Exhibit 10.4

  

THIRD AMENDMENT TO THE

SECOND AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP OF

BLUEROCK RESIDENTIAL HOLDINGS, L.P.

 

DESIGNATION OF NEW SERIES B

REDEEMABLE PREFERRED UNITS

 

March 1, 2016

 

Pursuant to Section 4.02 and Article XI of the Second Amended and Restated
Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., as
amended by the First Amendment thereto, (the “Partnership Agreement”), the
General Partner hereby amends the Partnership Agreement as follows in connection
with the offer and sale of up to 150,000 units (the “REIT Units”), consisting of
150,000 shares of a new Series B Redeemable Preferred Stock (the “Series B
Preferred Stock”) of Bluerock Residential Growth REIT, Inc., and warrants
entitling holders to purchase 3,000,000 shares of Common Stock (as defined
below), and the issuance to the General Partner of new Series B Preferred Units
(as defined below) in exchange for the contribution by the General Partner of
the net proceeds from the issuance and sale of the REIT Units attributable to
the Series B Preferred Stock:

 

1.           Designation and Number. A new series of Preferred Units (as defined
below), designated the Series B Preferred Units (the “Series B Preferred
Units”), is hereby established. The number of authorized Series B Preferred
Units shall be 150,000.

 

2.           Defined Terms. Capitalized terms used herein and not otherwise
defined shall have the meanings given to such terms in the Partnership
Agreement. The following defined terms used in this Amendment to the Partnership
Agreement shall have the meanings specified below:

 

“Articles Supplementary” means the Articles Supplementary of the General Partner
filed with the State Department of Assessments and Taxation of the State of
Maryland on February 26, 2016, designating the terms, rights and preferences of
the Series B Preferred Stock.

 

“Base Liquidation Preference” shall have the meaning provided in Section 6.

 

“Business Day” shall have the meaning provided in Section 5(a).

 

“Common Stock” means shares of the General Partner’s Class A common stock, par
value $0.01 per share.

 

“Common Unit Economic Balance” shall have the meaning provided in Section 10(g).

 

“Default Period” shall have the meaning provided in Section 5(e).

 

“Default Rate” shall have the meaning provided in Section 5(e).

 

“Distribution Period” hall have the meaning provided in Section 5(a).

 

 

 

  

“Distribution Record Date” shall have the meaning provided in Section 5(a).

 

“Economic Capital Account Balance” shall have the meaning provided in Section
10(g).

 

“Junior Units” shall have the meaning provided in Section 4.

 

“Liquidating Gains” shall have the meaning provided in Section 10(g).

 

“Loss” shall have the meaning provided in Section 10(h).

 

“Net Operating Income” shall have the meaning provided in Section 10(f).

 

“Parity Preferred Units” shall have the meaning provided in Section 4.

 

“Partnership Agreement” shall have the meaning provided in the recital above.

 

“Preferred Units” means all Partnership Interests designated as preferred units
by the General Partner from time to time in accordance with Section 4.02 of the
Partnership Agreement.

 

“Profit” shall have the meaning provided in Section 10(h).

 

“Series B Preferred Return” shall have the meaning provided in Section 5(a).

 

“Series B Preferred Distribution Payment Date” shall have the meaning provided
in Section 5(a).

 

“Series B Preferred Stock” shall have the meaning provided in the recital above.

 

“Series B Preferred Units” shall have the meaning provided in Section 1.

 

“Stated Value” shall mean $1,000, subject to appropriate adjustment in relation
to any recapitalizations, distributions, unit splits, unit combinations,
reclassifications or other similar events which affect the Series B Preferred
Units.

 

3.           Maturity. The Series B Preferred Units have no stated maturity and
will not be subject to any sinking fund or mandatory redemption.

 

4.           Rank. The Series B Preferred Units will, with respect to
distribution rights and rights upon liquidation, dissolution or winding up of
the Partnership, rank (a) senior to all classes or series of Common Units of the
Partnership and any class or series of Preferred Units expressly designated as
ranking junior to the Series B Preferred Units as to distribution rights and
rights upon liquidation, dissolution or winding up of the Partnership (together
with the Common Units, the “Junior Units”); (b) on a parity with any class or
series of Preferred Units issued by the Partnership expressly designated as
ranking on a parity with the Series B Preferred Units, including the Series A
Preferred Units, as to distribution rights and rights upon liquidation,
dissolution or winding up of the Partnership (the “Parity Preferred Units”); and
(c) junior to any class or series of Preferred Units issued by the Partnership
expressly designated as ranking senior to the Series B Preferred Units with
respect to distribution rights and rights upon liquidation, dissolution or
winding up of the Partnership. The term “Preferred Units” does not include
convertible or exchangeable debt securities of the Partnership, which will rank
senior to the Series B Preferred Units prior to conversion or exchange. The
Series B Preferred Units will also rank junior in right or payment to the
Partnership’s existing and future indebtedness.

 

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5.           Distributions.

 

(a)          Subject to the preferential rights of holders of any class or
series of Preferred Units of the Partnership expressly designated as ranking
senior to the Series B Preferred Units as to distributions, the holders of
Series B Preferred Units shall be entitled to receive, when, as and if
authorized by the General Partner and declared by the Partnership, out of funds
of the Partnership legally available for payment of distributions, cumulative
cash distributions at the rate of 6.00% per annum of the Stated Value per unit
(equivalent to a fixed annual amount of $6.00 per unit) (the “Series B Preferred
Return”) from the date of original issue of the Series B Preferred Units (the
“Original Issue Date”) (or the date of issue of any Series B Preferred Units
issued after the Original Issue Date) the Partnership shall pay cumulative cash
distributions on the Series B Preferred Units at an annual rate equal to the
Series B Preferred Return. Distributions on the Series B Preferred Units shall
accrue and be cumulative from (and including) the date of issuance of any Series
B Preferred Units or the end of the most recent Distribution Period for which
distributions have been paid, and shall be payable monthly, in equal amounts, in
arrears, on or about the 5th day of each month of each year (or, if not a
business day, the next succeeding business day (each a “Series B Preferred
Distribution Payment Date”) for the period ending on such Series B Preferred
Distribution Payment Date, commencing on the first day of each month. A
“Distribution Period” is the respective period commencing on and including the
first day of each month and ending on and including the day preceding the first
day of the next succeeding Distribution Period (other than the initial
Distribution Period and the Distribution Period during which any Series B
Preferred Units shall be redeemed or otherwise acquired by the Partnership). The
term “Business Day” shall mean each day, other than a Saturday or Sunday, which
is not a day on which banks in the State of New York are required to close. The
amount of any distribution payable on the Series B Preferred Units for any
Distribution Period will be computed on the basis of twelve 30-day months and a
360-day year. Distributions will be payable to holders of record of the Series B
Preferred Units as they appear on the records of the Partnership at the close of
business on the 25th day of the month preceding the applicable Series B
Preferred Distribution Payment Date, (each, a “Distribution Record Date”).

 

(b)          No distributions on the Series B Preferred Units shall be
authorized by the General Partner or declared, paid or set apart for payment by
the Partnership at such time as the terms and provisions of any agreement of the
General Partner or the Partnership, including any agreement relating to the
indebtedness of either of them, prohibits such authorization, declaration,
payment or setting apart for payment or provides that such declaration, payment
or setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or prohibited
by law.

 

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(c)          Notwithstanding anything to the contrary contained herein,
distributions on the Series B Preferred Units will accrue whether or not the
restrictions referred to in Section 5(b) exist, whether or not the Partnership
has earnings, whether or not there are funds legally available for the payment
of such distributions and whether or not such distributions are authorized or
declared. No interest, or sum of money in lieu of interest, will be payable in
respect of any distribution on the Series B Preferred Units which may be in
arrears. When distributions are not paid in full upon the Series B Preferred
Units and any Parity Preferred Units (or a sum sufficient for such full payment
is not so set apart), all distributions declared upon the Series B Preferred
Units and any Parity Preferred Units shall be declared pro rata so that the
amount of distributions declared per Series B Preferred Unit and such Parity
Preferred Units shall in all cases bear to each other the same ratio that
accumulated distributions per Series B Preferred Unit and such Parity Preferred
Units (which shall not include any accrual in respect of unpaid distributions
for prior distributions periods if such Parity Preferred Units do not have a
cumulative distribution) bear to each other.

 

(d)          Except as provided in the immediately preceding paragraph, unless
full cumulative distributions on the Series B Preferred Units have been or
contemporaneously are declared and paid in cash or declared and a sum sufficient
for the payment thereof is set apart for payment for all past Distribution
Periods that have ended, no distributions (other than a distribution in Junior
Units or in options, warrants or rights to subscribe for or purchase any such
Junior Units) shall be declared and paid or declared and set apart for payment
nor shall any other distribution be declared and made upon the Junior Units or
the Parity Preferred Units, nor shall any Junior Units or Parity Preferred Units
be redeemed, purchased or otherwise acquired for any consideration (or any
monies be paid to or made available for a sinking fund for the redemption of any
such Units) by the Partnership (except by conversion into or exchange for
options, warrants or rights to subscribe for or purchase Junior Units.

 

(e)          Notwithstanding anything to the contrary set forth above, the
Partnership shall not be prohibited from (i) declaring or paying or setting
apart for payment any distribution on Junior Units or Series B Preferred Units,
or (ii) redeeming, purchasing or otherwise acquiring any Junior Units or Parity
Preferred Units, in each case, if such declaration, payment, setting apart for
payment, redemption, purchase or other acquisition is necessary in order to
maintain the continued qualification of the General Partner as a REIT under
Section 856 of the Code.

 

(f)          For the avoidance of doubt, in determining whether a distribution
(other than upon voluntary or involuntary liquidation) by distribution,
redemption or other acquisition of the Partnership Units is permitted under
Delaware law, no effect shall be given to the amounts that would be needed, if
the Partnership were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon distribution of holders of Partnership Units whose
preferential rights are superior to those receiving the distribution.

 

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6.           Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Partnership, the
holders of Series B Preferred Units are entitled to be paid out of the assets of
the Partnership legally available for distribution to its partners, after
payment of or provision for the Partnership’s debts and other liabilities, a
liquidation preference equal to the Stated Value per unit, plus an amount equal
to any accrued and unpaid distributions (whether or not authorized or declared)
thereon to and including the date of payment, but without interest, before any
distribution of assets is made to holders of Junior Units. If the assets of the
Partnership legally available for distribution to partners are insufficient to
pay in full the liquidation preference on the Series B Preferred Units and the
liquidation preference on any Parity Preferred Units, all assets distributed to
the holders of the Series B Preferred Units and any Parity Preferred Units shall
be distributed pro rata so that the amount of assets distributed per Series B
Preferred Units and such Parity Preferred Units shall in all cases bear to each
other the same ratio that the liquidation preference per Series B Preferred Unit
and such Parity Preferred Units bear to each other. Written notice of any
distribution in connection with any such liquidation, dissolution or winding up
of the affairs of the Partnership, stating the payment date or dates when, and
the place or places where, the amounts distributable in such circumstances shall
be payable, shall be given by first class mail, postage pre-paid, not less than
30 nor more than 60 days prior to the payment date stated therein, to each
record holder of the Series B Preferred Units at the respective addresses of
such holders as the same shall appear on the records of the Partnership. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Series B Preferred Units will have no right or claim to
any of the remaining assets of the Partnership. The consolidation or merger of
the Partnership with or into another entity, a consolidation or merger of
another entity with or into the Partnership, a statutory exchange by the
Partnership or a sale, lease, transfer or conveyance of all or substantially all
of the Partnership’s property or business shall not be deemed to constitute a
liquidation, dissolution or winding up of the affairs of the Partnership.

 

7.            Redemption. In connection with any redemption by the General
Partner of any shares of Series B Preferred Stock pursuant to Sections 6, 7, 8
or 9 of the Articles Supplementary, the Partnership shall redeem, on the date of
such redemption, an equal number of Series B Preferred Units held by the General
Partner. As consideration for the redemption of such Series B Preferred Units,
the Partnership shall deliver to the General Partner (i) an amount of cash equal
to the amount of cash, if any, paid by the General Partner to the holder of such
shares of Series B Preferred Stock in connection with the redemption thereof and
(ii) a number of Common Units equal to the number of shares of Common Stock, if
any, issued by the General Partner to the holder of such shares of Series B
Preferred Stock in connection with the redemption thereof.

 

8.            Voting Rights. Holders of the Series B Preferred Units will not
have any voting rights.

 

9.            Conversion. The Series B Preferred Units are not convertible or
exchangeable for any other property or securities, except as provided herein.

 

10.          Allocation of Profit and Loss.

 

Article V, Section 5.01 of the Partnership Agreement is hereby deleted in its
entirety and the following new Section 5.01 is inserted in its place:

 

(a)           Profit. After giving effect to the special allocations set forth
in Section 5.01(c), (d), and (e) hereof, and subject to Section 5.01(f), Profit
of the Partnership for each fiscal year of the Partnership shall be allocated to
the Partners in accordance with their respective Percentage Interests.

 

(b)          Loss. After giving effect to the special allocations set forth in
Section 5.01(c), (d), and (e) hereof, and subject to Section 5.01(f), Loss of
the Partnership for each fiscal year of the Partnership shall be allocated to
the Partners in accordance with their respective Percentage Interests.

 

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(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 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). The manner in which it is
reasonably expected that the deductions attributable to nonrecourse liabilities
will be allocated for purposes of determining a Partner’s share of the
nonrecourse liabilities of the Partnership within the meaning of Regulations
Section 1.752-3(a)(3) shall be in accordance with a 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 5.01(e), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to each Partner under
this Section 5.01(e).

 

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(f)          Priority Allocations With Respect To Preferred Units. After giving
effect to the allocations set forth in Sections 5.01(c), (d), and (e) hereof,
but before giving effect to the allocations set forth in Sections 5.01(a) and
5.01(b), Net Operating Income shall be allocated to the General Partner until
the aggregate amount of Net Operating Income allocated to the General Partner
under this Section 5.01(f) for the current and all prior years equals the
aggregate amount of the Series A Preferred Return and the Series B Preferred
Return paid to the General Partner for the current and all prior years;
provided, however, that the General Partner may, in its discretion, allocate Net
Operating Income based on accrued Series A Preferred Return and Series B
Preferred Return with respect to the January Series A Preferred Distribution
Payment Date or Series B Preferred Distribution Payment Date if the General
Partner sets the Distribution Record Date for such Series A Preferred
Distribution Payment Date or Series B Preferred Distribution Payment Date on or
prior to December 31 of the previous year. For purposes of this Section 5.01(f),
“Net Operating Income” means the excess, if any, of the Partnership’s gross
income over its expenses (but not taking into account depreciation,
amortization, or any other noncash expenses of the Partnership), calculated in
accordance with the principles of Section 5.01(h) hereof.

 

(g)          Special Allocations Regarding LTIP Units. Notwithstanding the
provisions of Sections 5.01(a) and (b) hereof, Liquidating Gains shall first be
allocated to the LTIP Unitholders until their Economic Capital Account Balances,
to the extent attributable to their ownership of LTIP Units, are equal to
(i) the Common Unit Economic Balance, multiplied by (ii) the number of their
LTIP Units. For this purpose, “Liquidating Gains” means net capital gains
realized in connection with the actual or hypothetical sale of all or
substantially all of the assets of the Partnership, including but not limited to
net capital gain realized in connection with an adjustment to the value of
Partnership assets under Section 704(b) of the Code. The “Economic Capital
Account Balance” of the LTIP Unit holders will be equal to their respective
Capital Account balance to the extent attributable to their ownership of LTIP
Units. Similarly, the “Common Unit Economic Balance” shall mean (i) the Capital
Account balance of the General Partner, plus the amount of the General Partner’s
share of any Partner Nonrecourse Debt Minimum Gain or Partnership Minimum Gain,
in either case to the extent attributable to the General Partner’s direct or
indirect ownership of Common Units and computed on a hypothetical basis after
taking into account all allocations through the date on which any allocation is
made under this Section 5.01(g), divided by (ii) the number of Common Units
directly or indirectly owned by the General Partner. Any such allocations shall
be made among the LTIP Unitholders in proportion to the amounts required to be
allocated to each under this Section 5.01(g). The parties agree that the intent
of this Section 5.01(g) is to make the Capital Account balance associated with
each LTIP Unit be economically equivalent to the Capital Account balance
associated with Common Units directly or indirectly owned by the General Partner
(on a per-Unit basis).

 

(h)          Definition of Profit and Loss. “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 1.704-1(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(c), 5.01(d), 5.01(e), or 5.01(f) hereof. 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). With respect to properties
acquired by the Partnership, the General Partner shall have the authority to
elect the method to be used by the Partnership for allocating items of income,
gain and expense as required by Section 704(c) of the Code with respect to such
properties, and such election shall be binding on all Partners.

 

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(i)          Allocations Between Transferor and Transferee. 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.

 

11.         Except as modified herein, all terms and conditions of the
Partnership Agreement shall remain in full force and effect, which terms and
conditions the General Partner hereby ratifies and confirms.

 

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IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the date
first set forth above.

 

  GENERAL PARTNER:       BLUEROCK RESIDENTIAL GROWTH REIT, INC.   a Maryland
corporation       By: /s/ Michael L. Konig   Name:   Michael L. Konig   Title:
Chief Operating Officer,
Secretary and General Counsel

 

[Signature page for Amendment re: Series B Preferred Units – March 2016]