Document:

a101aqms-memorandumofagr

                       MEMORANDUM OF AGREEMENT          This Memorandum of Agreement (“ Agreement”) is hereby entered into by and between   Aqua Metals Reno, Inc. (“Aqua Metals”) and Veritex Community Bank (“Veritex”). This  Agreement is effective on the date that both parties execute the Agreement (“Effective Date”).         WHEREAS Aqua Metals is indebted to Veritex pursuant to a Promissory Note dated  November 3, 2015, and a Loan Agreement which was amended effective March 30, 2017  (collectively “Loan Agreements”); and         WHEREAS the United States Department of Agriculture Rural Development (“USDA”)  has guaranteed a portion of Aqua Metals’ indebtedness under the Loan Agreements; and         WHEREAS Aqua Metals’ indebtedness to Veritex under the Loan Agreements is secured  by collateral (“Collateral”), which includes real property, personal property, and a certificate of  deposit (“Certificate of Deposit”), each as described in the Loan Agreements, a Security  Agreement, and a Deed of Trust; and         WHEREAS on or about November 29, 2019, Aqua Metals’ property sustained damage  from a fire (“Fire Damage”) in the AquaRefining area of the property; and         WHEREAS Aqua Metals is insured for the losses resulting from the Fire Damage under a  series of property insurance policies (“Insurance Policies”) as follows:          First Layer: issued by Navigators Specialty Insurance Company, $5,000,000 limits;          Second Layer: issued by Arch Specialty Insurance Company, $7,500,000 limits;          Third Layer: issued by Starr Surplus Lines Insurance Company, $12,500,000 limits;          Fourth Layer: issued by Homeland Insurance Company of New York, $25,000,000   limits; and          WHEREAS Aqua Metals has presented a claim under the Insurance Policies for the Fire   Damage; and          WHEREAS Navigators Specialty Insurance Company has paid $5,000,000 on the First   Layer of the Insurance Policies; and          WHEREAS Aqua Metals has received $4,200,000 of the proceeds from the First Layer;   and         WHEREAS the remaining $800,000 paid from the First Layer is currently in an escrow   account at Veritex (“Escrow Account”); and         WHEREAS Arch Specialty Insurance Company has paid $5,000,000 from the Second  Layer of the Insurance Policies, which sum is currently in the Escrow Account; and    MEMORANDUM OF AGREEMENT – Page 1 of 4   ACTIVE 49720872v1 

 

      WHEREAS Aqua Metals and Veritex desire to enter into this agreement regarding  distributions and application of proceeds from the Insurance Policies, any sales of Collateral, and  the satisfaction of Aqua Metals’ indebtedness and obligations under the Loan Agreements;         NOW, THEREFORE, in consideration of the provisions below, and other good and  valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged  by all parties to this agreement, Aqua Metals and Veritex agree as follows:         1.    Agreement regarding First Layer Proceeds: Veritex and Aqua Metals agree that              within 5 business days from the Effective Date (a) Veritex will release an              additional $300,000 from the Escrow Account received from the First Layer to              Aqua Metals; and (b) Veritex will retain $500,000 in the Escrow Account from              the First Layer.         2.    Agreement regarding Second Layer Proceeds Received as of Effective Date:              Veritex and Aqua Metals agree that within 5 business days from the effective date              of this agreement (a) Veritex will release $2,750,000 from the Escrow Account to              Aqua Metals; and (b) Veritex will retain $2,250,000 in the Escrow Account.         3.    Agreement regarding Second Layer Proceeds Received after Effective Date:              Veritex and Aqua Metals agree that with respect to all future proceeds received              from the Second Layer: (a) Veritex will release to Aqua Metals 55% of the              proceeds received; and (b) Veritex will retain 40% of the proceeds received in the              Escrow Agreement.          4.    Agreement regarding Third Layer Proceeds Received: Veritex and Aqua Metals              agree that with respect to all proceeds received from the Third Layer: (a) Veritex              will release to Aqua Metals 60% of the proceeds received; and (b) Veritex will              retain 40% of the proceeds received in the Escrow Agreement.         5.    Agreement regarding Sale of Aqua Metals’ real estate collateral: To the extent              Aqua Metals sells any real estate that is part of the Collateral securing Aqua             Metals’ indebtedness under the Loan Agreements, Aqua Metals agrees that 100%              of the proceeds from such sale will be provided to Veritex and such proceeds shall              be placed into the Escrow Account.         6.    Agreement regarding Sale of Aqua Metals’ non-real estate Collateral: To the              extent Aqua Metals sells any Collateral other than real estate, Aqua Metals and              Veritex agree that the proceeds from such sale shall, subject to the USDA’ s              express consent following receipt of such proceeds, be divided as follows:              (a) 50% of the proceeds shall be provided to Aqua Metals free and clear of              Veritex’s lien; and (b) 50% of the proceeds shall be provided to Veritex and such              proceeds shall be placed into the Escrow Account.         7.    Agreement to Continue to Make Scheduled Payments Required by the Loan              Agreement: Aqua Metals agrees that it will continue to timely make all payments              due under the Loan Agreement notwithstanding the receipt, disbursement, or              application of proceeds from Insurance Policies or any sales of assets as described  MEMORANDUM OF AGREEMENT – Page 2 of 4  ACTIVE 49720872v1 

 

            above. Aqua Metals further agrees to timely make all payments to taxing              authorities and to maintain insurance coverage as required by the Loan              Agreements.         8.    Agreement regarding the Application of funds in the Escrow Account and the              Certificate of Deposit: The parties agree that when the total of the funds in the              Escrow Account plus the funds in the Certificate of Deposit becomes equal to or              greater than the sum of (a) Aqua Metals’ indebtedness under the Loan Agreement,             and (b) the “Prepayment Consideration” amount owed in the event of a              prepayment of the indebtedness as described in the Loan Agreements, then              Veritex shall apply the funds in the Escrow Account and the Certificate of              Deposit to fully satisfy (a) the indebtedness under the Loan Agreement including              all principal, accrued interest, and any other sums owed under the Loan              Agreement, and (b) the Prepayment Consideration owed as a result of the              prepayment of principal owed under the Loan Agreements. Thereafter, any              remaining funds in the Escrow Account shall be disbursed to Aqua Metals.         9.    The Parties further agree that, except as otherwise expressly provided herein, all              of Veritex’s liens and security interests in the Collateral will remain effective and              enforceable pursuant to the terms of the Loan Agreement until Aqua Metals’              indebtedness and obligations under the Loan Agreement are fully paid and              discharged pursuant to paragraph 8 above.         10.   This Agreement shall not modify any other terms under the Loan Agreement              except as expressly stated herein.      AGREED:   AQUA RENO METALS, INC.                 VERITEX COMMUNITY BANK                                                                                    By:   /s/ Judd Merrill                 By:   /s/ William Alt                    Judd Merrill                           William Alt    CFO                                     Senior Credit Officer                                           Date: 3/25/2020                        Date: 3/25/2020                                           MEMORANDUM OF AGREEMENT – Page 3 of 4  ACTIVE 49720872v1 

 

AGREED BY GUARANTORS:   AQUA METALS, INC.      By:   /s/ Judd Merrill                   Judd Merrill    CFO                Date: 3/25/2020             AQUA METALS OPERATIONS, INC.      By:   /s/ Judd Merrill                   Judd Merrill    CFO                Date: 3/25/2020                 MEMORANDUM OF AGREEMENT – Page 4 of 4  ACTIVE 49720872v1Exhibit

Exhibit 4.2
DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE 
SECURITIES EXCHANGE ACT OF 1934
The following is a description of Cole Credit Property Trust V, Inc.’s securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2019 and certain provisions of the Maryland General Corporation Law (the “MGCL”) and our charter and bylaws. The description is a summary, does not purport to be complete and is subject to and qualified by reference to Maryland law and to our charter and bylaws, copies of which are filed as exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and are incorporated by reference herein. 
As used herein, the terms “Company,” “we,” “our” and “us” refer to Cole Credit Property Trust V, Inc., a Maryland corporation.
Our charter authorizes us to issue up to 500,000,000 shares of stock, of which (i) 245,000,000 shares are designated as Class A common stock, $0.01 par value per share, or Class A Shares, (ii) 245,000,000 shares are designated as Class T common stock, $0.01 par value per share, or Class T Shares, and (iii) 10,000,000 shares are designated as preferred stock, $0.01 par value per share. Our board of directors may amend our charter from time to time to increase or decrease the aggregate number of our authorized shares or the number of shares of any class or series that we have authority to issue without any action by our stockholders.
Our charter contains a provision permitting our board of directors, without any action by our stockholders, to classify or reclassify any unissued common stock or preferred stock into one or more classes or series and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications, and terms and conditions of redemption of any new class or series of stock, subject to certain restrictions, including the express terms of any class or series of stock outstanding at the time. 
Common Stock
Subject to any preferential rights of any other class or series of stock and to the provisions of our charter, the holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including the election of our directors, and Class A shares and Class T shares will vote together as a single class. Our charter does not provide for cumulative voting in the election of our directors. Therefore, the holders of a majority of the outstanding shares of our common stock can elect our entire board of directors. Subject to the restrictions on the ownership and transfer of common stock, the holders of common stock are entitled to such distributions as may be authorized from time to time by our board of directors out of legally available funds and declared by us and, upon any liquidity event, would be entitled to receive all assets available for distribution to our stockholders. The per share amount of distributions on Class A shares and Class T shares prior to the conversion of any Class T shares to Class A shares will likely differ because of different allocations of class-specific expenses. Holders of common stock will not have preemptive rights, which means that they will not have an automatic option to purchase any new shares that we issue, or preference, conversion, exchange, sinking fund, or redemption rights and will not have appraisal rights unless our board of directors determines that appraisal rights apply, with respect to all or any classes or series of stock, to one or more transactions occurring after the date of such determination in connection with which stockholders would otherwise be entitled to exercise appraisal rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of us, or any liquidating distributions of our assets, other than a liquidation, dissolution or winding up that causes the automatic conversion of all outstanding Class T shares to Class A shares, then such assets, or the proceeds therefrom, will be distributed between the holders of Class A shares and Class T shares ratably in proportion to the respective net asset value, or NAV, for each class until the NAV for each class has been paid. For such purposes, NAV will be determined on an aggregate basis for the company, from which any differences attributable between the Class A shares and the Class T shares will then be determined. Each holder of shares of a particular class of common stock will be entitled to receive, ratably with each other holder of shares of such class, that portion of such aggregate assets available for distribution as the number of outstanding shares of such class held by such holder bears to the total number of outstanding shares of such class then outstanding.
Class T Shares
We pay an ongoing distribution and stockholder servicing fee to our dealer manager with respect to Class T shares. The distribution and stockholder servicing fee is calculated on a daily basis in an amount equal to 1/365th of 1.0% of the estimated per share NAV of Class T shares and is paid monthly in arrears. We will cease paying the distribution and stockholder servicing fee with respect to Class T shares at the earliest of: (i) the end of the month in which the transfer agent, on our behalf, determines that total distribution and stockholder servicing fees paid by a stockholder within his or her individual account 

would be equal to 4.0% of the stockholder’s total gross investment amount at the time of the purchase of the primary Class T shares held in such account, or a lower limit agreed upon between our dealer manager and the participating broker-dealer at the time such Class T shares were sold; (ii) the date on which the aggregate underwriting compensation from all sources equals 10.0% of the gross proceeds from the aggregate sale of Class A shares and Class T shares in the 
Company’s primary offering (i.e., excluding proceeds from sales pursuant to our distribution reinvestment plan); (iii) December 31, 2022; (iv) the date such Class T share is no longer outstanding; and (v) the date we effect a liquidity event (such as the sale of our company, the sale of all or substantially all of our assets, a merger or similar transaction, the listing of our shares of common stock for trading on a national securities exchange or an alternative strategy that would result in a significant increase in the opportunities for stockholders to dispose of their shares). At the time we cease paying the distribution and stockholder servicing fee with respect to an outstanding Class T share pursuant to the provisions above, such Class T share will convert into a number of Class A shares (including any fractional shares) with an equivalent NAV as such Class T share. The distribution and stockholder servicing fees paid in respect of Class T shares prior to conversion of such Class T shares to Class A shares will be allocated to the Class T shares as a class expense and these fees will impact the amount of distributions payable on all Class T shares. Accordingly, the aggregate amount of distributions received by a holder of Class T shares may be less than the aggregate amount of distributions received by a holder of Class A shares.
Our charter also contains a provision permitting our board of directors, without any action by our stockholders, to classify or reclassify any unissued common stock into one or more classes or series by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms or conditions of redemption of any new class or series of shares of stock.
Preferred Stock
Our charter authorizes our board of directors to authorize us to issue one or more classes or series of preferred stock without stockholder approval (provided that the issuance of preferred stock must also be approved by a majority of independent directors not otherwise interested in the transaction, who have access at our expense to our legal counsel or to independent legal counsel) and to fix the voting rights, liquidation preferences, distribution rates, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption with respect to such preferred stock; provided, however, that the voting rights of any such preferred stock offered and sold in a private offering shall not exceed voting rights which bear the same relationship to the voting rights of our common stock as the consideration paid to us per share of preferred stock in such private offering bears to the book value of each outstanding share of our common stock. If we were to create and issue preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on the common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve, or wind up before any payment is made to the common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. 
Also, our board of directors, without stockholder approval, may authorize us to issue preferred stock with voting and conversion rights that could adversely affect the holders of shares of our common stock. We currently have no preferred stock issued or outstanding.
Meetings and Special Voting Requirements
Subject to our charter restrictions on ownership and transfer of our stock and except as may otherwise be specified in our charter, each holder of common stock is entitled at each meeting of stockholders to one vote per share owned by such stockholder on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of our board of directors, which means that the holders of a majority of shares of our outstanding common stock can elect all of the directors then standing for election and the holders of the remaining shares of common stock will not be able to elect any directors.
Under the MGCL and our charter, our stockholders generally have a right to vote only on the following: (a) the election or removal of directors; (b) an amendment of our charter, except that our board of directors may amend our charter without stockholder approval to increase or decrease the aggregate number of our shares or the number of our shares of any class or series that we have the authority to issue, to change our name, to change the name or other designation or the par value of any class or series of our stock and the aggregate par value of our stock or to effect certain reverse stock splits; provided, however, that any such amendment does not adversely affect the rights, preferences and privileges of the stockholders; (c) our dissolution; (d) a merger, conversion or consolidation, a statutory share exchange or the sale or other disposition of all or substantially all of our assets; and (e) such other matters with respect to which our board of directors has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to our stockholders for approval or ratification. In addition, pursuant to our charter, we will submit any other proposed liquidity event or transaction to our 

stockholders for approval if the transaction involves (a) the internalization of our management functions through our acquisition of our advisor or an affiliate of our advisor or (b) the payment of consideration to our advisor or an affiliate of our advisor other than pursuant to the terms of the advisory or dealer manager agreements or where the advisor or its affiliate receives consideration in its capacity as a stockholder on the same terms as our other stockholders.
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter provides for approval of these matters by the affirmative vote of stockholders entitled to cast a majority of all the votes entitled to be cast.
However, under the MGCL and our charter, the following events do not require stockholder approval: 
		
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	stock exchanges in which we are the successor; and

		
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	transfers of less than substantially all of our assets.

An annual meeting of our stockholders will be held each year, upon reasonable notice and within a reasonable period, which shall be at least 30 days, after delivery of our annual report to our stockholders. Our directors, including our independent directors, are required to take reasonable steps to ensure this requirement is met. The purpose of each annual meeting will be to elect directors and transact any other business that may properly come before the meeting. Special meetings of stockholders may be called only upon the request of a majority of our directors, a majority of our independent directors, our president, or our chief executive officer and must be called by our secretary to act on any matter that may properly be considered at a meeting of stockholders upon the written request of stockholders entitled to cast not less than 10% of all the votes entitled to be cast on such matter at such meeting. Within ten days of receiving a written request of stockholders entitled to cast at least 10% of all the votes entitled to be cast requesting a special meeting and stating the purpose of such special meeting, our secretary will provide all of our stockholders written notice of the meeting and the purpose of such meeting. The meeting must be held not less than 15 nor more than 60 days after the distribution of the notice of meeting at the time and place specified in the request, or, if a time and place are not specified in the request, at a time and place convenient to our stockholders. The presence, either in person or by proxy, of stockholders entitled to cast at least 50% of all the votes entitled to be cast at a meeting on any matter will constitute a quorum.
Our stockholders are entitled to receive a copy of our stockholder list upon request. The list provided by us will include each stockholder’s name, address and telephone number, and the number of shares owned by each stockholder, and will be sent within ten days of the receipt by us of the request. A stockholder requesting a list will be required to pay reasonable costs of postage and duplication. Under Maryland law, stockholders are entitled to inspect and copy only our bylaws, minutes of stockholder proceedings, annual statements of affairs, voting trust agreements and statements of stock and securities issued by us during the period specified by the requesting stockholder, which period may not be longer than 12 months prior to the date of the stockholder’s request. Our board of directors has adopted a policy that we will comply with all proper requests for access to our corporate records in conformity with our charter and Maryland law. We have the right to request that a requesting stockholder represent to us in writing that the stockholder list and records will not be used to pursue commercial interests before we become obligated to provide a copy of our stockholder list.
Restrictions on Ownership and Transfer
In order for us to continue to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), we must meet the following criteria regarding our stockholders’ ownership of our shares: 
		
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	five or fewer individuals (as defined in the Internal Revenue Code to include certain tax exempt organizations and trusts) may not own, directly or indirectly, more than 50% in value of our outstanding shares during the last half of a taxable year; and

		
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	100 or more persons must beneficially own our shares during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year.

We may prohibit certain acquisitions and transfers of shares so as to ensure our continued qualification as a REIT under the Internal Revenue Code. However, there can be no assurance that this prohibition will be effective. Because we believe it is essential for us to continue to qualify as a REIT, among other reasons, our charter provides (subject to certain exceptions) that no stockholder may own, or be deemed to own by virtue of the attribution provisions of the Internal Revenue Code, more than 

9.8% in value of the aggregate of our outstanding shares or more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of common stock.
Our board of directors, in its sole discretion, may (prospectively or retroactively) waive this ownership limit if evidence satisfactory to our directors is presented that such ownership will not then or in the future jeopardize our status as a REIT. Also, these restrictions on transfer and ownership will not apply if our directors determine that it is no longer in our best interests to continue to qualify as a REIT.
Additionally, our charter prohibits the transfer or issuance of our stock if such transfer or issuance: 
		
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	with respect to transfers only, results in our common stock being beneficially owned by fewer than 100 persons;

		
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	results in our being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code;

		
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	results in our owning, directly or indirectly, more than 9.9% of the ownership interests in any tenant or subtenant; or

		
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	otherwise results in our disqualification as a REIT.

Any attempted transfer of our stock which, if effective, would result in our stock being beneficially owned by fewer than 100 persons will be null and void and the proposed transferee will acquire no rights in such stock. In the event of any attempted transfer of our stock which, if effective, would result in (1) violation of the ownership limit discussed above, (2) our being “closely held” under Section 856(h) of the Internal Revenue Code, (3) our owning (directly or indirectly) more than 9.9% of the ownership interests in any tenant or subtenant or (4) our otherwise failing to qualify as a REIT, then the number of shares causing the violation (rounded up to the nearest whole share) will be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee will not acquire any rights in the shares. To avoid confusion, these shares so transferred to a beneficial trust are referred to herein as Excess Securities. Excess Securities will remain issued and outstanding shares and will be entitled to the same rights and privileges as all other shares of the same class or series. The trustee of the beneficial trust, as holder of the Excess Securities, will be entitled to receive all distributions authorized by our board of directors and declared by us on such securities for the benefit of the charitable beneficiary. Our charter entitles the trustee of the beneficial trust to exercise all voting rights of the Excess Securities and, subject to Maryland law, to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the beneficial trust and to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote. If the transfer to the beneficial trust would not be effective for any reason to prevent a violation of the limitations on ownership and transfer, then the transfer of that number of shares that otherwise would cause the violation will be null and void, with the proposed transferee acquiring no rights in such shares.
Within 20 days of receiving notice from us that the Excess Securities have been transferred to the beneficial trust, the trustee of the beneficial trust shall sell the Excess Securities. The trustee of the beneficial trust may select a transferee to whom the Excess Securities may be sold as long as such sale does not violate the 9.8% ownership limit or the other restrictions on ownership and transfer. Upon sale of the Excess Securities, the intended transferee (the transferee of the Excess Securities whose ownership would violate the 9.8% ownership limit or the other restrictions on ownership and transfer) will receive from the trustee of the beneficial trust the lesser of such sale proceeds (net of any commissions and other expenses of sale) or the price per share the intended transferee paid for the Excess Securities (or, in the case of a gift or devise to the intended transferee, the price per share equal to the market value per share on the date of the transfer to the intended transferee). The trustee may reduce the amount payable to the intended transferee upon such sale by the amount of any dividends and other distributions we pay to an intended transferee on Excess Securities prior to our discovery that such Excess Securities have been transferred in violation of the provisions of the charter. The trustee of the beneficial trust will distribute to the charitable beneficiary any amount the trustee receives in excess of the amount to be paid to the intended transferee. If, prior to our discovery that shares of our stock have been transferred to the beneficial trust, the shares are sold by the intended transferee, then the shares will be deemed to have been sold on behalf of the beneficial trust and, to the extent that the intended transferee received an amount for the shares that exceeds the amount such intended transferee was entitled to receive, the excess shall be paid to the trustee upon demand.
In addition, we have the right to purchase any Excess Securities at the lesser of (1) the price per share paid in the transfer that created the Excess Securities (or, in the case of a devise or gift, the market price at the time of such devise or gift), or (2) the current market price, until the Excess Securities are sold by the trustee of the beneficial trust. We may reduce the amount payable to the intended transferee upon such sale by the amount of any dividends and other distributions we pay to an intended transferee on Excess Securities prior to our discovery that such Excess Securities have been transferred in violation of the provisions of the charter. We may pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary.

If our board of directors or a committee thereof determines that a proposed transfer or other event has taken place that violates the restrictions on ownership and transfer of our stock set forth in our charter, our board of directors or such committee may take such action as it deems necessary to refuse to give effect to or to prevent such transfer, including, but not limited to, causing us to redeem shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.
Any person who acquires or attempts or intends to acquire shares in violation of the foregoing restrictions, or would have owned shares that resulted in a transfer to a charitable trust, is required to give us immediate written notice or, in the case of a proposed or attempted transaction, 15 days’ written notice prior to such transaction. In both cases, such persons must provide to us such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT. The foregoing restrictions will continue to apply until our board of directors determines it is no longer in our best interests to continue to qualify as a REIT or that compliance with these restrictions is no longer required for us to qualify as a REIT.
The ownership limit does not apply to a person or persons exempted (prospectively or retroactively) from the ownership limit by our board of directors based upon certain representations and undertakings required by our charter and other appropriate assurances that our qualification as a REIT is not jeopardized. Any person who owns more than 5% of the outstanding shares during any taxable year will be asked to deliver a notice setting forth the number of shares beneficially owned, directly or indirectly.
Business Combinations
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as: 
		
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	any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or

		
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	an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of the approval, with any terms and conditions determined by the board of directors.
After the five-year prohibition, any such business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least: 
		
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	80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation; and

		
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	two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination with our advisor or any of its affiliates. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations between us and our advisor or any of its affiliates. As a result, our advisor or any of its affiliates may be able to enter into business combinations with us that may not be in the best interests of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute.

Control Share Acquisitions
With some exceptions, Maryland law provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights with respect to such shares except to the extent approved by the affirmative vote of stockholders entitled to cast two-thirds of the votes entitled to be cast on the matter, excluding shares: 
		
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	owned by the acquiring person;

		
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	owned by our officers; and

		
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	owned by our employees who are also directors.

“Control shares” mean voting shares which, if aggregated with all other voting shares owned by an acquiring person or shares for which the acquiring person can exercise or direct the exercise of voting power, would entitle the acquiring person to exercise voting power in electing directors within one of the following ranges of voting power: 
		
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	one-tenth or more but less than one-third;

		
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	one-third or more but less than a majority; or

		
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	a majority or more of all voting power.

Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A control share acquisition occurs when, subject to some exceptions, a person directly or indirectly acquires ownership or the power to direct the exercise of voting power (except solely by virtue of a revocable proxy) of issued and outstanding control shares. A person who has made or proposes to make a control share acquisition, upon satisfaction of some specific conditions, including an undertaking to pay expenses, may compel our board of directors to call a special meeting of our stockholders to be held within 50 days of a demand to consider the voting rights of the control shares. If no request for a meeting is made, we may present the question at any stockholders meeting.
If voting rights for control shares are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to some conditions and limitations, we may redeem any or all of the control shares (except those for which voting rights have been previously approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of any meeting of stockholders at which the voting rights of such shares are considered and not approved or, if no such meeting is held, as of the date of the last control share acquisition by the acquirer. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation, or share exchange if we are a party to the transaction or to acquisitions approved or exempted by our charter or bylaws.
As permitted by MGCL, our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions of our stock by Cole Capital Advisors, Inc. or any affiliate of Cole Capital Advisors, Inc. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits the board of directors of a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions: 
		
	•
	a classified board of directors;

		
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	a two-thirds vote requirement for removing a director;

		
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	a requirement that the number of directors be fixed only by vote of the directors;    

		
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	a requirement that a vacancy on the board of directors be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred; and

		
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	a majority requirement for the calling of a stockholder-requested special meeting of stockholders.

Pursuant to Subtitle 8, except as may be provided by our board of directors in setting the terms of any class or series of our preferred stock, we have elected to provide that vacancies on our board of directors be filled only by the remaining directors 

and for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already vest in our board of directors the exclusive power to fix the number of directorships, provided that the number is not fewer than three. 
Tender Offers by Stockholders
Our charter provides that any tender offer, including any “mini-tender” offer, must comply with most of the provisions of Regulation 14D of the Exchange Act, including the notice and disclosure requirements. The offering person must provide the Company notice of such tender offer at least ten business days before initiating the tender offer. If the offering person does not comply with the provisions set forth above, no stockholder may transfer any shares to such offering person unless the stockholder has first offered such shares to us at the price offered by such offering person. In addition, the non-complying person will be responsible for all of the Company’s expenses in connection with that person’s noncompliance.
Advance Notice of Director Nominations and New Business
Our bylaws provide that with respect to an annual meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of directors or (3) by a stockholder who is a stockholder of record both at the time of giving advance notice of such nominations or proposals of business and at the time of such annual meeting, who is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of individuals for election to our board of directors at a special meeting may be made only (1) by or at the direction of our board of directors or (2) provided that the meeting has been called for the purpose of electing directors, by a stockholder who is a stockholder of record both at the time of giving advance notice of such nominations and at the time of such special meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice provisions of the bylaws.
Restrictions on Roll-up Transactions
A roll-up transaction (“Roll-up Transaction”) is a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of us and the issuance to our common stockholders of securities of an entity (“Roll-up Entity”) that would be created or would survive after the successful completion of a Roll-up Transaction. This term does not include: 
		
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	a transaction involving securities of the Company that have been listed on a national securities exchange for at least 12 months; or

		
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	a transaction involving our conversion to corporate, trust or association form of the Company if, as a consequence of the transaction, there will be no significant adverse change in any of the following: common stockholder voting rights, the term of our existence, compensation to our sponsor or advisor or our investment objectives.

In connection with any Roll-up Transaction involving the issuance of securities of a Roll-up Entity, an appraisal of all of our assets will be obtained from a competent independent appraiser. Our assets will be appraised on a consistent basis, and the appraisal will be based on the evaluation of all relevant information and will indicate the value of the assets as of a date immediately prior to the announcement of the proposed Roll-up Transaction. The appraisal will assume an orderly liquidation of assets over a 12-month period. The terms of the engagement of the independent appraiser will clearly state that the engagement is for the benefit of us and our stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, will be included in a report to our stockholders in connection with any proposed Roll-up Transaction. If the appraisal is to be included in a prospectus used to offer the securities of a Roll-up Entity, the appraisal will be filed with the U.S. Securities and Exchange Commission (the “SEC”) and the states as an exhibit to the registration statement for that offering.
In connection with a proposed Roll-up Transaction, the sponsor of the Roll-up Transaction must offer to common stockholders who vote “no” on the proposal the choice of:
		
	(1)
	accepting the securities of the Roll-up Entity offered in the proposed Roll-up Transaction; or

		
	(2)
	one of the following:

		
	(a)
	remaining as holders of our common stock and preserving their interests therein on the same terms and conditions as existed previously, or

		
	(b)
	receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of our net assets.

We are prohibited from participating in any Roll-up Transaction:
		
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	that includes provisions that would materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or which would limit the ability of an investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares held by that investor;

		
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	that results in our common stockholders having an adverse change in their voting rights;

		
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	in which our investor’s rights to access records of the Roll-up Entity will be less than those provided in the section above entitled “Meetings and Special Voting Requirements” above; or

		
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	in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is rejected by the common stockholders.

Limited Liability and Indemnification of Our Directors, Officers, Advisor and Other Agents
Maryland law permits us to include in our charter a provision limiting the liability of our directors and officers to our stockholders and us for money damages, except for liability resulting from (1) actual receipt of an improper benefit or profit in money, property or services or (2) active and deliberate dishonesty established by a final judgment and that is material to the cause of action.
The MGCL requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. The MGCL allows directors and officers to be indemnified against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding unless it is established that: 
		
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	an act or omission of the director or officer was material to the cause of action adjudicated in the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty;

		
	•
	the director or officer actually received an improper personal benefit in money, property or services; or

		
	•
	with respect to any criminal proceeding, the director or officer had reasonable cause to believe his or her act or omission was unlawful.

A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by the corporation or in its right, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. The MGCL permits a corporation to advance reasonable expenses to a director or officer upon receipt of a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification and a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed if it is ultimately determined that the standard of conduct was not met.
Subject to the limitations of Maryland law and to any additional limitations contained therein, our charter limits directors’ and officers’ liability to us and our stockholders for monetary damages, requires us to indemnify and pay or reimburse reasonable expenses in advance of final disposition of a proceeding to our directors, our officers, our advisor or any of its affiliates and permits us to provide such indemnification and advance of expenses to our employees and agents. This provision does not reduce the exposure of directors and officers to liability under federal or state securities laws, nor does it limit the stockholders’ ability to obtain injunctive relief or other equitable remedies for a violation of a director’s or an officer’s duties to us, although the equitable remedies may not be an effective remedy in some circumstances.
In addition to the above limitations of the MGCL, and as set forth in the NASAA REIT Guidelines, our charter further limits our ability to indemnify our directors or our advisor and its affiliates for losses or liability suffered by them or hold harmless our directors or our advisor and its affiliates for losses or liability suffered by us by requiring that the following additional conditions are met: 
		
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	the person seeking indemnification has determined, in good faith, that the course of conduct that caused the loss or liability was in our best interests;

		
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	the person seeking indemnification was acting on our behalf or performing services for us;

		
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	in the case of non-independent directors, our advisor or its affiliates, the liability or loss was not the result of negligence or misconduct;

		
	•
	in the case of independent directors, the liability or loss was not the result of gross negligence or willful misconduct; and

		
	•
	the indemnification or agreement to hold harmless is recoverable only out of our net assets and not from our stockholders.

The SEC and some state securities commissions take the position that indemnification against liabilities arising under the Securities Act of 1933, as amended, is against public policy and unenforceable. Under our charter, indemnification of our directors, our advisor or its affiliates will not be allowed for liabilities arising from or out of a violation of state or federal securities laws, unless one or more of the following conditions are met: 
		
	•
	there has been a successful adjudication on the merits in favor of the indemnitee of each count involving alleged material securities law violations;

		
	•
	such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or

		
	•
	a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which our securities were offered as to indemnification for violations of securities laws.

Our charter provides that the advancement of our funds to our directors, our advisor or its affiliates for reasonable legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if all of the following conditions are satisfied: (1) the legal action relates to acts or omissions with respect to the performance of duties or services on our behalf; (2) the person seeking indemnification provides us with written affirmation of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification; (3) the legal action is initiated by a third party who is not a stockholder or, if the legal action is initiated by a stockholder acting in his or her capacity as such, a court of competent jurisdiction approves such advancement; and (4) the person seeking indemnification agrees in writing to repay the advanced funds to us together with the applicable legal rate of interest thereon, and it is ultimately determined that such person is not entitled to indemnification.

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