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EXHIBIT 10.2
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS TIMBER OPERATING PARTNERSHIP, L.P.
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TABLE OF CONTENTS
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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 and Special
Partnership Units...........................................
10
ARTICLE III BUSINESS OF THE
PARTNERSHIP................................. 10
ARTICLE IV CAPITAL CONTRIBUTIONS AND
ACCOUNTS.......................... 10
4.01 Capital Contributions..................................
11
4.02 Additional Capital Contributions and Issuance 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........................
14
4.08 No Third Party Beneficiary.............................
14
ARTICLE V PROFITS AND LOSSES;
DISTRIBUTIONS........................... 14
5.01 Allocation of Profit and Loss..........................
14
5.02 Distribution of Cash...................................
16
5.03 REIT Distribution Requirements.........................
17
5.04 No Right to Distributions In Kind......................
18
5.05 Limitations of Return of Capital Contributions.........
18
5.06 Distributions Upon Liquidation.........................
18
5.07 Substantial Economic Effect............................
18
ARTICLE VI RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER....... 18
6.01 Management of the Partnership..........................
18
6.02 Delegation of Authority................................
20
6.03 Indemnification and Exculpation of Indemnitees.........
20
6.04 Liability of the General Partner.......................
22
6.05 Reimbursement of General Partner.......................
23
6.06 Outside Activities.....................................
23
6.07 Employment or Retention of Affiliates..................
23
6.08 General Partner Participation..........................
23
6.09 Title to Partnership Assets............................
24
6.10 Miscellaneous..........................................
24
ARTICLE VII CHANGES IN GENERAL
PARTNER.................................. 24
7.01 Transfer of the General Partner's Partnership
Interest....................................................
24
7.02 Admission of a Substitute or Additional General
Partner.....................................................
26
7.03 Effect of Bankruptcy, Withdrawal, Death or
Dissolution of a General Partner............................
26
7.04 Removal of a General Partner...........................
27
ARTICLE VIII RIGHTS AND OBLIGATIONS OF THE
LIMITED PARTNERS.............. 28
8.01 Management of the Partnership..........................
28
8.02 Power of Attorney......................................
28
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8.03 Limitation on Liability of Limited Partners............
28
8.04 Ownership by Limited Partner of Corporate General
Partner or Affiliate........................................
28
8.05 Redemption Right.......................................
28
8.06 Registration...........................................
30
8.07 Redemption of Special Partnership Units................
31
ARTICLE IX TRANSFERS AND REDEMPTIONS OF
LIMITED PARTNERSHIP INTERESTS.. 32
9.01 Purchase for Investment................................
32
9.02 Restrictions on Transfer of Limited Partnership
Interests...................................................
32
9.03 Admission of Substitute Limited Partner................
33
9.04 Rights of Assignees of Partnership Interests...........
34
9.05 Effect of Bankruptcy, Death, Incompetence or
Termination of a Limited Partner............................
35
9.06 Joint Ownership of Interests...........................
35
9.07 Redemption of Partnership Units........................
35
ARTICLE X BOOKS AND RECORDS;
ACCOUNTING; TAX MATTERS.................. 35
10.01 Books and Records.....................................
35
10.02 Custody of Partnership Funds; Bank Accounts...........
36
10.03 Fiscal and Taxable Year...............................
36
10.04 Annual Tax Information and Report.....................
36
10.05 Tax Matters Partner; Tax Elections; Special Basis
Adjustments.................................................
36
10.06 Reports to Limited Partners...........................
36
ARTICLE XI AMENDMENT OF AGREEMENT;
MERGER.............................. 37
ARTICLE XII GENERAL
PROVISIONS.......................................... 37
12.01 Notices...............................................
37
12.02 Survival of Rights....................................
38
12.03
Additional Documents.................................. 38
12.04 Severability..........................................
38
12.05 Entire Agreement......................................
38
12.06 Pronouns and Plurals..................................
38
12.07 Headings..............................................
38
12.08 Counterparts..........................................
38
12.09 Governing Law.........................................
38
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EXHIBIT A ALLOCATION OF
PARTNERSHIP UNITS
EXHIBIT B NOTICE OF EXERCISE OF
REDEMPTION RIGHT
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AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS TIMBER OPERATING PARTNERSHIP, L.P.
RECITALS
Wells Timber
Operating Partnership, L.P. (the "Partnership") was formed as
a limited partnership 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 November 9, 2005. This Agreement
of Limited Partnership is entered into this
9th day of November, 2005 between
Wells Timber Real Estate Investment Trust,
Inc., a Maryland corporation (the
"General Partner") and the Limited
Partner(s) set forth on Exhibit A hereto (the
"Agreement").
AGREEMENT
NOW, THEREFORE, in
consideration of the foregoing, of mutual covenants
between the parties hereto, and of other
good and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged, the parties hereto
agree as follows:
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
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 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 Persons or Persons, if any, appointed,
employed or contracted with by the General
Partner and responsible for directing
or performing the day-to-day business
affairs of the General Partner, including
any Person to whom the Advisor subcontracts
substantially all of such functions.
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"Advisory
Agreement" means the agreement between the Partner, the General
Partner and the Advisor pursuant to which
the Advisor will direct or perform the
day-to-day business affairs of the General
Partner.
"Affiliate"
means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control
with such Person, (ii) any other
Person that owns, beneficially, directly or
indirectly, 10% or more of the
outstanding capital stock, shares or equity
interests of such Person, or (iii)
any officer, director, employee, partner or
trustee of such Person or any Person
controlling, controlled by or under common
control with such Person (excluding
trustees and persons serving in similar
capacities who are not otherwise an
Affiliate of such Person). For the purposes
of this definition, "control"
(including the correlative meanings of the
terms "controlled by" and "under
common control with"), as used with respect
to any Person, shall mean the
possession, directly or indirectly, of the
power to direct or cause the
direction of the management and policies of
such Person, through the ownership
of voting securities or partnership
interests or otherwise.
"Agreed Value"
means 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. The names and addresses of
the Partners, number of Partnership
Units or Special Partnership Units issued
to each Partner, and the Agreed Value
of non-cash Capital Contributions as of the
date of contribution is set forth on
Exhibit A.
"Agreement"
means this Agreement of Limited Partnership.
"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.
"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 per Partnership Unit equal to the
Value of the REIT Shares Amount on the date
of receipt by the General Partner of
a Notice of Redemption.
"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 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 of 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.
"Commission"
means the U.S. Securities and Exchange Commission.
"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
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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 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 a Notice of
Redemption 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 Notice of Redemption
immediately prior to the record date for
such dividend, distribution, subdivision or
combination.
"Event of
Bankruptcy" as to any Person means 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); insolvency or
bankruptcy of such Person as finally
determined by a court proceeding; 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; commencement of any proceedings
relating to such Person as a debtor
under any other reorganization,
arrangement, insolvency, adjustment of debtor
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.
"General
Partner" means Wells Timber Real Estate Investment Trust, Inc.,
a
Maryland corporation, and any Person who
becomes a substitute or additional
General Partner as provided herein, and any
of their successors as General
Partner.
"General Partnership
Interest" means a Partnership Interest held by the
General Partner that is a general
partnership interest.
"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.
"Independent
Director" means a director of the General Partner who is not
an officer or employee of the General
Partner, any Affiliate of an officer or
employee or any Affiliate of (i) any lessee
of any property of the General
Partner or any Subsidiary of the General
Partner, (ii) any Subsidiary of the
General Partner, or (iii) any partnership
that is an Affiliate of the General
Partner.
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"Issue Price"
means the per share price at which the applicable REIT Shares
were offered in the General Partner's
public offering pursuant to which they
were issued, not reduced by any discounted
selling commissions or reduced fees
that the General Partner may pay to its
Dealer Manager which may have applied to
the purchase of such REIT Shares.
"Joint Venture"
means any Person named as a Limited Partner on Exhibit A
attached hereto, and any Person who becomes
a Substitute Limited Partner, in
such Person's capacity as a Limited Partner
in the Partnership.
"Limited
Partner" means 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.
"Listing" means
the approval of the REIT Shares, issued by the General
Partner pursuant to an effective
Registration Statement, for trading on a
national securities exchange or included
for quotation on a national market
system. Upon such Listing, the shares shall
be deemed "Listed."
"Loss" has the
meaning provided in Section 5.01(f) hereof.
"Market Value"
has the meaning provided in Section 8.07(b)
"Minimum Limited
Partnership Interest" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the
Partnership exceed $50 million, 1%
divided by the ratio of the total Capital
Contributions to the Partnership to
$50 million; provided, however, that the
Minimum Limited Partnership Interest
shall not be less than 0.2% at any
time.
"Mortgages"
means, in connection with any mortgage financing provided,
invested in, participated in or purchased
by the Partnership, all of the notes,
deeds of trust, mortgages, security
interests or other evidences of indebtedness
or obligations, which are secured by or,
collateralized by, or applicable to any
Property owned by the borrowers under such
notes, deeds of trust, mortgages,
security interests or other evidences of
indebtedness or obligations.
"Net Sales
Proceeds" means (i) in the case of a transaction described in
clause (A)(i) of the definition of Sale,
the proceeds of any such transaction
less the amount of selling expenses
incurred by or on behalf of the Partnership,
including all real estate disposition fees,
closings costs and legal fees and
expenses; (A)(ii) in the case of a
transaction described in clause (ii) of the
definition of Sale, the proceeds of any
such transaction less the amount of
selling expenses incurred by or on behalf
of the Partnership, including any
legal fees and expenses and other selling
expenses incurred in connection with
such transaction; (iii) in the case of a
transaction described in clause
(A)(iii) of the definition of Sale, the
proceeds of any such transaction
actually distributed to the Partnership
from the Joint Venture less the amount
of any selling expenses incurred by or on
behalf of the Partnership (other than
those paid by the Joint Venture); (iv) in
the case of a transaction described in
clause (A)(iv) of the definition of Sale,
the proceeds of any such transaction
(including the aggregate of all payment
under a Mortgage on or in satisfaction
thereof other than regularly schedule
interests payments) less the amount of
selling expenses incurred by or on behalf
of the Partnership, including all
commissions, closing costs and legal fees
and
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expenses; (v) in the case of a transaction
described in clause (A)(v) of the
definition of Sale, the proceeds of any
such transaction less the amount of
selling expenses incurred by or on behalf
of the Partnership, including any
legal fees and expenses and other selling
expenses incurred in connection with
such transaction; and (vi) in the case of a
transaction described in clause (B)
of the definition of Sale, the proceeds of
such transaction or series of
transactions less all amounts generated
thereby which are reinvested in one or
more assets as described in clause (B) of
the definition of Sale within 180 days
thereafter and less the amount of any real
estate commissions, closing costs,
and legal fees and expenses and other
selling expenses incurred by or allocated
to the Partnership in connection with such
transaction or series of
transactions. Net Sales Proceeds shall also
include any amounts that the General
Partner determines, in its discretion, to
be economically equivalent to the
proceeds of a Sale. Net Sales Proceeds
shall not include any reserves
established by the Partnership in its sole
discretion.
"Notice of
Redemption" means the Notice of Exercise of Redemption Right
substantially in the form attached as
Exhibit B hereto.
"Offer" has the
meaning set forth in Section 7.01(c) hereof.
"Offering" means
the initial offer and sale by the General Partner and the
purchase by the Dealer Manager (as defined
in the Prospectus) of REIT for sale
to the public.
"OP Unitholders"
means all holders of Partnership Interests other than the
Special OP Unitholders.
"Original
Limited Partner" means the Limited Partner designated as
"Original Limited Partner" 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 Wells Timber Operating Partnership, L.P., 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.
"Partnership
Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(d). 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 hereof, which
record date shall be the same as the record
date established by the General
Partner for a distribution to its
shareholders of some or all of its portion of
such distribution.
"Partnership
Unit" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder
excluding the Partnership Interests
represented by Special Partnership
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Units. The allocation of Partnership Units
among the Partners shall be as set
forth on Exhibit A, as 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 Partnership Units
owned by a Partner by the total number of
Partnership Units then outstanding.
The Percentage Interest of each Partner
shall be as set forth on Exhibit A, as
may be amended from time to time.
"Person" means
any individual, partnership, corporation, joint venture,
trust or other entity.
"Profit" has the
meaning provided in Section 5.01(g) hereof.
"Property" means
any timberland or related property or other investment in
which the Partnership holds an ownership
interest.
"Prospectus"
means the final prospectus delivered to purchasers of REIT
Shares in the Offering.
"Redemption
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.
"Redemption
Note" has the meaning set forth in Section 8.07(b)(i)
"Redemption
Right" has the meaning provided in Section 8.05(a) hereof.
"Redeeming
Partner" has the meaning provided in Section 8.05(a) hereof.
"Regulations"
means the Federal Income Tax 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 hereof 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 hereof, 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 any public offering and
registration of securities by the General
Partner and all statements, reports, fees
and expenses 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 and any
securities exchange, (vi) costs and
expenses associated with any 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 issuing or
redemption of Partnership Interests,
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.
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"REIT Share"
means a share of common stock, par value $0.01 per share, 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 a Redeeming Partner,
multiplied by the Conversion Factor as
adjusted to and including the Specified
Redemption 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 shareholders 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
Redemption Date, then the REIT Shares Amount
shall also include the rights issuable to a
holder of the REIT Shares Amount of
REIT Shares on the record date fixed for
purposes of determining the holders of
REIT Shares entitled to rights.
"Sale" means (A)
any transaction or series of transactions whereby: (i) the
Partnership directly or indirectly (except
as described in other subsections of
this definition) sells, grants, transfers,
conveys, or relinquishes its
ownership or any Property or portion
thereof, including the lease of any
Property and including any event with
respect to any Real 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 of
the interest of the Partnership in any
Joint Venture; (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 Real Property or portion
thereof, including any event with
respect to any Real 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 which gives
rise to a significant amount of
insurance proceeds or similar awards; or
(v) the Partnership directly or
indirectly (except as described in any
other subsections of this definition)
sells, grants, transfers, conveys, or
relinquishes its ownership of any other
Real Property, Mortgage or other investment
owner by the Partnership, directly
or indirectly through one or more of its
Affiliates, and any other investment
made, directly or indirectly through one or
more of its Affiliates, not
previously described in this definition of
any portion thereof, but (B) not
including any transaction or series of
transactions specified in clause (A)(i)
through (v) above in which the proceeds of
such transaction or series of
transactions are reinvested by the
Partnership in one or more such assets within
180 days thereafter.
"Securities Act"
means the Securities Act of 1933, as amended.
"Service" means
the Internal Revenue Service.
"Special OP
Unitholders" mean the holders of Special Partnership Units.
"Special
Partnership Unit" means a unit of a series of Partnership
Interests, designated as Special
Partnership Units, issued pursuant to Section
4.02. The number of Special Partnership
Units outstanding and the Special
Percentage Interests in the Partnership
represented by such Special Partnership
Units are set forth on Exhibit A, as such
Exhibit may be amended from time to
time. A holder of a Special Partnership
Unit shall have the same rights and
preferences as a holder of a Partnership
Unit under this Agreement that is a
Limited Partner except as set forth in
Section 7.01(c), 8.05, 8.06 and 8.07.
"Special
Percentage Interest" shall mean the percentage ownership
interest
in the Partnership of each Special OP
Unitholder, as determined by dividing the
Special Partnership
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Units owned by each Special OP Unitholder
by the total number of Special
Partnership Units then outstanding. The
Special Percentage Interest of each
Partner shall be as set forth on Exhibit A,
as such Exhibit may be amended from
time to time.
"Specified
Redemption Date" means the first business day of the month that
is at least 60 business days after the
receipt by the General Partner of the
Notice of Redemption.
"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 of which the partnership
interests therein are owned by the General
Partner or a wholly-owned subsidiary
of the General Partner.
"Substitute
Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section
9.03 hereof. "Successor Entity" has the
meaning provided in the definition of
"Conversion Factor" contained herein.
"Surviving
General Partner" has the meaning set forth in Section 7.01(d)
hereof.
"Termination
Event" means the termination or non-renewal of the Advisory
Agreement other than for "cause" as defined
in the Advisory Agreement.
"Termination
Redemption Amount" means the aggregate amount equal to the Net
Sales Proceeds that would have been
distributed to the Special OP Unitholders
under Section 5.02(b) if, on the date of
the occurrence of a Termination Event
or a Listing, as applicable, all assets of
the Partnership had been sold for
their fair market value and all liabilities
of the Partnership had been
satisfied in full according to their
terms.
"Transaction"
has the meaning set forth in Section 7.01(c) hereof.
"Transfer" has
the meaning set forth in Section 9.02(a) hereof.
"Value" means,
except as provided in Section 8.07(d), 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 of such valuation. The
market price for each such trading day
shall be: (i) if the security is Listed,
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, 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 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 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. When the Value of a
security is being determined for
purposes of issuance to an Affiliated
Advisor, such Value as determined by the
General Partner is required to be approved
a majority of the General Partner's
"Independent Directors" (as defined in the
charter of the General Partner).
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ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION
2.01 Formation.
The Partners hereby agree to form the Partnership 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
Wells Timber Operating Partnership, L.P.
The specified office and place of
business of the Partnership shall be 6200
The Corners Parkway, Suite 250,
Norcross, Georgia 30092. 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 is The
Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware
19801. The sole duty of the registered
agent as such is to forward to the
Partnership any notice that is served on him
as registered agent.
2.03
Partners.
(a) The General
Partner of the Partnership is Wells Timber Real Estate
Investment Trust, 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
on Exhibit A hereto, as amended from time
to time.
2.04 Term and
Dissolution.
(a) The term of
the Partnership shall continue in full force and effect
until December 31, 2053, except that the
Partnership shall be dissolved upon the
first to occur of any of the following
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) hereof;
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, 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
note or notes
are 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.
(b) Upon
dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to
Section 7.03(b) hereof), the General
Partner (or its trustee, receiver,
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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 hereof.
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 and Special
Partnership
Units. At the request of a Limited Partner,
the General Partner, at its option,
may issue a certificate summarizing the
terms of such Limited Partner's interest
in the Partnership, including the number of
Partnership Units and Special
Partnership Units owned and the Percentage
Interest and the Special Percentage
Interest represented by such Partnership
Units and Special Partnership Units as
of the date of such certificate. Any such
certificate (i) shall be in form and
substance as approved by the General
Partner, (ii) shall not be negotiable and
(iii) shall bear a legend to the following
effect:
This certificate
is not negotiable. The Partnership Units and the Special
Partnership Units represented by this
certificate are governed by and
transferable only in accordance with the
provisions of the Agreement of Limited
Partnership of Wells Timber Operating
Partnership, L.P., 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 (i) 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, (ii) 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 (iii) 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 the 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.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
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4.01 Capital
Contributions. The General Partner and the Limited Partner
have made capital contributions to the
Partnership in exchange for the
Partnership Interests set forth opposite
their names on Exhibit A, as amended
from time to time.
4.02 Additional
Capital Contributions and Issuance 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 Interests in respect
thereof, in the manner contemplated
in this Section 4.02.
(a) Issuances of
Additional Partnership Interests.
(i) General. The General Partner is hereby authorized to cause
the
Partnership to
issue such 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, (i) the
allocations
of items of
Partnership income, gain, loss, deduction and credit to each
such class or
series of Partnership Interests; (ii) the right of each such
class or series
of Partnership Interests to share in Partnership
distributions;
and (iii) 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 unless:
(1) (A) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares of or other interests
in
the General Partner, which shares or interests have
designations,
preferences and other rights, all 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
(B) the General Partner shall make a Capital Contribution to
the
Partnership in an amount equal to the 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 owned by the General Partner 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.
In addition, the General Partner may acquire Partnership
Interests
from other
Partners pursuant to this Agreement. In the event that the
Partnership
issues Partnership Interests pursuant to this Section 4.02(a),
the General
Partner shall make such revisions to this Agreement (without
any requirement
of receiving approval of the Limited Partners)
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<PAGE>
as it deems
necessary to reflect the issuance of such additional
Partnership
Interests and any special rights, powers, and duties associated
therewith.
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) Upon Issuance of Additional Securities. The General Partner
shall
not issue 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 (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, 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, all such
that the
economic interests are substantially similar to those of the
Additional
Securities, and (B) 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,
to the Partnership; provided, however, that the General
Partner is
allowed to issue Additional Securities in connection with an
acquisition of a
property to be held directly by the General Partner, but
if and only if,
such direct acquisition and issuance of Additional
Securities have
been approved and determined to be in the best interests of
the General
Partner and the Partnership by a majority of the Independent
Directors (as
defined in the General Partner's Amended and Restated
Articles of
Incorporation). 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
corresponding Partnership Interests, so long as (x) 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
(y) the General Partner contributes all proceeds from such
issuance to the
Partnership. For example, in the event the General Partner
issues REIT
Shares for a cash purchase price and contributes all of the
proceeds of such
issuance to the Partnership as required hereunder, the
General Partner
shall be issued a number of additional Partnership Units
equal to the
product of (A) the number of such REIT Shares issued by the
General Partner,
the proceeds of which were so contributed, multiplied by
(B) a fraction,
the numerator of which is 100%, and the denominator of
which is the
Conversion Factor in effect on the date of such contribution.
(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 Capital Contributions to the
Partnership of the proceeds therefrom,
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 expenses
paid or incurred in connection with
such issuance, then the General Partner
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
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<PAGE>
with Section 6.05 hereof and in connection
with the required issuance of
additional Partnership Units to the General
Partner for such Capital
Contributions pursuant to Section 4.02(a)
hereof.
(c) Minimum
Limited Partnership Interest. In the event that either an
exchange pursuant to Section 8.05 hereof or
additional Capital Contributions by
the General Partner would result in the
Limited Partners, in the aggregate,
owning less than the Minimum Limited
Partnership Interest, the General Partner
and the Limited Partners shall form another
partnership and contribute
sufficient Limited Partnership Interests
(other than Special Partnership Units)
together with such other Limited Partners
so that the limited partners of such
partnership own at least the Minimum
Limited Partnership Interest.
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
(i) cause the Partnership to obtain such
funds from outside borrowings, or (ii)
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
(i) a new or existing Partner acquires
an additional Partnership Interest in
exchange for more than a de minimis
Capital Contribution, (ii) the Partnership
distributes to a Partner more than a
de minimis amount of Partnership property
as consideration for a Partnership
Interest, or (iii) the Partnership is
liquidated within the meaning of
Regulation 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
1.704-1(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 effective 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.
If the Partners' Percentage Interests are
adjusted pursuant to this Section
4.05, the Profits and Losses for the
taxable year in which the adjustment occurs
shall be allocated 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 either
(i) as if the taxable year had ended
on the date of the adjustment or (ii) 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 Profits
and Losses for the taxable year in
which the adjustment occurs. The allocation
of Profits and Losses for the
earlier part of the year shall be based on
the Percentage Interests before
adjustment, and the allocation of Profits
and Losses for the later part shall be
based on the adjusted Percentage
Interests.
4.06 No Interest
on Contributions. No Partner shall be entitled to interest
on its Capital Contribution.
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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 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
PROFITS AND LOSSES; DISTRIBUTIONS
5.01 Allocation
of Profit and Loss.
(a) General.
Profits (and items thereof) and Losses (and items thereof) for
each fiscal year or other applicable period
shall be allocated among the OP
Unitholders in accordance with their
respective Percentage Interests.
(b) Special
Allocation with Respect to Sales. Profits (and items thereof)
and Losses (and items thereof) for each
fiscal year or other applicable period
from Sales shall be allocated among the
Partners such that the ending Capital
Account of each Partner, immediately after
giving effect to such allocations and
giving effect to any distributions to which
such Partner is entitled to pursuant
to 5.02(b), is, as nearly as possible,
equal to the amount of the distributions
that would be made to such Partner pursuant
to Section 5.06 if (i) the
Partnership were dissolved and terminated
at the end of the fiscal year or other
applicable period, (ii) its affairs were
wound up and each asset on hand at the
end of the fiscal year or other applicable
period were sold for cash equal 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
1.704-1(b)(2)(iv)(f), (iii) all liabilities
of the Partnership were satisfied (limited
with respect to each nonrecourse
liability to the fair market value of the
assets securing such liability); and
(iv) the net assets of the Partnership were
distributed to the Partners in
accordance with Section 5.06. For purposes
of the preceding allocations only, a
Partner holding more than one class or
series of Partnership Interests or units
shall be deemed to be a separate Partner
with respect to each such class, series
or units.
(c) Minimum Gain
Chargeback. Notwithstanding any provision to the contrary,
(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
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<PAGE>
Percentage Interests, (ii) any expense of
the 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.
(d) Qualified
Income Offset. 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(d), 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(d).
(e) Capital
Account Deficits. 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
