Exhibit 10.1

 

ADVISORY AGREEMENT

 

This ADVISORY AGREEMENT (this “Agreement”) is entered into on this the 4th day
of April, 2016, by and between UNITED DEVELOPMENT FUNDING INCOME FUND V, a
Maryland real estate investment trust (the “Trust”), UDF V OP, L.P., a Delaware
limited partnership (the “Partnership”), and UDFH General Services, L.P., a
Delaware limited partnership (the “Advisor”).

 

WITNESSETH

 

WHEREAS, the Trust has been formed to originate, acquire, hold, manage,
administer and operate a portfolio of loans secured by real estate and interests
in entities that own real estate, as well as direct investments in real estate
and other real estate-related assets;

 

WHEREAS, the Trust is the general partner of the Partnership and may conduct its
business and make its investments in real estate and other real estate-related
assets through the Partnership;

 

WHEREAS, the Trust intends to qualify as a real estate investment trust and to
invest its funds in investments permitted by the terms of the Trust’s
Declaration of Trust and Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended;

 

WHEREAS, the Trust desires to avail itself of the experience, sources of
information, advice, assistance and certain facilities available to the Advisor
and to have the Advisor undertake the duties and responsibilities hereinafter
set forth, on behalf of, and subject to the supervision of, the Board of
Trustees (the “Board”) of the Trust, all as provided herein; and

 

WHEREAS, the Advisor is willing to undertake to render such services, subject to
the supervision of the Board, on the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

The following defined terms used in this Agreement shall have the meanings
specified below:

 

Acquisition Expenses. Any and all expenses incurred by the Trust, the
Partnership, the Advisor, or any Affiliate of either in connection with the
selection, acquisition or development of any Asset, whether or not acquired,
including, without limitation, legal fees and expenses, travel and
communications expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, title insurance premiums
and other closing costs.

 

Acquisition and Origination Fees. Any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any Person to any other duly qualified and
licensed Person (including any fees or commissions paid by or to any duly
qualified and licensed Affiliate of the Trust or the Advisor) in connection with
origination, making or investing in Secured Loans or the purchase, development
or construction of an Asset, including, without limitation, real estate
commissions, selection fees, non-recurring management fees, loan fees, points or
any other fees of a similar nature.

 

Advisor. UDFH General Services, L.P., a Delaware limited partnership, or any
Person to which UDFH General Services, L.P. subcontracts all or substantially
all of its functions.

 

Advisory Fees. The fees payable to the Advisor for day-to-day professional
management services in connection with the Trust and its investment in Assets as
set forth in Section 3.01(b) of this Agreement.

 

 

 

 

Affiliate or Affiliated. As to any Person, (i) any Person directly or indirectly
owning, controlling, or holding, with the power to vote, 10% or more of the
outstanding voting securities of such Person; (ii) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled, or held, with power to vote, by such other Person; (iii) any Person,
directly or indirectly, controlling, controlled by, or under common control with
such Person; (iv) any executive officer, director, trustee or general partner of
such Person; and (v) any legal entity for which such Person acts as an executive
officer, director, trustee or general partner.

 

Appraised Value. Value according to an appraisal made by an Independent
Appraiser.

 

Assets. Properties, Secured Loans and other direct or indirect investments in
securities or equity interests in Real Property (other than investments in bank
accounts, money market funds or other current assets, whether of the proceeds
from an Offering or the sale of an Asset or otherwise) owned by the Trust,
directly or indirectly through one or more of its Affiliates or Joint Ventures
or through other investment interests.

 

Average Invested Assets. For a specified period, the average of the aggregate
book value of the Assets, before deducting depreciation, bad debts or other
similar non-cash reserves, computed by taking the average of such values at the
end of each month during such period; provided, however, that during such
periods in which the Board is determining on a regular basis the current value
of the Trust’s net assets for purposes of enabling fiduciaries of employee
benefit plan shareholders to comply with applicable Department of Labor
reporting requirements, “Average Invested Assets” will equal the greater of (i)
the amount determined pursuant to the foregoing or (ii) the most recent Assets’
aggregate valuation established by the Board without reduction for depreciation,
bad debts or other non-cash reserves and without reduction for any debt secured
by or relating to the Assets.

 

Board. The Board of Trustees of the Trust.

 

Bylaws. The bylaws of the Trust, as the same are in effect as amended from time
to time.

 

Change of Control. Any (i) event (including, without limitation, issue, transfer
or other disposition of Shares of beneficial interest of the Trust or equity
interests in the Partnership, merger, share exchange or consolidation) after
which any “person” (as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the “beneficial
owner” (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of the Trust or the Partnership
representing greater than 50% of the combined voting power of the Trust’s or the
Partnership’s then outstanding securities, respectively; provided, that, a
Change of Control shall not be deemed to occur as a result of any widely
distributed public offering of the Shares or (ii) direct or indirect sale,
transfer, conveyance or other disposition (other than pursuant to clause (i)) in
one or a series of related transactions, of all or substantially all of the
assets of the Company or the Partnership, taken as a whole, to any “person” (as
that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended).

 

Code. Internal Revenue Code of 1986, as amended from time to time, or any
successor statute thereto. Reference to any provision of the Code shall mean
such provision as in effect from time to time, as the same may be amended, and
any successor provision thereto, as interpreted by any applicable regulations as
in effect from time to time.

 

Contract Purchase Price. The amount actually paid or allocated in respect of the
purchase, development, construction or improvement of a Property or the amount
of funds advanced or paid with respect to a Secured Loan, or the amount actually
paid or allocated in respect of the purchase of other Assets, in each case
exclusive of Acquisition and Origination Fees and Acquisition Expenses.

 

Contract Sales Price. The total consideration provided for in the sales contract
for the Sale of a Property.

  

Debt Financing Fee. The fees payable to the Advisor pursuant to Section 3.01(c)
of this Agreement.

 

 

 

 

Declaration of Trust. The Declaration of Trust of the Trust filed with the
Maryland State Department of Assessments and Taxation in accordance with the
Maryland REIT Law, as amended from time to time.

 

Disposition Fees. The fees payable to the Advisor for services provided in
connection with the Sale of one or more Assets pursuant to Section 3.01(f) of
this Agreement.

 

Distributions. Any dividends or other distributions of money or other property
by the Trust to owners of Shares, including distributions that may constitute a
return of capital for federal income tax purposes.

 

Fiscal Year. Any period for which any income tax return is submitted by the
Trust to the Internal Revenue Service and which is treated by the Internal
Revenue Service as a reporting period, and during which the Advisor performs
services for the Trust.

 

Former Advisor. American Realty Capital Residential Advisors, LLC, a Delaware
limited liability company.

 

Former Advisor Termination Amount. Any subordinated incentive fee paid or
payable to the Former Advisor pursuant to that certain Advisory Agreement dated
July 25, 2014 by and among the Trust, the Partnership and the Former Advisor.

 

Gross Proceeds. The aggregate purchase price of all Shares sold for the account
of the Trust through an Offering, without deduction for Selling Commissions,
dealer manager fees, wholesaling fees, marketing support fees, marketing
reallowances, due diligence expense reimbursement, volume discounts, or
Organization and Offering Expenses. For the purpose of computing Gross Proceeds,
the purchase price of any Share for which reduced Selling Commissions are paid
to a Soliciting Dealer (where net proceeds to the Trust are not reduced) shall
be deemed to be the full amount of the Offering price per Share pursuant to the
Prospectus for such Offering without reduction.

 

Independent Appraiser. A Person with no material current or prior business or
personal relationship with the Advisor or the Trustees and who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
Real Property and/or other Assets of the type held by the Trust. Membership in a
nationally recognized appraisal society such as the American Institute of Real
Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive
evidence of being engaged to a substantial extent in the business of rendering
opinions regarding the value of Real Property.

 

Independent Trustee. A Trustee who is not, on the date of determination and
within the last two years from the date of determination has not been, directly
or indirectly, associated with the Sponsor or the Advisor by virtue of (i)
ownership of an interest in the Sponsor, the Advisor or any of their Affiliates,
(ii) employment by either the Sponsor, the Advisor or any of their Affiliates,
(iii) service as an officer or director of the Sponsor, the Advisor or any of
their Affiliates, (iv) performance of services, other than as a Trustee, for the
Trust, (v) service as a director or trustee of more than three real estate
investment trusts organized by the Sponsor or advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the
Sponsor, the Advisor or any of their Affiliates. A business or professional
relationship is considered “material” per se if the aggregate gross revenue
derived by the Trustee from the Sponsor, the Advisor and their Affiliates
exceeds 5% of either the Trustee’s annual gross revenue during either of the
last two years or the Trustee’s net worth on a fair market value basis. An
indirect association with the Sponsor or the Advisor shall include circumstances
in which a Trustee’s spouse, parent, child, sibling, mother- or father-in-law,
son- or daughter-in-law, or brother- or sister-in-law is or has been associated
with the Sponsor, the Advisor, any of their Affiliates or the Trust.

 

Invested Capital. The amount calculated by multiplying the total number of
Shares purchased by Shareholders by the issue price at the time of such
purchase, reduced by the portion of any Distribution that is attributable to Net
Sales Proceeds and by any amounts paid by the Trust to repurchase Shares
pursuant to the Trust’s plan for repurchase of Shares.

 

Joint Ventures. The joint venture or partnership arrangements in which the Trust
or the Partnership is a co-venturer or general partner which are established to
acquire or hold Assets.

 

 

 

 

Listing or Listed. The approval of the Trust’s application to list the Shares by
a national securities exchange and the commencement of trading in the Shares on
the respective national securities exchange.

 

Market Value. Upon Listing, the market value of the outstanding Shares, measured
by taking the average closing price for a single Share, over a period of 30
consecutive trading days, with such period beginning 180 days after Listing, and
multiplying that number by the number of Shares outstanding on the date of
measurement.

 

NASAA Guidelines. The Statement of Policy Regarding Real Estate Investment
Trusts published by the North American Securities Administrators Association,
Inc. on May 7, 2007, and in effect on the date hereof.

 

Net Income. For any period, the Trust’s total revenues applicable to such
period, less the total expenses applicable to such period other than additions
to reserves for depreciation, bad debts, impairment costs or other similar
non-cash reserves and excluding any gain from the sale of the Assets. If the
Advisor is paid a Subordinated Incentive Fee or a Subordinated Incentive Listing
Fee, “Net Income,” for purposes of calculating Total Operating Expenses shall
exclude the gain from the Sale of any Assets.

  

Net Sales Proceeds. In the case of a transaction described in clause (i)(A) of
the definition of Sale, the proceeds of any such transaction less the amount of
selling expenses incurred by or on behalf of the Trust, including all real
estate commissions, closing costs and legal fees and expenses. In the case of a
transaction described in clause (i)(B) of such definition, Net Sales Proceeds
means the proceeds of any such transaction less the amount of selling expenses
incurred by or on behalf of the Trust, including any legal fees and expenses and
other selling expenses incurred in connection with such transaction. In the case
of a transaction described in clause (i)(C) of such definition, Net Sales
Proceeds means the proceeds of any such transaction actually distributed to the
Trust or the Operating Partnership from the Joint Venture less the amount of any
selling expenses, including legal fees and expenses incurred by or on behalf of
the Trust (other than those paid by the Joint Venture). In the case of a
transaction or series of transactions described in clause (i)(D) of the
definition of Sale, Net Sales Proceeds means the proceeds of any such
transaction (including the aggregate of all payments under a Secured Loan on or
in satisfaction thereof other than regularly scheduled interest payments) less
the amount of selling expenses incurred by or on behalf of the Trust, including
all commissions, closing costs and legal fees and expenses. In the case of a
transaction described in clause (i)(E) of such definition, Net Sales Proceeds
means the proceeds of any such transaction less the amount of selling expenses
incurred by or on behalf of the Trust, including any legal fees and expenses and
other selling expenses incurred in connection with such transaction. In the case
of a transaction described in clause (ii) of the definition of Sale, Net Sales
Proceeds means the proceeds of such transaction or series of transactions less
all amounts generated thereby which are reinvested in one or more Assets within
180 days thereafter and less the amount of any real estate commissions, closing
costs, and legal fees and expenses and other selling expenses incurred by or
allocated to the Trust or the Operating Partnership in connection with such
transaction or series of transactions. Net Sales Proceeds shall also include any
amounts that the Trust determines, in its discretion, to be economically
equivalent to proceeds of a Sale. Net Sales Proceeds shall not include any
reserves established by the Trust in its sole discretion.

 

Offering. Any public offering and sale of Shares pursuant to an effective
registration statement filed under the Securities Act, other than public
offerings of shares on behalf of selling shareholders or offerings related to a
distribution reinvestment plan, employee benefit plan or the redemption of
interests in the Partnership.

 

Organization and Offering Expenses. Any and all costs and expenses incurred by
and to be paid from the assets of the Trust in connection with the formation of
the Trust and the qualification and registration of an Offering, and the
marketing and distribution of Shares, including, without limitation, total
underwriting and brokerage discounts and commissions (including fees of the
underwriters’ attorneys); expenses for printing, engraving and amending
registration statements or supplementing prospectuses; mailing and distribution
costs; salaries of employees while engaged in sales activity; telephone and
other telecommunications costs; all advertising and marketing expenses
(including the costs related to investor and broker-dealer sales meetings);
charges of transfer agents, registrars, trustees, escrow holders, depositaries
and experts; and fees, expenses and taxes related to the filing, registration
and qualification of the sale of the Shares under federal and state laws; and
accountants’ and attorneys’ fees.

 

 

 

 

Partnership. UDF V OP, L.P., a Delaware limited partnership, through which the
Trust may own Assets.

 

Person. An individual, corporation, business trust, estate, trust, partnership,
limited liability company or other legal entity.

 

Property or Properties. As the context requires, any, or all, respectively, of
the Real Property acquired by the Trust or the Partnership, either directly or
indirectly (whether through joint venture arrangements or other partnership or
investment interests).

 

Prospectus. Prospectus has the meaning set forth in Section 2(10) of the
Securities Act, including a preliminary prospectus, an offering circular as
described in Rule 253 of the General Rules and Regulations under the Securities
Act or, in the case of an intrastate offering, any document by whatever name
known, utilized for the purpose of offering and selling securities of the Trust
to the public.

 

Real Property. Land, rights in land (including leasehold interests), land under
development, developed lots, and any buildings, structures, improvements,
furnishings, fixtures and equipment located on or used in connection with land
and rights or interests in land.

 

REIT. A corporation, trust, association or other legal entity (other than a real
estate syndication) that is engaged primarily in investing in equity interests
in real estate (including fee ownership and leasehold interests) or in loans
secured by real estate or both in accordance with Sections 856 through 860 of
the Code.

 

Sale or Sales. (i) Any transaction or series of transactions whereby: (A) the
Trust or the Partnership directly or indirectly (except as described in other
subsections of this definition) sells, grants, transfers, conveys, or
relinquishes its ownership of any Property or portion thereof, including the
lease of any Property consisting of a building only, and including any event
with respect to any Property which gives rise to a significant amount of
insurance proceeds or condemnation awards; (B) the Trust or the Partnership
directly or indirectly (except as described in other subsections of this
definition) sells, grants, transfers, conveys, or relinquishes its ownership of
all or substantially all of the interest of the Trust or the Partnership in any
Joint Venture in which it is a co-venturer or partner; (C) any Joint Venture
directly or indirectly (except as described in other subsections of this
definition) in which the Trust or the Partnership as a co-venturer or partner
sells, grants, transfers, conveys, or relinquishes its ownership of any Property
or portion thereof, including any event with respect to any Property which gives
rise to insurance claims or condemnation awards; (D) the Trust or the
Partnership directly or indirectly (except as described in other subsections of
this definition) sells, grants, conveys or relinquishes its interest in any
Secured Loan or portion thereof (including with respect to any Secured Loan, all
repayments thereunder or in satisfaction thereof other than regularly scheduled
interest payments) and any event with respect to a Secured Loan which gives rise
to a significant amount of insurance proceeds or similar awards; or (E) the
Trust or the Partnership directly or indirectly (except as described in other
subsections of this definition) sells, grants, transfers, conveys, or
relinquishes its ownership of any other Asset not previously described in this
definition or any portion thereof. (ii) Notwithstanding the foregoing, “Sale” or
“Sales” shall not include any transaction or series of transactions specified in
clause (i)(A) through (E) above in which the proceeds of such transaction or
series of transactions are reinvested in one or more Assets within 180 days
thereafter.

 

Secured Loans. In connection with financing provided, invested in, participated
in or purchased by the Trust, all of the notes, deeds of trust, security
interests or other evidences of indebtedness or obligations, which are secured
or collateralized by Real Property owned by the borrowers under such notes,
deeds of trust, security interests or other evidences of indebtedness or
obligations or pledges of equity interests in entities owning Real Property.

 

Securities Act. The Securities Act of 1933, as amended from time to time, or any
successor statute thereto. Reference to any provision of the Securities Act
shall mean such provision as in effect from time to time, as the same may be
amended, and any successor provision thereto, as interpreted by any applicable
regulations as in effect from time to time.

 

 

 

  

Securitized Loan Pool Placement Fees. The fees payable to the Advisor pursuant
to Section 3.01(e) of this Agreement.

 

Selling Commissions. Any and all commissions payable to underwriters or other
broker-dealers in connection with the sale of the Shares, including, without
limitation, commissions payable to the Soliciting Dealers.

 

Shareholders. The record holders of the Shares as maintained in the books and
records of the Trust or its transfer agent.

 

Shareholders’ 7.35% Return. As of any date, an aggregate amount equal to a 7.35%
cumulative, non-compounded, annual return on Invested Capital.

 

Shares. Any Shares of the Trust’s common shares of beneficial interest, par
value $0.01 per share.

 

Soliciting Dealers. Broker-dealers who are members of the Financial Industry
Regulatory Authority, or that are exempt from broker-dealer registration, and
who, in either case, have executed participating broker or other agreements to
sell Shares.

 

Sponsor. UDF Holdings, L.P.

 

Subordinated Incentive Fee. The fee payable to the Advisor under certain
circumstances if certain performance standards have been met pursuant to Section
3.01(d) of this Agreement.

 

Subordinated Incentive Listing Fee. The fee payable to the Advisor under certain
circumstances if the Shares are Listed pursuant to Section 3.01(g).

 

Termination Date. The date of termination of this Agreement.

 

Total Operating Expenses. All costs and expenses paid or incurred by the Trust,
as determined under generally accepted accounting principles, which are in any
way related to the operation of the Trust or to Trust business, including
Advisory Fees, but excluding (i) the expenses of raising capital such as
Organization and Offering Expenses, bona fide due diligence expenses, legal,
audit, accounting, underwriting, brokerage, listing, registration, and other
fees, printing and other such expenses and tax incurred in connection with the
issuance, distribution, transfer, registration and Listing of the Shares, (ii)
interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves and impairment costs, (v) the Subordinated
Incentive Fee, (vi) the Subordinated Incentive Listing Fee, (vii) Acquisition
and Origination Fees and Acquisition Expenses, (viii) Debt Financing Fees (other
than any additional Debt Financing Fees that may be paid subsequent to the
origination of debt financing, based on the anniversary of such debt financing),
(ix) real estate commissions on the Sale of Assets (including Disposition Fees
and Securitized Loan Pool Placement Fees), and (x) other fees and expenses
connected with the acquisition, disposition, management and ownership of real
estate interests, mortgage loans or other property (including the costs of
foreclosure, insurance premiums, legal services, maintenance, repair and
improvement of property).

 

Trust. United Development Funding Income Fund V, a real estate investment trust
organized under the laws of the State of Maryland.

 

Trustee. A member of the Board.

 

 

 

  

ARTICLE II

 

THE ADVISOR

 

2.01 Appointment. The Trust and the Partnership hereby appoint the Advisor to
serve as the advisor on the terms and conditions set forth in this Agreement,
and the Advisor hereby accepts such appointment. The Advisor shall be deemed to
be in a fiduciary relationship to the Trust and its Shareholders.

 

2.02 Duties of the Advisor. Subject to Section 2.07, the Advisor undertakes to
use its commercially reasonable best efforts to (1) present to the Trust and the
Partnership potential investment opportunities consistent with the investment
objectives and policies of the Trust as determined and adopted from time to time
by the Board and (2) manage, administer, promote, maintain and improve the
Assets on an overall portfolio basis in a diligent manner. The services of the
Advisor are to be of scope and quality not less than those generally performed
by professional asset managers of other similar asset portfolios. The Advisor
shall make available the full benefit of the judgment, experience and advice of
the members of the Advisor’s organization and staff with respect to the duties
it will perform under this Agreement. In performance of this undertaking,
subject to the supervision of the Board and consistent with the provisions of
the Trust’s most recent Prospectus for Shares, Declaration of Trust and Bylaws,
the Advisor shall, either directly or by engaging a duly qualified and licensed
Affiliate of the Advisor or other duly qualified and licensed Person:

 

(a) structure, qualify, register and oversee the distribution of Shares pursuant
to the Trust’s distribution reinvestment plan;

 

(b) structure, qualify and administer the repurchase of Shares pursuant to the
Trust’s redemption program;

 

(c) serve as the Trust’s and the Partnership’s investment and financial advisor
and provide research and economic and statistical data in connection with the
Assets and the Trust’s investment policies;

 

(d) perform due diligence on prospective investments and create due diligence
reports summarizing the results of such work;

 

(e) provide the daily management of the Trust and the Partnership and perform
and supervise the various administrative functions reasonably necessary for the
management and operations of the Trust and the Partnership;

 

(f) maintain and preserve the books and records of the Trust and the
Partnership, including (1) share books and records reflecting a record of the
Shareholders and their ownership of the Trust’s Shares, (2) acting as transfer
agent for the Trust’s Shares or selecting, engaging and overseeing the
performance by a third party transfer agent, and (3) maintaining the accounting
and other record-keeping functions at the Asset and Trust levels in accordance
with generally accepted accounting principles, which shall be supported by
sufficient documentation to ascertain that such records are properly and
accurately recorded. Such books and records shall be the property of the Trust
and shall be available for inspection by the Board and by counsel, auditors and
other authorized agents of the Trust at any time or from time to time during
normal business hours. Such books and records shall include all information
necessary to calculate and audit the fees or reimbursements paid under this
Agreement. The Advisor shall utilize procedures to attempt to ensure such
control over accounting and financial transactions as is reasonably required to
protect the Trust’s assets from theft, error or fraudulent activity. All
financial statements that the Advisor delivers to the Trust shall be prepared on
an accrual basis in accordance with generally accepted accounting principles,
except for special financial reports that by their nature require a deviation
from generally accepted accounting principles. The Advisor shall liaise with the
Trust’s officers and independent auditors and shall provide such officers and
auditors with the reports and other information that the Trust so requests;

 

(g) investigate, select, and, on behalf of the Trust and the Partnership, engage
and conduct business with such Persons as the Advisor deems necessary to the
proper performance of its obligations hereunder, including but not limited to
consultants, accountants, correspondents, lenders, technical advisors,
attorneys, brokers, underwriters, corporate fiduciaries, escrow agents,
depositaries, custodians, agents for collection, insurers, insurance agents,
banks, builders, developers, property owners, mortgagors, asset managers,
property management companies, transfer agents and any and all agents for any of
the foregoing, including Affiliates of the Advisor, and Persons acting in any
other capacity deemed by the Advisor necessary or desirable for the performance
of any of the foregoing services, including but not limited to entering into
contracts in the name of the Trust or the Partnership with any of the foregoing;

 

 

 

  

(h) consult with the officers and the Board and assist the Board in the
formulation and implementation of the Trust’s financial policies and, as
necessary, furnish the Board with advice and recommendations with respect to the
making of investments consistent with the investment objectives and policies of
the Trust and in connection with any borrowings proposed to be undertaken by the
Trust;

 

(i) subject to the provisions of Sections 2.02(i) and 2.03 hereof, (i) locate,
analyze and select potential investments in Assets; (ii) structure and negotiate
the terms and conditions of transactions pursuant to which investments in Assets
will be made; (iii) make investments in Assets on behalf of the Trust or the
Partnership in compliance with the investment objectives and policies of the
Trust where the amount of such investment does not exceed 10% of the Trust’s or
the Partnership’s total assets or has otherwise been approved by the Board; (iv)
arrange for financing and refinancing and make other changes in the asset or
capital structure of, and dispose of, reinvest the proceeds from the sale of, or
otherwise deal with the investments in, Assets; and (v) enter into leases of
Property and service contracts for Assets and, to the extent necessary, perform
all other operational functions for the maintenance and administration of such
Assets, including the servicing of Secured Loans;

 

(j) provide the Board with periodic reports regarding prospective investments in
Assets;

 

(k) if a transaction requires approval by the Board, deliver to the Board all
documents required by them to properly evaluate the proposed transaction;

 

(l) obtain the prior approval of a majority of the Independent Trustees and a
majority of the Board not otherwise interested in any transaction with the
Advisor or its Affiliates;

 

(m) negotiate on behalf of the Trust or the Partnership with banks or lenders
for loans to be made to the Trust or the Partnership, negotiate on behalf of the
Trust or the Partnership with investment banking firms and broker-dealers, and
negotiate private sales of Shares and other securities of the Trust or the
Partnership or obtain loans for the Trust or the Partnership, as and when
appropriate, but in no event in such a way so that the Advisor shall be acting
as broker-dealer or underwriter; and provided further that any fees and costs
payable to third parties incurred by the Advisor in connection with the
foregoing shall be the responsibility of the Trust or the Partnership;

  

(n) review and analyze on-going financial information pertaining to each Asset
and the overall portfolio of Assets;

 

(o) monitor applicable markets and obtain reports (which may be prepared by or
for the Advisor or its Affiliates), where appropriate, concerning the value of
investments or contemplated investments of the Trust in Assets;

 

(p) from time to time, or at any time reasonably requested by the Board, make
reports to the Board of its performance of services to the Trust under this
Agreement;

 

(q) from time to time, or at any time reasonably requested by the Board, make
reports to the Board of the investment opportunities it has presented to other
Advisor-sponsored programs or that it has pursued directly or through an
Affiliate;

 

(r) provide the Trust or the Partnership with, or assist the Trust or the
Partnership in arranging for, all necessary cash management services;

 

(s) deliver to or maintain on behalf of the Trust or the Partnership copies of
all appraisals obtained in connection with the investments in Assets;

 

(t) consult with the Trust’s officers and the Board and assist the Board in
evaluating various liquidity events when appropriate;

 

 

 

  

(u) provide the Trust’s officers and the Board with timely updates related to
the overall regulatory environment affecting the Trust, as well as managing
compliance with such matters, including compliance with the Sarbanes-Oxley Act
of 2002;

 

(v) consult with the Trust’s officers and the Board relating to the corporate
governance structure and appropriate policies and procedures related thereto;

 

(w) perform all reporting, record keeping, internal controls and similar matters
in a manner to allow the Trust to comply with applicable law, including federal
and state securities laws and the Sarbanes-Oxley Act of 2002;

 

(x) upon request of the Trust or the Partnership, act, or obtain the services of
others to act, as attorney-in-fact or agent of the Trust or the Partnership in
making, acquiring and disposing of Assets, disbursing, and collecting the funds,
paying the debts and fulfilling the obligations of the Trust or the Partnership
and handling, prosecuting and settling any claims of the Trust or the
Partnership, including foreclosing and otherwise enforcing mortgage and other
liens and security interests comprising any of the Assets;

 

(y) at the direction of Trust management, prepare the Trust’s periodic reports
and other filings made under the Securities Exchange Act of 1934, as amended,
and the Trust’s Post-Effective Amendments to the Registration Statement as well
as all related prospectuses, prospectus supplements and supplemental sales
literature and assist in connection with the filing of such documents with the
appropriate regulatory authorities;

  

(z) supervise the preparation and filing and distribution of returns and reports
to governmental agencies and to Shareholders and other investors and act on
behalf of the Trust in connection with investor relations;

 

(aa) provide office space, equipment and personnel as required for the
performance of the foregoing services as Advisor;

 

(bb) assist the Trust in preparing all reports and returns required by the
Securities and Exchange Commission, Internal Revenue Service and other state or
federal governmental agencies; and

 

(cc) do all things necessary to assure its ability to render the services
described in this Agreement.

 

2.03 Authority of Advisor. Pursuant to the terms of this Agreement (including
the duties set forth in Section 2.02, and the restrictions included in this
Section 2.03 and in Section 2.06), and subject to the continuing and exclusive
authority of the Board over the management of the Trust, the Board hereby
delegates to the Advisor the authority to (i) locate, analyze and select
investment opportunities, (ii) structure the terms and conditions of
transactions pursuant to which investments will be made or acquired for the
Trust or the Partnership, (iii) cause the Trust to make and acquire Secured
Loans, acquire Properties and invest in other Assets in compliance with the
investment objectives and policies of the Trust where the amount of such
investment does not exceed 10% of the Trust’s or the Partnership’s total assets
or has otherwise been approved by the Board, (iv) arrange for financing or
refinancing of Assets, (v) cause the Trust to enter into leases for the
Properties and service contracts for the Assets with duly qualified and licensed
non-affiliated and Affiliated Persons, including oversight of non-affiliated and
Affiliated Persons that perform management, acquisition, advisory, disposition
or other services for the Trust, and (vi) arrange for, or provide, accounting
and other record-keeping functions at the Asset level.

 

The Board may, at any time upon the giving of notice to the Advisor, modify or
revoke the authority set forth in this Section 2.03, provided however, that such
modification or revocation shall be effective upon receipt by the Advisor or
such later date as is specified by the Board and included in the notice provided
to the Trust and such modification or revocation shall not be applicable to
investment transactions to which the Advisor has committed the Trust prior to
the date of receipt by the Advisor of such notification, or, if later, the
effective date of such modification or revocation specified by the Board.

 

 

 

  

2.04 Bank Accounts. The Advisor may establish and maintain one or more bank
accounts in its own name for the account of the Trust or the Partnership or in
the name of the Trust or the Partnership and may collect and deposit into any
such account or accounts, and disburse from any such account or accounts, any
money on behalf of the Trust or the Partnership, under such terms and conditions
as the Board may approve, provided that no funds of the Trust or the Partnership
shall be commingled nor shall any such funds be commingled with the funds of the
Advisor; and the Advisor shall from time to time, upon request by the Board, its
Audit Committee or the auditors of the Trust or the Partnership, render
appropriate accountings of such collections and payments to the Board, its Audit
Committee and the auditors of the Trust or the Partnership.

 

2.05 Records; Access. The Advisor shall maintain appropriate records of all its
activities hereunder and make such records available for inspection by the Board
and by counsel, auditors and authorized agents of the Trust, at any time or from
time to time during normal business hours. The Advisor shall at all reasonable
times have access to the books and records of the Trust and the Partnership.

 

2.06 Limitations on Activities. Anything else in this Agreement to the contrary
notwithstanding, the Advisor shall refrain from taking any action which, in its
sole judgment made in good faith, would (a) adversely affect the status of the
Trust as a REIT, (b) subject the Trust to regulation under the Investment
Company Act of 1940, as amended, (c) violate any law, rule, regulation or
statement of policy of any governmental body or agency having jurisdiction over
the Trust or the Partnership, the Shares or its other securities, or (d) not be
permitted by the Declaration of Trust or Bylaws, except if such action shall be
ordered by the Board, in which case the Advisor shall notify promptly the Board
of the Advisor’s judgment of the potential impact of such action and shall
refrain from taking such action until it receives further clarification or
instructions from the Board. In such event, the Advisor shall have no liability
to the Trust or the Partnership or to the Board or Shareholders for acting in
accordance with the specific instructions of the Board so given. Notwithstanding
the foregoing, the Advisor, its directors, officers, general partners, trustees,
employees, limited partners and stockholders, and the directors, officers,
general partners, trustees, employees, limited partners and stockholders of the
Advisor’s Affiliates shall not be liable to the Trust or the Partnership or to
the Board or Shareholders for any act or omission by the Advisor, its directors,
officers, general partners, trustees, employees, limited partners, or
stockholders, or for any act or omission of any Affiliate of the Advisor, its
directors, officers, general partners, trustees, employees, limited partners, or
stockholders, except as provided in Section 5.02 of this Agreement.

 

2.07 Other Activities of the Advisor. Nothing herein contained shall prevent the
Advisor or its Affiliates from engaging in other activities, including, without
limitation, the rendering of advice to other Persons (including other REITs) and
the management of other programs advised, sponsored or organized by the Advisor
or its Affiliates; nor shall this Agreement limit or restrict the right of any
director, officer, general partner, trustee, employee, limited partner, or
stockholder of the Advisor or its Affiliates to engage in any other business or
to render services of any kind to any other Person. The Advisor may, with
respect to any investment in which the Trust is a participant, also render
advice and service to each and every other participant therein. The Advisor
shall report to the Board the existence of any condition or circumstance,
existing or anticipated, of which it has knowledge, which creates or could
create a conflict of interest between the Advisor’s obligations to the Trust and
its obligations to or its interest in any other Person. The Advisor or its
Affiliates shall promptly disclose to the Board knowledge of such condition or
circumstance. The Advisor shall inform the Board at least quarterly of the
investment opportunities that have been offered to other programs with similar
investment objectives sponsored by the Sponsor, the Advisor, any Trustee or
their Affiliates. If the Sponsor, the Advisor, any Trustee or Affiliates thereof
have sponsored other investment programs with similar investment objectives
which have investment funds available at the same time as the Trust, it shall be
the duty of the Board (including the Independent Trustees) to adopt the method
set forth in the Trust’s most recent Prospectus for its Shares or another
reasonable method by which investments are to be allocated to the competing
investment entities and to use their best efforts to apply such method fairly to
the Trust.

 

2.08 Payment of Certain Organization and Offering Expenses. The Trust shall pay
directly all Organization and Offering Expenses considered underwriting
compensation by the Financial Industry Regulatory Authority.

 

 

 

 

ARTICLE III

 

COMPENSATION AND REIMBURSEMENT OF SPECIFIED COSTS

 

3.01 Fees.

 

(a) Acquisition and Origination Fees and Acquisition Expenses. The Trust shall
pay to the Advisor or an Affiliate of the Advisor, Acquisition and Origination
Fees, and will reimburse the Advisor for Acquisition Expenses, in an aggregate
amount of 3% of the net amount available for investment in Assets (after payment
of Selling Commissions, dealer manager fees, wholesaling fees, marketing support
fees, marketing reallowances and Organization and Offering Expenses). In
addition, the Trust shall pay to the Advisor or an Affiliate of the Advisor
Acquisition and Origination Fees, and will reimburse the Advisor for Acquisition
Expenses, upon the reinvestment of proceeds from capital transactions, such as
the repayment of principal by a borrower, up to 3% of the funds advanced under a
new loan or the Contract Purchase Price of the new Property or equity
investment. Acquisition and Origination Fees shall be due and payable to the
Advisor or an Affiliate of the Advisor, and Acquisition Expenses shall be
reimbursed to the Advisor, on or before the twenty-fifth (25th) calendar day of
the month following the month in which the funds were invested in Assets in a
transaction that gives rise to the obligation to pay Acquisition and Origination
Fees and/or reimburse Acquisition Expenses. The Acquisition and Origination Fees
and Acquisition Expenses that will be paid or reimbursed by the Trust will be
reduced by the amount of any Acquisition and Origination Fees or Acquisition
Expenses paid or reimbursed by any Person to the Advisor or an Affiliate of the
Advisor with respect to any Asset. The total of all Acquisition and Origination
Fees, including Debt Financing Fees, from any source, and any Acquisition
Expenses shall be limited in accordance with the Declaration of Trust, and the
Acquisition and Origination Fees paid in respect of secured loans shall not
exceed 1% per annum when prorated over the stated term of the respective loan.

 

(b) Advisory Fees. The Trust shall pay the Advisor Advisory Fees in the amount
of 1.5% per annum of the Average Invested Assets, payable monthly in arrears on
or before the twenty-fifth (25th) calendar day of the month, in an amount equal
to one-twelfth of 1.5% of the Average Invested Assets on the last day of the
immediately preceding month. The Advisor, in its sole discretion, may waive,
reduce or defer all or any portion of the Advisory Fees to which it would
otherwise be entitled.

 

(c) Debt Financing Fee. In the event of the origination of any line of credit or
other debt financing obtained by the Trust, including the assumption (directly
or indirectly) of existing debt, that is used to acquire properties, to make
other permitted investments or is assumed (directly or indirectly) in connection
with the acquisition of properties, and if the Advisor or an Affiliate of the
Advisor provides a substantial amount of services, as determined by the
Independent Trustees in connection therewith, the Trust will pay to the Advisor
or an Affiliate of the Advisor a Debt Financing Fee equal to 1% of the amount
available to the Trust under such line of credit or other debt financing;
provided however, that the Advisor may reallow all or a portion of the Debt
Financing Fee to parties effecting the debt placement. Debt Financing Fees, if
applicable, are due and payable upon the origination of a line of credit or
other debt financing obtained by the Trust. On each anniversary date of the
origination of such line of credit or other debt financing, the Trust will pay
to the Advisor or an Affiliate of the Advisor an additional fee of 0.25% of such
amount available to the Trust under such line of credit or other debt financing
if such line of credit or other debt financing continues to be outstanding on
such date, or a prorated portion of such additional fee for the portion of such
year that the financing was outstanding.

 

 

 

  

(d) Subordinated Incentive Fee. After Shareholders have received a return of the
sum of (i) 100% of such Shareholders’ Invested Capital and (ii) the
Shareholders’ 7.35% Return from inception through the end of the immediately
preceding year, the Trust shall pay to the Advisor a Subordinated Incentive Fee
equal to 15% of the amount by which the Trust’s Net Income for the immediately
preceding year exceeds the sum of (i) 100% of the Shareholders’ Invested Capital
and (ii) the Shareholders’ 7.35% Return from inception through the end of the
immediately preceding year. The Subordinated Incentive Fee shall be paid
annually in arrears and upon termination of this Agreement in accordance with
Section 4.02, other than in connection with any internalization by the
Partnership or the Trust of management functions from the Advisor, unless such
termination is by the Trust because of a material breach of this Agreement by
the Advisor. If the Subordinated Incentive Fee is being paid in accordance with
the termination of this Agreement, such fee will be payable with respect to the
period between the end of the immediately preceding year and the Termination
Date only if a Subordinated Incentive Fee was payable with respect to such
immediately preceding year. If the Subordinated Incentive Fee is payable with
respect to such period between the end of the immediately preceding year and the
Termination Date, such fee will be based on (i) the Trust’s Net Income between
the end of the immediately preceding year and the Termination Date and (ii) the
sum of (A) 100% of Invested Capital and (B) the Shareholders’ 7.35% Return from
inception through the Termination Date. Notwithstanding the foregoing, in the
event the Subordinated Incentive Listing Fee is paid to the Advisor following
Listing, no Subordinated Incentive Fee will be paid to the Advisor for the
period preceding the Listing, and any Subordinated Incentive Fee paid prior to
the Listing will reduce the amount of the Subordinated Incentive Listing Fee.
The Advisor shall continue to be eligible to receive the Subordinated Incentive
Fee for each annual period following the Listing through the Termination Date.
Subordinated Incentive Fees are due and payable in arrears within ninety (90)
calendar days after the end of the previous year. In the sole discretion of the
Advisor, the Subordinated Incentive Fee may be paid with cash, Shares, other
sources of payment or any combination of the foregoing; provided however, that
to the extent that the Advisor requests that the Subordinated Incentive Fee be
paid in cash, such fee shall be payable in cash only to the extent that the
Trust determines that it has sufficient cash on hand. If any portion of the
Subordinated Incentive Fee is paid in Shares by the Trust, then the price per
Share shall equal the fair market value for the Shares as determined by the
Board based upon the Appraised Value of the Assets as of the date of such
election by the Trust. Notwithstanding the other provisions of this Section
3.01(d), any Former Advisor Termination Amount paid or payable shall be deducted
from any Subordinated Incentive Fee payable to the Advisor.

  

(e) Securitized Loan Pool Placement Fees. Upon the securitization and placement
of any Secured Loans (or any derivative thereof), the Trust shall pay to the
Advisor or an Affiliate of the Advisor a Securitized Loan Pool Placement Fee
equal to 1% of the par amount of the securities sold by the Trust in connection
with such securitization and placement, provided that the Advisor or an
Affiliate of the Advisor has provided a substantial amount of services in
connection with such securitization and placement as determined by a majority of
the Independent Trustees. Securitized Loan Pool Placement Fees, if any, are due
and payable upon the closing and funding of the securitization and placement of
a Secured Loan.

 

(f) Disposition Fees. If the Advisor or an Affiliate of the Advisor provides a
substantial amount of services, as determined by a majority of the Independent
Trustees, in connection with the Sale of one or more Properties, the Trust shall
pay the Advisor or an Affiliate of the Advisor a Disposition Fee in an amount
equal to the lesser of one-half of the reasonable and customary real estate or
brokerage commission or 2% of the Contract Sales Price of the Property or
Properties. The Trust, in its sole discretion, may pay the Disposition Fees with
cash, Shares, or any combination thereof. If any portion of the Dispositions
Fees is paid in Shares by the Trust in its sole discretion, then the price per
Share shall equal the fair market value for the Shares as determined by the
Board based upon the Appraised Value of the Assets as of the date of such
election by the Trust. In no event will the amount of any Disposition Fees paid
in connection with a Sale exceed the limits set forth in the Declaration of
Trust. For purposes of this Section 3.01(f), a “substantial amount of services”
in connection with the Sale of one or more Properties includes the preparation
of an investment package for the Properties (including a new investment
analysis, rent rolls, tenant information regarding credit, a property title
report, an environmental report, a structural report and exhibits) or such other
substantial services performed by the Advisor in connection with a sale of the
Properties.

 

(g) Subordinated Incentive Listing Fee. Upon Listing, the Advisor shall be
entitled to be paid a Subordinated Incentive Listing Fee in an amount equal to
15% of the amount by which (i) the Market Value of the Trust’s outstanding
Shares plus Distributions paid by the Trust from inception through the date of
Listing, exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the total
Distributions required to be paid to the Shareholders in order to pay the
Shareholders’ 7.35% Return from inception through the date of Listing. The Trust
shall have the option to pay such fee in the form of cash, Shares (at a price
per Share equal to the average closing price of the Shares over the ten trading
days immediately preceding the date of such election by the Trust to pay such
fee in the form of Shares), a non-interest bearing promissory note, or any
combination thereof. If the promissory note has not been paid in full within
three years from the date of Listing, then the Advisor, or its successors or
assigns, may elect to convert the unpaid balance into Shares at a price per
Share equal to the average closing price of the Shares over the ten trading days
immediately preceding the date of such election. If the Shares are no longer
Listed at such time as the promissory note becomes convertible into Shares as
provided by this paragraph, then the price per Share, for purposes of
conversion, shall equal the fair market value for the Shares as determined by
the Board based upon the Appraised Value of the Assets as of the date of
election.

 

 

 

  

3.02 Expenses.

 

(a) In addition to the compensation paid to the Advisor pursuant to Section 3.01
hereof and except as noted in Section 2.08 above, the Trust shall pay directly
or reimburse the Advisor for all of the costs and expenses paid or incurred by
the Advisor that are in any way related to the operations of the Trust or the
business of the Trust or the services the Advisor provides to the Trust pursuant
to this Agreement, including, but not limited to:

 

(i) Organization and Offering Expenses; provided, however, that within 60 days
after the end of the month in which an Offering terminates, the Advisor shall
reimburse the Trust for the amount of Organization and Offering Expenses (other
than Selling Commissions, bona fide due diligence expense reimbursements, dealer
manager fees, wholesaling fees, marketing support fees and marketing
reallowances) to the extent that such Organization and Offering Expenses
incurred by the Trust that exceed 2% of the Gross Proceeds raised in the
completed Offering;

 

(ii) the actual cost of goods, services and materials used by the Trust and
obtained from Persons not affiliated with the Advisor, other than Acquisition
Expenses, including brokerage fees paid in connection with the purchase and sale
of Shares or other securities;

 

(iii) interest and other costs for borrowed money, including discounts, points
and other similar fees;

 

(iv) taxes and assessments on income or property and taxes as an expense of
doing business;

 

(v) costs associated with or required in connection with the business of the
Trust or by the Board;

 

(vi) expenses of managing and operating Assets owned by the Trust, whether or
not payable to an Affiliate of the Advisor;

 

(vii) all expenses in connection with payments to the Board for attendance at
meetings of the Board and Stockholders;

 

(viii) except as otherwise limited by the Declaration of Trust, expenses
associated with Listing or with the issuance and distribution of Shares and
other securities of the Trust, such as selling commissions and fees, advertising
expenses, taxes, legal and accounting fees and Listing and registration fees,
but excluding Organization and Offering Expenses;

 

(ix) expenses connected with payments of Distributions in cash or otherwise made
or caused to be made by the Trust to the Stockholders;

 

(x) expenses of organizing, reorganizing, liquidating or dissolving the Trust
and the expenses of filing or amending the Declaration of Trust;

 

(xi) expenses of any third party transfer agent for the Shares and of
maintaining communications with Stockholders or their financial advisors,
including the cost of preparation, printing and mailing annual reports and other
Stockholder reports, proxy statements and other reports required by governmental
entities;

 

 

 

  

(xii) transfer agent and registrar’s fees and charges;

 

(xiii) personnel and related employment costs incurred by the Advisor or its
Affiliates in performing the services described herein, including but not
limited to reasonable rent, IT costs, salaries and wages, benefits and overhead
of all employees directly involved in the performance of such services;
provided, that no reimbursement shall be made for costs of such employees of the
Advisor or its Affiliates to the extent that such employees perform services for
which the Advisor receives a separate fee; and

 

(xiv) audit, accounting, legal and other professional fees.

 

(b) Expenses incurred by the Advisor on behalf of the Trust and payable pursuant
to this Section 3.02 shall be reimbursed no less than quarterly to the Advisor
within 60 days after the end of each quarter. The Advisor shall prepare a
statement documenting the expenses of the Trust during each quarter, and shall
deliver the statement to the Trust within 45 days after the end of each quarter.

 

3.03 Other Services. Should the Board request that the Advisor or any director,
officer, general partner, trustee, or employee thereof render services for the
Trust other than set forth in Section 2.02, such services shall be separately
compensated at such rates and in such amounts as are agreed by the Advisor and
the Board, subject to the limitations contained in the Declaration of Trust, and
shall not be deemed to be services pursuant to the terms of this Agreement.

 

3.04 Reimbursement to the Advisor. The Trust shall not reimburse the Advisor, at
the end of any fiscal quarter, for Total Operating Expenses to the extent that,
in the four consecutive fiscal quarters then ended (the “Expense Year”) the
Total Operating Expenses exceed (the “Excess Amount”) the greater of (i) 2% of
Average Invested Assets or (ii) 25% of Net Income (the “2%/25% Guidelines”) for
that Expense Year unless the Independent Trustees determine that such excess was
justified, based on unusual and nonrecurring factors which the Independent
Trustees deem sufficient. If the Independent Trustees do not approve such excess
as being so justified, any Excess Amount paid by the Trust to the Advisor during
a fiscal quarter shall be repaid to the Trust. If the Independent Trustees
determine such excess was justified, then within 60 days after the end of any
fiscal quarter of the Trust for which reimbursed Total Operating Expenses for
the Expense Year exceed the 2%/25% Guidelines, the Advisor, at the direction of
the Independent Trustees, shall cause such fact to be disclosed in the next
quarterly report of the Trust or in a separate writing and sent to the
shareholders, together with an explanation of the factors the Independent
Trustees considered in determining that such excess expenses were justified. The
Trust will ensure that such determination will be reflected in the minutes of
the meetings of the Board. All figures used in the foregoing computation shall
be determined in accordance with generally accepted accounting principles
applied on a consistent basis. In addition, the Trust shall not reimburse the
Advisor or its Affiliates for services for which the Advisor and/or its
Affiliates are entitled to compensation in the form of a separate fee.

  

3.05 Statements. The Advisor shall furnish to the Trust not later than the
thirtieth (30th) day following the end of each Fiscal Year, a statement showing
a computation of the fees or other compensation paid or payable to the Advisor
or an Affiliate of the Advisor with respect to such Fiscal Year under Article
III hereof. The final settlement of compensation payable under Article III
hereof for each Fiscal Year shall be subject to adjustments in accordance with,
and upon completion of, the annual audit of the Trust’s financial statements.

 

ARTICLE IV

 

TERM AND TERMINATION

 

4.01 Term; Renewal. Subject to Section 4.02 hereof, this Agreement has a
one-year term and shall continue in force until the first anniversary of the
date hereof. Thereafter, this Agreement may be renewed for an unlimited number
of successive one-year terms upon mutual consent of the parties. It is the
Board’s duty to evaluate the performance of the Advisor annually before renewing
the Agreement, and each such renewal shall be for a term of no more than one
year.

 

 

 

 

 

4.02 Termination. This Agreement may be terminated at the option of either party
(i) immediately upon a Change of Control or (ii) upon 60 days written notice
without cause or penalty (in either case, if termination is by the Trust, then
such termination shall be upon the approval of a majority of the Independent
Trustees). Notwithstanding the foregoing, the provisions of this Agreement which
provide for payment to the Advisor of expenses, fees or other compensation
following the Termination Date (i.e., Section 4.03) shall continue in full force
and effect until all amounts payable thereunder to the Advisor are paid in full.
The provisions of Sections 4.03 through 5.02 shall survive the termination of
this Agreement.

 

4.03 Payments to and Duties of Advisor upon Termination.

 

(a) After the Termination Date, the Advisor shall not be entitled to
compensation for further services hereunder, except it shall be entitled to and
receive from the Trust within 30 days after the effective date of such
termination all unpaid reimbursements of expenses provided for herein, subject
to the provisions of Section 3.04 hereof, and all contingent liabilities related
to fees payable to the Advisor prior to termination of this Agreement, provided
that the Subordinated Incentive Fee, if any, shall be paid in accordance with
the provisions of Section 3.01(d) and the Subordinated Incentive Listing Fee, if
any, shall be paid in accordance with the provisions of Section 3.01(g).

 

(b) The Advisor shall promptly upon termination:

 

(i) pay over to the Trust all money collected and held for the account of the
Trust pursuant to this Agreement, after deducting any accrued compensation and
reimbursement for its expenses to which it is then entitled;

 

(ii) deliver to the Board a full accounting, including a statement showing all
payments collected by it and a statement of all money held by it, covering the
period following the date of the last accounting furnished to the Board;

 

(iii) deliver to the Board all assets, including the Assets, and documents of
the Trust then in the custody of the Advisor; and

 

(iv) cooperate with, and take all reasonable actions requested by, the Trust to
provide an orderly management transition.

 

ARTICLE V

 

INDEMNIFICATION

 

5.01 (a) The Trust shall indemnify and hold harmless the Advisor and its
Affiliates, including their respective officers, directors, trustees, partners
and employees, from all liability, claims, damages or losses arising in the
performance of their duties hereunder, and related expenses, including
reasonable attorneys’ fees, to the extent such liability, claims, damages or
losses and related expenses are not fully reimbursed by insurance, subject to
any limitations imposed by the laws of the State of Maryland and the Declaration
of Trust. The Trust shall not indemnify or hold harmless the Advisor or its
Affiliates, including their respective officers, directors, trustees, partners
and employees, for any liability or loss suffered by the Advisor or its
Affiliates, including their respective officers, directors, trustees, partners
and employees, nor shall it provide that the Advisor or its Affiliates,
including their respective officers, directors, trustees, partners and
employees, be held harmless for any loss or liability suffered by the Trust,
unless all of the following conditions are met: (i) the Advisor or its
Affiliates have determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the Trust; (ii) the
Advisor or its Affiliates, including their respective officers, directors,
trustees, partners and employees, were acting on behalf of or performing
services of the Trust; (iii) such liability or loss was not the result of
negligence or misconduct by the Advisor or its Affiliates, including their
respective officers, directors, trustees, partners and employees; and (iv) such
indemnification or agreement to hold harmless is recoverable only out of the
Trust’s net assets and not from Shareholders. Notwithstanding the foregoing, the
Advisor and its Affiliates, including their respective officers, directors,
trustees, partners and employees, shall not be indemnified by the Trust for any
losses, liability or expenses arising from or out of an alleged violation of
federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee; (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee;
and (iii) a court of competent jurisdiction approves a settlement of the claims
against a particular 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 Securities and Exchange
Commission and of the published position of any state securities regulatory
authority in which securities of the Trust were offered or sold as to
indemnification for violations of securities laws.

 

 

 

 

 

(b) The Trust shall advance funds to the Advisor or its Affiliates, including
their respective officers, directors, trustees, partners and employees, for
legal expenses and other costs incurred as a result of any legal action for
which indemnification is being sought subject to satisfying all of the following
conditions: (i) the legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the Trust; (ii) the legal
action is initiated by a third-party who is not a Shareholder or the legal
action is initiated by a Shareholder acting in his or her capacity as such and a
court of competent jurisdiction specifically approves such advancement; (iii)
the Advisor or its Affiliates undertake to repay the advanced funds to the Trust
together with the applicable legal rate of interest thereon, in cases in which
such Advisor or its Affiliates, including their respective officers, directors,
trustees, partners and employees, are found not to be entitled to
indemnification.

 

(c) Notwithstanding the provisions of this Section 5.01, the Advisor shall not
be entitled to indemnification or be held harmless pursuant to this Section 5.01
for any activity which the Advisor shall be required to indemnify or hold
harmless the Trust pursuant to Section 5.02.

 

5.02 Indemnification by Advisor. The Advisor shall indemnify and hold harmless
the Trust from contract or other liability, claims, damages, taxes or losses and
related expenses including attorneys’ fees, to the extent that (i) such
liability, claims, damages, taxes or losses and related expenses are not fully
reimbursed by insurance and (ii) are incurred by reason of the Advisor’s bad
faith, fraud, misfeasance, misconduct, negligence or reckless disregard of its
duties. The Advisor shall not be held responsible for any action of the Board in
following or declining to follow any advice or recommendation given by the
Advisor.

 

5.03 Internalization of the Advisor. In the event that the Board determines to
internalize any management functions provided by the Advisor or any Affiliates
of the Advisor, neither the Trust nor the Partnership shall pay any compensation
or other remuneration to the Advisor or any Affiliates of the Advisor solely
related to the internalization transaction. The provisions of this Section 5.03
are not intended to limit any other compensation or Distributions the Trust or
Partnership may pay the Advisor in accordance with this Agreement or any other
agreement, including but not limited to the Agreement of Limited Partnership of
UDF V OP, L.P.

 

ARTICLE VI

 

MISCELLANEOUS

 

6.01 Assignment. This Agreement shall not be assigned by the Advisor to a
non-Affiliate. This Agreement may be assigned by the Advisor to an Affiliate
with the approval of the Board, including a majority of the Independent
Trustees. Notwithstanding the foregoing, the Advisor may assign any rights to
receive fees or other payments under this Agreement without obtaining the
approval of the Board. Any other assignment shall be made only with the approval
of a majority of the Board (including a majority of the Independent Trustees).
This Agreement shall not be assigned by the Trust without the consent of the
Advisor, except in the case of an assignment by the Trust to a corporation or
other organization which is a successor to all of the assets, rights and
obligations of the Trust, in which case such successor organization shall be
bound hereunder and by the terms of said assignment in the same manner as the
Trust is bound by this Agreement. This Agreement shall be binding on successors
to the Trust or the Partnership resulting from a Change of Control of the Trust
or the Partnership, and shall likewise be binding upon any successor to the
Advisor.

 

 

 

  

6.02 Relationship of Advisor and Trust. The Trust, the Partnership and the
Advisor are not partners or joint venturers with each other, and nothing in this
Agreement shall be construed to make them such partners or joint venturers or
impose any liability as such on either of them.

 

6.03 Notices. Any notice, report or other communication required or permitted to
be given hereunder shall be in writing unless some other method of giving such
notice, report or other communication is required by the Declaration of Trust,
the Bylaws, or accepted by the party to whom it is given, and shall be given by
being delivered by hand or by overnight mail or other overnight delivery service
to the addresses set forth herein:

 

To the Trustees and to the Trust:

United Development Funding Income Fund V

The United Development Funding Building

1301 Municipal Way, Suite 100

Grapevine, Texas 76051

Attention: Chief Executive Officer

    To the Partnership:

UDF V OP, L.P.

The United Development Funding Building

1301 Municipal Way, Suite 100

Grapevine, Texas 76051

    To the Advisor:

UDFH General Services, L.P.

The United Development Funding Building

1301 Municipal Way, Suite 100

Grapevine, Texas 76051

 

Either party shall, as soon as reasonably practicable, give notice in writing to
the other party of a change in its address for the purposes of this Section
6.03.

 

6.04 Modification. This Agreement shall not be changed, modified, or amended, in
whole or in part, except by an instrument in writing signed by both parties
hereto, or their respective successors or assignees.

 

6.05 Severability. The provisions of this Agreement are independent of and
severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.

 

6.06 Choice of Law; Venue. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of Texas, and venue for
any action brought with respect to any claims arising out of this Agreement
shall be brought exclusively in Dallas County, Texas.

  

6.07 Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing signed by each of the parties
hereto.

 

6.08 Waiver. Neither the failure nor any delay on the part of a party to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of the
same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.

 

 

 

  

6.09 Gender; Number. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.

 

6.10 Headings. The titles and headings of sections and subsections contained in
this Agreement are for convenience only, and they neither form a part of this
Agreement nor are they to be used in the construction or interpretation hereof.

 

6.11 Execution in Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
the counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.

 

6.12 Restrictions on Voting. During the term of this Agreement, including any
extensions or renewals of this Agreement, neither the Advisor nor its Affiliates
shall be permitted to vote any Shares they now own, or hereafter acquire, in any
vote regarding the approval or termination of any contract with the Advisor or
any of its Affiliates. The restrictions on voting of Shares owned by the Advisor
and its Affiliates shall cease and be of no further effect upon termination of
this Agreement.

 

6.13 Time Commitment. The Advisor shall, and shall cause its Affiliates and
their respective employees, officers and agents to, devote to the Trust such
time as shall be reasonably necessary to conduct the business and affairs of the
Trust consistent with the terms of this Agreement. The Trust acknowledges that
the Advisor and its Affiliates and their respective employees, officers and
agents may also engage in activities unrelated to the Trust and may provide
services to Persons other than the Trust or any of its Affiliates.

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement as
of the date and year first above written.

 

  UNITED DEVELOPMENT FUNDING INCOME FUND V         By: /s/ Hollis M. Greenlaw  
    Hollis M. Greenlaw     Chief Executive Officer               UDF V OP, L.P.
        By: United Development Funding Income Fund V   Its General Partner      
        By: /s/ Hollis M. Greenlaw       Hollis M. Greenlaw     Chief Executive
Officer               UDFH General Services, L.P.         By: UDFH GS GenPar,
LLC   Its General Partner         By: UDF Services, LLC   Its Managing Member  
      By: UDF Entity Manager, LLC   Its Managing Member             By: /s/ Todd
F. Etter     Todd F. Etter     Co-CEO