passco_s11-ex1002.htm


    
      
        

      

    

    Exhibit 10.2


    


     

    


    AMENDED
AND RESTATED

    ADVISORY
AGREEMENT

    


    by and
among

    


    PASSCO
APARTMENT REIT, INC.

    


    and

    


    PASSCO
ADVISORS, LLC

    


    


    


     

    


    October
1, 2009

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE OF
CONTENTS

     

    
      
        	 	Page 
	SECTION 1
      DEFINITIONS	1
	 	 	 
	SECTION 2
      APPOINTMENT 	6
	 	 	 
	SECTION 3 DUTIES OF
      THE ADVISOR	6
	3.01.	Organizational and
      Offering Services  	7
	3.02.	Acquisition and
      Origination Services.   	7
	3.03.	Asset Management
      Services.  	7
	3.04.	Stockholder
      Services.   	9
	3.05.	Other
      Services  	9
	 	 	 
	SECTION 4 AUTHORITY
      OF ADVISOR	9
	4.01.	Powers of the
      Advisor  	9
	4.02.	Approval by the
      Board 	9
	4.03.	Modification or
      Revocation of Authority of Advisor  	10
	 	 	 
	SECTION 5 BANK
      ACCOUNTS	10
	 	 	 
	SECTION 6 RECORDS
      AND FINANCIAL STATEMENTS	10
	 	 	 
	SECTION 7 LIMITATION
      ON ACTIVITIES	10
	 	 	 
	SECTION 8
    FEES	11
	8.01.	Acquisition
      Fees 	11
	8.02.	Origination
      Fees 	11
	8.03.	Asset Management
      Fee 	12
	8.04.	Disposition
      Fees  	12
	8.05.	Bridge Loan
      Financing Fee  	12
	8.06.	Permanent Financing
      Fee	12
	8.07.	Operating
      Partnership Interests  	13
	8.08.	Fee for Other
      Services  	13
	 	 	 
	SECTION 9
      EXPENSES	13
	9.01.	General	13
	9.02. 	Timing of and
      Additional Limitations on Reimbursements	14
	 	 	 
	
                SECTION 10 RELATIONSHIP OF ADVISOR AND COMPANY;
      OTHER ACTIVITIES OF THE ADVISOR  

              	 15
	10.01.	Relationship	15
	10.02.	Time
      Commitment 	15
	10.03.	Investment
      Opportunities and Allocation 	15
	 	 	 
	SECTION 11 BUSINESS
      COMBINATION	15
	11.01.	Business Combination
      between PAR and Advisor 	15


      

       

      
        
          
          

        

        
          (i)

          
            

          

        

        
          
          

        

      

       

      
        	11.02.	Conditions to
      Completion of Business Combination	16
	 	 	 
	SECTION 12 THE
      PASSCO NAME	16
	 	 	 
	SECTION 13 TERM AND
      TERMINATION OF THE AGREEMENT 	17
	13.01.	Term 	17
	13.02.	Termination by
      Either Party	17
	13.03.	Payments on
      Termination and Survival of Certain Rights and Obligation	17
	 	 	 
	SECTION 14
      ASSIGNMENT	17
	 	 	 
	SECTION 15
      INDEMNIFICATION AND LIMITATION OF LIABILITY	18
	15.01.	In General 
      	18
	15.02.	Conditions to
      Indemnification  	18
	15.03.	Limitations on
      Indemnification 	18
	15.04.	Conditions to
      Payment of Expenses  	19
	 	 	 
	SECTION 16
      MISCELLANEOUS	19
	16.01.	Notices	19
	16.02.	Modification	20
	16.03.	Severability 
      	20
	16.04.	Construction 	20
	16.05.	Entire
      Agreement  	20
	16.06.	Waiver 	20
	16.07.	Gender 	20
	16.08.	Titles Not to Affect
      Interpretation 	20
	16.09.	Counterparts 	21


      

    

     

     

    
      
        
        

      

      
        (ii)

        
          

        

      

      
        
        

      

    

    
       


    

    
      AMENDED
AND RESTATED

    

    ADVISORY
AGREEMENT

     

    This
Amended and Restated Advisory Agreement, dated as of October 1, 2009 (the
“Agreement”), is between Passco Apartment REIT, Inc., a Maryland corporation
(“PAR”), Passco Apartment REIT Operating Partnership, LP, a Delaware limited
partnership (the “Operating Partnership”), and Passco Advisors, LLC, a
California limited liability company (the “Advisor”).  PAR, the
Operating Partnership and their subsidiaries are collectively referred to herein
as the “Company.”

     

    W I T N E
S S E T H

    


    WHEREAS,
the parties wish to amend and restate the original Advisory Agreement dated June
8, 2009; and

     

    NOW,
THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:

     

    SECTION
1

    DEFINITIONS

     

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

     

    “Acquisition
Expenses” means any and all expenses, excluding Acquisition Fees, incurred by
the Company, the Advisor or any Affiliate of either in connection with the
selection, acquisition, origination or development of any Investment or Loan,
whether or not acquired, including, without limitation, legal fees and expenses,
travel and communications expenses, costs of appraisals, nonrefundable option
payments on Investments and Loans not acquired or originated, accounting fees
and expenses and title insurance premiums.

     

    “Acquisition
Fees” means the fees payable to the Advisor pursuant to Sections 8.01 and 8.02
plus all other fees and commissions, excluding Acquisition Expenses, paid by any
Person to any other Person (including any fees or commissions paid by or to any
Affiliate of the Company or the Advisor) in connection with the purchase,
origination, development or construction of any Investment or Loan by the
Company, including real estate commissions, selection fees, Development Fees,
Construction Fees, nonrecurring management fees, loan fees, points or any other
fees of a similar nature.  Acquisition Fees do not include Development
Fees and Construction Fees paid to any Person not Affiliated with the Advisor in
connection with the actual development and construction of a
Property.

     

    “Advisor”
means (i) Passco Advisors, LLC, a California limited liability company, or (ii)
any successor advisor to the Company.

     

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

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Appraised
Value” means the value according to an appraisal made by an Independent
Appraiser.

     

    “Asset
Management Fee” shall have the meaning set forth in Section 8.03.

     

    “Average
Invested Assets” means, for a specified period, the average of the aggregate
book value of the assets of the Company invested, directly or indirectly, in
Investments and Originated Loans before deducting depreciation, bad debts or
other non-cash reserves, computed by taking the average of such values at the
end of each month during such period.

     

    “Board”
means the board of directors of PAR, as of any particular time.

     

    “Bridge
Loan” means a loan obtained by the Company during an Offering to acquire or
originate Investments or Loans in advance of raising the necessary funds for
such Investment or Loan from the Offering, which is intended to be repaid from
the net proceeds of the Offering as they become available.

     

    “Bylaws”
means the bylaws of PAR, as amended from time to time.

     

    “Charter”
means the articles of incorporation of PAR, as amended from time to
time.

     

    “Code”
means the 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.

     

    “Company”
means, collectively, Passco Apartment REIT, Inc., a Maryland corporation, Passco
Apartment REIT Operating Partnership, LP, a Delaware limited partnership, and
any of their subsidiaries.

     

    “Competitive
Real Estate Commission” means a real estate or brokerage commission paid for the
purchase or sale of property that is reasonable, customary and competitive in
light of the size, type and location of the property.

     

    “Conflicts
Committee” shall have the meaning set forth in PAR’s Charter.

     

    “Construction
Fee” means a fee or other remuneration for acting as general contractor and/or
construction manager to construct improvements, supervise and coordinate
projects or provide major repairs or rehabilitation on a Property.

     

    “Contract
Sales Price” means the total consideration received by the Company for the sale
of an Investment or Loan.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Cost of
Investments and Loans” means the sum of (i) with respect to Investments or Loans
wholly owned, directly or indirectly, by the Company, the purchase price of the
Investments (inclusive of any development costs, construction costs and any debt
assumed in connection with the acquisition) and the amount of any Loan
originated and (ii) in the case of Investments or Loans owned by any Joint
Venture or any partnership in which the Company is a partner, the portion of the
purchase price of the Investments (inclusive of any development costs,
construction costs and any debt assumed in connection with the acquisition) and
the amount of any Loan originated that is attributable to the Company’s
investment in the Joint Venture or partnership.

     

    “Dealer
Manager” means (i) PASSCO Capital, Inc., a California corporation, or (ii) any
successor dealer manager to the Company.

     

    “Development
Fee” means a fee for the packaging of a Property, including the negotiation and
approval of plans, and any assistance in obtaining zoning and necessary
variances and financing for a specific Property, either initially or at a later
date.

     

    “Director”
means a member of the board of directors of PAR.

     

    “Disposition
Fee” shall have the meaning set forth in Section 8.04.

     

    “Distributions”
means any distributions of money or other property by PAR to owners of Shares,
including distributions that may constitute a return of capital for federal
income tax purposes.

     

    “GAAP”
means accounting principals generally accepted in the United
States.

     

    “Gross
Proceeds” means the aggregate purchase price of all Shares sold for the account
of PAR through an Offering, without deduction for Selling Commissions, volume
discounts, any marketing support and due diligence expense reimbursement 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 the Dealer Manager or a Soliciting Dealer (where net
proceeds to PAR are not reduced) shall be deemed to be the full amount of the
offering price per Share pursuant to the prospectus or private placement
memorandum for such Offering without reduction.

     

    “Independent
Appraiser” means a Person with no material current or prior business or personal
relationship with the Advisor or the Directors, who is engaged to a substantial
extent in the business of rendering opinions regarding the value of assets of
the type held by the Company.  Membership in a nationally recognized
appraisal society such as the American Institute of Real Estate Appraisers
(M.A.I.) or the Society of Real Estate Appraisers (S.R.E.A.) shall be conclusive
evidence of such qualification.

     

    “Investments”
means any investments by the Company in Property and Other Real Estate Related
Assets.

     

    “Joint
Venture” means any joint venture, limited liability company or other Affiliate
of the Company that owns, in whole or in part, on behalf of the Company any
Investments or Originated Loans.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Listed”
or “Listing” shall have the meaning set forth in PAR’s Charter.

     

    “Loans”
means mortgage loans and other types of debt financing secured by an interest in
real property, including, without limitation, mezzanine loans, B-notes, bridge
loans, convertible mortgages, wraparound mortgage loans, construction mortgage
loans, loans on leasehold interests, and participations in such
loans.

     

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

     

    “Net
Income” means, for any period, the total revenues applicable to such period,
less the total expenses applicable to such period other than additions to
reserves for depreciation, bad debts or other similar non-cash reserves;
provided, however, Net Income for purposes of calculating total allowable
Operating Expenses (as defined herein) shall exclude the gain from the sale of
the Company’s assets.

     

    “Offering”
means any offering of Shares for sale by the Company, excluding Shares offered
under any employee benefit plan, whether such offering is a public offering or a
private placement.

     

    “Operating
Expenses” means all costs and expenses paid or incurred by the Company, as
determined under GAAP, that are in any way related to the operation of the
Company or to Company business, including fees paid to the Advisor, but
excluding (i) the expenses of raising capital such as Organization and Offering
Expenses, legal, audit, accounting, underwriting, brokerage, listing,
registration, and other fees, printing and other such expenses and taxes
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 loan reserves, (v)
incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and
(vi) Acquisition Fees and Acquisition Expenses, (vii)  real estate
commissions on the Sale of Property, and (viii) other fees and expenses
connected with the acquisition, disposition, management and ownership of real
estate interests, loans or other property (including the costs of foreclosure,
insurance premiums, legal services, maintenance, repair and improvement of
property).

     

    “Operating
Partnership” means Passco Apartment REIT Operating Partnership, LP, a Delaware
limited partnership formed to own Investments and Loans on behalf of the
Company.

     

    “Organization
and Offering Expenses” means all expenses incurred by or on behalf of the
Company in connection with the formation of the Company or in connection with an
Offering, and the marketing and distribution of Shares, whether incurred before
or after the date of this Agreement, including, without limitation, total
underwriting and brokerage discounts and commissions (including fees of the
underwriters’ attorneys), any expense allowance granted by the Company to the
underwriter or any reimbursement of expenses of the underwriter by the Company,
expenses for printing, engraving and amending registration statements or private
placement memoranda or supplementing prospectuses or private placement
memoranda, mailing and distributing 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, depositories and experts and fees, expenses and taxes relating
to the filing, registration and qualification of the sale of the Shares under
federal and state laws, including taxes and fees and accountants’ and attorneys’
fees.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    “Originated
Loans” means Loans originated by the Company or a Joint Venture, rather than
Loans acquired by the Company or a Joint Venture.

     

    “Origination
Fees” means the fee payable to the Advisor pursuant to Section 8.02 plus all
other fees and commissions, excluding Acquisition Expenses, paid by any Person
to any Person in connection with making or investing in any Loan by the
Company.

     

    “Other
Real Estate-Related Assets” means any investments by the Company in (i) any Loan
not constituting an Originated Loan, (ii) real estate securities such as common
stocks, preferred stocks and options to acquire stock in REITs and other real
estate companies and (iii) debt and derivative securities related to real estate
assets including mortgage-backed securities, collateralized debt obligations,
debt securities issued by real estate companies and credit default
swaps.

     

    “Person”
means an individual, corporation, partnership, estate, trust (including a trust
qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the purposes described
in Section 642(c) of the Code, association, private foundation within the
meaning of Section 509(a) of the Code, joint stock company or other entity, or
any government or any agency or political subdivision thereof, and also includes
a group as that term is used for purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.

     

    “Property”
means any real property or properties transferred or conveyed to the Company or
the Partnership, either directly or indirectly, including through ownership
interests in a Joint Venture or partnership.

     

    “Property
Manager” means an entity that has been retained to perform and carry out at one
or more of the Properties property-management services, excluding persons,
entities or independent contractors retained or hired to perform facility
management or other services or tasks at a particular Property, the costs for
which are passed through to and ultimately paid by the tenant at such
Property.

     

    “REIT”
means a “real estate investment trust” under Sections 856 through 860 of the
Code.

     

    “Sale”
means (i) any transaction or series of transactions whereby: (A) the Company
sells, grants, transfers, conveys, or relinquishes its ownership of any
Investment or Originated Loan or portion thereof, including the transfer of any
Property that is the subject of a ground lease, and including any event with
respect to any Investment or Originated Loan that gives rise to a significant
amount of insurance proceeds or condemnation awards; (B) the Company sells,
grants, transfers, conveys, or relinquishes its ownership of all or
substantially all of the interest of the Company in any Joint Venture or any
partnership in which it is a partner; or (C) any Joint Venture or any
partnership in which the Company is a partner, sells, grants, transfers,
conveys, or relinquishes its ownership of any Investment or Originated Loan or
portion thereof, including any event with respect to any Investment or
Originated Loan that gives rise to insurance claims or condemnation awards, but
(ii) not including any transaction or series of transactions specified in clause
(i) (A), (i) (B), or (i) (C) above in which the proceeds of such transaction or
series of transactions are reinvested in one or more Investments or Originated
Loans within 180 days thereafter.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “SEC”
means the United States Securities and Exchange Commission.

     

    “Selling
Commissions” mean any and all commissions payable to underwriters, dealer
managers or other broker-dealers in connection with the sale of Shares,
including, without limitation, commissions payable to the Dealer
Manager.

     

    “Shares”
means shares of common stock of PAR, par value $.01 per share.

     

    “Soliciting
Dealers” means those broker-dealers that are members of the Financial Industry
Regulatory Authority, or that are exempt from broker-dealer registration, and
that, in either case, enter into participating broker or other agreements with
the Dealer Manager to sell Shares.

     

    “Stockholders”
means the registered holders of the Shares.

     

    “Subscription
Processing Fee” shall have the meaning set forth in Section 8.07.

     

    “Termination
Date” means the date of termination of the Agreement determined in accordance
with Section 13.

     

    “Third-Party
Development Fees” means development fees, construction fees and other similar
fees paid to any Person not affiliated with the Advisor in connection with the
development or construction of a Property.

     

    “2%/25%
Guidelines” means the requirement pursuant to the NASAA Guidelines that, in any
period of four consecutive fiscal quarters, total Operating Expenses not exceed
the greater of 2% of the Company’s Average Invested Assets during such 12-month
period or 25% of the Company’s Net Income over the same 12-month
period.

     

    SECTION
2

    APPOINTMENT

     

    The
Company hereby appoints the Advisor to serve as its advisor and asset manager on
the terms and conditions set forth in this Agreement, and the Advisor hereby
accepts such appointment.

     

    SECTION
3

    DUTIES OF
THE ADVISOR

     

    The
Advisor is responsible for managing, operating, directing and supervising the
operations and administration of the Company and its assets.  The
Advisor undertakes to use commercially reasonable efforts to present to the
Company potential investment opportunities and to provide the Company with a
continuing and suitable investment program consistent with the investment
objectives and policies of the Company as determined and adopted from time to
time by the Board.  Subject to the limitations set forth in this
Agreement, including Section 4, and the continuing and exclusive authority of
the Board over the management of the Company, the Advisor shall, either directly
or by engaging an Affiliate or third party, perform the following
duties:

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    3.01  Organizational and Offering
Services.  The
Advisor shall perform all services related to the organization of the Company or
any Offering of the Company’s securities, other than services that (i) are to be
performed by the Dealer Manager, (ii) the Company elects to perform directly or
(iii) would require the Advisor to register as a broker-dealer with the SEC or
any state.

     

    3.02.  Acquisition and Origination
Services.

     

    (i)   Serve as
the Company’s investment and financial advisor;

     

    (ii)   Subject
to Section 4 and the investment objectives and policies of the Company: (a)
locate, analyze and select potential Investments and Originated Loans; (b)
structure and negotiate the terms and conditions of Investments and Originated
Loans; (c) acquire Investments and originate Loans on behalf of the Company; and
(d) arrange for financing and refinancing and make other changes in the asset or
capital structure of Investments and Originated Loans.

     

    (iii)   When
reasonably requested, provide the Board with reports regarding prospective
investments;

     

    (iv)   Deliver
to or maintain on behalf of the Company copies of all appraisals obtained in
connection with the Company’s Investments and Originated Loans; and

     

    (v)   Negotiate
and execute approved Investments and Originated Loans.

     

    3.03.  Asset Management
Services.

     

    (i)   Real
Estate and Related Services:

     

    (a)   Select
and, on behalf of the Company, engage and conduct business with (including enter
contracts with) such Persons as the Advisor deems necessary to the proper
performance of its obligations as set forth in this Agreement, including but not
limited to consultants, accountants, lenders, technical advisors, attorneys,
brokers, underwriters, corporate fiduciaries, escrow agents, depositaries,
custodians, agents for collection, insurers, insurance agents, developers,
construction companies, Property Managers and any and all Persons acting in any
other capacity deemed by the Advisor necessary or desirable for the performance
of any of the foregoing services;

     

    (b)   Negotiate
and service the Company’s debt facilities and other financings;

     

    (c)   Monitor
and evaluate the performance of each asset of the Company and the Company’s
overall portfolio of assets and, where appropriate, obtain reports (which may be
prepared by the Advisor or its Affiliates) concerning the value of the
Investments and Originated Loans of the Company,

     

    (d)   Consult
with PAR’s officers and the Board and assist the Board in the formulation and
implementation of the Company’s strategies for the administration, promotion,
management, operation, maintenance, improvement, financing and refinancing,
marketing, leasing and disposition of Investments and Originated Loans on an
overall portfolio basis;

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (e)   Oversee
the performance by the Property Managers of their duties, including collection
and proper deposits of rental payments and payment of Property expenses and
maintenance;

     

    (f)   Coordinate
and manage relationships between the Company and any Joint Venture partners;
and

     

    (ii)   Accounting
and Other Administrative Services:

     

    (a)   Provide
the day-to-day management of the Company and perform and supervise the various
administrative functions reasonably necessary for the management of the
Company;

     

    (b)   At any
time reasonably requested by the Board, make reports to the Board on the
Advisor’s performance of services to the Company under this
Agreement;

     

    (c)   Provide
or arrange for any administrative services and items, legal and other services,
office space, office furnishings, personnel and other overhead items necessary
and incidental to the Company’s business and operations;

     

    (d)   Maintain
accounting and other record-keeping functions at the Company and investment
levels, including information concerning the activities of the Company as shall
be required to prepare and to file all periodic financial reports, tax returns
and any other information required to be filed with the SEC, the Internal
Revenue Service and any other regulatory agency;

     

    (e)   Maintain
and preserve all appropriate books and records of the Company;

     

    (f)   Provide
tax and compliance services and coordinate with appropriate third parties,
including the Company’s independent auditors and other consultants, on related
tax matters;

     

    (g)   Provide
the Company with all necessary cash management services;

     

    (h)   Manage
and coordinate with the transfer agent the monthly dividend process and payments
to Stockholders;

     

    (i)   Consult
with PAR’s officers and the Board and assist the Board in evaluating and
obtaining adequate insurance coverage based upon risk management
determinations;

     

    (j)   Consult
with PAR’s officers and the Board relating to, and assist in implementing,
corporate governance structure and appropriate policies and procedures in
compliance with applicable regulatory structures, including but not limited to
compliance with the Sarbanes-Oxley Act of 2002, if applicable;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

     

    (l)   Notify
the Board of all proposed material transactions before they are completed;
and

     

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

     

    3.04.   Stockholder
Services.

     

    (i)   Manage
services for and communications with Stockholders, including answering phone
calls, preparing and sending written and electronic reports and other
communications;

     

    (ii)   Oversee
the performance of the transfer agent and registrar;

     

    (iii)   Establish
technology infrastructure to assist in providing Stockholder support and
service; and

     

    (iv)   Consistent
with Section 3.01, the Advisor shall perform the various subscription processing
services reasonably necessary for the admission of new
Stockholders.

     

    3.05.   Other
Services.  Except
as provided in Section 7, the Advisor shall perform any other services
reasonably requested by the Board, and such services shall be separately
compensated at such rates and in such amounts as are agreed by the Advisor and
the Conflicts Committee, subject to the limitations contained in the
Charter,

     

    SECTION
4

    AUTHORITY
OF ADVISOR

     

    4.01.   Powers of the
Advisor.  Pursuant
to the terms of this Agreement (including the restrictions included in this
Section 4 and in Section 7), and subject to the continuing and exclusive
authority of the Directors over the management of the Company, the Directors
hereby delegate to the Advisor the authority to perform the services described
in Section 3.  The Advisor shall have the power to delegate all or any
part of its rights and powers to manage and control the business and affairs of
the Company to such officers, employees, Affiliates, agents and representatives
of the Advisor or the Company as it may deem appropriate.  Any
authority delegated by the Advisor to any other Person shall be subject to the
limitations on the rights and powers of the Advisor specifically set forth in
this Agreement or the Charter.

     

    4.02.   Approval by the
Board.  Notwithstanding
the foregoing, the Advisor may not take any action on behalf of the Company
without the prior approval of the Board or duly authorized committees thereof if
the Charter or Maryland General Corporation Law require the prior approval of
the Board.  The acquisition or disposition of any Investment and the
origination of any Loan, including any financing of such Investment or Loan,
will require the prior approval of the Board, any particular Directors specified
by the Board or any committee of the Board, as the case may be.  The
prior approval of a majority of the Conflicts Committee and a majority of the
Directors not otherwise interested in the transaction will be required for each
transaction to which the Advisor or its Affiliates is a party.

     

    
      
        
        

      

      
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    4.03.   Modification or Revocation
of Authority of Advisor.  The
Board may, at any time upon the giving of notice to the Advisor, modify or
revoke the authority or approvals set forth in Section 3 and this Section 4;
provided, however, that such modification or revocation shall be effective upon
receipt by the Advisor and shall not be applicable to investment transactions to
which the Advisor has committed the Company prior to the date of receipt by the
Advisor of such notification.

     

    SECTION
5

    BANK
ACCOUNTS

     

    The
Advisor may establish and maintain one or more bank accounts in its own name for
the account of the Company or in the name of the Company 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 Company, under such terms and conditions as
the Board may approve, provided that no funds shall be commingled with the funds
of the Advisor.  The Advisor shall from time to time render
appropriate accountings of such collections and payments to the Board and the
independent auditors of the Company.

     

    SECTION
6

    RECORDS
AND FINANCIAL STATEMENTS

     

    The
Advisor, in the conduct of its responsibilities to the Company, shall maintain
adequate and separate books and records for the Company’s operations in
accordance with GAAP, which shall be supported by sufficient documentation to
ascertain that such books and records are properly and accurately
recorded.  Such books and records shall be the property of the Company
and shall be available for inspection by the Board and by counsel, auditors and
other authorized agents of the Company, 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 Company’s assets from theft, error or
fraudulent activity.  All financial statements that the Advisor
delivers to the Company shall be prepared on an accrual basis in accordance with
GAAP, except for special financial reports that by their nature require a
deviation from GAAP.  The Advisor shall cooperate with the Company’s
officers and independent auditors and shall provide such officers and auditors
with the reports and other information that they reasonably request, subject to
the direction of the Board.

     

    SECTION
7

    LIMITATION
ON ACTIVITIES

     

    Notwithstanding
any provision in this Agreement to the contrary, the Advisor shall not take any
action that, in its sole judgment made in good faith, would (i) adversely affect
the ability of the PAR to qualify or continue to qualify as a REIT under the
Code, (ii) subject the Company to regulation under the Investment Company Act of
1940, as amended, (iii) violate any law, rule, regulation or statement of policy
of any governmental body or agency having jurisdiction over the Company, its
Shares or its other securities, (iv) require the Advisor to register as a
broker-dealer with the SEC or any state, or (v) violate the Charter or
Bylaws.  In the event an action that would violate (i) through (v) of
the preceding sentence but such action has been ordered by the Board, the
Advisor shall notify 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 for acting in accordance with the specific
instructions of the Board so given.

     

    
      
        
        

      

      
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    SECTION
8

    FEES

     

    8.01.   Acquisition
Fees.  As
compensation for the investigation, selection and acquisition (by purchase,
investment or exchange) of Investments, the Company shall pay an Acquisition Fee
to the Advisor for each such acquisition.  With respect to the
acquisition of an Investment to be wholly owned by the Company, the Acquisition
Fee payable to the Advisor shall equal 2.0% of the purchase price of the
Investment (inclusive of any development costs, construction costs and any debt
assumed in connection with the acquisition).  With respect to the
acquisition of an Investment through any Joint Venture or any partnership in
which the Company is a partner, the Acquisition Fee payable to the Advisor shall
equal 2.0% of the portion of the purchase price of the Investments (inclusive of
any development costs, construction costs and any debt assumed in connection
with the acquisition) that is attributable to the Company’s investment in the
Joint Venture or partnership.  Notwithstanding anything herein to the
contrary, the payment of Acquisition Fees by the Company shall be subject to the
limitations contained in the PAR’s Charter.  The Advisor shall submit
an invoice to the Company at, or following the closing or closings of each
acquisition, accompanied by a computation of the Acquisition Fee.  The
Acquisition Fee payable to the Advisor shall be paid at the later of (i) the
closing of the acquisition or (ii) upon receipt of the invoice by the
Company.  The Company will not pay an Acquisition Fee to the Advisor
with respect to any transaction in which the Company is required to pay an
Origination Fee to the Advisor pursuant to the provisions of Section
8.02.

     

    8.02.   Origination
Fees.  As
compensation for the investigation, selection, sourcing and origination of
Originated Loans, the Company shall pay an Origination Fee to the Advisor for
each such origination.  With respect to the origination of a Loan to
be wholly owned by the Company, the Origination Fee payable to the Advisor shall
equal 1% of the amount of the Originated Loan.  With respect to the
origination of a Loan through any Joint Venture or any partnership in which the
Company is a partner, the Origination Fee payable to the Advisor shall equal 1%
of the amount of the Originated Loan that is attributable to the Company’s
investment in the Joint Venture or partnership.  The Company will not
pay an Origination Fee to the Advisor with respect to any transaction pursuant
to which the Company is required to pay the Advisor an Acquisition
Fee.  Notwithstanding anything herein to the contrary, the payment of
Origination Fees by the Company shall be subject to the limitations on
Acquisition Fees contained in (and defined in) the PAR’s Charter.  The
Advisor shall submit an invoice to the Company at, or following the closing or
closings of each Loan, accompanied by a computation of the Origination
Fee.  The Origination Fee payable to the Advisor shall be paid at the
later of (i) the closing of the Originated Loan or (ii) upon receipt of the
invoice by the Company.

     

    
      
        
        

      

      
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    8.03.   Asset Management
Fee.  The
Company shall pay the Advisor as compensation for the services described in
Section 3.03 a monthly fee (the “Asset Management Fee”) in an amount equal to
one-twelfth of 0.75% of the Cost of Investments and Loans as of the end of the
preceding month.  The Advisor shall submit a monthly invoice to the
Company, accompanied by a computation of the Asset Management Fee for the
applicable period.  The Asset Management Fee shall be payable on the
last day of such month, or the first business day following the last day of such
month.  The Asset Management Fee may or may not be taken, in whole or
in part, as to any month in the sole discretion of the Advisor.  All
or any portion of the Asset Management Fee not taken as to any month shall be
deferred without interest and may be paid in such other month as the Advisor
shall determine.

     

    8.04.   Disposition
Fees.  If
the Advisor or any of its Affiliates provide a substantial amount of services
(as determined by the Conflicts Committee) in connection with a Sale, the
Advisor or such Affiliate shall receive a fee at the closing (the “Disposition
Fee”) equal to 2% of the Contract Sales Price.  The payment of any
Disposition Fees by the Company shall be subject to the limitations contained in
the PAR’s Charter.  Any Disposition Fee payable under this Section
8.04 may be paid in addition to any real estate commissions paid to
non-Affiliates, provided that the total of the Disposition Fees and any real
estate commissions paid to all Persons by the Company for each Property shall
not exceed an amount equal to the lesser of (i) 6% of the aggregate Contract
Sales Price of each Property or (ii) the Competitive Real Estate Commission for
each Property.  Substantial assistance in connection with the sale of
a Property includes the Advisor’s preparation of an investment package for the
Property (including a new investment analysis and rent rolls) or such other
substantial services performed by the Advisor in connection with a
sale.

     

    8.05.   Bridge Loan Financing
Fee.  As
compensation for obtaining, negotiating and closing any Bridge Loan, the Advisor
shall receive a fee equal to 1% of the principal amount of such Bridge Loan
obtained for the Company, which shall be in addition to any Acquisition Fee or
Origination Fee paid in connection with the transaction.  The 1% will
be payable to the Advisor whether or not an outside loan broker is
used.  If an outside loan broker is used, the Advisor will pay the
broker’s fee out of the 1% it receives.  No fee shall be due under
this Section 8.05 until such time as the Company has invested all net proceeds
from any Offering.

     

    8.06.   Permanent Financing
Fee.  As
compensation for obtaining, negotiating and closing any loan or line of credit
with a term of at least 5 years used to acquire, originate or refinance
Investments or Loans, the Advisor shall receive a fee equal to 1% of the
principal amount of such loan obtained for the Company, which shall be in
addition to any Acquisition Fee or Origination Fee paid in connection with the
transaction.  The 1% will be payable to the Advisor whether or not an
outside loan broker is used.  If an outside loan broker is used, the
Advisor will pay the broker’s fee out of the 1% it receives.  No fee
shall be due under this Section 8.06 in connection with (i) the refinancing of
an Investment for which the Advisor  previously received a permanent
financing fee pursuant to this Section 8.06 within the previous 4 years or (2)
loan proceeds from any line of credit until such time as the Company has
invested all net proceeds from any Offering.

     

    
      
        
        

      

      
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    8.07.   Operating Partnership
Interests.  An
Affiliate of the Advisor has made a capital contribution of $1,000 to the
Operating Partnership in exchange for a special class of limited partnership
interests (the “Special OP Units”). Upon the earliest to occur of the
termination of this Agreement for Cause, a Termination Event or a Listing, all
of the Special OP Units shall be redeemed by the Operating Partnership in
accordance with the terms of the Operating Partnership Agreement.

     

    8.08.   Fee for Other
Services.  The
Fee for other services performed by the advisor pursuant to Section 3.05 shall
be at such rates and in such amounts as are agreed by the Advisor and the
Conflicts Committee, subject to the limitations contained in the
Charter.

     

    SECTION
9

    EXPENSES

     

    9.01.   General.  In
addition to the compensation paid to the Advisor pursuant to Section 8, the
Company shall pay directly or reimburse the Advisor for all of the expenses paid
or incurred by the Advisor or its Affiliates on behalf of the Company or in
connection with the services provided to the Company pursuant to this Agreement,
including, but not limited to:

     

    (i)   All
Organization and Offering Expenses; provided, however, that the Company shall
not reimburse the Advisor to the extent such reimbursement would cause the total
amount spent by the Company on Organization and Offering Expenses to exceed 15%
of the Gross Proceeds raised as of the date of the reimbursement and provided
further that within 60 days after the end of the month in which an Offering
terminates, the Advisor shall reimburse the Company to the extent the Company
incurred Organization and Offering Expenses exceeding 15% of the Gross Proceeds
raised in the completed Offering;

     

    (ii)   Acquisition
Fees and Acquisition Expenses incurred in connection with the selection,
acquisition or origination of Investments and Loans, including such expenses
incurred related to assets pursued or considered but not ultimately acquired by
the Company, subject to the 6.0% limitation on Acquisition Fees and Acquisition
Expenses contained in the PAR’s Charter;

     

    (iii)   The
actual out-of-pocket cost of goods and services used by the Company and obtained
from entities not Affiliated with the Advisor;

     

    (iv)   Interest
and other costs for borrowed money, including discounts, points and other
similar fees;

     

    (v)   Taxes and
assessments on income or Properties, taxes as an expense of doing business and
any other taxes otherwise imposed on the Company and its business, assets or
income;

     

    (vi)   Out-of-pocket
costs associated with insurance required in connection with the business of the
Company or by its officers and Directors;

     

    (vii)   Expenses
of managing, improving, developing, operating and selling Properties and other
assets owned by the Company, whether or not payable to an
Affiliate;

     

    (viii)   All
out-of-pocket expenses in connection with payments to the Board and meetings of
the Board and Stockholders;

     

    
      
        
        

      

      
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    (ix)   Personnel
and related employment costs incurred by the Advisor or its Affiliates in
performing the services described in Section 3, including but not limited to
reasonable 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
Acquisition Fees, Origination Fees or Disposition Fees;

     

    (x)   Out-of-pocket
expenses of providing services for and maintaining communications with
Stockholders, including the cost of preparation, printing, and mailing annual
reports and other Stockholder reports, proxy statements and other reports
required by governmental entities;

     

    (xi)   Audit,
accounting and legal fees, and other fees for professional services relating to
the operations of the Company and all such fees incurred at the request, or on
behalf of, the Board, the Conflicts Committee or any other committee of the
Board;

     

    (xii)   Out-of-pocket
costs for the Company to comply with all applicable laws, regulations and
ordinances;

     

    (xiii)   Expenses
connected with payments of Distributions made or caused to be made by the
Company to the Stockholders;

     

    (xiv)   Expenses
of organizing, merging, liquidating or dissolving the Company or of amending the
Charter, the Bylaws and other organizational documents; and

     

    (xv)   All other
out-of-pocket costs incurred by the Advisor in performing its duties
hereunder.

     

    9.02.   Timing of and Additional
Limitations on Reimbursements.

     

    (i)   Expenses
incurred by the Advisor on behalf of the Company and reimbursable pursuant to
this Section 9 shall be reimbursed no less than monthly to the
Advisor.  The Advisor shall prepare a statement documenting the
expenses of the Company during each quarter and shall deliver such statement to
the Company within 45 days after the end of each quarter.

     

    (ii)   Commencing
four fiscal quarters after the Company’s acquisition of its first real estate
asset, the following limitation on Operating Expenses shall apply: The Company
shall not reimburse the Advisor at the end of any fiscal quarter for Operating
Expenses that in the four consecutive fiscal quarters then ended (the “Expense
Year”) exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets
or 25% of Net Income (the “2%/25% Guidelines”) for such year unless the
Conflicts Committee determines that such excess was justified, based on unusual
and nonrecurring factors that the Conflicts Committee deems
sufficient.  If the Conflicts Committee does not approve such excess
as being so justified, any Excess Amount paid to the Advisor during a fiscal
quarter shall be repaid to the Company or, with the approval of the Conflicts
Committee, subtracted from the Operating Expenses reimbursed during the
subsequent fiscal quarter.  If the Conflicts Committee determines such
excess was justified, then, within 60 days after the end of any fiscal quarter
of the Company for which total reimbursed Operating Expenses for the Expense
Year exceed the 2%/25% Guidelines, the Advisor, at the direction of the
Conflicts Committee, shall cause such fact to be disclosed to the Stockholders
in writing (or PAR shall disclose such fact to the Stockholders in the next
quarterly report of PAR or by filing a Current Report on Form 8-K with the SEC
within 60 days of such quarter end), together with an explanation of the factors
the Conflicts Committee considered in determining that such excess expenses were
justified.  PAR 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 GAAP applied on a
consistent basis.

     

    
      
        
        

      

      
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    SECTION
10

    RELATIONSHIP
OF ADVISOR AND COMPANY;

    OTHER
ACTIVITIES OF THE ADVISOR

     

    10.01.   Relationship.  The
Company 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.  Nothing herein contained shall prevent the Advisor and 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 manager, director, officer, employee or equityholder 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 Company is a participant, also render advice and service to each and
every other participant therein.  The Advisor shall promptly disclose
to the Board the existence of any condition or circumstance, existing or
anticipated, of which it has knowledge, that creates or could create a conflict
of interest between the Advisor’s obligations to the Company and its obligations
to or its interest in any other Person.

     

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

     

    10.03.   Investment Opportunities and
Allocation.  The
Advisor shall be required to use commercially reasonable efforts to present a
continuing and suitable investment program to the Company that is consistent
with the investment policies and objectives of the Company, but neither the
Advisor nor any Affiliate of the Advisor shall be obligated generally to present
any particular investment opportunity to the Company even if the opportunity is
of character that, if presented to the Company, could be taken by the
Company.

     

    SECTION
11

    BUSINESS
COMBINATION

     

    11.01.   Business Combination between
PAR and Advisor.  PAR
shall consider becoming a self-administered REIT once the PAR’s assets and
income are, in the view of the Board, of sufficient size such that internalizing
the management functions performed by the Advisor is in the best interests of
PAR and the Stockholders.  If the Board should make this determination
in the future, PAR shall pay one-half, and the Advisor shall pay the other
one-half, of the costs of an independent investment banking
firm.  This firm shall jointly advise PAR and the Advisor on the value
of the Advisor.  After the investment banking firm completes its
analyses, PAR shall require it to prepare a written report and make a formal
presentation to the Board.  Following the presentation by the
investment banking firm, the Conflicts Committee shall consider a possible
business combination with the Advisor.  The Board shall, subject to
applicable law, delegate all of its decision-making power and authority to the
Conflicts Committee with respect to matters relating to a possible business
combination with the Advisor.  The Conflicts Committee also shall be
authorized to retain its own financial advisors and legal counsel to, among
other things, negotiate with representatives of the Advisor regarding a possible
business combination with the Advisor.

     

    
      
        
        

      

      
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    11.02.   Conditions to Completion of
Business Combination.  Before
PAR may complete any business combination with the Advisor in accordance with
this Section 11, the following three conditions shall be satisfied:

     

    (i)   the
Conflicts Committee receives an opinion from a qualified investment banking
firm, separate and distinct from the firm jointly retained by PAR and the
Advisor to provide a valuation analysis in accordance with Section 11.01,
concluding that the consideration to be paid to acquire the Advisor is fair to
the Stockholders from a financial point of view;

     

    (ii)   the
Conflicts Committee and the Board determine that such business combination is
advisable and in the best interests of PAR and the Stockholders;
and

     

    (iii)   Such
business combination is approved by the Stockholders entitled to vote thereon in
accordance with PAR’s Charter and Bylaws.

     

    SECTION
12

    THE
PASSCO NAME

     

    The
Advisor and its Affiliates have a proprietary interest in the name “PASSCO.” The
Advisor hereby grants to the Company a non-transferable, non-assignable,
non-exclusive royalty-free right and license to use the name “PASSCO” during the
term of this Agreement.  Accordingly, and in recognition of this
right, if at any time the Company ceases to retain the Advisor or one of its
Affiliates to perform advisory services for the Company, the Company will,
promptly after receipt of written request from the Advisor, cease to conduct
business under or use the name “PASSCO” or any derivative thereof and the
Company shall change its name and the names of any of its subsidiaries to a name
that does not contain the name “PASSCO” or any other word or words that might,
in the reasonable discretion of the Advisor, be susceptible of indication of
some form of relationship between the Company and the Advisor or any its
Affiliates.  At such time, the Company will also make any changes to
any trademarks, servicemarks or other marks necessary to remove any references
to the word “PASSCO.” Consistent with the foregoing, it is specifically
recognized that the Advisor or one or more of its Affiliates has in the past and
may in the future organize, sponsor or otherwise permit to exist other
investment vehicles (including vehicles for investment in real estate) and
financial and service organizations having “PASSCO” as a part of their name, all
without the need for any consent (and without the right to object thereto) by
the Company.

     

    
      
        
        

      

      
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    SECTION
13

    TERM AND
TERMINATION OF THE AGREEMENT

     

    13.01.   Term.  This
Agreement shall have an initial term of one year from the date hereof and may be
renewed for an unlimited number of successive one-year terms upon mutual consent
of the parties.  The Company (acting through the Conflicts Committee)
will evaluate the performance of the Advisor annually before renewing this
Agreement, and each such renewal shall be for a term of no more than one
year.  Any such renewal must be approved by the Conflicts
Committee.

     

    13.02.   Termination by Either
Party.  This
Agreement may be terminated upon 60 days written notice without cause or penalty
by either the Company (acting through the Conflicts Committee) or the
Advisor.  The provisions of Sections 1, 12, 13, 15 and 16 shall
survive termination of this Agreement.

     

    13.03.   Payments on Termination and
Survival of Certain Rights and Obligations.  Payments
to the Advisor pursuant to this Section 13.03 shall be subject to the 2%/25%
Guidelines to the extent applicable.

     

    (i)   After the
Termination Date, the Advisor shall not be entitled to compensation for further
services hereunder except it shall be entitled to receive from the Company,
within 30 days after the effective date of such termination, all unpaid
reimbursements of expenses and all earned but unpaid fees payable to the Advisor
prior to termination of this Agreement.

     

    (ii)   The
Advisor shall promptly upon termination:

     

    (a)   pay over
to the Company all money collected pursuant to this Agreement, if any, after
deducting any accrued compensation and reimbursement for its expenses to which
it is then entitled;

     

    (b)   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;

     

    (c)   deliver
to the Board all assets and documents of the Company then in the custody of the
Advisor; and

     

    (d)   cooperate
with the Company to provide an orderly transition of advisory functions provided
that it is reimbursed for reasonable expenses in connection
therewith.

     

    SECTION
14

    ASSIGNMENT

     

    This
Agreement may be assigned by the Advisor to an Affiliate with the consent of the
Conflicts Committee.  The Advisor may assign any rights to receive
fees or other payments under this Agreement without obtaining the approval of
the Board.  This Agreement shall not be assigned by the Company
without the consent of the Advisor, except in the case of an assignment by the
Company to a corporation or other organization that is a successor to all of the
assets, rights and obligations of the Company, in which case such successor
organization shall be bound hereunder and by the terms of said assignment in the
same manner as the Company is bound by this Agreement.

     

    
      
        
        

      

      
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    SECTION
15

    INDEMNIFICATION
AND LIMITATION OF LIABILITY

     

    15.01.   In
General.  The
Company shall indemnify and hold harmless the Advisor and its Affiliates,
including their respective directors (the “Indemnitees,” and each an
“Indemnitee”), 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, and to the
extent that such indemnification would not be inconsistent with the laws of the
State of Maryland, the Charter or the provisions of Section II.G of the NASAA
REIT Guidelines.  In addition, the Company shall indemnify and hold
harmless the officers of the Company and the Advisor and its Affiliates 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, and to the extent that such indemnification would
not be inconsistent with the laws of the State of Maryland or the
Charter.

     

    15.02.   Conditions to
Indemnification.  Notwithstanding
the foregoing, the Company shall not provide for indemnification of an
Indemnitee for any liability or loss suffered by such Indemnitee, nor shall they
provide that an Indemnitee be held harmless for any loss or liability suffered
by the Company, unless all of the following conditions are met:

     

    (i)   the
Indemnitee has determined, in good faith, that the course of conduct that caused
the loss or liability was in the best interests of the Company;

     

    (ii)   the
Indemnitee was acting on behalf of, or performing services for, the
Company;

     

    (iii)   such
liability or loss was not the result of negligence or misconduct by the
Indemnitee; and

     

    (iv)   such
indemnification or agreement to hold harmless is recoverable only out of the
Company’s net assets and not from the Stockholders.

     

    15.03.   Limitations on
Indemnification.  Notwithstanding
the foregoing, an Indemnitee shall not be indemnified by the Company for any
loss, liability or expense arising from or out of an alleged violation of
federal or state securities laws by such Indemnitee 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
material securities law violations as to the Indemnitee;

     

    (ii)   such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the Indemnitee; or

     

    
      
        
        

      

      
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    (iii)   a court
of competent jurisdiction approves a settlement of the claims against the
Indemnitee and finds that indemnification of the settlement and the related
costs should be made, and the court considering the request for indemnification
has been advised of the position of the Securities and Exchange Commission and
of the published position of any state securities regulatory authority in which
securities of PAR or the Operating Partnership were offered or sold as to
indemnification for violations of securities laws.

     

    15.04.   Conditions to Payment of
Expenses.  The
Company will pay or reimburse reasonable legal expenses and other costs incurred
by an Indemnitee in advance of final disposition of a proceeding for which
indemnification is being sought only if all of the following conditions are
satisfied:

     

    (i)   the
proceeding relates to acts or omissions with respect to the performance of
duties or services on behalf of the Company;

     

    (ii)   the
Indemnitee provides the Company with written affirmation of the Indemnitee’s
good faith belief that the Indemnitee has met the standard of conduct necessary
for indemnification by the Corporation set forth in Sections 15.02 and 15.03, as
applicable;

     

    (iii)   the legal
proceeding was initiated by a third party who is not a Stockholder or, if by a
Stockholder acting in his or her capacity as such, a court of competent
jurisdiction specifically approves such advancement; and

     

    (iv)   the
Indemnitee provides the Company with a written agreement to repay the amount
paid or reimbursed by the Company, together with the applicable legal rate of
interest thereon, if it is ultimately determined that the Indemnitee did not
comply with the requisite standard of conduct and is not entitled to
indemnification.

     

    SECTION
16

    MISCELLANEOUS

     

    16.01.   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 Charter, the Bylaws or is
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
Company or the Board:

    


    Passco
Apartment REIT, Inc.

    96
Corporate Park, Suite 200

    Irvine,
California 92606

     

    
      
        
        

      

      
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    To the
Advisor:

    


    Passco
Advisors, LLC

    96
Corporate Park, Suite 200

    Irvine,
California 92606

    


    Either
party may at any time give notice in writing to the other party of a change in
its address for the purposes of this Section 16.01.

     

    16.02.   Modification.  This
Agreement shall not be changed, modified, terminated or discharged, in whole or
in part, except by an instrument in writing signed by both parties hereto, or
their respective successors or permitted assigns.

     

    16.03.   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.

     

    16.04.   Construction.The provisions of
this Agreement shall be construed and interpreted in accordance with the laws of
the State of Maryland.

     

    16.05.   Entire
Agreement.  This
Agreement contains the entire agreement and understanding between 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.

     

    16.06.   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.

     

    16.07.   Gender.  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.

     

    16.08.   Titles Not to Affect
Interpretation.  The
titles of Sections 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.

     

    
      
        
        

      

      
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    16.09.   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 one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as the signatories.

     

    [The
remainder of this page is intentionally left blank.

    Signature
page follows.]

     

     

     

     

     

     

    
      
        
        

      

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

     

    
    

     

    
      	 	Passco Apartment
      REIT, INC. 
	 	 
	 	 
	 	By:  /s/ William H. Winn,
      President   
	 	William H. Winn,
      President 
	 	 
	 	 
	 	PASSCO ADVISORS,
      LLC 
	 	 
	 	 
	 	By:  /s/ William H. Winn,
      President   
	 	William H. Winn,
      President  


    

     

    


     

    


    


     

    
      
        
        

      

      
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