests before adjustment,
and their adjusted Percentage Interests,
respectively, either (a) as if the
taxable year had ended on the date of the
adjustment or (b) based on the number
of days in each part. The General Partner,
in its sole and absolute discretion,
shall determine which method shall be used
to allocate Profit and Loss for the
taxable year in which an adjustment occurs,
as may be required or permitted
under Section 706 of the Code.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled
to
interest on its Capital Contribution.
4.07 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled
to
withdraw any part of its Capital
Contribution or its Capital Account or to
receive any distribution from the
Partnership, except as specifically provided
in this Agreement. Except as otherwise
provided herein, there shall be no
obligation to return to any Partner or
withdrawn Partner any part of such
Partner's Capital Contribution for so long
as the Partnership continues in
existence.
4.08 NO THIRD-PARTY BENEFICIARY. No creditor or other third
party
having dealings with the Partnership shall
have the right to enforce the right
or obligation of any Partner to make
Capital Contributions or loans or to pursue
any other right or remedy hereunder or at
law or in equity, it being
13
<PAGE>
understood and agreed that the provisions
of this Agreement shall be solely for
the benefit of, and may be enforced solely
by, the parties hereto and their
respective successors and assigns. None of
the rights or obligations of the
Partners herein set forth to make Capital
Contributions or loans to the
Partnership shall be deemed an asset of the
Partnership for any purpose by any
creditor or other third party, nor may such
rights or obligations be sold,
transferred or assigned by the Partnership
or pledged or encumbered by the
Partnership to secure any debt or other
obligation of the Partnership or of any
of the Partners. In addition, it is the
intent of the parties hereto that no
distribution to any Limited Partner shall
be deemed a return of money or other
property in violation of the Act. However,
if any court of competent
jurisdiction holds that, notwithstanding
the provisions of this Agreement, any
Limited Partner is obligated to return such
money or property, such obligation
shall be the obligation of such Limited
Partner and not of the General Partner.
Without limiting the generality of the
foregoing, a deficit Capital Account of a
Partner shall not be deemed to be a
liability of such Partner nor an asset or
property of the Partnership.
ARTICLE V
PROFIT AND LOSS; DISTRIBUTIONS
5.01
ALLOCATION OF PROFIT AND LOSS.
(a) After
giving effect to the special allocations set forth in
Sections 5.01(b), (c) and (d), Profit for
each fiscal year of the Partnership
shall be allocated as follows: (i) first to
the Partners, pro rata, in
accordance with and in proportion to their
respective Percentage Interests, in
amounts equal to the amount of cash
distributed to the Partners pursuant to
Section 5.02(a) with respect to such fiscal
year; (ii) second, to the extent the
amount of Profit for such fiscal year
exceeds the amount of cash distributed to
the Partners pursuant to Section 5.02(a),
such excess shall be allocated to the
General Partner and the Limited Partners in
amounts and in proportion to the
cumulative Loss allocated to the General
Partner pursuant to clause (y) of this
Section 5.01(a) and the cumulative Loss
allocated to the Limited Partners
pursuant to clause (x) of this Section
5.01(a), respectively; and (iii) finally,
the balance, if any, of Profit shall be
allocated to the Partners in accordance
with and in proportion to their respective
Percentage Interests. Notwithstanding
the foregoing, however, it is the intent of
the Partners that allocations of
Profit to the Limited Partners be such that
the amount of Profit allocated to
each Limited Partner be equal to the amount
of income that would have been
allocated to such Limited Partner with
respect to the applicable fiscal period
if such Limited Partner had owned REIT
Shares equal in number to the number of
Partnership Units owned by such Limited
Partner during such fiscal period, and
if, for any reason, the foregoing
allocations of Profit result in any material
variation from this concept, Profit shall
be allocated to each Limited Partner
in an amount equal to the aggregate amount
of income that would have been
allocated to such Limited Partner with
respect to the applicable fiscal period
if such Limited Partner had owned REIT
Shares equal in number to the number of
Partnership Units owned by such Limited
Partner during such fiscal period. After
giving effect to the special allocations
set forth in Sections 5.01(b), (c) and
(d), Loss for a fiscal year of the
Partnership shall be allocated as follows:
(w) first, to the Partners, pro rata, in
accordance with and in proportion to
their respective Percentage Interests,
until the cumulative Loss allocated to
each Partner under this clause (w) equals
the cumulative Profit allocated to
each Partner under clause (ii) of this
Section 5.01(a); (x) second, to the
Limited Partners in an amount equal to each
such Limited Partner's Capital
Account balance prior to the allocation
made under this clause (x); (y) third,
to the General Partner in an amount equal
to the General Partner's Capital
Account balance prior to the allocation
made under this clause (y); and (z)
fourth, to the General Partner to the
extent that any further allocation of Loss
to Limited Partners would result in any
such Limited Partners having a deficit
balance in their Capital Accounts.
(b)
Notwithstanding any provision to the contrary herein, (i) any
expense of the Partnership that is a
"nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(b)(1) shall
be allocated in accordance with the
Partners' respective Percentage Interests,
(ii) any expense of the
14
<PAGE>
Partnership that is a "partner nonrecourse
deduction" within the meaning of
Regulations Section 1.704-2(i)(2) shall be
allocated to the Partner that bears
the "economic risk of loss" of such
deduction in accordance with Regulations
Section 1.704- 2(i)(1), (iii) if there is a
net decrease in Partnership Minimum
Gain within the meaning of Regulations
Section 1.704-2(f)(1) for any Partnership
taxable year, then, subject to the
exceptions set forth in Regulations Section
1.704-2(f)(2), (3), (4) and (5), items of
gain and income shall be allocated
among the Partners in accordance with
Regulations Section 1.704-2(f) and the
ordering rules contained in Regulations
Section 1.704-2(j), and (iv) if there is
a net decrease in Partner nonrecourse debt
minimum gain within the meaning of
Regulations Section 1.704-2(i)(4) for any
Partnership taxable year, then,
subject to the exceptions set forth in
Regulations Section 1.704-2(g), items of
gain and income shall be allocated among
the Partners, in accordance with
Regulations Section 1.704-2(i)(4) and the
ordering rules contained in
Regulations Section 1.704-2(j). A Partner's
"interest in partnership profits"
for purposes of determining its share of
the nonrecourse liabilities of the
Partnership within the meaning of
Regulations Section 1.752- 3(a)(3) shall be
such Partner's Percentage Interest.
(c) If a
Partner receives in any taxable year an adjustment,
allocation, or distribution described in
subparagraphs (4), (5), or (6) of
Regulations Section 1.704-1(b)(2)(ii)(d)
that causes or increases a deficit
balance in such Partner's Capital Account
that exceeds the sum of such Partner's
shares of Partnership Minimum Gain and
Partner nonrecourse debt minimum gain, as
determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i),
such Partner shall be allocated specially
for such taxable year (and, if
necessary, later taxable years) items of
income and gain in an amount and manner
sufficient to eliminate such deficit
Capital Account balance as quickly as
possible as provided in Regulations Section
1.704-1(b)(2)(ii)(d). After the
occurrence of an allocation of income or
gain to a Partner in accordance with
this Section 5.01(c), to the extent
permitted by Regulations Section 1.704-1(b),
items of expense or loss shall be allocated
to such Partner in an amount
necessary to offset the income or gain
previously allocated to such Partner
under this Section 5.01(c).
(d) Loss shall
not be allocated to a Limited Partner to the extent
that such allocation would cause a deficit
in such Partner's Capital Account
(after reduction to reflect the items
described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to
exceed the sum of such Partner's shares
of Partnership Minimum Gain and Partner
nonrecourse debt minimum gain. Any Loss
in excess of that limitation shall be
allocated to the General Partner. After
the occurrence of an allocation of Loss to
the General Partner in accordance
with this Section 5.01(d), to the extent
permitted by Regulations Section
1.704-1(b), Profit shall be allocated to
the General Partner in an amount
necessary to offset the Loss previously
allocated to the General Partner under
this Section 5.01(d).
(e) If a
Partner transfers any part or all of its Partnership
Interest, the distributive shares of the
various items of Profit and Loss
allocable among the Partners during such
fiscal year of the Partnership shall be
allocated between the transferor and the
transferee Partner either (i) as if the
Partnership's fiscal year had ended on the
date of the transfer, or (ii) based
on the number of days of such fiscal year
that each was a Partner without regard
to the results of Partnership activities in
the respective portions of such
fiscal year in which the transferor and the
transferee were Partners. The
General Partner, in its sole and absolute
discretion, shall determine which
method shall be used to allocate the
distributive shares of the various items of
Profit and Loss between the transferor and
the transferee Partner.
(f) "PROFIT"
and "LOSS" and any items of income, gain, expense, or
loss referred to in this Agreement shall be
determined in accordance with
federal income tax accounting principles,
as modified by Regulations Section
1.704-(b)(2)(iv), except that Profit and
Loss shall not include items of income,
gain and expense that are specially
allocated pursuant to Sections 5.01(b),
5.01(c), or 5.01(d). All allocations of
income, Profit, gain, Loss, and expense
(and all items contained therein) for
federal income tax purposes shall be
identical to all allocations of such items
set forth in this Section 5.01,
except as otherwise required by Section
704(c) of the Code and Regulations
Section 1.704-1(b)(4). The General
15
<PAGE>
Partner shall have the authority, in its
sole and absolute discretion and
without the need for consent from any
Partner, to elect the method or methods to
be used by the Partnership for allocating
items of income, gain, expense and
deductions as required by Section 704(c) of
the Code, including election of a
method that may result in one or more
Partners receiving or being allocated a
disproportionately larger share of items of
Partnership income, gain, expense or
deduction, and any such election shall be
binding on all Partners.
5.02
DISTRIBUTIONS OF CASH.
(a) The
Partnership shall distribute cash on a quarterly (or, at
the election of the General Partner, more
frequent) basis, in an amount
determined by the General Partner in its
sole and absolute discretion, to the
Partners who are Partners on the
Partnership Record Date with respect to such
quarter (or other distribution period) in
the following manner: (i) first, to
the General Partner in an amount equal to
the GP Minimum Return with respect to
the fiscal year of the General Partner;
(ii) second, to the establishment of
reasonable cash reserves to meet REIT
Expenses and other obligations of the
Partnership, as determined in the sole and
absolute discretion of the General
Partner, (iii) third, to the Limited
Partners pro rata among them in proportion
to the their respective Unpaid Return, if
any, owing to each such Limited
Partners with respect to prior fiscal
years, in an amount equal to their
respective Unpaid Return for such prior
fiscal years owing to each such Limited
Partner; (iv) fourth, to the General
Partner and the Limited Partners in such
aggregate amount as may be determined by
the General Partner in its sole and
absolute discretion to be allocated among
the General Partner and the Limited
Partners such that the General Partner
receives its Unpaid Return from all prior
fiscal years and each Limited Partner will
receive an amount equal to its LP
Return for such fiscal year; and (v)
finally, to the Partners in accordance with
and in proportion to their respective
Percentage Interests; provided, however,
that if a new or existing Partner acquires
an additional Partnership Interest in
exchange for a Capital Contribution on any
date other than a Partnership Record
Date, the cash distribution attributable to
such additional Partnership Interest
relating to the Partnership Record Date
next following the issuance of such
additional Partnership Interest shall be
reduced to the proportion thereof which
equals (i) the number of days that such
additional Partnership Interest is held
by such Partner divided by (ii) the number
of days between such Partnership
Record Date and the immediately preceding
Partnership Record Date.
(b)
Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any
action that it determines to be
necessary or appropriate to cause the
Partnership to comply with any withholding
requirements established under the Code or
any other federal, state or local law
including, without limitation, the
requirements of Sections 1441, 1442, 1445 and
1446 of the Code. To the extent that the
Partnership is required to withhold and
pay over to any taxing authority any amount
resulting from the allocation or
distribution of income to a Partner or its
assignee (including by reason of
Section 1446 of the Code), either (i) if
the actual amount to be distributed to
the Partner or assignee equals or exceeds
the amount required to be withheld by
the Partnership, the amount withheld shall
be treated as a distribution of cash
in the amount of such withholding to such
Partner or assignee, or (ii) if the
actual amount to be distributed to the
Partner or assignee is less than the
amount required to be withheld by the
Partnership, the amount required to be
withheld shall be treated as a loan (a
"PARTNERSHIP LOAN") from the Partnership
to the Partner or assignee on the day the
Partnership pays over such amount to a
taxing authority. A Partnership Loan shall
be repaid through withholding by the
Partnership with respect to subsequent
distributions to the applicable Partner
or assignee. In the event that a Limited
Partner (a "DEFAULTING LIMITED
PARTNER") fails to pay any amount owed to
the Partnership with respect to the
Partnership Loan within 15 days after
demand for payment thereof is made by the
Partnership on the Limited Partner, the
General Partner, in its sole and
absolute discretion, may elect to make the
payment to the Partnership on behalf
of such Defaulting Limited Partner. In such
event, on the date of payment, the
General Partner shall be deemed to have
extended a loan (a "GENERAL PARTNER
LOAN") to the Defaulting Limited Partner in
the amount of the payment made by
the General Partner and shall
16
<PAGE>
succeed to all rights and remedies of the
Partnership against the Defaulting
Limited Partner as to that amount. Without
limitation, the General Partner shall
have the right to receive any distributions
that otherwise would be made by the
Partnership to the Defaulting Limited
Partner until such time as the General
Partner Loan has been paid in full, and any
such distributions so received by
the General Partner shall be treated as
having been received by the Defaulting
Limited Partner and immediately paid to the
General Partner. Any amounts treated
as a Partnership Loan or a General Partner
Loan pursuant to this Section 5.02(b)
shall bear interest at the lesser of (A)
the base rate on corporate loans at
large United States money center commercial
banks, as published from time to
time in The Wall Street Journal, or (B) the
maximum lawful rate of interest on
such obligation, such interest to accrue
from the date the Partnership or the
General Partner, as applicable, is deemed
to extend the loan until such loan is
repaid in full.
(c) To the
extent not utilized for expenses of the Partnership or
for investment in additional Properties,
the General Partner may, in its
discretion, cause the Partnership to
distribute Net Capital Proceeds in such
amount as shall be determined by the
General Partner in its discretion in
accordance with the provisions of Section
5.02(a).
(d) In no
event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such
Partner is entitled to receive a cash
dividend as the holder of record of a REIT
Share for which all or part of such
Partnership Unit has been or will be
exchanged, and the Unpaid Return with
respect to such Partnership Unit shall be
deemed to be reduced by the amount of
any such cash dividend.
5.03 REIT
DISTRIBUTION REQUIREMENTS. The General Partner shall use
its reasonable efforts to cause the
Partnership to distribute amounts sufficient
to enable the General Partner to pay
stockholder dividends that will allow the
General Partner to (a) meet its
distribution requirement for qualification as a
REIT as set forth in Section 857 of the
Code and (b) avoid any federal income or
excise tax liability imposed by the
Code.
5.04 NO
RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be
entitled to demand property other than cash
in connection with any distributions
by the Partnership.
5.05
LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding
any of the provisions of this Article V, no
Partner shall have the right to
receive and the General Partner shall not
have the right to make a distribution
that includes a return of all or part of a
Partner's Capital Contributions,
unless after giving effect to the return of
a Capital Contribution, the sum of
all Partnership liabilities, other than the
liabilities to a Partner for the
return of its Capital Contribution, does
not exceed the fair market value of the
Partnership's assets.
5.06
DISTRIBUTIONS UPON LIQUIDATION. Upon liquidation of the
Partnership, after payment of, or adequate
provision for, debts and obligations
of the Partnership, including any Partner
loans, any remaining assets of the
Partnership shall be distributed to all
Partners with positive Capital Accounts
in accordance with their respective
positive Capital Account balances. For
purposes of the preceding sentence, the
Capital Account of each Partner shall be
determined after all adjustments made in
accordance with Sections 5.01 and 5.02
resulting from Partnership operations and
from all sales and dispositions of all
or any part of the Partnership's assets
have be
