Exhibit 10.40

 

EXECUTION COPY

 

AMENDMENT NO. 5

TO

SUBORDINATED CREDIT AGREEMENT

 

AMENDMENT NO. 5 TO SUBORDINATED CREDIT AGREEMENT, dated as of March 30, 2009
(this “Amendment”), among TIMBERLANDS II, LLC, a Delaware limited liability
company (“Wells Timberland”), WELLS TIMBERLAND OPERATING PARTNERSHIP L.P., a
Delaware limited partnership (“Wells Partnership”; Wells Partnership and Wells
Timberland, each a “Borrower” and, collectively, the “Borrowers”), the various
other Loan Parties that are parties hereto, the various financial institutions
that are parties hereto (collectively, the “Lenders”), and WACHOVIA BANK,
NATIONAL ASSOCIATION, as administrative agent (in such capacity, the
“Administrative Agent”) for the Lenders.

 

W I T N E S S E T H:

 

WHEREAS, the Borrowers, the Lenders and the Administrative Agent are parties to
that certain Subordinated Credit Agreement (the “Subordinated Credit
Agreement”), dated as of October 9, 2007, as amended by that certain Amendment
No. 1 to Subordinated Credit Agreement dated as of November 26, 2007, as further
amended by that certain Amendment No. 2 to Subordinated Credit Agreement dated
as of February 29, 2008, as further amended by that certain Amendment No. 3 to
Subordinated Credit Agreement dated as of October 15, 2008, and as further
amended by that certain Amendment No. 4 to Subordinated Credit Agreement
(“Amendment No. 4”) dated as of December 18, 2008 (collectively, the “Existing
Credit Agreement”) and, along with the other Loan Parties, as applicable, the
other Loan Documents;

 

WHEREAS, the Borrowers have requested that, as of the Effective Date (as defined
below), the Existing Credit Agreement be amended as herein provided, including
the clarification of a scrivener’s error contained in Amendment No. 4; and

 

WHEREAS, the Lenders are willing, subject to the terms and conditions
hereinafter set forth, to make such amendments.

 

NOW, THEREFORE, in consideration of the agreements herein contained, the parties
hereto hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.1. Certain Definitions. The following terms (whether or not
underscored) when used in this Amendment shall have the following meanings:

 

“Administrative Agent” is defined in the preamble.

 

“Amended Credit Agreement” means the Existing Credit Agreement as amended by
this Amendment as of the Effective Date.

 

“Amendment” is defined in the preamble.

 

“Effective Date” is defined in Section 5.1.

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“Existing Credit Agreement” is defined in the first recital.

 

“Lenders” is defined in the preamble.

 

“Wells Partnership” is defined in the preamble.

 

“Wells Timberland” is defined in the preamble.

 

SECTION 1.2. Other Definitions. Unless otherwise defined or the context
otherwise requires, terms used herein (including in the preamble and recitals
hereto) have the meanings provided for in the Amended Credit Agreement.

 

ARTICLE II

 

AMENDMENTS

 

Effective on (and subject to the occurrence of) the Effective Date, the Existing
Credit Agreement is amended as follows:

 

SECTION 2.1. Additions to Section 1.1. The following new definitions are added
to Section 1.1 of the Existing Credit Agreement in the appropriate alphabetical
order:

 

“Amendment No. 5 to Subordinated Credit Agreement” shall mean Amendment No. 5 to
Subordinated Credit Agreement, dated as of March 30, 2009, among the parties to
this Amendment.

 

“Permitted Sub-S Corporation Tax Distribution” shall mean a distribution payable
to shareholders of WREF during any period in which WREF is and remains an
“electing small business corporation” for the purposes of Subchapter S of the
Code in an amount not to exceed the lesser of (i) taxes payable by such
shareholders on account of their allocable shares of WREF’s taxable income or
(ii) an aggregate of $15,000,000, with such aggregate amount increasing to
$20,000,000 from and after January 1, 2010; provided that at the time such
distribution is made (A) no Default or Event of Default has occurred and is
continuing, (B) WREF is Solvent and (C) such distribution is permitted under
applicable law.

 

“Sixth Principal Reduction Date” shall mean December 31, 2009.

 

“Term Loan Agreement” shall mean that certain Amended and Restated Loan
Agreement, dated as of October 9, 2007, by and between WREF, the various
Subsidiaries of WREF identified on the signature pages thereto and Wachovia, as
amended, supplemented or otherwise modified from time to time.

 

“Term Loan Indebtedness” shall mean the Indebtedness incurred by WREF pursuant
to the Term Loan Agreement.

 

“Wells 1031 Exchange Program” shall mean the program developed by Wells Capital
and WREF to facilitate the completion of transactions complying with
Section 1031 of the Code whereby Wells Capital and WREF formed a series of
single-member limited liability companies for the purpose of acquiring
income-producing commercial properties and facilitating the re-sale of
co-tenancy interests in such real estate properties to be owned in co-tenancy
arrangements with persons who are seeking to invest the proceeds from a sale of
real estate held for investment in another real estate investment for purposes
of qualifying for like-kind exchange treatment under the Code; provided that
each of the properties acquired by such limited liability companies is financed
by a combination of long-term financing and bridge financing obtained from
institutional lenders.

 

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SECTION 2.2. Amendments to Section 1.1. Section 1.1 of the Existing Credit
Agreement is amended as follows:

 

(a) The definition of “Agreement” is amended and restated in its entirety to
read as follows:

 

““Agreement” means this Subordinated Credit Agreement, as amended by Amendment
No. 1 to Subordinated Credit Agreement, Amendment No. 2 to Subordinated Credit
Agreement, Amendment No. 3 to Subordinated Credit Agreement, Amendment No. 4 to
Subordinated Credit Agreement and Amendment No. 5 to Subordinated Credit
Agreement.”

 

(b) The definition of “Fifth Principal Reduction Date” is amended and restated
in its entirety to read as follows:

 

““Fifth Principal Reduction Date” means September 30, 2009.”

 

(c) The definition of “Fourth Principal Reduction Date” is amended and restated
in its entirety to read as follows:

 

““Fourth Principal Reduction Date” means June 30, 2009.”

 

(d) The definition of “Stated Maturity Date” is amended and restated in its
entirety to read as follows:

 

““Stated Maturity Date” means April 30, 2010.”

 

SECTION 2.3. Amendments to Section 3.1.2. Section 3.1.2 of the Existing Credit
Agreement is amended as follows:

 

(a) Section 3.1.2(c4) is amended by deleting the phrase “twenty-five million
dollars ($25,000,000)” and inserting “thirty million dollars ($30,000,000)” in
lieu thereof.

 

(b) The following is added as new subsection 3.1.2(c5) immediately between
Section 3.1.2 subsections (c4) and (d):

 

“(c5) A principal payment shall be made on the Sixth Principal Reduction Date in
an amount which, when added to all previously made principal payments, reduces
the aggregate outstanding principal balance of the Loans to an amount not
greater than fifteen million dollars ($15,000,000);”

 

SECTION 2.4. Amendments to Section 7.2.2. Section 7.2.2 of the Existing Credit
Agreement is amended as follows:

 

(a) Subsection 7.2.2(c) is amended by deleting the word “and” at the end of the
subsection.

 

(b) Subsection 7.2.2(d) is amended by replacing the period at the end of the
subsection with a semicolon and inserting the word “and” immediately after such
semicolon.

 

(c) The following is added as new subsection 7.2.2(e) immediately after
subsection 7.2.2(d):

 

“(e) with respect to WREF only, (i) purchase money Indebtedness not exceeding
$500,000 in aggregate principal amount at any time outstanding incurred to
purchase tangible fixed assets, provided that the amount of such Indebtedness
shall not at any time exceed the purchase price of such assets,
(ii) Indebtedness incurred in the Wells 1031 Exchange Program that is not
recourse to WREF and (iii) the Term Loan Indebtedness.”.

 

SECTION 2.5. Amendments to Section 7.2.3. Section 7.2.3 of the Existing Credit
Agreement is amended as follows:

 

(a) Subsection 7.2.3(e) is amended by deleting the word “and” at the end of the
subsection.

 

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(b) Subsection 7.2.3(f) is amended by replacing the period at the end of the
subsection with a semicolon and inserting the word “and” immediately after such
semicolon.

 

(c) The following is added as new subsection 7.2.3(g) immediately after
subsection 7.2.3(f):

 

“(g) with respect to WREF only, (i) Liens securing the payment of purchase money
Indebtedness not exceeding $500,000 in aggregate principal amount at any time
outstanding incurred to purchase tangible fixed assets, provided that any such
Lien does not secure more than the purchase price of such assets and does not
encumber property other than the purchased assets, (ii) Liens arising out of
operation of law and securing the claims of materialmen, mechanics, carriers,
warehousemen, processors or landlords, provided that the obligations secured by
such Liens are not past due or are being diligently contested in good faith by
appropriate proceedings that suspend enforcement of such, (iii) Liens consisting
of deposits or pledges made in the ordinary course of business in connection
with workers’ compensation, unemployment insurance, social security or similar
laws, (iv) Liens granted in the Wells 1031 Exchange Program and (v) Liens not
otherwise permitted by this Section 7.2.3 and described on Schedule 6.2 to the
Term Loan Agreement.”.

 

SECTION 2.6. Amendments to Section 7.2.5. Section 7.2.5 of the Existing Credit
Agreement is amended as follows:

 

(a) Subsection 7.2.5(a) is amended by replacing the word “and” immediately
before clause (vii) of the subsection with a comma.

 

(b) Subsection 7.2.5(a) is amended by replacing the period at the end of the
clause (vii) of the subsection the following:

 

“and (viii) Investments of WREF in any Subsidiary of WREF existing as of the
date hereof.”.

 

(c) The following is added as new subsection 7.2.5(c) immediately after
subsection 7.2.5(b):

 

“(c) Notwithstanding anything in this Section 7.2.5 to the contrary, WREF may
(i) purchase direct obligations of the United States government, (ii) make
deposits in commercial banking institutions, (iii) purchase commercial paper of
any United States corporation having the highest rating then given by Moody’s
Investors Services, Inc. or Standard & Poor’s Corporation, (iv) make advances to
employees for business travel and other expenses incurred in the ordinary course
of business that do not at any time exceed $250,000 in the aggregate, (v) make
Investments in Subsidiaries of WREF formed as part of the Wells 1031 Exchange
Program, (vi) make the $42,828,000 Investment in Wells REIT referred to in that
certain Pledge Agreement dated as of October 9, 2007 by and between WREF, Wells
Advisory and Wachovia, and (vii) other (A) Investments that do not at any time
in the aggregate exceed $2,000,000, increasing to $2,500,000 from and after
January 1, 2010 and (B) purchases of preferred stock of Wells REIT, provided
that Wells REIT uses the total purchase price of such preferred stock to satisfy
the Obligations with respect to Wells REIT.”.

 

SECTION 2.7. Amendment to Section 7.2.6. Section 7.2.6 of the Existing Credit
Agreement is amended by inserting the phrase “(w) WREF may make Permitted Sub-S
Corporation Distributions,” immediately before clause (x) of the section.

 

SECTION 2.8. Amendment to Section 7.2.8. Section 7.2.8 of the Existing Credit
Agreement is amended and restated in its entirety as follows:

 

“Mergers, Asset Acquisitions, etc. No Borrower will or will permit any other
Loan Party to (or agree to), liquidate or dissolve, consolidate or amalgamate
with, or merge into or with, any other Person, or establish, purchase, lease or
otherwise acquire (in each case in one transaction or a series of transactions)
all or any part of the assets or Equity Interests of any Person (or of any
division thereof), other than (a) the consummation of the Transaction,
(b) Investments by the Borrowers and the other Loan Parties permitted by

 

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Section 6.8 comprising the Equity Interests of Persons referred to therein,
(c) transactions permitted by Section 7.2.5, (d) the acquisition of assets that
(i) are to be utilized in the ordinary course of the business of the Borrowers
in accordance with Section 7.2.1 and (ii) are from the amounts paid to the
Borrowers pursuant to clause (a)(viii) of Section 9.3 of the Senior Credit
Agreement, (e) subject to the other terms of this Agreement the purchase or
lease of real property pursuant to an Unrestricted Timber Transaction and
(f) with regard to WREF only, (i) the sale of inventory in the ordinary course
of WREF’s business, (ii) the sale or transfer of assets by WREF as part of the
Wells 1031 Exchange Program and (iii) the sale or transfer of assets or the
discontinuance of a business line (in a single transaction or a series of
transactions) by WREF so long as at the time of such sale or other transfer, and
after giving effect thereto, each of the following conditions is met: (A) no
Default or Event of Default Exists and (B) the aggregate assets to be so
transferred or utilized in the division or line of business to be so
discontinued, when combined with all other assets transferred pursuant to this
clause (f)(3) and all other assets utilized in a division or line of business to
be discontinued pursuant to this clause (f)(3), do not exceed $2,500,000 in book
value in the aggregate.”.

 

SECTION 2.9. Amendment to Section 7.2.19. Section 7.2.19 of the Existing Credit
Agreement is amended by replacing the period immediately after the last word of
clause (c) of the first sentence of the section with the following:

 

“, provided, however, that this clause (c) shall not apply to the amendment of
Wells Installment Note Issuer’s organizational documents by that certain First
Amendment to the Limited Liability Company Agreement of MWV SPE, LLC (the “First
Amendment to LLC Agreement”), dated as of December 18, 2008, by and among Wells
Acquisition, Wells Manager, Special Member (as defined in the First Amendment to
LLC Agreement), MW and Wachovia.”

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

SECTION 3.1. Representations and Warranties. In order to induce the Lenders to
make the amendments provided for in Article II, the Borrowers hereby jointly and
severally represent and warrant that:

 

(a) each of the representations and warranties of the Loan Parties contained in
the Existing Credit Agreement and in the other Loan Documents is true and
correct in all material respects as of the date hereof as if made on the date
hereof (except, if any such representation and warranty relates to an earlier
date, such representation and warranty shall be true and correct in all material
respects as of such earlier date);

 

(b) no Default or Event of Default has occurred and is continuing; and

 

(c) the execution, delivery and performance by each Loan Party of this Amendment
and the consummation of the transactions contemplated hereby and the fulfillment
of the terms hereof do not (i) conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse of time)
a default under (A) the formation documents of the Loan Parties, or (B) any
material indenture, agreement, mortgage, deed of trust, or other instrument to
which any Loan Party is a party or by which it is bound or any of its properties
are subject; (ii) result in the creation or imposition of any Lien upon any of
its properties pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust, or other instrument; or (iii) violate any law, order, rule, or
regulation applicable to any Loan Party of any court or of any Federal or State
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over any Loan Party or its properties.

 

SECTION 3.2. Further Agreement. The Borrowers hereby jointly and severally agree
that (a) the incorrectness in any material respect of any representation and
warranty contained in the preceding Section 3.1 shall constitute an immediate
Event of Default, (b) each Loan Document to which each Loan Party is a party is
in full force and effect with respect to it, and (c) no event that would
reasonably be expected to have a Material Adverse Effect has occurred since the
execution of Amendment No. 4 to Subordinated Credit Agreement.

 

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ARTICLE IV

 

ACKNOWLEDGMENT OF OTHER LOAN PARTIES

 

By executing this Amendment, each of the Loan Parties hereby confirms and agrees
that each Loan Document to which it is a party is, and shall continue to be, in
full force and effect and is hereby ratified and confirmed in all respects,
except that on and after the Effective Date each reference therein to the
Subordinated Credit Agreement shall refer to the Amended Credit Agreement.

 

ARTICLE V

 

CONDITIONS TO EFFECTIVENESS; EXPIRATION

 

SECTION 5.1. Effective Date. This Amendment shall become effective on such date
(herein called the “Effective Date”) when the conditions set forth in this
Article V have been satisfied.

 

SECTION 5.2. Execution of Amendment. The Administrative Agent shall have
received original counterparts of this Amendment duly executed and delivered on
behalf of the Borrowers, each of the other Loan Parties, the Administrative
Agent and all the Lenders.

 

SECTION 5.3. Legal Opinions. The Administrative Agent shall have received from
counsel to the Loan Parties legal opinions regarding due organization, existence
and good standing, due authorization, due execution and delivery, enforceability
and usury for the Loan Parties and the Amended Credit Agreement substantially in
the forms received by the Administrative Agent at the closing of the
Subordinated Credit Agreement.

 

SECTION 5.4. Representations and Warranties. The representations, warranties and
agreements made by the Borrowers pursuant to Article III hereof shall be true
and correct as of the Effective Date.

 

SECTION 5.5. Expiration. If the Effective Date has not occurred on or prior to
March 31, 2008, the agreements of the parties contained in this Amendment shall,
unless otherwise agreed by all the Lenders, terminate immediately on such date
and without further action.

 

ARTICLE VI

 

MISCELLANEOUS

 

SECTION 6.1. Cross-References. References in this Amendment to any Article or
Section are, unless otherwise specified, to such Article or Section of this
Amendment.

 

SECTION 6.2. Loan Document Pursuant to Amended Credit Agreement. This Amendment
is a Loan Document executed pursuant to the Amended Credit Agreement. Except as
expressly amended hereby, all of the representations, warranties, terms,
covenants and conditions contained in the Existing Credit Agreement shall remain
unamended or otherwise unmodified and in full force and effect.

 

SECTION 6.3. Limitation of Amendments. The amendments set forth in Article II
hereof shall be limited precisely as provided for herein and shall not be deemed
to be a waiver of, amendment of, consent to or modification of any other term or
provision of the Existing Credit Agreement or of any term or provision of any
other Loan Document or of any transaction or further or future action on the
part of the Borrowers or any other Loan Party which would require the consent of
any of the Lenders under the Existing Credit Agreement or any other Loan
Document. The Lender Parties hereby expressly, fully and completely reserve all
of their rights and remedies under the Amended Credit Agreement and the other
Loan Documents.

 

 

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SECTION 6.4. Counterparts. This Amendment may be executed by the parties hereto
in several counterparts, each of which shall be deemed to be an original and all
of which shall constitute together but one and the same agreement.

 

SECTION 6.5. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

 

SECTION 6.6. Further Assurances. The Borrowers shall execute and deliver, and
shall cause each other Loan Party to execute and deliver, from time to time in
favor of the Administrative Agent and the Lenders, such documents, agreements,
certificates and other instruments as shall be necessary or advisable to effect
the purposes of this Amendment.

 

SECTION 6.7. Costs and Expenses. The Borrowers agree to pay all reasonable costs
and expenses of the Administrative Agent (including the reasonable fees and
out-of-pocket expenses of legal counsel of the Administrative Agent) that are
incurred in connection with the execution and delivery of this Amendment and the
other agreements and documents entered into in connection herewith.

 

SECTION 6.8. Release. Each of the Loan Parties hereby releases the
Administrative Agent, the Lenders and their respective officers, directors,
equity owners, agents and employees (collectively, the “Specified Parties”) of,
from and against any and all claims, liability, losses, costs and expenses
directly or indirectly relating to or arising out of the Loan Documents and the
execution and delivery thereof or any act or omission of the Specified Parties
thereunder or relating thereto which has occurred up through and including the
time of the execution and delivery of this Amendment and which is known by, or
should have been known by, any of the Loan Parties.

 

SECTION 6.9. GOVERNING LAW; WAIVER OF JURY TRIAL; ENTIRE AGREEMENT. THIS
AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. EACH PERSON A PARTY HERETO KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING UNDER OR IN CONNECTION WITH THIS AMENDMENT OR ANY AGREEMENT OR DOCUMENT
ENTERED INTO IN CONNECTION HEREWITH. THIS AMENDMENT CONSTITUTES THE ENTIRE
UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND SUPERSEDES ANY PRIOR AGREEMENT, WRITTEN OR ORAL, WITH RESPECT HERETO.

 

SECTION 6.10. Reservation of Rights. Nothing in this Amendment shall extend to
or affect in any way any of the Obligations or any of the rights or remedies of
the Administrative Agent or the Lenders arising under the Loan Documents, and
neither the Administrative Agent nor the Lenders shall be deemed to have waived,
and hereby expressly reserve, any or all such rights or remedies with respect to
any default or Event of Default or event or condition which, with notice or the
lapse of time, or both, would become a default or Event of Default under the
Loan Documents and which might otherwise exist or which might hereafter occur.

 

SECTION 6.11. Course of Dealing. The Administrative Agent and the Loan Parties
hereby acknowledge and agree that at no time shall any prior or subsequent
course of conduct by any Loan Party or the Administrative Agent directly or
indirectly limit, impair or otherwise adversely affect any of the Administrative
Agent’s or the Lenders’ rights, interests or remedies in connection with the
Loan and the Loan Documents or obligate the Administrative Agent to agree to, or
to negotiate or consider an agreement to, any waiver of any obligation or any
default or any Event of Default by any Loan Party under any Loan Document or any
amendment to any term or condition of any Loan Document.

 

[Signature pages follow]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers hereunto duly authorized as of the day and year
first above written.

 

BORROWERS:

 

TIMBERLANDS II, LLC,

a Delaware limited liability company

By:

  Wells Timberland Management Organization, LLC, a Georgia limited liability
company, its Manager

By:

  /s/ Brian Davis Name:   Brian Davis Title:   Vice President, Finance WELLS
TIMBERLAND OPERATING PARTNERSHIP, L.P., a Delaware limited partnership

By:

  Wells Timberland REIT, INC., a Maryland corporation, its General Partner

By:

  /s/ Randall D. Fretz Name:   Randall D. Fretz Title:   Senior Vice President

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OTHER LOAN PARTIES:

 

WELLS TRS HARVESTING OPERATIONS, LLC, a Delaware limited liability company

By:

  Forest Resource Consultants, Inc., a Georgia corporation, its Manager

By:

  /s/ David Foil Name:   David Foil Title:   President WELLS TIMBERLAND REIT,
INC., a Maryland corporation

By:

  /s/ Randall D. Fretz Name:   Randall D. Fretz Title:   Senior Vice President
WELLS TIMBERLAND TRS, INC., a Delaware corporation

By:

  /s/ Randall D. Fretz Name:   Randall D. Fretz Title:   Senior Vice President
WELLS REAL ESTATE FUNDS, INC., a Georgia corporation

By:

  /s/ Randall D. Fretz Name:   Randall D. Fretz Title:   Senior Vice President
WELLS ADVISORY SERVICES I, LLC, a Georgia limited liability company

By:

  Wells Management Company, Inc., a Georgia corporation, its Managing Member

By:

  /s/ Randall D. Fretz Name:   Randall D. Fretz Title:   Vice President

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ADMINISTRATIVE AGENT:

 

WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent

By:

  /s/ Brian Rubins Name:   Brian Rubins Title:   Director

LENDERS:

 

WACHOVIA BANK, NATIONAL ASSOCIATION

By:

  /s/ Brian Rubins Name:   Brian Rubins Title:   Director