Exhibit 10.23





Exhibit 10.23




SECURITY AGREEMENT




THIS SECURITY AGREEMENT (this “Agreement”) is made and entered into as of January 9, 2009, by
and between Cole REIT III Operating Partnership, LP, a Delaware limited partnership
(“Grantor”), whose address is 2555 East Camelback Road, Suite 400, Phoenix, Arizona 85016,
and Series B, LLC, an Arizona limited liability company (“Lender”), whose address is 2555
East Camelback Road, Suite 400, Phoenix, Arizona 85016.



1. SECURITY INTEREST




Grantor, as collateral security for the payment and performance of the Secured Obligations (as
defined below), hereby grants to Lender a security interest (the “Security Interest”) in
20% of Grantor’s right, title and interest in the limited liability company membership interests of
Cole KO Burnsville MN, LLC, a Delaware limited liability company (the “Cole SPE”), whether
now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located,
together with all of the following, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located: (a) 20% of Grantor’s membership interests, or any
other interest, in the Cole SPE; (b) all rights, benefits and privileges held by Grantor under the
Amended and Restated Limited Liability Company Agreement of Cole KO Burnsville MN, LLC dated as of
January 9, 2009, as it may be amended, modified or restated from time to time, including all voting
rights and rights to receive dividends, distributions and other payments from the Cole SPE; (c) 20%
of proceeds of the above-described property; and (d) all books and records pertaining to the
above-described property, including any computer readable memory and computer hardware or software
necessary to process such memory (collectively, the “Collateral”). Notwithstanding
anything to the contrary contained herein, Lender acknowledges that Series C, LLC, an Arizona
limited liability company (“Series C”), holds a 70% interest in the Collateral pursuant to a
security agreement of even date herewith (the “Series C Security Agreement”), and Series D, LLC, an
Arizona limited liability company (“Series D”), holds a 10% interest in the Collateral pursuant to
a security agreement of even date herewith (the “Series D Security Agreement”). Lender further
acknowledges that it shall have a 20% interest in the Collateral pursuant to this Agreement, that
its interest hereunder shall be a pari passu fractional interest together with those of Series C
and Series D, and that any payments pursuant to the Note (or the promissory notes relating to the
Series C Security Agreement or the Series D Security Agreement) and any recoveries under this
Agreement or pursuant to the Series C Security Agreement and/or the Series D Security Agreement
shall be applied to the account of or distributed to Lender, Series C and Series D on a pari passu
basis in accordance with their respective prorata interests.


 


 









 





2. SECURED OBLIGATIONS




The Collateral shall secure, in such order of priority as Lender may elect, the following
(collectively, the “Secured Obligations”):



(a) payment and performance of all obligations of Grantor under the terms of the Promissory
Note of even date herewith (the “Note”), in the maximum principal amount of $1,862,000, executed by
the Grantor in favor of Lender, together with all extensions, modifications, substitutions or
renewals thereof, or other advances made thereunder;



(b) payment and performance of every obligation, covenant and agreement of Grantor contained
in this Agreement, together with all extensions, modifications, substitutions or renewals hereof;
and



(c) payment and performance of every obligation, covenant and agreement of Grantor and Cole
SPE contained in each of the Loan Documents (as defined in the Note), together with all extensions,
modifications, substitutions or renewals thereof.



3. REPRESENTATIONS AND WARRANTIES OF GRANTOR





Grantor hereby represents and warrants to Lender that:



3.1 Other Agreements. The execution, delivery and performance by Grantor of this
Agreement and all other documents and instruments relating to the Secured Obligations will not
result in any breach of the terms and conditions or constitute a default under any agreement or
instrument under which Grantor is a party or is obligated.



3.2 Priority. The Security Interest in the Collateral granted to Lender constitutes,
and hereafter will constitute, a security interest of first priority.



3.3 Title. Grantor is the owner of, and has good title to, the Collateral free of all
security interests or other encumbrances, and no financing statement covering the Collateral is
filed or recorded in any public office.



3.4 Authority. Grantor has the full power, authority and legal right to grant to
Lender the Security Interest, and no further consent, authorization, approval or other action is
required for the grant of the Security Interest or for Lender’s exercise of its rights and remedies
under this Agreement, except as may be required in connection with the sale of the Collateral by
Lender by the laws affecting the offering and sale of securities.



3.5 State of Organization; Name. Grantor is organized under the laws of the State of
Delaware and the exact legal name of Grantor is “Cole REIT III Operating Partnership, LP”.



4. COVENANTS OF GRANTOR




4.1 Transfers. Grantor shall not sell, transfer, assign or otherwise dispose of any
Collateral or any interest therein (except as permitted herein) without obtaining the prior written
consent of Lender and shall keep the Collateral free of all security interests or other
encumbrances.



4.2 Payments of Charges. Grantor shall pay when due all taxes, assessments and other
charges which may be levied or assessed against the Collateral.


 


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4.3 Notice to Lender. Grantor shall give Lender 45 days’ prior written notice of any
change of the names under which it does business or the state of its organization.



4.4 Defense of Collateral. Grantor, at its cost and expense, shall protect and defend
this Agreement, all of the rights of Lender hereunder, and the Collateral against all claims and
demands of other parties, including defenses, setoffs, claims and counterclaims asserted by any
Obligor against Grantor and/or Lender. Grantor shall pay all claims and charges that in the
reasonable opinion of Lender might prejudice, imperil or otherwise affect the Collateral or the
Security Interest.



4.5 Perfection of Security Interest. The Security Interest, at all times, shall be
perfected and shall be prior to any other interests in the Collateral. Grantor shall act and
perform as necessary and shall execute and file all security agreements, financing statements,
continuation statements, control agreements, and other documents requested by Lender to establish,
maintain and continue the perfected Security Interest. Grantor further authorizes Lender to file
an initial financing statement, including all necessary amendments, without any signature of
Grantor, to perfect the Security Interest in the Collateral. Grantor, on written demand, shall
promptly pay all costs and expenses of filing and recording, including the costs of any searches,
deemed necessary by Lender from time to time to establish and determine the validity and the
continuing priority of the Security Interest.



4.6 Payment of Charges. If Grantor fails to pay any taxes, assessments, expenses or
charges, or fails to keep all of the Collateral free from other security interests, encumbrances or
to perform otherwise as required herein, Lender may advance the monies necessary to pay the same or
to so perform.



5. EVENTS OF DEFAULT; REMEDIES




5.1 Events of Default. The occurrence of any of the following events or conditions
shall constitute an “Event of Default”:



(i) Any failure to pay any principal or interest or any other part of the Secured Obligations
when the same shall become due and payable.



(ii) The Failure of Grantor to comply with any term or provision of this Agreement.



(iii) The occurrence of an “Event of Default” under and as defined in the Note or any of the
other Loan Documents.



5.2 Remedies. Upon the occurrence of any Event of Default, and at any time while such
Event of Default is continuing, Lender shall have the following rights and remedies and may do one
or more of the following:



(i) Declare all or any part of the Secured Obligations to be immediately due and payable, and
the same, with all costs and charges, shall be collectible thereupon by action at law.


 


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(ii) Without further notice or demand and without legal process, take possession of the
Collateral wherever found and, for this purpose, enter upon any property occupied by or in the
control of Grantor. Grantor, upon demand by Lender, shall assemble the Collateral and deliver it
to Lender or to a place designated by Lender that is reasonably convenient to both parties.



(iii) Pursue any legal or equitable remedy available to collect the Secured Obligations, to
enforce its title in and right to possession of the Collateral and to enforce any and all other
rights or remedies available to it.



(iv) Upon obtaining possession of the Collateral or any part thereof, after written notice to
Grantor as provided in Section 5.4 hereof, sell such Collateral at public or private sale
either with or without having such Collateral at the place of sale. The proceeds of such sale,
after deducting therefrom all reasonable expenses of Lender in taking, storing, repairing and
selling the Collateral (including attorneys’ fees) shall be applied to the payment of the Secured
Obligations, and any surplus thereafter remaining shall be paid to Grantor or any other person that
may be legally entitled thereto. In the event of a deficiency between such net proceeds from the
sale of the Collateral and the total amount of the Secured Obligations, Grantor, upon demand, shall
promptly pay the amount of such deficiency to Lender.



5.3 Purchase of Collateral. Lender, so far as may be lawful, may purchase all or any
part of the Collateral offered at any public or private sale made in the enforcement of Lender’s
rights and remedies hereunder.



5.4 Notice. Any demand or notice of sale, disposition or other intended action
hereunder or in connection herewith, whether required by the Uniform Commercial Code or otherwise,
shall be deemed to be commercially reasonable and effective if such demand or notice is given to
Grantor at least ten days prior to such sale, disposition or other intended action, in the manner
provided herein for the giving of notices.



5.5 Costs and Expenses. Grantor shall pay all reasonable costs and expenses of
Lender, including costs of uniform commercial code searches, court costs and reasonable attorneys’
fees, incurred by Lender in enforcing payment and performance of the Secured Obligations or in
exercising the rights and remedies of Lender hereunder. All such reasonable costs and expenses
shall be secured by this Agreement and by other lien and security documents securing the Secured
Obligations. In the event of any court proceedings, court costs and attorneys’ fees shall be set
by the court and not by jury and shall be included in any judgment obtained by Lender.



5.6 Additional Remedies. In addition to any remedies provided herein for an Event of
Default, Lender shall have all the rights and remedies afforded a secured party under the Uniform
Commercial Code and all other legal and equitable remedies allowed under applicable law. No
failure on the part of Lender to exercise any of its rights hereunder arising upon any Event of
Default shall be construed to prejudice its rights upon the occurrence of any other or subsequent
Event of Default. No delay on the part of Lender in exercising any such rights shall be construed
to preclude it from the exercise thereof at any time while that Event of Default is continuing.
Lender may enforce any one or more rights or remedies hereunder successively or
concurrently. By accepting payment or performance of any of the Secured Obligations after its
due date, Lender shall not thereby waive the agreement contained herein that time is of the
essence, nor shall Lender waive either its right to require prompt payment or performance when due
of the remainder of the Secured Obligations or its right to consider the failure to so pay or
perform an Event of Default.


 


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6. MISCELLANEOUS PROVISIONS




6.1 Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, with full power of substitution to do the following: (i) to demand, collect,
receive, receipt for, sue and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (ii) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the
Collateral; (ii) to settle or compromise any and all claims arising under the Collateral, and, in
the place and stead of Grantor to execute and deliver its release and settlement for the claim;
(iv) to file any claim or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or otherwise, which in the
reasonable discretion of Lender may seem to be necessary or advisable; and (v) to execute any
documents necessary to perfect or continue the Security Interest; provided, however, that the
powers specified in clauses (i) through (iv) may not be exercised by Lender except during the
continuance of an Event of Default. This power is a power coupled with an interest and is given as
security for the Secured Obligations, and the authority hereby conferred is and shall be
irrevocable and shall remain in full force and effect until renounced by Lender.



6.2 Actions by Lender. Without notice or demand, without affecting the obligations of
Grantor hereunder, and without affecting the Security Interest or the priority thereof, Lender,
from time to time, may: (i) extend the time for payment of all or any part of the Secured
Obligations, accept a renewal note therefor, reduce the payments thereon, release any person liable
for all or any part thereof, or otherwise change the terms of all or any part of the Secured
Obligations; (ii) take and hold other security for the payment or performance of the Secured
Obligations and enforce, exchange, substitute, subordinate, waive or release any such security;
(iii) join in any extension or subordination agreement; or (iv) release any part of the Collateral
from the Security Interest.



6.3 Waivers. Grantor waives and agrees not to assert: (i) any right to require
Lender to proceed against any guarantor, to proceed against or exhaust any other security for the
Secured Obligations, to pursue any other remedy available to Lender, or to pursue any remedy in any
particular order or manner; (ii) the benefits of any legal or equitable doctrine or principle of
marshalling; (iii) the benefits of any statute of limitations affecting the enforcement hereof;
(iv) demand, diligence, presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand and nonpayment, relating to the Secured Obligations; and (v) any benefit
of, and any right to participate in, any other security now or hereafter held by Lender.



6.4 Governing Law. This Agreement shall be construed in accordance with and governed
by the laws of the State of Arizona, without regard to the choice of law rules of the State of
Arizona.


 


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6.5 Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but such counterparts shall together constitute but one and the
same agreement.



6.6 Entire Agreement. This Agreement contains the entire agreement and understanding
of the parties with respect to the subject matter hereof, supersedes all other prior
understandings, oral or written, with respect to the subject matter hereof, and are intended by
Lender and Grantor as the final, complete and exclusive statement of the terms agreed to by them.



6.7 Amendments. No amendment, modification, change, waiver, release or discharge
hereof and hereunder shall be effective unless evidenced by an instrument in writing and signed by
the party against whom enforcement is sought.



6.8 Section Headings. The section headings set forth in this Agreement are for
convenience only and shall not have substantive meaning hereunder or be deemed part of this
Agreement.



6.9 Time of Essence. Time is of the essence of this Agreement and each and every
provision hereof.



6.10 Severability. If any provision hereof is invalid or unenforceable, the other
provisions hereof shall remain in full force and effect and shall be liberally construed in favor
of Lender in order to effectuate the other provisions hereof.



6.11 Binding Nature. The provisions of this Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their heirs, personal representatives,
successors and assigns. The provisions hereof shall apply to the parties according to the context
thereof and without regard to the number or gender of words or expressions used.



6.12 Construction. This Agreement shall be construed as a whole, in accordance with
its fair meaning, and without regard to or taking into account any presumption or other rule of law
requiring construction against the party preparing this Agreement. As used here, the words
“include(s)” means “include(s), without limitation,” and the word “including” means “including, but
not limited to.”



6.13 Notices. Any notice or other communication with respect to this Agreement shall:
(a) be in writing; (b) be effective on the day of hand-delivery thereof to the party to whom
directed, one day following the day of deposit thereof with delivery charges prepaid, with a
national overnight delivery service, or two days following the day of deposit thereof with postage
prepaid, with the United States Postal Service, by regular first class, certified or registered
mail; (c) if directed to Lender, be addressed to Lender at the office of Lender set forth above, or
to such other address as Lender shall have specified to Grantor by like notice; and (d) if directed
to Grantor, be addressed to Grantor at the address for Grantor set forth above, or to such other
address as Grantor shall have specified by like notice.


 


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IN WITNESS WHEREOF, this Agreement was executed by Grantor and Lender as of the date first set
forth above.



	 	 	 	 	 	 	 	 	 
	 	 	“GRANTOR”	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	COLE REIT III OPERATING PARTNERSHIP, LP,

a Delaware limited partnership	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Cole Credit Property Trust III, Inc., 
a Maryland
corporation, its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ D. Kirk McAllaster, Jr	 	 
	 

	 	 	 	 	 	 

Name: D. Kirk McAllaster, Jr.

Title:   Executive Vice President
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	“LENDER”	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	SERIES B, LLC, an Arizona limited liability company	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	/s/ John M. Pons	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Name: John M. Pons

Title:   Authorized Officer	 	 







 


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