Document:

ADVISORY AGREEMENT

 

This ADVISORY AGREEMENT, dated as of March 17, 2011 (this “Agreement”), is between American Realty Capital – Retail Centers of America, Inc., a Maryland corporation (the “Company”), and American Realty Capital Retail Advisor, LLC, a Delaware limited liability company (the “Advisor”).

 

WITNESSETH

 

WHEREAS, the Company desires to avail itself of the knowledge, 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 Directors of the Company, all as provided herein; and

 

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

 

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

 

Article 1

Definitions

 

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

 

“Acquisition Expenses” means any and all expenses, excluding the Acquisition Fees, incurred by the Company, the Advisor or any Affiliate of either in connection with the consideration, investigation, selection, evaluation, acquisition or development of any Investment, whether or not acquired or originated, as applicable, including legal fees and expenses, travel and communications expenses, brokerage fees, costs of appraisals, nonrefundable option payments on Investments not acquired, accounting fees and expenses, title insurance premiums and the costs of performing due diligence.

 

“Acquisition Fees” means the fee payable to the Advisor pursuant to Section 8.1 plus all other fees and commissions, excluding Acquisition Expenses, paid by any Person to any Person in connection with making or investing in any Investment or the purchase, development or construction of any Property by the Company.  Included in the computation thereof shall be any real estate commission, selection fee, Development Fee, Construction Fee, nonrecurring management fee, loan fees or points or any fee of a similar nature, however designated.  Excluded in the computation thereof shall be Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property. 

  

1

  

“Advisor” has the meaning set forth at the head of this Agreement.

 

“Affiliate” means, with respect to any Person, any of the following: (i) any other Person directly or indirectly controlling, controlled by, or under common control with such Person; (ii) any other Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any other Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such Person; and (v) any executive officer, director, trustee, or general partner of such Person. An entity shall not be deemed to control or be under common control with an Advisor-sponsored program unless (A) the entity owns 10% or more of the voting equity interests of such program or (B) a majority of the board of directors (or equivalent governing body) of such program is composed of Affiliates of the entity.  The term “Affiliated” shall have a meaning correlative thereto.

 

“Articles of Incorporation” means the Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.

 

“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 Properties, Loans and other Permitted Investments secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such specified period.

 

“Asset Management Fee” shall have the meaning set forth in Section 8.2.

 

“Board of Directors” or “Board” means the persons holding such office, as of any particular time, under the Articles of Incorporation, whether they be the Directors named therein or additional or successor Directors.

 

“Bylaws” means the bylaws of the Company, 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 American Realty Capital – Retail Centers of America, Inc.

 

“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 to provide major repairs or rehabilitation on a Property. 

  

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

 

“Contract Purchase Price” means amount actually paid or allocated to fund the acquisition, origination, development, construction or improvement of an Investment, inclusive of the expenses associated with such Investment and the amount of any debt associated with, or used to fund the investment in, such Investment.

 

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

  

“Dealer Manager” means (i) Realty Capital Securities, LLC, a Delaware limited liability company, or (ii) any successor dealer manager to the Company.

 

“Development Fee” means a fee for the packaging of a Property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the Property, either initially or at a later date.

 

“Director” means a member of the Board of Directors of the Company.

 

 “Distributions” means any distributions of money or other property by the Company to Stockholders, including distributions that may constitute a return of capital for U.S. federal income tax purposes.

 

“Effective Date” means the date upon which the Registration Statement for the Company’s initial public offering is declared effective by the Securities and Exchange Commission.

 

“Excess Amount” has the meaning set forth in Section 9.2(A).

 

“Expense Year” has the meaning set forth in Section 9.2(A).

 

“FFO” means funds from operations, as defined by The National Association of Real Estate Investment Trusts.

 

“Financing Coordination Fee” shall have the meaning set forth in Section 8.5.

 

“FINRA” means the Financial Industry Regulatory Authority Inc.

 

“GAAP” means accounting principles generally accepted in the United States as currently in effect.

  

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“Gross Proceeds” means the aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for 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 the Company 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.

 

“include,” “included,” “including” and “such as” are to be construed as if followed by the phrase “without limitation.”

 

“Independent Director” shall have the meaning set forth in the Articles of Incorporation.

 

“Investment” or “Investments” means any investment or investments by the Company or the Partnership, directly or indirectly, in Properties, Loans or other Permitted Investments.

 

“Joint Venture” means any joint venture, limited liability company or other entity through which the Company directly or indirectly owns, in whole or in part, any Investments.

 

“Lincoln” shall have the meaning set forth in Article 3.

  

“Listing” means (i) the listing of the Shares on a national securities exchange, or (ii) the receipt by the Stockholders of securities that are listed on a national securities exchange in exchange for Shares in a merger or any other type of transaction.

 

“Loans” means mortgage loans and other types of debt financing investments made by the Company, either directly or indirectly, including through ownership interests in a Joint Venture or other entity, and including mezzanine loans, B-notes, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans, loans on leasehold interests, and participations in such loans.

 

“MGCL” means the Maryland General Corporation Law, as amended from time to time.

 

“NASAA Guidelines” means the NASAA Statement of Policy Regarding Real Estate Investment Trusts as in effect on the date hereof.

 

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

 

“Notice” has the meaning set forth in Section 15.1.

 

“Offering” means the public offering of Shares pursuant to a Prospectus.

  

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“Operating Expenses” means all costs and expenses incurred by the Company, as determined under GAAP, that in any way are 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, bad loan reserves, impairments of value, and mark-to-market losses, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees and Acquisition Expenses (including Financing Coordination Fees), real estate commissions on resale of property, property management fees, and other expenses connected with the acquisition, disposition, management and ownership of real estate interests, loans or other property (other than commissions on the sale of assets other than real property), such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.

 

“Organization and Offering Expenses” means all expenses incurred by or on behalf of the Company in connection with or in preparing the Company for registration of and subsequently offering and distributing its Shares to the public, whether incurred before, on or after the date of this Agreement, which may include 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 mailing; compensation of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; and expenses of qualification of the sale of the securities under Federal and state laws, including taxes and fees, accountants’ and attorneys’ fees.

  

“Oversight Fee” shall have the meaning set forth in Section 8.3.

 

“Partnership” means American Realty Capital Retail Operating Partnership, L.P., a Delaware limited partnership formed to own and operate Investments on behalf of the Company.

 

“Permitted Investments” means all investments (other than Properties and Loans) in which the Company acquires an interest, either directly or indirectly, including through ownership interests in a Joint Venture or other entity, pursuant to the Articles of Incorporation, Bylaws and the investment objectives and policies adopted by the Board from time to time, other than short-term investments acquired for purposes of cash management.

 

“Person” or “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” or “Properties” means any real property or properties transferred or conveyed to the Company or any subsidiary of the Company or the Partnership, either directly or indirectly, and/or any real property or properties transferred or conveyed to a Joint Venture or partnership in which the Company is, directly or indirectly, a co-venturer or partner.

  

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“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 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.

 

“Prospectus” means a final prospectus of the Company filed pursuant to Rule 424(b) of the Securities Act, as the same may be amended or supplemented from time to time.

 

“Registration Statement” means the registration statement filed by the Company with the SEC pursuant to the Securities Act on Form S-11, as amended from time to time, in connection with an Offering.

 

“Real Estate Commission” shall have the meaning set forth in Section 8.4.

 

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

 

“Sale” or “Sales” means (i) any transaction or series of transactions whereby: (A) the Company sells, grants, transfers, conveys, or relinquishes its direct or indirect ownership of any Investment 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 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 direct or indirect interest of the Company in any Joint Venture or other entity in which it, directly or indirectly, has an interest; or (C) any Joint Venture or other entity (in which the Company, directly or indirectly, has an interest) sells, grants, transfers, conveys, or relinquishes its direct or indirect ownership of any Investment or portion thereof, including any event with respect to any Investment 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 by the Company, directly or indirectly, in one or more Investments within 180 days thereafter.

 

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

 

“Securities Act” means the Securities Act of 1933, as amended.

 

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

 

“Soliciting Dealers” means broker-dealers who are members of FINRA or that are exempt from broker-dealer registration, and who, in either case, have executed soliciting dealer or other agreements with the Dealer Manager to sell Shares.

 

“Stockholders” means the registered holders of the Shares. 

  

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“Targeted Assets” means a portfolio consisting of: (i) existing anchored, stabilized core retail properties, including power centers, lifestyle centers, grocery-anchored shopping centers with a purchase price in excess of twenty million dollars ($20,000,000) and other need-based shopping centers (not less than sixty-five percent (65%) by value) which are located in the United States and at least eighty percent (80%) leased at the time of acquisition; (ii) existing grocery-anchored shopping centers (up to twenty percent (20%) by value), the purchase price of which is twenty million dollars ($20,000,000) or less; (iii) existing enclosed mall opportunities for de-malling and reconfiguration into an open air format (up to twenty percent (20%) by value) which are located in the United States; and (iv) real estate-related debt and investments (up to fifteen percent (15%) by value) secured by, or which represent a direct or indirect interest in, the assets described in clauses (i) - (iii).

 

“Termination” means the termination of this Agreement in accordance with Articles 13 hereof.

 

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

 

“2%/25% Guidelines” has the meaning set forth in Section 9.2(B).

  

Article 2

Appointment

 

The Company hereby appoints the Advisor to serve as its advisor to perform the services set forth herein on the terms and subject to the conditions set forth in this Agreement and subject to the supervision of the Board, and the Advisor hereby accepts such appointment.

 

Article 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 its commercially reasonable efforts to present to the Company potential investment opportunities in Targeted Assets and to provide the Company with a continuing and suitable investment program in Targeted Assets 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 Article 4 hereof, consistent with the provisions of the Articles of Incorporation and Bylaws and the continuing and exclusive authority of the Board over the supervision of the Company, the Advisor shall, either directly or by engaging Lincoln Retail REIT Services, LLC, a Delaware limited liability company (“Lincoln”), or another third party, perform the following duties:

	
3.1

	
Organizational and Offering Services.  The Advisor shall perform all services related to the organization of the Company or any Offering or private sale 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 FINRA, the SEC or any state.

  

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3.2

	
Acquisition and Disposition Services.  The Advisor shall (or shall retain other Persons to (but shall remain responsible to the Company)):

	
  

	
(A)

	
Serve as the Company’s investment and financial advisor and provide relevant market research and economic and statistical data in connection with the Properties, investment objectives and policies;

	
  

	
(B)

	
Subject to the investment objectives and policies of the Company: (a) locate, analyze and select potential Investments; (b) structure and negotiate the terms and conditions of transactions pursuant to which investments in Targeted Assets and other Investments will be made; (c) acquire, originate and dispose of Targeted Assets and other Investments on behalf of the Company (including through Joint Ventures); (d) arrange for financing and refinancing and make other changes in the asset or capital structure of investments in Targeted Assets and other Investments; (e) select Joint Venture partners and structure corresponding agreements; and (f) enter into leases, service contracts and other agreements for Targeted Assets and other Investments;

	
  

	
(C)

	
Perform due diligence on prospective investments and create due diligence reports summarizing the results of such work;

	
  

	
(D)

	
Prepare reports regarding prospective investments that include recommendations and supporting documentation necessary for the Board of the Company to evaluate the proposed investments;

	
  

	
(E)

	
Obtain reports, where appropriate, concerning the value of the Properties;

	
  

	
(F)

	
Deliver to, or maintain on behalf of the Company, copies of all appraisals obtained in connection with the Properties;

	
  

	
(G)

	
Negotiate and execute approved investments and other transactions, including acquisitions of Targeted Assets and other Investments; and

	
  

	
(H)

	
Consult with the Company’s officers and the Board and provide assistance with the evaluation and approval of potential Investment dispositions, sales and refinancing, including reports to the Board regarding the foregoing.

	
3.3

	
Asset Management Services.  The Advisor shall (or shall retain other Persons to (but shall remain responsible to the Company)):

 

  

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(A)

	
Investigate, select and, on behalf of the Company, engage and conduct business with (including enter contracts with) and supervise the performance of such Persons as the Advisor deems necessary to the proper performance of its obligations as set forth in this Agreement, including consultants, accountants, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, security investment advisors, mortgagors, the registrar and the transfer agent, 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)

	
Monitor applicable markets and obtain reports where appropriate, concerning the value of the Properties;

	
  

	
(C)

	
Monitor and evaluate the performance of each of the Properties and the Company’s overall portfolio of Properties and perform and supervise the various management and operational functions related to the Properties;

	
  

	
(D)

	
Formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, investment, improvement, financing and refinancing, marketing, leasing and disposition of Investments on an overall portfolio basis;

	
  

	
(E)

	
Consult with the Company’s officers and the Board and assist the Board in the formulation and implementation of the Company’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 Company;

	
  

	
(F)

	
Engage a Property Manager for each of the Properties;

	
  

	
(G)

	
Coordinate and manage relationships between the Company and any co-venturers or partners; and

	
  

	
(H)

	
Negotiate and service the Company’s debt facilities and other financings and negotiate on behalf of the Company with banks or other lenders for debt facilities to be made to the Company and its subsidiaries; provided, however, that any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of the Company.

	
3.4

	
Accounting and Other Administrative Services.  The Advisor shall (or shall retain other Persons to (but shall remain responsible to the Company)):

	
  

	
(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;

  

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(B)

	
From time to time, or 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)

	
Make reports to the Company each quarter of the investments that have been made by other programs sponsored by the Advisor or any of its Affiliates, as well as any investments that have been made by the Advisor or any of its Affiliates directly;

	
  

	
(D)

	
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;

	
  

	
(E)

	
Provide financial and operational planning services;

	
  

	
(F)

	
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;

	
  

	
(G)

	
Maintain and preserve all appropriate books and records of the Company;

	
  

	
(H)

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

	
  

	
(I)

	
Provide the Company with all necessary cash management services;

	
  

	
(J)

	
Deliver to, or maintain on behalf of, the Company copies of all appraisals obtained in connection with Investments;

	
  

	
(K)

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

	
  

	
(L)

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

	
  

	
(M)

	
Consult with the Company’s officers and the Board and assist the Board in evaluating various liquidity events when appropriate;

	
  

	
(N)

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

  

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(O)

	
Consult with the Company’s officers and the Board relating to the corporate governance structure and appropriate policies and procedures related thereto;

	
  

	
(P)

	
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;

	
  

	
(Q)

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

	
  

	
(R)

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

 

3.5          Stockholder Services.  The Advisor shall (or shall retain other Persons to (but shall remain responsible to the Company)):

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

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

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

(D)           Consistent with Section 3.1, perform the various subscription processing services reasonably necessary for the admission of new Stockholders.

3.6          Other Services.  Except as provided in Article 7, the Advisor shall perform any other services reasonably requested by the Company (with the consent of a majority of the Independent Directors).

 

Article 4

Authority of the Advisor

	
4.1

	
General.  All rights and powers to manage and control the day-to-day business and affairs of the Company shall be vested in the Advisor.  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 or a third party 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 Articles of Incorporation.

 

  

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4.2

	
Powers of the Advisor.  Subject to the express limitations set forth in this Agreement, to the continuing and exclusive authority of the Board over the supervision of the Company, and to the right of the Advisor to delegate its responsibilities pursuant to Section 4.1, the power to direct the management, operation and policies of the Company shall be vested in the Advisor, which shall have the power by itself and shall be authorized and empowered on behalf and in the name of the Company to carry out any and all of the objectives and purposes of the Company and to perform all acts and enter into and perform all contracts and other undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto to perform its obligations under this Agreement.

	
4.3

	
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 Articles of Incorporation or the MGCL require the prior approval of the Board.  The Advisor will deliver to the Board all documents required by it to evaluate a proposed investment (and any related financing).

	
4.4

	
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 Article 3 and this Article 4 hereof; 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.

  

Article 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 upon request render appropriate accountings of such collections and payments to the Board and the independent auditors of the Company.  

 

Article 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 liaise with the Company’s officers and independent auditors and shall provide such officers and auditors with the reports and other information that the Company so requests.

  

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Article 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 Company to qualify or continue to qualify as a REIT under the Code (unless the Board has determined that REIT qualification is not in the best interests of the Company and its Stockholders), (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 Articles of Incorporation 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.

  

Article 8

Fees

8.1           Acquisition Fees.

	
  

	
(A)

	
The Company shall pay an Acquisition Fee to the Advisor as compensation for services rendered in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of Investments.  The total Acquisition Fee payable to the Advisor shall equal one percent (1.0%) of the Contract Purchase Price of the Investment.  The amount actually paid or allocated for an Investment held through a Joint Venture shall equal the sum of (x) the product of (i) the amount actually paid or allocated to fund, or the amount advanced for, the acquisition, origination, development, construction or improvement of the Investment, as applicable, by the Joint Venture and (ii) the direct or indirect ownership percentage of the Joint Venture held directly or indirectly by the Company or the Partnership and (y) any expense of the Company associated with such Investment.  For purposes of this section, “ownership percentage” shall be the percentage of capital stock, membership interests, partnership interests or other equity interests held by the Company or the Partnership, without regard to classification of such equity interests.  The Advisor shall submit an invoice to the Company, accompanied by a computation of the Acquisition Fee at or prior to the closing of the acquisition.  The Company shall pay to the Advisor the Acquisition Fee at the closing of the acquisition.  An Acquisition Fee shall only be payable on the reinvestment of proceeds from the sale of an investment, if, during the period ending two years after the final closing of the initial Offering, the Company sells an Investment and then reinvests in other Investments.

  

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(B)

	
Pursuant to the NASAA Guidelines, the total of all Acquisition Fees, Financing Coordination Fees and Acquisition Expenses payable in connection with any Investment or any reinvestment shall not exceed four and one half percent (4.5%) of the “contract purchase price”, as defined in the Articles of Incorporation, of the Investment acquired or four and one half percent (4.5%) of the amount advanced for an Investment, unless a majority of the Board of Directors (including a majority of the Independent Directors) not otherwise interested in the transaction approves the Acquisition Fees and Acquisition Expenses and determines the transaction to be commercially competitive, fair and reasonable to the Company.

 

	
8.2

	
Asset Management Fee.  The Company shall pay an Asset Management Fee to the Advisor as compensation for services rendered in connection with the management of the Company’s assets in an amount equal to 0.75% per annum of the Average Invested Assets; provided, however, that the Asset Management Fee shall be reduced by any Oversight Fee payable to the Advisor, such that the aggregate Asset Management Fee and Oversight Fee do not exceed 0.75% per annum of the Average Invested Assets.  The Asset Management Fee is payable quarterly in advance, on January 1, April 1, July 1 and October 1, in the amount of 0.1875% of Average Invested Assets for the preceding quarter.  The Advisor shall submit an invoice to the Company, accompanied by a computation of the Asset Management Fee for the applicable quarter. The Asset Management Fee to be paid for a quarter will be reduced by the average quarterly amount that FFO during the six months ending on the last day of the calendar quarter immediately preceding the date that such Asset Management Fee is payable is less than the Distributions declared with respect to such six month period, provided, however, that the asset management fee will not be reduced below the following amounts: (i) six months after the Effective Date of the Offering, .35%; (ii) twelve months after the Effective Date of the Offering, .65% and (iii) beginning eighteen months after the Effective Date of the Offering, no reduction.  For purposes of this test, FFO, as adjusted, is FFO adjusted to add back (i) acquisition fees and related expenses; (ii) non-cash restricted stock grant amortization, if any; and (iii) impairments of real estate related investments, if any (including properties, loans receivable and equity and debt investments).

	
8.3

	
Oversight Fee.  The Company shall pay the Advisor an Oversight Fee equal to one percent (1.0%) of the gross revenues from Properties managed by any Person that is not an Affiliate of the Advisor.  The Oversight Fee is payable quarterly in advance, on January 1, April 1, July 1 and October 1.  The Advisor shall submit an invoice to the Company, accompanied by a computation of the Oversight Fee for the applicable quarter.

  

14

  

	
8.4

	
Real Estate Commission.  In connection with a Sale of a Property in which the Advisor or any Affiliate or agent of the Advisor provides a substantial amount of services, as determined by the Independent Directors, the Company shall pay to the Advisor a Real Estate Commission equal to two percent (2.0%) of the Contract Sales Price of such Property, but in no event shall the Real Estate Commission exceed one-half of the total brokerage commission paid by the Company if it pays a brokerage commission in addition to the Real Estate Commission; provided, however, that in no event may the sum of the Real Estate Commission and such brokerage commissions exceed the lesser of six percent (6.0%) of the Contract Sales Price and a Competitive Real Estate Commission.  The Advisor shall submit an invoice to the Company, accompanied by a computation of the Real Estate Commission at or prior to the closing of the Sale.  The Company shall pay to the Advisor the Real Estate Commission at the closing of the Sale.

	
8.5

	
Financing Coordination Fee.  The Company shall pay a Financing Coordination Fee to the Advisor in connection with the financing of any Investment, assumption of any loans with respect to any Investment or refinancing of any loan in an amount equal to one percent (1.0%) of the amount made available and/or outstanding under any such loan, including any assumed loan.  In no event will the aggregate Acquisition Fees and Financing Coordination Fees, at the time that the net proceeds of the Offering are fully invested or at any time thereafter, exceed, in the aggregate, one and a half percent (1.5%) of the aggregate Contract Purchase Price of all of the Properties acquired by the Company.  The Advisor shall submit an invoice to the Company, accompanied by a computation of the Financing Coordination Fee at or prior to the closing of the financing.  The Company shall pay to the Advisor the Financing Coordination Fee at the closing of the financing.

	
8.6

	
Payment of Fees.  In connection with the Acquisition Fee, Real Estate Commission, Asset Management Fee and Financing Coordination Fee, the Company shall pay such fees to the Advisor in cash or in Shares, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor. For the purposes of the payment of such fees in Shares, each Share shall be valued at the per share offering price of the Shares in the initial Offering minus the maximum selling commissions and dealer manager fee allowed in the initial Offering.

	
8.7

	
Exclusion of Certain Transactions.

	
  

	
(A)

	
If the Company or the Partnership shall propose to enter into any transaction in which the Advisor, any Affiliate of the Advisor or any of the Advisor’s directors or officers has a direct or indirect interest, then such transaction shall be approved by a majority of disinterested Directors, including a majority of disinterested Independent Directors.

	
  

	
(B)

	
If the Board elects to internalize any management services provided by the Advisor, neither the Company nor the Partnership shall pay any compensation or other remuneration to the Advisor or its Affiliates in connection with the internalization transaction.

  

15

  

	
8.8

	
Other Services.  Should the Board request that the Advisor or any Affiliate, or any director, officer or employee of any of the foregoing, render services for the Company other than as set forth in this Agreement, such services shall be separately compensated at such rates and in such amounts as are agreed upon by the Advisor or such Affiliate or other Person, on the one hand, and the Board, including a majority of the Independent Directors, on the other hand, subject to the limitations contained in the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this Agreement.

	
8.9

	
Changes to Fee Structure.  In the event of Listing, the Company and the Advisor shall negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity.

Article 9

Expenses

	
9.1

	
General.  In addition to the compensation paid to the Advisor pursuant to Article 8 hereof, the Company shall pay directly or reimburse the Advisor, as the case may be, 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 (including any expenses paid or incurred by third parties engaged by the Advisor to render any portion of such services) pursuant to this Agreement, including, but not limited to:

	
  

	
(A)

	
All Organization and Offering Expenses; provided, however, that:

	
  

	
(1)

	
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 (excluding underwriting and brokerage discounts and commissions) to exceed 1.5% of Gross Proceeds raised in an Offering as of the termination of such Offering; and

	
  

	
(2)

	
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 (excluding underwriting and brokerage discounts and commissions) exceeding 1.5% of Gross Proceeds raised in such Offering;

	
  

	
(B)

	
Acquisition Fees and Acquisition Expenses incurred in connection with the selection and acquisition of Investments, including such expenses incurred related to assets pursued or considered but not ultimately acquired by the Company, provided that, notwithstanding anything herein to the contrary, the payment of Acquisition Fees and Acquisition Expenses by the Company shall be subject to the limitations contained in the Articles of Incorporation;

	
  

	
(C)

	
Third-party due diligence fees of up to 0.5% of the Gross Proceeds as set forth in a detailed and itemized invoice;

  

16

  

	
  

	
(D)

	
The actual out-of-pocket cost of goods and services used by the Company and obtained from entities not Affiliated with the Advisor, including travel, meals and lodging expenses incurred by the Advisor in performing duties associated with the acquisition or origination of Investments;

	
  

	
(E)

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

	
  

	
(F)

	
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;

	
  

	
(G)

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

	
  

	
(H)

	
Expenses of managing, improving, developing, operating and selling Investments owned, directly or indirectly, by the Company, as well as expenses of other transactions relating to such Investments, including prepayments, maturities and workouts of Loans and other Permitted Investments;

	
  

	
(I)

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

	
  

	
(J)

	
All out-of-pocket expenses associated with a Listing, if applicable, or with the issuance and distribution of Shares, such as selling commissions and fees, advertising expenses, taxes, legal and accounting fees, listing and registration fees, and other Organization and Offering Expenses;

	
  

	
(K)

	
Personnel and related employment costs incurred by the Advisor or its Affiliates in performing the services described in Article 3 hereof, including 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 or Real Estate Commissions;

	
  

	
(L)

	
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;

	
  

	
(M)

	
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 or any committee of the Board;

  

17

  

	
  

	
(N)

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

	
  

	
(O)

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

	
  

	
(P)

	
Expenses of organizing, redomesticating, merging, liquidating or dissolving the Company or of amending the Articles of Incorporation or the Bylaws; and

	
  

	
(Q)

	
All other out-of-pocket costs incurred by the Advisor in performing the Advisor’s duties hereunder.

	
9.2

	
Timing of and Additional Limitations on Reimbursements.  Commencing upon the earlier to occur of (i) the fifth fiscal quarter after the Company makes its first Investment or (ii) six (6) months after the commencement of the Company’s initial Offering, expenses incurred by the Advisor on behalf of the Company or in connection with the services provided to the Company (including any expenses paid or incurred by third parties engaged by the Advisor to render any portion of such services) and reimbursable pursuant to this Article 9 shall be reimbursed, no less than monthly, to the Advisor in the manner and proportion directed by the Advisor.  The Advisor shall prepare a statement documenting the expenses of the Company during each month and shall deliver such statement to the Company within three (3) business days after the end of each month.

	
  

	
(A)

	
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 Independent Directors determine that such excess was justified, based on unusual and nonrecurring factors that the Independent Directors deem sufficient.  If the Independent Directors do not approve such excess as being so justified, the Advisor shall repay to the Company any Excess Amount paid to the Advisor during a fiscal quarter.  If the Independent Directors determine 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 Independent Directors, shall cause such fact to be disclosed to the Stockholders in writing (or the Company shall disclose such fact to the Stockholders in the next quarterly report of the Company 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 Independent Directors considered in determining that such excess expenses were justified.  The Company 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.

  

18

  

	
  

	
(B)

	
Notwithstanding this Article 9, or any other provision in this Agreement seemingly to the contrary, Advisor, its Affiliates and agents shall not be required to advance for reimbursement (i) any earnest money deposits required in connection with any Investments, (ii) any fees, deposits or other amounts due to any lender or other Person in order to secure and close any financings, (iii) any commissions, fees or other amounts due to any brokers or other Persons in connection with any Investments or to any third parties retained to help source any financings or (iv) any other out-of-pocket pursuit costs incurred to secure, assess and close each Investment, such as legal fees and consultant fees for due diligence activities including, but not limited to building condition and environmental assessments and reports.  Any such amounts shall be funded when due by the Company directly in accordance with the agreement or agreements requiring the payment of such amounts.  The Company’s obligation to fund all such amounts shall apply whether the agreements requiring the payment of such amounts are executed in the name of the Company, the Advisor or any of its Affiliates or agents.

 

Article 10

Relationship of the Advisor and the Company; Other Activities of the Advisor

 

10.1         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 or any of its Affiliates from engaging in or earning fees from other activities, including the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or any of its Affiliates; nor shall this Agreement limit or restrict the right of any manager, director, officer, member, partner, employee or equity holder of the Advisor or any of its Affiliates to engage in or earn fees from 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, and earn fees for rendering such advice and service.  Specifically, it is contemplated that the Company may enter into Joint Ventures or other similar co-investment arrangements with certain Persons, and pursuant to the agreements governing such Joint Ventures or other similar co-investment arrangements, the Advisor may be engaged to provide advice and service to such Persons, in which case the Advisor will earn fees for rendering such advice and service. 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.

10.2         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.

  

19

  

 

10.3         Investment Opportunities.  The Advisor shall be required to use commercially reasonable efforts to present a continuing and suitable investment program in Targeted Assets to the Company that is consistent with the investment policies and objectives of the Company.  So long as the Advisor acts in its capacity under this Agreement, nothing herein contained shall prevent the Advisor or any of its Affiliates from engaging in or earning fees from other activities, including the acquisition of any investment that is directly competitive with the Company’s strategy, 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, member, partner, employee or stockholder of the Advisor or any of its Affiliates to engage in or earn fees from any other business or to render services of any kind to any other Person and earn fees for rendering such services; provided, however, that the Advisor must devote sufficient resources (directly or through third parties retained for such purposes) to the Company’s business to discharge its obligations to the Company under this Agreement.  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, and earn fees for rendering such advice and service.

 

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 Company and its obligations to or its interest in any other Person.  If the Advisor, Director or Affiliates thereof have sponsored other investment programs with similar investment objectives which have investment funds available at the same time as the Company, the Advisor shall inform the Board of the method to be applied by the Advisor in allocating investment opportunities among the Company and competing investment entities and shall provide regular updates to the Board of the investment opportunities provided by the Advisor to competing programs in order for the Board (including the Independent Directors) to fulfill its duty to ensure that the Advisor and its Affiliates use their reasonable best efforts to apply such method fairly to the Company.

 

  

20

  

 

Article 11

The American Realty Capital and ARC Names

11.1           The American Realty Capital and ARC Names.  The Advisor and its Affiliates have or may have a proprietary interest in the names “American Realty Capital” and “ARC.”  The Advisor hereby grants to the Company, to the extent of any proprietary interest the Advisor may have in any of the names “American Realty Capital” and “ARC,” a non-transferable, non-assignable, non-exclusive royalty-free right and license to use the names “American Realty Capital” and “ARC” during the term of this Agreement.  The Company agrees that the Advisor and its Affiliates will have the right to approve of any use by the Company of the names “American Realty Capital” or “ARC,” such approval not to be unreasonably withheld or delayed.  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 names “American Realty Capital” and “ARC” 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 names “American Realty Capital” or “ARC” 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, service marks or other marks necessary to remove any references to any of the names “American Realty Capital” or “ARC.”  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 any of the names “American Realty Capital” or “ARC” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company.  Neither the Advisor nor any of its Affiliates makes any representation or warranty, express or implied, with respect to the names “American Realty Capital” or “ARC” licensed hereunder or the use thereof (including without limitation as to whether the use of the name “American Realty Capital” or “ARC” will be free from infringement of the intellectual property rights of third parties).  Notwithstanding the preceding, the Advisor represents and warrants that it is not aware of any pending claims or litigation or of any claims threatened in writing regarding the use or ownership of the names “American Realty Capital” or “ARC.”

 

Article 12

Term and Termination of the Agreement

	
12.1

	
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 Independent Directors) 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 a majority of the Independent Directors.

	
12.2

	
Termination by Either Party.  This Agreement may be terminated upon 60 days’ written notice without cause or penalty by either the Company (with the consent of a majority of the Independent Directors) or the Advisor.  The provisions of Articles 1, 11, 12, 14 and 15 shall survive termination of this Agreement.  Notwithstanding anything else that may be to the contrary herein, the expiration or earlier termination of this Agreement shall not relieve a party for liability for any breach occurring prior to such expiration or earlier termination.

	
12.3

	
Payments to and Duties of the Advisor Upon Termination.

	
  

	
(A)

	
Amounts Owed.  After the Termination Date, the Advisor shall be entitled to receive from the Company or the Partnership within thirty (30) days after the effective date of such termination all amounts then accrued and owing to the Advisor, including all its interest, if any, in the Company’s income, losses, distributions and capital by payment of an amount equal to the then-present fair market value of the Advisor’s interest, if any, subject to the 2%/25% Guidelines to the extent applicable.

  

21

  

 

	
  

	
(B)

	
Advisor’s Duties.  The Advisor shall promptly upon termination of this Agreement:

	
  

	
(i)

	
pay over to the Company all money collected and held for the account of the Company 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 all Investments, and documents of the Company and the Partnership then in the custody of the Advisor; and

	
  

	
(iv)

	
cooperate with the Company and the Partnership to provide an orderly management transition.

  

Article 13

Assignment

 

This Agreement may be assigned by the Advisor to an Affiliate with the consent of the Independent Directors.  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. The Advisor may assign any rights to receive fees or other payments under this Agreement to any Person without obtaining the approval of the Board.

 

Article 14

Indemnification and Limitation of Liability

14.1           Indemnification.  Except as prohibited by the restrictions provided in this Section 14.1, Section 14.2 and Section 14.3, the Company shall indemnify, defend and hold harmless the Advisor, Lincoln and their respective Affiliates, as well as their respective officers, directors, equity holders, members, partners, managers and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder or under any services agreement 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.  Any indemnification of the Advisor or Lincoln may be made only out of the net assets of the Company and not from Stockholders.

  

22

  

 

Notwithstanding the foregoing, the Company shall not indemnify the Advisor, Lincoln or their respective Affiliates, or their respective officers, directors, equity holders, members, partners, managers and employees, for any loss, liability or expense 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 material 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; or (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 SEC and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

	
14.2

	
Limitation on Indemnification.  Notwithstanding the foregoing, the Company shall not provide for indemnification of the Advisor, Lincoln or their respective Affiliates or of their respective officers, directors, equity holders, members, partners, managers and employees, for any liability or loss suffered by any of them, nor shall any of them be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met:

	
  

	
(A)

	
The Advisor or one of its Affiliates or Lincoln or one of its Affiliates, as applicable, has determined, in good faith that the course of conduct that caused the loss or liability was in the best interests of the Company.

	
  

	
(B)

	
The Advisor or one of Affiliates or Lincoln or one of its Affiliates, as applicable, was acting on behalf of or performing services for the Company.

	
  

	
(C)

	
Such liability or loss was not the result of negligence or misconduct by the Advisor or one of its Affiliates or Lincoln or one of its Affiliates, as applicable.

14.2        Limitation on Payment of Expenses.  The Company shall pay or reimburse reasonable legal expenses and other costs incurred by any of the Advisor or its Affiliates or Lincoln or its Affiliates, as applicable, or by any of their respective officers, directors, equity holders, members, partners, managers and employees, in advance of the final disposition of a proceeding.  Such expenses shall be paid with respect to the Advisor or its Affiliates or Lincoln or its Affiliates, as applicable, or any of their respective officers, directors, equity holders, members, partners, managers and employees only if (in addition to any applicable procedures required by the MGCL) all of the following are satisfied: (a) the proceeding relates to acts or omissions with respect to the performance of duties or services on behalf of the Company, (b) 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 approves such advancement and (c) such Person undertakes 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 such Person is not entitled to indemnification. 

  

23

  

 

Article 15

Miscellaneous

15.1           Notices.  Any notice, request, demand, approval, consent, waiver or other communication required or permitted to be given hereunder or to be served upon any of the parties hereto (each a “Notice”) shall be in writing and shall be (a) delivered in person, (b) sent by facsimile transmission (with the original thereof also contemporaneously given by another method specified in this Section 15.1), (c) sent by a nationally-recognized overnight courier service, or (d) sent by certified or registered mail (postage prepaid, return receipt requested), to the address of such party set forth herein.

To the Company:                American Realty Capital – Retail Centers of America, Inc.

405 Park Avenue

New York, New York 10022

Attention: William Kahane, President

Facsimile: (212) 421-5799

With a copy to:

Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

Attention:  Peter Fass, Esq.

Attention:  James Gerkis, Esq.

Facsimile:  (212) 969-2900

To the Advisor:                   American Realty Capital Retail Advisor, LLC

405 Park Avenue

New York, New York 10022

Attention: William Kahane, President

Facsimile: (212) 421-5799

With a copy to:

Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

Attention:  Peter Fass, Esq.

Attention:  James Gerkis, Esq.

Facsimile: (212) 969-2900

Any party may at any time give Notice in writing to the other parties of a change in its address for the purposes of this Section 15.1.

  

24

  

	
15.2

	
Modification.  This Agreement shall not be amended, supplemented, changed, modified, terminated or discharged, in whole or in part, except by an instrument in writing signed by the Company and the Advisor, or their respective successors or permitted assigns.

	
15.3

	
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.

	
15.4

	
Third Party Beneficiary.  The terms and provisions of this Agreement are intended solely for the benefit of each party hereto, their Affiliates and their respective successors and permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person; except with respect to the benefits conferred upon or derived by Lincoln and its Affiliates and their respective successors and assigns under Articles 9, 13 and 14. Lincoln, its Affiliates and their respective successors and assigns shall have all rights, remedies, powers and privileges provided in such Articles and shall have the right to directly seek enforcement of such rights, remedies, powers and privileges under this Agreement. Neither the failure nor any delay on the part of Lincoln, its Affiliates or their respective successors and assigns 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.  Copies of any Notice delivered in accordance with Section 15.1 of this Agreement shall be (a) delivered in person, (b) sent by facsimile transmission, (c) sent by a nationally-recognized overnight courier service, or (d) sent by certified or registered mail (postage prepaid, return receipt requested), to Lincoln at the following address:

  

Lincoln Retail REIT Services, LLC

2000 McKinney Avenue

Suite 1000

Dallas, Texas 75201

Facsimile:  (214) 740-3313

Attention:  Mr. Robert Dozier

Attention:  Mr. Gregory S. Courtwright

 

with a copy to:

Greenburg Traurig, LLP

200 Park Avenue

New York, NY 10166

Telephone: (212) 801-9330

Facsimile: (212) 805-9330

Attention:  Judith D. Fryer, Esq.

 

  

25

  

	
15.5

	
Construction.  The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of New York as at the time in effect, without regard to the principles of conflicts of laws thereof.

	
15.6

	
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.

	
15.7

	
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.

	
15.8

	
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.

	
15.9

	
Titles Not to Affect Interpretation.  The titles of Articles and 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.

	
15.10

	
Counterparts.  This Agreement may be executed with counterpart signature pages or 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 counterpart signatures pages or 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.]

  

26

  

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

	
AMERICAN REALTY CAPITAL – RETAIL

CENTERS OF AMERICA, INC.

	  	  
	
By:

	
/s/ William Kahane

	
Name: William Kahane

	
Title: President

	
AMERICAN REALTY CAPITAL RETAIL

ADVISOR, LLC

	  	  
	
By:

	
American Realty Capital Retail Special Limited Partnership, LLC, Its Member

	  	  
	
By:

	
American Realty Capital IV, LLC,

	  	
Its Managing Member

	  	  
	
By:   

	
 /s/ Nicholas S. Schorsch

	
Name: Nicholas S. Schorsch

	
Title: Authorized Signatory

 

  

27PROPERTY MANAGEMENT AGREEMENT

by and between

AMERICAN REALTY CAPITAL RETAIL ADVISOR, LLC

and

AMERICAN REALTY CAPITAL − RETAIL CENTERS OF AMERICA, INC.

  

  

  

PROPERTY MANAGEMENT AGREEMENT

 

TABLE OF CONTENTS

 

	
ARTICLE 1    Definitions

	
1

	
1.1.

	  	
Definitions

	
1

	
1.2.

	  	
Certain Defined Terms

	
1

	
ARTICLE 2    Engagement of the Property Manager

	
2

	
2.1.

	  	
Engagement

	
2

	
2.2.

	  	
Status of the Property Manager; Limitation on Authority

	
2

	
ARTICLE 3    Duties of the Property Manager

	
2

	
3.1.

	  	
Duties; Standard of Performance

	
2

	
3.2.

	  	
Specific Duties of the Property Manager

	
2

	  	
 

	

A.   Collection of Moneys; Enforcement of Rights

	
3

	  	
 

	
B.    Property Documents

	
3

	  	
 

	
C.    Maintenance

	
3

	  	
 

	
D.    Services

	
4

	  	
 

	
E.    Taxes

	
4

	  	
 

	
F.    Insurance; Reports and Claims

	
4

	  	
 

	
G.    Compliance with Laws; Matters of Record

	
5

	  	
 

	
H.    Construction

	
5

	  	
 

	
I.     Employees

	
6

	  	
 

	
J.     Notices

	
6

	  	
 

	
K.    Extraordinary Services

	
6

	  	
 

	
L.     Lease Obligations

	
6

	  	
 

	
M.   Third-Party Property Managers

	
6

	  	
 

	
N.    Inspections

	
7

	 	
 

	
O.    Accounting Services

	7
	
3.3.

	
Contracts

	
7

	
3.4.

	
Use of Property

	
7

	
3.5.

	
Cash Management.

	
7

	  	
 

	
A.    Clearing Account

	
7

	  	
 

	
B.     Order of Priority of Funds in Clearing Account

	
7

	  	
 

	
C.     Operating Account

	
8

	
3.6.

	
Indemnification

	
9

	
3.7.

	
Complaints and Notices

	
10

	
3.8.

	
Tenant Insurance Certificates

	
10

	
3.9.

	
Licenses and Authorizations.

	
10

	
3.10.

	
Asbestos and Similar Compliance Matters

	
11

  

i

  

	
3.11.

	  	
Special Billings

	
11

	
ARTICLE 4    Accounting, Records, Reports

	
11

	
4.1.

	  	
Records

	
11

	
4.2.

	  	
Reports and Supporting Documentation

	
11

	
4.3.

	  	
Budgets

	
12

	
4.4.

	  	
Audit

	
13

	
ARTICLE 5    Expenses and Compensation

	
13

	
5.1.

	  	
Payment of Expenses

	
13

	
5.2.

	  	
Expenditure Authorization.

	
14

	  	
 

	

A. Utilities

	
14

	  	
 

	

B.  Expenses per Budget

	
15

	  	
 

	

C.  Emergencies

	
15

	
5.3.

	  	
Compensation for Management Services.

	
16

	  	
 

	

A.  Management Fee

	
16

	  	
 

	

B.  Transition Fee

	
16

	  	
 

	

C.  Construction Fee

	
16

	
ARTICLE 6    Term

	
17

	
6.1.

	  	
Term

	
17

	
6.2.

	  	
Sale of Properties

	
17

	
6.3.

	  	
Termination for Cause.

	
17

	
6.4.

	  	
Effect of Termination

	
18

	
ARTICLE 7    Representations and Warranties of the Property Manager

	
18

	
7.1.

	  	
Organization

	
19

	
7.2.

	  	
Authorization

	
19

	
7.3.

	  	
Validity

	
19

	
7.4.

	  	
Licenses

	
19

	
7.5.

	  	
Independent Contractor

	
19

	
ARTICLE 8    Miscellaneous

	
19

	
8.1.

	  	
Company’s Rights

	
19

	
8.2.

	  	
Company’s Representative

	
19

	
8.3.

	  	
No Personal Liability

	
20

	
8.4.

	  	
Nature of Relationship

	
20

	
8.5.

	  	
No Third Party Beneficiaries

	
20

	
8.6.

	  	
Notices

	
20

	
8.7.

	  	
Amendments

	
21

	
8.8.

	  	
Exhibits

	
21

  

ii

  

	
8.9.

	  	
Laws

	
21

	
8.10.

	  	
No Implied Waivers

	
22

	
8.11.

	  	
Severability

	
22

	
8.12.

	  	
Governing Law

	
22

	
8.13.

	  	
Benefit and Assignment

	
22

	
8.14.

	  	
Headings

	
22

	
8.15.

	  	
Counterparts

	
22

	
8.16.

	  	
Entire Agreement

	
22

	  	  	  	  
	SCHEDULE A           Transition Fee	  

 

  

iii

  

PROPERTY MANAGEMENT AGREEMENT

 

THIS PROPERTY MANAGEMENT AGREEMENT is made as of March 17, 2011 (the “Property Management Agreement”) by and between AMERICAN REALTY CAPITAL − RETAIL CENTERS OF AMERICA, INC., a Maryland corporation (the “Company”) and AMERICAN REALTY CAPITAL RETAIL ADVISOR, LLC, a Delaware limited liability company (the “Property Manager”).

 

WHEREAS, the Company intends to raise money from the sale of its common stock to be used, net of payment of certain offering costs and expenses, for investment in the acquisition of certain real estate and other real estate-related investments, some or all of which are to be acquired and held by the Owner (as hereinafter defined) on behalf of the Company; and

 

WHEREAS, the Company is retaining the Property Manager to manage and coordinate the day-to-day operations of the Properties acquired by the Owner, and the Property Manager desires to be so retained, all under the terms and conditions set forth in this Property Management Agreement.

 

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, do hereby agree, as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1.           Definitions.  The following defined terms used in this Property Management Agreement shall have the meaning specified below:

 

“Owner” means the Company, the operating partnership of which the Company is the general partner, and all Owner Subsidiaries that own, in whole or in part, on behalf of the Company, any Properties.

 

“Owner Subsidiary” or “Owner Subsidiaries” means an entity or entities formed by or at the direction of the Company to directly own, in whole or in part, on behalf of the Company, any Properties.

 

“Properties” means all real estate properties owned, directly or indirectly, by the Owner and all tracts as yet unspecified but to be acquired by the Owner containing income-producing improvements or on which the Owner will develop or rehabilitate income-producing improvements.

 

1.2.           Certain Defined Terms.  Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Advisory Agreement, dated as of March 17, 2011, by and between the Company and American Realty Capital Retail Advisor, LLC (the “Advisory Agreement”).

  

  

  

 

ARTICLE 2

ENGAGEMENT OF THE PROPERTY MANAGER

 

2.1.           Engagement.  The Company hereby engages and retains the Property Manager to manage, operate and maintain the Properties as property manager on behalf of the Owner, on the terms in this Property Management Agreement, and the Property Manager accepts such engagement and agrees to perform such service on such terms; it being understood, that the Property Manager may engage a third party (each a “Sub-Manager”) as the Property Manager deems necessary or desirable, without the consent of the Company, and may delegate to a Sub-Manager all or a portion of the services to be provided hereunder to such Sub-Manager.  Any fees payable to a Sub-Manager (i) shall be the responsibility of the Property Manager out of payments received from the Company and (ii) may, at the instruction of the Property Manager, be deducted from the Operating Account (as hereinafter defined) or the fees payable hereunder and paid by the Owner to such Sub-Manager, or be paid directly by the Property Manager to such Sub-Manager, in the Property Manager’s sole discretion.

 

2.2.           Status of the Property Manager; Limitation on Authority.  The Property Manager shall act under this Property Management Agreement as an independent contractor and not as the Owner’s agent or employee.  The Property Manager shall not have the right, power or authority to enter into agreements or incur liability on behalf of the Owner except as expressly set forth herein.  Any action taken by the Property Manager which is not expressly permitted by this Property Management Agreement shall not bind the Owner.

 

ARTICLE 3

DUTIES OF THE PROPERTY MANAGER

 

3.1.           Duties; Standard of Performance.  The Property Manager shall devote its commercially reasonable efforts to performing its duties hereunder to manage, operate and maintain the Properties in a diligent, careful and professional manner to maximize all potential revenues to the Owner Subsidiaries and to minimize expenses and losses to the Owner Subsidiaries.  The services of the Property Manager are to be of a scope and quality not less than those generally performed by first class, professional managers of properties similar in type and quality to the Properties and located in the same market area as the Properties.  The Property Manager will at all times act in good faith, in a commercially reasonable manner and in a fiduciary capacity with respect to the proper protection of and accounting for each Owner Subsidiary’s assets; it being understood, that, the Property Manager’s fiduciary relationship with each Owner Subsidiary is limited solely to the proper protection of and accounting for the Owner Subsidiary’s assets and the Property Manager owes no other fiduciary duties to the Owner or security holders of any Owner entity.

 

3.2.           Specific Duties of the Property Manager.  Without limiting the obligations of the Property Manager under other provisions of this Property Management Agreement, the Property Manager will have the following specific duties:

  

2

  

A.           Collection of Moneys; Enforcement of Rights.  The Property Manager will use diligent, commercially reasonable efforts to collect all rent and other payments due from tenants in the Properties and any other sums due the Owner Subsidiaries regarding the Properties.  To the extent tenant leases affecting any Property so require, the Property Manager shall timely make or verify any calculations that are required to determine the amount of rent due from tenants, including without limitation calculating percentage rent, operating expense “pass-throughs” and consumer price index adjustments and, where required, shall give timely notice thereof to tenants.

 

The Property Manager will promptly and diligently enforce the Owner Subsidiaries’ rights under any tenant leases affecting any Property, including without limitation taking the following actions where appropriate, in accordance with the procedures specified in the Property Manager’s property management handbook in effect as of the date hereof: (i) terminating tenancies, (ii) instituting and prosecuting actions, and evicting tenants, (iii) settling, compromising and releasing such actions or suits or re-instituting such tenancies, (iv) recovering rents and other sums due by legal proceedings in a court of general jurisdiction, (v) signing and serving such notices as are deemed necessary by the Property Manager, and (vi) recovering rents and other sums due by legal proceedings in a magistrates court or similar jurisdiction; in each case, the Property Manager shall promptly notify the Company of such action in writing.  If authorized by the Company, the Property Manager shall consult an attorney for the purpose of enforcing an Owner Subsidiary’s rights or taking any such actions and the Company shall have the right to designate counsel for any matter and to control all litigation affecting or arising out of the operation of any Property.  The Property Manager shall keep the Company informed of any dissatisfaction with the law firm or such services or the reasonableness of the cost thereof.

 

B.           Property Documents.  The Property Manager will pay all sums out of the applicable Operating Account from time to time due from each Owner Subsidiary and otherwise comply with the obligations of each Owner Subsidiary under any mortgages, deed of trust, leases, easements, restrictions, service contracts and other agreements now or hereafter affecting the Properties as instructed by the Company (the “Property Documents”).

 

C.           Maintenance.  Subject to the applicable Budget or any Company constraints, the Property Manager shall perform or cause to be performed under contract or agreement with contractors, subcontractors or consultants, entered into in the name and on behalf of each Owner Subsidiary, all ordinary maintenance, repairs, alterations, replacements and installations, do all decorating and landscaping, and purchase all supplies necessary for (i) the proper operation of each Property, (ii) the fulfillment of the applicable Owner Subsidiary’s obligations under any lease of space in any Property, (iii) the fulfillment of the Owner’s obligations under any mortgage encumbering any Property of which the Property Manager has actual knowledge, and (iv) compliance with all covenants, conditions and restrictions affecting any Property of which the Property Manager has actual knowledge.

 

Subject to the applicable Budget or the Company’s constraints, the Property Manager shall obtain all necessary receipts, releases, waivers, discharges and assurances necessary to keep each Property free of any mechanics’, laborers’, materials suppliers’ or vendors’ liens in connection with work, materials or supplies for which the Property Manager contracts.  All such documentation shall be in such form as reasonably specified and required by the Company.

  

3

  

 

D.           Services.  The Property Manager shall arrange for, and negotiate contracts on behalf of the Owner Subsidiaries for, gas, electricity, water, telephone, trash collection, sewer, elevator service, landscaping, janitorial service, security service and such other services as are, or will be, furnished to the Properties for terms of not greater than one year, unless otherwise approved by the Company.  All such service contracts shall be entered into by the Property Manager for the account of and in the name of the applicable Owner Subsidiary and shall be terminable on thirty (30) days’ notice or less, unless otherwise approved by the Company.  The funds necessary to pay for such services shall be paid from the applicable Operating Account.  All utilities contracts shall be in the name of the applicable Owner Subsidiary, with all notices to be addressed to the Company, with a copy to the Property Manager, at the Property Manager’s address.

 

E.           Taxes.  Promptly following receipt, the Property Manager shall send to the Company all notices concerning the Properties regarding taxes or valuations.  The Owner shall pay all such taxes unless the Owner requests the Property Manager to pay such taxes, in which case the Property Manager shall pay such taxes from the applicable Operating Account.  Upon the Company’s written request, the Property Manager in conjunction with an outside third party named by the Company, shall protest and attempt to reduce the property taxes or adjust the valuation for any Property through administrative appeal for a fee to be negotiated.

 

F.           Insurance; Reports and Claims.  The Property Manager shall, on behalf of and at each Owner Subsidiary’s expense, procure and maintain throughout the term hereof through Independent Insurance Advisors, as each Owner Subsidiary’s designated insurance representative, insurance coverages with respect to each Property, including: (i) all-risk replacement value property damage coverage insuring the full value of the Properties and the applicable Owner Subsidiary’s personal property and fixtures and rent loss coverage for at least twelve (12) months; (ii) commercial general liability and umbrella liability coverages in an amount not less than $10,000,000 combined single limit per occurrence and in the aggregate per year; and (iii) such other insurance as the Property Manager deems appropriate.  All insurance policies shall have provisions giving the Property Manager thirty (30) days’ prior notice of cancellation, non-renewal or material modification of the coverage.  All insurance policies maintained by the Owner with respect to the Properties shall be issued through insurers with an A.M.  Best rating of A or better and shall include waiver of subrogation provisions in favor of the Owner.  The Property Manager, any Sub-Manager engaged by the Property Manager in accordance with Section 2.1 of this Property Management Agreement, the Company and the Company’s Representative as defined in Section 8.2 hereof shall be named as additional insureds (with form CG 2010 85 or equivalent) on any liability insurance maintained by the Owner on each Property, and such liability insurance shall be primary to and not contribute with any liability insurance maintained by the Property Manager.

  

4

  

The Property Manager shall promptly investigate and make a full, timely, written report to the Company and Independent Insurance Advisors as to all accidents, claims for damages relating to the ownership or operation and maintenance of any Property, and any damage or destruction to any Property and the estimated cost of repair thereof.  Thereafter, unless otherwise directed by the Company, Independent Insurance Advisors will timely process all casualty insurance claims on behalf of the applicable Owner Subsidiary, obtain the necessary documentation therefor and the Property Manager will prepare any and all reports required by Independent Insurance Advisors or any insurance company in connection therewith.  All such reports shall be timely filed with the insurance company as required under the terms of the insurance policy involved.  The Property Manager is authorized to settle any and all claims against insurance companies arising out of any policies, including the execution of proofs of loss, the adjustment of losses, signing of receipts and the collection of money.  Finally, the Property Manager will fully cooperate with and assist all liability insurance carriers and their authorized agents and adjusters in defending, litigating or settling any liability claims.

 

G.           Compliance with Laws; Matters of Record.  Subject to the other provisions of this Property Management Agreement, the Property Manager will take such action as may be necessary to comply with any and all laws applicable to any Property and the Property Manager’s employees and all known ordinances, regulations and orders relative to the use, operation, repair and maintenance of the Properties and with the rules, regulations or orders of the local Board of Fire Underwriters or other similar body.  Expenses incurred in so complying and in correcting any such violation shall be included in the Budget or otherwise approved in advance by the Company.  The Property Manager agrees to perform all obligations of each Owner Subsidiary and pay all costs, expenses and other amounts (including, without limitation, any liquidated damages) which each Owner Subsidiary or the Property Manager may be required to pay in accordance with, and to comply and cause a Property to comply in all respects with all of the terms and conditions of, any reciprocal easement agreement, any ground lease, mortgage, deed of trust or other security instruments affecting such Property of which the Property Manager has actual knowledge, or any other agreement or document of record now affecting such Property or hereafter executed or filed with the Company’s written consent (each, herein referred to as a “Matter of Record,” and collectively as the “Matters of Record”) during the term of this Property Management Agreement.  Further, the Property Manager shall not cause, or fail to take commercially reasonable actions to prevent, a divestiture of title from any of the Owner Subsidiaries under any encumbrance or any other Matter of Record.  Each Owner Subsidiary shall be responsible for any expenses, costs or other amounts paid by the Property Manager in respect of compliance with this Section 3.2(G) which are not otherwise included in the applicable Budget.

 

H.           Construction.  If the Company has authorized any construction or renovation on any Property, including but not limited to construction of tenant finish-out, and the Company has requested in writing the services of the Property Manager with regard to any construction, renovation or tenant finish-out, then the Property Manager will (i) review and forward to the Company all space planning layouts, drawings, plans and specifications pertaining to such construction, together with a recommendation as to approval thereof by the Company; (ii) supervise third party contractors responsible for construction or renovation work for a fee to be negotiated; (iii) solicit or supervise the solicitation of competitive bids following the Company’s guidelines for all construction contracts in excess of $10,000; (iv) require that all construction contracts and subcontracts contain provisions adequately protecting the applicable Owner Subsidiary, in accordance with local procedures and any requirements of the Company, against mechanic’s, materialman’s or similar liens affecting such Property and requiring ten percent (10%) retainage until at least thirty (30) days after completion; (v) inspect all work in place; (vi) prepare and review all draws requested for submission to the Company and, if requested by the Company, pay all draw requests on approval by the Company; and (vii) compile all documentation related to a construction project necessary for the release of any lender reserves related to such construction project.

  

5

  

 

I.           Employees: The Property Manager has the right to be reimbursed for (i) employees that are employed at the Properties or at management field offices or corporate offices, should there be no office located on site.  These employees shall be charged to the respective Property on the basis of the percentage of time spent attending to such Property based on actual wages and fringe benefits, unless the Company and the Property Manager agree in writing to another basis; and (ii) roving maintenance personnel to the extent needed at the Properties from time to time, and these employees shall be charged to the respective Properties at a reasonable hourly rate pre-approved by the Company and only for the actual and reasonably necessary time spent on such Property by such personnel. The Company shall have no right to supervise or direct such agents or employees.

 

J.           Notices.  The Property Manager will promptly notify the Company of any of the following if in any way relating to the Properties: notice of any claim of violation of any governmental or legal requirement, any notice of any claim of liability, any summons or other legal process, any damage, any default or alleged default by landlord or tenant under any lease, and any other material information.  The Property Manager will fully cooperate with the Company in all legal and arbitration proceedings relating to any Property.

 

K.           Extraordinary Services.  For those efforts of the Property Manager requested by an Owner Subsidiary or the Company, which are not standard, recurring property management activities and not anticipated to occur at least once per year, the Property Manager shall be compensated on a basis to be agreed to in writing and in advance by such Owner Subsidiary (or the Company on its behalf) and the Property Manager.  For illustrative purposes, examples of such additional services include, but are not limited to, efforts related to estoppel certificates, subordination and non-disturbance agreements, information pertaining to sale or financing of any Property, tax matters (other than ad valorum real estate taxes), casualty or condemnation to any Property, lawsuit defense, except for intentional misdeeds of the Property Manager, and other items of a similar non-recurring nature.

 

L.           Lease Obligations.  The Property Manager shall perform all duties of the landlord under all leases insofar as such duties relate to operation, maintenance and day-to-day management of the Properties.  The Property Manager shall also provide or cause to be provided, at each Owner Subsidiary’s expense, all services normally provided to tenants of like premises, including where applicable and without limitation, gas, electricity or other utilities required to be furnished to tenants under leases, normal repairs and maintenance, and cleaning, and janitorial service.  The Property Manager shall arrange for and supervise the performance of all installations and improvements in space leased to any tenant which are either expressly required under the terms of the lease of such space or that are customarily provided to tenants.  The Property Manager shall maintain business-like relations with the tenants of the Properties.

 

M.           Third-Party Property Managers.  The Property Manager shall be responsible for overseeing the performance of any third-party property managers appointed in accordance with this Property Management Agreement.

  

6

  

 

N.           Inspections.  The Property Manager shall conduct periodic on-site property visits to some or all (as the Company or its designee deems reasonably necessary or desirable) of the Properties to inspect the physical condition of the Properties and to evaluate the performance of the third-party property managers and on-site personnel of the Property Manager.

 

O.           Accounting Services.  The Property Manager shall use the Company’s accounting application and follow the Company’s processes required in connection with the preparation of the Budget and financial reporting for each of the Properties.

 

3.3.          Contracts.  In fulfilling its duties to the Owner, the Property Manager may and hereby is authorized to enter into any leases, contracts or other agreements on behalf of the Owner in the ordinary course of the management, operation and maintenance and leasing of the Properties.

 

3.4.         Use of Property.  The Property Manager will not knowingly permit the use of any Property for any purpose which might impair any policy of insurance on such Property or which might render any loss insured thereunder uncollectible or which would be in violation of any applicable law.  The Property Manager will operate and maintain the Properties according to the highest standards achievable consistent with the Company’s authorization.  The Property Manager will use commercially reasonable efforts to secure compliance by tenants with their respective leases.

 

3.5.         Cash Management.

 

A.           Clearing Account.  The Property Manager shall cause all gross revenue in respect of each Property to be transmitted directly into an individual clearing account (each a “Clearing Account”) controlled by the applicable Owner Subsidiary, established with a financial institution to be determined by the Property Manager (the “Clearing Bank”), except to the extent the payments in respect of a Property are required by a lender to be made into a lockbox account, in which case payments will be deposited in the Clearing Account  for such Property after release from such lockbox account. Without in any way limiting the foregoing if the Property Manager receives any gross revenue from a Property, then (i) such amounts shall not be commingled with any other funds or property of the Property Manager, and (ii) the Property Manager shall deposit such amounts in the Clearing Account for such Property within one (1) business day of receipt.

 

B.           Order of Priority of Funds in Clearing Account.  On the 10th day of each month, all funds deposited into each Clearing Account shall be applied on such date in the following order of priority: (i) first, if applicable, to make the required payments of debt service, including late payment charges, if any, for such Property; and (ii) second, any remaining funds in such Clearing Account shall be swept by the Clearing Bank into the Operating Account (as hereinafter defined) for such Property and applied and disbursed in accordance with this Property Management Agreement.

  

7

  

C.           Operating Account.  All monies swept from each Clearing Account by the Clearing Bank shall be deposited in a separate depository account for each Property in the applicable Owner Subsidiary’s name (each an “Operating Account”).  Each Operating Account shall be opened by the Property Manager, upon receipt of a fully-executed Owner Subsidiary Property Management Agreement between the Property Manager and the applicable Owner Subsidiary and a W9 completed by such Owner Subsidiary, at U.S. Bank, N.A. or another bank to be determined by the Property Manager.  The signature card for each Operating Account shall indicate that the Property Manager is dealing with the Operating Account as a fiduciary of the applicable Owner Subsidiary.  Each Operating Account and all funds therein shall at all times be the property of the applicable Owner Subsidiary.  Each Owner Subsidiary shall have electronic banking system access to its Operating Account, which shall permit it to obtain account information and make withdrawals from such Operating Account.

 

Notwithstanding anything to the contrary contained herein, the Company may direct payments or deposits received by the Property Manager to an operating account relating to any Property to be controlled by the Owner Subsidiary and direct payments to be made into the Operating Account.  In such event, the Property Manager shall provide the Owner Subsidiary with all information necessary to make payments of expenses with respect to such Property.

 

The Property Manager shall remit to each Owner Subsidiary monthly, on or before the 20th day of each month, excess cash as of the end of the preceding month, held in the Operating Account and not applied to the payment of (i) the applicable Owner Subsidiary’s expenses as herein provided, (ii) expenses permitted by Section 5.1 hereof, and (iii) amounts payable to the Property Manager in accordance with Section 5.3 hereof, less applicable reserves for real estate taxes, debt service, capital improvements or operating expenses and Ten Thousand Dollars ($10,000) as reserve for working capital and other contingencies, and any additional amount as the Company may authorize for such purposes.  The remittance of funds to an Owner Subsidiary shall be compatible with the financial reports provided by the Property Manager pursuant to Section 4.2.

 

If an Owner Subsidiary should make any request for a distribution other than the standard monthly distribution to such Owner Subsidiary on or before the 20th day of each month as noted immediately above, such request by the Owner Subsidiary must be directed to the Property Manager in writing with a minimum of two (2) full working days’ advance notice.  Except to the extent it would cause there to be insufficient funds to pay amounts due to the Property Manager under Section 5.1 and Section 5.3 hereof, every attempt will be made to process the additional distribution request through the Property Manager’s accounting department in a timely manner, but the Property Manager will not process any distribution based on a telephone call or be expected to accomplish such distribution with less than two (2) full working days’ advance written notice.

 

Other than the monthly distribution noted above, if required by state law, the Property Manager will deposit security deposits and/or advance rentals in separate accounts in the name of the applicable Owner Subsidiary at said financial institution.  All monies held in Operating Accounts shall in no event be commingled with the Property Manager’s own funds or with funds held by the Property Manager for the account of other parties.  The Property Manager shall have no proprietary interest in the Operating Accounts, or in any other account authorized hereby, and all sums collected by the Property Manager relating to each of the Properties and all sums placed in such account or accounts by the applicable Owner Subsidiary or the Company will be the property of such Owner Subsidiary and held in trust by the Property Manager for such Owner Subsidiary.  The Property Manager agrees to pay all invoices directly from the Operating Account unless directed otherwise by the applicable Owner Subsidiary or the Company.  The Property Manager may draw on each Operating Account only to pay (i) operating expenses permitted by Section 5.1 hereof, (ii) amounts payable to the applicable Owner Subsidiary, (iii) amounts payable to the Property Manager under Section 5.3 hereof, and (iv) a specified amount to a payee which the applicable Owner Subsidiary may from time to time expressly authorize in writing.

  

8

  

 

Each of the Management Fee, the Transition Fee and the Construction Fee shall be paid to the Property Manager in accordance with Section 5.3 hereof.  In accordance with and pursuant to Section 4.2 hereof, the Property Manager shall prepare and submit an invoice to the Company which shall include a computation of the fees paid to the Property Manager in accordance with Section 5.3 and any expenses to be reimbursed to the Property Manager in accordance with Sections 5.1 and 5.2.  The Company shall have the right to review such invoice and obtain any supporting documentation with respect thereto from the Property Manager.  To the extent that the Company believes the computation provided by the Property Manager is inconsistent with the computation permitted hereunder, the Company and the Property Manager shall work together in good faith to reach a computation of such fees which is reasonably agreeable to both parties.  If the Company and the Property Manager agree that one or more of the fees paid to the Property Manager for a prior period exceeded the amount permitted hereunder, the Property Manager shall deduct the amount of such excess from the fees it is to be paid in accordance with Section 5.3 hereof for the current calendar month.

 

3.6.         Indemnification.  The Owner shall indemnify, defend and hold the Property Manager and any Sub-Manager directly or indirectly engaged by the Property Manager in accordance with Section 2.1 of this Property Management Agreement harmless from and against all claims, damages and costs (including counsel fees) arising out of or in connection with the management of the Properties and the operation thereof, except for acts of the Property Manager or a Sub-Manager, as applicable, taken outside of the scope of this Property Management Agreement or an agreement with the Sub-Manager, as applicable, and the Property Manager’s, or a Sub-Manager’s, as applicable, engagement in acts of negligence, misconduct or fraud.  Notwithstanding anything to the contrary stated herein, the Property Manager shall be held strictly accountable for all receipts and disbursements; and the Property Manager shall indemnify and hold the Owner harmless from and against all claims, damages and costs (including counsel fees) arising out of or in connection with the management of the Properties and the operation thereof to the extent such claims arise out of or result from acts of the Property Manager taken outside of the scope of this Property Management Agreement or the Property Manager’s engagement in acts of negligence, misconduct or fraud.  The Property Manager shall indemnify the Company and its Affiliates from any claims, damages and costs (including counsel fees) arising out of or in connection with the acts of the Property Manager taken in connection with the management of the Properties and the operation thereof or the Property Manager’s engagement in acts of negligence, misconduct or fraud.  The indemnities herein contained shall not apply to any claim with respect to which and to the extent the indemnified party is covered by insurance; provided, that the foregoing exclusion does not invalidate the indemnified party’s insurance coverage.  Each party will procure a waiver of subrogation with respect to claims against the other party under policies in which the other party is not a named insured, and shall promptly notice the other party in the event that any such waiver is unobtainable or is obtainable only upon payment of an additional premium.  If such waiver is obtainable only upon payment of an additional premium, the other party shall have the right at its option to pay such additional premium.

  

9

  

 

3.7.         Complaints and Notices.  The Property Manager shall promptly handle complaints and requests from tenants, concessionaires and licensees.  The Property Manager shall notify the Company promptly of: (A) any notice received by the Property Manager or known to the Property Manager of violation of any governmental requirements (and make recommendations regarding compliance therewith); (B) any notice received by the Property Manager or known to the Property Manager of violation of covenants, conditions and restrictions affecting any Property or noncompliance with loan documents affecting any Property, if any; (C) any fire, accident or other casualty or damage to any Property; (D) any condemnation proceedings, rezoning or other governmental order, lawsuit or threat thereof involving any Property known to the Property Manager; (E) any violations relative to the leasing, use, repair and maintenance of any Property under governmental laws, rules, regulations, ordinances or like provisions known to the Property Manager; or (F) any violation of any insurance requirement of which the Property Manager has actual knowledge.  The Property Manager shall promptly deliver to the Company copies of any documentation in its possession relating to such matters.  The Property Manager shall keep the Company reasonably informed of the status of the particular matter through the final resolution thereof.  In the event the Property Manager becomes aware of any fire or other damage to any Property or violation or alleged violation of laws respecting hazardous materials, the Property Manager shall immediately give telephonic notice thereof to the Company.  The Property Manager shall complete all necessary and customary loss reports in connection with any fire or other damage to any Property.  The Property Manager shall retain in the records it maintains for each Property copies of all supporting documentation with reference to such notices.

 

3.8.         Tenant Insurance Certificates.  The Property Manager shall use its commercially reasonable efforts to obtain from all tenants certificates of insurance and renewals thereof required to be furnished by the terms of their leases.  The Property Manager shall forward copies of the certificates to the Company if requested by the Company.  The Property Manager shall establish systems and procedures to enforce lease requirements with regard to insurance certificates.

 

3.9.         Licenses and Authorizations.

 

A.           The Property Manager shall obtain and keep in full force and effect all licenses, permits, consents and authorizations as may be necessary for the maintenance, operation, management, repair, servicing or occupancy of each Property.  All of such licenses, permits, consents and authorizations shall be in the name of the applicable Owner Subsidiary, if required in writing by the Company.

 

B.           The Property Manager hall obtain and keep in full force and effect all real estate and business licenses and governmental authorizations, at the applicable Owner Subsidiary’s expense, (including qualifications to do business) as may be necessary for the proper performance by the Property Manager of its duties and obligations under this Property Management Agreement.  All such licenses and authorizations shall be in the name of the Property Manager.

  

10

  

 

3.10.       Asbestos and Similar Compliance Matters.  If any Property is subject to the Occupational Safety and Health Administration’s regulations relating to asbestos, or to any state law or regulation relating to asbestos, or to any state law or regulation relating to carcinogenic or toxic chemicals, the Property Manager shall, at the applicable Owner Subsidiary’s expense, comply with such laws and regulations as they relate to such Property.

 

3.11.       Special Billings.  For purposes of this Property Management Agreement, the term “Special Billing” is defined as any periodic billing requirement or change in a billing rate charged to a tenant under such tenant’s lease as a result of a Property’s operating expenses, a tenant’s volume of business, or a CPI or other index, including, but not limited to, such items as commonly are described as expense pass-throughs, recoveries, escalations, CAM or CPI adjustments, and percentage sales or rent.  Within ninety (90) days after the date each Property is acquired and becomes subject to this Property Management Agreement, the Property Manager shall deliver a statement to the Company describing all of the information, data and documents which the Property Manager has used to establish a basis for calculation of Special Billings for each tenant at the Properties.  During the term of this Property Management Agreement, the Property Manager shall be responsible for sending Special Billings to each tenant in accordance with the terms of such tenant’s lease.

 

ARTICLE 4

ACCOUNTING, RECORDS, REPORTS

 

4.1.         Records.  The Property Manager shall establish and maintain a comprehensive system of office records, books and accounts, as well as an accounting and management reporting system that will duly account for all transactions relating to the Properties in a format consistent with the Company’s accounting system.  The Company and others designated by the Company shall, with prior notice to the Property Manager, have access to such records, books and accounts and to all vouchers, files and all other material pertaining to the Properties and this Property Management Agreement, all of which the Property Manager agrees to keep safe, available and separate from any records not having to do with the Properties.  All of such books, records and other information concerning such Property shall be the property of the applicable Owner Subsidiary; and within sixty (60) days following termination of this Property Management Agreement, the Property Manager shall deliver the original copies to the Company or its designate.  The Property Manager or its representatives shall have the right to inspect such books, records and other information and to make copies thereof during a two-year period following the termination of this Property Management Agreement unless the Company requests and receives all such books and records upon termination of this Property Management Agreement.

 

4.2.         Reports and Supporting Documentation.  The Property Manager shall, during the term of this Property Management Agreement, deliver monthly reports to the Company relating to the management and operation of the Properties for the preceding calendar month, not later than thirty (30) days after the end of the preceding month.  Reports will be delivered to the Company in an electronic format consistent with the Company’s accounting system for each Property.  The Property Manager shall deliver to the Company the following for the preceding month, for each Property and with respect to clause (1), (2) and (8), shall also provide the information with respect to the Properties in the aggregate:

  

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(1)

	
a profit and loss statement;

 

	
  

	
(2)

	
a balance sheet;

 

	
  

	
(3)

	
a general ledger;

 

	
  

	
(4)

	
a cash receipts and disbursement journal;

 

	
  

	
(5)

	
all bank statements and bank reconciliations;

 

	
  

	
(6)

	
an aged schedule of delinquent accounts receivable;

 

	
  

	
(7)

	
the current rent roll;

 

	
  

	
(8)

	
a calculation of the fees paid in accordance with Section 5.3 hereof; and

 

	
  

	
(9)

	
a construction report, if applicable.

 

4.3.         Budgets.  The Property Manager shall prepare and submit to the Company a proposed operating and capital budget, including an itemized statement of the estimated receipts and disbursements in reasonable detail, which shall include, without limitation, reasonable detail as to employee expenses to be reimbursed to the Property Manager for the operation, repair and maintenance of each of the Properties (each a “Budget”), in each case for the calendar year immediately following such submission.  Each Budget will be in the form approved by the Company prior to the date thereof.  Thereafter, on or before the date specified each year by the Company (but not later than November 1st), the Property Manager shall prepare and submit to the Company preliminary Budgets for the next calendar year followed by final Budgets for the next calendar year, incorporating any reasonable changes requested by the Company.  Such Budgets shall: (A) be prepared in accordance with the Company’s accounting system, (B) be prepared on a cash or modified cash basis, as directed by the Company, and (C) show a month by month projection of income, expenses, capital expenditures, reserves, and other non-recurring items.  In connection with any acquisition of a Property by the Owner, the Property Manager will prepare a Budget for such Property for the remainder of the calendar year.

 

The Company will approve or disapprove each Budget within a reasonable time after the receipt of same, but not later than thirty (30) days after the submission thereof to the Company.  The Property Manager will make any reasonable changes to each Budget that are requested by the Company.  At such time as the Company shall request, which in no event shall exceed three (3) requests per calendar year, the Property Manager shall submit to the Company for its approval an updated Budget incorporating such changes as shall be necessary to reflect cost over-runs and the like or other changes occurring subsequent to the prior Budget during such period.  If the Company does not disapprove of such revised Budget within 30 days after receipt thereof by the Company, such Budget shall be deemed approved.  If the Company shall disapprove of any such Budget, the Property Manager shall submit a revised Budget, as applicable, within ten (10) days of receipt of notice of disapproval, and the Company shall have ten (10) days to provide notice to the Property Manager if it disapproves of any such further revised Budget.

  

12

  

 

The Property Manager shall implement each Budget and use its commercially reasonable efforts to ensure that the actual cost of operating each Property shall not exceed the applicable Budget.  The Budgets shall constitute an authorization for the Property Manager to expend necessary monies to manage and operate the Properties in accordance with the respective Budgets and subject to the provisions of this Property Management Agreement until subsequent Budgets are approved.  The approval of non-recurring costs and capital improvements in a Budget shall constitute an authorization for the Property Manager to collect bids for the expenditure and present a final recommendation to the Company for expenditure of monies to implement such items called for in such Budget.

 

The Property Manager shall provide supporting information reasonably requested by the Company in connection with their review of any Budget submitted by the Property Manager for its review.

 

Without affecting any other limitation imposed by this Property Management Agreement and except as may be expressly provided to the contrary elsewhere in this Property Management Agreement, the Property Manager shall secure the prior written approval of the Company prior to incurring any liability or obligation for any item in excess of $10,000 that is not reflected on the applicable Budget approved in writing by the Company.

 

4.4.           Audit.  At its option, the Company may at any time upon five (5) business days’ advance written notice to the Property Manager, cause the books and financial operations of any Property to be audited by an auditor to be selected by the Company including the internal auditing staff of the Company or any of its Affiliates.  The Property Manager agrees to cooperate with such auditor and to make any of its facilities located at such Property or the Property Manager’s office available to such auditor.  Any adjustments in amounts due and owing by either the Company or the Property Manager shall be paid promptly but no later than fifteen (15) days following receipt of the audit.  The audit shall be at the Owner’s expense.

 

ARTICLE 5

EXPENSES AND COMPENSATION

 

5.1.           Payment of Expenses.  Notwithstanding any contrary provision of this Property Management Agreement, the Property Manager shall be obligated to make payments required under this Property Management Agreement only to the extent of funds derived from the Properties or provided by the Owner.  The Property Manager shall reimburse itself from funds derived from the Properties for all expenses properly incurred by the Property Manager under this Property Management Agreement which are either set forth in the applicable Budget or approved by the Company, except to the extent the Property Manager is permitted to incur such expense without the Company’s approval in accordance with this Property Management Agreement.  All expenses related specifically to the operation and maintenance of the Properties will be billed to the respective Properties.  These expenses shall include, but not be limited to:

  

13

  

 

(1)           documented postage (mailing of rental statements, late notices; legal correspondence; general correspondence to tenants, vendors, etc.);

 

(2)           mileage incurred by the Property Manager, director of property management or other personnel of the Property Manager for travel to/from a Property and all other mileage specifically related to the operation of the Properties; specific backup will be provided.  Mileage to be charged at the then-current rate pursuant to Internal Revenue Service (IRS) guidelines;

 

(3)           documented copies (for mass tenant mailings, copying required upon sale or other legal matters and extensive tenant or lease issues);

 

(4)           a proportionate share of after-hours emergency phone service which is charged to the common area maintenance and billed to tenants in accordance with each tenant’s specific lease language;

 

(5)           preparation, printing and distribution of leasing brochures and site plans for the Properties;

 

(6)           a proportionate share of office equipment and supplies located at the on-site or management field office should one be established and used for the benefit of the Properties; and

 

(7)           compensation and benefits of property management, accounting, lease administration, executive and supervisory personnel of the Property Manager.

 

Expenses which will be paid by the Property Manager and not billed to the Properties or the Owner shall include, but may not be limited to:

(1)           office furniture, phone systems and monthly bills, fixtures, space rental, etc. incurred by the Property Manager in its corporate offices and/or general management offices; and

 

(2)           compensation and all expenses applicable to time spent on matters other than the Properties.

 

The Company may, at its sole discretion, expressly approve in writing the payment or reimbursement to the Property Manager of any specific expense otherwise excluded or excepted above; and, unless expressly stated to the contrary in such written approval, such approval shall apply only to the specific expense itemized and/or up to the amount specified in such approval.

 

5.2.          Expenditure Authorization.

 

A.           Utilities.  The Property Manager shall pay from the applicable Operating Account the actual amount incurred for utilities each month for each Property without the Company’s further consent or signature on such check or withdrawal, notwithstanding that a lesser amount therefor may have been projected or allocated in the Budget for such Property approved by the Company.

  

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B.           Expenses per Budget.  With respect to each Property, to the extent set forth in the most recent Budget for such Property approved by the Company, and if requested by the Company, the Property Manager will make all payments for debt service on mortgages secured by such Property, for taxes and/or for the applicable Owner Subsidiary’s insurance.  In addition, with respect to each Property, to the extent set forth in the most recent Budget for such Property approved by the Company and without further consent of the Company, the Property Manager shall pay each and every expense properly incurred in the ordinary course of managing the Properties during the calendar year covered by the Budget; provided, that, if such expenses exceed the Budget for such Property approved by the Company by more than ten percent (10%) during the calendar year covered by the Budget (each, an “Overrun”), the Company may elect to terminate this Property Management Agreement solely with respect to such Property, it being understood, that, such termination shall constitute the Company’s sole remedy with respect to such Overrun and such Overrun shall not be deemed a breach of this Property Management Agreement, but such termination shall not prevent liability for any other breach by the Property Manager under this Property Management Agreement; and provided further, that, the Company shall not be permitted to so terminate this Property Management Agreement if such Budget excess (i) was due to amounts incurred for insurance, taxes and/or utilities, and/or (ii) was caused by or resulted from the following acts: (a) acts of God; (b) flood, fire or explosion; (c) acts of terror, war, invasion, riot or other civil unrest; (d) government order or law that becomes effective after the approval of the Budget and was not known to the Property Manager prior to the approval of the Budget; (e) actions, embargoes or blockades in effect after the approval of the Budget; (f) action by any governmental authority that occurs after the approval of the Budget and was not known to the Property Manager prior to the approval of the Budget; and (g) national or regional emergency (each of (a) through (g), a “Force Majeure Event”).  If the Property Manager suffers a Force Majeure Event, it shall give notice to the Company, stating the anticipated period of time the event is expected to continue and shall use commercially reasonable efforts to ensure the effects of such Force Majeure Event are minimized.

 

C.           Emergencies.  Notwithstanding the foregoing, if emergency action is necessary to prevent damage to any Property or danger to persons, the Property Manager may incur such expenses as are reasonably necessary without the prior written approval of the Company to protect such Property or persons.  The Property Manager will give prompt telephone and written notice to the Company of any such emergency repairs for which prior approval is not required.

  

15

  

5.3.          Compensation for Management Services.

 

A.           Management Fee.  On or before the last business day of each month, the Property Manager shall pay itself from the respective Operating Accounts as compensation for its management services hereunder in an amount (the “Management Fee”) equal to four percent (4%) of the “Gross Rental Receipts” for such month (as hereinafter defined), other than in respect of stand-alone, single-tenant net leased properties which are not part of a shopping center, and two percent (2%) of “Gross Rental Receipts” for such month in respect of any stand-alone, single-tenant net leased properties that are not part of a shopping center.  For the avoidance of doubt, a separately platted, single-tenant, net leased building that is part of a shopping center shall be a Property subject to the four percent (4%) of the “Gross Rental Receipts” calculation.  The term “Gross Rental Receipts” as used herein is defined as all receipts of every kind and nature actually collected from the operation of the Property, determined on a cash basis, including without limitation, all fixed rents (including parking rents not excluded below), common area maintenance reimbursements, tax and insurance reimbursements, percentage rental payments, utility reimbursements, late fees, vending machine collections, service charges, rental interruption insurance, and a fifteen percent (15%) administrative charge for common area expenses (if such an allowable expense is collected from tenants pursuant to tenant leases), and all other forms of miscellaneous income actually collected in cash by the Owner Subsidiaries or by the Property Manager from tenants of the Properties, net forfeited security deposits, but excluding (i) any income from investment of cash including the interest on the Operating Account, (ii) security deposits, and any portion of forfeited security deposits allocable to compensation for loss or damage, (iii) payments for physical installations or finish-out work, (iv) payments in the nature of indemnification or compensation for loss, damage or liability sustained, including but not limited to insurance proceeds and condemnation awards, (v) all purchase discounts, rental and ad valorem tax refunds or rebates, (vi) any repair or other such expense reimbursement from individual tenants, (vii) any sums which, under normal accounting practice, are attributable to capital, (viii) executive suite expenses, if any, (e.g. personnel, equipment, etc.) paid by tenants and (ix) such other additional income the Company and the Property Manager mutually agree to eliminate.

 

B.           Transition Fee.   For duties performed by the Property Manager in reviewing and abstracting an Owner Subsidiary’s leases and contracts, preparing ledgers, creating a database of such Owner Subsidiary’s tenants and vendors, establishing Property bank account(s), and similar necessary, preliminary functions, the Property Manager shall pay itself from the applicable Operating Account a one-time fee (the “Transition Fee”) in the amount shown on Schedule A attached hereto and incorporated herein by this reference.  The Transition Fee shall be paid within thirty (30) days after execution of an Investment Property Management Agreement with respect to a particular Property by all parties thereto or within thirty (30) days after receipt of all leases and other documents necessary to perform a full set up of any Property, whichever is later.  The Transition Fee shall be based on the number of tenants with active leases in such Property, including those tenants whose lease term and/or rental have not yet commenced, but who have executed leases with the applicable Owner Subsidiary, as of the Commencement Date of the applicable Investment Property Management Agreement.

 

C.           Construction Fee.  For duties performed by the Property Manager pursuant to Section 3.2(H) hereof, the Property Manager shall pay itself from the applicable Operating Account a fee (“Construction Fee”) equal to six percent (6%) of the construction hard costs.  In no event shall the Construction Fee be less than Five Hundred and No/100 Dollars ($500).  Actual costs shall not include fees paid by the Owner for architectural or engineering services or construction permits.  No fee shall be paid for actual costs of tenant improvements for services for which the tenant is responsible for payment.  The Construction Fee shall be paid within ten (10) days after completion of tenant’s improvements for each individual tenant or completion of capital or Property improvement projects.

  

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ARTICLE 6

TERM

 

6.1.         Term.  The initial term of this Property Management Agreement shall commence on the date hereof (the “Commencement Date”), shall continue in full force and effect for one (1) year, and shall be automatically renewed for an unlimited number of successive one (1) year periods, subject to earlier termination as hereinafter provided.  The term of this Property Management Agreement may be extended for such additional periods of time as the parties agree to in writing.

 

6.2.         Sale of Properties.  This Property Management Agreement shall automatically terminate, in respect of a Property, upon the consummation of any sale or other disposition of such Property by the applicable Owner Subsidiary to any entity not affiliated with the Owner.

 

6.3.         Termination for Cause.

 

(A)         The Company may terminate this Property Management Agreement at any time, effective immediately upon written notice to the Property Manager, if (i) the Property Manager has materially breached this Property Management Agreement; provided, that (a) the Property Manager does not cure any such material breach within thirty (30) days of receiving notice of such material breach from the Company, or (b) if such material breach is not of a nature that can be remedied within such period, the Property Manager does not diligently take all reasonable steps to cure such breach or does not cure such breach within sixty (60) days; (ii) there is fraud, criminal conduct, or willful misconduct by the Property Manager; (iii) a court of competent jurisdiction enters a decree or order for relief in respect of the Property Manager in any involuntary case under the applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Property Manager or for any substantial part of any of its property or orders the winding up or liquidation of the Property Manager’s affairs; or (iv) the Property Manager commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, or consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Property Manager or for any substantial part of any of its property, or makes any general assignment for the benefit of creditors, or fails generally to pay its debts as they become due.  The Property Manager agrees that if any of the events specified in subsections (iii) or (iv) above occur, it shall give written notice thereof to the Company within seven (7) days after the occurrence of such event.

  

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(B)           The Property Manager may terminate this Property Management Agreement at any time, effective immediately upon written notice to the Company, if (i) the Company has materially breached this Property Management Agreement; provided, that (a) the Company does not cure any such material breach within thirty (30) days of receiving notice of such material breach from the Property Manager, or (b) if such material breach is not of a nature that can be remedied within such period, the Company does not diligently take all reasonable steps to cure such breach or does not cure such breach within sixty (60) days; (ii) there is fraud, criminal conduct, or willful misconduct by the Company; (iii) a court of competent jurisdiction enters a decree or order for relief in respect of the Company in any involuntary case under the applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of any of its property or orders the winding up or liquidation of the Company’s affairs; or (iv) the Company commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, or consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of any of its property, or makes any general assignment for the benefit of creditors, or fails generally to pay its debts as they become due.  The Company agrees that if any of the events specified in subsections (iii) or (iv) above occur, it shall give written notice thereof to the Property Manager within seven (7) days after the occurrence of such event.

 

(C)           For the avoidance of doubt, a material breach of the Leasing Agreement by and between the Company and the Property Manager, dated as of the date hereof, shall be a material breach of this Property Management Agreement.

 

6.4.          Effect of Termination.  The termination of this Property Management Agreement for any reason shall not affect any right, obligation or liability which has accrued under this Property Management Agreement on or before the effective date of such termination.  Each agreement between the Property Manager and a Sub-Manager with respect to any of the Property Manager’s duties under this Property Management Agreement shall terminate immediately upon the termination of this Property Management Agreement.  Upon termination of this Property Management Agreement for any reason, the Property Manager will cooperate with the Company in an effort to achieve an efficient transition of the management of the Properties without detriment to the rights of the Company or the Owner or to the continued management of the Properties.  Without limiting the foregoing, the Property Manager will, before receiving final payment of any fees, facilitate the retrieval of or deliver to the Company or to such person or persons as the Company may direct, all Property Documents, permits, books, records and accounts, rent rolls, insurance policies, files and other materials relating to the Properties, including without limitation any bank account signature cards or other documentation required to transfer sole control over the Operating Accounts to the applicable Owner Subsidiary or its designate.  The Property Manager shall facilitate the retrieval by the Company or the Company’s Representative of all personal property of the Company or Owner, whether on the Properties or elsewhere.  Within forty-five (45) days after the termination of this Property Management Agreement, the Property Manager will deliver a final accounting to the Company reflecting all income and expenses of the Properties as of the date of termination.

 

ARTICLE 7

REPRESENTATIONS AND WARRANTIES

OF THE PROPERTY MANAGER

 

To induce the Company to enter into this Property Management Agreement, the Property Manager makes the following representations and warranties, which shall survive the execution and termination of this Property Management Agreement:

  

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7.1.          Organization.  The Property Manager is duly organized, validly existing and in good standing under the laws of the state of Delaware.  The Property Manager has all power and authority required to execute, deliver and perform this Property Management Agreement.

 

7.2.          Authorization.  The execution, delivery and performance of this Property Management Agreement has been duly authorized by all necessary action on the part of the Property Manager.

 

7.3.         Validity.  This Property Management Agreement constitutes a legal, valid and binding agreement of the Property Manager enforceable against the Property Manager in accordance with its terms except as limited by bankruptcy, insolvency, receivership and similar laws of general application.

 

7.4.         Licenses.  During the entire term of this Property Management Agreement, the Property Manager shall cause all persons performing licensable activities to have and to maintain in full force and effect all licenses, including, without limitation, any real estate broker’s license obtained by the Property Manager, which the real estate licensing law requires and all permits necessary to perform its obligations under this Property Management Agreement and shall pay all taxes, fees or charges imposed on the business engaged in by the Property Manager hereunder.

 

7.5.         Independent Contractor.  The Property Manager’s status under this Property Management Agreement is that of an independent contractor and not as an agent or employee of the Owner.

 

ARTICLE 8

MISCELLANEOUS

 

8.1.         Company’s Rights.  Nothing in this Property Management Agreement shall be deemed to limit the Company’s right to do anything regarding any Property which an owner of such Property would otherwise be entitled to do, including but not limited to the right to enter upon such Property, to inspect such Property, to perform any repair or maintenance thereof, and to do anything required of the Property Manager hereunder if the Property Manager fails to do so in a timely manner.

 

8.2.         Company’s Representative.  The Company may designate one (1) representative to serve as the Company’s representative in all dealings with the Property Manager hereunder (the “Company’s Representative”).  Whenever the approval or consent or other action of the Company is called for hereunder, such approval, consent or action shall be processed through the Company’s Representative unless the Company notifies the Property Manager otherwise in writing.  The Company’s Representative may be changed at the discretion of the Company, at any time, by writing delivered to the Property Manager.  Except as may be expressly provided to the contrary elsewhere in this Property Management Agreement, whenever the approval or consent or other action of the Company is called for under this Property Management Agreement, if the Property Manager requests such approval, consent or other action of the Company’s Representative and does not receive a response from the Company’s Representative within five (5) business days after making such request, the Property Manager shall make a second request for approval or consent or other action of the Company’s Representative specifying that unless a response is received within two (2) days after making such request, the request shall be deemed approved by the Company.

  

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8.3.           No Personal Liability.  THE PROPERTY MANAGER’S DIRECTORS, SHAREHOLDERS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES SHALL NOT BE PERSONALLY LIABLE FOR ANYTHING RELATED TO THIS PROPERTY MANAGEMENT AGREEMENT.  THE COMPANY, ITS DIRECTORS, SHAREHOLDERS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES, SHALL NOT BE PERSONALLY LIABLE FOR ANYTHING RELATED TO THIS PROPERTY MANAGEMENT AGREEMENT.

 

8.4.           Nature of Relationship.  The Property Manager shall be responsible for all of its employees, the supervision of all persons performing services regarding the Properties, and for determining the manner of performance of all services for which the Property Manager is responsible hereunder.  The Property Manager is an independent contractor and not an agent or employee of the Company or the Owner.  Nothing in this Property Management Agreement, nor any acts of the parties hereto, shall be deemed or construed by the parties hereto, or either of them, or any third party, to create the relationship of principal and agent, employer and employee, or a partnership or joint venture, between or among the Owner, the Company and the Property Manager.

 

8.5.           No Third Party Beneficiaries.  Neither this Property Management Agreement nor any part thereof nor any service, relationship or other matter alluded to herein shall inure to the benefit of any third party, to any trustee in bankruptcy, to any assignee for the benefit of creditors, to any receiver by reason of insolvency, to any other fiduciary or officer representing a bankruptcy or insolvent estate of either party, or to the creditors or claimants of such an estate.  Without limiting the generality of the foregoing sentence, it is specifically understood and agreed that insolvency or bankruptcy of either an Owner Subsidiary or the Company, on the one hand or the Property Manager on the other hand, shall at the option of the other void all rights of such insolvent or bankrupt party hereunder (or so many of such rights as the other party shall elect to void).

 

8.6.           Notices.  Except as provided in Section 5.2(c) as to emergencies, all notices and communications required or permitted hereunder shall be in writing and shall be personally delivered or sent by registered or certified mail, return receipt requested, addressed as follows:

 

	
If mailed or personally

	  
	
delivered to an Owner

	  
	
and/or the Company:

	
American Realty Capital − Retail Centers of

	  	
America, Inc.

	  	
405 Park Avenue

	  	
New York, New York 10022

	  	
Telephone: (212) 415-6500

	  	
Facsimile:  (212) 421-5799

	  	
Attention:  Mr. William Kahane, President

	  	
 Mr. Jesse Galloway, Esq.

  

20

  

 

	
With a copy mailed to:

	
Proskauer Rose LLP

	  	
Eleven Times Square

	  	
New York, NY  10036

	  	
Attention: Mr. Peter M. Fass, Esq.

	  	
Mr. Steven Fishman, Esq.

	 	 
	
If mailed or personally

	  
	
delivered to the Property Manager:

	
American Realty Capital Retail Advisor, LLC

	  	
405 Park Avenue

	  	
New York, New York 10022

	  	
Telephone: (212) 415-6500

	  	
Facsimile:  (212) 421-5799

	  	
Attention:  Mr. William Kahane

	  	
 Mr. Jesse Galloway, Esq.

	  	  
	
With a copy mailed to:

	
Proskauer Rose LLP

	  	
Eleven Times Square

	  	
New York, NY  10036

	  	
Attention: Mr. Peter M. Fass, Esq.

	  	
Mr. Steven Fishman, Esq.

	  	  
	
With a copy mailed to:

	
Lincoln Retail REIT Services, LLC

	  	
2000 McKinney Avenue, Suite 1000

	  	
Dallas, Texas 75201

	  	
Attention: Mr. Robert Dozier

	  	
Mr. Gregory Courtwright

 

or to such address as either party may from time to time specify by written notice to the other.  Notices shall be deemed to be received and, therefore, effective on the earlier of the date of delivery or, the third (3rd) day after the date the notice is mailed.

 

8.7.         Amendments.  This Property Management Agreement may not be amended except by further agreement in writing executed by each party to be bound thereby.

 

8.8.         Exhibits.  All exhibits or addenda to this Property Management Agreement are intended to be attached to this Property Management Agreement and, whether or not so attached, are incorporated herein by reference as if set forth in full.

 

8.9.         Laws.  The term “laws” as used in this Property Management Agreement means all applicable constitutional provisions, statutes, ordinances, codes and rules and regulations of any governmental body having jurisdiction over any Property, the parties or this Property Management Agreement.

  

21

  

8.10.        No Implied Waivers.  No failure or delay by either party in exercising any right or remedy under this Property Management Agreement and no course of dealing between the parties shall operate as a waiver of any such right or remedy nor shall any single or partial exercise of any right or remedy by either party under this Property Management Agreement preclude any other or further exercise of such right or remedy.  The rights and remedies available to the parties are cumulative and not exclusive of any other rights and remedies provided by law or equity.

 

8.11.        Severability.  Whenever possible each provision of this Property Management Agreement shall be interpreted in such manner as to be effective and valid under all applicable laws.  However, if any provision of this Property Management Agreement is invalid under any applicable law, such provision shall be ineffective only to the extent of such invalidity without invalidating the remaining provisions of this Property Management Agreement and, to the fullest extent possible, this instrument shall be interpreted so as to give effect to the stated written intent of the parties.

 

8.12.        Governing Law.  This Property Management Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of law thereof.

 

8.13.        Benefit and Assignment.  This Property Management Agreement shall be binding upon the Company and the Property Manager and their respective successors and assigns and shall inure to the benefit of the Company, its successors and assigns.  Except as provided in Section 2.1 of this Property Management Agreement, the Property Manager may not assign or transfer any of its rights or obligations under this Property Management Agreement to a third party without the prior written consent of the Owner and the approval of a majority of independent directors of the Company and any such assignment without the prior written consent of the Owner and the approval of a majority of independent directors of the Company shall be void and of no effect.

 

8.14.        Headings.  The captions and headings in this Property Management Agreement are for convenience only and do not limit or amplify any provision of this Property Management Agreement.

 

8.15.        Counterparts.  This Property Management Agreement may be executed in any number of counterparts and each shall be considered an original and together they shall constitute one Agreement.

 

8.16.        Entire Agreement.  This Property Management Agreement sets forth the entire Agreement and understanding between the parties regarding the subject matter of this Property Management Agreement and supersedes all prior agreements and understandings.

 

Signature page follows on next page.

  

22

  

IN WITNESS WHEREOF, the parties have executed this Property Management Agreement as of the date first above written.

 

	
AMERICAN REALTY CAPITAL RETAIL

ADVISOR, LLC

	  	  
	
By:

	
American Realty Capital Retail Special Limited Partnership, LLC

	  	
Its Member

	  	  
	
By:

	
American Realty Capital IV, LLC

	  	
Its Managing Member

	  	  
	
By:

	
/s/ Nicholas S. Schorsch

	  	
Name:  Nicholas S. Schorsch

	  	
Title:  Authorized Signatory

	  	  
	
AMERICAN REALTY CAPITAL − RETAIL CENTERS OF AMERICA, INC.

	  	  
	
By

	
/s/ William M. Kahane

	  	
Name: William M. Kahane

	  	
Title:President

  

  

  

SCHEDULE A

Transition Fee

 

Pursuant to Paragraph 5.3B

 

	
Number of

Tenants

	 	
0-9

	 	 	
10-17

	 	 	
18-24

	 	 	
25 or more

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
Fee

	 	$	1,000	 	 	$	1,500	 	 	$	2,000	 	 	$	2,500

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}]]